THE BANGLADESH
ECONOMY:
NAVIGATING THE
TURNING POINT
KAUSHIK BASU
That the Bangladesh economy at age 50 would be a cause for celebration was
once unthinkable—certainly in 1971, at the time the nation gained independ-
ence, and for at least two decades after that. A region of grinding poverty,
Bangladesh (then East Pakistan) was engaged in a brutal war for independence
for much of 1971. With US President Richard Nixon standing firmly behind
Pakistan President Yahya Khan as his army tried to crush the independence
movement by resorting to genocide, millions of Bangladeshis stared in the face
of destitution and hunger, and a large number of them sought refuge in India.
The first years of the new nation were
a period of trial, made worse by a devas-
tating famine in 1974, which began in
Rangpur district and then swept through
the rest of the country (Sobhan 1979).
Matters got worse when the Nixon
from
still
administration,
Bangladesh having gained independence,
which the US government had resisted,
suddenly cut off food aid on the grounds
that Bangladesh was earning money by
exporting jute bags to Cuba.
smarting
Today, as Bangladesh celebrates 50
years of independence, it is worth recall-
ing that, while the nation was born out of
the grand idea of building a just, humani-
tarian, and inclusive society, at the time of
its birth it was one of Asia’s—and in fact
the world’s—poorest nations.1. Many
observers were reconciled to Bangladesh
remaining a basket case that would have
to be supported with food aid and
propped up with money from interna-
tional organizations.2.
When the Bangladesh economy grew
rapidly in the mid-1990s, it was viewed as
a freak interlude. It is a remarkable turn-
around that, in defiance of all expecta-
tions, Bangladesh today is a middle-
income country with a per-capita income
significantly higher than that of Pakistan
and neck and neck with India’s. This is
especially true since the COVID-19 pan-
demic hit the Indian economy harder
than many other nations.
On a personal note, there are few
countries for which I have had the privi-
lege of a view as close as I have had for
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Bangladesh since its birth. It began in
1971, when I was a college student in
Delhi and volunteered to work with the
refugees flowing into West Bengal, and
continued when I was working at the
World Bank in 2015, at which time our
that
data
cross-country
Bangladesh had graduated unequivocally
from a low-income to a lower-middle-
income country.
showed
It is worth adding that, in terms of
standard of living indicators such as life
expectancy and literacy, Bangladesh, akin
to what was earlier seen in Sri Lanka and
Kerala, has done better than its per-capita
GDP level would indicate. The average
life expectancy at birth in Bangladesh is
73 years, higher than in both India (70
years) and Pakistan (68 years). In terms of
adult literacy, Bangladesh, at 73.9%, is
well ahead of Pakistan’s 59.1% and close
to India’s 74.4%.
All this was topped off in 2020, when
Bangladesh had a growth rate of 3.8% and
stood in fifth place among the 194 nations
in terms of GDP growth, as computed by
the International Monetary Fund—all
achieved during a year when the world
was mired in the COVID-19 pandemic.
This was a little bit of a silver lining for
the nation amidst the gloom.
However, all this good news is no
guarantee of sustained development.
large segment of
World history is replete with examples of
nations that took off economically, only
to turn around and slow down; of mid-
dle-income traps; and of failing while on
the brink of success. Despite the country’s
successes, a
the
Bangladesh population still is living
below the extreme poverty
line of
US$1.90 per day, inequality is rising, and the country’s future trajectory has many uncertainties. One major uncertainty is climate change and the resultant rising sea levels that pose significant dangers, and political instability could reemerge and disrupt economic progress. This short article has three tasks: first, to assess Bangladesh’s economy and how it got to this remarkable stage, proving all skeptics wrong; second, to peer into the future and comment on the challenges Bangladesh is likely to face; and third, to offer a few suggestions for how it should navigate the post-pandemic global econ- omy. THE DRIVERS BEHIND THE RISE OF THE BANGLADESH ECONOMY The trajectory of the Bangladesh econo- my is captured well in Table 1 and Figure 1. Both show the path of the country’s per-capita income over time, ABOUT THE AUTHOR Kaushik Basu is Professor of Economics and the Carl Marks Professor at Cornell University. From 2012 to 2016 he was the Chief Economist of the World Bank. Educated at St. Stephen’s College, Delhi, and the London School of Economics, Basu has published extensively in develop- ment economics, game theory, welfare economics, and industrial organization. His most recent book, The Republic of Beliefs: A New Approach to Law and Economics, was published by Princeton University Press in 2018. © 2021 Kaushik Basu innovations / volume 13, number 1/2 29 Downloaded from http://direct.mit.edu/itgg/article-pdf/13/1-2/28/1978760/inov_a_00281.pdf by guest on 07 September 2023 Kaushik Basu The global slowdown triggered by the Gulf War made Bangladesh’s per-capita GDP dip briefly below the US$300 mark
in 1991, but by 2001 it had crossed the
US$400 mark. It is arguable that the half decade preceding this, roughly 1996 to 2000, were the incubation years for Bangladesh. On the surface, little hap- pened. Per-capita income was rising, but slowly. The nation faced foreign exchange shortages but was able to work around them. Poverty was declining only gradu- ally; the percentage of the population liv- ing below the poverty line fell from 46% in 1995 to 44% in 2000 (Sen 2003). But, a lot was happening beneath the surface that would yield results over the next two decades. Bangladesh’s telecom sector was putting down roots. The manufacturing sector was gathering strength and, inter- estingly, was playing a role in women’s empowerment. By 2001, garment exports reached US$3.1 billion, 52% of the coun-
try’s exports; more importantly, 1.5 mil-
lion people were working in this sector, a
majority of them women (Hossain, Kabir,
and Latifee 2019). There also was a sharp
increase in the production of a high-yield-
ing variety of rice (Sen 2003).
These were critical long-term drivers,
although not much happened immediate-
ly after that period. Initially there was a
slow economic pick-up. Then, in the mid-
dle of the first decade of the 21st century,
real change began. By 2006, the benefits of
the incubation years were clearly visible.
In the following years, up till 2020, the
Bangladesh economy experienced what
may be described as a 15-year gallop. Per-
capita income crossed the US$500 mark for the first time in 2006, and Bangladesh grew faster economically than the much richer Pakistan. This initially was treated as an aberration, but Bangladesh has out- paced Pakistan every year since then. In 2014, Bangladesh had a per-capita income of US$1,119 and it soon overtook
Pakistan.3. Today its per-capita GDP
Table 1. Bangladesh’s Per-Capita GDP
in Current US$, Select Years Source: The World Bank as measured in current US dollars. Table 1 shows the data for select years, which were chosen for reasons that will be explained below. The figure com- pletes the picture by showing the coun- try’s full economic trajectory from 1960 to 2020. Clearly, independence was good for the Bangladesh economy. In the decade preceding independence in 1971, the region was abysmally poor, with shock- ingly low per-capita income and hardly any sign of improvement. In 1962, the per-capita income was US$100.10; at the
time of independence, it was US$133.60. The figure depicts the four or five years of turmoil that occurred after Bangladesh gained independence from Pakistan, and the table shows that, by 1976, per-capita GDP had inched up to US$141.20. It
crossed the US$200 mark for the first time in 1979. After that, growth was steady but slow, and the US$300 mark was breeched
for the first time in 1990.
30
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The Bangladesh Economy: Navigating the Turning Point
Figure 1. Bangladesh’s Growth Trajectory, 1960 to 2020
Source: The World Bank
closely rivals India’s and significantly
exceeds Pakistan’s. Bangladesh hit the
headlines in early 2021 when, according
to World Bank data, Bangladesh’s 2020
per-capita GDP was reported to have
overtaken India’s by US$68.8. It is arguable that this is an aberration because 2020 was a dismal year for India, whose economic growth plunged in ways seen in only a few countries and is expected to pick up again in the near future. Bangladesh’s growth slowed in 2020, which was in keeping with what hap- pened the world over as the COVID-19 pandemic caused a global recession. In fact, as pointed out above, in comparative terms, Bangladesh has done extremely well. This was a brief history of the Bangladesh economy. The country is now a leading global exporter of ready-made garments, and other sectors are taking off too, such as Bangladesh’s pharmaceutical industry. With 300 pharmaceutical com- panies, several of them doing research, the nation now produces 97% of its domestic demand and is beginning to export pharmaceutical products to other nations. of What are the drivers behind the remarkable the performance Bangladesh economy? As with all coun- tries, the rise of Bangladesh is a story of both deliberate intervention and chance. Let me begin with an important noneco- nomic driver of economic progress, which was an unexpected byproduct of progressive in Bangladesh. experiments social The country owes a large part of its success to progressive nongovernmental organizations (NGOs). Bangladesh has long been a veritable hub of NGO experi- mentation, in many ways due to a part- nership with the government, which had the foresight to create a space where these NGOs could experiment and flourish. One particular intervention that emerged from this brew and played a larger role than anyone expected was the early effort to distribute microfinance credit. This was mainly done with senior female house- innovations / volume 13, number 1/2 31 Downloaded from http://direct.mit.edu/itgg/article-pdf/13/1-2/28/1978760/inov_a_00281.pdf by guest on 07 September 2023 Kaushik Basu hold members, in contrast to the tradi- tional practice in most developing coun- tries of lending mainly to the male heads of household. I argued in Basu (2006) that giving money to women was hugely empowering and gave them a greater voice in the home, which in turn helped direct a greater share of household spend- ing toward child welfare. There is evidence from around the world that, in two households with the same income, those where a larger share of the income comes from the wife rather than the husband will spend more to ensure the well-being of the children in the household.4. This has translated into better nutrition, higher rates of female lit- eracy, and, ultimately, higher productivi- ty. NGO activism in Bangladesh con- tributed to this in a big way. As Rahman (2010) noted, Bangladesh’s NGOs and microfinance institutions that brought about a major break- through in reaching out to the rural poor . . . Their programs were designed with some degree of gen- der bias favoring women, in the women’s presumption enhanced financial standing and stature in the traditionally male- dominated families will lead to better upbringing and education . . . [for] their children.5. It also can be shown that educating one person in a household can increase the productivity of the entire household (Basu, Narayan, and Ravallion 2001). These drivers, along with a high level of female labor participation in the garment and leather goods sectors, have made women’s empowerment a key to develop- ment in Bangladesh. Furthermore, increased female participation in the labor force pretty much across the econo- my has been a striking feature of Bangladesh, and it seems have gone hand- in-hand with the higher GDP growth (Rahman and Islam 2013). The large and progressive NGO sec- tor in the country also worked with a cooperative government sector to push other kinds of social development, whether by fostering schooling especially for girls, or by facilitating large-scale improvements in health by coopting local communities in a bottom-up action. As reported in Amin and Basu (2004), rural interviewees in Bangladesh (and West Bengal, India) “unambiguously perceived major declines in infant and child mortal- ity and attributed these declines to factors that are consistent with the assessment of experts.” Public understanding of the causes of poor child health were remark- able, even among the old and the unedu- cated.6. Another key to Bangladesh’s eco- nomic growth is the pioneering microfi- nance institutions that have enabled households to break out of the debt trap and start their own small businesses. Using a computable general equilibrium model, Raihan, Osmani, and Khalily (2017) showed that microfinance did more than just help the households that received money; by bolstering fiscal and monetary policies, it boosted the coun- try’s GDP by 9%-12%. In terms of more conventional sources of growth, it is worth noting that the most vital variable in mainstream neoclassical economics, the rate of capital accumulation or the investment rate— that is, the share of the total national out- put that goes to investment rather than consumption—saw a steady rise in Bangladesh. As Osmani (2010, 37) notes, that has “The growth acceleration occurred in Bangladesh since about 1990 has been underpinned by a faster rate of capital accumulation.” The investment rate rose from less than 10% in the 1970s to 20% in the 1990s. As of June 2020, this rate was 31.8%. At the time of independence in the 1970s, a sudden withdrawal of businesses 32 innovations / Bangladesh at 50 Downloaded from http://direct.mit.edu/itgg/article-pdf/13/1-2/28/1978760/inov_a_00281.pdf by guest on 07 September 2023 The Bangladesh Economy: Navigating the Turning Point from Bangladesh left an entrepreneurial vacuum. This had to be filled by new local talent, and the country has since seen a flourishing of small businesses. This entails indulgence in “thick description” (in the sense of Geertz 1973) on my part, but one can see evidence of this just by looking around. Even among migrant Bangladeshis living outside the country, one sees a substantial number striving to move out of labor to run small businesses, from street-corner stores to, increasingly, larger ventures. This is a subject deserving of future investigation. With the higher level investment now available, these businesses have the potential to become more productive. However, for entrepreneurship to flourish, the country needs a full ecosys- tem. This is the age of large returns to scale. Some of Bangladesh’s exporting firms are large, which has helped them reap the benefits of scale. I believe there was an unexpected driver for this in Bangladesh, which is not widely acknowl- edged and had a lot to do with luck. It is well known that the Indian subcontinent has complex labor laws, most notably the Industrial Disputes Act 1947, which dates back to a few months before India and Pakistan gained independence from Great Britain in August 1947. This law has played a role in thwarting the emergence of large manufacturing firms that are able to realize economies of scale. Pakistan repealed the law in 1958, but for the wrong reasons; it did so to enable big corporations to control their workers, especially in East Pakistan. Moreover, it did so in a ham-handed way, thereby con- tributing to labor exploitation and crony capitalism. Having once been part of Pakistan, Bangladesh was born without the baggage of the 1947 law; unlike Pakistan, it developed its own labor regu- lations that were flexible without giving corporations unfettered power. This played an important role in Bangladesh becoming a successful global manufactur- ing hub, especially its garments sector. There is still work to be done in Bangladesh to protect worker safety and in other dimensions of labor rights, but it cannot be denied that this unexpected turn of history, and the regulatory system that Bangladesh inherited, have enabled Bangladesh to have considerable flexibili- ty in the manufacturing sector, thereby facilitating the creation of large firms with high returns to scale that have enabled them to out-compete many other emerg- ing nations. such as Some of the country’s garment-pro- ducing firms resemble manufacturing corporations in advanced economies. I had firsthand experience with some of these corporations at the end of 2015, when I visited Bangladesh (Basu 2021a). Manufacturing units, the Viyellatex Garment Factory in Gazipur, outside Dhaka, embody a lot of these new economic strengths. This firm is a pio- neer, including its modern facility that provides workers with a safe and pleasant workspace. The factory is designed to let in ample sunlight in order to reduce the use of electricity, and the company pur- chased an abandoned tea garden where it planted trees to offset its carbon emis- sions; it has pledged to be carbon neutral within a few years. The firm also stands out for its wage payment system, which is done via mobile banking using an indige- nous electronic payment and money- transfer platform. Paying workers’ salaries via mobile banking makes it easi- er for them to keep tabs on their money and reduces the cost of transferring money. This has led to increased worker productivity because less time is spent visiting banks and post offices in order to make deposits and send money home to needy relatives. In conversations with the workers, they told me that they could now instantly transfer money to their families and innovations / volume 13, number 1/2 33 Downloaded from http://direct.mit.edu/itgg/article-pdf/13/1-2/28/1978760/inov_a_00281.pdf by guest on 07 September 2023 Kaushik Basu whomever else they wished to because of the ease of mobile banking. This was a gain for the firms, as the workers now did not lose time as they previously had on payday, when they spent time trying to deposit their money and to send some home. Of course, the Gazipur factory is a special case that stands out because few developing economies have such “green” factories. the from Since the late 1970s Bangladesh has instituted vital reforms around exchange rate management and trade policy, which has enabled the nation’s initial vacuum in entrepreneurship to be filled in by a newly emergent class of small indigenous entre- preneurs. This has been accompanied by an influx of capital in the form of remit- tances large number of Bangladeshi migrant workers, who have been driven to countries all over the world by the years of poverty and famine. The liberalization of trade and exchange rates, alongside the regulatory system the country inherited, created a lucky brew. By 2010, it was evident that Bangladesh was in a mode of export-led growth, and the money flowing in from investments and remittances was fueling the economy. World Bank data show that, by 2020, Bangladesh was seventh in the world in inflow of personal remittances, the behind India, Mexico, Philippines, Egypt, Pakistan, and France, and ahead of China, Germany, and Nigeria. These are the world’s ten largest remittance-receiving nations; India, the world’s largest, received US$83.1 billion
in 2020, while Bangladesh received
US$21.7 billion. For India, the inflow of remittance was 3.2%; for Bangladesh it was 6.7%. This naturally made a big dif- ference, since access to hard currency cre- ates flexibility the economy otherwise might not have. (in order) It is important to recognize that a large inflow of remittances is not neces- sarily good for an economy. There are nations whose economy is dependent on remittances and thus has become slug- gish. Determining whether these large inflows will be beneficial for a nation depends largely on the country’s existing economic conditions. In the case of Bangladesh, the large influx of remit- tances played a positive role, thanks to the reforms that had already taken place in the labor markets, the adoption of a flexi- ble exchange rate regime, and trade liber- alization. An econometric study by Paul and Das (2011) showed that, while remit- tances did not have a short-term impact on growth in Bangladesh, in the long run, one way or another, they have played an important and positive role. of crisis financial The resilience built up during the nation’s early years and the phase of the 15-year gallop were evident during the global 2008. Bangladesh’s economy navigated the cri- sis rather well. While most emerging economies’ exports to the US saw a set- back in the immediate aftermath of the financial crisis, Bangladesh was among the few nations that saw positive growth. The main advantage Bangladesh had was its ability to cut costs in US dollars during this period (Murshid et al. 2009). This arguably happened because of the exchange rate and trade policies that had already been put in place, and because of the country’s flexible labor laws, which neighboring India did not have. Another sector that has provided an important foundation on which other sectors can flourish, often beneath the surface, is the telecom industry. Mobile subscriber penetration in Bangladesh has now reached nearly 94%; it was just 30.6% as recently as 2008. The telecom sector now directly employs 760,000 people, but since the sector provides the essential infrastructure for many others, the num- ber of jobs this sector has created indi- rectly far outstrips the direct effect. This sector also owes a lot to public-private 34 innovations / Bangladesh at 50 Downloaded from http://direct.mit.edu/itgg/article-pdf/13/1-2/28/1978760/inov_a_00281.pdf by guest on 07 September 2023 The Bangladesh Economy: Navigating the Turning Point collaboration, which experienced a big expansion in 1996, when new private firms and operators were licensed to enter the mobile industry. There has been no looking back since then. Much of what I am arguing here is borne out by the remarkable trajectory of the total foreign exchange reserves held by the Bangladesh Bank. Up to 2012, the total reserves were almost flat, though adequate in terms of global benchmarks, if barely so (Islam 2009). But, after 2012, the effects of the nation’s trade and fiscal policies became clearly observable. That year, Bangladesh Bank had reserves of approximately US$10 billion. After that,
the curve that had been stubbornly hori-
zontal changed dramatically, and in 2017
the nation breeched the US$30 billion mark for the first time. It was big news in May 2021 when reserves passed US$45
billion, which created flexibility and the
ability to manage exchange rate fluctua-
tions, with benefits for the nation’s econ-
omy that was unthinkable even a decade
ago. It is usually considered adequate if a
nation has sufficient reserves for six
months of normal imports; Bangladesh
now has enough for ten months.
Finally, we need to step beyond eco-
nomics in looking for the causes of the
nation’s economic trajectory. A crucial
political factor underpins Bangladesh’s
economic success. It is unfortunate that
the current government has been criti-
cized for its intolerance of dissent and for
shrinking the space for critical media, but
it nevertheless has made one essential
contribution to the country’s upward tra-
jectory. Bangladesh has been challenged
by fundamentalist groups that renounce
what prominent Bangladeshi commenta-
tor Abul Barkat described as the “liberal
and humanistic origin of Islam in East
Bengal” (see Barkat 2013), and although
the nation’s constitution guarantees reli-
gious freedom, the current government
has kept these destructive forces at bay.
Many other countries have succumbed to
religious fundamentalism, with disastrous
consequences for their economies, but
Bangladesh has thus far resisted this.
There is a connection between politi-
cal polarization, which often is caused by
religious fundamentalism, and economic
performance. Research evidence on the
close connection between a society’s level
of trust and its economic progress
(Fukuyuma 1996; Fershtman and Gneezy
2001) makes the following broad argu-
ment.7. Trade and exchange are facilitated
by a host of standard assumptions that
economists make explicitly about fiscal
and monetary policies, about the exter-
nalities generated by trade and produc-
tion, and about laws pertaining to how
these are handled. However, they also
make less explicit assumptions that are
nevertheless
important to economic
activity.
Certain social norms, such as respect
for other people’s rights, the propensity to
live up to one’s promises, and trust and
trustworthiness, are important but often
are not made explicit; I refer to them as
“assumptions in the woodwork” (Basu
2021b). A society lacking trust has a huge
handicap. For example, not every con-
tract can be backed up by the law, there
often is a time lag between a job being
done and payment being made, and many
transactions do not take place at all. Thus,
some markets do not develop because of
the risk of cheating.
It therefore is no surprise that soci-
eties that have developed trust have more
active trade and exchange, and thus expe-
rience greater growth and development
(Fukuyama 1996). The general idea that,
to understand economic development we
need to cross boundaries and examine the
political and sociological foundations of
economics, has a long history (see, e.g.,
Hirschman 1981), but since this idea is
difficult to formalize, the propensity
among economists has been to ignore this
innovations / volume 13, number 1/2
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Kaushik Basu
extradisciplinary embeddedness.
Political polarization and heightened
divisiveness erode people’s trust. This
often causes trade and investment to
decline, businesses to falter, and growth
to slow. These sociopolitical drivers of
growth lie beyond the concerns of main-
stream economics and are not fully
understood by almost all economic poli-
cymakers, but it is folly to dismiss them
for that reason. We should in fact make a
greater effort to understand them because
economic development and growth are
largely predicated on them.
THE CHALLENGE OF A
POST-PANDEMIC WORLD
the
remarkable
Despite
progress
Bangladesh has made, in particular its 15-
year gallop, the tale has by no means
ended. Bangladesh’s successful trajectory
from here on is not a forgone conclusion.
Nations have stalled at different stages of
development, and while economists talk
about low-income and middle-income
traps, in truth there is an “every-income”
trap. Bangladesh is now a middle-income
nation, but it not out of the woods yet. It
has its own geopolitical challenges, and
climate change could blight its future
prospects. Furthermore, thanks to the
dramatic impact the COVID-19 pandem-
ic has had on the global economy, the
ground beneath our feet is shifting (Basu
2021b), and the world will see new win-
ners and new losers. Some of these tecton-
ic shifts are global matters over which
Bangladesh has little control, but how
Bangladesh navigates the new world over
the long term will largely depend on how
it handles these coming changes.
My assessment is that the world
economy will see two major shifts over
the coming years. The first pertains to
globalization. There is a lot of talk about
how the major disruptions in the global
supply chains that occurred during the
pandemic will result in deglobalization or
at least a retreat from globalization. I
expect deglobalization to be a short-term
effect of the current turmoil and that, in
the long run, the turmoil will lead to a
speeding up of globalization, rather than a
slowing down.
The main reason I believe this is the
learning-by-doing that has occurred over
the last year and a half. Digital technology
has been on the rise over the last two or
three decades, but what happened during
the pandemic was like a novice swimmer
being pushed into the deep end of the
pool. Ordinary people with no training in
the use of digital technology have sudden-
ly become conversant in it. We have
learned to use Zoom and Webex to give
lectures, hold meetings, make intricate
decisions, all often while sitting at home.
This is bound to boost the use of these
technologies over the coming years. Even
when the pandemic is over, we will be giv-
ing long-distance lectures and doing our
work while sitting at home. This in all
likelihood means that outsourcing and
global connectivity will increase, which
holds huge potential for developing coun-
tries. There are bound to be new winners
and losers. Bangladesh’s telecom sector,
which has been enormously successful
the
since
Bangladesh economy, provides the nation
with a good foundation for this new glob-
al economy. Indeed, policymakers would
do well to bolster this sector further.
incubation years of
the
The second major change will be the
speeding up of using machines, robots,
and artificial intelligence to replace
mechanical and routine labor. This will
mean a rise in unemployment for workers
who are unskilled or skilled only in
mechanical work. With the rise of tech-
nology, human employment will shift to
more creative activities, and nations that
are able to capitalize on this shift will be at
the forefront. In keeping with this, the
content of GDP is likely to undergo a fun-
36
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The Bangladesh Economy: Navigating the Turning Point
damental change, with the consumption
of standard luxuries like cars and homes
and hotels being displaced in part by the
acquisition of better and greater con-
sumption of healthcare, and more art,
music, and education. Once again, this
implies an expected shift in the kind of
work human beings will do in the future.
Nations that are able to capitalize on this
will do well, and those that cannot will be
left behind.
In the case of Bangladesh, much will
depend on the education sector. The
country will need to step up its provision
of modern education that equips the pop-
ulation to move away from mechanical
work and nurtures creativity. Developing
and emerging economies
such as
Bangladesh and India can stay on the tra-
ditional path for another five or ten years
by simply taking advantage of their abun-
dant cheap labor. As the world becomes
more connected, digitally and otherwise,
nations with cheap labor and a modicum
of peace, law and order, and good connec-
tivity will be able to grow, and work will
move to them from advanced, high-wage
economies. But, business as usual is
unlikely to work for long as the demand
for traditional labor declines the world
over, which is bound to happen, especial-
ly with the learning-by-doing boost given
by COVID-19.
This is where education, especially
creative higher education, will play a
major role. Over the last few years, we
have seen the dramatic effects good edu-
cation can have on a society and its econ-
omy, as in South Korea. Bangladesh is a
region of Asia that historically has valued
education, learning, and literature, and it
will be critical for the country to nurture
its universities and institutes of higher
education. Given its success in many
areas over the last 15 years, an initiative of
this kind can potentially advance the
Bangladesh economy in the way some
East Asian economies have done in the
past.
The word “potentially” is deliberate
here, as there are no certainties in eco-
nomics (or, for that matter, in life). But
there are other pitfalls that Bangladesh
has to be aware of. Needless to say, it is
important for a nation to get its fiscal,
trade, and exchange rate policies right,
and other standard matters of economics.
Fortunately, Bangladesh seems to be on
track on these matters.
A larger danger arises outside of eco-
nomics. As briefly pointed out above, the
success of an economy depends on many
implicit assumptions that are so taken for
granted that we do not spell them out
explicitly (Basu 2021b). I mentioned one
example of this above—trust. A successful
economy needs a minimal amount of
trust among its citizenry, and a strong
moral compass that draws lines the peo-
ple refuse to cross (Basu 2018).
The trouble with these assumptions is
that we do not know well enough how
they can be preserved and nurtured. But,
we do know that a nation’s leadership
plays an important role. There is clear evi-
dence from around the world that reli-
gious fundamentalism can divide a socie-
ty and damage trust among individuals,
which also damages trust in and ultimate-
ly hurts the economy. Many leaders have
a natural propensity to stamp out dissent,
and that kind of top-down authoritarian-
ism hurts creativity and progress.
There can be no denying that the
world has examples of authoritarian
regimes that have been successful. But, in
general, authoritarianism hurts an econo-
my. In the modern world, where creativi-
ty is likely to be ever more important, fail-
ure on this score is likely to hurt growth.
Hence, for a nation to succeed, it will need
farsighted political leadership that is will-
ing to put up with the discomfort of dis-
sent, contradiction, and criticism in order
to promote the greater good of the nation.
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Kaushik Basu
Given the critical stage Bangladesh has
reached, one hopes that the leaders now at
the helm of politics and economic policy-
making will have the sense not to snatch
defeat from the jaws of victory.
To close on a personal note, I remain
optimistic for Bangladesh. Despite occa-
sional setbacks, it has managed to keep its
society relatively open and inclusive. Its
economic policies have been reasonably
balanced and mature. Its civil society and
NGOs have played a hugely positive role
in the nation’s progress. My hope for the
future of higher education and creativity
arises from my personal experience when
I visited Dhaka in December 2015 in my
capacity as chief economist of the World
Bank. As I noted at the end of my “Dhaka
mission” in my diary from my policy
years, which involved travel across the
world, “I have never been to a country
where I was given more books than in
Bangladesh. Every other person seemed
to be thrusting a book into my hand that
he or she had written” (Basu 2021a, 332).
There was more than one occasion when,
after giving a lecture, I discovered that I
was holding new books that had been
thrust into my hands by the authors while
I was focused on my lecture. The key to
success in Bangladesh will be to adapt this
intellectual and creative enthusiasm to the
new age.
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1. This comes out beautifully in the prison
diary of the nation’s founding father,
Sheikh Mujibur Rahman. The diary begins
with how his friends urged him to write a
diary and one day his wife, visiting him in
prison, said, “You are idling anyway. Write
your life story.” He begins by pleading that
he is no writer and has few achievements to
write about. Then he adds, “The only thing
I can say is that I have been ready to make
personal sacrifice for the sake of justice and
idealism” (my translation from Bengali,
from Sheikh Mujibur Rahman, 2012). The
same book quotes his later “Personal
Notebook”: “As a man, what concerns
mankind, concerns me. As a Bengali, I am
deeply involved in all that concerns
Bengalis. This abiding interest is born of
and nourished by love, enduring love,
which gives meaning to my politics and my
very being” (my italics).
2. “Basket case” was the expression used by
Henry Kissinger, who was then the US
National Security Adviser. As Sen (2013
1,966) has noted, “Self-assured
commentators who saw Bangladesh as a
‘basket case’ not many years ago, could not
have expected that the country would jump
out of the basket and start sprinting ahead
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Kaushik Basu
even as expressions of sympathy were
pouring in.”
3.A lucid account of the unexpected and
dramatic transformation of the
macroeconomy of the Bangladesh occurs
in Rahman (2021).
4. One of the early studies on this was by
Desai and Jain (1994), based on evidence
from India. In the context of Bangladesh,
see Rahman (2000).
5. A new body of evidence from carefully
controlled statistical studies show that
giving women greater control over their
earnings can influence gender norms and
labor force participation (Field et al. 2021).
This sheds indirect light on why in India,
despite recent increases in better-paying
jobs, women have not been attracted into
the labor market and also on why
Bangladesh has had greater success in
drawing women into the labor force.
6. Indeed, there is some suggestion (see, e.g.,
Amin, Basu, and Stephenson 2002; Basu
and Amin 2000) that the cultural attribute
of “Bengaliness,” a strong sense of language
identity that transcends religious and
political differences, may have also
contributed to social development through
greater transborder interactions between
Bangladesh and West Bengal, and thus
greater exposure to new ideas on both
sides. The role of such language
commonality across borders has been well
described in descriptions of historical
demographic change in Europe (Watkins,
1986).
7. For a discussion of the vital role of ethics,
morals, and institutions for economic
development, with illustrations from
Bangladesh, see Mahmud (2021, chap. 3-4).
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