There is a growing concern in many parts of the world that economists are suffering from historical amnesia. Economic history and the history of economic thought are not as widely taught as they should be. And, even if universities offer such courses, these are not among the most popular ones.
Yet, this was not always the case. In his “Making of a Nation: An Economist’s Odyssey,” the eminent Bangladeshi economist Nurul Islam writes of his experience as a graduate student at Harvard University in the early 1950s: “The study of the history of economic thought and economic history was accorded a high place in graduate training in economics. All the great classical and neoclassical economists had to be studied with great care and their thoughts were analyzed in relation to the latest ideas in economics.”
Professor Islam then laments: “Today, with the emphasis on formal and mathematical models as the most important tool of graduate training, the teaching of the ideas of classical/neoclassical economists and of the history of economic development has fallen by the wayside. This is a pity since the newly defined curricula restrict the mental horizon of graduate students by limiting the range of ideas to which they are exposed.”
The neglect of history also has a bearing on policymaking. Ignorant of history, policymakers may not realize that many contemporary policy debates have historical precedents.
Similar issues may have arisen in the past and debated at length. The context may have changed, but often there are surprising commonalities, if not in the specifics, at least in the broader underpinnings of policy issues.
Ignorance of past debates reduces the quality and efficiency of policymaking. Much time is spent on reinventing the wheel and on discussing issues that prior debates had helped resolve. Much heat is generated, but little light.
This article is a modest attempt to bring history back to our discussions. I shall try to provide a flavour of history by summarizing two economic debates from the early days of Bangladesh. Given the limited length of the column, I can only provide an appetizer. I hope this would catalyze interest in the broader menu.
Many, though not all, economic debates are directly related to policy-making, which evolves through such debates.
Within and outside the government protagonists take different positions on specific issues or policy recommendations. Their debates reflect the economic, political, and social realities of the time.
These also tell us about the differing, and often conflicting, interests, world views, norms, and values in society.
Perceptions, diverging sometimes from reality, also influence the positions of the various protagonists. Policy decisions often involve a compromise between the different positions. The end result reflects the relative power of the different protagonists.
Economists are important actors in such debates and influence policymaking in myriad ways. By bringing evidence to the table, triggering, and informing debates, and facilitating consensus building, economists often have a profound influence on policy making even if not at the speed they may desire.
Sometimes the influence of economists is direct and immediate but more often it is subtle and more distant.
The first major economic policy debate in independent Bangladesh was about nationalization and the ceiling on private investment.
Through a major policy act in March 1972, the government took over most industrial units, whether abandoned by Pakistanis or owned by Bangladeshis.
This policy action was preceded by much debate. The debate continued, and in fact intensified, in the following months.
An issue was what to do with the abandoned enterprises. One group suggested that these be sold to Bangladeshi entrepreneurs.
The opposing camp argued that it was neither feasible nor desirable to go this route. Radical aspirations had built up during the fight for independence.
Radicalized students and industrial workers were in favour of widespread public ownership. It was argued that the regime will find it politically difficult to go against the mood of the radicals.
It was also argued that since only a few Bangladeshi entrepreneurs were experienced in running large industrial enterprises, this class would not be able to purchase and run abandoned industrial units without considerable financial and other support from the government.
These enterprises were burdened with debt, and their capital equipment and inventories suffered much damage during the war of independence.
These would require substantial support from the government. There was a view that the provision of such government largesse was unacceptable in independent Bangladesh.
The next issue was the nationalization of industrial enterprises owned by Bangladeshis. Such enterprises were fewer in number.
It appears that the Prime Minister, Sheikh Mujibur Rahman, was sympathetic to the view that the Bangladeshi owners be allowed to retain and run these enterprises.
In his “Untranquil Recollections: The Challenges of Nation Building,” Professor Rehman Sobhan writes: “The key issue in the discussions with Bangabandhu revolved around the fate of the Bengali industrialists.
In the discussions, it emerged that both the PM and Tajuddin had strong views against the sponsored private enterprises of the variety which had flourished in Pakistan.
He was, however, more uneasy about taking over established Bengali-owned enterprises in the jute and textile sector, notwithstanding their sponsored origins.”
The arguments for a bigger role for Bangladeshi entrepreneurs should not come as a surprise.
The nascent Bengali entrepreneurial class shared with others the aspiration of greater economic opportunities for Bengalis in an independent Bangladesh. Many members of this class had provided financial and other support to the Awami League when it led the movement for autonomy in the 1960s.
Many members of the political leadership and the first post-independence government either came from this class or supported it. They took the position that the entrepreneurial talents of Bangladeshis, suppressed during the Pakistani era, should be allowed to flourish in independent Bangladesh.
Another debate was on the ceiling on private investment. In July 1972, four months after the nationalization measures were announced, the government imposed a Tk25 lakh ceiling on private investment, which could grow to Tk35 lakh through reinvestment.
Several options were discussed regarding the relative roles of the public and private sectors in the industry.
Some argued that only a few activities that required large capital-intensive technology and management expertise should be reserved for the public sector, leaving the rest for private enterprise.
Others suggested that private enterprises may expand beyond a certain size only as joint ventures with the public sector.
Their underlying position was that if large enterprises were allowed under private ownership, this would create a small class with considerable economic power, which would soon translate into political influence and militate against the desire to create a socialistic economy.
Nonetheless, by the end of 1973, the pressure was building for an upward revision of the ceiling on private enterprise.
Many businesspeople had accumulated substantial amounts of capital through trading, legal and illegal, and were looking to invest in the industry.
This group of aspiring industrialists and their sympathizers in government sought to restore the pre-independence model of restricting public ownership to activities which the private sector was disinclined to enter while supporting private enterprise through fiscal, monetary, and other measures.
This group found themselves pitted against radical students and militant workers, and other left-oriented members of the regime.
These groups wanted to expand the public sector and were strongly opposed to any relaxation of the ceiling, even in line with inflation. Pulled in different directions, the prime minister performed a balancing act.
Nurul Islam writes: “The prime minister stood in the middle of the contending forces. He responded carefully to the conflicting pressures – balancing off one step in one direction with another in the opposite direction. He sought to respond to radical pressures without eliminating or provoking an extreme reaction from the conservative groups.”
Eventually, the ceiling was relaxed. Through a substantial revision of the industrial policy in July 1974, all but 18 sectors were opened for the private sector.
The ceiling for private investment was raised more than 10 times, to Taka 30 million.
The move towards giving the private sector greater space in the industrial arena was sustained after the change in government in late 1975.
More decisive actions to consolidate the role of the private sector were taken after another change in government in early 1982.
Another early debate was in the agriculture sector where a very important agenda was the expansion of irrigation coverage.
An issue was the model to follow for the sale and operation of deep tube wells. Under the existing model of the 1970s, shallow tube wells were sold to farmers, but deep tube wells were owned by the public sector body, Bangladesh Agricultural Development Corporation (BADC).
These were rented out to farmers’ cooperatives while BADC remained responsible for their delivery, installation, repair, and maintenance.
It was important that irrigation pumps were well-utilized. Field studies carried out by the Bangladesh Institute of Development Studies (BIDS) in the first half of the 1970s found that deep tube wells were being significantly under-utilized compared to the popular use of shallow tube wells.
BIDS economist Mahmudul Alam found that, in his study location (Comilla thana), the level of underutilization varied between 38 to 83%. Such findings intensified the disappointment with the existing irrigation management model. Demand for reforms grew.
The government responded with a major policy shift in 1978/79. BADC-owned deep tube wells were sold to cooperatives or private individuals/groups instead of being rented to cooperatives.
It was expected that cooperatives or individuals who owned the irrigation equipment would respond better to economic incentives, be more motivated to increase the coverage of the machines, better maintain the equipment and reduce the costs of irrigation,
Following this policy decision, considerable privatization happened in the early 1980s. However, the process slowed after 1983, especially for deep tube wells.
For the rest of the 1980s, deep tube wells were sold mostly to farmers’ cooperatives. An important reason was the less than satisfactory results from the 1978/79 reforms.
The impact of this new arrangement was studied by Alam’s BIDS colleague MA Quasem, who published his findings in 1985.
His survey in several sub-districts found mixed results from the new policy. Contrary to expectations, capacity utilization was higher and irrigation costs lower in the irrigation pumps operated under the traditional model, i.e., owned by BADC but rented out to cooperatives or individuals, than for pumps owned by cooperatives or individual farmers.
The study also found that the new irrigation equipment was being bought primarily by large farmers who could afford the capital needed to make the purchase, and who sold the water to medium and small farmers in addition to using it themselves.
Quasem’s research findings accentuated the growing perception of low-capacity utilization of irrigation equipment and reinforced the fear of water-lordism, and of rapid and unplanned expansion of irrigation under private ownership. This led to a set of legal and regulatory actions in 1985 and 1987 to re-impose some control.
A slowdown in agricultural production in the mid-1980s prompted some rethinking. Once again demand grew for further liberalization.
A new set of field studies carried out in the 1980s and early 1990s provided fresh data on the working and impact of the growing irrigation market. These helped catalyze the very substantial liberalization of the agricultural input market in the late 1980s and early 1990s.
These two sets of debates from the early decades of independent Bangladesh exemplify the perennial questions of the relative roles of the public and private sectors, and in particular the balance between a controlled and a liberal economy.
While the specifics may now be different these broad questions lie at the heart of many contemporary policy debates, such as those on the interest rate and exchange rate policies, the issue of subsidization and protection of private enterprise, and trade liberalization.
As economists, and the policymakers they seek to influence, grapple with these issues, they may find much to learn from past episodes of policy and economic debates. In charting the way forward, policymakers can’t afford historical amnesia.
The author is an economist, previously with an international development agency