From Penury to Prosperity? With Maoists' Political Goal of Communism?

>> Monday, October 20, 2008

By Ajay Pradhan | October 20, 2008

Is the governing Communist Party of Nepal - Maoist (CPN-M) in disarray? Mutually incongruous statements have recently come out in the media from the party supremo Prachanda and his second-ranking aide Baburam Bhattarai.

Finance Minister Bhattarai is quoted by the Kathmandu-based Nepali Times on October 13 as saying at a talk program in Washington, DC recently that "our ultimate goal is communism... I don't want to be dishonest." Bhattarai was in the U.S. capital to attend the joint annual meeting of the Board of Governors of the World Bank and the International Monetary Fund.

In the recent weeks, when he was in New Delhi, Bhattarai pleaded for foreign direct investment (FDI) in Nepal. Prime Minister Prachanda himself has, on several different occasions, stated Nepal welcomes foreign capital investment.

While in the U.S., Bhattarai traveled to Cambridge, Massachusetts and gave a talk entitled "Penury to Prosperity: A Talk On Nepal's Economic Future" at Harvard University. He dreams of lifting Nepal from penury to prosperity and yet unabashedly states that his party's political goal is to turn Nepal into a communist state. Not going to happen. Mr. Bhattarai ought to quit day dreaming. How about being pragmatist and moving away from the far left edge of the political spectrum? He can give swaggering political statements about his political objective, but he cannot convince the global community that Nepal, under the Maoists' long-term rigid and ideological agenda of establishing a communist state, would be a safe bet for foreign investment.

Nepal needs three things for economic growth. First, much needed capital for increasing productivity. Nepal can raise this capital, for example, by inviting FDI. Second, foreign markets for Nepali goods and services to grow Nepal's economy and earn the much needed foreign currency to pay for import of goods and services that Nepal does not have. Third, productive workforce. Nepal needs to create a productive workforce rapidly. Foreign investors with lot of capitals will not come to Nepal if Nepal cannot provide trained workers and open up royalty-generating productive resource base. These are the three essential elements for putting the country on a path of economic development. Nepal needs no miracle. If politicians are willing to be pragmatic, then Nepal can achieve success.

One essential precondition for FDI is for any foreign company, whether owned by foreigners or by non-resident Nepalis, to be able to invest in Nepal without the fear of their capital investment ever being nationalized. Nobody will come to invest in Nepal if the country's finance minister blusters in international arena that his party's political goal is turning the country into a communist state where the state could deprive the owner of the company the right to property. The second essential precondition is the ability of the foreign company that establishes an affiliate company in Nepal to exercise control (in terms of percentage ownership and voting rights within the company) over its forein affiliate.

In order for a country to grow economically, its government has to play less obstructionist role and more of facilitator's role. Hard-nosed socialism, let alone communism, will not afford the free-market confidence that the forein investors need and want. By any which name, government intervention and ownership of public enterprises is a recipe for killing market competition and efficiency.

What Nepal needs is a free market system with only oversight and enforcement role for the government when market fails. Nothing more. No government ownership of Nepal Oil Corporation. No monopoly ownership of electric utility company. No government ownership of Nepal Telecom. No government ownership of Nepal Airlines. No government ownership of commodity production and supplies distribution enterprises. No more monopolies.

It's a shame that Nepal government more or less has a monopoloy ownership and operational controls over these enterprises and yet can't provide the basic supplies and services that people need. It's a shame that Nepal government owns Nepal Oil Corporation, the monopolistic behemoth, whose only job is to import, store and distribute fuel oils, and still scarcity forces consumers to form a lineup for hours to be able to purchase a few liters of gasoline. It's a shame that the government owns the only electric utility in the country and still almost all homes in Kathmandu, the country's capital, have to endure power outage for 4-8 hours a day, 6 days a week. When you are in that kind of situation, you have to wonder if Nepal is yet in the 21st Century.

In all these enterprises and more others, we need less government control and intervention, not more. How do the Maoists like Prachanda and Bhattarai think of growing the country's economy when their political dream is to establish a communist state? We don't have to look much beyond Nepal's neighbors to see that it is by introducing liberal economic policies that both India and China have been able to remove bureaucratic hurdles for transaction and investment and put the countries on a path to achieving double digit growth rates. India liberalized its capital flow policies in trade and investment sectors and is now reaping the benefits in terms of high economic growth rates. China liberalized its economy in 1979 when Deng Xiaoping trashed Mao's stiffling communist economic policies all but in name. Soviet empire collapsed in 1992 under the dead-weight of failing communist economic policies.

Maoists' robotic use of rhetorics and propaganda of fighting the feudals in Nepal is getting a little tiring. Nepal must focus on increasing productivity, growing the economy and creating wealth. If you don't have wealth, not any kind of wealth and land redistribution is going to put the country on the path to prosperity.

Gone are the days of closed economy of communism. Nepal needs international partners to help gain economic momentum. This is the era of globalization. Mr. Bhattarai, quit your swagger, be a pragmatist, and stop being a hurdle to taking the country on a road to liberty, human rights, freedom of assembly and speech, multi-party political competition, right to property, and open economy with little government control. It's only with open mind, not closed, that Nepalis will be able to lift the country from penury to prosperity.

Photo Credit:
Prakash Singh/AFP/Getty Images

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Stepping Up Canada-Nepal Diplomatic Relations: A Task for Non-Resident Nepali Association

>> Tuesday, October 7, 2008

By Ajay Pradhan | October 8, 2008

Canada does not have an embassy or even a consulate general in Kathmandu. Nepalis who wish to visit Canada have to submit their visa applications in New Delhi. Several years ago, the brother of a Nepali living in Surrey, a Vancouver suburb, applied for a visitor visa (Canadian government calls it Temporary Resident Visa) to come visit him, who was in hospital for a major surgery. The Canadian High Commission in New Delhi summoned him to the Indian capital for an interview. He had submitted with his application a letter from the sick brother's hospital, endorsing his application. The visa officer denied him visa. Reason? The visa officer said, no sufficient connection with Nepal. The brother applied again the next day, with no additional documentation. The High Commission invited him for another interview couple of days later. They granted him a visa. He spent six days in New Delhi.

A year later, another Nepali from Vancouver invited his mother-in-law and sister-in-law for a visit to Canada. They sent their visa applications to New Delhi from Kathmandu. The mother-in-law got her visa, without having to travel to New Delhi. However, the sister-in-law was asked to come for an interview in New Delhi. She was denied visa three times before being granted it the fourth time she submitted her application with additional documentation. The reason for visa denial was the same--no sufficient connection with Nepal. One piece of additional documentation she submitted the fourth time was a letter from this Vancouver Nepali, which made the case that the sister-in-law has a well-established family in Kathmandu and the temptation to default on her obligation to leave Canada at the end of the visa expiration date just did not exist.

Then there was a Nepali couple who was traveling to the United States as guests of a U.S.Congressman to attend an international event in Washington, D.C. The wife had a sister living in Richmond, another Vancouver suburb. The sister in Richmond had just given birth to a baby. It was a perfect time for the couple to extend their travel from the U.S. to Canada. A month before leaving for the U.S., they submitted their visa application at the Canadian High Commission in New Delhi in person. For the couple, to go to New Delhi wasn't much of a big deal as it was for the previous visitors, as they had a well established business in New Delhi. The visa officer denied them visa even upon resubmitting application for the third time. They traveled to Washington, D.C., hopeful that they'd be granted a Canadian visa if they applied in Washington, D.C. They were hopeful especially given the fact that they were guests of a U.S. Congressman. Guess what? They were denied visa there, too. Reason? Since the Canadian High Commission in New Delhi had already denied them visa, Canadian Embassy in Washington, D.C. would not consider revising the decision.

These are real examples and they defy logic of common sense. But, as much as they are deplorable, I'm not here to fight the discretionary powers of the visa officers in Canadian embassies around the world. The one singular point I want to make here is this--Nepali travelers who want to visit the U.S. have less hassle to go through in obtaining a U.S. visitor visa than those who want to travel to Canada. The reason is simple. Canada does not have an embassy or a consulate general in Kathmandu.

Having a Canadian embassy in Kathmandu has benefit not only for prospective Nepali travelers but also for those Nepalis who are Canadian residents or Canadian citizen who travel to Nepal. In February this year, I traveled to Nepal. A week before I was traveling back to Canada, I lost a briefcase with my Canadian travel documents. Without those travel documents, I wouldn't be able to return to Canada. So, I contacted the local Canadian Cooperation Office in Kathmandu to ask how I could obtain replacement travel documents. The CCO official told me it would take approximately 7 to 10 days to obtain such a document because the application for such a document would have to be sent to New Delhi. I did not have 7 days, let alone 10. Now, it's a different matter that I found the lost briefcase in time. I had left it in a taxicab. The cab driver had the good sense and honesty to go through the trouble of finding my address and bring it back to me. Needless to say, he received a reward and, more importantly, my gratitude. If there was a local Canadian embassy in Kathmandu, I would have likely obtained replacement travel documents on an emergency basis.

More involved diplomatic relations is important for Nepal politically, too. More intense diplomatic relations would enhance Nepal's image and its sovereignty in the international arena. It is through diplomatic relations that a country raises its international profile. Nepal needs to stand up with international partners and grow out of China-India spheres of influence. Because diplomacy works in reciprocity, Nepal should consider establishing an embassy in Canada or at least a consulate general. Then Nepal government should enter into dialog with Canadian government and invite Canadian diplomatic presence in Kathmandu.

Nepali social organizations in Canada have, on occasions, lobbied the federal government in Ottawa to establish a consulate general or at least a visa office in Kathmandu. I know that Nepal Cultural Society of British Columbia (NCSBC), for example, has lobbied Ottawa two-three times in the past years. Department of Foreign Affairs and International Trade (DFAIT) always sends a twin set of letters, one from the Minister of Foreign Affairs and another from the Minister of International Trade, with a stock answer: Canada has no plans of establishing a consulate general in Kathmandu at this time as it is not economically justifiable. It is incredible that a rich country like Canada uses such a feeble logic as a justification against opening a consulate general in a foreign country. Canada has a high commission (i.e., embassy) in New Delhi, and consulates general in Chandigarh, Chennai and Mumbai. Not many years ago, Indians in Canada successfully lobbied Ottawa to establish a consulate general in Chandigarh.

Of course, there are not as many Nepalis in Canada as there are Indians. So, this calls for pooling the strength of our Nepali diaspora in lobbying both the Canadian and Nepali governments to establish residential diplomatic presence in each other's capitals on the basis of reciprocity. For both countries it would be an investment worth its money.

The Non-Resident Nepali Association (NRNA), its international and national coordination councils, including the newly constituted NRN-Canada National Coordination Council should initiate a concerted campaign to lobby both Canadian and Nepali governments to step up their diplomatic presence in each other's capitals. NRNA should take this up as a priority task for 2009. It's time for NRNA to grow new wings and add diplomacy as a role for it to act on, in addition to philanthropy and foreign direct investment.

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Wall Street Crisis to Main Street Crisis: Are We Witnessing a Paradigm Shift in Free Market Economy?

>> Saturday, October 4, 2008

By Ajay Pradhan | October 4, 2008

Is America witnessing a paradigm shift unfolding in its economic system? America is the bastion of free market economy. Those who profess and bet their life that market can do no wrong are squirming today. The notion that market can do no wrong has turned out to be a myth. The myth has been shattered into 700 billion pieces by the financial crisis in Wall Street. The Wall Street crisis has spawned crisis in stock markets and crisis in credit markets. The crisis has the potential to melt down the capitalist society of the United States.

America has mostly trusted an unfettered market economy largely free of government regulations. Those who believed in Milton Friedman's Chicago School of free-market economic thought labeled attempts to impose any regulation on market a meddling attempt of the socialists. The idea professed that market itself rectifies any failure it faces. In the political sphere, it was mostly the conservatives, the Republicans, that didn't want to tolerate market regulation.

The current financial crisis in the U.S. has shaken up the presidential campaign. The Republicans have been hammered in the polls. Two months ago, on August 2nd, I wrote a blog on U.S. election-year energy politics in the U.S., in which I referred to "shagging economy, recession-like situation and a real estate mortgage crisis of astronomical proportion."

The point I made was that if Barack Obama wanted to win the presidential election, he must not let John McCain let the American electorate dwell on McCain's pet and strongest vault of weapons against the Democrats--national security, and that the Democrats must make the American voters turn their attention to issues that McCain is weak at--economy flirting with recession and the Main Street America struggling with the real estate mortgage crisis that is of an astronomical proportion. As presidential candidate Bill Clinton's star campaign staff in 1992, James Carville, Paul Begala, Rahm Emanuel, George Stephenopolos, and Dee Dee Myers would say: It's economy, stupid! Well, this election season, it is economy, again. George Bush and his treasury secretary, Henry Paulson, put a figure on that astronomic proportion: $700 billion.

Two Saturdays ago, President Bush sent a proposed Bill to U.S. Congress, asking for an astronomical $700 billion to buy illiquid (read: bad) financial assets from financial institutions, mostly related to housing mortgage. The logic behind this astronomical funding request is deceptively simple. The $700 billion dollars that Bush asked from the Congress will be used by the Treasury Department to buy bad mortgage-related securities and then Treasury will hold on to the securities and sell them at an undetermined time later at a profit. Hopefully.

Well, on the surface, the logic does not seem to have any problem. But the problem is that nobody, even Secretary Paulson, whose brainchild this proposal seems to be, knows if this logic will work. Illiquid assets can't be converted into cash. Paulson himself admitted two Sundays ago with NBC's Meet the Press with Tom Brokaw and ABC's This Week with George Stephenapoulos, that there is risk to the tax payers in the proposal.

Just so we understand the magnitude of the requested fund to bail out financial institutions, let me just put the number in perspective. One billion is 1,000 million. $700 billion is $700,000 million. That's $700,000,000,000. And that's all taxpayer's money. The 2007 United States population estimate is 301 million (301,139,947, to be precise). This means each American (man, woman and child) will be on the hook for approximately $2,325 for the "rescue" of Wall Street firms. An American family of four will be on the hook for almost $9,300. In 2006, 20 percent of Americans earned less than $19,178 per year before tax. For someone who earns less than that amount of money a year, $2,325 used by the Federal government to rescue financial institutions is a huge burden.

It is more of a burden because the intended results of investing $700 billion to rescue the failing investment banks are not guaranteed. Two Sundays ago, Secretary Paulson admitted to Tom Brokaw and George Stephanapoulos on Meet the Press and This Week Sunday morning television shows, respectively, that he cannot guarantee that the investment of $700 billion will work. He said there is risk involved. In other words, if the $700 billion rescue package doesn't work, American people will be bearing a colossal financial burden for years, perhaps even decades, to come.

When Secretary Paulson began to lobby for $700 billion of taxpayer money to bailout Wall Steet investment banks and other consumer banks in credit market, the Bush Administration started the lobbying in an overtly imperious manner. As a result, Secretary Paulson ended up irking the U.S. Congress and outraging the American taxpayers. He made it sound as though the Administration was asking for a mere $7 million or even $700 million. The lobbying was laced with outrageous logic and and yielded no ground for reasoning.

First, he said the Congress has to dole out the $700 billion funding within a matter of days; otherwise, he warned, the financial market would collapse and the American economy would slide into deep recession. He never gave any explanation how that would happen and when it is too late to do something.

Second, Paulson wanted the Congress to have no oversight power over his authority. Bush Administration's bailout bill explicitly stated that treasury secretary's decisions would not be open to challenge in any court of law or a Congressional oversight review. Was the Bush Administration for real? They wanted a mind-boggling amount of money from the Congress and they wanted the Congress to have no power to ask any questions?

Third, Paulson didn't want to limit compensation for Wall Street executives who'd participate in the Federal government bailout program. When he was interviewed by Tom Brokaw and George Stephenopolous two Sundays ago, Paulson said something that'd defy any sense of logic and propriety. He more or less said that the government should not impose a punitive action against the Wall Street CEOs. That's incredible. Paulson wants to give $700 billion to failing financial institutions and he's okay if the CEOs of those institutions make millions of dollars in compensation out of hardworking taxpayers' money? What could one expect from a treasury secretary who was in Wall Street before he came to the government and will most likely go back to Wall Street? He was merely protecting his turf at the cost of average taxpayers. He wanted to protect the interest of those greedy CEOs who created this gigantic mess in the first place.

Paulson said the $700 billion package should be swift, clean and should not have punitive provision (i.e., compensation limits for Wall Street executives). Taxpayers are paying this $700 billion and the government should have no oversight authority? What does he want, privatize profits and socialize loss? That's incredible.

This mess is a little too complex for most people to understand. Paul Krugman, a Princeton University economics professor and New York Times op-ed columnist, wrote one of the most lucid articles, "Cash for Trash" in the New York Times on September 21st, explaining the situation. How did the problem come about and what is the implication of the Wall Street meltdown?

The Wall Street meltdown is largely due to overissuanceof mortgage-backed securities by the government-backed mortgage behemoths, Fannie Mae and Freddie Mac. First-time home-buyers got easy credit from banks at sub-prime rate. Banks offered mortgage at sub-prime rates because they wanted to increase credit flow. In the process, the simple verification step to check the ability of the first-time home-buyers to pay back the mortgage loan got bypassed. This all happened even when the housing prices skyrocketed abnormally. The housing prices went up so high the high prices became unsustainable.

Then the housing prices plunged approximately two years ago. People who bought expensive houses were suddenly left with houses worth two-thirds as much. And when sub-prime rates no longer remained sub-prime, the mortgage payments exceeded the ability of the homeowners to meet their monthly payment obligations. They couldn't sell the house because it would mean a drastic loss. Foreclosures then began to sweep across America, leaving people at the mercy of the vicious circle of economy. Their income didn't go up because the economy dwindled into recession-like situation, with economic activity declining significantly across the economy over a significant period of time. When the number of foreclosures began to soar through the roof, the lenders were left with worthless mortgage-backed securities. These are the bad, illiquid assets.

As long as the banks were saddled with these bad assets, they'd have little capital to loan credits to businesses and individuals. Then the credit market froze and businesses began to run into trouble to get credit to do their normal day-to-day businesses and meet short-term financial needs. This threatened the economy, as it had the potential to wipe off employment, productivity, and other economic activities.

For some big, venerable Wall Street financial institutions like Bear Sterns, Lehman Brothers, Merryl Lynch, AIG Assurance, the only recourse left was to file for bankruptcy. The 158-year-old Lehman Brothers and Bear Sterns went down. Merryl Lynch got bought over by Bank of America. AIG Assurance got bailed out by the federal government, as were the mortgage giants Fannie Mae and Freddie Mac.

The government thought these companies were too large let down. The government stepped in to infuse the credit market with cash and so Bush approached the Congress for that cash. As Arianna Huffington of the Huffington Post said, if those companies are too large to let down, then maybe they are too large to exist.

I think cash infusion is necessary, but the way it was planned and the provisions stitched into the original bailout bill were almost bogus.

What political implication this financial meltdown has for America? This has changed the color of the presidential race in the United States. As I wrote in August, John McCain's best chance at winning the election is by fear-mongering and putting topmost priority to national security. That's his trump card.

I wrote in August that if Barack Obama wanted to trump up McCain, Obama would have to turn the page away from McCain's pet subject of national security and turn the focus on economy. The Wall Street meltdown did that for Obama, although, I'm sure, he wasn't hoping for it to happen that way. Regardless of how it happened, McCain became the loser, as is now evident in polls across the country.

Perhaps the most compelling lesson of this mess is that it put the Republicans at a tough spot. First, the Republicans had an ideological stance against government intervention of the market. They said the market is able to rectify its own problems. Mostly yes, but not always. That has now turned out to be a myth. The Republicans themselves are now biting their own tongue and accept some level of government intervention and regulation.

Second, the Republicans never got tired of giving speeches against "big" government and accused the Democrats of spawning a big government. With $700 billion dollar under one person, the treasury secretary, the Bush Administration has created a government juggernaut. Who would administer this whopping pile of money? Will the Treasury Department hire private firms to manage this money, giving sweetheart deals to favored companies? Time will tell.

For now, it is quite apparent that there is no such thing as pure free market. "Free" markets function well and in the interest of the public, if the people's representatives have a power to keep an eye on them. Is this the end of capitalism? I don't think so, but the days of unbridled greed in Wall Street may be over. Also likely gone are the days of easy mortgage loan.

America is not turning away from capitalism, but it surely won't be able to let the markets run amok with little or no regulation to keep them under control. Is this a paradigm shift in free market economy of the United States? You tell me.

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