An action agenda for fostering inclusive growth in Bangladesh

Analytically speaking, if economic growth is to be inclusive, it must fulfil three mutually synergetic criteria: it must be sustained and pro-poor; it must ensure equity in resource availability, access to basic social services and income distribution; and it must be accompanied by productive employment.

A simple reduction of poverty associated with economic growth does not necessarily make it pro-poor, as pro-poorness of growth is not defined only by its poverty reducing impacts, but whether poor people actively engage in generating the growth, and derive more benefits from it. In other words, for growth to be pro-poor, the rate of income growth of poor people must exceed that of the non-poor people, so that the income inequality between them diminishes. It, however, needs to be remembered that pro-poor growth is a necessary condition for inclusive growth, but not a sufficient condition.

An action agenda for fostering inclusive growth has to be concrete, tangible and pragmatic. Furthermore, the agenda must be built on the mutual synergies of its various components. In the action agenda, both policies and institutions will be important. The following action agenda is proposed along the three pillars of inclusive growth—sustained pro-poor growth, equity in resources, services and income and productive employment.

Policies for sustaining growth and making it pro-poor

Policies for sustained pro-poor growth in Bangladesh would encompass two broader sets of concerns—first, formulating a macroeconomic framework geared to promoting sustained growth, and second, making that growth pro-poor.

The first set should pursue three interventions. One, focus on fiscal policy and expand domestic credit, using monetary policy. Using fiscal policy, public investment programmes can be substantially scaled up in economic and social infrastructure for stimulating further growth. Provision of credit for high-productivity sectors such as manufacturing, export and agro-industry is vital for the diversification of economies. In fact, such policies would reduce supply-side constraints, while stimulating aggregate demand. Two, make investments in sectors which would benefit long-term growth benefits and minimise the pursuance of prestige projects. Three, support climate adaptation and promote low-carbon development in Bangladesh. Sustainable natural resource management is a key aspect of sustained growth in Bangladesh

The second broader policies, which focuses on making growth pro-poor, encompasses five interventions. One, focus on agriculture as its importance for employment, livelihoods, food security and poverty reduction can hardly be overemphasised in the context of Bangladesh. Focus should also be on non-farm rural economy of Bangladesh by stimulating diversified activities through a comprehensive rural development policy—investments in economic and social infrastructure, development of labour-intensive small-scale industries, establishing linkages with the agricultural sector. Forward and backward linkages with the manufacturing sector as well as urban activities should also be established.

Two, Bangladesh may consider pursuing an employment-led growth, rather than growth-led employment. The traditional wisdom of "let us focus on growth and employment would follow" has been proven wrong in many instances as jobless growth has been the phenomenon in many economies. An employment-led growth would make growth pro-poor if the employment focus is in sectors where poor people live and work.

Three, Bangladesh should invest in expanded opportunities for women and girls and advancing their economic, legal and political empowerment. Ensuring that girls have unfettered access to health services and education, both at primary and secondary schools. Constitutional and legal reforms directly enhance women's political participation in the country. Access of women to safe infrastructure (e.g. roads), to more information technology, to productive assets such as land and credit, to water and electricity, which reduces their burden of domestic activities, are critical for their empowerment.

Four, develop and implement a solid, relevant and pragmatic social protection structure in Bangladesh, as they contribute to the reduction of poverty and inequality, help households manage risk, reduce incidence and impact of shocks and build human capital. Options include: direct payments such as social insurance or basic income grants; cash transfers to promote human development; minimum wage policies; and labour market regulations to those in employment.

Five, undertake targeted intervention for people who represent marginal and vulnerable groups such as the elderly, persons with disabilities and people living on fragile lands. Such interventions may focus on provision of basic social services, employment opportunities, social assistance and so on.

Ensuring equity in resources, access to basic social services and income distribution

This pillar of inclusive growth will have three broader sets of issues—addressing the concern of equitable access to resources, making basic social services accessible to poor people, and pursuing redistributive policies.

On the first front, the policy interventions may cover three areas. One, focus on an equitable distribution of land. Reform in land ownership is essential in Bangladesh for an equitable distribution of a major productive asset. At the household level, asset ownership has a clear impact on subsequent economic success. Access to justice is necessary to strengthen ownership entitlements and legal empowerment of the poor landless farmers is the key.

Two, pursue a pro-poor financial sector policy for systematic allocation of credit to the small-scale entrepreneurs and informal sector producers in Bangladesh. Work on the legal framework for the entitlement and the ownership of small-scale entrepreneurs and informal sector producers. Three, ensure adequate, reliable and equitable access to clean energy. Equitable access to modern energy services, by making energy accessible to poor households and also by helping small-scale producers, promises to ensure that the growth generated would be inclusive. Adequate, reliable and equitable access to energy also accelerates employment creation. Modern off-grid energy services offer potential expansion in access to adequate and reliable modern energy services.

The broader set of interventions of making basic social services to poor people have three elements. One, undertake public investments in social service expansion in areas of health, education, safe water and basic sanitation. In many cases, with basic infrastructure put in place by public investments, private investments may come in to provide the services. The public-private partnership is also important for service provisioning.

Two, Bangladesh should develop a user cost framework that makes these services affordable to the poor. Affordable basic social services would enhance the capabilities of poor people so that they can be productively employed. Enhanced capabilities would also enable them to participate in decisions that affect their lives. Three, ensure the quality of services. In Bangladesh, poor people often end up with low-quality services. So, the focus should not only be on quantity of services, but also on quality, as that has equity implications. The third broader set of policies of pursuing redistributive policies stresses three interventions. One, through progressive income taxes to wages and corporate profits, redistributive policies can be pursued. Where the share of the extractive industry is high, fiscal means of redistribution is possible even though the administrative capacity of the public sector may be limited.

In Bangladesh, where the informal sector is large, and where the labour force is primarily in the rural sector, two options are possible. First, poverty reduction programmes and projects can be designed to directly target the poor.

Second, effective growth sharing mechanisms, mainly public investments in basic education, health or infrastructure for market access and other social services are proven redistributive policies.

Two, subsidise selected commodities, which carry a large weight in the expenditure of the poor people in Bangladesh. Such subsidies have the highest impact on addressing urban poverty. Housing and energy subsidies alleviate the greatest burden on households in terms of expenditure. In-kind subsidies such as school meals are another form of subsidies with proven impact on school enrolment and attendance in Bangladesh.

Three, build a broad political coalition in Bangladesh to effectively implement a redistributive strategy: the emergence of a political coalition for redistribution is country-specific. But redistribution of income can be impacted through tax and expenditure policies, subsidies and social protection.

Creating productive employment and

enhancing employability

Formulating an employment-intensive strategy and enhancing capabilities for employability would be the two broader sets of dimensions of this pillar of inclusive growth. Under the first set, three options can be pursued. One, create jobs through investments. The basic idea here is that economic growth will not necessarily create jobs. In order to ensure job-friendly economic growth, policies need to focus on shifting the structure of employment in favour of sectors hiring poor people and technology used would have to be labour-intensive.

Two, create employment opportunities for women and the youth of Bangladesh. An employment-intensive strategy requires addressing the lower participation and unemployment among women and the youth. Barriers to women's employment include inadequate transportation infrastructure; pre-entry disadvantages such as gender discrimination; the inadequacy of information, communication and money transmission facilities; limited or no educational achievements; and the lack of negotiating skills that are required for participation in labour markets. One major policy intervention must be on creating employment opportunities for younger people. In many cases, a match has to be made between the skill of younger people and the demands in the labour market, but more importantly, emphasis has to be placed on reorienting the skills of younger people so that their employability in the changed economic structure increases.

Three, focus specially on informal employment, including self-employment in informal enterprises and wage employment in informal jobs. The focus on informal employment in Bangladesh is justified as it creates significant number of jobs and creates income. The focus on the informal economy is also necessary for at least two reasons. First is the equity consideration. Informal labourers suffer from a lack of protection along with poor health and safety standards. Second, informal workers do not have access to social security, insurance or pension, which makes them vulnerable to economic shocks. Policies targeting informal workers and small-scale entrepreneurs must be at the core of any inclusive employment creation strategy. The appropriate policy response comprises a mix of regulatory, protective and promoting measures, and therefore involves legal, policy and institutional changes.

The second set of broader policies to enhance capabilities for employability have three elements. One, develop skills and human capital. The skill development should focus on tomorrow—on the 21st century skills. Given today's world and its dynamics, skills should be developed through technical and science education in the context of the evolving information economy. Tertiary education should also be encouraged to contribute to innovation and creativity. Two, the skill development should be geared towards new world of work and the Fourth Industrial Revolution. It would need STEM (science, technology, engineering, mathematics) education, digital literacy, use of cutting-edge digital technology. Three, enhancing capabilities for employability would also require skill agility, where people can easily move from one line of profession to another, as shocks and vulnerabilities would be the norm, not the exception for tomorrow's world. The Covid-19 phenomenon is a prime example of it.

Finally, inclusive growth in Bangladesh will not be possible without necessary institutions. On one hand, it would require adherence to such normative dimensions as rights of people, rule of law, mutual respect, values of tolerance, equal treatment of citizens. On the other hand, practical considerations such as an efficient and effective public administration with transparency and accountability, non-corruption, a sense of public service would also be sine qua non for inclusive growth. People's participation in the process which are critical to their well-being, their sense of ownership of the economic growth process and their trust in the system are important. In the ultimate analysis, growth is not merely a quantitative number, but also a qualitative phenomenon. Inclusive growth ensures both those traits.

Selim Jahan is former Director, Human Development Report Office and Poverty Division, UNDP.