Inclusive growth policies can reduce inequalities in Bangladesh
We must urgently seek to reduce inequalities. Photo: Anisur Rahman
We must urgently seek to reduce inequalities. Photo: Anisur Rahman
The question of whether economic growth has an inherent mechanism to reduce both poverty and inequality has been widely studied in developed and developing countries. From these studies, we can say that growth is a powerful tool for poverty reduction. However, growth alone does not fully solve the problem of poverty and inequality – other tools are needed. The ‘inclusive growth’ approach is now used for reducing poverty and inequality around the world and refers to sharing the benefits of economic growth wherever possible, especially with the poorest 40%. Population.
This inclusive approach to growth should help the poorest and most vulnerable people to increase their incomes, increase employment opportunities and acquire productive assets, all of which contribute to their exit from poverty and to equality. . Bangladesh has succeeded in reducing poverty over the past 50 years, but inequalities have increased, despite impressive economic growth over the past three decades. This shows that while one goal of economic growth, poverty reduction, has succeeded, the other has not. The first sustainable development goal is to eradicate poverty and SDG 10, reduce inequalities, two critical and ambitious development programs to be achieved by 2030.
The country has been committed to achieving fair and equitable economic growth since independence. There is a broad consensus on the need to tackle inequalities in society, not only as a moral obligation, but also to improve the productive potential of people with the aim of accelerating economic development. It has also been recognized that growth itself is an inadequate means of reducing inequalities if it is pursued without investing in social protection programs, by organizing easy access to finance for the poor and carefully designed fiscal and monetary policies. caution. The free market mechanism cannot guarantee the removal of all bottlenecks to full employment, the maintenance of a minimum wage for all, the guarantee of basic needs for each household, and health care, education. quality and housing for all. Some empirical studies have shown that a sustained increase in income inequality has the potential to reduce economic growth performance and, therefore, we must urgently seek to reduce inequality and act in the interests of long-term economic prospects. term.
Empirical studies in different countries have shown that fiscal and monetary policies in favor of income and employment support, and public investments in education and health services have positively helped private production and growth through their distributive effect and by stimulating aggregate demand, instead of harming the productive forces. . Other studies have shown that countries with the highest tax-to-GDP ratio have been more successful in reducing income inequality. Poor income taxation and inequalities are linked and direct taxation should therefore be used to increase public revenue to cover the cost of quality education and health, subsidize food and electricity for households. the poorest and expand social protection programs.
To design inclusive growth policies, we need to understand the process by which inequalities increase. There are five potential areas that can be identified in relation to increasing inequalities, the first being the adaptability of skills to technological advances, as the demand for highly skilled labor increases wages and those with less. training and skills lose their jobs or receive low wages. Second, those with a higher level of education have better employment opportunities and better income. Second, better tax administration has the potential to increase income, redistributing it in favor of the poorest segment of the population through investments in rural infrastructure, agriculture and government subsidies in the area. education, health and other basic services, and through unemployment benefits. . Fourth, various economic and other shocks, natural and man-made disasters, emergencies such as the ongoing coronavirus pandemic, and large-scale population displacement are underlying causes of poverty and inequality. Finally, a part of the population that benefits from large-scale corruption and other illegitimate means of income, can lead to increased inequalities in society.
Let us look back at the policies adopted in Bangladesh and explore other options available to us to bring about a fairer and more equitable growth process in the future. In the past, several policies dominated, including fiscal and monetary policies, with a view to achieving macroeconomic stability – privatization of banks, ensuring the availability of capital for investors, stimulation of employment through industrialization, increased domestic production and consumption of agricultural and consumer goods, and increased world trade and labor exports. In addition to this, the government has invested heavily in power generation, a transport network, other infrastructure like ports and the establishment of special economic zones, all of which attempt to facilitate private investment and create a level playing field for the private sector.
Two important underlying objectives of the above policies, among others, were to reduce the proportion of people living in the poverty bracket and to reduce income inequalities. As we know, the proportion of people living below the poverty line in the country increased from 59% in 1991-92 to 20.5% in 2019. However, the Gini coefficient increased from 0.39 in 1991 to 0.48 in 2016, which shows that inequalities have increased significantly in the country.
Much more needs to be done than has been done so far to make growth more inclusive. These include higher budget allocations in the health and education sectors, technical and vocational training to improve human capital, increased public investment in the purchase and distribution of food grains. , a strengthened tax administration for fiscal sustainability, stimulus packages for small and medium-sized businesses and better targeting of beneficiaries and the extension of coverage of social safety net programs, especially during the current Covid-pandemic. 19. The government’s 2020-2021 fiscal stimulus plans have failed to reach the small and medium-sized enterprises, small farmers and the poorest hit by the pandemic, to the extent expected. In the 2021-2022 budget, the government must keep this in mind and take strong measures to control both poverty and inequalities. The budget for the next fiscal year must reflect these factors to deal with rising inequalities and the sudden increase in the number of new poor due to the effects of the pandemic.
Growing inequalities are a matter of concern and therefore inclusive growth policies should be adopted to address it. We need to pay more urgent attention to the challenge of the Covid-19 pandemic as its effects are likely to continue to impact our economy for several years to come. The Millennium Development Goals and SDGs place a strong emphasis on reducing poverty and reducing inequalities. We must live up to the expectations of the SDGs which are only nine years away.
Dr Nawshad Ahmed is an economist and town planner.