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Where is the trust in the market?

It is somewhat consolation to us all, that the constitution was eventually ratified and a long political process came to an end. But when it comes to prosperity and growth, the constitution does not have enough ground work for better environment for entrepreneurs. Ultimately, it is not the government that is going to be the engine of economic growth of our country. What government can and should do is to lay out ground rules that encourages innovation and protects entrepreneurs. Government should create an environment that promotes competition by reducing barriers to entry and by preventing the formation of cartels.

This is preamble of the Constitution of the Federal Democratic Republic of Nepal:

Nepal is an independent, indivisible, sovereign, secular, inclusive, democratic, socialism-oriented, republican, multiethnic state which shall be called Nepal in short

That sentence without the word ‘socialism oriented’ is still perfect to describe new Nepal under the new constitution. Since the word is there, what is its implication now? Is government going to take responsibility of providing goods and services for its citizens, even if the market is perfectly capable of doing so?

The constitution guarantees all sorts of rights for individuals for example: right to health, right to clean environment, right to education, right to employment etc. Among the rights that is provided for individuals, labor right and right of consumers provides interesting insight into how policy makers think of private sectors. Following are some excerpts from the constitution:

Every worker and employee shall have the right to form and join trade unions and to engage in collective bargaining for the protection of their respective interests, as provided in law

Every consumer shall have right to get quality goods and services. Victim of loss incurred from low quality goods or services shall have right to compensation as provided by the law

These clauses have an underlying assumption that business are always looking at every opportunity to take advantage of their consumers and workers. And these clauses also have the assumption that government is the big brother which is going to protect us (consumers and laborers) all. Another assumption in those clauses is that the government is benevolent saint that has public interests at its core. Well it could not be further from the truth. The fact that it took this long for the constitution to be drafted and ratified (it took eight years) proves that legislative bodies, political parties and bureaucrats have their own self-interest namely: securing votes, re-election and securing budget. Public interest is the least of their concern even if they make us believe it is.

It is true that businesses look for every opportunities to maximize profit. It is also true that there can be incidents of business malpractices. The way out of this problem then is to create an environment of competition driven by efficiency and innovation. In an environment of fair competition, the businesses that engage in mal-practices will not survive and will have to exit the market. The government should let the force of market work its magic rather than imposing iron clad regulations on businesses, which can lead to many unintended consequences and are very hard to change even if the regulations are not leading to desired outcomes.

This lack of trust in the role of market and entrepreneurial spirit (core of which is competition, efficiency and innovation) is very tragic for Nepal, a country which is in desperate need of rapid economic growth. Rapid economic growth does not come from regulating the private sectors. And policy makers should be very mindful of this.

Dhruba Bhandari

About Dhruba Bhandari

Dhruba Bhandari is Research Fellow at Samriddhi, The Prosperity Foundation. He joined the Foundation in July 2015. He completed PhD in Development Economics from Oklahoma State University (USA) in 2013. Prior to Joining Foundation, he worked as Research Associate at Oklahoma State University.

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Selling yet another false promise?

Sub-article two of the Article 17 of the Constitution of the Federal Democratic Republic of Nepal, 2015 states that every Nepalese citizen has a fundamental right to practice any profession, carry out any occupation, or establish and operate any enterprise within Nepal. This freedom to enterprise was also upheld by the Constitution of the Kingdom of Nepal, 1990 and later by the Interim Constitution of Nepal, 2007.

But were the citizens of Nepal really free to carry out any profession of their choice? Not quite! The 15-year (and counting) ban on the registration of taxis in Bagmati Zone is a manifestation of the state depriving its people of their constitutionally guaranteed fundamental right to choose an occupation, a profession or an enterprise.

The taxi industry

In May 2000, the Department of Transport Management put up a “90-day” halt on the registration of new taxis in Bagmati Zone in the pretext of carrying out a study about whether the number of taxis (8000, when this decision was made) had surpassed the carrying capacity of the roads. UntitledNow 15 years down the line, the decision of halt still persists in the form of a quota limit while the number of taxis has fallen much below the year-2000 level and the population in the zone has more than doubled.

Kathmandu valley alone has higher population to taxi ratio, and lesser taxis per square kilometer of area, compared to some of the cities with better alternative public transportation services. This ban, and the agreement between the government and the Federation of Nepalese National Transportation Entrepreneurs (FNNTE) requiring the recommendation of the FNNTE to issue service license or route permits to enter the industry, together, have created an almost-impenetrable entry barrier for prospective entrepreneurs that want to enter the industry and make a living by providing transportation service.

On top of it all, the government has also exercised price control by setting fares for the taxi service – one that is almost never followed.

How it affects prospective entrepreneurs

The quota (quantity control) means that new players will not be able to enter the industry. That automatically converts the taxi operation licenses into valuable assets. The taxi operators, who were already in the industry before the ban was introduced, now have the opportunity to collude and engage in anti-competitive practices. Today, the taxi licenses sell for around nine hundred thousand Rupees while the registration of other vehicles of similar capacity (car, jeep, van, pick-up and tempo) is only Rs. 750 as per the Motor Vehicles and Transport Management Rules, 1997. Used taxis sell for another one million Rupees in the market. That makes it around Rs. 1.9 million just to enter the industry with a 15-year old third-or-fourth-hand cab, excluding time and money that these prospective entrepreneurs have to spend trying to build ties with the Federation and earning their favor.

How often do we hear of ‘access to finance’ as one of the major challenges to micro, small and medium entrepreneurs in Nepal? And how often do we read of young Nepalese men and women going to the Middle East or Malaysia in search of jobs and in the hopes of earning a decent living for their families back home, just to come back a corpse locked up in coffins? An ‘awful’ lot of times! And yet, here we are, restraining them from enterprising in Nepal itself. Are we forcing them to seek opportunities in hostile environment in some foreign land by denying them their fundamental right of engaging in a profession or an enterprise of their choice in Nepal?

Deregulation the only way

A complete deregulation of the taxi industry will guarantee that the people are free to exercise their fundamental right. The Ministry of Physical Infrastructure and Transport (MoPIT) is mulling introducing a fixed number of taxis into the market. But this will still mean that lots of other prospective entrepreneurs cannot enter the industry at will. At this point, I urge the readers to keep in mind that not entering a market because one does not see great economic prospects in the market, and not being allowed to enter the market are two very different things. The former is a voluntary action of the individual while the latter is a violation of his/her right due to barriers created by regulations.

MoPIT, as the line ministry will then have to mitigate the opposition that it is likely to face from the existing taxi operators that are benefitting from the existing set-up. Countries like Ireland and New Zealand adopted a zero-compensation policy while deregulating the industry because the privilege (for example, the Rs. 900,000 for an otherwise Rs. 750 service license in Nepal’s case) that the taxi operators were about to lose were unfair benefits of an unfair policy. However, there were also people that had only recently taken loans and just bought their way into the industry. In cases like these, the MoPIT would have to learn practical lessons from how other countries have deregulated their transportation sectors.

Conclusion

Of course, deregulation of the taxi industry is only a small example of the many economic reforms that are necessary to create a favorable environment for the people to enterprise freely in Nepal and become prosperous. The advent of the new constitution does not only signify the federation of the country into autonomous states, and the devolution of the powers of the central government to the local bodies. To the citizenry, it signifies new hope and new spirit. The people believe that in this new Federal Democratic Republic of Nepal, they will finally find economic opportunities within their homeland and be able to earn a decent living and grow prosperous together with their fellow men and women. But, will the autonomous states be bold enough to make such strides, or will words like ‘prosperity’ prove to be just another ‘word’ put up on the new constitution to justify the eight years that it took to write the constitution?

This article was originally published in Perspectives, The Himalayan Times, on the 27th of Spetember, 2015. Click here to access the published version.
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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Private Property Right – You have it, but you don’t

The freedom of an individual to keep ownership of the fruits of his/her labor is the fundamental principle of private property right. This right manifests in the form of lending the owner of a property, the freedom to use, dispose of, and transfer the ownership of that particular property to any other individual/group through voluntary transaction. It is one of the fundamental pillars of economic freedom – the harbinger of prosperity. The UN has also ratified it as a Human Right. Countries today guarantee this right to their people as their fundamental right through their constitution – the supreme law. So does Nepal. Or does it?

Mere addressing property right as a fundamental right does not necessarily guarantee it. Particularly so when the article instating the property right is quickly followed by the lawmakers’ favorite little word – explanation. This is usually where the lawmakers tweak the preceding texts in such a way that they promise something, but they don’t really have to keep the promise. The Constitution of the Federal Democratic Republic of Nepal lends us an example:

Article 25: Right to Property

“Every citizen shall, subject to laws in force, have the right to acquire, own, sell, profit from, or engage in other transactions relating to, property.”

And then (you guessed it right): Explanation!

“(3) … when the state acquires private land for purposes relating to public interest, the basis and process of compensation will be as per the law.

“(4) Nothing … shall be deemed to prevent the State in enforcing land reform, management and regulation for the purpose of increasing production and productivity of land, modernization and commercialization of agriculture, environment preservation, organized housing and planned urbanization.

“(5) As per the sub-article 3, when the state acquires any individual’s private property for public interest purpose, nothing shall prevent the state from using the property in any other public interest purpose than the one cited at the time of acquisition.”

Note: The above text is an unofficial translation by the author.

Since the constitution stipulates that the property expropriation1compensation be determined as per by the law, the compensation against the expropriation of private property per se is no more guaranteed by the constitution. It would depend on the Acts relating to the purpose that it is actually being expropriated for. And it is again possible (although not necessarily so) to amend the Acts to rid the state of the burden of compensation altogether. One recent example would be the government denying land-owners a compensation for the acquisition of their land by the state during the road expansion drive in Kathmandu. The constitution does not make it mandatory that expropriation only be allowed after complying with a due process, including a just, fair and reasonable compensation. Instead, it states that nothing shall prevent the state from expropriating private property for ‘public interest’ purpose.

Here are a few examples of how other countries protect private property, and make compulsory provisions for compensation if there ever need be to expropriate somebody’s private property:

Article 31, The Constitution of India 

“… it shall not be lawful for the State to acquire any portion of such land … unless the law relating to the acquisition of such land, building or structure, provides for payment of compensation at a rate which shall not be less than the market value thereof.”

The Constitution of the United States, Amendment 5 – Trial and Punishment, Compensation for Takings. Ratified 12/15/1791: 

“ … nor shall private property be taken for public use, without just compensation”

Compare these constitutional provisions with those of Nepal and it becomes clear that you and I, the citizens of Nepal have our property right, and yet not.

“The right to life is the source of all rights—and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life.”

Man’s Rights, Ayn Rand

Featured image source: www.demotix.com
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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#Notmyconstitution

The constitution came…. after 8 years…apparently we had the time, and the money, and we could totally afford it…so no worries. We even survived the earthquake to live under this constitution.

But we survived to live under THIS constitution? These are six things about the constitution that really perturbs me.

1) The definition of us : “Nepal is an independent…state, oriented towards democratic socialism…”

Did we really agree to have the government take one of our two cows (that we bought from our sisters’ and brothers’ remittance) and give it to our neighbor when we voted for them to write the constitution?

Did we really agree to be forced to join a cooperative where you have to teach your neighbor how to take care of his cow (which was actually yours?)

Screen Shot 2015-08-14 at 12.56.19 PM

2) Welfare dependence: Sit back, relax, enjoy the constitution, and the country.

We have right to clean environment, employment (and thus unemployment benefit), food, healthcare, and other social securities. Everything we need is a right! You’re gonna get these things no matter what. So, Sit back, relax and enjoy the country. The omnipotent state is going to do everything for us. It does not matter if these are realistically deliverable. Where else, if not the constitution, will you dream high and set tall ideals? Afterall, उद्देश्य के लिनु उडी छुनु चन्द्र एक ….

cat relax

If you are smart, the next thing you do after reading the constitution is get hold of a good lawyer to make some good money cause there are likely to be enough opportunities to sue the government in near future. If you are lucky, you will actually get a date at the court in a couple of years and if you are super lucky and win, the government will actually pay you after losing!

3) The haziness associated with property rights: Keep your property, only as long as the state does not want it!

It does say “Every citizen shall, subject to laws, have the right to acquire, own, have professional gains, sell and otherwise utilize, or dispose of property.”

But wait….after a few lines its says : Provided that it shall not be deemed to obstruct land reform, management and regulation by the State for increasing produce and productivity of land, modernization and professionalization of agriculture, environmental protection, and for an organized settlement and urban development as provided for by sub-clause 93) and (4).

I don’t know any property owner whose property might not be interpreted to violate this law.

brookins

4) Creating this ‘us against them’ for perpetuity : All Nepalese are equal but some are more equal than the others.

Some of us are really special to secure a special clause in the fundamental rights section. Like the Labour Unions, but not the employers huh (c’mon why put this profit hungry evil employment providers whom we don’t even need cause we now have unemployment benefits lined up). If you belong to certain caste group, great for you, you are right there on the fundamental rights section. Rest of you – better luck next constitution. Hopefully you will have become a minority by then. Divide people across those lines. Perpetuate minorities, that’s how you get elected every time.giphy

 

5) Defeating the purpose overall: Autonomy! What does that mean?

Local states are all made of Jon Snows. They know nothing! That’s what the drafters thought. Otherwise there would be something local states could do, other than waiting for the center to send them leaders, money, food, administrators, everything basically.

Jon snow

6) And the vagueness: Prepare to fight!

The duties of a citizen as mentioned in the constitution includes “Compulsorily enlist when the nation needs the service”! Somebody please tell me what would ‘when the nation needs the service’ could possibly mean. Big flood? Big earthquake? Diarrhoea epidemics, etc.?

tumblr_nswy2nnB7Y1uxbcg9o1_500

Welcome to the New Nepal!

Let me know if there are things in the constitution that you disagree with. Use the hashtag #notmyconstitution and share!

 

 

Note: Views are personal!

 

 

Sarita Sapkota

About Sarita Sapkota

Ms. Sapkota is the Coordinator of Communication and Development at Samriddhi Foundation and was previously engaged with the Foundation as a Research Associate for more than three years. She is a graduate of political science and also contributes articles for Samriddhi's column at The Himalayan Times' Perspectives supplement.

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Not only a Nepali Constitution?

In a recently published article by eKantipur, Nepal’s Prime Minister Sushil Koirala was quoted expressing his concerns about the global spread of terrorism and militant fundamentalism. He called these a “threat to peace, stability, democracy and development”. Regardless of whether you agree with his political ideology, you must agree with him on this point. Global terrorism today constitutes a major concern for state and non-state actors and confronting it has to be a top priority. 

Nepal is in an interesting, yet challenging, transition phase. One would think that composing a new constitution to establish a fertile environment for economic development would keep Nepali politicians busy enough. But having to deal with the threat of terrorism, in a scope the world has never witnessed, seems like a lot of additional work that somehow needs to be addressed

A very diverse country such as Nepal can be an example of how diversity can be used to tackle terrorism. Having witnessed tremendous political changes, that overthrew monarchy, and started the peace and democratic process, Nepal can now provide policy makers from across the globe an example of how national and economic security issues can be a unifier against terrorism.

Unifying different stakeholders for national security, while accommodating autonomy of a variety of cultural heritages and religious affiliations, under one constitution, was always going to be a challenge. The European Union itself is brawling with the task of preserving unity in a world that wants to celebrate diversity but not emphasizing it. Acknowledging that the fight against terrorism transcends cultures, religions and nations may not be the most elegant argument for unity but it has a lot of potential. 

If Nepal’s new constitution is successful in addressing the threat of terrorism by providing a fair and just set of fundamental principles that fight the problem at its roots, it can serve as an example for other countries as well. I would even go as far as to suggest that if it succeeds in balancing good governance and unity while also granting enough autonomy to each of the states, it accomplishes what the European Parliament has been trying to do ever since its foundation. Then perhaps the EU could learn a lesson or two from Nepal. Or it could simply do what most of us have done plenty of times during school: copy. 

Mr. Koirala also called on all political parties to act in concert to “defeat all forms and manifestations of terrorism”. This reasoning has value beyond the context of terrorism. If political parties could only apply this mindset of teamwork to other areas of the constitution making, Nepal would soon have a well formulated and democratic constitution.

 

Robert Doerzbach

About Robert Doerzbach

Robert Doerzbach is a Research intern at Samriddhi, The Prosperity Foundation. He studies International Cultural and Business Studies at the University of Passau, Germany.

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Analysis of Budget 2071/72 Presented by GoN

The Ministry of Finance has presented a budget of Rs. 618 billion for the fiscal year 2071/72. While the Finance Minister has promised to kick-start second generation of economic reforms by reforming economic policies, bringing down anti-competitive practices like syndicate and cartels, encouraging the private sector and offering various fiscal incentives like tax exemptions and rebates, the budget has, in the mean time, also been a subject of debate in terms of issues like Constituency Development Fund, being pro-rich and many more.

Samriddhi, The Prosperity Foundation hosted its latest round of Econ-ity on “Analysis of Budget 2071/72 Presented by GoN” on the 17th of July, 2014 at Hotel Everest, New Baneshwor, Kathmandu.

The speakers at Econ-ity interacting with the audience

The speakers at Econ-ity interacting with the audience

This edition of econ-ity featured Dr. Chiranjibi Nepal (Chief Economic Advisor to the Prime Minister) and Prof. Dr. Bishwanbher Pyakuryal (Senior Economist) as speakers. The event was moderated by Mr. Rameshore Khanal (Former Secretary, Ministry of Finance) who started by acknowledging that this budget has been presented in the right time for Nepal. He shared that the current government is capable of staying in power throughout its tenure and has potential to deliver results in terms of constitution drafting, delivering economic growth, enhancing production, generating employment, etc. In the meantime, he also acknowledged the fact that this budget has been critically analysed in the parliament itself and opposition parties have raised concerns over its not being regionally balanced.

Here is a snippet of what the speakers said during the forum and what their analysis was regarding the new fiscal budget.

Prof. Dr. Bishwanbher Pyakuryal

Prof. Dr. Pyakurayal commenced his deliberation by acknowledging the good aspects of this budget. He mentioned that the allocations justify the government mission of employment generation, economic growth, social physical infrastructure, long term growth and poverty reduction.

He then went on to warn that this budget will not it yield any result unless the plans and policies and reform measures are implemented. The underlying assumptions that are made during the preparation of the budget do not seem to hold up in reality in Nepalese context. He talked about how theoretical economic policies and ground realities of Nepal do not match.

Nepal has seen wages go up or down, without really affecting labor productivity; despite the much talked about effect of India’s economy, Nepal’s inflation was still double digit when only last year it was contained at zero in India; the monetary policies have failed to deliver desired results in inflation. There does not seem to exist a robust relationship between Nepal’s monetary policy and inflation. He further expressed that we need to understand which among the factors like policies, capital adequacy/inadequacy, governance structure, and institutional set-ups are responsible for these issues.

He highlighted that one of the major problems in Nepal is the inability to make capital expenditures. Despite Local Self Governance Act and guidelines set by the fiscal commission, we have failed to spend on time. This raises concerns over our resource allocations. He said that we have already missed the train if we are to make it to Developing Nation status by 2022. We need to make 13-18 billion dollars worth of capital expenditure to graduate to Developing Nation status, but our current growth rates will not lead us there.

He raised serious concerns over how we never study India’s budget allocations’ impact in Nepalese economy despite its being released few months in prior. With their levels of planning, their currency is going to strengthen against USD. This will lead to lower production costs in India. On the contrary, our production costs are higher than market prices in India. Only 13% of the agricultural produces reach the markets in Nepal. In this case, the priority of the budget should have been making markets available to these entrepreneurs, farmers, businessmen. This has not been addressed by this budget.

While on one hand, the budget talks about reforming policies and Acts, in reality we have been relying on very old policies. We are still guided by Foreign Exchange Regulation Act, 1962, while India has made 3 amendments to the same Act of theirs till date. There are as many as three dozens of proposed policies and Acts lying around in the cabinet; some are stuck in the parliament. These processes need to be expedited.

He also expressed that we need to make structural changes in our tourism sector. 55-65% contribution to tourism sector comes from domestic tourism, but we have failed to recognize the domestic tourists. We need to explore further on possibilities of pilgrimage tourism, adventure tourism, trekking, sights-seeing, and formulate relevant programs for the domestic tourists. He also mentioned that we should look into popular international tourism practices like keeping Tourism Competitive Indices.

He concluded his deliberation by commenting over lack of capital/financial management in Neal and economic viability of possible federal states. There is domestic saving worth Rs. 2 trillion in Nepal itself but we have failed to channel these funds into productive sectors. He further drew attention to the issue of economic viability of federal states. While have been talking about federalism in Nepal, we have been overlooking facts like 60 % of Nepalese districts only somehow manage to collect revenues worth 10% of their total expenditure. Under such a situation, it is obvious that it makes no economic sense to go into federalism.

Dr. Chiranjibi Nepal

Dr. Nepal commenced his deliberation by expressing that we cannot have very high expectations from the budget. His focused majorly on our inability to make time-bound reforms to our existing policies and regulations. He acknowledged that for the first time in history, this budget has addressed Second Generation of Economic Reforms. However, lot needs to be done for the promises sowed by the budget to materialize.

He stressed on the need for industrial policies to adapt and respond to the changing trends and rapidly developing technological innovations coming in the market. Comparing it with India and China, he lamented that Nepal has been very slow in economic reforms and mentioned capital and financial market as an example of how the economy has been hit by lack of timely policies. China has continued to grow since its economic reforms of 1978, achieving as much as double digit annual economic growth and falling to single digit only recently. Industrial policy of China changes every 3 years to allow the industries to adapt to the technological advancements in the world. Similarly, India, that opened up its economy in 1994 has been continually reforming its economic policies and is all set to be one of the biggest economies in the world by 2020. In the meantime, Nepal has failed to internalize the positive changes occurring in the neighboring countries.

Dr. Nepal also shared that the Constituency Development Fund (CDF) will do away with the long bureaucratic procedures delaying the funds from reaching the local level, and expressed his consensus with the policy.
The pre-budget discussion, addressing Public Procurement Act, Financial Accountability, Land Acquisition and quality control are some major highlights of this budget, as expressed by Dr. Nepal.

Interaction with the audience

The participative and interactive audience then further talked about education, ability of the government to spend, youth self employment, foreign employment, sectors of comparative advantage, and other issues pertinent to the topic. Some highlights of the interaction session are as follows:

• Currently in Nepal, inflations has been rising and output is falling. There is therefore a situation of stagflation. Similarly, there does not seem to be a sound link between growth and employment. We have seen unemployment levels remain the same despite economic growth. In order to address situations like these, we need to form coordinated policies.

• Agricultural Development Bank has gone on loss due to its subsidy program. Now, instead of going for technological up-gradation and commercial agriculture, we are giving continuity to the same subsidy program. It appears that necessary homework has not been done in this regard.

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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