Economic Prosperity amidst Political Instability

Economic Prosperity amidst Political Instability

Dr. Prakash K. Shrestha

Nepal is in a situation of unprecedented political instability which does not seem to end in the near future. Despite being a republic, the persistent political instability has been pulling the country down the ladder of economic development. It is  bad luck for Nepali people that we are poor and lack basic modern amenities even in the twenty-first century. Another oddity for Nepal's economic development is that neither political stability nor political instability has been able to spur rapid economic progress in Nepal. In its history, Nepal had witnessed more than a century long Rana autocratic regime and 30-year long party-less Panchayat regime. Despite having political stability more or less during that time, Nepal’s economy could not make any significant economic progress. In fact, Nepal remained under the dark age of Rana rule, while Europe and America were in full swing of the industrial revolution. Then, the Panchayat system ruled Nepal, while East Asian countries were progressing.

Although Nepal has been moving in the right direction politically in recent years, political parties have not been mature enough to govern the country and expedite the process of economic transformation. Nepal turned into a republic in 2008 by abolishing the 250-year monarchical system as a result of the 10-year long internal armed conflicts and the second people’s movement of 2006. A number of factors such as lack of foresight  narrow visions, and petty politics have made the political parties almost ineffective to execute the critical role that the history of Nepal offered to them. Growing lack of trust and cooperation among these political parties has been putting off the process of institutionalizing the nascent republican system and economic development entirely. Experience so far has showed that these political parties unite only when they are in opposition, but they bicker when they are in power.

It is obvious that a political transformation takes time, and it requires solving many conflicting things together, which could be possible through the process of learning by doing. However, now all political parties want to fulfill all of their demands immediately, although some demands are mutually exclusive i.e. difficult to fulfill simultaneously. Because of the lack of agreements among the political parties, the Constituent Assembly failed to fulfill its mandate of drafting new constitution even after spending 4 years, bringing the political transformation in limbo. This situation has adversely affected developmental activities by heightening political uncertainty.

Economic development is not impossible as shown by the history of many advanced and newly emerging countries. Neoclassical economic theories even foresee a convergence among countries in economic development. According to these theories, an economy can grow by producing outputs by using labor and capital. More importantly, neoclassical economists argue that, with globalization and liberalization, capital moves from the advanced countries to labor abundant developing countries so that economies of these countries will grow as well. However, in a broader sense, it is not happening, in spite of liberalization and globalization, especially because of lacking supporting institutions. Among others, political instability seems to be one of the factors hampering the economic progress. Many studies have found that political instability hinders the process of development through various channels such as creating policy uncertainty, increasing risks for investment, obstructing infrastructure development and increasing corruption. It is an absolute shame that despite having tremendous water resources given by nature, many Nepali people have to live without adequate electricity and potable water.

The success of East Asian countries and advanced countries has established the vital role of government for development. Markets cannot function in a vacuum without the provision of some public goods, and law and order provided by the government. Although with the globalization and opening up the economy a country can bring in technology and capital from abroad, there is no easy formula to import and instill a stable governance system in many developing countries like Nepal. There are no economic theories that explain economic growth and development in a political quagmire.

Nepal does not lack resources for economic development as we were told in the past. The donors can provide aid. In addition, remittance inflows have been increasing, which can be used to import capital and technology. Many domestic and non-resident Nepali are ready to invest. Moreover, Nepal can easily attract foreign direct investments because of tremendous potential in hydropower and tourism, and being in a strategic location between two growing nations China and India. Despite this, the ongoing political conundrum has been keeping Nepal a hostage to initiate economic prosperity.

Seeking to get power is normal behavior for political parties. But preventing ordinary people from doing own business and economic activities by calling frequent bandh and strikes cannot be justified and tolerated. Political parties could differ in principles and could play several tricks to obtain political power, but they should have a common agenda for economic development at least, which is vital not only for them but also for future generations. Otherwise, as Rana Regime and Panchayat are now despised because they had kept us poor in the past, future generations will hate present political leaders, no matter how many times they become prime minister and minister.

For a country's development, everyone must play a role. In recent years, people other than politicians have been performing their own duties. For example, farmers are doing farming, writers and journalists are busy making people aware, and actors and actresses are acting to create fun even in the gloomy political milieu. Similarly, intellectuals and businessmen are aspiring to play their own role. However, political leaders are failing to fulfill their own duty and politicizing every sphere of life. For example, there are trade unions even in government offices belonging to each political party for politics, which has stifled the development of professionalism.

It is not easy to make a transition to a modern democracy. Political instability is a feature of transition. However, nearly all stable democracies have emerged from successful economic transitions. Hence, let's not obstruct the economic progress but facilitate developmental activities. It will help to solve some conflicting political issues that have been put forward. Economic prosperity is possible amidst political instability if political parties play their own role of writing constitution, maintaining law and order, and peace in the country. If we look at the history, despite civil wars, America had paved the way for economic prosperity by intensively engaging in economic activities and building up infrastructure.

Published in Nepalnews.com, Jan 29, 2013.

http://www.nepalnews.com/archive/2013/others/guestcolumn/jan/guest_columns_12.php