Building Institutions: An Imperative for Growth | 2018-02-13 |

Building Institutions: An Imperative for Growth

Shaikh Rezanul Haque (Manik)

    13 February, 2018 12:00 AM printer

Building Institutions: An Imperative for Growth

Shaikh Rezanul Haque (Manik)

Bangladesh has indeed been maintaining commendably high rates of growth of GDP in the range of 6 -7 per cent annually almost for two decades. The question is whether we could have achieved more. There are strong reasons to believe that subject to effective institutions in place and corruption control, double digit growth is well within Bangladesh’s reach. This is according to a number of credible researches which have been referred to by our finance minister. But without building institutions can we aspire to becoming a middle income country by 2021?

Let us throw some light on the countries, which being devoid of strong institutions, once flourished but thereafter failed to sustain the momentum of growth. Take a look on Ivory Coast and Mexico. These countries, until the end of the 1970s, had experienced amazing growth but both of them soon plunged into zero or negative growth. Ivory Coast was a role model for development to many African countries. Ironically, that country failed to appreciate that its institutions, such as the Judiciary, public administration, public service commission, law enforcement and property rights must be strengthened and ahead of African standard. After independence in 1960, Ivory Coast grew almost at the rate of 10 per cent for the first 20 years – the highest ever of Africa’s non- oil exporting countries. But average growth since the early 80s until now has remained in the doldrums of 2 per cent or so.

A once growth leader can thus turn into a case of growth sluggishness, alerting us that growth may cascade down like spring water any time if the society fails to build adequate institutions. There are many stories in the world to remind us that we should fix our institutions at a faster pace and with due emphasis otherwise, challenges faced by countries like Ivory Coast, Mexico and Argentina won’t be a surprise as far as Bangladesh’s growth prospect is concerned. It is then imperative to clarify first what the term institution means.

The term ‘institution’ has different meanings in different disciplines. But when we speak of it in relation to growth, we usually refer to the definition of institutional economics. Although institutions and organisations sound alike, in reality they are not. Institution is a set of consistent rules that shapes the behaviour of organisation and individuals of a society. They can be formal such as the Judiciary, Public Service Commission, Election Commission, Anti Corruption Commission, Human Rights Commission, Comptroller and Auditor General etc. Norms, values and traditions are informal institutions. Since values, traditions and laws are often intertwined, institutions give us bigger depth than a single set of rules.

There are four key sectors such as finance, education, public healthcare and judiciary, where institutions play a pivotal role in bringing prosperity to the society. If rule is violated, it is both institutional and organisational failure. Dhaka is one of the world’s most thriving cities representing almost 35 per cent of Bangladesh’s GDP. Different studies show that Dhaka’s mobility impediments owing to traffic congestion are taking toll of one to three billion dollars annually from the national exchequer. Thus, we are losing one percentage point of GDP each year. This is partly an infrastructural constraint and grossly an institutional problem because rules are not there. Laws are not enforced even they are there. A recent report by Institute of Governance and Development, BRAC University states that 40 per cent of Dhaka’s traffic jam can be removed without any engineering effort but by enforcing street laws.

Opening an organisation is not enough to ensure proper institution – just like opening the Board of Investment did not provide enough prospects for foreigners to jump into Bangladesh. The newly formed Bangladesh Investment Development Authority (BIDA) has taken different approach. It is examining why Bangladesh’s position in ease of doing business is so poor – 176th of 190 countries. Here the authority is directly dealing with institutional problem that are actually preventing foreigners to flow in. And that is how a nation needs to build institutions. Institutions offer long-term sustainability of growth to a nation. Otherwise, growth gets out of steam at some point.

When there is no good rule to drive in the street, it suggests there exists a legal gap. When the law is there without any regard from the public, there is an enforcement gap. Those two gaps must be filled before defining institutions. When we see vehicles of some powerful officials or political leaders being driven on the wrong side of the road, it definitely sends a message to many that institutions are not in place. If the neutrality, objectivity and effectiveness of the institutions are compromised or if they lend themselves to be used or promoting partisan culture and political agenda of the ruling authority, institutions will obviously crumble and at the same time corruption tends to flourish.

Bangladesh has a lot of investment opportunities as well as a bundle of fiscal and monetary policies which are, at least in theory, no less accommodative than those in Vietnam. Then how is Vietnam attracting Foreign Direct Investment (FDI) equivalent to five per cent of its GDP whilst ours is less than one per cent? The very simple answer to this query is that institutions in Bangladesh are not well-equipped and business friendly as they are in Vietnam. It is high time to focus more on improving and strengthening the institutions for us just to make it sure that Bangladesh can’t lag behind the prospective countries in South Asia in respect of socio-economic development. And it is capable of maintaining its growth momentum, graduating itself from a low middle income country to a middle income country by 2021 – the year it is determined to celebrate its golden jubilee.


The writer is a retired Deputy General Manager, BSCIC, Khulna. He can be reached at: