Moderated by Dr Zahid Hussain, the Zoom meeting was joined by former governor of Bangladesh Bank Dr Mohammed Farashuddin and Professor of Economics at Dhaka University Dr MM Akash. They shared their views on how Bangladesh can overcome health and economic shocks from the pandemic in the backdrop of global health crisis and economic downtrend. Here is the second part of the video conference initiated by Prof Rehman Sobhan.
Inam Ahmed: I welcome you all on behalf of The Business Standard for joining us in this discussion.
We know that Bangladesh is facing the Covid-19 pandemic and it seems to be reaching the peak right now. The whole world is in a recession and we are also going to face economic risks. We have joined here to discuss on the background of this situation, the recession or depression, the position that we are in, and what we should do.
We talked to Professor Rehman Sobhan a moment earlier. Unfortunately, he couldnot join us on Zoom. We have recorded his discussion. Dr Zahid Hussain is the moderator of this session. He has listened to the discussion of Professor Rehman Sobhan. At first, he will brief us on that discussion.
Dr Zahid Hussain: Thank you Inam. Thanks to The Business Standard too. I am alsothankingMohammed Farashuddin and MM Akash for giving us their time.
I have listened to the interview of Professor Rehman Sobhan that Inam took. In that interview the context of Bangladesh was mainly discussed – how we will handle the pandemic and what are the macroeconomic impacts. Dr Rehman Sobhan has discussed different impacts especially about the handling of the health crisis, testing, quarantine, etc. He discussed about the capability of our health system and said the course that oureconomy will take will be based on this response.
According to him, within June, we will understand our position in the curve. He also discussed about the structural weakness and the policy response. He emphasised on the monitoring process to realise policy responses.
I think you will listen to his recorded discussion later.
Here in our discussion we want to focus on the global economic situation instead of the situation in Bangladesh.
Mohammed Farashuddin and MM Akash, you have been involved in the teaching profession for decades. You have numerous students everywhere. Even many of their children and children of their children are also your students. I want to begin by asking both of you a question: When you will enter the classroom today and start the first class of macroeconomics –which we generally start with the history of macroeconomics, global recessions, and try to motivate students about why we have to study macroeconomics after studying microeconomics – will you start with the same examples like those of the global recession or could it be different?
At first, I want to ask Mohammed Farashuddin.
Mohammed Farashuddin: Thank you Dr Zahid. You have presented a beautiful introduction.
What I want to say is that in other times, one, two or three countries face difficulties. But here that invisible coronavirus has dragged all countries to the same level. Everyone is facing extreme depression. The hopelessness is rising everyday. Questions of life and livelihood have come forward all over the world. Both in Germany and South Korea, who were thought to be successful in containing the virus, the death rate is increasing after they opened up their economies. So, it is not clear what weshould do. In other times, it happened that some countries who are our trade partners did well and we could buy output from them and those countries could buy input from us. But now all the countries are at the same level.
Everywhere the GDP growth is low. There is unemployment, and people are facing death. In Bangladesh, we thought that the peak had arrived. But in the last three or four days, I think, the RMG owners have broken their promises. They are not maintaining the health protocols at all. They are saying on talk shows that they are doing so. But not in reality. The shops have also been opened before Eid because there is no money in peoples' hands. For these two reasons, the infection is increasing at an alarming rate. And everybody is saying that the third week of May will be the worst period.
Now we cannot look forward to any country. The only reliable sign that I am observing is that the prices of commodities – including oil – are reducing. We are lucky that in our country, because of government policy, we have a good reserve. If we can do forward purchase for oil and many other goods, it will be a good support when the recovery starts abroad. I want to say one thing, though it has no scientific base, but I feel that when the situation will start to improve in the world, in Bangladesh it will improve fast.
Zahid Hussain: Now I want to ask MM Akash. How you will incorporate the Covid-19 crisis when teaching macroeconomics?
MM Akash:In your first question you asked me that when I will teach macroeconomics again and the students ask me about macroeconomics what willI do? Will I start with recession, great depression, the crisis of 1929, Keynesian policy or will I discuss something new? It is a very interesting and symbolic question.
One thing everyone is saying, including Amartya Sen, that people will remember those who will be successful in this Covid-19 pandemic. If people remember, then we can start with the discussion of Professor Rehman Sobhan, that so far nobody has died in Vietnam from Covid-19. We know about Kerala; we can also take a look at Nepaland also China.
Our prime minister saidin the beginning of the crisis that many powerful countries in the world are helpless. Their healthcare systems have been devastated. They do not have enough masks, and have a crisis of ventilators, etc. These things will come in the discussion of my macroeconomic class, whether I want it or not. And I have decided that I will say that if we left everything in the hand of the market – including health and education sectors – there would be no preparations to face such crises.
And if we take everything in public control, health and education sectors, and if there is a lack of skill and good governance, there will also be problems. In a mixed system, if we can ensure basic human help as a human right in a skilled public sector,it will provide a good result. China, Kerala and Scandinavian countries are showing this. One thing we have learned from this crisis is thatsuccess is possible in these Covid-19-like situations only when we have preparations. And any preparation is possible if the government guarantees basic health system. Probably this question will be raised as the main question during the next presidential election in the United States.
Inam Ahmed: And Zahid bhai, you also teach in the classroom. What will you say to your students about this?
Zahid Hussain: I agree with MM Akash and Mohammed Farashuddin that we do not have to look at the distant past to teach macroeconomics because students are experiencing it from this present crisis. They are observing it from the beginning. We do not know yet what will be the end. Now if I enter the class, I would not have to look at the American unemployment crisis of 1930 or 1932 when the unemployment rate was 25 percent. We have not seen such a high unemployment rate later. But we will not need to draw upon these examples any more. I will start with the recent facts of Europe and America.
I want to raise another topic in line with MM Akash's discussion that he said about the mixed system. Can you make this point clearer:How will this mixed system workin the current Covid-19 or post-Covid-19 world?
MM Akash: The mixed economy will have some key factors. One is the commanding heights of the economy, such as banks, or industries which will turn into monopolies if left in their own control, or other largescale activities. These should be taken in the control of the state. Some essential social security services – housing, basic rights like food, clothing, education, andhealth – must be considered as basic human rights. These must not be kept in the control of the market. The state will ensure these rights.
The health system will be mainly in the hand of the state. The private sector can also hold some parts of the health system. But the state will ensure basic health care. Think someone has a rare disease which will need a lot of money for treatment. Now the public sector would not be able to bear the expenses. This will need a special expense. But I think medical treatment is such a humane thing that the state should bear the cost of it. But it is an ethical argument, not an economic argument.
In plain words, the health and education sectors will be in the hands of the state. The basic minimum offood, clothing and housing – these three sectors will be at the hand of the state. There will be a macro plan for these and the state will ensure the implementation of the macro plan. Other sectors will be in control of the market. But the state will control the commanding heights of that part too. This is like the system in China.
Mohammed Farashuddin: Your ideas are beautiful. But I want to remind Akash how Vietnam or Kerala came to be mixed economies.
In 1957, the Communist Party formed the government in West Bengal and Kerala. They established socialism at great pace there, people were highly educated, and thus all kinds of foundations were ready. And in Vietnam, the people became disciplined and workaholic under communism. The economy was opened later.
I want to say that if you want a mixed economy, will you go from the market economy or from socialism – this is also important. Especially in a country like Bangladesh. We started as a socialist country.
MM Akash: I think we will go there from a NEP (New Economic Policy) economy that Lenin proposed after the Russian revolution. He could not start socialism. So, wewill go to mixed economy from NEP economy.
Mohammed Farashuddin: Did we start like this?
MM Akash: We started by nationalising77 percent of the industries without any land reform. We did not undertake any consistent policy.
Zahid Hussain: I want to ask a question to both of you. In this coronavirus affected world, where do you want to see the production of vaccines in the mixed economy?Already the Oxford Research Group has ordered seven companies, including an Indian company, to produce a vaccine, and they are working to produce one million doses of vaccines within September, though the final test result has not arrived yet. My question is, suppose a vaccine with 40 or 50 percent recovery rate comes to the market, now how your mixed economy will deal with it concerning production and distribution?
Mohammed Farashuddin: It is not the work of the public sector. The state will mostly help in distribution. Or provide financial support to those who need the vaccine. But the shaky situation that the health sector of Bangladesh is facing, which is not acceptable, the allocation for the health sector in the budget has not increased. I think the research will be done by scientists with sponsorships from the state. The government has to subsidise to make the vaccine affordable for people by providing money in the hands of people or reducing the price of thevaccine with subsidy.
MM Akash: Many years earlier, Joseph Stiglitz came to Bangladesh on invitation from the Orthonitik Samity. I asked him what is to be done in a country where both the public and private sectors fail? He answered me, which he also wrote in one of his books, that in that case we have look for comparative efficiency. I think the formulation of Deng Xiaoping, that to mitigate the conflict between the state and market or private ownership, we have to see that whether the cat is able to kill the rat, not is it black or white.
Mohammed Farashuddin: When Stiglitz came to Bangladesh it was a failed state. But now the situation is different. It is true thatthere are many points to criticise, but there are also some golden achievements. Our constitution also speaks about socialism. It also mentions private ownership and cooperation, which was not present in China and Vietnam. We have to run within this formula.
We are planning, but is itbasic planning? We are not doingwhat is needed for the health and education sectors. We have left it in the hands of the market. They are making private hospitals. We only provide some basic treatment at the public hospitals.
Zahid Hussain: I find a common denominator from both your positions. MM Akash said about comparative efficiency and Mohammed Farashuddin said that the state cannot do the marketing; probably he said it thinking about the comparative efficiency. Covid-19 has shown the limitations of our state institutions clearly, it has also shown the failure of the private sector too. We have to decide whether we have to talk about comparative efficiency or inefficiency.
Now, I would like to know about your reflections on the impacts of Covid-19 – Rehman Sobhan also discussed this – that our economy has a fragility despite being a middle-income economy, which has been shown by Covid-19. You must know the poverty that the American people faced during the great recession. People had to stand in lines for food. Now we can see that they are going to the food bank, riding a BMW, to beg food. In our country, we are seeing that people are begging food gathering together in huge lines like in America in the 1930s.What are your reflections about this?
Mohammed Farashuddin: We have to go back to Stiglitz, he thinks that if the market economy could not be controlled… what happened in Bangladesh that the private sector here only wants stimulus, only profit. They do not think about social welfare, or humanity. It is because we could not create a regulatory system. This is a problem. But it is still possible.
Nobody is talking about education after Covid-19. Only the matters of online classes of private universities are being discussed. But we have to talk about this. In the health sector, I think that reflecting on the failures that we experienced amid the pandemic, we have to plan with the help of the real knowledgeable persons who know psychology. The investment should be in the public sector, but the private sector also brought up to a certain level by giving stimulus. We have to try this.
MM Akash: The power of institutions like the World Bank and IMF, who made international policies, have been diminished. Their money has also reduced. And many countries, like Bangladesh, depending on their foreign exchange reserves, export potentiality or remittance,have been refusing their policy-based aids. Padma Bridge is an example of this. The scope of international coordination done by this multilateral bodies, Zahid would probably say it more clearly as he worked in the World Bank, has been reduced. China has entered in the scenario with its new currency, banks, and the belt and road initiative. Now there is a struggle in this.
On the one side there is America, India and Japan. And China is trying to stand on the other side with the help of others. This economic war will influence the future deeply. The current foreign policy that the government is maintaining – that we are the friend of everybody and nobody is our enemy – will help us to maintain the economic balance during the post-coronavirus world.
Rehman Sobhan has made two very good points. The capacity to handle this crisis depends on two factors. One is structural strength of the economy. That means is your export diversified or not, and is your agriculture industry articulated or not. If your economic structure is diversified, if you do not put all your eggs in the same basket, the response power of your economy will be better.
We have to diversify the structure of our economy. We have to focus on the informal sector, SMEs and the domestic market.
Another thing is governance – that is the domain of politics. No policy will be utilised effectively without good governance. It does not matter what stimulus package you implement, you have to see who are getting the money, and are the banks providing the money accordingly.
I want to go a little bit deeper. Suppose we created an oversight body and they identified some problems along with some individuals who are behind the problems, and submitted a report to the government. But the government found that the people that have been identified are those who necessary to maintain its power and the economy. That is if they retaliate, it will be hard for the government to handle. Then the government will be on the backfoot.
So if we cannot solve the problem of political power and at the same time as the problems of economic power; if the economic power is not in the hand of the state if all the banks are in the private sector; if all the economic houses are in the hands of four or five people; if the situation is like this then you cannot expect a democratic politics from a non-democratic economy.
Mohammed Farashuddin: In the future, the international relationship will not be as strong and effective as before. We are a small country we have to focus on our export diversity. But when we will arrive at the topic of monetary fiscal policy, I always thought that this policy at least can control price, but now it seems that it cannot even do that. If in Bangladesh, the credit to GDP ratio is 5 or 50 percent, it will not impact anything. We have to go forward with a fiscal policy coordinated with the monetary policy and the exchange policy.
Akash spoke about democracy in politics – if the banking system cannot function properly, there will be problems. For example, our prime minister declared the stimulus package where it is mentioned that it will be on the basis of the bank-client relationship. But now we are observing that no CIB rating is needed, and bank-client relationship is not being considered. If the situation runs like this, the stimulus package will not do any good.
I want to say that agriculture, where the government has some input. Butthink about the procurement. The government has given a good price for paddy, Tk1,000 per maund, now if we fail to provide the money to the farmers it will create great distress. I think, if needed, the army should help to secure this procurement process, otherwise the middlemen will grab the money.
Inam Ahmed: I want to say one thing to you, that is, are we addressing more in the supply side in the stimulus package? If the general people do not have money in their hands, to whom our industries will sell their products? Are we giving enough stimulus to this side? In America or other countries, we see that they are giving cheques to the general people, probably we do not have that capability, but still, are we doing enough?
Zahid Hussain: It is not that we are doing nothing in this regard. The first stimulus package that the government declared for the workers of export-oriented sectors, the disbursement of that has started. We have also seen some food-based programmes for the vulnerable people. We have seen local leaders with their cars decoratedby banners with their names in large fonts providing relief to people without maintaining proper health measures. We also see that sacks of rice are found under the ground or in the rooftops in many places across the country. There have been many reports of corruption regarding this.
But I think it is possible to provide cash incentives in our present situation. We have that institutional capacity. We have to do some work. With the help of mobile financial services, along withthose who work with slum people, with people living in the rural areas and chars, we can identify people easily. Nowadays it is not so difficult. We can also identify with the record of the mobile financial services. It is not that it must be a perfect identification. If we can include the people who are living in hunger, and in that process if some people are included in the list who are not eligible, we must increase our capacity to tolerate this sort of error inclusion.
I do not think, what Inam was saying, that we cannot increase the purchasing power in such a largescale with only food-based programmes. The food-based programmes like vulnerable group development programmes that succeeded in the past were in a very limited scale. But in the current situation, a massive scale up is needed.
Mohammed Farashuddin: We know that 2 crore people have bank accounts. We have to verify that. If some undeserving persons are included here, still, I think, for the poor people we need some massive cash infusion in through those accounts. And I also think, we said it many times, that we need crop insurance. But the NGOs do not provide crop insurance because there is risk. They do not want to take risk. They are also like the capitalists. They want to secure their profit margins. And the rate that has been fixed is not affordable for farmers.So, I propose to strengthen crop insurance. Massive cash infusion is also required through the bank accounts. And if the stimulus package is delivered properly people will get some money.
Zahid Hussain: I want to emphasise one point that MM Akash told – that demand management and governance could not be perceived separately. The financial stimulus that we are providing through the banks, to actualise it properly, governance must be solidified. Otherwise, if the money goes to the hands of the corrupted people, it will increase the macroeconomic risk.
Inam Ahmed: Thank you all for this very interesting conversation. And I think I have not found any discussion of this quality anywhere on television or any other media. And the way Zahid Bhai moderated the whole discussion and converged their position, that was very interesting.Thank you for giving your time.