Kathmandu:

Today, many people are appalled by the difference in the standard of living between those living in different countries of the world.

Why so much inequality? Why do people in Japan earn on an average 100 times more than an average Nepali?

Of course, people in the developed world feel that they are more efficient, intelligent, and work harder. Really. Let an American doorman come and work in a hotel in Thamel and he would soon be cured of the notion that his hard work results in higher pay. Even if he works 16 hours a day in Kathmandu, he will earn only a fraction of his salary back home in New York.

What about Nepalis migrating to richer lands? Their earnings are comparable to the locals; a Nepali waiter in a UK restaurant, may make nearly as much as his British counterpart. Let him return to Kathmandu and his earnings in sterling will remain only as a memory.

Clearly, some other reason is at play here. The difference in earnings and hence in the standard of living is explained not by any inferiority or ignorance of the Birgunj, or Bihari worker but by something else. That something else is ‘capital’. Workers in Western Europe, Canada, the US, Japan, Australia are more productive and earn more because the amount of capital invested per person is far greater in these advanced nations than in our developing countries.

If more money was to come to Nepal and be invested in shoe factories, airlines, hotels, garment manufacturing, power generation, telecommunications, roads, and bridges, what would happen?

The demand for workers would immediately rise. There may not, initially, be an upsurge in wage rate as first the people who are presently unemployed get jobs. However, there is no denying that the standard of living of those getting employed in these new jobs goes up immediately. The workers gain instantly, though it may take a while for the investors to start getting a return. Foreign Investment thus brings about an improvement in living standards fast and in a manner visible to all.

With passage of time, as further investment comes in, and as those employed create a fresh demand for goods and services, unemployment all but ends. Any demand for workers after this threshold is reached, can only be met by attracting those who are presently employed. It is then that the wage rates really take off.

The opportunity for attracting capital to Nepal is limitless. Over $1.5 trillion cross national boundaries, every day. The world has an immense amount of capital sloshing around seeking a return. The flow of capital to developing countries is running at $400 billion per annum.

What is Nepal’s share? 0.0025 per cent; as it has averaged less than $10 million annually for the last few years. Can it do better? Absolutely. To get its fair share based on its population of 25 million, it must get $1.30 billion in foreign investment or 45 times of what it got in 2004. And who says it has to just get its fair share? Estonia with less than six per cent of Nepal’s population obtained $700 million in foreign investment in 2004 or 25 times more than the $28 million Nepal attracted in the same year. Is that fair?

What does Nepal need to do? Not very much. As a first step, it must abolish all controls on foreign investment and foreign exchange. This alone would increase investment manifold. If, in addition, Nepal abolishes the income tax, grants sovereign guarantees against expropriation of foreign capital, provides a secure law and order environment, and protects property rights, foreign capital inflows will wipe out poverty in less than a decade. After that, it will be straight flight into undreamed of prosperity.

Will it happen? I do not know.

However, I do know that it can start to happen - overnight.

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