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Freedom for Innovation

The collection of quotes from micro blogging for condolences on the death of Steve Jobs as published in the article of Wall Street Journal “China Frets: Innovators Stymied Here” depicts why democracy and freedom are important for innovation. Some of the quotes are below: .................................. # In a society with an authoritarian political system, monopolistic business environment, backward-looking culture and prevalent technology theft, talking about a master of innovation? Not a chance! Don't even think about it.
# China may be the manufacturer of the world, but many are frustrated that Chinese companies are better at knocking off others' original work than coming up with innovative ideas. “If Apple is a fruit on a tree, its branches are the freedom to think and create, and its root is constitutional democracy. An authoritarian nation may be able to build huge projects collectively but will never be able to produce science and technology giants."
# "And its trunk is a society whose legal system acknowledges the value of intellectual property."

Power of Economic Growth Rate

Yesterday attended a consultation program on Nepal Economic Growth Agenda (NEGA) 2012 organized by http://www.samriddhi.org/. It highly appreciable work and I found it a visionary step to advice government about growth agendas. I would like to add why growth agenda matters.

A simple approach to explain the importance of growth is the power of growth rate. Small difference in economic growth rates between countries can result in very different standards of living for their people in the long run. Thus, it necessary to think about economic growth issues of Nepal.

A growth rate of 3 percent per annum leads to a doubling of GDP within 24 years, whilst a growth rate of 8% per annum (say, China and India between 2000 and 2010) leads to a doubling of GDP within 10 years. This depicts the fact that how does a number matters. It also illustrates that how quality of life of people of Nepal is lagging behind people of India and China.

This is explained in the table of Power of Economic Growth Rate. Here is a hypothetical GDP of 1000 unit in 2010. It is calculated that how many years it require to double the GDP. The growth rate, 4 %, is the average economic growth rate of Nepal since 2001 to 2010.

Is Government Planning to Make Poor to Less Poor and Richer to Poor?

Nepal adopted liberal economic policies since mid eighties. A policy has worked a lot in Nepal. Despite this fact some anti-liberal politicians and economists blame that liberal policy under-developed a country.

However, after the liberal policy, it is observed that poor are becoming rich and rich are becoming more rich. Living standard of people has changed dramatically. Many industries have grown up rapidly and it has increased the access to internet, mobile phones, even in the education, televisions channels, newspapers, FM radios, shopping malls, residential appartments, cheap clothes, durables like T.V., refrigerators, kitchen wares and so on. If one do not belives then s/he can check the statistics of all these thing of mid-eighties and present. All these things are available to people because we (knowingly or unknowingly) liberalized the economy. People have access to all these goods and services because of not the government but market has provided to people.

Actually, the reason for underdevelopmet of Nepal is that private sector could not work well due to the long political turmoil. Still, there is dismal chances for free market to work because of workers-entreprenuers relation is not favourable for investment and present government has been failed to develop the confidence of domistic investors.

In free market system, we have freedom to earn. Some politicians are jelous to the business persons' and entrepreneurs earning. They blame that few people have controlled all the business in Nepal. This might be one of many facts of undervelopment. As politicians are not a entreprenuers, they are myophic to observe that there are thousands of other businesses, which are yet to be explored.

Some people who like strong government control in the economy even do not like the government services of government owned institutions like Nepal Oil Corporation (NOC), Nepal Airlines Corporation (NAC) etc. I had seen many of them staying in the long line for petrols. The petroleum market is controled by government. As we find they are choosing private airlines services like Buddha/Yeti instead NAC.

Even in free market government has tax and expenditure instruments to save poor. Here, In Nepal most of us think only about distribution. But, distribution without growth is meaning less. First, let us grow and then distribute a part of it. " if any people want to invest and earn money by employing people voluntarily then it is not wise to intreven in their business. Let them to serve people through their business and allow them for business under law and with strong quality control and consumer rights. This can rise living standard of people and develop Nepal. However, the current government has been unable to use the thrust of private sectors and making people of Nepal "Poor to less poor and Richer to Poor". Let us think on it.
[ In nutshell, {(100+5)+(1000-500)}, the government is adding 5 decreasing 500. How much it contributs to growth?]

Changing Relative Prices in Nepal

The figure shows that how do relative prices of commodities are changing over the period in Nepal. The relative prices are taken as the ratio of price index of respective commodity to overall consumer price index (CPI) of Nepal. It shows relative price of cloth is decreased and energy is highly increased.

Liberalization is Most

Word matters most. Future of Nepal's economic policy depend on its constitution. Why lawmakers do not want the word "liberalization" in constitution? It discouraged the investors. "The Federation of Nepalese Chamber of Commerce and Industry (FNCCI) is angry because the Act does not mention liberalization in the preamble." This is because of fact that various lawmakers have various interpretation of regulation. A group of lawmakers think regulation means active participation of the government, other group interprets regulation is only for increasing the efficiency of the market through curbing its negative externalities. Policy confusion is harmful to investment and economy as a whole. It is good if regulation is defined to the extent to promote competition and cure monopolies and inefficiencies of the market. However, if it goes beyond the extent then it is harmful to Nepal. Therefore, it is necessary to understand history and governments role in economy.

Government is not a creator of wealth, but, only inefficient distributor of wealth. It receives income from one who work and provides it to those who are lazy and inefficient like lawmakers. Even though government tries to create wealth, it is remains inefficient in it. We can take examples of Nepal Electricity Authority, Nepal Oil Co., Nepal Airlines, Nepal Food Co. etc. We compare these with private organizations, which are more efficient in creating employment, consumption and services to Nepali people. Government has provided only 3 percent employment and remaining 97 percent are either unemployed, self employed, or work at private organizations. If private companies are able to increase employment and consumption, why we need government in commercial activities.

Many anti-liberal economist blame liberalization for the current economic crisis. However, they have forget sixty years' benefit of liberalization. Otherwise there might be no innovations and benefits like internet, air services, communications, T.V., computers, news agencies, ATMs and ABBS of banks, etc. etc.

If we observe from production, consumption and welfare side, liberalization has done a lot. In spite of these benefits, why people expect very much from government? Why our lawmakers are against liberalization? Development is an outcome of freedom in thinking, freedom to work, freedom to earn, freedom to express, freedom to innovate. All these are in liberalization.

In Nepal, knowingly, unknowingly or either due to circumstances of BoP crisis Dr. Lohani has done a good job during mid 1980s i.e., liberalization.

Therefore, dear government you are not capable in your work i.e., maintaining law and order. You specialized yourself in your field. Don´t come in the business and economy. People want democracy and freedom. We work, we consume, we save, we pay you tax for maintaining national security, law and order. But, do not want to pay for your inefficiencies.

Tax Payers' Question ?

Despite various inefficiencies, government still want to be active in commercial and business activities in Nepal. However, quesition arises why to contribute our everyday meal for inefficient business?

There is an article which rightly advocates in favor of taxpayers right. Why should the tax payers’ money of a poor nation like Nepal be spent to pay the huge losses of Janakpur Cigarette Factory, that of all the commodities produces cigarettes, can’t compete with its private sector rivals?

Whatever few PEs are making, profits are because they enjoy virtual or actual monopoly markets and not because they are efficient. For instance, despite its poor services Nepal Telecom Ltd (NTL) earns a huge profit, simply because its competitors are too small and too new to challenge its domination in the lucrative market. Other monopolists like Nepal Electricity Authority and Nepal Oil Corporation that enjoy huge captive markets are not as lucky as NTL; with chronic ills like oversized structure, swollen staff, wasted resources, high leakage in operation and corruption their financial health is very poor. The condition of other PEs too, is not very different.

Economic Lesson from An Illegal Call Bypass in Nepal

Today's Editorial of Myrepublica raised legal issue regarding call bypassing. However, it is unable to analyze its core causes, which are economic. Though it is illegal, why call bypass is in huge volume in Nepal. Call bypassers provide services at low price. There is only one alternative to eliminate the call bypass, that is to adopt advance technology and reduce international call prices. Government cannot compete with these call bypassers who use advance technology and provide services at low price. Using police force and legal action to compete with advanced technology is ridiculous and waste of resources.

The lesson to the government is to learn from call bypass technology, lower taxes, and price of calls. Low taxes and price also increases government revenue because call hours increases as call price decreases. And, increase in call hours increases revenue. It is in the favor of welfare of the people. They can talk more hours about their business and their relatives as well. In nutsell, the solution of the problem is to lower tax, increase competition and adopt technology. Let us take it as a lesson for our advancement.

Nepal Loosing Global Competitiveness

Figure depicts the trend of real effective exchange rate (REER) index of Nepal. Since 2001, as REER of Nepal is appreciating, we are losing competitiveness in global trade. The formula used to calculate REER is REERt = Summation[TWit * { Eit*(Pit/Pitf)}]. Where, i stands for ith trade partner of Nepal and t denotes year, P domestic price level, Pf foreign price, TW is trade weight. REER has been constructed by using data of exchange rate of Nepali Rupees with two currencies, IC and US$. Moreover, here exchange rate is calculated as price of domestic currency in terms of foreign currency. Two currencies are used to construct REER because India is Nepal’s largest trade partner, about 70 percent trade is with India, and remaining trade occurs almost in US$. In addition, except a few countries Nepal's trade with other countries is insignificant; there is no long period time series data of trade with all countries.

US$ and Indian Rupees Exchange Rate

Long run trend of US$ rate vis-a-vis to indian currency (in nominal term) shows that indian rupee is appreciating over the year. As there is fixed exchange rate in between Nepali currency and Indian Currency, it may lead to appreciation of Nepali currency as well. Appreciation of Nepali currency adversly affects Nepali export and economy as a whole.

Importance of Economic Freedom to Development

Economic freedom is one of most important factors of economic growth and development. Here is a good piece of article on economic freedom and its linkage with development by professor BISHWAMBHER PYAKURYAL . He concludes,"... ... ... if someone tries to examine the impact of Nepal’s ailing democracy on economic growth, one can safely say that it is not the redistributive policies of the governments that limit development but the lack of economic freedom."

Volatility of Inter-Bank Rate in Nepal

Higher the interest rates higher its volatility. The figures show monthly inter-bank rate and its volatility of Nepali banks. After 2009, as a result of fall in banks liquidity inter-bank rate significantly increased in Nepal. During the period its volatility, measured by GARCH Model, also increased significantly. It indicates that higher interest rate also leads to higher volatility.

Congratulation

Congratulation to Peter A. Diamond, Dale T. Mortensen and Christopher A. Pissarides, Nobel Prize winners of 2010 in Economic Sciences "for their analysis of markets with search frictions".

Economic Optimism in Nepal

The figure shows a long run trend of economic growth rate of Nepal. Estimated trend line indicates that despite political chaos there is still some economic optimism in the country.

Importance of Economics

There is economics subject in high school courses in Nepal. However, it is optional subject. One who studies economics, he must sacrifice optional mathematics in school. Therefore, most of the high school students, especially talent one, do not choose economics as their optional subject. Similarly, it is not an important subject in higher education as well.

But, economics is the study of mankind in their ordinary business life. It is important to all as presented by Greg Mankiw, Harvard Professor in the New York Times.

Satellite is Used to Forecast Production and Sales

As part of a growing trend among hedge funds, surveillance is being used to gather market-moving information. It is early warning or information system about the performance of the business. There are two surprising facts about how production and business performance can be forecasted.

First, on August 6, 2010 Russian government announced it was shutting down the grain exports because of production are going to decline in Russia.At the same time, Lanworth Inc. a private firm was ready to announce its forecast the food grain production in Russia. It informed its customers that it guessed the Russians would only be able to produce 45.6 million tons of wheat this year.

How they forecast the production of agricultural product? Satellite has been used to estimate the production of agricultural crops. An analytical firm Lanworth Inc. scrutinized satellite images of Russia to measure wheat production. “Using infrared and microwave images of the entire planet taken twice a day, Lanworth can distinguish between each type of corn, soybeans, wheat and on and on—and discover the total number of acres of each planted overall. Infrared images capture the chlorophyll in the plants, and microwave images pick up the degree of moisture in the crops.” It monitors the health of those acres over time; analysts can spot any changes that can affect supply of commodities in the markets: diseases, floods, fires and other agricultural calamities.

Second, by counting the cars in Wal-Mart’s parking lots month in and month out, ‘Remote Sensing Metrics’ analysts were able to get a fix on the company’s customer flow. From there, they worked up a mathematical regression to come up with a prediction of the company’s quarterly revenue each month.

Details can found Here & Here

Public Vs Private Enterprises

Most of the public enterprises (PEs) are burden to the government as well as to tax payer. However, there is no radical recommendation to government by Commission for Review of Government Budget Management and Expenditure System to correct the inefficient system of PEs. If private sector is able to provide the services, then we don’t need PEs. There is no hire and fire system in Nepal, it is making performance of PEs very much ineffective. Because, once worker or staffs are hired, it becomes long term liabilities for the PEs. They must be paid even there is no production. In addition, they demand bonus even PE is in loss. As an example, we recently saw a case in Nepal Oil Corporation (NOC), where staffs are found to think themselves as a proprietor of the NOC. They were demanding bonus even NOC is in loss. Similar problems are found in other PEs as well.

Therefore, there is only one alternative of PEs that is to make long term strategy to liquidate them and encourage private sector. Problem in liquidation arises only from one side that is from incumbent staffs and workers. There is also a solution for it. The existing capable staffs can be transferred to government sector. For example, dairy development corporation (DDC) can be liquidated and its staffs can be transferred to "Gunastar tatha Naap Taul Bivag" (Quality Control Authority) of government, where they can play a crucial role for regulation and monetoring the dairy industry. Similar procedure can be applied to other PEs like NOC, Sajha etc. Government should have a regulatory role, instead to participate in the commerce.

Private sector growth is the people's growth.Private business are the people's business.If one want to serve people with an expectation to earn profit then there is no reason for the government to block their business. Let us give a chance to private sectors in petroleum supply, electricity distribution, water supply etc. It is a key to development for Nepal. In Nepal, many private businesses performed well services. We can see the private sectors in various industries like internet services,telecommunication, banks, airlines which have good regulations of the government almost performed well in Nepal. Let us think out-of-the-box.

Market and Sports in Nepal

Market provides incentive and opportunity to capable people. It’s an example of "market is everything". However, in Nepal people expect from government, which is always an inefficient institution all over the world.

An example is here. National football player Sandip Rai has joined Mohammedan Sporting Club, Kolkata, a second division Indian football club. Rai, who had left for Kolkata with Sapan Das last week, signed with the club on Friday. Rai will get Rs 1.2 million for an eight-month contract. Rai who played for Three Star Club in the Martyrs Memorial League last season had signed with Manang Marshyangdi Club (MMC) about a month back for Rs 40,000 per month.

Rai has become the second Nepali footballer to play professional football in India in the last two years. Anil Gurung last season played professional football from Shillong Lajong, an I-League team of India. Gurung received Rs 6.3 millions for a three-year contract. His team has been relegated in the current season.

Unless there is economic growth in the country, sports also doesn’t grow. Expansion of the market spills over to the sports man and to the sports club. Moreover, the sport events also get sponsors. It expands opportunities for the players. Let us expect from market rather than from government.

Easy View of Debt of Greece, Spain and Portugal

View debt of Greece, Spain and Portugal

Analysis of Business for Succesful Entrepreneurs

SLEPT analysis is a method of scanning the external environment in the business. SLEPT is termed a Social, Legal, Economic, Political and Technological analysis of the business environment. A best analysis and forecast is key to business success.