Nepali Times
Economic Sense
Welfare capitalism


Everything is in transition now. Suggestions are flying left and right about interim governments, arms management, constitutions, proportional representation, national restructuring, the scintillating fate of garbage dumps and the like. And as always, the economic agenda is floating around in the ether.

The Beed begins to despair that things will never change. While PK Dahal, B Bhattarai & Co have started hobnobbing with nationalist industrialists, we have no word yet on their panacea for economic disparity, low growth, and poor performance.

Our activist friends need to realise that the market and economics matter. A country's economic competitiveness arises from the way it handles its market, demand and supply. In discussions these days related ideas do come up, but usually in different contexts. People miss seeing the larger economic picture when they take a purely 'social justice' stand on minimum wage or quotas for women, indigenous communities and the socially or physically challenged. Of course a minimum wage for labour is a good idea. But what is it to be? How high can we pay our workers before we become totally uncompetitive? In a country already beset with high direct and indirect taxes and an inefficient target-based taxation policy, what amounts to a parallel taxation system will only make production even more uncompetitive.

If government is to take care of or subsidise education, health, petroleum, the works, that's fine, theoretically. But think of the cost to the Nepali public. We see it already in water and electricity. We don't want a system that makes the general public pay for the inefficiencies of the state. Socialism is flawed, and equality utopian. Markets emerge out of the disparity in human skills and access to capital. We need to manage the market, not start out with a losing proposition.

Capitalism in Nepal does have inherent problems. In a feudal state, the feudal lord is the capitalist who uses power to arbitrage situations and thus profit. With more ownership-managed businesses, Nepali versions of crony capitalism have always been visible. Just consider how airlines compete with the national carrier in failing or promoters of private banks work to change regulations. The past five years have seen professionally managed companies perform better than sahu-owned and managed enterprises, which strongly suggests that private sector reform in Nepal is as important as the reform in political parties.

A capitalist welfare state believes in private enterprise and in the welfare of its citizens. We need to find this middle path where businesses are socially inclusive and socialists get out of the rhetoric of the state to manage businesses or inefficient services. Take land reforms, for instance. It is important to reform inheritance laws but we can't confuse that issue with the right to property.

Enterprises only perform well where right to property and assets are guaranteed. In the quest to distribute land to the landless, we should not be creating ghettos like the one next to the Kathmandu airport. That's a sure path to urban nightmares like in Mumbai. Land reform is not about a land ownership ceiling, but about a market-oriented environment where more people can own larger parcels. Introduce tax breaks for people who don't want have houses or land to buy them.

Get better financial facilities in place. Similarly, for any country to grow, only foreign investment can provide the impetus to the kind of growth Nepal saw in the early nineties. Voluntary donations will not attract FDI. And we know that the volunteer has a gun on your head.

We have an opportunity to forge our economic future, just not with rhetoric or myopia. The New Nepal is about thinking big and wide, in tune with successful models in the world.

(11 JAN 2013 - 17 JAN 2013)