Why agonise over economic growth?

Economic growth rates and their projections always attract headlines. There is almost universal belief in the "goodness" of GDP growth. In fact, in 1991, the World Bank published an influential paper, "Growth is good for the Poor", by David Dollar and Aart Kraay. The authors, together with Tatjana Kleineberg, have recently extended their study and found that growth is still good for the poor.

Therefore, any upward growth projection is received with much joy and there is no surprise at the reactions to World Bank's latest estimates of Bangladesh's growth of 5.7% for 2013. Any downward revision of growth is received with a feeling of sadness. It is almost invariably seen as a sign of doom. This is especially so when the downward revision comes after nearly a decade of "impressive" growth of around 6% per annum.

Of course, economic growth matters. Without economic growth or rise in income our capability set remains constrained. With limited or stagnating income, we not only find it difficult to meet basic needs, but also cannot achieve our human potential; nor can we fully participate in society.

However, just as the level of growth matters, quality of growth also matters. Economic growth will always be higher if, for example, there is a higher level of construction activities. But this does not necessarily imply greater human welfare. The higher level of construction activities would be welfare-reducing if more concentration camps were constructed by a repressive regime.

We can also increase growth by allowing more ship-breaking activities, which are hazardous for both the environment and human health. In fact, GDP would get a direct boost not only from these hazardous activities, but also from the visits to health clinics or doctors by the people whose health is adversely affected.

We certainly cannot rejoice at such methods of achieving higher economic growth.

On the other hand, the same higher level of economic activities could be welfare-enhancing if, for example, they are due to the building of residential dwellings. Again, the impact on human welfare varies depending on whether the newly-supplied residential dwellings are luxury mansions for the super rich or low-cost public housing for the poor and middle class.

Besides the implications for disparity and the welfare of ordinary people, the booms in the luxury end of the housing sector may lead to bubbles and economic crises that affect the poor disproportionately. Thus, high growth as the result of bubbles is not only unsustainable, but also detrimental to the poor. One should not, therefore, feel bad if growth slows due to the cooling of housing bubbles.

So, whenever, GDP growth is talked about, its sources as well as social and environmental impacts should be made clear.

The impressive growth of the Bangladesh economy over a decade at nearly 6% pales when it is seen in relation to growing inequality. The most common measure of inequality, Gini ratio, has increased from 0.36 in 1973-74 to 0.46 in 2010. This rise occurred primarily between 1991-92 and 2010 – the period of high growth.

As Dr. Rizwanul Ialsm in a local daily has shown, "during the 1970s and the 1980s, the degree of inequality in income was not very high in Bangladesh, and there was no major increase either. Indeed, compared to other developing countries of Asia (e.g., Malaysia, Philippines, Thailand), Bangladesh was a country with a lower degree of inequality. That situation continued till 1991-92. But there was a sharp increase in inequality between 1991-92 and 1995-96. And there have been further increases during 1995-96 and 2005… The share of the bottom 40 percent of the population in 2010 remained substantially lower than it was in the 1980s and early 1990s."

There are other factors that also take away the shine from our growth story. It is well known that the ready-made garments sector is one of the main contributors to Bangladesh's high growth. Put this success story against the fact that the safety record of the Bangladesh garment industry is one of the worst in the world. According to the Bangladesh Fire Department, 414 garment workers were killed in at least 213 factory fires between the years 2006 and 2009. A further 79 workers lost their lives in 2010 in 21 separately-recorded incidents. The number of reported deaths due to industrial accidents increased from 289 in 2005 to 1639 in 2009. During the same period, the number of reported injuries rose from 1006 to 1858.

Can we celebrate our growth story when we consider the appalling working conditions and industrial accidents such as the fire in the Tazreen Garments or the Rana Plaza collapse that have taken the lives of thousands of workers and injured many more?

The garment industry has also been responsible for polluting the environment. In an article published on 14 July 2013, The New York Times wrote, "Bangladesh's garment and textile industries have contributed heavily to what experts describe as a water pollution disaster… Many rice paddies are now inundated with toxic wastewater. Fish stocks are dying. And many smaller waterways are being filled with sand and garbage, as developers sell off plots for factories or housing."

Put the above against the fact that Bangladesh is already one of the world's most environmentally fragile and densely populated countries; all the glory of our "impressive" growth will disappear.

As emphasised by a renowned Marxist economic historian Professor Amiya Bagchi in his Perilous Passage, "whatever our scheme of valuation, the production or supply of more goods can be interpreted as a better state of affairs only when we know that those goods will be used for a purpose we can approve of. The only purpose that is likely to elicit near-universal agreement is the use of the goods for the good of human beings".

One can unpack Professor Bagchi's criteria to highlight sustainability of growth, working conditions and inter-generational environmental sustainability and productive employment creation in judging whether growth is ultimately good.

This is the essence of the campaign for inclusive and sustainable development. Sustained growth is necessary, but it has to be equitable, socially inclusive and must ensure environmental sustainability.

———————————————
Anis Chowdhury is a former Professor of Economics, University of Western Sydney, Australia.