Is LSG Act fundamentally flawed ?

By DR ALOK K BOHARA

A1995 World Bank Study records a dramatic decentralization reform taking place worldwide in developing and transforming economies. Sometimes known as the fiscal decentralization initiative, devolution, or even federalism, the idea is to transfer fiscal and decision making power from central to
local governments to restore a spirit of self-reliance and regional economic balance. Nepal adopted two years ago its own version of decentralization mechanism through the Local Self-Governance Act (2055) (LSGA).

The Act spells out, in detail, power and responsibilities of the two tiers of governments (village and district). The third highest de facto tier is the central government. Scholars and policy makers have already begun to argue about how best to transfer the central government apparatus to the local authorities. It has sparked conflicts and confusions among various local units.

The newly enacted LSGA has elements that show movement in the right direction, but it is contradictory and lacks a sound economic reasoning. Various initiatives are loosely proposed without much economic and political rationale. The purpose of this article is to critically assess the Act through institutional economics and public-choice angles and raise some serious concerns.

In particular, among other things, it argues for a regional level elected government body and suggests reducing the functionality of the district level authority. Political-economic arguments are given below. Obviously, a streamlined government structure is just a part of the story. Efforts must also be made to eliminate redundant control and formalities, institute deregulation, promote accountability and transparency, and transfer certain government functions to the private sector.

The economics of decentralization is a very deep and vast concept, and this one single article cannot do full justice. Nevertheless, a scant set of ideas, widely popular in the economics of decentralization literature, is presented as follows.

Economics of decentralization: There are two types of goods- private and public. National defense, beautiful mountains, parks, local ponds, shrines, safety, clean air, and rivers, which are not bought and sold in the market, are public goods, whereas a house and a factory are private goods. Based on the ability and efficiency, different governmental layers are assigned to provide different types of public goods for people to enjoy.

Loosely speaking, local units —village or county— look after the basic needs (eg, drinking water, garbage collection, local parks), whereas the national government mulls over larger problems, defends the country, and sets the national agenda. And, there are many tasks in-between for the state or regional levels to cover. Being in the middle, the regional government provides a balancing voice and force, and acts as an advocate for the smaller local units. The current district level entities with Seventy-five units, a middle tier, have many disadvantages, and they will be discussed later.

Further, all of the three layers have to be independent, to the extent possible, in their formation and decision making mechanism to promote efficiency. Consequently, political representation mechanism must be as such to guarantee that the voters have an opportunity to reveal their varying degrees of preferences at all the three levels of governments through direct voting.

For example, voters may vote in a party at the national level for its political philosophy and environmental policy, but at the same time, they may choose to be totally apolitical in the selection of the local leaders. These political-economic arguments should be the driving force behind any meaningful decentralization effort. The newly implemented LSG Act is incoherent and has many flaws.

Efficiency: Governments produce different activities with varying degrees of optimal scales and effects. Economic efficiency argument will prevail if the scale of the government units match the scope of the (public) goods provided. For example, fire, village roads, public libraries, safety, small scale irrigation, garbage collection, drinking water should be provided at the local levels, whereas national defense, international relations, race relations and welfare, immigration, macro stabilization policies, international trade and commerce, consumer safety standard, fiscal and monetary policies, environmental regulations, telecommunications, science and technology labs, postal service, preservation of national wildlife and refuge should fall under the purview of the national government.

There are many tasks that are more suitable for a mid-level administrative unit. Consequently, many countries have adopted a three-level decentralization system, and our own Act does follow a similar format too. So far, so good.

At the village level unit (VDC), the LSG Act lists numerous tasks and responsibilities that seem appropriate for that level except for the fact that the village level unit has also been assigned to generate and distribute electricity. The local authorities at that level are not well equipped to handle such a responsibility. More appropriately, the private sector should be involved in generating electricity. Actually, the larger hydro power system, spanning over several districts, must fall under a larger administrative unit (eg, regional level governments; more about it later). The LSG Act then outlines a litany of similar tasks to be carried out by the district unit.

This duplication and ambiguity will be the source of economic inefficiency and conflict while generating and delivering (public) goods and services. Similarly, expensive and complex health and education initiatives are also thrown in at the VDC level without much thought and rationality.

Competition and representative government: Efficiently run independent local units can compete with each other to attract households and businesses to improve their tax base. This is called horizontal competition. Similarly, a vertical competition among different layers of governments (national, regional, and local) can only be beneficial to the public, as voters can effectively control the influence of these different governments in their ability to tax and spend.

As such, it is very important not to overlap the administrative structure of these three layers of government, so that the voters can send a clear signal as distinctly as possible. That is, the three legislative bodies must be elected based on the direct voting, and should be separated in their function by defining distinct tasks based on their ability and the scope of the public goods they can provide.

The proposed Act fails in this regard quite miserably as well, because there is no clear dichotomy between the VDC and the DDC units. Furthermore, incorporating the influence of the national parliamentary members in the district level units, the Act looks more like a controlled decentralization, and a breeding ground for corruption, especially given the fact that the creation of the mid-level district level government has a lesser degree of direct involvement of the voters; it lacks checks and balances.

In any case, separate elections at the national and the local levels in theory allow voters to express their opinion based on different sets of agenda. Local leaders are elected for their ability to provide basic public goods (public utilities), whereas the national leaders are voted for larger issues. Such separation is essential to increase efficiency in the decision making process.

The current Act blatantly violates this important principle when it comes to forming the middle level government (district). The same village level individuals move on and/or give input to also form the group of the district level policy makers. This is against the spirit of representative democracy, and the current system is a breeding ground for conflict of interest and corruption.

Matching scale of goods: Economic terms like negative and positive externalities should play a role in deciding which level of government should carry out a particular task. For example, since pollution travels across different geographic boundaries (negative externalities), such decisions making power (eg, environmental laws, industrial standard) should be given to the national level. Likewise, decision regarding the training of the manpower should not be left at the local level, VDC (eg, vocational training and higher education, or even secondary education).

These are costly activities that produce highly mobile human capital, which can move around quite easily. Similarly, the VDC level local government should stay out of activities related to dams, energy, transportation, and health. The higher level units will have more expertise in dealing with these initiatives, but over time, as expertise and resource increase, some of these responsibilities can be handed down to the local entities. Thus, it is important to allow voters to directly elect all the three levels of governments to reflect changes in their voting preferences. In the US, voters have demonstrated their ability to pressure on the central government to hand over some responsibilities (eg, welfare system) down to the state level. The Act lacks such flexibility.

Redistribution and equity arguments: Another main argument for federalism or decentralization is to achieve equity across different regions in a country. While small local units (VDC) look after their own self-interest, a strong central government can provide protection for the depressed areas and regions by redistributing funds.

In a small country like Nepal with 75 fragmented districts, the task of monitoring equitable transfer of wealth becomes rather hard for the central government. Furthermore, a fragmented voice is no match for the powerful central government. After many years of district level governance, a vast disparity still exists across districts. Instead, a regional level democratically elected government will be more efficient in looking after an average of fifteen districts within its jurisdiction.

Historically, political and economic debates have been raised and fought from the point of view of regional sentiments (eg, western, far western, and eastern), and so it only makes sense to create regional governments (directly elected governors and legislative bodies) to address the problem and pride of regional self-reliance (e.g., South Africa, Mexico, Austria). As for the current district level tiers, a simple streamline version of DDC can be maintained to perform as a coordinating unit under the regional level government (like in Austria). More about these later.

(To be concluded)

Until when ?

By AYUSHMA PANDEY 

It is an everyday happening now. Bloodshed, death, misery and suffering. Even as we are reading this article, several people may be either losing their lives or being maimed on the battlefield. In a country known for peace and harmony, deaths and violence today make the newspaper headlines. But until when? Is it that this bloodbath has no end? And until when can the use of coercion and pressure quell the insurgency in the nation? As long as people are not taken care of well, there appears to be no way out.

The unremitting efforts put in by our great leaders in the institutionalisation of democracy in the country seem to have gone in vain. The very spirit and enthusiasm of the people is on the wane. Our country now moves along a bumpy and unsteady road led on by the leaders of the post-democratic era. They are competing with each other in their quest for power, forgetting all the while their obligation and responsibility towards the ordinary folks who made them what they are today. The recent call for a broad democratic alliance by former prime minister Girija Prasad Koirala is yet further evidence of how "genuine" our leaders are in their concern for the welfare of the entire nation (I doubt if they have any concern at all in the first place). At a time when concerted action should have been taken to find a solution to the present grave situation, our leaders are busy pulling one another’s legs, making matters even worse. No wonder, given such a situation, people go to the extremes to realise their needs and aspirations.

Yes, we do talk of decentralisation and local self-governance these days. The present discourse is certainly of one disseminating power to local institutions and making them capable of taking decisions for themselves. But how far have these great words been translated into practice? How many plans at the local level have been made possible by the central authorities? The ultimate power of making decisions that affect the lives of the majority of Nepalis still rests with the Kathmandu elite and bureaucrats. And moreover, the people, in most of the cases, are not even aware what has been decided for them. The ability to vote once in five years does not ensure the strength and security to the people.

As long as people are restrained from making important decisions for themselves and as long as they are denied a chance to articulate their needs and grievances, there seems no solution to the present situation.

Moreover what else can one expect in a country where even in the face of multiple deprivations in terms of education, health, food and shelter, the leaders can afford to squander so much on holding international conferences. The 11th SAARC Summit stands as a very good example of this insensitivity.

So as long these issues remain unattended, there seems to be absolutely no way of resolving the dispute. For even though we might be able to calm the situation down for now, there is no guarantee that the issues will not crop up again in the future. And so until when are we going to keep fighting the battle amongst ourselves?

The making of a nation

By BASANTA LOHANI

Anation is made not just of a geographical territory but of people’s emotions that hold, nurture and help it grow as a nation-state. What this means is forming a continuity that emanates from a blend where diversity in terms of habitat, topography, language, religion, ethnicity and host of others converses onto a heritage integrating the people and the land they belong to. This is how aspirations become common for the wellbeing of their country. It is this emotion, when deeply embedded, that forms individual collectiveness. Its expression of we the nation streams out forming a country’s nationalism. Though nationalism started shaping after the middle ages, on many occasions, for the convenience of the rulers, its content flowed out into a powerful mould when feudalism was tearing itself apart because of religiously sanctioned dehumanization of the masses.

Its most powerful expression was the French Revolution when people demanded their fatherland so that they can have ‘liberty, equality and fraternity’. But elusive they became when in about 13 years, Napoleon took control for another round of feudal continuity. The emotional contours of nationalism were united by the German Romantic poets who in the late 18th century experienced a powerful surge of national identity out of a Germany fragmented into many principalities. Bismarck, answered "the question of the day," that is German unification, fulfilling this surge in the 19th century. Colonialism followed by two World Wars and the post war emergence of independent states including the new ones after the debacle of the Soviet Union in 1991 has only reinforced this sense of belonging. This is how nationalism became not just uniting fragmented land but uniting the emotion of the people into a stream or belonging of we, the nation. This is exactly where I remember Prithvi Narayan Shah not just because his 280th birth anniversary was last Friday but because he had the great vision and set in motion the process of Nepalese nationalism.

The way our geography is, this country is more India locked than land locked. Gaining height from the flat low lands, its topographical personality increases to the highest in the world. Those who migrated here many centuries ago from Tibet and North India constitute a population blend of Mongolian and Indo-Aryan ethnic formations. Centuries of rigid isolation from the outside world, rugged and inaccessible mountain terrain and immobility due to lack of communication became the perfect setting to make Nepal like a country behind the clouds, with unique ethno-cultural peculiarities. This is how we are multiethnic and multilingual, in tune with our geographical diversity, which is great for a country of our size. And, before unification, the way it was fragmented into many principalities was ground enough for feuds and wars between the rulers, primarily for land. This is how principality grew into nation-state. The quest for land set in trail the process of political development. The whole centre of activity was land, not money. The state was run with land revenue and those rendering services to the state were paid in land, sustaining a feudal property relationship.

So, each small principality in the hills had to protect its land. Likewise, each was always looking for an opportunity to acquire land from a weaker one and would retreat if it could not hold on to the same. It was basically this need for land and the psyche so formed that propelled the unification in the hills when the Malla Kings in the far west extended their territory even up to Tibet and southern Kumaun as early as the 12th century. However, they could not hold it. Likewise, the Sen Kings from Makwanpur in central Nepal in the 14th century had built up what was known as the Sen Kingdom of Palpa but only to be fragmented about two hundred years later into many principalities. The Malla Kings inside Kathmandu valley had their own extended territories. This way much before Prithvi Narayan Shah started out from Gorkha, unification was initiated, but was never completed, to form the identity of a nation. So each such unification attempt rolled back into fragmentation.

At the age of 24 in 1744, Prithvi Narayan Shah moved out from Gorkha. His unification campaign too was propelled like earlier unification drives, by among other things, the desire for land in terms of jagirs for all those involved in the campaign. His activity too revolved around land as property, a mode of politics, and an incentive for expansion. As we have already mentioned, the state was managed with revenue from land. The army was supported by land as jagirs. In 1769 when Bhaktapur was added on the Kingdom of Nepal was unified 25 years after he began his journey from Gorkha. The next six years that he survived until January 1775 was the period when he transcended from a conqueror to a nation builder. It was within this time that he was able to show vision, magnanimity, and skill to blend the emotional surge of the people of the conquered territories into a nationhood that was to remain as solid as rock. His vision of a beaming Nepal is well reflected in his Dibyaupadesh, the great sayings.

In a major departure from earlier kings who had unified their kingdoms but ruled by dividing the territory among them, Prithvi Narayan Shah, describing the nation as a rock, refused even to let his brothers rule over parts of the newly acquired territories. He believed that a split rock loses the strength for forming a nation. His whole thrust after unification was totally on emotional in integration for building Nepal as a nation-state. If we examine his great sayings, each and every word is directed towards this end. His theme remained the people and his actions clustered around increasing the nation’s strength both emotionally and economically so that Nepal could continue as an economically viable nation. To this end, he abided by the decisions of the people, ensured justice to be impartial, worked towards opportunities for the people and considered Nepal as a garden of four classes and thirty two castes, a symbolic overtone of harmonization into an individual collectiveness within the setting that was then prevalent. He was anxious to live in peace with his neighbours - China and East India Company - but was very careful not to lose the indigenous strength in the name of either friendship or economy.

Here we are now after 232 years still in the process of forming a nation-state in terms of full-blend emotional integration. We have had democracy since 1990 so that this process becomes complete over time. The constitution of 1990 has made the people sovereign. Only in democracy can people have all round expression in terms of equality before the law, economic opportunities and participation in nation building. Are we, at least, moving towards that direction as contained in the constitution? Let all of us seek the answer within ourselves. More so those who have constantly promised us a better day and led us over this decade to this stage where we are today?

I do not intend to go further now but we all know history remains incorruptible irrespective of how corruptible the Marcos, Estrada or Suharto were, just to cite a few contemporary names. If our diversity turns into the breeding of inequality the way it is happening whereby 10 percent has now monopolized the national wealth, we are surely headed towards a major conflict. It is precisely here that I remember four persons as leaders and revolutionaries who have shaped and influenced the history of Nepal. And, Prithvi Narayan Shah the Great is where we began to move past BP Koirala. The nation always continues for a visionary who can deliver a better day. I once more salute the great man who remained true to his greatness.