Maoist trade unions are reshaping Nepal’s manufacturing industries. Extortion, constant labor agitation, and personal threats are driving once-large factories to shut their doors. Remaining manufacturers are learning to adapt and circumvent using guerrilla factories. In the end, Nepal is losing crucial business as buyers shift their sourcing to India and elsewhere.

Trade unions in Nepal are politically affiliated. Maoist Trade Unions (MTUs) are the strongest and most active unions. They present themselves as uncompromising labor advocates, and they have some successes to their credit. Small hotels that used to keep staff working 30 days a month, now give staff one day per month holiday. Restaurants now pay around $100/month plus gratuities to staff that only a year or so ago were making $20/month. As is common in Nepal, however, what begins well can rapidly sink into a miasma of corruption and self-advancement. The MTUs cannot rest on their laurels–particularly given that they are now doing far more damage to the labor force than good.

A Case In Point

At one Kathmandu factory, Nepal’s labor laws detail severance packages that amount to NPR 2,500/year of work plus an additional NPR 2500, but the union went on strike and demanded triple that amount. They placed the factory owner under house arrest, surrounding his home and refusing to let him or his family outside. After a week of negotiations, the owner called around and found that other similar companies had settled on NPR 3600/year. Wanting to take care of the workers, he offered NPR 4600 and the union agreed.

The union leader guaranteed that this agreement would apply to their other factories, but three weeks later, the second factory in Bhaktapur went on strike over the same issue. The Kathmandu union leader simply shrugged his shoulders and said he knew nothing about it. Frustrated, the owner did not engage in negotiations this time but instead called around to family connections and found a well-placed businessman who was part of the Maoist upper eschelon and who agreed to make a call to the Bhaktapur leader. The following day, the union leader who had been screaming in the owner’s face one day was suddenly polite.The entire situation dissolved without negotiations. When well-placed connections are a better asset than fairness, the Maoists are perpetuating the very nepotism and elitist factionalism that their rhetoric rails against.

Since then, the Bhaktapur MTU has been silent; however, the Kathmandu MTU has returned to demand NPR 100,000 “donation” to the labor union. They call the owner every day, sometimes multiple times a day, sometimes making veiled threats of bodily harm. Both strikes plus the recent monetary demands have taken place within the space of a month, and it is unlikely to subside. Businessmen these days are forced to spend less time on business and more on politics.

Given the persistent labor issues, you might be inclined to assume that this particular factory is mismanaged. Far from it. This factory is not only representative of the ubiquitous labor agitation facing manufacturers across industries, but in fact was a pioneer of better labor standards in Nepal. Beginning 15 years ago–long before MTUs arose–this factory voluntarily eliminated child labor and provided health insurance, education scholarships, family planning, and daycare when such benefits did not even exist in Nepal. Their advocacy hasn’t won them any points with power-hungry union leaders.

Some workers at the factory didn’t want to go on strike because the factory had treated them quite well over the years. They did not support the MTU, but they were afraid to stand against them for fear of being beaten. While they didn’t come to work, they also didn’t come to the strike meetings. The MTU then penalized all such workers with a fine of NPR 200/strike day. MTUs intimidate workers into participating in their political struggle and demand payments from the very people they are supposed to be helping. The pressure workers to conform in part because they want to mobilize a mass of “street soldiers” when it is politically expedient.

Scaling Back

Businessmen are fed up from incessant extortion and threats to personal safety. It is common knowledge in Kathmandu that local union committees of 2-3 people are allowed to keep 40% of the money they extort. Many of them are building houses in other areas with the funds. The Maoist leadership rotates people through this committee level regularly so that everyone has a chance to make some money–which is why the extortion never ends. It’s also common knowledge that people from doctors to journalists to businessmen have been beaten for not cooperating with the Maoists.

In discussions with factory owners this week, one factory had cut staff from 250 to 170, another from 150 to 10, another has shut down completely. Foreign buyers are confronted with Nepali suppliers who are raising prices but can’t deliver on time due to labor problems ranging from workers leaving for an entire day to attend a political rally to full-blown strikes. The buyers are also faced with suppliers that close up shop overnight. Remaining suppliers would like to garner the business, but they struggle to convince buyers that they are stable enough to do business. Many major buyers have shifted to suppliers in India or other countries. Jobs are disappearing at an alarming rate in a country already plagued by rampant unemployment.

Guerilla Factories

The MTUs are inadvertently creating a new model of manufacturing in Nepal. Employees who want to work are as frustrated as businessmen–and even more intimidated. They are splitting off into guerrilla factories. These micro-operations run in houses where the Maoists can’t find them or think them too small to bother with. Businessmen reduce or dissolve their main factories and outsource production to these small groups, incurring greater overhead with more challenging communication and quality control. Nonetheless, it’s worth the trouble because they avoid harassment and threats.

Forcing workers into underground operations, however, is not to their benefit in the long run. Businesses that used to offer health insurance or severance no longer need to. It’s someone else’s responsibility now, but that someone else is a small-scale manager without the resources to offer benefits. No one is monitoring child labor or working conditions in a hundred micro-enterprises. Small operations also have greater risk exposure. After investing in equipment and set up, they are more vulnerable to market fluctuations and could easily go out of business if orders don’t come from their single client. They also can never expand or scale their business. Moreover, the increased overhead costs for businessmen collecting goods from these operations make Nepal less competitive in a price-sensitive market.

Disservice To Labor

A Maoist would tell you that they are fighting for the rights of the working class, advocating for them–and some laborers certainly believe this, especially after centuries of inequity and exploitation by landowners cum businessmen. Appealing propaganda–promises of “land to the tiller”, ethnic states, and protection of laborers–have rallied common people to the cause, but the Maoists are failing labor on three key accounts:

1. MTUs are strengthening the nepotistic relationships where elites are able to solve their business problems through personal connections but smaller, newer businessmen (no matter how fair-minded) end up frustrated by constant harassment and forced into massive payoffs. Current businesses are entrenched and don’t need to be competitive or accommodate workers. Young entrepreneurs cannot advance or grow their business.

2. MTUs are not advocating on behalf of labor but rather using labor as they can to their own political advantage. Labor in Nepal has endured a series of self-serving masters and the Maoists are no exception–even if their palatable propaganda creates a veneer of empathy. Undermining the economy, forcing factory closures, and creating a grossly untenable business climate only exacerbates economic woes. Official figures place unemployment around 42%. What people in Nepal need is job creation, especially jobs like manufacturing that can be filled by its largely uneducated workforce. What the Maoists need are angry, disenfranchised people protesting in the streets to consolidate their political power. (One good reason why trade unions should not be politically affiliated.)

3. MTUs are creating an atmosphere of anarchy. Rule of law is the best way to begin to address Nepal’s faltering economy and political instability. If Maoists want to benefit the people or have any chance to govern, they need to begin by curbing the lawlessness of their own party members.

So long as MTUs are disrupting business through persistent agitation, threatening business owners, and creating barriers for investment, the everyday people of Nepal will continue to suffer the economic consequences. Labor advocacy has a place in business, but the endless labor problems characterizing Nepal’s manufacturing industries will not help workers if there are no jobs to negotiate about. Nepal’s Maoists are repeating a common failure of Communist regimes: mismanaging the economy to the detriment of the masses. It’s time for Nepal’s Maoists to start an economic revolution…and begin building the economy up instead of tearing it down.