A bad argument about inequality

It’s a common refrain amongst Bangladeshis of a certain age and socioeconomic background that “four decades of independence / two decades of democracy and we’ve got nothing”.  When you point out that in terms of per capita income or life expectancy or most other measurable metric, things are much better in 2012 than they were in 1992 or 1972, the argument changes to “but we have fallen behind this, that or other country”.  Then you point out that, for example, despite being half as rich as India, Bangladesh does better on a range of socioeconomic metrics, showing we have not fallen as much behind as they fear.  When you do that, the last line of pessimism among these doomsayers is “ah, what about inequality'”.

Yes, inequality has risen in Bangladesh over the past decades.  Is this a bad thing?  Perhaps.  Perhaps not.  For example, when compared internationally, Bangladesh doesn’t apper so unequal.  When discussing the subject, we need to explore why we think inequality has risen, and how we think it is affecting the society.  There are strong grounds for possible concerns with rising inequality.  Unfortunately, Rezwana Abed and my friend Syeed Ahamed make a rather poor argument about inequality in their latest Forum piece.

They make two points about inequality.  First, inequality is rising:

Gini coefficient, a measure of the inequality of wealth or income distribution, in the country stood at 33.12 in 2010 from 33.22 in 2005. The Gini coefficient was 25.88 in 1984 and went up to 33.46 in 1996.

This is true, but tells us nothing about why we should be concerned.  In theory, rising inequality may well accompany economic transformation.  When a new idea is first developed — like introduction of the garments sector — or a new source of income is harnessed — like migrant workers from a particular region — it is quite natural to expect that those who first developed the idea or harness the source of income will become richer than others, raising inequality.  In itself, this should not be a cause for concern. 

Then they present this chart on geographic inequality in Bangladesh.

I don’t have the underlying data, but the idea that Dhaka and Chittagong divisions are richer than Rajshahi and Barisal is consistent with other work I’ve seen.  The persistence of geographical differences in income levels in a culturally homogenous, geographically compact country like Bangladesh is certainly worth further investigation.  While there may be good reasons for certain regions to become richer earlier — Chittagong has a port, Rajshahi doesn’t — simple textbook models would suggest that people from poor region would migrate to rich areas, and over time average income would equalise.  More complex theories, however, yield persistent inequality.  For example, in most countries, cities tend to be persistently richer than the countryside (think New York versus Kansas over American history).  This is because cities are where innovation and technological breakthroughs take place. 

Which of these theories are true in the case of Bangladesh, I don’t know. 

Let me note couple of observations though.  Eyeballing the chart, it seems that in 2005, Chittagong’s  average household income was around 8,000 taka and  was Rajshahi’s 5,000 taka — that is, the richest division was 1.6 times as rich as the poorest.  In 2010, the numbers seem to be 14,000 taka for Chittagong and 9,000 for Rajshahi, making Chittagong still about 1.6 times richer.  I do have per capita income of urban and rural households — in 2010, urban per capita income used to be 2.1 times the rural ones, narrowing to 1.8 in 2005 and 2010.  At least, inequality is not worsening, it would appear. 

But the issue is certainly worth further research.  And I contend what the research will show is that Abed and Ahamed are wide off-the-mark here:

To some extent, the situation resembles the colonial domination of Bangladesh by Pakistan wherein economic uplift and development concentrated in the more dynamic/urban part of the country while the rural/informal area suffered from neglect.

Taken literally, what Abed and Ahamed are telling us is that Chittagong is colonially dominating Rajshahi the way western wing of erstwhile Pakistan dominated the eastern wing.  So let’s think about how the domination actually took place. 

The issue was not just that ‘economic uplift and development’ took place in ‘the more dynamic/urban’ West Pakistan and the ‘rural/informal’ East ‘suffered from the neglect’.  Rather, the issue was that political power was concentrated in the west, and that power was deployed to use resouces generated from the East’s exports to invest in the West, which made the West more dynamic/urban.   There was nothing economically pre-ordained about a rural/informal East and an dynamic/urban West — from the vantage point of partition, East could well have experienced industrialisation had there been an investment boom here in the 1950s.  The underlying issue was primarily political.  Because of the way last days of the Raj played out, people who came to power in the newly created Pakistan were all centred in the West, they all shared a fear of India, they all wanted to build up a strong army, and they all were fearful (perhaps rightly) that Bengalis of the East didn’t want to spend on an arms race with India.  That was the basis of political domination, which resulted in the economic outcome.

This was the context for the two economy thesis.  This was the context behind Six Points, which asked for the East to have power over economic policies.  This was the context behind Mujib’s platform in 1970.  And unless Abed and Ahamed have some novel theory about Chittagong’s political domination over Bangladesh, I think this context has little relevance for any debate on inequality in Bangladesh.