Growth that is without gains

Published : 24 Jan 2017, 06:03 PM
Updated : 24 Jan 2017, 06:03 PM

The economic wellbeing of a country is usually measured, for want of a better or simpler alternative, by gross domestic product (GDP). It is defined as the market value of all final goods and services produced in the country during a given period.  Going by the GDP and other cognate estimates of BBS, it can be said that the economy of Bangladesh has performed well.

The country achieved an annual average GDP growth rate of 6.3 percent since 2008-09. This is quite high in a period when much of the world was in recession. The balance of payments situation was satisfactory with large surpluses in most years. Consequently Bangladesh has a comfortable international reserve position now equivalent to about 9 month's import payments.  Saving and investment rates have risen. Population growth has fallen continuously such that most of the growth in GDP now translates into GDP per capita growth. Mega infrastructure projects are being implemented by the government to ease business and travel woes. Electricity problems have ameliorated, and at least in Dhaka city load shedding has declined markedly. The country will most likely graduate out of the UN category 'Least Developed Country' by 2024. It should be able to take a leap to 8 percent plus growth in the near future.

Government leaders are incessantly informing the public about these impressive economic successes achieved during its tenure.  It is telling the people of the benefits of the surging development tide that is now sweeping across the country and the primacy of such development over all other issues. It has decided to hold development fairs in all parts of the country to inform the public of its achievements. Similar schemes to inform people of the untiring efforts of the government for economic development were also taken in the past. As it was then, not many people seem convinced about the benefits of these successes claimed by the government; it is preaching essentially to the converted.

Why is this apathy of the public in the face of such impressive evidence produced by the government?  Some people will no doubt find the answer, as in the earlier era, in the absence of democracy and the repression of the opposition. How far this is true is a good research topic for competent political and social analysts. However, I suspect the main reason for the apathy is more economic than political.

The principal consumers of GDP and associated data are the government itself, various national and international organisations, large corporate houses and analysts of economic events. The government needs aggregate data for designing policies and actions, organisations and businesses need them for deciding on their short and long term strategies and researchers need them for analysis.

However, to the great majority of the population these esoteric figures have little meaning. Should anyone have doubts, they need only ask some ordinary people if they know what the GDP or the investment rate of the country is. The probability is very high they don't.

What matters to the ordinary people is not the national account figures, but rather if they benefit from them. People are happy if their real income is increasing regardless of whether the GDP is growing or falling. All the government propaganda regarding development will not have anywhere near the same positive effect of a modest increase in their purchasing power. There is nothing unique about this; most people around the world vote with their wallets. The recent US election result should also dispel doubts.

Did the development activities enhance the real income of the majority of the public? Government statistics do not suggest so. According to BBS, real GDP per capita increased by an impressive 21.0 percent (see Table) between 2010-11 and 2014-15. This means that if the GDP of the country were distributed equally among each and every person in the country, then everyone would have had their real income or purchasing power raised by 21.0 percent. If a section of the population received less than this increase then some others must have had a higher increase.

We do not have detailed official data of how well different sections of the population have done during the tenure of this government. However, some data are available that could throw some light on the situation.

Recently BBS has published detailed estimates of nominal wage indices of non-formal labourers engaged in agriculture, manufacturing and service sectors of the economy (Revision and Rebasing of Wage Rate Index (WRI) from 1969-70 to 2010-11, July 2015). Since non-formal labourers comprise most of the total labour force, these data must cover a major section of the population.

As the table below shows the nominal wage index of the non-formal labourers has increased during the period 2010-11 to 2014-15 by 24.7 percent. However, the consumer price index (CPI) during the same period increased by 32.6 percent. This implies that by 2014-15 they lost 7.9 percent of the real wage income they had in 2010-11. Not only that they did not benefit at all from the much vaunted high GDP growth rate, the system actually surreptitiously took away, by means of inflation, part of whatever meagre wage income they had earned.

The largest section of the population is the farmers. Little is known about the evolution of their real income during the last few years. However, sporadic news reports suggest that input costs of crop farming have gone up, but the prices of crops have not increased proportionately. This would imply a deterioration of the farm balance sheet. Some support for this may be had in BBS agricultural data. Gross value added in real terms in crop agriculture grew at only 2.2 percent per annum between 2010-11 and 2014-15. A part of farm income accrues to absentee landowners. Hence, this small growth rate would imply a much smaller increase in the per capita real agricultural income of the farm population. The gap between agricultural and non-agricultural income would increase further.

The dire situation faced by our youth (15-29 years) has recently come into light. A World Bank-ILO report stated that about 41 percent of Bangladeshi youth were NEET (not in employment, education or training) in 2013. Another study by British Council and Economist found that 47 percent of the graduates were unemployed. It would appear that the development tide has not touched a large section of the youth, in particular educated youth. There are a lot of frustrated and angry young people out there.

Another section of the population about whom an educated guess can be made is the group of the salaried employees who receive their salaries from the government exchequer in accordance with the government pay scale. These are periodically adjusted to partially offset the effect of inflation. The salaries in real terms declined very substantially in the years following the award of a pay scale in 2009. To offset the loss the government awarded them a new pay scale in 2015 which doubled their salaries and allowances. This was fully implemented by July 2016. However, by now the increase in real salaries since 2009 has become very modest and much less than the GDP growth rate (see 21 June 2016 edition of this newspaper).

It may be argued that the incomes of these groups are not restricted to only the incomes mentioned above. This is known to be true: farmers are increasingly participating in non-farm activities and many salaried people are engaged in second jobs or in corrupt practices. All groups may earn some income from their accumulated wealth. Unfortunately, we do not have reliable data on incomes of various groups for the recent years. Until the government agencies supply relevant information, analysts will make do with whatever is available. The figures above certainly suggest that the real income of each of these groups from its principal occupation either declined or did not increase significantly.

The upshot of the discussion is that a large part of the population of the country did not gain from the much hyped high GDP growth. Hence, they have little reason to be ecstatic about what for them is essentially a gainless growth. The other side of the coin is that a small section of the population gained disproportionately from the growth. They have reasons to celebrate the development tide and sing in praise of the government that made it possible.

Toufique Imrose Khalidi
Editor-in-Chief and Publisher