Econ-ity » September 25, 2013

Daily Archives: September 25, 2013

Economic Freedom of the World 2013 launched in Nepal

In the first episode of Econ-ity, Economic Freedom of the World Report 2013 was released in Nepal and discussed upon on September 18, 2013.  The annual peer-reviewed Economic Freedom of the World report is produced by the Fraser Institute, Canada’s leading public policy think-tank, in cooperation with independent institutes in 80 nations and territories, including Samriddhi, The Prosperity Foundation from Nepal. The report is prepared by economists James Gwartney, Robert Lawson, & Joshua Hall for the institute and measures the degree of economic freedom citizens of different countries around the world enjoy. The report measures 42 different components of economic freedom to determine the overall economic freedom scenario of an economy. Economic freedom is measured in five different areas: (1) size of government, (2) legal structure and security of property rights, (3) access to sound money, (4) freedom to trade internationally, and (5) regulation of credit, labor, and business.

economic-freedom-report-release-2013

According to the report, this year Nepal ranks 125th out of 152 nations in economic freedom with a score of 6.19 out of ten. Nepal had ranked 110th out of 144 countries last year with a score of 6.33 out of 10. Following the performance of Nepal in different components of the economic freedom:

Size of government:
Worsened from 8.34 to 7.6 (31st in the world)

Legal structures and security of property rights:
Improved from 3.85 to 4.2 (126th in the world)

Access to sound money:
Slightly improved from 6.26 to 6.3 (136th in the world)

Freedom to trade internationally:
Worsened from 6.74 to 6.4 (118th in the world)

Regulation of credit, labor and business:
Slightly improved from 6.47 to 6.5 (109th in the world)

Dr. Bholanath Chalise, Dr. Chiranjibi Nepal, Mr. Baburam Nepal, Dr. Bishambhar Pyakurel and Dr. Hemant Dabadi spoke about Nepal’s performance in the five components of the index.

Speaking about size of government, Dr. Bholanath Chalise focused on the need to have a limited but effective and efficient role of the government unlike the case of Nepal where government is found of have unlimited size and negligible effectiveness. He further added that the government’s role should be limited to curtailing monopoly, safeguarding rights and providing security, and implementation and enforceability of contracts.  He drew comparisons from around the world to show how the limited size of government had helped countries like Hong Kong, Singapore achieve a greater level of economic freedom. He criticized the context of Nepal where much was left to the domains of government and how the dependency had brought about more evils than good in terms of economic freedom.

Dr. Nepal provided his insights on “legal structure and security of property rights”. He shed light that Nepal ranked 125th in this regard in the report, which was not at all a sign of free economy. He shared how he found property rights to be the dividing element between whether people prosper or fall under poverty. He constantly focused on the need to respect individual property rights and how the legal system in any country should be responsible in catering to that right of its citizens. He criticized the way property rights in Nepal were being encroached upon in reference to the road expansion programme in the Kathmandu valley. If hinted that if the country’s legal system continues to overlook the importance of individual property rights the consequences will be dire.

Mr. Babu Ram Nepal said that “freedom to trade internationally” is the primary factor of economic freedom. He shared that trade was the way to bring about positive economic changes and that poor became poor not because of the market but because of lack of access to market. He shared example on how other nations that are open to international trade have prospered and the policy makers in Nepal need to learn from these stories. Protectionism provided to local industries will, in the longer run, hamper the domestic economic.

Dr. Pyakuryal explained the concept of sound money and why the status of “access to sound money” is a vital element in determining the level of economic freedom in any economy. He stated that the rules and directives imposed by the government of Nepal do not favor the access to sound money. The current regulations encourage the private sector to evade the taxes. He added that unless a thorough reform in the financial policies is made, Nepal cannot progress in the ranking nor can prosper.

Dr. Dabadi shared his insights on “regulation of credit, labor, and business”.  Credit, labor and business, he shared were important elements of economy and there was a need to regulate these elements or else cartels, black-markets, politicized trade unions and corrupt market practices would take town the possibilities of economic freedom. He shared that the business environment in Nepal was characterized by lack accountability and transparency and practices ranging from corruption to monopolization were way too evident from economic growth to sustain and hence there was a need to foster good governance.

Surath Giri

About Surath Giri

Surath Giri is a student of Economics and works as Research & Publications Coordinator at Samriddhi, The Prosperity Foundation. He also writes for Khabar South Asia, a south Asian online news portal.

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Economic Hazards of Nepal Bandas

Nepal-Banda-Economic-Impact

According to Gari Khana Deu, Nepal faced 57 days of Bandas during the period of September 2012 to August 2013. Sanghiya Limbuwan Rajya Parisad was the top banda organizer of the year. The cost of a day of Banda is estimated to be around NRs. 1.7 billion.

Surath Giri

About Surath Giri

Surath Giri is a student of Economics and works as Research & Publications Coordinator at Samriddhi, The Prosperity Foundation. He also writes for Khabar South Asia, a south Asian online news portal.

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Would you give up your job to make the rest happy?

Image source: theturthaboutcars.com

Image source: theturthaboutcars.com

Ford Motors announced that it will shut down all its manufacturing plants in Australia by October 2016, after 85 years in operation. The automotive giant incurred a loss of AUD$ 600 million from its operations in Australia in the last five years.  Two remaining automotive manufactures in Australia will be the General Motors subsidiary Holden and the Japanese Giant Toyota.

Bob Graziano, chief executive of Ford Australia has pointed towards a “… increasing challenging market conditions…” as the reason for shut down. Weak demand, high costs and a strong Australian dollar have all contributed to the non-feasibility of Ford manufacturing in Australia. The two factories that are to be shut down would result in 1,200 job losses and of course it would have further ramifications in the economy.

Looking at this case as a subset of the bigger international trade discourse, this move by Ford seems to be the correct way to go. It’s a matter of comparative advantage; the core of the argument is pretty simple: if Australia is not good at making cars, then it should not make cars. Ford manufacturing in Europe costs half as much as in Australia and Ford manufacturing in Asia churns out same product for a quarter of the cost. In other words, for every car Fords builds and sells in Australia is loses out on three cars.But this is not a loss just to Ford Motors but it’s a loss to all of humanity. For every utility (happiness) derived from a Australian made Ford, three times the utility is lost to all of humanity!

Producing along the lines of comparative advantage benefits all of humanity. So following this line of logic, we could argue that the world as a whole would be better off if both Holden and Toyota followed Ford and shut down their manufacturing plants in Australia and started manufacturing in Asia. But of course things are not this simple.

How could we justify this to the thousands of Australians that would lose their means to live hood if these automotive giants pulled out of Australia? And then there are those in the respective complementary industries (for example those that distribute parts) that would be severelyaffected by the move. Would their “sacrifice” for the “greater good” be justifiable to them?

But there is another side to the coin. These jobs are not “lost”; they are mainly being transferred from one place to another. How about all the new jobs created, say in the Asian plants, from increased production. Would this new means of livelihood created for, say Ford’s new Asian employees, offset the loss to its Australian employees? If we add into the equation the increased utility for humanity as a whole from increased productivity, would that be justifiable to the Australian worker?  But if Ford was to continue its production in Australia, would that be justifiable to the unemployed Asian worker whose improved livelihood never came to be? Would it be justifiable to humanity as a whole?

How do we include these sufferings into the cold calculations of comparative advantage? This is the question I want to leave you with. Being completely impartial to all affected parties, and looking at the implications at an aggregate level, we might be able to justify the mathematics of international trade. But who in this world is completely impartial. Our interests are not just aligned to that of self but also that of our community and nation.

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