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Khan, Mushtaq H.
Year of Publication:
DIIS Working Paper No. 2013:01
The characteristics of a political settlement allow us to analyse the dynamics of institutional and policy evolution and their associated developmental outcomes. Four phases in the evolution of the political settlement in Bangladesh are identified, corresponding to the periods of military government in Pakistan from 1958 to 1971, the dominant party rule of the Awami League from 1971 to 1975, authoritarian clientelism under military rulers operating formally multi-party democracies from 1975 to 1990 and competitive clientelist democracy from 1990 onwards. For each period, we look at the dominant institutional and policy characteristics and the ways in which the political settlement constrained or enabled development outcomes. The framework is then used to analyse the dynamics of three sectors that have played a critical role in driving or constraining development in the growth acceleration after 1980. The first is the garments and textile industry, which emerged during the clientelistic authoritarian period of the 1980s and has driven growth in exports since then. Growth in the sector took off when financing instruments emerged that could finance the ‘learning’ of the appropriate technological and organizational capabilities for achieving competitiveness. The financing was partly based on the rents created by the Multi-Fibre Arrangement (MFA), and partly on a private financing arrangement between Desh and Daewoo, with institutional support from the government. The package created strong incentives and compulsions for high levels of learning effort. As the political settlement evolved, technological upgrading has become more difficult though it is happening at the level of individual firms. Second, we look at the electronics sector whose takeoff in the 2000s took place under a competitive clientelist political settlement. The external financing support available to the sector was much less significant and the takeoff depended on the leading role played by a nationalist enterprise that absorbed the risks of investing in learning-by-doing. Progress has been much slower compared to garments. The development of supportive policy for these sectors requires an understanding of both the importance of supporting learning with appropriate financing instruments and the requirement that these instruments should create strong incentives for putting in high levels of effort given the enforcement capabilities of the contemporary political settlement. Finally power generation is an example of an infrastructure sector where poor investment has constrained development. The problem here is not learning-by-doing but adverse incentives for investment that can be traced to an excessive reliance on private sector financing in a political settlement where long-term investments face significant political risks. This combination has resulted in only a few politically connected players bidding for projects with a focus on immediate ‘procurement rents’ rather than on the profits from future production. Conventional reform strategies focusing on transparency, competition and anti-corruption have not achieved results and the political settlement analysis can explain why. However, a strategy focusing on a long-term financing agency with a dedicated governance structure could change incentives sufficiently to enable improvements in power generation to be achieved even in the context of a competitive clientelist political settlement.
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