The promises of prosperity made by Chairman Dahal remind me of the Panchayat era pledge of lifting the country’s living standards to average Asian level (Asiali Mapdanda) within 2000. This undertaking was the core commitment of the newly conceived 15-Year Perspective Planning, which was designed to provide a longer term view of the economy compared to the usual Five-Year plans. It wasn’t clear what exactly the average Asian standard meant but it appeared that the pledge was in reference to select Asian countries Nepal could look for comparison.[break]
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In my commentary in the Asian Survey (1989), I wrote that Nepal’s per capita income was about half the Asian average in 1985. Raising this to average Asian level meant the Nepali economy would have to grow at 15 percent annual rate which would require a capital investment of 50 percent of GDP and unprecedented levels of local savings and foreign aid. Obviously, the goal was unattainable and also reckless.
Instead, I argued that given the historical perspective, Nepal’s per capita income would likely sink from half the Asian level in 1985 to one-third by the year 2000 which, actually, came to be true. With data available through 2011, Nepal’s per capita income of about US $600 has now declined to one fourth Asian average of US $2,300.
New pledge
Dahal’s pledge for prosperity can be assessed in this historical context—which is that leaders make promises only to break them but the pledge accords them many years of comfortable living and riches they accumulate by drumming up their vision. It is almost 100 percent certain that Dahal’s grand promise will prove as hollow and irresponsible as the illusion of achieving Asian standard.
To assess Dahal’s promises, we must understand what they mean and what follow-up measures are needed to attain prosperity. First of all, what is the meaning of a New Nepal? If Dahal meant that Nepal be a Republic—out of its monarchical orbit and feudalistic past—it is already there. Probably, Dahal’s vision of New Nepal also includes more than political changes—perhaps a new set of social and cultural mores and relationships. Social and cultural transformation of the country is needed in order to sustain the republican order and modernize its low-key economy. However, social and cultural changes are not easy and it takes a long time for visible progress. This was true even of Mao’s China in the1950s and1960s, where resistance to change led to millions of deaths. It is inconceivable then that Dahal would succeed in copying Mao’s adventures in Nepal, given the strengths of conservative forces in the country and the risk of international backlash against left-leaning reforms.
Regarding the commitment of prosperity in ten years, it is important to understand the different meanings of prosperity of a nation and prosperity of people, as implied in Dahal’s pledge. Generally, they provide similar vision of improved living conditions in a country or society. However, we can define them differently to make sense of what Dahal may have in mind. A nation can be termed ‘prosperous’ when people have sufficient income to afford the necessities of life and public services are readily accessible to everyone. We can then define Dahal’s perception of ‘people’s prosperity’ as affluence, which means that average person can afford luxuries of life and enjoys a high level of social protection (unemployment and disability benefits, old-age pension, and family support) to tide over economic hardships.
Looking at some near-by countries, we can settle on Thailand as ‘prosperous’ and on ‘Malaysia’ as affluent countries respectively. In economic terms, reference to these benchmarks means that Nepal, over the next ten years—say, from 2015 to 2025—must target its per capita income of about US $600 to increase to Thailand’s level, adjusted for inflation, of US $5,000 by 2025; and to Malaysia’s level of US $10,000 over the next ten, from 2025 to 2035.
This level of prosperity and affluence—per capita incomes of US $5,000 by 2025 and US $10,000 by 2035 in inflation-adjusted dollars—would require, for most part, multifold economic growth jumps, from the historical 3-4 percent. For going from US $600 to US $5,000 in ten years would mean a whopping 23 percent growth in per capita income per year, an unheard of achievement. If the target is the current Malaysian standard by 2035, then the needed growth rate would be 15 percent—which is also quite rare.
It is then obvious that Dahal either doesn’t know economics or is being reckless in making the pledge that is simply unattainable.
A reasonable vision
But Dahal can make some reasonable pledges about the policies and programs he would bring forward should he inherit the throne with a majority or super-majority in CA election. These should focus on making the economy more productive and improving growth over the long term, which is the only way for a nation to achieve prosperity. On the side, Dahal must understand that redistributive policies provide no more than short-term relief for the poor, while the rich also get poorer. For improvements in living conditions over the long-term, job opportunities and workers’ productivity must increase. This is important to sustain the supply of goods and services and to ensure that basic facilities are both affordable and easily accessible for workers.
The hard truth is that there are no shortcuts to good living and economic prosperity. Economic good life for the masses comes out of rigor and discipline, of toil and long years of sacrifice of good living to increase savings. This is important because higher savings are needed to fund new investments and facilitate adoption of new technology—key requirements for economic growth. Asian economic miracle of the 1960s through 1980s was underpinned, in large part, by incentives to maximize personal savings and invest what people had saved.
Surely Dahal doesn’t have a secret recipe to start this virtuous cycle of income growth and wealth creation. He must follow the standard practice of successful countries that have transformed their economies within a generation. The first requirement for doing so is to guarantee property rights—security and safety of people’s wealth. Communist ideology, including Maoism, is antithetic to the creation and accumulation of wealth, which poses an immense hurdle for prosperity. Dahal must denounce this arcane ideology if he is serious about realizing his vision.
Further support for income growth and wealth accumulation can be in the form of well-crafted policies to eliminate graft and rent-seeking by politicians and government functionaries. This would also require an efficient judicial system that guarantees quick hearing of cases, speedy trial, and assurance of a fair verdict. Police and other security personnel will need to be trained on honesty and uncorrupt behavior to ensure a fair enforcement of rules and regulations.
The other set of policies directed at improving labor and business productivity comprises the supply of essential public services—electricity, water, sanitation, public transport—that is dependable, low-cost and easily accessible. Research has shown that business costs can be cut by as much as a third with better public service delivery. Accessibility to public services also helps improve public life. On the contrary, if the available public services are of low quality, expensive, and unreliable, then business start ups will be few; production costs high; and most people will be forced to live in slum-like conditions.
Economic prosperity can’t be conceived in the absence of a business-friendly environment which depends on a good set of policies and improvements of service delivery. In the World Bank’s latest survey of Doing Business, Nepal ranked 108 out of 185 countries, with a lower number correlated with good business environment. When in power, Chairman Dahal should consider policies and reforms that could help Nepal improve on this ranking by at least 50 percent, with the country ranking in the top 50. Such an undertaking would provide a firmer footing for Dahal’s pledge of prosperity than the empty promises of turning Nepal into a Singapore.
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