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Oct 1, 2012

Economic Freedom: The Ignored Agenda

The recently released Economic Freedom of the World Report 2012 by Fraser Institute, a prominent think tank in Canada, shows a bleak picture of economic freedom in Nepal. Nepal’s economic freedom, albeit slightly better than the previous year, still has a long way to go. In the study which uses a measure of 42 economic and political components, Nepal is categorized among the least free economies in the world, ranking 110th among 144 countries. Nepal has scored 6.33 out of 10 which is below the world average of 6.83. So much for the notion that Nepal has adopted an open economy since the political changes of 1990s.

For one, the key to most of our economic ailments may lie in the absence of economic freedom. The prolonged transition and the resulting escalation of chaos, anarchy and corruption have thrown Nepal into a turmoil. The people’s movement of 2006 and doing away with monarchy has failed to live up to the promise of better economic opportunities and better living standards. It is time that our discourse brings the hitherto ignored but most essential component for economic prosperity?economic freedom, from fringe to focus.

Empirical studies have shown that societies with higher degree of economic freedom enjoy higher living standards, higher per capita income, higher economic growth rates, higher life expectancy, cleaner environments, lower unemployment rates and lower infant mortality rates. Moreover, the poorest 10% of the population of economically free societies are better off than the poorest 10% living in economically not free societies.

The importance of a free economy is also heightened by the fact that countries like Hong Kong, Singapore, Estonia, which are relatively small and have limited resources, are among the freest economies in the world and have living standards much higher than resourceful countries like Nepal, Congo, and Venezuela. Contrary to the arguments that economies like Nepal are too small to open up and adopt free market, the sample of freest economies in the world suggests that it is the relatively small countries like Nepal that need economic freedom the most. It is so because countries like these have only one thing to count on for development and prosperity: human ingenuity and entrepreneurship that can flourish only under a system that allows economic freedom to individuals.

It is time that we stop blaming countless factors and actors for our poverty and stagnant economy. For too long, Nepalese have been revolting against one or other political agendas and political changes have come frequently too. From autocratic Rana regime, absolute monarchy, constitutional monarchy and parliamentary democracy to republic, the political journey has been long and eventful. Unfortunately, the economic journey has not been equally dynamic. The basic characteristics of the economic system, although slightly changed with political changes, remain largely the same. Contrary to the limited but effective government required for economic freedom, we have unlimited but a pathetically ineffective government. Virtually no sector of the economy has remained untouched by political interference. From decision of where roads will be built to how an educational institution will be directed are fraught with political wrangling.

Similarly, citizen’s equal access to economic opportunities remains a distant dream because of the nepotist tendency of political leaders to hand out favors to their near and dear ones. The access has not been able to go beyond the small circle of elites with close connections to the leaders. The nepotism in political decision making, even in economic matters is far too evident in the way licenses are awarded ranging from hydro-power projects to new transportation routes. Non-competitive practices plaguing the economy, which political leaders and intellectuals often blame on the market economy, are in fact the result of the government’s inability to provide security of life and property of people daring to go against cartels and syndicates. Even more unfortunate is the fact that such practices are still prevalent mainly because they are backed up by the vested interest of political parties.

Politicization of labor in Nepal has become exemplary in the world. Very few places in the world are so anti-investor and anti-entrepreneur. Very few places in the world have labor and trade unions so intent on killing the golden goose called “entrepreneur”. Nepal has scored 3.33 in the Hiring and Minimum Wage regulations, 4.13 in hiring and firing regulations and 2.05 in the mandated cost of worker dismissal. This is definitely not an encouraging scenario for attracting foreign investment and technology in a country with a serious deficiency of capital. Similarly, Nepal has scored 3.22 in the extra payments/bribe/favoritism category making it one of the most corrupt countries in the world.

Hence, economic freedom, the prerequisite for prosperity, remains absolutely ignored in the current political and economic discourse of Nepal. This will not only diminish our prospects of prosperity but also undermine the promises of the countless revolutions we have had so far.

-Surath Giri