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

1. Policies could make problems worse sometimes

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

2. Protectionism affects the nationals eventually

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

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

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

4. Minimum wage takes away jobs

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

5. Banning child labor is bad for children

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

Akash Shrestha

Akash Shrestha is a researcher at Samriddhi Foundation where his focus areas are investment laws, public enterprises and education.

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