Download Comparative Advantage of Urban Economy

Comparative Advantage of Urban Economy: Policy Implications to
Contain Inequity, Poverty and Environmental Degradation in the
Context of Bangladesh*
By
ATM Nurul Amin
North South University
2017
*Prepared
for the International Conference on Knowledge Transfer, organized by East West University Center for
Research and Training (EWUCRT), with the financial support of UGC/World Bank Academic Innovation Fund under
the HEQEP Sub-project: Knowledge Transfer and Capacity Development of Academic Staff., East West University,
Dhaka, 17-18 February 2017.
Table of Contents
Abstract.............................................................................................................................................. i
1. Introduction ................................................................................................................................... 1
2. Geographic, Demographic, Economic Setting of Urban Bangladesh ................................................... 1
3. Stylized and Not-so Stylized Facts of Development ........................................................................... 4
4. Bangladesh Evidence on Economic Development Associated Changes ............................................... 5
4.1 Structural Change ....................................................................................................................5
4.1.1 By Sectoral Composition of GDP and Employment .............................................................5
4.1.2 By Employment Status .......................................................................................................7
4.2. Unsustainable Settlements Growth, Inequality, and Environmental Change ................................9
4.2.1 The changes in human settlement ......................................................................................9
Urbanization Trend, Pattern and Impact ..................................................................................9
Urban Poverty, Informal Sector, Slum settlement................................................................... 11
4.2.2 Income inequality ............................................................................................................ 14
4.2.3 Environmental Degradation ............................................................................................. 17
Air Pollution......................................................................................................................... 17
Water Pollution.................................................................................................................... 18
Sanitation............................................................................................................................ 18
Land Degradation................................................................................................................. 18
Waste.................................................................................................................................. 19
Noise Pollution..................................................................................................................... 19
Drainage and Water Logging................................................................................................. 19
5. Urban Economy Built-in Economic Advantage and Public Policy Inadequacy ................................... 20
5.1 Built-in Advantage of Urban-Industrial Economy: Eight Economic Reasons ................................ 20
5.1.1 Public Policy Inadequacy Giving Rise to Unsustainable Urbanization Pattern .......................... 22
5.2 Urban Economy’s Built-in Advantage in Provisioning Infrastructure and Services ....................... 23
5.2.1 Policy Inadequacy............................................................................................................ 23
6. Concluding Observations.............................................................................................................. 28
References....................................................................................................................................... 28
2
Comparative Advantage of Urban Economy: Policy Implications to Contain Inequity, Poverty
and Environmental Degradation in the Context of Bangladesh†
By
ATM Nurul Amin**
Abstract
Central place theory explains urban economy's locational advantage. Demographic, economic
and market forces including the forces of globalization explain how urban economy becomes
large and cities grow, even to a mega-city form. Urban economists use density or agglomeration
economy and scale economy benefits that make cities large. This paper offers several additional
economic explanations that give rise to urban-industrial economy’s built-in advantage compared
to rural-agricultural economy. These include higher income elasticity of demand, higher price
elasticity of demand, market power, favorable terms of trade, higher capital accumulation, and
technological innovativeness of the urban-industrial sector compared to the rural-agricultural
sector. These comparative economic advantages have been contributing not only to the longprevailing rural-urban disparity but also causing transfer of rural poverty to urban poverty and
creation of informal-formal duality in the urban labour market, urban housing market, urban land
& capital market, and in the provisioning of urban infrastructure, and basic services such as
water, sanitation, health, and education. The paper shows how this duality between the ruralurban and informal and formal sectors is giving rise to widespread imbalances and inequities.
The paper also traces the devastating environmental consequences associated with the nature of
such economic relationship. Finally, it deduces the required public policy corresponding to each
of the economic explanations offered in the paper for addressing the inequity, poverty and
environmental degradation. Suggested policies also include economic, regulatory and persuasive
measures, respectively based on human mind’s three elements - economic interest, fear, and
moral & ethic sense. Such policy package, based on a holistic understanding of human mind, if
used simultaneously, it bears potential to influence human behavior towards sustainable
urbanization.
† Prepared
for the International Conference on Knowledge Transfer, organized by East West University Center for
Research and Training (EWUCRT), with the financial support of UGC/World Bank Academic Innovation Fund under
the HEQEP Sub-project: Knowledge Transfer and Capacity Development of Academic Staff, East West University,
Dhaka, 17-18 February 2017
** The writer would like to acknowledge research assistance of Prima Chakma and Tahmidul Afsar of Graduate
Studies and Research Office, North South University.
i
1. Introduction
Despite known problems associated with free market capitalist system, all countries of the
world have embraced this system at the backdrop of failure of non-market or non-capitalist
road to development. Bangladesh is no exception to this global about turn. By embracing the
market system, China and Vietnam, oddly under the leadership of Communist Party, have
been most successful in their respective journey towards economic growth and development.
Bangladesh is also strongly moving forward in this journey. But unsurprisingly this course of
development has been accompanied with all major ills associated with capitalist market
system – changes in unbalanced human settlements pattern (e.g., unabated rural to urban
migration, dominance of single city in urban hierarchy, growth of informal settlements in
large cities), economic disparities (e.g., rural-urban and interpersonal income disparities) and
environmental degradation (water pollution, land degradation, salinity, air pollution, noise
pollution, and problems associated with waste generation and their disposal).
This paper shows the obtaining situation in Bangladesh has much to do with the (i) nature of
the relationship between urban-industrial and rural-agricultural economy in the process of
economic growth, industrialization, urbanization that obtains in a market economy and (ii)
absence of a strong regulatory framework and public policy regime essential to tame the
greed and profiteering associated with free market system.
To begin with let us also note that Bangladesh’s urbanization process is not much dissimilar
than what has been the experience of other developing countries. For example, the longprevailing positive association between economic development and urbanization - measured
respectively by per capita income and urban population’s proportion in the total population of
the country – holds for Bangladesh as well as it has the case for other countries, developed
and developing. This relationship is a powerful one since the positive association between
economic development and urbanization has been found to hold both by time series and
cross-country data. Having noted this robust evidence that also holds true for Bangladesh, it
is however important to note that the demographic & economic factors and forces of market
and globalization have generated huge challenges and opportunities. In this regard, it is worth
noting that if Bangladesh was a “test case of development” at its infancy of statehood, in
today’s scenario, “Bangladesh is a test case of urban development”. Dhaka’s very lowranking status in urban livability index is perhaps one reason why such notion is being held in
national and international circles.
2. Geographic, Demographic, Economic Setting
Geographic characteristics, demographic fundamentals, economic factors including the forces
of market and globalization define human settlements pattern in general and urbanization
process and urban development outcome of all countries or regions. This is more so for
Bangladesh as briefly explained below.
Locational Predicament : It is a small country of 147,570 sq. km , located in a deltaic
region with a coastal belt of 580Km, along the turbulent Bay of Bengal in the south;
surrounded by a huge regional power, India, on the west, north and the northern east; and
Myanmar on the southern-east. Unlike the plains, the southern-east region, the Chittagong
Tracts, is not particularly suitable for high density settlements growth. Also, unlike the, the
natural movement of population from this land to the adjacent regions have not been possible
1
since the nation-state period formation began in the twentieth century, followed by making
national boundaries sacrosanct by UN system.
Demographic Fundamentals: Meanwhile, the population of this land climbed to 162 million
(2016 estimate). The resultant population density has increased to 1063 per sq. km. Among
others this has been an outcome of double blessings of fertile land, which has allowed
necessary food production (although natural disasters do create shortage from time to time)
and continuous decline in mortality rate resulting from progress in medical science and
improved disaster management. This huge population is still growing at a rate of 1.47
percent, i.e., 2.2 million people are added every year to the already huge population. Other
than the basic demographic factors of population size and its growth influenced by fertility
and mortality factors, we need to take note that more and more women are out-migrating
from rural to urban area and participating in the labor force and dominance (64.2%) of
working age-group, 15-64, (64.2%) all are important in contributing to the increase of urban
labor force and growth of urban economy and shaping their composition and characteristics
(see Table 1).
Table1: Key demographic indicators
Indicator
(i) Huge
base
Data/Year
162 m (2016
population
estimate)
(ii) Growth rate per 1.47% (20012011)
year
Remarks
As per population census of 2011, the number
was 149.8 (adjusted)
Adjusted rate: 1.37%
High proportion of child bearing-age is feared
to give rise of a new baby boom in Bangladesh
unless essential public policy is in place for
delayed marriage, increasing school enrolment,
stopping dropouts of adolescent girls from
schools, and according women priority in job
recruitment.
64.2 %
Nearly two-third of population’s
(iv) Working-age
belongingness in the working age group has
group, 15-64
been the basis of wild optimism of
Bangladesh’s prospect to gain from a
population dividend.
Source: Based Population and Housing Census 2011, National Report Volume 1: Analytical
Report (BBS, 2015).
(iii) Child-bearing
age group, 15-44
48.1 %
(based on 2011
census data)
Although Bangladesh is already accruing economic benefits (by making cheap labour
available for sectors such as garments employ 4.5 million workers of whom majority are
young women, the construction sector employs 2.6 million workers, and overseas
employment accounts for almost 10 million) from presence of large proportion of young age
group in its population (36.3%), challenges ahead are very real. For example, while positive
scenarios are built by referring to the potential of “population dividend” from the large
presence of young age group, limited attention is being drawn to the other side of the coin
here, i.e., population boom potential from the large presence (48.1%) of child-bearing age
2
group, aged (15-44) unless a two-fold public policy is in place education and employment
policy for young age groups of both genders for making them employable in productive
employment sectors.
Economic Structure: The country has long been primarily a rural-agricultural economy
which has finally been undergoing structural changes. The changes are reflected in sectoral
composition of GDP as well as employment. Since 1980s, the trend of change has remained
quite steady. For example, the GDP contribution from the agricultural sector decreased from
33.2% in 1980 to 22% in 2006, to 18.6 % in 2009 and to 16.0% by 2015. This decline in the
agricultural sector has been accompanied with increase the share of the Industrial and service
sectors. The increase of these two sectors is of the following order. The industrial sector
contribution to GDP rose from 17.1%, in 1980 to 29.0% in 2006 to 28.6% in 2009 and to
30.4% in 2015. The corresponding share for the service sector is 49.7% in 1980 and
remained same in 2006 too. But rose to 52.8% in 2009 to 53.6% in 2015. The employment
share of the agricultural sector has also declined from 61% in 1980 to 48.1% in 2006 to
43.6% in 2009 and 43.9% in 2015. The corresponding employment share of the industrial
sector is 8.7% in 1980, 11.1% in 2006, 15.6% in 2009, and 19.6% in 2015. The service sector
accounted for 30.3% of total employment in 1980, 40.8% in 2006, 40.8 % in 2009 and 36.5
in 2015.
Table 2 : Structural Composition of GDP and Employment
Share in GDP
Share in Employment
Sector
1980
2006
2009
2015
1980
2006
2009
2015
Agriculture
33.2
22.0
18.6
16.0
61.0
48.1
43.6
43.9
Industry
17.1
29.0
28.6
30.4
8.7
11.1
15.6
19.6
Service
49.7
49.0
52.8
53.6
30.3
40.8
40.8
36.5
Source: Based on different Labour Force Surveys of BBS, except GDP data of 2015 which
are from World Fact Book.
The big change in the share of the service sector to employment has however been largely
comprised of low-productive service occupations (e.g., the informal sector, which comprises
nearly 80% of the national economy). This is evident in the fact that the share of the service
sector to GDP remains almost unchanged to 49% (between 1980 to 2006) despite about
10%+ growth in employment in the service sector. During this period, GDP share of the
service sector increased by less than one percent, which is a clear indication that the service
sector is largely comprised of numerous petty services. The combined effects of the
country’s geography, demography and economy have made it that much challenging to
pursue a course of development that is socially, economically and environmentally
sustainable.
3
3. Stylized and Not-so Stylized Facts of Development3
Structural changes associated with economic development are well documented in
development literature (Figure 1). Long periods of time-series as well as cross-sectional data
clearly show that as per capita income increases: (a) the share of food consumption compared
to total consumption expenditure decreases; (b) the contribution of the agricultural sector to
production declines while corresponding contributions of both the industrial and service
sectors increases; (c) the employment contribution of the agricultural sector also declines
while the labour absorptive role of the industrial and service sectors expands; and (d) the
share of urban population continuously expands as an economy grows (I.e., urbanization and
economic development are positively associated). Because of the universality4 of these
experiences, the economic growth literature labels these are stylized facts (i.e., Aspects of
economic growth that “everyone knows” or takes for granted) of development (Syrquin and
Chenery 1999).
60
Food Consumption
Production
%
60
Agri.
Industry
Service
50
50
40
40
%
30
30
20
20
10
0
<30
0
10
300
500
0
<300
1000 2000 4000 >4000
Per capita income (US$)
Production
300
500
1000 2000 4000 >4000
Per capita income (US$)
3
This section and urban economy’s built-in advantage and economic reasons (Section 5.1) are based on
author’s article, “Economics of Rural -Urban Relations Reexamined in the light of
Growing Environmental Concerns”, Regional Development Studies, Vol. 1 (Amin, ATMN (1994/95).
4 The universality of these data lies in the fact that the observed relationships hold true for many countries
(cross-sectional) as well as for many years (longitudinally).it is remarkable that neither cross -cultural nor
historical differences alter basic nature of the relationships.
4
Labour Force
%
Urbanization
100
Agriculture
Industry
100
Service
90
80
70
60
%
50
40
30
20
10
0
<300 300 500 1000 2000 4000 >4000
Urban
Rural
90
80
70
60
50
40
30
20
10
0
<300 300
500 1000 2000 4000 >4000
Per capita income (US$)
Per capita income (US$)
Figure 1: Structural Changes Associated with Economic Development
Source: Amin (1994/95, p29).
Not-so Stylized Facts
As already indicated, the economic forces explained in the preceding section not only defined
the structural changes that have come to be accepted as the stylized facts of development.
They also explain many other changes that encompass human settlements, income
distribution and the environment. The magnitude and implications of these changes have not
yet been well documented. Thus, they are not characterized as the stylized facts of
development. However, the element of complacency that is evident in characterizing
structural changes associated with economic development as stylized facts and, hence, not a
matter for consideration will not be the case once attention is focused on the not-so-stylized
facts that are presented in this section. One reason that these facts have not yet been fully
documented is that, because of their special nature, mainstream economists have not given
them adequate attention.
4. Bangladesh Evidence on Economic Development Associated
Changes
4.1 Structural Change
4.1.1 Sectoral Composition of GDP and Employment
Structural changes in Bangladesh economy associated with economic growth is largely in line
with what is known as “stylized facts of development” in that the sectoral composition of
GDP as well as employment and human settlements pattern have been changing in line with
the pattern in other countries or economies. Although this is well-known (indeed stylized
facts mean facts that everybody knows), variation exists among countries depending on the
strength of economic growth and the magnitude of the labour force requiring jobs as
agricultural sector’s share in GDP and employment declines.
In case of Bangladesh, (i) the demographic factors, i.e., huge base population (relative to the
cultivable land the country has), its continued growth, dominance of young age in the
5
population;(ii) increasing participation of women in the labour force; and (iii) release of
labour from the vast rural-agricultural sector – all this has been increasing the labour force
growth at a rate of 3.4 per cent per year during 2005-2006 to 2010 period. These factors are
also contributing to the pace and magnitude of rural-urban migration. Compared to such
supply side factors of labour force growth, particularly of urban labour force, the demand side
of their absorption in the urban economy is much less robust in that job creation of the urbanindustrial or formal sector, low-productive and less-paying5 .This has implications on the
magnitude, nature, and composition of the informal sector as it has been unfolding.
To be sure, let us recall the fact that Bangladesh has been going through pretty steady
economic growth rate of about 6 per cent plus per year since 1990s and its per capita income
has also been increasing steadily, which crossed $ 1,300 by fiscal 2015-16. This growth and
development has been accompanied with (i) a decline in GDP contribution of the agricultural
sector from 33.2 per cent in 1980 to 16.0 per cent in 2015 and (ii) increase in the share of the
industrial sector from 17.1 per cent in 1980 to 30.4 per cent in 2015. During the same period,
the service sector’s GDP share increased from 49.7 per cent to 53.6 per cent (Table 3).
Table 3: Trend in sectoral share in (per cent) GDP and employment associated with different
level of economic development, measured by
Share in GDP
Share in Employment
Sector
1980
2006
2009
2015
1980
2006
2009
2015
Agriculture
33.2
22.0
18.6
16.0
61.0
48.1
43.6
43.9
Industry
17.1
29.0
28.6
30.4
8.7
11.1
15.6
19.6
Service
49.7
49.0
52.8
53.6
30.3
40.8
40.8
36.5
GNI/Per capita ($)
230.0 560.0 710.0 1190.0
230.0 560.0 710.0 1190.0
Source: Based on different Labour Force Surveys of BBS, except GDP data of 2015 which are
from World Fact Book.
5
This scenario is well-captured in an observation of economist, Debapriyo Bhattacharyya, which - “Jobs are
there in the informal sector, but in corporate and industrial sectors. And that is not possible either without rise
in private investment” - is carried as a “top quote” of the Daily Star of 4 June 2016. The economist, who is a
Distinguished Fellow of the Centre of Policy Dialogue (CPD), attributed the informal sector outcome to falling
investment.
6
Share in Employment
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Service
Industry
Agriculture
0.0
500.0
1000.0
1500.0
Figure 2: Sectoral composition of employment
Share in GDP
60.0
50.0
40.0
Service
30.0
Industry
20.0
Agriculture
10.0
0.0
0.0
500.0
1000.0
1500.0
Figure 3: Sectoral composition of GDP
Change in employment share is however less pronounced. The agricultural sector still
accounts for about 43 per cent of employment. Thus, near about 44 per cent labour force
contribute only 16 per cent of GDP which reveals the low-productivity of the sector. The
corresponding employment share of the industrial and service sector in national employment
stood in 2015 at 19.6 per cent and 36.5 and per cent respectively. Much of the service sector
employment is accounted by the low-productive informal sector that is evident from
examination ‘employment status’ or ‘labour categories’ of the labour force. Details follow.
4.1.2 Employment Status
With transformation of peasant economy to commercialization of agriculture to urbanindustrial development, the proportion of employed labour force in the category of ‘selfemployed’ or ‘own account workers’ are expected to decline and those of ‘employers’,
7
particularly of ‘employees’(i.e., ‘wage and salary earners’) are expected to increase.
Although definitional change is a problem to observe trend in employment status, this is not
the case for the ‘employer’ category, which has largely remained unchanged. One issue
however is employer of informal enterprises are also counted within this category. Similar
problem exists, rather in a bigger way, with respect to the ‘employee’ category, it needs to be
noted that ‘wage or salary earners’ of informal enterprises are counted in LFS data of
‘employee’. By doing so, all ‘hired labour’ or ‘wage earner’ of informal enterprises are
included in the employee category. This becomes an issue when we estimate the size of the
informal sector based on LFS data of employment status.
Table 4: Trend in Change in Employment Status of the Labour Force, 2002-2015
Labour Categories
(i)Self-employed/Own account workers
2002-03
44.7
2005-06
42.0
2010
40.7
2013
40.6
2015
45.5
(ii) Employer
(iii) Employee
(iv) Unpaid family helpers
(v )Others
Total (%, and parentheses figures are
in millions)
Estimated Size of IS: (i) + (iv)+
0.5
33.8
18.3
2.7
100.0
(44.3)
95.4
0.2
32.1
21.7
4.0
100.0
(47.4)
95.9
0.2
34.7
21.8
2.6
100.0
(54.1)
95.6
0.9
38.7
18.2
1.5
100.0
(58.1)
94.4
2.9
38.8
12.4
0.3
100.0
(58.7)
92.3
+(v) + 87.8% of employee category*
Source: Based on data LFS data provided in BBS (2016, pp. ii).
*Informal sector is assumed to comprise of all labour categories in this table except the
‘employer’ and ‘employees’ plus certain proportion of employers and employees who would
belong to the informal sector. Since the proportion of employers in the labour force is small,
varies from 0.2 per cent to 4.0 per cent. Among the employers, the proportion belonging to
the informal sector will not be large. Thus, non-counting of employers is not going to make
much difference in informal sector size estimation. But this cannot be said with regard to
‘employees’. By no means all employees can be set aside for estimating the size of the
informal sector labour force since many informal sector enterprises do have hired labour. In
this regard, we have now a piece of useful information from the Informal Sector Survey
(ISS), conducted by BBS-ADB in 2010 which estimates that 87.8% of the employees belong
to the informal enterprises (BBS-ADB, 2012, p.11). Thus, in our estimation of informal
sector, 87.8% of employee category has been counted as part of the informal sector labour
force.
The above estimate of the informal sector is based on national labour force that includes the
rural-agricultural labour force. Because of this, the estimate exceeds 90 per cent. Urban
labour force data based estimate of the informal sector would be a better estimate since
informal sector has been more about urban informal sector. The informal sector literature
developed on the assumption that in the urban economy, subsistence economy of rural nature
was not expected. It goes without saying that urban informal sector size will be lower than
the informal sector in the national economy.
8
4.2. Unsustainable Settlements Growth, Inequality, and Environmental Change
Whereas the changes in economic structure has been documented systematically and are
denoted as stylized facts of development, the documentation of changes in human settlements
income inequality and environmental changes (data on these three aspects denoted as “notso-stylized facts”) are yet to be documented as precisely or neatly as their economic
counterpart.
The works on the latter set are however steadily growing. Trend data on the relations
between economic development & urbanization, income inequality, and environment are
now increasingly available. In this section some data are presented to indicate the changes in
human settlements pattern, income inequality.
4.2.1 The changes in human settlement
The changes in human settlements pattern in Bangladesh bears all the hallmark of human
settlements associated with market-based pattern of economic growth and development. First
to note is similar to cross-country and historical evidence, Bangladesh’s urbanization is
proceeding steadily as it is growing in terms of level of development, measured by GNI per
capita. For example, all potential migrants are waiting for an opportunity to move out from
his or her place of birth. Specifically, the emerging settlements patterns are characterized by:
-
-
Large flow of rural young labour force to urban economy as evident in
employment of 4.5 million of young garment workers, vast majority of whom are
young women (80-85 per cent);
Mega-city growth (with 16 million people, Dhaka has emerged as one of the large
mega-cities;
Unbalanced urbanization pattern despite Bangladesh having a several-tier urbanhierarchy;
Informal economy growth that has grown to vast size (accounts for 87.5% of the
country’s employed labour force);
Informal settlements (slum and squatter settlements) growth which accounts for
2.3 million of the country’s population; and
Large flow of labour to international migration for overseas employment that now
accounts for 10.2 million workers.
Such data are indicative of the fact that magnitude or size of the population has de it so
overwhelmingly problematic. This is why we noted, at the outset of this paper, about
demographic factors that are defining Bangladesh’s urban challenges. Some trend data are
used below for further illustration of the magnitude of problems associated with the changes
in human settlements that are the outcome of interaction between demographic
Urbanization Trend, Pattern and Impact
Table 5: Level of urbanization by Level of development
Year
1980
2006
2009
2015
Source:
GNI
(Per capita $)
230
560
710
1190
data.worldbank.org
Urban population %
Rural population %
14.8
27.5
29.7
34.2
85.2
72.5
70.3
65.8
9
Urbanization
100.0
80.0
60.0
Urban population %
40.0
Rural population %
20.0
0.0
0
200
400
600
800
1000
1200
1400
Figure 4: Relation Urbanization with increasing per capita income
As can be seen from Table 5, Bangladesh stands at 34.3 level of urbanization, which means
only one-third of its population lives in urban areas. This isnot a high level of urbanization.
But this proportion implies that 55.2 million people of Bangladesh live in urban areas of the
country. This is a huge number for a country with about $ 1200 per capita income. Urban
economy and living require huge investment for building essential urban environmental
infrastructure and services (UEI&S) water supply and drainage& sewerage network,
electricity supply system, mass transit, pedestrian system, and urban housing. All this require
huge amount of capital investment. Doing this for 55million plus population, many of whom
are poor whodo not have adequate income, hence, affordability to pay for access to UEI&S
services, is by no means easy.
Table 6. Urbanization trends in Bangladesh 1901-2015
Year
Size of Urban Level of
Growth Rate
Number of
Population
Urbanization
(Exponential) Urban
(in millions)
(urban %)
Centers
1901
0.7
2.4
48
1911
0.8
2.6
1.4
48
1921
0.9
2.6
0.85
50
1931
1.1
3.7
2
58
1941
1.5
3.7
3.6
59
1951
1.8
4.3
1.7
63
1961
2.6
5.2
3.7
78
1974
6.3
8.8
6.6
108
1981
13.5
15.5
10.6
492
1991
22.5
20.2
5.4
522
2001
28.9
23.8
3.3
532
2011
47.9
31.2
1.3
NA
2015
55.2
34.3
3.4
NA
Source: Data for the period of 1901 to 2001 are from Rahman (2012, p.15) and for 2011 and
2015 are from data.worldbank.org
Pattern of urbanization
As per 2011 population census, total country urban population is about 33.7 million. Of them,
14.2 million live in the extended mega-urban region of Dhaka city, also a divisional
10
headquarter. Dhaka is one of the seven divisions6 . The seven divisional headquarters or city
corporations together account for 11.9 million urban population. Of these seven Dhaka alone
accounts for 7 million. The remaining six divisional HQs together thus accounts for 4.9
million. This suggests high Dhaka’s primacy on the one hand and that Bangladesh has not
been utilizing the potential of urban decentralization by utilizing the divisional or regional
cities. Even Chittagong (2.6 million, 2011) is not any close to Dhaka although the former has
all the potential to be a counter-magnate to the latter (Table7).
Table 7:Pattern of Urbanization in Bangladesh
Urbanization
Level
of
Division/Region
Population
in
divisional
(% of urban population in headquarters/regional cities
Division/Region
each division
(in millions)
1991
2001
2011
2001
2011
1. Dhaka
27.8
34.3
32.7
5.3
7.0
2. Chittagong
20.4
24.7
24.3
2.0
2.6
3. Rajshahi
14.8
17.1
17.8
0.4
0.5
4. Khulna
18.1
20.4
17.8
0.8
0.7
5. Rangpur
12.5
13.8
13.3
0.2
0.3
6. Sylhet
10.3
12.7
15.2
0.3
0.5
7. Barisal
12.0
14.6
16.9
0.2
0.3
Source: Based on Population and Housing Census (BBS, 2011).
Urban Poverty, Informal Sector, Slum settlement
Rural to urban migration has long been associated with economic growth and development in
all countries, more so for a populous country as Bangladesh is. With limited cultivable land
relative to large rural population that is still growing, economic growth has been opening up
opportunities for the landless and asset-less population. But most of such migrants however
do not get formal sector jobs for lack of formal education or skills. Rural to urban migration
for most such migrants however does not result in a good living income for living a non-poor
life even in urban areas. This situation has led some urban analysts to view rural to urban
migration as a mechanism of transferring rural poverty into urban poverty.
This situation is evident in the growth of the informal economic activities and informal
settlements (slums and squatters). The inter-linkage among urban poor, informal activities
and slum & squatter settlements is very evident in the current process of development. Some
evidence in this respect is presented below.
First, Table 8 below shows some estimates of the informal sector size in Bangladesh by
different measures of the sector.
6
In 2016 Mymensing has been declared a new Division.
11
Table 8: Recent Estimates of the Informal Economy Size, Nationally and for Dhaka
Indicator
Percent Source
(i) Proportion (%) of total employed labour force of
Bangladesh engaged in the informal economy,
2010
(ii) (ii) Proportion (%) of total employed labour force
of urban areas of Dhaka division engaged in the in
the informal economy, 2010
87.4
Based on LFS data
2010, BBS (2011,
p.4)
82.79
ADB-BBS 2012, p.
55
84.3
ADB-BBS (2012, p.
11)
86.8
ADB-BBS (2012, p.
11)
(v) Proportion (%) of total female labour force of
Bangladesh employed in the informal economy,
2010
92.6
ADB-BBS (2012, p.
11)
(vi) Proportion (%) of total urban labour force of
Bangladesh engaged in the informal economy
76.0
ADB-BBS (2012, p.
11)
(vii)
Proportion (%) of total rural labour force of
Bangladesh engaged in the informal economy
92.3
ADB-BBS (2012, p.
11)
(iii)Proportion (%) of total employed labour force of
Dhaka division engaged in the informal economy,
2010
(iv) Proportion (%) of total male labour force of
Bangladesh employed in the informal economy,
2010
(viii)
Informal employment (% of total employed
labour force) by counting only three categories of
labour (i. e., ‘own-account worker’, ‘day labourers’
and ‘unpaid family laborers’)*
(ix) Size of informal economy of Bangladesh by
establishment criteria (i.e., by counting the
proportion of ‘temporary establishment’ and
‘economic household’ or by excluding the
‘permanent establishment’ (% of total
establishments)
(x) Size of the informal economy (% of total economic
units belonging to the category of ‘temporary
establishment’ and ‘economic household’ or by
excluding the ‘permanent establishment’) in Dhaka
division
12
82.1
Based on LFS 2010
data, (see Amin and
Sultana 2013, p. 6)
Bangladesh Economic
Census, 2013, p.21
43.8
Bangladesh Economic
Census, 2013, p.21
38.5
Based on casual observation of many rural to urban migrants’ work in the informal sector and
living in slums or squatter settlements, some urban analysts are of the view that such
migration merely transfers rural poverty to urban poverty. But the evidence in this respect is
contrary to this notion. For example Table 9 data shows that both rural and urban poverty
have been declining. If rural poor were becoming urban poor, the proportion of urban poor
would have been higher. The data in Table 9 rather in line with the claim that “more urban,
less poor” (Tannerfeldt and Ljung, 2006).
Table 9: National, Urban and Poverty Incidence* in Bangladesh
Year
2010
2005
2000
1995-96
1991-92
National
31.5
40.0
48.9
50.1
56.7
Upper Poverty Line
Rural
35.2
43.8
52.3
54.5
58.8
Urban
21.3
28.4
35.2
27.8
42.8
National
17.6
25.1
34.3
35.2
41.1
Lower Poverty Line
Rural
21.1
28.6
37.9
39.5
43.8
Urban
7.7
14.6
20.0
13.7
24.0
*Defined or measured by head count rates, i.e., the proportion of population living under
poverty line.
Source: Ferdousi and Dehai (2014, pp. 3).
The above indication that migrants are doing better at urban end however cannot be
maintained if more disaggregated data are analyzed. For example, to the extent the rural
migrant poor end up living in urban slums, they fare worse than their rural counterparts.
This is evident in a Unicef study on Bangladesh that shows that urban slum residents are
worse off to rural residents by all twelve indicators used for comparison of urban, rural and
slum residents.
Table 10: Urban, rural and slum survey population by selected indicators
Indicators
Urban
Rural
Slum
(i) U5 MR (per 1,000 live births)
(ii) Skilled attendant at birth (%)
(iii) Population using an improved sanitation
facility (%)
(iv) Net attendance ratio in pre-school education
(%)
(v) Net attendance ratio in primary education (%)
(vi) Pupils starting Grade 1 who reach Grade 5(%)
53
45.0
54.0
66
19.0
54.0
95
15.0
9.0
Slum worse
than rural
(%)
44%
-21.0
- 83.0
26.0
22.0
13.0
- 41.0
84.0
80.0
81.0
80.0
65.0
48.0
(vii) Drop out in primary education (%)
(viii) Net attendance ratio in secondary education
(%)
(ix) Youth literacy % (women aged 15-24 years)
(x) Adult literacy % (women aged 15-49 years)
(xi) Gender parity index in secondary education %
1.0
53.0
1.0
48.0
8.0
18.0
- 20.0
40.0
700.0
-63.0
77.0
66.0
1.08
70.0
48.0
1.18
51.0
35.0
1.26
-27.0
-27.0
7.0
(xii) Birth registration %
53.0
54.0
28.0
-48.0
Source: Unicef (2010, p13).
13
But if urban residents are compared with the rural residents, urban residents emerged as
better off by most indicators. Such evidence cautions against generalization and making
inference on the basis aggregated or average data7 as it is being now claimed in Bangladesh
about progress or development on the basis of per capita income increase.
4.2.2 Income inequality
The contrasting situation in work types, workplaces, working conditions, shelter or housing,
expenditures on medical services or health care, festivals and life styles suggest rural-urban
duality is now prevailing in urban economy and living too. This is however not that glaringly
evident in the limited data that we have on income inequality as shown in (Table 11). Yet the
Gini value’s persistence around 0.45 does indicate that inequality is persisting. Another
concern is the rising inequality in rural area where inequality has been traditionally low, even
in recent decades it has been low. This also may be the result of the consequence of the
nature of relationship between rural-urban economy and associated flows (see Section 5 for
this).
Table 11: Gini Coefficient of income inequality in Bangladesh
Year
National
Rural
1995-96
0.43
0.39
Urban
0.44
2000
0.45
0.39
0.49
2005
0.47
0.43
0.49
2010
0.46
0.43
0.45
Source: Ferdousi and Dehai (2014, pp. 7).
Although analysis of “income classes” are no more in fashion, Kamal Siddiqui (et al, 2010, p
24), in their study of social formation in Dhaka, 1085-2005, makes a zonal classification of
residents of Dhaka city, by average holding tax, which reveals stratification of the city
residential areas as income. It is so much the case that average holding tax, hence wealth and
assets or income, is a good predictor as to in which residential area one would live (see Table
below).
Table12: Zone classification of Dhaka city according to average holding tax, 2005
Zone
Zone 1
Old lower middle
class
Zone 2
New middle class
Zone 3
New lower
middle class
Average
holding tax*
4,277.50
14,052.14
7,098.68
Major areas included
Old Dhaka, i.e.,
Sutrapur, Kotwali, Lalbagh and Hazari Bagh, except
a few areas
Motijheel, Dhanmondi, Gulshan, Mohammedpur,
Ramna, Adabar, Sabujbagh, Badda, Khilgaon,
Paltan, New Market and Tejgaon PS
Kafrul, Shyamali, Jatrabari and Kamrangir Char PS
except a few areas
7 In this
regard, most misleading is the average per capita income data , based on which inference is made
about a country’s economic progress as it is the case in Bangladesh now. In a country with poverty and
inequality, average data hides stark realities of living for large number of population.
14
Zone 4
Upper middle
class and rich
14,760.97
Selected areas of Gulshan, Dhanmondi, Ramna,
Airport and Uttara PS
*Total holding tax in Tk. divided by the total number of holding tax-payer.
Source: Siddiqui, et al. (2010, 24).
Relatively recent data based analysis of Dhaka’s income classes by PPRC also contains
evidence on income inequality. “Income class” categories in this study are: extreme poor,
poor, lower middle, middle, middle, and rich. Data here shows that the rich – only 6.7 per
accounts for 40.13% of total income of Dhaka. In contrast, the extreme poor, poor and lower
middle income group together accounting for 67% households get only 30.29 % of total
income generated in Dhaka city.
Table 13: Income Classes, Dhaka City, 2012
Income class category
% of total households
% of total income share
Extreme poor
Poor
Lower middle
Middle
Rich
10.1
23.9
33
26
6.7
100.0
2.33
8.66
19.30
29.57
40.13
100.0
Average monthly
household income (BDT)
7256
11294
18072
35593
186727
38,127
Source: PPRC Dhaka City Survey, 2012.
Other than aggregated indicators of inequality such as rural-urban disparity, developing and
developed country inequality and interpersonal disparity, an important manifestation of
inequality is gender inequality. This is not receiving enough attention because of drumbeating of two otherwise positive changes. One of these two changes is the steady economic
growth and development that has been going on since 1980s with resultant increase in per
capita income and the other is the increasing participation of women in the labour force,
particularly the employment of young women in garments. Both of these two economic and
social development phenomena are serving to hide the continued human deprivations in terms
of basic needs of shelter, health education and similar basic services and the fact that women
are ending up in relatively more vulnerable economic activities. Table 16 data on nine
different indicators consistently indicate that higher participation of women in the labour
force has not necessarily been accompanied with reduction women vulnerability.
It is widely known that unemployment rate in countries with low income does not convey the
reality of job deficit. The official unemployment rate of 4.2 per cent hides the fact that the
poor cannot afford to be unemployed because they are to find or create work for survival.
This situation can be understood in the data on high underemployment rate data which shows
that one-fourth (25 per cent) of the total labour force are underemployed. The underemployed
poor eke out a living by engaging themselves in marginal occupations, e.g., women’s work as
maids, men’s work as rickshaw drivers, children’s work in the waste collection and dumping
sites and numerous casual works, of both men and women in the construction sites and
similar labour dominant sectors. Formally, underemployment can be measured buy time,
income or qualification and experience criteria. Amin (1989) has used these criteria for
estimating underemployment in Bangladesh which showed that underemployment accounted
for almost one-third of labour force of the country. Since then the economy of the country has
15
grown but unfortunately job expansion has not kept the pace of economic growth rate.
Labour market specialists have characterized the obtaining situation as “jobless growth”(low
and declining employment growth in relation to output - high output, low employment”,
Islam, 2010, p.3). To make it worse, the labour force has been growing annually at a rate of
3.4 per cent (BBS LFS 2010 cited in The ILO, n.d.). Thus, it is no surprise that the informal
sector has still been increasing in Bangladesh. As a result, the informal economy has grown
to a vast size: 87.5 percent of “employed labour force” are in fact employed in the informal
economy.
Growth of the informal economy to such vast size is bound to be the case for the poor to
create their own work to earn an income. The expansion of the informal economy, which
serves as a last resort for earning a living for many who cannot enter the formal job market
due to lack of formal education or other barriers to entry in relatively better paid jobs, isthus
an indicative of continued high underemployment rate in the country.
The women vulnerability is indicative by all nine indicators in the table. Male-female
comparisons by these indicators are as follows:
-
Unemployment rate is nearly double among the female labour than the males,
Underemployment rate among female labour force exceeds by five per cent,
Labour force participation rate of females is about only one-third of their male
counterparts,
Participation of female in urban labour force is also similarly low,
Poverty incidence is higher among female labour force by both criteria of poverty line
data presented in the table.
Male-female composition of the formal sector employment shows that the relatively
better off sector is still largely a male sector;
Whereas, the female presence is higher than the males in the relatively low-productive
service sector - nearly double.
The above pattern in women vulnerability by labour force characteristics have resulted in
substantial male-female wage differential. Based on LFS data of various years, Rahman
(2009) shows the male-female wage differential to 1.61 for the urban area and 1.52 for the
rural. An ILO study on wage gap in Bangladesh also finds that women earn on average 21 per
cent less than men (Kapsos, 2008).
Table 14: Women vulnerability as reflected in key labour force characteristics by gender
Labour force characteristics (per cent)
(i) Unemployment rate**
(ii) Underemployment rate**
(iii) Labour force participation rate **
(iv) Urban labour force participation rate **
(v) Poverty incidence and HHH (Upper poverty line)*
(vi) Poverty incidence and HHH (Lower poverty line)*
(vii) Labour composition in the total unpaid family labour***
(viii) Labour composition of the formal sector employment***
(ix) Service workers’ proportion of the total urban employment ***
Total
5.1
28.7
59.3
59.5
32.1
17.9
100.0
100.0
10.5
Male
4.3
27.5
87.20
86.4
26.6
14.6
40.0
84.3
8.73
Female
7.5
32.5
31.50
30.5
31.5
17.6
60.0
15.7
16.19
Source: Compiled by the author for his ILO study (Amin, 2011), based on data contained in
*HIES 2010, **MES 2009, and ***BBS (2008, pp .xv-xix).
16
4.2.3 Environmental Degradation
The impressive economic growth and rise in level of development, accompanied with
structural changes in GDP, employment and human settlements, are having its toll upon the
environment of the country. For long, the natural environment of Bangladesh has been one of
‘shujola-shufola-shoshsho-shamola’ (rich water resources, fertile land, crop abundance and
lavish greenness), as a poet wrote. In contrast, the environmental rot in today’s Bangladesh is
typified by the black tar colour of the river Buriganga that has been the life-line of Dhaka
residents for centuries. Other than the contribution of draining of wastewater from all around
including that of the tanneries, located close to the riverbank, it is the mindless waste
dumping that has led to what Burigonga is today. The river bed reportedly hasan accumulated
heaps of several feet high plastic bags. A long-standing decision of relocating the tanneries to
a nearby area, Savar, 20 km away from the present location still could not be fully
implemented despite government provided land and basic infrastructure.
Some data and information on pollution indicators are presented by major environmental
media to (a) indicate the environmental costs of the on-going economic growth and
development, which and (b) emphasize the need of public policy and actions for promoting
environmental goals in general and 3R8 in particular for reversing the current unsustainable
course of economic growth and development in Bangladesh to a sustainable direction.
Air Pollution
-
-
Bangladesh is ranked as 4th among 91 countries with worst urban air quality in the
latest air pollution monitoring report of World Health Organization (WHO).
The number of automobiles in Dhaka is increasing at the rate of at least 10 percent
annually, contributing to rise air pollution.
Dhaka, along with Narayanganj and Gazipur, are the three cities that are put among
the top 25 cities with poorest air quality.
Rapid urban growth rate (6.4%) in Dhaka, which is nearly twice than the national
urban growth rate, 3.2 % (the latter in itself is twice than the population growth rate of
the country as a whole) and the associated urbanization, is contributing to increase air
pollution.
About 90% of the vehicles are plying in Dhaka city are faulty, and emit smoke far
exceeding the prescribed limit.
Estimates reveal that motor vehicles annually emit 3,700 tons of particulate matter
(PM 10), 8,550 tons of nitrogen oxides, 50,700 tons of carbon dioxide, etc.
Source: Mahadi (n.d): www.bangladeshenvironment.comhttp://goo.gl/XHj2UF
- Air pollution kills around 15,000 Bangladeshis every year (World Bank cited in
Mahmood, n.d.)
- The pollution level increased due to a rapid rise in transport demand, high content
Sulphur in diesel fuel, increasing number of two stroke engines, and use of very
poorly maintained vehicles and overall poor traffic management.
- The industrial areas in Bangladesh are situated in the midst of densely populated
neighborhoods. Many hazardous and potentially dangerous polluting industries are
situated in the cities of Bangladesh.
Source: Based on the Compendium of Environment Statistics of Bangladesh 2009
(BBS,2010)).
8
This section is based on author’s another work, “State of 3R in Asia and the Pacific, Country Chapter:
Bangladesh”, prepared for Regional 3R Forum in Asia and the Pacific, March 7-8,2016 (Amin, 2016).
17
Water Pollution
-
The most polluted water body in Bangladesh is the river Buriganga.
Much of the industrial and a substantial portion of municipal and urban wastes of
Dhaka city are flushed into the Buriganga.
It is estimated that total organic waste load discharged into the river is around 250
metric tons per day (Reazuddin, 1994).
According to Department of Environment, Government of Bangladesh (1988), river
Buriganga, near Dhaka shows BOD between 20-180 mg/l.
According to Dittfurth and Röhring (1987) about 250 different toxic chemicals and
heavy metals like cadmium, chromium, arsenic, zinc, etc. are used by the leather
industry.
These heavy metals enter the water bodies causing severe consequences in the bodies
of living organisms.
-
-
Source: Analysis of the causes and impacts of Water Pollution of Buriganga River: A Critical
Study’ by Chandan Chakraborty, Md Mazaharul Huq, Sobur Ahmed, Taslima Tabassum, Md
Rubel Miah (International Journal Of Scientific and Technology Research Volume 2, Issue 9,
September 2013)
-
Bangladesh is currently facing a serious threat to public health, with 85 million people
at risk from arsenic (As) in drinking water and in food crops.
The World Health Organization (WHO) recommends a safe limit for As in drinking
water of 10 μg L. A recent survey looked at the As concentrations of drinking water
from deep wells in 64 districts in the country and found that 59 had concentrations
>10 μg L−1 and 43 had concentrations >50 μg L−1.
Arsenic concentration is higher in Bangladeshi soils, groundwater and plants (data
based on 4% area of the country) than the permissible limits or normal range reported.
-
-
Source: Arsenic Contamination in Bangladesh: An Overview by M. F. Hossain, 2006,
Volume 113, Issues 1-4
Sanitation
-
An estimated population of 56% had access to adequate sanitation facilities in 2010.
According to the Joint Monitoring Program (JMP) for Water Supply and Sanitation of
UNICEF and the World Health Organization (WHO), access to an “improved source
of water supply” increased only slightly from 77% in 1990 to 81% in 2010, whereas
coverage of improved sanitation increased from 39% to 46% during the same period.
Land Degradation
Much of the information below is based on the Compendium of Environmental Statistics
Bangladesh, 2009 (BBS, 2010).
-
Land degradation in the Chittagong hill tracts is occurring mainly due to rapid
changes in demographic patterns, development of roads and other physical
infrastructure. Jhum Cultivation is one of the major causes of land degradation.
- Madhupur Sal forest region have almost been denuded due to deforestation and
situation have been further aggravated by many other factors such as its closeness to
the capital, improvement of road communication etc.
-
Land degradation in the Barind Tract is caused mainly by overexploitation of
biomass and agricultural lands and unscientific cultivation of HYV rice through
18
ground water extraction. The process has been aggravated by irregular rainfall and
insignificant water flow in the adjacent river.
-
Land degradation in the coastal areas of Bangladesh is the result of recurring cyclone
and storm surges, which inundate land. Shrimp cultivation round the year is
ultimately increasing salinity of the degraded soil.
Waste
-
-
-
-
Only about 42% of generated waste is collected and dumped at landfill sites, and the
rest are left uncollected or indisposed. As much as 400 tons wastes are dumped in the
roadside and in open space.
One of the most adverse impacts of poor waste management, especially municipal
waste, is the incidence and prevalence of diseases such as malaria and respiratory
problems, as well as other illnesses through the contamination of ground water.
Biomedical wastes pose great danger in Bangladesh as a report estimated that 20% of
the biomedical waste is ‘highly infectious’ and is a hazard since it is often disposed of
into the sewage systems or drains.
Solid wastes lead to blockage in the drainage system which leads to flooding in the
streets.
Noise Pollution
-
-
During heavy traffic, the noise level reach as high as 100 decibels whereas the hearing
capacity of human is only 100 decibels which therefore is affecting the hearing
capability of transport workers and people.
Sound level elevated about 13-40 decibels higher than the permissible level in most
area of Dhaka. The major sources of sound pollution are vehicle horns, construction
work, generators, industrial work, trains, airplanes, loud speaking, and loud music.
Source:
The
New
Age,
a
Dhaka
English
daily,
February2016(http://newagebd.net/204539/noise -level-must-brought/)
-
Wednesday,
17
Hasan et al (2009) have investigated the prevalence of hearing loss among auto
rickshaw drivers of Dhaka city and found that 30.1% had hearing loss and 32.7% had
V-notch, while 54.9% had normal audiogram findings. Hearing losses are reportedly
common among auto rickshaw drivers, and that the risk of developing hearing loss
increases with increase in duration of job.
(Source: Compendium of Environment Statistics of Bangladesh 2009).
Drainage and Water Logging
-
-
-
Water logging is increasing due to excessive rainfall during the monsoon period. Due
to improper drainage system and inefficient management, the excess water is causing
water logging.
Due to rapid urbanization with unplanned construction, most of the storm water
drainage have been encroached, filled up, diverted and caused obstruction to the
smooth flow of water to the rivers, creating severe water logging in the city every year
during monsoon incurring huge loss in terms of adverse social, physical, economic
and environmental costs.
Dhaka city is hurtling towards an ecological disaster due to the gradual destruction of
the natural drainage and water bodies and negligence to establish an effective
management of urban hydraulic system.
19
Source: Natural Drainage System and Water Logging in Dhaka: Measures to address the
Problems by Qazi Azizul Mowla and Mohammad Saiful Islam (Journal of Bangladesh
Institute of Planners, Vol 6, December 2013)
5. Urban Economy’s Built-in Advantage and Public Policy Inadequacy
This section offers explanations, i.e., reasons and causes (why part of the paper), of the
observed
facts, denoted as stylized and not-s-stylized, (what part), of universal nature and
more glaringly experienced in Bangladesh as presented above. The theoretical explanation
part is comprised of (i) eight powerful economic reasons that are shown to place the urbanindustrial (U-I) economy, vis-à-vis the rural-agricultural (R-A) economy, in an inherent
advantage and (ii) five public policy failures to take necessary actions to correct the
imbalances between the rural-urban economies.
5.1 Built-in Advantage of Urban-Industrial Economy: Eight Economic Reasons
An illustration is made using a descriptive model in which an economy is seen to be broadly
divided specially as: (a) Rural-urban (R-U) and sectorally as rural-agricultural (R-A); and (b)
Urban-industrial (U-I). The R-A sector is assumed to produce mostly rural-agricultural goods
(i.e., nonurban goods), and the U-I sector is assumed to produce urban-industrial goods (i.e.,
urban goods).
As a R-A economy becomes commercialized with the expansion of an exchange economy,
the former becomes closely linked with the U-I sector of the national (even global) economy.
Once an exchange between these two dualistic sectors begins, the nature of the respective
sector’s products, demand and supply conditions, degree of competitions, production
conditions (primarily determined by the level of technology and capital accumulation), and
the terms of trade (T/T) would basically determine each sector’s relative gains from this
exchange. These links generate very powerful economic stimuli when a market economy is in
full play. The economics of the relationship between the R-A and U-I sectors can be
explained by the eight very basic economic concepts. To be precise, urban-industrial goods
vis-à-vis rural-agricultural goods, enjoy advantages because of their:
-
Higher income elasticity of demand
Higher price elasticity demand
Operation in monopolistically competitive market
Wider scope to benefit from scale economies
Greater scope to benefit from external or agglomeration economies
Favorable terms of trade
Strength in capital accumulation
Technological innovativeness.
How each of these eight economic phenomena generates advantage for the U-I sector and
disadvantage for the R-A sector is explained briefly below.
Higher Income Elasticity of Demand
It is generally observed that as income increases, people tend to spend more of their income
for urban goods, i.e., the income elasticity of demand for urban goods, produced by the U-I
sector, is higher than the income elasticity of demand for the nonurban goods, produced by
the R-A sector. Implication of this is that investors would consider investment for on-urban
20
goods as profitable as they would for urban goods. Consequently human and material
resources tend to flow more to the urban-industrial sector.
Higher Price Elasticity of Demand of Urban-Industrial Goods
The price elasticity of demand is greater for urban goods compared to the price elasticity of
demand for nonurban goods that are produced by the R-A sector. This is because nonurban
goods are mostly of the basic-needs type and consumers tend to spend a fixed proportion of
their income on these goods. In contrast, so much more money can be made by lowering
urban-industrial goods because who could not afford it before they will buy when they find
such goods are available at a discount prices. Such contrasting consumer response to price
fall leads to more resource flow to U-I sector because investment here is more profitable.
Monopolistically Competitive Market of Urban-Industrial Goods
A scrutiny of the degree of competition that prevails in the production and, sales of urban
goods vis-a-vis nonurban goods also suggests the intrinsic advantages of the U-I sector.
Compared to a limited number of producers dominating most U-I production, numerous
producers are engaged in most R-A sector productions. Also, the kinds of goods produced by
the latter are homogeneous, whereas those of the U-I sector are differentiated.
Wider Scope to Benefit from Scale Economies
Economies of scale are not limited to the sphere of U-I production indeed R-A production
can also gain from larger-sized farms, the possibility of gaining more from increasingly larger
scales and mass production is more obvious in the U-I than R-A production. As a result, per
unit cost of urban goods can be reduced and greater profits can be accrued from their
production, whereas the limited scope of gain from such economies by the R-A sector are a
key supply side constraint that lowers the profitability of nonurban products.This againresults
in resource flow more to the U-I sector.
External Economies
External economies or gains that accrue to producers as a result of agglomeration, i.e., close
proximity of business locations, are inherent to the sector for locational reasons. The question
is where is the greater scope of gain from external economies? It is quite obvious that the U-I
sector, by virtue agglomerated locations, gains more from external economies and reduced
cost, which in turn offer greater scope to earning increased profits from urban goods
production. In contrast, the R-A sector's economic activities are sparsely located and
experience little advantage in terms of external economies. This another supply side
phenomenon that makes it possible to lower cost, hence, more profit. More investment will
be thus in U-I sector.
Terms of Trade
Terms of trade denotes the ratio between prices of nonurban goods that are produced and
sold by the R -A sector and the prices of urban goods produced and sold by the U-I sector.
One reason of unfavorable terms of trade for non-urban goods is the fact that these goods are
perishable. Similar to the well-known situation of unfavourable terms of trade between
developed countries’ export of manufactured products and developing countries’ export of
primary products, nonurban goods of the R-A sector vis-à-vis urban goods of the U-I sector
are in unfavorable terms of trade. Consequently, resource flow is more towards the U-I sector
because of higher profitability from investment in this sector.
21
Capital Accumulation
Capital accumulation takes place through additions to capital stock. Generation of surplus
and its reinvestment by productive agents are the essential means through which capital
accumulation takes place. Because of the generally low profitability of R-A production and
lower generation of surplus from such production, the rate of reinvestment from additions to
capital stock, is much more limited in the R- A sector. Thus, capital accumulation in the rural
economy in general, and the R-A sector in particular, is very limited.
Technological Progress/Innovations
It is a common knowledge that all modern innovations take place in the U-I sector. Even the
water-fertilizer-seeds technology that has revolutionized R-A production in many countries
was innovated by the U-I sector and economy. Perhaps technology is the single most
important factor that places the U-I sector in a more advantageous position compared to the
R-A sector. As a result, unlimited amount of investment has been taking place in the U-I
sector, starving the R-A sector of essential infrastructure as well as for essential services.
In brief, the above exposition explains the economic and market forces that define the
unequal exchange relationships between the rural-agricultural and urban-industrial
economies, which can be extrapolated for the economic relationship between developed and
developing countries too. Each of the eight points leads to same outcome: an economic
advantage of the U-I sector and an economic disadvantage for the R-A sector. No wonder for
ages the rural-urban disparity has remained well and alive.
5.1.1 Public Policy Inadequacy Giving Rise to Unsustainable Urbanization Pattern
Urban economy’s built-in advantage is not new any new knowledge. Even public policy
required for reducing U-I sector’s advantage and reducing R-I sector’s disadvantage is also
not any new knowledge. Even twenty-five years ago when this author published a journal
paper (Amin, 1994/95) on this issue with specification of policy corresponding to each
economic reason, the suggested policies were not any new knowledge as such9 . For the sake
of convenience of the readers, those policies are summed up below.
Table 15: Policy Measures to Reduce Rural-Urban Imbalances Corresponding to their
Economic Causes
Economic Reason of
Rural-Urban Disparity
1. Higher income
elasticity of demand
2. Higher price elasticity
demand
Remedial Policy Measure Corresponding to Each Reason
and Specific to
Rural Economy
Urban Economy
Increasing urban
Raising the consciousness of the
industrial content of
people for natural products
nonurban goods
environment
Monitoring and control
Higher taxes for production of
of nonurban goods
urban goods
production (supply
restriction though
information)
9
In fact, one reviewer of the paper pointed this out but appreciated the author for systematic presentation of
economic reasons and specifying the policies corresponding each reason.
22
Economic Reason of
Rural-Urban Disparity
3. Operation in
monopolistically
competitive market
4. Wider scope to benefit
from scale economies
5. Greater scope to
benefit from external
or agglomeration
economies
6. Favorable terms of
trade
7. Strength in capital
accumulation
8. Technological
innovativeness.
Remedial Policy Measure Corresponding to Each Reason
and Specific to
Rural Economy
Urban Economy
Producers’ cooperatives/ Anti-trust/combines/monopolies
cartels for enhancing
act to curtail monopoly practices
market power
Producers’ cooperatives
Higher taxes on goods with vast
to increase size of
economics of scale possible
production
Government investment
Taxes on urban production for
in rural infrastructure
investment in rural and urban
building
infrastructure
Storage facilities,
consumption loans to
stop distress selling
Subsidization of capital
accumulation in the rural
areas
Reduction of monopoly power ,
taxes
Policies for changing the
traditional value system
Providing incentives for more
linkages with the rural areas
Disincentives for capital
accumulation in the urban areas,
especially in the primate city
Note: For brevity, these are referred to later as “urban” and “nonurban” goods, respectively
Source: Adopted from Amin (1994/95, p. 48-49).
5.2 Urban Economy’s Advantage in Infrastructure and Services Provisioning
To make things worse, the comparative advantage of U-I sector vis-a-vis the R-I sector has
not translated into benefits for the residents of urban economy either. Rather the on-going
economic growth and development process has given rise to issues such as urban livability
and sustainability. This is ironic not just because of the eight economic reasons that place U-I
sector in an advantage but more so because urban economy has also advantage in
provisioning urban environmental infrastructure and services (UE&IS) compared to installing
those in rural areas. This advantage is associated with falling unit cost in provisioning
UEI&S. Yet, making cities particularly Dhaka, functional, productive and livable is so much
remote. This section highlights the public policy inadequacy as the cause of not benefiting
from the built-in advantage in provisioning UEI&S.
5.2.1 Policy Inadequacy10
As a developing country, it is of course unrealistic to expect that Bangladesh would succeed
that well in the sphere of public policy and regulation. But doing it better for (i) increasing
productive employment to reduce poverty, (ii) reducing income inequalities& rural-urban
imbalances, (iii) making urbanization sustainable, (iv) making Dhaka functional, productive
and livable has become most urgent. Drawing a parallel with the challenge the country faced
10
Heavily drawn from author’s policy paper, “Centrality of Public Policy in the Market Economy: A Spotlight on
Social Ills and Environmental Rot in Bangladesh”, Journal Of Society, Economy And Development, Vol. 1, No. 1,
September 2012:1-15.
23
at the time of its emergence, denoted as “Bangladesh is a test case of development”, today’s
challenge appears as, “Bangladesh is a test case of urban development”. Since the country has
passed the first test, it bears all potential to pass the present test of urban survival.
Urban Environmental Infrastructure and Service Inadequacy
The country is faced with urban sustainability test, particularly with regard to Dhaka, for a
variety of reasons. Yet most important cause of the problems that have ensued has to do with
shortage of public utilities (i.e., water supply, power supply, drainage sewerage system),
public transports (from as basic as pedestrian ways to as advanced as underground rails), and
public goods (i.e., open space green space, water bodies, etc.). Other than these basic
infrastructures, inadequate urban environmental structure and services (UEI&S) such as
wastewater treatment system, effluent treatment plant, has been rendering the rivers and
water bodies, the life-line of Dhaka and the country as a whole, to a state from which those
will no more be able to support the life-supporting ecosystem.
Dhaka’s livability issue has arisen for lack of UEI&S in general for the city as a whole and
more so because of the sufferings of the city’s slum dwellers, squatters, pavement dwellers,
rickshaw drivers, maids, tokais or young boys and girls trying to make a living by selling odd
items in the streets or even the beggars who beg for being handicapped or not being able to
find any other way to live. The quality of life in Dhaka has however deteriorated for all
income groups and social classes, irrespective of increase. Citizens live in degraded
neighborhoods, arising from
lack drainage and sewerage lines, water logging, wastewater
draining to land and water bodies, indiscriminate littering and dumping and absence of public
toilets. Residents are in danger while crossing road or walking through the limited footpaths,
underpasses and overpasses that the city has. Perhaps the only reason that the city is still
functioning, albeit with huge loss of time and productivity, has to do with human beings’
capacity to endure sufferings.
Public Utilities, Public Goods and Public Transport Inadequacy
For good economic reasons, economists have emphasized the role of government for
increasing the supply of public utilities, public transport, public goods and amenities such as
park and open space. There is, however, nothing inherently wrong for the private sector to
take a bigger role in supplying such infrastructure. Indeed the issue is not ownership. The
issue is to take advantage of scale economies, i.e., fall in per unit cost arising from large-scale
operations in providing these services. For gaining from such built-in advantage, huge
investment requirement is however a major barrier. For overcoming this barrier, adopting
financial scheme with cost recovery provision is essential.
Inadequate supply of such vital infrastructures not only affects productivity and quality of
living but also gives rise to the spread of corruption and rent-seeking behavior. In the
absence of adequate supply of public infrastructure, individuals engage in arranging basic
infrastructure services on their own. This has created a situation of individually or privately
owned.
Individually owning and arranging such infrastructure services, housing and public amenities
are hugely costly. It does not make economic sense because scale and agglomeration
economy benefits cannot be accrued in such individual scales of arranging services. Because
of huge costs associated with individual ownership of such vital infrastructure services, this
situation gives rise to widespread practice of corruptive means to acquire money. In the
24
presence of adequate supply of these vital services, the individuals would be paying a
monthly rate or a service fee per each unit of service use, from their monthly salary or
earning. In such situation, there is a rush for money making by foul means. Monthly salary or
earnings based expenditures for such services are normal practice all over the world. It has
also been the case in our societies until public utility and transport service shortages became
acute that has led the individuals to privately arrange these services at a much higher cost
arising from small-scale diseconomy, associated with individual scale of such service
provisioning.
Absence of adequate public transport modes, particularly of the mass transit kind or reliable
and comfortable bus service, is giving rise to reliance on private car. Increase in car in the
streets is further slowing down the pace of mobility. The long expected MRT; that also not of
underground rail kind is still being waited. Experts are of the view that cities with two million
population need underground rail. Dhaka city’s population reached two million plus mark in
1974. Concerted action for improving pedestrian ways is also not in sight. For pedestrian
ways no external funding or technology is necessary. There seems to be no realization that
pedestrian ways are pre-requisite to MRT or subway system in that the walkways are to be
relied upon during disruption of the existing transport system during construction period of
MRT. This situation thus typifies what happens when a government adopts a ‘do nothing’
approach, leaving the problem to be solved by market mechanism or not according necessary
priority to such urgent public needs.
Drive for Attracting Investment with Cost Recovery Mechanisms Missing
In today’s globalized world, the most mobile factor of production is capital. Because of
decline in the rate of profit in the high income countries arising from rising labor and
environmental protection costs, capital from these countries move to labor surplus and middle
class growing countries. As a result, FDI originating countries benefit from low wage, rate on
the supply side, and growing consumer market, on the demand side, in the FDI recipient
countries. This guarantees higher profit than what is usually possible from an investment in
their domestic economies. Unfortunately, Bangladesh has not been able to attract enough
foreign direct investment (FDI), particularly for building the environmental infrastructures 11
(i.e. water supply, power generation, drainage and sewage lines, mass transit, wastewater
treatment facilities, pedestrian ways) that the country urgently needs for economic growth as
well as for protection of local/urban environment. Domestic private investment (DPI) also
needs to be attracted for investing in public utilities, public goods and public transport.
Since the basic urban services have traditionally been provided by the public sector including
the municipalities and service agencies, cost recovery mechanism has seldom been built-in in
supplying these services. As a result, the culture of payment for the public sector provided
services has not grown. This constrains pricing for cost recovery, without which no
investment can be expected, ensured or sustained. Government pronouncements on publicprivate partnership (PPP) are too general to attract private investment of domestic or foreign
origin. Also, the involvement of the public sector is feared by the private sector as a means to
adopt bureaucratic control. Again, the issue is not whether such services are to be supplied by
11 See,
Minh and Amin (2002) for identification of barriers to attract FDI to build urban environmental infrastructure, based on a Hanoi case
study.
25
the public or private sector or PPP, the issue is if investment is adequate for hugely costly
utilities, transport and environmental infrastructures. To succeed in attracting the huge
amount of capital required for investment in such basic infrastructures, cost recovery
mechanisms need to be built-in in the investment scheme. Even the municipalities can do
this as long as the cost recovery is not sacrificed for political convenience. In this regard, the
government has set a bad precedence in cost recovery by ‘quick rental’ scheme in power
generation which has entailed high cost because of basic economic logic of large-scale
economy has been compromised. This has been a disservice to the cause of cost recovery
because the cost has become extremely high for choosing an economically unsound option of
generating electricity.
Policy Measures Missing as a Package for Influence Human Behaviour
Much of what is noted of policy dimension is ‘text-book’ knowledge. What it means is that
such theories and their policy implications are not only widely known but these are also
commonly used for environmental protection and management almost in all countries of the
world, with varying degrees of success. Unfortunately, instead of reliance on the timehonored theory-based public policy, the tendency is to rely on respective pet ideas on the part
of those who matter most in policy formulation and implementation.
For example, regulatory, economic and persuasive measures are widely used for
environmental protection and management. Yet many would not know or recall the material
basis of these three sets of policy measures/instruments. It is important to remember that the
regulatory measures are expected to work because there is ‘fear’ element in human mind. If
laws, rules or regulations are violated, prosecution may be imminent. Thus, everyone would
restrain and behave in a way so that there will be no charge for violation of law or threat of
prosecution. Similarly, economic measures are expected to work since ‘economic interest’ is
also very much in-built in human mind. Thus, an economic measure, in the form of incentive
(subsidy) or disincentive (pollution tax), is expected to work when used for an environmental
purpose. Fortunately, human mind is not devoid of ‘moral and ethical sense’. Thus,
persuasive measures, through education and awareness campaign and information
dissemination, can alert citizens to be ethical in their social and environmental behavior and
practices. Figure 1 shows the three elements of human mind -- fear, economic interest and
moral/ethical sense – as basis of regulatory, economic and persuasive instruments
Figure 5: Human Mind’s Three Elements as Basis of Environmental Policy Instruments
Source: Based on ideas contained in Amin, et al (2006, pp.86-88). Also see, Amin (2009, p.29).
26
If such objective or material basis of policy instruments is not borne in mind, policy design
may not be appropriate. For example, if only economic measures are used for influencing
citizen’s behavior, the outcome will be non-optimal. Because the need and scope of targeting
the fear element by CAC kind regulatory measures (e.g., setting mandatory environmental
standards) will be left out; so will be the case of appealing to the moral and ethical sense of
human mind by persuasive measures. Omission of any set of measures will produce nonoptimal result. For optimal outcome, it is thus crucial that all three sets of measures are used
together as a package. Indeed, empirical studies show that in many instances policymakers
use one set or the other, not all three sets together. Sometime they start with only one set of
instruments (say, regulatory) and add another set (say, economic) subsequently when the
outcome from the first set’s use is assessed to be not good enough. Question is why is this
partial or piecemeal approach? In fact, one global study on use of policy instruments used for
reducing car use, prepared for UNEP, show that in many instances outcome from use of
policy instruments did not yield desired result for not using all three sets of instruments. In
contrast, a better outcome was indeed attained in the instances the countries/cities used all
three sets of instruments simultaneously (Amin, 2009 and Amin et al 2006, pp.92-93). If the
policymakers were mindful of the basis of these instruments, as explained above by referring
to human mind’s three elements, they would not adopt a partial or piecemeal approach in the
first instance. Because they would have then known that behavioral change require use of all
three sets of policy measures because human mind’s all three elements need to be targeted for
optimal result.
27
6. Concluding Observations
This paper has analyzed two major themes concerning urban economy. In the first instance, it
offers economic explanations of urban economy’s economic advantage vis-à-vis its rural
counterpart. It shows that powerful economic and market forces create a built-in advantage
for the urban economy at the cost of rural economy. Public policy implications of each
economic reason have also been presented in details. Those can be summed up in four points
as follows:
-
-
-
-
Infusion of urban-industrial content into rural-agricultural production, e.g., by
promoting agro-processing industries. It can be as simple as transformation of
perishable farm produce and fruits such as tomatoes, pineapples, mangoes and
potatoes, etc. to juice and into other appropriate forms.
Promotion of competition in the U-I sector by facilitating (i) entry of potential
entrants, to reduce monopolistic/oligopolistic market conditions in the U-I sector, e.g.,
by removing all entry barriers; and (ii) establishment of producer cooperatives in the
R-I sector, e.g., by organizing producer cooperatives, for it to acquire some degree of
market power.
Active and effective use of taxation and subsidization instruments to reduce
production or services with negative externalities, which are more widespread in the
U-I sector, and to expand production or services with positive externalities, which are
more commonplace in the R-I sector.
Incentives for capital accumulation in the R-I sector and removing all ‘urban bias
policy’ so that more investment takes place for infrastructure building for the R-I
sector.
Public policies in the above four directions have been in place, in varying degrees with
limited success. It goes without saying that the applied policies have not succeeded in
reversing the trend. It can however be speculated that one silver-lining is signs of change in
taste and preference for natural goods, natural living and the natural environment. This may
alter all the advantage that U-I sector has enjoyed for ages.
The paper’s second theme has been on showing that the urban economy has also an
advantage in solving its problems which in many instances arise from shortage of urban
environmental infrastructure and services. This shortage should not have been long-lasting
since in the investment and technology is not difficult to attract for building the necessary
infrastructure. If cost recovery mechanisms are built-in in investment schemes, huge capital
cost requirement for UEI&S can be met and thereby cities can be made functional, productive
and livable too. In this regard, the policy priority thus ought to be according highest priority
to the supply of (i) public utilities, public goods and public transports and (ii) construction of
urban environmental infrastructure and services. Policy measures required for this purpose
would include:
- Instituting cost recovery measure for attracting huge amount capital required for
supplying public utilities, public goods and public transports; and urban
environmental infrastructure and services;
- Promotion of a culture of payment for access to such infrastructure and services;
- Pricing of services need to be theoretically sound and practically feasible;
- Adoption of a correspondence between a service received and payment made for it.
28
As it stands, in the absence of adequate and appropriate public policy and actions, urban
economy advantage has become doubly detrimental. In the first instance, it hurts the rural
economy and then it hurts itself too. On the one hand, the rural economy continues to fall
behind relative to the urban economy. On the other hand, urban economy’s profitability is not
translated into better living and environment for inadequate of infrastructure and services.
It is to be noted that physical infrastructure can influence human behavior (e.g., availability
of two waste bins instead of one can induce waste separation; availability of safe pedestrian
ways would lead more walking and mass transit would lead to discard reliance of private
automobile) towards sustainable development practices. Public policy often does not generate
expected or optimal result for adoption of a piecemeal or partial approach. As illustrated
before, public policy needs to be a package of regulatory, economic and persuasive measures
for those to have optimal outcome. This is important because motivating to desirable social,
economic and environmentally sound behavioral norm calls for making use of human mind’s
economic interest, fear and also the moral and ethical sense.
29
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