- Yashovardhan Singh
From Rags To Stitches: The Meteoric Rise Of Bangladesh
March 26, 1971, a new sovereign state emerged from erstwhile East Pakistan after years of struggle, resistance, and turmoil. It came to be known as Bangladesh, because of the aspirations of its people, to live and prosper in a “Land of the Bangla People ''. Critics like Henry Kissinger, the then Secretary of the State of USA, mockingly called it a ‘basketcase’, convinced that like any other country with an illiterate population and high levels of poverty (with India being an exception) democracy and economic growth would not survive for long in Bangladesh. Soon enough, they were proven right when in August 1975, Bangladesh faced its first coup and the golden dream of democracy and prosperity were blown to smithereens. Since then, political instability had become a major part of Bangladesh's history, and so had people’s miseries. However, with the onset of stable governance, something else changed in Bangladesh.
From being mocked as a “basketcase of miseries'' to being lauded as a “Miracle on Meghna”, the 50 years post-independence, Bangladesh has proved to be an example of non-pareil development and hence, it becomes crucial to understand the political economy of its development and the lessons it gives to the rest of the world.
THREE PILLARS OF BANGLADESHI MODEL OF DEVELOPMENT
The Bangladeshi model rests on three important pillars: exports, social progress and fiscal prudence. While the rest of the world exports were growing at an average rate of 0.4%, Bangladesh registered an average growth of 8.9% in exports between 2011 and 2019. One of the main reasons behind this exceptional growth in exports is Bangladesh’s comparative advantage in RMG (Ready Made Garments), which is globally recognised. The country, in its initial years, realised this comparative advantage and made extreme efforts to capitalise on it, such as letting low wages prevail to attract firms by not passing strict labour laws and signing strategic treaties such as SAARC Preferential Trading Agreement, Asia-Pacific Trading Agreement, etc. which offer Bangladeshi exports preferential treatment. An added advantage is its LDC (Least Developing Country) status that provides it access to raw materials from the international market at almost no cost. Moreover, the Bangladeshi manufacturers have improved their capacities phenomenally with better technology and adopting the most sophisticated management methods to cater to the international brands as it ensures better transparency in their global supply chains. These proactive measures transformed Bangladesh from a ‘wasteland’ to the second-largest garment manufacturer in the world, right after China.
The second pillar of development- social progress, is a paradoxical aspect of Bangladesh’s economic growth. Despite a significant section of the population working as labourers in the garment sector with minimal wages (An Oxfam report suggests that for every garment manufactured in Bangladesh and sold in Australia, only 2% of its price goes to the workers), Bangladesh has shown remarkable social progress. The share of Bangladeshi women in the workforce has continued to increase whereas in India and Pakistan, it has decreased. Between 1990 and 2019, Bangladesh’s HDI increased from 0.394 to 0.692, a growth of 60%, which has not been witnessed in any other country with demography and history like Bangladesh. From a comparison perspective, UNDP reports usually compare Bangladesh’s growth with Nepal and Pakistan in South Asia, and it is startling to know that Bangladesh’s HDI value is better than both Pakistan and Nepal. It is rapidly rising up the ranks from a position of 136 in 2017 to 133 in 2019 in the HDI report published by UNDP. This kind of exponential growth is unheard of, especially for a country like Bangladesh, whose majority of the population lives on a daily wage, struggling to make two ends meet.
The third pillar of fiscal prudence plays an equally important role in analysing Bangladesh’s rise. It has been acclaimed in the developing world for its sagacious macroeconomic management for the past 30 years. Because of its strategy, Bangladesh has been able to maintain both internal (fiscal deficit) and external (BOP deficit) stability. Since the 1990s, it has maintained a fiscal deficit of not more than 5% of GDP, again a rare feat for a developing country as they usually focus on reckless capital expenditure to initiate development and thereby not maintaining a manageable fiscal deficit. Even after the inclusion of Covid-19 stimulus packages, Bangladesh’s fiscal deficit remains at 6%. This suggests that Bangladesh follows a serious fiscal policy of avoiding profligate spending, yet increasing the capital stock of the country, which is one of the prime reasons for its rapid economic growth. For a country like Bangladesh, which has a history of natural calamities and other negative exogenous shocks to its economy, striking such a balance must not only be difficult but is also highly praiseworthy. Similarly, Bangladesh’s debt to GDP ratio from 1991 to 2019 declined continuously from 45% in 1991 to 35% in 2019. Public Finance literature suggests that maintaining such low levels of fiscal deficit and reducing the debt to GDP ratio at the same time means that the deficit maintained by Bangladesh was not only sustainable, they were better than the deficits of other developing countries, as they were well below 5% and also led to a decline in public debt. Since its GDP is growing continuously, even the 6% fiscal deficit caused due to the pandemic remains within the sustainable bracket for Bangladesh without harming the macroeconomic stability. Macroeconomic data of Bangladesh is evidence that it has opted an unconventional path for a developing country by practising fiscal discipline over profligate spending and this decision by its leaders have resulted in great economic returns to the country.
NGOs IN BANGLADESH: FROM RELIEF TO DEVELOPMENT
In the case of any welfare state, the State takes up the sole responsibility of ensuring the welfare of its people. For this purpose, it has a monopoly on providing public goods to its citizens. While this notion of a Welfare State is true for every other country, yet again, the Bangladesh model defies the norms. The NGOs in Bangladesh play the central role in this defiance from the mainstream conception of a welfare state and can be seen as the potential response to the previously mentioned 'paradox of social progress'.
In Bangladesh, the state has voluntarily withdrawn from the area of public welfare. Since its independence, several civil society organisations filled the vacuum created by the state’s withdrawal. NGOs like Bangladesh Rural Advancement Committee (BRAC) have become an indispensable part of healthcare and schooling structures. They have also led the governments in immunisation drives, and other public health emergencies. When the immunisation drive against polio in the 1980s took place, the government gave a majority role to the NGOs. At the start of the decade, the immunisation rate was 2% and by the end of it, it reached 80%- all because of the active role played by NGOs.
Another startling aspect of their increasing role in public welfare is that it has not threatened political leadership. Bangladesh’s history shows that the government becomes increasingly hostile when it sees other organisations filling the government’s shoes. However, in this case, the government is not only complacent by the virtual control of public welfare by these NGOs, but it is also providing means to further foster their role in these areas. It allowed organisations like BRAC to run more than 64,000 schools, educating girls and providing employment opportunities to women as teachers, though it violated the orthodox social norms and even made the clergy upset. Hence, the government has actively supported NGOs to increase welfare, and this has happened not only by the means of ‘non-interference’ in their work but also by creating a legal system that was conducive to their growth.
Initially, the legal rules for the NGOs were highly relaxed which created the impetus for them to take the centre stage in enacting such social impact plans. After a few years, laws were passed which made the NGOs accountable for their foreign funding, accompanied by full disclosure of the amount. However, these laws were extremely flexible, to the extent that the World Bank categorised them as ‘obsolete. Several economists argue that the main reason for the growth of these NGOs despite such laws was because they were not so rigid in the first place.
The Grameen Bank, which originated in 1983 by Prof. Mohammad Yunus, has become a model of microfinancing worth emulating as well as the epitome of what the NGOs in Bangladesh can achieve. Though it continues to be a bank, in many ways it operates as an NGO and is even counted as one in Bangladesh. Starting with 46,955 members in 1983, it reached a membership of 6 million within 10 years of its inception with a revenue of 50.5 Million USD in 2006. Out of this revenue, 82% came from interest on its loans and 94% of these loans were credited to women. This is an example of the kind of role NGOs have played in Bangladesh and the social impact their work has created on Bangladeshi citizens.
FUTURE OF BANGLADESH: BRIGHT, BUT NOT A BED OF ROSES
While Bangladesh has proven to be more than just a small country in South Asia, the road ahead is uncertain. It is currently facing an impending ecological crisis, and though the government is aware of it, no tangible changes have been made in that direction. Much of Bangladesh is just 10 metres above sea level with 10% of the population just a metre above. This makes this population extremely susceptible to high tides. The human cost of this environmental change in Bangladesh is huge. The maximum impact is being borne by the urban poor who live in slums and squatter settlements due to the fragility of infrastructure and lack of social security and formal employment. These urban poor also make the majority of Bangladesh’s garment manufacturing labour force and thus, there is an implied negative impact on its future economic growth. The impact of such floods is borne more by women as a case study of 1991 shows. When there were floods in Bangladesh, the death of women was five times that of men, primarily because men were able to communicate with each other and the information never reached the household and the women were not allowed to leave the house in the absence of a male. Therefore, the ecological crisis in Bangladesh will impact it in the worst way possible, unless there is a formal action to tackle the situation by the government.
Another problem facing the Bangladeshi people is the education system. While there are a large number of schools spread across Bangladesh and the student attendance is also high (because of the active role of the NGOs), the quality of education is disturbing. While the literacy rates are high, the students graduating from schools and colleges are not efficient enough to enter into the skilled workforce and increase the capital stock of the country. Therefore, these students return to doing menial and low skilled jobs. This suggests that Bangladesh is in dire need of a robust and efficient education system and vocational training courses. Every year in the garment sector, where Bangladesh has a comparative advantage, it costs about $2-3 Billion due to reliance on foreign technicians. The betterment of the education system will not only enhance social capital, but will also cover these losses faced by the Bangladeshi economy.
The politics of Bangladesh remains another pressing issue. While the NGOs have been giving enough space to thrive, it is only because the political leadership does not perceive them as a threat. If and when these NGO leaders, who enjoy massive support among the population, try to enter into politics, the current equilibrium will be disturbed. This would mean that the state would take over its monopoly on providing public goods and the entire social welfare system (currently entirely dependent on the NGOs) would collapse. And even if it were to sustain, the State would have to impose high levels of taxation to support the structure, and that would hurt the labour supply thereby severely impacting the labour-intensive economy of Bangladesh.
Finally, the biggest harm to the Bangladeshi economy is going to be because of the way it is currently organised. It does not incur any significant cost of purchasing raw materials due to its LDC status. However, if this economic growth continues, this status would soon be taken away along with the privileges that come with it. Likewise, Bangladesh is a major garment manufacturing hub because of its extremely cheap labour but increasing awareness of labour malpractices and stricter conventions of labour standards by organisations like ILO will mean that in the future, the labour will become more expensive than it is today. Therefore, to continue capitalising on its comparative advantage, Bangladesh needs to undergo radical organisational changes in the way its economy is oriented to ensure that it keeps up with these impending challenges.
Bangladesh was carved out of both India and Pakistan on religious grounds and has been a witness to condescending attitudes by both countries for decades, but now, it has risen to become a glowing model of development which offers both lessons and inspirations worth implementing.
Whether Bangladesh continues this golden run or not will depend majorly on its political leadership, but what this twice-dismembered country has achieved, offers major lessons to the countries from which it was born.
Click here to read the Probe July edition 2021