By Kazi Anwarul Masud*
American economist Geoffrey Sachs (Columbia University and an expert on economic development and poverty) considers geography of nations as a true driver of economic development “because it affects the profitability of various kinds of economic activities, including agriculture, mining, and industry; the health of the population; and the desirability of living and investing in a particular place…. As human-led climate change progresses, many regions could well be hit by devastating environmental shocks, such as heat waves, droughts, and floods, that are far beyond their control” (Foreign Affairs Sept/Oct 2012).
Sachs counters monocausal theory of Daron Acemoglu and James Robinson’s (Why Nations Fail) that governments that protects property rights and represent their people lead their economies to prosperity and those that do not end up with stagnant and declining economies. State capitalism that promoted the economic development of South Korea during Park Chung Hee’s military regime coupled with those of China, Taiwan, Vietnam belie the claim that only capitalism with Western values can lead the country to prosperity.
China today is the second largest economy in the world though its growth has been recently arrested by the outbreak of coronavirus disease that has virtually quarantined the country from the rest of the world. Given the fact that China accounts for 16% of the global output the disease is bound to have global impact in particular small Asian countries linked to China who do not have sufficient cushion to absorb the ill effects and may slide into recession.
A Reuters report sounds an optimistic note (London 20th February) to the effect that epidemics normally have a severe but relatively short-lived impact on economic activity, with the impact on manufacturing and consumption measured in weeks or at worst a few months. Even pandemics such as the Black Death (1348/49), Spanish influenza (1918/19), Asian influenza (1957/58) and Hong Kong influenza (1968/69) that caused large numbers of deaths had a brief impact on the economy.
China’s coronavirus outbreak should conform to this pattern of a severe downturn followed by swift recovery, provided it does not initiate a broader cyclical slowdown in the already-fragile global economy. China witnessed an economic growth of 6.1 per cent in 2019, the slowest in recent years. And the International Monetary Fund expects it to slide further to 6 per cent and 5.8 per cent in the next two years. The Coronavirus strike will impact consumer spending in China, which may further impact the economy and the trade pacts with the US.
The Federal Reserve Bank chief Jeremy Powell considers China’s economy as very important in the global economy now, and when China’s economy slows down it is felt by the USA though less than countries near to China or those actively trading with China like some Western European countries. Coronavirus aside one may question the efficacy of state capitalism as a strategy for economic growth. The recent Bangladesh government decision fixing deposit and lending rates by banks and post offices has been described as “financial repression’” ( Financial Express 12-02-2020) that may cause significant drag on growth, according to a study, ranging between 0.4 to 0.7 % of the GDP. This repressive approach was justified by some governments on John Maynard Keynes’ argument to distinguish between investment for productive purposes and those for speculation.
Such an approach has been criticized by another school of economists who opposes artificial imposition of ceilings to encourage investment and calls for market forces to determine the preferred rate of interest and encourage competition among banks and financial institutions. Particularly galling has been interest cut in postal savings as it directly affects the middle and lower middle class in Bangladesh who account for 70% of the account holders. Joseph Stieglitz (The Great Divide 2012) has argued that inequality results from conscious political decisions which results in a world of super-rich, a vanishing middle class and growing poverty. Stieglitz also questions the efficacy of a government that embraces political capitalism—a system where the rich and the powerful influences government choices that in Hobbesian terminology ends up as being “nasty brutish” and ultimately selfish and protects the interests of their own class.
Political capitalism can also be defined as an economic and political system in which the economic and political elite cooperate for their mutual benefit. Perhaps one may wish to visit the Great Gatsby Curve introduced by Alan Krueger, Chairman of the Council of Economic Advisers in 2012 illustrating the connection between the wealth of one generation facilitating the following generations to have or even surpass the wealth of the earlier generation and the possibility of the poorer in the earlier generation unable to pass on any wealth to the following generation thus denying them the opportunity to climb up the both social and economic ladder.
Bangladesh has had the highest rise in its ultra- wealthy population, surpassing any other country in the world. The growth rate, calculated by Wealth-X, a global financial intelligence and data company, stands at a solid 17.3 percent. If Bangladesh had 100 Super rich in 2012, for example, the number should stand at 219-220 by 2017. In other words, the number of super-rich more than doubled in our country in just five years. At the same time defaulted loans despite easier payment terms accorded to the defaulters has not eased the problem of loan default.
Billions of dollars are suspected to have been siphoned off to safe heavens abroad. According to Global Financial Integrity Report 2017, Bangladesh topped the list of least-developed countries in terms of “illicit financial flows”. In 2014 alone, Bangladeshis laundered USD 9.11 billion to foreign countries. At the end of 2016, the amount of money Bangladeshis deposited with Swiss Banks stood at USD 683 million—near equivalent to the amount deposited by Indians. (Daily Star 20-09-2018). Truly Joseph Stieglitz’s observation on “A banking system is supposed to serve society, not the other way around” appears to have fallen on deaf ears. Yet incontestably Bangladesh economy broke through a period of stagnation and even regression through robust export of garments and remittance of Bangladeshis working abroad and today has become the third fastest growing economy in the world.
The Gross Domestic Product (GDP) in Bangladesh was worth 274.03 billion US dollars in 2018. The GDP value of Bangladesh represents 0.44 percent of the world economy. GDP in Bangladesh averaged 53.02 USD Billion from 1960 until 2018, reaching an all-time high of 274.03 USD Billion in 2018 and a record low of 4.27 USD Billion in 1960. The Gross Domestic Product per capita in Bangladesh was last recorded at 3879.20 US dollars in 2018, when adjusted by purchasing power parity (PPP). The GDP per Capita, in Bangladesh, when adjusted by Purchasing Power Parity is equivalent to 22 percent of the world’s average. Bangladesh apparently is doing well. Yet apart from growing inequality in the distribution of income one would be well advised to bear in mind the dystopian pictures drawn by MIT husband and wife team ( The Limits of Growth-1972) of the world facing an “over shoot and collapse” by 2100 unless the world took seriously the environmental and resource issues.
According to the book, to feed the continued growth in industrial output there must be ever-increasing use of resources. But resources become more expensive to obtain as they are used up. As more and more capital goes towards resource extraction, industrial output per capita starts to fall – in the book, from about 2015.As pollution mounts and industrial input into agriculture falls, food production per capita falls. Health and education services are cut back, and that combines to bring about a rise in the death rate from about 2020 (The Guardian 2nd September 2014).
The emerging economies in particular those in South Asia should take lessons from these discourses. Inequality should not be allowed to fester. Growth that does not serve the interest of the majority of the population means only economic figures. The world- both the developed and the developing- should strive for gender equality. Climate change should be a central issue in international conversations. Political capitalism- a momentary solution of economic woes- cannot be the hall mark of economic growth. Social Darwinism, the popular theory in the late 19th century that life for humans in society was ruled by “survival of the fittest,” that helped advance eugenics into serious scientific study in the early 1900s has to be avoided at all cost because the world cannot afford another Hitler. Religious divide that contributes to populism should be avoided.
One hopes that the future generation would be able to inherit that is more prosperous and where opportunities are not denied on grounds of religion, caste, creed or the economic circle one is born into.
*The writer is a former Ambassador and Secretary in the Foriegn Ministry of Bangladesh.