Beneath The Surface
A footnote for a finance adviser
The Hon'ble Finance Adviser, Mirza A. B. Azizul Islam, attended a prize giving ceremony recently in the city and made some comments about the role of Bangladeshi economists. Assuming that I could translate them correctly from a Bengali daily, his argument seems to be as follows: "the analyses of our economists are increasingly being dominated by political and personal perceptions. As a result, people are confused about the real economic situation prevailing in the country. It is because economists have deviated from the main goal. The real picture of the economy should be drawn on the basis of economics. Politics should not be drawn into this. To get out of the rot, students should attain accurate economics knowledge and be endowed with sufficient information (Dainik Jonakantha, September 3)."
I am provoked to pick up the pen to provide a footnote to the finance adviser on the nexus between economics and politics. While doing so, I am quite aware of the fact that our finance adviser was top economics student of his time; he worked in international institutions for a long time and also had been serving Bangladesh with due sincerity.
First, my own view is that people read about the economic conditions of the country from the indicators that affect their daily lives -- e.g. prices of essentials, cost of transactions, corruption, employment opportunities, law and order situation, freedom at every stage etc.
It is not from the round table conferences, dialogues or seminars of our economists in air-conditioned rooms that people receive the records of the daily economic realities. Again, like our economists and the finance adviser, common people also realise that when their income, or prices in the international market, goes up, prices of commodities that they consume are likely to shoot up.
What they want to know, however, is whether their real purchasing power over time has increased or not. Thus, if income level crawls up by 3 percent and the cost of living index creeps up by 15 percent or so, there remains little room for confusion that the economy is groaning under grievous mis-match.
If the demand curve had shifted to the right to cause price hike -- for reasons known -- the onus lies on the government or the market to shift the supply curve to the right, either through more imports or by augmenting domestic supply. Or else, keep the demand curve as it is and then compensate people with increased income (exchange entitlements) to keep them on an even keel.
Second, pure economic principles (maximisation of profit) might suggest that Asia Energy's encroachment on environment is worth the salt since huge profits would flow from the coalmines. But another group of economists might show that the same profit could pour in through different channels with lesser social costs.
Export of gas might bag foreign exchange earnings, but utilisation of that gas for domestic industries could keep the economic wheel move faster. People's perception about the fruitfulness of the project should also be placed high on the agenda. The second alternative is not against foreign investment or economics per se, but against unsustainable growth and development.
Likewise, if mills become unprofitable due to rampant corruption of high officials, trade union leaders, and politicians, the answer should be to remove the headache, not the head. The main culprits should be brought to book. Keeping Chittagong port out of the orbit of trade unions is a welcoming move as it reduces transaction costs and tends to increase exports.
Raising domestic taxes would help reduce foreign dependency, and the present position of NBR in raising tax-GDP ratio should be highly appreciated. By and large, economists need to be more than a fly on the wall; they should not be one-eyed economists.
Third, economists had deviated from their "main goal" long before, in a regime of changing goal posts. In our student life -- and possibly that applies to our finance adviser also -- economic growth was thought to be the panacea for all economic pains.
The main goal was growth and only growth. The Harvard, MIT and Chicago scholars discovered economic models that the then Pakistani rulers imposed on us. Soon it was found that economic growth was a necessary but not sufficient condition for the uplift of the society at large. The idea of two economies had more of a political tone than an economic one.
Amartya Sen's seminal book, titled Development as Freedom, talks about how economics could be made politically acceptable through a wider participation of people in the growth process itself. It hints at the role of the market as well as the government.
Sen reckons that analyses of development calls for an integrated understanding of the respective roles of different institutions (markets, judiciary, political parties, NGOs, media, community) and their interactions. If economists were to ride only on economic text books and draw the picture, we presume that Joseph Stiglitz would not have to leave the World Bank and write a book called The roaring Nineties -- Why We are Paying Price for the Greediest Decade in History.
There is a single message in this book; "there needs to be a balance between the role of government and the market. A country can suffer from under-regulation just as it can from over-regulation, from too little public investment just as it can from too much ... Countries should feel greater freedom in their choice of economic policies. There is no one way. There is no perfect system ... Other countries may decide to pay more attention to an economic and social system that pays more attention to huge inequality, the large number of people in prison, the anxiety and insecurity that are felt by so many, including the millions without health insurance, and the seeming unconcern about the deterioration of environment."
Economic policies need to be based on political realities. Panic and uncertainties are the worst enemies of an economy, both of which have roots in politics. Corruption constricts economic growth, and reducing corruption requires both economic and political weapons.
On the economic side, rampant restrictions might fuel corruption, and deregulation and competitive bidding could be an option. Economists should not be opposed to that. On the political side, establishment of the rule of law and anti-corruption institutions is a must to deal with corruption, and politicians must realize that.
In agreement with the finance adviser, I would ask my students to rigorously read about the basic principles of economics and increase their knowledge. However, in addition, I would also ask them to know about the conditions under which the government fails and the market succeeds, and vice versa. Bangladesh is a case where both have been failing because of its "derailed" politics.
Without successful politics, economics cannot win. Politics is at the command of economics. India has more per capita scientists and economists than China, but China is running much faster than India in terms of socio-economic development. Brazil has three times more per capita income than Srilanka, but the latter ranks high in the human development index.
Malaysian ethnic problems were judiciously handled by politicians and the country marched onwards but, faced with almost same problem, Srilanka is terribly trailing behind.
Finally, economics must have a "human face." Mega malls and mega cities might deprive a large segment of the society and breed inequality, poverty and political instability. Not only politics, cultural values also have a say on economic progress.
The knowledge of economics must embrace the factors that had hitherto been in the brackets for a long time. Aristotle, Adam Smith, Karl Marx -- to mention a few -- gave us a lot of insights about economics and politics, from which we can extract the things we need in our specific context.
Abdul Bayes is a Professor of Economics at Jahangirnagar University.
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