The economic policies in Nepal are entangled around the dynamics of protectionism. Foreign trade in Nepal is restricted with indirect taxes and custom fees. The interests of industries, politicians, and the general population are intertwined in this system and it is almost impossible to make every party happy at once. Reflecting on Bruce Yandel’s analysis of the alcohol prohibition law, we dig into the distinctions of “Bootleggers and Baptists”. Economists have been using his analogy as a basis to refer to those who support protectionist laws for their self interest as bootleggers and those who do it for moral reasons as the Baptists.
Each policy has its own set of bootleggers and Baptists who try to shape economic reforms. It is critical to examine Nepalese policy through a similar perspective. Doing so is essential for making educated judgments that are free of external biases. The protectionist laws have their own advocates and protestors. They generally lead to a few winners and many losers. So, if the losers outweigh the winners, why are the laws still practiced? Who are the advocates, who wins, and who loses? These are some of the questions to ponder upon.
Industries as Bootleggers
Protectionist policies provide a haven for industries, which are the usual bootleggers in Nepal. They seek refuge from all the competition and technological changes that happen in the world. It’s not an unethical conspiracy, but rather a survival instinct for a stable market where profits can surge without any interruptions from external factors.
In Nepal, industries generally form associations and participate in lobbying. The motives are obvious: reduced competition equates to a better market share. It is a language that any profit-oriented businessperson understands. So, in certain instances, the political arena becomes a space where various interests converge. Politicians and industries come together to support policies that serve their own positions of power and financial gains.
Politicians as Baptists
Protectionist policies are frequently draped in the apparel of moral or public interests. They are promoted by politicians who see themselves as protectors of national well-being. These politicians are Baptists. They present the laws as beneficial, highlighting their support for local industry, employment, and cultural identity. However, the general population fails to see the subtle link with the objectives of bootleggers beneath this portrayal.
Politicians, using Baptist language, build stories that resonate with the general population, i.e., the customers. They become defenders for local businesses and influential entrepreneurs. It’s a mutual arrangement in which the Baptists’ presentation offers cover for the bootleggers to operate inside the closed walls with near to no competition from the outside world.
Consumers
The consumers are caught in the crossfire as their interests are seldom heard or even presented. Protectionist policies, although supposedly protecting national interests, can result in higher costs and fewer options for an average person. Policies seemingly aimed at protecting public welfare may ultimately contribute to a less dynamic and competitive market.
If individuals attempt to lobby for policies, the cost of effort would outweigh the cost of tariffs. So, their incentive to form a lobby group is very low. Moreover, there have been some instances where consumer groups have been formed but could not be influential.
A carefully constructed regulation can accomplish all kinds of anticompetitive goals of this sort, while giving the citizenry the impression that the only goal is to serve the public interest.
High tariffs serve as a means for producers to narrow competition, but the benefits fall flat for consumers. From clothes to coffees, a series of taxes strangles choice and inflates prices. Take textiles, for example, where tariffs ranging from 1 percent to a staggering 30 percent on carpets turn protectionist measures into financial burdens for consumers. The taxation on agriculture also follows the same theme. A 40 percent customs duty per kilogram on imported coffee and tea has locked these international products out of the average consumer’s choice pool. This stifles competition, leaving the domestic industry complacent and consumers thirsting for variety. Chips, crisps, peas, even apples – all face protectionist measures, narrowing selection and driving up prices. While local producers might enjoy a temporary advantage, the long-term performance suffers. Consumers have fewer options, domestic industries lack inspiration, and everyday goods cost more.
The policies, in most cases, attempt to protect the industries at the expense of consumers. Let us take an example of the taxes on shoes. A 40% tax is levied on a pair of shoes. Nepal’s domestic shoe industry is internally competitive. Brands like Goldstar and Caliber even offer shoes with premium pricing. Goldstar has also expanded to the international market. So, who are we protecting when the industries themselves want to be exposed to the bigger market? With the measures currently in place, only the consumers are bearing the loss.
An alternative perspective suggests that if Nepali products are of high quality, they should be able to thrive in a competitive market. A level playing field, where domestic and foreign products compete based on merit, would not only give consumers more choices but also encourage local industries to enhance their products to meet global standards. This competitive environment fosters innovation and efficiency over time. A scenario like this is called free trade, where there are no protectionist measures applied to imports and exports. It can make the economy competitive, leading to better jobs and improved economic conditions.
Lobbying with the government is not inherently problematic. The government seems satisfied collecting indirect taxes, ultimately paid by consumers in the form of high prices. It is one of the biggest sources of their revenue, and the industries are content assuming that their businesses are protected. The lack of vision in policies as such is a concerning matter. It is evident that these policies produce a net loss to the economy. Producers seem to be winning in the short run with protectionist policies, but they are worse off in the long run. For a net win, free trade is the best alternative where both producers and consumers gain in the long run with no efficiency losses.
In cases where citizens are swayed by the preachings of the Baptists while, in reality, they are mediating the interests of the bootleggers, finding a balance becomes paramount. It’s okay to acknowledge the concerns of both sides, but the well-being of the everyday citizen should be at the forefront. For Nepal, the path towards economic prosperity lies in reforms that foster healthy practices in the market. The market works beautifully on its own. Therefore, it is vital to ensure that intervening laws like protectionism don’t stifle competition, hinder innovation, or compromise the interests of the very consumers they aim to protect.
Subhekshya Ghimire is a researcher at Samriddhi Foundation, an economic policy think tank based in Kathmandu. The views expressed in this article are the author’s own and do not represent the views of the organization.
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