A conversation on economic transformation in Bangladesh
Economic transformation in Bangladesh is very much possible, but the work needs to begin
Syed Akhtar Mahmood is one of the most respected development economics and policy experts in the country. An ex-World Bank economist and a member of the recent Task Force on Economic Strategy, he is also a prolific public communicator. Shafiq and I talked with him about economic transformation in Bangladesh.
02:00-09:00 Can shows like BIDA 2025 attract significant investments, both foreign and domestic?
09:00-20:00 Why Vietnam has been so successful in attracting FDI but not Bangladesh?
20:00-28:00 A narrative of Bangladesh's economic history as an interplay among entrepreneurs, policy makers and academic experts
28:00-34:00 How can Bangladesh use dynamic comparative advantage to diversify and upgrade the economy
34:00-45:00 State capture by oligarchs. Can we prevent this from repeating?
45:00-55:00 Are we overdependent on garments exports? The linkage, upstream-downstream effects in policy space.
55:00-63:00 How can we have improved economics and regulatory awareness among officials and citizens
63:00-74:00 Synergy between political reform and economic reforms.
Further reading
Articles by and interviews of Dr Mahmood covered in the talk.
The simple story of complex products, Dhaka Tribune, April 12, 2021
What did Vietnam do that we could not, Dhaka Tribune April 27, 2021
The three stages of crony capitalism, Dhaka Tribune November 21, 2023
It is time for a paradigm shift in Bangladesh's manufacturing sector: Interview with The Business Standard; February 22, 2025
Can a revived Regulatory Reform Commission end bureaucratic nightmares for businesses?, report in The Business Standard, April 26, 2025
সব বিদেশি বিনিয়োগকে আমরা স্বাগত জানাতে পারি না, Interview with The Prothom Alo, April 27, 2025
On Bangladesh's Path to Economic Reform
1. INSTITUTIONAL FOUNDATIONS AND RULE OF LAW
The persistent coordination failures plaguing Bangladesh and similar developing nations trace their origins not to any inherent deficiency in entrepreneurial spirit, but to the fundamental weakness of our rule of law. While developed countries experience similar coordination challenges, their governments often refrain from activist intervention precisely because robust legal frameworks exist to address market failures through private mechanisms.
Rather than relying upon corrupt and activist officials to resolve coordination problems, we must invest substantially in rule of law and judicial capacity. With proper legal foundations, most coordination failures resolve naturally through sophisticated contracts and financing vehicles.
SINGAPORE-ADMINISTERED SPECIAL ECONOMIC ZONES
We should grant operational control of one Special Economic Zone to a low-corruption jurisdiction like Singapore, permitting them to administer the judiciary within that zone. Any Bangladeshi business could then access world-class legal services for a fee, creating a financially self-sustaining model of judicial excellence.
ENDING JUDICIAL MISEDUCATION
Our current judicial training practices border on the absurd. Sending our judges to India for education resembles dispatching economists to North Korea for instruction. The Indian judiciary has systematically undermined rule of law principles, dismissing procedural safeguards as mere colonial impositions. Their doctrine that "procedure is the handmaiden of justice" represents a dangerous ideology from which our legal professionals must remain insulated.
2. INDUSTRIAL POLICY AND STATE ENTERPRISE REFORM
Our electronics sector failures illuminate the devastating consequences of import substitution. Fifteen years of protectionism have condemned Bangladeshis to inferior phones and appliances while producing no global brands. Free trade areas and supply chain integration would have served our development far better than creating protected sandboxes for domestic entrepreneurs.
COMPETITIVE CRONYISM AS DEVELOPMENT STRATEGY
If cronyism must exist, let it be competitive. Democracy and federalism naturally discipline such arrangements through information advantages and fiscal constraints at local levels. China's development model demonstrates how competitive cronyism between jurisdictions can drive growth rather than stagnation.
ENTREPRENEURIAL EVOLUTION: THE SHIP RECYCLING SUCCESS STORY
The transformative potential of private enterprise manifests clearly in our ship recycling sector's remarkable evolution into steel production and recycling. This exemplifies precisely the entrepreneurial adaptation that occurs when businesses operate free from regulatory constraints. Had we legalized private oil refineries earlier, Bangladeshi entrepreneurs might have followed similar trajectories to India's Adani Group—evolving from textiles into chemicals and global refining operations.
THE CASE FOR WHOLESALE PRIVATIZATION
Policy volatility strangles investment confidence. Government manipulation of tariffs to protect state-owned fertilizer and oil enterprises creates an environment hostile to private capital formation. The capricious raising and lowering of tariffs at bureaucratic whim undermines any rational investment calculus. We must privatize these sectors entirely and establish rational, stable tariff policies. The complete abolition of price control mechanisms represents an essential component of genuine market reform. The state's role in direct production has proven consistently counterproductive to sustainable industrial development.
3. AGRICULTURAL TRANSFORMATION THROUGH DEREGULATION
Agricultural productivity awaits comprehensive deregulation of land ownership laws. Our current system makes buying and selling agricultural land unnecessarily difficult, creating excessive fragmentation that prevents capital consolidation necessary for modern farming.
LAND CONSOLIDATION AND LABOR MOBILITY
All regulations restricting agricultural land transactions must be abolished. The current fragmented ownership structure inhibits capital investment and mechanization. Voluntary consolidation through free exchange would simultaneously increase agricultural productivity and expand our industrial labor supply as fewer workers become needed in a more efficient farming sector.
SCIENTIFIC AGRICULTURE OVER IDEOLOGICAL PREJUDICE
We should liberalize imports of GMO crops, enhancing our climate adaptation capabilities. Fortunately, Bangladesh has avoided the destructive anti-GMO sentiment that has plagued India and Europe, positioning us advantageously for modern agricultural development.
Conclusion
The test of genuine reform approaches with BNP's promised liberalization agenda. Whether these commitments translate into meaningful policy remains uncertain. For those of us born in 1997, the complete privatization of a state-owned enterprise remains an entirely theoretical concept in Bangladesh—a sobering reminder of how far we must yet travel toward genuine economic freedom.
On Market Intelligence and Government Information
If the Bangladesh government genuinely seeks superior information for positive developmental feedback, it must liberalize its stock markets entirely. The current system of administrative control systematically distorts the very signals that could guide rational policymaking.
The Bangladesh Securities and Exchange Commission currently employs price controls on stock prices based on bureaucratic whims rather than market fundamentals. This arbitrary intervention destroys the informational content of prices—the very mechanism through which markets communicate the collective judgment of countless economic actors about future prospects and present realities.
The Investment Corporation of Bangladesh serves as the government's tool for propping up stock markets whenever officials deem it necessary. Such interventions fundamentally compromise the market's capacity to reflect genuine economic conditions, replacing honest price discovery with politically motivated manipulation.
The government's policy of compelling banks to purchase government debt represents another profound distortion of market signals. This coercive financing arrangement obscures how markets truly perceive fiscal policy, preventing the government from receiving authentic feedback about the sustainability and wisdom of its spending decisions.
A genuinely effective system would establish liberalized markets in stocks, commodities, and both government and corporate bonds. Such markets would provide superior real-time information about the economy's actual state compared to endless roundtables with government-connected business elites whose interests align more with political favor than economic truth.
These market indicators possess a crucial advantage over conventional government information gathering—they are inherently forward-looking. Markets aggregate expectations about future conditions, enabling government to react in advance rather than after ill-informed policies have produced their inevitable negative consequences.
The contrast could not be starker: honest markets provide continuous, unbiased feedback that anticipates problems before they manifest, while current arrangements deliver politically filtered information that arrives too late to prevent policy disasters.