-Dhruba Bhandari (PhD)

The leaders have finally delivered the new constitution after about eight years of struggle. Establishing a federal democratic republic is only one half of the story, the other half is stability of the federal democratic system after it is put into practice. So what factors determine the stability of democracy in a country? It turns out that per capita income of the country is a crucial factor.

Income Per Capita and Stability of Democracy

A group of political scientists led by Professor of Political Science Adam Przeworski looked into income per capita of a country and the likelihood of durability of democracy in the country in the paper titledWhat Makes Democracies Endure published in 1997? The study looked at instances of survival and death of political regimes in 135 countries. The definition of democracy used in this study is: All regimes that hold elections in which the opposition has some chance of winning and taking office. The summary of the study is:

Income/GDP Per Capita (US$) (Likelihood of) Duration of Democracy
1000 8.5 Years
1000-2000 16 Years
2000-4000 33 Years
4000-6000 100 Years
6000+ Forever

According to the study, economic growth with moderate inflation and declining income inequality are important economic factors for stability of democracy. The study also rejects commonly held view that a dictatorship is favorable for developing countries at early phase of development. So what does the conclusion of this study mean for stability of democracy in Nepal?

Average GDP growth in Nepal between year 2005 and 2014 is 4.3 percent and average inflation rate is 8.6 percent during the same 10-year period, according to the World Bank. GDP per capita from 1960 to 2014 averages around $250. According to the World Bank, GDP per capita was $698 in 2014. Very recently, World Bank readjusted the forecast of GDP growth rate for next year from 5% to 3.4% percent, following earthquake in April 25, series of Nepal Banda (more than 50 days and counting) and an ‘unofficial’ blockade imposed by India causing shortage of fuel and raw materials. These economic indicators do not look good for stability of democracy in Nepal.

A Look Back

Democracy in Nepal has seen some ups and downs in the past. Declaring parliamentary democracy a failure, King Mahendra carried out a royal coup in 1960. After long years of party-less panchayat system, there was restoration of multiparty parliament in 1990 as a result of First People’s Revolution. This did not last very long either. There was very turbulent civil war from 1996-2006. Parliament was suspended from 2005-2007 by King Gyanendra. The country since 2008 was in the middle of establishing itself as Federal Democratic Republic after abolishing the monarchy after Second People’s Revolution. This was not smooth political process by any standard, and it is not smooth political process after the promulgation of the new constitution last month as well.

A way forward

The newly ratified constitution in itself is not going to change factors that are essential for economic growth in Nepal. Farmer’s productivity is not going to increase, educational outcomes in the country are not going to improve, rigid labor laws are not suddenly going to transform into business-friendly ones, labor productivity is not going to increase, and energy shortage is not suddenly going to transform into either energy sufficiency or energy independence just because Nepal has a new constitution. Energy independence should be very important in the list of priorities in the face of current ongoing fuel shortage due to ‘unofficial’ blockade from India. These are vital factors for economic growth in Nepal. These issues are equally important as the hot button issues (i.e. number of states in the country) in political debate right now, but they are not getting proper attention. Everyone is expecting that all our problems (especially economic ones) will be solved by the new constitution, without giving much thought to economic policies in the country.

These issues will have to be dealt with by forming business friendly policies and reforming old policies so that there are less regulations and barriers for the private sector/entrepreneurs to invest, to innovate, and to operate. Some example of private sector reform and private sectors excelling are the banking sector (relative to what it used to be before 1980) and the communication (telecommunication, radio, television, internet) sector. There is still work to be done in energy sector, both hydro-electricity and petroleum, to facilitate and to allow private sector to operate. There is also work to be done to reform labor laws (very difficult to fire unproductive worker and hence very difficult to hire new ones) to make it a competitive labor market.

China in 1978 (introduced reform to allow private sector to operate) and India in 1991 (removed trade barriers) reformed their economic policies. Though with vastly different political systems, both countries have experienced rapid economic growth since these reforms were introduced. China’s growth is officially reported at an average of 8 percent a year for the past 20 years. As a result of economic growth, the share of its population living on less than US$1 a day fell from 64 percent in 1981 to less than 17 percent in 2001. Likewise, India’s growth increased from an average of 2.9 percent a year in the 1970s to 6.7 percent by the mid-1990s. Consequently, its population living on less than US$1 a day fell from 54 percent in 1980 to 35 percent in 2000.

An environment which has policies friendly to entrepreneurs will give them space to innovate and to create. These entrepreneurs will create value for customers through quality goods and services. They will create value for people working for them by providing jobs and competitive salaries and benefits. They will create value for investors by providing them return on their investment. They will create value for other businesses that trade with them. Finally they will create value for government by increasing tax revenue. This will be the way to increase income for everyone and also to have stable democratic system in Nepal.

After all, what is the use of movements and revolutions that claimed thousands of lives to establish democracy if it is not going to last for very long? Greater effort is necessary to focus on well planned economic policies and reforms so that we can secure our democracy not just for us but for future generation as well.

(Bhandari is a Research Fellow at Samriddhi, The Prosperity Foundation. Views expressed in this article are the author’s own and not those of the Foundation. dhruba@samriddhi.org)

This article was originally published in Setopati on 12 October 2015.