Our leaders have always dreamed of making Nepal rich and prosperous but they have stopped at that. The first of such leaders was late King Mahendra who saw a similarity between Nepal and Switzerland except that Nepal wasn’t that prosperous but he thought Nepal was capable of becoming so. The next leader was late KP Bhattarai who looked closer for evidence of prosperity—Singapore. During recent times, PM Baburam Bhattarai and UCPN (Maoist) Chairman Prachand have expressed optimism about bringing prosperity to Nepal but haven’t elaborated on how.
With repeated failures over 50 years of nudging the Nepali economy off its traditional moorings, it is apparent why we do not believe our leaders who continue to make outlandish promises of prosperity tomorrow. Of course, we have built some roads, improved communications, opened schools and health clinics but there is no evidence that, as a nation, we are more prosperous today than some generations ago.
However, the truth is that there is no need for us, as a nation, to be stuck in unending poverty and growing despondency. We just need to find someone—one Mr. Ten Percent—to pull us out of this rut!
What, then, is this ten percent? And why is this so important for prosperity? In short, this is called economic growth—steady increases in the supply of goods and services available to the population to a level that meets basic needs and gives hope for a better tomorrow.
Let us examine some relevant numbers, as they relate to Nepal and Singapore.
Some 50 years ago, until the early 1960s, Singapore was a bit richer than Nepal but not by much. At that time, per capita GDP—national output per person—had been estimated at US $100 for Nepal and US $500 for Singapore. The latest data for Nepal is about US $500 and for Singapore US $40,000 which, in terms of compounded growth, yields annual growth of 3.3 percent and 9.2 percent, respectively. This implies that a little less than three times growth differential has turned in to a huge amount of income differential, from just five times to 80 times in favor of Singapore.
The other significant point of this differential is to look at the data in real or inflation-adjusted term. With this adjustment, real income gain on a per capita basis comes down to be zero for Nepal while, for Singapore, this is 6 percent. A 6 percent growth doesn’t seem that huge—many countries have experienced it. However, the remarkable thing about Singapore—and also of other miracle economies in the region—is that this rate of growth has been sustained over half a century, a growth rate high enough to transform a poor country into a rich one in just one or two generations.
The significance of Singapore’s 6 percent growth over fifty years can be assessed in this way. A 6 percent growth in real income on a per capita basis means a doubling of real wage levels every 12 years and, over a 50-year period, this amount to about 20 times increase. Thus, for example, if an average Singapore worker was earning US $1 a day in 1960—about the actual level at that time—average daily wage in real terms would have risen to US $20 by 2010 and, adjusting for inflation, market wage today would be US $100. By comparison, average Nepali wage—just over US $1 a day today—has been about unchanged in purchasing power terms since the early 1960s!
Countries around the world have had different growth experiences over an extended period, some succeeding remarkably while others—and in a substantial majority—remaining stuck in the muck. Over the years, economists have developed varieties of models explaining economic growth or a lack of it but, in actual practice, these models have had little relevance and, in most cases, are completely misleading.
The earliest of these growth models postulated a direct relationship between investment and economic growth, meaning that money used for building factories, machines, and infrastructure enhances economic growth in a direct proportion. This growth model became the lynchpin of growth strategy for poor countries to be made rich by offers of foreign aid. The argument was that because poor countries had very little of their own savings and couldn’t invest enough to generate good growth, their savings should be supplanted by foreign aid until these countries had enough of their own savings.
However, this strategy failed miserably, in the sense that most of these countries either failed to develop or tracked backwards. This point is brought home in a remarkable study by former World Bank economist William Easterly titled The Illusive Quest for Growth, who makes this case with the example of Zambia. Easterly shows that, with the amount of foreign aid poured into Zambia, the country today “would be an industrialized country, with a per capita income of US $20,000, instead of its actual condition as one of the poorest countries in the world with a per capita income of US $600.”
I am not aware of similar studies done for Nepal assessing the effectiveness of foreign aid but there are strong indications that findings wouldn’t be too dissimilar to Zambia’s.
The quest for economic growth has gone on unabated but no consensus has yet emerged as to what creates growth miracles (of which there have been very few) and what causes growth disasters (of which there have been many). However, looking at the miracle cases, one inconvenient truth becomes quite apparent. Most or all of these countries had benefited from an unusual kind of leadership, spearheaded by one single person or one small group of committed individuals.
The well-known examples are of the Asian Tiger countries, all of whom were led—during their formative years—by charismatic men of very different backgrounds and persuasions except of one common thread that bound them together and distinguished them from other dictatorship and strongman rule.
Their singular mission was the building of economic muscles of their countries by keeping at bay all types of distractions and impediments that could derail economic growth. Although such strongman-rule was condemned and abhorred by outsiders, people under their rule cared little about what they heard. They were happy seeing their countries gain economic clout and amenities of life become accessible to everyone. In short, the rapid and sustained pace of growth provided common glue that bound rulers and ruled together, in a sort of amicable alliance. .
The next question then is: What did these leaders do to launch such historic transition—transforming their agrarian and backward societies into industrialized and dynamic ones? The short answer would be this: All of them helped change the traditional culture built around personal favors and traditional privileges, to the one that rewarded productive work and encouraged creativity. They build institutions to oversee this new economic culture and staffed them with people who were given clear guidelines to measure success and bestow state favors accordingly. Strong enforcement of rules and regulations created an environment of trust in government decision-making that reduced business uncertainties and helped them plan for the long-term.
It is difficult to conceive of economic growth and prosperity happening without bringing this sort of social transformation—a change of society and of its culture. This theme was highlighted in one recent contribution to The Wall Street Journal, titled: ‘Culture has a lot to do with wealth and well-being’. Unfortunately, this kind of change is unlikely to materialize in the absence of charismatic and visionary leadership.