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October, 2003 |
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Editorial |
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Role of Markets Common
border with Bihar is frequently offered as the number one cause for the
backwardness of Nepal. But one simple example would reveal that nothing
else may be far from the truth. If we accept Bihar as the greatest
hindering factor, western Nepal should have been better off than the
eastern part as it is the latter that borders Bihar. On deeper analysis
we may find that the secret lies in the market. The further we go west,
the less do we find the weekly rural markets (called Haats). It is not
simply a correlation. We can easily establish a cause and effect
relationship between the absence of markets and level of poverty. Markets encourage the
people to produce surplus, thus promoting higher productivity and
production. Greater the production, lower the poverty. Markets encourage
commercialization of agriculture which leads to the higher production of
those commodities that have higher income elasticity. With the entry into the
rule based multilateral trading arrangement of World Trade Organisation
(WTO) by acquiring the approval of the Cancun Ministerial in
mid-September, Nepal has joined a competitive international environment
from which every competitor country is expected to benefit as the
classical economist David Ricardo had proved some two hundred years
back. But there are caveats:
First, to benefit from such an arrangement the country must concentrate
on areas in which it has the comparative advantage. Second, there must
not be any infrastructural bottlenecks that may restrict trade. And
third, the market within the country and also in the trading partner
countries must be perfectly free. Fulfillment of these
preconditions is however very difficult, as the countries that have been
WTO members for long have experienced. Even the developed countries who
claim to be the apostle of free trade and the true followers of Ricardo
have failed to make their respective economies as free as required. The
latest example is the Cancun debacle. But for a small country
like Nepal, it is not possible to survive without trade: the big
countries like China, India, Russia, USA, Brazil, Indonesia can do well
even without indulging in trade with the other countries as they are as
big as some trading blocks and the trade between the regions within
their respective countries will be enough for their survival as an
economy. Small countries like Nepal do not have this advantage. More
disadvantaged is Nepal because it is small as well as least developed
and thus has very few areas identified as those having comparative cost
advantage. This means Nepal should start developing a different group of
least developed countries in the WTO as the interests of so-called
G-20-plus, which include China, India, Brazil, are divergent to the
interests of the small and least developed countries. |
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