DILLI RAJ KHANAL
Today the debate has intensified globally on exploring the alternative to the development paradigm in practice which is primarily grounded on the macroeconomic policies that have been pursued since more than three decades. The declaration of the heads of the state and governments in Rio in June 2012 committing to promote sustained and inclusive economic growth and social development and environmental protection has prompted the discussion more exclusively on inclusive and sustainable development. The need of a new global development agenda beyond 2015 has additionally propelled the discussion. Persistence of high level of poverty, steep rise in inequality, aggravation in energy and food crisis added by increased vulnerabilities in the economies of poor countries emanating from volatile and crisis-prone global economic system under the dominant order have been instrumental for this.
Now the focus is on making social rights and security as an integral part of new development agenda. The reorientation or changes in macroeconomic policies for more inclusive growth together with enough care to the environmental dimension are recognized to be the pre-requisites for sustainable development. As an offshoot, time bound universal education and health facilities, employment guarantee to the work force, social security to the old and disabled, among others, are being advocated particularly by the UN agencies and other actors working in development related diverse fields. Under the changed and enlarged role of the macroeconomic policies, the thrust is given to its developmental role without too much damage to the stabilization objectives.
The restructuring of government expenditure with priority to health and education including social security through transfers, more progressive taxes, albeit expansionary but better targeted credit programs from the banking system and financial inclusion are some of the proposals under fiscal, monetary and financial polices. A more stable exchange rate accompanied by some form of regulation or control on capital flows are additional suggestions. As such, these are different from the macroeconomic policy framework dictated by the pre-dominant global economic order.
Notwithstanding the contribution of such proposals and advocacies toward searching more appropriate alternative development paradigm including macroeconomic policies, many complicated interlinked issues and better alternatives are yet to be comprehended more robustly. Interestingly enough, except pre-occupied fiscal balance and monetary or inflation targeting type policies, most of the other above types of policies and programs are in place in countries like Nepal in one form or other. The question again arises why countries like Nepal are confronted more deeply with the problems of low growth trap amidst high inflationary pressures accompanied by marked rise in inequality as well as vulnerability of both the economy and the people? This simply means that many aspects will need clarity including philosophical one essential for coherent approach and policy consistency. Here again, recognition to the structural issues will be the key which even under alternative prescriptions are given low priority or attention.
Hence, emphasis on balanced stabilization and growth role that too without clearcut alternative views on how to shift resources and investments from unproductive to productive areas undermines the real challenges. Such a shift again is linked to policy and institutional conditions that, apart from bringing balances between the role of the state and market, could provide enough incentives to the private sector so that it could change its investment or portfolio behavior. In discussions, such a critical but changed role of the private sector is often ignored. In this respect, as experience shows, changes or reforms in meso-policies affecting the micro-level firm behavior will be equally important for augmenting competitive strength and promoting small enterprises linked to agricultural transformation with strong distributional implications.
Under the changed policies and institutional rules, it is essential that both state-led rent-seeking practices and market-led imperfections in factor, product and financial markets are properly addressed. This aspect is also dealt with loosely.
The experience shows that the expansion in government expenditure that too by increased budgetary deficit without drastic structural and institutional reforms ensuring efficiency in resource allocation and uses may create a mess. The exclusionary practices and increased quality gap in the delivery of social services added by poor externalities may have very adverse economy-wide effects including crowding-out one.
Similarly, in the globalized world, path dependency is a major constraint compounded by external trade arrangements and aid conditions. Therefore, unless there is a built-in strong global governance system ensuring full compliance by the global players as per, for instance, their commitments in Rio, embarking on new development paradigm including macroeconomic policies to be compatible with inclusive and sustainable development will be almost impossible.Time has come for an all-round push.