Friday, March 16, 2012

Extractive political and economic institutions are the reasons why Nepal is poor

So say Daron Acemoglu and James Robinson. The interesting question now is that if extractive political institutions are breeding extractive economic institutions, which is slowing down the country’s march on the path to prosperity, then how does this justify the recent rise in purchasing power of the poor and the decline in equality? How could this happen with such a subdued growth rate? Is growth a sufficient condition for poverty alleviation? Where do remittances fit in all these extractive processes?

Anyway, the thesis that extractive political institutions are hindering growth holds much water because it is precisely due to the lack of political will and the myopic, selfish vision of political leaders that the country is in this miserable state. They extracted the resources to the last bit and tried to create institutions to institutionalize the extraction processes. See this in the hiring and transfers of civil servants, bureaucracy, real estate and housing, agriculture and industrial sectors, education and health sectors, sports, the relationship between politicians, businessmen and goons, and so forth. Despite the talk of inclusive political and economic institutions, they are not implemented in reality. You have reservation quotas and promotion policies in the name of inclusiveness, but all these are snatched by the cronies of political parties and the elites. In Nepal, you have extractive institutions hiding behind the veil of inclusive institutions, which are institutionalizing extractive processes for the benefit of a few and at the cost of many.

Anyway, below is the entire blog post copied from their blog:

Caste and Coercion


Slavery in Nepal was abolished only in 1921. Corvée, forced labor, was made illegal in 1952, but survived. It was only in 2000 that various sorts of coerced and bonded labor finally disappeared.

As late as the early 1990s in the Western parts of Terai, the lowland forest area of Nepal which borders India, many rural people were forced to work 30 to 35 days a year in unpaid labor services. The most important institution in this region was that of Kamaiya labor. Kamaiya was a particular type of servile labor relation where superficially workers and landlords freely entered into contractual relations during the festival of Maghesakranti (first day of the Magha month of the Nepali calendar), which starts on January 14. In practice, the majority of the workers were in debt to various masters, and debts are passed between generations with landlords buying and selling Kamaiya, a situation akin to chattel slavery. In 1992 a government report estimated that there were still about 20,000 Kamaiya households, possibly 116,000 adults and children. The report found that on the average, a Kamaiya worked about 13 hours a day and a male adult worker might receive a daily income of only around 11 Rupees, about 14 US cents. Using the legal minimum wage of 60 rupees for eight-hour work per day, such a worker ought to be getting 102 Rupees for the 13-hour work, about US$1.29, not exactly a fortune but better than 14 cents. Other research by the International Labour Organization using data from Banke district suggests much longer work hours, with a working day for men of as much as 17 hours a day during the heyday of the Kamaiya system.

Figure: Time Use for Bonded Male Laborer

Source: Bhadra, Chandra (2006) “Gender Dynamics in Bonded Labour in Nepal,” International Labour Organization.

All these bonded laborers had something else in common, they were all either Dalits (‘untouchables’) or Janajatis which is a collective term for people speaking Tibetan-Burmese languages such as Magars, Gurungs, Tamangs and Sherpas.  Right up to the present day Nepal has been dominated by high caste elites, known as the Parbatiyas, made up of the Brahmin and Chettri castes. Brahmins and Chettris comprise only 28% of the population according to the 2001 census, but they are massively overrepresented in politics (e.g., as ministers, members of parliament and leaders of political parties), the legal profession, the civil service, and professional fields. Dalits and Janajatis, though they make up 45% of the population, have historically had more or less no representation in any of the areas. The caste system is a rigid form of occupational segregation, handed down from parents to children and severely blocks the opportunities and life chances of those at the bottom of the hierarchy. A society with a caste system wastes a vast amount of its economic potential.Right up to the present day much of the economy of Nepal has been based on labor coercion, repression and exclusion – that is, on highly extractive economic institutions.

And you guessed it: Nepal is a very very poor country, with per capita income only about 40th of the US.