Blueprint for Nepal’s Prosperity

Rakesh Wadhwa

Why is Nepal one of the poorest countries in the world with a per capita income of $226, and with the majority of its people living in abject poverty on less than a dollar a day?

Is it because it is landlocked?

Why then would landlocked Switzerland be rich and prosperous? No, being landlocked is a disadvantage but is not reason enough to explain even a part of Nepal's poverty.

Is it because it is overpopulated?

How can that be? Other countries which have a far higher density of population have progressed fast and wiped out poverty decades ago. Switzerland's density of population of 180 per sq. kms is higher than Nepal's 166 but Switzerland’s per capita income is US$ 40,000 - higher than Nepal’s by 176 times. Japan's population density at 335 per sq. km is certainly more than Nepal's. What about Hongkong, Singapore, Belgium and the Netherlands? They all have much higher population densities and yet are infinitely more prosperous. If population was the problem then Mongolia with a population density of just 2 persons per sq. km would be one of the wealthiest nations on earth. Clearly this is not the case.

Are the people at fault?

Do they while away their time in drinking tea, chatting and gossiping, or simply doing nothing? If this is true then how does it explain the success of the Nepali people when they emigrate to other countries? They work as hard if not harder and they work longer hours than the local residents. They do this for example in the USA, because they know, every hour wasted is money down the drain. The penalty for being lazy in America is a minimum of $ 7 (over Rs 500) an hour. In Nepal, the job opportunities are so few, the pay so paltry if you are lucky to be employed at all, that the penalty for not working is almost non-existent. It therefore makes eminent sense to relax & day dream. There is nothing at stake.

Nepal's misfortune has been following in the footsteps of its neighbor, India: India followed a policy of government attaining control over the economy, Nepal did the same; India's Public Sector, in Nehru's words was to be at the "commanding heights of the economy", Nepal followed suit; India restricted trade, commerce and foreign investment, Nepal followed.

The evidence is out. There is no doubt that countries which control their citizens, which put restrictions on the conduct of every day trade and commerce do so at a very high cost to their people. They impoverish themselves. Countries which put fewer economic restrictions, lesser taxes and leave the people free to go about their daily business become rich - rich beyond imagination of the poverty stricken masses of Nepal or India.

What proof do we have?

Milton Friedman, Nobel laureate, and economic adviser to various US Presidents asserted in the 1980's that economic freedom lead to wealth creation. He was challenged by a colleague and asked to prove it. Thus was born Frazer Institute's Economic Freedom of the World Report, an annual publication, assessing 21 variables of economic freedom in 123 countries.

The results were as expected by Milton Friedman. Economically free countries prospered the rest stagnated. Similarly another report, the prestigious '2002 Index of Economic Freedom', a joint publication of The Heritage Foundation, USA, and The Wall Street Journal compares 155 countries. Hongkong, Singapore and New Zealand rank as the 3 freest countries. USA is 4th along with Estonia, Ireland, Luxembourg and Netherlands. Nepal's rank is 108 while India ranks at 121, Bangladesh is 131 and Pakistan is 101.Countries which have low taxes and small government, strong protection of private property, and the ability to trade freely rank higher and prosper.

What would happen if Nepal was to move to the top of the rankings?

If Nepal was to embrace free trade and remove all unnecessary controls and regulations stifling the economy and preventing foreign investment from creating employment and wealth for all, poverty would be wiped out in less than a decade. It is not foreign aid or donations, which will make Nepal wealthy, it will be the people of Nepal freed from their economic chains.

Is it even possible?

The economic freedom rankings are not static. Countries move up and down all the time. Estonia, which was part of the erstwhile USSR, with its economy completely controlled under communism, is today one of the most economically free nations. There is no reason why Nepal cannot, in a very short time, dismantle all barriers in the path of economic progress and prosperity for all.

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