Rent seeking behaviors in Nepalese Society

Prof Shoora beer Paudyal T.U

Economists termed rent to any earning of capital, land and labor beyond what is required to bring forth their services into the economic activities. It is, therefore, surplus earnings of the factors of production over and above their normal earnings. Economic rent or rent was initially invented to give special treatment to the distinctive inputs but later its coverage extended to a wide range of tactor utilization and turned out to be one of the major economic activities. Today, rent seeking is a universal phenomena and Nepal is not exception to this rule. People both in business and government seek rent so as to earn more. However, the rent seeking was found costly or harmful to the economic growth of the developing countries incurring the additional social costs.

Krueger Model

Krueger Model is the simple model to explain the effects of the competitive rent seeking upon production, trade, and welfare. The essence of the Krueger’s Model is rent seeking behavior leads to increase in the welfare cost in the society. In other words, competition for rent seeking adds additional cost to the welfare cost, hence, it is wastage.

Rent Seeking in Nepalese Society

Krueger Model of rent seeking may hold-good partially in our case partly because of its assumptions*. However, it laid the theoretical foundation of the rent seeking behaviour and is relevant to understand the concept of the rent seeking behaviour in a country like Nepal.

Nepal is labour surplus economy, and hence the transfer of the surplus labour from the agriculture sector to the distribution sector will not affect the production of the food in the economy. However, this transfer can bring a rise in the MPP-Marginal Physical Productivity- of the agricultural workers from the zero level or even negative and thereby a rise in the wage rate. The decreased of the supply of landless workers in the rural areas can be witnessed and wage level in the agriculture sector rose as compared to a decade back. The production of the some of the farm households is affected by the absence of able working hands in the family. It is not so far estimated the loss in the GDP due to the absence of the able workers in the economy. However, such absence of the able workers is largely due to the security reasons. Joblessness, insecurity, wage differentials and so on are the major pushing factors from the agriculture sector in rural areas to the tertiary sector in the urban areas. Because of the high wage differentials between agriculture sector and urban tertiary sector, the movement of the people from rural agriculture sector to urban distribution sector will seem to continue even in the long run unless cottage industry, tourism and so on are developed in the rural areas. However, this outflow of the people from agricultural sector has not reduced the quantity of the imports and distribution of the consumption goods in the society since the agricultural households are benefited from the remittances. If we could net out the effects of the remittance income in the agriculture sector, the effects of the transfer of the workers from the agricultural sector to the distribution sector on the production of the food and thereby on the import demand for the consumption goods can be roughly estimated. Because of the high population growth and so on, Nepal is no more food exporter country and hence its effects on the imports of the consumption goods, if any, may be negligible.

Rent seeking activities are very common in the country. However, Nepal passed through the various political systems during the last 200 years and accordingly the gravity and areas of rent seeking shifted to and fro. Historically, some people sought the rent from the time of immemorial and likely came into existence with the origin of the state. Under the absolute monarchy of old days before the unification of Nepal as a kingdom there were some evidences of the corruption. Prithivi Narayan Shah, the founder king of the country, articulately put both type of people accepting and supplying bribe in same basket and labeled them as the biggest criminals. Before 1951, Rana autocracy ruled Nepal for 104 years and kept the country aloof from the rest of world. During the period, economic activities confined largely to the agriculture and to the limited trading of commodities of daily consumption and other goods. The government job-holders hold prestigious position in the society as compared to other people and the people put many efforts to seek the government jobs. The rich people sent their kids to India for education and after they returned home with earned degree sought job in government offices. The successful candidates experienced a large windfall gain although relatively limited people accepted bribe during the Rana rule. The traders with permission supplying rations and stationary for government offices enjoyed both profit and prestige in the society. Therefore, people having the linkage with government people in one way or another way earned higher rent in the society. With the inception of democracy in 1951, the country entered into the era of opening its border to the outside world. Various governments came and went for about eight years; and in the end government of Nepali congress ruled for 18 months. The people linked with the political parties in the government, their relatives and friends enjoyed the rent together with the people in bureaucracy and business. During the Panchayati rule, the people associated with the government and in Hong Kong-Bangkok trade earned a great amount of rent over the earnings of common people in agriculture sector. The people seeking rent were around the corner of the society and even party leaders and workers entered into the Panchayati polity seeking rent. During this period, Nepal passed through various trade regimes virtually adopting inward trade policy, which one way or others aimed to restrict imports and promote exports. The restrictions on the imports help to flourish the rent seeking activities among the people both in business and in government. The competition among rent seeking people to get import licenses became fierce. The people in seeking import licenses bribed the government officials and earned rent in distribution of daily consumers’ goods. The people not only in business but also in investment persuaded, flattered and bribed the government people to get license for the establishment of factories in the country. Besides, some people were employed in the smuggling and black marketing of commodities of daily consumption to and from open border between Nepal and India and in stealing of idols and other valuable things from temple, historic monuments and cultural heritage. The control of government over the economic activities was relatively higher during the Panchayati rule, which was obviously the direct rule of the king and hence, the people seeking rent earned much and the number of the people luring to enter into this sector increased.

With the restoration of multiparty democracy in 1989 after 30 years rule of Panchayati, the people seeking rent rushed to the party offices and their governments and crowded out the common peoples interest at large. Various governments ruled and left one after another but democratic values and institutions could not be established and instead politician initiated corruption and malpractice became rampant. The fast growing population supplied a large number of youth, both educated and uneducated into the labour market looking for jobs every year. The supply of labour mismatched with that of demand for it in formal sector and informal sector. Only a few vacant jobs were left behind for them by the retired old people in the government sector and a few additional jobs were created in private sector. Agriculture sector has no capacity to adjust such an over flooded labour force in it. This forced a large number of youth to join the big party politics, which tuned later into rent seekers. During the rule of their party government, these people earned a large amount of rent. Therefore, the number of rent seekers increased tremendously after the restoration of multiparty system. With the increased number of people in the rent-seeking sector, the rent seekers made strength in numbers leading to increasing returns to aggregate rent-seeking technology Murphy, 1993; 409). It is because of the probability of any one of them getting caught in corruption or malpractice was least. Moreover, in a country like Nepal where politician directly initiated and promoted rent seeking technologies through mafia agents, cadres and big business houses exist, the chance of being caught in corruption was further slim leading to further increased in returns of the rent seeking technology?

The party governments in the past no doubt have promoted rent-sinking technologies not only in business and government offices but also in corporations and university offices. The people could not get an appointment in the government and university offices on the basis of merit but of favoritism of party leaders and ministers. Even the promotion, transfers, trainings of appointed people in the government and university posts suffered from such nepotism and favoritism of political party in the government. A large number of party workers from ruling party worked as the middle men for bribe and engaged in rent seeking activities and earned a large amount of rent even in university offices. The government people were largely benefited from the under table payments in the country. Public servants competed to get transfer to the offices where such under-table payments and extra income were sufficiently large enough such as in custom offices, tax offices, and other revenue collection offices and so on. So far the estimation of loss of government revenue due to the under valuation of goods in the customs and tax offices is not carried out in Nepal. Even the ruling party charged the politicians indirectly for their appointments from the government to the public posts such as ambassadors, auditors, attorney general, GM and chairperson of corporation and so on. Big business houses seeking favoritism of the party government funded a large amount in election of the party candidates. The government under the influences of such business people made several decisions, which hampered the interest of common people and economic growth of the country at large.

Conclusion

Generally speaking, corruption is a rule in government offices and every government employee is rent seeker in Nepal. Lack of transparency in workings of the government, absence of decentralization of the power, poor laws combined with corrupt legal system and so on have been helping the increasing returns of rent seeking technologies attracting more and more people to this sector in the country. This resulted in more competition in entering into the sector on the one hand and in innovation of new technologies of rent seeking on the other. This is very harmful to the growth of economy leading to failed nation. A rough guess of government revenue loss due to the operation of all types of corruption and malpractice accounted for more than 50 percent of GDP ever year in the country. Besides, the loss in growth due to disincentive generated by the rent seeker government to the innovating activities in the country is alarming. Efforts of the Commission for Investigation of Abuse of Authority (CIAA) to punishing corrupted people in government are just a point of start with little hope in future.

[Excerpts only, *Economic Journal of Development Issues, V4N2, Page100 –Ed]

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