Bangladesh’s political crisis caught India’s strategic community off guard earlier this year. India’s intelligence agencies were roundly criticised for failing to track the storm brewing in India’s neighbourhood. But they were not the only ones who missed the warning signs in that country. Another tribe completely misread Bangladesh — economists.
Until recently, economists viewed Bangladesh as a paragon of development. They raved about its booming garment sector that employed millions of women and generated billions of dollars in export earnings. Some economists argued that India should follow the “Bangladesh growth model” to boost exports, create more factory jobs in the country, and raise the country’s female workforce participation rates. Noah Smith, a popular economic commentator, declared in 2021 that Bangladesh was the “new Asian Tiger”.
By 2022, Bangladesh’s garment-led growth engine had run out of steam. Struggling to pay for its imports, it approached the International Monetary Fund (IMF) for a bailout package. As this column pointed out then (“The great divergence across South Asia”, August 9, 2022), India was the only large economy in South Asia that didn’t need an IMF bailout in the wake of the pandemic. Pakistan and Sri Lanka also dialled IMF for help. The economic bailouts were followed by political upheavals in these countries.
Economists were so enamoured with Bangladesh’s impressive growth numbers that they failed to check beneath the hood. They missed the dark underbelly of Bangladesh’s garment industry.
Bangladesh became a part of the global garment value chain in the 1980s when East Asian entrepreneurs were scouring for alternate production bases, given rising labour costs in their own countries. Ethnic strife in Sri Lanka forced them to look for other low-cost locations. Bangladesh’s military regime appeared to be pro-business and had crushed labour unions in the country. So, it seemed a lucrative alternative.
Retired military officers and bureaucrats based in Dhaka and Chittagong were able to stitch up partnerships with East Asian garment producers. Since they were part of the entrenched elite, they were able to develop close ties with the two major parties — Awami League (AL) and the Bangladesh Nationalist Party (BNP) — during Bangladesh’s democratic transition in the early 1990s.
By the time garment exports boomed in the late 1990s, the Bangladeshi deep state had developed a vested interest in the success of the industry. Several politicians from the two main parties owned stakes in garment firms and gained massively from the boom.
Since then, the AL and the BNP have fought intense battles for political supremacy, with their cadres clashing frequently on the streets, and outside polling booths. Yet, they did not hurt the garment industry. Even during hartals and shutdowns that paralysed the rest of the country, garment production continued apace. Not just that, the garment sector was exempted from standard compliance measures. Instead, the garment lobby group Bangladesh Garments Manufacturing and Exporters’ Association (BGMEA) was granted the status of a self-regulatory organisation.
BGMEA issues utilisation certificates (for duty free imports) and certificates of origin (the proof that a garment has been made in Bangladesh) to its members, without any involvement of State agencies. It has also set up arbitration committees to settle disputes between its members. It has ensured that factory inspections are minimal, and rules relating to safety standards are rarely enforced. By winning over the political class, BGMEA has ensured that efforts to raise minimum wages, or to form trade unions, are rarely successful. The garment lobby has effectively captured key organs of the State, the Bangladeshi economists Mirza Hassan and Selim Raihan wrote in a 2017 research paper.
No other industry was able to exert such influence. And no other industry grew similarly. Bangladesh’s economy became a one-trick pony, with garments accounting for most of its exports. The post-pandemic slowdown in global demand for garments exposed the weakness of the Bangladeshi growth strategy.
Had economists been paying attention to the evolution of Bangladesh’s political economy, they would have been more sceptical of the Bangladesh “growth model”. They would have paid more attention to Bangladesh’s weaknesses: The lack of diversification in its economy, the small-sized middle class, and subdued wages. Instead, they relied on an aggregate index of economic performance — the gross domestic product (GDP) growth rate.
Although GDP growth is an important metric, it can sometimes hide more than it reveals. And in this case, the GDP numbers are suspect. After the interim government took charge earlier this year, it appointed a committee of economists to prepare a white paper on the state of Bangladesh’s economy. The committee found that the GDP numbers may have been grossly overstated. The Bangladesh Bureau of Statistics manipulated data sources and the GDP-estimation methodology to overstate growth numbers, the committee said. Even population figures were deliberately kept low to overstate per capita income estimates, the committee found. Bangladesh’s corrected per capita income figure might be around 20% lower than India’s.
Economists will have to find another growth model now!
Pramit Bhattacharya is a Chennai-based writer. The views expressed are personal
