Will the Tiger Roar?

Image: Wikimedia Commons

Established as East Pakistan after India’s independence and partition, Bangladesh’s two decades prior to independence were marked by neglect and discrimination. Of the two parts of Pakistan, the East was more populous, but it remained politically and economically dominated by West Pakistan. Over 1,600km of Indian territory separated the two Pakistans. Liberation activists charged that the central government in West Pakistan engaged in the ethnolinguistic discrimination against the majority Bengali East Pakistanis. Only the West Pakistani native tongue, Urdu, was recognised as an official language in the, and Bengalis were also largely underrepresented in the Pakistani bureaucracy and army. Economically, the government of West Pakistan was accused of appropriating surpluses from the East to fund the West’s imports, and the West withheld the allocation of funds for development in the East. 

As maltreatment and mismanagement grew, calls for freedom from West Pakistan escalated, culminating in the Indo-Pakistan War of 1971, in which the Indian army intervened  Following its brief and bitter war for separation, the country had grim prospects. The leaders of its independence movement lamented the country’s industrial weakness and low productivity, and few outside observers were optimistic about an economic turnaround. The country was considerably poorer than an already poor Pakistan, with a GDP per capita of US$130 against Pakistan’s US$177.

Even today, four and a half decades later, Bangladesh is hardly well-off. Its income per capita, at US$1600, has it firmly in the realm of poor countries, and its Human Development Index (HDI) score places it at 139th in the world. Yet, the country stands as a story of quietly remarkable growth, with an economy that still holds enviable potential for future development. The World Bank reports that poverty has declined from 31.5% to 23.2%, lifting over 15 million from destitution. The country has overtaken Pakistan in terms of GDP per capita. And, with an annual GDP growth rate of 7%, it may only pull farther ahead. The country once struggled to produce anything. Now, 29% of GDP is from industry; Bangladesh exports more garments than India and Pakistan combined, and is a destination of choice for international clothing retailers.  

Following independence from Pakistan, the Bangladeshi government instituted a socialist economic system, nationalising industries across the economy. This was damaging to growth, with chronic shortages and inflation afflicting the economy. In 1975, the government pivoted toward more market-friendly policies, privatising some industries and taking steps to create an environment more friendly toward entrepreneurs. Growth chugged along in the 1980s and 1990s, with support from international donors and the International Monetary Fund (IMF). The restitution of democracy in 1991, after a decade of military rule, laid the foundation for further development and encouraged foreign investors. 

After some economic troubles in 2000 and 2001, Bangladesh’s economy kicked into a higher gear. Since 2004, the economy has managed an average growth rate north of 6.5%. The country has aggressively pursued export-oriented industrialisation (EOI), the economic policy that was implemented with great success by the Asian Tigers—Hong Kong, Singapore, Taiwan, and South Korea—during their decades of breakneck growth. EOI dictates that a country export according to its comparative advantage, focussing on producing goods which, given a country's human and physical capital, would be optimal when compared to other countries. Bangladesh’s largest export category is textiles, where low wages—and, unfortunately, often poor working conditions—draw large business interest, particularly from Western discount clothing chains. 

Looking ahead, some observers posit that automation could be a substantial threat to Bangladeshi industry. Developing countries like Bangladesh derive their manufacturing edge from cheap labor, but if capital investments in rich countries result in machines that are able to mass-produce garments for essentially free, that advantage is blown. Industry experts, however, note that such concerns may be overstated. Sewing requires more dexterity than is often appreciated, and even the most advanced robots today struggle with fine motor skills. The most advanced machines would be too expensive to be employed in garment-making. It is unlikely that machines will outcompete Bangladesh’s low-cost factory workers in the immediate future. 

A growing tide of protectionism in the US and Europe could also work to undermine manufacturing in Bangladesh, which overwhelmingly relies on exports to the EU and the US. That said, textile manufacturing has long since been an obsolete industry in the developed world, so it is relatively unlikely that Bangladesh’s manufacturers will be slapped with particularly punitive tariffs regardless. 

All considered, Bangladesh should look to move up the value chain in its manufacturing activities. The East Asian tigers too began with low-cost production, but the transition from low-middle income status to high-income status is only possible with more capital- and knowledge-intensive manufacturing—demonstrated most notably by South Korea and Taiwan. Commendably, the government has demonstrated a commitment to investing in technology in Bangladesh through programs such as “Digital Bangladesh.” But it needs to do better: Digital Bangladesh has been panned by many in Bangladesh as half-hearted, haphazard and hopeless in a country that has the lowest internet penetration in South Asia and significant electricity generation deficits. 

The plague of corruption is endemic in South Asia; Bangladesh is no exception. Transparency International’s 2016 Corruption Perceptions Index put the country at an ignominious 145th place, below even Nigeria and Ukraine. Patronage, bribe-taking and cronyism are rampant in the economy, severely impeding growth and deterring business activity. Stronger governance and a strict crackdown on corruption, perhaps through an effective and independent commission against corruption, will be prerequisites to sustained growth in the country. 

The next decade is critical for Bangladesh. If global economic currents and government policy work in its favour, the country could find itself adorning book covers as the latest Asian success story. Failure would condemn the world’s fifth largest population to a generation of needless misery.