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Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

A few take-aways from ‘What is Seen and What is Not Seen’

1. Policies could make problems worse sometimes

Back when India was under British colonization, there appeared a problem of cobras. Cobras in the open were causing problems for British officials and therefore, a bounty was declared for anyone who could produce a dead cobra. But individuals saw an economic opportunity in this. Locals now started farming cobras. When the officials learned of this, the idea of the bounty was dropped altogether. Now, cobras did not offer any economic benefit to the locals anymore. Thererfore, they released all their cobras, causing an even greater problem. The event is today known as “The Cobra Effect” which explains the event whereby an attempt to solving a problem makes the problem even worse.

2. Protectionism affects the nationals eventually

You could buy a Chinese pair of trousers for Rs. 500. A similar but Nepal-made pair of trousers cost you Rs. 1000. This is because in China they have cheap labor. Now if you believe that as Nepalese people we should promote Nepalese goods and services and put a tariff on Chinese trousers such that they now cost Rs. 1000 as well, who benefits? The answer is, only the Nepali manufacturer. And who pays? Entire Nepalese people. If you could but the pair of trousers for Rs. 500, you could use the other Rs. 500 to buy some other goods or service with that. That would make your life better-off, than when having to spend Rs. 500 extra for somebody else’s benefit. Now imagine all 30 million Nepalese having to spend that extra Rs. 500. How many new factories could have been established in Nepal itself if people could saved and invested that Rs. 500 x 30,000,000?

3. Tax is a bad investment (if it is investment at all)

When every single one of us pays Rs. 100 each as tax such that government could channel the fund back to the people in the form of roads, public education, free health service or anything, think about the big bureaucracy that the funds have to pass through, and then all the salaries that have to be paid to the bureaucrats from the same fund, and all the contractors that would have to be hired to implement a project, and all such costs. Now ask yourself, how much does an individual get back for the Rs. 100 that he gave up? If the individual could use that Rs. 100 on his own discretion, he would have got back the entire value of Rs. 100.

4. Minimum wage takes away jobs

Imagine, you want to sell your 6 yr old laptop for just about any price. To you, maybe Rs. 3000 is better than nothing. But then the government comes and says, “You spent Rs. 60,000 on that laptop 6 years ago and people have to pay at least Rs 12,000 if they want to buy it from you.” The government is trying to get you a better deal. But you know what will really happen! Nobody will put Rs. 12,000 for your laptop. In the end, nobody buys it and you are left with no money and a laptop that serves you no purpose. Try to assign the role of this laptop to a human being and you can see how minimum wage takes jobs away. A daily wage of Rs. 250 is better than no job, when you don’t have the best of skills.

5. Banning child labor is bad for children

What kind of kids work in hotels or as ‘kanchas’ and ‘kanchis’? The answer is, the kids that have no other option but to work in bad conditions to feed themselves. Now if you ban child labor, what will happen? Nobody will employ these kids. Now what about their lives? Will you adapt every single one of those kids? Be real! You just cannot. Then what happens? Since these kids have to survive, they will now work in the informal economy, where the working conditions are even worse. And they will have to work for much less pay because a lot of kids have been forced out of the formal economy and there is now a big supply of unemployed kids. This is much like how there is cheap labor in China. They have way too many unemployed people and when supply increases demand, their bargaining power goes down.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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A few take-aways from ‘The Use of Knowledge in Society’

1. Entrepreneurs have the best knowledge of their circumstance, and not the planners

When the government comes up with a plan to promote tomato farming in Kavre with a view to use the tomato produce to make ketchup and sell this local Kavre ketchup all over Nepal and also export abroad, the government does not possess the best knowledge about the properties of tomato that grows in Kavre. The farmers in Kavre don’t aim of exporting their ketchup and growing rich because they know that their tomato has a thick skin and cannot be used to make ketchup. Their tomato is best suited for making salads and pickle, and that is where they see their market.

2. People have ‘free will’ and therefore, their decisions cannot be predicted by studying economic trends

You might love ice-creams and you’ve been having one every day for the last 2 years. Your friend knows this and brings you an ice-cream today. For some reason, today, you feel like skipping it. There is no law that enforces you to eat an ice-cream every day. You have ‘free will’ and the decisions you make today can be different from the one you made yesterday for just about any reason. Now imagine, the government trying to bring a program for entire population of Nepal.

3. Central planning is bound to collapse and give way to networks that promote voluntary cooperation

Let’s think of an economy with a central planner A. A has 3 immediate subordinates, who in turn have other three and so on and so forth, thus forming a hierarchy of command and control. Even assuming that A is a benevolent planner, he’d still have to collect the information about the bottom-most layer in the economy via some of his subordinates, who in turn do so via their subordinates. Now one, so much information gets lost in the process of it being transferred to the planner A (ever watched the telephone game in Sony TV as a kid, where 5-6 people have to communicate a 20-30 word message and how they mess everything up?) And two, while the info is being transferred, the circumstances of time and place would have changed by the time the info reaches the planner and a concrete program in implemented. This problem of ‘inefficiency’, ‘waste’ and ‘path-dependence’ leads to either ‘separation’ of the hierarchy into smaller, more efficient and more manageable hierarchies; two, the hierarchy collapses as centralized control from the top down is lost; or three, by ‘transition’, the system now begins to deal with the increased information and increased complexity by flattening the hierarchy, forming ‘networks’.

4. Price is a great communicator – a marvel!

Price system carries with it the vast amount of information (and without losing any important bit), much of which is lost in a Planned Order. Price system can make adjustments to the changes in circumstances of time and place, without every individual (or for now, let’s keep it to the planner) having to delve into the all the specifics that is causing him to behave in a certain way. This system creates new values for every individual with every tiny change in the circumstances, creates new incentives and provides sufficient avenues for all to prosper.

5. If you look around, ‘Spontaneous Order’ is all around us

Now here in the ‘network’ (that is formed when the system begins to deal with the increased information and increased complexity by flattening the hierarchy) the relationship between any two individuals is that of free exchange, that is co-operation and voluntary. This, in Hayek’s view, is a ‘Spontaneous order.’ This ‘Spontaneous order’ is a result of human action and not planners’ design. If you seek examples, think about the language you speak, or the money you buy things with. No single planner created either of these things. Years of cooperation between human beings created these things.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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The Concept of ‘Property Rights,’ and Nepal

Today, there are numerous examples from all around the world on how securing property rights has led to the economic prosperity of nations. Be it the farm privatization in China or securing formal titles to the property under possession of the Peruvians, these actions have been the harbinger of economic growth in the respective countries, esp. their nationals at the bottom layer of the pyramid. Secure property right sits well-established as one of the most important elements for economic prosperity. As more and more people from developing nations are stressing on the need of economic growth, and as Nepal is no exception to this, it is therefore crucial that the status of protection of physical and intellectual property in Nepal be discussed.

In partnership with Property Rights Alliance (PRA), a Washington DC-based non-partisan organization that advocates the protection of property rights (Physical and Intellectual), Samriddhi, The Prosperity Foundation launched the International Property Rights Index (IPRI)Report, 2014 in Kathmandu, Nepal on the 4th of November, 2014. The report-launch was done during an Econ-ity event which is a monthly discussion forum where politicians, bureaucrats, entrepreneurs, academicians, journalists and all concerned stakeholders partake in a discourse on contemporary political-economic issues of Nepal. This edition of Econ-ity featured a discussion on the position of Nepal in the global property rights context, the reasons behind why Nepal fares so poorly in terms of security of property rights and the importance of the concept of property rights being acknowledged and respected by the state for achieving economic prosperity in Nepal.

The panelists for the event were:
1. Dr. Chiranjivi Nepal – Economic Advisor to the Prime Minister of Nepal
2. Dr. Bhimarjun Acharya – Constitutional expert
3. Mr. Khim Lal Devkota – Former Member of the Constituent Assembly

Panelists during the event

Panelists during the event

The event was moderated by Mr. Yuvaraj Ghimire, Chief Editor, Annapurna Post.

As per the report, Nepal’s IPRI has remained at a stagnant 4.5 this year, as the last year. Legal and Political Environment has remained stagnant at 3.3 while Physical Property Right and Intellectual Property Rights have gone down by 0.1 point each to 5.9 and 4.1 as compared to 6.0 and 4.2 respectively last year. With this index, Nepal is still a nation with one of the weakest property rights in the world, securing 78th position out of 97 countries that were studied in detail.

Below is the snippet of the views expressed by the panelists during the discourse.

During the event, Dr. Chiranjivi Nepal stayed true to his roots as an economist and displayed great enthusiasm in supporting the importance of Property Rights in leading a nation towards economic development and prosperity. “Access to natural resources or being natural resource rich is not enough to ensure richness,” he argued, “as strong property rights enforcements will naturally foster an environment for wealth creation.” Moreover, further supporting his strong belief on the importance of property rights, he said, “political ideologies are not a barrier or impediment to growth, as evinced by Finland, a socialist state, which is a powerhouse in terms of technological advancement because of its proper enforcement of property rights laws.” In the case of Nepal, he provided strong evidence for the weak property rights situation by verifying the number of people who have lost their property in the guise of road expansion. He stated that the state-sanctioned ‘Road Expansion Drive’ has been a direct violation of the constitutional right to private property of all Nepalese citizens, leading to such dismal performance in the global comparison. He expressed that such unconstitutional acquisition of private property kills the spirit of entrepreneurship in people and pushes the country towards economic regress. He drew examples from countries like India, the US and more where they have opted to shift capitals to new locations to protect and preserve the historical resources and safeguard private properties instead of bulldozing them in the name of traffic management. He further urged the policy-makers to learn from the examples of India and China where economic liberalisation, where protection of private property is one of the responsibilities and commitments of the state, has led to their attaining such high levels of economic growth in the last few decades as they have.

Dr. Bhimarjun Acharya, as an expert in the legal system of Nepal provided a concise viewpoint on the issues related to property rights which are contentious in the current constituent assembly, namely: ceiling on earning, compensation on public earning, ceiling on land holding, and whether property is a fundamental right. He further added that UN’s Fundamental Declaration on Human Rights recognizes property as a fundamental human right. He added that public acquisition of private property can only take place in the case of public interest and when such actions are taken due compensation is a requirement. Similarly, “an accountable government should take all necessary steps to ensure the public that the acquired property is being utilized for the same purpose as the pretext that led to such acquisition in the first place” he concluded. He added that despite Nepal’s once having endorsed the notion that all the land in a country belongs to the state and people are given permission by the state to use the land for economic gains, it is a completely impractical notion in the modern context and no state action can be justified if it breaches the fundamental right of the people without prior compensation.

panelists all-ears on the audience

panelists all-ears on the audience

Former CA member Mr. Khim Lal Devkota had a differing opinion in terms of private property. He stated that property rights are provisioned by law; hence, they are legal rights and cannot be accorded the position of fundamental rights. He explained that government planning on the allocation of private property is required and that compete freedom of property utilization through private parties will result in failure as verified by the recent economic downturn and failure of a number of corporations which ultimately required government intervention. Similarly, he suggested that private property ownership will not lead to economic freedom as such wealth owners will only be looking for themselves—the difficulties faced in the construction of transmission lines being an example. Asymmetric wealth distribution is a looming problem and an undeterred property acquisition would only aid those who are already rich, leaving the poor poorer he stated. Moreover, he argued, such conditions would foster an unequal and volatile social environment that could incubate unrest and disorder. In a world where 85 people—who could easily influence world events to their whim—posses more wealth than that held by half of the world’s population, he concluded, it is important to structure property rights around activities that are beneficial to the public as a whole.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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SAARC, for the everyday person

This time, let’s get to business right away – no setting the context. Here are four reasons why I cannot be at one with government’s enforcing the odd-even system in the vehicle mobility for 5 days, along with shutting down the entire productive sector for two days.

Halt economic activity:
One day of ‘bandh’ costs the economy NRs. 1.75 billion. And here we stand, facing two days of state sanctioned ‘bandh.’ SAARC Summit, a gathering where the member states’ representatives get together to discuss ways of attaining economic growth at regional level, and here we are, effectively halting entire economy. With enforcement of the odd-even system in vehicle mobility, the burden of transporting whole labor force is now on the shoulder of half the transportation system (on days other than the ones when the state has called for a closure.) And what’s more, this does not apply to the government vehicles. So you mean, the productive sector has to either stay home or battle the state machineries to be able to produce anything, while the government – the unproductive and re-distributive sector gets special privilege?

On mobility:
As long as the vehicles are mobile, it would seem that traffic would be fine; as traffic problem is not about the volume of vehicles on the road, but their management. If the traffic police department concentrated on enforcing the existing traffic rules better, much of the trouble that the public is being put through, could have been done away with. Well maybe, our traffic police department lacks the capacity to manage the vehicles within the capital. But if that is so, then shouldn’t we not be doing SAARC summits in Kathmandu? The traffic police department should not be so powerful that it curtails the rights of Nepalese people to earn a living. You cannot sacrifice the natural rights of entire population in the name of welcoming 7 dignitaries. You have the choice to not take up this responsibility if you are not capable of handling it. Until yesterday, it was illegal to over-cram a public vehicle and today the authorities leave you no option but to do exactly that, and twice as much. Well, Kudos to the Traffic Police Department anyway!

Oh ya, education! It’s being shut down for four days:
As per the Ministry of Education data, there are currently 8, 112,058 students enrolled in different formal educational institutions in Nepal (Grade 1 to university level.) For the sake of calculation, let’s assume one education day is a 6-hr day. That is 194,689,392 learning hours shut down by the government. This is on top of all the strikes and existing holidays we have in one calendar year.

And I can definitely not miss out on the new beautiful roads:
Well, we pay the road tax, the vehicle tax; the government name it, and we pay it all. So we are already entitled to better roads to ply our vehicles over. We don’t need SAARC to deliver to us what we have already paid for. It is a misguided notion if you believe that thanks to SAARC, we’ve been getting better roads, street lights and new parks. Imagine all Nepalese people (from all parts of the country) paying taxes and all of that being spent on the beautification of the capital. In fact it could create an imbalance in the economy, or be unfair to the people from the rest of the country, if it were so. I urge the readers to think about what other sectors the money could have been channeled to; the number of new start-ups that could have been established, the infrastructures that could have been built to facilitate transportation of goods and services from currently inaccessible areas, the number of poor kids who could have been educated through direct transfer of funds, and the list could just go on. Can the welfare of Nepalese throughout the nation be compromised in the pretext of beautifying Kathmandu? This is not to mean that government should rather focus on redistribution, but to hint that resources could have been put into better use if not for beautification of Kathmandu. The mechanism by which that can be attained, I would personally have different opinion than that of central planning.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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Misdirected goal (?)

In a bid to curb rising unemployment, and international migration of rural youth to seek economic opportunities elsewhere, Nepal Rastra Bank (Central bank of Nepal) has recently issued a ‘Working Procedure on Interest Subsidy for Agriculture Loans to the Youth.’ As the name suggests, through this document, the government and Nepal Rastra Bank (NRB) are aiming to revive the Nepalese economy through agriculture. The plan is to encourage the youth to work in Nepal itself, make them feel like the country values them and is constantly working to providing better economic opportunities to them in Nepal, and develop the agriculture sector of Nepal; a nationalist policy I’d say. While the intentions are highly commendable, there are a few things that the authorities seem to have overlooked.

More farmers does not mean a prosperous Nepal

fragmented farming in NepalFirstly, the goal of the state has been misdirected. The new move by the state aims to bring in more and more people into agriculture. As 66% of the total population currently depends on agriculture, the sector’s total contribution to Gross Domestic Product (GDP) is only 33%. Furthermore 85% of these people who practice agriculture are in the sector purely for subsistence. Despite the fact that there are around 4 million Nepalese youth toiling in the foreign land, this figure has not really changed. The productivity of the sector has not declined with respect to the number of people exiting the sector. During a consultation meeting of the Agriculture and Water Resource Committee at Singhadurbar, Honorable Hari Prasad Parajuli, the Minister of Agriculture Development himself clarified that given this background, Nepal won’t lose even a kilogram of food grain that lands in the market due to the fact the Nepalese people are going abroad for foreign employment, neither will Nepal gain a kilogram even if some of these people come back. This is the reality of our agriculture. Yes, agriculture will allow people to earn a living, but the kind of agriculture we practice today – farming in fragmented plots of land to feed one’s own family – will not offer better economic opportunities to the poor.

Remittance on the other hand

On the other hand, the scores of youth that have been forced to seek economic opportunities in foreign lands due to unfavorable enterprising environment in Nepal seem to have given some respite to poor Nepalese populace. In the last twenty years (mid-90s being the period when Nepal began to see an increase in outward migration of Nepalese people due to the civil war), remittance has grown 111 folds, from $50 million in 1994 to $5,551 million in 2013. This has contributed largely to reducing poverty in Nepal, raising the quality of life of rural Nepalese and enhancing their access to education, health education and services, and technology. If the state really wants these migrant workers to come back, then the economic gain that they get upon their return has to be greater than the one they are currently getting in foreign lands. But this aspect has not been addressed by the state plan.

The Bankers’ Dillema

The other problem with the NRB guideline is how it fails to see the impact of a policy like this on the bankers. The guideline fails to recognize the fact that the money that commercial banks hold is actually savings of the general public itself and the profits belong to the shareholders. The bankers are accountable and answerable to these stakeholders if their money is channeled into making risky investments. Banking is a business and it is guided by the prospect of making profits. If a project looks lucrative to the banks, it will finance the project. If not, not even the one being undertaken by the poorest Nepali will be financed by the bank in the pretext of helping the poor. Besides, the administrative cost of availing services to great number of small scale farmers (esp. when these farmers fail to produce properties that can be entertained by the banks as collateral) is far greater than availing services to their corporate clients. If the state fails to acknowledge this fact, then this plan is bound to fail like other similar programs where the bankers opt to pay the fines instead of complying with the state policies.

Therefore, under the current scenario, what the state really needs to do is ease the process of holding formal entitlements of the land, buildings and small enterprises that people have owned and run for years. What the state needs to do is acknowledge people’s property, secure their property rights and convert their ‘dead capital’ into ‘live capital’ such that these can be used as collateral in the banks to acquire loans to enterprise (not just farming but everything) and create wealth, instead of subsidizing an inefficient farming practice in the name of nationalism.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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In Defense of Profits

bishalbazaarIn late September, a few shops in Bishal Bazaar came under Department of Commerce’s scanner. Shops were found selling goods at prices much higher than their cost prices. It is unfortunate that the businessmen obstructed the monitoring and went in as far as shutting down the entire complex in order to protest the department’s move. This also earned them a lot of infamy in the public domain. However, much of this hue and cry over how businessmen were sucking life out of poor Nepalese people, ‘anarchy of businessmen’ and the likes that followed the incident were mostly unnecessary.

As a country that practices liberal economy, what is even more unfortunate is that the government has been excessively reluctant in letting go of the ages-old practice of the controlled-economy. It has adamantly held on to its four decade old regulation that bars businesses from making any profit exceeding 20%. This is outright mockery of the ‘economic liberalisation of 1990s.’ Why else is it that there is no black-marketeering when government imposes a 300% plus tariff in private cars and suddenly there is black marketeering when a private businesses make a profit of 21%? In no way is it a liberal economy when the government tells you how much profit you can make out of a transaction.

But of course, the government imposes such heavy taxes in order to give back to the people, right? Not quite. 65% of the Fiscal budget goes to financing administrative expenditure. Government’s annual revenue is lesser than its administrative expenditure. So, NO, not taxes and other sources of government revenue do not finance development in the same sense that we assume that revenues collected by government will come back to the people. On the other hand, the profits made in free markets do.

No businessman hoards all of his profits in a locker. He consumes other services, invests somewhere or saves his profits through banks and other financial institutions. When he consumes a good X, the producer is making money and the suppliers of the raw materials are getting jobs. This even creates new job opportunities as demands increase. Investments create economic benefits to the society. Even his savings propel economic growth as that is a capital that some other individual can acquire from banks and financial institutions to kick-start his new venture. So other than the amount that a businessman saves in his locker for some unforeseen circumstances in the future, all other profit he makes is channeled back to the economy and that multiplies the wealth of the society. This is the unseen side of the marvelous thing called ‘price’ and the profit it helps generate.

And the misguided notion of consumers being fleeced by businesses in the aftermath of free-markets is the least of my worries. In a free market where the government does not interfere with prices and the profit margins that service providers set for themselves, the transacting parties work-out a fair deal for both of them voluntarily. One can always bargain with the service provider to get a service at an affordable price. But in no way is an individual entitled to an affordable service. If I cannot afford a suit at Bishal Bazaar, that is not the place for me. I better explore alternatives such that my wants fit my budget. If I still think that I cannot have a regular tailor do my suit and I go out of my budget to fulfill my want, then that is a trade-off I have made between the satisfaction of a Bishal Bazaar-tailored suit and the added work-load that I have to take on, to cover for the expenses. There is really no connection with the cost price of tailoring a suit. It is all about the value I see in a commodity.

Liberal economy and profit control are incompatible with one another. Profit is an amount that a consumer is willing to pay to a service provider over the cost price of the same commodity/service to transfer the ownership to himself. A price is a value that a consumer puts over a commodity. Nobody can be forced to buy something that gives him no value in return. Similarly, nobody ought to be forced to limit his profit to an arbitrary figure if the other party in the transaction is willing to pay for it.

There are other things like cartel, adulteration and anti-competitive practices that the Department of Commerce should be looking to curb, if it wishes to protect the consumers’ welfare. But in no way should profits ever be on their list.

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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