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  • Writer's pictureSyed Akhtar Mahmood

Creative destruction

A few years ago, when I was living in the Austrian capital, I would often walk past one of its iconic buildings that housed the University of Vienna - it was just a few blocks away from my apartment. One of the many famous students who walked the corridors of the university was the economist Joseph Schumpeter, famous for articulating the concept of 'creative destruction', i.e., destroying something to create something of greater value.

This concept was always relevant for Bangladesh but will become more so as we start preparing for the post covid-19 world. It will not be business as usual. Entire industries may have to be restructured, including the venerable garments industry. No one likes to change, and industrial restructuring is not without its pain. But the pain of holding on to something that may not be viable anymore can be even greater. So, we may need to bite the bullet.

As we do so, lessons from the past may encourage us. Many years ago, we were confronted with the hard choice of what to do with the Adamjee Jute Mills. The world's largest jute mill was a symbol of national pride. But it was also a serious burden on the government's exchequer given the volume of subsidies needed to keep it afloat. The government took the bold decision to close the factory in 2002. It resulted in a job loss of about 26000. This number was huge even after we account for the fact that it included a large number of 'ghost workers', i.e., workers who did not exist but in whose name wages were being paid out every month.

This huge job loss was a matter of concern for understandable reasons. Moreover, for many Bangladeshis, the closure of the world’s largest jute mill, for long the nation’s pride, was almost a national disgrace. Many wondered if this was the harbinger of more deindustrialization to come. The economist, Anu Muhammad, wrote in the Economic and Political Weekly that same year, “Is it only the Adamjee that has gone into history or is it a trend of this economy to become a land of supermarkets destroying potential manufacturing enterprises?”

The answer to Anu Muhammad’s question lies in the chart below.

The hallowed ground where the Adamjee Jute Mills once stood was not converted to a super-market as Anu Muhammad and others may have feared. Instead, the land was used to set up the Adamjee Export Processing Zone which started operating in 2006. Within seven years, i.e., by June 2013, employment in the EPZ crossed the number of jobs lost due to the closure of the jute mill. By June 2019, the latest year for which I have data, employment was 62,200, almost three times the jobs lost when the jute mill closed. The factories in the EPZ are all export-oriented; most are producing garments. Exports in 2018/19 was $0.82 billion, about two percent of the country's total exports that year.

The closure of the Adamjee Jute Mills did not usher in deindustrialization in the country. Instead, it led to the establishment of several efficient export-oriented factories which do not require subsidization to stay afloat and which have already created three times the jobs lost due to Adamjee’s closure. And the story does not end with the Adamjee EPZ. Many of the looms of the Adamjee Jute Mills were later used to set up small jute twinning mills in North Bengal, helping the industry to shift from the traditional product mix of hessian, sacking and carpet-backing cloth towards jute twines which appear to have better market prospects.

This is a good example of creative destruction - letting go of something to create something of greater value. Joseph Schumpeter would have been impressed!

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