Nepali workers ask: Long-term security or short-term risk?

This question crops up many times in reference to Nepalis who leave the country for employment. The pat answer is that we are ashamed of labour and there is no respect for work in Nepal. This may be true to some extent but it is not nearly sufficient to explain the exodus we are witnessing. 

To understand the scale of the labour flight, we need to understand two things. First, people don’t like risks. Research in behavioural economics and psychology has shown that people prefer a lower income that is steady to a higher income that is uncertain. Second, tending vegetables in Saudi Arabia is wage-employment where the employer bears all the risk, whereas growing vegetables in a village in Nepal is self-employment where the risk is borne entirely by the small farmer. This makes all the difference.

Wage-employment assures a steady cash flow that allows households to plan how much to consume, invest and save. By offering a degree of predictability, it increases access to credit for educational and medical expenditures and the purchase of consumer durables. The sense of security afforded by wage-employment frees people from the bondage of myopia, allowing them to take decisions and pursue actions – like educating their children – that yield high rewards in the long-run but have no short-term returns. In contrast, cash flow in self-employment is uneven and uncertain. Some months are better than others but there’s often little knowing what the end of the month will bring. This hobbles the ability to plan and project for the future. People prefer wage employment not so much because it pays better but because it is safer.

A poor business climate adds uncertainty to the risk inherent in doing business. To give a sense of the weakness of Nepal’s institutions, I could bore you with dry numbers: to export from Nepal, you need to complete 11 documents per shipment and spend 41 days and almost US$2,000 complying with all the procedures. For a commercial dispute to be resolved in court, it take 39 procedures and 910 days; for a new electricity connection, a company has to complete five procedures, wait 70 days and spend almost 18 times the per capita income! If you live in the same world as I do, perhaps you need no convincing that 18-hour power cuts, entrenched corruption, hooliganism of trade unions and rampant extortion do not make Nepal a particularly friendly place for businesses. 

When it comes to agriculture, the risks are magnified manyfold. There are two sources of risk in agriculture – variability in yields and fluctuation in prices. Consider what it takes to produce a crop successfully: soil conditions, temperature, humidity and precipitation have to be just right at just the right time; the right amount of fertilisers and pesticides need to be applied; and the crop should be protected from natural hazards like hail, frost and storms. Weak agriculture extension service, poor weather forecasts and the unavailability of fertilisers and pesticides on time further compound the risk. 

Even with a bountiful harvest, a drop in market price may wipe away profit margin. Farmers may not be able to sell produce because of poor links to markets. A lack of proper storage facilities and absence of contracts force the farmers to sell the produce immediately after harvest when the market price is lowest. The buying power of traders and middlemen may compel producers to sell at a price lower than the market rate. Once you start to see the risk in self-employment and agriculture, you begin to wonder why anyone would venture into it at all. 

But what about the success stories, you might ask? The storyline is familiar – a migrant returns to her native village from Malaysia and starts a dairy farm. The farm now employs local youth and sells thousands of rupees’ worth of milk every day. It is easy to forget that for every hit, there are a hundred misses, and no newspaper ever ran a story under the headline “Local farm almost succeeds”. Despite what the micro-finance movement wants us to believe, the apt metaphor for a micro-entrepreneur of the developing world is not a valiant fighter who, against all odds, is pulling herself up by the bootstraps. It is someone who is dangling by a thread, at the mercy of the vicissitudes of the environment and economy, hanging on for dear life. The heroic micro-entrepreneur will happily trade places with the dull wage-earner any day.

If we’re serious about staunching the flow of Nepali youth, let’s create proper, well-paying wage jobs at home by ensuring macro-economic stability, creating a favourable business environment and maintaining the rule of law. Until then, let’s stop moralising about the virtue of serving one’s motherland, lamenting the haemorrhage of the youth in their prime and railing against the exploitation of cheap third-world labour by the global capital order. It might be cathartic, but is ultimately worthless.