Rising inequalities in Bangladesh

Since independence, overall economic inequality in Bangladesh has become pervasive; but it is avoidable. The rising inequality has emerged not only because of differences in what people inherited and received; but, more fundamentally, due to big inequalities in accessing opportunities and sharing outcomes. This makes economic inequalities an issue that calls for insights into the functional dynamics of deriving economic and social opportunities and how the political process shapes and perpetuates the country's structural features of unequal privilege and neglect of poor and disadvantaged groups.

Along with poverty, rising inequalities have always been considered as a major policy issue in Bangladesh; and such inequalities are not merely about disparities of outcomes, it is also about disparities in opportunities in terms of age, sex, disability, race, ethnicity, origin, religion, or economic and other status. Furthermore, in Bangladesh where disparities in opportunities are so evident in every sphere of life that focus only on economic inequalities provides a partial picture of the status and policy agendas of inequality. One of the core objectives of Sustainable Development Goals (SDGs) is to reduce inequalities within and across countries. The SDG framework identifies inequality as a key issue to tackle since reduced inequalities can ensure truly inclusive development and drive human progress towards sustainability and universal wellbeing.

Is income inequality rising in Bangladesh? The Gini coefficient of income distribution stands at 0.483 nationally in 2016; which is 0.498 in rural areas and 0.454 in urban areas. The trend of income inequality since 1963 shows that national Gini has risen from 0.36 to 0.483-an increase by more than 34 per cent-while rural Gini increased by nearly 38 per cent and urban Gini by 21 per cent over the same period. These figures suggest that Bangladesh has experienced increase in the Gini coefficient over the period of last half century, but the rate has accelerated especially since the 1990s. Further, inequality increased rather sharply in the rural areas while urban areas experienced a somewhat moderate rise in income inequality.

One good indicator for looking at the worst form of income inequality is the Palma ratio, which focuses on extremes of inequality-the ratio of incomes at the very top to those at the bottom.  In Bangladesh, it is the changes in these extremes that are most noticeable; while the share of income in the middle is relatively stable. The Palma ratio at the national level has consistently increased from 1.68 in 1964 to 2.93 in 2016; in urban areas, it rose from 2.00 to 2.96 while, in rural areas, it grew from 1.38 to 2.51 over the same period. Over the period, the share of the middle 50 per cent has remained relatively stable; while the poorest 40 per cent have generally lost in terms of income share, the richest 10 per cent have gained. The policy implication is that Bangladesh should focus on its 'extreme' inequalities, that is, inequalities that do most harm to inclusive and sustainable economic growth and undermine social and political stability.

In practice, the case of inequality revolves around many dimensions. Indeed, in Bangladesh, inequalities in wealth are likely to exceed those in income. Especially in the absence of a well-performing public health system, a Palma ratio of health status would show even greater inequalities than a Palma ratio for income. A Palma ratio based on exposures to environmental hazards is also likely to demonstrate a similar trend.

In the case of income, one of the targets of SDG10 is to progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average by 2030. The national data since the 1980s show that the average per capita household income (at 2010 prices) during 1986-2016 grew at 1.43 per cent while the same for the bottom 40 per cent grew by only 0.28 per cent. The situation is worse in the rural areas as, while the average per capita income grew by a healthy 4.41 per cent, the income of the bottom 40 per cent actually declined by 0.24 per cent. The per capita income of the bottom 40 per cent (both nationally and in the rural areas) started showing positive growth only since 2005.  

In some ways, the above developments represent the famous 'elephant' graph which captures the percentage growth in the incomes of those in the middle (back of the elephant) and those at the top (trunk). This demonstrates that the big losers are the low income groups. However, when we look at the absolute income inequality, back of the elephant disappears, and the big winners are only those at the top.

Along with income, one can observe growing geographical, gender-based and group-based inequalities in the country. Income distribution is becoming more asymmetrical; and there is a changing geographical poverty in Bangladesh. Education facilities are asymmetric between cities and rural areas which do not take into account the need of the remote areas. The differential quality of education is a major challenge at all tiers of the education system.

Much of the economic inequality in Bangladesh is associated with 'rent-seeking'; and such inequality undermines economic efficiency. However, the worse form of inequality that is widespread in the country is inequality of opportunities, which are both the cause and consequence of inequality of outcomes. Reduced inequalities have both economic and social benefits. It strengthens people's perception about fair society, improves social cohesion and mobility, and boosts employment and education with beneficial effects on human capital and development. Inequalities in the society are partly the result of economic forces, but these are widely affected by public policy choices, such as taxation, level of minimum wage, and investments in social sectors (e.g. health care and education).

Designing the right policy framework for addressing inequalities is the biggest challenging area in Bangladesh. Inequalities of outcomes and opportunities are highly inter-dependent and mutually reinforcing. Without equal opportunities, systemic patterns of discrimination and exclusion prevent the poor and disadvantaged groups from accessing economic, political and social resources, resulting in 'inequality traps' and the persistence of inequality across generations. Equal opportunities can level the playing field so that the circumstances of birth (such as race, gender, rural or urban location) do not adversely influence an individual's chances to get ahead in life.

In Bangladesh, inequality of income tends to be associated with less economic mobility and fewer opportunities across generations. Since different dimensions of inequality are related, focusing on one dimension at a time may underestimate the true magnitude of societal inequalities and provide an inadequate basis for policy. For example, health inequality is both a cause and a consequence of income inequality. Inequalities in education are a primary determinant of inequalities in income and opportunity.  

Thus a comprehensive policy framework is necessary to help policymakers better navigate the complexities and challenges of framing appropriate policies to address inequality based on three related pillars: (i) moderating income inequality; (ii) closing gaps in health, nutrition and education; and (iii) addressing social exclusion by combating discrimination and transforming inequality-producing cultural norms.

The policy implications of the current status of inequality is that Bangladesh should focus on 'extreme' inequalities, that is, inequalities that do most harm to inclusive and sustainable economic growth and undermine social and political stability. There are many dimensions to inequality in the country-some with worse effects than others-and there are many ways to measure these inequalities. However, one thing is clear: for achieving inclusive and sustained development, Bangladesh cannot ignore extreme inequalities. The World Bank study on 'Voices of the Poor' highlights that the poor suffer not just from a lack of income but from insecurity and a lack of voice.  

Further, it is relevant for policymakers to define structural inequality; which is a condition where one category of people is attributed an unequal status in relation to other categories. This is perpetuated and reinforced by a confluence of unequal relations in roles, functions, decisions, rights and opportunities. Structural inequality refers specifically to the inequalities that are systemically rooted in the normal operations of dominant social institutions, and can be divided into categories like healthcare, employment and educational discrimination. Combating structural inequality requires broad, policy based structural change and is often a critical component of poverty/inequality reduction agenda. In many ways, a well-organised democratic government that can effectively combine growth with redistributive policies stands the best chance of combating structural inequality.

In this context, one critical role of the civil society is to ensure that the government is held accountable. Accountability is typically based on three elements: responsibility, answerability, and enforceability. Responsibility entails that those in positions of authority have clearly defined duties and performance standards, which enable a transparent and objective assessment of their behaviour. Answerability demands that public officials and institutions present logical and articulate justifications for their actions and decisions to those affected, such as the general public, voters and other institutions. Enforceability requires public institutions to implement mechanisms that measure the degree to which government officials and institutions abide by established standards, and that enforce sanctions on officials who do not comply and, when needed, ensure that the proper corrective and remedial action is carried out. The three elements of accountability are not mutually exclusive, but interlinked. It is thus paramount that the roles and responsibilities of the government are clearly defined, particularly in terms of the answerability and enforceability dimensions of SDG10.

The key issue is: inequality is not inevitable, it is a policy choice. Our leaders should not make the wrong choice. There is mounting evidence that the current levels of inequality are not the result of efforts and risk-taking, but rather windfall income from 'rent-seeking' activities. The policy makers in Bangladesh will have to work to develop a more human society that has greater equality as the primary aim.

Mustafa K Mujeri is Executive Director, Institute for Inclusive Finance and Development (InM.

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