Views of a Nepali Economist

Corruption in Nepal: A symptom, not a disease

When the Corruption Perception Index was published by Transparency International recently, it reported that 33 percent of South Asians were made to pay bribes. Sixty two percent of South Asians believed that the corruption situation had gotten worse in the last three years. Unlike Bangladesh, where bribes are paid to “get” things done, people in Nepal, India, Pakistan and Sri Lanka pay bribes to “speed up” the process of getting things done.

The report highlighted the fact that political parties are the most distrusted institutions in Nepal. Around 54 percent of those surveyed mentioned the political parties as the most corrupt, followed by the legislature and the police. Many in Nepal took the report as a further proof of rampant corruption in Nepal. Many Nepali opinion pieces decried the phenomenon, and labeled ‘corruption’ as the disease plaguing Nepali developmental processes. And, therein, lays our biggest problem. We don’t seem to realize that corruption is not a disease, but merely a symptom.

Corruption is never ‘the’ problem or even the ‘root’ of the problem. We have to realize that rampant corruption is a symptom of dysfunctional state mechanisms, overregulation, uncontrollably large public service sector, and, in the case of Nepal, absence of strictly enforced rule of law. And, then, there’s our ever incorrect understanding of corruption being an absence of ethics. We need to realize that corruption is not so much an absence or lack of ethics but an absence of freedom, mostly economic freedom.

This lack of economic freedom is visible in all aspects of our Nepali lives. Corporations do not have the freedom to pursue their capitalistic pursuits in the best of possible ways because of intermittent disturbances from political or trade unions. Case in point is the recent closure of Surya Nepal’s garment unit in Biratnagar. Travel agencies do not have the freedom to operate their vehicles in popular tourist destinations due to threats from local syndicates. Case in point is the Pokhara—Jomsom route where red-plated and green-plated vehicles are barred from making trips. These are, but, only two examples.

Both the above mentioned instances (examples) have aspects of corruption in them. The first one has political leaders becoming corrupt, and mismanaging their respective party-affiliated unions. Some people go one step further and accuse that the parties even fund and foster these unions for the very purpose. The second one has, again, political parties and their unions, favoring one group of travel entrepreneurs over another, with a healthy aid of corruption money.

However, we have to realize that corruption is only the symptom in both these examples. The underlying disease is the lack of enforcement of rule of law in punishing those involved in restricting the freedom of others for their own pursuit of wealth. Presence of weak rule of law in Nepal has meant that corruption is increasing, and informal market i.e. shadow economy is growing. A recent report by Nepal Economic Forum estimates that the informal economy of Nepal is worth anywhere from 40 to 50 percent of the GDP.

An additional disease that plagues us is the weak property rights law. Many of us lack the knowledge about processes of practicing our freedom over property rights. Even when we have had enough knowledge, the bureaucratic hurdle we have to go through to register our properties is, sometimes, a nightmare. On the other hand, there are people that engage in corrupt behavior to get more than they deserve. Case in point are the thousands of homeowners in Kathmandu valley that captured and profitably used public land for years, if not for decades, until they started getting taken down by the municipality in recent weeks.

Weak rule of law and weak property rights have meant that we do not have a very conducive environment for pursuing business opportunities.  The World Bank’s Doing Business report from this year reports that it takes, on average, 7 different procedures, 29 days, and around $241 to register a new business in Nepal. Even after ignoring the amount of money needed, the fact that it takes 7 different procedures and 29 days, on average, to register a business suggests that there are plenty of opportunities for our officials to engage in corrupt activities, from plain-old under-the-table money taking to rent-seeking.

One possible way to reduce such type of corruption is to reduce the number of steps and days needed to register a business. Until we achieve that, we will always have people shying away from opening a new business. How many entrepreneurs, each year, are we discouraging from opening a new business due to our poor Doing Business records? How many jobs could such entrepreneurs have created if we had a system that encouraged them to open businesses with relative ease? Our government, and our bureaucracy, needs to ponder over this issue while they discuss poor business environment in Nepal.

Perhaps we should try a solution that Indian economist Kaushik Basu has proposed. Let us make paying bribe legal but receiving bribe illegal. In addition, if a bribe-payer can provide evidence of paying a bribe, not only would the amount paid in bribes be reimbursed, but the bribe-payer (now considered a ‘whistle-blower’) would be rewarded with prize-money for exposing the corrupt official. Then, every potential bribe-taker would refrain from taking a bribe because it would be difficult to determine if the bribe-payer is a ‘normal’ bribe-payer or a whistle-blower. Kaushik Basu’s proposed idea might have some flaws of its own, but it’s worth a try in a region that Transparency International calls the ‘most corrupt’ in the world.