July 7, 2015 Sujeev Shakya

Capital Control

Six years ago, I discussed the need for Nepal to take the path of a capitalist welfare state in my book Unleashing Nepal. In such a state, doing business would be easy and welcome with the state taking the responsibility for alleviating poverty and introducing various programmes, which are funded by increased taxes resulting from increased income activities.

But going by the draft of the new constitution, it seems that Nepal is opting to head backwards rather than look forward. It is very clear that the vision of the draft constitution pretty much derives its essence from Prithvi Narayan Shah’s Dipyopdesh—wherein inward-looking nationalism and domestic capital and business are the key drivers. It seems that the political forces leading the constitution-drafting process definitely want Nepal to stay isolated and halt its integration into the global world of investment, business, trade and commerce. The excessively long preamble that hints towards a political one-upmanship and lacks any reference to economic and development structures is a testament to this.

Labour and Cooperatives

The draft constitution, which many consider to have been framed in a hurry, ensures that political parties can practice distributive economics. While all the promises by the state come with a cost, it is unsure as to how the state is going to raise the money to pay for the social security benefits or other sops it promises. Furthermore,  specific issues in the draft, such as mandatory participation of labour in management, send a clear signal that political forces would like to continue making labour a tool of engagement to negotiate their agenda with business owners. Such labour practices will not encourage serious workers to stay in Nepal, which means that the current exodus of young people in search of meaningful jobs outside of the country, especially to places without the baggage of union politics, will continue in the future.

The reforms ushered in the early 1990s slowly waned as the economy started to grow on two pillars. One of them was the inward-looking private sector that was averse to competing with foreign firms and reluctant to adopt corporate culture and professionalism. To ensure their protected existence, they created cartels that neither the government nor consumers could do anything about, and associations run by panels backed by political parties became the most powerful vehicle of doing business. Second, an unregulated segment called the co-operative sector was promoted as an alternative to capitalism but it ended up becoming a substitute for transparency.  Millions of people were lured into funding politically well-connected people and subsequently billions was siphoned in the bargain.

Nationalism in Business

The proposed draft of the constitution continues to endorse both these strategies by positing co-operatives as the main pillar of economic growth and by reserving all businesses for Nepalis. The emphasis on nationalism clearly paves way for the use of Nepali as a business language. This will only discourage interested international players from entering the country rather than necessitating Nepali firms to follow international practices.

While the Interim Constitution had a provision for attracting foreign investment, it is very clear in the new draft that foreign investment is only being promoted in the infrastructure sector. Even in the hydropower sector, it will be Nepali investors that will take the lead, with participation by the Nepali public. Everyone in Nepal is aware how domestic resources are not enough to build hydropower projects.  While Nepal tries to rebuild itself after a devastating earthquake, it seems that the country will continue to reach out to its foreign partners just for grants and loans, not investments! If Nepal wants to move out of its Least Developed Country status and progress, these are not the provisions that will ensure its graduation.

Create History

Perhaps because there is no money in chasing economic discourses that could find space in the constitution, there are a limited number of individuals and organisations involved in it. Business associations are busy moving from one election to another and the media is happy covering elections involving a plethora of associations in the business sector.

Nepal needs to seriously examine the provisions in the constitution related to the economic issues. The country needs to understand that poverty alleviation and economic growth can only take place with wealth creation. Co-operatives, donor money and grants can never create wealth. It can only be created through employment in companies and through projects that involve large investments, and by creating an entrepreneur-friendly environment that will promote and foster the growth of not those entrepreneurs who will use Nepal’s protectionist policies and hold hands in doing businesses through cartels and political people, but those who are willing to compete with global and regional companies. The government needs to step in to ensure that inequity is regulated, consumer rights are protected and a level playing field is provided for all.

We are at the juncture of creating history, not rewriting one. The new constitution should, therefore, be based on a new economic paradigm, not the old one.

Leave a Reply