Surath Giri's Blog

Jan 14, 2011

The story of Hong Kong: A Free Market Odyssey

January 14, 2011 Surath Giri— min read

"Hong Kong at night." Source: Wikipedia

Heritage Foundation has released its annual report on economic freedom around the world for 2011. Hong Kong, the 'fragrant harbor' still reigns as the freest economy in the world with a score of 89.7 out of the possible 100. Hong Kong serves as an example of how markets, if allowed to work freely, can create a truly dynamic and prosperous society. With its area spread over just 1104 square kilometers and nothing to its stock of natural resources except a harbor, Hong Kong has created one of the most affluent societies in the world with a population of more than 7 million people (6,349 people per sq. km) who earn an average of $42,748 (PPP) in a year.

There is a general perception that Hong Kong developed because it was a British colony and there is a similar perception (which too is just a myth) about India in Nepal. From general public to so called intellectuals and even civil servants (as far as I have met) share this perception. However, if we look at the facts, during 1960s , Hong Kong followed a path that was highly contrasting to UK. When UK was succumbing to socialism and had almost turned to Soviet Kingdom, Hong Kong resisted the socialist temptations and kept its economy free which is the reason why its economy grew steadily over the decades without any serious setbacks. The fact that per capita income of Hong Kong is higher than the per capita income of United Kingdom by a whooping $8129 alone proves that United Kingdom has nothing to do with Hong Kong's progress. Instead, had United Kingdom learned something from its colony, it would have been better off.

Contrast Hong Kong with Nepal, which is considered a very rich country in terms of natural resources with an area of 1,47,181 sq. kms and more than 25 million people. A Nepalese citizen on an average earns just $1,205 per capita (PPP). Nepal ranks 146th in the above mentioned economic freedom index with a score of 50.1 out of 100 for the year which is worse as compared to last year when it ranked 130th with a score of 52.7. I wonder what Nepal would be like if it followed the right path, like Hong Kong, believing in the ability of free individuals to innovate and prosper rather than encumbering their efforts through state intervention and failing to maintain the basic requisites for a free society, rule of law and maintaining peace and order. With the growing trend just in the opposite direction, I find very little reasons to be hopeful.

10 easy to read books that will teach you about economics , wealth and prosperity

January 12, 2011 Surath Giri— min read

Many a times after engaging in a debate on issues of public policy or economies, one response I invariably get is; “I didn’t know economics could be that interesting. Can you recommend me some books on economics that are easy to read and understand, ones that don’t have too many indecipherable figures and codes, something that can teach me to relate economics with day to day examples as you did now?”

They can’t be blamed for their view of economics. Economics has long been accused of being too abstract, irrelevant, unrealistic and boring subject. Economics for a layman has been a subject of experts. It’s all about curves, figures and numbers that has little if any, to do with our daily lives. However, the truth is that, economics isn’t all about, or I would rather say, it isn’t primarily about curves, diagrams, codes and numbers. Economics and fun needn’t be contradictory terms.

Today, I would like to present you the top ten books that are easy to read and understand which will teach you a lot about economics, wealth and prosperity. And take my word; you won’t be bored unless you have a dire disgust towards reading itself.

1.Common Sense Economics: As the name suggests, if you have common sense, you'll understand this book pretty well. The alternative title of this book is "What everyone should know about wealth and prosperity" . I believe by now you can pretty well guess what the book is about and what it will be like.

2.In Defense of Global Capitalism: In defense of global capitalism is an easy to read explanation of how the spread of the free market economy has brought about the swiftest reduction of hunger and poverty in human history. It explains how the world is getting more prosperous and wealthy through policies of free markets.

Note: If you love to believe that capitalism is about letting rich people do whatever they like and letting poor people die or if you love to take word by word what our politicians say about capitalism (capitalism is the cause of all this mess, capitalism is what USA does, capitalism is evil etc etc.), you might find the book very shocking as it has tons of facts and examples that point otherwise.

3.Economics in One Lesson: FYI, the book has more than one lesson but it is one hell of a simple read that will give you lots of insights to principles of economics and their implications in our daily lives.

4.The Choice: A fable of free trade and protectionism: Written by one of my most favorite economic writers , Russell Roberts, The Choice teaches you about the various aspects of free trade and protectionism in the simplest form possible..i.e a story. If you love reading stories, you'll definitely love this book.

5.The Price of Everything: It is another book written by Russell Roberts. It teaches why everything has a price and how prices are one of the most wonderful inventions of human societies. As it is with every other book by Roberts, it's in the form of fiction too.

6.The Deal Maker: Written by Rakesh Wadhwa, whose articles appear regularly in leading newspapers of Nepal, India, Sri Lanka, and the US, The Deal Maker is an easy to read novel with lots of twists, suspense and subplots and of course, lessons in economics and how any country can get prosperous.

7.The Adventures of Jonathan Gullible: Have you read the classic "Gulliver's Travels"? If you liked the book, you'll surely like The Adventures of Jonathan Gullible. Jonathan Gullible finds various kinds of people with various economic concepts and behaviors. Along the way, he learns a lot.

8.The Ultimate Resource: Remember your school days when a subject called "Population, Health and Environment" terrified you with a grim picture of the world where the rapid growth of population is going to threaten our existence? The author of this book seems to believe just the opposite. He thinks population is our ultimate resource and the source of prosperity and he ain't kidding.

9.Free Your Mind: A beginner's guide to Political Economy: This book is even simpler as compared to other books I mentioned but not a bit less interesting and definitely not less informative. Targeted for teenagers, the presentation style of this book is amazing. It covers topics such as employment, free trade, public administration, inflation, environment , poverty etc. Know why money is called "bucks'? The author also says , Statutory Warning! Socialist Democracy Is Very Bad For Your Health! (You’d Be Better Off Chain Smoking!) and he too ain't kidding!

10.Free to Choose: I am not sure if all the chapters of this book would be very easy to understand but I highly recommend you to read the first couple of chapters. This book is supposed to have influenced many influential politicians and general people all around the world. After a few chapters, you'll know why.

Well, that's it. Have you read any of these books? If yes, what do you think about them? Please share your thoughts and view points. If you have any similar books in mind, please share about it in the comment box below!

Privatization: The way of the future

January 09, 2011 Surath Giri— min read

Image Source:www.ktm2day.com

The recent report presented by a high level commission formed by the government to study about the performance of the state owned enterprises presents the dire state of these enterprises. Majority of our public enterprises are running on losses and are burdensome for the state. This state of affairs is an irony to the very objective of establishing such enterprises i.e. provide public with the goods and services at affordable prices and contribute in the economic growth of the nation. Not only these state owned enterprises running on losses are having negative impact on nation’s growth but the goods and services they are producing are far from satisfying consumer needs. The commission has rightly advised for different measures for the improvement of these enterprises ranging from selling shares to adapting the private public partnership management to closing down some of them.

Once upon a time

Once upon a time, people all over the world, mostly in the communist countries and the Third world countries used to think, state operated enterprises are the panacea to all the needs of the society. The advent of the cold war saw a massive wave of creation of huge state owned and operated enterprises as well as nationalization of major industries all over the world. However, these ventures disregarded some basic principles of markets and human behaviors and were bound to fail. The basic human nature that says people are self-interested, they care for what they own and whatever belongs to no one falls into disrepair was violated when tax payers' money was used to establish these ventures. As for the people who worked in them, had little or no incentive at all to sustain and grow these enterprises.

Another violation was the principle of markets - for an enterprise to be profitable or sustainable for that matter, it has to work under the law of supply and demand. It has to respond to the signals of the various market forces. Failing to heed to market forces would eventually result in losses and shifting of resources to more efficient sectors. State owned enterprises violated this principle because they were supposed to run on bureaucratic codes and regulations rather than by responding to market signals.

Another major principle violated was the natural tendency of corruption to breed wherever political affairs are involved. State owned enterprises being under the political control no wonder became the breeding grounds for corruption. The result, SOEs all over the world became the breeding ground for corruption and epitome of inefficiency, financial disasters.

However, during the 1980s, under the leaderships of Margaret Thatcher in the UK and Ronald Reagan in the USA, privatization of state owned enterprises gained worldwide momentum. After the fall of Soviet empire and end of cold war in the 1990s, when capitalism emerged as the only practical way of organizing a society, nations all over the world started deregulating industries and privatizing or disinvesting their public enterprises with much success. The general trend over a period of time has been lower prices, improved quality, more choices, less corruption, less red tape, and quicker delivery of services. The general trend all over the world has been of liberalization and privatization of most of the public enterprises.

Once in a place

Nepal had its own fair share of public enterprises established during the Panchayat era. During the mid sixties to early eighties, the government invested large sums of money in the establishment and expansion of public enterprises (PE’s) in all sector of the economy from banking to trading, public utilities to manufacturing and social service. The concept of privatization came into focus in the sixth plan review on PE’s which showed a bleak picture of the return on the investments done on public enterprises leading to the decision of selling some of the public enterprises. During the 1990s a limited liberalization was done and a number of public enterprises privatized.

Some of the results were increase in choice and living standard of consumers, cheaper and better airlines, better banking services and spurts of various private endeavors. Behind the scene too, the administrative and fiscal burden of the government was reduced to some extent. However, the privatization of some public enterprises such as Raghupati jute mills, Bansbari Tannary Industry, Bhrikuti Paper factory were marred with political controversy generated mostly due to ideological conflict and misinforming propagandas. The too often quoted case of “Bansbari Tannary privatization” that resulted in closure of the business is more of propaganda than a fact. Contrary to the rumors, the factory was shut down because it could not compete anymore with the cheap imported Chinese shoes and the machinery of the tannery was too old that it had become obsolete.

The failure of the then proponents of liberalization to highlight the gains of privatization and the politically controversy made the process come to a halt and hasn’t been able to move very far since then.

Current time

Image Source:www.life.com

More than half of the 36 public enterprises that we have now are operating under losses and the amount of accumulated loss is alarming. Except for a few of them, public enterprises are epitome of corruption, inefficiency and financial disasters. More than 30 percent of the government’s initial investment of 86 billion rupees has already been lost. In the fiscal year 065/066 alone, only 4 of the public enterprises paid dividend of Rs. 3 billion and 470 millions to the government which is just about 4.3 percent return on the investment. Some of the public enterprises have even negative net worth owing to the continuous losses over a long period of time. The scenario is a kick on the face of any fiscal prudence.

As most of the functions of these enterprises are being taken up by private sector which is performing pretty well, the dire state of public enterprises is surfacing even more clearly due to the contrast effect. Take for example the case of state run Janakpur cigarette factory versus private Surya tobacco. Janakpur Cigarette Factory has an accumulated loss of more than a billion rupees and has been operating on loss for almost two decades now. It has more than 1100 staffs. Compare it to Surya tobacco which is one of the largest taxpayer of the country which has about 900 staffs. The scenario is not very different in the case of many of our public enterprises.

The future

As suggested by the Public Enterprises evaluation commission, privatizing and changing the ownership of the ailing public enterprises is the only practical solution for the government. With all the political instability going on and the ineffectiveness of the state being heightened in crucial areas like law and order , justice administration and infrastructure development , reducing the administrative burden of the government is a must for proper functioning of the government. Similarly, reducing the economic burden of public enterprises from the ailing economy of ours could be an important step towards reviving our economy.

As the commission has advised different ways to improve the performances of public enterprises including privatization, public private ownership, cooperative ownership, merging of two or more public enterprises and introducing them to PPP and shutting down, it’s very important that the government act on the suggestion quickly and effectively. If the government decides to keep owning and running them based on some dogmatic ideological principles or pressurized by the vested interest of the group that benefits from the poor performing public enterprises, they will continue to be a drain on our economy.

-Surath Giri
(Published in The Himalayan Times of 30th Jan 2011-Perspectives Page 3)

Is libertarianism suitable for Nepal?

December 25, 2010 Surath Giri— min read

Couple of weeks back, I received an email from a gentleman who showed concern regarding the suitability of libertarianism for Nepal. Reading the email, I was grateful to him for his time and effort to show his concern and I also realized that if one wants to promote ideas of liberty in a society like ours, she has to take in account the collective nature of our society and culture. And hence, the ideas need to be adapted into actions that make sense to the members of our society. Recently , I also participated in a colloquium on Indian Liberal Tradition and during the discussion I learned that one of the pivotal work Indian liberal leaders of first generation did was adapt the ideas of liberalism into Indian context so that they became very relevant to the society they were being discussed in.

Here, I present you the email I received and my reply.

The email:

Mr. Giri,
Although I am not a libertarian and in fact I do not agree with some of its core beliefs, I must commend you for your attempts to put your views forward. Individualism cannot work in Nepal for the time being because of the rigidly collective nature of Nepali society (and not so much because of the Nepali state, which barely exists).

‘Libertarianism’, or any other ‘ism’ has to be tailored to each society’s needs and aspirations. The failure to do so will only bring more confusion than previously existed. A country like Nepal—for the most part still living in the 15th century is not likely to accept the tenets of a new and rather radical system. People have been culturally programmed here not to accept responsibility for their actions.

Anyway, these are just preliminary thoughts. If you want to debate them you can always email me.

My reply:

Thank you Mr. Gyawali for the email and your concern and sorry for my late reply. You are right in saying that Nepali society is rigidly collective in nature. However I differ with you when you say Nepali state is weak or barely exists, It barely exists when it comes to its basic functions such as law and order, administration of justice, handling of foreign diplomacy but in other aspects of life I find it pretty much strong and interfering. Just look at our history to date...first the ranas, then the panchayat, then the monarch, don't you think the state had been strong in those times although it may seem a bit weak at the current transition phase. The economic sphere and social spehere of the citizens of this country has always been controlled by the state. The exorbitant tariff rates , restriction of foreign direct investment, inflationary monetary policy, cumbersome license permit raj and the massive corruption, state backed cartels and syndicates, highly politicized trade unions that are major impediment to our industrial growth, massive corruption and inefficiency through public enterprises and so on...what do you think about that?

Regarding relevancy of libertarianism, I take it more as a philosophy of life as compared to an ideology. I agree that it is a philosophy developed from the western thought but i also believe that its principles are more of universal nature (such as that humans are rational beings, free markets bring prosperity, private ownership brings better handling of any resources, spontaneous order emerging through markets is better form of organizing a society rather than an iron fist). For me it's primarily a way of living life and viewing the world and then secondarily a way of organizing our society and taking nation forward. I find it hard to believe that a long defunct-ridiculous and proven wrong world-wide philosophy like communism can flourish in our country even though we Nepalese have fought for our freedom time and again. I believe the collectivist thought of Nepali society has been accentuated by the leftist political parties and leaders even though i agree our society and mostly Hinduism is somewhat collective in nature. However, there is also this fact that even Hinduism has liberal aspects to it in the Charvak school of thought.

I wholeheartedly agree with you when you say any 'ism' has to be tailored to meet a society's need and aspirations and sincerely believe libertarianism in its purest sense won't be applicable here. Various dimensions of our society like diversity, caste systems, culture should be taken into consideration. I might believe in an individual's right to bear arms but i would not necessarily advocate it in the context of Nepal, I might believe education isn't a basic human right and state has no business in providing education and yet i would support state's minimal involvement although i would advocate some private components in it such as the education voucher system. However, i also believe that the so called "perfect time' for liberty never comes. I find it rather foolish when people say Nepal is not ready. what the heck...if it's not ready for freedom and prosperity then it can't be ready for anything else at all. There are examples of countries like Poland and Estonia who jumped from totally communist structure to free market structure. People there had hardly any sense what price of a good or service meant at all but still they did it. And they happen to be the most prosperous and vibrant societies among the nations that separated from USSR.

By the way, i was wondering what were the tenets of libertarianism that you disagreed with. It would be interesting to discuss, I believe.

So what do YOU think about the suitability of libertarianism in Nepal. Please share your thoughts, agreements and disagreements in the comment box below!

पूँजीवादलाई पूँजिपतीहरुबाट बचाऊ

December 22, 2010 Surath Giri— min read

हिजो प्रकाशीत डा. भोला चालिसेको "सार्वजनिक निजी साझेदारी र समाजवाद" नामक लेख साह्रै नै सान्दर्भिक र तथ्यपरक छ । लेखकले भनेझै नेपालमा पूँजीवादलाई पूँजीपतीहरू बाट नै ठुलो खतरा छ । अधिकान्श विश्वले बढ्दो ब्यक्तिगत र आर्थिक स्वतन्त्रता तर्फ पाइला चाली रहेको र सम्मुन्नत हुँदै गैरहेको अवस्थामा नेपालमा भने पूँजीवाद भन्ने शब्द उच्चारण गर्नै डराउनुपर्ने हुनु दुर्भाग्यपुर्ण कुरा हो। आजको विश्व को एक आम नागरिकलाई बुझ्न हम्मे हम्मे पर्ने बिषय हो -सारा विश्वले अन्तरस्थमै खराब सिध्दान्त हो भनेर स्वीकारेको ,जस्को प्रादुर्भाव भएको समयलाई डर , त्रास र अन्धकारको युग भनेर विश्वले स्वीकरिसकेको र जस्का गलत नितिका कारण करोडौ मानिसले ब्यर्थमा ज्यान दिनु परेको , देशहरुको अर्थतन्त्र ध्वस्त भएको साम्यवाद, समाजवाद जस्तो निति नेपालमा चै किन यस्तो हाबी भएको होला । तर जब हामी हाम्रो नीजी क्षेत्र र पुजिपतीहरुको क्रियकलाप हेर्छौ , त्यो हाम्रा लागि आस्चर्य को बिषय रहदैन । प्रतिस्पर्धा र जोखिम उथाएर ब्यापार गर्नुको साटो राज्यको खर्चमा आफ्नो ढुकुटी भर्न लागि परेकाहरुले अर्थतन्त्रमा राज्यको भूमिका बढाउनु पर्‍यो भन्नु नौलो कुरा नै भएन । राज्यका मार्फत प्रत्यक्ष वा अप्रत्क्ष्य रूपमा एक्लौटी अधिकार र जनताले तिरेको करको पैसा ब्यक्तिगत रुपमा प्रयोग गर्न पाइने भएपछि सार्वजनिक-निझी साझेदारीका लागि उनिहरु कस्सियेरै लाग्ने त भए नै । राज्यको अहिले सम्मको प्रदर्शननै, अर्थतन्त्रमा राज्यको भूमिका न्युनिकरणका लागि जोडदार तर्क हो । नीजी क्षेत्रको यस्तो अनैतिक व्यबहारले नीजी क्षेत्र झनै बद्नाम हुने र अर्थतन्त्रमा आघात पुग्ने भएकाले आजको एउटा आवश्यक्ता पूँजीवादलाई पुजिपतीहरुबाट बचाउनु पनि हो ।

Global financial Crisis-Blame the populist policies not free markets!

December 17, 2010 Surath Giri— min read

Just read this view-point entitled “Smooth functioning free market; conditions are attached” on The Himalayan Times of Dec 15. The leftist economist and critics who are riding the bandwagon of state intervention after the global financial crisis declaring it a failure of markets comfortably choose to forget the fact that economic depressions are part of a democratic process of the market to transform resources stuck in unproductive sectors towards more productive sectors and the financial recession emerged from the misguided policy of the US government that encouraged dirt cheap credits for home-ownership. Misguided by the bad policies, banks and other financial institutions invested majority of their resources in the home mortgages which increased the investment in housing sector tremendously. When the market couldn’t take the expansion anymore it busted dragging down major financial institutions as well as other industries. So, the financial crisis instead of being a failure of market is in fact the failure of state intervention in the mortgage markets. Had it not been for the unnecessary intervention of the state in the markets, the recession would never have occurred in first place. For the past 10-12 years, the U.S. economy invested in housing at a rate above that suggested by historical trends. This boom coincided with a substantial increase in homeownership. These facts suggest that the U.S. over invested in housing during this period. It’s sad that a respected economist like Dr. Dhungel chooses to ignore the facts and give a biased viewpoint to further state intervention.

My journey of 1000 movies and 100 movies you shouldn't miss!

December 09, 2010 Surath Giri— min read

I recently watched the French movie "Persepolis" and with it completed my journey of watching 1000 movies. My obsession with movies started a couple of years back when I rented the movie "House of Wax" and watched it. Though I was able to get a fair sense of the storyline and what's happening, I was surprised at my inability to understand the dialogues. It was a disgrace to my knowledge of English language that I couldn't understand it being spoken in a movie properly. The indignant me then embarked on a movie watching spree. I watched one movie after another until I could hardly find a movie in the store that I hadn't watched already.

One year and more than 300 movies later, I was still pretty bad at understanding the dialogues and subtitles were my saviors but it didn't matter anymore as a whole new exciting world of art had opened up before me.Movies now were rarely just a 2-3 hour enjoyment but more than that they were a form of art that drew upon a lot of factors including social trends, values and norms of the society they reflected, the viewers they addressed and the philosophy, vision, techniques and idiosyncrasies of their makers. Any they were immensely informative. I realized movies if watched with discretion would be much more than just an idle time pass.

I went on to watch IMDB's Top 250 movies ever made and American Film Institute's Top 100 movies of the last century (97 out of 100 yet.) and Time's Top 100 movies (81 out of 100 yet). I sought after earliest of the movies (earliest one I have watched is "The Great Train Robbery") and movies from various countries (USA, UK, France, South Korea, Italy, Iran, India, China, Nepal, Mexico, Sweden, Israel to name a few) and watched as many as I could find.I realized along the way that the more movies you watch the more you wean away from mainstream movies and towards art and independent movies. Well, after watching 1000 movies all I can say is I am ever more eager to watch more movies.

By the way, you can read the whole list of movies I have watched to date here and below are the 100 (there are more though) of my most favorite movies (in alphabetical order) I have watched to date and think you shouldn't miss them if you are into the business of watching movies. Not all the movies in the list are great movies in the "great movie" sense but all of them are my favorite. Enjoy!