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Understanding of the market

Subekshya B.C.

The debate about welfare state is everywhere. From my friends and family to the small tea shop gatherings, the idea that the state should do all the work is widespread. Even the social media is flooded with netizens voicing that the government should also run the industries along with fulfilling the basic needs of the citizens. Some of them argue that jobs are created when the government runs industries and the government itself becomes rich. Meaning, they don’t want to see an individual being rich, rather they only want the government to be rich and then distribute those riches to the citizens. My opinions were the same prior to examining certain reference materials.

I found the idea of bringing stability to the economy and providing autonomy from government control over prices, trade and market entry to be of importance. Freeing the economy from government control makes people wealthy and they pay taxes to the state. Thus, making the overall economy more private sector friendly which is considered important for a prosperous country.

There are arguments suggesting that the state should control the automatic system of the market (voluntary transactions). But I believe that the market is all about voluntary transactions which should be left open and free. The role of the government should not be as a regulatory body but as a facilitator, which translates to a liberal economy. In a liberal economy, individuals are free to make economic decisions. Supply and demand in the market regulates the economy and the control of the state is relaxed. Since the 1990s, Nepal too has started to adapt the idea of economic liberalization.

Economist Dr. Bholanath Chalise, while explaining the liberal and open policy, said, ‘Liberal and open policies are the policies that are adopted in such a way that the market can function as freely as possible without any government interference.’ If the price is fixed by the government, the entrepreneur who has a higher cost price may suffer a loss. The production cost of the goods produced in the market can be taken as an element of determining its price. Since the market is a place for voluntary transactions, the consumer has the right to choose whether to buy at a lower price or at a higher price. The government must work on the implementation of the rule of law, quality monitoring, etc. Economist Dr. Govinda Bahadur Thapa asserts that the economic policy of allowing market power to play a decisive role in economic activities such as industry, service, trade etc. is liberalization. In an open and liberal economy, the state plays the role of a facilitator to advance economic activities and intervention is minimal.

When the price of the same product varies in the market, some people argue that the government should set a limited price. It is important that the price of a commodity depends on its production cost. For example: If a person does business by paying a lot of rent in the market, the person can decide to sell it at a higher price and if someone is selling from their own house, they can decide to sell at a lower price. At that time, it comes to the buyer’s decision where to buy the goods. If the price is determined in such a way, the competition for business spaces will not decrease from the market. If the government sets the rent rate, one party will benefit and the other party will lose. Therefore, there should be no state intervention.

Another important aspect of liberalism is ownership. The extent to which we own any item has implications in its meaningful use. American analyst Lawrence D. B. Reed said, “You take care of what is yours, and what belongs to no one or everyone is care-less.” This shows the right to private property. For example, A public restroom is not as clean as a private one. A person has the ownership and is motivated to make good use of it. Therefore, the private property is well taken care of. When a person has personal rights over private property, the personal freedom of a person is protected. In all honesty, an individual is never as cautious about public property like private property. That is why the condition of our public structures is in ruins most of the times. Public schools and institutional schools and public hospitals and private hospitals are some examples.

Entrepreneurship is an important way to create employment for people. It is an illusion to say that the government will create jobs by operating industries. Because there is a great influence of politics. These industries are more inclined in pleasing and managing the cadres of the ruling government. The deficit situation of government institutions in Nepal shows their dreadful income status too.

Rapid economic growth can be achieved through the effectiveness of economic activities through employment and entrepreneurship. An increase in income level improves the standard of living. Through increase in production, increase in exports and freedom of market entry leads to increase in commercial activities. Quality goods and services are then available due to international competition.

Similarly, Adam Smith—the father of economics—in his book ‘The Wealth of Nations’, published in 1776, put forward the belief that there should be no government intervention in the economy. In an industry or a business, a person or an organization works day and night for their profit, innovates, takes risks, competes for the sale of goods or services in the market. This benefits both the government and the consumer. Such things are rare in the government sector. In a liberal economy, individuals are free to make economic decisions. Demand and supply regulate the economy, the state’s control is relaxed. The policies adopted should be liberal and open in order to create an environment where the market can function as freely as possible without any government interference.

Another important sector which is an important standard of economic liberalization is the banking sector. Considering the current situation in Nepal, it can be seen that there has been a flood of private investment in the establishment and operation of banks. The belief that customs and tariffs should be the main basis for the protection of domestic industries should now be a thing of the past. With the protection of the state, the industries should have become competitive, but that could not happen. Rather than blindly following any argument or theory, it is important to identify the measures that are distinguishing to Nepal.

An open economy makes the economy more competitive, competition lowers costs, and when costs decrease, competitiveness increases. It promotes innovation and benefits the consumer. It also increases the active participation of the private sector in economic development. Therefore, it is not a matter of debate whether economic liberalization is the need of the moment, but how to get the maximum benefit from it can become a matter of debate. Economic liberalization in Nepal has increased the activities of the non-agricultural sector. Due to reforms in the financial sector, competition and efficiency have increased. In addition to financial access to the poor areas, the common people have also benefited from the increase in the access and use of modern facilities and equipment in the financial sector. The contribution of the service sector to the gross domestic product has increased.

An open, liberal and market-oriented economy is the need of the moment. A controlled economy is no longer possible and suitable in Nepal so there is no alternative to liberalization. But only voicing the need of economic liberalization cannot protect the poor who have not reached the mainstream of the state. Economic liberalization will be meaningful only if the benefits of the opportunities created by the liberal economy can be extended to the poor people. Otherwise, even if any theory is applied, it simply would not matter.

This article was published originally in the Nepali language on Sajha Bisaunee Daily.