Dysfunction, Inc. - Nepali Times

Among the multiple battles that play out every day in Nepali politics �" between individuals, parties, identities, ideologies �" few are as critical to our future as the relationship between state and capital, and capital and labour. Several incidents in the past few weeks reflect how Nepali capitalism and the broader political society in which it operates are struggling to find the right equilibrium.

Bankers are unhappy with central bank regulations. Lawmakers are unhappy with how banks are owned and run, and would like to redirect the economy, both in terms of nomenclature and policies. Businesses complain that the state does not deliver on its part of the bargain by providing infrastructure, electricity, security and stability, yet expects productive investment. Government complains that most businesses cheat on tax returns, engage in illegal practices, and undermine rules, making tighter control necessary.

Ministries point out how foreign investors use external influence to bend rules. Investors say government agencies and parties make life miserable for them by using draconian laws despite inviting them to invest in the first place, and seek to extract benefits relentlessly. Labour is unhappy with pay in times of soaring inflation, and periodic outbursts through strikes and lockouts are fueled by unions. Capitalists say it is precisely these tactics that affects their bottom line even more adversely, diluting their capacity to create and spread wealth.

Add it up and it is indeed a mess, with direct negative consequences on revenue, employment, growth, social harmony, and political stability.

How does such a dysfunctional system �" laced with all the ingredients of conflict �" manage to sustain itself at all?
Counter intuitive as it may sound, it endures because of politicians and corruption.

Political leaders are the only ones who have a stake in and influence over the three elements that constitute our economic structure �" the state, businesses, and unions. They encourage conflict at times, for instance by encouraging unions to push aggressively for pay hikes, or when government tries to squeeze particular businesses. But they step in to prevent these battles from crossing a certain threshold because their interests are also tied to the private sector.

Capitalists fund their election campaigns, party jamborees, and personal expenses. There is a relentless stream of requests from politicians to big companies to provide jobs to their constituents. Key business leaders have links spreading across party lines, and play an active behind-the-scenes role in stitching alliances together. Many political leaders, including Maoists and UML stalwarts who are pushing for greater control of private capital, have invested their unaccounted for wealth in industries and the service sector, using other businessmen as frontmen.

Corruption undermines rules, but also mitigates conflict. Businessmen buy over key labour leaders in exchange for stopping protests. Ministers strike deals with new investors and go easy on rules or non-payment of loans by businesses to state institutions. In the districts, government budgets drive local economic activity across sectors, and politicians distribute funds to their favoured contractors in return for a cut �" as we will witness in the coming months as money trickles down from the centre and the pressure to spend increases before the fiscal year runs out.

This deeply distorted, ad hoc, and corrupt political-economic system has become normalised. It is these distortions and illicit networks that make it stable; otherwise there would be greater anarchy. Imagine if politicians and businesses were not collaborating in myriad ways; imagine if the rule of law was indeed strictly implemented �" which politician or private company would escape unscathed and what would the implications on the national economy be; imagine if there weren't informal mechanisms and mediators to resolve capital labour disputes outside of tribunals. This is no justification of how things are, merely an attempt to show how the system hasn't broken down despite the weak fundamentals.

If lawmakers try to alter the balance too drastically in favour of the state, there is a danger that business confidence will be further shaken and we will inherit the worst features of the license permit raj killing the entrepreneurial energy that Nepal witnessed post-1990. But the private sector, which remains dependent on government in multiple ways, would do well to recognise the new political realities, wherein a large section of the political class is uneasy about 'neo-liberalism', and prepare accordingly.

For now though, the balance of power indicates that neither the state or the capital is powerful or developed enough to dominate the other. The uneasy accommodation will continue, till a systemic crisis breaks the compact.

1. Syakar Adiga

Good writing Prashant. Given all the comments people make including ones that are distasteful and downright personal, I salute you and others for continuously producing thought provoking pieces for our consumption.

Niall Ferguson in his recent publication Civilization:The West and the Rest, writes about the applications that have historally set apart Western countries from the rest of the world. a) Competition, b) The rule of Law and Private Property Rights, c) Modern Science, d) Modern Medicine, e) Consumer society, and f) Work Ethic. More recently, the non Western countries that have achieved development in the Western sense have successfully strengthened their societies in the mentioned aspects. The larger question for Nepal being whether we carry on with this deeply distorted, ad hoc, and corrupt political-economic system as you mention, which does not get us anywhere at all. Or, do we develop our own set of applications that accentuate our potentials and can pave the way forward for us in an environmemtally friendly, family oriented, holistic manner?

If one were to be eternally optimistic, the current state of ad-hoc status quo and confusion might actually save us in the long run, by limiting some of the damages our politicians could be doing were they even slightly in the "right" frame of mind to run with the Western development model. However, since they are dim wits and lost amongst themselves and incoherent, thus incapacitated to move forward anyhow, hopefully by the time we would have found our sense of purpose as a nation, we may very well be able to start afresh with priorities that are certain to work for us in our own terms.

Posted on: 18 MARCH 2011 | 1:11 PM NST

2. who cares
things mention above;

a) Competition, b) The rule of Law and Private Property Rights, c) Modern Science, e) Consumer society, and f) Work Ethic.

should be seriously analysed.

my belief is more simple:

a) profit- create market- purchasing power, search new market- billion+ consumers excluding india and china, sideline unnecessary competition- creditors should be given power to bring down dead companies...

b) rule of law

c) competition: of course healthy competition, follow rules.

commie, panchyat economy will never work cause who is going to choose the right management, who is going to make the right decision, goal, strategy.

only free economy works. free economy works not cause of its name cause in free economy, if there is rule of law, everyone get chance to test their ability, faith and only those who has ability, luck will prosper and that person will create jobs, pay tax, invest in right R&D.

free economy gives opportunity to right individuals to prosper who will then help society, nation, mankind.

but in nepal, commie are circulating stupid propaganda failed a long time ago.

it is also due to dumb nepalese. in commie/panchyat govt. provide 3500rs/month job, so if someone gets job, he thinks commie/shah.

but in free economy, person has to compete to get job and could earn 100000rs/month and still do not see his success connected with the free economy, democratic republic.

ungrateful idiots nepalese are the reason commie, shah are still in politics.

for example, look at this jha. his views and political belief (on the surface) simply does not match.

ps: in nepal, we never have/had true democracy, free economy- past's or present's so called free economy are not actually free, they are protected economy with lots of corruption, unhealthy politics, no following of rule of law... that is why nepal is so backward.

Posted on: 18 MARCH 2011 | 3:53 PM NST

3. Anjan Panday
"The uneasy accommodation will continue, till a systemic crisis breaks the compact."

And, that systemic crisis has been averted by only one factor in this crumbling economy---ie, remittances (blood and tear soaked workers' money). The disequilibrium you pointed would have very easily led us into the path of Mogadisu or Congo, if not for the remittances supported economy. There is no inherent equilibrium in the combination that you pointed. It is the exogenous factor that has sustained this disequilibrium.

Posted on: 18 MARCH 2011 | 8:23 PM NST

4. Slarti

"Among the multiple battles that play out every day in Nepali politics ï¿½ between individuals, parties, identities, ideologies - few are as critical etc..."

No.

Of all the battles that play out everyday in all of Nepal, few are as important as the war of narratives.

Business, or capital, operate within an environment created by the state. When that state is as erratic, unpredictable and unstable as Nepal, business becomes more about managing relationships with the politicians, and less about producing things and managing businesses.

While a bankers complain about unfair, unreasonable or harmful policy of the central bank is understandable because a banker has to follow it or risk damage and prison if she choses not to. The politician's complain that businesses are flouting regulations, or that foreign investors draw upon external influence to have their way is unfair.

By saying that, the politician is sending out a lot of signals which may variously interpreted to mean,

a) That the said politician is not in control

b) That politicians are incapable or incompetent

c) That the politician is not strong enough and smart enough to deal with strong arm tactics

d) That they have failed to design the right policies to encourage a fair business environment.

Of all the problems outlined above, the problem of the politicians making are the worst, and are at the core of the nations dysfunctional state.

The column should have clearly and unequivocally pointed to that fact. Instead of a revolutionary conclusion that....."The uneasy accommodation will continue, till a systemic crisis breaks the compact."

The article begs several questions and all of them must be asked.

Posted on: 18 MARCH 2011 | 8:37 PM NST

5. Slarti
"the relationship between state and capital, and capital and labour."

What, according to the journalists and policymakers of Nepal, should constitute the relationship between the three actors?

Are these relationships to be underpinned by a common rule of law where each is identified as a separate group?

Or, should these relationships be identified by a common law which is founded on broad and common principles on the basis on Nepal's truth(s)?

Which then begs the question, what are Nepal's truth, the uniqueness of this land?

"broader political society"

Now, who is this bird? What constitutes the "broader political society"? Who are its members? How does one become a member of this society?

What is the role that this society plays?

"right equilibrium"

Is this a static term, as in, is there a specific level at which policy makers may say, this is it, this is what we wanted?

Is this equilibrium something desirable and therefore to be worked at, or is this equilibrium a result of consistent policy on the basis of common principle?

"would like to redirect the economy, both in terms of nomenclature and policies."

When you talk of redirection of the economy, do you mean redirection of the outcome of business activities?

Do Nepali politicians hope and expect to determine the composition of the Nepali economy?

The reason I ask is because while I know what nomenclature means, I have a feeling that you would have wanted to use a better more direct term.

"times of soaring inflation, and periodic outbursts through strikes and lockouts are fueled by unions"

If labour, which is the people of this country, are unhappy with inflation, they certainly know that its the politician who needs to fix it.

Most of the strikes, combined with their timing, reek merely of political interference and do not appear to be primarily driven by a desire for higher wages. Why is this fact being deliberately confused with other issues?

"who are pushing for greater control of private capital"

These, including the NC, are the main drivers of this revolution that we are currently living in. Admittedly, this period of transition is to be expected. But, do their present actions present an evidence that they were insincere?

If they are taking these actions how are they going to bring in the said revolutionary changes because if we assume that they are parking their money to service their revolution, then a collapse in industry would destroy that money. If not, there will be no revolutionary change.

"drive local economic activity across sectors, and politicians distribute funds to their favoured contractors in return for a cut"

I was confused while reading this entire article because of this statement. It appears in jarring contrast with the other terms and tone used in the entire article. It would appear that through state coffers, the politicians already control the economy as well and not the businessmen who appear to be a front to merely manager politicians wealth.

"Imagine if politicians and businesses were not collaborating in myriad ways; imagine if the rule of law was indeed strictly implemented"

I imagined and I kind of liked what came up in my imagination. I found that the state by signalling its willingness to take strong action, will force compliance without harming a great majority of businesses. This sort of thing requires intelligent policy designing as well.

My question is, why did Prashant not talk about these alternatives?

"imagine if there weren't informal mechanisms and mediators to resolve capital labour disputes outside of tribunals"

I imagined and again I came up with the same question as above.

"system hasn't broken down despite the weak fundamentals"

Weakness of fundamentals implies their existence beyond paper comments. The system is already broken down.

My question is what are the fundamentals which have so far held up the nation?

Despite the impression to the contrary the article is talking about arrangements, not fundamentals, weak or strong.

"worst features of the license permit raj"

What were the "better" features of the license permit raj?

"new political realities"

After this article, please help us restate what are they?

How distinct are the new political realities from the old? Old is when?

Posted on: 18 MARCH 2011 | 10:29 PM NST

6. Sagar Onta
Prashant has clearly stated how a corrupt system works. But isn't this a new manifestation of feudalism? Who suffers the most in our system are the people who do not have the political connection or business connection. And since business connection are hard to make for the poor, all the poor and disillusioned join politics, only to be used by the parties to gain power and hob-nob with the business men with deep pockets. I would argue that the current political parties, who all claim to fight the rich, are indeed a manifestation of feudalistic attitude. They use the poor and their cadres to gain power and money. We are ruled by corrupt leaders in all parties, including the monarchist. Those who should be fighting these corrupt leaders and business elites are the young, small entrepreneurs whose rise in economic status is the only way Nepali is going to develop. Otherwise, our blood will continue to be sucked by those who occupy and walk the halls of power.

Posted on: 18 MARCH 2011 | 12:22 AM NST

7. Slarti
Monarchy sucked and the King's were, are and will continue to be responsible for everything that is wrong with Nepal or will be.

Having dealt with that monster, I remain interested in what Prashant has to say.

He believes that this compact, as he calls it, will be broken only when a systemic risk breaks it. Again, one is not certain what these systemic risks are and, therefore how that can be broken.

I have to go out on a limb here because being highly uneducated I am not sure what people are talking about when they use complicated terminologies.

What is systemic in Nepal? Are we talking about the formal system, supervised by politicians, under the guidance of an ad-hoc constitution, which they change every time they fancy, to meet their own objectives?

Or, is systemic, the very system that Prashant describes which because of its all pervasiveness precludes a breakdown, because paradoxically, this is no structure and therefore it cannot be broken.

What I am saying is that it will simply shift its shape and business will find beneficiaries with new set of revolutionaries anyway.

Against this backdrop, it is my view, that Prashant is hoping that this breakdown will occur as a result of action by a revolutionary political group which will make these arrangements completely irrelevant.

I think he is preparing us for the time when the Maoists will burst out in the streets and capture the state.

Posted on: 19 MARCH 2011 | 11:56 AM NST

8. Suresh J
Everywhere in the world, capital exploits labour. Only in Maoist Nepal does labour exploit capital.

Posted on: 19 MARCH 2011 | 1:09 PM NST

9. who cares
let's talk about mandala era,

*why was there only one casino during panchyat and who controlled it?

*i do not remember the time, during panchyat or just after panchyat, shah controlled cigarette factory bought all the stocks of then leading brand, then replaced them with their own brand, and later when the stock rot, they flooded the marked with it..... and still no one was jailed. ...... was that an example of free economy or shah's feudalism.

*why mero mobile made some shah its chairman during gyn bahadur's coup? everybody knows.

these are just some examples why we are economically backward. its all cause of those shahs and ranas.

and dont forget that shah silenced public, opposition not by bribing them but using the threat of mandalas, police and royal army.

and thanks to girija for continuing with the trend. .......

and why girija and india always preferred constitutional monarchy?

cause the supporters of all of them are same corrupts, crooks, criminals.

if there had been true democracy and some how people had elected honest, tough pm... all those would had been jailed. so to prevent such scenario, since shah had control over royal army, that nationalist govt. would had been brought down by shah.

but this idiot gyn bahadur has no idea regarding inter relationship between shahs, koiralas and ranas and i should also add india here.

as soon as gyn bahadur sidelined koiral, the whole castle came down shattering.

so first thing first, for better nepal, shah needed to be eliminated first cause they had deeper roots than maosit. and there were many more reasons too.

Posted on: 19 MARCH 2011 | 1:35 PM NST

10. B2B
You don't say!

Just shrug off the dead hand of the Maoism and don't send the populace after the fool's gold, you for sure will see the change.

All that is worth a trip!?!

Posted on: 19 MARCH 2011 | 6:41 PM NST

11. Jange

But surely it has been worth it.

We have created New Nepal.

We have got rid of the monarchy.

We have a new constitution.

Posted on: 20 MARCH 2011 | 8:49 AM NST

12. Soni
You know I have finally figured out what my problem is with this article.Â�

First off, Prashant appears unsure who to put the blame on and I suggest that placing it on Monarchy could have done the trick so the rest of the article would have a point.

He could also have discussed a series of solutions in ideal world terms. Which is to say that either free market or a planned economy can deal with this situation.

Unfortunately, we do not live in an ideal world so our solutions have to talk about what can actually be done. We know that our politicians are what they are and that we are going to have to live with this gang no matter what we do.Â�

What I can't understand is why does this columnist not do some imaginative thinking and answer the important question, which is what are we to do, given our reality, to ensure that we can at least have a moderately better country!!

Posted on: 21 MARCH 2011 | 6:52 PM NST

13. Informant

Well, too much regulation may not be good but it is the deregulation that brought the crisis in US and world economy.

Beware of bankers, it is they who have money........ I don't want to see bankers stronger than the government..

Posted on: 24 MARCH 2011 | 3:00 AM NST