National Professor Mahbub Ullah recently described Bangladesh as a “plunder economy,” arguing that extortion operates as a form of informal taxation that distorts investment and prevents the economy from becoming genuinely productive. His characterisation is provocative, but it raises an even more important question: is Bangladesh primarily suffering from an extortion economy, or has extortion become only one component of a much broader architecture of plunder?
He made the remarks at a seminar titled “Economic Outlook and Emerging Challenges: Priorities for the Coming Days,” jointly organised by the Economic Reporters Forum (ERF) and the Centre for Policy Dialogue (CPD) in Dhaka last week. The distinction he raises matters because extortion is a mechanism of extraction; plunder is a system.
When a trader, transporter, contractor or factory owner must pay chanda (Toll) simply to conduct ordinary business, that is extortion. It resembles taxation because money is extracted as a condition for participating in economic activity. But unlike legitimate taxation, which at least in principle finances roads, schools, healthcare, security and other public goods, extortion produces no corresponding public benefit. It is taxation without representation, accountability or public expenditure.
The economic damage therefore extends far beyond the amount collected. Extortion raises the effective cost of doing business, reduces expected returns on investment and creates uncertainty about future costs. An entrepreneur considering a new factory does not calculate only wages, electricity, interest rates and imported machinery. He must also consider unofficial payments, political connections, regulatory harassment, protection costs and whether the rules governing his investment may suddenly change.
Together, these constitute an invisible extraction premium imposed on productive enterprise.
But an economy becomes a plunder economy when extraction moves beyond street-level transactions and becomes embedded within institutions themselves. Bank loans obtained through political influence and never seriously intended to be repaid are not conventional extortion. Inflated public projects, procurement manipulation, regulatory favoritism, politically allocated contracts, deliberate loan defaults and illicit transfers of capital abroad operate differently. Yet economically they share a common characteristic: wealth is transferred from productive society toward actors possessing privileged access to power.
This is where the distinction between retail and wholesale extraction becomes useful. Extortion is often the retail face of extraction; institutionalised plunder is its wholesale counterpart.
CPD Distinguished Fellow Dr Fahmida Khatun, at the seminer, offered a cautiously more optimistic reading of the present economy, pointing to some improvement in foreign-exchange reserves and inflation while also emphasising continuing weakness in production, investment, employment and energy supply. The distinction between stabilisation and recovery, however, is crucial. Headline inflation, for example, edged down only from 9.16 per cent in June to 8.32 per cent in July-hardly a movement warranting celebration. Foreign-exchange reserves have improved more meaningfully, providing a welcome external buffer, but stronger reserves do not by themselves signify a revival of productive capacity. If the improvement in reserves is driven largely by remittance inflows, it says little about domestic productive recovery: remittances originate abroad, not from an expansion of productive activity within Bangladesh.
Indeed, the accompanying indicators tell the more consequential story. Industrial output contracted by 0.28 per cent, GDP growth fell to 2.22 per cent, private investment remained below 22 per cent of GDP, private-sector credit growth sank to 4.47 per cent, and non-performing loans reached 32.26 per cent of total lending. These are not the fingerprints of a structurally recovering economy. They suggest that a degree of macroeconomic stabilisation may be occurring around the edges while the productive core remains profoundly fragile.
The financial-sector numbers are particularly disturbing. Non-performing loans reached Tk 6.06 trillion at the end of June. Political influence and weak governance have been identified among the causes, while earlier concealment of bad loans suggests that the deterioration did not arise overnight.
Placed side by side, these statistics reveal something deeper. On one side stands weak productive investment. On the other stands an extraordinary accumulation of impaired financial assets. The issue is therefore not simply that Bangladesh lacks capital. The more troubling possibility is that too much capital has been allocated, diverted or trapped in ways that fail to create productive capacity.
That is the essence of the plunder-economy proposition.
A productive economy rewards those who create value. A rent-seeking economy rewards those who obtain privileged access. An extortion economy charges citizens for permission to conduct ordinary economic activity. A plunder economy goes further: political, administrative and financial power itself becomes convertible into private economic gain.
These processes should not be analysed separately. Bangladesh’s predicament is better understood as a multidimensional matrix in which extortion, banking weakness, political patronage, regulatory discretion, corruption, energy shortages, capital flight and weak investment interact with one another.
Consider the entrepreneur facing unreliable gas supplies. Businesses report that diesel-based production can cost nearly four times as much as gas-based production. Add high financing costs, bureaucratic uncertainty and informal payments, and the expected return from expanding productive capacity falls further. Some entrepreneurs postpone investment. Others shift capital toward land, trade, financial assets or foreign destinations. The productive base consequently weakens.
The process becomes circular. Low investment constrains employment and growth. Weak growth reduces revenue generation. Weak revenue increases government borrowing. Banking-sector weakness makes productive credit more difficult or expensive. Political connections become more valuable precisely because ordinary market mechanisms function poorly. Rent-seeking then becomes more attractive relative to entrepreneurship.
Plunder, therefore, is not merely money being stolen. It alters the incentive structure of the economy, and that may ultimately be its most damaging consequence.
Every economic system teaches participants what behaviour it rewards. If innovation, productivity, risk-taking and honest entrepreneurship generate the highest returns, capital moves toward production. If political access, regulatory manipulation, defaulting on bank loans and securing privileged contracts generate higher returns with lower risks, rational actors increasingly move toward extraction. The economy then develops a perverse equilibrium: those capable of producing wealth confront growing obstacles, while those capable of accessing power discover expanding opportunities.
This also explains why arresting extortionists, recovering a few defaulted loans or changing personnel cannot by themselves transform the economy. Such measures may be necessary, but they attack individual manifestations rather than the architecture connecting them.
The transition Professor Mahbub Ullah calls for, from a plunder economy toward a genuine economy of production and development, therefore requires more than controlling chandabaji. It requires changing the relative rewards from production and extraction. Bank lending must become a commercial decision rather than an instrument of political privilege. Public procurement must reward efficiency rather than connections. Regulatory decisions must become predictable. Property and contractual rights must become credible. Political access must cease functioning as an economic asset.
Bangladesh’s problem, therefore, cannot be reduced to whether it has an extortion economy or a plunder economy. The two operate at different levels of the same extraction architecture. Extortion may collect the money at the gate; plunder captures the institution behind the gate.The real economic transition will begin only when producing wealth becomes more profitable, more secure and more respected than extracting it.
Dr Abdullah A Dewan, a former physicist and nuclear engineer at Bangladesh Atomic Energy Commission, is a professor emeritus of economics at Eastern Michigan University, USA. He is also a senior fellow of the Policy Research Institute (PRI), Dhaka.
aadeone@gmail.com
Source: https://thefinancialexpress.com.bd/views/plunder-or-extortion-economy
