By Trijya Kafle
Les Trente Glorieuses, a phrase from French directly translated as “The Glorious Thirties”, represents a three-decade period of social and economic transformation after the end of World War II. Even though it has been nearly 15 years since the end of Nepal’s Civil War, glorious years for Nepalis are nowhere near sight. Although needless bloodshed is in no way comparable to the historic war fought for dignity, equality and justice, the hopefulness of France and Nepal were similar by the end of their respectidive chaotic periods.
The incumbent Nepali government promised challenging opportunities for the economy when it first came to power. But the ineffective management of COVID-19 seems to slowly sway away the trust that the government has gained overtime. The current chain of events from disobedience of Supreme Court’s decision to arrange to send domestic migrant workers home, the government’s obliviousness towards those at the bottom of the pyramid, to corruption amidst a global pandemic; the government seems to be gaining nothing but distrust from its citizens.
Moreover, the reinstated “Enough is Enough” movement as a consequence of government’s failure to address the demands of the Satyagrahis has been fueling distrust towards the government. But why should we worry about the declining trust of citizens towards the government?
First, distrust will lead to low growth, high regulation and high corruption which in turn increases suspicion among the citizens. Harvard researchers identified negative correlation between trust and regulation i.e. countries with high trust have low regulatory requirement in place for businesses. The immense regulatory requirement encourages businesses to take a little detour on ethics and engage in corruption. When civil servants start engaging in corruption, businesses are motivated to evade taxes as it is cheaper to bribe civil servants than to pay taxes to the government.
These occurrences will lead to more regulation which further increases corruption. Its repercussions can be felt throughout the economy as decrease in government revenue will further curb the government spending on infrastructure, education and health. This creates a never ending spiral of distrust as termed by Alex Tabarrok, a Canadian Economist, as “distrust trap”.
Second, in distrustful economy informal sector starts to thrive. The gap left by futile government is filled by organized criminal gang members. As government loses its confidence, the informal sector gains momentum. The problem with informal sector is it falls beyond the jurisdiction of the government and is nearly impossible to regulate. The aftermath can be devastating as incidences such as child labor, hostile working conditions and criminal activities can no longer be restrained.
The recent surge in the philanthropist activities of Sicilian Mafia, organized gang members operating in the Sicily Island of Italy, explains how ineffective government can be an opportunistic moment for organized crime. They have been providing food supplies to the needy in the hope of gaining their confidence. Moreover, the Mafias have been generous in offering SMEs cash in exchange for their businesses to use it as a vehicle for money laundering. When Mafia knocks on their door, the citizens have an option either to starve or to swallow their belief and accept help from the Mafia.
Third, the ultimate ramification of distrust is hyperinflation. Most of us believe the cause of hyperinflation is mounting debts and uncontrollable inflation but it is when the citizens reject the currency that the economy starts to go haywire. When a government is corrupt, does not follow fiscal discipline, and fails to collect taxes, the currency collapses causing hyperinflation. Fundamentally, hyperinflation occurs when citizens lose faith in the currency and start transacting in a different currency.
Lebanon recently experienced a hyperinflation amid COVID-19, experiencing a surge in the price of consumer goods by up to 50 percent. The implications are staggering as 40 percent of the Lebanese are projected to fall into the poverty grid.
Lebanon’s current economic state shows that it will be challenging to gain the confidence back when the economy falls into distrust trap. So, what can be done?
Even though regulation and trust are negatively correlated, Harvard researchers believe that easing up of red tape is not the answer. Even when governments are deemed as untrustworthy, deregulation has been empirically proven to further decline trust. To avoid the repercussions, Alex Tabarrok believes countries should avoid falling into the pit altogether.
Amidst the unfortunate pandemic, rather than engaging in bitter power struggle, effective management of COVID-19 will reinstate the trust of Nepali citizens. The government needs to ramp up its efforts in containing COVID-19 as without enough groundwork, the current coronavirus preparation will only create more suffering than it is meant to avert.
Kafle is a lecturer at Nepal College of Management
Aghion P. Algan Y. Cahuc P. Shleifer A. (2010). Regulation and distrust. Retrieved from https://academic.oup.com/qje/article/125/3/1015/1903634
Tabarrok A. (2016). Regulation and distrust. Retrieved from https://marginalrevolution.com/marginalrevolution/2016/08/regulation-and-distrust-revisited.html
Bettiza S. (2020). Coronavirus-The lure of mafia money during the crisis. Retrieved from https://www.bbc.com/news/world-europe-52537573
Huang R. (2020). Hyperinflation in Lebanon leads to Mass Protest Retrieved from https://www.forbes.com/sites/rogerhuang/2020/05/03/hyperinflation-in lebanon-leads-to-mass-protests/#387c7b11730b