The Nepali business community has welcomed the outcome of the general elections. It hopes the clear majority (almost two thirds) garnered by the coalition of the two communist parties, CPN-UML and CPN-Maoist Centre, will bring about political stability. The Nepali business community has been complaining for decades that the political uncertainty was the major reason why businesses, particularly those with long term goals such as manufacturing, went on declining despite clear opportunities to flourish.
Indeed the promise of political stability was one of the main points emphasised repeatedly by the two leftist parties during their election campaign. And the people gave these parties a majority not only in the central parliament, but also in all the provinces, except province No. 2. But will the wish for political stability prove to be true? And more importantly, will there be better policy stability with the leftist coalition in the central and provincial governments?
There are a number of doubts. Let’s take the first question. Going by the history of diametrically opposite political stands that UML and Maoists have been taking, the likelihood of their coalition being stable is doubtful. A lot of bargaining will continue during the next two to three months before the two parties actually become united. Threats to the unity have already appeared from within both parties. The unity will demand a lot of sacrifice from both existing parties. This trade-off is going to be of interest to the business community.
Now to the second question. The election manifesto of the leftist coalition has laid down such policy statements that are quite opposed to the existing public policy. For example, the existing public policy is based on the main foundation of liberalisation and privatisation. This is the foundation not only for domestic issues, but also for international issues as Nepal is a member of WTO and SAFTA. The leftist election manifesto, if to be implemented according to its spirit, will demand an undoing of many existing policies. This will take time, not just two to three months, but even a year or more. This period will definitely be a period of policy uncertainty.
But there is a third question as well to consider. Does political stability really help businesses and the whole economy to grow? Or, is political stability in itself a sufficient condition for economic growth? There are plenty of examples from across the world and even from Nepal’s history to answer both these questions with a definitive “NO”. Both India and China had political stability from 1950 for about 20-30 years. But this is the period famous for the low level equilibrium trap that both of these countries were bogged down in. The period since 1980s was a period of political uncertainty in China as Deng Xiaoping was struggling to consolidate his hold on power. But this was the period when China started making big strides on the economic front.
We can take the example of Zimbabwe as well to illustrate how political stability may instead cause devastating harm to the country’s economy. The examples of Singapore and Malaysia are offered to prove how political stability is good for the economy. But those who offer these examples forget that the success of these Asian Tigers should be attributed more to the right public policies that these countries adopted than to political stability. Examples are a plenty from around the world that show the countries which follow the right policies flourish economically no matter how unstable their political situation may be.
Therefore, it may be better to judge the new government by the quality of the policies that it will adopt than the level of political stability it will ensure. Wish the New Year 2018 will be a period when the right policies are adopted.