Nobody expected Bangladesh to achieve high economic growth. Here’s how it proved them wrong

Bangladesh is now 50 years into its independence and it is worth asking: well, how has everyone done?

I can only comment on the economics of the matter. Things like national feeling and Bengali pride are not for me to have an opinion upon. The answer, as it concerns that economic development is, well, pretty damn well actually.

No one is saying that all can relax, the job is now done. Rather, that the direction of travel is in the right direction. Further, at 6%-8% a year gross domestic product growth, this road to a better and richer world is being travelled about as fast as anyone ever has done so.

Growth against odds

This is not what, 30 years or 40 years ago, anyone thought would happen. There is a comment from Paul Krugman in the 1990s where he talks about the advantages of sweatshops. No one likes them very much, but they are better than not having sweatshops in a poor place.

He then goes on to say something about “even in Bangladesh”. The general economic view was, well, what can anyone do here? There is nothing to do anything with! Just some vast number of people on the flood plains. How can this ever develop?

The standard belief back then was that, well, nothing would happen. There is no treasure trove of natural resources, no particular reason why economic growth should occur. This really was what the general view was. Which was, of course, to entirely miss what economic development is about.

As an entirely unfashionable economist called Julian Simon pointed out the actual economic resource is human beings. It is we who add value by our ingenuity and we all know that Bangladesh has plenty of people who can be ingenious. Which is what happened.

Sure, there are those who will claim this part of the credit, but the true answer is that all added a little bit. Because that is just how economies work.

It is continuing to get better at everything that economic growth so desired. There are also those who insist that it was a really good government that caused all of this, which is a bit further than I am prepared to go. For I will entirely agree that bad government can, and will, stop economic growth. I will also agree that a good government can allow growth to happen. But that is not quite the same as the government causing the growth, or at least not entirely.

Government’s role

A recent report from the Brookings Institute tried to do this by insisting that it was all about government action. Their three examples are rural roads, fertilisers and some details of industrial finance. With the roads, they talk of how the villages only had tracks connecting them to the larger cities or to each other before the government built paved, year-round roads. We will come back to this.

The other two are a little different. The government used to be the monopoly importer, producer and distributor of fertiliser. This did not work all that well. So, they stopped doing this and matters improved immensely. One of those industrial finance details was something called “back to back letters of credit”. No, do not worry about the details there. It is a rather old technique and close equivalents are at least centuries old.

Their effect is to allow someone who has received a manufacturing order to use that to borrow to buy the inputs necessary to make the order. The Bangladesh government banned this known and useful technique. Then they stopped doing that. Things then improved. Which is what gives us that role of government really.

Yes, there are things that are best done by the government. Building those rural roads would be a good example of that. But the other two examples – and do not forget, Brookings chose them as examples, not me – the government in fact enabled things to work by stopping doing something.

With the fertilisers and other agricultural inputs, they realised that markets would work better. So, they left it to markets. With the financing, it was simply a matter of not banning something known to work. Or, as we might put it, of course, there are things that the government can and should do to promote economic development.

Often enough this means that it should simply get out of the way. Allow economic growth to occur rather than hindering it. The difficulty with this as a complete plan for the country is that this is not wholly and always true even though it often is.

As it took a couple of decades for this lesson to be applied in Bangladesh, the growth started as late as it did. But now that it is being applied, there is no real barrier to it continuing.

There is a joy to proving the economics profession wrong by generating growth where it was not expected to happen. But more importantly, life continues to get better for well over 10 crore people.

Day by day, it is not immediate, but here are the next 50 years of the process.

Tim Worstall is a senior fellow at the Adam Smith Institute in London.

This article first appeared in Dhaka Tribune.