The British philosopher Adam Smith laid the foundation of economic theory when he published his book 'An Inquiry into the Nature and Causes of the Wealth of Nations' back in 1776. The book tells the readership about the causes and methods of how nations across the globe accumulate wealth. The book has remained a classic as well as a profoundly influential work in the study of economics, as it examined how nations became wealthy. It advocated the view that by allowing individuals to freely pursue their own self-interest in a free market without governmental regulations, nations were bound to prosper.
Adam Smith emphasised on the division of labour and the natural propensity to trade as the sources of a society's capacity to increase productivity and growth. Instead of the prevailing view that gold and silver were the real wealth and the countries should therefore maximise this wealth by boosting exports and resisting imports, he asserted that a nation's wealth was in fact equivalent to the streams of goods and services that it created. About two and a half centuries have now elapsed since Adam Smith wrote his famous book on the discipline of economics. The theories of economics have undergone massive expansion since then in terms of materials and scope, but its basic tenets as expounded by Adam Smith remains the same even today.
In real life, various factors - both economic and non-economic - determine the growth and wealth of a nation. The non-economic elements include social, political, cultural and ethico-moral attributes. On the other hand, the sources of economic growth based on the managerial perspective may be traced to the 5 Ms: men, material, machine, method and money, which can be re-stated as human resources, natural resources, financial resources, productive facilities, technology and capital. In contrast, both internal and external factors are taken into account by the systems theory for obtaining a fuller and more complete analytical framework to understand growth.
The economic theorists usually limit their search for the sources of economic growth to the four factors of production, viz. land, labour, capital and technology. However, a recent research paper presented at Bangladesh Institute of Development Studies (BIDS) by the economists Tawfiq-e-Elahi Chowdhury BB (PhD in economics from Harvard, currently energy adviser to the prime minister) and Mahir A Rahman (research associate at BIDS) argue that the growth-path of Bangladesh can be explained best by focusing on the family as the centre of decision-making at the micro level, which in turn get translated into an 'aspirational momentum' for growth in the country.
While providing a background to their study, the authors explain that despite limitations in many aspects commonly viewed as essential for development, Bangladesh has experienced a rapid increase in per capita income as well as in other dimensions of economic growth. However, the development trajectory of Bangladesh is often considered to be surprising as well as an exception or outlier. Claiming that most contemporary studies have not looked deeper at the interplay of policy interventions, family-level decision-making, expectations and aspirations that drive economic growth, the authors argue that Bangladesh's growth-path can be explained by focusing on family-centric aspiration as a source of growth.
The authors hypothesise that families decide on future goals or aspirations depending on collective resources - both tangible (income, remittance, land distribution etc.) and intangible (health, education, etc.) ones. When family-level resource endowments increase, new opportunities are generated that enhance the life-cycle-intergenerational income and welfare of families. In contrast, stagnant family-level resource endowments have the opposite effect. However, even with an increase in family resources, sustainability would require other concurrent changes; and uncertainties about the future may hold back progress. Therefore, measures that decrease uncertainties and enhance future payoffs would reinforce the process of transformation. These payoffs are also enhanced through access to information about peer-level successes, thereby motivating the family towards sets of goals that result in recurrent build-up of aspirational momentum. The authors have termed this sequence of change that bears resemblance to an algorithmic process as 'Aspirational Momentum'.
As national level income and welfare are mere aggregations of those existing at the family level, the authors argue that higher aspirational momentum would lead to a faster growth-path in national income or GDP. Thus even countries with relatively lower per capita income may surpass those with higher per capita income if they are leveraged by higher aspirational momentum. The variations in the levels of momentum are related to the distinct growth trajectories observed in different countries, the authors conclude.
The hypothesis of the study was tested by applying the following variables: (1) Child Mortality, as family-level decision-making is initially influenced by infants/children, which in turn is leveraged by improvements in public health; (2) Secondary School Enrolment of Girls (%, gross), as education is a precondition for realising the opportunities that become relevant in the domain of family decision-making; (3) Access to Electricity (% of population), as it is a transformational experience when a community moves out of darkness to light, which facilitates newer opportunities for socio-economic growth and spin-off benefits; (4) Population Density (per square kilometre), as a dense population makes the family learning process including technology diffusion and adoption of best practices easier and faster; (5) and, Investment/GDP Ratio at National Level, as aggregate investment and infrastructure at national level impacts family-level decision-making by enhancing the prospects and expectations of income.
The study attempted a heuristic investigation to establish inter-country validation of family-level decision-making cum changes as the primary driver of socio-economic growth. A regression analysis of a dataset comprising 26 countries (low and middle income) for the years 1996 to 2020 was undertaken, and the presence of any structural breaks in the indicators were also tested. The generalised assumption was homogeneity in families within a country, among countries, and across time.
The findings showed a negative but statistically insignificant impact of child mortality on per capita GDP. But secondary enrolment rate of girls and access to electricity showed a positive and statistically significant impact. Population density also had a positive impact, while investment or gross fixed capital formation had a statistically significant cum positive impact on per capita GDP. There were also some preliminary indications of the presence of structural breaks across the indicators.
The findings of the study supported the view that simultaneous and reinforcing interplay of decisional changes at family-level in health and education - particularly of women, diffusion of technology and aggregate investment worked together like an algorithmic process to create an aspirational momentum that co-determined income and welfare outcomes over time in Bangladesh. The findings are indeed interesting and insightful, and deserve further examination and scrutiny by economic theorists and social scientists alike.
Dr Helal Uddin Ahmed is a retired Additional Secretary, former Editor of Bangladesh Quarterly, and former Fellow of BIDS Advanced Course in Economics
and Quantitative Techniques-1992.
