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Thursday, May 24, 2018

Ongoing simultaneous development transitions need strong institutions

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Recently I was speaking at a panel discussion at PKSF (Palli Karma Sahayak Foundation) seminar room following the launching of the last Conference volume of Bangladesh Economists Forum (BEF) covering a wide ranging theme of Institutions for Development focusing on urbanization and land issues on Bangladesh.

 Other panelists included my former colleagues at BIDS (Bangladesh Institute of Development Studies) who are by now leading the field of economics not only in Bangladesh but also in other parts of the world. Chaired by former IFAD (International Fund for Agricultural Development) Director Dr Mohiuddin Alamger the event was inaugurated by M A Mannan, MP, and the State Minister for Finance and Planning.

The keynote speech on urbanization was given by noted Economist Dr Quazi Kholiquzzaman Ahmed. Other panelists were Dr Sadiq Ahmed, Dr M A Mujeri and Dr Sultan Hafiz Rahman. All the panelists expressed their dismay at the dismal urbanization with huge consequences on sustainable development. In particular, Dr Q K Ahmed expressed his frustration on the state of urban transport and traffic management killing most of our valuable working hours.

I made an attempt to place these problems in the context of a number of multi-speed developmental transitions through which Bangladesh has been navigating through despite many challenges. In particular, I identified at least four transitions which have been taking place simultaneously including rapid urbanization, industrialization, demographic transformation and technological development.

The Transitions
I.    Ever expanding urbanization: The challenge of climate change has been an important push factor in enhancing 'forced migration' from the coastal and river-eroded areas to the urban areas. The economic opportunities both in the formal manufacturing and informal services sectors abound in the urban and peri-urban areas leading to 'pull factor' of faster migration to the urban areas.

 It is projected that more than a half of the population of Bangladesh will be urban dwellers in Bangladesh by 2030 putting enormous pressure on urban accommodation, transport, energy, and education and health infrastructures. The end result could be clumsy urbanization with some 'posh' and others 'shanty' areas. The challenge of managing this growing urbanization can indeed be huge and a nightmare for city mayors and other related policy makers and service providers.

II.    Industrialization: Related to unplanned urbanization is, of course, the fast expansion of labor-intensive industrialization mainly for export but as well as for domestic consumption. The low-skilled labor supply, mainly women, for this kind of manufacturing and related support services drawn from rural areas can as well be both boon and bane for Bangladesh economy.

 If the labor laws with adequate social and environmental standards can be well executed, as we have been demonstrating since Rana Plaza Tragedy, Bangladeshi's performance as one of the lead exporters of apparel and leather products can indeed be gratifying. However, if the huge concentration of the young laborers cannot be provided with minimum decent wage and safety standards as desired by them and as well as the environmentally conscious consumers of the developed countries, there is a danger of both labor-unrest and chaos in the industrial areas, not far-off from the urban settings.

There can as well be an undesired fall-out of demand for our exportable from abroad. Hence, the new opportunities of labor-intensive industrialization making Bangladesh as the second largest exporter of apparels can face unprecedented challenges if we cannot manage adequately the labor-market linked to it.

Moreover, the growing threat of robotics and other forms of emerging automation of the production processes may as well as can create sufficient pressure for shedding of the existing level of labor employed unless the growth of this industrialization paces up faster than the current rate.

The re-balancing of the Chinese apparel industries and greening of our RMG factories may offer new opportunities for desired expansion as well. However, to take advantage of the latter opportunities which are still unfolding Bangladesh will have to remain focused on incentivizing the entrepreneurs through better regulation and low-cost financing opportunities as have been provided by the central bank of Bangladesh.

Indeed, Bangladesh Bank has been globally recognized for its pioneering role to foster green finance in a country which is, indeed, a victim of climate change.

III.    Demographic Transformation: Bangladesh is in the middle of a demographic transition with more than half of its population below 25 years. The bulk of this young population is the biggest source of our low-cost labor for low-skilled manufacturing and as well as for faster growth of tech-savvy entrepreneurial development.

Yet, there is a growing challenge of huge unemployment among the educated (not always of high quality) graduates. These unemployed youths can, indeed, turn in to a unintended source of urban unrest and chaos as we have recently witnessed during the student movement around the 'quota' issue. The `quota' movement was just a tip of an ice-berg of the growing threat of unemployment as perceived by the educated youths originating from the middle classes. There may already have been a big chunk of the educated youths remaining unemployed who graduated earlier. The skill mismatch of our educated youths is also glaring.

The quality of education remains to be improved as reflected by the employment of a huge number of foreigners as mid-level managers and technical officials in our booming export-led industries. That means we will either have to change our curriculum or re-skill our graduates to meet the new demand of our industries. So the benefit of 'demographic dividend' is yet to be fully reaped by Bangladesh.

The demographic transition remains to be a challenge despite its many fold opportunities. Government of Bangladesh has, of course, started focusing on improving skills with support from development partners including Asian Development Bank.

Yet, we need to remain focused on this to remove the mismatch between huge pool of unskilled educated youths and demand for skilled human resources. To address this challenge of traffic transition skilling and re-skilling will not be enough. We have to create many entrepreneurial opportunities for our aspirant youths we will be prepared to provide jobs rather than looking for jobs.

IV.    Technological Development: Bangladesh has been, no doubt, leap-frogging in utilizing the benefits of on-going technological revolution. In particular, the far-sighted vision of building a Digital Bangladesh early on by the current Government has been yielding a lot of dividends in reshaping our administration, finance and education.

 There is a real possibility of improving accountability and governance due to this bold strategy of building 'Digital Bangladesh'. We had the privilege of reforming the payment and supervision systems of finance by digitizing central banking and hence the entire financial system yielding huge benefits to the customers despite some nagging regulatory challenges.

The successful drive for financial inclusion using digital technology has brought in significant changes in transmission of monetary policy for the benefits of the earlier unbanked and unbanked. In particular, the MFS and Agent Banking have created new avenues of delivery of financial services to the doorsteps of the rural inhabitants at a speed never heard of earlier. The APP-based transactions through mobile and agent banking has been creating new grounds of hope for those who are tech-savvy and fast users of money.

 The financial transmission channels are, indeed, becoming fast and smooth for the unbanked and underserved. The democratization of finance in Bangladesh has certainly been splendid. Moreover, almost everyone in Bangladesh has now access to technology through almost universal use of cell phones. The middle and upper income groups are, of course, better off with their smartphones and higher levels of digital services.

 The entire business and economic sectors are using technology including 4G connectivity to provide efficient and cost-effective services to the users. The Artificial Intelligence is, however, gradually chipping into our manufacturing sector with consequent challenges of job losses for the low-skilled workers and other employees. They ought to be skilled and re-skilled to remain engaged with the new wave of technologically driven production system.

 Even agriculture is witnessing massive mechanization and yet the rural-labor market remains tight. Unless we can provide desired skill-based education and human resource development the wave of technological developments will surely create challenges which may not be so easy to handle. All these transitions can happen smoothly only if there is an enabling policy environment supported by strong economic institutions.

The editors of this book have rightly pinpointed three important features of these institutions, in lines with the arguments of the globally noted institutional economist Douglas North. These features are: "(i)'humanly devised,' which contrasts with other fundamental contributors to development like geographic factors which are outside human control; (ii) 'the rules of the game' setting constraints on human behavior; and (iii) their major effects on incentives which have significant effects on economic outcomes including economic development, inequality, and poverty. These economic institutions, as the editors argued are the outcomes of the political process in a country which depends "on the nature of political institutions and the distribution of political power in society.

" It is in this context that BEF focused on institutional development as the main theme of the conference held in December 2016. As a part of that theme the conference narrowed down to 'urbanization and land management' to understand the binding constraints to 'sustained progress with growth and poverty reduction.'

The edited volume of the conference papers succinctly points out the dismal experience of urbanization in Bangladesh. There is no doubt that urbanization ought to be strategically planned to take advantage of the multiple gains of it, particularly, in the context of an overwhelming tech-savvy young population and growing industrialization. Whether we like it or not, people will continue to move to urban areas for both 'push' and 'pull' factors.

 The challenge remains as to how our policy makers respond to this unprecedented wave of migration for greater benefit of the economy and society. Urbanization, if properly managed, can be a great source of new demand for agricultural products including that for healthy food in the context of growing environmentally conscious middle and advance consumers.

Simultaneously, agricultural producers and rural consumers also need access to markets and as well a wide range of goods and services produced at the urban settings. Indeed, the rural-urban continuum is becoming real and there is a need for smart interlinked policy interventions for both urban and rural populations. Land remains as the center-price of the policy agenda and this book covers multiple facets of it in the context of sprawling urbanization.

Authors of each of the papers ranging from urbanization and development challenges, managing urbanization through financial inclusion, land market issues covering both urban and rural aspects, state of land dispute's settlement and land policy issues deserves special appreciation for covering such a wider canvass of institutional issues. As a result this book can be a goldmine for the policy makers who are interested in reforming institutions related to urbanization and land management for greater public good.

BEF has only provided a forum for articulation of these well-informed policy discourses by the competent authors. I only hope policy-makers take note of this rich volume as it has covered a wealth of information and policy directions related to various institutions for development. If we really want to see Bangladesh as a developed country by 2041, policy makers apart, we all have to 'dream more, learn more and become more' at the end of the day.


The writer, former Governor of Bangladesh Bank, is a noted economist and professor of development studies in Dhaka University. Email: dratiur@gmail.com

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