A “No” to Privatisation

Recently, we have all heard declarations on the virtues of privatisation in Nepal. They come from the large Nepali business houses, the global capitalist states, and financial organisations like the World Bank and Asian Development Bank. Somewhat uncharacteristically, the Nepali Government also has joined the chorus. Two successive finance ministers, P.C. Lohani and B.B. Pradhan, have made high pitched exhortations in favour of privatisation..Privatisation is touted as a prime remedy for various ills that face the country. It is expected to help locate viable investment sectors, mobilise private savings, create a class of national entrepreneurs, correct market distortions, help import substitution and promote exports. On the whole, it is expected to "lighten the state's burden." Some have even gone as far as to draw a premature and tenuous link between privatisation and the "basic needs programme" of the Government..Let us first remember that privatisation has a long history in Nepal, having been pursued aggressively, since the historical consolidation of the country. Privatisation of the "commons" – communal agricultural lands, forests, pastures, river banks, urban real estate – used to be the order of the day. A systematic narrowing of the domain of the commons, made large fortunes for a small section of hill households, a larger section of the landed aristocracy in Tarai, and, high officials and traders..The cultural and political legitimacy of private property and aggressive privatisation was also recognised in post 1950 Nepal. The expansion of private agricultural land, legal sanction to a highly skewed distribution of landownership, low and regressive land taxes and absence of agricultural income taxes, should have generated, under conventional wisdom, a high rate of investment in the rural areas, and thus created rural agricultural-industrial entrepreneurs. In the growing urban economy, low levies for import of raw materials, low excise rates, long industrial tax holidays, nearly non-existent urban property taxes and a host of other features and measures should have led to a relatively independent class of industrial-financial urban bourgeoisie..It has been three and a half decades, but none of these "should have been(s)" has actually come about. Instead, the country has witnessed reduced agricultural productivity, a stagnant industrial sector, large scale import of consumer goods, a Government which has large financial resources but is fiscally irresponsible, and an accelerating rate of marginalisation of the populated hills. Most of the personal savings generated are "immobilised," kept in households, or as excessive reserves in banks; hoarded in the form of gold, silver and real estate, or spent in conspicuous consumption of imported goods..The current "edition" of privatisation, essentially, seeks to mobilise the financial strength of the small body of nationalist entrepreneurs, the "comprador class" and the urban middle class, who recently have, in a historically relative sense, been awash with liquidity due to the income from the entrepot trade, foreign aid, kickbacks and the sky-rocketing value of urban real estate..Who Benefits?.The call for privatisation, at least at this phase, appears to be geared towards the divestiture of the control of profitable state enterprises – rarities in themselves. It is not at all clear from the recent Government declarations, how the majority of sick state enterprises are to be privatised. What is clear is that potentially profitable divestitures will be made, if at all, at far below market prices, topped by large buyer subsidies..Looking ahead to the next two decades, the central issue is whether privatisation will lead to actual expansion of the domain of private ownership, and whether, it will contribute to the promotion of a nationally bounded and integrated market, decentralisation and equity. All This would prepare the ground for development..We can expect the private sector to expand to cater, selectively, to the demand for consumption goods of the urban and middle classes. The likely expansion of the private sector will, to a certain extent, lead to import substitution and export promotion of a narrow range of consumer products. However, investment as a proportion of savings may not show an appreciable rise. Excessive liquidity of households will continue. All other hopes attached to privatisation, such as correction of market distortions, increased competitiveness of local producers, creation of nationalist entrepreneurs and "lightening of the state's burden," are unlikely to be fulfilled..The new "privatisation show" has the small body of the urban middle and upper classes, and the large business houses, as its audience and potential actors. It does not address small, rural investors, and does not mobilise subsistence funds and other resources, at the rural household and community levels. It is not tied in any direct way to the agrarian sector..Privatisation, therefore, will not lead to the political and economic empowerment of the overwhelming proportion of producers. Instead, and to the extent that the push is successful, it will tend to concentrate the political and economic power in the "modern sector." Competition will be limited to the large business houses – and this for privileges which the Government can distribute..The new push, because it is inherently biased against small rural producers and because it favours the large business houses and the middle and upper income earning households, will worsen the terms of trade for low income and rural households and generate further inequities. All in all, the new push will further reduce the scope and intensity of local initiative and responsibility in the rural area..It is thus that Nepal has been living through an extended policy impasse, in the midst of long term and accelerating underdevelopment. Privatisation, a long-standing historical routine and one which has expanded immensely at the expense of the common use of resources, cannot be effective in arresting this slide..This article by Chaitanya Mishra is adapted from a longer one which appeared in Sambad, a newsletter of Integrated Development Systems, Kathmandu..The "Viewpoint" section is a forum for debate and dialogue. Contributions are welcome. Opinions expressed here do not necessarily express the views of Himal or of the institutions with whom the writers are affiliated.