Murari Sharma: Make federalism sustainable or face conflict

Your idea and my idea of federalism might have been different, but you and I are now stuck with the bill. The bill will make politicians richer and everyone else poorer and sow the seeds of conflict for the future.

I have supported the idea of federalism ever since I visited Brazil in 2002. Brazil has a few, economically sustainable states that compete in delivering development and services to their denizens. For Nepal, my idea was to have fewer and largely self-sustainable states, which would compete to make us richer and our country prosperous.

Since 2009, I have been making this point along with a few others. Citing the examples of the United States, United Kingdom and India, I had argued that since federalism is expensive, Nepal must have just three — at most four — states.  Several political pundits, living in a fantasy, rebuffed my analysis and suggestion. Now the reality has just begun to bite, and it is painful.

Have you recently paid the land tax? If you have, then you would know the land tax has increased 1,000 percent under the new system. The local government used to issue several certificates to citizens free of cost before; now every service costs you. What cost 20 rupees before now costs you around Rs.500 or more.

This is just the first bite. It will be ten times worse after the newly elected central, state, and local governments envisage the expenditures needed for their new structures and human resources and for development activities. At the central and federal level, 884 politicians will be members of legislative bodies, more than ever. Ministers will have their political advisors in hundreds, most of them new posts.  All 753 local governments will have paid politicians unlike in the past when they were voluntary positions.

While some existing government employees will be transferred to the state and local levels, a large of new people will be necessary to make the new governments functional and effective. Political and bureaucratic officials require salaries as well as allowances, offices, rent, fuel, vehicles, and so no.

Nepal’s revenue is not enough to cover its pre-existing recurrent expenses if you include the stealthily hidden significant chunk of recurrent costs under capital expenditures.  Such hidden costs include the costs of buying weapons, helicopters and equipment, protecting the forest, etc. of the army; the regular salaries of teachers; the fuel and travel expenses of the ministries that have development projects, and so on.

Even if we stick to the published budget figures, the picture looks frightening. In 2015/16, Nepal’s revenue collection was Rs.4.85 billion and total recurrent expenditure Rs.3.71 billion. It left only 24 percent of the revenue for the capital expenditure — roads, new power projects, new schools, new hospitals, and so on.

In 2016/17, the revenue and recurrent expenditures were Rs.5.81 billion and Rs.5.62 billion respectively, leaving only 3 percent for development activities. In 2017/18, the estimated revenue of Rs.7.30 billion is insufficient to cover the recurrent expenditure of Rs.8.04 billion.

Evidently, all genuine development expenditures came from foreign assistance, most of it loan, and internal loan in 2015/16, all development and part of recurrent expenditures came from the external and internal loans in 2016/17, and all development and a large chunk of regular expenditures will come from those to sources in 2017/18. It is getting worse every year, and if you count the hidden recurrent expenses, the picture turns uglier.

We or our children must pay back the external and internal loans; Nepal will not be rich in next five-ten years; money does not grow on trees because we have pleased our leaders with hundreds of paid posts. So all three levels of government will tax you and me to death to pay for their expenses and to implement development projects, which take years to create jobs and earn a new stream of revenues.

When you have to choose between paying the taxes and feeding your children, you will certainly to choose the latter. Sooner or later, the increasing taxes, the declining services, and dead-end before you frustrate you so much that you will revolt, inviting a conflicting and the need for another political transition. It looks like our 30-year political transition is not the last one.

Can we prevent another revolt and another transition? If we have the will, we can. We must push our elected leaders to reduce the number of states, merge local bodies, or privatize public services.

I understand where the identity politicians come from. If we apply their logic, then Nepal should have 12o plus ethnic states. If we have accepted multi-identity states,  why the unsustainable seven and why not sustainable three — at the most four — states? The number of paid politicians and staff will be reduced by half, reducing the expenses on their salaries, allowances, offices, housing, vehicles, fuel, and so on. And such states will also offer the economy of scale.

Another choice could be merging the local bodies. Due to their financial constraints, the boroughs in the United Kingdom have been doing it, for instance. In the first round, several boroughs, facing a financial crunch, merged with the adjoining boroughs. For instance, in London, Kensington and Chelsea merged to become Kensington and Chelsea borough and Hammersmith and Fulham to become Hammersmith and Fulham borough.

In the second round, adjoining boroughs, such as Wandsworth and Richmond in London, have been merging their administrative functions to reduce the duplication of costs and services.

Yet another choice is to privatize most government activities so the government expenses in those activities are saved and taxes would not go through the roof though you pay to the private sector for the services they provide. We have privatized some of our public enterprises, but other countries have gone much further.

The United Kingdom is the case in point again. After the rise of Margret Thatcher as prime minister, most public services, including rail, prison, and some roads, were privatized. The mail service went into private hands only recently. The government is stealthily pushing parts of the National Health Service into private hands too. Chile and several other countries have gone down this route.

Sure, you end up paying more for the same services once they go to the private sector. But you would not complain about the government taxing you too much, and if you do not regularly consume those services, may not feel too bad about it.

Anyway, the federalism we have embraced is unsustainable. We have created too many states where tons of political officials and thousands of additional employees will be on the public payroll, who will demand allowances, vehicles, fuel, pension, office space, and so on, siphoning off every penny from the revenue for their own maintenance.

Unsustainable federalism is a source of conflict and secession: Look at Sudan. Nepal should strive for successful federalism, not a dysfunctional one that will only breed another revolt and another transition and will bankrupt the ordinary Nepalis.

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Murari Sharma: Trump, May, and Oli

The world is hurtling towards an unfamiliar territory or the territory that was thought left behind as not good and un-visitable anymore.  It is happening in politics and economics, and it will only end in tears and pain, as before.  Nepal will be no exception.

We are once again going back to rabid nationalism and identity politics that had given us wars, chaos, economic disruptions, and poverty for the majority across the world. From Roman wars, intra-European wars, and European colonial wars across the world, as well as the intra-Asian wars and Asian wars against Europe were all geared to control resources for the rich and powerful countries. This series effectively ended after World War II, when a rule-based global governance emerged to use the global resources for the benefit of all.

The United Nations, GATT, the World Bank, the International Monetary Fund,  the World Trade Organization, regional cooperation, such as the European Union, as well as international conventions and covenants were the products of the rule-based global governance. Unfortunately, some powerful countries have been ditching them for their narrow national interest, on course back to the pre-World War II chaos and possibly wars and misery.

Leading this regressionist trend is the US President Donald Trump with his America First slogan. He has threatened the United Nations and the countries that opposed the US decision to transfer its embassy in Israel from Tel Aviv to the disputed Jerusalem with serious consequences. He withdrew from the hard-earned Paris climate treaty and the Trans-Pacific Partnership trade; has threatened to pull the US out of the North American Free Trade Agreement.

He encouraged Britain, as a presidential candidate, to exit the European Union, which had ended the centuries of wars between European countries and made them prosperous. He has now slapped 25 percent and 10 percent tariffs on the imported steel and aluminum, which may trigger a trade war. Amazingly, he has even tweeted that trade war would be good for America.

The bulk of the Conservative leaders, spurred by the recidivist nationalist impulse to old nationalism and mercantilist desire, inveigled the British people to vote for Brexit promising the freedoms and goodies they cannot deliver and hurt a regional mechanism that has been a bulwark of peace and prosperity in Europe. Now Theresa May, the current prime minister, to have a cake and eat it, has come with red lines that will hurt the British economy and its standing in the world.

Both Donald Trump and Theresa May despise the rule-based political engagement and trade and economic exchange that benefits all, not just a few, though the larger chunk still goes to the big and powerful. For instance, the larger the trade of a country, the higher the benefits for it; the larger the coastal area of a country, the larger the exclusive economic zone and the right to exploit marine resources further afield. But that has not been enough for Mr. Trump and Mrs. May.

While they are leading the journey to old nationalism, they are not alone on this trip. China has been stepping on the toes of other countries in the Pacific as far as the Spratley Islands, triggering territorial discord with more than half a dozen countries, thanks to reviving Chinese nationalism, especially under President Xi Jinping, who has also thrown out the term limits for himself.  Narendra Modi, the prime minister of India, is imitating Xi in South Asia. While he started on the right foot, he quickly assumed a hegemonic policy and has now lost Sri Lanka, Maldives, and Nepal.

If Mr. Modi had not imposed the economic blockade against Nepal in 2015 and his functionaries had not directly interfered in Nepal’s politics, as his predecessors were doing, the anti-Indian sentiment, a.k.a. nationalism in Nepal, might not have flourished and the left alliance would not have obtained a nearly two-thirds majority in the general election for the national parliament and victory to the alliance in six of the seven states.  While nationalism has brought the left alliance this far and let it form the government at the center and six states, what will Prime Minister KP Oli and his government will do from this point onwards? Will they follow the toxic nationalist bandwagon or take a pragmatic tack?

Nationalism is necessary to arouse the public to come together, and sometimes, to draw a wedge between them. However, it will not deliver growth to the country and prosperity to the Nepali people. Growth and prosperity require wise management of national resources, unobstructed transit facilities and economic assistance from the neighbors and capital assistance from other development partners from across the world.

For this, Nepal needs a careful domestic policy, balanced foreign policy, and productive external economic policy. Our immediate neighbor’s preferences are different in terms of Nepal’s domestic policy. For instance, Beijing wants strict security control to prevent Tibetans from crossing the border between Nepal and China. New Delhi and Western capitals want just the opposite. China wants Nepal to restrict human rights, whereas India and Western countries stand on the opposite side.

Similarly, in the foreign policy domain, China wants Nepal to be close to it; so does India. Neither will be Nepal’s best interest. In external economic policy, both countries, more India than China because of the geography, want control over Nepal’s natural resources. Siding with one against the other would be counterproductive irrespective of which neighbor did what before now. Maintaining the right balance in these three areas for the best advantage of Nepal and the Nepali people is the challenge to KP Oli, the new prime minister of Nepal.

China would want a return on its political and economic investment in the left parties now. India, having invested in the other parties, would want to weaken the left government and destabilize Nepal. Mr. Oli needs to find a modus vivendi with India so that New Delhi remains a constructive partner of his government to maintain peace and promote investment and prosperity in Nepal. If too much dependence on India has not been good for Nepal, too much reliance on China will not be either.

The question is: Whether Mr. Oli and his government can overcome the nationalistic hangover from the election time and govern is a way that is in the best interest of Nepal. Which is to say strike a balance between opposite external interest, so the national interest can be served optimally. Will he imitate the nationalist leaders like Donald Trump, Teresa May, Xi Jinping, Narendra Modi and a number of communist leaders who have been one-sided and dictatorial after getting the levers of power or will he put democracy and progress at the front and center and govern as a wise leader who would go down in history as one of the greatest statesman of Nepal.