Kazi Anwarul Masud*
The contagion of global meltdown that started in the US has caught up with the others. What should then the least developed countries such as Bangladesh do? Ever since the Asian recession of 1997-98, the US has been described as “the buyer of last resort” taking in imports that could not profitably be absorbed in the Asian markets. Our export basket consists of few items involving low technology, and now with buyers’ conservatism the price of our exportable goods is bound to come down further. The other foreign exchange earner, remittances of our workers abroad also faces uncertainty as no one knows what shape the construction sector will take in the coming months and years. Remittance, a quarter coming from the developed countries, will shrink. It is impossible to put figures to these variables as these will depend on the evolving condition of the global economy. The rate of interest being reduced by the central banks throughout the world is designed to encourage investment. Devaluation of the Bangladesh currency would make sense had demand elasticity of the country’s exportable surplus been price responsive. It would also make our imports dearer. Since external factors appear to be unfavorable in the short term, Bangladesh has to develop its agriculture that accounts for 30 percent of its GDP at present. Monetary policy should be conservative. The tax net should be extended and tax payers must pay their dues. Corruption, that eats away about 3 percent of our growth, has to be brought under control.
There will always be skeptics about the benefits of globalization for developing countries. “Conventionally the colonization of the future,” writes political thinker Ziauddin Sardar, “was known as westernization. Now it goes under the rubric of globalization.” He lamented that the real power of the West is not located in its economic muscle and technological might. Rather it resides in its power to define. The non- Western civilizations simply have to accept these definitions or be defined out of existence.
But that the globalization is an irreversible process has been demonstrated by the overwhelming effects on the economy due to the current global meltdown and the recession of the major economies of the world. The rich-poor divide, a historical phenomenon, is mostly due to the reluctance of the rich to share their prosperity with others. The occasional handouts given to the developing countries along with lectures as to their deficient institutional reforms and corruption (the allegations are true in many cases) have rarely brought the poor out of poverty as most of the so-called aid is taken away by the donors in the form of import payment and consultancy fees. The Scottish philosopher Robert Owen once remarked that it was necessary for the greater part of the people to live in misery to enable the privileged segment of the society to live in the splendor that they have been used to.
The demise of socialism came as a great relief to the capitalist society who clung to Adam Smith’s cardinal principle that a minimalist role by the government can ensure the highest level of prosperity for any nation, a principle totally embraced by Ronald Reagan and Margaret Thatcher. The collapse of Wall Street compared by Joseph Stiglitz to the fall of the Berlin Wall has reminded the world that one percent of the people owning 20 percent of the wealth, as now in the US, cannot bring about social cohesion. On the contrary this could have tinder box effect and result in societal explosion. Following the continuing disaster of the global meltdown, G-20 states held a summit meeting. Regarding developing and least developed countries, G-20 members promised “reform of the Bretton Wood Institutions so that they can more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness. In this respect the emerging and developing economies, including the poorest countries, should have greater voice and representation. The Financial Stability Forum (FSF) must expand urgently to a broader membership of the emerging economies.” Despite the large scale-down of economic activities in the developed countries, the G-20 leaders rejected protectionism and pledged not to turn inwards in times of financial uncertainty. Despite the apparent cohesion displayed by the developed countries, the tone and tenor of statements made by some of their leaders gave the impression of disguised acrimony for the lack of oversight by those whose job it was presumed to be. The least developed countries will remain most disadvantaged as usual in this melee of global disorder. The ILO’s Global Employment Trends of January 2009 stated that more people in the world are looking for jobs than in 2007 and if recession deepens then the global job crisis will get worse. The World Bank’s Global Economic Prospects forecasts that the global economy will expand at less than 1 percent in 2009 and the volume of world trade will fall for the first time in 26 years. South Asia will be among the regions with extreme poverty that will afflict 95 million people.
Yet Bangladesh’s fate is inextricably linked with the developed economies as the latter are not only the destination for its exports but also the major source of foreign capital. Similarly, India is the largest import source for Bangladesh and the supplier of essentials both at times of need and on other occasions as well. Being surrounded on three sides by India and with a population and area many times more than that of Bangladesh, real politik demands that we maintain the best possible relations with India. One must realize that Indo-Bangladesh relations cannot be modeled along the lines of the former Soviet Union-Finland or Luxembourg-Belgium or France-Monaco equations because Bangladesh has a population of 150 million and furthermore also has a fair amount of resources. It is, therefore, not illogical for Bangladesh wanting to be accorded the respect that a sovereign country should have. But in these days of pooled sovereignty (European Union) or circumscribed sovereignty, states have a responsibility not to undermine each other’s security and this was endorsed by 1985 UN Summit of World leaders. Bangladesh, therefore, has to be mindful of New Delhi’s allegations of harboring and providing safe havens to Indian insurgents within its territory.
Indo-Bangladesh relations are bedeviled by an assortment of problems which include the equitable sharing of water resources, the delimitation of the maritime boundary, occasional firing along the border by the BDF and BSF, the trade gap in favor of India, tariff and non-tariff barriers on exports from Bangladesh and transit facilities. For long these issues, which are essentially economic, have been dealt with politically by successive Bangladesh governments as a pressure point on India. Like many small countries in terms of political and military power, the development of Bangladesh‘s relations with India can be best explained to the people if it is done within the context of SAARC.
New Delhi’s initial hesitation about SAARC was prompted by a foreboding that this regional body would be used as a forum by other member states to gang up against India. At another time, a consideration which weighed heavily among decision makers in Delhi was that excessive involvement in the SAARC process could generate a perception that India sought to establish its hegemony in the region. However it was the loss of privileged markets in the former Soviet Union and Eastern Europe after the end of the Cold War that finally convinced India that SAARC could provide alternative markets for the export of Indian goods. The Free Trade Arrangement with Sri Lanka is reported to have increased Sri Lankan exports to India many folds. In the case of Bangladesh, the Indian offer to take in readymade garments at low tariffs has attracted some Bangladeshi exporters. One must, however, remember that more than half of our GDP is linked to the global economy and 85 percent of our exports go to the developed countries. India can be a supplement and not a substitute for our exports and aid dependency on the West. So is the case with India. The argument given that our low wage gives us a competitive edge over China and India in our exports is flawed.
But India also has extra-regional ambitions and aspires to become a G-10 member as well as secure a permanent seat in the UN Security Council. UN reforms, central to which is the expansion of the Security Council, is particularly important as it is being discussed for the first time since World War II to reflect the changing global power structure. New Delhi must realize that becoming a permanent member of the Security Council is to a considerable extent contingent upon its maintaining good relations with its neighbours. As the biggest country in the South Asian region it has to go the extra mile in promoting mutually beneficial cooperation with SAARC member states. Energy is one such area of cooperation.
Both India and Bangladesh are energy-starved countries. There is an enormous potential of importing energy for Bangladesh from Nepal and Bhutan through West Bengal. As the two exporting countries are eager for this, the consent of India is essential. If India were to monopolize the entire quantum of surplus energy for its own needs it would be seen as not only indifferent to the needs of its neighbor but it would also be a setback to the prospects of confidence building in the SAARC region. Mira Kamdar, a senior fellow of the World Policy Institute (India, Richer, Poorer, Hotter, Armed) referring to Goldman Sachs BRIC Report pegging India as the future number two economy in the world after China writes; – “billions of individuals in India and China cannot adopt an American level of consumption over the next quarter century, even if the Americans were to reduce their consumption dramatically. There simply is not enough oil, wood, metal or other basic resources left.”
Prime Minister Sheikh Hasina’s landslide election victory presents an opportunity as well as a challenge to lift the country from poverty to relative prosperity. The government has to move earnestly and quickly to generate resources to finance and subsidize agricultural inputs to alleviate the plight of farmers. Efforts have also to be made to bring down the prices of essential commodities and jumpstart developmental projects. This however is easier said than done because the kleptocracy of the BNP-Jamaat that ruled the country from 2001-2005 has bequeathed an empty treasury to the newly elected government. Furthermore, because of the global economic crisis, external capital, assistance and foreign investment will not be readily available.
FOREIGN DIRECT INVESTMENT (FDI) AND DEVELOPMENT
In developing countries in particular, macro-empirical work on the FDI-growth relationship has shown that subject to a number of crucial factors, such as human capital base in the host country, the trade regime and the degree of openness of the economy, the FDI has a positive impact on the economy. It is said that the determinants for the level of FDI include: infrastructure, macro-economic stability, the availability of skilled labour and sound institutions. The South Asia Center for Policy Studies (SACEPS) is of the opinion that slow rates of capital formation have held South Asian growth back relative to other regions and investment is a major determinant of capital accumulation. It therefore follows that investment generation in the private sector should be an important policy for South Asian governments. In comparing the performance of investment in East Asia and South Asia, despite the huge gap in the quantity of investment in the two regions, SACEPS found that low growth rate, shallow credit and financial markets, high proportion of dependent population, high level of public dis-saving and lower level of FDI are the main factors responsible. In addition, poor governance, low quality of infrastructure delivery, high transaction costs, unpredictable law and order situation, and poor judicial enforcement are causes of low growth in South Asia. Notwithstanding Raul Prebisch’s skepticism about accretion of national wealth through foreign investment that often has high social cost, the world is now confused whether, in view of the global meltdown, Adam Smith’s theory of minimalist role by the government can lead a country “to the highest degree of opulence from lowest barbarism” is not an outdated theory after all. Advocates of capitalism ignored the reality that a perfect marriage between demand and supply is a theoretical concept, particularly in places where a few firms forming syndicates control the supply and price of commodities. In economies like ours, captains of industry and commerce also often dictate state economic policies either as pressure groups on the political authority or on their election as members of parliament. With the withering away of idealistic politics and the advent of commerce-based politics and expensive elections, politicians in both the developed and developing worlds have increasingly become dependent on donations from industrialists to finance their elections. Donations are not given for idealistic reasons and those providing the funds expect returns on their “investment.” Such a concentric relationship invariably leads to inequity and social stratification in terms of wealth and power.
EQUITY AND GROWTH
In the case of the US, Nobel laureate Paul Krugman lamented that the fruits of growth have been remarkably small for most Americans
– people are perhaps materially better off than they were before but nearly not as much as they should have been given the extent of the more productive US economy. By the end of the World War II, the US had become a middle class dominated country with a much more equal society but by the 1970s America had turned into a pre-tax and transfer society with an inequality similar to that which existed at the time of 1929 crash.
Nobel laureate Joseph Stiglitz saw the US growth having a powerful demonstration effect in the sense that growth not only increased supply but also peoples’ aspirations. Stiglitz, however, cautioned that a “market economy did not automatically guarantee growth, social justice, or even economic efficiency; achieving those ends requires that government play an important role” and consequently he became an advocate for “moral growth.” While the conventional wisdom is that democracy being more accountable to the masses should have a greater possibility to reduce poverty, both Milton Friedman and Joseph Stiglitz are skeptical that democracy can be sustained in poor countries unless these countries achieve rapid growth. This accords with the views expressed by Stanford University’s Professor Larry Diamond that the Third World is witnessing a democracy recession due to serious problems of governance with pockets of dissatisfaction, and unless income inequality is reduced, freedom is guaranteed, and economic growth is generated many of the struggling democracies would eventually lean towards authoritarianism.
Political theorist Benjamin Barber termed the Western style of capitalism as “infantilisation:” money is made to satisfy infantile desires that in an orderly society would be seen as childish exuberance for extravagance. Barber’s criticism rests on his argument that early capitalism encouraged virtues with the working men’s “robust motion of agency and spirited grittiness” while the decay that typifies later day capitalism suffers from the paradox that “the needy are without income and the well-heeled are without needs.”
According to analysts, the people trapped in the culture of poverty have a strong feeling of marginality, helplessness, dependency, and the feeling of alienation within one’s own society. Closely associated with the concept of the culture of poverty is the cycle of poverty also known as the “development trap” denoting low income, poor education, poor housing and poor health. Since these disadvantages work in a circular fashion it becomes difficult to break out of this cycle.
Francis Fukuyama thinks that basically four conditions have to exist to facilitate democratic transition: (a) the level of development, (b) culture, (c) neighborhood effect, and (d) ideas. Virtually all industrialized economies are functioning democracies while relatively very few poor countries are democracies. There are of course exceptions. Albeit Francis Fukuyama is not totally convinced that Islamic culture which does not separate the temporal from spiritual authorities and is therefore unable to sustain a true liberal democracy. Such societies use “one man, one vote, one time as a route to establishing theocracy of the sort that exist in Iran today,” is necessarily reflective of the situation prevailing in the entire Islamic world.
It is true that, barring exceptions, virtually all industrialized countries are functioning democracies. Indeed once a country attains per capita GDP of US dollars six thousand it transforms itself from an agricultural society to an industrialized one and the country attains sustainable democracy. Empirically it has also been found that not a single country which became democratic ever reverted back to authoritarianism. This is probably because the expanding property-owning middle class have a stake in the survival of democracy. Harvard University’s Professor Daniel Bell in his End of Ideology wrote: “The ideologist–Communist, existentialist, religionist– wants to live at some extreme, and criticizes the ordinary man for failing to live at the level of grandeur. One can try to do so if there is the genuine possibility that the next moment or genuine passion could be achieved.”
Max Weber in a poignant essay entitled Politics as a Vocation, posed the problem as one of accepting the “ethics of responsibility” or the “ethics of ultimate ends.” For the latter–the “true believer” all sacrifices, all means, are acceptable for the achievement of one’s belief. But for those who take on responsibility, who forgo the sin of pride, of assuming they know how life should be ordered or how the blueprint of the new society should read, one’s role can be only to reject all absolutes and accept pragmatic compromise.” In gist, the state must ensure that the system and services needed for a market economy to function efficiently exist. Importantly the legal system embodying the commercial and corporate law must exist. The state must also ensure an environment of competition which both Adam Smith and Karl Marx agreed that capitalists naturally do not want competition and try to avoid it. The basic infrastructure and social services must also be provided by the state.
In the final analysis there is no unique constellation of conditions that would require the state to play its role which would vary according to the stage of development an economy is already in. This strand of argument was further confirmed by Harvard University Professor David Scott as follows: – “Economic development requires the transformation of institutions as well as the freeing of prices, which in turn requires political and social modernization as well as economic reform. The state plays a key role in this process; without it, developmental strategies have little hope of succeeding. The creation of effective states in the developing World will not be driven discipline. And in a world still governed by “states rights,” real progress in achieving accountable governments will require reforms beyond the mandate of multilateral institutions.”
Though the newly elected government in Bangladesh has a decidedly left-of-center background, given the realities of the present day world the economy has to run on free market basis with governmental intervention in areas when necessary. While the international community anxiously awaits to see if Barack Obama and the European leaders succeed in their stimulus plans on which will depend the fate of capitalism as practiced in the West and in most developing countries after the Second World War, Bangladesh may have to delve deeper into the further possibilities of regional cooperation, food security in the SAARC countries, balanced trade amongst one another, coordinated position on adverse effects of climate change, terrorism affecting the socio-economic and political development of all countries in the region, and a realistic approach to the unresolved issues between India and Pakistan. If Greece, Spain and Ireland could be brought at par with other EU countries, then SAARC member states should shed their past prejudices and remove the roadblocks in the way of cooperation in order to proceed apace with the modernization of the region.
The contagion of global meltdown that started in the US has caught up with the others. What should then the least developed countries such as Bangladesh do? Ever since the Asian recession of 1997-98, the US has been described as “the buyer of last resort” taking in imports that could not profitably be absorbed in the Asian markets. Our export basket consists of few items involving low technology, and now with buyers’ conservatism the price of our exportable goods is bound to come down further. The other foreign exchange earner, remittances of our workers abroad also faces uncertainty as no one knows what shape the construction sector will take in the coming months and years. Remittance, a quarter coming from the developed countries, will shrink. It is impossible to put figures to these variables as these will depend on the evolving condition of the global economy. The rate of interest being reduced by the central banks throughout the world is designed to encourage investment. The devaluation of the Bangladesh currency would have made sense had the demand elasticity of the country’s exportable surplus been price responsive. It would also make our imports dearer. Since external factors appear to be unfavorable in the short term, Bangladesh has to develop its agriculture that accounts for 30 percent of its GDP at present. The monetary policy should be conservative. The tax net should be extended and tax payers must pay their dues. Corruption, that eats away about 3 percent of our growth, has to be brought under control.
Choice of taking a path between political and developmental approach to democracy promotion. The political approach proceeds from a relatively narrow conception of democracy focused on elections, political liberty and a society in which democrats have an upper hand over non- democrats. The developmental approach rests on a broader notion of democracy encompassing concern for equality and justice. It favors democratization as a process of long term political and socio-economic development. Democracy is valuable in its own right but is secondary to a core developmental rationale. The early concept of economic development basically placed emphasis on growth and industrialization. Europe and the US were considered as developed and the other areas of the world were considered as primitive versions of European nations that would develop by stages. Walt W Rostow’s Stages of Economic Growth stressed that Europe and North America were at a linear stage of development and that the underdeveloped countries would eventually catch up. He argued that all countries must develop through a number of stages starting with traditional agrarian society and culminating in a modern industrialized society. The key to this transformation was seen to be mobilization of domestic and foreign resources for investment in economic growth. Capital formation was considered as crucial to accelerate development. High savings leading to high growth was described as a “virtuous circle” and low savings leading to low growth as a “vicious circle” that could be controlled through governmental intervention (Hans W Singer’s doctrine of balanced growth). This robotic development presupposed that the fruits of growth would trickle down from the top to the lower echelons of a society but ignored the concept of equity and justice that every community demands.
If one goes into the basic factors of production, land, labor, capital and organization one would find that Bangladesh is a mixed economy. Land is primarily owned by the private individuals and we do not have any system of cooperative farming. The farmers are, however, dependant, on the government for agricultural inputs like diesel for irrigation, fertilizer, seeds etc. The Bangladesh government’s decision to halve the price of most fertilizers and reduce the price of diesel has been welcomed by the farmers. The International Rice Research Institute does not hold out any hope of increased land for farming or any ease in the fertilizer market in the future. Given the global population increase and consequent increase in food prices coupled with the natural tendency of some businessmen to reap abnormal profit, the “invisible hand” of governmental intervention in the market would become a necessity if the Awami League-led government is to fulfill its election promise to bring the price of essentials within the reach of the common people. It is possible even in the face of the global meltdown that the government of Sheikh Hasina may face criticism from market fundamentalists for not following the Washington Consensus despite the failure of the World Bank in the African experience relating to agricultural subsidies. The African experience demonstrates that the Bretton Woods institutions are not infallible and the decision taken by the Sheikh Hasina government will bear fruit for both the growers and the consumers. Heather Clysdale estimates that Bangladesh’s food supply is already threatened by flooding due to melting glaciers in some areas and droughts due to heat in others. Moreover, the typhoons and monsoons that routinely pummel Bangladesh are intensifying because of climate change. She adds that the soft, malleable coast is vulnerable to the rising seas. Even if greenhouse gas emissions were to stop today, scientists believe that the warming already underway will cause seas to rise between one and two inches over the next century. If nothing is done to curb emissions, sea levels could climb more than three feet. If this happens, 15 percent of Bangladesh could be under water. The mangrove forests of the low- lying Sundarban islands, a world heritage site, as well as the Bengal tiger and hundreds of bird species would disappear.
The challenge that will have to be faced by the Bangladesh government will be immense. The US Agriculture Department in its July 2008 report predicts that the global economic meltdown combined with food and fuel hikes (though fuel price went down substantially but is again rising) will contribute to the ongoing deterioration in global food insecurity with particular negative impact on developing countries that are the most food insecure. The FAO/WFP crop and food supply assessment mission to Bangladesh in its August 2008 report estimates that 40 percent or 56 million people are “absolute poor” i.e., unable to acquire the minimum level of food required to maintain normal health; within this 27 million were categorized as “hard core poor” i.e., unable to acquire two-third of the minimum level mentioned earlier; and 11 million as ‘ultra poor” i.e., unable to acquire half of the minimum requirement. The prevalence of absolute, hard core and ultra poor increased from 2000-2005 due to population growth. For Bangladesh external sources would reduce i.e., Myanmar due to cyclone Nargis will not be able to export 600,000 tons of cereals, part of which would have come to Bangladesh. In Thailand too exportable quantity is expected to decrease. Added to supply side constraint, the price of cereals and food-led inflation paints a discouraging picture. It would be absolutely necessary for the government to stock food and to import much ahead of any emergency that may occur. Besides, if the price of essentials is to be kept under control then subsidy has to be given regardless of what the World Bank/IMF may be advising. After all the Common Agricultural Policy of the European Union and US Farm Act is nothing but subsidy given to the farmers in the West.
This should naturally bring up the question of the type of economic philosophy that the Bangladesh government should follow. If there were supporters of unbridled capitalism who doubted the social democracy practiced by Scandinavian countries and held on to Adam Smith’s minimalist role of the government for economic prosperity, the present global meltdown should have convinced that their brand of economic philosophy just does not work. Stalinist authoritarian communism having been obliterated from global governance some would favor British Prime Minister Clement Atlee’s “transformative democratic socialism” that provided a strong welfare state, fiscal redistribution, and selective nationalization as a model. British Labor Minister Anthony Crosland felt that it was possible to achieve greater social equality without the need for fundamental economic transformation. He favored fruits of accelerated growth to be invested in pro-poor public services than in fiscal redistribution. A complementary view has been expressed by Nobel laureate Joseph Stiglitz supportive of an economic development where, in his words, there will be: “moral growth that is sustainable, that increases living standard not just today but for future generations as well, and that leads to a more tolerant, open society.” The idea is to avoid a situation as in the US today where 20 percent of the wealth is possessed by only one percent of the population.
The developing world, particularly the least developed among them, being mostly open economies and consequently being dependant on the West for aid and trade would be badly affected. Our main export earners are export of readymade garments and remittance of Bangladeshi expatriates working abroad. The EU and the US account for most of our exports and our remittances come from the Middle East and the Western countries. As their economies are in recession, coupled with the price of oil ranging till a few months ago below $50 a barrel, the job loss in the main areas of employment is likely to increase. As it is, more than fifty percent of the people are unemployed/underemployed in Bangladesh. Remittance helped our import and balance of payment support. The crutch on which a part of our economy was dependant would vanish. The present government will have to take measures to extend the tax net, force people to apprehend tax dodgers, widen the export basket, widen the war on corruption in all areas etc., to make up for the expected loss of external revenue. Bangladesh has one of the lowest tax-GDP ratios in the world. Another way of state earning could be to expeditiously bring back into the country the money illegally stashed away by the rich and the powerful during BNP-Jamaat rule (2001-2005).
The pre-meltdown business as usual had ignored the problem identified by UNDP of “a silent crisis, a crisis of underdevelopment, of global poverty, or ever mounting population pressure, of thoughtless degradation.” An eminent economist had remarked that following neo-classical economics, that unrestricted international trade would allow the poorer countries to come closer to the rich, runs counter to historical experience as well as common sense (Issues in World Politics, edited by Brian White et. al.). From the statements of the Bangladesh Prime Minister, it appears that the government’s primary responsibility will be to ease the unbearable burden of daily life of the people by reducing the price hike. The World Bank had estimated that the price hike had pushed an additional four million into the category of poor people. Once that problem is tamed, the government is likely to turn its attention towards vision 2021. Analysts of the voting pattern of the election have reached the conclusion that the youth and the first time voters, fed up with the unbridled corruption of BNP-Jamaat coalition during their 2001-2005 rule, which was characterized by wastage of state money, incompetence, inability to generate energy production, had voted overwhelmingly for the Awami League-led combine because Sheikh Hasina and her party had come forward with a vision for the future.
In the contemporary era, democracy is being widely advocated by the Western world particularly after the tragic and fateful events of 9/11. The realization has finally dawned upon the major global powers that the “democracy deficit” they turned a blind eye towards during the Cold War years ultimately boomeranged upon the West in the form of Islamic extremism. Authoritarian rulers were supported to the hilt by providing them financial and military assistance because of the Cold War dynamics. This generated anger and frustration among the local people who felt that the Western countries, by supporting their tyrannical rulers, did not care about their fundamental rights. Many of the Third World countries that were dependant on the largess provided to them by the superpowers were abandoned by the latter after the end of the Cold War. This reduced them to the status of failed states and/or failed governance which, in turn, generated instability and violence within these nations. Because the UN Charter specifically forbids external interference that could be construed as violation of sovereignty, the failed states have so far been more or less immune to intrusion by others. The concept of inviolability of state sovereignty, however, underwent change when non-state actors inflicted death and destruction upon unsuspecting civilians in repeated acts of terrorism such as the events of 9/11, the Madrid and London bombings, and in Bangladesh by the Islamic extremists belonging to Jamatul Mujahedeen Bangladesh (JMB). The New York Times, Wall Street Journal, Time magazine etc., had reported on the rise of Islamic militancy in Bangladesh only to be dismissed by the previous government as concoctions of the media aimed at slighting the country internationally. Though the kingpins have since been executed, it would be premature to conclude that the country has totally got rid of Islamic extremists. Extremist violence could resurface as there are more than sixty thousand madrassas or religious schools that churn out students who are indoctrinated in obscurantist dogma in the name of religion.
MELTDOWN EFFECTS ON BANGLADESH
The World Bank had estimated that the price hike, partly due to the rise in the international price of rice, has added four million Bangladeshis to the poor class. The county lost about two million metric tons of rice (7.3 percent of domestic production) in twin floods of July-August and cyclone in November 2007. Food prices rose by 14 percent and 25 percent in India, Sri Lanka, Pakistan and Bangladesh in January- March 2008 compared to the same period of 2007. As Bangladesh is a net importer of rice, low income households spend 80 percent of their earnings on food. The World Rice Commerce 2008 Conference emphasized price stability in order to avoid price volatility. The reduction of prices of essential commodities is probably the foremost challenge confronting the Bangladesh government. It is encouraging that the new political dispensation appears determined to intervene in the market to destroy syndicates who have stolen massive amounts of money from the people by artificially raising the prices of commodities. Analysts generally agree that “for a capitalist system to evolve in an effective developmental sense, it must have two hands and not one: an invisible hand that is implicit in the price mechanism and a visible hand that is explicitly managed by the government.” The reduction and eventual eradication of poverty will be a formidable challenge for the government and the enormity of the problem cannot be underestimated because 40 percent of the people live below the poverty level.
One must, however, admit that the world, and Bangladesh is no exception, is facing a food crisis which has to be tackled in all earnestness. The Madrid Conference on Food Security held on 26-27 January 2009 underlined the existence of the global crisis. Professor Jeffery Sachs presided over an ad-hoc advisory group meeting prior to the Madrid Conference and the dire prediction was that desperate hunger, exacerbated by the global meltdown, would afflict one billion people out of the estimated 6.5 billion inhabitants of the earth. The meeting recommended boosting of productivity of small holders that would result in more food and food security for farm families, greater income for the poorest of the poor, and escape from poverty by commercialization of subsistence agriculture. The meeting was optimistic that massive scale up of food yield and productivity through application of improved technology is possible. This would entail infusion of money through the Financial Coordination Mechanism (FCM) as a part of the World Bank’s Global Food Crisis Response Program (GECRP) and the Multi Donor Trust Fund (MDTF). Critical inputs would thus be provided to small farmers and this would help in the transition from subsistence farming to commercial farming. The problem with any initiative that involves contribution from donor countries has been historically fraught with danger. The promise by the developed countries to give 0.7 percent of their GDP as aid and assistance made decades back is yet to be redeemed.
Intra-regional political disputes often, as in the case of India and Pakistan, arrest the economic development of a region. In such cases the relatively more developed economy is looked upon by the less developed ones in terms of center-periphery/ metropolitan-subaltern relationship that existed during the colonial era. The fear of the less developed countries is that they may turn into a hinterland of the more advanced economies and this discourages the former to strengthen their economic bonds with the latter. Besides imbalance in trade is considered responsible for the asymmetric trade relationship without recognizing the fact that the less developed economies have a far smaller export basket and their main focus of export is to the developed countries and less within the region. In the regional context the more developed economies could consider granting zero tariffs and removing the para-tariff barriers for the least developed countries of the region. The European Union, Japan, Canada and the US have accorded duty-free and quota-free access to LDCs under different programs. Earlier GATT had made the General System of Tariff Preferences (GSP), a permanent provision for greater market access for the products of developing countries. Some analysts, however, have criticized such facilities on the ground that UNCTAD “in effect has tried to make the LDCs into wards, contributing to the specious belief that these countries are simply too poor to reform. As a result the LDCs have been abetted and encouraged by UNCTAD in their failure to address misguided policies in particular domestic over-regulation, weak property rights, skewed trade regimes, and lack of democracy that have stunted growth.” This is probably true, but in the context of South Asia, instability, intra-regional tensions and the involvement of external powers has impacted on growth and development.
The British newspaper, The Guardian reported (27-01-2009) that America’s massive military aid package to Pakistan has come under scrutiny after allegations that as much as 70 percent of $5.4 billion in assistance has been misspent. Since 2002, the US has paid the operating costs of Pakistan’s military operations in the tribal belt along the Afghan border, where Taliban and al-Qaeda fighters are sheltering. Pakistan has committed over 100,000 troops for the military operation; the US foots the bill for food, fuel, ammunition and maintenance. The cash payments averaging $80 million a month had been the cornerstone of US support for former President Pervez Musharraf. But over the past 18 months, as militants seized vast swaths of the tribal belt and repelled a string of Pakistani offensives, the funding has come under the microscope. American officials processing the payments at the US embassy in Islamabad have concluded that the Pakistani expense claims have been vastly inflated The official said the US did not know what happened to the remaining 70 percent – approximately $3.8 billion – but suspected that some may have been spent on F-16 fighter jets or a new house for an army general. Ordinary Pakistanis are angry with both sides. Anti-American sentiment had touched a new high while anger towards Musharraf contributed to the thrashing his party received in the February 2008 election. Senator Carl Levin, Chairman of the US Armed Sevices Committee voiced his opinion after a three day trip to the region last year that the US officials had little confidence that a segment of the army was seriously trying to stop the flow of arms and Taliban fighters from infiltrating into Afghanistan from Pakistan. Levin questioned the efficacy of more than $10 billion military and financial aid given to Pakistan since 9/11. In January this year United States President Barack Obama’s Secretary of State, Hillary Clinton, appearing before the Senate Foreign Relations Committee as part of her confirmation process said that the Obama administration would condition military aid to Pakistan, on the latter’s commitment to counter-insurgency and counter-terrorism. Clinton told the chairman of the Committee, Senator John F Kerry, that the Obama administration intended to follow through on Congressional legislation authored last year by Senators Joe Biden (now the vice- president) and Richard Lugar to provide Pakistan with $1.5 billion in American assistance for the next five years, the bulk of which would be development and economic assistance. But Clinton reiterated that with regard to the military aid, the US wanted to really look hard at seeing whether it can condition some of that on the commitment for the counter-insurgency, counter-terrorism mission. Earlier, Clinton acknowledged the concerns expressed by some of the lawmakers over the possibility of nuclear terrorism and the security of Pakistan’s nuclear arsenal, if it failed to bring terrorism under control. She reiterated the administration’s determination to ensure that the extremists “don’t find save havens in Pakistan or plan attacks against us or any other country.” This foray into US-Pakistan relations was necessary to demonstrate that sustainable economic growth will continue to elude a region if there is no peace and stability. Instability also invites extra-regional intervention and further exacerbates tensions among countries in the region as is evident in the South Asian experience where hostilities between India and Pakistan have stood in the way of growth and development.
South Asian growth has been hostage to the India-Pakistan tensions for more than six decades while the world has advanced by leaps and bounds. Though Pakistan has got back a democratic dispensation after decades of direct and indirect military rule, the mindset of the authorities in the county, particularly the military establishment, has not changed. Islamabad’s differences with New Delhi have strengthened the former’s conviction on the need of strategic depth in Afghanistan in the event of a Pakistan-India conflict. This has not only complicated the relationship between Pakistan, India and Afghanistan but also made the US-led NATO/ISAF forces more vulnerable to attack because of the ease with which the Taliban/Al Qaeda can infiltrate either way across the Durrand Line. Ever since the partition of the subcontinent in 1947, Pakistan has looked towards the West, particularly the US, for acquiring a defence capability against India. The US was responsive and provided military assistance to Pakistan because of India’s espousal of non-alignment as the guiding principle of its foreign policy during the Cold War years and its close relationship with the former Soviet Union as well as other Warsaw Pact countries. This changed dramatically with the collapse of the Berlin Wall and the demise of communism. A post-9/11 US-India strategic relationship was framed and given concrete shape during the Bush administration despite Pakistan being touted and feted as a major non-NATO ally by the US for its so-called war on terror.
The declining relevance of Non-Aligned Movement and the loss of Soviet and Eastern European markets goaded Indian policy makers to seek greater intra-regional trade. As mentioned earlier, the security threat has often been used to scuttle projects that would have been mutually beneficial to the parties concerned had those been allowed to proceed. Unfortunately, the South Asian region has restricted its understanding of the definition of “security” in militaristic terms. To quote Stephen Sachs of Merton College, Oxford, (The Changing Definition of Security), and among many others, the Max Weberian traditional definition implicit in the effective monopoly of the use or the licensing of violation as an integral constitutive element of a state, and any threat to this monopoly as a security threat has lost its relevance. Now better termed as “human security” it envelops individual safety in areas of basic needs “access to clean food and water, environmental and energy security, freedom from economic exploitation, protection from arbitrary violence by state agents or domestic partners, diseases like the AIDS pandemic etc. Some security experts give more importance to “structural violence” that goes beyond physical violence to include “the indirect violence done to individuals when unjust economic and political structures reduce their life expectancy through lack of access to basic material needs.” Indeed they believe that true security cannot be achieved till “hierarchical social relations and divisive boundary distinctions are recognized and substantially altered and all individuals participate in providing for their own security.” Though debates abound about the all-inclusiveness of the term “security” that would detract the security provider from the essential ingredients, it however, recognized that the threat resulting in severe degradation of the quality of life of the people and narrowing the range of policy choices available to the government should be also regarded as breaches of security.
SACEPS (South Asia Center for Policy Studies) in an assessment of South Asian Macro Economic issues highlighted some of the difficulties due to asymmetric economic conditions among member countries. Overall the region suffers from a low savings ratio and the dependence of the LDCs on foreign aid and concessional loans from international financial institutions. Besides, with the exception of India and perhaps Pakistan, all other members of SAARC suffer from Balance of Payment difficulties. Given the present global meltdown the prospect of regional development to a higher level appears doubtful mainly because of the dependence of all South Asian countries on the West for their exports and other capital transfers. SACEPS thinks that lack of good governance, accountability, poor implementation of economic projects, weak enforcement of laws relating to commercial transactions that discourages foreign investment, bad infrastructure etc., have stood in the way of South Asian integrated economic development. Structural banking sector weakness as evidenced by the recent warning by the Bangladesh Bank to 11 commercial banks for giving loans exceeding their deposit limit and for extending loans to unproductive sectors as well as for the import of luxury commodities are reflective of this malaise. There are also problems in other areas, for example, agriculture is plagued by low productivity, rising cost of production, lack of development in agro-processing etc. A study gives the picture that Bangladesh has a compulsion to improve politico-economic relations with India because the latter can provide security and our need for manufactured goods, such as steel, chemicals, light engineering goods, capital goods, coal and limestone. It is to be noted that while more than 80 percent of Indian total equity is spread among South East Asian and African countries, only about 10 percent was invested in South Asia. The study referred to above cite a few obstacles responsible for the limited intra-regional trade: most South Asian countries being primary producers tend to export similar items; with the exception of Sri Lanka, high tariff and non-tariff barrier discourages intra-regional trade; lack of adequate transport and informational links as well as political differences affect economic decisions.
ENERGY AND GROWTH
It is generally recognized that reproducibility is a key concept of the economics of production (Energy and Economic Growth, David Stren & Cutler Cleaveland). While capital and labor are reproducible, energy remains an important non-reproducible factor of production. The importance of energy in the economic development of a country can hardly be overemphasized. Mainstream economists think that while land, labor and capital are primary factors of production, fuels and materials are intermediary inputs. Energy Bangle (Revisiting the Energy Situation in Bangladesh) paints a dismal picture of the Bangladesh energy situation. According to the report Bangladesh power is generated from natural gas (82 percent), oil (9 percent), hydro (4 percent) and coal (5 percent). While the total installed capacity of power generation is 5245 MW, the achievable power generation capacity is around 4200
MW leaving a shortfall of 800MW. Less than half of the population is served by electricity and per capita electricity consumption is only 170Kwh(FY 2006). Natural gas reserves in Bangladesh vary widely. The Oil and Gas Journal (OGJ) reported gas reserve of 3 trillion cubic feet (TCF) as of January 2006. PetroBangla put the reserve at 15.3 tcf in 2004. The Ministry of Finance estimated in 2004 a reserve of 28.4 tcf of which 20.5 tcf was recoverable. In 2001 the US Geological Survey estimated an “ undiscovered reserve” of 32.1 tcf. The other sources of energy are oil that is mostly imported, coal and hydro. Energy Bangla estimated that natural gas requirement from 2000 to 2050 would be 40 to 44 tcf if growth rate is three percent; 64 to 69 tcf with a growth rate of 4.5 percent; 101 to 110 tcf with a growth rate of 6 percent; and 141 to 152 tcf with a growth rate in GDP of 7 percent. It is evident that natural gas would not be able to sustain the economic development of the country if we aspire for growth rate of 10.5 by 2017 and produce electricity of 7000 MW by 2013 and 20000 MW by 2021. This aim can be realized if Bangladesh were to deepen regional cooperation in the production of electricity since the Himalayan rivers flow through Bangladesh, Bhutan, India, Nepal and Pakistan. It is estimated that the Himalayan rivers flowing through Nepal have a hydro power potential of 83000 MW while in India, Bangladesh and Pakistan the estimated hydro power potential is 70000 MW, 1772 MW and 21000 MW respectively.
The Chuka project in Bhutan completed with Indian assistance has the potential to benefit Bangladesh, Nepal and Pakistan.
Taking a broader measure of poverty, 2.6 billion people consume less than USD 2 a day as per 2005 prices. This number of people has remained relatively unchanged since 1981 although it is now a lower proportion of the population. The new estimates do not yet reflect the increase in food prices since 2005. The share of vulnerable employment in total employment is the highest in South Asia, Sub-Saharan Africa, South-East Asia and the Pacific, and East Asia. In all these regions the majority of workers do not enjoy the possible security that wage and salary jobs could provide. Taking into account that a wage and salary job in poor regions may still not ensure all the components of a decent job, it becomes understandable that only a minority of working people have a job that is well paid, respects their fundamental rights and ensures some security in case of job loss. Similar to other Asian regions, economic growth in recent years has resulted in impressive reductions in working poverty in South Asia. However, poverty levels in South Asia remain much higher than in South-East Asia and East Asia. Extreme working poverty decreased from 57.2 percent in 1997 to 47.1 percent in 2007. Most of the change occurred during 2002-2007. Given the detailed employment scenario in the ILO report, it is difficult to visualize clearly the prospect of overseas employment of Bangladeshis. Remittance of Bangladeshis from abroad is the mainstay of our external economy as more than a quarter comes from expatriates living in the developed countries and the rest from the Arab countries who have also not escaped the adverse effects of global meltdown coupled, till recently, with less than $50 per barrel from more than $150 they used to get earlier. This loss of petro-dollar earnings will have a serious effect on the construction industry in the Arab world where many Bangladeshis were employed. Lost jobs for Bangladeshis has many facets: they will be unable to repay the loans taken to get visas for these jobs, the sustenance expected by their families from overseas earning will not be there anymore, and they will add to the burden of the society till such time they can get jobs, a difficult proposition, or can become gainfully self-employed.
In the background of this difficult global employment situation, consequent upon the global meltdown that was described by Joseph Stiglitz as “the fall of the Wall Street is for market fundamentalism what the fall of Berlin Wall was for Communism,” the Bangladesh government has correctly taken an integrated policy of poverty reduction, solution of the unemployment problem, and provide a meaning to the life of the people of Bangladesh. The Awami League manifesto describes the need for employment generation in the agriculture sector, provision for training and loans for self-employment, sub-contracting systems between small and big/medium scale industries successfully achieved in Japan and South Korea. It has also identified the need for the special training for the labor force to be sent abroad. Considering the fact that 28 million remain unemployed, the Manifesto aims at decreasing the number to 24 million by 2013 and 15 million by 2021. These are achievable goals considering because the global meltdown will not remain a long term feature but may be a cyclical phenomenon furthered by greed and lack of oversight by the regulators in the euphoria of unbridled capitalism. The argument is not being made to reinstall socialism that failed to provide answers to the development aspirations of the poor who were the primary victims of capitalism but to provide an egalitarian system advocated by Joseph Stiglitz and Paul Krugman who felt that, even in the case of the US, the majority of the people did not get the reward of development in consonance with the advancement of the economy. Security of states from non-state actors with transnational links and/or aggrieved people can lead to restlessness among the working population and enthuse pseudo-religious leaders to recruit disaffected and marginalized sections of the society in their evil quest for opposing modernization and imposing their obscurantist world view that has neither tolerance nor any pity for the suffering masses. If the three legs of modernity rested on the discovery of the “new world,” the Renaissance and the Reformation it was basically a victory of superiority of modern values over pre-modern, primitive and traditional mores that used to regulate the lives of the people. In the religious sphere, modernity brought about replacement of divine providence by the autonomous rational human mind. But then the Awami League does not preach agnosticism or atheism but only encourages people to follow their own religion without interference of others or imposition of laws of a particular religion on the people belonging to other faiths. The Center for Policy Dialogue’s (State of the Bangladesh Economy in the run up to the National Election 2008) analysis of the share of different sectors of the economy to the GDP in FY 08 to FY 21 to achieve the goals of the manifesto appears realizable. The share of agriculture in FY 08 was 20.87 percent that has to be reduced to 15 percent in FY 21, similarly the share of industry has to brought up from 30 percent to 40 percent, and that of the service sector has to be reduced from a little over 49 percent to 45 percent. The realization of these goals would largely depend on the development of the social sector accompanied by sustainable economic growth.
The hope and expectation of the people of Bangladesh is that Prime Minister Sheikh Hasina will provide transformational as opposed to transactional leadership. In his The Power to Lead, Professor Joseph Nye of the Harvard University states that transformational leaders “induce followers to transcend their self-interest for the sake of the higher purpose of the group that provides the context of the relationship.” The people are thus inspired to undertake “adaptive work” and do more than would be normally expected of them for the greater good of the community and not for the sake of promoting their “self-interest alone.” An example of such a leader in the South Asian context was the founder of Bangladesh, Banglabandhu Sheikh Mujibur Rahman, who motivated the entire Bengali nation in their struggle for liberation. On the other hand transactional leadership, writes Nye, “motivate followers by appealing to their self-interest. Transactional leaders use various approaches but all rest on reward, punishment and self-interest.” What is often needed is smart power which in itself is a mix of soft and hard power. To produce smart power, Sheikh Hasina may have to provide the people of Bangladesh a combination of transformational and transactional leadership because of the changed context from 1971 which was dominated by the unanimous desire of the Bengalis for liberation. In the ultimate analysis one hopes that the Awami League under Sheikh Hasina will continue beyond this term with the approval of the people so that the collective dream of a prosperous Bangladesh can be realized.
- Joseph Stiglitz; The Ethical Economist.
- Joseph Stiglitz; Taming Capitalism Anew; 30 March 2006. Paul Krugman; Viewpoints; 21 May 2007.
- Larry Diamond; Democratic Recession.
- Francis Fukuyama; The End of History and the Last Man.
- Daniel Bell; End of Ideology.
- Max Weber; Politics as a Vocation; (essay). Alan Greenspan; Days of Turbulence. Joseph Schumpeter; Creative Destruction.
- FAO/WFP; Crop and Food Assessment Mission to Bangladesh. Thomas Crothers; Democracy Assistance: Political vs. Developmental. Bruce Scott; The Great Divide in the Global Village.
- Brian White, ed.; Issues in World Politics.
- Bruce Bueno and George Downs; Social Coordination
- Robin Broad and John Cavanaugh; The Hijacking of Development Debate.
- Benjamin Baber; Political Theorist.
- Sarath Rajapatirana; The Least Developed Countries – the tyranny of definition.
- Milton Friedman; “The Case for Free Trade;” Hoover Digest.
- Manuel Castells; The rise of the Fourth World – The Information Age.
- Gertrude Himmelfarb; The Idea of Poverty.
- Joseph Nye; The Power to Lead. Wikipedia; Bangladesh Agriculture. Wikipedia; Democratic Socialism. Wikipedia; Washington Consensus.
- ILO; Global Employment Trends; January 2009.