Rise of inequality, drumbeat of development

Gold-covered jilapi, rising inequality, and the drumbeat of development

Recently, a five-star hotel in the capital announced the sale of Jilapi wrapped in 24-carat edible gold. Priced at Tk 20,000 per kg, those jilapis were sold out so quickly that the hotel's stock of imported edible gold ran out within six days and it had to stop taking orders. Ironically, in March 2023, a survey by Sanem revealed that the majority of the people in the country are forced to reduce their food intake after massive food price hikes. According to the survey, in February, 96.4 percent of households had reduced their meat intake compared to six months back, followed by the intake of fish (88.2 percent), oil (81.4 percent), eggs (77.1 percent), and rice (37.1 percent). Moreover, the survey found that poor households are switching to low-quality food.

In the midst of an economic crisis, when the queues for cheaper rice, lentils, oil, and sugar at open market sales and the Trading Corporation Bangladesh's mobile trucks keep getting longer, and when low-income people, being unable to buy pricey whole chickens are forced to buy chicken livers, legs, necks, and broken eggs, the sale of luxury cars or flats is increasing in the country. As the prices of all kinds of construction materials have increased due to the Russia-Ukraine war, the demand for low-cost flats in the capital has decreased. But the sale of luxury flats, costing crores, has not decreased in areas like Gulshan, Banani, Baridhara, Dhanmondi, and Uttara. And, according to Prothom Alo, while two decades ago 50 to 60 European branded cars were imported annually, now an average, more than 500 such cars are imported annually. Till March 2023, the BRTA registered 84,765 SUVs, of which 67 percent were registered after 2011. Even during the acute dollar crisis, at least 10,240 SUVs were registered in 2022 alone.

This issue of increasing economic disparity in the country has also come up in the BBS' (Bangladesh Bureau of Statistics) Household Income and Expenditure Survey 2022. The Gini coefficient related to income rose to 0.499 in 2022, up from 0.482 in 2016 and 0.458 in 2010. Generally, a country is considered to have high income inequality if the Gini coefficient is 0.500.

Policymakers seem to want to portray this rise in inequality as a "normal" process of economic development. But the increase in inequality in Bangladesh is not natural or inevitable. It is happening because of a particular type of development model and political structure, which is characterised by regressive taxation, extremely low wages, and rampant corruption.

— Kallol Mustafa

According to the Global Wealth Databook 2022 prepared by Credit Suisse, 21 individuals of Bangladesh have assets worth more than $500 million. Despite the Covid-19 pandemic, the number of people possessing more than $1 million of wealth in the country increased by 43 percent in 2021.

This trend of economic development for a few, while millions are deprived, is also evident in Bangladesh Bank data. Amid the economic crisis and rampant inflation, while most people are struggling to meet their daily expenses, the number of bank accounts with more than Tk 1 crore is increasing, alongside their deposits. According to a report by the Dhaka Tribune, the number of bank accounts with Tk 1 crore or more of deposits increased by 7,970 in just one year (between December 2021 to December 2022). This rise more than doubled (16,056) in just two years and more than tripled (26,107) in three years. As of December 2022, 42.63 percent of the total deposits in the banking sector are from those account holders alone.

Policymakers seem to want to portray this rise in inequality as a "normal" process of economic development. But the increase in inequality in Bangladesh is not natural or inevitable. It is happening because of a particular type of development model and political structure, which is characterised by regressive taxation, extremely low wages, and rampant corruption.

Industrialists and businessmen utilise various types of infrastructure and institutional facilities for conducting "business", including roads, transportation, power and energy, raw materials, skilled human resources, medical facilities, and law enforcement. The money required for these comes from the direct and indirect taxes paid by the public. And the duty of the businessmen is to pay living wages to the workers and taxes to the government so that the tax money can be spent on various types of infrastructure development and for the provision of public services. This is how people's money can be recycled to be used for the benefit of the whole population.

But if businesses and corporations can get away with not paying adequate taxes and decent wages, the majority of people are deprived and their share of national income decreases compared to that of the rich. This is exactly what is happening in Bangladesh.

In Bangladesh, businessmen and industrialists make use of infrastructure without paying taxes proportionately. Industrialists and businessmen also do not pay decent wages and get away with not spending enough on workplace safety. Some enjoy various opportunities of looting money from banks and laundering it abroad in the name of import and export. This is how inequality increases as the size of the country's economy increases.

Most of the government's revenue comes from indirect taxes. Instead of properly collecting taxes from the rich on their income and profits, the government is focusing on collecting indirect taxes like VAT and duties from the poor-lower-middle-class majority. Bangladesh's current tax-to-GDP ratio stands at 7.9 percent, which is way below the ideal benchmark of 15 percent. In 2022, of the government's tax revenue, 65 to 67 percent came from indirect taxes, while the remaining portion came from direct or income taxes. According to the Center for Policy Dialogue, Bangladesh is losing potential taxes amounting to as low as Tk 41,800 crore to as high as Tk 2,23,000 crore every year because of tax evasion.

Whenever people purchase something, they pay indirect taxes. Although importers pay duties for their imports, they actually collect that amount from the buyer when selling the goods later on. Similarly, the VAT collected by the government at every stage of production, marketing, and sales ultimately has to be paid by the consumer. So, when buying the same amount of oil or sugar, the rich and the poor pay the same amount of indirect taxes. And this is the ultimate form of inequality, as poorer sections of society spend a larger share of their income on indirect taxes. This is how most of the tax revenue collected from common people is spent to increase the wealth of the rich, thereby exacerbating inequality.

The wages of workers are not enough for them to live a decent life. According to a study by the CPD, as of December 2022, a family of four living in the centre of Dhaka needed Tk 23,676 just for food. And if this family lives on a "compromised diet", with no fish, mutton, beef, or chicken, their average monthly cost of food would be Tk 9,557. The CPD compared this minimum food cost with the minimum wages of workers in 21 industrial and service sectors and found that, in 15 sectors, the minimum wage is not enough even when a family's diet is compromised. Besides, an ILO report shows that Bangladesh is the only country in the Asia and Pacific region where the minimum wage is below the international poverty line. Moreover, the actual minimum wage of workers in Bangladesh has decreased at the highest rate among the countries in the region, because wages did not increase proportionately with inflation between 2010 to 2019. If workers are forced to adjust to such abnormally low wages, it is natural that the wealth of businessmen will increase disproportionately.

Moreover, due to the systemic nature of corruption and lack of accountability, more development projects means more corruption and more cost increase. Thousands of crores of taka are being looted from banks in the name of loans, all under the political and institutional patronage.

To be clear, rising economic inequality in Bangladesh is not an inevitable phenomenon. The existing political economic structure is closely related to the existing inequality. And this cannot be rectified until the political economic structure, in which systemic transfer of wealth from the masses to a few wealthy people is considered "normal", is rejected.

Kallol Mustafa is an engineer and writer who focuses on power, energy, environment and development economics.


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