Kathmandu :

Why is Nepal one of the poorest countries in the world with a per capita income of $248, with the majority of its people living 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 not the reason for Nepal’s poverty.

Is it because it is overpopulated?

Other countries which have a higher density of population progressed and wiped out poverty decades ago. Switzerland’s density of population of 180 per sq km is higher than Nepal’s 166, but Switzerland’s per capita income is $46,530 - exceeding Nepal’s by 188 times. Japan’s population density at 335 per sq km is twice Nepal’s. What about Hong Kong, Singapore, Belgium and the Netherlands? They have several times more people per sq km and yet are infinitely more prosperous. If population was the problem then Mongolia, with just two persons per sq km, would be one of the wealthiest nations on earth!

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, what explains the success of the Nepalis in other countries? They work harder and longer than the local residents. They do this in the US, 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 low. It therefore makes sense to relax and day dream.

What then is the reason for Nepal’s poverty?

Nepal’s misfortune has been in following India’s policy of government attaining maximum control over the economy. India’s Public Sector, in Nehru’s words, was to be at the “commanding heights of the economy”, Nepal followed. India restricted trade, commerce and foreign investment, Nepal followed.

The evidence is out. Countries which restrict trade and commerce do so at a very high cost to their people. They impoverish themselves. Countries which put fewer 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 advisor to Reagan & other US presidents asserted in the 1980’s that economic freedom led to wealth creation. He was challenged by a colleague 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 countries worldwide. The results were as expected by Friedman. Economically free countries prospered, the rest stagnated.

Another report, the prestigious ‘2004 Index of Economic Freedom’, a joint publication of The Heritage Foundation, US, and The Wall Street Journal compared 155 countries. Hong Kong, Singapore and New Zea-land rank as the three freest. US is 10th. Estonia, Ireland, Luxembourg, Denmark and Switzerland are ahead of the US. Nepal’s rank is 121 and so is India’s. Bangladesh is 131 and Pakistan 109.Countries, which have low taxes, small government, strong protection of private property, and 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 controls and regulations stifling the economy and preventing foreign investment from creating employment and wealth, poverty would be wiped out in less than a decade. It is not foreign aid which will make Nepal wealthy, it will be its people freed from economic chains.

Is it possible?

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

(The writer can be contacted at: everest@mos.com.np)