Institutions of poverty in Bangladesh

The stories of poverty which have been told by Sushmita S. Preetha, Anika Hossain and Akram H.Mamun, in the the Star magazine Vol.11, May 4, 2012 (Dhaka, Bangladesh) capture an important nature of poverty in Bangladesh and other poor countries today. In Bangladesh they tell the stories of the crippled workers movement which has been split into a multiplicity of non-cooperating micro-unions, whose collective strength has been undermined by sub-elites interested in maintaining their privileges by echoing the interests of the dominant political parties in the name of the workers movement. And they tell the stories of the workers in the manufacturing and domestic labor sector and that of the child workers, who all work under inhumane and hazardous conditions, with no legal representation or even without salaries. Despite continued efforts by local and international NGOs, policy makers have either no interest to include domestic workers into the law, or to enforce existing law in the case of child labor.

The authors rightly argue, that stating poverty as a cause of the unhealthy and inhuman working conditions of those workers is a very simplified understanding of the issue. However, those choosing such simple explanations also argue that working in poverty is still better than begging or being abused. Such attitudes do not only tolerate the expropriation of the poor´s wages and salaries and their rights and freedoms but also of their dignity. Those stories told by the authors of the STAR magazine are excellent examples of what political economic theory tells us today about poverty and development and they open our minds for a different understanding of the underlying causes of poverty: institutions.

Institutions are rules of a society which appear as laws, rights, norms, conventions but also established ways of thinking and ideologies. They order societies and rule peoples´ behavior. Institutions of poverty intentionally or unintentionally sustain poverty, however, as they are a result of collective choices it would be naïve to believe that they are a natural state of order. Instead, they are man-made. Also the absence of institutions which protect the rights and freedoms of all people equally, create poverty and tolerating that when they exist they are not implemented and enforced, as well.

Even if we would assume that the political and economic elites do not intentionally engage in unlawful or unmoral behavior, striving to secure their own powers at the costs of the forgone wealth and freedoms of the poor, poverty is also sustained by accepting established ways of behavior and doing business. The established ways people think and interact, their beliefs and religions that create classes of people with higher and lower values, the roles they have accepted to play, the destinies they have accepted to take and the changes they feel unable to make: those are all behaviors we can observe in the game of poverty and they are as supportive to maintaining poverty as the greed for power and wealth by the elites.

In their recent book Daron Acemoglu and James Robinson (2012. Why Nations Fail. The Origins of Power, Prosperity, and Poverty) explain that the underlying causes of poverty are institutions which are extractive. They are put into place by people making choices at different levels of society. They lead to social orders and behavior which exploit the poor and the natural environment, extract their resources and ensure that the elites maintain power and accumulate economic wealth. Another institutional economist, Konrad Hagedorn from the Humboldt University of Berlin, has defined segregative institutions as institutions which allow decision makers to segregate the costs of their decisions from their area of accountability and thereby impose them on others or the environment. This kind of behavior does not exclusively occur among the elites.

Douglas North, nobel laureate in economics 1993, explains that poverty is created in limited access orders, by limiting access to freedoms, rights and opportunities to generate political and economic rents. In limited access societies, access to forms of social organization and decisionmaking are restricted for large parts of society. Economically powerful individuals have an interest to cooperate with the ruling political elite rather than opposing. They do not oppose in order not to lose their economic rents and privileges. Thereby the political system manipulates the economy by creating rents from economic growth as a means to maintaining social order. The story of Sushmita S. Preetha about the crippled workers movement in Bangladesh exemplifies exactly that aspect of a theory of institutions of poverty in limited access orders.

Acemoglu and Robinson further argue that the political elites who are in the position to put the rules of a society and its economy into place, are often not in favor of change, even though a more even distribution of wealth and equal rights would bring prosperity and development for the entire society. The consequences, however would be that their share of the economic cake would decrease and they would also need to share political power. So they prefer rapid economic growth under extractive institutions in a centralized state and slow political change towards inclusive and democratic institutions. Obviously economic and political markets interplay in a way which makes political changes unlikely as long as the elites benefit from economic growth. And those who raise their voices too loud need to fear the consequences of the state monopoly of legal violence in the name of social order.

Bangladesh is a picture book example of the institutions at play creating or sustaining poverty. Some indications for institutions of poverty at play are found in the following data on income inequality and democracy. According to recent data 31.5 % of the country´s people live in poverty, which is a decline as compared to 40% in 2005. But that does not say much yet because income inequality has also increased1. Bangladesh’s corruption perception index (CPI) is at 2.7 (from 1 to 10, 1 being worst and 10 best) and accompanied by countries like Ethiopia, Guatemala, Ecuador and Kasachstan. The rank of the Human development Index is at 146 out of 187. The measure for trust in the rule of law2 is among the 27% worst of all countries. Judicial independence3 in 2011 is at rank 90 from 142. Voice and Accountability4 in 2010 is among the worst 38% of all countries.

But extractive institutions do not only create poverty in Bangladesh and other low income countries. Rising income inequality, decreasing happiness, close ties between the economic and political elites (corruption) and degrading natural environments are also indications of extractive institutions at play, also in the developed world.

1 Gini co-efficient of income has increased from 0.451 to 0.458 at national level with a growth rate of 0.16 percent between 2000 and 2010.

2 Perceptions of the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. Bangladesh scores -0.77 on a scale from -2.5 to +2.5, with +2.5 being the best value. Source: Transparency International

3 Measures the perceived extent in which the judiciary of the country is independent from influences of members of government, citizens, or firms. Scores reach from 1 (heavily influenced) to 7 (entirely independent). Bangladesh scores 3.2. Source: Transparency International

4 Captures perceptions of the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media. Bangladesh scores -0.27 on a scale from -2.5 to +2.5, with +2.5 being the best value. Source: Transparency International