Democratic gains slide as special interests triumph over collective goods

To many, development performance of Bangladesh appears as puzzling. Puzzling it may appear, yet, overwhelming evidence, showing concurrent improvement in economic, social and political indicators suggest that the performance, particularly under democracy, is a stylized fact. A recent article (in Nov. 14, 2011 issue of the outlookindia.com) by Jean Dreze and Amartya Sen illustrating comparative performance of South Asian countries indicates that the gains in many areas even surpass those of its peers in the region.

The question is, what explains such impressive performance amid so many barriers (high corruption, unaccountable political establishment influenced by special interest groups, frequent military intervention, chronic bottleneck to complimentary inputs, frequent strokes of natural disasters) troubling the country since its independence. I attribute much of the gains to the emergence of three democratic institutions, namely (1) a competitive electoral process, (2) a relatively free media, and (3) a relatively independent upper judiciary.

I strongly believe that these institutions combined with a thriving civil society have played a significant role in incentivizing people and businesses in pursing enterprising ventures through the elevated status of freedom and security of property rights.

True, when evaluated in historical context, one would surely recognize robust performance under democracy than those under military rule. Yet, the democracy advantage argument would likely be a hard sell, especially, to those who:
(1) fail to see noticeable shift in their economic status;
(2) encounter severe and chronic obstacle to accessing public services such as electricity, roads, highways, ports;
(3) confront, in every step of the way, constant bickering of a cohort of unaccountable political hierarchies; and
(4) put up with the thriving special interest groups, skilfully, redistributing hard-earned savings through their access to power structure.

And, there are reasons behind such scepticism. In fact, despite making significant progress during the first-half of the democratic rule, economic gains clearly fail to dramatically transform the overall standard of living like those seen in the transition of the East Asian countries, more recently, of China, India, and Vietnam to the middle income country status. With nearly unchanged income inequality, considerable increase in the percentage of households receiving benefits of social safety nets from 13.1% in 2005 to 24.6% in 2010, low growth in purchasing power, low income level, and low share of manufacturing sector in GDP and the dominant service sector being heavily dependent on speculative activities, wholesale trade and commerce, Bangladesh economy can hardly be viewed as dynamic as also seen in the social and economic transformation of other emerging countries.

For instance, per capita real GDP growth at a 5.3% annual rate during 2000-10 can barely be termed as phenomenal compared to those observed in China, India and Vietnam (at 15.1%, 8.3%, and 8% rates respectively). Overall economic growth seems to be stalling around 5.5-6% (compared to 7.4%, 10.3% and 7.2% in India, China and Vietnam respectively) during the same period. The quality of institutions, which sustained improvement during the 1991-01 compared to those during the military rule, declined during 2001-08 period. A modest gain which reported during 2009-10 has also started to reverse course at the end of 2010.

The qualities of infrastructure and education have been the weakest links since ages and do not show much sign of discernible progress, even under democracy. In the recent (2011-12) Global Competitiveness report, Bangladesh is ranked near the bottom of the scale in four critical areas, thought to be a must for attaining competitiveness in the global economy. Among 142 countries, Bangladesh is ranked 134, 126, 124, and 122, respectively, in quality of infrastructure, quality of higher education and training, state of innovation, and technological readiness. The report does not bode well for future prospect. While Bangladesh stagnates in these areas, many emerging economies are leapfrogging to catch up with the more advance countries.

Adding woes to the future prospects are recent murder of a Saudi diplomat at the secured diplomatic zone, murder of a high-profile journalist couple, stock market debacle, and the culture of impunity. All seem to attract quite undue attention of the international community and will surely downgrade Bangladesh's status as an attractive destination of investment and tourism in the years to come, if not addressed immediately and effectively.

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ABM Nasir is an Associate Professor of Economics at the North Carolina Central University, USA.