Taxation or Robbery? Where to Draw the Line?
Taxation has been defined as “that part of the revenues of a state which is obtained by the compulsory dues and charges upon its subjects” by The Encyclopedia Britannica. In this definition, the word ‘compulsory’ definitely looms
What Business Does the Government Have In Controlling Businesses?
“It is the highest impertinence and presumption… in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense… They are themselves always, and without any exception, the greatest
In the Name of Capitalism: All’s Not Well!!
Sarah Palin’s speech earlier this month in Indianola, Iowa tore apart Washington’s political fraternity. While it may have left her presidential aspirations in a dicey situation, her speech attacked government officials and politicos who are getting wealthy
Citizen and State
China has come to be synonymous with words like communism and state control. The image of China is irrevocably one of a state with complete control over its citizens. And because of this overriding power of state the image of the country is, to a large extent the image of the State.
Liquor and Cigarettes – Reduce taxes
Governments around the world are strapped for cash. Finance ministers, find liquor and tobacco the easiest ‘sins’ to tax. Who can object? Cigarette and liquor companies should be glad they are allowed to exist and be happy that they are merely taxed. Right?
David and Goliath
What is common to Estonia and China? Estonia is in Europe, China is in Asia. Estonia is just a dot on the map, in China you could fit 212 Estonias. Estonia’s population of 1.5 million is 6.5% of Nepal’s. China has 1.3 billion people, 56 times that of Nepal. Estonia is a
Freedom and education
I went to St Columbus’s school in New Delhi in the 1970’s, and enjoyed it. The Irish missionaries who taught there were dedicated and made learning fun.
And yet as good as my school was, I remained uncomfortable with certain aspects of it. I studied science, maths and english by choice. Why was I forced to learn Hindi, Sanskrit and painting?
The government dictated to the school that I learn to write in Hindi, I have never done that again after I left school. I regarded Sanskrit as a waste of time; I have never written, spoken or heard it since I left school. Inspite of a great drawing teacher, I never passed that exam or had any inclination to be an artist.
My school’s attempt to make me a linguist and an artist failed. I wondered if there was a better option. A school where you could study and do as you liked. A school where you were not forced by control minded governments and school authorities to learn and do things you had no interest in.
Count Leo Tolstoy spoke about it in 1862.
“What is meant by non-interference of the school in learning? — It means granting students the full freedom to avail themselves of teaching that answers their needs, and that they want, only to the extent that they need and want it; and it means not forcing them to learn what they do not need or want.”
“I doubt, whether the kind of school I am discussing, will become common for another century. It is not likely that schools based on students’ freedom of choice will be established even a hundred years from now.”
Tolstoy was right. It was only a 106 years later, in 1968 that such a school was founded in Framingham, in Massachusetts, USA.
The by-laws of “The Sudbury Valley School’ say, “the purpose for which this corporation is formed is to establish and maintain a school for the education of members of the community that is founded upon the principle that learning is best fostered by self-motivation, self-regulation, and self-criticism.”
The school starts from Aristotle’s premise stated over 2000 years ago, “human beings are naturally curious”. It allows its students to do what they like. If you have no interest in science and would rather fish the whole day, you are allowed to do just that. In fact you may fish for a whole year if you like.
Before you write-off that experiment as unworkable, please understand that the school’s existence after 35 years of its founding is a testimonial to its success. It does not get or ask for any financial or other support from the government and competes exceptionally well with ‘free’ schools run by the government.
The students, teachers and parents are all fiercely loyal to the school and swear by it. The school has been written about extensively and is admired by freedom loving people worldwide. Those who pass out are admitted to the best US universities with ease.
It is beyond the scope of this article to explain how the school works. Suffice it to say that it is among the most disciplined in the country. Everyone’s rights are respected.
Yes, you may fish the whole day, but if you decide to attend classes you must honour your commitment. If, for example, you fix time with the maths teacher to help you understand a theorem, you must attend and fulfill your promise.
The experience has been that when students want to learn, they do so in double quick time. There are boys and girls completely uninterested in maths until they are 12 years old and then suddenly get the urge to learn. When that happens, they learn in one year what students in other schools learn in 12 years of schooling.
This country would do well not to straightjacket education under the deadening weight of rules and regulations of a know-it-all bureaucracy. The need of the hour is to let private investment, including foreign, come into education unhindered. Who knows, perhaps then ‘Sudbury’ might be persuaded to open a school in Nepal.
The Himalyan Times
SAARC not required
Governments worldwide have treaties for removal of trade restrictions. The European Union (EU) and North America free trade Agreement (NAFTA) are examples.
We too are following the example of these and other regional blocs. We have the South Asian Association for Regional Cooperation (SAARC). Further, each of the seven countries comprising SAARC has its own bilateral agreements with other countries.
Do we need the government to ‘manage’ free trade? Must we have treaties before we open our borders to imports? Would unilateral free trade harm us?
Let us look at countries which are open to trade without bothering about reciprocity. Whenever countries have eliminated tariffs and cut regulations hindering trade they have gained irrespective of what other countries did.
Hong Kong and Singapore practiced unilateral free trade much before these treaties came into fashion. They still do.
Singapore has an average tariff rate of less than one percent. 96% of all imports are duty free. There are no import quotas. License requirements exist for only a handful of items.
Hong Kong is duty-free and levies no duties except on tobacco, alcohol and fuel. The average rate of tax on imports is below even Singapore’s and close to zero. There are no licensing requirements or other barriers.
These two dots on the map prove that you do not need treaties to benefits from free trade. If free trade was good only if your trading partners practiced it, then, Hong Kong and Singapore would both have perished under the onslaught of free imports flooding their territories.
Far from perishing both have thrived. Yes, their imports are huge, Singapore’s imports in 2004 were $164 billion, Hong Kong’s was showered with goods from all over the world with imports of $ 300 billion in the same year.
These duty free imports allowed the puny ‘Davids’ to become trading ‘Goliaths’. Singapore in 2004, exported goods and services valued at US $ 180 billion, Hong Kong was one of the world’s dominant trader with its exports at US $ 311 billion.
If your imports are duty free, you automatically become a low cost producer of everything. It does not take an Einstein to figure out that with this advantage you will become a big exporter as well.
Imports and exports go hand in hand. India, after trade liberalization in the 90’s has seen its trade multiply. This happened even though India is still highly regulated and duties on imports are amongst the highest in today’s world. When India was almost closed to imports, its currency reserves fell to zero and it had to pawn its gold reserves to fund its ‘essential’ imports of oil etc. Now, its foreign currency reserves are US $ 140 billion.
The United States average tariff in 2004 was 1.8%. Though the US is not as free as Singapore or Hong Kong, as it does maintain restrictions on imports of textiles, beers and wines, cotton, chocolates and other items, the US by global standards has a low level of ‘protection’ from imports.
The US imports in 2004 were the highest in the world at US $1.63 trillion, its exports too were the highest at US $1.06 trillion. Imports exceeded exports by US $570 billion. This ‘deficit’ was higher than any other country’s. No one minds, as countries are happy to send goods to the US for its paper – the US dollar.
Did the US suffer because of its imports? No. Its people enjoy the world’s highest standard of living with access to cheap goods from all over the world.
Anytime trade restrictions are removed we gain. Therefore, treaties if they bring down trade barriers help in improving our standard of living. If SAARC was to bring free trade to this region well and good.
However, as India and Pakistan are unlikely to come together, it is doubtful whether any free trade agreement can be worked out amongst the SAARC nations. Fortunately, Nepal does not have to wait for this to happen.
All Nepal has to do is to unilaterally remove restrictions and custom duties on imports and it will become a trading giant. Cheap imports would allow Nepalese to become competitive exporters and with the markets provided by India and China, Nepal needs to look no further.
The Himalyan Times
Trade will make us rich
Countries which trade are rich. Countries which don’t are poor.
If I were to pick up one indicator of the wealth of a nation, that would be its exports and imports. Consider India: its share of world trade which was 2.5% at the time of its Independence, had plummeted to 0.45% by the late 80s.
It was a pathetic performance. India, with 16% of the world’s population, would have had to increase its imports and exports by 32 times to just reach the world’s ‘average’. India remained poor – its people had to survive on less than a dollar a day.
Compare this with a ‘dot’ on the globe: Singapore. With a population of just 4.2 million, its imports and exports are double that of India’s. This translates to each Singaporean trading, on average, 500 times more than an Indian. No wonder an average Singaporean lives comfortably, enjoying an annual income of over US$ 25,000.
Some say that the comparison with Singapore is not apt. Let us compare China with India. ‘Anti-capitalist’ China’s trade with the world has burgeoned to a trillion dollars, five times that of India’s while China’s population exceeds India’s by just 28%. Chinese now enjoy an annual income which is more than twice that of the Indians while just three decades ago the Chinese were poorer.
Contrast Nepal with Switzerland. Both countries are landlocked, but, the similarity ends there. Again trade provides an indication of why Nepal lags behind. Nepal’s imports and exports don’t add upto even three billion dollars. Switzerland’s figure is 326 billion dollars.
On a per person basis, the comparison is even more stark. Each person in Switzerland trades 400 times more than a Nepali. Switzerland’s per capita annual income at US$ 35,000 is one of the world’s highest.
Trade is not the only reason for Switzerland’s wealth. Their banking laws which guarantee anonymity to the depositor also have a lot to do with the Swiss being rich. However, trade plays a significant role.
Why are Singaporeans and the Swiss such good traders, achieving a prodigious percentage of the world’s trade, while the Indians and Nepalese are bit players and do not count? High taxes and stifling controls pursued by Nepal and India compared to the free market, low tax policies (average import duty is below one percent) of Singapore and Switzerland is the reason.
India, upto 1990, was ‘protected’ by the world’s highest tariff rates, import bans on all consumer products, and an inefficient and corrupt bureaucracy bent upon controlling trade.
The results of this ‘protection’ were obvious. Indians who would buy from a Scot and sell to Jew and still make a profit had no opportunity to do so in the world markets.
Post 1990, India began to see sense, but only after its policies had brought the economy to a shuddering halt. It had no foreign currency left and had to pawn its gold reserves. India liberalized and very soon its trade took off and dollar reserves started accumulating.
Within 15 years India achieved what it could not do in the earlier five decades. Its share of world trade has increased to 0.8% and foreign exchange reserves have crossed the 140 billion dollar mark starting from almost nothing.
If this was achieved with only a modest reduction of controls and import duties, consider what can be attained by the abolition of all controls and taxes on trade.
The good news for Nepal is that it can rewrite its laws tomorrow. There is nothing stopping this country from emulating Singapore and eliminating its trade barriers.
The government has to do just this and then watch the people of this country take to trade as a child takes to candy. Nepal will have shopping malls no less full of merchandise than Singapore. Goods will be cheaper too as both labour and real estate are priced lower.
Further Nepal will get as many tourists as it can handle. Why should people from India, Bangladesh and Pakistan go to Singapore, Hong Kong or Dubai when they can come to Nepal with its warm, hospitable people, majestic mountains, and, yes, cheaper perfumes too.
The Himalyan Times
Regulate Less, Save Lives
It is a fundamental principle of economics that demand for a product increases with a reduction in its price. As regulations are ‘free’, and people who advocate them bear negligible costs, it is virtually guaranteed that demand for government regulations will continue to grow indefinitely.
However, do government regulations really cost us nothing? Is the cost always borne by big corporations and evil businessmen? Businesses may initially bear the costs, but rest assured that they will, as soon as they can, pass on these costs to you and I. How? By an increase in the price of goods that we buy. We as consumers ultimately pay for all government regulations.
Each individual regulation added onto by the government means little to us, and the cost of each may be so infinitesimal, that it is only rational for us to ignore it and concentrate our attention on more pressing matters. The problem is that when the cost of all the regulations imposed on us is added up, it is no longer a small matter.
The only country where an attempt has been made to identify the cost of regulations is the US. The cost borne by its people was estimated at $660 billion in the year 2000. The projected annual cost now for a household of four exceeds $10,000.
Clearly, this level of regulation if imposed on the people of Nepal, would immediately shatter the economy. Imagine if the US regulations, designed to protect buildings against earthquakes in Los Angeles, were made applicable in Kathmandu. All, except the wealthy few, would find themselves gazing at the stars at night instead of a roof.
Even though a rich country can better tolerate regulations, yet it is this regulatory burden – exceeding half of the US federal government’s tax receipts – which has made annual growth rates in America average an anemic two percent.
No one doubts the good intentions of our lawmakers. Regulations are often drafted with thoughts of making our buildings safer, food healthier, water hygienic, air pollution free, aircrafts less likely to have accidents, and labour happy.
The problem is that this plethora of regulations increases the cost of everything we buy and, hence, makes life difficult for the most vulnerable in our society: the poor. They just cannot afford the costly goods.
Theoretically, it is possible to eliminate aircraft crashes by zealous government oversight and regulation. However, the cost of such burdensome regulations would make air-travel so expensive that many more people would die because of the use of road transport, which is far less safe than travel by air.
In Nepal, the best way for government to make domestic air travel safer would, ironically, be by deregulation. Let the government abrogate the monopoly of domestic airlines and permit foreign airlines to compete on domestic routes. This would increase foreign investment, bring in international airlines – with a worldwide reputation to protect – and make flights safer.
Big companies often capture the government agency in charge of regulating by intensive lobbying. They then use regulations as a weapon against their smaller competitors.
In the UK, for example, large businesses wanted an onerous licensing burden to be applied to all food premises. These big companies knew that they would have an easy time complying with these regulations, but their smaller competitors would be forced to close shop.
In the same manner, asking roadside restaurants in Nepal to adhere to standards which are met by Hyatt or Holiday Inn would result in their closure. Commonsense tells us that this is not a desirable outcome.
Likewise, minimum wage laws and other labour legislation cause problems for small businesses. The big companies can pay their staff more than what is required by law and would be happy to see that the small enterprises are forced to do the same. Strict enforcement of wage & labour laws as exist today would lead to the closure of most of the small businesses with unemployment even more widespread than it is now.
We should learn from the example of the developed countries and try to rid ourselves of regulations if we are to banish poverty faster. Deregulating by creating wealth, would save lives. Rich people live longer by about 20 years – that is the difference in life expectancy between those living in the rich and those in poor countries.
The Himalyan Times
Rakesh Wadhwa. Ever since, I was a school boy, I knew India was on the wrong path. Socialism was just not what we needed to get ahead. Government controlled our travel; government controlled our ability to buy and sell; and government controlled our freedom to move our money. My life has focused on the inherent rights people have. When I was in college, I never understood, what the governments meant by their "socialistic attitude". If people are free to buy, sell and move their capital themselves without any restrictions by state, then the welfare of people is inevitable & hence the countries they live in will become wealthy. The government has no right whatsoever, to point a finger at me or my business. I am not a revolutionary. I just want to light up my cigarette and not get nagged about it. I believe in non-interfering attitude to attain more. 
The Bastiat Award is a journalism award, given annually by the International Policy Network, London. Bastiat Prize entries are judged on intellectual content, the persuasiveness of the language used and the type of publication in which they appear. Rakesh Wadhwa won the 3rd prize (a cash award of $1,000 and a candlestick), in 2006.
What the readers are saying…