Can a fi nancial bubble burst if no one hears the pop? Transparency, debt, and the control of price in the Kathmandu land market

Andrew Haxby

Abstract: Th is article concerns the formation of price in Kathmandu’s land market. In Nepal, land has been for generations the bedrock of savings and household fi nance, an objectifi cation of social status and a subject of intense political debate, up to and including the recent Maoist insurrection. In Kathmandu, however, the meaning of land has begun to change, mostly because of the rapid fl uctuations in its monetary value. Th is article demonstrates how residents have used localized understandings of price and value formation to explain these changes, under- standings that take as their reference point historical landlord-tenant relationships and not the machinations of market equilibrium. Th is article interrogates the no- tion that the market animates price, instead arguing that price can index a multi- tude of value formations. Keywords: economic anthropology, informal economy, land tenure, money, price

In the summer of 2011, I interviewed a man in taken loans from the banks and who had to sell a town on the northern ridge of the Kathmandu to make their payments—that was worth less Valley. Th is man was a young father of two, a lo- now. cal to the area and of the Tamang ethnic group. Th is article is an attempt to explore the full Like many, he had engaged in land speculation meaning of this man’s assertion, an assertion during a recent housing bubble, which had left he was not alone in making. During numerous him with investments he could not sell now that conversations with local brokers, homeowners, the bubble had collapsed. Yet, unlike many, he and developers, I heard this argument repeat- had managed to buy land without loans and was edly: that aft er the bubble collapsed, land prices in no rush to divest. I asked if he believed the only fell for those who had loans to banks and price of his land was lower than it was before thus were forced to sell. Th is argument dove- the bubble burst. He paused before saying no; tailed with another peculiarity I repeatedly came his land was still worth exactly what he had paid across in interviews with landowners and other for it. It was other people’s land—those who had residents of Kathmandu: despite being told re-

Focaal—Journal of Global and Historical Anthropology 78 (2017): 77–89 © Stichting Focaal and Berghahn Books doi:10.3167/fcl.2017.780107 78 | Andrew Haxby peatedly by bankers, government regulators, informal brokers as they negotiated land deals.1 and economists that land prices had fallen sig- Th ough my interviews with banking offi cials nifi cantly aft er a period of reckless speculation, and government offi cials gave me access to the few individuals outside of these groups seemed higher echelons of Kathmandu fi nance, most of to believe that the price of land had decreased at my research was conducted within smaller, more all. Instead, they simply stated that people had informal markets, ones populated by household- stopped buying land, thanks in part to changes ers, small-time developers, and brokers. in banking regulations. Business had stopped, Th is article should be taken as suggestive that much was clear. But land prices had not gone rather than defi nitive, an attempt to undermine down because, according to these informants, price’s universal economic defi nition in order to land prices never go down in Kathmandu. reveal its composite nature (Guyer 2009: 203). Financial bubbles rest on the assumption of First, I outline the recent history of the Kath- price equilibrium: that in a functioning market, mandu land bubble, focusing on the involve- a commodity’s price will naturally trend toward ment of commercial banks. Next, I discuss the a balancing of supply and demand (e.g., Fried- current structure of Kathmandu’s land market in man 1976; Kindleberger and Aliber 1978). A relation to recent writings on the performativity bubble happens when overly available credit of markets. Finally, I present a brief synopsis temporally infl ates demand for a certain com- of Nepal’s history of land tenancy, focusing on modity (or set of commodities), supplanting how land’s economic value has historically been the commodity’s “real” price with a fi ctitious, controlled by a landlord class. Th is history gives overvalued one. A bubble ends when a process precedent to the relationship between landown- of devaluation or “correction” returns the com- ers and commercial banks, providing the proper modity’s price to its equilibrium. From this per- context to the man’s above proclamation about spective, these informants’ insistence that land the price of his land. I end by suggesting that prices had not dropped was simply a matter of equilibrium may not be as universally central denial. As one Nepali economist told me, what to the conceptions of price as is sometimes as- I was hearing were “fantasy prices,” with no ba- sumed, while also questioning the future mean- sis in the real economy. However, in this arti- ings of price in Kathmandu. cle I resist taking these informants’ opinions as simply a sign of ignorance. Rather, I argue that their perception of price dynamics reveals a nu- Th e bubble anced understanding of land’s economic value in Kathmandu, both in terms of the market’s Th e story of this housing bubble begins with current structure and in terms of Nepal’s history Nepal’s formal fi nancial institutions. During the of land tenure. 1990s, Nepal followed India’s lead and liberal- Th is article is based on two years of fi eld- ized its banking policy, relaxing the state’s mo- work conducted from 2012 to 2016. During this nopoly on high fi nance (Khanal et al. 2005). time, I conducted more than 50 interviews with Between 1990 and 2010, the number of govern- offi cials at commercial banks, fi nancial com- ment-regulated fi nancial institutions rose from panies, and microfi nance cooperatives, current 8 to 263 (Ozaki 2014). Much of this period of and former government regulatory offi cials, pro- fi nancial expansion overlapped with Nepal’s civil fessional property evaluators, individual home- war (1996–2006). As the war gutted other in- owners, land developers, land brokers, and li- dustries throughout Nepal, Nepali fi nancial in- censed paralegals who prepare documents for stitutions managed to fi nd ample business in less land transfers. I also conducted workplace ob- aff ected sectors, particularly in remittances sent servation at a fi nance company that specialized from Nepalis working abroad. When the bubble in housing loans, at a commercial bank, and with began to collapse at the end of 2009, remittances Can a fi nancial bubble burst if no one hears the pop? | 79 were 20 percent of Nepal’s gross domestic prod- a family years to raise funds to build a house, uct (GDP) (Gautam 2011: 25) and, according to with many families opting to add fl oors as they banking offi cials I interviewed, accounted for can aff ord to do so, this form of development the vast majority of the banks’ liquidity. was extremely popular. Both these high-end Th us, when the war’s end opened the door realtors and lower-end plotters also acted as to more brazen forms of fi nancial investment, conduits for fi nance, off ering their connections Nepali banks were well positioned to take ad- with fi nancial institutions—oft en the very insti- vantage. Th e country, however, was still in sham- tution from which they had borrowed—to help bles, with few sectors able to absorb the banks’ arrange loans for the purchasing family, thereby capital. With nowhere to invest, many people moving their debt to their clients. dumped their capital into the Nepali stock mar- Th e popularity of both these development ket, oft en buying stock in newly opened fi nan- strategies helped to heat up the land market. cial institutions. Th is strategy only increased the Several reports found that from 2006 to 2009 need for other forms of investment outside of the price of land increased 300 to 400 percent in fi nancial institutions. the areas just outside Kathmandu’s urban center Th e solution for many was the real estate (Nelson 2013; Shrestha 2011). Likewise, I heard market in and around urban areas, particularly reports in northern Kathmandu of land prices in the Kathmandu Valley. Th ough Nepal’s cap- increasing upward of 10 times their original ital city had been expanding quickly since the value, the price of a single aanaa (roughly 32 1950s (Manandhar and Ranjitkar 1981), it wit- square meters) increasing 100,000 NRs (roughly nessed unprecedented growth during the war $12,000) every month. Not only did prices in- years as families fl ed to the city for security and crease, so did the frequency of sales. Between economic opportunity. Th ough Kathmandu is the fi scal years 2007/2008 and 2008/2009, the estimated to have grown 45 percent between number of recorded land transactions in and 1995 and 2005, such numbers are probably an around Kathmandu’s urban centers almost dou- underestimate, counting only those who regis- bled (Sharma 2009). tered their move with the government (Muzzini As the prices increased, so did the credit op- and Aparicio 2013). Th is population shift accel- tions. Rotating credit schemes called d. hukut.is erated the transformation of Kathmandu’s agri- raised their monthly payments upward of 10 cultural areas into residential housing, creating times their original amount so that the monthly lucrative investment opportunities for the fi nan- recipients could receive payouts large enough to cial sector. According to Nepal’s central bank buy land.2 Individual participants were obliged (NRB), the amount of real estate and housing to pay upward of 200,000 NRs (roughly $24,000) construction loans tripled between 2007 and each month, with many individuals “playing” 2009 (Shrestha 2011). Many of these loans were (khelnu) several d. hukut.is at once. Likewise, mi- taken up by large-scale investors, who began to crofi nancial cooperatives, which are notoriously buy up land along the city’s periphery, building underregulated in Nepal, also began to invest suburban subdevelopments—complete with re- their own capital in land, either by providing liable infrastructure, clean streets, and manned their board members low-risk loans or investing security entrances—where the upper classes of their depositors’ money directly into develop- Kathmandu could retreat. Beyond these high- ment schemes,3 eff ectively tying up their mem- end investors, less capitalized developers bought bers’ fi nances in a speculative market. When the up medium to large tracts of land, partitioned bubble fi nally collapsed, many of these cooper- them into plots for single-family houses, con- atives collapsed with it, their members’ deposits structed gravel roads and the most minimal in- vanishing into thin air. frastructure (e.g., sewers, poles for electric wires), Simply put, many actors began to take on and sold the plots to families. Since it can take large amounts of debt at high interest rates in 80 | Andrew Haxby order to leverage themselves into this market newspaper articles reported land prices fall- in any way they could. Consumption practices ing 30 percent (Poudel 2010; Sharma 2011). fl ourished. Dance bars, supermarkets, and res- Th e NRB took over the management of several taurants became ubiquitous, while the roads be- banks. Half-built housing complexes lay un- came choked with newly purchased motorcy- touched across the city, while people told stories cles and cars. As a friend of mine stated, “peo- of would-be entrepreneurs hanging themselves ple were just throwing out [phaalnu] 500, 500, over loan payments. 1,000 [NRs].” Th is time period also saw the rise However, these developments seemed to ex- of several major pyramid schemes or “network ist in a diff erent world than the smaller informal businesses” (Sharma 2010) that promised quick markets I was observing. Th e owners of these returns on investments. Another friend de- large developments usually did not reside lo- scribed attending a network business meeting cally, and their identities were oft en unknown, in southern Kathmandu and of being mobbed let alone the nature of their fi nancial obliga- by ten diff erent people, each promising him tions. In daily life, the failure of these devel- enough capital to buy land if he was willing to opments was marked by a kind of quiet stasis: invest in the scheme. half cleared and muddy plots of land, with some In December 2009 the central bank, NRB, colonized for corn or vegetable farming. Several fearing a real estate market collapse, put out informants quietly admitted to having to sell new regulations on lending in the real estate their land in order to make loan payments. Yet market. Th is included a cap on the amount banks these whispers seemed to have little eff ect on invest in the real estate market (25 percent of land’s price, or at least on what local informants their portfolio by 2012) and a fi xed ceiling on believed the price of land to be. Th ings were not the maximum loan a bank could off er in re- desperate; they were quiet. Simply put, no one gard to the market value of the loan’s collateral was buying. (66.7 percent of the collateral’s fair market vale In the years since, normality has returned to for private housing, 60 percent for commercial the market. Before Nepal’s large earthquake in real estate) (Gautam 2011: 20–22). Around this 2015, one banker told me that the Kathmandu same time, Nepal was also hit by a severe liquid- land market was where it was in 2007, when the ity shortage, further restricting the amounts bubble was just starting. Since the earthquake, that banks had to lend. Th ough the reasons for land prices have doubled, as residents in con- this liquidity crisis are contested, with many gested areas move to more open areas and new banking and government offi cials blaming a regulations require larger housing plots. Yet slowdown in remittances and capital fl ight af- when talking to house owners, informal bro- ter the Maoists won the election (Hilalmedia kers, and other actors in the market, this “recov- 2010) while other observers point to banks’ ery” was not preceded by devaluation. Rather, overly high deposit rates and reckless lending for a period of time, land transactions simply (e.g., Khanal 2011: 2–3; Sapkota 2011: 18–20), stopped. Th at was all that changed. what is clear is that aft er the implementation of the NRB’s new regulations, fi nancial institutions quickly curtailed their lending to this sector. In How land is price the fi rst year aft er the NRB’s new regulations, loans to the real estate sector dropped by 34 per- Did the price of land fall during the Kathmandu cent (Gautam 2011: 36). Without credit to fuel real estate crisis of 2010? To answer this ques- investment, potential buyers vanished, leaving tion, one must discuss how land is priced in investors of all types with unsellable assets and Kathmandu. Despite the high market values, oft en extreme amounts of debt. Th e number much of Kathmandu’s land market remains in- of land transactions fell by 60 percent, while formal, the majority of sales arranged through Can a fi nancial bubble burst if no one hears the pop? | 81 networks of local, unlicensed brokers (dalaal),4 here one is stymied by weak documentation. who are usually paid on commission. Because When a land sale is fi nalized and registered these brokers have no legal claim to their pay- with the government, buyer and seller are re- ment, they must be careful to keep themselves quired to write down the sales price. However, central to the transaction, oft en not allowing since the government charges a tax based on buyers and sellers to meet until late in the ne- the amount written, these reported prices end gotiation. Much of the negotiation over price up being much lower than the actual sales price. happens between brokers themselves on behalf Th e Nepal government maintains its own land of their clients, adding a layer of mediation that price index, which records the minimum price can oft en obscure the price of an individual one is allowed to report for any area, yet during plot. Furthermore, brokers can oft en increase the bubble these prices were oft en just a fraction their payment through price manipulations. of the going market rate. Consequently, people Th ough commission is the most common form opted to only report the government’s price. of payment (usually 2 to 5 percent, paid by the Indeed, numerous individuals told me that the seller), brokers can also take “margin,” either by government taxes were so high that, for families reporting a higher price to the buyer and pock- rich in land and little else, they would be disas- eting the diff erence, or by placing an advance on trous if paid in full. the land for a certain period of time (usually one Th us, pricing land is a laborious process that to three months) and fi nding a buyer willing to favors those with local knowledge. For econo- pay more than the price negotiated in the ad- mists, bankers, and government regulators, this vance. During the bubble, profi ting on margin means that universal changes in the market can became quite popular. I heard stories of brokers be diffi cult to render transparent. In particular, putting advances on the land and then letting it is almost impossible to create a price index other brokers put an advance on their advance, that could record fl uctuations across the Kath- the second broker then searching for another mandu Valley. In 2013 I talked to a young Ne- party (sometimes another broker as well) will- pali man working for a fi nancial consultancy ing to pay even more. fi rm who attempted to create exactly this type of In other words, brokers’ success oft en de- index but gave up aft er encountering the prob- pends on their ability to control interactions lems listed above. between buyers, sellers, and other brokers, mak- According to the Nepali economist men- ing themselves essential while oft en hiding their tioned above, the land market’s opacity has kept own strategies. Indeed, though the literature on people from realizing that the land prices have middlemen oft en emphasizes how a broker’s dropped. Th e Kathmandu land market lacks the work bridges the gap between the embedded economic infrastructure to communicate price economies and larger capitalist structures (e.g., changes to economic agents effi ciently. Not only Sud 2014: 609), few have discussed how brokers are homeowners in denial about falling prices, are oft en invested in keeping that bridge as long but the land market’s structure impedes the cir- as possible. culation of information necessary to grasp shift s For any observer wanting to track land prices, in price. this system presents a problem. One can ask Th is equivalence between price and informa- brokers for the general prices of areas, but these tion is a foundational notion in market-oriented general prices are exactly those “fantasy prices” economics, dating back to Friedrich Hayek’s that have not fallen. If one wants to know work, and his famous comparison between price what land is actually selling for, one must push and the dials on a gauge (1944: 56). Yet many through these networks of brokers, a process scholars have questioned the extent to which that is infeasible on a large scale. Th e other op- transparency in general, and price equilibrium tion is to examine land transaction papers, but in particular, can exist outside of the mediating 82 | Andrew Haxby technologies that allow for it. As Kregg Hether- collateral, banks will send formally independent ington (2011) argues, transparency is the render- evaluators who calculate the land’s market value ing of text without context, a feat that depends according to a number of factors, including ac- heavily on a complex and ideological semiotic cess to roads, water, and other resources, as well infrastructure that must be constantly hidden as the market price of surrounding properties. from view. Likewise, recent work on the per- Th is latter data point, essential to valuation, re- formativity of economic systems has highlighted quires a certain amount of connoisseurship on how economic models help to produce their the part of the evaluator. In conversation, most own predictions, while simultaneously obscur- evaluators made reference to their “experience” ing their own involvement (Callon 1998, 2007; helping them discern land’s true monetary Holm 2007; MacKenzie 2006). As Janet Roitman worth, experience that then gets transformed states in Anti-Crisis, “It is best to think of fi nan- into valuation reports that are in turn key to de- cial models, instruments, and methods as devices termining the size of the loan. In other words, for formatting and creating contexts, as opposed though rigorous to a point, evaluators do rely on to assuming that they operate in a given context” interpretation to discover price. (2013: 76). Text and context are coproduced. Furthermore, this interpretation is not totally Th is complicates the usual narrative of fi - within the evaluator’s control. If a bank is un- nancial bubbles, which emphasizes emergent happy with its evaluator’s work, it can delist the pricing and equilibrium. Our ability to “see” a evaluator and fi nd another it prefers. A crucial fi nancial bubble depends on an infrastructure factor is whether the evaluator’s price is com- that can transform assets into debts and rational petitive with that of other evaluators from other profi t seeking into irrational euphoria (Roitman banks. If another evaluator reports a higher 2013: 49). From this perspective, price must be market value then that evaluator’s bank can of- seen as a composite of multiple transactions and fer a larger loan, and the bank with the lower institutional actions, of standardization tech- evaluation will lose the business. Th us, evalua- niques and legal practices, and of informal bro- tors have had a reason to infl ate their price of kerage and interpersonal dealings. Jane Guyer land, particularly between 2006 and 2009 when has argued along these lines, showing how a land prices where skyrocketing. Likewise, in the price incorporates a history of actions and trans- aft ermath of the bubble, evaluators were un- actions behind its thin veneer of singularity der pressure to make sure their valuations ac- (2009: 219). Price has not a universal meaning counted for the drop in price. Here banks have a but an idiosyncratic one that may or may not tool of infl uence as well. Th e NRB allows banks include price equilibrium. To return to the Ta- to “blacklist” evaluators if the bank was unable mang man’s claim that the price of his land had to collect their outstanding debts aft er foreclos- not fallen because he had no loans, implicit in ing on a property. Th is is serious legal punish- this claim is that what constitutes the price of ment, one that freezes the blacklisted person’s his property is diff erent than what constitutes bank accounts and suspends them from doing the price of land for other landowners who owe any business with banks in the future. Th ough money to formal creditors. By having no loans rare, and meant mainly to discourage evaluators to commercial banks, this man is not tied to the from taking bribes, the threat of such a pun- devaluation they helped precipitate. Th at mar- ishment still acts as a deterrent to optimistic ket fl uctuation is simply not part of his price. valuations and gives banks leverage to depress Indeed, commercial banks in Nepal, in con- valuations. junction with the state, are deeply invested in Beyond infl uencing the evaluator, banks can building a market with a discoverable equilib- infl uence land prices through their own calcu- rium. In order to assess the value of properties lation of fair market value (FMV). FMV is the that their debtors are buying or have put up for price the land should bring on an open market Can a fi nancial bubble burst if no one hears the pop? | 83 if sold by an unpressured buyer, and it is on a the power dynamics of valuation can be readily land’s FMV that banks determine the size of a seen. By reducing their loans to the real estate loan. Generally, banks calculate this by creating sector, while also lowering the fair market value a proportional price using both the land’s mar- on land collateralized aft er the bubble, banks ket price and its government price. Before 2010, and the NRB put eff ective downward pressure many banks weighted land’s FMV values heavily on the land prices within their own sector of in- toward its market value (e.g., 90 percent market fl uence, in essence performing the devaluation value and 10 percent government value), but af- a postbubble crunch predicted. Outside of their ter the collapse, most banks began calculating sector, this pressure was not as eff ective. Rather the FMV as weighted more toward an even split than appearing as a natural correction toward between market and government values (e.g., equilibrium, this devaluation could be seen as 60 percent market price and 40 percent govern- an attempt by elites to exert control over the ment price), reducing the amount borrowers value of others’ land. Th is power dynamic, I ar- could receive for investing in land. gue, was not lost on individual landowners, in In other words, banks retain the power to in- part because it had historical precedent. fl uence the valuation of collateral, which in turn gives them power over how the market is per- ceived. Academic writing on the recent global A history of valuation land grab tells a similar story.5 Tania Murray Li has shown how private investment funds dis- Beginning with Nepal’s unifi cation under the tributed a slew of graphs, tables, and pamphlets Gorkha King or “Shah,” continuing through the to “conjure a perfect storm in which food prices Shah’s absolute monarchy (1768–1846) and then and land values can only rise,” thus creating “a through the subsequent rule of the Rana prime spectacle that grabs the investor’s imagination,” ministers (1846–1951), Nepal has had a “land- one that in turn inspired the land grab (2014: lord class” composed principally of Nepal’s rul- 595–596). Oane Visser likewise has shown how, ers and their relations, state bureaucrats, and an in Russia and Eastern Europe, investors focused appointed aristocracy who held enormous sway on soil fertility at the expense of other concerns over determining the economic value of land. In (e.g., irrigation) in order to transform land into much the same way that the current elite have a valuable asset whose price would rise. In other been able to aff ect the land’s price through credit words, investors were able to create a market and valuation, so too did this class manage to event through a complicated production of doc- manipulate land’s economic value through rents uments meant to render these informal agri- and taxation. By “economic value,” I mean land’s cultural land markets transparent. When these ability to satisfy economic wants (Polanyi 1977: investments started to fail, land became less 20). Th is can include land’s market value but assetlike, reverting back to its more localized, does not have to. In Nepal, land was not a com- idiosyncratic form (2016: 11–12). modity until the late nineteenth century, so no To be clear, the Kathmandu land market is market value existed. Even before the creation of well established and has not vanished in the a land market, however, land’s economic value aft ermath of the bubble. Nevertheless, these ar- was deeply infl uenced by the actions of these ticles demonstrate how fi nancial elites can pro- elites, the hierarchical relationship between the duce markets built around their own biases for landlord class and the tenant class fi rmly estab- how price should behave. Such productions are lished through tenancy laws enacted soon aft er not easy, however. If the fi nancial infrastructure Nepal’s unifi cation (1768). is weak, elite valuations of price can be eff ec- Until 1951—when Nepal’s Rana regime was tively challenged, creating a heterodoxic market overthrown and the country began a program in which contradictory prices can coexist and of “modernization” that continues today—both 84 | Andrew Haxby the state and its appointed landlords utilized raikar land (for which the tenant was offi cially tenancy laws to extract wealth from the peas- defi ned as a tenant of the state), rates changed antry. According to this system, though the state greatly as the state strove to develop a system of retained mastery over the nation’s territory, it valuation that would more effi ciently and pre- would routinely suspend certain privileges in dictably provide revenue to its coff ers, eff orts order to give selected groups and individuals that ultimately divorced rents from underlying access to the wealth this land provided (Stiller agricultural realities. In the fi rst decades aft er 1973: 279–282). Such tenancy agreements were the unifi cation of Nepal in 1768, rents in the made for a variety of reasons, including the ap- central hills, which include Kathmandu, were peasement of certain conquered communities, calculated as 50 percent of the peasant’s harvest encouraging the cultivation of forested land, and in what was called the adhiya system (53–54). out of deference to religious institutions. For the However, beginning in the 1820s, this system sake of this article, I focus on land that was con- was slowly replaced with the kut system, which trolled directly by the state (called raikar land) calculated rent levels according to harvest es- and those agreements made with the intention timates the state developed, and could be paid of handing over the rights of extraction to those either in kind or in cash. By the 1830s, the rates loyal to the state, the two most common forms on these taxes were between 50 percent and being birta and jagir land grants. Birta land 66 percent of the harvest’s total yield and were grants were usually given in recognition of past calculated beforehand, so if a peasant suff ered service and could be held in perpetuity by the a crop failure, they were generally still liable to grantee, even passed down from one generation pay (Regmi 1978a: 63–64). Local tax collectors to the next assuming the state did not withdraw and other bureaucratic functionaries also held its largesse. Jagir lands were granted to state of- sway over the determination of these rents and fi cials only for the period of their employment, would manipulate their estimates to extract the wealth they could extract from the peasantry personal wealth (136–140, 166–167). On birta acting as a form of salary. During Nepal’s early and jagir lands, tax rates were oft en calculated history—when the state was still governed by in reference to the government’s rates. In the the Shah monarch—these tenancy agreements case of birta land grants (granted in perpetuity helped to solidify a rapidly expanding empire, to families in recognition of past service), land- creating both a loyal aristocracy that could help lords were given free rein to charge what rents consolidate its power across vast territory and they felt appropriate, but because they had to expediently rewarding military and bureau- compete with the government for tenants (who cratic personnel without the aid of a developed were in limited supply), their rents would oft en state infrastructure (Burghart 1981: 103–104; conform to the government’s (73). Jagir land- Stiller 1973: 279–282). Aft er Prime Minister lords (usually state offi cials given land as pay- Jung Bahadur Rana eff ectively overthrew the ment for a set period of time) were formally state in 1846, reducing the Shah king to a mere restricted to collecting the same rents that the fi gurehead, these tenancy arrangements were government collected on raikar land (land con- used to increase the personal wealth of both trolled directly by the state). By the 1830s, jagir Rana families and their allies (Liechty 1997). land holdings were oft en reduced to just “the Key to these tenancy arrangements was the mere assignment of rents,” with landlords being power to valuate its economic value through issued certifi cates from the government, based rents.6 Th ough supposedly conforming to the on government rates, that they could then use land’s inherent agricultural productivity, rent to collect rents from their assigned lands (43). rates in fact varied wildly across the country Two facts emerge from the history of Nepal’s depending on the dictates of landlords, tax col- pre-1951 history of land tenure: (1) rents were lectors, and the state (Regmi 1978b: 68–69). On usually extremely burdensome for peasants and Can a fi nancial bubble burst if no one hears the pop? | 85

(2) these rents were calculated by a landlord sometimes resulting in them becoming bonded class, oft en absentee, and oft en in reference to labor for their moneylenders. In this arrange- government estimations that were abstracted ment, debts were never paid off but rather the from material realities, which in turn allowed debtor’s labor was taken in lieu of interest (144). landlords to manipulate rents to their bene- Consequently, debt became a lifelong affl iction, fi t (Regmi 1976: 195). Within this exploitative with even the debtor’s children continuing as relationship, the only recourse peasants main- bonded labor. Katherine Rankin writes how tained was to run away from their tenancy. Th is indebted tenants and bonded laborers in the seems to have been particularly prevalent in Kathmandu Valley were oft en exchanged as part the southern plains of Nepal, where labor was of a landlord’s dowry during the Rana era (2004: always in short supply. Historian Bernardo A. 181). In the late nineteenth and early twentieth Michael has written how peasants in the south centuries, when raikar land became at least would routinely move across the border to Brit- informally alienable (Regmi 1976: 170–196), ish-controlled India to escape such exploitation moneylenders would take peasant lands as col- (2007: 319). In the hills too such movement was lateral for even small debts, either charging reg- fairly common. As the historian Mahesh Regmi ular interest or taking control of the collateral writes, “Th e nineteenth century witnessed a immediately and appointing the borrower as a large-scale emigration of people from the hill tenant, then stripping the tenant of his hold- areas of Nepal to Bengal, Assam, Burma and ings when the latter defaulted (Rankin 2004: elsewhere” (1978b: 152). 107–115; Regmi 1978b: 146–148). In this way, Most peasants, however, did not run away, moneylenders would use their fi nancial prowess and in the hill regions where cultivatable land to establish themselves as members of the land- was scarcer, their bargaining position was oft en lord class. As Regmi writes, “Th e main conse- weaker than in the Terai (68). Given this situa- quence of agrarian indebtedness in nineteenth tion, it is not surprising that peasants were fre- century Nepal … was the emergence of a class quently forced to take out loans in order to make of moneylender-cum-landlords in the village” ends meet. Such indebtedness could happen in (1978b: 153). several ways. If, for example, a peasant’s crop was Th e point to highlight here is the tight rela- too small to provide both for the peasant’s sub- tionship between tenancy, debt, valuation, and sistence needs and to pay rent, the peasant was exploitation throughout Nepal’s pre-1951 his- forced to borrow either from local moneylend- tory. Rents were determined according to an ers or from their own landlords (141). Likewise, opaque system designed by the state and then as the state shift ed rent payments from in kind to manipulated by a landlord elite in order to cash by the end of the nineteenth century, peas- exploit a tenant class. Moneylenders then ex- ants in cash-strapped areas were forced to bor- ploited these tenants’ desperation to either cap- row from moneylenders, who were usually the ture them as bonded laborers or to strip them only ones with adequate cash reserves in local of their landholdings, ultimately propelling the economies. On jagir land, landlords would oft en moneylender himself into the landlord class if require that their rents be paid before the har- he was not part of it already. For the money- vest, eff ectively forcing peasants to give them lender too valuation was key, as the debts were an advance for which peasants would need to based on equivalencies that were always in the borrow. Th ough peasants could legally charge creditor’s favor. Th us, a day of work was seen as interest on this advance, the interest rate was equal only to the interest of a debt, or collater- capped at 5 percent, far below the interest rates alized land as equal to the principle of a debt of moneylenders (143). regardless of how small that principle actually Once in debt, it was incredibly diffi cult for was. In other words, in regard to both rents and peasants to free themselves, their indebtedness loan payments, valuation worked in favor of 86 | Andrew Haxby an elite class, their calculations skewed in ways apartment complexes—for using their devel- meant to dispossess and subjugate a peasantry opments as cover to misappropriate large loans class. while using their powerful connections to bank- It is dangerous to draw too straight a line ing offi cials and politicians to protect their col- from this history to the attitudes of contempo- lateral from foreclosure. rary Kathmandu residents. Th is period ended in Th e point here is that the notion of a mar- 1951 and was followed by a series of land reform ket driven by an emergence of price equilibrium acts designed to ameliorate exactly these forms is not necessarily the most compelling analysis of exploitation. By the 1960s, both birta and ja- in this case. Land and debt markets can also gir tenancy had been abolished, and raikar land be seen as driven by the shadowy actions and had been formally converted into private prop- transactions of a political and economic elite, erty. Th e historic Land Reform Act of 1964 set with price ultimately indexing these actions ceilings for how much land one could own, gave rather than the aggregated transactions of nu- legal rights to tenants over the land they had merous independent actors. It seems only fair to tilled, and set a maximum rent at 50 percent of read the Tamang man’s statement as a refl ection the land’s product (Adhikari 2011: 23). Yet, by of this logic. While it would be commonplace if most accounts these reform acts have not fun- he had asserted simply that, unlike other land damentally altered the exploitative structure at investors, he was not being forced to sell his the heart of Nepali land tenure, in part because lands at a loss, this man went a step further and they were never fully implemented (Adhikari asserted that the price of his land had not fallen 2011: 22–24; Bhandari 2006: 116–122; Regmi at all. One can see a strange savvy to this claim, 1976: 202). an implicit understanding that the crisis of land Th us, given its continued relevancy, it is not prices in Kathmandu may be due not to simply farfetched to suppose this legacy of land tenure a glut of credit but to the elite’s ability to enforce continues to infl uence how price and value are a certain form of valuation. Because he had no understood in Kathmandu’s contemporary land loans to pay, this man was not only outside the market. As stated, when asked why prices in- bank’s economic grasp but also at the periphery creased the way they did, very few informants of the market that banks were helping to create. discussed price equilibrium or mass euphoria Th ough he recognized that his land prices had or overvaluation as the central cause. Rather, gone up during the bubble, his peripheral po- many of these same informants argued that the sition meant he was able to maintain this price increase was the product of conspiracies and even as the economic elite pushed to lower it, endemic corruption, ones oft en linked to politi- removing the postbubble devaluation from the cal and economic elites. One reoccurring theory price of his land in a way that demonstrated his was that, aft er the civil war, Maoist cadres used “mastery” over that same land’s value (Verdery the Kathmandu land market to launder money 2004: 145–151). they had stolen during the confl ict. I have not met an economist or government regulator who believes this was a major factor in the bubble, Conclusion yet the theory persists, not just among house- holders but also among paralegals, developers, In this article I have suggested that market equi- and even bank managers. Other informants librium need not be seen as central to price as blamed politically connected gangsters who it is sometimes argued. In the case presented used brokers to drive up the price of land and above, it may be that price equilibrium, and the bribed bank evaluators to overvalue land so that perpetual crises it creates, is less important to they could capture loans. Others blamed large price than the historical legacy of land tenure developers—particularly those building large that continues to inform Nepali perceptions of Can a fi nancial bubble burst if no one hears the pop? | 87 land. Central to this history, and to the market’s current structure, is the process by which land’s Andrew Haxby is a PhD candidate in the De- economic value is assessed and who then is obli- partment of Anthropology at the University gated to follow this assessment. Th is is not a new of Michigan. He is a past Fulbright scholar to point. As Katherine Verdery has persuasively Kathmandu and holds an MFA in creative writ- argued, the ability to evaluate the economic ing from the New School. His areas of interests worth of land can oft en trump any formal sense include economic anthropology, debt, shaman- of ownership, and thus to be a true “master” of ism, semiotics, and ethics. one’s land means in part being able to resist its E-mail: [email protected] devaluation (2004: 145–151). From this per- spective, the price of land in Kathmandu may be less an index of supply and demand as it is an Notes index of control. Th is, however, may be changing. As both 1. Because of the sensitive nature of professional property evaluators, I have not been able to ob- commercial banks and the state work to “mod- serve their work in the fi eld and have had to rely ernize” the market, they are helping to build on interviews. a sturdier infrastructure that could enforce a 2. Like other rotating credit schemes found connection between price and market even for throughout the world (Geertz 1962), Nepali those who are not in debt to the banks. Indeed, d. hukut.is are informally arranged money-saving while I have been at pains to point out similari- clubs in which each actor gives a certain amount ties between the “landlord class” of old and the each month, and one actor then takes the pot, current work of both banks and the Nepali gov- with numerous variations on this basic structure. ernment, it is worth noting an important diff er- 3. Certain types of cooperatives, called multipur- ence: while landlords of the past did not strive pose, are allowed to invest in sectors of their to create general economic valuations for land choosing, though these sectors must get gov- based on supply and demand—quite the oppo- ernment approval. 4. Th e number of brokers in a transaction can vary site, in fact—the actions of both banks and the widely but is usually a minimum of two, one for state seem aimed toward this goal. Th ough in the seller and one for the buyer. the Tamang man’s assertion of control we can 5. Th e global land grab refers to a period (roughly briefl y see how price equilibrium remains con- 2008–2010) when international corporations tingent on a vast infrastructure, the question and investors began to buy massive tracts of remains at what point in Kathmandu this in- farmland in Eastern Europe, Africa, and other frastructure will become strong enough to truly less affl uent countries in anticipation of a global change price’s composite, making such state- agricultural land and food shortage. ments seem simply a sign of ignorance. 6. Here I pull mostly from the seminal Nepali his- torian Mahesh Regmi, whose work on rents, taxes, and land tenancy during this period re- Acknowledgments mains unparalleled.

Th ank you to the National Science Foundation, References the Wenner Gren Foundation, and the Univer- sity of Michigan for supporting this project. Adhikari, Jagannath. 2011. Contentions and pros- Th ank you also to Janak Rai and Jacob Rinck pects of land reform in Nepal: A historical re- for their comments on earlier versions of this view. New Angle: Nepal Journal of Social Science article, and to Tom Fricke, Stuart Kirsch, and and Public Policy 1 (1): 17–31. Matthew Hull for their continued advice and Bhandari, Ravi. 2006. Searching for a weapon of support. mass production in Nepal: Can market-assisted 88 | Andrew Haxby

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