$4.4 Billion and How To Proceed

By: Bikal Dhungel 

  

  

Following a 7.8 magnitude earthquake that cost the lives of over 8000 Nepalese, people all over the world donated generously to help Nepal. The total loss in monetary terms is expected to be around $7 billion, one third of Nepal's nominal gross domestic product (GDP). The government held a donor conference in Kathmandu where high ranking officials from national governments and international organizations participated and pledged a fantastic $4.4 billion both as grants and loans. However, the Nepalese government still needs to assess how they can feasibly spend that amount in an effective way to make the most out of it. $4.4 billion is a gigantic amount, more than four times the regular official development assistance (ODA) Nepal receives in a typical year. It is slightly less than the total remittance flow of $5.5 billion that entered the nation through formal channels last year. $4.4 billion divided among the population will give a mere $1700 per person, twice the nominal per capita income. Amount of this size will not generate large outcome but if spent intelligently, the multiplier effect will be huge and is enough to transform the nation. $4.4 billion will be accompanied by another $5.5 billion remittance flow this year and Nepal's own development budget.   

  

The most important question now is how we can spend the money in such a way that we are independent from international support in the future? Example of Haiti shows that mismanaging fund would lead to another disaster that can turn to be worse than the earthquake itself. This disaster can also lead to violence when political parties and groups fight for their share of aid ignoring the overall welfare of the nation, a reason why donor countries prefer to spend aid through INGOs and NGOs instead of giving to recipient government. But there are also examples where international support has been used intelligently to rebuild nations from where Nepal can take lessons.   

  

14th August 1945, the official date of the end of World War II. Two atomic bombs were dropped on the Japanese cities of Hiroshima and Nagasaki. Germany had already surrendered and the biggest war in human history cost the lives of over 70 million people worldwide where more than 50 million were civilians. The losses of properties and the cost to rebuild were immeasurable. Europe was left devastated. Yet, in another decade they again brought the continent in pre-war level and major  

European economies were experiencing economic booms. How did that happen? Taking the example of  

Germany, the country that was hit hardest in terms of material loss, there is much to learn. When Germany surrendered, the victors of World War II, the USA, UK, France and Soviet Union kept their presence in German states and were concerned about its future. They had to make sure that Germany does not start another war like both World War I and II. How to monitor that country to ensure world peace had been a major concern. The USA understood that politically and economically unstable Germany would threaten peace more than an economically powerful Germany integrated to the world economy. Same argument was valid for Europe and Japan. The US foreign minister brought the plan to rebuild European states destroyed by World War II with the name 'Marshall-Plan'. $13 billion was released from which Germany received $1.4 billion, about 2% of its gross domestic product of the year 1945. That amount was tiny in comparison to the support Nepal got this time, which is about 20% of the GDP. How Germany used that amount is remarkable. It cleared the ashes of World War II, rebuilt the critical infrastructures necessary to kick-start growth and after five years, the German economy reached the beginning of the phase called „ Economic Miracle „. From 1949 to 1973, Germany grew at an average of 6.5% per year. The total wealth more than tripled during that period. The economic policy of Finance minister Ludwig Erhard who later became the Chancellor was massive capital accumulation that strengthened production which led to rural to urban migration that in-turn boosted productivity.  

Industrial production grew and Germany immediately became the leading exporter of the world. The German government had to import labour from abroad to work in booming industries. Heavy investment was made in educational sector with more priority on technical education and training schemes, institutions were created that were necessary to create rule of the game of economy, financial institutions grew which worked under a close cooperation with the state, the central bank called 'Deutsche Bundesbank' was formed whose main goal was to maintain currency stability. Other reforms like the progressive tax system, social security system and health care reform was made which helped to grow the economy further and made Germany a stable and robust country. The most important factor was the will of the people to contribute to build their nation and their hard work guided by genuine principles of government which was growth and development oriented. The Germans didn't work for themselves, they worked for their children. They built the country for their children and grandchildren. The history of economic development shows that one generation should always sacrifice their hard work for future generation. It was the case in South Korea, Singapore and elsewhere. It takes a generation to build a nation. What Nepal can learn from Germany is, in order to do something, there should be a strong will, a strong sense of sacrifice. Until we only think about ourselves, it will not contribute to growth and development. Short-sightedness will not generate growth. We need to think about our children and should be ready to sacrifice our effort for their prosperity.  

   

Nepal today resembles with Germany in a sense that Germany also didn't have a constitution. The German constitution is a random collection of paragraphs that were added and removed and again added, neglected and again brought to life time and again in the last 60 years. There was never such thing like constitution assembly. They also didn't need a constitution. They needed development and development needs a genuine development policy. Constitution alone without a feasible development policy will not bring change. Without a robust economic development, neither democracy nor peace will sustain. Where there is poverty, there will be violence, there will be war. The Germans understood this and decided to focus on development first and constitution later. However, a basic political foundation is also vital to development. If Germany were unstable, with various social and economic problems, they would not have achieved development. Here the question arises why political stability and supporting institutions are necessary for development. The history of the United Kingdom gives an answer of this question. Why industrialization started in England and not in Japan, South Africa, Spain or Russia has been a question researchers took long time to reach a consensus and that it is the political foundations that supported industrialization in England. Daron Acemoglu and James Robinson mention in their book  

‘Why Nations Fail’ that prior to seventeenth century, European states were full of aristocrats that resembled the political structure of typical under-developed countries like Nepal. Prosperity was limited to few, landlords had full control over their peasants, slavery was usual, wealth was concentrated on aristocrats and most importantly, there were heavy restrictions on economic activities. Consequently, broad majority of people suffered from poverty and deprivation. However, England managed to breakthrough from the system. The revolution of 1688 gave birth to economic and political institutions that were successful in providing incentives for business, trade and innovation. The property rights law was brought which guaranteed fruits to creative minds whose inventions was saved from being copied by free riders. Monopolies were reduced giving rise to competitors. Roads, canals and infra-structures supporting economic activities were built. Educational institutions were built to provide high quality of education in that time. These foundations created a way for industrial revolution which later spread to other parts of Europe as well. The short history of 17th century England teaches 21st century Nepal that without creating or reforming institutions that pave the way for technological advances, growth will not follow. Institutions that ensure wealth redistribution for social security and education must be present. Also institutions that ensure a rule of the game in terms of finance and trade are pivotal. On the other hand, in the presence of extractive institutions, authorities and governments to enrich the few will postpone development. Acemoglu and Robinson give example of Eastern Europe and Russia during the time of industrialization. These nations managed to disrupt economic activities which put the ruling aristocrats in power whereas the majority suffered, a story that is valid in Nepal of 21st century.  

   

  

  

From 17th century England and 20th century Germany, Nepal should learn that building a robust political foundation and then feasible economic policy is eminent to welfare growth. Making the existing institutions powerful and creating ones that are necessary in the field of finance, education, health and others is vital. Infra-structures should be built in areas that are critical to growth. Critical bottlenecks of development should be determined and they should be removed. In education sector, best practices from the world adapted to local conditions should be integrated to the curriculum. To summarize, Nepal should focus on following points: maintain political stability, create an environment for domestic and foreign investment, create institutions, reform education policy, work on the efficiency of public sector, guarantee property rights, reduce credit constraints for the poor and for small scale entrepreneurs, support the entrepreneurs, closely co-operate with the private sector, make technological learning in all fields a priority and minimize market distortions.   

$4.4 billion will surely be not enough to reform everything but it is enough to initiate the change. These were the policies that countries with rapid growth had in common. These were the foundations upon which double digit growth was achieved. Germany was able to initiate these changes with only a cash injection of 2% of its GDP, Nepal is getting much bigger share. Same thing is also true for South Korea, Taiwan or Botswana. So, if there is a strong will, Nepal can become another Asian Tiger in the coming decades.   

   

  

  

  

  

Notes on Refugee Crisis

By: Bikal Dhungel 

Over 50 million people have left their houses due to war, violence, repression, climate change and so on. 20 million of them have left their country and are living in refugee camps. From Kibera to Lebanon, Turkey, South Sudan to elsewhere, there is a big crisis going on. It has already reached Europe. More than 1.5 million refugees are expected to reach Europe at the end of this year. In Germany alone, there will probably be more than 800,000 refugees. So, few quick notes on this issue.

• European Union is based on solidarity: A big joke. European countries present their solidarity when it is about getting billions of Euros but not when getting the refugees. Greece, Portugal, Ireland, Italy and others were pointing on solidarity in times of crisis and also got billions of cash injection from Germany but when Germany is asking them to take their fair share of Refugees, they don't care.
• Fixed Quote for refugees according to population size and economy of member state: Although high ranking officials and governments including the European Commission is calling for quotas but I am sure, it will fail. Why ? Refugees enter the EU from few countries, Greece, Malta, Spain, Italy, Poland and Hungary. Those arriving in a boat will land either in Greece, Spain, Italy or Malta. Those coming from Russia , Georgia or Ukraine will arrive first in Poland. These countries are member of European Union. So, when we introduce quota system, Greece, Italy, Spain, Poland and Hungary should also take their share of Refugees. But when they refugees were already there first and from there they came to Germany or other economically strong nations, who believes that these migrants will agree to return to these countries ? If they were happy there, they would not come to Germany in the beginning. Moreover, Hungary, Greece or Spain themselves have high unemployment rates. Refugees will not get any job either. So, sooner or later, they will have to come to better countries anyway. Hence, wasting time discussing about fixed quota is useless.
• Why do people , hundreds of thousands are coming from Balkans ( Serbia, Kosovo, Macedonia, Bosnia, Albania ) even though there is no war or violence and they are even EU candidates ? : Simple economics. When the average income of Balkan states is less than 250 Euros per month, and when Refugees get in average over 400 Euros per month without working at all, who is the stupid person still living there ? All of them will come to Europe even though they know that they wont get asylum. Europe is a free cash machine. Politicians from Balkan countries are telling to stop paying cash to people from Balkan. Only free foods will stop their incentive from moving away from their country. When large number of youths are moving out of the country, its bad for their economy.
• Why so many want to come to Germany ? - The over warmheartedness. This is good in the first stance but when it spreads well across international media, over night, it can turn into a disaster. We saw in the news, also people who were in Hungary, applying for asylum , when they heard that Germany is giving residence permits to Syrians, they took the trains over night to Germany. In such cases, due to immense pressure, the welcoming habits of Germans can have an end within a short time. Two years ago, in a survey, 70% Germans expressed that their government should help refugees from war torn countries. Now, due to massive inflow, they feel that their country cannot handle it anymore. So, only 49% thinks that Germany can accept more refugees.
• Isnt 800,000 a small number in a country of 82 million ? - in the first sense yes, its 1% of population. But we should also see the future, in 2015 its 800,000. What about 2016,17,18 and later ? Are the social infrastructure enough ? Are they capable to handle in a short time ? Answer is no. The capacity of schools, universities should be increased, there should be enough housing, public transportation should support the growing population, local authorities should be able to handle them. Otherwise, the constitutional democracy will collapse when its overcrowded.
• What about social impact ? Almost since a year I am following the news, that local authorities in Germany are concerned about refugees. They are doing nothing else than looking for a place to house refugees, giving them foods etc. Their capacity is limited and they are overwhelmed. The national state cannot help either because they too are in problem. It can radicalize the local population that, their representatives are focusing on refugees and have no time for social issues, things about local people, local schools, infra-structures etc. Charity can only be limited. See the earthquake in Nepal. In the first two weeks, people from around the world rushed to help, donated lots of money and the international media covered the news from Nepal. Soon after that, they returned to their business as usual, and the world forgot Nepal. Now its the turn of Nepalese themselves to help. But in the case of Refugees, they are continually coming, so when local authorities focus on this for long time, it will impede development and impact on their own economy which will radicalize the people and they will start to see Refugees as threat to their existence. Then they start to throw stones to refugee houses and in extreme case, attempt to kill them. Germany already has a dark past. Terrible pictures from Rostock Lichtenhagen, Hoyerswerda, Mölln, Solingen and elsewhere shows that public opinion cannot be neglected.
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  Are the people coming to Europe real refugees or are they really looking to live in a peaceful place ? - May be no. In every country, when there is war, people who are effected the most are poor people. In the cases of extreme violence, they are displaced within a nation or in some cases they flee to neighbouring countries and live in camps. Those who make their way to better countries are mostly from high class. They can afford to pay the traffickers to come to Europe. Although there is war, who is the one that needs most security ? It is the poorest, not higher class. During the Civil War in Nepal, 200,000 people were displaced within the country. People from higher class knew about a thing called asylum and made their way to Belgium or US or UK and claimed asylum. Their demand was genuine and also got the protection status. On the other hand, the real vulnerable ones continually suffer. This is why I personally prefer the UNHCR to choose most vulnerable refugees from war torn area and re-settle them in third countries. UNHCR chooses the ones in need and not the upper class who can afford to go to Europe.
  Second point that they only want to live in peace is not true in most cases. Take the example of refugees arriving via Turkey or Hungary to Germany. Turkey is peaceful, Hungary is peaceful, even Serbia is peaceful. They could have resided there if peace is all they wanted. But why they choose Germany ? Because their intention is to make more money, which is understandable in basic sense but this is not what Asylum is about. A wish to live a better life is not and should not be a reason to apply for asylum.
  
  
• Long term impact of going away – Germany was totally destroyed after World War II. Had they opt to move away, there would have been massive outflow to other countries and probably Germany would still be as poor. But the politicians had a plan to rebuild, with support from other countries as well. They made the people work hard, they cleared off the ashes and made way for economic development. Within 10 years, they had a fantastic economy. If there is a problem, it should be solved. Running away from the problem will not achieve anything.
• How to help refugees in cost efficient way ? - There are many ways. The cost of processing asylum applications, housing and lodging refugees and other cost will reach a total of 4 billion Euro for Germany this year. 4 billion Euro for 800,000 people gives 5000 Euro per person per year. If you invest this amount in refugee camps, it is enough to provide a decent living. It is possible to build a nation from this amount if financial support from other countries are combined. In refugee camps in Lebanon, if you invest this amount in schools, building markets, building roads and creating employment, it will give incentive for people to remain there. Nation-building approach must be well thought. There will still be people who might not find jobs but then take one person from each household and educate them or let them work in the EU and send money back home, and that money could be invested to generate income. Doing this in massive scale will help the refugees where they reside and the support in European societies will increase as well. Like people who invested their toys and cloths in Munich central station, send these cloths to refugee camps. It will save costs for them. There are many such things that can be done.
• But how to go further immediately ? Actually the west can solve the problem but they dont seem to be interested in it. Unlike Egypt, Libya or Tunisia, the first war in Syria lasted almost 1.5 years. The rebels failed to topple down the government of Bashir Al Assad. This is a clear proof that there was a wide support for Al Asad in Syria. It was also thought that the rebels were brought from foreign countries with the help of foreign secret services. And then western nations decided to bomb Syria. It still did not help. Syrian Army is still fighting with rebels. Now the rebels are also the cadets of Islamic State, which is much worse than a dictatorship. The west has realised that Asad was good for Syria at least in terms of peace. The war continued and has no sign of ending soon. Now, the west can learn from its mistake and talk with Asad, which Russia is already doing. Talking with Asad, Iran ( which is helping Syria with weapons ) and Russia can help to drive out or destroy the IS fighters and rebel groups in Syria. The war will then be over and more refugee flow will stop. With financial support, Syria can then be rebuilt and the displaced refugees might return. If the west fail in this diplomacy, they will have to calculate with more refugees in the future, both from Syria and from camps in Lebanon or Jordan. In addition, when the west sells weapons to Saudi Arabia or other rich gulf states, they can raise the issue. They can tell them not to finance the war or terrorism based on political interest. And of course they should take the refugees. Gulf region is underpopulated and vast amount of wealth is available. If there is political will in these countries, Syrian people will find easier to adapt due to similar culture.
• What to learn – I think , at last the citizens of the west should understand, if your country bomb a nation, you should also take refugees. Those who raise war should face consequences. It is a scandal, when countries like USA go to war in Iraq or elsewhere for own self interest and then the refugees will come to Europe, due to its close geographical location and they bear all the cost. It is a scandal. That is why, before the US raise any war, Europe should take stance and say, we will not participate in this war unless it is vitally necessary. Same is valid for European states that participate in such war. It is a shame that UK is reluctant to take refugees. UK bombed Libya, Syria and others but only took 200 syrian refugees till date. If there is enough public pressure to avoid war, the refugee flow will be lower.
      
• How Europe can profit from immigration – European population is ageing. With the same growth rate and no immigration, German population will fall to 73 million in 2050 from 81 million today. They have the lowest birth rate of the world. Other European states are not far. 15 out of 28 European states will face population decline until the mid century. In the case of Germany, researchers in the University of Coburg calculated that every year, there should be a net immigration of 500,000 until 2030 to maintain the population stable. Failure to do so will reduce the quality of life because more and more money should be spent on old age homes and the pensions of older people. When the number of youths will be reduced, tax should increase. This will reduce incentive to work and will cause negative impact in the economy. Japan and other advanced nations are suffering with this problem. For this reason, Japan is allowing further immigration. Western Europe is dependent on eastern Europe to fill its labour gap but eastern Europe cannot support for a long term. Because lots of polish are moving away to western Europe for employment, scarcity of labour is common in Poland now. It is allowing immigration from non-European countries and will be a major destination in the coming days. So, supports of education and training fo refugees will help Europe in the longer term.
• How to go forward now – Resolve the bottlenecks. The main cause of chaos in the society is due to existing system. There are 400 people in Germany who listen to the refugees and decide either they are allowed to stay or not. 400 people for 800,000 refugees this year is far too few. The 40% refugees who are recognized as refugees or get temporary protection can stay and everything is ok. But the remaining 60% can appeal, they can take a lawyer, go to the court and in this cases, these 400 workers are required to provide details about the application process and on which ground the people were rejected. This is why, the application process in Germany take years and in best case, 6 months. In the Netherlands and Switzerland, they are dealt within few days. Those who are rejected will be sent back easier. In Germany, it takes place rarely. In 2013, only 4000 out of 200,000 rejected refugees were sent back. Others stay anyway. This does not make any sense. The state should not make decision based on their heart rather on minds. The balloon of heart and mind can be dangerous and costly. At the present, if the success rate of Syrians are 90% anyway, why dont the government give them temporary protection immediately without going through all the process of asylum ? This would relax the bureaucracy and they can come to job market faster, they wont need any government support and they even pay tax which is good for the nation. Most importantly, other asylum application can be dealt faster. Of course there are also problems with it. Not all people who claim themselves as Syrians are actually Syrians. They can be Moroccans, Tunisians or Egyptians. In the past, many Indians, Pakistanis etc have claimed asylum in the name of Afghans because there is war going on in Afghanistan and they have higher acceptance rate as refugees than the Indians or Pakistanis. Similarly, many Nepalis have claimed asylum in the name of Tibetans or Bhutanese. This is a serious challenge and hard to detect as they speak similar language and look similar physically. Still, as a whole, the policy of exempting Syrians in the first place can help to normalize the crisis.