Nepali Times
Guest Column
Think globally, act accordingly


The issue isn\'t whether Nepal should be a part of the globalised world, it is how to respond to it.

The riots in Seattle and marches in Washington have brought home to many people in developed countries that globalisation does not benefit everybody. There are some darker sides: the plight of the poor is sometimes not taken into account, the institutions that govern globalisation are less than transparent, and there is a fundamental undermining of democratic processes.

There is strong evidence that the free flow of goods and services has resulted in faster economic growth of developing countries, that protectionism has in most places had very adverse consequences. Countries like Singapore have based whole development strategy on foreign direct investment which has integrated them into a global market economy.

Another aspect of globalisation, which is far more ambiguous, is the global flow of short-term capital. It was the opening up of short-term capital markets in East Asia that led to the most severe global economic crisis in almost 60 years.

There is also the globalisation of labour, and this has not proceeded at the same pace that the globalisation of capital has occurred. Wall Street and financial markets have been very strong advocates of opening up the world to capital flows, but they have been much less open to a free flow of labour.

Whether one likes it or not, global events have enormous effect within countries. India is lowering its tariffs as it becomes fully integrated into WTO. This is going to have profound a implication for Nepali industries. Some of the opportunities Nepal offers will no longer be there. But one has to understand that India is doing this for reasons that have nothing to do with Nepal; they are driven by international concerns.

The issue isn\'t whether to be a part of the globalised world, it\'s how to respond to it. If you look over Nepal\'s history of the last 40 years there has been enormous progress, but what is quite striking are the great gaps: Nepal is one of the two countries in the world where female life expectancy is lower than that of males.

Literacy is up. But still only 66 percent of the males and 30 percent females are literate. There is growing concern about the quality of education. The key issue facing Nepal today is how to promote development that brings benefits to the poor when 42 percent of the population live in absolute poverty and there is a very large gender gap.

Many of the key ingredients to that policy are well understood. For instance, it is not possible for Nepal to have a higher standard of living as long as its population increases at the present rate. The evidence is very strong that educated women have smaller families. Nepal\'s female literacy gap is not only disturbing in its own right, but is a very strong development issue.

How- is Nepal to generate the resources for development? Raising taxes is difficult. Nobody likes to pay taxes. Raising taxes on small business is especially difficult. Tax structures that are designed to work well for developed countries have to be re-examined in the context of developing countries.

Some tax systems are more corruption-resistant than others and we have to look for taxes less prone to distortions from uneven enforcement and evasion. Tax structures in less developed countries like Nepal have to recognise administrative capacity also. It may be better to have single-rate, broad-based taxes rather than highly differentiated rates where you have enormous amounts of discretion.

Tax collection is related to devolution and decentralisation. Democracy must be a part of the process of improving delivery of services at the local level. Meaningful devolution can bring health care and education to the grassroots.

In Nepal there is frustration that while the decentralisation policy is legislated, there aren\'t the resources at the local level. Meaningful devolution provides resources to decision-makers at the local level either through block grants or by allowing them to impose local taxes. There is a strong case for providing a tax basis so that there is accountability, and people pay to get benefits.

For an effective financial sector there has to be a credit culture: if people borrow money they have to pay it back. Otherwise they have to give up the collateral. One characteristic in many countries, Bangladesh is one, is that there is a 100 percent repayment rate by small farmers, and it is the rich who default. Evidently there is something about being wealthy that makes it difficult to repay loans.

If you don\'t make the wealthy repay loans you will undermine the credit culture and you will not have a financial system that works. You also need to have supervision. Everybody talks about public sector corruption. In the absence of adequate supervision there is enormous corruption also in private sector banking.

(11 JAN 2013 - 17 JAN 2013)