Nepal’s Enduring Poverty

As the book’s title—Nepal’s Enduring Poverty—seems convey, the subject-matter dealt with here relates as much to economics as to politics and sociology, in a somewhat balanced manner. From the author’s own perspective though, the political side of this discourse [with socio-cultural underpinnings] seems vastly more important to the forces of supply and demand-- economic principles—to produce desired economic outcomes, compared to when economic factors are considered in isolation. For example, capital is important to economic growth, but, in the absence of a supporting political and social environment, capital is ineffective or even hurtful to economic growth. Nepal presents a unique case study of growth failure—more appropriately, a growth disaster-- over an extended period of time—more than half a century examined in this book [1960-2013]. Despite periodic ups and downs of largely of political nature, Nepal has been a normal country in almost every respect: is endowed with fertile land and a varied climate; has a reasonably good rainfall to sustain productive agriculture; has a rich culture and strong communities; an enterprising and hard-working population; rudiments of institutional and physical infrastructure; and it enjoys an amicable international environment yielding large inflows of foreign aid resources to support development effort. In other words, the country has everything it needs to overcome economic poverty and to scale the ladder of prosperity, more rapidly than for less-endowed countries generally. However, it is nothing less than a profound mystery that the country remains mired in unimaginable poverty, with two-thirds of its population trapped in subsistence-level living untouched by amenities of modern life. The country has implemented over a dozen of Development Plans spanning over half a century, but, except for laying down the rudiments of a road network, there is little to show for plan achievements. In particular, the country’s agriculture—still the economy’s mainstay-- remains primitive, and an industrial base doesn’t exist. The articles in this volume are intended to highlight economic poverty of nations and to link the economic predicament of a country to its political and social environment--its traditions and culture. This theme of non-economic determinants of a country’s economic fortunes was aptly laid out by Anne Applebaum in one of her recent columns in The Washington Post [2012]. Reacting to the starkly different outcomes of economic adjustment programs implemented by Latvia and Greece as conditions for receiving aid from European Community (EU) in which Latvia succeeded while Greece failed, she concludes: How much of any nation’s conversations are really about economics, and how much of it is about emotion, or perhaps national psychology…Differences between Latvia and Greece lie in history, in culture, in emotion, and national psychology. Appleabaum’s skepticism of purely economic factors determining growth outcomes—or economic success generally -- is supported by recent research emphasizing the role of social infrastructure as key determinant to economic growth that includes security of property rights; sanctity of contracts; integrity of the judicial system; fairness of law enforcement; quality of bureaucracy; absence of corruption, and stable politics, among some other such items. Illusive growth outcomes in many countries, including in Nepal, relate only in a small way to the scarcity of investment resources, quality of its human resources, and access to technology. In large measure, an outsized role is played by non-economic factors that underlay the efficiency with which any given set of resources gets utilized. In other words, resource productivity—output per unit of use of inputs--more than the volume of resources committed for the development effort makes for a country’s economic success or disappointment. Illustrating this case for Zambia, for example, William Easterly notes in his aptly titled book The Illusive Quest for Growth [2001] that, based on the amount of foreign aid the country had received: Zambia today would be an industrialized country with a per capita income of $20,000, instead of its actual condition as one of the poorest countries in the world with a per capita income of $600. Among other things, aid-effectiveness-- and capital-led growth initiative generally --was overwhelmed by Zambia’s low-quality social infrastructure and government mismanagement of resources, very much like the case we observe in Nepal. Articles dealing various aspects of life in Nepal assembled in this volume will convince readers that economic prosperity or a lack of it is the outcome of political and social choices a country makes, much more than of economic resources it commands -- capital, labor, entrepreneurship, and some others. In short, it is an absence of will to develop that keeps a country poor, not that it is destined to be poor. Economic resources are necessary to fuel the growth process which, in turn, creates a basis for prosperity and good living. However, the role of social and political arrangements is central to ensuring proper--and productive--use of those resources. To emphasize this point further: given that a country works to ensure good quality social and political infrastructure, economic growth and improved living conditions for the population will materialize almost automatically, aided by the efficient operation of invisible hand--a theme expounded by Adam Smith in his book Wealth of Nations more than two centuries ago. In the preface to his General Theory of Employment, Interest, and Money (1936), John Maynard Keynes—recognized as the greatest economist of the twentieth century—explains that the main purpose of his work--The General Theory-- is to deal with difficult questions of theory, and only in the second place with the applications of this theory to practice. The present work attempts to turn this theme around: The focus of this work is to explain the functioning of a real-life economy. Its underlying theory is not so apparent because of the limited amount of research done on non-economic factors that influence economic outcomes. It is expected that development experiences of Nepal explored in this book will lead to fresh discussions of new ways of relieving global poverty that would de-emphasize the role of handouts and development assistance generally and, instead, motivate poor counties to work to help themselves or, at the most, teach them how to fish.