Ziaur Rahman, a Global Pioneer in Economic Liberalization

It is undeniable that Bangladesh's economic development since independence has been driven by private sector-led growth. The private sector now employs over 95% of all working citizens. No sector embodies the sectoral transformation in Bangladesh more than the growth of industry and manufacturing, which grew from 6% of the total employed to nearly 25% by the 2020s.

Examining this transformation, it is hard to imagine that, after independence, the economic growth model adopted by government planners was radically different -- a plan that envisioned a dominant role for the public sector and a very constrained private sector. It was the brief presidency of Ziaur Rahman that dramatically altered the country's growth orientation, placing the private sector at the forefront. To appreciate the pivotal role of his regime, it is essential to understand the economic policy environment he inherited.

After independence in 1971, the newly formed government nationalized all large and medium-sized industries, banks, and other commercial institutions. 725 industries were nationalized, making the government responsible for well over 90 percent of all industrial assets, whereas in 1960, only 30 percent of industrial assets in East Pakistan were in government hands.

The reasons given for nationalization were that industrial assets were abandoned by owners from both West and East Pakistan, and there was a severe lack of both expertise and capital in the private sector to operate these units. However, the main reason was clearly ideological.

The new regime sought a socialist, state-led economy, as clearly stated in its manifestos and pledges to the public. The nationalization policy actively sought to constrain the private sector; private investment in industries was permitted only up to a ridiculously small amount of 25 lakh taka, and the government had the right to nationalize even the few industries left in private hands. Foreign direct investment and joint ventures were prohibited in the private sector.

However, we need to understand the economic policy of the Mujib government within the context of prevailing economic development thinking. In the 1960s and 70s, socialist state-led economic development was the dominant policy guide for developing countries. The East Asian economic miracle was still in its infancy; North Korea’s GDP per capita was significantly higher than South Korea's! The Soviet Union’s socialist command economy was the model that everyone looked up to.

Paul Samuelson, one of the most famous economists of the 20th century, whose textbook has been studied by university students for nearly seventy years, was so impressed with the USSR’s investment-led economy over the USA’s consumption-led economy that he predicted in his 1960 textbook that the USSR’s economy would overtake the USA by 1990. He kept pushing back the overtaking time with each subsequent edition of the textbook until 1980!

However, Bangladesh lacked the state capacity to discipline the private sector or the ideological purity necessary for national exertion and growth, similar to the Soviet states. All the problems that we identify as our ills in the public sector, corruption, nepotism, lack of productivity, politicization, overstaffing, bureaucratic red tape, and inefficiency, were present at that time to an equal or even greater extent. Our industrial sector became a burden to the economy rather than a driver of growth. It became a massive drain on already very meagre public finance. State-led development for Bangladesh was a road to state failure and ruination.

Right after Ziaur Rahman ascended to power in 1975, a radically new direction for economic policy was set. The revised Industrial Policy of December 1975 announced that, henceforth, the private sector would be at the forefront of economic development, and disinvestment from the public sector would begin.

The private investment ceiling was raised to 10 crore takas from 3 crores and then altogether dispensed with in 1978. Private access to credit and capital financing was expanded and facilitated through the establishment of the Investment Corporation of Bangladesh (ICB), and the Dhaka Stock Exchange (DSE) was reactivated for the first time since 1971. The 1975 policy permitted foreign and domestic ownership of minority stakes in public sector enterprises, which were later changed to majority stakes in 1978. Export Processing Zones were set up to attract foreign investment in export industries and processing.

The regime began the process of disinvestment and denationalization, a process that later became known as privatization, of abandoned and previously nationalized economic enterprises. The constitution was amended to facilitate the process. The guiding vision was the co-existence of a thriving private sector with critical state-owned enterprises and sectors.

Between 1975 and 1982, a total of 362 units were sold to private owners of which 255 were state-owned enterprises. These changes showed immediate results. While the growth of the manufacturing sector was 2.5 percent per annum during the first five-year plan (1973-78), it rose sharply to 6.3 percent in the two-year plan period (1978-80), a level of growth not attained again until the 1990s.

A major impetus for these liberalization and privatization programs was the conditions laid down by international donors and financing organizations, such as the World Bank and the IMF. Financing from structural adjustment programs and credit underwriting was a significant source of the loans provided to private sector enterprises.

It would be incorrect, however, to infer that the principal push for liberalization and privatization initiated by Zia’s administration stemmed from external pressure rather than internal motivation. Ziaur Rahman emphasized the critical role of private sector in economic development from the very beginning.

The 19-point program announced in May 1977, which was BNP’s main political charter until the 31-point program was announced a few years ago, clearly promised centrality of private sector and increased liberalization as one of BNP’s guiding ethos. That the drive for Zia’s liberalization was more internal than external is evidenced by liberalization in all other areas of governance, politics, media, culture and society, etc.

However, Ziaur Rahman was not a neoliberal prophet before the term neoliberalism became fashionable in Third World politics. He very much saw a large role for the state in the economic development and provision of critical service in a poor country and therefore believed in a mixed  economy. He was also seeing the economic dynamism in East Asian countries coming from private sector under development-oriented regimes.

Politically he was also thinking that a growing private sector could be an important base for his new political platform, the BNP. Administratively, Zia was helped by several talented, visionary, and pragmatic bureaucrats, technocrats, and political operatives who also saw that the path of Bangladesh’s developmental success lay through liberalization, deregulation, and support of the private sector.

People like  Dr. M.N. Huda, S.M. Shafiul Azam, Moudud Ahmed, and many others. It is, however, Ziaur Rahman’s own responsibility and credit as the chief executive that he recognized talented experts from diverse political and professional backgrounds and provided them with support and freedom to pursue bold policies.

A clear example of Ziaur Rahman’s hands-on approach to the promotion of private sector-led economic growth is the support given to the birth and infancy of the ready-made garments export industry. The account of the birth of the industry comprising US Multi-Fibre Agreement, Daewoo of South Korea seeking new foreign manufacturing facilities abroad, Mr. Noorul Quader and Desh Garments taking up the mantle as the pioneer in garments manufacturing in Bangladesh in collaboration with Daewoo is very widely known.

Less well known is that Ziaur Rahman’s government provided direct support for the new venture. Mushtaq Khan wrote in a 2013 paper that: "In fact, political support at the highest level ensured that relatively critical institutional innovations were quickly introduced. Daewoo would probably not have been willing to take the risk of participating in a Bangladeshi collaboration without a few credible commitments from the president, Ziaur Rahman."

Also less appreciated is the fact that it was unusual for a poor country in the global South to embark on liberalization and privatization in the 1970s in such a bold manner. Margaret Thatcher had not yet made privatization famous, nor had Ronald Reagan liberalization. Those came in the early 1980s.

Bangladesh was one of the very few countries in the world that began experimenting with liberalization and privatization in the 1970s. Economic literature of the 1980s often singled out Bangladesh and Chile as significant pioneers of the privatization wave that started at that time and gained wider acceptance throughout the world with each passing year.

Bold pragmatism was a hallmark of Zia’s presidency, as it was on that fateful day of March 26, 1971, when he sparked off our Liberation War with the proclamation to his unit troops and officers: "We revolt."