The evidence is staring us in our face. Government is inefficient. Get it out of our lives. Restrict it. Let it perform only its core functions. We will benefit greatly.

Consider the opening of the skies between New Delhi and Kathmandu to private airlines. The exclusive privileges of RNAC, IA and Druk, have been revoked – hopefully for ever. We now have Jet, Sahara, and Cosmic offering us flights as well.

As would be expected, fares have crashed, service has improved, and travelers have a much wider choice as to the time they leave or arrive in Kathmandu. The benefits are going to the travelers, travel agents, hotels, casinos, and others associated with the tourism industry of Nepal.

Economy airfare to Delhi used to be Rs.13,000. Not any longer. All sorts of offers are available. It is easy to travel for Rs.9,600 if you are alone, and if you are in a group, you may pay just Rs.8,000.

If on average 500 travelers use these flights daily, and they now have to spend Rs.1,600 less on their tickets, that means Rs.800,000 a day is being put back into the pockets of the traveling public. On a yearly basis commuters will save Rs.300 million on their travel to Delhi alone. One can now have some idea of how much government monopolies, restrictions, and licensing requirements are costing the people of this country.

The savings have seemingly come out of thin air. Everyone is smiling. Consumers are paying less despite increase in the general price level. Private airlines are happy otherwise they would not have so eagerly commenced operations. Everyone related to the travel trade is ecstatic hoping that additional travelers will mean more money in their pocket.

The only loss has been that of ‘inefficiency’. Bloated government bureaucracies manning RNAC and IA now have to compete and this competition is making them improve too. Those in the travel trade tell us of how the arrogance exhibited by the staff of these airlines has been replaced by a new found humility.

The only question is, why did it take so long? These steps could and should have been taken much earlier. We had enough examples of the success of ‘open sky policies’ in the world.

Let us take the US. Almost 13 years ago, on December 10, 1991, this is what was published in the International Herald Tribune under the heading “Deregulation is working”.

“… deregulation has mostly done just what it was supposed to do, giving most air travelers more flights, more convenient schedules and substantially lower fares.

… For every Midway or Pan American that has departed, a USAir or Delta has taken its place.

…the number of airlines competing on typical routes has risen by one-third under deregulation. That is why fares are now 20 per cent below what the government would have set under its old formula.

… In a new study, Robert Gordon of Northwestern University shows that hub-and-spoke schedules have added more nonstop flights than they have eliminated. And there are more convenient options for nearly every traveller.

…the Brookings scholars conclude that travelers are better off, to the tune of tens of billions a year in lower fares and added convenience.”

It is apparent that no business should ever be granted monopoly or semi-monopoly privileges. Competition benefits us and it is only a matter of time before the benefits spread to all the people of a country.

The road ahead is clear. There should be no further hesitancy or partial steps. Open the skies completely. Allow any airline from any part of the world to come to Nepal. We need more flights and more competition on every route. Let any airline which is willing to fly from Kathmandu to any place on earth do so.

Further privatize all airports and allow them to cater to not only domestic airlines but to international ones as well. Allow international airlines to fly on domestic sectors too and open the domestic airline business to foreign investment.

The benefits to the people of Nepal would not be in millions of rupees but be in billions.

The Himalyan Times

The world has woken upto what is happening in China. In the last two years, every international business magazine has done at least one cover story on China. ‘Fortune’ not only put China on the cover in its special October 11, 2004 issue, but devoted the entire magazine to it. ‘Times’ cover had Chinese gymnasts on it in its August 16, 2004 issue. ‘The Economist’ has featured China on its cover in each of the last three months; China’s growing pains were in the August 21-27 issue, September 25 – October 1 featured Chinese leaders, and the November 20–26 reported on China’s growth spreading inland.

Why all this attention? China, in the last century, was largely ignored by the world. The only time the world leaders took note of this country was when it invaded Tibet. Today, any country which ignores China does so at its own peril.

The reason is that China’s 1.3 billion people are beginning to matter. China has become one of the world’s largest market for most goods, it is also one of the world’s principal exporters. China’s demand for oil is insatiable. In 2003, it surpassed Japan to become the world’s largest buyer of oil after the US.

What accounts for its economic clout? The answer lies in the phenomenal growth of the Chinese economy since the 1970’s. In the last three decades China has been growing at 10% per year: This double digit growth has propelled it to the status of an economic superpower.

At a growth rate of 10% an economy doubles itself every seven years. That means in 14 years, the economy quadruples, and in 28 years the economy’s size grows to 16 times of what it initially was. Give the country another 7 years of 10% growth, it will double again becoming 32 times of what it was at the beginning of period from which we are counting.

This is why China which did not count for much in the 1960’s is starting to matter. The evidence of this growth is everywhere. Each major city in China has thousand’s of skyscrapers. Shanghai’s growth puts New York to shame. Shenzhen is growing faster (over 10%) than the growth rate of Singapore and Hong Kong combined. Little heard Chongqing is the world’s largest city with its 31 million people. It is estimated that $200 billion of private capital will be invested in this city alone in the next 10 years.

China has become the world’s trading hub, its exports and imports are growing at a pace at which it is expected to cross the one trillion dollar mark by 2005. Its trade with the US and Japan already exceeds $250 billion.

China has left India far behind. Indians in the 1960’s enjoyed a per capita income which was higher than that of the Chinese. Not any longer. Each Chinese is today, on average, thrice as rich as each Indian.

The difference would have been even greater had India not started to reform its economy and liberalize in the 90’s. It was a case of too little too late for India. If India has to match China, it needs to do far more.

Double-digit growth rates require investment. Huge amounts of it. China understands this, India is just beginning to do so. China gets $50 billion in foreign investment, India aspires to get 10% of that. India will have to do better, much better, it will have to liberalize more, tax less, reform its labour laws, end its reservation policy for small industries, and bring down its inspector and regulatory raj. In other words India would have to become more like China.

Where is Nepal in all this? Unfortunately, it copied India. It needs to stop doing that. Nepal should align itself with the business friendly policies of China and it too will be transformed as China has been. 35 years of even low double digit growth will propel Nepal’s per capita income from its present US$250 to US$8,000 i.e. each Nepali will then earn, Rs.50,000 a month. Wouldn’t that be transformation for real? If this was to happen, Nepal too would attract the world’s attention as China is.

The Himalyan Times

India was under British rule. For India to have been paranoid of domination by foreigners after independence was perhaps understandable. But why is Nepal afraid?

India wrongly equated foreign investment with foreign rule and all but banned foreigners from investing in property, businesses, and shares. And where foreign investment was allowed, it had to come in only after fulfilling onerous regulations, and then face ceaseless monitoring by bureaucrats who excelled in creating red tape.

Time proved that this approach was wrong. Foreign investment did not result in foreign takeovers. Singapore, a dot on world map, after it got rid of the same colonial masters that India had – the British – opened up its economy to foreigners. No one took it over. It just made Singaporeans rich.

No country has in the last few decades been taken over by another because of a country’s openness to investment. So why should Nepal create such a burdensome environment for foreigners bringing money in?

Foreigners are not allowed to buy land, housing, or shares. Foreign investment in a number of businesses – retail, travel agency, tobacco, management consultancy, accounting, etc is prohibited. Why? A Nepali can go to the US or Australia and buy what he wants or start a business of his choice. You can, even while residing in Nepal, buy a house in Melbourne, and purchase shares in Microsoft.

You might say that US and Australia are big countries and Nepal is small and foreigners would end up buying everything. You would be wrong.

Let us look at countries which are even smaller than Nepal. Singapore and Hong Kong both permit foreigners to buy land, property, and shares. Buying of property has not resulted in the locals ending up without housing. They now have better housing. All that has happened is that there has been a huge construction boom. Skyscrapers have been built to fulfill the demand for homes and offices needed by foreigners and locals alike.

All this is to be welcomed not shunned. Constant construction and the arrival of foreigners with money has resulted in higher incomes, better living standards, and increased life expectancy for locals in all countries which do not distinguish between domestic and foreign capital.

The outcome in Nepal, if it opens itself to investment, would be no different. Nepalese are going to sell their property to foreigners only if they want to. No one can force them to do so. Why should we presume that people in this country would take stupid decisions and not act correctly? We must let people decide, whether they value their land more or the money they will get by selling it.

Increase in property values because of foreign buying will increase the wealth available to the people of this country. Those who unlock their capital will do so for good reasons. Should they not have the freedom to do so? This money, which is unavailable at the moment, will increase economic activity throughout the kingdom.

For those who don’t want to sell, they will find that even they benefit. They would if they wanted get bigger loans against property whose value has now gone up because of foreign interest. It would be a win-win situation for all.

Buying of shares in local companies by foreigners would put current management on guard against possible takeovers. There is nothing better than this threat to improve efficiency of management of assets with local companies. The consequent boost to the share prices in the country would increase wealth of the Nepali equity holders. This will benefit the ordinary shareholders who have many times been beguiled by a lackluster, insincere, and inefficient management.

Open up Nepal for investment. Lay a red carpet welcome instead of a red-tape trap we have at present for investors. Employment opportunities will increase. Growth rate will go up. Nepal will gain. Immensely.

The Himalyan Times

Unbelievable as it may sound, Starbucks, specializing in serving a variety of coffees to its customers, has become a US$ 19 billion chain. Its shares are listed on the Nasdaq stock exchange in the US.

Starbuck’s founder Howard Schultz made a fortune serving coffee. How is it possible? Doesn’t every restaurant, hotel, supermarket chain, store, home, and office in the US serve coffee?

Yes, anyone who has ever been to the US knows that coffee is the national drink of the Americans. Coffee is available in every establishment. The coffee maker is ubiquitous and more a symbol of America than its flag.

The answer just lay under the eyes of everyone in the US, but only one man, Schultz, had the vision to see the possibilities offered by this simple stimulant. He recognized that though everyone drank and served coffee, no one specialized in doing it. He said let me serve the finest and largest variety of coffees to my customers and they will pay me three times more than they pay other coffee vendors. Starbucks did just that and the rest as they say is history.

That is the power of specialization. A legendary Japanese industrialist once said, ‘it doesn’t matter if I just make and sell noodles in a village, I will merely make sure that I sell the very best’. This example may resonate well with us in Nepal where noodle-makers have done such a tremendous job that Nepal with barely 2.5% of India’s population consumes as much as 50% of the noodles consumed in India.

Recently, while in Delhi, I had idlis and dosas, both at ‘The Grand’ hotel and at the lowly ‘Madras Cafe’, a small, largely unknown South Indian restaurant which specializes in these southern dishes. The idlis and dosas at ‘The Grand’ were just what they are in a 5 star establishment: dosas rather tasteless and idlis just a little too hard; ‘Madras Cafe’, served them near perfect.

Was there anything wrong with ‘The Grand’ management? Why can’t they serve idlis and dosas like Madras Cafe, and coffee like Starbucks? They cannot and in their defense I might add that no other 5 star establishment can either. Why not? Because, dosas, coffees and idlis is not the core product which these hotels sell. Their competence lies in providing accommodation, ambience, and style to their customers and that they do.

Starbucks would not survive with bad coffee – that is its core product. Madras Cafe would not survive if it sold the kind of dosas and idlis which are routinely offered at five star hotels.

This shows that irrespective of money and resources, one can’t be best in other than a very few services or products. Therefore, the need for specialization is obvious. And this has profound lesson for how governments; it shows how they ought to be run.

It is impossible for governments too to be all things to all people. Governments must understand that trying to run airlines, airports, hospitals, sugar companies, cement companies, banks, finance companies, newspapers, TV stations, hotels, … and simultaneously trying to mange its core task of providing law and order, a justice system, and a national defense is a sure recipe for disaster.

Accept that it is impossible to do so many things, accept that people and businessmen can handle airlines and the like better, accept that governments responsibility is to fulfil its core functions, and, we will see the birth of a new nation which will prosper in no time at all.

Some people will dispute what I say. To them I say, ‘lets do a poll and find out if people are satisfied with the functioning of the law courts and the police force. If and when 75% of the people say, ‘We are satisfied’, then and only then should the government venture out to do more. Until such time let our government concentrate on what it is supposed to do and leave the rest to us.

The Himalyan Times