Harvard education, তথ্য , and the real record

by Jyoti for Nuraldeen
Harvard Kennedy School of Government’s Executive MPA program requires one compulsory course in Economics and Quantitative Analysis.    Reading about his claim and promise about doubling per capita income, I wonder whether Mr Sajeeb Ahmed Wazed — the Prime Minister’s son and an emerging Awami League leader — paid any attention in that course.  

According to Channel I and Prothom Alo, Mr Wazed said:

“গত পাঁচ বছরে আপনাদের আয় দ্বিগুণ হয়েছে। আমরা ওয়াদা করছি, আবার ক্ষমতায় গেলে আয় দ্বিগুণ করব….. গড় আয় ৪০ হাজার টাকা থেকে বেড়ে ৮০ হাজার টাকা হয়েছে” 

In the past five years, your income has doubled.  We promise that when we return to power, we will double it again… average income has increased from 40,000 taka to 80,000 taka.

The claim / promise has been relayed around the cyberspace, and is a key talking point in the Awami echo chamber.  The thing is, if Mr Wazed had really understood anything in that Kennedy School course, he would not have said the above.  And Awami Leaguers would be well advised to not push this line.

Let’s go through this blow-by-blow.

Is it true that per capita income is now around 80,000 taka?

Probably.

According to the Bangladesh Bureau of Statistics’ official estimates, in 2012-13, the country’s per capita income was $923.

The official GDP is, however, based on a base year of 1995-96.  As the economy is growing and evolving, it’s important to update the base year regularly.  Just think about many goods and services that are commonplace now, but were not even thought of in 1995-96.  In most countries, GDP bases are updated once every decade or so.  BBS has been working on an updated GDP estimate, rebasing it to 2005-06.  Typically, when GDP base is updated, the entire size of the economy, and hence per capita income, rises for the simple reason that what was previously not counted is now counted.  Not surprisingly, the new figures put per capita income somewhat higher than the previous figure — it’s now estimated to have been $1,044.

At 77 taka per dollar, per capita income income was then somewhat higher than 80,000 taka in 2012-13.  Cool.

Was it 40,000 taka when AL came into power?

Ah, this is where things get murky.

It turns out, the nominal GDP per capita, on  the 1995-96 base, was around 42,600 taka in 2009.

Do note the two bits in bold.

Why is Mr Wazed using the 1995-96 base data for 2009 per capita income?  Because BBS has not actually published the time series going back into history.  As the Daily Star reports:

The statistical agency, which last rebased in 2000, has got the nod of the technical committee and is now awaiting the green light from the government to start computing GDP using the 2005-06 base year, a senior official of the agency said, seeking to remain unnamed.

Compared with 1995-96 base, the 2005-06 base will include agricultural products like “green banana, green papaya, green coconut, soybean, cucumber, hog plum, red amaranth, bottle gourd, olive, ripe palm, marigold, rose and tuberose”, construction items like “brick, wood and fixtures and fittings” and services like “motor vehicles repairing …the private airlines, clearing and forwarding and travel agents, internet service providers and cable operators”.

This will make for a more accurate estimate of the size, composition and evolution of the economy.  This looks to be like sound, important work by the BBS.  Presence of people like Prof Wahiduddin Mahmud does inspire confidence in the process.

But this is not a radical increase of the country’s GDP under this government.  As the Finance Minister said:

Usually, the GDP size increases under the new base year because of the addition of new elements in the economy. So, this change is nothing significant or unusual.

Compared with the old estimate, GDP is 13% or so bigger in 2012-13 under the new estimate.  And it’s reasonable to expect that when BBS finishes its rebasing, we will find that the economy was 13% bigger in 2009.  That is, chances are nominal per capita income was not 40,000 taka in 2009 — it was more like 48,000 taka.

Still, 48,000 taka rose to 80,000 taka — not double, but still a two-thirds increase during the current government’s term, that is, nearly per capita income rising by over 13% a year for four years.  This is surely impressive achievement.  If they could do this in the last term, surely they can be trusted to aim for 14% a year growth in the next term.  And 14% a year growth for five years will mean per capita income will double.

Sure.  But then again, per capita income also grew by around 13% a year under the 1/11 regime, over 9% a year under the last BNP government, and around 7% a year under both parties in the 1990s.

Wait a minute.  Our per capita income has been growing by 7 to 13% a year for nearly a quarter century?  How is this possible when economic growth has never reached 7%?

What’s going on here?

You see, when Mr Wazed said per capita income was 40,000 taka when AL came to power, he was referring to the nominal per capita income.  Nominal income are measured in current prices — that is, there is no allowance for the increase in prices.  And one does not need a Harvard course in economics to know that when it comes to comparing people’s welfare, what matters is real income — that is, income after accounting for inflation.

According to the BBS estimates (on 1995-96 base — remember, 2005-06 based data is not available yet), real GDP per capita has increased by 4.6% a year under this government, compared with 4.4% a year under the last BNP government.  The same data suggests that under this government, inflation has been 7.3% a year, compared with 4.8% a year under the last BNP government.

I am sure the new data will change these figures slightly.  But I don’t expect the broad pattern to change.  Essentially, there are two macro facts when it comes to the economic record of this government and the last BNP government:

a. BNP did a much better job of controlling prices than this government has — the left chart below; and

b. even after accounting for inflation, per capita income has risen by around 4½% under successive governments for over a decade now — right chart below.

That’s an impressive record of per capita GDP growth.  At this rate, real per capita income, and thus various indicators of health, education and other human welfare, will roughly double every 15 years.  That is, our standard of living is roughly twice as high as was the case when Bangladesh first qualified for cricket world cup.  And this is a collective effort, under successive governments.

In a series, I plan to explore the economic and development records of both parties over the past quarter century.

Meanwhile, I hope Mr Wazed has not recycled his old economics textbooks.  He really should get those books out and do a quick revision.  Otherwise, his তথ্য — information — will not produce any চমক –surprise, but they will make him look, well, silly.