Top 3 reasons why Economic Freedom matters for Nepal

(This article was originally published in the national daily The Himalayan Times, Perspectives on Nov. 23, 2014)

Like every year, the annual Economic Freedom of the World report 2014 was released last week. Samriddhi, The Prosperity Foundation is a co-publisher of the report which is produced by The Fraser Institute, Canada’s top ranked think tank. This year too, Nepal’s glory as one of the least economically free nation continues. Of the 43 variables used in the report, major weaknesses for Nepal remain in Legal System and Property Rights, Labor Market Regulations and Regulatory regime for trade and business. Read the full press release from Samriddhi Foundation on Nepal’s performance here.

For now, here are top 3 reasons on why Economic Freedom matters to a country like ours:

1. We need economic growth to deal with poverty. Aid will never get us out

We probably already know that aid is not going to lift Nepal out of poverty. Living in Nepal, we have seen this. What we probably know a little less is about is what has lifted people out of poverty. Here is a case in point:

Back in August 2011, the Nepal Living Standards Survey-III revealed that Nepal was able to achieve an astonishing 18 percent point decline in absolute poverty in the six years between 2003/04 and 2009/10. Would you attribute this achievement to the government’s periodic plans to reduce poverty, or to the efforts of more than 20,000 NGOs and INGOs spread across Nepal?

As studies are yet to answer to these very important questions, another set of statistics from the same report suggest an important perspective. The report revealed that 55.8 percent of households received remittances in Nepal, which is a sharp rise from the 31.9 percent reported in NLLS 2003/04. So when 55.8 percent of Nepalese households started receiving regular money from their families working in construction sites and mines in Qatar, Saudi Arabia and other countries, they were able to buy food, get basic health care and even send their children to good schools. THIS IS ECONOMIC FREEDOM. People are not only free to buy and sell things (including their own labor) but also to travel, do what they deem as the most effective thing to help themselves earn a living under a certain minimum legal boundary.

(Read my full essay on Economic Sustainable Development published by the Center for International Private Enterprises, which was the first place winner in CIPE’s 2011 Youth Essay Contest.)

dow e have economic freedom info graph

2. Political redistribution of wealth is not the way to deal with the Nepal’s prevailing income inequality.

Through Economic Freedom redistribution of wealth can take place more efficiently and morally than through political redistribution. Efficiently because Economic Freedom means allowing market forces to work which redistributes wealth on a massive scale. Morally because when market forces are allowed to take its course, voluntary exchange takes place and people are free to choose on what they buy, sell and the terms of exchange as opposed to political redistribution of wealth which is done through use of force (taxes, laws, etc.).

Here’s quoting Mr. Tom Palmer who puts it even more succinctly:

“If we want to understand the relationships between policies and outcomes, it should be kept in mind that property is a legal concept; wealth is an economic concept. The two are often confused, but they should be kept distinct. Market processes regularly redistribute wealth on a massive scale. In contrast, unwilling redistribution of property (when undertaken by individual citizens, it’s known as “theft”) is prohibited under the rules that govern free markets, which require that property be well defined and legally secure. Markets can redistribute wealth, even when property titles remain in the same hands. Every time the value of an asset (in which an owner has a property right) changes, the wealth of the asset owner changes. An asset that was worth 600 Euros yesterday may today be worth only 400 Euros. That’s a redistribution of 200 Euros of wealth through the market, although there has been no redistribution of property. So markets regularly redistribute wealth and in the process give owners of assets incentives to maximize their value or to shift their assets to those who will. That regular redistribution, based on incentives to maximize total value, represents transfers of wealth on a scale unthinkable for most politicians. In contrast, while market processes redistribute wealth, political processes redistribute property, by taking it from some and giving it to others; in the process, by making property less secure, such redistribution tends to make property in general less valuable, that is, to destroy wealth. The more unpredictable the redistribution, the greater the loss of wealth caused by the threat of redistribution of property.”

Read Tom Palmer’s full essay or watch a video of him debunking twenty myths about market.

3. Real ‘inclusion’ would mean having more Economic Freedom.

Inclusion is a big agenda in Nepal. A lot of non-profits from the country and abroad are working to improve the lives of the marginalized. However, the way inclusion is practiced right now is by handing out special privileges to groups based on population, area of residence, ethnicity, gender and other similar categories. If special rights are handed out to people based on above categories, it naturally means that the rest of the population is being excluded. So it is just perpetuating the cycle and not really creating an environment where everybody is treated equal. Real inclusion would mean everybody is treated equal. THIS IS ECONOMIC FREEDOM because “the key ingredients of a legal system consistent with economic freedom are rule of law, security of property rights, and independent and unbiased judiciary, and impartial and effective enforcement of the law.”

Finally, here is a checklist of the major things Economic Freedom stands for:

economic freedom checklist

Watch this video to learn more about why economic freedom is so great. If you are more of an academic type, you might like this report from NICLAS BERGGREN which uses data and empirical evidence to demonstrate the arguments used in this article.

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