Celebrating 50 years of World Bank–Bangladesh partnership
Hon’ble Prime Minister, Sheikh Hasina, the President of the World Bank, David Malpass, Martin Raiser, Vice President for South Asia, Abdoulaye Seck, Country Director for Bangladesh and Bhutan, and distinguished members of the audience, which includes many of my friends and colleagues from my World Bank days. Being here with all of you, fills my heart with joy. It was such a happy, and also professionally fulfilling, time for me—my four years at the Bank. There were big decisions that gave satisfaction. But even daily life had its fulfilling moments. Getting into the elevator, one would meet Africans, Indians, Chinese, Mexicans, Bangladeshis—even one or two Americans. The World Bank felt such a diverse and inclusive place, the way the world should be.
One of my most exciting missions, during my World Bank years, was the one to Bangladesh and a memorable conversation with the Prime Minister. This is my second meeting with her. And as for the World Bank president, I somehow never met him before. So this is my first meeting with him. Thank you.
For Bangladesh, it has been a phenomenal journey of economic progress. In 1971, at the time of the nation’s independence and for at least two decades after that, it was a region of grinding poverty, referred to as the “basket case”. At the time of independence, Bangladesh’s per capita income was $134. It is now around $2,800. As a recent World Bank report points out, “Bangladesh had an inspiring story of growth and development, aspiring to be an upper-middle income country by 2031.”
I recall sitting in my World Bank office in 2015 when my staff came in with cross-country data, and it was clear that Bangladesh had transitioned from a low-income nation to a lower middle-income country. World Bank data also showed that poverty in Bangladesh had fallen from 41.9% in 1991 to 13.5% (in 2016). The average life expectancy at birth in Bangladesh now is over 73 years, considerably higher than that of Pakistan’s 68 years. How did this happen?
Looking back at history, it becomes clear that for the Bangladesh economy, the years, 1996 to 2000, were the “incubation years”. Once you looked beneath the surface, these were the years when much of the groundwork for growth and improvements in the standard of living was happening. Bangladesh’s manufacturing sector was gaining strength, the telecom sector was putting down roots, and there were indicators of women being empowered. By 2001, garment exports reached $3.1 billion, and more importantly, 1.5 million people were working in this sector, and a majority of them were women.
Bangladesh’s pharmaceutical industry is also now moving ahead. With 300 pharmaceutical companies, the nation now produces 97% of its domestic demand, and is beginning to export to other nations. I believe this sector has a big future. I may add that mobile subscriber penetration in Bangladesh has now reached 94%. This sector owes a lot to public-private collaboration. There was a big expansion that took place in 1996, and there has been no looking back since then.
I had first-hand experience of some of these changes in December 2015 when I visited Bangladesh. I remember going to a Garment Factory in Gazipur, outside Dhaka. It’s facilities were modern. The factory is designed to use sunlight and cut electricity use and has pledged to be carbon neutral within a few years. All its wage payment is done via mobile banking, operated via an indigenous electronic payment and money transfer platform, BKash. This has increased worker productivity. I remember the large number of women workers, looking confident and happy in their modern workspace. I had not seen anything like this in a developing country.
It is a digression, but I must tell you another way in which Bangladesh broke records. During my World Bank years, I visited many countries, all over the world. But I have never been to a country where I received more books as gifts than in Bangladesh. After every lecture and meeting, I felt—maybe it was a bit of an exaggeration—that half the people presented me with books that they had enjoyed reading or written. One lecture I gave was in the Bangabandhu International Conference Center. I was told there were over 1000 people. That is when I got a panic attack thinking, if half of them gave me a book after my lecture, I was surely going to drown. Luckily, that did not happen but I did get several books on that occasion, and on other occasions. I hope Bangladesh will preserve this intellectual enthusiasm. This is important in our new world and I will return to this in a moment.
After 2006, the benefits of the incubation years were visible. The 15 years, from 2006 to 2020, may be described as the ‘15-year gallop’ for Bangladesh. In 2006, Bangladesh grew faster than the then-much-richer country, Pakistan. This was initially treated as an aberration, but Bangladesh has outpaced Pakistan every year since then, and its per capita income now is well above that of Pakistan’s. This would have been unthinkable a decade or two ago.
Another important change in Bangladesh is the investment rate, that is the share of GDP spent not on consumption but on building up the nation’s capital. As all students of economics know, investment is the key long-run driver of growth. From less than 10% in the 1970s, Bangladesh’s investment rate rose to 31.8% in 2020. This is reminiscent of the journey of the East Asian tiger economies.
One more indicator on which the country has done well is in building up foreign exchange reserves. Up to 2015 the reserves were precariously low, almost a flat line. Then they took off exponentially, and reached a very comfortable level by 2020. There were some foreign exchange risks earlier this year, but the Bangladesh government had the sense to reach out to the IMF quickly and initiate reforms. The problem has largely been brought under control.
For Bangladesh and the World Bank, and Bretton Woods institutions in general, it has been a great partnership of half a century. Like all couples, there have been times of friction. I remember when I went to Bangladesh in 2015 as the Bank’s Chief Economist, I had to delve into many details of differences in points of view. But in the end it turned out to be a phenomenally successful visit, during which I had long meetings with the Governor of Bangladesh Bank, the Finance Minister, and the Prime Minister Sheikh Hasina.
The World Bank has been working with Bangladesh in giving advice and financially supporting many initiatives but also taking away lessons from Bangladesh for other developing countries. One major driver of Bangladesh’s economic growth has been the empowerment of women. The Bangladesh government, along with several NGOs, worked virtually as a laboratory for women’s empowerment. There are studies that show that this has improved children’s nutrition, literacy and the overall welfare of households. This is a lesson that we at the World Bank, when I was here, used to carry over to other developing nations.
All this good news, however, is no guarantee of sustained development. The world’s history is replete with nations that took off and then stalled. As we all know, the expression “middle-income trap” is the World Bank’s big contribution to the English language vocabulary. Everyone now talks about the middle-income trap.
Bangladesh has to guard against this risk. It still has big challenges: poverty is declining rapidly but there is still a lot of distance to go. Inequality is rising. Climate change and rising sea levels continue to pose significant dangers, and even though Bangladesh has taken some exemplary steps concerning climate risks, the nation has a big challenge of controlling environmental pollution. Finally, there is the challenge of politics and democracy. Many countries today are facing the problem of political and social polarization, which is eroding trust, and damaging democracy. As a newly emergent economy, Bangladesh has to work hard to navigate and guard against these risks, and nurture democracy.
Finally, as an economist and with a Prime Minister present here, how can I give up the opportunity of giving some policy advice?
I believe the world economy will see two major shifts over the coming years. The first pertains to globalization. There is a lot of talk about how the major disruptions in global supply chains that occurred during the pandemic are going to result in de-globalization or a retreat from globalization. I do not agree with this. There may be some short-run disruption. But, in the long-run, we will see a speeding up rather than slowing down of globalization.
The reason is interesting. It has to do with “learning-by-doing”. Digital technology has been on the rise over the last three decades. Usually—and we know this from the time of the Industrial Revolution—new technology takes a long time to become a part of everyday life. However, what happened during the pandemic was like a novice swimmer being pushed into the deep end of the pool. Ordinary people with no training in the use of digital technology have suddenly become conversant with it. We have learned to use Zoom or Webex to give lectures, hold meetings, and take complex decisions. This learning-by-doing has given a boost to the use of these technologies. As a result outsourcing and global connectivity will speed up. If one country says, “I will close my borders and not use these resources from distant lands,” it will be outcompeted in the product market by other countries that use this technology and access the cheaper labor.
This speeding up of globalization will create a huge potential for developing countries and there will be new winners and losers. Bangladesh’s telecom sector and overall rapid growth provides a good foundation for this new global economy.
The second major change will be the displacement of mechanical and routine labor by machines, robots and artificial intelligence. With the rise of technology, human labor will have to shift to more creative activities and nations that are able to capitalize on this shift will be in the forefront.
Emerging economies, such as Bangladesh, where labor is relatively inexpensive, can continue to do well without major policy changes for some years. This is because the demand for global labor will keep shifting to these countries. As the world becomes more digitally connected, nations with inexpensive labor, good connectivity, and a modicum of law and order, will be able to grow with work moving from advanced, high-wage economies to them.
I should add here that the attractiveness of labor in developing and emerging market economies must not become a reason for compromises on worker welfare, worker rights, and worker safety. Some of the tragic accidents of the past remind us that cost-cutting must not become an alibi for lowering labor standards.
In any case, this window of conventional growth will, I expect, vanish in 8 to 10 years as wages rise. How we do after this will depend on education, especially the nurturing of creative skills. It will be critical for Bangladesh to nurture its universities and institutes of higher education. Bangladesh is part of a region of Asia, which has historically valued education, learning, literature and science. The number of books I received in Dhaka is empirical evidence of this. Bangladesh must harness this history, not just with small steps towards better education but aim to be a global hub for education. I think this is possible. Given its success over the last 15 years, an initiative of this kind can potentially power the economy ahead in the way some East Asian economies had done in the past.
I want to close with an appeal to the Hon’ble Prime Minister Sheikh Hasina, the World Bank president, David Malpass, and everybody else. In 1971, when Bangladesh gained independence, I was an undergraduate student at St. Stephen’s College, Delhi. My friends and I watched Bangabandhu Sheikh Mujibur Rahman’s struggle for his nation’s freedom with admiration. He was a person of grit and determination, but also of modesty and humility.
What struck me most is that, while he was struggling for his nation, for Bangladesh to break out of the clutches of exploitation, at the same time he never lost his global, humanist vision. Reminiscent of Nelson Mandela, Gandhi, and Nehru at the time of India’s independence, he reminded the world that we may have many immediate identities but we all belong to a small planet, and our most important identity is the human one.
The world today is going through a difficult phase, with pandemic, war, climate change, and divisive politics threatening democracies and civilization. Human beings today face the risk the dinosaur did 66 million years ago. The dinosaur went extinct. But we human beings have one advantage the dinosaur did not have— the capacity to reason and analyze our own behavior, and strive for a better world.
In this globalized world, it is not enough for individual nations to draft new laws for their own country. We have to put our heads together to craft minimal global rules and maybe even a global constitution. There is no escape from this in our globalized world. This has to be a multi-country initiative, where the World Bank can play an important role. And nations like Bangladesh that have done so well economically should be ambitious and remind the world of the message of Mujibur Rahman.
This will require moral commitment, but that is not enough. We must not underestimate the role of science and economic theory in converting the moral intention into a realistic plan. We need science to understand how markets work in our digital, new world. We came out successfully from the new world that was created in the eighteenth and nineteenth centuries by the Industrial Revolution because of the rise of both moral philosophy of the Enlightenment philosophers, and dramatic breakthroughs in economics, over at least one hundred years, from Adam Smith’s seminal book in 1776 to Leon Walras’ pathbreaking work in 1874.
I would urge you to use your influence to initiate this large, intellectual enterprise the world needs once again. And, thereby, help us, human beings, to do better than the dinosaur did.
Kaushik Basu is Professor of Economics and Carl Marks Professor of International Studies at Cornell University. He was Chief Economist of the World Bank from 2012 to 2016.