An unconventional perspective

Several key points went under the neo-classical radar in Finance Minister AMA Muhith's budget speech. Along with placing the largest proposed budget in Bangladesh's history - a whopping Tk. 295,100 crore - Muhith also revealed plans of financing this budget that may be termed ambitious at best, and that's if we're being generous. From a neo-classical economist's perspective, Muhith's words were music, albeit from a record player they have come to regard with wariness when it comes to planning. It hit all the right notes at the right time - 'lower corporate tax', 'breaking growth trap of 6.0 pc', 'investment friendly atmosphere'. Indeed, these matters are taken to be sacred for the functioning of the economy and a country that is moving in the right direction. The heterodox perspective offers a different take on economic matters because it aims to study holistically the implications of economic policy and the structures behind the accumulation of capital. 'Growth' no longer remains the magical word that is taken without examination. In this article, we shall examine the many aspects of the new budget and ask critical questions- growth for whom? Where would the bulk of the financing come from? Will the government's plan fail simply because it contradicts itself at its base? 

The FBCCI has welcomed the slashing of corporate tax while urging the government to lower interest rates for borrowing. The reasoning behind this can be unpacked once we move past the rhetoric of financial growth. Lowering corporate tax will increase the amount of profit that a corporation is able to keep for itself. This incentive will no doubt motivate firms to invest more into its infrastructure in order to expand the avenues of profit accumulation. The wage of the private sector employee, however, is not set to increase in tandem with the increased amounts of profit as it is up to the firm to set the limit on wages above the legally required minimum wage (something that has not budged from its position in the RMG sector). The firm will thus make larger amounts of profit that will lead to its expansion under the nature of capitalist accumulation. However, with increasing production and services there also needs to be increasing consumption. How will the employee, whose income has not increased in tandem with corporate expansion, be able to purchase the products that are now being produced? This institutional dynamic may lead to under-consumption in much the same way that it looked set to plague the US economy from 1980-1990 during the Reagan era. The US, however, avoided this particular problem by one simple mechanism- by lowering the interest rates close to 0 percent. This meant that the average consumer could now borrow more at lower rates in order to prop up the economy (a nexus of debt-ridden consumption that eventually led to the global financial crunch in 2006).  The reason behind the FBCCI's call to lower the interest rates follows this same logic that fears there will be under-consumption in the economy very soon because of this dynamic. The government has done a commendable job of raising the interest rate to avoid this problem but how long it can survive without caving to corporate pressure remains to be seen. In any case, the lowering of corporate tax is bad for the economy holistically as it will serve to widen inequality between the super-rich and the waged worker. 

At the same time, the government will aim to finance the debt by private sector borrowing that will form a huge part of consolidating the deficit. The banks will not be as forthcoming in its private sector loans under these current circumstances and so, coupled with the slashing corporate tax, this is sure to result in a stunting of competition among smaller firms while the historically large conglomerates will expand to monopolistic industries. Again, this spells widespread inequality and the creation of a '1%' that owns and controls most assets. 

It would be doing a disservice to the economic think-tank of the country if we were to say that they have not anticipated at least some of these problems. Indeed, they have even taken measures to make sure it does not affect the entire economy too negatively by planning a large amount of government expenditure on both the developmental and non-developmental sectors. The government plans to implement a 100 percent pay rise for government employees by July 1 and Tk. 56,696 crore in public spending and Tk. 16,725 crore in social security and welfare. This, along with infrastructure development promises means that the government aims to create more jobs and consolidate current ones in order to boost consumption. The problem here, as it has historically been for Bangladesh, is one of poor implementation that is exacerbated by political instability and rampant corruption. Taking these into consideration it is unlikely that the government's measure will boost any kind of consumption at all. It also has to be kept in mind that the revenue collection process is integral to this expenditure and that has been a notoriously inefficient sector of the government which is most harsh on the lowest income groups - a Tk. 4000 minimum uniform tax on all tax payers will serve to only perpetuate the widening the gap between the rich and the poor working class. 

There are several problems with the current budget and its ambitious nature is only a small aspect of it. The policies proposed by Muhith signal a growing focus on the development of private firms. However, as we have seen, some of the policies means that not only will competition suffer, but the largest firms will thrive. Whether this decision has been taken consciously to satisfy under-the-table dealings remains speculative at this point. There will definitely be GDP growth in some form or another. This writer only asks readers to not confuse GDP growth with an improved standard of living for the entire population. The budget, like Bangladeshi bourgeois society at large, is kind only to those who don't have to worry about where the next meal is coming from. 

The writer studies at Knox College, USA.