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Three lessons from these recurring blockades

Image Sources: India Today, 1989 (top and bottom left); AFP, 2015 (top right); The Himalayan Times, 2015 (bottom right)

More than two months into the “unofficial” blockade now, it is no surprise that blockade is what (almost) everyone is talking about; be it some casual chit-chat or some blown-up rant on the social media. An interesting observation here is that quite some of these regular people here appear to understand, and be able to scrutinize the geo-politics as soon as the supplies get disrupted. It must be noted that these are not mere hollow outcries; these informal discourses sometimes lead to some meaningful recommendations that could benefit our economy in the long-run. This disruption could be the harbinger of the change – the opportunity for us to reform our economic policies and trade strategies – that can lead us to prosperity. It all depends on how we take lessons from this crisis:

1. Let ’em do it!

The state-owned Nepal Oil Corporation (NOC)’s monopoly, stemming out of the NOC-IOC (Indian Oil Corporation) partnership has barred the private sector from partaking in the industry and exploring alternatives elsewhere. This has further constrained the choices that the public has in terms of procurement of petroleum products. Today, we even pay higher prices for the petroleum products just to cover NOC’s inefficiency. Even after having proved its inefficiency through repeated shortages and bankruptcy, why shouldn’t the government let the private sector do it?

Although the private sector is technically “allowed to import” petroleum products, and even allowed to open a refinery, the paid-up capital requirement is a ridiculously high Rs. 20 billion – equal to 1% of the GDP and multiple times higher than that for the commercial banks. Such high regulatory capital requirements pose a barrier to entry for the private sector. Had we had more flexible policies, and thus private companies bringing in petroleum products from other sources, we would not have been facing this petroleum crisis today. It is unfortunate that even after all of this, the government has instead created a ‘black market’ by banning the entrepreneurial individuals from “smuggle”-ing these basic supplies. Pun intended!

2. Don’t put all your eggs in one basket!

“Self-reliance” has also made it to one of the most discussed issues amidst current political-economic crisis. The people in favor of this “self-reliance” however seem to forget the very reason trade exists. Trade benefits consumers the most through competition in prices and qualities, and giving choices to the people. It is important we be clear that the havoc this disruption has created is because of lack of diversification in our supply-chain, and not trade. Our foreign policies and trade policies have not been liberal enough. Relying on just one source for most of our essential supplies has handicapped us. The answer to guaranteeing an uninterrupted supply of goods and services lies in diversifying our import portfolio instead of relying on one country to supply us almost everything. Had there been a competitive and diverse supply chain, who knows we might even have been importing crude oil from Russia and cooking gas from Kazakhstan!

3. Treat your friends equally, because if you don’t, you don’t see them as friends – Michiyo Yamashita

Free trade in goods, labor and capital would help Nepal from both uninterrupted supply of necessity goods and prosperity perspectives. Otherwise, treaties can be detrimental when they are exclusive. They will divert trade from cheaper goods of non-member countries to more-expensive goods from member countries.

Nepal has signed a transit treaty as well as a treaty of trade with India and some other nations. However we haven’t been able to capitalize on them for mutual benefit. We need treaties that lower the tariffs, reduce and standardize the documentation and provide access to each other’s markets. It is important here that Nepal treats its neighbors at par with each other. Another important factor for free trade is free connectivity. The recent turn of events has paved way for trade and transit treaties with more partners. Nepal, as a landlocked nation needs to secure connectivity through multiple accesses to sea ports. Nepal has already agreed with China to open more transit points, but we also need a transit treaty with China. There is equal need to institutionalize transit treaty with Bangladesh.

The Bottom Line

The above lessons should be one of the defining norms of our economic and trade policies even at normal times – not just when supplies get disrupted. The ability of the free market to coordinate itself through entrepreneurial discovery process is second to none. And when it comes to diversification of imports, what it means is that the government should facilitate, without direct participation, the process of market discovery for our imports from producers worldwide. Such facilitation is only possible by ensuring better connectivity and access through trade and transit treaties that are non-exclusive.

Dinesh Karki

About Dinesh Karki

Dinesh Karki is an independent researcher. He has Economics degree from Xi'an Jiaotong-Liverpool University, Suzhou, China.

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Time to Review the Pension System

Recently, Kantipur, a national daily of Nepal, published a news report on the Nepalese pension system. It highlighted some of the drawbacks of current pension provision.

In Nepal, only public employees (government employees) qualify for a pension. Nepal adopts a non-contributory pension system where the employer (Government of Nepal) bears the entire burden of pension. This further means that the existing tax-payers pay for the benefit of the retired public employees.

Juddha Samsher, the then Prime Minister of Nepal started pension system in 1944, for the benefit of retired army personnel. After the formation on Civil Service Act, 1956, all civil servants in Nepal qualified for pension. Civil Service act of Nepal 1993 states,

“Civil employee who has been in government service for a period of twenty years or more shall be entitled to a monthly pension at the following rate.”

Total year of service X amount of the last salary
50

As per the same news, 211,667 civil servants are receiving pension currently. NRs 32 billion has been allocated as pension budget. This is about 3% of the total budget. The trend shows that the rupee amount of the pension budget doubles every 4 years. At this rate, the government will have to allocate equal budgets for both salary and pension.

Civil Service Act of Nepal says that any Nepalese citizen can enroll in the government service from the age of 18 and get a voluntarily retirement after serving for 16 years in the army, or 20 years of permanent tenure as civil servant on other government jobs. This shows that one will be eligible for the pension at the age of 38. Average life expectancy of a Nepalese citizen is 67 years. In case of a civil servant, it is 72 years. Thus, a public employee qualifies for pension for more than double the number of years he serves in the government; without any contribution! As per the current legal provisions, the wife and minor children (under 18 years of age) of government employees will receive pensions in the event of their death. They receive a full pension for seven years, and half the amount henceforth.

This generous system of Nepal is what makes public service lucrative for the Nepalese citizens. When the Public Service Commission or any other government body announces vacancy, we see a total downpour of applications. The existing government provision offers a perfect incentive for a government job, especially to those who are less enterprising and innovative but value future security at the cost of efficiency. Of course, this is not a generalization of the entire workforce in the public sector, rather an analysis of the possibilities.

Pensions would be justified if the government were using it as a tool to incentivize its employees to work efficiently and yield effective outputs. But let’s face it: ours is not the most efficient of governments in the world. When you create a benefit mechanism that effectively means that you sit at this particular desk for some 20 odd years (minus all holidays) and qualify for a lifetime of “free lunch,” people are going to ask questions about it. And that is precisely what is happening here! (I can already foresee the scorn in your face)

There is already a conception in our society that “sarkaari jaagir” (a job at the government office) is one such lax job where one does not have to work hard (at all) – just go to the office at your own convenience and get out of that chair at 5 in the evening; and yes, if you feel like working in between, then do something at will at the office! This makes perfect sense when you consider the kind of institution that our policies have created. With the increment of Nepalese life expectancy, number of people retiring, and the increment of salary and pension each year, if the current pension prevails, soon there will come the day when the government will be rendered unable to afford its former officials’ benefits.

Had there been a contributory pension system where: employees saved some amount from their salary; the government made some contribution to the fund; and government employees were eligible to draw pensions only after reaching a certain age, this would not have created so much of a burden to the government. A fair amount of the money from our recurrent expenditure could then be channeled to some productive sector. Also, this system would make the employee active up to a certain age, and the economy would benefit from the productivity of that particular employee.

However, the employees’ unions are always against contributory pension system. Their point is that the government has to take care of the employees and the pension has to be paid from the government’s fund. They need to learn that if the current system persists, then it will drive our economy down the same road that Greece currently is trying to get out of.

Currently, the government cannot estimate the amount of resources necessary for future pension payments as there are no cut-off dates. This has posed a challenge to generate resources for pension purpose.
It would be better to create pension funds and provide the money to such funds. These funds could invest the money in some non-risky venture and pay pension out of the income from their investment. Such method would not only reduce the burden to the government but also make large amount of funds available for future capital investment.

There has been enough practice of this generous pension system in Nepal already. These practices have led to the current situation where it is not sustainable anymore, and may cause the collapse of the entire system. It is high time to reform our policies and implement the contributory pension system to rescue the nation from this vicious circle of social expenditure.

Nishant Khanal

About Nishant Khanal

Nishant is Research Intern at Samriddhi, The Prosperity 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.?

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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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External environment is not a valid excuse

Ask a lawmaker what the problem with Nepal is and a reply you commonly hear is ‘external environment’. Ask an industrialist or a trade union leader, or even perhaps a man walking on the street, and you’ll hear the same answer, ‘external environment in this country is not right’ is echoed all across.

But what is the nature of this ubiquitous monster that plagues Nepal’s economic and political prospects? What is it made of? After all, if this is indeed the problem then understanding its character becomes vital to any attempts to formulating a solution.

External environment, the very word feeds on its ability to overcome narrow definitional constrictions. It perhaps refers to the lack of a central covenant viz., the constitution, to guide our internal relations as a nation. It would also mean a political culture where the rights of others is grossly disrespected, or an environment in which the grand notion of freedom is snipped at and edited to suit ourselves. Or does it mean hostile foreign forces bent on molesting the resources of Nepal and forever keeping it under the shadow of dependency. External environment begs the question: external to what? External to self? If so, that sounds more like a mere terminological side-step to avoiding any form of moral and professional responsibility. After all, if the problem is external how can internal actors be held responsible or even accountable!

Aware of the vast challenges that confront our ever-transitioning nation, I still find it difficult to make peace with blaming an ambiguous environment for our shortfalls; as if to suggest we have no control over our own conditions. As if we, as individuals and a society, cannot dictate the terms we choose to live by. Such carelessness with our power of choice, the power to make a difference goes against the spirit of democracy that our peoples have repeatedly sacrificed. Acceptance of such helplessness should be a matter of shame, where we have surrendered our individual and social energies at the feet of an abstract, intangible, and self-imposed tyrant.

It would indeed be unfair to suggest that there isn’t anything that people cannot control or must not control to suit our needs. Research in the field of political and social psychology, genetic studies, and sociology point to a number of factors that are beyond our immediate control: we are limited by our biological and social genetic makeup. But when we repeat the excuse of external environment however is not about these. It refers to those things that are very much under our control and our jurisdiction but best left untouched lest it inconvenience ourselves and a structure to which we’ve accustomed ourselves.

If the policy is at the roots of the problem, lets debate the policy; if work culture is the problem, let the stakeholders stand up and weigh there claims against each other. If the problem is illiteracy or the lack of capital, there are ways of addressing them. These are not issues we can’t solve. The excuse of external environment refers to a gross magnification of the status quo bias: we don’t want to change because change makers themselves are cosy in the present state of things.

Given the challenges we face, and the opportunities ahead this excuse of ‘external environment’ stands invalid. The restoration of democracy and freedom of choice transcends the act of punching a ballot every couple of years. It means we have a right to transform our condition, and no environment, external or internal, should be a reason against exercising such a liberty.

Slok Gyawali

About Slok Gyawali

Slok Gyawali is a Senior Research Officer at Samriddhi, The Prosperity Foundation. He has previously worked as a political analyst for think-tanks in Washington D.C, and New Delhi. He has also contributed articles for various newspapers and magazines in Nepal, India and the UK. He holds strong opinions about Test cricket.

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Let the poor choose!

Government of Nepal has done a commendable job in taking up the responsibility of providing education – quality education, to be more precise – to all children in the country and transforming the country and lives of its people in the process. Programs like Education for All (EFA), Secondary Education Support Program (SESP), Community School Support Program (CSSP) and Teacher Education program (TEP) have been put together to enhance the quality of public education being delivered to the poor. After the School Sector Reform Plan (SSRP), 2009, the government has, especially, scaled up public expenditure into education sector and has also attempted to make the teachers more accountable. Now that SSRP has come to an end, it calls for evaluating the program in terms of how successful it has been in delivering the promises it put forth.

If we look into the results of School Leaving Certificate (SLC) examinations, which is one of the proxies we use in Nepal in measuring the success of schools and the level of education that has been imparted upon the children, we can clearly see that the public education has failed. Poor students who largely depend on publicly funded education system are not showing results that justify the level of investment that has gone into their education. Last year, of the total students that appeared for SLC examinations, only 28% of those that were enrolled in public schools passed the test while over 93% of those that were enrolled in the private schools in different parts of the country passed the test.

SLC results

Why has this been happening?

Public education in Nepal lacks an effective reward and punishment mechanism for teachers. Teachers neither get credited for the great inputs, nor are punished for being irregular at schools.

For a majority of the people in the rural parts, when their children go to schools, they become one of the first family members to do so. Therefore, the knowledge that their children are enrolled in a school implies (for these parents) that their children are getting good education. Especially in the rural nooks and crannies of the country, where monitoring can be a challenge in itself, there is no mechanism in place that keeps the teachers on check from submitting to their will of whether or not to run classes on any given day.

Even when some of these poor parents try to communicate with the teachers, the teachers have been (time and again) found to be indifferent towards their concerns. The popular defense for this is that this behavior of the teachers could be dealt with by offering them various trainings. But in having said that, it seems to have discounted the fact that GoN has already been running training programs (like Teacher Education Program) that are intended to developing attributes of teachers in these public schools. This hints that the teacher education programs could be running ineffectively and investments in these programs are not being best used.

Text books not reaching the students on time has also been a problem for the public education system in Nepal for years now. There are public schools in Nepal which do not get books and other study materials delivered to them as late as the last few months of the academic session. When teachers are not accountable towards the students and their parents, and have no incentives to deliver his/her best for these students, having no text-books only makes the situation worse as this gives public schools more reasons to take the future of these children for granted.

While the public schools have failed to deliver as per their spending, private schools have been luring more and more students every year and have also been growing in number. Parents all around the country feel that private schools deliver much better quality of education than the public schools do. A considerable portion of the remittance from the Nepalese migrant workers working in the Middle East going into the education evidences the desire of the poor to invest in good education.

Voucher system as an alternative

The flaws in the existing public education system will only come from a re-structuring of the system. Public education can definitely be made better with the right kind of commitment from all stakeholders.. What that means is that the poor are going to have to wait and depend on the very same inefficient public sector. The moral question here is: Does being poor mean that one necessarily waits for the government to choose ways to make things better for him?

The most economical way right now to revamp the whole public education and make it efficient and competent is by allowing the parents/students to choose schools on their own. As the data show, private schools fare much better in terms of imparting quality education to their students. School choice/ voucher system will introduce the must-have mechanism of reward and punishment in the public education. This will mobilize the teachers in the most effective way.

Under voucher system or the school choice program, the government funds individual students instead of funding schools. It funds the consumer instead of funding the supplier. Government selects the target families in terms of their ability to afford a quality education and hands them a voucher. The students can now choose to go to the school of their choice. This allows the parents to have their children in the schools that have been yielding the best results and are known for the education they impart on their students. When school fees need to be paid, these parents can produce the voucher that the government has given them to the school that they have chosen. In an article titled ‘Free to choose, and learn’ published by The Economist in May 2007, the principle of voucher system has been explained succinctly: “The state pays; parents choose; schools compete; standards rise; everybody gains.

This article was first published in Perspectives, The Himalayan Times, on January 19, 2015 under the title “Let the poor choose the education they want.”
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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