Political economy of law: Issues and Extant in contemporary Nepal

 Suman Acharya

Abstract
Political economy was original reference of ancient economic activities which has been now
separated into law, politics and economics in separate discipline. Further, implementations of those
machineries are possible by converging these instruments together for the betterment of society. In
liberal society, market economy is key principles which leaves open room to private sector with
healthy competition whereas in authoritarian regime this instrument are operated by state
machineries. Plato argues that aristocracy is the best system to govern the country whereas
timocracy, plutocracy, despotism and democracy are gradually degenerated form of state system.
Money plays important roles afterwards the plutocracy. Further, Aristotle is in the favour of
aristocracy, monarchy and polity but oligarchy, tyranny and democracy are degenerated form of
those counterpart origin. However, liberal democracy is adopted in major countries in modern day
political system. Yet, Karl Marx supports communism concept rejecting market economy system
which is followed by few countries of the world. In fact, these political systems have economic
origin. Jurisprudence cannot be aloof from political economy of the country. Liberal society grants
market power to private sector whereas socialist country grants market power to the government
authority. As Nepal is following mixed economic policy, it adopts private sector, cooperative sectors
and public sectors as pillars of economy. Constitutionally, Nepal is adopting democratic socialism
to restructure the economy and the political system. Political economy can be categorized both into
liberal and socialist traditions in the practice of the world.
Introduction to political economy
Political and economic process and institutions are overlapping although they are separate in study
but united in functioning. Economic understanding supports the analysis of political agency and
structures. Economic structures and process are decisive in the political outcome. It is intimated to
policy decision for the progress of nation. It ultimately adjoins state and economy issues together.
Schumpeter has also defined political economy in the form of policy and decision making process of
state. It is construed in the Schumpeterian and Keynesian fashion in the 1950s and 1960s. Keynesian
political economy was widely criticised in 1970’s and 1980’s by monetary economist. Together, public

 Advocate/Nepal (LL.M.)

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choice theory was recognized that involved economic issues in the decision-making strides. Financial
crunch and crisis appeared recently showed the world that Bretton Woods financial order was collapsed
and welfare capitalism is established. Some of the conceptions of political economy are summarized as
below.
 Political economy: Although the triangular relation of law, politics and economics
alloyed with the notion of political economy, it never studies politics and economics
separately rather linked between the economics and state. Originally, there were the
different conceptions of political economy in various religion, mercantilism, physiocracy,
and classical thought. Religious concept supports of law of nature, mercantilism is in the
favor of trading practices, physiocracy is in the favor of utilization of natural resources
like agriculture and classical thought supports for free and liberal market economy. It is
apparently oblivion and specious to the philosophy of critical political economy. Under
the post classical economic thought, there are historical, subjectivists or marginalist and
neo classicists thought which are acting important role to run contemporary political
economy of the world. Chicago school of thought has greater level of contribution in this
discipline.
 New Political Economy: Based on the political economy concept, many scholars have
started to be pensive on the economic issues in relation to politics, sociology,
communication, and other discipline. It is more normative and analytical concept.
Developing countries of the world are maintaining in the assertive issues of them in
international arena through redrawing the traditional concept of political economy.
Redraw in capitalistic market economy through liberal approach is consequential in these
issues. It does not mean that new political economy is the amalgamated form of all social
discipline. It is the civil rights movement emerged with constitutionalism and
fundamental rights.
 International political economy: International political economy, as popularly known as
global political economy, is the result of the overcome of time and space and has become
inevitable part of the international relation of contemporary time. It transcends the
boundaries of politics and economics through global and international law. The issues of
balance of payment, international debt, and aid, relationship between developed and
developing countries, international trade, and finance are increasingly the pinpoint issues

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 of international political economy. The economically sound countries increasingly
hegemonized it. It is purely the economic policy issues shaped by bilateral and
multilateral treaty and agreement. International politics is hugely guided by liberal market
economy and privatization. Recent diplomatic relation is also abundantly dominated by
the economic issues and less political issues. So, international relation cannot be aloof
from international political economy. Globalization, localization and privatization are the
issues of international political economy. World Trade Organization, IMF, World Bank
Group, UN are playing important role in international political economy.
 Critical political economy: It is based on the philosophy of Karl Marx reflected in
Communist Manifesto, 1848 and Das Kapital. There are different stage of history and
class conflict which are primitive stage, slavery stage, feudal stage, capitalist stage,
socialist stage, and communist stage. There is no class and no conflict in primitive stage
whereas there is class of slave owner and slave in slavery stage. There will be landowner
and serfs in feudal stage whereas there are bourgeoisie and proletariat in capitalist stage.
Finally, there are state authority and worker in socialism state and no class and conflict in
communist stage. So, this stage of the country determines the political economy of the
country. Unlike socialism the political economy of capitalism is stingy and pretentious on
utilitarian and welfare society. The political economy of socialism, as game theory amidst
competing interest and purpose, is facilitative, progressive and distributive public policy
contrasting with extraneous devious policy. As cognizant with economics is the base and
state and law are superstructure in line with Karl Marx, the politics of economics results,
with the machinery of law, whether the social benefit is to be exercised by few or mass;
lassies faire entrenches the few and socialism entrenches the many.
 New critical political economy: This conception of political economy is based on the
philosophy of neo Marxist and Frankfurt School of thought. They argue that there is false
consciousness in contemporary globalized society. Everything is commodified to get
profit. If there is no benefit, no investment is possible. All the culture of the society tends
to generate false conceptions on the mind of the people. They follow the things which
never can be realized in their life time. They are critical to contemporary practices of the
globe in terms of commercialization of each and every discipline. Perfection are the
issues of slogan.

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Issues of Law and Politics
As law and politics are convoluted in a single domain, each acts, in their formation and
execution, as a friend and foe that demonstrates autonomy and opposite traits. As law is
autonomous only in operational level, parliament and delegated power formulates or enacts law
that reflects public policy. It is not a chimera that law guides politics in action for the salubrious
society and vice versa. Politics, a method of governance, acts as a mind with rational judgment in
general and social welfare in particular has to vehemently guide the large social sect with active
participation of them in the decision making of public policy, methods and execution with the
facilitation of the law. Antonio Gramsci, leader of the communist party of Italy, conceptualized
the hegemony in the politics and economics of the world system. V.I. Lenin used it in terms of
working class leadership but Gramsci expanded it to the ruling capital system and their specious
characteristics.
Politics and law are inseparable part
Although the justice concept of Aristotle and John Rawls largely executed from political
rationing, the machinery of it is law. Even the supporter of capitalism viz. Plato, Hobbes, Lock
and Rousseau included social contract theory with the participation of the people in large but
their philosophy is precluded with their hegemonic power of few. Thomas Hobbes prefers
absolute government system to protect life whereas John Lock prefers limited government
system for the protection of life, liberty, and property. Yet, Rousseau prefers autocratic
parliamentary system. Karl Marx endorses mass proletariat and not few bourgeois.
The positivists in law do not hesitate to accept the influence of wide range of social issues in law
making process with authority. As Critical Legal Study (CLS) Movement use law and politics
intermittently as a same system, both have mutual interdependency. Law is a method to provide
social justice in socialism. Socialism expects welfare in praxis not in mind. So, it subdues all
superstructures. Joseph Raz does not hesitate to accept law as the subsystem of border political
system but he finds independence in the operational level. Savigny rightly discourages
parliamentary law supporting customary law. Karl Marx and his follower made economic
analysis of law to prevail equitable system in the world. Feminism movement and
postmodernism equally consoles freedom with economic power sidelining the law and politics in
the periphery.

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Contributors of Law and Politics
 Plato: Plato prudently classified different state system as below in which each next
system is degenerated form of previous system. Each next system lacks proper level of
justice system.1
 Aristocracy: The nation ruled by qualified person is aristocracy. Aristocrat
refers to best citizen of the nation. During Greek and Roman period, this
political system was taken as best. They are allowed because they thought to
be rational. He prefers elected King with philosophical knowledge.
 Timocracy: After degeneration of aristocracy, people with wealth will be
there in the ruling system and they pay more attention on money and wealth
rather than social responsibility. They are fonder of love of honour.
 Plutocracy: The state ruled by wealthiest person is plutocracy. It is
degenerated form of timocracy. It is not a principled state system rather is
depicted in practice.
 Democracy: It is the rule by very few people ultimately. No justice can be
found in the democracy. Lower class people will get access in the power and
anarchy will be established. Unnecessary desire hampers justice system.
 Despotism: Single entity or group exercises the absolute power without any
justice. Such individual or group exercises unlimited power. It has pejorative
use in practice because person with government abuses power and authority to
oppress people.
 Aristotle: Aristotle presented monarchy, aristocracy and polity as the original system
whereas tyranny, oligarchy and democracy as the degenerated from respectively as
below.2
 Monarchy: Monarchy is the system of state in which a single person
exercises sovereignty. Aristotle rejects the exercise of hereditary monarchy
because individual person might be guided by passion, temptation, and greed.

1 Curzon, L.B., 1993, Lecture Notes on Jurisprudence (1st edition) , Cavendish Publishing Limited, p.15.
2 Ibid, pp.17-18.

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  Aristocracy: As Plato, Aristotle also supports aristocracy because they are
not guided by passion and greed. Few rulers with wisdom rule the state in this
system.
 Polity: Many people based on constitution or legal documents rule states with
diversity of governance. Middle people between rich and poor will get power
in polity.
 Tyranny: Tyranny is the degenerated form of monarchy. When monarchy
starts to be cruel and oppressive, tyranny will be established. It undermines
the social responsibility and will be more selfish. It is all for unlimited power
exercise.
 Oligarchy: When polity is degenerated, oligarchy will be emerged. In his
system, a small dominant group of people controls a country for the benefit of
same group. They are privileged group and may not only for wealth.
 Democracy: When polity will be deviant, democracy will be established that
will undermine justice. Poor people will be there in the power in democracy.
 Karl Marx: Marx conceptualized capitalistic and communist political system in which
socialism is the precursor of the communism. Socialism refers to the system in which
capitalists’ own means of productions but the government determines prices and profits
controlling through licensing system and other regulation whereas communism refers to the
system in which the government owns the means of production all. Yet, Marx rejects the
individual ownership of means of production for the equality of the humankind and
exploitation free society but capitalism carries individual ownership hugely. Marx predicted
the fall of capitalism and movement of society toward communism. So, Marx finds the role
of law in capitalism for exploitation and in socialism for rearrangement of social system and
no role in communism system.
Law and politics in Nepal
As the revolution or people’s movement vanquished regressive state system results new legal regime.
Revolution in 1954 dethroned Rana regime that established liberal legal system, Royal takeover in 2017
established authoritarian legal system, reestablishment of democracy in 1990 established liberal legal
system and movement of 2006/07 established republican legal system. As state system changes, legal
demarcation, and standard will also be changed. Constitution of Nepal (2015) has adopted the principle

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of democratic socialism. Constitutional provision is yet to visualize in society. Some examples of the
relevant case laws developed by Supreme Court of Nepal are as below.
 Hariprasad Nepal et.al. vs. Prime Minister Girija Prasad Koirala et.al: The dissolutions of
parliament by Prime Minister Girija Prasad Koirala is not invalid as it is enshrined in the
constitution of Nepal. No international practices and principles are required to consider if there is
explicit provision on the constitution.3
 Rabi Raj Bhandary vs. Prime Minister Manamohan Adhikari: The precedence established
by the case of Hariprasad Nepal et.al. vs. Prime Minister Girija Prasad Koirala et.al was reversed
in this case. The dissolution of parliament by Prime Minister Manamohan Adhikari was declared
invalid. If one government loses confidence and if there is another government which can
receive confidence is permissible.4
 Sanjib Parajuli on behalf of Rajib Paraljuli vs. Corruption Control Royal Commission: In
this habeas corpus case, Supreme Court argues that there is separate wings for the investigation
of corruption which is Commission for the Investigation of Abuse of Authority (CIAA) under
the constitution. So the Corruption Control Royal Commission was dissolved as it is
unconstitutional.5
Issues of Law and Economics
Economics is the science of wealth, which has interdisciplinary relationship with broader social system.
As law is convoluted to dispute settlement and justice system, it is more linked to social welfare
concept. According to Holmes, man of the future would be the man of statistics and the master of
economics.6 The Bentham’s ‘Greatest happiness of greatest numbers of people’ also depicts economic
approach of justice. His flaw is just highlighting majority people and undermining minority people. As
Karl Marx observed that, the every activity of us is related to economics, as economics is base and law,
state, religion and other are superstructures. Capitalism highlighted social welfare in the form of
utilitarianism whereas socialism highlighted based on economic participation of all in the form of
collective approach. It shows that capitalist has tried to incorporate the thesis of socialism in his or her
own account. The entitlement justice concept of Nozick, capitalistic rationality concept of Max Weber,

3 NKP, Baishkh, 2064, Decided on 2051/05/27 available at http://nkp.gov.np/full_detail/8881/?keywords=, visited on

9/19/2018.
4 NKP, Baishakh, 1111, Volume 1, Decided at 2052/05/12, available at http://nkp.gov.np/full_detail/8880/?, visited on
9/19/2018.
5 NKP, 2062, Volume 11, decided on 2062/11/01, available at http://nkp.gov.np/full_detail/2166/?, visited on 9/19/2018.
6 M.D.A. Freeman, 1994, Lioyd’s Introduction to Jurisprudence, (6th ed.) Sweet & Maxwell, p.620.

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liberal society concept of Spencer, economic knowledge to the lawyer concept of Justice Holmes are
also economic understanding of law. Yet, Ronald Coase, Guido Calabresi, Richard Posner, Caldor and
Hicks, Karl Marx and John Maynard Keynes are major contributors of law in relation to economics.
Major contributors of law and economics movement
 Ronald Coase: Coase is the pioneer in the economic analysis of law. Coase in his writing ‘The
nature of the Firm7’ analyses that the firm is emerged in the production to avoid extraneous
transaction cost. By rejecting the efficiency concept of the Adam Smith, Coase suggested to
internalize the production of goods and services to avoid numbers of transaction costs. He further
opines in ‘The Problem of Social Cost8’ that equity and distribution of income and wealth and
efficiency based on transaction cost should be analysed in the social cost issues. He has
presented the examples of farmer and rancher. If the farmer is responsible for the crop damage,
the farmer will pay for the fence as long the fence costs less than the crop damage. If the rancher
is responsible for the crop damage, the rancher will build the fence.
 Guido Calabresi: He also contributed in relation to law and economics through his writing. He
highlighted on the economic approach in his writing on ‘Some Thoughts on Risk Distribution and
Law of Torts’ in 19619, ‘The Cost of Accidents: A legal and Economic Analysis’ in 1970 and
‘Property Rules, liability Rules and Inalienability: One View of the Cathedral’ in 1972. Guido
Calabresi is unanimously recognized as a founding father of the Law and Economics movement
as he has elaborated on Coase’s central ideas and integrated them into a general framework for
discussing legal problems. Economic analysis began to penetrate the legal debate in fields of law
that are usually referred at as ‘economic law’. For the effectiveness and assessment of law, he
employed economic justification.
 Richard Posner: He is also one of the contributors of law in relation to economics through his
writing ‘The Economic Analysis of Law’ in 1973.10 As he presented the economic justice concept
in law, he is more pragmatic in justice dispensation system. He also developed the concept of
wealth maximization.11 Posner claims that, “The idea that law should attempt to promote and

7 Ronal Coase, 1937, The Nature of the Firm, Available at https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-

0335.1937.tb00002.x, visited on 9/23/1018.
8 Ronal Coase, 1960, The Problem of Social Cost, available at https://www.jstor.org/stable/724810, visited at 9/23/1018.
9 Guido Calabresi, 1961, Some Thoughts on Risk Distributions and the Law of Torts, Yale Law School, available at
https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=3035&co
ntext=fss_papers&seiredir=1, visited on 9/20/2018.
10 Richard Posner, 1973, Economic analysis of Law, available at
https://openscholarship.wustl.edu/cgi/viewcontent.cgi?article=2680&context=law_lawreview, visited on 9/23/2018.
11 R. Posner, 1983, The Ethical and Political Basis of Wealth Maximization, in M.D.A. Freeman, Supra Note 3 , pp.705-715.

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 facilitate competitive market and to stimulate their result in situations in which market
transaction cost are prohibitive – the idea that I call “Wealth maximization” – has affinities with
both Kantinian and Utilitarian ethics; which the former because of the approach protects the
autonomy of people who are productive (…) with the later, because of the empirical relation
between free market and human welfare. (Posner, 1995: 403).
 Pareto: He is Italian economist who highlighted on economic efficiency and income
distribution. Pareto efficiency also known as Pareto optimality is a state of allocation of
resources that it is impossible to make any one individual better off without making at least one
individual worse off. So, he developed the concept Pareto Improvement which means allocation
of goods has to arranged in such a way that at least one individual better off without making any
other worse off.12 He presented only in theory and not in practice. A weak Pareto Optimum is a
alternative allocation method in which all individual will prefer it. More efficiency can be
derived if at least one person is made better off and nobody is made worse off. It is impractical.
 Caldor and Hicks: Caldor and Hicks conceptualized the way to execute Pareto Efficiency
through compensation.13 It is true that no person can be better off without making other worse
off. However, if compensation is given to the worse off, worse off person will also be changed
into better off. It is more practical than Pareto principles and it can be applicable in more
circumstances. It is more applicable in welfare economics. This principle can also be applied in
the time of decision making of the case by judiciary and quasi judiciary bodies.
 Karl Marx: Karl Marx is the founding father of socialist concept of economics that vehemently
criticized the economics of capitalistic mode of production through dialectical materialism. He
opines that bourgeois class always makes exploitation of proletariat class that demands class
conflict automatically. Modern supporter of welfare economics includes the concept of Marxist
economics indirectly. It is opt to use in the country with wide gap between have and have
not. He does not hesitate to support that even crime is the result of economic disparity. It is also
supported by capitalistic country extremely highlighting on the money as the central figure of the
any criminal activities under anti financial crime laws. Karl Marx saw the role of law in
socialism to make the foundation for communism but it will be withered away in communism

12 M.D.A. Freeman, Supra Note 6, p.621.

13 Ibid, p.622.

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 along with the demise of the state. However, law and state are not central figure rather
economics is the central figure.
 John Maynard Keynes: Keynes, in his writing ‘General Theory of Employment, Interest, and
Money’ in 1936, highlighted on the role of government intervention through government policy
to track market economy. He proposed this policy to handle great depression.14 However, his
concept is different than the concept of Adam Smith and Karl Marx. Policy level intervention
also reflects the role of law although he is not from the legal background. Policy level
intervention is also the concept of socialism.
Law and Economics in Nepal
Right relating to property under Article 25, Right to Employment under Article 33, Right to
Labour under Article 34, Right relating to food under Article 36, Right to housing under Article
37, Right to social security under Article 43, Right of consumer under Article 44 of Fundamental
Rights, Financial procedure of Constitution of Nepal (2072), all the taxation laws, fiscal laws,
Land laws, banking laws deals with the law in relation to economics in the context of Nepal.
Economy is supported by private, public and cooperative sectors.

 Rajib Dhakal on behalf of Rajendra Dhakal vs. the Government of Nepal: Supreme
Court of Nepal has made economic analysis of law in this case. Supreme Court for the
first time issued the different level of compensation for the violation of law in habeas
corpus case. In its decision, after recognizing that the status and whereabouts of the
missing persons remained unknown, the Court analysed the international obligations
binding upon the State with regard to clarifying what has happened to missing persons
and concerning the right of the missing and of their relatives to appropriate remedy and
relief. As a result, the court issued several orders to the government of Nepal to adopt
new legislation in order to both define enforced disappearance as a criminal offence and
to provide for the right of detained persons to humane treatment and fundamental
guarantees, as well as to establish a commission of inquiry into the disappearance of the
victims on whose behalf the petitions had been brought.15

14 DN Dwivedi, 2010, Macroeconomics Theory and Policy, 3 rd edition, McGraw Hill Education (India) Private Limited, New
Delhi, pp.13-14.
15 NKP, 2064, Volume 2, p.169, Decided Date 2064/02/18, available at http://nkp.gov.np/full_detail/3784, visited on
9/19/2018.

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  Liladhar Bhandari vs. Government of Nepal: Transitional justice accepts strategic
remedies. So the process of truth seeking, reparation, institutional reforms and vetting
should be considered. Even in the conflict, the body, life and property are protected.16
 Madhab Kumar Basnet vs. Government of Nepal: The mobilization and utilization of
natural resources are domestic issues. It is the matter of ownership and sovergnity. The
terms and conditions can be prescribed in the time of granting license for the mobilization
of natural resources. If conditions are not fulfilled, license can be cancelled.17
Conclusion
Political economy is based on the issues of utility, wealth, value, commodity, and labour. It
ranges and fathoms the entire economic standard in application in society through law and
politics. In exercise with those issues, the structure of population, poverty and inequality,
unemployment, urbanization, rural development should not be forgotten. The population is
increasing but employment is not increasing in same fashion. Large population results large
number of labour. Employment of labour increases production and unemployment of population
results negative consequences. The relation of land and rent, labour and wages, capital and
interest and organization and profit should also be guided by policy level intervention for
economic growth and quality of living of the people. National income has to be distributed to the
people equally that is not viable in complete capitalistic system where larger numbers of people
are backward or under poverty line.
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16 NKP, 2065, Volume 9, Decided on 2065/09/23, available at http://nkp.gov.np/full_detail/2492/?, visited on 9/19/2018.

17 NKP, 2072, Volume 06, Decided on 2071/07/21, available at http://nkp.gov.np/full_detail/8455/?, visited on 9/19/2018.

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‘The end…’

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