Tag Archives: Prosperity

If you are wondering how the plastic bag ban and the images of London in the 19^th century and today are linked, we will come back to it in just a while. But before that:

The fiscal year 2016/17 budget of Nepal has called for a ban on the use of plastic and polypropylene bags in an effort to curb environmental pollution, improve human health, environment and urban beauty. Its implementation would mean that all manufacturers of plastic bags are required to shut down their operations altogether.

The manufactures on the other hand, and expectedly so, have expressed disappointment at the “sudden and unexpected” decision by the government and have suggested that there is a greater economic cost associated with this move which the government has failed to visualize. This leaves us with a very important question. “Does the economic cost outweigh the environmental cost?”

The economic cost of this move is undeniably very high. The restrictions on the use of plastic products have a huge impact on the survival of more than 30 plastic factories in the Morang-Sunsari Industrial corridor. These industries operate with a collective capital investment of over Rs. 5 billion in machineries and equipment, and directly support the livelihoods of more than two thousand families. A large number of workers having skills in making plastic bags will be unemployed until they acquire new skills and get new jobs. There will therefore be greater frictional unemployment.

With all the hue and cry about the environmental impact of plastic all over the world, the plastic industry has become an easy target for the government which is desperate to show that they are getting some work done. It is clear that the government has not done any homework whatsoever to support this decision.

What about the investments?

Let us begin with the economic alternative the government has proposed to the entrepreneurs who have already invested in the industry. “A waiver of VAT on import of machinery and only 1% import duty for people wishing to switch to other industries.” But what about the Rs.5 billion already invested in the industry? Most of the investors are already indebted to banks and other financial institutions to operate these factories. We have not yet thought about concrete steps to help these entrepreneurs to repay the loans and recover their investments.

Everybody is becoming worse off

In a market, new innovations and technologies replace the old and outdated ones. Like in the current case of plastic ban, it also puts a lot of pressure on the existing workforce. People lose jobs when machines replace them. This act as a signal to the people that are laid off that their skills are no longer in demand in the market and therefore they need to invest in acquiring new sets of skills and get new jobs. However, when this happens, the efficiency and the productivity of the system also go up. (For example, when an electric harvester is used for harvesting crops instead of having 10 people work on a field for days). In that case, it would be a case of creative destruction.

In this case of plastic ban, however, people are being laid-off, factories are being shut, investments are being compromised, and yet, we do not see a more efficient system in place that is going to replace all these factors. The society, on the whole, only becomes worse off with this policy.

Economic growth or environment

There will still be a big support for the notion that the environment conservation is a far greater cause. But then, historically, economic growth, especially for societies that are already poor to begin with, has come at the cost of the environment (be it vast deforestation for agriculture, or the coal-backed industrial revolution). It is after a society gets to a certain level of economic development that they can now think about preserving the environment. This is also the phase where the society can now invest in new technologies that are more environment-friendly, or create such technologies.

As Johan Norberg explains in his ‘In Defense of Global Capitalism’, prosperity creates awareness and instills ‘a sense of responsibility that makes environmental protection easier in a wealthy society’. He argues, that ‘poorer countries are too preoccupied to lifting itself out of poverty to bother about environment at all’. Further he argues ‘progress of this kind, however, requires the people lives in democracies where there are able and allowed to mobilize their opinions’.

About Samrakchhina Ghimire

Samrakchhina Ghimire is a Lawyer based on Kathmandu. She holds L.L.B degree from ILS Law college, Pune University. She is a candidate of L.L.M in International Law and Commercial Law at National Law College, Tribhuwan University.

Published by: Samrakchhina Ghimire

Adam Smith’s Vision and A Prosperous Nepal

June 6, 2016

More than two centuries ago, a Scottish economist and moral philosopher Adam Smith born today, seeded the vision of a prosperous nation that becomes contextual in the case of today’s Nepal. In his book, “An Enquiry into the Cause and Consequences of the Wealth of Nation” he writes, “the wealth of the nation is fundamentally the productive labour of its people. “

He points out that it is not the wealth of the government or it’s spending capacity but the productivity of its labour that is the wealth of the country.

Nepalese government recently passed a budget roughly 50% of our Gross Domestic Product(GDP). It shows a huge involvement of government in economic planning. With more involvement of government in an economy, simultaneously the government expenditure and its power increases. When powerful government, and a central planning together try to direct the actions of people, in all probability they will work in their own self interest rather than the people’s. Even if they work for people’s interest, it will be increasingly difficult to cater to all sentiments because different people in society are guided by their own principles and interest.

Free Market Vision

Abiding by this logic, Adam Smith introduced the idea of “Free Market”, which in its inception was visionary. It was the framework in which the industrial revolution proliferated. The modern industrialised countries are the beneficiaries of Adam Smith’s idea.

In a free market economy, buyers and seller trade to meet their self interest. For example, X needs shoes but it can only make breads, while Y needs bread and can only make shoes. When they trade, both the parties benefit by sufficing their self interest. It further incentivizes X and Y to be more productive and increase their returns by making more shoes or breads. This increase in productivity in turn increase the wealth of the nation.

However, when a government plans that one cannot trade shoes with bread, or gives selective advantage by taxation or subsidies to some other good, this trade might not occur. As such, the needs of X and Y are not fulfilled which negatively affects their productivity.

Similarly, there could be other instances where self-interested parties can become creative in meeting their needs by becoming more productive and innovative. The market can be conducive to changes in demand if people are left to their self-interest.

While moving forward, Nepal cannot expect a economic transformation solely through economic planning, because in many cases such planning are in direct conflict with the self interest of the people. As Adam Smith conceives, “things do not have to be planned to be orderly”, similarly, we don’t always require central planning of the economy for the economy to be prosperous. Rather if the people are left to pursue their self-interest, they become more productive, ultimately increasing the wealth of the nation.

Limited Government

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Through this quote, Adam Smith articulates that since private actors in market are not driven by benevolence, they are likely to collude and try to get undue influences from government. Even in his lifetime Adam Smith had seen the East India Company grow in its might as a monopoly and a quasi-government entity. For Adam Smith it was against the spirit of free-market when the government and the private enterprise colluded with each other for their selfish motives.

Even in Nepal, the syndicates and the private enterprises collude with government in bringing policies that safeguard the interest of these entities and chase away the prospective competitors. Transport syndicates are one example of it.

As the example suggest, this undue influence would not be possible if the government in itself was limited in its power to change the dynamics of free market.

Written by: Niranjan Prakash Niroula and Sovit Subedi

About Sovit Subedi

Sovit Subedi is a research intern at Samriddhi. He graduated from University of Pune with a Bachelors Degree in Economics. His interests are in entrepreneurship, strategy and development.

Published by: Sovit Subedi

Economy

Private Property Right – You have it, but you don’t

September 25, 2015

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 compensation 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

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.

Published by: Akash Shrestha

Categories Economy

Three years of bandhs in five years!

August 20, 2015

Republica National Daily published an article on the total number of bandhs (general strikes) in Nepal in the past five years and it stands at an alarming 1047 days! Their cited source is Nepal Police.

This forced me to think about how many productive days do we really have and at this rate what will happen to the big dreams about eradicating poverty and in the words of few politicians, making Nepal ‘Singapore’ or ‘Switzerland’ in X number of years.

The above picture was drawn up on a back of an envelope calculation. Few notes:

These are the 37 holidays considered as public holidays in the list.
I am not adding the average 30 days a year leave one is entitled to as part of current laws and regulations.
You could say there could have been overlaps of bandhs on Saturdays and public holidays too. It has happened but rather rarely!

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.

Published by: Sarita Sapkota

Uncategorized

Nepal’s Displaced Patriotism

August 28, 2014

History dictates, without some level of patriotism, the economy of a country has seldom prospered: Japan- after the Second World War, South Korea – after the 60s and the US after the great depression. There was always some nationalistic slogan- without which prosperity there is often questioned. How does Nepal relate to these instances?

Most of the popular cyber criticisms aroused here relate to patriotism in terms of birth place of Buddha, expressing anger over a comedy show in the US which makes fun of Nepali diplomats not speaking proper English, or even remarks over Kumari and the shape of our flag, Mount Everest being in Nepal and so on. Most of these cases deal with natural phenomenon, historical coincidences and other minor attempts to make ourselves unique in the global arena, like the shape of our flag, or the mercenaries who originated from our nation and achieved in wars fought by other countries. It has always been unbearable to us if any of these integrities are questioned. All of these integrities that we have held so dear to our heart have one aspect in common- we never worked for any of these aspects that we are proud of.

Take the case of Lord Buddha being born in Nepal. It was one of the main agendas of the deliberation made by the Indian Prime Minister Modi at our Constituent Assembly. Strategically set, and aimed at garnering public support in Nepal. It was not because of some planning by us Nepalese or any other achievement that led to Buddha being born in Nepal. It was sheer coincidence. He could very well have been born across the border if only some of our historical treaties had been twitched a little. Moreover, the cyber critics and anger they display, every time this fact is questioned don’t state any logic on why this aspect is so much of an importance to us. Are we, as a nation, so insecure that no other human achievement made in our land stands out in this respect and therefore we need to state the same fact in our hundred rupee bill? Robin Sharma, the motivational speaker and the author of the book ‘The Monk Who Sold His Ferrari,’ was also born in Nepal. That doesn’t make him a Nepali citizen! Nationality and birthplace are very different aspects. Even more so, at a time when neither Nepal and India, nor these nationalities existed. There is a greater issue that surrounds this matter.

Why isn’t our patriotism reflected in the poor GDP per capita we have, or the political mess we are in, or the dysfunctional systems we have in our country? According to the World Bank data for 2013, our GDP per capita ranks 170 out of the 189 countries studied. The CIA fact-book shows we stand 176^th out of the 191 countries studied. So basically, we are nowhere. If we look at the ease of doing business, we rank 105^th out 189 countries; corruption perception index by transparency international ranks us 116^th out of 175 countries; education index by the UN ranks us 153^rd; the Human Development Index ranks us 145^th out of 187 countries; WHO’s world health care index ranks us 150^th. Look at any other index. We stand close to the bottom. Our patriotism would yield some result if the national sentiments were centered here.

The Asian Tigers should serve us as inspiration. Each of these places was in a pretty displaced state before the 1950s. National focus of these countries was strengthened because of exemplary leaders like Lee Kuan Yew who transformed Singapore from a third world country status to where it is at present. Though other countries among them have their own rich history that drove them to the present level of economic success, their national value system was never limited to patriotism fettered with identity and geographical pride. An economic priority was always there, talk about the “Chaebol’s” in .South Korea or the “Keiretsu’s” in Japan- the economic priority was always juxtaposed into the national priority.

In the long run, a patriotic shift towards economic and growth related issues would trigger something of the sort that was experienced by the Asian Tigers in us as well. The very reason behind the sorry state of our economy is that people are not aware of issues at all. For instance, the Upper Tama Koshi Hydro IPO is planning on issuing thousands of shared to government officers (CIT, EPF and Beema Sansthan) who don’t have a stake in the investment at all. If someone were to ask why they are getting those shares, there is not logical argument to be made. The same way, if our patriotism were to shift a little to the activities of Nepal Rastra Bank or the policies that govern doing businesses in Nepal, a lot of the government activities would have to be more accountable to the people than they are at present. Why is the rate of interest what it is at present? Why aren’t bonds being issued for profitable hydro prospective? What is happening to the tax money? Why is our fiscal tool only limited to the Budget Speech once a year? And so on.

Stephan Dercon, the chief economist of DIFD and the professor of Development Economics at Oxford, in many of his works argues that the norm and value of the nation as a whole is more important the competency and qualifications. Simply, if the value system of a country isn’t committed to making a change it simply cannot spring up. This raises a simple question of our patriotism and value system. Why isn’t it focused on economic growth and prosperity? Why is our sentiment fixed around issues like the birthplace and the natural records our country claims? Has our patriotism already accepted economic failure so fast? Is our patriotism that displaced?

About Serene Khatiwada

Serene Khatiwada is a Research Intern at Samriddhi, The Prosperity Foundation. He did his Economics Honors from Hansraj College, University of Delhi.

Published by: Serene Khatiwada

Uncategorized

Wedding Bells & Prosperity Swells

July 17, 2014

‘Tis the season to be jolly, fa la la la la … Nope it’s not Christmas! But it sure is a time for joyous celebration all over the country. Bright lights, women donning beautiful colorful attires and fancy jewelry, men in handsome suits, groovy music, delicacies of all sorts; Kathmandu is buzzing with wedding festivities this time of the year. I love weddings just as the next person and these past couple of years I’ve noticed in these revelries that the clothing are a little more refined, decorations a little more tasteful, food a little more lavish and well the parties a little more grander. When all is said and done quite a lot of people may see unnecessary profligate spending and wasted opportunity to invest in productive economic activities beneath all this merriment; however I see prosperity with plentiful economic activities in action.

Just the fact that exclusive boutiques are so swamped with work that they cannot accept additional orders even with 2-3 weeks’ notice and ultra-expensive pieces of clothing and jewelries sell like hot cakes; the economy certainly does seem to be doing well compared to a few years back. People are increasingly able to spend more and so they do and economic prosperity seems to be on the rise. While investing somewhere else is obviously the smarter thing to do in terms of monetary return for themselves; monetary gains isn’t always the most important thing. Why do people earn if not for consumption of goods and services that give them the most utility? Everything has opportunity costs and tradeoffs and if throwing a grand party is what makes people happy and they can afford to do so; so be it!

Caterers, flower shops, decorators, boutiques, hotels, party palaces, party planners, beauty parlors are just a few of the many sectors that are flourishing due to wedding celebrations. So to say that wedding celebrations have no productive economic impact when in fact it generates plentiful entrepreneurs and with that numerous jobs; is flawed. It is of course unfortunate to see people succumb to societal pressures and spend more than they can afford by taking loans which take some years and in some extreme cases entire lifetimes to pay off. This ugly side unfortunately surfaces way too many times. The celebration of two people tying the knot should be a fun and enjoyable affair which embraces our rich culture and reflects the families’ happiness; instead of a stressful show of wealth. I believe it’s important for the society to accept all types of celebrations be it huge parties or simple gatherings of well-wishers, without any judgments.

Economically speaking, spending lavishly in weddings is actually helping a lot of industries to grow and prosper. Does that mean the NRs. 20, 000 you spent on that lehenga or party shoes couldn’t have been put to a better use? Absolutely not! It most definitely could have been spent on a number of other more important things; invested to get higher returns, or given to charity. However, it does mean that you are helping the retail industry prosper and also indirectly create job opportunities; thus you don’t have to be too guilty for your splurge as long as you can afford it and it makes you happy. The wedding expenditures show that the nation or at least the capital is getting a little more prosperous and the standard of living has potentially increased. On that positive note, I wish you all a very happy wedding season and happy spending!

About Sneha Pradhan

Sneha Pradhan is a Research Assistant at Samriddhi, The Prosperity Foundation. She graduated from Mount Holyoke College with a Special Major in Economics and Statistics, and a Minor in Complex Organizations.

Published by: Sneha Pradhan

Econ-ity