There is a lot to learn from Bangladesh’s economic success

A full-scale air war with Pakistan began on December 2, 1971. I clearly remember catching the night train in Kolkata to return to college during the curfew as per the orders to turn off all the lights in the compartment.

This is the highest point in the career of Indian Prime Minister Indira Gandhi. She opened India’s doors to refugees and intervened militarily to support Bangladesh, refusing to succumb to US pressure, including sending a seventh navy into the Bay of Bengal. Khan’s army surrendered to Indo – Bangladesh Allied forces on December 16, 1971. Bangladesh had already declared independence on March 26, but it was effectively born that day in December.

At the time of independence, Bangladesh was one of the poorest countries in South Asia — poorer than India and much poorer than Pakistan. Henry Kissinger, then US National Security Adviser, described it as a “basket case” that, for many years, was a vast archipelago of poverty and deprivation. The country was in the midst of a drought in 1974 when the Nixon administration abruptly cut off food aid to Bangladesh on the pretext of making some money by exporting jute bags to Cuba.

Today, as Bangladesh celebrates half a century of independence, the country has become a case study in economic development. When Pakistan surpassed its gross domestic product (GDP) growth rate in 2006, it was overturned by many. But every year since then Bangladesh has overtaken Pakistan, and surprisingly now is one of the fastest growing economies in the world.

Bangladesh’s GDP per capita is now close to India and significantly exceeds that of Pakistan. India (70) and Pakistan (68) have an average life expectancy of 74 years. The country is leading among exporters of readymade garments and other sectors are also on the rise. For example, Bangladesh’s industrial pharmaceutical industry is booming. With 300 companies (most of which are conducting research) the country now meets 97% of domestic demand and has started exporting worldwide.

True, Bangladesh still has a lot of poverty and hardship, growing inequality and an uncertain future trajectory. Climate change and rising sea levels continue to pose significant risks, and political instability is yet to re-emerge and undermine economic progress. However, Bangladesh’s great economic transition — which the World Bank now classifies as a low-middle-income economy — deserves praise and can provide important lessons for today’s low-income countries.

Bangladesh’s growth is a story of both intentional intervention and opportunity. The country owes much to progressive NGOs, especially Fazal Hassan Abed’s BRAC and Muhammad Yunus’ Grameen Bank. Grameen Bank’s pre-decision that microfinance credits would go to a senior female member of the household played a bigger role than anyone expected. I have argued elsewhere that it has given more voice to women in the home, which has helped divert child spending towards child welfare. This is a major reason for Bangladesh to make strong progress on development indicators such as life expectancy and literacy and in combating malnutrition.

Bangladesh is one of the largest microfinance sectors in the world, allowing households to get out of the debt trap and start their own small businesses. Using the Computable General Equilibrium model, Selim Raihan, SR Usmani and MA Khalili showed that microfinance did more than just help the households that received the money. By raising economic and monetary policies, it has increased the country’s GDP by 9-12%.

But Bangladesh’s success has a lot to do with luck. The Indian subcontinent has complex labor laws, especially the Industrial Disputes Act, which preceded the independence of India and Pakistan in 1947 and prevented the emergence of large manufacturing companies. Pakistan repealed the law in 1958, but for the wrong reasons allowed large corporations to regulate workers. Moreover, it did so in a ham-hand manner, thereby contributing to labor exploitation and allied capitalism.

Bangladesh, once part of Pakistan, was born without the baggage of law. But, unlike Pakistan, the company has developed its own labor regulations that are flexible without giving unlimited power to corporations. It has played an important role in making Bangladesh a successful global manufacturing hub.

Finally, a key political factor underlies Bangladesh’s economic success. Despite frequent criticism of Prime Minister Sheikh Hasina, she has made an important effort to move the country upwards. Although Bangladesh’s constitution guarantees freedom of religion, it has been challenged by fundamentalist groups that abandon what prominent Bangladeshi commentator Abul Barkat has described as “the liberal and humanitarian source of Islam in East Bengal”. Kept these destructive forces at bay.

Many countries have succumbed to religious fundamentalism with deadly consequences for their economies. Bangladesh is notable for enduring this danger. Proof of this success is its light, vibrant economy, which now has a 50-year track record. © 2021 / Project Syndicate

Kaushik Basu is a former Chief Financial Adviser to the Government of India and Professor of Economics at Cornell University

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