E-Kantipur

News reports in the USA a few weeks ago put the cost of the Iraq-Afghan War to the US Treasury/Tax payers at three trillion dollars. This amount is already an incurred cost of the wars and the mission is not yet finished.

A few days later, another news report said that the US Interstate highway system is breaking down and is in urgent need of repair and replacement. The cost estimated is two Trillion dollars.

The two sets of data are interesting but unrelated; for an economist, however, they are highly relevant when viewed using the concept of opportunity cost: How could America have used those three trillion dollars otherwise? One option could have been to re-build the Interstate highway system and do much more—low-cost housing; student aid; medical research etc. By one calculation, such productive use of money that was spent on foreign wars could have added at least one percent to US economic growth per year for the foreseeable future. With US GDP now at US$15 trillion, this translates into $150 billion loss of income for US citizens each year—far into the future.

Constitutional waste

Secretariat of the Constituent Assembly (CA) recently provided an account of CA-related expenditures incurred during the nine-month period from July 2010 through April 2011, which were financed mostly from foreign assistance, totaling just over 31 billion Nepali rupees (US$445 million). It is not clear what the pattern of such expenditure over the full 3-year term of CA has been, but assuming that CA-related spending has been like this throughout this 3-year period, the total cost comes to almost 100 billion rupees (US$1,430 million).

Although I do not believe that this kind of money could have been generated for investment financing, if there were no constitution and peace process, but supposing good economic policy and a drive towards prosperity, it could have been possible to put this money to better use. Here’s what could have been accomplished:

•    Black-topped road: 3,000 kilometers, or

•    Railway track:     900 kilometers, or

•    Mid-class housing: 1 million units, or

•    School buildings: 100,000 units, or 

•    4-year College: 1 million students, or

•    Some combination of all the above and more.

Talking about politicians’ aversion to intellectual discourse, economist John Maynard Keynes once observed that “practical men [by which he meant the wheeling and dealing politicians] who believe themselves quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” I do not know how many of the current CA members have basic economic knowledge (through study or otherwise) but, if they did, they would have considered, as a matter of priority, how much will it cost to frame a new constitution, and whether the country can afford it. Of course, as a matter of preference, we can opt for the world’s best constitution, but we must consider affordability.

Any economist worth his/her grain of salt would tell you that cost consideration is important in any situation if the objective is achieving the efficiency of resource use and maximising satisfaction. This essentially means doing things in the cheapest way possible; consider all possible choices that could have been made instead; and whether such other choices could have been more beneficial. This idea is known to economists as opportunity cost—need for giving up something to be able to choose something else, in the face of limited resources and unlimited needs.

The real cost of constitution-making—in Nepal or elsewhere—is not the time and money that have to be spent pursuing this objective but what needs to be sacrificed for this. It is not that we ever had a choice over the constitution, but the idea of opportunity cost consideration would have alerted CA members—also the general public—of the sacrifices that have to be made,

in terms of not being able to do other useful things; as the ones listed

above. Such knowledge would not have meant not writing the constitution, but doing so in the most efficient and economical manner.

One defense of spending such huge amounts of money for constitution-writing would be that the money that was spent was not our own money; most of it was received as donations from friendly nations and agencies which, otherwise, wouldn’t have been available to Nepal. However, this thinking is wrong and irresponsible because foreign donors work in a group to assess what is called the “absorptive” capacity of a country; the amount of aid assistance the country can usefully utilise. The amount of foreign aid actually given is usually based on such assessments.

It is not quite clear whether the constitution and peace process related overseas grant money allocated to Nepal was in addition to the amount usually received, or whether this amount was a part of aid allocation normally available to the country. My own impression is that most of the constitution-support funding came out of normal foreign aid funds that diverted resources from other competing uses dependent on foreign aid, such as infrastructure and social development programmes.         

The next steps

The CA’s term has now been extended for another three months, during which time, it must finish drafting the constitution and complete the peace process. However, there is no guarantee that any serious work can be attempted—much less completed—during this brief period and, more likely, another extension will be necessary or, failing that too, the nation will live through the wrenching nightmare of a constitution-less government.

Assuming that another one-year extension is granted, it would be wise for the CA to keep the costs down as a matter of priority. The most effective way for doing this would be to assign a constitution-drafting task to a panel of outside experts of one dozen or less, through a party-line “weighted voting,” which also would mean that smaller parties in the CA will have to coalesce to gain a weighted voting strength of a minimum percentage points, determined by the ratio of 100 to the number of panel members to be selected for constitution-drafting.

Such a constitutional panel would need to be given firm guidelines, through voting in the CA, on strategic issues they need to abide by—state-restructuring, parliamentary or presidential system, devolution of power to the states, and many other such other critical issues. The panel members would be given a firm deadline for submitting a draft constitution to the CA, for debate and voting. Even taking into account the additional time that would be needed for revisions and amendments, the whole process could be completed within six months to a year, which means that, if the CA would have been serious and cost-conscious, we could have had a constitution by the end of 2008. This would have allowed the CA to attend to more urgent matters; of democracy, governance and meeting urgent social needs.

Shah is an economist and former staff of the International Monetary Fund

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