Sunday, January 12, 2020

Book review: Unleashing the Vajra

It was published in The Kathmandu Post, 11 January 2020

Sujeev Shakya’s ‘Unleashing the Vajra’ attempts to find a way forward to Nepal’s economic transformation.

Like politicians, most economic analysts in Nepal invoke historical perspectives or dated ideologies to justify present policies or political alliances. Learning from past successes or failures to consistently argue about the future is largely missing in both academic and political circles.

Sujeev Shakya, a prolific writer on socio-economic issues in Nepal, stands out in his latest book Unleashing the Vajra. He tries to understand the past—particularly starting from Nepal Sambat or 879 CE, which was replaced by the Rana rulers with Bikram Sambat in the 1850s—to make the future right. The book is a continuation of the hugely popular Unleashing Nepal, and a recent one in Nepali language titled Arthat Arthatantra. These two books focus on unleashing the economic potential of Nepal, advocacy of a capitalist welfare state, and suggestion to lay the groundwork for youths to reinvigorate the economy.

In the new book, with a grand belief that “economic transformation required not just financial and management skills, but also societal transformation, moving towards an equitable society with sound civic behaviour, empathy and integrity”, Shakya questions the basics of Nepali culture, consumerism, conduct, and convergence of economic activities with the two neighbours—India and China. He asserts that if Nepalis focus on their own cleanliness and the cleanliness of their houses, surroundings and politics, then such collective behaviour could lead to a cleaner neighbourhood, city and finally the country.

As always, Shakya starts with an optimistic tone. He reminds readers Nepal got wealthy by being a notable trade link between India and China during the 17th century. The country now has the opportunity to unleash its economic potential and take advantage of the two most populous countries and emerging economic powerhouses in our neighbourhood. Unfortunately, according to Shakya, we barely have two decades to realise the glorious past.

The past

Just a year after the death of Prithvi Narayan Shah, Adam Smith’s economic principles rooted in the magic of the invisible hand in creating market equilibrium and efficiency gains started gaining popularity in the West. In contrast, the rulers in Nepal, who thought of the economy as their sole privilege, imposed a state-directed heavy-handed approach, which stifled economic growth and prosperity. The restrictions imposed on land ownership, constraints on private enterprises, limits on the workforce, and the emergence of rent-seekers with tacit or explicit backing from the leaders are still the core features of our economy.

The modern-day rent-seeking feudal lords, both in politics and the private sector, have relied on extractive political and economic institutions to stifle prosperity—to advance their own interests in critical sectors such as agriculture, healthcare, education, construction, finance, and transportation.

Shakya calls them “cartelpreneurs.” There are “donorpreneurs” too. They have mastered the art of thriving on mediocrity—“too much success threatens their own employment, too little threatens loss of funds”. The donorpreneurs tend to set the development narrative and do not prefer the country to graduate out of foreign aid.

Shakya is equally critical of the private sector. He argues a section of the Nepali private sector thrived by taking advantage of preferential tariff between Nepal and India. Specifically, they imported goods from third countries via India, and either sold it to visiting Indian tourists by charging higher prices or re-exported them to India. This trading practice based on tariff arbitrage is prevalent to this day.

In response, India sometimes imposes quota and slaps countervailing duty on our exports. Recently, palm oil has become the top export to India although it is not even produced in Nepal. Similar was the case with betel nuts, whose export volume outstripped total domestic production. Shakya argues the Nepali private sector lobbied for a protectionist regime so that they could earn supernormal profits, which they shared with the political class. A recent example of this is the sugar cartel that successfully lobbied for import ban, increased prices to the surprise of the prime minister, and dilly-dallied repayment to poor sugarcane farmers. Similar is the case with milk, taxis, construction, and agriculture cartels.

The future

The section focusing on events after 2008 is more interesting and perhaps relevant to get a clue of what the future holds for the Nepali economy.

Shakya thinks hydropower, agriculture, tourism, services and infrastructure are the keys to unlocking and unleashing Nepal’s economic potential, i.e. the vajra. Exploiting this potential to enhance our prosperity requires Nepal to hitch its “wagon to the fast-moving engines” of our two giant neighbours. Eventually, he wants to see InChiNep collaboration that creates win-win-win situation for the three countries. It makes strategic sense since India and China are coming closer despite the occasional foreign policy hiccups. For instance, Indian Prime Minister Narendra Modi and Chinese President Xi Jinping met sixteen times between 2014 and 2019, and the two countries aim to increase trade volume to $100 billion by 2020.

Belt and Road Initiative offers an opportunity for Nepal to not only secure financing for infrastructure projects, but also to get out of the ‘India-locked’ mentality. Meanwhile, making procedures easier for Indian investors, tourists and traders in Nepal could boost investment in key sectors and strengthen people-to-people relationship. Additionally, he thinks there are more opportunities if Nepal deepens integration with ‘East South Asia’— a region comprising Bangladesh, Bhutan, Nepal, and north-east India. Enhancing borders to promote trade and commerce, better and well-connected infrastructure, and easier movement of labour with proper documentation should facilitate integration in this bloc. Shakya ambitiously bats for Border Economic Zone, which could facilitate connectivity clusters along the border and substantially ease rules for flow of labour, capital and goods.

On the nature of economic governance, rather than choosing between capitalism and socialism, Shakya prefers a capitalist welfare state, where free enterprises are regulated as per global standards and that the government will have enough revenue to tackle chronic poverty and inequality. This is a hotly and perpetually debated topic in economics. Unfortunately, the discussion on this topic in the new book is a rehash of the arguments already made in the previous two books. Similar is the case with the discussion on long-term economic vision, which pretty much narrates what is already being drafted by the National Planning Commission. Readers may find something refreshing in the chapters where he passionately discusses the need for societal transformation via individual transformation, i.e. bring changes at individual level and then collectively at the neighbourhood, city and country levels.

The book does not offer an in-depth analysis of how and why Nepali economy is the way it is now and the future direction. Inquisitive readers may seek answers beyond the usual narrative of potential for economic transformation by utilising internal resources and by promoting trade and connectivity with India and China. Unfortunately, the book does not offer much beyond the assertion that Nepal has only two decades to realise the glorious past. It would have been more informative if the author dug deeper on why the specific two decades timeframe, what needs to be done, and what happens if we don’t.

That being said, the book provides a good overview of the historical underpinnings of today’s achievements or impediments, and the opportunities that may be utilised. It provides thoughtful perspectives for readers who have an interest in economic and foreign policies, and plenty of food for thought for those who want to explore the issues academically. The book is primarily targeted for general readers who are interested in comprehending the successes and mistakes in the past, and opportunities going forward.