Flashback: Rhetoric around directive principle on economic matters

Predictably, the draft constitution, in both its process and content, has generated controversy. And not only on matters of federalism and religion. The directive principle concerning the economy has also been criticized by some quarters, notably organized private sector representatives, for listing cooperatives as one of the three pillars of the economy (the other two being the public and private sectors) and envisioning an economy geared towards "socialism". Since the criticism is coming also from Nepali Congress types, it makes me wonder what the current position of the largest (and non-communist) party is on BP socialism--a variant of socialism attributed by party faithful to their late leader BP Koirala who they eulogize as Mahamanav,or Superman. For a party that ditched BP's pro-constitutional monarchy stance as it marched to bed with the Maoists, abandoning another BP principle that it paid only lip service to may not be an awkward moment. There was a similar debate on a proposed directive principle on economic matters in early 2011 during the first Constituent Assembly period. Then, it was "mixed economy" instead of socialism. I find the arguments I made in an article then still relevant in the second Constituent Assembly period.

When rhetoric rules

(Published in Republica daily, 1/16/2011, http://archives.myrepublica.com/portal/index.php?action=news_details&news_id=27201 )

-- Paras Kharel

Perhaps it was another manifestation of the essence of the present Nepali times, where form takes precedence over substance, rhetoric over action. After some haggling over semantics, the high-level taskforce on Constitution-making decided that a three-pillar economic model—consolidating the national economy through “independent development and participation” of the public, private and cooperative sectors—would be enshrined as one of the directive principles of the state in the new Constitution. It took “days” of deliberations among the honchos of the big political parties to “agree” on what is nothing but a longstanding policy of maintaining a mixed economy dating from the Panchayat era.

Naturally, CPN-Maoist, whose chairman heads the taskforce, would insist there is something different about this model, while Nepali Congress and CPN-UML would claim it as a policy they introduced and pursued after the restoration of multiparty polity in 1990. But merely codifying what the economic system should be in the Constitution would serve little purpose other than perhaps setting a world record for the longest directive principles. This is especially so because the constitutional experience so far has been one of political expediency riding roughshod over constitutionalism, with the law of the land being interpreted to serve partisan interests. The 1990 Constitution, once billed as the world’s best by NC and UML, too, had high-sounding economic objectives of the state written out in the directive principles, as has the amendment-ridden 2007 Interim Constitution, but with no operational significance.

All kinds of specific economic policies and decisions, whether in the national interest or not, can be compatible with the broad rubric of a mixed economic system. The guiding philosophy must, therefore, be safeguarding national interest. Whether it actually is critically depends on the integrity of the political class and its "intellectual" sidekicks, not a non-binding directive principle in the Constitution.  It would be a worthwhile exercise if the leading political parties were to engage in earnest soul-searching as to why and how they failed to deliver the economic miracle they promised the hoi polloi.

Take the case of the policy on water resources, one of the very few natural endowments of the nation with a potential to transform the Nepali economy. Properly tapped, the country’s water resources can help bring about an agricultural revolution through expanded irrigation and foster industrialization (e.g., from energy-intensive industries like cement to agro-processing industries with high domestic value addition) through the availability of cheap power. They can also help gradually reduce dependence on imported fossil fuels for commercial energy needs, thereby improving energy security and addressing a major structural component of trade deficit.

Despite the vast domestic demand, existing and potential, the past few years have seen choice hydropower projects being awarded to joint ventures for export purpose. The justification peddled is that of domestic resource constraint. While no effort has been made to tap the resources in the financial system flush with remittance money for hydropower development, there is also no answer as to why foreign investors willing to cater to the Nepali electricity market cannot be attracted.

Tax incentives are offered to hydropower developers, regardless of whether they are producing for the domestic market or the Indian market—which, in effect, implies a subsidy for foreign consumers even as domestic consumers reel under crippling power cuts. A 400 kV transmission line is being built by Nepal with a foreign loan to make exports possible when the export-oriented projects come on stream, although it is the importer who should be paying for it—a point persistently raised by water resource analyst Ratna Sansar Shrestha, but which is yet to be appreciated by the officialdom.     

A sensible strategy would have been to generate as much electricity as possible, from multipurpose projects, to meet the domestic need, and then export the surplus at a right price. At Rs 3 per unit or less, the export price is unjustifiably low, lower than what the market can pay in India, lower than what Nepal Electricity Authority charges domestic consumers and much lower than the price of electricity imported from India. Lower price implies lower royalty for Nepal government.

All the three largest parties have been party to this tomfoolery, although the Maoists, after losing power, have started making noises against export-oriented hydropower projects. One is free to call this hydropower policy as being part of a “mixed” economic policy—after all, the private sector (foreign and domestic) is involved, as is the public sector (NEA). But can anyone explain how this helps “transform the national economy into an independent, self-reliant and progressive economy”, as stipulated in the directive principles of the state in the Interim Constitution, without taking recourse to the wonky economics of the economic thinkers of these parties?

There are many other policies, decisions and practices that have cost the economy and public welfare dear. The directive principle in the 1990 Constitution concerning the economic objective, which also envisioned an “independent and self-reliant” economy, did not prevent NC from launching a mad privatization drive, which reeked of corruption at the highest level and political puppetry. The directive principle did not prevent NC, UML and RPP from ratifying the infamous Mahakali Treaty (albeit with strictures never to be followed up), with RPP leaders claiming the sun would rise from the west. The directive principle did not prevent governments spanning the political spectrum—from avowed adherents of BP socialism to disciples of Marx, Lenin and Mao—from politicizing the bureaucracy and staffing public organizations and enterprises with party faithful.

For all their rhetorical emphasis on strengthening the public sector and despite the fact that even many advanced economies are not prepared to privatize utilities, the Maoists did not have any qualms about acquiescing in the privatization of the water supply utility for Kathmandu valley, instead of reforming Nepal Drinking Water Supply Corporation. It is another matter that the focus of mainstream media coverage then was on how a minister was standing up to a multilateral lending agency foisting a notorious foreign company on Nepal. Few seemed to notice the irony of a Maoist minister failing to resist privatization itself.

Call the awarding of state contracts for local development works to the private sector public-private partnership, if you like. Local leaders, cadres or simply people close to the leaders of the ruling and opposition parties invariably bag such contracts, regardless of whether they made the best bid or not. While their bosses appear to bicker in Kathmandu, local-level party leaders are busy divvying up the spoils among themselves. It seems that keeping the local bodies sans elected representatives is in the interest of the major parties as their slice of the local-level corruption pie is assured through collusive politics.

These are just a few examples of bad policies and practices that have brought us to the current mess. Without integrity and a serious commitment to development and public welfare at the highest political level, no ism or lofty constitutional provision can deliver.