Sad as Nepalese history is (as we discussed here and here), things have been getting better over the last 50 years. Extractive economic institutions, such as slavery, coerced and bonded labor, have been gradually dismantled. So how did this come about? Did the Nepalese monarchy and elite change its mind and decide that after all developing the country was not so threatening? Or maybe some clever economist explained to them how costly these institutions were for the economy?
Actually, the reason why economic institutions in Nepal finally started changing had nothing to do with these and everything to do with the changes in the distribution of political power: Nepalese economic institutions became less extractive because its political institutions started becoming less extractive.
The first step was the popular overthrow of the Rana regime in 1950-51. Corvée and many other forms of forced labor were first banned in 1952, immediately following the 1950 revolt and the brief experiment with multi-party democracy. This was the first successful attempt to undermine the power of the elite and broaden the nature of political participation. It also led to the first road being constructed from Kathmandu to India. Another non-coincidence.
Alas the young democracy was overthrown quickly by King Mahendra and the monarchy ruled with the only channel of popular representation being a national Panchayat which was indirectly elected and had little power to influence the decisions of the king.
This regime was brought to an end in 1990 by another popular revolt which finally brought a national legislature based on universal suffrage. Forced labor and ultimately, in 2000 Kamaiya, was abolished because the political equilibrium in Nepal changed in a direction which empowered those who were hurt by the institutions. Once Kamaiya workers could vote and once political parties had to compete for their support, it was impossible to sustain the institution. The distribution of political power had changed and as a consequence what economic institutions could be sustained in equilibrium.
The monarchy did not take this lying down. In 2005 the ruling king, Gyanendra, mounted a coup suspending Parliament and declaring martial law. Most democratic politicians were forced into exile in India, where they entered into a coalition with Maoists insurgents to orchestrate a massive campaign of popular opposition to the king. In 2006 he was forced from power and in 2008 the monarchy was abolished.
The Nepalese experience illustrates a general pattern. Just as extractive economic institutions are kept in place by extractive political institutions, economic change most often results from political change.