In depressing times like these, Shakya offers a number of reasons to remain optimistic
Trying to grasp the multitude of problems that our economy faces is nearly an impossible task. The roots of these problems are all intricately linked, leading to multiple constraints on growth. In order to track the sources of these constraints, it might be helpful to go back to the time when Prithivi Narayan Shah spearheaded the unification campaign and look at how political, social, and economic lives were designed to facilitate the status-quo.
In his new book Unleashing Nepal: Past, Present and Future of the Economy, Sujeev Shakya, a business executive who writes the popular column Arthabeed in the Nepali Times, not only discusses economic and social issues from a historical perspective, but also examines the present economic climate and proposes ambitious reform agendas to unleash the potential of the economy.
Shakya explores the origins, causes, and consequences of the tumultuous economy and offers recommendations based on the centrist economic model, which he calls “capitalist welfare state”. According to this model, the state takes care of welfare related issues and regulates the market, while leaving the remainder of economic activities in the hands of the private sector. He sees the Nepali youth as the most likely candidates to steer Nepal into an era of high productivity, efficiency, and growth.
The most interesting part of the book is the discussion on how the economy was kept in isolation with a protectionist mindset before 1950. It led to preservation of the status quo, severely stagnating economic growth and depriving millions of people from rising above the poverty line. In the name of land reform, the Shah kings and the Rana rulers — who presumed that the economy belonged to them and that the citizens unreservedly served for their interests — arbitrarily distributed land for their own gain.
Liberal economic policies never became the main agenda of the Shahs, the Ranas, and the political parties. This, along with the lack of favorable social and institutional conditions, kept capitalism away from the economy. The rise of militant youth wings and their disruptive activities in industrial sites further distanced investors and entrepreneurs, costing low income people their jobs and the much-needed revenue to fund development and employment programmes.
Shakya argues that given the level of political interference, it is understandable that the public sector did not deliver on its promises. However, an indigestible fact is that the private sector also failed to live up to its promises. It was driven by the level of concessions extracted from bureaucrats — often by paying bribes — and special treatment in markets. He contends that value addition, productivity, and efficiency were not the main variables of their business equation. A case in point is the fate of beleaguered garment and textile industry after the end of Multi-Fiber Agreement (MFA) of 2005.
Shakya also blames the aid industry for instituting a “business of development”. He argues that the aid industry, which has already spent over US$ 15 billion in four decades, has not only failed to deliver intended results, but skewed the human resource distribution. The great minds are drawn to the aid industry primarily because of high wages with respect to the one prevalent in public and private sector. Instead of creating a new model based on local condition, they ended up fitting local data with an alien model. Consequently, they produced more reports (approximately 270,000 in the past eighteen years) than results. He also highlights success stories such as community forestry and biogas programs that were funded by donors.
Policymakers and politicians should seriously consider Shakya’s six reform agendas (land, tax, capital market, financial sector, labour, and fiscal) that will potentially help unleash the latent potential of the economy. The underlying themes are liberalization with strong oversight and regulation; promotion of incentives instead of corruption; and creation of a system where value-addition is paramount to yes-man chakari and jagire mentality. He asserts that attaining economies of scale in agro-based, hydropower, infrastructure, and tourism industries must be explored.
Shakya recommends that the private sector be ambitious; the government be pragmatic; and the development community be more supportive in aiding projects that would enhance efficiency and productivity. Furthermore, galvanising the youths’ energy and guiding them in the right direction should become Nepal’s economic focus. He advocates that the education sector reform be consistent with the demand of the globalising world, independent of politics, and free from the clutches of militant trade unions.
The past and present states of the economy as outlined in the book are crucial to understand the turbulent economic history. However, sweeping generalisations of the economy without adequate literature reviews and research makes some sections of the book a bit superficial. Comparing Nepali economic issues vis-à-vis Malaysia is hardly appropriate as these countries vastly differ in terms of geography, endowment, culture and mobility of labour across political, social and economic lines. Also, the reforms advocated in Nepal by the Bretton Woods institutions were nowhere close to the Keynesian model. They were more akin to Hayekian and Friedmanite principles. Furthermore, the highest GDP growth rate occurred in 1984 (9.2 percent), not in1994 (7.9 percent).
Despite these minor glitches, Shakya’s book sets out a baseline for people of all age, color, creed, race, ethnicity and political affiliation to see the past, present, and future of the economy in as clear terms as possible. In depressing times like these, Shakya offers plenty of reasons to be optimistic!
(Published in The Kathmandu Post, January 30, 2010)