Bangladesh stuck in low-wage economic trap: Economists

The country remains stuck in the low-wage economic trap despite visible economic development, which has been largely contributed by labourers, including farmers, RMG workers, and migrants, economists say.

Yesterday, at a launch event of a book titled "Fifty Years of Bangladesh: Economy, Politics, Society, and Culture," they said due to the dysfunctionality of our institutions, good governance has yet to be ensured, especially in financial management, such as the banking sector.

The book was published by Routledge, London, in November 2023 and will be available soon to Bangladeshi readers through the University Press Limited (UPL). The Centre for Policy Dialogue (CPD) organised the launching event, which was moderated by Dr Rounaq Jahan, one of the co-editors of the book, at its office in Dhaka.

Professor Rehman Sobhan, one of the co-editors of the book and founding chairman of the CPD, said Bangladesh does not have any functional institutions.

"We are taking development forward, but there are gaps and continuing weaknesses of our institutions. This is a very central element," he said.

"We are witnessing an advanced stage of deterioration in the banking system. Bank defaulting has become a serious structural crisis."

Professor Rehman Sobhan, economist and founding chairman of CPD

Dr Hossain Zillur Rahman, executive chairman of the Power and Participation Research Centre and one of the authors of an article for the book, said, "Bangladesh is primarily ensnared in the economic trap of cheap labour. If we aim to attain better wages by cultivating qualified human capital, we must prioritise quality education. However, we are lagging behind in investing in education."

Referring to corruption as a factory for manufacturing the super-rich, he said, "In the future, the economic agenda will emerge globally as the political agenda."

Eminent economists, along with other co-editors and contributors of the book, were also present at the event, shedding light on the socio-economic and political aspects of the country.

Rizwanul Islam, former special adviser on the employment sector at the International Labour Organisation in Geneva, said, "There was no miracle behind the economic growth of Bangladesh. It was the labourers who played the major role in achieving GDP growth."

Highlighting workers as the pillars of the agriculture, RMG, and remittance sectors, he added, "The workers have had to pay the price for being the unsung heroes. The real wages of workers in these three sectors have actually declined over time."

Professor Dr MM Akash said, "Our economic growth is not inclusive. Inequality in society is increasing, even as the poverty rate has decreased. Wages have not increased compared to the increase in average worker productivity."

Dr Zahid Hussain, former lead economist at the World Bank's Dhaka office, spoke at the programme as one of the reviewers of the book.

He said, "Over the past decade, we have heard about shared prosperity. Now we have to rethink whether it is indeed shared prosperity or if it has become a shared illusion."

"Bank defaulting has turned into a serious structural crisis"

Speaking about the country's banking system, Professor Rehman Sobhan said, "We are witnessing an advanced stage of deterioration in the banking system. Bank defaulting has become a serious structural crisis."

Pointing out the inequality in the banking sector, he questioned, "Who gets the loan rescheduled, who gets the loan written off, and who can continue defaulting?

"We don't have any functioning institutions. It's the same case with the Election Commission and the Anti-Corruption Commission."

The economist said tax-default has now become the focal point of the governance crisis.

"You now have the emergence of a new and powerful class collectively organised in the financial sector. You have another influential force in the RMG sector. On one hand, it is impacting the state of governance; on the other hand, it is influencing the state of politics," he said.

Speaking about the country's judicial system, he said, "Is it functioning in a way that provides equal rights to everyone? If you go to the police to file a case, will they treat everyone the same?"

Challenges ahead

Professor Selim Raihan, one of the authors of the book, said that the country's economy grew amid rising institutional weakness and deteriorating regulatory standards.

He said although the informal sector has flourished amid institutional weaknesses, it will no longer be sustainable in the next phase of development.

Another contributor to the book, Dr Mustafizur Rahman, distinguished fellow of the CPD, said, "Bangladesh became a low-middle-income country in 2015 and will achieve LDC graduation in 2026. This transition reflects the socio-economic development of the country. We have now overcome the challenges of the first and second generations. Generational challenges must be addressed."

"The question now is whether Bangladesh falls into the middle-income or debt trap. It must transition to high-technology-based production and exports from labour-intensive industries. However, in the last 10 years, exports of products manufactured through high technology have remained stagnant at one percent. Vietnam has increased it from 25% to 45%," he added.