The word “small” is often used to refer to Nepal in various writings and communications across the globe. However, in terms of land area, Nepal is larger than England, a country known for having conquered much of the world. Therefore, the possibility of this new republic becoming a highly developed economy with a real GDP in the range of a trillion dollars, spanning from the primary sector of agriculture to the quaternary sector of  consultancy and fund management, is not a pipe dream but an achievable objective.

Over the 256 years since the nation and its economy were established, socialism has been the only course taken by monarchs, republicans and communists. In the Nepali context, socialism typically refers to a socio-economic system that emphasises social ownership, equitable distribution of resources, and a strong role for the state in ensuring social welfare and reducing economic inequalities. It focuses on inclusive development, social justice, and the upliftment of marginalised communities within a democratic framework. 

Although Nepal is said to have gone through a grand revolution in politics and systemic changes 18 years ago after the end of the armed insurgency, it always has and is, in fact, still a feudalistic socialist system which consists of centralised planning with decentralised implementation, hierarchical redistribution, community-based control, rigid class structures, and protection and duty similar to feudal obligations. Therefore, in order to establish the socialist order, policies have always favoured increased taxation, restrictions on private enterprise ownership and control, prioritisation of job security over operational efficiency, a tendency to patronise highly successful individuals rather than celebrating their achievements, government control over resource allocation and developmental planning, and state intervention in every aspect of development, as well as in individual freedom and liberty.

In this path of socialist prosperity, we will find that higher taxes lead to a redistribution of wealth, reducing economic disparities and funding extensive social welfare programmes. However, these higher taxes can also discourage investment and entrepreneurship by reducing net profit margins, which in turn slows economic growth and lowers job creation. As a result, a significant portion of Nepal's population is compelled to seek employment abroad, leading to an economy that relies more on remittances than on homegrown jobs generated through leveraged capital. Thus, the question arises: Should Nepali citizens work abroad at the mercy of foreign employers, potentially reducing domestic economic disparity without increasing national debt, or should they work and own enterprises in Nepal with full citizenship rights, risking higher national debt to fund private economic ventures both domestically and globally?"

Limitations on private enterprise ownership and control may stifle innovation and efficiency but are intended to prevent monopolies and ensure that essential services remain accessible to all. Since we import a majority of the essential goods and services from various corporations around the world, the very essence of monopoly prevention does not ensure accessibility in difficult situations. Consumers are at the mercy of foreign corporations exporting their goods and services here. If foreign intervention seeks to undermine domestic consumer rights for any reason, the lack of domestic private enterprises or global corporations within our borders to counter such actions could lead to inaccessibility of essential goods and services for our consumers.

Licences for road, telecommunication, and energy infrastructure are controlled through limited ownership timelines, meaning that after about 30 years of operation, the control shifts to the government. This often leads foreign investors to exit the domestic market rather than reinvest their earned capital into our economy. Education is also tightly controlled by the government, which seeks to align it with nationalistic agendas. However, this concentration of power can lead to extensive governmental monopolies, which, like private enterprises, are not immune to making mistakes. 

The suppression of free market price determination through supply and demand, along with delays in implementing experimental and innovative educational models, creates potential long-term inefficiencies. This may cost our citizens both financial and intellectual opportunities, hindering their ability to contribute to global innovation.

Free market price determination through demand and supply, along with delays in implementing experimental and innovative education models, can create inefficiencies over time. These inefficiencies may cost our citizens valuable financial and intellectual opportunities, placing them at a disadvantage in the global landscape of human innovation.

Now the question arises: should a Nepali private entrepreneur be restricted by governmental controls on which industries s/he can develop, which markets s/he can enter, and which education system he can choose, all in the name of preventing private monopolies and ensuring access to essential goods and services for all?

How is this just when the government itself acts as a monopoly? Is such a sacrifice for the sake of illusionary social welfare truly necessary for a citizen during his brief 80 years on this planet? Are we, as a society, meant to encourage highly efficient and visionary dreamers, or are we to stifle them with policies that limit the birth, growth, and greatness of private entrepreneurial ambitions?

Prioritising job security over operational performance could lead to a more stable workforce but may also result in lower productivity and efficiency. However, such a priority may lead to complacency and inefficiency as performance is not the primary metric for job retention, potentially decreasing overall productivity.

From the 1990s to the early 2000s, the average unemployment rate in Nepal was generally stable at around 2-3%. Between the 2000s and 2010s, the rate fluctuated but remained within the 2-4% range. However, from the 2010s to the 2020s, the unemployment rate increased significantly, reaching 10.97% in 2023 due to the pandemic and natural disasters.

Despite these impressive results in controlling unemployment levels since the 1990s, productivity has remained a matter of concern. Nepal's GDP per capita stands at $1,324 lower than the global average of $17,560. This stark difference highlights the low productivity of Nepal's labour market. 

If productivity levels could be raised to the global average, Nepal's economy would be on par with Scandinavian nations such as Norway and Sweden.

Should we reconsider the systemic efforts that prioritise job security over operational performance? Is it time to allow free market forces to determine workforce demand and supply, potentially increasing productivity?

Should we allow private education and training systems to provide curricula that prepare the workforce for high-demand jobs, both domestically and globally. It would also involve implementing policies that enable the removal of unproductive resources, including laying off underperforming employees. Or maintain the status quo - continue to prioritise job security at the expense of productivity, potentially leading to slower economic growth. Job security in this context applies not only to individual employees in both public and private sectors but also to organizations as a whole.

The culture of belittling highly successful individuals might discourage entrepreneurial spirit and ambition thereby impacting economic dynamism and growth. It discourages high achievers and innovators, leading to a potential brain drain where talented individuals leave for more rewarding environments. However, such a culture also reduces income inequality and prevents excessive wealth accumulation, fostering a sense of community and collective responsibility.

High-achieving dreamers and visionary Nepali expats have proven their competence and competitiveness on the global stage. Many have built fortunes through their entrepreneurial spirit in Europe, Australia, Russia and the United States. This scribe has also encountered highly successful Nepali people in India and China who run large multinational corporations. This highlights the importance of creating a supportive and celebratory environment for successful individuals within our economy. Excessive wealth accumulation is a clear metric of an entrepreneur’s competence and should not be belittled or ridiculed through targeted accusations. Such dreamers, visionaries, and doers drive economic expansion, leading to more jobs and higher-quality goods and services at lower costs.

One question to consider is, if we become a trillion-dollar economy, would our economy fare better with a million millionaires or with 30 million people each holding an equal sum of $33,333? This may represent the fundamental difference between socialist and capitalist approaches.

Government control over resource allocation and developmental planning can lead to a more planned economy, ensuring equitable development. However, it may also lack the responsiveness and flexibility needed to adapt to local needs and market dynamics. Centralised control can result in inefficiencies, corruption, and a stifling of local initiatives and adaptability. In 2015, Nepal ranked 130th out of 168 countries in the Corruption Perception Index, scoring 27 out of 100. By 2022, the country improved to 110th out of 180 countries, with a score of 33 out of 100.

Banks and financial institutions, in collaboration with private enterprises, can play a pivotal role in national resource allocation and development planning. They can surpass government institutions in efficiency, innovation and responsiveness. Imagine, for a moment, the national budget being dynamically created and implemented in real-time by banks and financial institutions, in partnership with private enterprises, taking into account all necessary factors.

These financial institutions possess deep expertise in financial management, risk assessment, and investment strategies, which can be leveraged to allocate resources more efficiently. This allows the government to focus on policy-making and regulatory oversight. Additionally, these institutions can mobilise large amounts of capital from domestic and international sources, supplementing government tax revenues to fund large-scale infrastructure and development projects. By directing credit to high-growth sectors, small and medium-sized enterprises (SMEs) and startups, banks can foster economic diversification and innovation.

Private enterprises, driven by profit motives, often achieve higher efficiency and innovation. They can identify profitable opportunities and optimise resource use more effectively than public entities. Collaborations between public enterprises, private enterprises, and financial institutions can lead to the creation of public-private partnerships (PPPs), which combine the strengths of both sectors to undertake large projects with shared risks and benefits. Private enterprises can respond more quickly to market demands and technological changes, ensuring that development efforts are aligned with current and future economic needs.

Mechanisms for Involvement

Assigning banks and financial institutions a role in the national budget process would involve establishing a regulatory framework that permits private sector participation. This could include forming committees with representatives from leading banks, financial institutions, and private enterprises to collaborate with elected officials on budgetary allocations. One approach could be creating National Investment Funds (NIFs) or Sovereign Wealth Funds (SWFs) managed by financial institutions, which would invest in priority sectors like infrastructure, education, and healthcare. Additionally, SWFs could invest in international corporations, generating dividends on invested capital. This could serve as a hedge against remittance slowdowns and provide a new source of foreign cash inflows into the domestic economy alongside exports.

Challenges and Considerations

Ensuring proper regulatory frameworks are in place to prevent exploitation, monopolies and resource misallocation is crucial. The government’s role through regulatory oversight would involve balancing profit motives with social equity, ensuring that development benefits all segments of society, particularly marginalised communities. Successfully transitioning to private sector-led development planning requires strong political will and stability to implement necessary reforms and maintain investor confidence.

Conclusion

Nepal's socialism, emphasising social ownership and government control over resources, has led to policies such as high taxes, restrictions on private enterprise and prioritising job security over performance. While these policies aim to reduce inequality and fund social programmes, they may also discourage investment and entrepreneurship. As a result, the country has become increasingly reliant on remittances rather than fostering home-grown economic development.

Strict regulations on private enterprise can stifle innovation and efficiency. By limiting ownership and control, Nepal risks missing out on entrepreneurial dynamism and access to essential goods and services. Infrastructure licences with limited ownership timelines and strict educational controls also hinder competitive practices and innovative educational models.

Prioritising job security has resulted in low unemployment, while also leading to inefficiency and lower productivity. Nepal’s GDP per capita stands at $1,324, significantly lower than the global average of $17,560. This disparity underscores the need to reconsider the emphasis on job security over performance.

A culture that belittles success may discourage talented individuals from thriving within Nepal. Successful Nepali expatriates have demonstrated their competence globally, suggesting that a more supportive environment for entrepreneurs could stimulate domestic economic growth. The debate centres on whether the country would benefit more from a model with numerous millionaires or a more equal distribution of wealth.

Given the inefficiencies in government-led resource allocation, involving banks and financial institutions in the national budget process could improve efficiency. These institutions possess the expertise to manage investments and allocate resources effectively. Collaborative approaches with the private sector could foster economic diversification and innovation, provided strong regulatory frameworks are in place to ensure fairness and prevent exploitation.

Nepal is at a critical juncture in its journey toward economic prosperity. By transitioning from a feudalistic socialist framework to a more dynamic model involving banks, financial institutions, and private enterprises, the nation can leverage expertise, capital, and innovation for efficient resource allocation and development planning.

However, this transition requires strong regulatory frameworks and a balanced approach to ensure social equity and prevent exploitation. With strong political will and strategic reforms, Nepal can evolve into a more productive and prosperous economy, ultimately achieving its potential as a highly developed nation.

The evolution of capitalism begins in the mind, heart, and soul of individual private entrepreneurs and culminates in the prosperity of all. It is my hope that this transition starts here and continues to grow through various contributions and criticisms of this idea of a collaborative society among the government, BFIs, and the Private Sector as a solution to the Great Nepali Stagflationary Debt Crisis of 2020-2024.

(Mudbhary is Business Development Manager at Mudbhary & Joshi Construction Pvt. Ltd.)

(This opinion article was originally published on September 2024 issue of New Business Age Magazine.)