Virtues of federalism

-This article was originally published on 13 March 2016 in The Himalayan Times by Ashesh Shrestha.

With the promulgation of the new constitution, Nepal is heading towards a federal system of governance from the unitary. Under the unitary system, the central government has the sole authority over the entire nation; its activities affect the entire nation without any exception. On the contrary, in a federal system there are multiple levels of government, each having control over its respective jurisdiction. A sub-national government (say, state government) enjoys autonomy in making decisions within its jurisdiction; the state’s policies and set of rules could be entirely different from those of other states. What does all of this mean to the citizens of a country, then – the impact this transition will have in the lives of the general public; what benefits will accrue to ‘us’ after adopting federalism?

Facilitating entrepreneurship

Under the current system (effectively unitary system of governance), almost all of the regulatory offices are located in Kathmandu. Let’s take for example, the task of business registration. If an aspiring entrepreneur wishes to start a new business in, say, Jomsom, s/he has to come all the way to the capital to register the company, acquire a license for operation, and almost all other regulatory compliances which increases the cost, time and effort in starting an enterprise. Under federalism, the task of business registration can be easily done in the respective state itself. Each state will have functional units of all ministries at sub-national (state/municipality) levels, making it easier for aspiring entrepreneurs to start their enterprises by reducing the cost and effort at the start, as well as future compliances.

Beyond BeneFits

The ease in doing business and development of entrepreneurship will help increase the number of businesses all over the country. This increase in the number of businesses can increase the employment opportunities at local level. Currently, the job market is also concentrated in the main cities of Nepal. People from every part of the country either have to travel to these cities for jobs, or, go abroad. Doing business, made easy by the federal system, can increase job opportunities locally. This will have a positive impact on the national economy. Additionally, the increase in economic activities will expand the tax base of the government, which will help boost revenue generation. An initial rise in the cost of administration because of having to establish functional units in every state will soon be compensated by this increase in revenue.

Greater Accountability

During elections, the representatives get voted based on the promises they sell to the locals. With federalism, the process of decision making (once the politician gets to that position) will also be easier, quicker and closer to the demand of the locals. This is because, each sub-national entity will have a smaller jurisdiction compared to that of the central government, the local leader will possess better knowledge of the preferences of the local people, and the locals have easier access to their local representatives whom they can make answerable at the very moment the representative fails to deliver as per the promise. Whereas, in a centralised system, all the decisions are made by the central government, who may not know about the local preferences and therefore end up doing things that are different from the actual demands of the locals. Besides, as every work is centrally administered, it takes a lot of time for that work to be completed. For example, if there is need for fitting the drinking water pipelines in a locality, any decision regarding this project has to be made all the way from the centre and the responsibilities have to be transferred in a top-down approach, which, in the process, takes a lot of time (and is also likely, in some cases, to beat the initial purpose by the time the job is done.)

Competition among states

Federalism allows all states to have their own distinct set of policies and laws. People on the other hand, can choose to migrate to the state whose policy they find to be the most suitable for them. For instance, if corporate tax in a state is very high, then businesses have the option to move to the state that has a lower corporate tax. Likewise, people can migrate to the state which provides better public services at a lower cost. There is, in this way, an expansion of choices to the general people of the country, and the different states compete amongst themselves to attract as many people/businesses as they can (because that increases their revenue collection). There are indeed genuine concerns of the people over some of the provisions that have been made (or not made) in the new constitution. Resolving these issues is absolutely important, but that very endeavour is also equally challenging. All of this will push back the implementation of the new constitution and thus practise of federalism. However, the economic benefits that Nepal, and more importantly Nepali people, can reap from federalism, the access to opportunities/prospects that are in store for us are real and huge. The sooner we move into the practice of federalism, the more the economic benefits that will accrue to Nepal.