Saturday, November 20, 2010

Animal spirits of the Maoist party in Nepal

No, it is not consumer confidence that brings forth investment and prosperity-- referred by JM Keynes as “animal spirits”. I am talking about the real animal destructive spirits of the Maoist party in Nepal. Even after stepping into the political mainstream, they (not only the brainwashed, duped and indoctrinated cadres, but also the political brass) are as unruly as they were during those decade-long days in jungle. Definitely, some habits are hard to go by! The Maoist movement sustains through deception and constant bashing (and intimidation) of the population--“elite and feudal”. The Nepali Maoist party is an epitome of that outdated strategy.

Now, Keynes wondered the mystery of sudden entrepreneurial instincts (animal spirits) that drives innovation and all the goodies (and sometimes bad consequences) that come with it: "the thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death". No amount of political cajoling will revive animal spirits in entrepreneurs. It just happens when entrepreneurs feel that it is the right time. Alas, thanks to the Maoist party’s hostile attitude and policies toward businesses, Nepali people have not seen that time lately.

Robert Shiller explains:

The term "animal spirits," popularized by John Maynard Keynes in his 1936 book "The General Theory of Employment, Interest and Money," is related to consumer or business confidence, but it means more than that. It refers also to the sense of trust we have in each other, our sense of fairness in economic dealings, and our sense of the extent of corruption and bad faith. When animal spirits are on ebb, consumers do not want to spend and businesses do not want to make capital expenditures or hire people.

Well, that is the economic side of animal spirits, which is usually good. We can only hope that Nepali people will experience those spirits very soon.

What the Maoist politicians did yesterday night was the result of the unleashing of real animal/jungle spirits. By preventing (and publicly fighting) the finance minister to announce the budget, they exhibited something that is very uncommon in Nepal’s parliamentary history. (btw, something like that happened in Ukraine’s parliament in April 2010, and in Taiwan as well; but they weren’t related to budget speech).

The Maoist party has been constantly changing positions and commitments despite multiple rounds of meetings and agreements with other parties. After all, what could be the best strategy to politically survive (with deception) than to be fickle to the extreme—divide and rule!  They change their political commitments and positions at the eleventh hour, holding hostage the economic future of the whole nation.

The country would have been a different place in a matter of just few years if the Maoist party had encouraged Keynes’s animal spirits. Alas, that won’t come true because if it did, then the Maoist would run out of reasons to dupe and brainwash the public to sway political tide their way. Instead, what we are getting is the real animal/jungle spirits time and again unleashed by the entire echelon of the Maoist political structure, jeopardizing economy, development, livelihoods, and future of millions of Nepali people who do not conform to the outdated ideology of the Maoist party. Political wrath aside, let me give a taste of how the delayed budget and the Maoist party’s hostility toward any progressive economic activity will hamper our economy:

  • Few economic activities and no new development works. It is already being put in the back burner for a year now. Think of no new roads linking rural villages, no public healthcare, no salary for teachers in public schools, no subsidies and cash transfers to needy ones, dysfunctional local administration (VDCs), and above all pay freeze of government employees.
  • Slowdown in private sector activities. A substantial portion of demand in the private sector comes from government contracts. With delayed budget and no development related activities included in it, private sector will lose demand. This has many consequences. First, many jobs are hinged on the government demand for services from the private sector. They will perish. Second, private sector takes loans to purchase raw materials and other accessories need to meet government demand. Usually, payment occurs after delivery of services demanded by the government. So, with no payment from government due to budget complexities, private sector will not be paid on time. They will in turn likely default on bank loans, dragging down and squeezing the very conduit that funnel money from one sector to another. It will bring the economic activity engine of the nation to a grinding halt.
  • The negative multiplier will potentially be very high. This means that Rs 1 investment will yield less than Rs 1 outcome. It will lead to an inefficient allocation and reallocation of resources.
  • The destructive activities of the Maoist party will create a strike-unemployment cycle. The impact of obstruction and destruction created right now will not end when the “jungle spirits” end. It drags on for quite some time as investors take time to rebuild confidence. Read this blog post to see how much the country bleeds if economy activities are  halted for a day. The jungle spirits of the Maoist party will potentially make Nepali people even more poorer in real terms, encourage brain drain, promote increasing migration to the Gulf countries for labor, erode business confidence, mock rule of law, create shortages… (you put the rest!)
  • There will be dire macroeconomic consequences. Already, our macroeconomic situation is going real bad. Balance of payments is in deficit. Industrial activity is down, exports are declining and imports are surging up. FDI has tanked. Private investment in critical infrastructure is hindered. Investments to relax binding constraints to growth are being blocked. Growth rate has stagnated below four percent. Inflation rate is double-digit. Daily consumable goods are getting expensive day by day. Major construction and rebuilding projects are being taken by political party affiliated organizations. Land price has shot up the ceiling. Donation campaigns are terrorizing business community. Businesses flourish only if they have blessing of the most militant youth wings, trade unions and politicians.
  • I can go on and on. The bottom line: the Maoist party’s activities have pushed development backward, contributed to making macroeconomic situation worse, stymied investment, halted employment opportunities, deadlocked political and economic future of the nation, deprived over 28 million citizens of some of their basic constitutionally and universally guaranteed rights, and basically made our lives worse.
  • When will we see the Maoist party’s “animal/jungle spirits” transform into JM Keynes’s “animal spirits”?