Recommendations on land reform and national development in Nepal

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Professor Wen Tiejun (Beijing)

Dr. Lau Kinchi (Hongkong)

27 July 2008


In July 2008, in Kathmandu and during field trips to villages, we had discussions with leaders and cadres of major political parties, academics, landless and poor peasants, landlords, and NGO workers. Based on the discussions, we have gained some understanding of the social and economic situation of Nepal. The following is an outline of our preliminary observations and recommendations for policies for sustainable and stable development in Nepal.



1.         Institutional policies for the empowerment and autonomy of the national economy with land reform as the nucleus


The question of land reforms in Asia has never been seriously discussed by Asians: that the land reforms in South Asian countries have not produced any successful model, even if they have been scientific and legal; whereas the land reforms in East Asian countries and regions have not produced any unsuccessful model, whatever ideologies or political systems the countries or regions claim to be.


Though there is an agreement between the CPN(Maoist) and the other political parties that land seized by poor peasants from landlords would be returned pending a “scientific land reform” to be launched by a new government and a new constitution, it is uncertain whether at the grassroots level, peasants would accept the political arrangement of accommodating to the legality of the old system and giving up what they have already gained through revolution, and whether at the macro level, the “scientific land reform” to be launched by the new government will be taking the South Asian model or the East Asian model.


It is necessary to study the differences of land reform experiences in the different regions of Asia. In South Asia, despite the fact that land reforms “scientifically” set different ceilings to the land holdings and “legally” compensated landowners for the surplus land which was then distributed to landless peasants, the land reforms were conducted for the purpose of land reform only, and so they were part of the unsuccessful policies of the national bourgeoisie which by nature could not mature and were subordinate to a colonialist economy. It was a different situation in East Asia. Whether it was the “institutional change by coercion” pushed through with violence by three wars for land in mainland China, or the “institutional change by incentives” practised in Chinese Taiwan whereby the government compensated landowners with future shares of state industries and commerce, the land reform was a unified policy implemented in the whole country or region, and based on equal distribution of land at the village level. Land reform is never a question of agrarian institution in itself, but a most fundamental, core relations of property for the national economy of the country or region in East Asia to get rid of colonialism and struggle for independence and autonomy.


Hence, land reform for the peasants is simply land to the tillers, but land reform for the country is fundamental institutional building which is instrumental to the strengthening of the national economy. In East Asia, it was implemented in countries or regions that claimed to be either “socialist” or “capitalist” – China, Vietnam, Korea, Japan, Chinese Taiwan. Land reform is of the nature of democratism and not of socialism. Hence, the success of the land reform in East Asia was not a result of ideology or institutional legislation borrowed from the West. In a word, land reform should not be an independent change of the agrarian institution, but should be a basic component of a comprehensive program for building the national economy.


Based on the above understanding, we would like to pose our preliminary thoughts for a land reform scheme in Nepal:


--         All land is to be acquired from the landowners, without setting any ceiling. Land is to be equally distributed among all members of the village. The government is to set an “average market price” as compensation to the landowners. Landowners can take either option: 1) If the landowners choose to have the compensation paid in full, they will not receive cash, but will receive bonds of state corporations such as hydro-power or infrastructural corporations, or long-term government bonds; 2) If the landowners choose to receive cash, 15% will be deducted from the compensation amount, which will be allocated to the local government budget for initiatives for the land reform, or for rural infrastructural development after the land reform.


--         For the peasants, land is to be distributed equitably among villagers on a per capita basis. The land is not given for free, but is to be paid back as “land price” in crops and not cash. Peasants can take either option: 1) to pay back 10% of the land yield for 15 consecutive years; 2) to pay back 15% of the land yield for 10 consecutive years (or at a rate in between, but 15% of the land yield should be the maximum). Either option is much less than the 50% that tenants now pay to the landowners. After the land price is fully paid, the government can calculate the average yield of the land over the 10-15 years, and impose a 5% land tax per annum. In this way, the crop payment will assure the government of national food security over the long term. On the other hand, after 10-15 years, local governments can still obtain 5% of the total crop yield in the form of land tax, which can be used for local governance (such as improving irrigation facilities) in normal times, and for price control by the central government in times of food crisis.


This scheme is a combination of the mode of land reform in mainland China, Japan, Korea, Chinese Taiwan and Vietnam. The advantages are fourfold:

1) political stability most needed by a new-born democratic country is assured without violent clashes in land seizure between peasants and landowners;

2) the government already in financial stress need not take up an extra financial burden in launching the land reform; by being given bonds rather than cash, landowners may convert into the bourgeoisie more concerned with expected returns and hydro power gains rather than going into immediate consumption or speculation;

3) the new government can take advantage of this opportunity for self empowerment, and set up the financial base for share-holding corporations with state control of natural resources and strategic industries of the national economy; the government can issue bonds to promote infrastructural development;

4) while land goes to the tillers, a state system of food security with low transaction cost is formed between the government and scattered small peasants; peasants with equally distributed land will voluntarily contribute crops to the state and guarantee a low cost operation of the state system of food security.


The gist of this scheme is that the government will take the institutional returns, but shift the institutional costs to others.


2.         Reasonable exploitation of water and forest resources


After overthrowing the monarchy, the new government should take the opportunity to nationalize all natural resources in the country, and set up state-owned corporations based on joint investment of resource development cooperatives. While hydro power development may be pursued with state bonds on hydro power linked to the land reform, the development of forest resources may be directly linked to community forests. On the condition that the management of forest economy and under-forest resources can sustain the livelihood of the local people in the mountain and forest areas, the villagers, with responsibilities, rights and benefits, should be obliged to defend the forest resources of their community.


Democratically elected committees on community forests will carry out the following:

1) negotiate and decide on the thinning intensity, frequency and volume of the forests, and the limits on the intervals and the scales of logging. The state should, through legislation, prohibit clear cutting.

2) grassroots community forest committees will join the state forestry corporations by holding shares corresponding to their forest area, volume of trees and volume of stock. They should benefit from the state’s preferential policies in supporting small agro-forestry farms or cooperatives, and also benefit from the state’s provision of management, skills training, and infrastructural support.

3) promote structural eco-economy of forestry, and implement under-forest economy (primarily organic agriculture and animal husbandry) so as to link environmental conservation with development of agro-forestry; the organic products can be exported by the state forestry corporations.


This scheme will offer 10-15% of jobs for the rural population, and address the question of employment for a relatively poor rural population which faces shortage of land resources even if the land reform is accomplished.


If the Nepali government can control its rich natural resources to develop share-holding hydro power state industries and community-based, integrated forestry economy, it need not replicate the Chinese and Vietnamese models of industrialization.


3.         Avoiding economic crises under globalization


The experiences and lessons of some former socialist countries in transition to the market economy may help the Nepali new government in understanding and avoiding the financial crisis which is inevitable with globalization.


Vietnam recently underwent a serious financial crisis. The basic reason is that: most of Vietnam’s economic policies after the 1980s followed those implemented in China 3-5 years ago; yet it has not followed China’s mode of capital control. Vietnam practiced the open policy of financial liberalization without taking as reference China’s mode of gradually increasing its foreign currency reserve under strict foreign currency restrictions.


Pertinent to the situation in Vietnam is the case of the former Soviet Union. The USSR suffered an acute economic crisis under the Stalinist regime because Stalin dogmatically took Lenin’s analysis of financial imperialism, and failed to carry out the transition of the economic structure from physical economy to financial economy through the acceleration of monetization and capitalization by the USSR state during the regime’s most stable period. Hence the economic structure was not upgraded by their own initiatives. With the economic competition of mainstream capitalism being represented by calculations into GDP, the former USSR and Eastern European countries insisted on having the data of their economic volume represented without bubbles and without monetization that would overvalue the volume of physical products, even though the volume of their physical products was larger than the West; still, in terms of GDP, they were seen as greatly lagging behind the West. Later, the political reform of the USSR induced the disintegration of the regime and the almost collapse of the monetary system which was dependent on the political regime. The West thus had an opportunity to monetize the physical economy and physical assets of the former USSR, and also took the returns of coinage tax.


Learning from the lessons of the former USSR’s failure to monetize in a timely and autonomous manner, the Chinese experience of 1992 was, at the same time when it proclaimed entry into the market economy, to operate the three speculative capital markets (real estates markets, stock markets and futures markets) in a closed-door mode, which means the capital markets within China were not open to external capital. At the same time, China accelerated its process of self-monetization. In the ten years after the disintegration of the USSR and the Eastern European socialist camp, RMB was issued two or three times faster than the GDP growth. In 1978, the total savings in China was RMB 28.2 billion, with loans at RMB 184 billion. Now, savings is RMB 14 trillion, and loans RMB 11 trillion. China now is a semi-monetized country with at least RMB 100 trillion physical properties nation wide, competing with other countries by its physical production and enlarged financial sector.


The question is: how to set up the Nepali monetary system for self capitalization? There is an urgent need to know the relationship between the foreign reserve and the debt structure. It will be beneficial to set up a mutual commitment of the monetary system between Nepali and Chinese central banks. The bubble US dollar system is subject to quick impact by hot money, and several billion US dollars can destroy the national economy. After 1971 and the collapse of the Bretton Woods Agreement, the US dollar has neither been linked to gold nor to the trade of physical products. A mutual commitment of the Nepali and Chinese monetary system can help maintain Nepal’s economic sovereignty under the pressure of the financial crisis induced by global capitalization.


However, it is necessary to set up the base to stabilize the Nepali economy, hence the first two points above are paramount. Without the first two points, the Nepali economy may come under the risk not of control by USA, India or China, but of the collapse of the banks due to the financial crisis.



If our input could be relevant, we could invite scholars from East Asia who are independent intellectuals, neither from the government nor from the business sectors, to form a voluntary specialist team to assist in socio-economic research in Nepal and offer policy consultation.




Professor Wen Tiejun

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Dr. Lau Kinchi

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