Murari Sharma: Brexit — A Political Project

If you are frightened that Britain’s exit from the European Union will make life in Britain more expensive and less pleasant, you could very well be in the majority now. But as a British citizen, you can still prevent it if you and millions of other voters like you write to your members of parliament and tell them at their local surgeries that Britain should not leave the European Union.

It would not be easy, however. Most Brexiters and some Remainers would argue that Brexit must happen owing to the fact that the British people have voted in favor of Brexit in the 2016 referendum. On the surface, that is true.

However, in essence, it is not true for two fundamental reasons. One, democracy allows people to change their mind in every election and change their government if they deem it necessary. Therefore, another referendum can change the result of the 2016 referendum.  

Two, when the British people voted to leave the EU in 2016, they did not know what they know now. The Brexit leaders had lied to them that Britain outside the EU would be much better off. Now the government itself has published a series of papers describing the potential short-term disaster — lack of food and medicine, miles long queue of trucks at Dover, etc. —  and long-term impacts and measures to mitigate them, including the mobilization of the military. 

To avoid such a disaster, the Mayor of London, Sadiq Khan, has written in The Observer of September 15, 2018 that the British people must have the second vote on whether they want to leave the EU. Even wildly ideological Brexiters — such as Jacob Rees-Mog, Boris Johnson, and Davis Davis — now concede in their significant volte-face that there would be short-term pain when Britain leaves the EU.

However, that was not what these Brexiters had told the British voters before the 2016 referendum. At that time, they had falsely promised that Britain would control migration, divert the 350 million pounds paid to the EU to the National Health Service, and conclude trade agreements with the rest of the world quickly and favorably. None of them has turned, or will turn, to be true.

Let us examine these elements individually. The British society is aging, and its birth rate has tumbled to below the replacement rate. To work in farms, factories, shops and old-age homes and to pay taxes, you need all categories of people — skilled, semi-skilled and unskilled — through immigration.  If you stop immigrants from EU countries, you would have to bring them from other nations. So controlling immigration was largely a myth.

Likewise, the promise of an additional 350 million pounds to be given to the NHS every week was a snake oil. According to the Treasury, Britain would lose 12 billion pounds every year if it cannot strike a free trade deal with the EU, which is several times more than the expected savings of 350 million pounds paid to the EU every week. So the NHS will have less money and it will also lose hundreds of thousands of skilled healthcare people from the continent when Britain gets out of the European club. 

In the trade front too, the picture is not rosy. Japan, India, and other large trading nations had warned before the referendum that Britain would lose if it left the EU. These countries would rather negotiate a trade agreement with the EU covering 27 countries than the United Kingdom.

Similarly, the United States under President Obama had told Britain that it would have to wait in the back of the queue for a trade agreement. No matter what he says at the spur of the moment, President Trump would not conclude any trade agreement without his country having a significant advantage over the British side to fulfill his pledge of “America First.” 

In fact, Brexit is a project of the British elite, for the British elite, and by the British elite facilitated by the lay people through their votes.  The prominent Brexiter have already secured their economic future in Britain and outside. For instance, Jacob Rees-Mog has established the arm of his investment fund on the continent. Some of them have their accounts in Bermuda, Panama and other tax heavens.

But Brexit will make these elite politically more powerful against the ordinary people. They can gut slash taxes for themselves as they please, gut the state as they want, destroy the labor protection provision as they wish, and limit your human rights as they find convenient, without the checks and balances from the EU and the European Court of Justice.  

Having said that, I am not here to suggest that Britain has no future outside the EU. Simply because it has left EU, Britain will not be Somalia or Egypt. It will still remain a rich country. The question is whether it would be as rich as the comparable European countries, let alone being Singapore, as the Brexiters seem to dream. 

Britain can pioneer a new technology and pull ahead of other European countries, as it had done with the industrial revolution. But short of that, it does not have the bullying strength of the United States to have favorable trade deals or does not enjoy the strategic commercial location as Singapore does. So take what Brexiters say only with a pinch of salt and support the second vote. 

 

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Murari Sharma: Big Countries Often Don’t Like Rules

There has been a continuing debate about whether India wants both the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation and the South Asian Association for Regional Cooperation to succeed or is using the former to dilute and weaken the latter. The fourth summit of Bimstec concluded recently in Kathmandu did not dispel the reason for that debate.

For starters, Saarc consists of Afghanistan, Bangladesh, Bhutan, India, Maldives, Pakistan and Sri Lanka. Bangladesh, Bhutan, India, Nepal and Sri Lanka. Bimstec has Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka and Thailand as its members. In both groups, India —  the largest country and economy — is the pivot.

Evidently, progress in Saarc has been sluggish. Established in 1985, it has set up some regional institutions, harmonized and standardized the nomenclature of goods, and relaxed some visa rules, and that is about it in almost four decades. Introducing a free trade regime in the region a-la the European Union remains a pipe dream.

For this slow progress, the strategic rivalry between India and Pakistan is often cited as the reason; it is certainly a major reason but not the only reason.

About Saarc, India has always held ambivalent views. On the one hand, New Delhi needs Saarc and free trade within its members to expand its own market for goods, investment and technology and to project regional power, including in the event that the UN security council expanded to possibly include India as one of the permanent members.

On the other, New Delhi privately sees Saarc as a forum where smaller countries seek to gang up against it to tame it. One Indian former foreign secretary was caught fuming against Saarc along this line. Bimstec will not be free from the same Indian ambivalence for the same reason.

However, this attitude is not unique to India. All large countries don’t appreciate the regional/global mechanisms and rules that demand of them to compromise their interest for greater good and demonstrate such ambivalence. Transformational leaders make compromises for long-term interest and hide their disdain for such rules and mechanisms. Transactional leaders like the US President Donald Trump wear it on their sleeves.

Trump has done it by pulling the USA out of the Transpacific Trade Partnership and the Paris Climate Agreement and threatened to pull out of the NATO, the WTO, and NAFTA.

In addition, we know it takes years to develop uniform standards and regulatory alliance necessary for a free market. For instance, several countries have been negotiating for years and even decades to join the EU. On the other side of the spectrum, the United Kingdom is struggling to strike a balance between the regulatory alliance to benefit from the EU’s common market when it leaves the organization and to exercise its independent right to make laws and control the border.

Therefore, one cannot imagine that the regulatory and standards alignments within Bimstec and between Bimstec and Asean (the Association of Southeast Asian Nations), which would be inevitable owing to Myanmar and Thailand being members of the latter as well, is going to be easy. Which means, in the short to medium term, the prospects for Bimstec to establish a free trade area are not any better than doing so within Saarc. In the long run, as John Keynes has said, we would all be dead.

Yours truly has no doubt on his mind that that Indian authorities understand this complication very well and yet they have put their feet in two boats. This has given room for the suspicion that perhaps New Delhi has pushed Bimstec forward to sideline Saarc. It is up to the Indian government to dispel such suspicion by pushing the Saarc process forward as its largest member while also moving ahead with Bimstec.

Murari Sharma: Back-breaking Federalism

Nepal’s Finance Minister Yuva Raj Khatiwada asked the World Bank to augment its assistance to help Nepal finance its newly minted federalism. When the new constitution was being written, federalism was a necessity to secure fragile peace after the decade-long Maoist insurgency. However, it was politicians duty to write the new statute in a way that could be politically agreeable and economically viable. However, they have created seven states which, as we are now learning, are extremely difficult to sustain.

When politicians were toying with the ideas of creating 10-14 states, several knowledgeable and concerned people, including yours truly, had warned through their articles and opinions about the estimated colossal cost of federalism and advised to keep the number of states to a minimum.

For instance, yours truly had — based on the experience of the United States, United Kingdom and India — written as early as in 2012 that the number of states must be limited to four because even four states, together with hundreds of local bodies, would require additional 200,000 staff, thousands of paid politicians, and their administrative expenses to become fully functional. It means the states and local bodies would eat up most of their revenue, leaving little for development projects and activities (see Kantipur Daily on 24 January 2012).

So it is not that the politicians had no idea about the anticipated expenses associated with the number of states. What it means is either they imagined when federalism is introduced, money would go on trees, which I very much doubt. Or they were simply laying the foundation, in the name of consensus, to enrich and reward as many of them as possible with state largess. While politicians do not enjoy a great reputation worldwide, what baffles yours truly is that some otherwise knowledgeable people like Professor Lok Raj Baral became complicit in this plunder in the service of political expediency.

Now it has become increasingly clear that the politicians’ main objective was to maximize their opportunities to live on state resources. That is why their first priority has been, as reported day in day out, to buy expensive vehicles from ministers to ward chairpersons in states, reward themselves with handsome salaries and allowances, and to travel in and outside the country, and decorate their offices. Some local bodies seem to have spent their entire revenue on vehicles. All this plunder has generated negative vibes in the country against federalism, which is not a good sign because it could lead to unrest and conflict.

To cover such mindless expenses, local bodies have raised some taxes up to 5,000 percent, something I had predicted in another published article. This is just the beginning. Now the states will impose their own exorbitant taxes to raise revenue for their expenses, and so more pain is along the way. Most of these resources will go to sustaining political officials and staff, not to carrying out development activities that are absolutely essential to promote development and uplift the people’s standards of living.

Therefore, the country’s finance minister is forced to go out with his begging bowl to for foreign assistance.

A country should try to live within its means other than in times of recession and depression. Though debt has become a fact of life for states across the world, there is a big difference between those states that have resources to pay back and those that don’t. For instance, the United States can continue printing dollar notes and finance its debt as long as the investors believe Washington can pay back its obligations. Similarly, other countries with economic might also command similar credibility and confidence. But countries like Nepal are in a different league altogether. Our credit rating is in the junk category.

How do we live within our means, or at least don’t go way above and beyond our means? There are only three options: Reduce expenses, increase revenue, or combine both.

Desperate for development, a developing country cannot possibly reduce its expenses drastically, though there is enormous room to eliminate waste and use the available resources more effectively and efficiently. However, it can and must decrease non-productive expenses by taking several measures, as we have seen in other countries. For instance, we can merge administrative activities of adjoining local bodies to cut costs. This is what exactly local councils have been doing now in the United Kingdom.

We can have state assembly meetings every two years for two reasons. One, state assemblies will not have enough business for yearly sessions, so they can meet every other year. Two, several state assemblies in the United States have this provision, which proves that it works.

There is very little room to increase revenue in Nepal. Numerous people still live in absolute poverty as measured by the multidimensional index and do not have the capacity to pay the kind of taxes local bodies have already introduced and the states will do shortly. The economy is not developing above the inflation rate, which means the real income has not gone up. If you tax the people too much, they will rise against the government.

A combination of both will be the best strategy. Nepal can increase revenue by introducing more slabs in taxes, so those who earn more pay their fair share and those who are at the bottom end will feel relief. Nepal should not follow the debunked voodoo notion that tax increase kills growth. If you look at the history of growth, it has been the highest when the taxes were also the highest in the United States and Europe. That is not to say that too much tax does not stifle growth. It does, but tax cuts don’t pay for themselves, as the Republicans have claimed while the proof points to the opposite direction in the United States.

Nepal is a relatively small country with fewer than 30 million people, and it does not need seven states to govern. Either there is a logic for as many states as the ethnic groups in Nepal if you look at the issue from the identity point of view. If you have already merged identities within each state, then there is no need for unsustainable seven states. All we need is three and at most four states, and if we reduce the number of states, the administrative expenses will skyrocket.

Reducing the number of ministries and combining the departments doing similar jobs would be another way to reduce administrative expenses. But in Nepal, ministries are being divided so more politicians could become ministers and enjoy the perks associated with their position. Pathetic but real.

If we don’t take such sensible steps, Finance Minister Khatiwada and his successors will have to continue going out to the world with their begging bowls while the country will continue to pile up foreign and domestic debt to a level when it cannot service anymore, let alone pay back. It is time to leave political expediency aside, be real, and do what is right for the country and people, not for politicians themselves.

Murari Sharma: Brexit Blues

Theresa May, the British prime minister, is on a mission to breach EU unity over Brexit, the departure of Britain from the European Union. Michel Barmier, the EU negotiator for Brexit, has rejected out of hand the cherry-picking proposal of May, known as the Chequers plan. It is highly doubtful that May will succeed in her mission, which means more nasty pains for May and Britain down the road.

After Barnier rejected the Chequers plan, May has tried to use charm offensive and divisive strategy to have a good deal. In a charm offensive, she herself broke her vacation in Italy and visited Emmanuel Macron, the French president. France is one of the hardliners in the Brexit negotiations and potentially the largest beneficiary of Brexit, as Paris might get a substantial chunk of London’s financial industry.  Though the details of the conversation are yet to come out, one can conclude that the talks did not go in Britain’s favor.

May sent her ministers to several capitals to drive a wedge in EU unity. To be sure, some EU members are not as committed to the integrity of EU as others. Those that have rightist governments, such as Poland, Hungary, and the Czech Republic, and those that have suffered economic pain being part of the Euro, such as Greece and Italy, would welcome the loosening of EU grip on their countries. However, there are no indications that her ministers had much success to report either.

Ireland and Spain could veto any soft deal unless their concerns are fully addressed, which is bad for Britain. Ireland wants to keep free movement between it and Northern Ireland as promised under the Good Friday Agreement that ended the three-decade-long conflict in Northern Ireland. Britain’s maximum facilitation or maxfac, sacnning technology that would obviate the need for human intervention at the border, is a dream because such technology does not exist. EU is one of the guarantors of the Good Friday Agreement.

Spain wants the status of Gibraltar to be decided under the Brexit agreement. All along, Spain has claimed the rocks tucked into the Mediterranean Sea. Because EU takes decisions based on unanimity, each of these EU members has a veto on Brexit deal.  Such thorny issues had been brushed under the carpet before the Brexit referendum in June 2016.

Before the referendum, people were promised a huge Brexit dividend. Brexit hawks had promised that Britain will have a cake and eat it too. In other words, they will take back control from Brussels, limit EU migration, have the power to make trade deals independently, not pay the membership fee while continuing to have access to the single market. By a four percent margin, British voters voted for this fantasy.

The edifice of the European Union is built on five pillars — four freedoms: freedom of movement for goods, for services, for capital, and for people and the supranational jurisdiction of the European Court of Justice. If any of these five pillars has been weakened, let alone demolished, EU as we know it will not survive. What Britain is asking is just for that.

Donald Trump, the US president, has supported Britain. He believes a weaker Britain will be the taker of US demands and standards in any bilateral trade deal. EU food standards are much stricter than US standards.  For instance, EU has banned chlorinated US chicken and genetically modified foods. A weakened Britain would help Trump’s agenda to Make America Great Again at the cost of EU standards.

Reality has been biting Britain now as EU debunked its fantasy land. For two years, May could not rally her feuding ministers behind a common position on what Brexit should look like. Last month, she forced her hard-line ministers to accept a soft Brexit in her Chequers retreat, leading to the resignation of such Brexit hawks like Boris Johnson, then the foreign secretary, and David Davis, then the Brexit secretary, among others.

But Barnier rejected the Chequers plan as well. It was only a little softer cherry-picking than as promised during the referendum. If May has all but the Chequers plan to put on the table, a hard Brexit is sure to follow. So May visited Macron on a charm offensive and sent her ministers to Europe to drive a wedge in EU unity.

Meanwhile, though the impact of the Brexit referendum has not proved at cataclysmic as widely predicted at the time, the fear of a no-deal Brexit has begun to bite Britain. Sterling has already taken a tumble of 20 percent. Investment in the UK is being withheld due to the uncertainty. Growth has slowed down, and companies have started moving some of their operations to the continent and slash their workforce in Britain.

What is more, the May government is preparing for a hard Brexit now. Plans are being chalked up to mobilize the military to ensure an orderly distribution of food and other necessities. Sterling is expected to lose further ground. Growth is expected to slow down further and even enter into the recession territory. Brexit dividend promised during the referendum has vanished from official discourse. Predictions are being made about several miles of trucks waiting for clearance at Dover.

This has frightened a section of the ruling Conservative Party. Some Tory peers in the upper chamber voted against a hard Brexit, defeating the government’s hard Brexit proposals more than a dozen times. Some members of May’s party in lower chamber have threatened to vote against the government if it chooses to go for a hard Brexit.

Propped up by the DUP, the May government has a razor-thin majority. Labor is in favor of a customs union with the EU, which raises the possibility of the government getting defeated if in case the hard Brexit is the only thing on the table. Pro-Remainers from all parties outnumber the Pro-Brexiteers in both houses of parliament. If push comes to shove, May’s government might fall, paving the way for fresh elections and installment of Jeremy Corbyn, the Labor leader, in 10 Downing Street.

To soften EU and breach EU unity, London is using its security leverage. But for EU, it is an existential question. If Britain gets what it wants, EU as it exists will unravel quickly. All its members would want its benefits but not its costs, like Britain. If EU keeps its integrity, Britain will have to live with what it doles out, so more Brexit blues are certain to hit May and Britain.

Murari Sharma: Damage that will Take a Long Time to Repair

The American President Donald Trump returned to his country after wrecking havoc to US relations with its closest allies and cozying up with its strategic rival, Russia, who is also viewed by US allies as a threat to their democracy and security. He has created a fine mess, and it may take many years to rectify. You can wreck things up quickly but you require a long time and right policies to repair the damage. 

His first trip was to Brussels, to the NATO summit, where Mr. Trump rubbed other NATO members the wrong way by bullying. While he was right to insist that other NATO members reach the target of 2 percent of their GDP to be spent on defense, Mr. Trump didn’t stop there. He asked them at that last minute to up the spending to four percent, something that had not been discussed, and threatened to pull out of the organization if the allies did not heed his demand. 

From Brussels, Mr. Trump flew to London where he insulted his host and stayed away from London. He undermined the sitting Prime Minister Theresa May, his host, and sang paeans of Boris Johnson who had just resigned his post and who was doing everything to undermine the prime minister. He said Mrs. May was wrecking the negotiations with the European Union and Mr. Johnson would make a fine prime minister.

That was not all. Mr. Trump broke the protocol by walking ahead of Queen Elizabeth. He mostly avoided London where huge protests took place throughout his UK trip against his intemperate remarks and false claims made by him multiple times in the past. 

Mr. Trump had insulted the London Mayor Sadiq Khan, blaming him for the terrorism and spate of knife crimes in London. He had even said mentioned the non-existent bloodbath on different occasions, though so far whatever has happened here in comparison to what happens every now and then in gun crimes in the United States. 

From London, he flew to his golf course in Scotland, where protests became a constant feature. But the worst happened in Helsinki when he met with Mr. Putin.  From there, Mr. Trump walked into his most embarrassing performance in Finland where he met his Russian counterpart, Vladimir Putin. 

Mr. Trump’s officials, as well as the Republicans and Democrats in Congress, had warned Mr. Trump to act tough with Mr. Putin with respect to Russian tampering of US elections and role in Syria and other hot spots. But Mr. Trump not only didn’t raise the irritating issues, at least as much as is publicly known, he also put down his own intelligence agencies and sided with Mr. Putin on the election tampering. As he returned to Washington to a barrage of criticism from all sides, Mr. Trump rowed back by saying that it was a slip of tongue. 

That was not all. He branded the European Union, something the previous US administrations had helped build to keep the peace in the perennially warring European states, as the biggest enemy of the United States. Besides, he criticized Angela Merkel, the German Chancellor, while he lavished his praise on Mr. Putin on multiple occasions.

It all came on top of the trade war that has started between the USA on one side and the European Union, China, and other countries, on the other. Mr. Trump has also threatened to pull the US out of the World Trade Organization, the successor of GATT, which the US had helped create for rule-based international trade.

Where will this destruction of the existing world order without anything to replace it lead? Chaos.  It will harm not only the United States and its allies, it will also weaken the World Trade Organization, and other mechanisms that have kept the world’s strategic and trading balance largely stable. It will adversely affect the rest of the world and seriously.

Will it make America Great Again, as Mr. Trump has vowed to do? Highly unlikely. 

When will the sun shine on Mr. Trump? He has already silenced his officials by ruthlessly firing those who disagreed with him. Congress, both houses controlled by the Republicans, could bring stop Mr. Trump from all this nonsense by standing up to him. But as the New York Times columnist Thomas Friedman has said, the Republicans in Congress have proved spineless to prevent Mr. Trump from his madness and shamelessness.      

So the ‘Trump madness’ will go on during Mr. Trump’s term unless Congress changes hands in November this year. It may continue if the American people give Mr. Trump another term. Because of Mr. Trump’s unprincipled and erratic actions, Mr. Putin and other leaders who flout democratic norms are having a great time.

But the United States and the rest of the world will pay dearly for Mr. Trump’s actions. We don’t know what other dangerous ideas Mr. Trump has up his sleeves and how much more damage they will do. But what Mr. Trump destroys as the occupant of the White House will take decades to mend. Building something is always takes more time and resources than destroying it.

 

Murari Sharma: Political Myopia and Welfare Loss

The world is in economic turmoil thanks to the American President Donald Trump. The world trading system the previous American administrations had meticulously and painstakingly built after World War II is crumbling now under the pressure of Mr. Trump’s America First policy. Now the world is suffering from the mercantilist Trump Disease.

During the presidential campaign, Mr. Trump had promised to remove the burgeoning American trade surplus by imposing whopping tariffs. To fulfill this objective, first came the tariff on steel and aluminum. Then on other selected products. Other countries have retaliated and promised more retaliatory measures if Mr. Trump makes good his promise to impose the tariff on vehicles and other products. 

For politicians, international trade has been relatively an arcane subject, though it has always been a source of enrichment for countries. From the start of civilization, people have bartered things to address their needs — taking from others what they need and giving to others what they produced in surplus. For instance, Arab and European traders traveled far and wide to sell things they had in excess and buy things they didn’t produce but needed.

At the heart of international trade is the comparative advantage. You produce and sell things which you can produce better and cheaper and sell them to others. If everyone, every country does the same, the total welfare of the world would be maximized. You will get better and cheaper products for everyone. Some politicians, like Mr. Trump, don’t have the patience to wait for the cycle of give-and-take to complete and promote aggregate welfare for all. They need it here and now.

One must admit the non-discriminatory approach Mr. Trump has assumed in terms of imposing tariffs though you cannot say the same thing about his immigration policy. Speaking to the Norwegian prime minister in Washington DC, Mr. Trump said he wanted the people of Norway to immigrate to the United States, not criminals from Mexico and from sithole countries like Haiti, in Mr. Trump’s words. Already, he has banned the citizens of several Muslim countries from visiting the United States.

Coming back to the import tariffs, Mr. Trump seemed to use discretion by giving exemption to European countries for a while only to treat friends and foes alike by imposing the tariff on all at the same rate, including Canada, the next door neighbor. Although Mr. Trump framed his policy as a help to the steel and aluminum-using industry in the United States, the impact has been just the opposite.

For instance, General Motors, one of the main users of steel and aluminum, has filed a report to the Commerce Department asking it to review the tariff because it would force them to reduce production and slash the workforce. Harley-Davidson, which produces heavy motorcycles among other things, which Trump had touted as exemplary, has planned to shift its production to other countries to avoid the impact of the Trump tariff.

Rather than reflecting on the far-reaching negative impacts of his policy, Mr. Trump has dug down and threatened companies like General Motors and Harley-Davidson to abandon their plans to reduce /relocate their production or be prepared for higher tariffs. While the president of America, the biggest economic and military power on earth, wields a big stick, it is uncertain that the rest of the world submit to Trump, as he wants. So, he is pushing the world into the abyss of a trade war, which he has said America can easily win.

But there is whopping room for doubt. The European Union is a bigger economic power that the United States. Add to that other countries like China, Japan, India, etc., the chances that America will win the trade war become pretty slim. Even if America wins, it will have enormously suffered like everyone else, making it a pyrrhic victory. I have named this illusory grandstanding as Trump Disease.

But the Trump Disease did not start with Trump. Many other countries, including the emerging economic powers like China and India, had suffered from the Trump Disease. Chairman Mao and Prime Minister Nehru instituted license raj in China and India, respectively. The Chinese communist leader Deng and Indian democratic leader started the liberalization of their respective countries. Deng’s comment is famous in this respect. He said it does not matter whether the cat is black or white as long as it catches mice.  

More than anything else, the push for liberalization made China the workshop of the world that can produce things at a much lower cost than most countries. India is moving in the same direction though not at the same pace as China. Sandwiched between the two countries, Nepal has been caught in a political dilemma. Perhaps, political confusion will be the right word.

In Nepal, the color of the cat has been more important that the cat’s ability to catch mice. In other words, political considerations always color everything we do and they outweigh economic rationale in respect to its immediate neighbors and rising economic powerhouses of the world. We tend to think that improving relations with one must be at the cost of the other. By the way, this flaw lies with India and China in equal measure.

This flaw is pronounced in Nepal’s economic policy towards India and China, and India and China’s policy towards Nepal. Each of our neighbors does not want Nepal to diversify its trade and wants Nepal to remain one of their economic clients, though a small one at that. So India is trying to keep Nepal under its security and economic wings while China is trying to change the status quo in its favor. And our leaders have played pawn for our neighbors.

Diversification of trade is beneficial to all countries. We already know the comparative advantage rewards every country with a unique endowment of resources. In other words, if every country produces things which it can produce better and cheaper and faster than others, their aggregate benefits will be much higher than if each country were to produce everything.

Europe, America, and Japan became rich by importing cheaper raw materials from the rest of the world, finishing them in their factories and exporting the finished high-value products. The main motive behind colonization was Europe’s hunger for cheap raw materials. China is emulating them now. East Asian tigers have followed the same example. But we in Nepal are still struggling to determine what is best for the country. This confusion will continue as long as we see through our neighbors’ eyes and think through their brain and don’t use our own.

As a result, Nepal has sustained a continuous loss of welfare for the Nepali people. As you would see in the following rough graph, how Nepal is losing its welfare. As the chart below shows, one supplier will supply a product at a higher price, p a, at the higher supply line but two or multiple suppliers will supply it at a lower price, p b, at the lower supply line, assuming that they don’t form a cartel. When the price comes down, more people can afford the product, expanding the the demand from q1 to q2. Therefore, the shaded area (p a, p b, t,u) would be our welfare loss if we rely on only one supplier, in this case, one country.

Chart: Welfare Loss

Chart2

Politicians are the smartest people. If that were not the case, they, usually the losers elsewhere, would not have been ruling the smart ones. Unfortunately, they often pursue their own narrow political interest and fail to rise to statesmen. This narrow interest makes them overlook and disregard the welfare loss from which Nepal and the Nepali people are suffering.

Will Nepal get out of this phenomenon of? It will depend on whether any politician wielding power, the prime minister in our parliamentary democracy, has the will to rise above his and his party’s narrow national interest and work as a statesman to advance the interest of Nepal and the Nepali people. I don’t know how long Nepal will have to wait for such a leader to emerge.

In fact, the chances of the Nepali version of Donald Trump emerging in Nepali politics are higher than the emergence of George Washington, Mahatma Gandhi, and Nelson Mandela. But you can never tell. All these great men were not born great; they grew up over time to understand that they could and should rise above their narrow interest. So let us keep our hopes alive.

Murari Sharma: Mr. Oli’s China Visit in National and Wider Perspective

At a time when American President Donald Trump is upending the post-war global order, the rest of the world is forced to consider political and economic realignment. In this context, the Nepali Prime Minister KP Oli’s recent visit to China is remarkable not only nationally but also globally and regionally.

The global context first. Mr. Trump has pushed South East Asian countries to China’s embrace by pulling America out of the proposed 12-country Transpacific Partnership Agreement. He pushed European countries and China into the same side by abandoning the Paris climate agreement and slapping tariffs on steel, aluminum and other imports. Such economic necessity is bound to generate a new political alliance among countries that was deemed impossible before Mr. Trump’s rise to power.

Regionally, China has been pushing hard to expand its sphere of influence through, among other things, trade and the One Belt One Road infrastructure initiative. India has been desperately trying to limit Chinese influence in South Asia.

Nepal sits on these colliding fault lines. Mr. Oli’s China visit has taken place in such a delicate time of change. His visit and the various agreements signed in his presence in Beijing suggest that Nepal has inched away from the US-Indian regional orbit and into the Chinese orbit.  It has significant impact for Nepal nationally as well. 

Two weeks ago, a formerly highly placed official had given me a discouraging prognosis about the Oli government’s direction of travel, and in my previous article, I reflected his sentiments. However, after Mr. Oli’s China visit, it appears that things are not so pessimistic after all if action follows the symbol and word.

During the visit, Mr. Oli met with the Chinese President Xi Jinping and his counterpart Li Keqiang in a spirit of warm friendship. The two sides also signed 22 agreements and understandings, 14 between two governments and eight between the two private sectors.

Among them, the most remarkable was Mr. Oli’s pet project: Nepal-China railway link, connecting Kerung and Kathmandu. It is expected that the project will be completed within seven years. This particular project invited serious discussion and difference in Kathmandu.

For instance, the former finance minister, Ram Sharan Mahat, questioned the wisdom of this project in view of its cost and utility vis-a-vis road and other projects. Certainly, from a purely economic standpoint, the geographical difficulties will make the railway costly to make and the distance from the economic hubs of China will make transportation uncompetitive compared to India. 

I don’t have concrete data or a crystal ball to say whether this project makes economic sense. I agree with the points Mr. Mahat has made about the cost and competitiveness. However, I also know that many a time, supply creates its own demand, as the economist John-Baptiste Say has said. If the trade overland between China and Nepal increases, the volume could bring down the cost. 

But the rail project is important in a political sense. It will somewhat reduce Nepal’s total reliance on India as the main supplier of many goods and sole transit country to and from third countries. This will mitigate the impact of the kind of economic blockades we have faced in the past if they are ever repeated.

Other agreements are important in their own right. It is good news that the Miteri Bridge, destroyed by the 2015 earthquake, would be rebuilt and another bridge will be built in Rasuwagadhi. They will restore the lost and create a new connectivity between the two abutting countries. Besides, the press release also promises early conclusion of the Protocol to the Agreement on Transit and Transport, which 

But the reconstruction of the destroyed schools and the Nuwakot Palace, though important, might be viewed as Chinese aid being sprinkled for maximum political but minimum economic advantage for Beijing and the ruling communist party in Nepal.

The agreements between the private sectors of the two countries heavily focused on constructing hydro-power projects, which is welcome. Even though Nepal has the second highest theoretical hydro-power production potential in the world, after Brazil, we still rely on India and thermal power to meet our shortages and still cannot avoid brownouts and blackouts in the lean season when water flow and power production dip.

These agreements are important not only they help Nepal build its capacity, they are important in another significant context as well: They will motivate India to abandon its policy of making commitments and holding projects for years without implementing them. This tendency had started with the Kohalpur-Banbasa part of the East-West Highway and has continued with the Hulaki Roads, hydropower projects, and the like.

I might be wrong to think so, but I always thought the commitment made by India during Mr. Oli’s visit to New Delhi and Indian Prime Minister Narendra Modi’s Kathmandu visit to link Kathmandu to the Indian railway network would not come to fruition without the Kerung-Kathmandu link promised by Beijing.

On a broader level, the presence of China and India in some of the same sectors will set off a virtuous cycle for Nepal’s progress. If China keeps its promise this time, India will keep its. Similarly, if India keeps its promise, it will prompt China to follow suit as well, into a virtuous cycle.

Unfortunately, though, the implementation aspect has not always been encouraging. Though bilateral mechanisms have been established now with China and previously with India to monitor progress, there must first be progress to monitor. Besides, the virtuous cycle, if it comes into being, could make Nepal complacent and more reliant on its neighbors than on its own creativity and resources for respectable development.

On the whole, Prime Minister Oli’s China has been positive and encouraging at the agreement and symbolic level. Let us hope the implementation aspect would also move forward smoothly. While I don’t doubt the strong relations between Nepal and China for the good visit, the US President Trump’s upending of the post-war global order did contribute to make China Beijing more generous than before.