For addressing competitiveness, technology adoption and diffusion has been an age-old strategy. Yes, technology adoption increases quality, reduces wastage, and lowers the demand for labour too. Consequently, competitiveness increases. However, does it offer a sustainable solution to strengthen the industrial economy out of labour-based value addition strategy?
During the colonial period, the Indian subcontinent was given the role of supplying natural resources to feed the British's industrial economy, while the British industry was processing those natural resources with their ideas and labour. One of Bangladesh's major export of natural resources during that period was jute. Subsequently, jute emerged as the main source of earning foreign currency, picking golden fiber title. Like other parts of the Indian subcontinent, Bangladesh was using that export earned foreign currency to import industrial products from the United Kingdom and the rest of Europe. After independence in 1947, the Indian subcontinent took the strategy of importing and adopting technology from Europe to process locally produced natural resources with labor. Hence, we uplifted our natural resource supplier position to importing technology for building local industrial capacity out of natural resource and labor. Since then, technology adoption and diffusion have been the policy focus for building the industrial economy.
Of course, in the absence of imported technology, we cannot add value to natural resources with labour. But has the policy of supporting the import and diffusion of technology been helping us in developing sustainable capability of value addition out of labour?
In producing industrial outputs, we need three major inputs: ideas, intermediary inputs, and labour. Of course, we also need energy, water, and many more. Economic value creation is a function of ideas and objects. We mix objects like natural resource, energy, labour, and others to create economic value through ideas. So far, our strategy has been to import ideas. We import ideas in different forms, starting from capital machinery, intermediary components to product design. In addition to improving economic value, ideas also reduce the requirement of objects, like labor. Hence, there has been continued reduction of labour requirement in producing each unit of industrial output. For example, in comparison to the 1980s, we need as low as 30 per cent of labour to produce each unit of apparel. In fact, labour requirement has been continuously eroding with the growth of imported technology adoption. As a result, the value-added capability of Bangladesh and many other developing countries has been shrinking. Subsequently, it is creating downward pressure on the market value of labour.
Does it mean that policy support for technology adoption and diffusion has been weakening Bangladesh's industrial strength? Unfortunately, both the theory and real-life data support this unpleasant reality. Well, what could be the remedy? Should we slow down technology adoption? Of course, not. If we do so, our competitiveness will be eroding fast, posing a threat to the industrial economy's collapse.
Right after 1947, it was a good start to begin the journey of building an industrial economy out of the import of capital machinery and product design for adding value through labour and natural resources. Till 1980s, our industrial outputs primarily targeted the local market by offering locally produced import substitution. During that time, labour content was quite high. As a result, due to the high wage differential, producers could offer import substitution at a lower cost. But such an ability to offer lower cost alternatives through sourcing of low-cost local labour has been shrinking. Because, both the labour content and wage differential have been shrinking simultaneously. Hence, the strategy of developing the industrial economy out of imported technology has been weakening, reaching an unsustainable point. Hence, there has been growing policy support for offering tax differential and other incentives. Like import substitution, our success in building an industrial economy out of export-oriented manufacturing is also highly dependent on the import of technology. Of course, since the 1980s, Bangladesh has made quite a bit of success in creating jobs in export-oriented manufacturing. But our value addition strategy has remained the same-low-cost labour. Like import substitution, export-oriented manufacturing is also losing competitiveness for the same reason. To slow down the effect on export volume, even a cash incentive policy has been adopted.
Data and theory of technology progression-creating substitution effect on labor-suggest that like many other developing countries, Bangladesh can no longer sustain the growth of industrial economy out of technology import-based strategy. Suppose tax differential, cash incentives and all other supports are removed. In that case, it's highly likely that the sheer benefit of low-cost labour will not keep many of this country's industrial units afloat. Hence, it's not unfair to state that labour-based value addition to imported ideas has reached saturation.
The next option for Bangladesh is to add value to industrial outputs through ideas. After more than 70 years of the end of colonial rule and 50 years of independence, it's highly imperative for Bangladesh to take the next big step in building the industrial economy. This is about creating economic value out of locally produced ideas. And we need to produce and trade ideas as part of product and process features in the globally connected competitive market. The graduation of Bangladesh's strategy and policy for the industrial economy from natural resource and labor to idea has multidimensional benefits. Of course, it also poses high-level challenge.
Unlike natural resources and labour, idea-based value addition offers an exponential growth path. The economic value creation out of ideas is not linearly limited to natural resource stock and the labour pool. On the other hand, the transition to the idea economy is going to create the demand for engaging a growing number of university graduates to produce economic value out of knowledge as opposed to muscles. In addition to addressing graduate unemployment, value addition through ideas appears to be Bangladesh's only option to meet economic aspirations set for 2030 and 2041. Furthermore, creating a market of ideas is essential to produce more with less for meeting sustainable development goals.
It's quite encouraging to note that Bangladesh's development planners have touched upon the importance and strategy of making the transition to the idea economy. In the 2041 perspective plan, the vision has been laid down. For taking the vision to implementation, the recently released 8th Five Year Plan has given the strategic directions of making the transition. It's time to translate high-level directions into policies and investments for proceeding towards implementation.
M. Rokonuzzaman, Ph.D is academic and researcher on technology, society and policy. [email protected]