It is time for policy makers to think out of the box and formulate policies that put the country on the road of prosperity
By Shiva Gautam
A country’s overall well-being may be measured by its citizens’ level of income, literacy, education and health status. Needless to say, Nepal does not fare well in all these fronts.
What went wrong in the past and what will be the steps in the right direction for the future is what most of us are asking each other, and ourselves, these days. Excitement over the possibility of a fully functional democratic society with matching new political, social, and economic order often gives way to nervousness and uncertainties.
Political stability and economic prosperity are intertwined as one seems to depend on the other, and one seems to explain the other to a large extent. In Nepal’s present context, political stability may be a necessary condition for economic prosperity, and economic prosperity may be a necessary condition for maintaining the political stability.
In the coming days, political leaders of different parties, lawmakers, members of civil society, and people in general will be looking into ways to take the country forward by restructuring the state, devising election and representation process, formulating taxation and economic policies and most importantly writing a new constitution.
May be things are now about to change for good; at least there is nothing bad in hoping so. Maybe this time around a solution to multidimensional problem facing Nepal will not be patchy and go beyond treating symptoms only.
One of the burning questions that need immediate attention is how to boost the economy and put the country on the road to long-term economic prosperity, without destroying the environment.
A simple solution
A simple way to boost the economy is to put money in the hands of the people and ask them to spend it wisely. One obvious way to do this is to create opportunities for employment, since just printing the money and distributing will create disastrous problems before we know it. (Hypothetically, it may work if we could produce goods and services of high demand and liquidity almost instantly, so that monetary and economic collapse could be averted).
So, as a part of an overall economic package for creating wealth for the nation, the government should formulate and implement policies to generate employment for its citizens. Political stability and good governance are essential for these policies to work efficiently and optimally.
Historically, Nepal had lacked sound economic policies, political stability and good governance; it is no wonder the country has been in state of perpetual poverty. Referring to the Panchyat era economic policies, one of my economist friends told me how people responsible for economic policies did so many things that introductory economic text-books suggest not doing.
If a government hands over a successful venture to private sector, then it is quite understandable. However, there are few instances in Nepal’s case where the government took over profitable private sector businesses and turned them into unprofitable. The Jute Development and Trading Corporation, and Rice Trading Corporation are two such examples.
Many experts believe that democratic era of 1990 saw few glimpses of right economic policies, and country was readying itself for an economic take-off. But bad governance, corruption, political instability and Maoists insurgency heavily outweighed any economic gain to be realized by ordinary citizens.
Common sense tells that government should facilitate and help create environment for a business without too much intervention. Then consumers will enjoy the product, other business get to sell their raw products, citizens get the employment to generate income, the owners make profit, the government collects tax and invests it on the roads, schools and hospitals. The whole neighborhood, then, comes alive because of the flow of the economy in its system.
The Nodal Model
In this article I propose an economic model with components of clusters of economic nodes. An economic node is defined here as a center or geographic area with certain existing or potential economic activities. A linkage between two different economic nodes will let the economy flow from one node to another.
As an example, Biratnagar could be a node with rice (rice related economic activates) at a higher level but a node with orange at a lower level. But Dhankuta, another node, on the other hand, will be at a higher level for tangerine (orange) and at a lower level for rice. Once a linking mechanism is established between these two nodes then rice from Biratnagar will flow towards Dhankuta, while orange will flow towards Biratnagar from Dhankuta. This process of flow or circulation will generate more economic activities owing to a snowball effect. This is quite analogous to flow of water or circulation of electric current from one point to other.
If there were means to transport apples from Jumla to Nepalganj (and beyond), the farmers of Jumla will earn nice income, and people of Nepalganj and Indians of bordering towns will have taste of fresh apple from the Himalaya. Government could help in creating link, like ropeway, roadway, railway, waterway, airway whatever seems economic.
The government should help identify and develop nodes, and create links between the nodes. For example, if there were means to transport apples from Jumla to Nepalganj (and beyond), the farmers of Jumla will earn nice income, and people of Nepalganj and Indians of bordering towns will have taste of fresh apple from the Himalyas. Government could help in creating link, like ropeway, roadway, railway, waterway, airway whatever seems economic. Linkage between two nodes does not mean only physical links; the term is being used here in a rather comprehensive sense.
In no way I am suggesting that government be involved doing business, but the government should facilitate, encourage, and provide incentives to local businesses and firms, and develop necessary infrastructure to bring these nodes alive and make them fully functional.
To look economy in isolation will be a mistake. It should be linked to social and ecological aspects as well. New political and administrative structure with central and regional governments now seems a foregone conclusion. One can think of nodal modal consisting nodes, sub-nodes, super-nodes, and regional nodes.
It makes sense for local/regional governments to collect taxes on local property (land), and the local/regional governments spend locally increasing local (nodal) economic activities.
Additionally, the regional government working with the national government should implement its own economic policy, develop of economic nodes and link them.
Nepal has almost any kind of weather in the world. One can find completely different set of vegetation within a couple hours of walk up and down in the hills. Due to varying elevation, orientation, and amount of sunshine different agricultural products including medicinal herbs can be produced.
Linking the nodes
Under the nodal model, the country will consist of network of nodes big and small. A bigger (super) node may consist cluster of smaller nodes with each smaller node linked to the super node. Various modes of linkage need to be developed for a flow of goods and services from node to node and beyond.
In Terai, an east-west grand canal linking all the rivers flowing north to south can be constructed. This mother canal will provide irrigation to fertile terai, be a link (water way) to various nodes in terai, ease the transportation burden, and generate additional business. An east west railway will also connect various economic nodes.
Similarly, roads linking China and India passing through several nodes will allow flow of economy to and from these countries generating economic activities and income in Nepal. These countries are also economic nodes from global perspectives.
But this probably will require massive information gathering using something like geographical information system (GIS).
The world is shrinking more and more to a global village. If we had invested in education in the past, we would have taken advantage of current technological outsourcing. We can still invest in quality education and produce skilled manpower needed to the country, and the world, and could become a nodal point for certain economic actives in the global context.
There must be something wrong with our educational system. Since the beginning, the country has been run by educated people (of their times), and not by the uneducated poor folks. But the country has not taken off and has been always in the grip of corruption, poverty, and social injustice. One of the weaknesses of the current system is the lack responsibility and involvement of the people at the local level and lack of sense of owning the system locally, which is the most critical time for future generation.
Of course these are ambitious plan, but there is no harm having visions.
The idea of the proposed nodal economy consists of ideas that are already out there. It has aspects of Comparative Advantages of Robert Torrens (1815) and David Ricardo (1817), and the concept opportunity cost found in neoclassical economic thoughts. It is also found in few plans of 1990 governments to take development at local level.
Finally, nothing is free. Besides heavy investment we need to protect our environment also. In economic activities, heavy exploitation of human being in olden days is now being replaced by exploitation of nature. Though nature does not ask for compensation a portion of profit must be allocated to maintain the environment for our own future.
Unthinking the thinking
In conclusion, it is time for policy makers to think out of the box and formulate policies that put the country on the road of prosperity. Previous governments have revolved around two central approaches. They either like to borrow modern western ideas without making adjustments for mediating factors existing in Nepal, or get stuck to the mind set of no more effective traditional ‘land reform’ policies, which only partitions the land further without increasing productivity. At a smaller scale many believe that infrastructure of the country can be built only on the basis of volunteerism and sheer slogan of nationalism. Barter economy of any form will take us nowhere.
As an example, a sizable economy of Nepal is informal (outside taxation), which is not the same as in developed countries. Obviously a different approach to taxation needs to be in place in Nepal. Similarly, all the governments of the past had fixation on further partitioning of the land and been unable to think outside of this ‘land reform’ box. The simple fact is the population doubled within two decades, and the land has increase an inch. Land is still important, agriculture is still should get priority, but instead basing major thrust of economic policy on partitioning of land we should focus on improving the output, moving people to other sectors from the land and controlling population explosion.
The author is a faculty at the Harvard University and can be reached at [email protected]
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