Bangladesh's LDC graduation and depressing patent records
Based on three primary eligibility criteria involving income per capita, human assets, and economic and environmental vulnerability, the United Nations Committee for Development Policy has recommended Bangladesh's graduation from Least Developed Country (LDC) status. Of course, this is an achievement. In the evaluation, positive remarks have been shared for Bangladesh's per capita income of nearly $1,827 in 2020 against the threshold of $1,230, and the country's score in Human Assets Index (HAI) criterion that stands at 75.3 points, well above the requirement of 66. Bangladesh also received good remarks for the Economic Vulnerability Index (EVI); country's score is 27.3 points that has to be less than 32. But Bangladesh's own patent office shows a disappointing picture in attaining increasing capability for producing ideas for creating new wealth. For example, in 1972, 09 patents were issued to local entities. Unfortunately, this number dropped to 05 in 2020, as opposed to going up. Should Bangladesh be concerned with patent data in assessing strength in creating economic value?
As experts suggest, Bangladesh would lose a wide variety of preferences and privileges after graduation from the least developed country (LDC) status. Some of the reasons include loss of duty-free and quota-free (DFQF) access to export markets. A reported estimate suggests a shortfall to the tune of 8.0 to 10 per cent of its gross export revenue due to the loss of the DFQF provision amounting to nearly US$2. 5 billion annually. It appears that Bangladesh will face fewer preferences than before. How Bangladesh will overcome them to keep driving economic growth is a serious issue. Prominent economists recommend that the government draw up a robust LDC transition strategy for the next five years and beyond. There are recommendations for lowering protection and increasing competitiveness. What are the avenues Bangladesh has to face the unfolding challenges?
We all know that Bangladesh's success in accelerating per capita income has been due to the success of the commercialisation of labour. But there has been hanging a dark cloud on the future prospect of producing growing economic value from the labour. Let's look into it further. One of the major sources of revenue out of labour has been the remittance sent by migrant Bangladeshi workers. A major chunk originates from petroleum exporting middle eastern countries. The development of renewable energy technologies, electric vehicles, and hydrogen for energy storage is showing grim prospect to the petroleum economy. Bangladesh's next source of revenue from labour has been the domestic garment industry. Due to technology progression, there has been a steady erosion of labour requirements in producing each unit of output. Hence, Bangladesh needs one 3rd labour force as in the 1980s for generating the same amount of export revenue. So far, the growth of volume used to outweigh the erosion of labour requirement, resulting in a net positive effect on employment. But that situation has changed. Unlike in the past, along with the growth in the volume of export, there has been steady net job loss in the sector.
Bangladesh's next labour-based value addition has been in import substitution industries. High wage differential and growing domestic consumption have been a boon to local producers for the domestic market. To exploit this opportunity, Bangladesh has been pursuing tax differential, negligible import duty on capital machinery import, and lenient treatment to intellectual property compliance. But the evolving situation is turning against Bangladesh's advantage. For example, the wage differential has been falling. On the other hand, labour content in industrial products has been rapidly eroding. Even in furniture production and mobile phone assembling, labour content has reached less than 10 per cent of the total cost. Moreover, engagement of labour reduces the productivity of capital machinery due to waiting time. Hence, domestic furniture makers have been replacing human workers with robots for unloading finished products from injection molding machines. In fact, multiple factors are eroding the advantage of local labour to produce import substitution at a lower cost. Moreover, to offset the growing erosion of competitive advantage out of labour due to graduation from LDC, Bangladesh's freedom of offering tax differentials, cash subsidies, and other forms of incentives will be far more limited than now.
The next issue is about the supply of labour. So far, Bangladesh has been taking advantage of those workers who did not graduate from colleges and universities. These workers are desperate to get any labour-intensive jobs, starting from handling fabrics to working as drivers. Unlike in the past, college and university graduates are the future workforce of Bangladesh. They are neither willing nor desperate to get labour-intensive jobs in sweatshops. As opposed to physical labour, we should figure out ways to leverage the knowledge and creativity of graduates to produce economic value.
As mentioned, so far, Bangladesh's economic progression is mostly out of the commercialisation of labour. The proceeds earned from labour has fuelled the growth of consumption, protection based firms, and borrowing by the government for infrastructures. Hence, we have been observing visible progress and advancement in development indicators. But, has Bangladesh made a proportionate improvement in value creation ability? Economic value creation depends mostly on natural resources, labour, and ideas. Although Bangladesh has been exhausting the first two, there appears to be no progress in ideas. According to Bangladesh's patent office data, over the last 48 years, there is a stagnant situation in receiving patents by Bangladeshi residents or firms. Both in patent filing and granting, there has been a dismal picture. Not only in the local office, patent receiving record of Bangladeshi entities in foreign offices, including the world intellectual property office (WIPO) and the united states patent and trademark office (USPTO), is virtually nil.
Starting from national-level research institutions, universities, firms, and startups, nobody appears to be serious about valuing patents, let alone integrating them into products and processes for improving quality and reducing cost. In contrary to Nike's 4000+ patents, Bangladesh's large footwear industry appears to have no presence in the mission of pursuing patentable ideas. A similar situation appears to be the reality in Bangladesh's thriving pharmaceutical, information technology, or mobile phone-making industries.
As opposed to focusing on building competitive advantage out of patentable ideas, there has been a race of taking incentives for making a profit out of protection. At the national level, we have an equally gloomy picture. The seriousness in developing a strong industrial base out of R&D and innovation is yet to draw attention-let alone being proportionate to infrastructure development and producing a growing number of graduates with generic knowledge. But countries with the aspiration to keep growing have been showing quite the opposite picture. For example, invention patent filling in china has gone up from around 200,000 in 2006 to above 1.3 million in 2015. During the same period, patent filling by local entities in Bangladesh's patent office has slightly gone up from 22 in 2006 to 40 in 2015. There appears to be a serious weakness in Bangladesh's progress in creating value out of patentable ideas. But this capability is vital for Bangladesh to address growing competitiveness in the coming years where preferential treatment will keep eroding.
M. Rokonuzzaman, Ph.D is academic and researcher on technology, society and policy.