Bangladesh Economy: Perverse incentive main obstacle

Dr.Salehuddin Ahmed, Former Governor, Bangladesh Bank , Professor, School of Business, BRAC University :
Bangladesh has come a long way; especially, we see some positive macroeconomic indicators although we have to take caution to interpret such indexes. What we need most now is taking the fruits of development to the commoners – something which is not happening indeed. Only a limited number of people is taking advantage of this development. The masses are getting very less. Now, we need to focus on not merely economic development but also social development. Our main aim should be to build an equity-based, welfare-oriented and inclusive society.
Three basic requirements of true development – equity, welfare and inclusiveness – are absent. Our challenge will be to go forward by consolidating our achievements so far. We have to rethink about our development, change our old development model and adopt new one for attaining accelerated development. We are talking about transition from lower middle income country to upper middle income country status and from developing country to developed country. But these are nothing but certain indexes, which does not reflect our real needs. The more challenging task for us is to address social inequality and unless we can remedy the existing social deprivation, it will not be any healthy development.
If we think about our development drivers, I would say the highest contributions have come from the farmers, workers, businessmen and the common people. I often say, no matter whether there is good governance or a government at all, the people – the individuals – on their own initiatives would be trying to change their fortunes by applying their creativity.
Unfortunately, we have not yet been able to reap the demographic dividends and we have not taken conscious policy decisions. If we want to do that, we have to utilise the young people. We have not been able to expand the formal employment market. Most of our employment is in our informal market. We have to increase employment intensity in formal market. More labour is coming to the market but adequate employment cannot be created for the entrants. As a result, we see human capital perishing, and they themselves are suffering from frustration. There is no security of life. We cannot draw demographic dividend because the already available human capital – be it skilled, non-skilled or semi-skilled – cannot be utilised. Also, there is a gap between the demand in the market and the skills of the workforce. We cannot often find skilled hand. For example, how many good wielders do we have? We face difficulties while searching for a technician for repairing our computers. There are people but not many skilled ones – this a paradox. So, we have to give relevant education. However, we need to take required policy. Despite good score in human development index, our labour productivity is one of the lowest. Unless we can raise productivity, it will be tough to raise wages. If productivity increases, some apprehend there might be job cut but that’s not true. If productivity increases, our volume of production and line of production will also increase and that will create scope for more employment.
We have governance crisis. In any system, politicians will have to take policy decisions, not wholesale anti-people decisions; decisions may sometimes be one-sided though. Policies should be pragmatic but responsibility of implementing them lies with the institutions. In our context, regulators such as Bangladesh Bank, Securities and Exchange Commission, BTRC, and BERC – have to be more effective. Secondly, banks and market institutions, are not properly functioning, so are the educational institutions and hospitals. So, institutional weakness is a major crisis in our country. Botswana is an African country which once took the decision to attain institutional development. In our case, governance is the biggest crisis; transparency and accountability are missing. Scams are taking place in the banking sector one after another and everyone knows who are doing what and how. But we see procrastination in the name of investigation. As a result, those who commit crimes get what I often say perverse incentive. When nothing happens to the culprits, others are encouraged to do the same and it turns into financial contagion. Good people are then driven out as they are not recognised in such a system. It is high time that quick actions are taken.
Unless we address our governance, we will continue to see wastage of money, corruption and bad money driving good one. We will fail to capitalise on our potential. And our progress will be thwarted. Without improving governance no sector, including the private sector, will grow properly.