Money should go to people who need it most

by Rashed Al Mahmud Titumir | Published: 00:00, Mar 28,2020



THIS could be a Beveridge moment in his birthplace since the coronavirus pandemic urges a new way of economic thinking as the 1929 crash triggered a sea change. His ground breaking report titled ‘The Social Insurance and Allied Services’ formed the basis of welfare state, instituted by the Labour Party in the United Kingdom, which returned to power after World War II in 1945. Lord William Henry Beveridge, a British economist and social reformer, was born on March 5, 1879 in Rangpur, Bangladesh to Henry Beveridge, an Indian civil service officer and district judge, and Annette Ackroyd, who co-founded the Working Women’s College in London.

Alas! Rangpur, the very birthplace of Beveridge, has the highest rate of poverty in Bangladesh with a rate of 47.2, almost double the average rate of 24.3, according to the statistics of the Household Income and Expenditure Survey 2016. The poverty rate of Rangpur has seen an increment of 4.9 percentage points from the previous 2010 report whereas all other divisions as well as the national poverty rate has demonstrated a declining trend. The poverty incidence in rural areas of Rangpur is 48.2 per cent whereas the urban poverty incidence is 41.5 per cent.

It is an utmost emergency to chalk up a thought-through strategic framework to deal with this pandemic. Households should be the centre of interventions. Employment and capability enhancement for an increased return on labour should be the key policy focus given the characteristics of the economy. The strategy of pump priming and helicopter dropping in the name of aggregate demand enhancement with balancing the budget through bailouts of firms would not work. Trickle down does not work.



BANGLADESH was already facing certain structural challenges before the outbreak. The country has experienced jobless growth. According to the Labour Force Survey 2016–17, the unemployment rate is 4.2. The rate of youth unemployment, comprising the population aged between 14 and 24 years is high at 12.3. The rate of long-term unemployment, the people in the labour force who are unemployed for more than a year, is 15.2. The inactivity rate, measured by the proportion of working age population that is not in the labour force, is also high in Bangladesh, standing at 41.8 in total, of which 19.5 per cent are males and 63.7 per cent are females.

Recently, the rate of poverty reduction has slowed down. According to the Bangladesh Bureau of Statistics, the poverty rate declined by 1.8 percentage points a year between 2000 and 2005, by 1.7 percentage points between 2005 and 2010 and by 1.2 percentage points between 2010 and 2016. This is due to lesser employment opportunities and reduction in return on labour.

The economy is overwhelmingly dominated by informal sectors of petty commodity producers, sellers and labourers. According to the latest  Economic Census of 2013, 7.81 million are in informal sectors, out of the total 7.82 million enterprises. Of the 60.83 million employed labourers, 51.73 million (85.1 per cent) are engaged in the informal sector, with females comprising 91.8 per cent compared with 82.1 per cent of males, as per the 2016–17 Labour Force Survey. It also says that 95.4 per cent of all employment in the agriculture sector is informal employment, followed by 89.9 per cent in the industry sector and 71.8 per cent in the services sector.

There has been a declining growth in both sources of foreign inflows into the economy. At the end of 2019, the total export fell by 5.84 per cent a year-on-year basis, reaching $19 billion. The main export earner apparel was down by 6.21 per cent to about $16 billion. The flow of inward remittances dropped by nearly 17 per cent in February despite maintaining an upward trend in the first eight months of the current financial year.

The financial sectors have been in disarray for quite a while. Most of the enterprises are not defaulters, but the lion’s share of non-performing loans is in a few hands. A record Tk 50,186 crore was rescheduled in he past year, often by breaching banking norms, and yet defaulted loans hit Tk 94,313 crore at the end of 2019, up by 0.42 per cent year-on-year, according to the Bangladesh Bank. The IMF finds it double though. The capital market, supposed to be sources of equity financing, is plagued with scams and has been exhibited bearish trends, leaving banks to cater to term loans due to structural rigidities. This has been aggravated by the transfer of capital. According to the Global Financial Integrity, the country suffered $7.53 billion on average annually from 2008 to 2017 in its export and import due to mis-invoicing while the ratio of private sector investment to gross domestic product has remained flattened to 23 per cent.

Inequality is increasing at an accelerating pace due to higher return on capital vis-à-vis labour. According to the latest HIES, the Gini-coefficient, which is not perfect though yet generally used as a measure of equality, stood at 0.482 in 2016, up from 0.458 in 2010, a worrying trajectory. Gini stood at 33.12 in 2010 from 33.22 in 2005. The top 5 per cent has taken over of 95 per cent of total income.



WITH most of the labour force engaged in informal economy, livelihoods of low-income citizens are being hit hard and facing an uphill battle to survive and, thus, provision of basic income grant for six months through banking channels has emerged as the need of the hour. There is also a matter of convenience that most of the people have national identity cards and the bank account could be made operational against the NIDs. This rests on the reasoning that the liquidity in the hands of individuals increases consumption expenditure, leading to a spurt in the total demand in the economy. Such a programme, therefore, will keep the economy moving.

Providing basic income grant will not be a particularly difficult task for the government. This could be a basic income of Tk 15,420, the average household consumption expenditure from the last HEIS. The amount required for this programme might seem high and ambitious, but not an impossible task. The government earmarked well over Tk 74,367 crore for social safety net programmes this financial year. Besides, the government has been paying crores in the past few years to the private sector rental and quick rental power plant owners in capacity charges although they sit idle. The government can curb unwarranted expenditures such as Tk 100 crore earmarked to buy cars for the UNOs. There are plenty such examples. Strict institutional arrangements can easily recoup the amount spent on social security programmes.

A sustainable recovery of an economy is dependent on establishing, on a medium term, a permanent life-cycle-based household-centred, fully-fledged programme. A fully-fledged social security programme suitable to the life cycle of the public — children, mothers, youth and elderly — is the cry of the day. This programme has to be for everyone to include income support, national health services, child benefits, school meals, housing benefits, disability living allowance, invalid care allowance, state pension, job seekers’ allowance and others. Bangladesh is capable of financing such a fully-fledged programme.

The second most important task, on a medium term, is with an eye only on results — employment, wherein all who want jobs are gainfully employed. The drive may include direct job creation in the form of public works in order to attain and maintain full employment and price stability. A gainful employment can bring about the perceived rise in income and will keep the economy on track. Bangladesh’s economy has progressed with low labour productivity, insofar the deficit in skills has been catered for by employing foreign workers. In doing so, it has led to a significant portion of the returns to labour being repatriated. Moreover, a substantial tax revenue was also lost in the process as most of the overseas workers are undocumented.

History pinpoints that conventional practices seldom help to solve new problems. An emphasis on skills development and labour productivity increment, therefore, is required to keep the economy on its wheel. This also begs huge reforms in educational institutions, including technical and vocational training centres. The onus for rise in productivity lies with the government.



HOW would the package be designed for the businesses? Loan defaults, or the tendency to default, cannot necessarily be attributed to all firms. A substantial portion of credit is usually availed by only a chosen few. The concentration of credit is, thus, looming large as a cause of concern. Nevertheless, there is no denying of ensuring consistent cash flows into the economy while there is no alternative to the enforcement of stringent discipline in the financial sector.

There is a need to come up with a prudential recovery and reconstruction package, by ensuring that the firms do what is needed out of them to result in the desired impact and outcome. For example, apparel industry owners continue to be more bothered for a depreciation in the value of the currency than the persistence of low productivity and competitiveness in the industry. Similarly, the demand for catching up and acquisition of technology into the production process and skills development remain almost non-existent. Economic incentives, as useful as they are for a dynamic and productive economy, should not be provided as a result of succumbing to pressure groups with vested interest. Rather, stimulus and incentives should be directed at those who maintain and generate new employment, are devoted to achieving technological advancement and initiatives to increase productivity, to give them the competitive advantage they require. An aggressive acquisition of technology for a diversified economy on a large scale will justify the provision of substantial incentives and exemptions. Incentives aimed to serve clientelistic networks, however, have not been a pleasant experience. There have been instances where, instead of investing into raising of productivity and technological advancement, such preferential incentives eventually resulted in capital flight. Micro, small and medium enterprises should also be prioritised for the disbursement of incentives and exemptions with key performance indicators whilst strong conditional provisions should be made for large firms. These firms will be eligible for the incentives only if they are able to prove themselves. Unconditional incentives are rarely useful. Unreservedly injecting cash into the economy, also known as ‘pump priming’ or ‘helicopter dropping’, in the name of expanding aggregate demand has not borne results.

In the wake of the East Asian crisis, the Malaysian experience and the Chinese and the South Korean development model postulate that firms exhibited improvements in their positions when conditional incentives were offered. Bangladesh can, thus, come up with a recovery and restructuring package, learning from those experiences, with the objectives of ensuring diversification, attaining competitiveness, acquiring technologies and increasing productivity. In doing so, value addition would augment, a substantial qualitative change in the economy would follow and would contribute to a successful achievement of its goal of achieving developed country status.



WHILE the enforcement of order, competence and effectiveness of formal institutions is important, simultaneously informal institutions such as norms, values, practices and behavioural changes play a crucial role in keeping the economy on a progressing path. Informal institutions too are particularly capable in assuming a vital role in flattening the curve of the COVID-19 crisis, particularly in that public health is not limited to medical care. While maintaining a ‘social distancing’ period, a wide array of educational programmes on useful habits and practices may be broadcast on television and other promotional media. The awareness among general public is likely to make them more eager to carry on the healthy practices they are being acclimatised to. In the event of a lack of ability to create such contents instantaneously, those from Japan or South Korea can be dubbed in the local language and broadcast.

Besides improving health awareness, radical changes need to be made in healthcare provisions. It is evident worldwide that an access to universal healthcare remains essential in tackling the novel coronavirus and other health crisis as targeting has not given adequate results in aggregation. Neither is it particularly difficult to implement a universal healthcare plan in Bangladesh. There exists a certain level of tertiary-care infrastructure. In major districts, there are medical colleges and hospitals with quite a number of beds, so are there national specialised institute hospitals. What is required is the establishment of the infrastructure at lower rungs, such as the endowment of a family doctor for each person. Healthcare cards can be issued with reference to national identification cards of each individual. Referral procedures can be used to ensure health care throughout the upper and lower tiers, which in turn will require new doctors and nurses.



WHAT could be done at the multilateral level? John Maynard Keynes published a book titled The Economic Consequences of the Peace in 1919. He was part of the British team for negotiations on the Treaty of Versailles aftermath of World War I, following joining the Treasury from Cambridge University. He noticed that the treaty was discriminatory and was rather imposed forcibly. Years later, as a result of such discrimination, the League of Nations did not materialise, the tables turned, Hitler voted to power and World War II began. This evidently shows that one cannot overcome from consequences of the discriminatory policies imposed on people.

There are evidences of success as well. Franklin Roosevelt instituted mechanisms to transcend away from the Great Depression. Rather than imposing discriminatory conditions, as was done in Germany in World War I, for tactical purposes, the allied created a new constitution in Japan. Likewise, through Bretton-Woods conference, the World Bank and the International Monetary Fund were formed in order to rebuild war-torn Europe with the aid of the Marshall Plan. The initiative was an international success but the twins were later faced with criticisms due to their dogmatic policy orientations.

The oil crisis of 1973 created a huge imbalance in the balance of payments in many developing countries and to tackle that, the lenders dished out the structural adjustment programme through the World Bank and the International Monetary Fund. The experience from many countries, particularly those from African and Sub-Saharan countries shows that policy reforms towards market orientation by squeezing the role of the state can have adverse consequences.

The process in which Malaysia dealt with the East Asian currency crisis, it provided a path of overcoming the crisis. However, during the 2008 financial crisis, the package has benefited the corporations but has not helped the masses and economies as a whole have failed to recover in full. Japan is still in recession. By analysing these at length, the world should adopt only what has been characterized as successful.

Even before COVID-19, besides the imposed war and refugee crises, two significant negative pulses have haunted the world. The trade feud between the United States and China, along with the rise of populism, has further resulted in a crisis in internationalism and faith in multilateral organisations. What will happen to countries in Asia and Africa or other countries that have huge debts? What will be the role of the large economies like the United States and China? How will they manage them? Keeping the failures and successes of the Bretton Woods in sight, how will international public goods and recovery packages be financed? In this case, the role of every country is as important as that of the United Nations and other multilateral bodies.

Every country is committed to a common cause as they have aimed to achieve the Sustainable Development Goals by 2030. Since all the countries are committed to realising the SDGs, including tackling climate change, creating green industrialisation and inequality reduction, they need to move ahead accordingly. Only the contagion of cooperation can pave the way for the future!



COVID-19 heralds a sea change in the role of the state. The state cannot be a bye-stander, not a government of yesteryears of enabling, facilitating and regulating, allowing getting ‘price right, leaving everything to the market’, as ushered in the so-called ‘Washington Consensus’ after the oil crises of 1973 and 1979 nor the types dished out by post-Washington consensus with emphasis on the stereo-typed governance reforms. These are not likes of post-2008 crises wherein the mainstream shifted position on government finance and fiscal policy in the guise of ‘sound finance’ with the peculiar case of Ricardian Equivalence, implying that fiscal policy has a limited role since it is still distortionary, inflationary, and inflation is a purely fiscal phenomenon, and thus budget has to be balanced. They opted for a trickle-down mechanism of ‘pump priming’ and ‘helicopter dropping’ — the injection of funds, with the goal of prompting higher demand for goods and services, and that increased demand would lead to increased profitability in the private sector and which would assist with overall economic recovery. What has been observed is that the large stimuli created a relatively small employment impact while the so-called ‘bailed out’ private sector engaged in buy-back and thus the ‘bond drop’ on output and inflation via a wealth effect has been limited as bonds ended up in the hands of private agents. There is a need for moving away from the ‘dysfunctional finance’ or ‘sound finance’ to the harmonisation of fiscal and monetary policies that directs demand to the unemployed, with a combination of spending and taxation on the fiscal front while with an impact orientation for the borrowing and repayment of loans and the issuance of new money and withdrawal of money from circulation as money is a creature of the state at all times.

Crisis often leads the world towards new possibilities. The capability to transform crisis into potential eventually rest in the hands of the state and politics.


Dr Rashed Al Mahmud Titumir, a professor of economics at the development studies department in Dhaka University, is chairperson of Unnayan Onneshan.

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