In his latest economic post for Alal O Dulal, Jyoti Rahman argues that compared to its neighbours Bangladesh has done considerably well across a number of indicators. In a critique to Professor MA Taslim’s (of Dhaka University) piece, he claims that the focus should not necessarily be on complacency in making economic policies, but rather, to ensure that underlying analysis and reasoning are sound – so that the economy stays on track.

Missing the mark about feeling good

By Jyoti Rahman for AlalODulal

Professor MA Taslim of Dhaka University is my favourite commentator on Bangladesh economy.  I would readily recommend most of his Off the mark columns.  However, even the great have an off day once a while, and Prof Taslim definitely missed the mark with this piece about Bangladesh’s development record.

This is Prof Taslim’s bottomline:

…the rate of economic advancement of Bangladesh has been much slower than that of the other countries of South Asia during the past four decades…

This is his key supporting evidence:

So, why is Prof Taslim off the mark here?

Firstly, because of the measure of economic performance he is using:

This paper is devoted to an analysis of only per capita GDP, which is widely regarded as a blanket measure of the potential well-being of a country. In order for the GDP to be comparable across countries it must be expressed in a common currency and should be measured in a similar manner. The World Bank regularly publishes cross country data on many variables including per capita GDP in current US dollars.  These data have been used in the analysis below.  (Emphasis: mine).

Per capita GDP in current US dollars —that means, the analysis ignores inflation.  Alarm bells should go off right here.  Sajeeb Wazed could be forgiven for mixing real and nominal —a course in Harvard doesn’t make him an economist.  But a professor of Dhaka University should know better.

So, what’s the right measure to use?  Well, Taslim gets his data from the World Bank, who also publish per capita GDP in constant purchasing power parity terms.  Conceptually, that’s the right measure to use for this kind of comparison because it takes into account price differences across time and between countries.  And here is Bangladesh’s per capita GDP relative to our neighbours when measured properly.

Contrary to what Taslim finds, it seems that Bangladesh has in fact done better than two of our neighbours — Pakistan and Nepal — in recent years.  Of course, that still leaves us with Sri Lanka and India.  Bangladesh has fallen behind these countries as far as real GDP per capita is concerned.

In 1980, Bangladesh’s real GDP per capita was about three-quarters of India’s.  In 2012, it was less than half.  Clearly, in the intervening decades, Indian economy has grown much faster.  However, this isn’t exactly news.  In fact, this is the very point of Bangladesh paradox – Bangladesh is only about half as rich as India, but it does much better on various human development indicators.  Of course, if Bangladesh was twice as rich, all else equal, living standards would be even better.  But that’s hardly an original insight.

And that gets me to this curious bit:

This has happened despite the fact that all these countries have been engaged in very destructive internecine insurgencies during a large part of this period. It would seem that whatever problems Bangladesh had were a greater deterrence to accelerated economic growth than the insurgencies in these countries.

Hmm, hello, 1971?

I am sure Prof Taslim is old enough to have memories of the war.  I would be quite surprised if he doesn’t know the economic, as opposed to the human, cost of the war.  Just to jog his memory — the then East Pakistan was already one of the poorest places in the world, and as a result of the war, real GDP per capita fell by a fifth, the country’s entire physical infrastructure (the roads-rail lines-bridges-phone lines-electricity grid-ports-airports) was severly damaged, and the best and the brightest of the country were scarred by the war (those who survided it, that is).  Real GDP per capita would not reach the pre-war levels until the early 1990s.

Very destructive internecine insurgencies in our neighbours?  Nothing like what happened in 1971.  Bangladesh’s starting point was much worse than any of our neighbours.  It’s hardly surprising that some of them may have pulled ahead of us.  But on most things, with most neighbours, we have done remarkably well given our starting point.  That is something to feel good about.

And starting point matters a lot.  This is most evident when we look at Sri Lanka.  In 1980, our per capita GDP was about 40% of Sri Lanka’s.  Now it is about 30%.  On a range of social indicators, we have lost ground relative to Sri Lanka, even though that island has been torn by three decades of civil war.  Why have they done better?

Here is one answer — they started out much better than us.  For example, as this chart shows, when the British left, over three out of four Bangladeshi adults had never been to school.  Even now, about one in three has no schooling.  In contrast, Sri Lanka’s starting position in 1950 was similar to where Bangladesh was in 2010.

I don’t know much about Sri Lanka’s colonial history, but from the data, it is clear that they had a much better colonial experience than we did.  And that head start in education and health — human capital to use the jargon — makes a huge difference.  Particularly, once human development reaches a certain threshold, politics have to go really, really, really wrong to reverse those gains.  When a typical family has no formal education, no access to safe water, high child / maternal mortality, and all sorts of other misfortunes,  political stability is needed before even starting on the development process.  But once the family members have gone to school and know basic healthcare practices and the children have survived the infancy and mothers have decided not to have a dozen babies, even a vicious civil war doesn’t make this family go backwards in terms of human capital.  This is one reason why Europe and Japan recovered so quickly after the Second World War.  Their bridges and roads and factories and machines and schools and hospitals were totally flattened, but they still had their heads.  This is also why countries like Argentina or Greece still have decent social indicators, even though they are economic basket cases.  And this is why Sri Lanka has continued to do better than us.

The lesson here is not complacency.  Bangladesh is still a poor country where one in three adults have no schooling and far too many people lack even the basic amenities of life.  There is a lot to work for.  And things could go horribly wrong.  People like Prof Taslim can contribute a lot in making sure that things don’t go horribly wrong.  That’s why it’s important that the analysis actually stays on the mark.