Sliding towards Socialism

I have always been skeptical about the Maoists' ability to steer the economy towards a path of success because of their anti-market behavior(I have been always critical of their planned land reform program). Now, they have agreed to form a government and have a 50 point common minimum agenda. And, there are a lot of commissions:

...In the program, the Maoists pledged to form a peace and reconstruction commission, a truth and reconciliation commission, a state restructuring commission, a commission on disappearances and a land reforms commission. It has vowed to make necessary arrangements for monitoring past peace accords through the peace and reconstruction commission.

Besides, the program proposed an administration reforms commission, a youth commission and a powerful Muslim commission.

...The Maoists proposed a model of economic activity through the partnership of government, cooperatives and the private sector. It pledged to formulate immediate short-term, mid-term and long-term plans for development and give priority to agriculture, hydropower, tourism, human resources and infrastructure.

The Maoists have proposed to categorize hydel projects for purposes of investment. "Small and medium-size projects will be run through internal investment and big and export-oriented projects through foreign investment," the proposed program stated.

...The Maoists propose to attract foreign investment in industrialization and development for the benefit of the country. The party pledged dual citizenship for Non-Resident Nepalis to attract their investment in national development.

The Maoist program proposed revolutionary land reforms to end feudal ownership of  land and establish access of peasants to the land.

The program also proposed that primary health care, employment and education up to high-school will be made part of the fundamental rights of the people. The party proposed to reduce the age criteria for senior citizens to 70 from existing 75 for purposes of the old age allowance. It pledged an increment in the allowance amount for widows and old people.

 

Food crisis in Nepal

Sky News has a good series of articles, some of them focusing on a typical Nepali household, about the impact of rising food prices (HT: Deepak's Diary).

24 Hours of A Nepalese Diet (the reporter experiences firsthand how it feels to live in a typical Nepali household)

Life Below The Breadline in Nepal

Lush Land Where Millions Need Aid

This one makes me homesick:

...There's no running water either, so Anju has to wash the vegetables in rather murky water from a container. Quite a bit has gone into the cooking too. I notice that the dal, which Anju complains has become so expensive lately, was thoroughly diluted.

Markets at work (if you try to destabilize equilibrium by charging more, demand will decrease!):

...I work in the shop with my wife Anju. We sell food and basic household items. But business is slow now. People can't afford to buy much with the increased prices. We have a profit margin of around 3%. If we charged more money, we wouldn't sell anything. I don't want to lose my customers.

And, signs of more people being pushed below the poverty line by rising food prices:

...Its costs about 300 rupees ($5) to put a basic meal together for the family. And that's the same amount we earned working in shop all day. The worrying thing is that prices are increasing daily. I don't know how we'll manage if this trend continues. Maybe we won't be able to stay in the city. At least in the village we could grow our own food. But prices are high there too now.

Again, similar stuff:

A gardener living in the capital Kathmandu, Rajendra Bahadur Bista, 30, earns 5,000 Nepalese rupees a month (about £36). He spends 3,000 rupees from that to feed himself, his wife and two daughters, aged eight years and six months respectively.

"We eat less rice now, less bread and fewer vegetables," he tells me. "We had to cut back on other things, too, such as clothes."

 

Leaking customs and weak trade

That's the title of my Op-Ed published in today's The Kathmandu Post. The article basically centers on the argument that in order to realize potential gains from trade, just joining free trade blocs is not enough; the developing countries like Nepal should focus on fine-tuning trade facilitation to promote exports and reduce domestic inefficiencies. This requires taking care of institutions that help facilitate trade, which of course cannot be done overnight.

Almost after five years of sluggish growth, Nepal's economy has grown at over 5 percent this year. According to UN ESCAP's recent estimate, the real GDP growth rate is expected to be 4 percent in 2008, up from a low of 0.1 percent in 2002. Various factors like windfall growth in agricultural sector, tourism, and remittance helped push up the otherwise lagging economy.

Now, it is time to ponder on how to sustain this, or even achieve higher GDP growth rate, in the coming year(s). This growth rate won't be sustained if we continue to bank on tourism and agriculture - both are vulnerable to external factors like weather. No country has sustained such a growth rate even for a short time without fine-tuning and promoting trade, both export-oriented policies and policies aimed at reducing domestic inefficiencies. Nepal is already a member of regional and global trading blocs. However, the potential gains from trade have not yet been realized, at least when we look at the impact on the GDP growth rate.

Curiosity abound when we learn that despite being a member of many trading blocs, Nepal has not seen even a minimal impact on the GDP growth rate. Closer look at this puzzle divulges an uncomfortable fact that despite being one of the most open economies in South Asia, Nepal still has one of the most cumbersome and investor unfriendly trade facilitation procedures in the world - one of the constraints to realization of the potential gains from trade.

Procedural hassles and delays in clearing goods at the customs are not new things; businessmen and economists have been calling for reforms for a long time. Years of neglect from the state to reform governance and trade facilitation has severely impacted Nepal's trade standing in the world. Nepal's trade facilitation process is so slow and inefficient that, in every parameter for trade facilitation that the World Economic Forum (WEF) came up with in its recent publication The Global Trade Enabling Report 2008, it was ranked at the bottom position, along with countries like Chad and Burundi.

Read the full Op-Ed here.

Links of Interest

Jamie Diamond: Cutting aid would have dire consequences

85 Percent of Africa's Land Has No Titles

Stiglitz and Sen, Food and Morals: Reflections on intellectual cowardice (very fascinating discussion on why economists are so detached from reality, especially in the context of rising food prices)

Cell phones used to expedite work in government offices!

This is one novel use of cell phones. Forgoing ages old tradition of ringing bells in offices to communicate between different departments and to call caretakers, some officials in the Nepalese government jobs have been using cell phones. How? Well, by giving missed calls!

One missed call and the peon attends to the seniors to offer his service like serving tea, photocopying documents, printing and so on. The system of pushing call bell beneath senior officers' desks has been replaced by mobile phones.

Krishna Poudel, who works as a peon at the District Election Office, says, "Who needs buzzer system when there is mobile phone. With the help of mobile phone I can now hear my seniors call, no matter where I am."

Chief Returning Officer Mahesh Raj Timalsina is also happy with this practice. "We press the call bell and sometimes they do not hear it so it is better to give them a missed call instead," he says.

I don't know how efficient this system would be, but this is one novel use of cell phones! More here.

WTO should give developing countries policy space

Here is a piece from The Guardian. The writers from GADE blame the US's intransigence for collapse of the WTO talks and believe that the developing countries were right to walk away...well, it is everybody's fault for the failure, not only US's!:

...Rich-country negotiators, and even those from agricultural export powers like Brazil, expressed surprise that the issue that brought down the negotiations was something as seemingly arcane as the "special safeguard mechanism" - the right for developing country governments to raise tariffs in the event of sudden or large increases in imports that threaten to undermine domestic producers. They shouldn't have been. The measure is exactly the kind of "policy space" for development that the poorest countries have sought from this so-called development round.

...Cheap, subsidised imports of staple foods - markets the US and other developed countries dominate - flooded local markets, driving down prices and putting already-poor farmers out of business. Each country became more dependent on imported food, losing its capacity to produce its own. Then prices spiked, exposing the life-threatening danger of such policies.

Any government that wants to take the food security of its residents seriously needs precisely the kind of policy instruments India and China were demanding.

More stuff on the collapse of the WTO talks here in my earlier post.

Meager benefits of the Doha Round for the developing countries

Here is a research done by Sandra Polaski from Carnegie Endowment for International Peace (CEIP) about the winners and losers from the Doha Round under different scenarios. The general equilibrium model showed that total gains from trade to be between $32-55 billion, with rich nations getting $30 billion; middle income countries like China, Brazil and SA getting $20 billion; and poor countries getting $5 billion (about $2 per head).

Global Real Income Gains from Trade Scenarios:

	Agriculture	Central Doha	Central Doha with “Special Products”	Hong Kong	Full liberalization
Gain in US$ (billion)	5.4	58.6	57.7	43.4	168.1
Gain over base year GDP	0.02%	0.19%	0.18%	0.14%	0.53%

 

Polaski also argues that a complete agricultural trade liberalization might actually hurt the developing countries. Full elimination of agricultural subsidies could increase food prices, which is not good for net food importers. Developing countries might gain more from liberalization of goods than agriculture.

The biggest winners among industrial nations would be Japan and the European Union, where incomes stand to grow by $6.5 billion and $5.8 billion, respectively. Among developing nations, the chief beneficiary by far would be China, which would gain $10.3 billion in annual income, or more than four times the increase expected for India. In fact, China's expected benefits account for nearly half of those likely to accrue to the developing world. The biggest losers would be Bangladesh, Malawi, Tanzania, and Uganda and the rest of the nations of sub-Saharan Africa (excluding South Africa). The numbers are so small, however, relative to the size of national economies, that the precise figures are less important than the broad picture they paint.

Here is a paper on how India would stand on different trade policy choices. In terms of change in real income, it seems that India would benefit the most from the Doha Round. Surprisingly, India would lose from India-EU FTA.

Here is a previous blog post on why the most recent Doha Round of trade negotiations failed.