Summary

Summary | SANEM Book Launch Event of “Is the Bangladesh Paradox Sustainable?”

21 April 2024 | BRAC Centre Inn, Dhaka

South Asian Network on Economic Modeling (SANEM) hosted a remarkable event On Sunday, April 21, 2024, at the BRAC Centre Inn Auditorium in Mohakhali, Dhaka. The occasion marked the successful book launch of “Is the Bangladesh Paradox Sustainable?” edited by Selim Raihan, François Bourguignon, and Umar Salam, and published by the esteemed Cambridge University Press. The event was graced by the presence of Dr. Mashiur Rahman, the Economic Affairs Advisor to the Honourable Prime Minister of the Government of the People’s Republic of Bangladesh, who served as the Chief Guest. Joining him as esteemed Guests of Honour were Professor Rehman Sobhan, Chairman of the Centre for Policy Dialogue (CPD), and Dr S R Osmani, Professor of Development Economics at the University of Ulster, United Kingdom.

In his welcome remarks, Dr Selim Raihan explained that this book is the outcome of almost two and a half years of research on Bangladesh’s development process. He stated that there may not be a paradox per se, as the development process in Bangladesh can be explained. Bangladesh’s growth occurred despite poor formal institutional quality, unlike many Sub-Saharan countries. Chapter One presents the institutional diagnostic framework for Bangladesh, surveying stakeholders and global indicators. Subsequent chapters discuss institutional challenges in primary education, export diversification, the banking sector, and land administration. A synthesis chapter develops a diagnostic tool to understand these challenges more holistically. “Bangladesh has established pockets of informal institutions and a political settlement process that facilitates growth drivers. However, there’s no consensus on the validity of these growth drivers for the future,” stated Dr Raihan as the main reason behind the paradox, which may not be sustainable for the future. “The tax GDP ratio in Bangladesh is very low, resulting in a low revenue-generating budget with approximately only a percentage of the proposed budget being implemented,” remarks Dr Raihan. Bangladesh faces a stable corruption equilibrium, the book reveals, where forces and counter-forces of corruption maintain equilibrium, sustaining a status quo. “There is a strong anti-reform coalition in the system that prevents breaking this cycle of corruption,” remarks Dr Raihan.

Principle Economist of Oxford Policy Management Dr. Umar Salam, who is also a co-editor of the book emphasized, “This book stemmed from a seven-year research program led by Dr. Francoise. We analyzed growth diagnostics for Tanzania, Benin, Mozambique, and Bangladesh. Each country has their challenges.” He highlighted the diverse challenges faced by each country, stating, “You cannot take a one-size-fits-all approach here. The institutional framework was developed to be sensitive to the local context.” Dr Salam stressed the importance of integrating various factors, stating, “You cannot hope to answer this economic question purely simply with economic methods. You need to integrate historical, social, and political changes that the book has applied.” He underscored the significance of the event, noting, “This event is important on its own right because of the presence of the audience and any reaction and questions that this book may inspire.”

One of the contrubutors of the book, Dr Mirza M Hasan, Senior Research Fellow at the BRAC Institute of Governance and Development (BIGD) remarked that there’s not much hidden about what’s happening in the banking sector worldwide. He pointed out, “State capture has been ongoing for some time, with the private sector influencing regulatory policies.” According to him, state capture goes beyond cronyism; it represents the collective will of capital. He questions whether the dominance of capital logic in the banking sector is trending towards liberal capitalism akin to the U.S. or towards a political capitalism similar to China, given the political cronyism. Hasan reflects on Bangladesh’s trajectory, noting the challenges posed by dynastic politics against capitalist takeover. He observed, “We are seeing a very fast-tracked consolidation of the dominant party state in Bangladesh.”

Dr Sayema Haque Bidisha, Professor of Economics at the University of Dhaka and Research Director of SANEM contributed to the chapter on private sector banking in the book. She stated, “We are talking about institutional quality; most of the discourse is about the macro perspective, but this book covers both macro and micro perspectives.” She highlighted banking inefficiencies and judiciary inefficiencies, noting that inequality is often underreported in official statistics. Dr Bidisha observed that Bangladesh’s performance in terms of access and financial inclusion is surprisingly good. She identified the lack of autonomy of the central bank as a significant issue, suggesting that a strong, independent central bank could resolve many issues. Dr Bidisha also pointed out weak corporate governance as a concern. Regarding bank mergers, she believes that it provides a cushion for the existing problems and also stressed the importance of internal reform. She concluded, “Pro-reform-centric idea is there, but we have to think about how we can accommodate and safeguard the interest of the people with these reforms.”

In the open discussion session, Chairman and Chief Executive of Policy Research Institute of Bangladesh (PRI) Dr Zaidi Sattar shared his insights, “Expectations about Bangladesh were limited 50 years ago. Having studied numerous developing countries in Africa and America, Bangladesh’s unexpected performance stands out. “There wasn’t any expectation for Bangladesh to graduate from LDC status or become the second largest exporter of readymade garments,” he added. Sattar refrains from labeling it a paradox, crediting the hard work of Bangladeshi laborers. He reflected on how the population, initially considered a problem, is now viewed as a resource. “Remittance is nothing but the export of service factors,” Sattar explained. “Bangladesh’s thriving garment sector owes much to its abundant labor supply,” He added. “The decision of duty-free import in the RMG sector helped it flourish,” he concluded.

Professor of Economics at the University of Dhaka Dr MM Akash stated, “The book concludes that sustaining the paradox relies on improving institutional sectors.” He emphasized the insufficiency of simply granting autonomy to the banking sector, noting, “Negative forces often overshadow positive ones, making reform difficult.” Dr. Akash underscored the importance of identifying the true beneficiaries of institutional shortcomings, stating, “Understanding power dynamics within the state is key.” Moreover, he highlighted the significance of geopolitical considerations in balancing internal and external dynamics, noting, “While Bangladesh has support from Russia and India, there’s resistance from Eastern societies.” He concluded by acknowledging the challenges in addressing institutional quality dictated by money and manipulation, emphasizing, “Addressing root causes and effecting change requires a deeper understanding of the dynamics at play.”

Joining the discussion, Dr. Manzur Hossain, Research Director of Bangladesh Institute of Development Studies (BIDS) emphasized, “If there is a paradox, there should be a certain timeframe when the paradox may disappear. If Bangladesh could achieve the middle-income status, the paradox may not sustain after that.” He continued, “Political regime, considering the neo-classical scenarios, have very much influence on the institutional scenarios. Export diversification, trade liberalization should be focused too.” Reflecting on historical examples, he remarked, “South Korean and Malaysian legends weren’t very much fond of rule of law. They were focused largely on export. If you have anti-export bias no matter what you do you can’t progress much far.”

Professor Siddikur Rahman Osamani pointed out a crucial aspect of the methodology, stating, “The project is focused on identifying dysfunctional institutions. But what about the functional ones? Why don’t we discuss the institutions that are actually working well? It’s even more paradoxical than the Bangladesh paradox itself. We must address both functional and dysfunctional institutions simultaneously.” He raised the question, “Why don’t many institutions work?” suggesting it could be due to a lack of competent civil servants. Osamani emphasized the importance of recognizing the hierarchy of principals, stating, “Unless you fix the top, you can’t fix the bottom.”

Dr Rehman Sobhan highlighted, “In a broader analytical framework, there are other countries that can be included. When considering growth, we not only observe the Bangladesh paradox but also the Vietnam and China paradox. Despite having very poor institutions, they have managed to outperform Bangladesh economically.” He pointed out, “We need fundamental breakdowns of institutions that are not rule-based. They do not operate according to the laws as written. We need rule-based institutional frameworks, not person-based institutions. Many people do not believe that there are any rules in Bangladesh. Central to institutional failure is the departure from a rule-based system. Once you enter into that situation, people refuse to believe in any institutions.” Dr Sobhan emphasized, “If we want to truly understand why FDI is lower in Bangladesh compared to Pakistan, despite our higher growth, we should investigate the absence of credible institutions.”

In remarks as the Chief Guest, Dr Mashiur Rahman emphasized the critical link between tax legitimacy and effective collection. “Taxation policies should also come under scrutiny,” he said. He advocated for a more precise application of supplementary duties and value addition, as well as for acknowledging excise duty before pursuing revenue increments. He also raised concerns about turnover tax, suggesting its primary function is to safeguard business individuals rather than generate revenue. Additionally, he pointed out that informal financial transactions hinder savings and lack economic utility. In the RMG sector, Dr Rahman noted the paradoxical nature of its evolution. “Automation has led to decreased employment opportunities, particularly impacting women, and subcontracting, which was once successful, has encountered challenges.” Moving to the banking sector, Dr Rahman discussed the complexities of loan repayment failures. He highlighted the distinction in how these failures are perceived, with provisions becoming necessary after repeated defaults, leading to increased toxic assets and reduced lending funds. Moreover, he observed that entrepreneurs frequently alter enterprise sizes, perpetuating a continuous demand for loans. ‘How we build our bureaucracy should be reevaluated,’ he said, highlighting the need for a more fair and efficient recruitment process to eradicate corruption.

In his closing remarks, Dr Selim Raihan thanked everyone for their participation in the event.