From Bottomless Basket to Development: A case study of Bangladesh Economic Development

286

About the Author(s)

Abstract:

Development is the change in the human condition over time. It is the gradual, and time taking process. It can be positive and negative as it depends upon the outcomes of the process. The concept of economic development has actually taken the central position the realm of development as in contemporary times, no development can be achieved by ignoring the economic dimensions of development. To achieve development, there are various types of economic systems are available like free market system based on capitalism, command market system based on socialism, mixed economic system which is the combination of both i.e. the free market and command market. In mixed economic system, both public and private sectors coexist in the market in order to achieve sustainability. Most of the developing nations are making economic progress based on mixed economies like Bangladesh. Bangladesh economic performance since last two decades despite the vulnerabilities is considered as the role model for the developing nations that wanted to boost their ranks in international ranking based on Human Development Index.

Keywords: Bangladesh, Economy, Development, Textile, Mixed Economy.

1.1. Introduction:

The concept development gained importance in the post-World War II era and it usually refers to ‘change’ with respect to the human condition. It is highly complex and contested term, subjective in nature as it is being associated with many parameters which changes from time to time. In 1950s or 1960s, the concept was usually associated with the structural transformations as it was the era of de-colonization.

The process of liberation of people was being associated with the development at that time. The more the people got freedom the more they get developed but this view of development slip from the view when economic or financial institutions gained importance. It was then when the concept of development gets associated with the international agencies that were donating or investing in different areas of the world. It gets associated with the phenomenon like poverty reduction, or Millennium development goals. The third view of development is associated with the post-modernists approaches which define development as the social construct or a discourse or set of ideas because it is the discourse which define the value of the concept or things (Jair Soares Jr., 2008, pp. 104-124).

Since the 21st century, the concept of development has predominantly been associated with economy, i.e., economic development, which is often used as a synonym for economic growth. It also conventionally refers to the process of industrialization or modernization in which the traditional society (agrarian) changes itself into an industrial society so that the production in that particular society increases (Hla Myint, 2024). The economic growth usually characterized by the production and mass consumption. If the production increases, the more employment opportunities are created, the more people have jobs they will earn and have income to buy the products. There are four phases of growth i.e., expansion, peak, contraction and trough.

The economic development or economic growth can be measured by the calculating GDP, GNI, purchasing power of people, life expectancy, health, knowledge and education of a particular state. These all factors collectively came under the umbrella of Human Development Index which is way to determine the conditions of people living in the particular state or an area. There are different types of economic system which include free market system in which these is no intervention of the government is allowed and based on the ideology of capitalism. The other type of economic system is of command economy in which everything is under control of government and based on the ideology of socialism. Modern developing states are following another type of economic system which is known as mixed economic system which is actually a mixture of command and market economy (What Is Economic Growth and How Is It Measured?, 2023).

1.2. Mixed Economic System:

Mixed economic system is the system in which the characteristics of both free-market system and command economic system are combined in such a way that advocates sustainability in the economy. It is actually an amalgam of socialism and capitalism, having both state owned enterprises and private enterprises. In this type of system, there is co-existence of both type of enterprises. In market economies, the private industries are set to free in the market to do business and earn profit. The prices of the goods are determined by the supply and demands of goods in the market. The allocation of the resources is also dependent on the supply and demand. On the other hand, in command economies the market is regulated by the government or the major enterprises are owned by the government. The prices and allocation of resources is dependent on the government.

However, in mixed economies, the public and private sector work in the same environment. There is certain amount of liberty for the private sector so that they could run business, use capital and earn profit. The government intervention is also allowed in this type of system in order to provide opportunities to the local businesses and to collect taxes. It also helps the government in its social welfare (CFI, 2020). The main goal of this type of system is to achieve balance between fair economic system and efficiency of market economy. The purpose of government intervention in the market is to achieve social and welfare goal by regulations like redistribution of resources and introduction of reforms in the industry. Meanwhile, the private individuals and business were given edge to do business on the basis of supply and demand. The ownership of factors of production are also under control of both public and private sectors. The factor of production includes land, labor, capital etc. Along with supply and demand, government also plays an important role in regulation of prices. It sometimes controls prices to avoid monopolization of certain elements by providing subsides to avoid inequality in the market (Mixed Economy, 2022).

1.2.1. Characteristics of Mixed Economies:

It is profit oriented, capitalistic free market, and have some civic welfare purposes of socialistic economy. Here are some characteristics of mixed economy:

Public-Private sector: The private sector is usually the businesses and public sectors is characterized by the private business, consumer goods, agriculture that run by the private industries. Whereas, the public sector includes services like water and energy provision, defense, mail delivery, law enforcement etc.

Ownership: In this type of system, individuals have right and liberty to own the property and the public properties like, schools, parks, and libraries are governed by the government.

Liberty and freedom: People or citizens have freedom to choose their own type of occupation they want and can have businesses and have certain power in the market but when there is some sort of wealth concentration to be noticed in the market, government have to intervene in order to keep the system going with equality.

Planned Economy: The government planned the economic system in order to avoid any depression and to achieve certain goals that lead to the growth of the economy in a positive manner. The government also introduces policies so that the gap between society in terms of wealth can be made narrower, i.e., the poor gap. Government has the duty to create opportunities so that people could have adequate income.

Prices: The prices of goods and services in the mixed economies are dependent on the supply and demand phenomenon.

Profit-oriented: The companies, enterprises have profit incentives in the market. They set up the businesses and earn profit by selling their products and services. However, government ensures that no business could make monopoly in one sector.

Welfare purposes: The main goal of the government is to assists its citizens by planning the economy in such a way that citizens can have proper health, education and security services as it is considered as the right of individual and duty of state. So, by intervening in the market can help the government to achieve its welfare goals (Mixed Economy guide, 2022).

1.3. Bangladesh Economic Growth:

Bangladesh is South Asian state highly populated state. It emerged as a separate state in 1971 after the ninth month long liberation war as previously it was the part of Pakistan. Bangladesh share its borders with two states mainly as it surrounded by India from North, East and West and at its Southeast, it share borders with the Myanmar. It is the least developed state having high population. It is democratic republic state based on the ideology of socialism by constitution. The recent Bangladesh economic growth draws the attention of the whole world towards it and it will graduate the status of LDC in 2026 as its economy meets all the criteria which UN has set for states which is based on GNI, GDP, Human development index and purchasing power of the people. The national currency of Bangladesh is taka. Bangladesh by constitution is socialist economy but practically it followed the mixed economic system which boosted its growth and development of citizens.

1.3.1. Historical Background:

As most of the developing nations have been the colony of some European power, the South Asian region which includes present day Pakistan, India and Bangladesh also had experienced the colonization. Pakistan and India came into existence in 1947 after the dissolution of Britain Empire in India. The Muslim majority of the sub-continent having distinct Islamic identity which decided not to live under the Indian government after dissolution of the British Empire as they fear that they would marginalized politically, economically and culturally if they accepted to live under the mandate of India. So they struggled for the separate homeland on the basis of two nation theory proposed at that time and thus Pakistan came into being. Pakistan were given the areas of Muslim majority in the region which comprises actually the East and western parts having India in the center of both provinces of Pakistan. East Pakistan comprises the 15 percent of the total land of Pakistan and 54 percent the total population of the Pakistan. The culture of both parts of Pakistan was extremely diverse but were the followers of the same religion.

The main reason of disturbance between two parts of Pakistan was the underdevelopment of East Pakistan. East Pakistan was remained underdevelopment under the Britain rule as it was the region prone to floods and natural disasters so the development done by Britain was not fruitful, beneficial to authorities. The other perspective that defined the ignorance of Britain towards this region was the production of cotton which was essential for the textile industry. If Britain invest in the development of this region it would affect the exports of Britain itself as the Britain itself was dependent on textile industry. Another reason was that the Calcutta which was extremely important for the commercial activities of that time so due to this, East Bengal ultimately got secondary position. All these reasons paved a way of underdevelopment of the Bangladesh even after independence.

Even though the areas which become Pakistan either West or East both were underdeveloped and were in very primitive stages of agriculture which was the main source of income at that time and capitalism had not been introduced in this region yet. Same was the case of industries, Pakistan inherited 34 industrial units during partition all were stationed in the West Pakistan, even East Pakistan did not had any jute mill despite being the larger producer of jute in the world. The newly formed government of Pakistan did not have strong and comprehensive strategy to reduce disparities however, it increased as there was massive transfer of resources took place from the East to West at local and official level. The other thing which add fuel was to counter Indian hegemony, for this Pakistan’s policy makers set an overvalued exchange rate which benefited the commercial or industrial sector of Western Pakistan but had an adverse effect the jute competitiveness which was the prime source of earning with respect to foreign exchange.

Pakistan was then tried to convert itself into the industrialized state and devised policies which were favorable to industrialists but in this time East Pakistan was not able to take benefit of this when the environment for industries was conducive. The wealth generated by the Jute was not properly distributed between two wings and same with the case of foreign aid received at that time. The Pakistani businessmen at that time also used to transfer the profit earned in East Pakistan to West Pakistan and did not invest in the Eastern part. This happens same in the sector of banking. The trade was the area where the gap was increasing between the two wings as West Pakistan manufactured goods and trade them off while East Pakistan trade goods in the form of raw material which earned less than the manufactured goods. These all factors contribute in the struggle which was started in the East Pakistan for the separate homeland and after 25 years East Pakistan was able to get its independence after one of the deadliest war of 9 months and emerged as the separate states known as Bangladesh (Raja, 2022).

1.3.2. Emergence of Bangladesh and Bottomless Basket:

Bangladesh had experience very vulnerable times at beginning. The huge amount of causalities resulted from the liberation war as well as from the Bhola cyclone of 1970 and 1974 floods which induced hunger or food crises made the condition of Bangladesh even worst. Almost 5 million people of Bangladesh lost their lives which made up-to 8% of the total population of Bangladesh. At the time of independence, Bangladesh ranked as the world ninth poorest state with maximum income per capita at that time was USD 95, an average life expectancy of 46 years, infant mortality rate was around 210 deaths per 1000 births (Bangladesh: A journey of economic transformation, 2023).

The populist leader Sheikh Mujibur Rehman took the responsibility of the state and become the first President of Bangladesh. He had strong believe in the state owned growth process which was actually based on the socialism (the system in which all factors of production owned by the government). He set out a program named as sonar Bangla (means prosperous Bangladesh) in order to reduce poverty, exploitation and hunger and for this purpose he formulate a planning commission which then launched the first five year economic plan having certain objectives to achieve but due to above discussed problems, the plan was not successful. Due to this backdrop, Henry Kissinger, US secretary of State, called Bangladesh as the Bottomless Basket (Shukla, 2017). As the Bangladesh was the most devastating state at that time making it best place for the experimentations and this is what happens in Bangladesh.

1.3.3. Structural Changes and transformation of Society:

Based on mixed economy, Bangladesh introduced many reforms in order to transform the society and to attain sustainability. Transformation towards industrialization is characterized by structural reforms as policies were introduced at that time to substitute imports so that the local industries can flourished. The most distinct characteristic of industrial system of Bangladesh is that it is dual in nature i.e., one sector which is export oriented based on the ready made garments and the other sector having more shielded approach whose main aim is to supply domestic sector.

Garment and Textile Industry: The Garment and textile industry is one of the significant industry that contributed in the economic growth of Bangladesh and act as the pulling sector of exports for the other states. To attract investors or foreign companies, Bangladesh created free-trade zones to develop factories. Along with this, the cheap labor and low costs of production act as pulling factors for the foreign investors to build industries in the Bangladesh. Instead of exporting raw material, Bangladesh followed the pursuit of the world powers by exporting ready-made garments (RMG) and the finished products which gave a significant boost to the GDP of the Bangladesh. It also provide employment to almost 4.4 million population of Bangladesh. The inclusion of women in the industries also a significant factor as almost 80 percent of labor force consist of females. NGOs and other organizations played very important role in the training and mind making of the women in Bangladesh. Since 2000, the RMG exports rises to eight-folds and of worth around USD 43 billion making Bangladesh to stand in the list of top 3 RMG exporters.

State-owned Enterprise: To introduce diversity in exports, the government of Bangladesh set up Jute Mills Cooperation to export jute and leather finished products but it did not contribute as much as the RMG have done in the GDP. Bangladesh also recognize other factors like electrical equipment, pharmaceutical and food products potential for the exports but these contribute more for domestic use. So the export basket of Bangladesh rise from 846 products to 1009 from 1990s to 2000s (Bangladesh: A journey of economic transformation, 2023).

Agricultural sector: To transform the agricultural sector, a system was introduced in 1973 under the Ministry of Agriculture known as National Agriculture Research system. It included 10 institutions which conduct researches for the better planning and policy options to the Ministry. This system also started partnership with various international agencies to increased market opportunities for the farmers and also to have modern varieties of crops. All these measures significantly contribute in poverty reduction of the Bangladesh as in 2000 the poverty rate was closed to 49 percent and at the end of 2021, the poverty headcount was nearly 31.5 percent. The government intervention in this sector through provision of fertilizers boosts the production of rice in the state as it was only 10 million metrics tonnes at the time of independence and in 2011, the rice production rose to 32 million metric tonnes. 77 percent of the workforce of Bangladesh belongs to rural areas so they are directly or indirectly associated with the agriculture (Shukla, 2017). The following table shows the progress that Bangladesh have achieved over time in different sectors. (Shukla, 2017)

Trade: The trade patterns of Bangladesh are very much constant since 1990s i.e., the imports are primarily coming from Asia and the destination of exports is North America and Europe. The government policies to open the Bangladesh and increased amount of exports also attract foreign companies to work in Bangladesh. Till 2000, the US have 36 percent of share in exports, Germany had 10 percent, the Europe at that time including Germany had 48 percent of the total exports and stood at 11 percent during this time. The major three items which had increased the growth was non-knit men’s suits, knit t-shirts and knit sweaters.

The imports of Bangladesh are solely dependent on Asia and more diverse than the exports. 80 percent imports are coming from China which is mainly comprised of raw materials required for textile and machinery. From India, it import raw cotton and textile. From Singapore, it imports sewing machines and coloring matter. Staple food, petroleum and fuel also the chief imports of the Bangladesh. The import basket also increasing with the increase of export basket (Bangladesh: A journey of economic transformation, 2023).

1.3.4. Challenges:

In the last two decades, Bangladesh has shown tremendous growth in economy and its growth was quite sustainable and qualify for the graduation from the status of least developed state. Is average GDP over the decade was around 6.6 percent. The economic growth act as the force that improve the other sector like health, education as the life expectancy rises to 72 years and prominent increase in the women education and empowerment as compared to whole region of South Asia especially it way ahead from Pakistan, nearly competing with India (Sakib, 2021). Apart from all this, Bangladesh still have to face certain challenges which may halt its economic growth like still a large portion of population is living in the poverty, the vulnerability of natural disasters like floods, cyclones.

The Bangladesh is also a country in the downstream extremely dependent for the water resources on India and Myanmar. The external environment also played important role like war in Ukraine, global economic crises etc. The increasing gap between exports and imports can create the balance of payment problem as it was noted that the gap increased from USD 2 billion in 2021 to USD 4 billion in 2022. The exports are highly dependent on the garment sector, Bangladesh needed to introduce diversity in order to sustain the development. The crises in Middle East and the other parts of world like Eastern Europe caused a slowdown in the remittances of Bangladesh (Sohail, 2023).

1.4. Analysis:

The association of concept of development with the economic terms created a world-wide standard for all the nations to follow the suit of those who have developed themselves by eradicating poverty, increasing the enrollment number of children into the educational institutions, creating opportunities for people so they have adequate amount of income that will influence the purchasing power of the society, stable gross national income which include the domestic production and foreign investments, better conditions health so that the larger life expectancy can be achieved. These all measures shows the conditions of the state and according to these measures the state ranked in different positions like least developed state, developing state, lower middle income state or upper middle income state and then the developed ones.

In the last two decades, despite all the crises the world had faced like global economic crises and pandemic Bangladesh is one of the significant state that was able to maintain its economy in a positive manner. The progress made by Bangladesh in the economic sector especially make it a role model for the others that have experience the colonial exploitation, extreme natural disasters and a huge loss of life during the struggle for independence. At the time of independence, Bangladesh was ranked as the ninth poorest state of the world and called as the bottomless basket in which the investments just got wasted. As the poorest state and devastated state, it was the best place for the experimentation. With the help of International organizations and NGOs, the awareness campaigns were started in the state to motivate people to work in accordance with the government. The government introduced structural reforms to industrialize the country.

The government follow the pursuit of developed nations by started to export finished products rather than raw material which earn more than what they could earn by exporting the raw material. Then government opened the state for the investments as they have cheap labor and relative stable environment as compared to states present in the region like, Pakistan as the war in Afghanistan had started in 1970s which had direct implications over Pakistan. So the government formulated policies on the basis of mixed economic system (while constitutionally it is still a socialist state), and have aimed to achieve the status of upper middle income state by 2031, Bangladesh achieved its targets in a slow but continuous manner which make it to improve its human development index. This all was due to the good and consistent policies and implementation strategies devised by the government of Bangladesh despite the fact that political environment of Bangladesh had never attain stability. The parties in the Bangladesh do have clashes over political ideology but never develop discontent over the economy (The World Bank in Bangladesh).

1.5. Conclusion:

The economic development really plays important role in the development of the society as if the population was able to get what they want there will be less discontent in the society. Bangladesh economic growth based on the mixed economic system made the government able to carry out the welfare programs for the betterment of the society. But on the same course, Bangladesh have to face serious challenges like water scarcity, natural disaster, political instability that could halt the process of development of Bangladesh. The main reason behind the success of Bangladesh is the realization of the need of decision making, the policy formulation, the consistency and the implantation of the policies. The role of women is also significant as the 70 percent of labor force in the industry are the females.

Bibliographies:
(2023). Bangladesh: A journey of economic transformation. Organization of Economic Cooperation and Development. Retrieved Feb 13, 2024, from https://www.oecd-ilibrary.org/sites/7fc6b374en/index.html?itemId=/content/component/7fc6b374-
en#:~:text=Since%20the%20start%20of%20the,by%20significant%20human%20development%20gains

CFI. (2020). Mixed Economic System. Corperate Finance Institution. Retrieved Feb 12, 2024, from https://corporatefinanceinstitute.com/resources/economics/mixed-economic-system/

Hla Myint, A. O. (2024). Economic Development. Britannica. Retrieved Feb 12, 2024, from https://www.britannica.com/money/economic-development#ref1

Jair Soares Jr., R. H. (2008, June). Development: an Analysis of Concepts, Measurement and Indicators. Brazilian Administrative Review, 5(2). Retrieved Feb 12, 2024, from http://www.anpad.org.br/bar

Mixed Economy. (2022). Retrieved Feb 12, 2024, from https://www.studysmarter.co.uk/explanations/microeconomics/economic-principles/mixedeconomy/

Mixed Economy guide. (2022, September 1). Retrieved FEB 12, 2024, from Masterclass:
https://www.masterclass.com/articles/mixed-economy-guide

Raja, S. H. (2022, Jan 17). Causes of the Breakup of United Pakistan in 1971: Lessons Learnt. Medium. Retrieved Feb 13, 2024, from https://shahidhraja.medium.com/causes-of-the-breakup-ofunited-pakistan-in-1971-lessons-learnt-2cf600a50b4d

Sakib, N. (2021, December 22). ‘Bangladesh’s impressive economic growth faces challenges’. aa.com. Retrieved from https://www.aa.com.tr/en/asia-pacific/-bangladesh-s-impressive-economicgrowth-faces-challenges-/2449711

Shukla, D. A. (2017). Bangladesh Economy: Past Performance and Future Prospect. Indian Council on World Affairs. Retrieved Feb 13, 2024, from
https://www.icwa.in/show_content.php?lang=1&level=3&ls_id=1742&lid=1500

Sohail, S. K. (2023, Feb 1). Major challenges for Bangladesh economy in 2023. Financial Express. Retrieved Feb 13, 2024, from https://thefinancialexpress.com.bd/views/views/loopholes-of-thetax-system
(n.d.).

The World Bank in Bangladesh. The World Bank. Retrieved Feb 14, 2024, from https://www.worldbank.org/en/country/bangladesh/overview#2

What Is Economic Growth and How Is It Measured? (2023). Investopedia. Retrieved feb 12, 2024, from https://www.investopedia.com/terms/e/economicgrowth.asp#:~:text=GDP%2C%20the%20most%20popular%20way,%2B%20government%20spending%20%2B%20net%20exports