Why are we destroying our economy?

A. R. Chowdhury
Published : 5 Nov 2013, 02:06 PM
Updated : 5 Nov 2013, 02:06 PM

Why have some countries in Asia remained poor, while countries such as South Korea, which had once been poor, has successfully increased the incomes of the general population? Or why is an average European seven times as prosperous as the average Mexican, or twenty times as prosperous as the average inhabitant of sub-Saharan Africa? Why do some counties prosper while others fall behind?

A picture in Monday's national dailies raised these questions in my mind. Two teenagers, Monir and Sumi, came to see the capital for the first time and got critically injured in arson by hartal picketers. The two kids are among the hundreds who fell victim to political violence since just last week.

The two teenager's life are what could be called unintended "collateral damages" in the broader scheme of different political groups jockeying for power. These groups would rather see businesses closed, educational dreams shattered, opportunities for a labourer's daily income evaporate and long-term prospects of the nation dissipate while continuing with their agenda for short-term gain.

Do our political leaders, both in power and in opposition, have the welfare of the general population in mind? Or are they more concerned about their own narrow political agenda? A recently published book has tried to address this issue on a global level and has created a stir among development professionals.

Massachusetts Institute of Technology economist Daron Acemoglu and Harvard University political scientist James Robinson write in their new book, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, that nations fail because "…those who have power make choices that create poverty. They get it wrong not by mistake or ignorance but on purpose." For the lucky few, hanging on to power or gaining power and wealth outweighs all else.

Acemoglu and Robinson set out to document the commonalities of struggling nations and hit on a single point which covers much of what we see as unrest in many countries around the globe: the wilful promotion of economic inequality by a small number of economic elites.

Using a wide-ranging historical account, they argue that the key to general prosperity is political. A nation's success almost exclusively depends on its economic and political institutions.

Most economists and policymakers would agree that institutions are important for growth. What sets the authors' theory apart from others is their claim that institutions matter much more than anything else. Geography (such as, natural resources, location, and climate), culture, and visionary leaders are secondary. Growth is mostly about a country's institutions.

The book has two related themes: that institutions matter for economic growth, and that institutions are what they are because the political actors in any given society have an interest in keeping them that way. They argue that bad institutions are the product of political systems that create private gains for elites in developing countries, even if by doing so they impoverish the broader society.

To understand why some countries prosper and others don't, consider the examples of Congo and Botswana in Africa.

When Congo won its independence in 1960, it was a feeble, decentralised state burdened with a predatory political class and exploitative economic institutions — too weak to deliver basic services but just strong enough to keep the ruler Mobutu and his cronies on top; too poor to provide for its citizens but just wealthy enough to give elites something to fight over.

Acemoglu and Robinson argue that when you combine rotten regimes, exploitative elites and self-serving institutions with frail, decentralised states, you have something close to a prescription for poverty, conflict and even outright failure. "Nations fail," the authors write, "when they have extractive economic institutions, supported by extractive political institutions that impede and even block economic growth."

Now compare Congo with Botswana — which, when it won its independence in 1966, had just 22 university graduates, seven miles of paved roads and glowering white-supremacist regimes on most of its borders. But Botswana today has the highest per capita income in sub-Saharan Africa.

How did Botswana pull it off? "By quickly developing inclusive economic and political institutions after independence," the authors write. Botswana holds regular elections, has never had a civil war and enforces property rights. It benefited, the authors argue, from modest centralisation of the state and a tradition of limiting the power of tribal chiefs that had survived colonial rule.

When diamonds were discovered in Botswana, a far-sighted law ensured that the newfound riches were shared for the national good, not elite gain. At the critical juncture of independence, the country chose democracy over dictatorship and the public interest over private greed.

So what could political leaders in Bangladesh learn from this experience? The formula is stark: Inclusive governments and institutions mean prosperity, growth and sustained development; extractive governments and institutions mean poverty and stagnation. Acemoglu and Robinson argue that the protesters in Egypt's Tahrir Square had it right: They were being held back by a feckless, corrupt state and a society that wouldn't let them fully use their talents. Egypt was poor "precisely because it has been ruled by a narrow elite that has organised society for their own benefit at the expense of the vast mass of people."

Bangladesh must avoid that disastrous route. It has a huge potential both in terms of the population and resources. If we could develop the necessary institutions, rule of law, accountability and transparency, the country could move up the development ladder where the fruits of growth could be enjoyed by all, and not a selected few.

Unfortunately, given the upcoming election, the major political parties have embarked on a path of national destruction. Their refusal to negotiate, frequent hartals and related human casualty, the financial cost to the nation – none of these factor into their equation. Most of the politicians compete in elections to make more money. They couldn't care less which party they represent. Elections are turning out to be contests where we basically replace one set of crooks with another. The next election should be no different.

It is time that the silent majority in Bangladesh rise up and say, enough is enough! We cannot continue to suffer mentally, physically and financially for the ineptitude of our political leaders. Let the political leaders give up their narrow mindedness and fear mongering attitude or step aside for the next generation.

For how long are we going to let our political leadership, both in power and in opposition, continue to compromise the long-term economic future of the general population while focusing on their own short-term gains?

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A. R. Chowdhury is the Professor and Chair, Department of Economics at Marquette Universtiy.