Influx of Kathmandu: A Perception from New Economic Geography

A taxi ride down any street in Kathmandu in the sweltering heat or monsoon rain could end up in a few seconds into the ride. It is not the heat or the rain that found a flaw in the car engine that forced the journey to end abruptly at any location, at any time but it is the traffic jams which has not spared even the gullies and alleys of the city. Everyone who has been to Kathmandu can related to this problem yet no one might have even bothered to look at this problem of population influx in Kathmandu from an economic perspective.

It might seem strange to a layman or someone unfamiliar with one of the works of ingenuity by a genius Nobel Prize winner, Paul Robin Krugman, but yes this madness in the streets and the income of people in the capital city of Nepal can be explained, as is obvious with the theories linked to the theory of New Economic Geography done on developing economies, with this theory of economics.

This could be explained with analogies drawn upon the two factors of discussion here, namely, New Economic Geography and the current scenario of Nepal with prime focus on Kathmandu. So first delving into Economic theory would require outlining what the basic idea is behind the theory. NEG basically explains the agglomeration: process of gathering into a mass- centralization of people and resources in a urban location (my personal definition) as an outcome of contributory factors like economies of scale, transport costs, price differentials inherent to large market size. So it explains why a economic region, economically more prosperous and profitable than other regions tend to attract more prosperity and productive economic development. So instead of developmental economic contributory factors like production and service spreading out, they tend to concentrate in a few countries, regions and cities, which will be more populous and have higher income than rest of the geographic locations.

Drawing this analogy would require a scrupulous eye to retrospect the history of Nepal and its strong inter linkage with Kathmandu at a glance. In the medieval and ancient past, Nepal was merely a small coherence of three smaller states or cities: Kantipur, now Kathmandu, Patan and Bhaktapur; rest of the cities were non existent in the then Nepal. Production and economic development has been confined within these three cities with Kathmandu the more formidable among the three. Even through struggle of years in battle, Kathmandu was, has and will, unless until the government thinks otherwise, be the capital of Nepal. So it has enjoyed prosperous times as the central hub of the entire nation.

It is this reason coupled with centralized political structure, most of the major businesses are headquartered here. All of the ministries are here and with this, almost 90% of the bureaucrats dwell in Kathmandu. Home, temporary or permanent, to more than 4.5 million people of the total of about 30 million population, Kathmandu is the ultimate dream of dwellers from rural regions and other cities. Kathmandu has all the jobs in the world for more of the Nepalese poor and middle class. Yet instead of companies seeking more opportunities in term of human resources, natural resources, and other facilities are reluctant to step beyond the periphery of the city. Hence, less job opportunities in other parts of the nations force more people to flood into the city. So what is the reason behind this reluctance of most companies except few manufacturing conglomerates? This problem is more evident in service industry. The answer is the theory of NEG.

The ever so growing service and business portfolio of Kathmandu has lured many companies to operate in Kathmandu. With more people living in the city, human resource is available here in abundance. The availability of transportation facility has made every street, corner or alley accessible to the city dwellers and manufacturing and service companies. This, accounting for the inflation in transport fare and the per capita GDP growth rate of residents of Kathmandu, has made transportation cost relatively cheaper, note that it is not lower. More people are seen adjusting themselves into the crowded micro buses but their numbers are growing exponentially too; for a comfort seeker micro bus and bus rides appeal less, yet hapless as s/he is, s/he has to wait for long hours in ques for those public transport. This portrays the magnitude of crowd influx in the city; yet people are happy because they are paid higher than anywhere in the country for the same job if they had one as same; the per capita income of residents of Kathmandu is higher than other cities.

This influx of people has seen boom of service sectors like Hospitals, Schools, Colleges, IT offices, and others alike. More people demand higher for these services which aptly backs up the fact that the market place has become bigger and so there is more price differentials as can be inferred from the theory. Even manufacturing plants are lured into operating in the city itself with the current trend of housing sector boom exemplifying the effect of growing market size, which grows evidently with surge in population. The market is growing and so are the market players taking Kathmandu the way of perfect market competition from price and product monopoly en route to relatively cheap products bearing in mind the inflation, apparent in Nepal, more so in Kathmandu. These are only instances of businesses which are creating sumptuous lifestyle for Kathmandu dwellers- a temptation for rest of the population.

With contribution from all these factors scale economies are not too far-fetched, as a matter of fact many companies enjoy this business luxury created with good strategical business planning for their businesses. These very economies of scale have balanced the cost of luxury with factor of inflation minus the factor of income. If we draw a relation between these factors we could say that Cost of Luxury (L) is a function of economies of scales ( E_s), inflation (π in macroeconomics), income (Y) with inverse relation of L with E_s and Y, and direct relation with π; higher the economies of scale and income lower will be the cost of luxury and higher the inflation the same cost will be higher too. As is implicit to the definition of economies of scale, it is evidently achieve when resources like labor, capital and others are available in abundance for full utility. 

So factors like these contribute to trade opportunity maximization in Kathmandu as compared to other parts of the country. Considering all these factors, a micro bus ride is bound to be more crammed than now even if their numbers grow exponentially and the streets will be invaded by more motorbikes, an ominous sign of growing middle class, scene palpable in any developing or underdeveloped economy. Then, a solitude seeking soul wanting to dwell the city for thoughts, which could inspire him/herself to write creatively or innovate, in a cab would be less likely to contemplate ideas than indulging in swearing at the busy traffic jams. Yet s/he is unaware that this nuisance is called agglomeration, a phenomenon studied from the perspective of New Economic Geography in economics.

Economic Development Emanates from the Disgruntled Physiological Needs

Most people read about the Maslow’s Need Hierarchy Theory but they rarely think that economic development emanates from these very inadequacies. Most people will basically disregard this thought saying it is not in their scope of interests let alone delving into the relevance of this hypothetical statement.

Countries like Nepal lag behind most developing countries in GDP and other economic indicators because the outcries of the hungry, the unclothed and the unsheltered majority groups are smothered underneath the moan of desperation of the middle class to step beyond the pretentious dreams of macroeconomic prosperity.

Governments come up with different policies and plans to outfox these physiological shortcomings from Maslow’s Theory into retracting its ill-effects and bestow economic prosperity in the country. In the process the more important issues like physiological needs elude their over optimistic and over ambitious plan of actions.

Instead of focusing on satisfying the physiological needs, the government focuses on developing the supplementary courses of actions like greater access to education for the impoverished, industrial and commercial development, greater access to information and technology. This draws an imaginative mind metaphorically to a question about whether it is a correct measure for a doctor to prescribe vitamin supplements to a starving person.

One would be compelled to think about the irrelevance of such approach taken by governments of developing and under-developed nations across the world where issues with such extraneous approaches to poverty alleviation are preposterously rising with quite a lot of intensity. They invest heavily on all these supplementary plans without thinking what could be the really right solution.

They think the path to development is carved by virtue of enhanced working and living condition for the middle class, where they could work harder with the hard earned degree they value the most and earn better to live better later. Yet they foresee the world as being a battle ground of middle class people fighting to attain the state of high class people and in the process oversee that the real world is still struggling to emerge out clean from the dearth of poverty where starvation prevails over needs for education let alone better education.

People at the upper levels still fail to realize that the need of the hour is to satisfy people’s need for food, clothes and shelter where education is a far fetched solution that will take some years in taking its full effect. They have to realize that the problem is rooted deep in the foundation and that policies have to be focused on eliminating those basic problems.

It is about time they thought what Maslow so rightly stated with a little more inference from educational perspective, here. How would someone who is hungry, doesn’t have clothes, and is homeless going to focus on education? So promoting education to fight off poverty in a pro development movement is not what is needed and never was. It is only a catalyst that could trigger an avalanche effect of economic prosperity in a country.

So what could be the possible answers to these questions raised about what should then be actually done to attain economic development? For me it should be one that talks about full fledged packages that is focused mainly with securing a meal for the impoverished, a shelter s/he can take shade in and clothes to wear and incorporates education promotion with a provision for total employment, which could assure that all these requirements are met every time.

It could be the other way round too; in that it could be in the form of education promotion package securing employment right away for at least one member of the household en route to fulfillment of those physiological needs.

If development is to be achieved, it is not the middle class that should be targeted but it should look upon creating national provisions, acts and regulations in favor of packages that incorporate all necessities: basic to supplementary; the doctor should either give food to the famished along with vitamin supplements to ensure better health or prescribe the starved individual vitamin supplements that intrinsically buys him/her the food, s/he longs for so much.

A closely knit metaphorical example draws upon the following conclusion. Life is impossible without food, the most basic of physiological needs, and physical growth is unachievable without nutritional supplements. Growth is hence unimaginable without satisfying the hunger just like development is impossible unless the ravenous souls’ hunger is satiated.

This analogy of physical growth to development and nutritional supplements to education and other supplementary development programs elicits another relationship between failed attempt towards innovation and the disgruntled physiological needs in under-developed countries.

So it is quite evident, “Where unsatisfied needs arise, innovations emanate but these creative ideas vanish when the needs are left unsatisfied for too long because if you don’t eat for too long you become hungry and hunger kills, not just individuals and their creative ideas and also the society’s will and desire to innovate.” This partly explains why poor countries are getting poorer with zero or failed attempts from their societies to create solutions to these issues.