The title of this essay is derived from the title of another essay written in 2010 by Jeff Nielson about the financial crisis in the US. In the article, he explains how Wall Street’s (together with its derivative markets’ like Casinos, Insurance Companies etc) pre-meditated moves created the housing bubble in the US, which derailed the economy of the country. The author refers to the tactics used by Wall Street and its derivatives in their attempt to manipulate the economy of the country for their sole benefit as “Economic terrorism”.
Examples of economic terrorism plaguing Nepali economy are syndicates and cartels. Their latest attempt to foil the economy was evident in the attempted disruption of service of the newly revamped Sajha Yatayat in Kathmandu. Sajha Yatayat provides high quality service for the same price as other buses, and the Transport Association already sees this as a threat to their syndicate in less than a month of its operation. Unfounded accusations and claims have been made against Sajha Yatayat by Transport entrepreneurs, who have been syndicating transportation services in the city for more than 10 years. Apart from their baseless accusations, they have also put forth irrational demands like cancellation of the route permit of Sajha Yatayat and compensations for transportation operators providing services in the routes of Sajha Yatayat. In normal conditions, after healthy competition private entrepreneurs would have ultimately provided the best quality service to consumers at the lowest possible price. But transport entrepreneurs instead formed a syndicate and increased their presence and power. This is why they now appear to be more powerful than the state, and have also been able to manipulate discussions, talks and decisions related to price, service, route permit and other details several times.
PAKISTANLAW.NET
The strike called by petroleum tanker operators a few weeks ago is another instance of economic terrorism. There are plenty other instances when Nepal’s economy has faltered due to such malignant acts. The routinely observed petroleum products’ crisis (including the very essential cooking gas) and stubbornness of entrepreneurs in the industry to comply with the government’s policies and laws are also examples of such terrorism. Just before August 2012, gas entrepreneurs had threatened to stop the supply of LP gas if their demands for syndicate and cartel system in LP Gas supply and distribution were not addressed. It was only after the government flexed its legal and authoritative muscles regarding the supply of essential goods that the entrepreneurs came to the table and signed the agreement to introduce red and blue colored cylinders in the market. But even then, it was not carried out until the government agreed to form a technical team to undertake a study on the profit and commission that the entrepreneurs would get from this policy.
When entrepreneurs are threatened in such ways, their main weapon of defense is a syndicate or cartel. A syndicate is a joint association of entrepreneurs through which they share both their resources and risks. They also fix the prices of goods and services in order to have maximum profits. It clearly implies that syndicates can’t be the first choice of consumers. In such a scenario, if an entrant delivers either higher quality goods/services at same price, or same quality goods/services at prices lower than the one fixed by the syndicate (where this entrant still has considerable profit to gain from the price margin in both cases), it can easily claim a large section of the pie in the market.
But why don’t we see that happening, and why do syndicates continue to thrive and grow? The answer lies in the threat syndicates pose to entrants on the strength of their combined resources and power. Through coercion, syndicates can require entrants to abide by their rules and regulations. Any entrant is thus obliged to join the syndicate association because otherwise it needs an assured security and protection to run its business alongside the syndicate, which our government fails to provide. But if an incumbent entrepreneur defaults and operates on its own outside the syndicate system, then the whole syndicate association will collapse in due course. The principle here is again that of free and competitive economy; the defaulting incumbent either reduces the price, or increases the quality of goods/service, or both, and then it can claim a large share of market. Having witnessed the potential market share through competition, another defaulter arises from within the syndicate association and follows suit, until the whole syndicate association collapses into near-perfect competition.
Then again, this hasn’t happened in Nepal because moderately big organizations in the business are in the syndicate association, and since they can control prices, keep big price margins, have greater authority and claim big piece of the pie in the market while still being in the association, they won’t default. While it would seem lucrative for relatively smaller organizations to default because then they can have opportunities for growth through performance and competition, they won’t do so, either because of the fear of association’s might or because of lack of proper market security from the government. In a free competitive market, syndicates are illegal and lethal. Even in Nepal, Competition and Market Protection Act 2063 recognizes it as an anti-competitive practice, defining it as illegal and punishable. But since our laws and practices rarely align, syndicates have been damaging the economy for well over a decade now, and they will continue to do so in future if it is not checked in time.
When entrepreneurs are threatened, their main weapon of defense is a syndicate or cartel.
In this situation, alert, informed and educated consumers can be very beneficial to the ailing economy. And the second best way (the first being enforcement of laws and practices) to fight such malpractices is through civic engagement and practices. Consumers must boycott syndicate business practices as far as possible. During petroleum tank operators’ strike, some twitter discussions suggested consumers to completely boycott the petrol pumps that threatened to stop supply and distribution. Though boycotting completely might not be possible, it will give a signal to the syndicate operators that economy is a balance among producers, suppliers and consumers.
In Nepal, consumers are seen as mere buyers. But in any economy, the end consumers are the center of the economic wheel. They are the ones who keep the wheel rotating. After the recession, the economy of Europe is still sluggish because of austerity measures followed by governments, and not enough spending at the consumers’ end. Sam Walton, Founder of Wal-Mart (American Multinational retail corporation), said, “There is only one boss. The customer. And he can fire everybody in the company, from the chairman on down, simply by spending his money somewhere else.” So, end consumers must be well aware that they are an essential and integral part of the economy. They themselves with their spending power are the synergy that can fight the mal-practices like terrorism from syndicates and cartels. And it is high time Nepal utilized that synergy to its full potential.
The author is an Economics graduate with interest in Public Policy
barshaaa@gmail.com
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