Mar 3, 2014

The Wealth Gap : Should We Be Concerned?

Relationship between Economic Freedom and Inequality
Last month international development organization Oxfam released a startling figure about the wealth gap between richest people in the world and the poorest half. According to the report, 85 of the wealthiest people in the world own as much wealth as the poorest half of the world. In other words, less than a hundred people have control over half of the world’s current wealth. The revelation has appalled many people and has refueled the tirade of criticisms being raised against capitalism and free enterprise. Nepalese media and intellectuals too have picked up the issue and resumed their criticisms against market. Income inequality is an issue Nepal should be concerned with too. It ranked 157th in the Human Development Index 2013 and the Gini Coefficient is 32.8 suggesting a significant income inequality. In this context, it is imperative to dwell on whether such income inequality is desirable for a society and what can be done about it.

Not just economic implications

High levels of income inequality and concentration of wealth among a few people is certainly not desirable for a society. It can dampen the benefits of democracy and skew national policies making them favorable to the political and economic elites only which in turn will have negative effects on economic growth and development process and poverty alleviation measures. Income inequality has been found to correlate with violence and higher crime rates in a society too. 

However, it is essential to dwell on whether income inequality is a problem in itself or is it a symptom of underlying structural problems in the economy. Hence, the question is not just why 85 people own half of the world’s wealth but it is also why the poorest half of the world is producing and creating so little wealth when there seem to be immense possibilities for creating a wealthier world.

Lack Economic Freedom: The main cause

It is interesting to note that majority of the poor in the world live in societies that are miles away from free market system and are supposedly pursuing policies aiming equality and wealth redistribution. India alone hosts one-third of the world’s poor and until 1990s, its major policy thrust had been wealth redistribution and state control of the economy. China which is another major home for world’s poor, started down the path of market economy only after disastrous 3 decades of anti-market and supposedly pro-poor policies. By moving towards market economy and promoting growth rather than redistribution, India has reduced its poverty rates from 51% in 1991 to 22% in 2013. China has achieved an ever more impressive progress by reducing poverty rates from 84% in 1981 to around 12% in 2013. What critics of market system have left out is the fact that the wealth distribution around the world was even more skewed before 1990s when many countries around the world started moving towards market economies.

Empirical studies conducted in the context of developing countries have also found that economic freedom and income inequality have inverse relation suggesting that higher degree of economic freedom would result in lesser income inequality. For instance, a study titled “Economic Freedom and the trade-off between inequality and growth” conducted by economist Gerald W. Scully has found that economies with higher economic freedom not only enjoy higher growth rates than less free economies but they are also more equal. Economic freedom reduces inequality by increasing the share of market income going to the poor and lowering the share going to the rich. Economic Freedom of the World Index, a cross-country study on economic freedom conducted by Fraser Institute of Canada also shows that freerer societies are comparatively more equal than societies with lesser economic freedom.

Feb 10, 2014

Why is Nepal poor? Some common arguments we hear everyday!!

Why is Nepal poor? Why has it not been able to develop economically? These are some of our most favorite topics for conversations in tea shops. Infographic below lists 5 of the most common arguments we hear about why Nepal is poor and analyzes whether these arguments really hold their ground. Enjoy!


So what do you think about these arguments? Feel free to share your views and opinions in the comments!

Jan 16, 2014

17 very good books I read in 2013

I managed to read 35 books in 2013. Not as much as I had wanted but still more than I had read last year and the year before. Except for one or two, I found all of these books very interesting and knowledge-enhancing. And here are the top 17 of them. I found these books particularly interesting and recommend my readers not to miss them:

1.India Unbound: The Social and Economic Revolution from Independence to the Global Information Age by Gurcharan Das

I had heard so much about this book and yet had not been able to get my hands on it. Therefore, it was the first book I sought and read last year. Das, a brilliant businessman and a gifted writer, recounts India journey from its independence from British colonial masters in 1947  to independence from its internal elite masters in 1991 and its transformation from an impoverished centrally planned economy into a wildly growing vibrant free-market economy. Das has done a remarkable job of explaining how Nehru's socialist dreams and his daughter's actions ended up choking every entrepreneurial urges in India, what a businessman's life was like during the "license-permit raaj" and how the reforms of 1990s were initiated and what they have achieved so far. If only, half of the Nepalese who spend time blaming India for Nepal's woes read this book and learned about India own struggles, I guess Nepal would have been a different place.

2. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant by W. Chan Kim and Renee Mouborgne

This book kinda challenges what you have learned about competition and strategies so far. The book discusses about a new strategy, 'Blue Ocean Strategy' which is in contrast to prevailing Red Ocean Strategy where competitors have turned the ocean red with each other's blood. In Blue Ocean Strategy, you disregard the prevailing assumption about your sector and industry and try to create an entirely new market for your products or services. If implemented properly Blue Ocean Strategy would turn the competition completely irrelevant. The book has included a few examples of what blue ocean strategy is like in practice and you can Google for more case studies. All of the case studies are very very interesting. I did have several aha moments. This is a must read book for any aspiring entrepreneur! 


3. The Beautiful Tree: A Personal Journey Into How the World's Poorest People Are Educating Themselves by James Tooley

The book is aptly titled a personal journey. It describes the personal journey of James Tooley who accidentally discovers low-cost private schools in the slums of India catering to the children of poor parents. He finds out that parents despite being literate and poor, take a lot of care while choosing schools for their children and hence, opt for low-cost private schools with low resource than for the free education provided by resource rich state run schools. He also finds out that students from these low-cost private schools generally perform better than their counterparts in state-run and INGO funded schools mainly because the school administration and teachers are more accountable in these private schools. The trend, however, is not endemic to India. Tooley travels across Africa in search of such schools and finds them. But what about China?, he wonders. Does China have such low-cost private schools too? You need to read the book to find out the answer.

4. Leaving Microsoft to Change the World: An Entrepreneur's Odyssey to Educate the World's Children by John Wood

In 1998, John Wood, an executive at Microsoft was trekking in Nepal to enjoy his vacation and relieve the stress from work. Apparently, a friend of his had told him, "If you get high enough in the mountains, you can't hear Steve Ballmer yelling at you anymore." His guide took him to a small school in Bahundanda whose headmaster told him that he hoped John would be different than other visitors and fulfill his promise of coming back next time with books. What happened from that point onward is history. John left his job at Microsoft and founded Room to Read which has provided millions of books and built thousands of libraries for schools in developing countries in Asia and Africa. The organization has also built many schools and provides scholarships to female students. This is a heart-warming tale of how a passionate individual could make the world a better place.

5. A Fine Balance by Rohinton Mistry


One of my most favorite novels tills date, A Fine Balance is a poignant story of a strong-willed widow, two tailors trying to escape caste violence and a boy who has been displaced from his naturally beautiful village. Living in the 1970s under the authoritarian atrocious rule of Indira Gandhi, their lives get inter-tangled when they are forced to share a flat. The novel is grim, very grim in fact. There are moments of joy, moments of hope for sure. But in overall, the book does not shy away from presenting grim realities of the then society and life in general and more than that the book does not spare its characters from vicious tricks of fate and life. But rest assured, the grim fiction presented by the novel is more closer on the reality's side than on fiction's and long after you finish the book you will be haunted by its characters.

Dec 31, 2013

Why the world is getting better: A retrospect of 2013

Source: The Spectator
The rapid spread of globalization and capitalism has benefited millions of people around the world, especially in the developing societies. At the same time, it has annoyed and disappointed countless people, especially leftists, environmentalists and clergy. As per them, the world is coming to an end and the rapid economic growth has only accelerated our journey towards doom.  But, rarely do their gloomy predictions withstand the test of empirical evidence. If only the prediction of doomsayers governed the world, the world would have perished of global cooling in the 1970s, massive starvation in the 1980s and is supposed to end within a decade or two because of global warming (Hope you noticed the irony here). Despite their predictions, the life, in general is getting better for majority of the humanity as they have become richer and hence in a better position to attack enemies of humans such as poverty, illiteracy, operation, natural calamities and pollution to name a few. 2013 also saw a few changes that indicate a better future for human beings.

Fraser Nelson, editor of The Spectator has pointed out these changes in his article The biggest shocker of 2013? That it really is a wonderful world. As shown in the article, 

1. Deaths by malaria is decreasing rapidly as countries prone to it have grown richer and now are able to afford basic necessities like malaria nets. Places like Cambodia believe they’re three years away from extinguishing Malaria deaths. 

2. Looking at a broader picture, the world is living in the most peaceful time in modern history. The world-wide battle deaths per 100,000 people is decreasing rapidly. As economies are getting more integrated and interdependent, the war is becoming a costly thing day by day. This does not mean, every place in the world is peaceful. Many African countries are still engulfed in nasty civil wars but the overall trend is decreasing.

3. Global death rates due to extreme weather events is also declining. From 485 deaths out of 1000 deaths per year in 1920s, it has declined to 35 deaths out of 1000 deaths per year.

In the end of the article, the author has recommended a book which explains about the positive trends in the world and the causes behind them. In defense of Global Capitalism by Johan Norberg, happens to be one of my most favorite books and one of the few books that shifted my viewpoints very significantly. This book is a must read for anyone wishing to know about the status of the world and willing to do something to makes lives better. 

Fortunately, the book is available for free download. I have uploaded the book to slide-share and embed it below. Please feel free to read the book online or download it (recommended) for better reading.

Nov 19, 2013

Youth and Politics in Nepal : My Radio Interview

On November 13, I was interviewed by The Human Face, a radio program that is aired every Wednesday on Citizens FM 94 Megahertz on the issue of youth and politics. The program is run by SAATH Nepal a non-governmental organization working on social service, awareness raising and advocacy for tranquillity and humanity. Along with my fellow guest Rajesh Poudel, I have discussed about what should be the role of youth in the next Constitution Assembly, what political ideology best suits Nepal, what implication will youth candidates like those from Bibeksheel Nepali have, what can be done for effective leadership development and succession planning among young politicians etc. You can listen to my interview at the following link. Please check it out. I would be happy to answer any query or comment that you might have.


Nov 12, 2013

जुजुमानका साहसिक कार्यहरु - भाग ३९ (अन्तिम भाग ) (धर्ती र स्वतन्त्रता)

अर्थशार्त्री केन स्कुल्ल्यान्डद्वारा लिखित, नेपाली भाषा सहित गरेर विश्वका ४७ भाषामा अनुवाद भैसकेको "दि एड्भेन्चरस अफ जनाथन गलिबल : अ फ्री मार्केट ओडीसी" नामक पुस्तकको नेपाली अनुवादको पोड्कास्ट्को यस ३९ औं (अन्तिम) भागमा  कोन्डोरले जुजुमानलाई उनको घरसम्म पुर्याइदिन्छ ।  आफ्ना बाबुआमालाई भेट्न पाउँदा अत्यन्त हर्षित भएका जुजुमानले केहि संकल्पहरु गर्छन । 

ति संकल्पहरु के के हुन त ? जान्नको लागि तलको पोड्कास्ट सुन्नुहोला ।  सुनेर प्रतिकृया पनि  दिनुहोला ।   

पोड्कास्ट सुन्नका लागि तल क्लिक गर्नुहोस ।


पोड्कास्ट डाउनलोड गर्नका लागि तल क्लिक गर्नुहोला।


यस पोड्कास्टका अरु अङ्क सुन्नको लागि तल क्लिक गर्नु होला ।

The Adventures of Jonathan Gullible (Nepali)

Nov 11, 2013

Election Promises!

The second round of the Constitution Assembly polls are at our doorstep. So are politicians representing different political parties. Political parties have come up with their election manifestos which, if reality were to be ignored, are very impressive. Almost every political party has gone out of their way to make beautiful commitments, especially in the economic sphere.

Unrealistic Promises

For instance, U-CPN Maoists party has promised us a 7.9 per cent economic growth rate for the next five years which is supposed to increase to 11 per cent in the next decade whereas the Rastriya Prajatantra Party has promised us double digit economic growth within a decade. Nepali Congress promises us a double digit growth in four to eight years. Similarly, CPN-UML promises to create 300 thousand jobs annually and bring two million international tourists to Nepal in the next five years among other things.

Although fun to read, these manifestos raise some very important questions:

The first and foremost question is how. How are they going to achieve those goals? How is Nepal going to have a more than seven per cent economic growth rate, let alone double digit growth? If we look at our current growth rate, it hovers around four per cent which is hardly indicative of our possibility of leaping to a double digit growth in the near future. Economic growth does not come out of thin air. It requires economic policies friendly to growth, an environment encouraging entrepreneurship and a commitment from the government to support the growth process or at least not act as a hindrance to economic growth.

In this regard, the current picture of Nepal is miles away from satisfactory.  In the recently released Doing Business 2014: Understanding regulations for Small and Medium-Size Enterprises report, Nepal ranks 105th out of 180 countries with regards to the ease of doing business. Although improving, the pace of reforms are too slow to have any significant effect. Similarly, in the latest Economic Freedom of the World report which measures the degree of economic freedom enjoyed by citizens of a country, Nepal ranks 125th out of 152 countries with a score of 6.19 out of 10. Out of the 10 components of the index, Nepal’s performance is especially dismal in regard to legal structures and security of property rights. Security of property rights and economic freedom are essential for growth of any society. Empirical evidences also show that promotion of entrepreneurship and the private sector is a prerequisite for economic growth and development.

Unfortunately, none of the political parties seem to have anything to say on these issues. 

Unanswerable Questions

Since the upcoming elections is Constitution Assembly polls not just regular elections, it is important that political parties discuss macro issues like economic model, role of government and private sector in the economy et cetera rather than micro issues like how many tourists we will bring or what roads will we build. What kind of development path shall we follow is more important than what roads we will build. Rather than discussing what amount of Megawatts of electricity will we produce, we should be discussing about macro issues like will foreign direct investment be a major instrument of hydro-power development? If we are creating 300 thousand jobs, how will that happen? Will the government create those jobs for the sake of jobs or will the government be committed to creating a business-friendly environment to create more jobs? Will the government be committed to building the necessary infrastructure and business environment for preventing industries from shutting down? Will we embrace an open economic model or try a closed economic model?  Will we do it through economic reforms and by attracting foreign direct investment like China and India or will we shun foreign investment like before?

Not answering these questions means repeating past mistakes. The Nepali people have heard promises of rapid growth, transformation of Nepal into Singapore and Switzerland number of times. And they have been disappointed several times and this time will not be an exception too. In the last CA elections too, we had heard numerous lofty promises such as 10,000 Megawatt of hydro-electricity within a decade. The ensuing disappointment is well-known to everyone. The trend of making arbitrary promises in election manifestos also shows that political parties are not taking economic issues seriously.

Conclusion

For every revolution and political change in the past, political agendas have taken the front seat. An economic agenda has never been a priority and no wonder countless revolutions and political changes have failed to deliver economic growth and prosperity.  It is time that political parties start taking about economic issues and agenda more seriously. The citizens too have the responsibility to ask and analyse how political parties plan to achieve what they promise. Without answers to the how question, the economic aspects of the manifestos are nothing more than empty promises. 

-Surath Giri