PART-I
Globalisation and Nepalese Economy
 

1. Perceptions on Globalisation

Globalisation is the most talked and debated issue in the contemporary world. However, it does not mean the same thing for all. For some, globalisation is a process of opening up economies so that trade between countries could take place freely. For them increasing globalisation has helped the expansion of opportunities for nations and benefited workers in rich and poor countries alike. Stopping the process would mean stalling economic and technological progress, which is tantamount to stopping the pace of time.

However, this is not readily acceptable for all. Many think globalisation as the concerted strategy of the industrial world, particularly of the Trans National Corporations, to safeguard their interest and spur a new form of colonisation. For them, globalisation means increasing poverty and deteriorating living standard of the workers, widening gap between the rich and the poor within the country and also among the countries, and internationalisation of capital to the detriment of labour market. Even for the moderates, globalisation is a process of restructuring the world economy to find ways for business to maximise profits. The process of restructuring is led by the Trans National Corporations, the governments of the industrial countries, and the international financial institutions for their own benefit.

Without falling into a definitional debate, by globalisation, we mean a process of increasing economic and non-economic linkages across the world. This process is taking place at a faster pace despite some hitches coming from the formulation of regional trading blocks and the financial crisis in the Asian and Latin American countries. In fact, deregulation, liberalisation, and privatisation, which connote globalisation, have become some of the catchwords in the development philosophy of the contemporary world.

Globalisation, in a wider perspective, covers, at least, four kinds of activities: (i) cultural globalisation; (ii) political globalisation; (iii) ecological globalisation; and (iv) economic globalisation. Although, they are not necessarily mutually exclusive, all the four elements are closely interwoven. All of these activities have challenged the effectiveness of domestic policy actions and called for co-ordinated efforts of the countries for solving the economic, political, cultural and environmental issues.

We find that cultural globalisation is taking place with the worldwide assimilation of cultural values through communication technologies, media, tourism, consumption patterns, and international exchange of ideas. There are, however, strong counter-movement trends to reinforce and preserve individual cultural identities.

Evolution of multiparty democracy, replacing both the rightist and leftist authoritarian rules, has been a feature of political globalisation. Establishment of the rule of law, good governance, protection of women's right to property, establishment of human right organisations, and promotion of decentralised approaches for empowering local government for better delivery of public goods are some of the attributes that globalisation has created.

We live in an ecologically risky society irrespective of whether we have actually contributed to any environmental degradation or not. Ecological globalisation is most obvious in the form of global warming and loss of bio-diversity. This is one area where global efforts are needed to promote specific laws, policies and programs for joint actions on environmental protection.

Economic globalisation implies increasing global inter-linkages of the markets in goods, services, capital and financing. Such a process has speeded up in the recent decade. The contributory factors for rapid economic globalisation are liberalisation, deregulation, privatisation, and declining costs of transport and communication. De-licensing, removal of quantitative restrictions, reduction in tariffs, and deregulation of foreign exchange are some of the measures, which have expedited the process of economic globalisation. In contrast, globalisation of the labour markets has so far been negligible, but adverse impacts on working masses have been visible.

Nepal is one of the least developed countries of the world with per capita income of 220 US dollars, the lowest in South Asia. The economy is historically growing at a rate of 5 per cent or less, population of the country is growing at a rate of 2.39 percent and therefore per capita income has grown by little over 2 percent. Besides, the country is beset with 42 percent of the population in absolute poverty and half of the labour force either underemployed or unemployed. The distribution of income and wealth is uneven with 10 percent of the households enjoying 53 percent of the national income and 6 percent of the households occupying 33 per cent of the agricultural land.

The unemployment situation is equally alarming. The labour force is growing at a rate of nearly 2.4 percent; and current output growth can create job opportunities for not more than half of the additional labour force. If gainful employment situation is considered, the unemployment rate goes as high as 14 percent. The existing employment elasticity of output growth is very low, somewhere around 0.4 implies that each 5 percent growth of the economy can create job opportunity for only 2 percent of the labour force. In such a situation, if unemployment and underemployment rates are to be reduced, either a significantly higher economic growth rate is required, or a highly labour intensive output growth strategy has to be adopted.

It is obvious that the present growth rate of not more than 5 percent in an average, against the population growth rate of 2.39 percent, would take some 24 years for per capita income to double. Such a slow growth in per capita income is very unlikely to reduce the intensity of absolute poverty clutching nearly half of the population. Unless the economic growth rate is reasonably high, alleviation of poverty and reduction of unemployment problem are very difficult to achieve. .

While talking about globalisation, we must understand that the national economy has not even internally integrated. Market institutions and forces are yet to emerge in a competitive way. Nearly half of the population lives in absolute poverty and illiteracy. More than 80 per cent of the population earns livelihood from agriculture, which, however, constitutes only 40 per cent of the country's national income. For want of proper planning process, commitment, accountability, and integrity of the government, and in lack of people's participation in development activities, forty years of planned development efforts have been little successful in their objectives, hence to solve the problems facing Nepalese people. In an attempt to globalized national economy, the government, elected after the restoration of multiparty democracy in 1990, moved for an open, liberal and private sector led economy. Trade, investment, foreign exchange, financial and industrial sectors were subsequently deregulated, de-licensed, and privatised. Although the euphoria brought about by economic liberalisation resulted in a satisfactory performance of the economy for a few years, the so-called success was soon over. Hasty liberalisation and improper sequencing of globalisation measures subsequently resulted in the slow down in industrial activities, low economic growth rate, and worsening income distribution.

Opening up the Nepalese economy to the global order in early 1990s created much room for foreign borrowing along with widening market for domestic products. As exports of the country went up by five folds, so did the foreign debt. From less than 37 per cent of the national income in 1990, foreign debt swelled up to 56 per cent in 1998. Part of the surge in debt is due to devaluation of the Nepalese rupee, somewhat wrongly exercised as a tool of export promotion following the outward orientation of the economy.

The transition from controlled to market oriented development policies dismantled the existing institutions without creating the market based ones. The vacuum in development strategy led not only to severe stagnation but also to a great deal of policy confusion. Now, those who once advocated economic liberalisation, privatisation, and globalisation with great enthusiasm are backing out. Implementation of value added tax resulted in confusion. Many of the privatised public enterprises did not deliver expected result. Also the report of the Auditor General pointed out the impropriety in the valuation of assets of the privatised enterprises. The failure of privatised enterprises to deliver expected result must have been an eye opener to those who think privatisation as the end rather than a means to attain broader economic goals. It is in this context that we have been insisting on selective privatisation to strike a balance between private sector development and state responsibility in uplifting the status of the population engulfed in absolute poverty.

If the experiences of East Asia, South Asia, China, Russia, and some of the Latin American countries are taken into consideration, a big bang approach to liberalisation often fails just because it dismantles all the existing institutions and safety nets without necessarily creating market based ones. And thus leaves off the weak and vulnerable class to the mercy of the market. But it has also to be realised that liberalisation has been a reality of the global development paradigm, and liberal economic policies tend to be a part of the multiparty political system we are exercising.

Thus the best option would be a gradual process of liberalisation and globalisation for the benefit of the country in terms of efficiency, adoption of new technology, inflow of capital, and market expansion. But it should not necessarily displace domestic entrepreneurs, domestic industrial bases, domestic savings and existing social safety nets. The process should be pulled towards the alleviation of poverty and towards the improvement of living standard of the working people.

Private sector implies market economy and market economy refers to the interaction of demand and supplies determining prices, competition and free entry and exit from the market. Our economy is assumed to be a mixed one, but there is confusion regarding the public-private mixture. It is reflected by the fact that economic liberalisation in Nepal has been applied in a direction to minimise the role of the public sector rather than to develop the private sector. For example, privatisation is based much on frustration generated by the inefficiency of state-owned enterprises rather than a hope for private sector efficiency. The past dominating role of government was basically due to:

1. Reluctance of the private sector

2. Inability of the private sector

3. Non-desirability of the private sector

In general, the private sector in Nepal has a trade-oriented character rather than an industrial character and hence it is reluctant to bear high risks. It seeks to harvest larger profits from a short period investment, often through small amount of share capital and big volume of institutional loans. Secondly, the private sector is in the form of family groups that has recently taken a shape of 'Business Houses'. While analysing these family groups and Business Houses, it is necessary to understand the domination of caste and ethnicity. In addition, the private sector in Nepal has the following character:

• Lack of professional managers

• Protection-habituated and low competitiveness

• Limited diversification

• Lack of transparency

• Cartel and syndication

The private sector in Nepal has to be analysed and evaluated on the basis of trade, industry, foreign investment, government deregulation and activities and the role of Big Business Houses.

Major problems in this regard can be categorised into three points:

• A choice is to be made between the underdeveloped private sector and inefficient public sector and hence terms like demand, price and supply have become a matter of secondary importance where there is 'no market' condition.

• Co-ordination between market and government is required instead of market versus government. In our case, the government is behaving not in harmony with the market and the underdeveloped private sector is trying to behave as the government.

• Problem of co-adjustment among the complicated factors like open border with India, tariffs and customs duties and the protection of national industries.

Naturally, the outcome of the privatisation of public enterprises in Nepal is frustrating as reflected in the report of the Auditor General:

• During the process of privatisation, the public enterprises were undervalued by 29.28% which has resulted into a loss of Rs. 250 millions

• Government has not collected a total amount of Rs.162 millions from the buyers, of which 50% is interest and fines.

• Up to now the government has acquired Rs. 721 millions from the privatisation of the 16 PEs, but 51% of this amount has gone as the privatisation expenditure.

Besides, the two study reports of ILO and DFID on privatisation in Nepal also confirm the blindness of the privatisation process in Nepal.

For a considerably long period, labour issues had been neglected in Nepal. However, gradual improvements continued in course of time. With the reestablishment of multiparty democracy in 1990, labour matters became important agenda. Formulation of laws, ratification of ILO Conventions, restructuring and redesigning labour administration, participation of trade unions in policy matters, beginning of tripartite consultations and action against unfair labour practices have been seriously taken into attention. It is interesting to note that labour policy matters in Nepal have come in the forefront with intensifying economic liberalisation and globalisation. Thus, within the short period of eight years (1990-1998), various improvements have been observed. In this process, social actors, other than the three social partners, also came in the forefront with their contributory roles.

The relevancy of the four categories of minimum wages has become outdated. Both employers' organisation and trade union confederations are of the view that there should be a single standard National Minimum Wage. In addition, trade unions are in favour of Sectoral Minimum Wages on top of the National Minimum Wage. However, the present enforcement mechanism of minimum wages is not satisfactory.

Exploitative working hours, unhealthy workplaces, occupational diseases, negligence in safety measures, harassment in workplaces including sexual harassment, nominal paid leave facilities, lack of child care centres, lack of incentives, and a number of unfavourable factors are predominant in our enterprises. The situation is even worse in the informal sectors of employment. Lack of awareness and the fear of job losses put psychological restrictions on workers. Still we are in the preliminary phase of awareness building. Existing mechanisms for implementation and monitoring are weak.

With regard to unfair labour practices, fortunately, all the actors have been responding positively and multidimensional activities are being undertaken against unfair labour practices.

As the political environment became open and inspiring after 1990, Labour Act 1992 incorporated sound legal provisions for the national tripartite consultative mechanism such as the provision of Central Labour Advisory Committee (CLAC). It should function as an advisory body and should provide recommendations for strategic purposes including the preparation and formulation of policies and laws in the field of labour. The second is the Labour Management Committee, which works at enterprise level to create mutual understanding and co-operation between management and workers. The Committee extends technical supports.

Another policy level achievement is the first historical Labour Conference and the Declaration of Labour Policy.

The basic problems are however associated with the effective implementation of the provisions of labour laws. Problems are also at policy level. Feudal norms and traditional values existing in the business and entrepreneurial sector are other major obstacles in this respect. It sounds that laws are enacted not for genuine implementation but for the avoidance of genuine demands and voices that are coming up from the workers concerning their rights and privileges. This South Asian tendency is quite visible in the context of Nepal as well.

Liberalisation, structural adjustment, and privatisation in the process of globalisation have had the following impacts on the field of labour:

1. With increasing liberalisation and globalisation, the employment opportunities for cheap labour became intensified in various countries. As a result, the export of labour became obligatory for the country like ours. Nepalese workers engaged in foreign employment abroad, in East Asia, South East Asia and Middle East are exemplary in this regard. This marks a distinct change in the area of employment, a shift from the long-practised military service to other sectors.
    

2. With the new Industrial Enterprise Act, protectionism in industry has been removed and foreign investment is permitted to act freely. Multi-National corporations have then entered in the investment independently as well as through Joint Ventures. On the surface, it seems that the employment opportunities are multiplied. In reality, it is not so, as the MNCS are capital intensive. It is evident if a comparative study is to make between MNCs and Nepalese industries; in the case of the former 1 employment per NRs. 500,000 has been created whereas other industries in Nepal create 1 employment per Rs. 90,000. Moreover, cottage and small-scale industries have created 1 employment per Rs. 10,000. Thus, from the employment point of view, MNCs are not much favourable, as they have indirectly contributed to the collapse of small industries resulting in more unemployment.

3. Competitiveness has, in the real sense, increased; skill and technological adjustment has become more essential to the workers. It has good impact on labour productivity. As exports have become extremely important with the introduction of economic liberalisation, the productivity issue has become a central point in recent economic activities.
    

4. With increased Indian investment, the use of Indian labour in manufacturing and service sectors has become more visible. One of the wrong perceptions within Nepali teritory that Nepalese labour is unskilled and less productive has resulted in the employment of Indian labour, to a large extent, keeping Nepali workers deprived of the potentials of employment. Indian labour has also snatched the opportunities of self-employment in urban and semi-urban areas.
    

5. As mentioned above, the privatisation policy, before and after the introduction of Privatisation Act 1993, has proved to be irrational. After privatisation, most of the privatised enterprises have not run efficiently, some have already been closed down. Although mass retrenchment is non-existent, slow group retrenchment has been observed. To look at the other side, in every enterprise in the public sector, industrial relation is under heavy stress – both at the pre-privatisation and post-privatisation stage. Other PEs, not in the list of immediate privatisation, have also faced conflicting industrial relation because of the fear of job losses and adverse psychology of employees.
    

6. In order to downsize the government, in spite of privatisation of PEs, a compulsory retirement to the government employees and the 'golden hand-shake' policy of voluntary retirement to the PE employees have been put forward. This has contributed to the loss of efficient and experienced employees. In addition, untimely retirement of experienced ones has resulted in the depressed psychology of the other working employees that now comes their turn to go. This fear of insecurity definitely results in unproductive and insincere engagement in the work. Ultimately, all this contributes to the mass of experienced-unemployed.
    

7. With the adoption of new policies of liberalisation and globalisation, informalisation of the formal sector has become intensified. Use of labour in contract, particularly the piece rate wages, has been popularised all over the world, also in Nepal in carpet industry. Subcontracting of work by exporting enterprises to small factories (mainly home-based and family-based factories) and subcontracting of labour in large and medium level factories are widely increasing. The proportion of permanent workers has gone sharply down in carpet industry. In order to cut labour costs, the subcontracting of work and of labour is gradually expanding to other sectors, such as garment, construction and hotel-restaurant services, particularly in security services.
    

8. State has now tried to escape off from various previous functions and to adopt the role of a facilitator. Therefore, bipartism has been given more emphasis, even in the tripartite forums. The government thus is trying to have a passive role in the name of neutrality.
    

9. In Nepal, the social security system is almost non-existent as it has a very limited coverage. The government is further cutting down social and welfare expenditures, including expenditures in education and public health sectors. This has an adverse effect on the working population leading to the intensification of child labour, commercial sexual exploitation of the working females and other types of unfair labour practices.
    

10. Although there are no Free Trade Zones or Export Promotion Zones, where normal labour laws do not come into effect, efforts have been in place to chase out unions from the labour market. Harassment to the union members and union leaders is frequently reported in various enterprises. In the policy level, there is no problem. However, in enterprises, the management tries its best not to have the presence of unions. Even in formal forums, the employers have been advocating for the right to 'hire and fire' and 'factory-closure ' as their human rights.
     

11. Women workers have been the first sufferers of globalisation in Nepal. Mostly, whether in formal or informal sectors, women workers are treated as marginal workers. Consequently, they have lost their jobs as an immediate effect. On the one hand, homebased sub contracting of work has started and thus a new avenue of women labour exploitation has been opened up. On the other hand, commercial - sexual exploitation of women, both within and outside the country, has also become an increasing phenomenon.
     

12. Because of the high unemployment rate in the country as a result of the Indian labour inflow, the enforcement of minimum wages has become extremely difficult. The fear of 'job loss' forces the workers to accept whatever is given. In such a case what is obvious is the wages lower than the minimum standard and inhumane working conditions.
     

13. It has an indirect effect on agricultural workforce as well. Because of liberalisation and the shift in policies, land reform has no longer remained a national agenda for the government. Whatever is said about land reform, as it is still a slogan of the government, neither follows a distributive nor productive spirit. Therefore, it has not been possible for the weaker sections of the Nepalese society to have access to land and natural resources. On the contrary, landlessness has increased, and thus the quality of life has sharply gone down. As a result, urban areas have become crowded with jobless masses.