Early morning last Wednesday, the first sign of trouble reached Pokhara: airlines were cancelling flights. I had to reach Kathmandu to talk the next day about whether hydropower could accelerate a double-digit growth in Nepal, so I scrambled onto the first plane available. From the air, Kathmandu looked like a city of smokestacks. The security guards at the airport warned us that even army trucks had to return from Tinkune, unable to negotiate bonfires of furniture and rampaging crowds.

I decided to walk, and walked right into the heart of the madness. Broken glass and furniture were raining down on the narrow streets of Buddhanagar to the cheers of a frenzied mob. This flood plain of the Bagmati used to be green fields. Now it is a characterless neighbourhood-one of Kathmandu's symbols of individualism run amok. Bagmati degraded from a river to a sewer during the same period that the Valley lost its old charm.

Marxian analysis distinguishes two types of proletariats: the wage earning workers in the formal sector and the lumpen, a class of uprooted flotsam dispossessed of its social base and prone to criminality or vandalism. In coming to terms with capitalism, many of the enlightened non-western societies such as Meiji Japan or Mongkut Thailand managed to pull their lumpen into an ordered and respectable working class. Last week it was clear that we in Nepal have moved in the opposite direction with our economy and politics both uncontrollably lumpenised.

Nepal's nascent capitalism has benefited from the lumpen and has mushroomed in the semi-underground. It began in the late 1960s with jhiti-gunta trade, the officially patronised practice of allowing air passengers to porter in luxury goods from Hong Kong or Bangkok. Soon thereafter, and continuing today, windfall profits from this as well as aid industry related trade were directed towards land speculation that has resulted in the encroachment of public space and the legalised stealing of land belonging to temple trusts. Prospering alongside were a semi-criminalised land management bureaucracy and a house construction industry catering to a rural population that was uprooting itself to be closer to where jobs and schools for their children were located.

In the 1980s and 1990s, this semi-underground capital moved into carpets, garments, mini-buses, three-wheelers, dance restaurants and-since 1997 when transaction costs of passport acquisition came down with its decentralised issuing in district headquarters-into manpower export. Over time, rather than formalising themselves more and more, these industries, encouraged by a rent-seeking bureaucracy and an aid industry that ignored this structural malaise, migrated towards the informal, often the criminal, sector.

Nepali politics since 1990, rather than preventing and reversing this drift, became the democratised handmaiden of the lumpen economy. Many politicians across the spectrum are owners, partners or patrons in such enterprises. These ventures, besides providing access to significant sums of money, were useful in the mass politics of the 1990s where strength was measured in terms of the number of people a party could bring to the streets to burn tyres, vandalise public property and bring city life to a standstill. It became a macabre art in which the partnership between political parties and a rapacious bureaucracy ended up lumpenising the formal sector and leaving it to the mercy of extortionists in daura surwal. The Maoists are only the latest entrants that have recently wised up to their own muscle power in such a polity.

Now, where does that leave hydropower as the engine of double-digit growth? It is not even remotely possible unless a genuine, competitive and above-board private sector is firmly established. While there are some hopeful signs, private sector entry into this field is mired in the controversy of crony capitalism, uncompetitive license raj and insider trading.

What plagues the overall national lumpen economy plagues this sector too. We too have our mini-Enrons where individual promoters of a company prosper, indeed with double-digit growth, but the formally registered parent company itself wastes away. This disease not only saddles the consumer with unnecessarily high tariffs but spreads the infection to national public lending institutions that in turn are saddled with bad loans. Lumpen political economy is just allergic to anything orderly, legal and organised.

Unfortunately, the streets exploded on Black Wednesday saying it all with greater punch than I would have at the seminar that had to be cancelled.