Why Nepal keeps on failing ?

This is a 2 part series: 1) Why Nepal keeps on failing? 2) How Nepal can prosper again? (This writing is heavily adapted from book “Why Nations Fail” I recommend reading it.)

To answer why Nepal keeps on failing, first let us address this question:

Why is Nepal poor ?

Nepal is poor precisely because it has been ruled by a narrow elite that have organized society for their own benefit at the cost of the vast mass of people. And every leader of a new revolution assimilates either with the old elite or copies their systems to create the same vicious cycle as before.

The things that have held Nepalis back include an ineffective and corrupt state and a society where they cannot use their talent, ambition, ingenuity, and what kind of education they can get. But Nepalis also recognize that the roots of all these problems are political. All the economic impediments they face stem from the way political power in Nepal is exercised and monopolized by a narrow elite. This, they understand, is the first thing that has to change.

But even after so many political revolutions to right the wrongs, why does Nepal keep failing (continuously) ?

Nepal had revolutions in the past which did not change things for the most of us, because those who mounted the revolutions simply took over the reins from those they had deposed and re-created a similar system. It is very difficult for ordinary citizens to acquire real political power and change the way their society works.

But it is possible, as it happened in England, France, and the United States, and in Japan, Botswana, and Brazil. Fundamentally it is a political transformation of this sort that is required for a poor society to become rich.

Countries such as Great Britain and the United States became rich because their citizens overthrew the elites who controlled power and created a society where political rights were much more broadly distributed, where the government was accountable and responsive to citizens, and where the great mass of people could take advantage of economic opportunities.

What kind of institutions are responsible for Nepal failing?

“Institutions, which have opposite properties to those we call inclusive are called extractive institutionsextractive because such institutions are designed to extract incomes, wealth and power from one subset of society (mass) to help a different subset (elite).”

Nepal is failing because we have extractive economic institutions supported by extractive political institutions that impede and even block economic growth.

The extractive institutions upon which our narrow elite rule creates extensive inequality, and thus the potential for infighting between those who could benefit from the wealth extracted from the people. This conflict has led to the undoing of the Malla Kingdoms in the 18th century, the Rana Regime in the mid 20th century, the Shah dynasty in 2006, and ongoing fighting among main political parties.

But can’t we just focus on the economic growth, whatever political system we make?

For sustained economic growth we need new technologies, new ways of doing things, and more often than not they will come from newcomers. It may make society prosperous but the process of creative destruction that it initiates threatens the livelihood of those who work with old technologies who would have found themselves unemployed by the new technology.

The fear of creative destruction (the change that happens when old is replaced by new through the use of innovation in technologies, techniques and events) is the main reason there was no sustained increase in living standards in Nepalis in the last 150 years (since the Rana rule). Technological innovation makes human societies prosperous, but also involves the replacement of the old with the new, and the destruction of the economic privileges and the political power of certain people.

Because elites dominating extractive institutions in Nepal fear creative destruction they will resist such innovation and hence, any growth that starts under extractive institutions will be ultimately short-lived. So in-case you were wondering, dictatorship won’t take us to the road to prosperity even if it makes sound economic policies at the beginning since it is in its nature to resist any economic innovation for the fear of ‘creative destruction’ of itself..

While economic institutions are critical for determining whether Nepal is poor or prosperous, it is politics and political institutions that decide what economic institutions Nepal has. Therefore we are at a critical juncture where our politics will decide what our economic system will be like and how poor or rich therefore Nepal will be in the future.

Extractive political Institutions + Extractive economic institutions = A Failed nation Nepal

Now please read part 2 for: How can Nepal prosper?

 

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This summary of this article is made possible through heavily borrowing and edits based on quotes from the book “Why Nations Fail” by Daron Acemoglu and James A. Robinson. The authors hold copyright to a lot of content in this article, therefore I cannot claim any right to this article. If  you consider this stealing, I apologize in advance. I only do this because their words seem to do justice than mine. If you are copying content from here, please attribute the article to the names mentioned above properly.

Comments

  1. […] the 1st part we talked about how Nepal keeps failing and why is it poor. Please read it, if you haven’t. So If we want to understand how Nepal can prosper, first we […]

  2. good summary Mahesh. Thats why the need for folks like you and I to be more politically influential than what we have been in the past.

  3. Nice summary of the book. Another takeaway from the book would be the role of strong vs weak state. Though strong states may lead to formation of inclusive (as in the US) or extractive (as in former USSR), weak states never lead to inclusive institutions.
    The revolution of 1990 lead to political transformation in Nepal where the political power was now in hands of more than one party. Though this transformation seems inclusive, the power of the state got significantly weaker. The central state couldn’t successfully implement development policies in the far-west and as a result the Maoist movement started. It was no coincidence that the movement started in Rolpa where the state never had a strong control. The movement got successful, not because of the agendas they put forth but because of the support of frustrated mass of people that did get anything from the state.
    One good thing that Maoist movement got successful was in uprising the people. Ethnic groups, women, and local groups become more aware and wanted greater participation in the political process. So, after yet another revolution of 2006, the political process seems to have been much more inclusive. The political power now has been distributed not just in the hands of the newly formed (and old) political parties, but also in the hands of other political groups which want greater share in the political process. This all seems inclusive but the hope of this leading Nepal to somewhere prosperous seems dimmer than ever.
    And this is precisely because of the another big change that Maoist movement did. It destroyed the strength of the already weak state. In their road to success, they destroyed state infrastructures that could show the strength of the state and execute policies and maintain law and order. And the current instability of government has almost killed whatever strength the state had left. Now, the state has become so weak that it cannot implement anything. Even simple processes like bringing the budget in time has been a story of the past, let alone the effectiveness of the policies. No matter which parties or coalition is in the government, they are stuck with the state that cannot do anything effectively.
    So, through the seemingly inclusive political changes, we are moving towards chaos. There is no single political force in light that can strengthen the state. And all the political actors know it. So, what do they do? Grab everything they can, while they can, and as long as they can. The institutions in Nepal has been set up to feed the elite few. This makes it all the more easier for the political actors to draw resources towards themselves. So the inclusive looking political transformation is just creating more and more of these elites willing to extract anything remaining from the rapidly failing state.