Flawed agency relationship

  • Increase in remittance has for now partly solved the issues of employment and balance of payment
- Prakash Chandra Lohani
If unemployed, frustrated youths had remained in the country, it would have certainly reflected in political tensions and social upheavals that would have posed an existential threat to the political elites

Jan 29, 2016-In an agency framework to analyse politics, the elected leaders could be viewed as the agents and the people as the principals. Between the agents and the principals is the bureaucracy that acts as the intermediary. The bureaucracy gives content to the idea of the state and serves as an important link between the aspirations of the people and the response of the national polity. In this conceptualisation, the efficiency and effectiveness of the intermediary becomes the crucial element for stability as well as for change.

The intermediary

Normally it is believed that the bureaucracy has the expertise as well as the resources to transform policies into implementable programmes. However, it cannot be effective if it does not have the support of the political leadership. The nature of this support has to recognise the autonomy of the bureaucracy and the need for resources required to carry out its tasks.

But the mission of the bureaucracy or the intermediary in this principal-agent relationship is not independent of the legitimacy of the political leadership and the objectives that it considers to be a primary concern. In a multiparty democracy, the question of legitimacy hinges on the formal process defined to shape the principle of constitutional equilibrium as well as the ability of the political system to deliver services roughly in line with the expectations of the people. In countries like Nepal that have claimed more than once that their constitution is “probably the best in the world”—promulgating a constitution is easier than implementing it. Even the “best” constitutions have not worked for us. The country had five different constitutions in the last 60 years and they all had been declared as being democratic and rooted in the realities of our nation. And yet they have failed.

Formally, we have all the ingredients for a legitimate agency relationship in politics: Periodic election and constitutional provisions to tame political masters and a Civil Service Commission to institutionalise a merit-based autonomous bureaucracy. And yet it is clear that just having a formally correct relationship is not enough. Basically we have a democracy that has been unable to deliver on its promises. The system so far has been neither liberal nor progressive. From a liberal perspective, the state has failed on its primary task of generating an atmosphere that allows individuals to exercise their creative abilities freely. Similarly from a progressive standpoint, the state has not been able to constrain the emergence of a new class of “robber barons” for whom not economic liberalisation but “liberalisation of corruption” has become the norm. However, a failed agency relationship in Nepal continues without any major upheaval so far primarily because of two elements: (a) remittances and (b) foreign aid.

The two elements

In Nepal the population shift from the rural areas to urban areas continues. Normally this should have been associated with industrialisation, urbanisation and a general increase in the productivity of labour. However, in our case the story is different. Agricultural productivity has remained virtually stagnant. Due to lack of employment opportunities in the non-agricultural sector,  the youth population, which should have been a “demographic dividend”, has become a burden. Thus, the exodus of the youths from rural areas has not been within the country. Most of the young rural labourers are joining the urban labour force outside of Nepal at a low wage and mostly in activities that do not need any skills. Cheap labour, which would have increased the country’s output if the investment environment was favourable, has been at the service of other countries. Thus, the oft-noted economic transformation observed in other developing countries—a shift from a low productive agricultural to a more productive industrial sector—has not taken place here. In fact, the contribution of manufacturing to the country’s GDP has declined over a decade, from ten percent to six percent. Industrial employment is scarce. Majority of new entrants to the labour force cannot find jobs inside the country and are, thus, forced to migrate abroad for employment. If these unemployed, frustrated youths had remained in the country, it would have certainly reflected in political tensions and social upheavals that would have posed an existential threat to the political elites. Then to survive, the political elites would have been forced to implement positive changes. But the availability of alternative employment opportunities abroad has allowed the continuation of an agency relationship that does not see the need for radical changes to improve service delivery to the people.

The increase in remittance has, for the time being, partly solved the issues of employment for the new entrants to the labour force and balance of payment. It has encouraged the growth of a consumption-orientated economy and a revenue base comprising mainly indirect taxes. With no pressure on the employment front and no immediate threat of a revenue crisis, political elites have been free to continue political experiments, using the bureaucracy (the intermediaries) for loot and plunder (bhagbanda culture) all in the name of people and democracy. 

The second element sustaining an unhealthy agency relationship in Nepal is foreign aid. This may seem surprising. Is foreign aid not necessary to supplement our low level of investment? Is the success of a finance minister in Nepal not measured by the amount of multilateral aid and bilateral generosity that he is able to acquire and manage? The answer is both yes and no. On the one hand, if the agency relationship sees foreign aid as a supplement to investments, a progressive decline in foreign aid is the route to development over time. On the other hand, if in the name of development, foreign aid becomes an unwitting ally for the maintenance of a regime geared to extract rents for the political elites, it can become a cause of failed development as well as indirect interference by international actors in the internal affairs of the state, as is happening in Nepal. 

Unless the political elites in Nepal become aware of the destructive nature of the agency relationship developing in the country, we are headed for more political instability and confusion. It will create a fertile ground for an increasing number of our young people leaving the country; it will also make us a basket-case nation, where poverty becomes the basis for our begging bowl for more foreign aid and with it more foreign counsel and intervention, all in the name of stability, development and people. 

Lohani is a senior leader of the Rastriya Prajatantra Party


Published: 29-01-2016 08:59

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