'When guardians become predators, the economy collapses': Dr Zahid Hussain

This excerpt is from Road to Election, a political talk show hosted by Shakhawat Liton, Executive Editor of The Business Standard. The guest is Dr Zahid Hussain, former Lead Economist at the World Bank's Dhaka office.

In this conversation, Dr Zahid Hussain traces how Bangladesh's political drift since 2014 has reshaped the economy -- from the erosion of accountability to the breakdown of institutional checks and balances.

He explains why growth became less inclusive after 2016, how data distortion masked a deeper structural slowdown, and why large-scale corruption became inevitable in a system stripped of democratic constraints.

Shakhawat Liton: Over the past 10 to 15 years, under Sheikh Hasina's rule, our political economy has taken a monstrous form. Now, ahead of the election, the money being poured in — what we call "election investment" — inevitably carries expectations of returns. The question, then, is this: whichever government comes to power, how will attempts to recoup that money affect the economy, policymaking, and efforts to curb corruption?

Dr Zahid Hussain: It depends on whether those spending money in the election actually win. Based on past experience, we can reasonably assume that winning through financial influence is possible — and may well happen. In theory, someone might claim, "I spent generously for public welfare, so I won the election." But in practice, that is a naïve assumption.

In reality, that money needs to be recovered. And once in power — having secured office by spending substantial sums — I will seek to recoup it. A reasonable assumption is that anyone trying to recover such money knows they may not win the next election. Efforts to recover these funds will inevitably cost popularity. With the media, civil society, and the opposition all watching, it is unrealistic to expect that the process will remain hidden. This creates two problems.

First, the timeframe for recovering the money is very limited. If I knew I would remain in power for 20 years, I could treat it as a long-term investment. But with a short political horizon, I must recover the money quickly. Here, the idea of the political business cycle becomes relevant: if I do not recover the money immediately after being elected, I will not have enough time before the next election to rebuild a "clean" public image. And once again, I will need fresh investment — politically and financially — to contest the next election.

So although my formal tenure is five years, the practical window for recovering the money is no more than two or three years. Within that period, the job must be completed, so that in the remaining years I can rebuild my image — demonstrating honesty, public welfare, and constituency work — without the pressure of recovering funds. This inevitably affects government development work: contracting, ADP implementation, and similar activities.

So the question is: without good politics, we cannot build a strong economy; and without a strong economy, we cannot build good politics. Which comes first?

This sits at the intersection of economics and political science — a classic "chicken-and-egg" problem. In college, we learnt about modernisation theory: the idea that economic development drives political development. If you look at today's established democracies — Italy, Greece, France — three centuries ago they were nothing like they are now. Industrialisation reshaped their economies, and over the next two hundred years their political systems matured alongside economic progress. In this view, economic development created the conditions for political development.

But our context is different. When Bangladesh became independent in 1971, per-capita income was below 100 dollars; around 80% of the population lived below the poverty line; and infrastructure was virtually non-existent. Since then, we have undergone significant modernisation. Yet what direction has our political development taken?

From 1991 to 2014, we experienced a relatively democratic environment with competitive elections, even if adversarial politics dominated. No party had absolute control after the 1991 election. But did the opposition fulfil its parliamentary responsibilities? Most of the time, it opted for street politics and boycotts instead of legislative engagement. This became part of our political culture. After 1996, when the roles reversed, the same pattern continued. After 2001, the situation remained similar. Only after 2014 did the political culture change more dramatically.

Still, 1991 introduced important institutional reforms — stabilisation, liberalisation, and privatisation — structural changes made possible because of political change. Our experience suggests that when politics fails to function properly, the economy cannot function properly either.

Yet Bangladesh's social indicators — maternal mortality, life expectancy, infant mortality, sanitation — have progressed faster than per-capita income. Professor Wahiduddin Mahmud once described this as Bangladesh's "development surplus". Shanta Devarajan, studying Bangladesh's poverty dynamics, called it a "development paradox".

Between 2010 and 2016, Bangladesh's growth was relatively inclusive. But after 2016 — following the 2014 election, when democratic accountability effectively collapsed — the trend reversed. You have worked on the White Paper Committee and other bodies, and you have seen firsthand how the economy has been affected. So what must we do to reverse this decline?

We need to begin at the root of the problem. Since you mentioned the World Bank, let me clarify something. The Bank noted that growth from 2010 to 2016 appeared more inclusive, while post-2016 growth — still at 6.5% to 7% — became considerably less so. Poverty reduction slowed, not because it stopped, but because the elasticity of poverty reduction with respect to growth fell sharply.

However, the Bank did not emphasise a crucial point: between 2016 and 2022, the problem was not only the quality of growth but also its quantity. Distorted statistics and deliberate data manipulation inflated growth figures — a concern the World Bank itself raised in its 2022 Country Economic Memorandum.

During this period, large-scale looting took place. Is this the result of the absence of democracy and a culture of accountability?

Certainly. Gunnar Myrdal, in Asian Drama, described the "theory of cumulative causation": one negative development triggers another, which then triggers yet another, creating a chain reaction. Our non-democratic practices have produced exactly these kinds of cumulative effects on the economy.

What is the effect of this non-democratic behaviour on our economy?

At its core, the institutions responsible for managing the economy — the Ministry of Finance, Bangladesh Bank, the NBR, and the banking system — are supposed to function through checks and balances. Bangladesh Bank, for example, is meant to operate as an autonomous guardian of the financial sector. If the ministry or the finance minister attempts to exert undue influence over the banking system, it is Bangladesh Bank's job to resist. That is how institutional constraints are meant to work.

The same principle applies to other institutions: the judiciary, parliament, and the media. Each is designed to restrain the excesses of the others, maintaining a balance of power so that no actor can operate arbitrarily.

But this entire structure has collapsed. The guardians have turned into predators. The clearest example is the Anti-Corruption Commission — the very body tasked with fighting corruption becoming one of the worst centres of corruption itself.

When systems of accountability break down — both governmental accountability to citizens and market accountability among economic actors — the economy inevitably suffers.