State and People: The Economy of Scale

Published in: Concern Nepal | Solidarity Monthly

As I pondered the economic state of my mountain village in Nepal after a visit this summer, I noticed a number of anomalies. While someone from almost every household is working in a foreign country and has been sending money back for years, I could not find much improvement in the material or spiritual wealth of the village. I could not find the remittance money working for the betterment of the villagers. Obviously the village has changed in many ways as the thatch roofs are replaced by tin roofs, ropes are made not of babiyo (Eulaliopsis binata) but of plastic; containers are made of not copper or wood but of aluminum; and polyester and nylon have replaced cotton. There is reduced diversity of crops and reduced production of food, but virtually unchanged poverty and hardship. A Dalit man had committed suicide by hanging himself from a tree the night I reached there, and many had done similar deeds in the recent years – an emerging but tragic phenomenon in the village. Adult men are in search of foreign jobs, and the village is inhabited by children, the elderly, and women. Most students in the village school will never pass Grade 5, let alone Grade 10 or 12. The remittance – which earns more hard currency for Nepal than all exports, tourism and foreign aid combined [1] – stays largely on the hands of manpower companies and moneylenders living in the cities. Slogans of prosperity have been sung by a few in the cities while the rural economy is being hollowed out and is being sustained precariously on “leftover remittance”.

Historically Nepal was not this badly dependent on outside money for meager survival and there was resilience amidst the poverty, illiteracy, exclusion, and discrimination inflicted on the people by its isolationist rulers. Amidst all difficulties there was an internal production mechanism, and a sustainable trade within the country and with the people of the north and the south. When my parents sent me for a two-year high-school education in Kathmandu, they had no other source of income than trading small quantities of diverse products which included grains, pulses, ghee, lumber, hay, fruits, tobacco, chili, herbs, cane–sugar syrup, and lemon concentrate. Although done in grams and kilos – not in tonnes – this trade was nevertheless a viable one, tried and true for centuries. Similarly trading of services was also a potent means of survival for many. While surviving within the meager scale of their economy, these largely illiterate people sought opportunity for their children in education. They poured their energy and money in building public schools while relying on the traditional economic foundation – a more farsighted endeavor than that of our educated “economists” who dismantled the public education in the later years.

Our “get rich quick” economists who wanted to reach either the Asian Measure or prosperity at par with Singapore’s, had no ideas to transform the self-reliant economy by focusing on education, organization and discipline – the three pillars for founding a prosperous economy. They could have mastered the art of doing trade through the specialization, productivity enhancement, diversification, education, and research, but they could not see anything worthwhile inside the small agricultural economy of Nepal. They saw the future in big industries, like a rubber industry based on imported rubber, a paper industry based on imported chemicals, a television industry based on imported ready-to-assemble televisions, and other industries which had pretended to be Nepali but assembled and branded foreign goods. Many of these schemes were merely tools to circumvent taxes or to create an illusion of progress. And then there were profitable industries like alcohol and cigarettes, which did nothing but eat away the physical health of the people and, therefore, their economic potential. Only a few industries, like cement and marble, still rely on internal resources. Others, like the garment and carpet industries, use foreign materials and internal manpower but are extremely exploitative of human labor. Workers in these factories cannot even send their children to schools. The traditional Nepali strengths of arts and crafts have not been preserved: nobody talks about the Tapke of Birgunj, the Karuwa of Palpa, the Topi of Bhaktapur, the Paper of Baglung, and so on, let alone promoting them to the wider markets. Never was there a focus on specialization, and on continuous improvement of quality and productivity, but only on the quantity – a sure recipe for failure at the first encounter of competition.

Hearing about the “economics of scale,” but lacking the know-how to run large systems, Nepal’s “visionaries” brought large scale projects like Karnali, Arun, Nepal Paper, Bhrikuti Paper, Gorakhkali Rubber, Janakpur Cigarette, Bansbari Leather, which have all failed, mostly due to corruption and incompetent management. Forget about managing large and complex organizations, they did not even have the know-how for managing small systems that our villagers were successfully managing, such as schools, rest–houses (Dharmashala), temples, canals, farmlands, and trade. There existed an ulterior motive in wanting the industries of scale for they had figured out how to get “mega aid” and “mega mortgage.” Most of these projects became easy places for the upper elites to secure employment. Unfortunately, they did not calculate the future consequences on the environment, society, and economy.

Even tourism, long identified as a potential balancing force for Nepal’s trade deficit, was not developed in any integrated way that would benefit the wider economy and the population of Nepal. The industry is in the control of a few. The general population has neither the know-how nor the enthusiasm for building the necessary infrastructure, while the government says it does not have enough money. Therefore, the annual tourist flow has remained at below 500,000 tourists a year for decades and the earning per tourist has not surpassed $300. There are plenty of hotels in Kathmandu but the rooms are hardly ever filled. However, tourism is not going to be developed by having mountains in the north and hotels in Kathmandu. Development requires a complex maze of activities.

Going back to rural Nepal, there were many cows and buffalos but not enough pasture and grassland in the past, but now there are too few cattle and unused pastures. There is fodder but no one to feed it to the cattle. Native herbs, grass and shrubs are being devoured by a toxic Banmara (Eupatorium odoratum) accidentally introduced to the land through imported grains or goods. No one knows if figs, oranges, amala (Emblica officinalis), coffee, limes, grapes, sumac, pears, bamboos, fiddlehead, etc, could bring commercial value to the village. Hardly any knowledge exists in finding the previously undiscovered value in plants, animals, the environment, tourism, and so on. There is little relationship between education, research, industry, commerce, and renewable resources available in the country.

I left my village convinced that there must be a way by which those people should be able to improve the lot of their lives without waiting for a miracle to descend from donor countries. As I turned to some books on economics for some wisdom, I came across a quote from Adam Smith: “The annual labor of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes” [2]. If that is true, the economic fund of rural Nepal is evaporating by virtue of the steadily diminishing annual labor input in the economy, and this does not bode well for Nepal’s prosperity. The salvation for Nepal’s economy should, therefore, be found in mobilizing the pool of labor that is available in the country to lift the lot of everyone collectively. The economy could grow internally if some people generate electricity from the stream water, some use the electricity to run a stone cutting mill, some run a carpentry workshop, some mine the rocks, some build school buildings and houses, some make crafts, some raise goats for meat and milk, some grow fruits, vegetables and grain, and so on. All these activities, except the grain production, are virtually free of any pressure from the world competition and carry potential to improve the living standards of the people.

In addition, if public schools were to deliver quality education in a fair and equitable environment, the remittance money, which hardly trickles past the big cities today, could flow to the village as there would be no need to keep the children in the towns to enroll them in private boarding schools. Remittance can then accelerate the internal economic activities. Exportable commodities should then be able to trickle out of the villages once again to feed the larger economy of Nepal. However, there needs to be coordination from a committed and incorruptible government if these tiny streams of productions were to sum up to a river.

Our economists might be worried that Nepal does not produce anything in a quantity large enough to compete in the global economy. If that is the case, Nepal must use education and technology to exploit its resources such that it would not require shipping them out on trucks and airplanes. It should add value to internal products while improving existing skills, developing new skill sets, and elevating competitive potential. All these can be done such that people around the world would come to Nepal and consume the products and services from within Nepal.

Why can’t we provide medical vacation to the elderly of the industrialized countries? Why can’t we develop direct links with the grassroots communities of the world? There must be millions of ordinary citizens of the world who could volunteer to take vacations that carry more meaning than looking at the mountains. It should not be hard to imagine that millions could integrate their vacations in Nepal with teaching, knowledge dissemination, skill transfer, art and crafts, and development of micro-trades with the world. In return, people of Nepal can offer them hospitality, nature, beauty, scenery, and the services they require. A new brand of “global-village tourism” can emerge to eclipse the newly popular eco-tourism. The productive capacity of the people can then be gradually enhanced through sustained focus on public education, technology, training, and research. This might stabilize the economy and the population of rural Nepal such that people would emigrate only for better opportunities but not because they could not make a living in the villages.

The problem, however, is that such potential for non-offensive integration with the world exists maximally in the mountainous regions of Nepal, then in the hills, then Tarai, and lastly in the cities (as they stand the most polluted and unlivable now). Because the decision makers of Nepal feed off the activities of the wealthy and large international donors, they show no interest in building a new economy that empowers the rural people whom they think have no potential. They hope to develop Nepal through any industrialization granted by “international investor” without knowing what the environmental, social, economic, and political consequences would be. While the elites mask their failures with a shroud of the much desirable democracy, people continue to suffer from the failures of their social and economic policies continuing from the Panchayat era. But the focus seems to be shifting towards making it easier for the Nepalese to emigrate so remittance can flow in their coffers at a faster rate and temporarily diffuse the social conflicts that their policies will eventually create. Can we expect to see any emphasis on an internal economy and public education any time soon?

[1] Rajendra Dahal, Nepal’s remittance bonanza, Himal Magazine, February 20, 2000.
[2] P.J. O’Rourke, On the Wealth of Nations (Books that Changed the World), Douglas & McIntyre, Canada, 2007

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