Responding to the challenges of inequality

1. The Situation

1.1. We recognize the glorious transformation of Bangladesh from a basket case in 1971, one of the least developed countries of the world, described as a test case of development to the level of a developing country of the world, A so called surprise example in terms of high growth and a few key indicators of human development (e.g. quantitative expansion of education facility for the children, low infant mortality rate, relatively high average life expectation, decreasing incidence of poverty and quick recovery in the pandemic period.)

1.2. But we observe that there have occurred very large negative deviations from our liberation war ideals enshrined in the original 1972 constitution of the country.

1.3. In brief those shortfalls may be portrayed as—

1. We have become a more unequal and a more divided nation economically, communally and politically.

2. We are now pretty far away from the four National Liberation war ideals: Secularism, Democracy, Nationalism and Socialism in the sense of social justice.

3. The distribution of our macro achievements mentioned at the beginning among the different classes of our country has become more unequal. We are now a more unequal society in terms of income, wealth and social power and security.

4. Access to quality education, quality health services, cheap and adequate finance, employment opportunities and democratic fundamental rights as described in detail in the constitution not only remains largely unrealized for the majority citizens situated in the lower end of the society, but they also face various structural constraints and discriminations against upward mobility.

2. The Unequal Power Structure

2.1. The liberation war of Bangladesh was mainly directed against two kinds of inequalities—regional inequality and class inequality. These inequalities arose through the twin process of resource transfer from Eastern zone of Pakistan to the Western zone and monopoly exploitation of a small elite group (Epitomized by the ultra-rich 22 monopoly houses of the then Pakistan). That memory still haunts us.

2.2. Almost a similar pyramidal power structure is fast growing in Bangladesh. The system is known as ―Crony Capitalism where cronies flock together and use the state monopoly power to serve each other—cronies generally constitute a ruling class based on a triangular coalition. A few handpicked powerful members of the business class, bureaucrats and politicians create a network and through their recruited clients exercise a monopoly power in all the areas of ongoing development processes.

2.3. The structural dynamics of such a nexus of economic, political and state power perpetuates inequity and inequality in all the fields of development.

2.4. Inequity and inequality generated on the basis of an existing unequal power structure perpetuates the existing inequality and reproduces it in an extended manner. This creates the so called ‘inequality trap’ for both developing and middle-income countries.

The current development process in Bangladesh enables in general a more or less absolute development of all classes but with very unequal speed and therefore relative inequality continues to rise which is now generally recognized to be unsustainable in the long run. The prediction of Simon Kuznets about self-remission of income inequality through high growth has not been generally realized.

3. Major Challenges Before Bangladesh

3.1. So, the major challenge facing today’s Bangladesh is to create a more inclusive society by implementing the currently accepted goal ten of SDG—which was perhaps most succinctly summarized in the following epigram ―Reducing inequality within the country and among the countries‖.

3.2. Today economists agree that Economic growth and inequality reduction has no systematic relation between them. But same amount of growth can reduce poverty more quickly if the growth is more equal. Thus, only in a few exceptional cases where a well- orchestrated strategy of making the growth more inclusive could simultaneously attain higher growth and lower inequality.

3.3. The history also shows that the post revolution countries had also been able to achieve the twin goal in the early phase of their development by instituting fundamental structural changes in the ownership of means of production accompanied with innovative local institutional reforms [ For the examples of such a desirable and feasible set of policies pl see Rehman Sobhan, ― Correcting Structural Injustice: The Odyssey of a Bangladeshi Economist”, Collected Works, Vol-1, pp-3-16]

Will Bangladesh be able to learn the appropriate lessons of history and then construct and implement such a viable strategy of its own — that is the main challenge confronting today’s
Bangladesh?

How to build a more Inclusive Society in Bangladesh?

4.1. In the development literature we generally find three broad strategies for ensuring more inclusive economic growth and human development.

a) Central emphasis is on economic growth and the private agents of that growth. Distribution is left in the hands of the invisible market processes. Following Kuznets, it is believed that market in the long run will take care of everything, both absolute poverty and relative poverty or inequality. This is called Neoliberal development strategy of development.

b) The second strategy is not a purely neoliberal strategy. To enhance the economic growth and increasing the rate of poverty reduction as much as possible, there are added some additional planned and targeted channelization of investment and consumption towards the so called relatively efficient growth agents and the extremely disadvantaged regions and segments of the population. This is a mixed economy strategy where the outcome depends on the ratio of policies and efforts between targeted development and non-targeted spontaneous market driven development. The efficacy of such a strategy largely varies depending upon the nature and composition of the ruling class which determines the choice of the targets as well as the discriminatory power to implement the targets.

c) The more innovative national strategy assumes a political power structure that has a firm commitment to reduce inequality and ready to start an equitable process of development through empowering the disadvantaged as far as possible i.e. by maintaining sustainability during the transition process. Here the danger is not of ‘inequality trap’ but of ‘too much redistribution’ which may cause negative growth or political instability.

4.2. For Bangladesh a strategy for “Pro Poor Inclusive growth and Equity” has been presented in the section two of the ongoing eighth five year plan (July 2020-June 2025, pp-33-41)) mainly based on the “b” i.e. mixed uncertain  approach. In summary the main points put forward there, are —

a) The inequality concern or focus should be on the estimated share of income of the top 10 percent vis-à-vis bottom 40 percent i.e. Palma Ratio. It was also pointed out that the Palma Ratio of Bangladesh has alarmingly increased in a secular manner from 1.68 (1991-92) to 2.93 (2016) and that trend has to be reversed.

b) The plan document mentions six best practice examples‖ for simultaneously reducing inequality, inequity and ensuring high economic growth—a) Early childhood development and nutrition interventions, b) Universal health coverage, c) Universal access to quality education, d)Cash transfers to poor families, e) Rural infrastructure especially roads and electrifications and f) Progressive Taxation. One may note the conspicuous absence of any asset redistribution programme there!

4.3. But the major issue is –Whether these policies will be effectively realized or remain a pious wish expressed in the plan document. Even the writers of the eighth plan were not sure about that. I just quote from p41 of the plan document,

“The formulation of policies and strategies for pro poor inclusive growth during the 8FYP may draw on the good practice experiences of countries that have reconciled high GDP growth rate with lower income inequality. Global research evidence has identified six policy areas that appear to be effective in reducing inequality” (GED, BPC, Government of the People’s Republic of Bangladesh, December, 2020, p-41)

Here the significant words are “May Draw”.

The writer is Professor and Chairman, Department of Economics, University of Dhaka. He can be contacted at [email protected]

The speech was delivered on December 7 at the programme titled 50 Years of Bangladesh: Retrospect and Prospect