PETRO PRICE HIKE

Politics of protest

June 6, 2018 01:30 AM Veeshan Rayamajhee


Veeshan Rayamajhee

Veeshan Rayamajhee

The author is a PhD candidate in Economics at University of New Mexico

We are seeking for individualistic solutions to institutional problems, precisely where it is convenient to look but impossible to find

Every time the state-owned Nepal Oil Corporation (NOC) announces price-hike of petroleum products, torch-wielding members of student unions, often ones affiliated with major opposition parties, but occasionally those representing ruling parties, flock the streets of Kathmandu and major metropolitans, chanting anti-government slogans and demanding Prime Minister’s resignation. Almost always, the government makes executive decisions forcing NOC to partially withdraw price-hikes. The consequence is an obvious one: kilometers and kilometers of lines of people in their motorcycles and cars, sweating or shivering and taking turns to wait for days to fill up a quarter of their tanks, or resorting to black market, nepotism and favoritism to fulfill their energy demands. A little longer test of public patience, followed by a more ‘tolerable’ price hike, and things begin to settle down to normal, that is, until the next price hike. 

Throughout a series of changes in regime-types, ruling parties, and even several iterations of the national constitution, this Rudra-tandav dance of political parties and their loyalist student unions has remained consistent. An undergraduate student of economics would be able to tell you about economic shortages when prices are artificially pegged below the equilibrium. One could reasonably argue that the public understands this as well. Hence the curious question: why is the public complacent? Why do these protests garner so much mass support? James Buchanan and Gordon Tullock provide us with analytical tools that will help us unravel this seemingly absurd self-inflicting cost. In their seminal work Calculus of Consent (1962), Buchanan and Tullock push us to think of all economic agents involved in a game as self-interested agents whose interactions are dictated by their motives. Self-utility maximizing being, aka homo economicus, is not a novel concept, but where Tullock and Buchanan shine is in their consistent application of economic assumptions to all players of the game and not just to consumers. 

The conventional Janasewak portrayal of public officials presents politicians and bureaucrats, at least in their most idealized versions, as ‘benevolent servants of the people’ who are able to rise above their parochial self-interests and work for the common good. While one may think that this or that NOC bureaucrat or this or that elected official may have corrupt intentions, our ever-present optimistic hope is that someday a ‘deserving’ public official will finally ‘decontaminate’ NOC. This optimism may very well materialize someday, but will it last? I am willing to bet it won’t. The proverbial streetlight effect is in play here. We are seeking for individualistic solutions to institutional problems, precisely where it is convenient to look but impossible to find. Only if we first begin to sincerely evaluate motivations of each player in this game, we may begin to understand this absurdity. Then we can finally illuminate darker streets, where we lost our keys in the first place.

Players of the game

Student wings of political parties have traditionally been breeding grounds for future politicians. Gagan Thapa, Ramkumari Jhakri, and Lekhnath Neupane all rose to prominence as student leaders. University campuses are where these leaders get to establish their leadership image, and demonstrate their revolutionary fervor. But not every student leader makes the cut. Take the 441 member Central Committee of the newly formed Nepal Communist Party. Many with exaggerated revolutionary devotion and support from the highest echelons of leadership failed to qualify. One thing is clear: the competition to be noticed is fierce, and these leaders will leave no stones unturned to utilize price-hike opportunities to prove their political zealot. However,their

interest in affordability and access of petroleum extends only to their roles as consumers of those products. The higher up the leader is in the organizational hierarchy within these unions, and the more political capital s/he is endowed with, accessibility and affordability of petroleum products become more a nonissue, even in times of stark shortages.

One may be tempted to think of Nepali political parties in terms of the left-right ideological divide. However, if the tumultuous political history of Nepal has taught us one unequivocal lesson, it is that no politician categorically adheres to any single school of thought. Consider the malleability of ideas on social philosophy and political economy of some of the most prominent leaders (Baburam Bhattarai comes to mind) or the number of times communist parties have added and omitted Marxism, Leninism, Maoism, Prachandapath, BP-ism, and Bhandari-ism from their party banners. For this exercise, it is more fitting to think of politicians in terms of their interests in protecting or dismantling the NOC monopoly. Their motivations for aligning with one side or the other can be for political or personal gains. 

Consider an NCP politician who benefits from NOC monopoly. Since the demand for petroleum products is inelastic, s/he has personal gains to make from raising the price, and, as a member of the communist party, sees it politically consistent to advocate for the government’s monopolistic control of NOC. The latter is true even if s/he has no personal interests in NOC’s monopoly. So, if the politicians hold public office or have influence in NOC administration, their strategy will be to privately support price hikes but publicly condemn how severe it is. A Nepali Congress leader with no private interests to protect NOC monopoly may favor alternatives to monopolistic petroleum market, but, after being trounced in the last general elections, s/he has more political gains to make from opposing price hikes than advocating for long-term solutions.

NOC and public 

Since NOC administrators are politically appointed, any top NOC official, if his/her goal is to climb up the bureaucratic ladder, finds it beneficial to align with politicians. Once at the top of the NOC food-chain mired in institutionalized corruption, it is in his/her best interest to work towards strengthening monopoly and raising prices. Say, by a sheer black swan coincidence, a benevolent bureaucrat A, who hopes to ‘sanitize’ NOC, reaches the top. A’s move will be at the expense of bureaucrat B, C, D, C...Z’s payoffs and hence, B-Z have every incentive to delegitimize A.

The public, as consumers of petroleum products, want better quality, easy access, and lower prices. Considering the inherent trade-offs across these dimensions, they may be willing to pay higher prices if that means eased access or better quality. However, because NOC is an ever-deepening pothole of bureaucratic corruption and political rent-seeking, the only guaranteed outcome from increased prices is more money in the hands of bureaucrats and politicians. Knowing that the rules of the games are skewed against consumer wellbeing, they know that sacrificing in one of the three attributes (cost, quality and access) will not result in a gain in any other attribute. In other words, higher prices do not lead to better access or improved quality. So, given that the two choices they face are poor access and lower prices versus still poor access and higher prices, consumers, as rational actors, will do the obvious: protest against higher prices, even if that means days of lining up in petrol pumps and gas retailers. 

Lesson to learn 

If we know that every person holding the public office is the same kind, we should not be fooled into thinking that changing such personnel will automatically lead to better governance. When the rules of the game are established in ways that inevitably lead to unfavorable outcomes, the good fight is not one directed towards resisting price hikes but one that aims at changing the very rules of the game. If we continue to see sarkar as the solution of our day to day problems as opposed to recognizing that it is the source of such problems, we are destined to remain entrapped in this seasonal cycle of political protests. 

The author is a PhD candidate in Economics at University of New Mexico

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