Role of state capacity in ensuring a sustainable economic future

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As Bangladesh moves from being a least developed country to a developing country, we will have to embark on an unprecedented path. At this point in our development, policy makers in our country are faced with an entirely unknown set of challenges, and one of the main concerns is how the government plans to meet these challenges.

The Youth Policy Forum (YPF) has launched a series of discussions, “Shaping Our Future” to help provide our policy makers with a global perspective, as they strive to meet the challenges ahead.

The inaugural session of this series was held on January 20, 2022, where world-renowned economists – Sir Tim Besley, Professor, LSE and Dr Shanta Devarajan, Professor, Georgetown University, were joined by Dr Mashiur Rahman, Adviser of the Prime Minister of Bangladesh, in a conversation to enrich the public debate on the politics of our country. The Business Standard was one of the event’s media partners.

The session focused on building state capacity: democracy, government accountability, Bangladesh’s aid relationship, and how these would shape the country’s sustainable economic future. Dr. Pauline Boerma-Collier, Economist and Senior Researcher for Global Public Policy at YPF, moderated the discussion on how to shape our future.

State capacity building is an integral part of development

Quoting Adam Smith, Professor Tim Besley said during his speech that good governance is a prerequisite for development. The esteemed researcher said, “State capacities are the lifeblood of the state, what makes states work. I like to divide these capacities into three key areas: tax, legal and collective”.

Professor Besley also pointed out that countries with strong tax systems gradually develop strong legal and collective capacities. These skills, coupled with well-maintained social norms and market support, have been key to the development of most high-income countries.

But he also underlined the crucial role that the government must play in this regard. Emphasizing its role in the market, Prof Besley said the outcome of the global market largely depends on how a country’s government interacts with it. To resolve any issues that may arise, he pleaded for “a common goal and a common interest”, which will bring people together.

A country with sustained success despite weak governance

Shanta Devaranjan, second speaker on the panel and professor of international development practice at Georgetown University, spoke about the seemingly paradoxical development of Bangladesh. Despite being one of the most corrupt countries in the world, Bangladesh has experienced steady economic growth since independence.

Non-governmental organizations have played a remarkable role in providing health care and education to the poorest in society. Although Bangladesh has one of the lowest tax revenue to GDP ratios in the world, it has demonstrated strong economic stability.

According to Professor Devaranjan however, the growth of Bangladesh is not at all paradoxical, but the result of the determination and initiative of our people. For example, people have taken advantage of the opportunities created by the government’s trade liberalization policies, resulting in a boom in exports and the economy.

These efforts have been joined by a large number of expatriates who send a huge amount of money every year. Although he expressed concern about the weak balance sheets of the country’s banks, Professor Devaranjan appreciated the progress made in financial inclusion.

He also commended Bangladesh for always setting its own economic policies, rather than relying on the prescriptions of international organizations such as the IMF.

Perception of governance in Bangladesh

In response to Dr Shanta Devarajan’s presentation, Dr Mashiur Rahman, Economic Advisor to the Prime Minister, said: “We all know that corruption stifles growth. But, if growth continues, can we assume that the perception of corruption is correct? He said Bangladesh’s growth is poorly understood and the effects of governance are often downplayed.

He pushed back on Dr Devarajan’s comment on the private provision of education by pointing out that teachers’ salaries in private schools were mainly paid by the government, while many secondary schools have been nationalized in recent times.

Furthermore, Dr. Rahman said that public universities were established even before the independence of the country, while private universities are relatively new.

He also said that the government is also increasing the number of schools and colleges that offer technical education. Women’s quotas have been in place in various sectors since 1972, and they have played an important role in empowering women, as has family planning, which was introduced by the government before non-governmental organizations in the country.

The government has also played a vital role in the advancement of the ready-to-wear industry by providing them with bonded facilities.

Dr. Rahman said our budget deficit is only about 4% of GDP, only half of which is financed by concessional loans. Savings and investment rates also correspond to 29%-30% over a period of 5 to 10 years. In rural areas, as people’s incomes are not calculated correctly, government assistance is difficult to assess.

He also acknowledged the incidences of corruption mentioned by Dr Devarajan, but said the Corruption Perceptions Index should not be taken too seriously. According to him, these are based on perceptions and many corrupt countries are left out due to lack of information on corruption.

In response to questions, Sir Tim Besley highlighted China’s decentralization strategy, which he called a brilliant move. He forced provincial governors to compete with each other to ensure economic growth in their respective provinces.

The promotion of these governors also depended on the prosperity of their province. He said, “Despite being undemocratic, China has created an efficient and accountable system.”

In response to a question about development models, Dr. Mashiur asked, “Where was the Taiwanese or South Korean model before they did it? As a result, these are not the only models that should be emulated, and Bangladesh can also show a different path of development.”


Zahrah Rahman is an undergraduate student in economics at the University of Brac.

Sayma Akhter Jafrin is a graduate in economics specializing in finance and management from the Asian University for Women.

Disclaimer: This article first appeared on foreignpolicy.com and is published by special syndication arrangement.

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