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.

On Nepal-India relations

Below are my comments on Nepal-India relations published in an Indian think tank's periodical -- Foreign Policy Research Centre (FPRC) Journal-19 (http://www.fprc.in/Pragya-NEPAL-19.pdf). 

1.  Why India bashing has become a favourite sport with most Nepalis who blame New Delhi for most of the ills in their country  little knowing the dynamics of relations between both countries? 

Whether most Nepalis blame New Delhi for most of the ills in their country can only be ascertained through a credible survey/opinion poll, of which I am not aware. If this view of an average Nepali’s attitude towards India is based on media contents and slants, then that itself is a distorted view. For every report or commentary that is “hard” on India, one may spot another that seeks to wish away bilateral problems, with Nepal at the receiving end. Few media, or for that matter opinion makers that spill ink or hog airtime, are independent, what with business, political and foreign interests determining coverage of issues and events. The mainstream media—particularly the influential ones—are wanting in consistent, sustained and critical coverage of bilateral problems and issues going to the heart of the matter, essential to persuade decision makers to resolve the same. Doing so would jeopardize the receipt of advertisements from Indian business houses. So if some media or analysts here appear to raise the problems a tad too critically and stridently than the rest, those on the other side of the border who wish for good bilateral relations should not be too concerned. It should be taken in the spirit of a free marketplace of ideas. Moreover, they would be familiar with the nationalistic slant of the Indian media when it comes to matters foreign relations, faithfully toeing the South Block line.

Just as to say that most of the ills of Nepal are attributable to India would be naivety, so too would be the argument that none of them are. The imposition of a blockade by India in 1989 did hurt landlocked Nepal. Indian officialdom’s attitude towards Nepal was also questioned in the context of its refusal to endorse Nepal’s proposal that it be declared a Zone of Peace, first made in 1975 and which by the late 1980s had been endorsed by over 120 countries. India’s role in the Bhutanese refugee impasse that burdened Nepal with 100,000 Bhutanese refugees for two decades did not put the world’s most populous democracy in good light. It allowed Lhotsampa Bhutanese evicted by the Druk regime—whose defence and foreign affairs it controlled—free passage to Nepal but denied them return passage to their homeland.  Transit travails still handicap the Nepali economy. Nepali goods’ access to the Indian market is constricted by a host of para-tariff and non-tariff barriers. Border encroachment remains unaddressed.  Crimes committed on Nepali soil by elements exploiting the open border have been a problem for ages.  The practice of the Indian embassy doling out aid unilaterally, without keeping the Nepal government in the loop, casts suspicion over the intent.

Not helping matters are comments on Nepal’s internal affairs made by Indian diplomats and leaders, something that is almost unheard of in India. It is hard to interpret the open support extended to one political party by India’s ruling party in Nepal’s first elections to a constituent assembly in 2008 as anything but interference. The perception of Indian officialdom micromanaging Nepal’s political affairs, including the regime change of April 2006 that subsequently saw the overthrow of the monarchy, was substantiated, unwittingly or otherwise, in recent writings by former top Indian bureaucrats, among others. Related to this is India’s apparent policy of running with the hare and hunting with the hound with regard to Nepal’s Maoist movement that claimed over 12,000 lives, destroyed the social fabric and hugely damaged the economy: the Indian government declared the rebels terrorists even before the Nepal government did so, but continued to allow the rebel leadership to operate from its soil, including New Delhi and its outskirts!   

When genuine concerns are not addressed, there is bound to be a reaction at some level, say, the occasional demonstration at the grassroots or the waving of black flags at an Indian envoy. For better bilateral relations—one that is based on mutual trust and is on an even keel—initiatives must be taken at the highest political level to tackle burning bilateral problems and issues. For Nepal that would require key political actors to rise above petty interests, forge a common stance on foreign policy matters, and, above all, stop dashing off to the city that Lutyens built with exclusively domestic problems. For India and its new government that represents a fresh break with the past in many respects, that would mean freeing its Nepal policy from the stifling clutches of spooks and parochial bureaucrats, to be steered by open-minded political leaders who appreciate the fact that close cultural ties between the two countries have been subsisting for thousands of years, much before 1947. That no Indian prime minister has paid an official visit to Nepal since 1997 (ignoring a visit for SAARC Summit) despite invitations is telling—unless the argument, however lame, is that the “close”, “special” ties between the two neighbours obviates the need for such a visit.

2 Do you believe transforming the India-Nepal border from an 'open border' to a 'closed border' would severely damage the traditional socio-cultural,economic  ties?

Maintaining an open border with a country 41 times bigger than itself imposes a stifling constraint on economic policymaking. People can freely cross the border with gold bars in their pockets. There aren’t many places in the world where you can do that. The open border sanctions smuggling and, worse, erodes the state’s power to govern. Still, the crucial issue is not “open” versus “closed” border, but rather the unregulated border as it currently exists versus a regulated one. Cross-border crime is well-nigh impossible to check when no record is kept of people crossing the border. The proliferation of armed groups in the Tarai belt, which borders India, was made possible by the unregulated border. It is the ordinary people there whose cross-border cultural affinity is oftentimes invoked to defend the unregulated border that bear the brunt. Unregulated border-induced crime has been witnessed in the capital city too—for example, high-profile shootings. An unregulated border renders the distinction between internal and external security irrelevant.  A seemingly “domestic” insurgency or political movement that exploits the unregulated border as a matter of operational policy, with support from assorted elements on the other side, cannot be considered just an internal security threat. Free-Tibet movement footsoldiers from Dharmashala have also exploited the porous border to conduct anti-China activities from Nepali soil—which should be as much a source of concern for Nepal as any anti-India activity.

Complaints about India being at the receiving end of the unregulated border are also heard from time to time, including in the Indian media.  Fencing and regulating the border with identity cards would help address the security concerns of both countries. That would help strengthen bilateral ties in the long run. Remember, it was at India’s insistence, on security grounds, that identity cards were made mandatory for Nepali and Indian nationals travelling by air to each other’s country.

3.Nepal’s Trade deficit with India is increasing at an alarming pace.What should  be done to correct the imbalance?

Exports are low due to trade barriers and domestic supply-side constraints. True, the bilateral trade treaty accords customs duty-free market access to almost all products from Nepal. However, para-tariff and non-tariff barriers, and the unpredictability in their imposition, dampen exports. The high-level mechanism for resolving bilateral trade problems must be made robust. A timeline must be agreed for mutual recognition of standards. The restrictiveness of standards-related measures is linked to Nepal’s own supply-side constraints, too. The provisions in the trade treaty for assistance in enhancing standards-related capacity ought to be effectively implemented. Power shortages are the most crippling supply-side constraint on production, the basis for exports. Without addressing the power crisis, fast growth in exports cannot be sustained. Investment in hydropower projects to cater to domestic needs, coupled with a comprehensive plan to partly substitute petroleum products, can help contain the burgeoning petroleum import bill. Foreign investment, including Indian, in power projects will help—but these should target domestic needs first. It is a shame that a number of big hydropower projects with foreign investment are export-oriented ventures. In line with Nepal’s natural comparative advantage, agro-food production must be leveraged for industrialization purpose, by achieving horizontal and vertical product diversification, value addition and processing. Trade support institutions for, inter alia, market research, promotional activities, capacity building, information sharing and overcoming non-tariff barriers must be strengthened.

4.There seems to be a certain level of nervousness about Chinese investments in Nepal in the Indian intelligentsia and among its think tanks, which is clearly reflected in the Indian media. Do you agree? 

Needless to say, as a sovereign country Nepal has the right to maintain economic relations with any country it wants to. Nepal needs foreign investment and technology for high economic growth and job creation. It matters little whether it is Indian, Chinese or Western. China is a major source of foreign direct investment worldwide. Nepal should be concerned that it has not been able to attract more Chinese investment despite proximity and existence of high potential sectors.

If the nervousness in question stems from the involvement, direct or indirect, of the Chinese state, it is misplaced. The nature of the Chinese political and economic systems is such that some, particularly large, investments are apt to be channelled through state agencies. As long as those investments match Nepal’s needs and Nepal’s laws are respected, there must not be any issue. In particular, Chinese investment in hydropower projects to meet Nepal’s power needs is welcome.

It would be naive to think that private companies of non-communist states are never hand in glove with their home states, particularly when venturing abroad. It is hard to believe that the Indian government had no hand whatsoever behind private Indian companies landing contracts to develop choice hydropower projects meant to export power to their mother country.

5.   What steps should be under taken to link Nepali business to the global economy?

A host of measures must be taken to enhance the competitiveness of Nepali businesses, and facilitate foreign investment—details of which are beyond the scope of this response. Effective implementation of trade policy and trade integration strategy would go a long way. Better transit facilities are crucial for export diversification. A South Asian regional transit arrangement can help Nepal integrate with the entire region and beyond. 

6. It is said that Nepal cannot prosper "without good relations with India". It’s also argued  that the economic development of Nepal was in the larger interests of India and China. The tripartite cooperation would neither undermine nor replace the bilateral relationship between India and Nepal. Do you see India, China and Nepal as an Emerging Trilateral Relationship  in the 21st Century?

Although the frequency and intensity of interaction at the people’s level is greater between Nepal and India than between Nepal and China, in large part due to the geography of the plains and the Himalayas, Nepal’s foreign policy has historically been guided by the principle of equidistance between India and China, recognizing that good relations with both countries are central to its sovereign interests. This augured well for peace and stability in Nepal. When that delicate balance was systematically disturbed in the 1990s, Nepal descended into conflict, tearing apart its socio-economic fabric. It is now in the throes of unprecedented foreign interference aimed at clobbering the Nepali state (discussed in my response to question 7 below). A section of the extraneous interests is thriving in real or perceived rivalry and mistrust between India and China. Instability in Nepal can easily spill over to its immediate neighbours. National interests of both India and China would dictate that they bury their rivalry to implement a mutually compatible Nepal policy that will help arrest Nepal’s slide to a failed state. Two important avenues are engaging with Nepal at the highest political level while respecting its sovereignty (which will also provide powerful signals to other external actors), and scaling up contributions to help meet Nepal’s development needs, including via trade and investment.

7.The increase in Western spending in Nepal reflects in part an increasing appreciation among Western donors of the connection between security and development and of the need for higher levels of support to be provided in contexts that are fragile and  to examine the full range of international interests in Nepal and their implications for conflict and security. However, it does highlight the importance of understanding how the interventions of Western actors too may aggravate or mitigate conflict risks in Nepal. Do you agree with this viewpoint ? 

Foreign aid is an important source for funding Nepal government’s budget. Historically, infrastructure has been a key area where foreign aid has made a positive contribution. The conventional challenges to aid effectiveness in its various dimensions—from alignment to national needs, to outcomes—remain. However, the last eight years, as the Nepali state weakened further, have seen massive inflows of foreign aid in the name of peace process and constitution-making, with unprecedented levels of corruption. Worse, foreign agendas inimical to Nepal’s national interests have been pedalled, blatantly or subtly, as never before. For example, considerable foreign funds have been invested in one side of the debate on state restructuring in its various aspects. Seeds of ethnic and religious discord have been sown; federalism along ethnic lines has been promoted. Non-issues are raised and real issues are swept under the carpet. The insidious influence is far, wide and deep: conferences/workshops, rallies, media reports and analyses, discussions within political parties, debates in parliament. The activities of a handful of bilateral aid agencies, many I/NGOs and their pet NGOs are especially suspect.

Earlier, India stood out for attempting to overtly or covertly influence Nepal’s internal affairs, including its more than casual interest in developments related to the Tarai belt. Now it faces competition from a section of Western actors— whose interests in Nepal lie primarily in an environment potentially conducive to rattling China (via its so-called soft underbelly Tibet) and advancing an evangelical agenda. The weapon being deployed is state restructuring of a variety sure to emasculate the Nepali state. An unstable Nepal would have serious implications for India, where fissiparous tendencies lurk not far below the surface. For its own sake, India must reassess its unstated position on state restructuring in its neighbour: it must weigh any short-term gains it fancies from a putatively “India-friendly” autonomous Tarai against the long-term ramifications for itself from an unstable Nepal divided into numerous provinces.

8.Currently, Nepal is  in the middle of completing a peace process and a constitution. Do you see these processes heading towards the right direction, or what challenges do you see in completing them? 

As mentioned earlier, the constitution making process has been sabotaged by external interests bent on weakening the Nepali state. Even eight years and two constituent assemblies (with the life of the first repeatedly extended) after the political changes of 2006 that dumped the 1990 Constitution—once dubbed the “world’s best” by some major political parties—a new constitution is nowhere in sight. In the final analysis, far more important than writing a new constitution per se is the question as to whether it will find widespread support among the Nepali people and not undermine national cohesion, and whether the political actors will embrace constitutionalism or continue to interpret and mess with the rule of the land to suit their own interests.

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Transit travails revisited

At a time when Nepali officials are negotiating with their Indian counterparts for a renewal of the bilateral transit treaty that expires 5 January 2013, it is in order to recount the transit-related problems perennially faced by Nepal.

Under international convention, a landlocked country has the right of transit passage to the sea through its coastal neighbor. At the operational level, much hinges on the discretion of the neighbour. Indian insistence on inserting in the treaty a provision for an additional lock on transit cargo is reportedly holding up treaty renewal. Industrialists and actors in the logistics chain argue it is unnecessary to take a stand on this issue and, if anything, it should facilitate Nepal’s third-country trade, avoiding hold-ups when a single lock seems to be or really is out of place, and the benefit is worth the marginal cost of an extra lock. The Nepali side, at the initiative of the foreign ministry, is resisting the proposal. The resistance is not totally unfounded: Nepal having to accept one demand after another of the other side even as a litany of transit difficulties faced by Nepal remains unsolved. The additional lock issue should, therefore, be considered in the broader context of Nepal’s transit woes.

Lest we forget (and that seems to be the habit of our stock), the blockade on Nepal in 1989 was the first blockade imposed by a country on its landlocked neighbour after World War II without a formal declaration of a war. Remember also the reluctance with which Nepal’s long-standing demand for a separation of trade and transit treaties was met in 1978. The demand stemmed from the principle that transit—crucial for Nepal’s third-country trade links—must not be held hostage to bilateral trade relations on one pretext or the other.

Security is used to justify restrictive transit facility for Nepal (although Bhutan, another landlocked country in South Asia dependent on India for transit, enjoys a highly liberal transit regime, not least because it is allowed to conduct transit trade under the supervision of Bhutanese customs). But, as fate would have it, India’s desire to secure transit passage through Bangladesh for its internal as well as international trade is running into stiff resistance in the latter, and security concern is one reason behind the resistance. Such concerns cannot be brushed aside especially in the light of the fact that India has been denying landlocked Nepal unhindered transit through its territory for Nepal’s trade with Bangladesh and third countries using Bangladeshi ports on security grounds, besides fear of trade deflection. Surely, what is sauce of the geese is also sauce for the gander. This is despite the fact that all three countries are members of the World Trade Organization (WTO) and Article V of the General Agreement on Tariffs and Trade (GATT) provides for “…freedom of transit through the territory of each contracting party, via the routes most convenient for international transit, for traffic in transit to or from the territory of other contracting parties” on a non-discriminatory basis. Importantly, the Article does not require the transit trade to be preceded or succeeded by a sea journey. Valid concerns of security and trade deflection can be addressed through, for example, the adoption of the TIR (Transports Internationaux Routiers) system or a similar regionally based equivalent customs transit system. But if the transit-providing country views transit as a leverage over its landlocked neighbour, then no security concern can ever be mitigated.

The controversy over double lock, in which the foreign minister has weighed in in a queer fit of nationalism, diverts attention from other, far more serious problems on the transit front. A host of transit restrictions is in place, causing delays, raising the landed prices of imports and eroding export competitiveness. The restrictions operate at two levels: transit to access Indian sea-ports, and transit through Indian territory to access Bangladeshi markets and sea-ports. Cumbersome transit processes, including procedural controls, citing the possibility of trade deflection, are in place. It is customary for Indian authorities to issue unilateral notifications on transit and customs matters. Hassles in the form of multiple checking agencies mar the entire transit process. Actual documentary requirements are higher than those specified in the treaty. The consent to allow Nepal to use Vishakhapatnam port as an alternative to the congested Kolkata/Hadia ports where mother vessels cannot berth, thereby necessitating transshipment via Colombo and Singapore ports, has not been followed through. Burdensome procedures and controls—including one that causes high insurance costs for Nepali cargo—raise transit time and cost, and thereby reduce trade competitiveness, hurting producers and consumers alike. Through-bills-of-lading (TBLs) are not issued for cargo to and from Nepal, with the result of low utilization of the Birgunj dry port. The most important advantage of issuing and receiving TBLs at a dry port is that they reduce customs and clearance activities at sea-ports to a minimum, with only the transport activities of transit being emphasized. The pledge to grant Nepal transit through India for Nepal’s bilateral as well as transit trade with Bangladesh via the Rohanpur-Singhabad railway point remains a pledge. And then there is the highly restrictive transit regime governing road-based transit through India along the 55-km Kakarbhitta/Panitanki-Fulbari/Banglabandh route.

While bilateralism is India’s preferred approach to dealing with its neighbours, for a landlocked country like Nepal, a regional approach to transit is in its interest. A regional transit arrangement will create a level playing field and address the problem of low bargaining power of the smaller and vulnerable nations, particularly landlocked ones. Through a regional agreement, landlocked countries stand to secure better transit rights, and the realization of such rights will be less dependent on their political relationship with any particular country as any restriction and the resultant dispute will be a regional issue as opposed to a bilateral issue. Coastal countries—the traditional “transit-providers”—also stand to benefit from regional cooperation on transit and transport. For example, a 20-foot container takes at least 30-45 days to move between New Delhi and Dhaka through the maritime route at a cost of around US$2,500, whereas if there were direct rail connectivity, the time would be reduced to 4-5 days and the cost would drop to around US$850. Likewise, substantial time and cost savings could accrue if India were to be able to use Bangladesh territory for transportation of goods between parts of India’s northeastern states and Kolkata. Similarly, a container from Dhaka to Lahore now needs to travel 7,162 km by sea instead of 2,300 km, as overland movement across India is not allowed.

A regional transit transport agreement would need to be backed by investments in infrastructures (including roads, railways and sea-ports, customs and communications. The SAARC Regional Multi-modal Transport Study identified 10 road corridors, 5 rail corridors, 2 inland waterway transport corridors, 10 maritime corridors and 16 aviation gateways as having great potential to improve regional connectivity. But for their approval by the 14th SAARC Summit in 2007, progress has been nil. When will the bilateralist mindset change?

(Published in New Spotlight, 28 December 2012)

A critique of Rodrik’s proposal for “smart” globalization

“Who needs the nation state?”, asks Harvard University Professor Dani Rodrik in a new paper. He concludes: We all do. His argument is that globalization’s ills stem from the “imbalance between the global nature of markets and the domestic nature of the rules that govern them”, and global governance is neither feasible nor desirable because: market-supporting institutions are not unique; there is a heterogeneity of needs and preferences with regard to institutional forms among communities; geographical distance limits the convergence of those needs and preferences; and experimentation and competition among diverse institutional forms is desirable.

He makes quite a compelling case against what he terms hyper-globalization—which considers globalization as an end in itself rather than as a means to prosperity—just as he did in his book The Globalization Paradox, published last year. And it is difficult to contest his conclusion that all of us need the nation state. However, some of the prescriptions he makes for achieving “smart” globalization, in the paper and/or in the book, should be treated with extreme caution. A careful, in-depth analysis and assessment of their possible implications is required, to say the least. Some issues with regard to a few of his prescriptions are briefly discussed below.

He recommends that countries be allowed to uphold national standards in labour markets, finance, taxation and other areas, and to do so by raising barriers at the border if necessary, “when international trade and finance demonstrably threaten domestic practices enjoying democratic support”. In The Globalization Paradox, he proposes that the World Trade Organization (WTO)’s Agreement on Safeguards be expanded in scope and converted into an Agreement on Developmental and Social Safeguards, which would provide members, developed and developing alike, the option of opt-outs from WTO obligations even for reasons other than competitive threat to domestic industry. Rodrik’s proposition is that the raising of barriers at the border to uphold national standards should be deemed legitimate only if “democratic process” has been followed. He even goes as far so to argue that authoritarian regimes must not count on getting the same benefits/preferences in the multilateral trading regime, and that such regimes must meet stricter requirements to exercise opt-outs. The emphasis on a democratic process is to guard against the erection of trade barriers at the behest of vested interests which do not represent the interests, values and preferences of the vast majority of the people in a nation.

The fundamental problem with this prescription is how to determine whether the domestic practices under threat “enjoy democratic support”. Even if one were to accept the notion that none (all) of the decisions of an authoritarian (democratic) regime enjoy democratic support—which itself is highly controversial—there still remains a difficult question: how do you judge a regime to be democratic or otherwise? While few would oppose the proposition that governments should take decisions rooted in the interests of the people, there are no universal principles of democracy; nor are there universally accepted indicators or metrics of democracy. It is one thing to use indicators such as the World Bank's World Governance Indicators, including the voice and accountability indicator, in cross-country growth regression or a gravity equation (to explain bilateral trade flows). But few regimes/governments will accept the use of such indicators to judge the legitimacy of their decisions to impose trade barriers. It is also an open question whether democracy should be measured in terms of outcome or process. Some (with the process in mind) might argue that India has a democratic polity because it has universal suffrage and witnesses periodic elections, while others (with the outcome in mind) might argue that a country plagued by rampant corruption, criminalization of politics, a raging insurgency and separatist movements, and where poverty rates are still high, and hunger and undernourishment rates match those in sub-Saharan Africa cannot be considered to be a democracy—at least a functioning one. Similarly, while some might argue that China cannot be considered as a democracy because it is a one-party state and its citizens cannot voice their opinions as freely as their counterparts in the West can, others might argue that if India can be considered a democracy then surely so can China if only for the simple yet incontrovertible fact that it represents the greatest growth and poverty-reduction success story ever (something admitted even by its rabid critics), and that a nation, which boasts the oldest running civilization in the world, should not be expected to have a domestic system of governance that apes Western political values and systems.

Moreover, even if Rodrik’s proposal were to assess the democratic legitimacy of every decision of a regime/government to exercise opt-outs on  a case-by-case basis instead of judging a regime/government in its entirety as democratic or authoritarian, the operational difficulties of making such assessments, even if the criteria could be agreed upon, would make the proposal, however noble in intent, a pie in the sky. Forget about India or China—imagine conclusively determining whether the protection afforded by the US government to its cotton farmers carries the support of the overwhelming majority of the American people (unless a referendum is held on the issue!).     

Just as standards concerning, say, labour vary across nations, so do ideas of democracy. It is somewhat paradoxical that in attempting to suggest a way to expand and preserve domestic policy space under a multilateral economic system so that nations can uphold their national standards in virtually any area, Rodrik tends to prescribe multilateral harmonization, as it were, of standards in democracy. Moreover, Rodrik’s persistent argument (which can also be found in earlier writings, including the book One Economics Many Recipes) that authoritarian regimes must not count on getting the same benefits/preferences as democratic ones in the multilateral trading regime is an open invitation to trade war or a breakdown of the multilateral trading system. Another issue is that the proposed Agreement on Developmental and Social Safeguards, while prima facie appearing to protect the policy space of developing countries, may in reality have adverse developmental implications for them, particularly the least-developed countries, by making it legal for developed countries to discriminate against imports from countries that do not have, for example, labour standards as their own. That the proposed agreement would also allow poor countries to take border measures to preserve their own national standards would be of poor consolation in the real world of asymmetric political and economic strengths of nations.

 

On proposed think tanks and politicization

• A news report has it that the government plans to establish two think tank organizations to carry out researches and provide inputs to the government on strategic, foreign affairs, governance and economic development. Top incumbent and former bureaucrats have also proposed the creation of six advisory groups on security, foreign policy, governance, infrastructure, economic development and social security.
• The creation of a strategic affairs think tank had been suggested by some patriots way back in the early 1990s but the proposal apparently did not appeal to “democratic” governments as they thought their foreign mentors would not take such an initiative favourably.
• Post-1990, political interference paralyzed existing research centres like CEDA and CNAS such that they are now a pathetic shadow of their former selves. Given this track record, the current caretaker government’s plan to establish two new think tanks raises pointed questions: Will the organizations be independent? Will political interference be the order of the day in these to-be-formed think thanks just as in other public agencies, even if they are autonomous in paper? Will they be yet another recruiting ground for political activists masquerading as researchers and buddhijivis? Such think tanks in other countries, for example in India and Sri Lanka, have considerable autonomy and appear to be staffed by competent people as opposed to political party activists, and have been providing valuable inputs to the government (e.g., in international trade negotiations or national economic policy making).
• The news report also states that the Prime Minister’s Office will maintain a roster of former bureaucrats who will be roped in to conduct studies on policy and governance issues. There is a tendency among ex-bureaucrats in Nepal to speak from all sides of their mouth and assume the moral high ground, spewing out hackneyed suggestions on policy and governance, thinking that all readers and listeners are naïve and do not know about their past omissions and commissions when they were at the helm in Singha Durbar. While it would be unfair to say that there is not a single competent ex-bureaucrat around, the point is that there are too many nincompoops of ex-bureaucrats, who peddle agendas of petty personal, factional, party and, even more dangerously, foreign, interests, and they should not be rewarded for their failings as bureaucrats by offering them consultancies in their post-retirement years with tax payers’ money. Given the track record so far, it is most likely that a Kangressi government will rope in “prajatantrabadi” ex-bureaucrats, a UML government “pragatisheel” ones, and a Maoist government “krantikari” ones. Will strict apolitical criteria be set and adhered to while recruiting consultants, or will the manner in which the super-jumbo economic advisory council of the prime minister was constituted be followed? Will the practice of doling out consultancies, including on economic issues, to people who do not even meet the minimum educational criteria be discontinued (eg, allowing people who do not even have a Master’s degree to write policy papers and provide policy “inputs” – wow)?    
• Will political parties and party-affiliated buddhijivis allow the existing Institute of Foreign Affairs to function autonomously and conduct studies on foreign policy matters? Will they make any effort to restore the past glory of CEDA and CNAS? If not, what is one to expect from the new think tanks except providing jobs to political party activists, intellectitutes and overrated ex-bureaucrats (and we have quite a few of them barking in the popular press)?
• There is only so much that a think tank can do. Assuming that the think tanks are allowed to function without political interference, the question remains whether the government will have the guts to heed the recommendations flowing from the researches, especially those that may ruffle the feathers of foreign patrons. The first order requirement is a political class (whether in or out of government) that takes national interests to heart--not a PM that signs a controversial investment promotion and protection agreement with a neighbour without due consultations at home and has the audacity to say he had taken a "gamble" on such a sensitive issue, not a political class that sees nothing wrong with a criminal export-orientation of hydropower policy in practice.  
• We live in a society where a top-ranking ex-bureaucrat who could not institute a mechanism to prevent salary and allowance from being distributed to “missing” combatants, who had the cheek to say that nowhere in the world are the names of tax evaders (who cheat the government of revenue by producing fake bills) made public, and who is given to defending decisions to make choice hydropower projects export-oriented even as the country is reeling under crippling load-shedding with the childish argument that if there is domestic demand for the electricity generated from such projects the agreements can be easily revised to sell the power to the internal market, is felicitated as if he were the greatest man alive in Nepal. And such people are likely to be calling the shots in the advisory groups and think tanks – help!

How about making Gurkha recruitment inclusive, ‘loktantrik’?

What will be the cost to the economy of halting recruitment of Nepali youths, mostly male, into the British and Indian armies, as planned by the current government? Gurkha remittances have long been dwarfed by the remittances sent by Nepali non-mercenary labourers toiling all over the world. But it has to be admitted that Gurkha recruitment still represents an attractive livelihood opportunity for many. The around 30,000 Nepali servicemen currently in the Indian army and the around 3,800 Nepalis serving in the British army may be remitting about NRs 6 billion annually. The transfer of pensions, as reflected in the current account of the balance-of-payments, are mostly transfers to retired servicemen or their widows numbering probably more than 150,000, and amounted to NRs 29 billion in FY 2010/11. The total transfers attributable to the Gurkha recruitment could be about NRs 35 billion annually (although remittances from British Gurkhas are declining since the British government decided to allow retired Gurkhas and their families to settle in the UK, and are set to fall further as retirees increasingly choose to take up residency in the UK). That’s about 8% percent of current account income in 2010/11 or 14% of "workers' remittances" sent home by non-mercenary workers, more than the current account deficits recorded in 2009/10 and 2010/11. Every year, the British army recruits about 175 Nepali youths, and the Indian army between 2,500-3,000. Amidst acute un/underemployment, being a mercenary in these foreign armies is as much an attractive option for a Nepali youth now as it was when Gurkha recruitment started in the early 19^th century. To this scribe, if the late King Mahendra—the architect of Nepal’s modernization as a sovereign, independent nation state against all external odds, the man who oversaw the removal of foreign military checkposts from Nepali soil—did not deem it imperative to end Gurkha recruitment then (though he must not have liked it), the case for ending it is not any stronger now.   

2. While the long-term goal should be to create enough decent and productive work for Nepalis on their own soil, the Gurkha recruitment is not the most serious of threats to our nationalism at the moment. The Maoists can help revive their severely battered nationalistic credentials by taking action on other more serious issues of national interest, some of which directly featured on or are intimately related to their long-forgotten charter of demands they had submitted to the government of the day before launching their people’s war in 1996. Addressing them would also help make serving in foreign armies less attractive. They include: ending the pro-export bias of hydropower policy in practice so that high-quality and relatively cheap electricity generated from choice hydropower projects, built optimally, is used for domestic consumption and industrialization purpose instead of exporting it at dirt-cheap rates and along with it exporting away all the potential multiplier benefits (without this, industrialization efforts will come a cropper; the industrial policy will be lame); regulating the open border, if not sealing it (there will at least be a record of who comes in and who goes out), to be able to better implement national policies, protect domestic industry if required and control cross-border crime, among others; strictly enforcing the labour law to secure formal sector jobs for Nepali citizens (those who think the 1950 treaty is a boon for Nepal, don’t get agitated at this suggestion; neither party has implemented the treaty in toto; moreover, the labour law has provisions for according priority to Nepali citizens for formal sector jobs, so if you think the provisions should not be there, then openly call for their removal). The act of giving free rein to militant trade unionism and presiding over an unprecedented scale of crime and corruption—which have eaten into the vitals of the economy—but rushing to end Gurkha recruitment by opportunistically appealing to nationalism serves only to strengthen the hands of samparanbaadi intellectitutes out to discredit other, more germane, patriotic calls (such as asking for the country’s hydroelectricity to be first used to meet its huge power deficit before mulling exports) as andho, ugra rastrabaad.

3. Although pushing for a halt to Gurkha recruitment without providing alternative employment opportunities would appear to be sheer irresponsibility, some reforms and precautionary measures in connection with recruitment practices and implications are in order. The government should ask the foreign governments concerned to ensure that the Gurkha recruitment process is inclusive, ending the bigoted practice of racial selection in the hiring of Nepali boys into the two foreign armed forces, particularly one of them (you know which). Indeed, Nepal’s national army, supposed to be in dire need of democratization and constantly told to be “more inclusive”, would beat both the foreign armies’ Gurkha recruitment practice hands down in terms of ethnic inclusiveness. The point is that all Nepali ethnic groups should have a fair chance of making it to the two foreign armies. The practice of according preference to certain ethnic groups because of the “history” of valour exhibited by their forefathers should end forthwith. That would be a great service to all those un/underemployed deserving youths interested to join the foreign armies but are at a severe disadvantage because of their ethnicity. But isn’t tradition something? May be; in that case, what would your reaction be if the communities that rule the roost in the Nepali Army were to insist on maintaining the status quo on the ground of tradition—after all, their forefathers had made a yeoman’s contribution to the establishment and strengthening of the national army instrumental to the nation's unification, and they too would love to rest on their ancestral laurels?  The current Gurkha recruitment process does not befit a country that is considered to be the mother of parliament or a country that prides itself on being the world’s largest (read most populous) electoral (if not functioning) democracy. Do they subscribe to the essence of the late KP Bhattarai's response more than two decades ago as prime minister when confronted during his India visit with the question as to why Nepal’s army did not recruit enough members of a certain community?

4. Are there any takers in the mainstream media, mostly manned by political party activists? Most unlikely. They are most likely to criticize the government’s decision to pursue a halt to Gurkha recruitment, but are most unlikely to even entertain the argument made here regarding the recruitment process. They would not want to rub foreign shoulders the wrong way, for all their superficial moral grandstanding. But then what can you expect from, for example, a bunch of Kangressi hacks who carried a front-page story asking if the late Bhattarai had gone senile simply because he would not subscribe to their partisan political views on another issue, but who conveniently forgot that (mis)judgment of theirs when penning eulogies to him only six years later. [The apparent revision to their judgment would not have come about were it not for their dear party’s trouncing in the constituent assembly polls, which produced results that rubbished the predictions of armchair analysts wearing political blinkers].

5. The Nepal government would also do well to monitor, and check, moves to use ex-servicemen for advancing ulterior extraneous interests and agendas, ranging from spreading the Word to fomenting ethnic discord to outright intelligence gathering. Setting up units for dispensing pensions and welfare benefits in strategic and sensitive locations is one way the Gurkha connection is being leveraged for the grinding of vested foreign interest axes.

6. Let’s not forget that Gurkha recruitment is not aid or charity; benefits flow both ways: Nepalis are getting paid for their hard, often risky, work entailed in serving in foreign armies where the risks they face are systematically higher than what their fellow soldiers of host-country nationality ever face. Theoretically, the foreign governments concerned have the alternative of taking in recruits from the families of ex-servicemen who have domiciled on British or Indian soil if the Nepal government actually bans recruitment from its soil. But let’s not forget that they would be loath to forego a well-established channel of influence with so many possibilities—for the same investment! The Gurkha connection is likely to remain.

From Maoism to Capitalism?

(My article published in  New Spotlight, December 9-22, 2011).

Faced with a choice between a package that may or may not impart him/her with employable skills, that too in a situation of massive un/underemployment in the country (and getting a job means having to work) and a cash reward of at least Rs 500,000 for, well, doing nothing, a rational person is likely to opt for the latter without second thoughts.

And the prediction that yours humbly made in a blog post has come true. During the Maoist combatant categorization process—pursuant to the 1 November seven-point deal between the political parties controlling Nepal—the majority of the combatants in cantonments are reported to have opted for integration into the national army, with those opting for retirement with cash a close second, and only a negligible number preferring the non-cash rehab package. While a maximum of 6,500 of interested combatants could be integrated into a separate directorate of the Nepal Army, the rest had to choose between a package of education, training and vocational opportunity (with the cost ranging from Rs 600,000 to Rs 900,000), and voluntary retirement with cash of Rs 500,000 to Rs 800,000. With the latest re-verification exercise putting the total number of combatants at 16,508—2,795 less than that verified by UNMIN—at least 10,008 combatants will have to be “compensated”. (At least because not all of those who want to join the national army may meet the minimum eligibility criteria, and the Maoists are insisting “late-comers” be considered too).

The cost to the treasury of the direct cash payment would be at least Rs 6.5 billion, taking Rs 650,000 as an average payment per combatant. On the higher side, it would run up to Rs 8 billion. Of course, the combatants who have opted for the cash reward are unlikely to get the full amount they are entitled to: they will have to part with a portion of it as a levy to their beloved party (50 percent going by media reports). One need not be surprised if most of them splurge the money on gambling and drinking or other consumptive activities, or simply spend it to meet basic needs. The possibility of turning to crime when the cash runs out cannot be ruled out. Quite a few may use the cash to get an overseas job, but not without the irony that combatants of a Maoist party that officially is in favour of creating employment opportunities for Nepalis in their homeland and that heads the government have to seek work on foreign shores with money from the state’s coffers.

Instead of doling out cash, it would have been sensible to provide only the option of productive work to those not joining the army. This would not only help the combatants themselves and their families in the long run, but also contribute to the economy, not least by adding to the GDP and opening up further employment opportunities. How? Here are a few ideas but surely party-affiliated buddhijivis, members of the National Planning Commission and the PM’s team of economic advisors, among others, should be able to come up with even better ones (or else hang up their boots)—vocational training, internship, subsidized credit and other incentives for setting up own business (cottage and small enterprises), employment in infrastructure projects, some sort of employment guarantee, etc.

Perhaps the Maoists, in yet another volte face, are now seeing wisdom, albeit perversely, in the neoliberal preference for direct cash transfers, supposedly least market distorting, as a support measure for “vulnerable” groups. By this logic, the combatants should be free to choose the form of rehabilitation; guiding them into economic activities will interfere with the free workings of the market. Marx displaced by Friedman in a revolutionary party? Dr Sahib leaders of Nepali Congress happy now? And the slogan of creating a swadheen economy can always be reinterpreted as per the demands of the dialectics of opportunism, right, comrades?

Notwithstanding all these, we are assuming that all the re-verified combatants in the cantonments were also combatants during the Maoist insurgency, and that integrating them into the Nepal Army or rehabilitating them will lead to peace. That’s a heroic assumption, although they have been “verified” as such. That a significant number of core fighters have assumed new avatars in other wings of the party has been a robust charge leveled by Nepali Congressites, among others. 

Then there is the issue of justice, but raising it runs the risk of being accused of attempting to throw a spanner in the works of a “historic” peace accord. Still, a cabbie—a janta ko chhoro to the core—confided to this scribe the morning after the deal: doesn’t the deal disincentivize earning a living through legal and peaceful means?

Parking Rs 500,000—the minimum amount of “reward”—in a fixed deposit account in a financial institution in Kathmandu fetching an interest of at least 12 percent will give the recipient of the largesse a steady flow of income of Rs 57,000 (after deducting 5% tax on the interest) per year, or Rs 4,750 per month, in addition to the capital of half a million rupees. From Maoists to Capitalists overnight – quite a transition! Moreover, that income is nearly thrice the per capita average national poverty line (the latest one used by the Central Bureau of Statistics for Nepal Living Standard Survey (NLSS) III, 2010/11) and also more than the poverty line for urban Kathmandu. It is also more than the per capita nominal Gross National Income for the year 2010/11. By the way, according to NLSS III, the poverty incidence in urban Kathmandu is 11.147 percent and that in the whole country 25 percent. With Rs 8 billion, at least 55 MW of hydroelectricity can be generated.

Nepal’s donors welcomed the deal. How about footing the entire bill in grant form, without diverting aid from other sectors, and/or providing employment to ex-combatants on donor-country soil in the true spirit of solidarity, humanity, compassion and all that jazz?