There is an interesting anecdote about Bangladesh’s first prime minister, Sheikh Mujibur Rahman. In the early days of independent Bangladesh, a foreign journalist asked Rahman what the country’s number one problem was. Without blinking his eye, the leader replied, “We actually have two number one problems: food shortage and huge population.”
This witty but profound response highlighted the need to work on several fronts at once. Even in the trying times just after independence, when much of their attention was on the urgent need for relief and rehabilitation, the political leaders and economic managers of Bangladesh had started to think about long-term development imperatives.
Bangladesh’s first decade, the 1970s, was largely a period of recovery from the dislocations of the 1971 War of Independence. Economic growth was poor and unstable. But the foundations of long-term growth were being laid. The results were soon evident. The economy started growing at a steady rate from the early 1980s onwards, and has accelerated in more recent years. During the COVID-19 pandemic, Bangladesh registered one of the most resilient growth performances in the world. According to the IMF, Bangladesh’s economy is expected to grow by 5.5% in the current fiscal year and by 6.5% in the next.
Bangladesh’s remarkable economic transformation has attracted widespread attention. The many disadvantages the country faced at its birth have prompted many observers to call this transformation a paradox or even a miracle.
In this article, I argue that this is neither a paradox nor a miracle, but rather the result of an entrepreneurial spirit, and the creation of a space where such a spirit could be unleashed. Going beyond conventional narratives, the article offers a fresh interpretation of Bangladesh’s growth trajectory. It focuses on the interplay of markets and policymaking, two important, yet under-appreciated drivers of Bangladesh’s unexpected success.
The relevance of this narrative goes beyond Bangladesh. It provides rich insights into the processes of economic growth in a natural-resource poor country, and the dynamics of policy formulation and evolution in a context of relatively poor governance.
As I mentioned at the outset, the priorities were set right at the beginning. First came the efforts to encourage the widespread adoption of high-yield varieties (HYV) of rice. Then came programmes to encourage family planning and the adoption of birth control. Agricultural extension workers, almost all men, and family planning workers, almost all women, crisscrossed the villages of Bangladesh to spread the messages. The compactness of the country and the density of its population helped. Since then, the power of the demonstration effect has repeatedly manifested in Bangladesh.
At the heart of Bangladesh’s remarkable growth is entrepreneurship. Bengalis were long known for their interest in poetry, music, and culture. They also had a reputation for being resilient. Post-independence Bangladesh has shown that they can be entrepreneurial too. An entrepreneurial spirit has been unleashed across the board in the country, from small rice farmers diversifying into other crops to large conglomerates with interests as varied as IT and steel, from rural non-farm activities selling products in nearby villages to garment manufacturers operating in the global marketplace.
The latent entrepreneurial resources were harnessed in a succession of waves following the country’s independence in 1971. One set of activities led to another. The first driver was growth in rice production, aided by an extensive supply of irrigation facilities and fertiliser. By 1991, rice production was 80% higher than in 1972; now it is three and a half times higher.
As rural incomes grew due to increased rice production, demand increased for a variety of agricultural products. Enterprising farmers responded by going into the production of vegetables, potatoes, fruits, dairy and fish. This helped diversify agricultural production and put the rural economy on a strong footing.
Meanwhile, a new class of traders emerged in the rural areas, engaged in selling or renting irrigation equipment and distributing fertiliser. As mechanisation increased in agriculture, initially in the form of mechanised irrigation and then expanding into other types of equipment, a domestic manufacturing industry developed to make some of this equipment and their spare parts. Moreover, as farmers diversified beyond rice into other crops, as well as fisheries and poultry, a value chain developed around these activities. New players entered the scene. These included owners of cold storages for potato, and hatcheries for aquaculture.
As rural incomes increased due to a confluence of factors – agricultural growth, remittance inflows, and wage earnings of rural women employed in the garment industry – a vibrant rural non-farm sector emerged. The significant expansion in the rural road network starting from the late 1980s also helped. By the late 1990s, the notion of subsistence-oriented, isolated Bangladeshi villages had given way to that of market-oriented rural settlements, well connected to the rest of the country, and increasingly to distant lands.
In recent years, the rapid spread of mobile telephony and mobile financial services has added dramatic, new dimensions to this phenomenon. Mobile cellular subscriptions rose from 0.15 million in 2000 to 166 million in 2020, while mobile financial transactions, introduced in 2011, rose almost nine times, in Taka value terms, between 2013 and 2020. Today, farmers in a remote village in Bangladesh can use their mobile phones to monitor prices in Karwan Bazar, a major wholesale market in Dhaka. And if they do decide to supply this market, they can expect to be paid swiftly through one of the mobile finance providers.
As the rural economy was becoming vibrant, things were also brewing in urban Bangladesh. The role of remittances and garment exports, two factors linked to the global economy, is well recognised in the literature on Bangladesh’s growth experience. What is lost in such narratives is the role of the domestic economy, also an important arena for Bangladeshi entrepreneurs.
Independence led to an exodus of non-Bengali businessmen who had dominated the business scene in pre-independence Bangladesh. This created opportunities for Bangladeshis, but with the sweeping nationalisation of industry in 1972, these were limited in the manufacturing sector. The political and economic uncertainty of the time also discouraged long-term investment in industrial activities, even on a small scale. Entrepreneurial energies were thus directed towards trading, including importing, where much money was to be made by those privileged to receive import licenses. Money was also to be made by distributing products made by public sector enterprises. The origins of some of the large conglomerates of Bangladesh can be traced to such business ventures of the 1970s.
Over time, the substantial growth in consumer demand resulting from a rising middle class has generated a paradigm shift in entrepreneurial ambitions. The large size of the economy (Bangladesh currently is among the top 40 economies of the world in terms of GDP size) is allowing enterprises to exploit economies of scale and compete with imported goods. After serving the domestic market for many years, some are now thinking of going global. An example is the large firms in the pharmaceutical industry.
The story of Bangladesh’s growth is thus a story of linkages – across sectors, between small and large companies, and between rural and urban enterprises – interlinkages that have helped create a dynamic enterprise sector.
But all this would not have happened without the helping hand of government, which conventional narratives on Bangladesh tend to downplay. In some writings, government is the villain – the impressive performance of Bangladesh is said to have happened “despite the government.” Those who do mention government say it helped development by staying out of the way, i.e., by granting NGOs the space to deliver social services, long considered the responsibility of government.
In fact, the government has been a major player in the development journey of Bangladesh. By ignoring this perspective, most narratives on Bangladesh have missed an opportunity to demonstrate how a government, weak in many respects, can nonetheless make strategic contributions to development over a prolonged period.
Government actions, including policies and public investment projects, helped create the space for the unleashing of an entrepreneurial spirit. While Bangladesh has had a few episodes of dramatic policy change and some cases of reversals, the latter mostly in the financial sector and in trade policy, the dominant approach has been experimental, incremental, and adaptive.
Successive administrations have observed market developments and responded by undertaking appropriate policy actions and public investment programmes. They have done so cautiously by testing the market. When such incremental policy actions generated market response, demand was created for additional policy actions. The government responded to such demand with follow-on actions.
Policymaking has also been influenced by analysis and debates. From the very early days of its existence, Bangladesh has witnessed several important debates underpinning policy decisions. These debates have often been triggered and/or informed by economic analysis. Such analysis came from local economists, development partners such as the World Bank and IMF, and global think tanks such as the International Food Policy Research Institute. Political considerations, administrative feasibility, and views of other professionals have also shaped the debates.
Often the pace of government responses to market developments was slower than desired by market players and policy advocates. And yes, the government in Bangladesh does not score well on conventional indicators of transparency or effectiveness. Yet it managed to sustain such market-policy interactions for at least four decades, across several administrations and amid political turbulence. The cumulative effect of such incremental actions is reflected in the remarkable economic transformation of the country.
At the end of the day, it is often the tortoise that wins the race.
Does all this mean there aren’t any areas of concern? Of course not. There is no scope for complacency.
Rapid growth has created its own problems. Environmental degradation is common as is corruption. The banking sector suffers from a huge stock of non-performing loans. Some business houses have become powerful, not just economically but politically too. The rise of crony capitalism could be the single largest factor derailing Bangladesh from its remarkable growth trajectory. Meanwhile, the education sector has failed to produce the critical mass of skills required to sustain the growth of the past.
These issues need to be addressed. But to do that, one must first understand how Bangladesh came to where it is now.
The future is important. But so is history.
Syed Akhtar Mahmood is an economist, previously with an international development agency.