Whose money are we spending?

As per statistics the Bangladesh economy has been growing at a rate of 6% (Real) on average per year. Even though statistics are always a debatable issue it seems from indicators of people’s new found affluence and wealth that real incomes have indeed grown by 6% (or even more).

With rising incomes (on an aggregate basis) we are also seeing other factors coming up. One is the rise of “consumerism” and the other is “increasing inequality”. Let us talk about the former first. To prove this I do not need to work very hard. The signs are everywhere. Even though car taxes have been increased significantly I do not see any slowdown in car sales. Apartment prices have increased but sales did not slow down. Expensive tickets of dance shows that feature foreign artists are “sold out” instantly. How are people affording these things despite the high prices attached? The answer is very simple. These consumers represent a small portion of the population having a large portion of the wealth. It does not really matter to them whether prices have doubled or quadrupled. They can afford it.

On the contrary there is this other group (which off course represents the vast majority of the population) who are having a hard time to simply gather food and lodging. As per ILO’s Global Wage Report 2010/2011 the real average monthly minimum wage in Bangladesh has been on the slide, although its annual rate of fall had increased from -7.2 per cent in 2008 to -5.7 per cent in 2009. These people are seeing their purchasing power and living standards fall continuously.

I don’t think it requires any explanation to show that the rich are actually getting richer because of the sacrifices of the vast majority of the country’s people which includes the minimum wage workers, remittance earners and the farmers. Problem is GDP growth through inequality does not help the country but rather helps a particular group of people. Both governance systems as well as religious systems have acknowledged this issue and had tried to find ways to solve inequality. Governments try to do it by taxing the rich and providing safety nets for the poor. Religions (like Islam for e.g.) have a system of ‘Zakat’ and ‘Fitra’ which ensures that inequality is reduced. Unfortunately, most of us neither pay taxes properly nor pay ‘Zakat’ properly. Furthermore, because of corruption the tax that is paid by honest tax payers are also not utilized properly and thus these groups are being deprived even more.

A person like me can go out and spend my money as I wish thinking that it is my earnings. But when I look closely I need to remember that while economy is growing some people are being worse off. This indirectly suggests that there are people whose efforts led to my increased wealth.

The case becomes even stronger when we think of imported goods. When people become rich somehow they start wanting goods of higher quality and status (basically I am talking about imported goods). Let me use the example of a luxury car which people are buying even after paying 600% tax. Apart from the duty the actual import cost is paid in dollars. Thing is the importing consumer did not earn the foreign currency. “It is our migrant workers working and toiling away in far away countries away from their families (and presently risking their lives) who earned it”. You might say that we do earn foreign currency through exports but please remember that we have a trade deficit. Along with export earnings we do have associated import costs of raw materials and capital machinery. So, imported goods are bought using the migrant workers toils. Now tell me whether we give these guys their due respect for working so hard and being one of the major growth factors of our country. We don’t. Instead they are harassed, cheated and deprived.

Its now time to ask ourselves the very basic question “whose money are we spending?”. Relying on our government to reduce inequality is going to be futile. We ourselves have to find out ways to help solve this problem. I do not have a solution right now but I am going to try to find ways. Inequality harms the long term growth prospect of countries. This has been realized by the second largest (and fastest growing) economy in the world. China has already decided that they will lower growth expectations for 2011-2015 to 7% from their current double digit growth rates and instead focus on equality. Instead of focusing on exports they want to go for internal demand lead growth, which is only going to be possible by reducing the rich poor gap. Given the current state of the global economies where we are seeing shocks after shocks, as well as inevitable fiscal austerity programs (Europe started it already while US will go for it from 2013) this is probably the right way Bangladesh should move towards.

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