Nepali business leaders must urgently construct a new narrative for the private sector that offers an alternative path to shared prosperity for all and, in the process, helps restore confidence of ordinary Nepalis in government institutions.

Fading relevance

The “Ease of Doing Business,” a widely quoted index developed by the World Bank that measures the regulatory environment for businesses and the strength of private property rights, tells only half the story. To complete the story, the other half must look into the relevance of private sector businesses. A lousy rating on the index means nothing if the private sector is irrelevant in the first place.

Long before the pandemic, the relevance of private businesses in Nepal was eroding. Nepalis were singularly and overwhelming reliant on the government for social services, employment, investments, security, growth—just about everything. Buoyed by revenues from consumption taxes and generous donor assistance, the government’s growing balance sheet was crowding out private investments. This only reinforced public reliance on government.

In Nepal, the underlying justification for private property, enterprise, and business success increasingly derives not from fundamental rights enshrined in the constitution, but from government entitlements. Entitlements can be a government-granted contract, right, privilege, dispensation, or property. They are different from rules and policies, as they are one-off and zero-sum. One-off because they are not routinely provided. Zero-sum because if someone gets that entitlement, no one else can.

When the justification for private sector stems from an undeniable, fundamental constitutional right to property, enterprise and employment, the government is forced to develop regulations and policies that create a rule-based economy.

Nepal’s private sector, unfortunately, has allowed its existence to be justified by government entitlements. As a result, Nepal is transforming rapidly from a rule-based to an entitlement-based economy.

Nepal’s business associations have failed to respond. First, they are too fractured, making it extremely difficult to converge on any meaningful agenda of change. Second, they have remained extremely myopic, focusing narrowly on short-term tax adjustments, government spending, and subsidies. They have done little to identify, build consensus, and motivate more important and deeper structural changes.

Nepal’s Ease of Doing Business index never radically improves as there is no real demand or genuine internal pressure to improve the ease of doing business.

Business responsibility

Should Nepali businesses have broader social, political, and economic responsibilities even as they seek to deliver profits?

In Nepal, continued failure of successive governments is eroding people’s confidence in the State. Corruption is endemic, sanctioned by the State and executed with impunity. Other State institutions—for example, the army, the president, the judiciary—are being equally discredited. They appear to have little ability (or interest) to stem the decline in governance or restore public confidence. This absence of institutional, legal, or moral accountability in governance is reducing people’s confidence, trust, and legitimacy in State institutions.

Nepali businesses have the power to reverse this decline. They must lead the responsibility to restore people’s confidence in government and State institutions.

Business narrative

Nepali businesses must craft a new narrative with action towards two goals. One, enhance political governance. Two, restore people’s confidence in the political, social, and economic institutions of the State. There are many options for such a narrative. Here is one simple suggestion.  

The Political. All large businesses, and business leaders, voluntarily provide annual audited statements disclosing how much of the firm’s revenues, including individual wealth of owners, resulted from government entitlements.

The Social. All large businesses voluntarily conduct and disclose annual social audits measuring the human development indicators (e.g., access to education, health, sanitation, empowerment, environmental impact, inclusion, and upward economic mobility) across all employees and supply chain partners.

The Economic. All large businesses voluntarily agree to ensure that at least 70 percent of their supply chain comes from non-related businesses not owned by friends, family, or associates (preferably small and medium enterprises, or women-led). Further, large businesses voluntarily agree to structure these supply chain arrangements into long-term bankable contracts which could then serve as collateral to raise investments for new firms or grow existing ones.

Of course, businesses could do nothing and retain the status quo of the entitlement economy. But remember this: in an entitlement economy, what the government giveth, the government can taketh. In many corners of Nepal, the fires of a second-generation revolution have begun to be lit. Businesses are directly in that line of fire.  

[email protected]