The government attitude to one of the three pillars of the economy, the private sector, has been disappointing. There are efforts to limit the role of the private sector even though there is a need for effective partnership between public and private sectors to achieve our larger economic goals. Even government estimates show that the private sector’s contribution is crucial to the timely achievement of the Sustainable Development Goals (SDGs).
Full liberalization of the economy and enhancement of the capacity of the private sector have failed due to policy inconsistencies of the past three decades. The expectation that a stable government would result in policy clarity and a consistent approach in dealing with the private sector has not been met. Riding on a capitalistic horse to reach the destination of ‘sound communism’ is questionable. The Nepal Communist Party (NCP)-led government clearly doesn’t consider the private sector a formal partner for economic development.
A Swedish Finance Minister was once asked by Joseph E. Stiglitz, a Nobel Prize winner economist, why his country’s economy was doing so well. The answer: “Because we have high taxes.” What he meant, as Stiglitz interprets, is that Swedes know that in a prosperous country there is a high level of public expenditure on infrastructure, education, technology and social protection, and that the government needs revenues to sustainably finance these expenditures.
Many of these public expenditures complement private expenditures. Advances in government-financed technology can help support private investment. Investors rely ever more on educated labor force and good infrastructure. Central to rapid growth is an increase in knowledge, and the government has to support the underlying basic research. But no such effort is seen in Nepal although the tax rate here is much higher compared to other countries in the region. A huge amount of revenue collected goes in recurrent expenditure and there is a dearth of quality investment in education let alone in research and development.
I cite this example as it comes from an economist who recommends increasing the size of the public sector with higher taxes. But even such scholars agree on the basic premise that the money collected by the government should be spent to advance key aspects of the economy. Finance Minister Yubaraj Khatiwada, considered a champion of the welfare economic model, issued a White Paper at the start of his tenure to show the pathetic state of the economy back then, and promised that he would attempt course-correction. Many trusted him, including this scribe. But two years down the line, the economy has not found its way and the private sector has lost its confidence.
Forty years ago, when China began its transition to a market economy, no one could have imagined that the impoverished county would have a GDP comparable to that of the US in under half a century. The Communist Party of China (CPC) didn’t just sit by idly deregulating the market. It also devised well-crafted policies to incentivize the private sector to grow and compete against their counterparts from other developed countries.
In the context of Nepal, the NCP government should be mindful that the referees themselves do not end up playing the economic game. Nor should the game’s rule surprise the players. A formal private sector always looks for policy reforms to generate growth and job opportunities. It is the government’s job to facilitate a public-private dialogue and draft policies to boost private sector enthusiasm in nation-building
