On February 25, the Canadian High Commission celebrated the 45th year of diplomatic and economic relation with Bangladesh. Canada, which recognised Bangladesh on February 14, 1972, is among the major developed countries which were first to do so. Pierre Elliott Trudeau was the Prime Minister then. Justin Trudeau, his son, is the current Prime Minister of Canada. Bangladesh has awarded 'Bangladesh Liberation War Honour' to Pierre Trudeau.
I was pleasantly surprised when I was invited to be the chief guest at the celebration. I was involved in aid mobilisation until 2001 when my connection with the government ended. As Economic Adviser I do not deal with the day-to-day issues of aid; I restrict myself to the overall issues of economic and public finance - and at times the tasks that the Prime Minister may assign.
Canada played an important role in the evolution of aid to low-income countries. The Pearson Commission recommended that the developed economies should transfer 0.7 per cent of their GNI (gross national income) to the developing countries. Pearson had been Prime Minister of Canada (1963-68). Several economists of Canada made significant contributions to scholarly thoughts on international economic relations - e.g., Harry Johnson on free trade, and Robert Mundell who won Nobel in Economics in 1999, on optimum currency area that provided the basis of Eurozone.
FINANCING SMALL PROJECTS: Canada committed sixty million Canadian dollars to Bangladesh in FY16, which would take four years or a little longer to disburse. There is wide variability in disbursement: US$ 3.5 million in FY13 compared with US$ 16.3 million and US$ 13.3 million in FY14 and FY15 respectively.
Canada finances small projects which do not entail large import or use of difficult technology. The advantage of such projects is that they can be experimental and innovative; the successful ones can generate a model for scaled-up projects which can be financed by development partners as well as the Government.
I recall a few projects and initiatives taken by the Canadian International Development Agency (CIDA), now Global Affairs Canada (GAC), from my days in Economic Relations Division (ERD). CIDA had financed a study of crop diversification the report of which was published in two or three volumes. It did not discuss prices of the new crops, which I thought was a serious omission. Looking back after about two decades, I feel that the omission was not wrong; data on price would be difficult to get - or largely meaningless - when market for those crops were absent or rather inchoate. The study focused on agronomic possibility.
At a later stage, CIDA proposed a project for financing crop diversification. Individual farmers who would undertake such projects would be given half of the cost as grant and half as loan; the grant would be used as equity by the farmers. The bureaucracy did not buy the project, arguing that grant might involve patronage and unwarranted leakage.
They might have been right but what was missed, I presume, is the risk in transiting from subsistence or cereal cultivation to non-cereal cultivation. The farmer transits into a business world and faces new risks. Equity financed by grant creates eligibility for credit, reduces the interest burden, and reduces the credit risk.
Modigliani-Miller had shown years ago that equity financing and loan financing do not make any real difference in respect of quality of investment and return except for the legal provision to exclude interest from taxable income base. While the societal economic benefit is the same, exclusion or reduction of tax raises retained profit (which encourages investment). In any case, income from the cash crop would have been too small to be taxed.
The Palli Sanchaya Bank, now taken up as a project at the initiative of Prime Minister Sheikh Hasina, follows a similar principle. Cooperatives are formed for implementation of the project at the grassroots level. The project pays into the member's account an amount equal to his/her saving deposited with the cooperative institution; in addition, he/she can borrow an amount equal to his/her savings which he/she can invest in production or business. The project enhances the capacity and quantity of the small savings in rural areas to invest in production or business.
In the organised or modern sector, investment is financed in the ratio of 35 per cent equity and 65 per cent bank loan. The rural enterprise follows the same principle. Joseph Stiglitz, Nobel laureate in Economics, observed that interest or return on savings by low-income people should be hundred per cent; for them sacrifice of current consumption for the future has a high discount rate.
AID FOR PRIMARY EDUCATION, HEALTH, BETTER GOVERNANCE ETC: Canada provides aid for primary education, health, training for government officials in public financial management, and better governance. Governance is a kind of portmanteau word that is generalised to any organisational management issues - public as well as private. For governance in the public sphere, I would indicate three significant elements: public administration in the conventional sense, public sector management, and the rule of law. Performance of the primary functions - say security of person and property, maintenance of order and social peace - is expected of any government. Efficiency may vary; the general expectation is that it has to improve over time and be equitable (which connects with rule of law principle that stipulates equal treatment according to law).
The new approach to public sector management postulates that it will approximate private sector management. The idea involves a conflict and is problematic. The public sector is justified because the private sector cannot provide enough public good or merit good, e.g., education, production of knowledge not intended for marketable product, and so on. R & D (research and development) expenditure by corporations are eligible for tax relief; some are - or ought to be - financed entirely by government grants.
Education is an example for public and merit good. The public universities carries on the responsibilities for tertiary level education; the government finances primary education; and progressively extended subvention of teachers' remuneration. But for the policy of the government, education would not expand as fast as it has done under Prime Minister Sheikh Hasina's Government.
The private university is a new phenomenon in Bangladesh. The vast majority of the students in those universities study business management at undergraduate level and; a relatively small number executive MBA, computer and information sciences and so on. These universities are not known for teaching basic sciences - e.g., mathematics, physics, chemistry, etc.
The rule of law is a categorical principle; it is problematic in application, however. The rule of law presumes the existence of a society with a pattern of distribution of assets and rights; it has little to do with creation of new rights and redistribution for equity. Dicey made popular the rule of law in a static social context; it has a conservative orientation in relation to creation of new rights. History shows that rights are created and expanded through political process; the government is engaged in that process.
Prime Minister Hasina has taken bold steps to defend human rights and liberties. Freedom of religion deserves special mention. The state is expected to defend citizens' right to choose and practice their religion. If a group comes and tells another group that they can practice that religion only which are dictated, the liberty of the group so dictated is infringed; it is worse when they deny the others even the right to live unless they do as they are told. Prime Minister Sheikh Hasina has taken a strong position consistently to defend liberty of religion. That is the basis of secularism which is a fundamental principle in our Constitution.
There is an aspect in the constitution of Canada which is of interest to scholars of constitutional jurisprudence - and to us. Canada had been a British colony. When it was granted independence, the British Parliament enacted a law which lays down the principle that the relationship between the states and the federation cannot be changed without the concurrence of the states; and further any law that changes the relation is subject to approval of the British Parliament. From a narrow or pure technical point of view, such an arrangement infringes the sovereignty of Canada. Politically, however, Canada or rest of the world never notices that Canada lacks an iota of sovereignty. There is a distinction between sovereignty in the substantive political sense and in the narrow technical sense. Some basic principles of constitution can never be amended, for that changes the character of the state.
DEFENDING RIGHTS OF DIFFERENT GROUPS OF CITIZENS: Canada can understand better than many other countries the imperative to defend rights of different groups of citizens in a multi-cultural state. Many Canadian scholars have contributed to the complex idea of multiculturalism (which includes multiple religions/cultures/ethnicities). Kymlicka is a major contributor to scholarship in multiculturalism.
Michael Ignatieff also has dealt with the issue of rights of small groups in multi-cultural society. He taught at Harvard University, was a Member of Parliament in Canada, and Leader of the Liberal Party (2009-11). His Human Values Lectures, dealing with rights, have been published in two parts: the first is titled Human Values as Ideal and the second, somewhat ironically, as Human Values Idolatry.
Human Values Idolatry discusses the role of non-state actors in defence of liberty. He notes that they tend to focus on particular groups or particular aspects, while ignoring the overall issue of liberty in the society. If liberty is not generally recognised and protected in a society, there is little chance that it will be done for a sub-group or a particular issue. While recognising the role of the non-state actors, he does point out that in the ultimate analysis only a strong state can effectively defend human rights, particularly of the members of the small groups. Weaken the state, jeopardise the whole society! The relationship between 'strong state' and 'respect for rights' is not automatic; it is the belief of those who govern the state that entrenches the relationship.
SUSTAINABLE DEVELOPMENT: Let me revert to development and external assistance, which is the focus of our discussion. In line with the declaration of the United Nations, Bangladesh has embarked on Sustainable Development, which encompasses the whole range of economic policy. The Broudtland Commission conceptualised sustainability as use of resources by the current generation in a manner that does not deprive the future generation of their need. This is a rather narrow concept which seems to presume continuation of the same kind of economy and society over time. If our previous generation did not use resources in a different and productive way, we would be in the same state as they had been in the beginning. With respect to the future, if the current generation does not improve on what it inherits, its legacy to the future generation would be similar to the initial conditions of the previous generation. It is inter-generational/inter-temporal stagnation, contrary to the progress that human society has achieved and aims at.
The critical element for progress of society is transformation of assets - and each transformation makes more productive use of the existing asset. Productive transformation is a function of technology. Technology alone is good for one-off transformation, followed by repetition. Technology that can achieve innovative, more and more efficient use of asset is sustained by knowledge of basic sciences. In short, development is possible by transformation of assets using contentiously improving technology supported by scientific knowledge - i.e. by knowledge society. The creation of the knowledge society has to begin from the level of elementary education. Unless the young children learnt mathematics and basic natural sciences - say physics, chemistry, biology - they cannot suddenly start learning engineering, medicine, or biotechnology.
Canadian assistance for development and better governance may address issues of knowledge society and more efficient technology.
The writer is Economic Adviser to Prime Minister. This is an edited version of his statement at the celebration on February 25, 2017