The Law of Rule: Where is the Optimal Point of Distribution in a Federation?

Prepared for CFFN, NRN-Canada, and NRNA as an input to the constitutional development process in Nepal

Presented on July 11, 2008 at Canada Forum for Nepal organized conference, Unfolding Futures: Building Nepal Ground Up


Contemporary Nepal is full of visible signs of inequalities, be they regional, ethnic, linguistic, caste-based, gender-based, or other in nature. Consequently, social tensions and anxieties are pronounced, and voices seeking social, political and economic empowerment are pronounced. The root cause of these tensions is the lack of four essences of an aspiring society: freedom, equality, prosperity, and rule of law. Because the central state could not deliver these essences, a federal mode of governance is in the making in Nepal. Today, Nepal has a potential to give rise to an ever advanced form of federalism where advantages of having a united country and local autonomy of people in decision making can both be harnessed ever more effectively. This paper presents principles behind building incorruptible distributed systems and behind advancements in social inclusion, social equality, political empowerment, innovation, and prosperity. It argues that the optimal number of the units of federation in Nepal is in hundreds and not three to fifteen states proposed thus far by various scholars.


The freedom, equality, prosperity, and rule of law carry contradictory, complimentary, and counterbalancing relationships such that our struggle to find an optimal balance remains a constant challenge. At the same time, the “wheel of progress” cannot roll properly when these four aspects of human aspirations cannot be kept in harmony. Nepal’s current tensions can be primarily attributed to this lack of harmony. Today, Nepal is in pain to find an amicable and honorable space for its 30 million people scattered along diverse geography, social-conditions, economic-conditions, cultures, religions, and languages. There is widespread discontent and many well meaning people in Nepal are overwhelmed by divisions and disagreements that overshadow the hope for convergence and construction.

The idea of federalism was brought forward in Nepal by Communist Party of Nepal (Maoists), which demanded a “federal republic” in pursuit of representing the voices of the long marginalized people before other political actors in Nepal were ready for federal restructuring of the state. Ten years of armed conflict, popular uprising of 2006, and the post 2006 political developments forced Nepal to rename itself as Federal Democratic Republic of Nepal. The federal restructuring of Nepal is already agreed in principle but its modalities have yet to be figured out, giving rise to a great national debate.

On one hand, we seek people empowerment so that they can actively participate in governance and development. On the other hand, we seek to access larger market and larger resource pool to draw benefit of size provided by a country. Therefore our ingenuity will be tested in our ability to attain local autonomy while having an insurance of a large federated unit for other key areas: protection against failures and disasters, access to larger market, macro-economic planning, and mechanism for resource pooling. Therefore, this work turns out to be an act of balancing between competing interests: individual freedom vs. socio-economic resiliency, production efficiency vs. proliferation of innovation, quantity of material progress vs. quality of life, exercise of power vs. social responsibility, and speed of development vs. sustainability of nature’s endowments. This article concentrates on what may be the most amicable and productive way for doing federal restructuring of Nepal. It investigates this matter in an explicit view of honoring the diversity of people and the integrity of the country.

From the Pages of History

Ancient History

We were taught in school that there was a period in Nepal at the time of Lichhabi rulers when Dwaidh Sasan (dual rule) was in place. This was a time of great prosperity in Nepal which peaked somewhere around 500AD and lasted sometimes past 800AD. This duel form of governance would have been called federal governance in today’s terminology. In such state the local governor (Samanta) and central governor (the King) looked after mutually exclusive duties. That means there were certain areas of power where the verdict of the local entity would be final and the central ruler could not override that decision. However, not much more can be said about this part of history due to lack of reference material. Nevertheless, local government and central government which carried mutually exclusive duties seem to have existed in the Indian subcontinent on the name of “panchayat” and “rajya” for long. Similarly, in neighboring China a unique version of federalism was also established by Kublai Khan in the 13th century.

Sustained progress of Chinese empire for five centuries begun in the time of Kublai Khan (1215-94AD) with the organization of Chinese society in the units of about fifty families (note traditional extended families). With broad responsibilities and authority over their lives – farming, land, water and natural resource management, justice and education – these units (she) became the building blocks of the Chinese prosperity. For the first time in modern history of humankind, public schools were built for all citizens and compulsory universal education of all children was practiced all on the back of she. This policy broke the stranglehold over the education and power held by a few elites. This also eroded the support base of Sung dynasty, which was still ruling in many parts of China, and built new momentum for widespread progress and loyalty of ordinary people towards unification of China under Yuan dynasty [9]. China remained an undisputed leader in the world for centuries to come. This tells that Kublai Khan gained more for China by giving power and authority away to people to be administered locally rather than keeping it all in him. The wisdom to be drawn from here is that having many states never diminishes our collective potential but rather opens up to greater varieties of innovations if we are only willing to take education, knowledge, and learning to the grassroots people.

Hierarchical vs Distributed System

Figure 1 A distributed system is more resilient than a hierarchical one.

History shows that there was never a superior geographic boundary in Nepal, but there existed superior art, architecture, industry, and trade time and again. But the society plunged into darkness when rulers embarked endeavors of territorial expansion and political repression. A study of these events led to believe that distributed governance were behind sustained innovation and prosperity, whereas the focus on centralization led to short lived progress, oppression and entry into dark periods. Hierarchies, which are the key enablers of a centralized state, were useful in maximizing the output from past knowledge and skills but not for developing sustained peace, equity, and prosperity. Malla Nepal

At the time Great Britain was expanding its empire in Asia, the founder of current Nepal, Prithvi Narayan Shah, was expanding his Gorkha Kingdom. At that very period, there were four independent countries named Kirtipur, Lalitpur, Bhaktapur, and Kantipur in the Kathmandu Valley. These little states were the smallest of all the states there were to exist in the territory of what we call Nepal today but they were the most prosperous of all in the entire region extending from Northern India to Lhasha. It took 25 years for the Prithvi Narayan to encircle these four kingdoms and militarily defeat them. Subsequently Kathmandu became the capital of a new and large state that was more than 1000 times the size of any of the original states. However, most of the prosperity slowly evaporated over the next two centuries.

The technological, architectural, and cultural progress made in Malla period by those tiny states demonstrates that size of a country is not the primary determinant of its progress. When even a small population unites in the endeavor of learning, thinking, creating, and building, any society can reach heights not reached by largest of the countries.

Lessons from Maoist Movement

Started by a small band of individuals in remote hinterland of Nepal in 1996, the Maoist movement of Nepal grew steadily and staged a successful war with the mighty state for ten years. Many people have many theories on the rapid growth of Maoist movement. Some attribute their success to existence of poverty and exclusion, some to leadership, some to the intensity of their approach and slogans, some to ethnic politics, some to failure of parties that were in power, and others have yet other explanations. In reality, many different factors must have worked together in what happened. However, the conclusion I have reached is that the largest single factor in the growth of movement was its distributed nature. In analyzing the Maoists techniques, I notice that they took advantage of the resilience of a distributed system in full capacity for their rise, whether they did it knowingly or unknowingly is yet another matter.

This movement started from villages where there were very few Thalus (people of power and status) but the majority lived in dejected and appalling conditions. Using both just and unjust means, the Maoists drove away the Thalus from the villages and empowered those who were at the bottom of the power-hierarchy. The side-effect of this was that the previously powerful were gone from the scene and the previously marginalized became empowered. Maoists let the village be controlled by the very same locals and went on to the next village. Their thus “liberated” villages interacted laterally without much influence of the central government. Despite making mistakes from place to place, the growth of the movement never abated. This system became so resilient that even the massive increase in military numbers, training from world powers, dropping of the bombs from the sky, arrest and execution of thousands, and burning of entire villages by the state could not destroy the movement. The movement was based on a distributed system, where villages freely interacted laterally with their neighbors but had little relation with the centre. In true essence, this system was fault tolerant.

Without much education, organizational training, discipline, and capacity, Maoists were able to turn the old monarchical system upside down, along with the help of broader Nepalese population and other historic coincidences. At the same time, a hierarchical model of the state could not produce the targeted result because it was inherently less resilient despite being massive. The very same Maoist leadership could not have achieved that feat if it had employed a hierarchical model as adopted by the central government.

Federalism in Socio-Economic Systems

Economy of Proximity

The nature of human development observed until recently is such that a person living in an urban centre can enjoy distinct advantage over a rural resident. Urban societies are more conducive for knowledge expansion and individual productivity. Human proximity fueled increased exchange of knowledge, improved facilities for living, reduced commute time, large pool of people for complex productions, mass transit of goods, and the economy of scale. Better shopping, services, cultural and recreational opportunities! No wonder with industrialization, rural populations are in steady decline despite natural population growth. There is net loss of rural jobs. Young people who leave for education and skills do not return home, thereby depleting the productive capacity of the rural areas. Even today, “economies of proximity exist and exhibit considerable quantitative strength” [2]. A survey conducted in the USA showed that people who wished to live in rural areas preferred to be within 50 km from cities of 50,000 or more population [3].

The explosion of urban population, however, has also resulted into its own unique demographic and social problems. With the advent of personal vehicles, the vibrant urban centers are being congested, slower to commute, plagued with air and water pollution, environmentally degraded, and prone to income disparities, conflicts and disruptions.

But advent of trucking, highways, high speed communication, and information economies are gradually stealing away those advantages from the cities and taking to smaller population centers. Towns and villages are offering clean and serene environments, preferred as places of living even by city residents. Therefore, if fortune is hidden somewhere for small places, that would be in knowledge economy.

Utility of a Country

The greatest utility of a country to an individual is in the privileges available to “him” to draw benefits, roam freely, and exercise rights without fear. Similarly a country can offer something distinct to its people something appreciable, such as protection of life, universal education, universal healthcare, universal rights and freedoms, fair access to opportunities, ease of doing business, and hope for continuing progress. In absence of global organ to deliver these services, countries, nations, and national boarders are relevant today and will remain so for a foreseeable future. In a federated country, smaller states benefit from welfare or insurance from the collective when failures occur due to unforeseen circumstances such as natural and economic disasters.

The globalization fueled by modern telecommunication and transportation technologies has been able to break some of the barriers of national boundaries in business and knowledge front, but we are no where close to a point where political boundaries do not matter. Even though more progress and happiness can be elicited through collaboration than through protectionism, model of governance founded on a concept of a country is our reality.

Economy of Scale

Historically, larger states had a advantage of being internally strong. Their large internal markets provided them an ability to wither trade barriers and be more successful economies [1]. Large states are usually economically diverse and enjoy greater military power. They tend to have multi ethnic, cultural, religious, geographic, and natural heterogeneity, thus offering internal diversity. In times of difficulties in selected sectors of economies, larger states could still deliver public good, provide subsidy to depressed regions, develop better monetary and trade policies, and build capacity to fight against external aggressions. On the negative side, the diversity makes it difficult for them to develop a central policy optimal to all groups. “Political economists find that economic growth and public policies suffer with greater ethnic heterogeneity.” [4]

The decline in trade barriers in recent decades is eroding the size advantage enjoyed by large states. It is breaking the link between state size and the market size [1]. Smaller states are increasingly able to take advantage of their homogeneity to swiftly develop targeted policies to adapt to the changing circumstances without facing severe political consequences and, therefore, are becoming more resilient. The European Union (EU) is an example of how size does not matter when you can do unhindered collaboration and trade with people across a large geography. Integration into EU made smaller homogeneous states more viable by decreasing their subservience to traditional large states. “The single European market reduced the economic penalty imposed by regional political autonomy because regional firms continue to have access to the European market” [5]. Researchers are concluding that that free trade in EU has meant that the optimal size of states is smaller than those represented by larger states of Europe [8]. The plot of the GDP numbers of EU countries comparing the numbers in 1960 and 2007, shown in Figure 2, validates this argument.

European GDP 1960 and 2007

Figure 2 European GDP of 1960 and 2007 (smaller units seem to fare better in free and fair federations)

Ireland, a country ridiculed as poor for so long could not have been a country with higher Gross Domestic Product (GDP) than countries like UK, Germany, France and Japan in a short span of time in a protectionist world. Even the Irish living in UK are less dependent on the centre and are more optimistic, empowered and prosperous due to increased integration with Europe. Therefore, traditionally aggrieved sub-national groups are politically and economically less dependent on their own central state. It is, however, not to say that the larger states are suffering. The integration has helped all.

If all Europe was under one centrally controlled empire, the level of development may not have been as high. India and China registered low level of development for a century despite massive size and population. Their failure can be attributed to their overly central nature, which is less conducive for competition and innovation. Centre formulated macroeconomic policies and planning and pushed down to the states. They remained centralist federations not conducive for proliferation of science, technology, skills, knowledge and learning.

If Nepal is to be a protectionist state, it should not think of becoming a federation. Conversely, if federation is to be accepted then we should not think of trade barriers between the constituent units of federation. Once the barriers do not exist, we do not have to develop small number of large states. We are better off developing numerous smaller states which gain their advantage in being innovative and efficient than being big and muscularly dominant. When products, services, and people can flow freely within, the size would offer only marginal gains to a governing unit because all freely enjoy the whole market. If they break away, they lose that privilege and become disadvantaged.

Inclusion and Empowerment

A stellar reason for Nepalese becoming terribly poor can be found in the lack of inclusion. Poverty is just the byproduct and manifestation of exclusion. Until the day inclusion of all people is not ensured, Nepalese people will remain destitute even if a small number of them may enjoy a great prosperity. And distribution of power is the only way to empower and include people that live in far flung places.

It is said that there are around 100 caste and ethnic groups and 72 languages in Nepal. Inclusion to disadvantaged groups has remained a distant dream thus far. National Planning Commission’s own statistics tell that Nepal’s 85% resources are enjoyed by 15% people. In such circumstances, inclusion would not be possible to achieve without the devolution of power. Even if ethnic balance in representation were to be ensured, it is not going to solve more than a small fraction of the problem of exclusion. That is because economic elites do not uplift the poor even if they happen to be of their own ethnic group. Otherwise, 60% Bahun would not be under poverty when they are in the privileged group by ethnicity. Thakuri’s of Humla bearing same ethnicity and caste as the former King would not be in abject poverty. Therefore, problem of exclusion, subjugations and exploitations must be seen from all three fronts: economic, social, and political.

A trickle-down theory in economics says that if the rich get richer, the benefits trickle down to the poor and, therefore, everyone becomes richer together. Like in a flower-pot, when you pour from the top, the water reaches all the way down to the root. By this token, in a free market uninhibited by taxation and government control, wealth will flow from the affluent to the poor benefiting society as a whole. In Nepal this theory implies that if you had money in Kathmandu, it will trickle down to Siraha and Humla. However, the reality tells that while Kathmandu is getting richer the rural Nepal is as resolutely poor as ever.

Therefore, these days a trickle-up theory is being proposed to counter the trickle-down theory. This theory says that if we empower the poor then country develops. It says, if you had money in Siraha and Humla, some of that money will trickle-up to Kathmandu. In this upward feeding model, planning is done based on rights. It is like, when you put the nutrients on the bottom of the tree, they trickle up the tree. And federalism stems from that right driven mindset, or in other words inclusion driven mindset.

This is because Siraha and Jumla’s realities are not the same although people of both places are poor and they all are in need of prosperity. A single generalized priority set on the name of the nation from Singha Durbar cannot magically develop those places. Making “the number of universities grew from 2 to 15 due to privatization” like statements could be misleading because they may have served some on the name of entire Nepal. Report published by World Bank says that there are regions in Nepal where people take less than 1000 calories of food per day. Perhaps these places are too far to be reached by the economics of Singha Durbar. Those people need instruments for influence social, political and economic decision-making if they are to come out of that gloom. Planning must be done at the small scale in the local communities with the involvement of the people in the decision making and their full participation and ownership in the implementation. What should be done should have been derived by the need of the people, available natural resources, and available human potential. Thus this impetus for building small states where people can participate in governance and development.

Production versus Innovation

A centralized and large system is good for duplicating and repetitive type processes. Therefore, work of equalization, dissemination of already developed knowledge, training military, and tax collection mechanisms work better when done by a central government. It is better suited for doing massive production through repetition. This is like the million cars mass produced by a single plant being more economical that those collectively by 1000 plants. Mass production of what is already invented becomes more efficient in a larger unit that uses lots of people in well defined production and distribution lines.

However, innovation and creativity is better served in a system with numerous smaller units. The art, craft, architecture, and technology developed by small states in Kathmandu valley are testaments of how small states can be as functional as large ones when it comes to innovative sphere. Innovation and creativity can be better proliferated by many small thinking units than a single large unit. Therefore, an innovative society should think carefully if it would be better off with industrial production of heavy goods or by inventing new ideas, approaches, and other weightless areas of economy. Conversely, in an educated, knowledge centric, and innovative society, smaller the units of governance more innovative they would become.

Natural Resilience of a System

People lived in small groups from time immemorial. When the group became too large, they split themselves up into smaller groups. The level of progress they achieved was slow but there were neither spectacular rises nor spectacular falls of such societies. These systems were massively parallel and interconnected, and they survived for a long time. These parallel systems offered reliability and resilience that far exceeded the reliability of any individual unit. It is like when an entire mountain with Sal trees got engulfed in fire, it rejuvenates with the help of seeds from surrounding mountains.

When human discovered the notion of hierarchy, people started building large kingdoms and empires. These systems made rulers to build successful military organizations, administrative mechanisms, functioning corporations, and almost every institution known to human. They discarded fairness and equality in favor of supremacy and control. Today, all organizations and systems are built on the basis of hierarchy. Due to their inherent nature, however, hierarchical systems are extremely vulnerable to defects and failure. Their success hinges on the vision and capability of a central leader, and, therefore, chance. That is the reason large empires in history have lasted only a short period of time for the utility of hierarchy is in control and not in resilience. The cold reality is that human survival cannot afford to be discontinuous like an empire.

The virtue of hierarchy is that it makes someone powerful and helps them be successful without paying attention to the principles of human freedom, equality and democracy. Today, the rising consciousness of people and the discovery of the notion of democracy, and, therefore, human freedom, equality, justice, and “prosperity with a human face” has meant that the old notions are being challenged. Many consider hierarchy to be incompatible with the core principles of democracy. What was able to give us empires and does not seem to help us build democracies.

However, it is not to say that hierarchy is always bad and evil. For we have not fully developed the know-how of successfully running flat organizations, we will remain subservient to hierarchical system of organization for some time to come. A hierarchical system could be useful to an extent that it remains transparent, such as grandfather being the head of the household. But again, our mothers and grandmothers also deserve to live with dignity and authority, which our grandfathers may have been against. Therefore, even in small organizations, hierarchy should not be accepted to reign free. It is time that we develop durable protocols for running flattened systems.

The great successes of humans are mostly fueled by parallelism, distribution and redundancy. Successful societies seem to have relied more on distribution in the rising phase of their empire building and to have relied more on hierarchical control in their dying phases. All successful empires seem to begin with education for all, employment for all, relative democracy, massive parallelism, fairness, and compassion to achieve rapid progress. Then they seem to go for conquering and controlling while innocently introducing new layers of hierarchies and curtailing innovation until the fall of empire.

It is only natural that we will fail quickly if we emulate the methodologies employed by the empires in their dying phases, although a dying empire may look the most prosperous and invincible just before its demise. Our success lies in our ability to emulate the methodology employed by empires during their rising phases.

System Management and Availability of Resources

While the natural endowment to Nepal has remained more or less constant over centuries, the economic progress seems to have taken great leaps at some times and stagnation and degeneration at other times. This shows that total natural wealth has small role in economic progress than the productive management of human capital. Only creative and innovative social organizations elicit prosperity. Societies that develop human capital achieve growth in productivity and strength in economy.

If equipped with right knowledge and skills, people can make even the worst places viable for them. Israel and Singapore are two countries poor in natural resource but wealthy due to richness in human resource. However, we often limit our thinking into what we can touch, feel and see and forget the vast amount of our accomplishments that are of invisible and immaterial kind.

Organizing a society to foster creativity and innovation requires that grassroots people get actively engaged in acquisition of knowledge, and in finding facts, ideas, and solutions to their immediate and long term problems. However, the effectiveness and optimality of decision making diminishes as the size of the decision domain and decision body increases. This problem was experienced by the American government in the 1930s and 40s when it formed a national consulting service to improve industrial capacity to support its war efforts overseas in light of the fact that many skilled managers and labourers had to go to war and industry faced downward pressure. But they realized that the consulting service could not deliver systematic result across the country. The system was too large for a small army of consultants to handle effectively [6]. This problem was finally resolved by breaking the system along industries and providing training within the industries. A train-the-trainer program, which focused on starting-skills, continuous-improvement and human-relations, was born out of it. The assumption behind this program was that “every employee is capable of finding new and better ways to do their job”[7].

A Mathematical Basis of Federalism

Classical Graph Theory

In electrical engineering they teach something called graph theory whose history goes as far back as 300 years. These graphs are mathematical structures used to model pair-wise relations between objects in a collection. They are collection of vertices connected by edges that connect pairs of vertices.

Large scale research on application of graph theory was initiated when telephone networks were being built in North America. Engineers had this problem of making wired connections between two parties that wanted to phone each other. The growth in number of users and distance between them made the centralized systems of the day increasingly vulnerable to failure. Although good for monopoly, the wiring and switching of the centralized system became unbearable. A decentralized and hierarchical system was introduced to alleviate this problem but the system remained structurally unreliable. They needed ever larger systems at the core but they could not be made reliable architecturally. Therefore, they depended on reliable components with gold plated elements and extreme precautions in manufacturing and assembly but the system reliability kept on going down. Governments spent vast amount of money and scientists spent decades on research but only to get disappointing results.

Then in 1964, an American scientist, Paul Baran, questioned, “Why is it that the telephony system is so vulnerable?” His thoughts led him to develop a distributed system instead of de-centralized system. He claimed that if the theory of transitivity (explained below) used in logic is to be applied in networks in a certain way, we will be able to build massively parallel and self-healing system without requiring expensive components. When a distributed system is built with numerous cheap components, any faulty component could be cheaply replaced without jeopardizing the operation of the system.

In his 1964 document submitted to US military, he said, “Since destruction of a small number of nodes in a centralized network can destroy communications, the properties, problems, and hopes of building ‘distributed’ communication networks are of paramount interest.” He explained that if a network were to be built with more than one edge per node, it will give rise to a completely connected mesh where you don’t need to worry about full connectivity.

Everyone in the industry ridiculed Paul Baran’s theory for a decade. But that was until some other scientists funded by one high profile convert from DARPA, who had seen his paper, successfully demonstrated the applicability of his theory. The resulting distributed system was so magical that more connections you make better reliable it was becoming. When the system scaled up and the number of connections increased, better stability and more reliability were experienced in the system. There was no need to do any engineering to handle its complexity. This along with some additional protocols built for such networks gave rise to what we call Internet today. But for long, many great minds of the industry called this theory a “crummy science”. It was the same as Copernicus was ridiculed by scientists who were using Ptolemaic math that considered earth at the centre of the solar system.

Baran’s arbitrary mesh did not need hierarchy. But the telecommunication systems of that time placed high bandwidth connections at the top and so on. They had developed a hierarchical system to make the scheduling problem from NP hard to a solvable one. Decades of circuit switching research, which was based on a poor philosophical foundation, went on wastage after the advent of packet switching. There emerged a system without a specific centre and thus fault tolerant. And that system is Internet.

In a hierarchical system, a whole lot of effort is spent in securing the pipes and to make the command chain running. If some problem occurs at the centre, the system then breaks up into multiple pieces of hierarchies. That is why these systems are so vulnerable.

Hierarchical vs Distributed System

2 Centralized, Decentralized and Distributed Networs (Paul Baran, 1964 )

Transitivity in Graph Theory

The downside of distributed systems is that they can cause total havoc in the system if rules breakdown. That is when the role of rules and protocols come into play. And, those of our specific interest in taming the unruliness of complex graphs is something called transitivity. Logicians symbolize these in various ways, such as:


In this expression, R is the conditional truth function or a relationship. This relationship can be very broad, like almost anything. And, a binary relation R over a set X is transitive if it holds for all a, b, and c in X, that if a is related to b and b is related to c, then a is related to c. The most commonly known by almost any student in their school days is that of equality as shown below, which tells that if a is equal to b and b is equal to c, then a is equal to c:

Intransitive Rock Paper Scissors

Unfortunately, relationships among entities in nature and society are not always transitive. You may have come across so many situations in real life where you know the relation between A and B, and also between A and C, but you cannot extrapolate this to determine the relation between A and C. A familiar example is the Rock, Paper, Scissors game played by children. In this relation, scissors can beat (cut) paper, and paper can beat (wrap) rock but the scissors cannot beat the rock. Instead the rock smashes the scissors! This is an example of an intransitive relationship. The essence of this game is depicted on the following diagram:


3 Rock, Paper, Scissors game (Source: Wikipedia)

When relations are not transitive, then you cannot generalize what will happen to a relationship as you migrate along the graph and graphs become completely unsolvable mathematically. The complexity of the problem of scheduling in such system becomes unmanageable as the system scales up in size. In engineering, we call it un-scalable system. We have yet to develop proper methodology to make the systems manageable in presence of intransitivity, especially when reciprocal evolutionary changes are desired in interacting entities. And such intransitive systems give rise to fun games and many intriguing relationships; they are not meant to develop large and orderly systems. The first order of business in developing large distributed system is to establish transitive protocols through with the entities establish their internal relationship. In that event the rock-scissors-paper game simplifies to the one depicted below. In doing this, we take away the fun of this game but open doors to invent new games where many players can participate; it will be possible to build rules for playing those games by large number of players.

Transitive Rock Paper Scissors

4 Transitive rock, scissors, paper game

And, all things do not become rosy simply because relations are transitive either. There is no general formula that counts the number of transitive relations on a finite set. When graphs become dense, it becomes difficult to predict the behavior of the system. In mathematical term, the complexity of the problem exponentially grows to turn into NP-hard problem.

Note: The term NP-Hard (Nondeterministic Polynomial-time hard), in computational complexity theory, is a class of problems informally “at least as hard as problems in NP.” NP-hard problems may be of any type: decision problems, search problems, optimization problems. [Source: Wikipedia]

Despite above mentioned difficulties, this simple theory of transitivity is used to build many resilient systems. It essentially relies on the principle of multiplicity of relationship. That means, for every entity there exist direct relation with more than one entity. And, they found that the reliability or robustness of such a system increases exponentially with the system size. It does not require confirmation of end-to-end connection setup for its functioning. Load is distributed and it avoids the hot-spots created by a hierarchical system. It lets systems repair failures and reconfigure automatically.

You may wonder what those relationships have to do in economics and governance. But economy and governance are in many ways like other complex systems where connections are established between various economic or governing units. The inter-entity relationships are handled by using protocols, which are the rules of engagement. For these relations to work, medium is less important compared to the protocols and the content. It is similar to Internet, where information flows over different mediums such as wireless-ether, wired-Ethernet, optical fiber, telephone cable, television-cable, or a power-line. Therefore, the protocols are the primary forces in making the inter-element relationships transitive in a system.

Theory of Reliability

Reliability in a loose sense means whether a system is dependable or trustworthy. In engineering, it is used to measure the probability of a system for operating at its intended capacity, or producing intended result, in face of failures experienced by individual components of the system. The longer the mean time between failures, which the engineers love to call as MTBF, the higher would be the reliability of the system. And, reliability engineering is all about architecting the system such that it could consistently produce intended result with high degree of certainty. After decades of research, scientists found that essentially there are two ways of building reliable systems. The first approach is you build the system using top quality components. That is like building a system of governance only using top-quality politicians produced from certified institutions and certified to be top-quality and incorruptible. But any thinking brain can figure out that it is impossible. The second way of building reliable system is to use those partially reliable components found in everyday life but employing massive level of parallelism so that the components can keep on failing but they could be safely replaced. And it does not hurt to improve the quality of components in the meantime. So trick to build a reliable system is in distribution. And only the distributed graph approach can give desired level of parallelism and resiliency.

Dangers of a Large State

A simple observation reveals that, in opportune times in history, rulers of powerful countries try to extend their territory. The reason is that they become ever more so powerful by controlling people of ever larger area. And, the very same power is the source of corruption and makes yesterday’s benevolent people the most corrupt of tomorrow. In a large system it becomes ever easier for individuals to remain anonymous and be corrupt without much notice. When a person elected from Humla comes to Kathmandu and emerges as a corrupt individual, the Humli population may still be oblivious or even indifferent about that corruption. But when everyone knows everyone else’s activity, it is so much more difficult. Therefore, improved transparency in public life is possible to achieve if people were to work in small and transparent organizations.

In a large state some deceptive numbers can be devised to give a false perception of progress. The largest employer of blue collar workers in the USA in the 1970s was General Motors, which paid $60,000 salary per worker in today’s dollars. Today the largest employer is Wal-Mart that pays $17,500 per worker [11]. This is happening while USA is continuously registering unprecedented growth in its GDP. This leads me to conclude that it is possible for a country to become richer in totality while its people become poorer. By this token, Nepal can boast a growth in GDP on the back of increased wealth in Kathmandu, Pokhara and a few places even when the four-fifth people living in rural Nepal become poorer. Using nationalist sentiments we can impart a feeling that entire Nepal is one but in reality we would have been treated as different. If Nepal was composed of many small socio-economic units, we would have been constantly comparing with each other and demanding better lot for ourselves. We would have been building a real economy on each of those units rather than hoping for someone else’s wealth to trickle-down on us or our chosen party to land on Singha Durbar. The Optimal Size of a State in a Federation

Optimizing Functional Size

There cannot be one cookie cutter formula when it comes to deciding the size of a state. Many factors like geographic composition of a place, population size, population density, distance between populations, substantive natural barriers, homogeneity of population, and other social and cultural factors are sure to interplay. Nevertheless, the purpose of forming a state in the first place is to maximize people participation in decision making, transparency in governance, and sense of unity and purpose in the population. Considering that most of Nepal is composed of agrarian communities, people participation in decision making could be maximized if the state capital was not more than a half a day walking distance away from the people. In that light, people sharing one watershed and numbering somewhere from 10,000 to 200,000 could join together to propose a state. An average population size of 50,000 would make the states as large as those in the golden era of Malla period. Therefore, Nepal can be made up of somewhere from a hundred to a thousand prospering states in the new configuration. Let the exact number be determined by the will of the people than someone living in a far away land or in comfortable chairs in Kathmandu with a carving knife.

If small kingdoms of Malla period with some 50,000 people per state could do so much wonders, united population of similar size can do even greater marvels today. That is because it is many times easier today to acquire knowledge, skill, science and technology than ever before. However, we must ensure that similar or better conditions for trade, innovation, and mobility exist.

In this paper, I propose a few rules for determining the optimum size of a state in a federation. These can be refined with our collective ingenuity – call the following the seeds of debate.


  1. Only truthful statement that I can safely make about the optimal size of a state is as follows: “Any governed entity of humans must be large enough to serve and small enough to care.” We will exacerbate the tension in society either by failing to serve or by failing to care, or both. The death of “care” part would be prevented if people participated in decision making and state capital was not more than a half a day walking distance away from the people.
  2. An urban state can engage larger population in decision making with relative ease as compared to rural population because proximity of people. A ten to twenty thousand population in a rural area may be sufficiently large with same level of complexity in people participation in decision making as an urban population of 100,000.
  3. People actually living in the villages and towns should be the primary determinant of how large should be the size of a local government. People at local level through internal consultations should decide how large a swath of land they believe would be meaningful for them to be in one unit.
  4. The size of a state with any number at par or above present local government should be permissible because size is not the determinant of progress but the education, creativity, unity, and perseverance of the people.
  5. Except for select large rivers, people sharing a common watershed would be generally better off belonging to the same state for all practical purpose of preserving and sharing resources like land, water, energy and telecommunication.

Optimizing Prosperity

Prosperity of a society is affected my many competing factors and the size of a state has very little role to play in totality. And giving healthy room for competing human interests to play positive role and maintaining a healthy balance among them is the key attribute of a successful society. Some of these competing factors are shown in Figure 5 to form a wheel of prosperous and ever progressive society. These human interests are grouped into four categories: ambition, justice, system, and innovation. Ambition is what makes humans be industrious and productive. Justice is what makes them respect each other and operate in ethical space. System is what makes them successfully repeat their tasks or endeavors. Innovation is what makes them discover or create ever better future.

Four Faculties of Governance

Figure 5 The wheel of prosperity

The most important thing a country can do to propel prosperity is to allow unhindered flow of goods and people among its states, with the neighboring countries, and countries around the world. And to take maximum advantage of that mobility the country must heavily focus on education, citizen-welfare, peace, science, technology, information, telecommunication, innovation, and creativity. When consciousness, knowledge, technology, and trade flows within states and between the states, people become united to compete with their prospering neighbors – call it a healthy side of envy. Having smaller states would mean that there would be people speaking same language as me, carrying similar cultural values as me, and ethnic identity as me in my neighboring states. Consequently I would have some good reason to keep nice relations with my neighboring states and to stay in the union. A union helps mutual progress while improving local economies, innovation, welfare, and production of knowledge. The very same union also helps us develop unified standards, taxation mechanism, defense, equalization, treaties, and mechanism for distribution of knowledge.


Always in human history, empires builders free the masses of people from old tyrants and promote democracy. In return, they receive praise, loyalty, discipline, and hard work from the masses of people. But as the rulers become more and more powerful, they start instilling new hierarchies, curtail freedom, and de-humanize those people, which leads to apathy, discontent, rebellion, and an ultimate demise of the empire either from within or due to invasion of another empire. Therefore, it is not the central question is not about whether federalism is useful to heterogeneous society as found in Nepal or not but it is how to realize a free and inspired society through it so that it does not give rise to hierarchical, restrictive, and tyrannical system.

In a distributed economic and political system we can expect a promising growth in innovation. And only through innovation, those who are unnoticed today would become noticeable of tomorrow. For example, whereas the government of large Nepal may never notice me as a useful person and may never ask for any help, if my villagers were left to build their own economy, they would locate me and demand that I help them. If that were to happen, I would be morally compelled to help them to the best of my abilities. And the same would be true to you – the reader.

Instead of hoarding all the power, if the centre relinquishes most of its power and focuses on the development of much needed protocols for ensuring a fair interaction among the states, the country would be much better off. Protocols are the edges of the networks, which would be formed between the states of a country. For example, how knowledge, information, roads, highways, waterways, natural resources, human resources, and trades between adjoining entities are to be shared, and maintained. How disputes are to be settled and how abuses of those shared entities are to be stamped out. Once we embark a mission of building protocols, we will be in a completely different mindset and talking about entirely new things and making new debates, which are completely different. This will reduce political tensions, initiate healing, and inch us towards the path to prosperity. If all economy and political system was to be distributed and reliable there may not be much role for international “big brothers” in our internal affairs!

A massively-federal-system is more conducive for promoting inclusion for today’s marginalized people. This is because a common person can make useful decisions in smaller social, political and economic units than in larger units. They, therefore, would be better included and empowered. They would feel freer, work more intensely, be innovative, and break stereotypes. Massively federal system and inclusion are compatible and complimentary.


[1] Fear, Loathing, and the Optimal Size of Nations: Assessing Regional Party Views on European Integration,
[2] Mark R. Montgomery, “The Effects of Urban Population Growth on Urban Service Delivery.” Paper presented to the meetings of the American Academy for the Advancement of Science, February, 1990.
[3] G. V. Fuguitt and J. J. Zuiches, “Residential Preferences and Population Distribution,” Demography 12 (1975) pp. 491-504
[4] William R. Easterly and Ross Eric Levine, Africa’s Growth Tragedy: Policies and Ethnic Divisions Dataset, Quarterly Journal of Economics #112, November 1997
[5] Liesbet Hooghe and Gary Marks, Multi-level Governance and European Integration, Rowman & Littlefield, 2001, pp. 166
[6] Ed Bernacki, Wow that’s a great idea!, Perspectives, Australia, 2001, pp. 5
[7] Ibid. pp. 6
[8] Alberto Alesina and Enrico Spolaore, The Size of Nationa, MIT Press, USA, December 2003
[9] Jack Weatherford, Genghis Khan and the Making of the Modern World, Three River Press, New York, pp. 196-217
[10] Kathmandu Valley Environmental Outlook, International Centre for Integrated Mountain Development (ICIMOD), Kathmandu, Nepal 2007

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