The Dependency and the Question of Sovereignty

-Prof. Gunanidhi Sharma, T.U

Autarky is not the preferred bid to moving the economy and society toward higher stages. It is essential to remain cooperative if our objective is dynamic social transformation. World history is full of evidences in this connection. But no one prefers total dependency under which the growth of the political economy of a country is conditioned by and subordinated to the development of some other country and that it loses its freedom of choice for itself and its sovereign citizens.

Absolute dependence is, therefore, unwanted for an economy and society as total helplessness in conducting its affairs means autonomy is lost leading to a lost identity. The solution lies in building the capacity of the state in such a manner that it can stand above class and individual interests. Only then can it seek autonomy of choices on the external front.

Therefore, attempts of a society and a polity should be geared towards the realization of interdependence, but not in the sense of unequal exchanges. More uniquely, efforts need to be directed towards providing competitive interdependence to the society and the economy. To reach this stage, innovation rather than imitation is the key. In this sense, a nation can not reach such a stage by remaining in the periphery. Innovation can come only from the center. Raul Prebisch is quoted as saying: "center is innovative while periphery is imitative. The latter imitates from the former the technology, consumption patterns, the life style, institutions and other cultural and ideological affairs".

Raul Prebisch is also of the view that the market mechanism alone is powerless to settle these-dependency- problems and hence an effective state is quite essential for overcoming the structural problems that have been responsible for creating the dependency syndrome. An effective state works for structural transformation, income redistribution and restriction of imported luxuries to be consumed by few well-to-do families at the expense of the numerous poor. With this, he concludes: "productivity is raised, incentive to mass participation is provided and the resources are released for productive uses.". Growth thus can be promoted through more value addition, and distributive justice is realized with strong state support. This helps yield a more diversifies development and an equitable redistribution of economic power among the haves and the have-nots.

Instead of applying this scientific logic to the process of economic development in Nepal, policymakers have been intensifying a process of import liberalization resulting, in the absence of a strong export base, in a heavy influx of foreign goods, especially Indian goods and services, since 1950 and that from other countries after the mid 1980s when trade and finance were further liberalized with the advise of IMF and the World Bank. Less value is being added to the economy, which is reflected by its slow growth rate. The growth rate in Nepal at the moment is only 1.9 percent the effects of which have been a low savings ratio, high resource and foreign exchange gaps, growing unemployment and under-employment and a huge chunk of population forced to live below the poverty line. This completes a low equilibrium poverty and growth cycle that again as a by-product yields a low equilibrium population trap. Besides, we ha also been copying the life styles of the centers (India immediately and the developed countries at a certain distance) just as Raul Prebisch has analyzed.

Nepal exhibits a case of economic and social dependency whether defined in quantitative or qualitative terms. With the quantitative expression is found in the growing foreign indebtedness, rising import to export ratio, high profit repatriation and interest payment, the loss of revenue from tax holidays and tax exemptions, the higher place awarded to the foreign capital in both private and public finance and the unequal exchanges due to the export of primary products which is inadequate to finance the import bills for finished goods.

Qualitatively, Nepal copies the technology, consumption patterns, the life style, institutions and cultural and ideological affairs just as Raul Pebisch said. The provisions in the treaty of 1950, and with others by the policy of liberalization and globalization explain the dependence with India, mainly after the people’s movement for the restoration of multi-party democracy in 1990. Examining the effects of the treaties with India in 1950, it is held: " The prevailing treaty arrangements also served as the basis for the evolution of center-periphery relationships working in India’s favor. Even for economic models and policy choices we are totally India-dependent. Unless there is a political move for correcting the given situation of Nepal’s overwhelming dependence on India, Nepal will hardly have economic transformations in its favor". (Sharma).

Likewise it is further held: "While the economy of Nepal is more primitive and less modernized than its counterpart in India Nepal supplies more raw materials and imports manufactured goods…and as there is no permit and passport system for entering by residents into each other’s territory, a massive movement of people has occurred across the border…while the latter helped intermingle life-styles of people in both countries as there is no difficulty in settling anywhere, the former as a result of the latter, as well as the special relation mentioned in the treaties of 1950 kept the trade situation in India’s favor". (Sharma).

As a consequence of the absence of competitive interdependence and unequal economic and financial exchanges, there is outflow of resources and capital flight. The presence of foreign capital, even if it brings technology in the beginning leads in the long run to the flight of a major part of the income through profit reparation and interest payments. In all, the consequence is that the majority of the populations have rare chances of being participants in the developmental process, causing more unemployment, poverty and social disintegration. Apart from these economic effects of the dependency, there are some political considerations having greater importance. They are related with the questions of national sovereignty and integrity. The bulk of such questions are raised when:

The distortions or shocks from outside caused by the inability to insulate the domestic economy manifest themselves in the budget, price and investment policies and several other adjustments including foreign exchange rates. This keeps the national economy always dancing to the tune of foreign instability and crisis, resulting in economic and social vulnerability. The effect of the East Asian crisis is a recent example.

B) Suppressing production, exchange and distribution creates international monopolies by local organizations. The country is deprived of the services of the local institutions that could play a crucial role during national crises.

The global system created to suit MNC interests is commercially motivated and is not sensitive to social responsibilities. Their powerful presence means that the role of the state in policy planning is weakened. Prices are raised and inequality is further promoted. Poverty and unemployment are widespread. Social and economic dualism becomes the most burning problem causing civil unrest and legitimization crisis threatening to destroy poor people’s chances for survival.

The periphery economy thus is, first, pulled out of government control using deregulation and other tools of state minimalism, then the interest of various social groups are articulated to create social conflicts in the name of liberty, and eventually the country is pushed into the process of social disintegration as is found in Yugoslavia, Congo, Somalia, Rwanda and many other failed states.

Economically, in the long run, the country suffers from high profit repatriation and interest payments.

This is the political process that leads to over or excessive or absolute dependence of one economy on other economies. In the end, the society itself weakens the sovereign status of the nation, which lags far behind in fulfilling even the basic of constitutional obligations of the welfare state. Enormous problems crop up thereby further weakening the national order and national borders at a time when the need is for increasing the popular sovereignty. Election alone is not a sufficient mechanism to bring that about, as it neither helps the state, nor does it strengthen it, argues Robert D. Kaplan. He is quoted as saying: "Indeed, democracy initially weakens many states because it demands ineffectual compromises…a multi-party system is best suited to nations that already have an established bureaucracy and a middle class paying income taxes and where the main issues of property and power sharing have been resolved." The state appears to have lost its importance for Nepalese policymakers with the initiation of the eighth plan. A major transformation of the economy was initiated which "contradicts the rhetoric being produced at the same time in favor of democracy, transparency and efficiency". Following these steps can recapture the eluding national sovereignty:

Targeting programs to meet the demands made by the reproduction of the labor force, which implies a relatively complete and balanced development. Its implication is that local agriculture can be in a position to provide the basic ingredients of the reproduction of capital.

Control over the ownership of natural resources;

Assurance to national industries of local markets and the capacity to penetrate into the world markets in competitive conditions;

Regulation of the financial circuits making it possible to mobilize more surplus and direct it to productive uses; and

Use of technologies for the development of productive forces.

Agreements for trade, aid and other financial transactions, including profit repatriation and interest payments to economic partners, have forced Nepal to accept various conditions which all work to affect her decision making power to regulate her economy and society adversely. The budget, price and investment policy together with other servile policy strategies is highly vulnerable to policy decisions taken by India and other developed countries. We are, of course, facing n unstable and a repressed economic order imposed upon us though our market friendly measures. The free but unfair trade regime that we have been banking upon while adopting such measures are working only in favor of competing economies. The country itself finds haunted by the loss of sovereign power at the national level and of economic power at the local level. Something has to be done to strike a balance between national interest and global requirements.

National identity and patriotism, if lost, will lead to the loss of the sovereignty of the people embedded in the Constitution. The Nepalese people, policy makers and all other relevant stakeholders need to ask themselves some questions during such a crisis: Are we on the right track in setting the legitimate goals envisaged in the Constitution -the goals of democracy, human rights and social justice? Or are we losing the social conscience and making the majority of the people victims of the system by curtailing their sovereign right to "liberty, equality and prosperity"? Grasping the meaning of sovereignty requires a people to transform themselves into the public, establish their own prerogatives, and get them their aspirations reflected in their national system. An inclusive democracy requires social, political and economic empowerment of the poor, the Dalits and the women who in many countries hold the key to social transformations and who give the popular dimension to the political system that can override class, caste, gender and hegemonic interests for the benefit of popular national reconstruction.

(Text courtesy: From the book "The Institutionalization of Democratic Polity in Nepal published by P.N.Campus. Pokhara and edited by Khadga K.C.)-Chief editor

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