Stefan Dercon is Professor of Economic Policy at the Blavatnik School of Government and the Economics Department, and a Fellow of Jesus College at the University of Oxford. His latest book Gambling on Development: Why some countries win and others lose was published in May 2022. It has a chapter on Bangladesh, The Bengal Tiger Cub, where he explained how Bangladesh’s post-1975 policies facilitated economic growth and social change. The relevant parts from the book have been detailed below for the readers.
After it emerged from a violent secession war with Pakistan (then West Pakistan) in 1971, two heads of state were murdered in the first decade, independence leader Sheikh Mujibur Rahman in 1975 and army officer turned elected leader Zia Rahman in 1981. After Zia Rahman’s death, military rule ensued until 1990.
[…] Nevertheless, Bangladesh has in practice a development bargain: a shared commitment among those with power that growth and development ought to be pursued. It was forged in the chaotic period following the independence war, the famine years, and the assassination of Sheikh Mujibur Rahman. At first, the elite bargain was only an implicit political deal because it had no clear-cut economic agenda, but rather a commitment to avoiding the populism in politics and the short-term resource grabs by leading groups that had led to the breakdown of stability and political order during this period.
An elite bargain followed that has held, first during authoritarian military rule up to 1990 and then during the period of democracy, however, fractured and possibly increasingly fragile. The politics of the elite bargain are sustained by an economic deal broadly seen as essential to keeping the political deal going—not just in generating rents for the elite, but also in delivering growth and development. By the late 1970s, a commitment to reasonable macroeconomic policies as well as openness to global markets and foreign investment had emerged, overcoming the failed economic experimentation that contributed to the instability in the post-conflict years. There was no specific grand design to build a globally competitive economy, but, with the benefit of hindsight, these macroeconomic policies proved to be useful in preventing the state from turning predatory by pursuing excessive rent-seeking. Likewise, in the emergence of the garment industry in the early 1970s there was no grand investment plan to build up this sector. At the same time, there was hardly an attempt to halt or impede its emergence through quick capture of its profits as rents. Instead, the government was responsive and assisted with specific industrial policy innovations, such as bonded warehouses for essential inputs, that allowed the sector to grow without much impediment.
[…] In summary, this pro-business and pro-growth economic deal emerged as an elite bargain for stability very much in line with the analysis in chapter 2 of why such deals emerge (to keep the peace, or as a better route for rents, or for returns for the elite), as well as how they emerge (often out of conflict and chaos). But the deal involved more than just ‘trickle-down’ growth through better jobs and opportunities from garments; that would not explain the early focus on broader development outcomes such as health. Was the deal driven simply by the quest for legitimacy and even political survival of the elite, or was it a genuine and enlightened commitment to the Bangladeshi population who had suffered so much in the early part of the 1970s, not least during the famine of 1972–3? In any case, a national and even global elite perception emerged that concerted action was needed in areas such as health, fertility, and education for the country’s survival.
[…] This is not a story of exceptional quantities of aid: since 1975, Bangladesh has received on average $10 per capita in aid a year, whereas similarly poor or even better-off countries such as Nepal, Uganda, Kenya, and Ghana received two to four times as much. Even in the deep crisis of the early 1970s, aid never made up more than 7 per cent of Bangladesh’s gross national income. If aid played a role, as most researchers suggest, then it has to be about the effectiveness with which aid was used. It clearly helped that after 1975 and a period of post-independence chaos that saw an attempt at ideologically driven governance, policy-making became pragmatic, devoid of dogma or religion. The few essential parts of the state that required careful handling, such as the central bank, were given enough independence for its experts to maintain stability, working with international institutions. From early on, aid was also used to support learning from doing, allowing the kind of experimentation and course correction that was needed to use resources well and that in various forms had played a role in other successful countries. Some of this learning was carried out within the state with extensive assistance.