Social Responsibility in the Growing Handmade Paper Industry of Nepal

Transcription

1 World Development Vol. 33, No. 11, pp , 2005 Ó 2005 Elsevier Ltd. All rights reserved. Printed in Great Britain X/$ - see front matter doi: /j.worlddev Social Responsibility in the Growing Handmade Paper Industry of Nepal STEPHEN BIGGS University of East Anglia, Norwich, UK and DON MESSERSCHMIDT * Independent Research Anthropologist, Pullman, USA Summary. This study examines the recent dynamics in the rapidly growing handmade paper industry in Nepal. The paper argues that the industry is sustainable from social responsibility as well as natural resources and economic perspectives. Five principle sources of socially responsible practices are identified: (1) traditional commitment to community development, (2) fair trade codes of conduct, (3) corporate social responsibility, (4) the industry s business service organization (Nepal Handmade Paper Association), and (5) the general policy and legal framework. The paper concludes with a discussion of this industry as a case study of positive deviance and with lessons for contemporary innovation systems theory and for development policy and practice. Ó 2005 Elsevier Ltd. All rights reserved. Key words Asia, Nepal, handmade paper, fair trade, positive deviance, innovation 1. INTRODUCTION In recent years, there has been a growing interest in understanding the complex processes that give rise to the emergence and spread of technological and institutional innovations in the agricultural, forestry, and other natural resources sectors. In the light of empirical evidence, simplistic pipeline and linear theories and frameworks have given way to broader innovation system approaches, where the behavior of actors in the broader political, cultural, aid donor, trade, and economic arenas are seen as important as any of the specific efforts on the part of natural and social scientists, who might come up with new technologies and new research methods and institutions. 1 While innovations systems approaches have long been established as useful ways to understand and help direct policy at the national science and technology level (Freeman, 1987; Nelson, 1993), it is only recently that these more holistic and politically aware frameworks are being used in the agricultural and natural resources 1821 * The authors gratefully acknowledge colleagues who have read and commented on this paper, including M. Bhattarai, S. Chitrakar, L. Colavito, R.J. Fisher, C. Heath, D. Lewis, P. Maharjan, H. Matsaert, M. Odell, C. Richard, S. Smith, J. Sternin, B. Subedi, and H. Wedgwood. Many of their suggestions have been incorporated. We also acknowledge personal (nonmonetary) assistance given during the original research (mid-1980s) and during this new study ( ) by officers and staff of UNICEF s Nepal Country Program, the Agricultural Development Bank of Nepal (ADBN), and the Small Farmer Development Program (SFDP), as well as the Bhaktapur Craft Printers (BCP), private companies, various NGOs, wholesalers, retailers, and representatives of the trade associations involved in Nepal s handmade paper and crafts production industry and, not least, the rural paper makers and urban factory workers who talked at length with us and who make this industry function so well. We also acknowledge and thank the unseen reviewers whose comments were most helpful, and Liesl Messerschmidt for her insights and editorial assistance. Final revision accepted: June 22, 2005.

2 1822 WORLD DEVELOPMENT sectors (Douthwaite, 2002; Hall, Bockett, Taylor, Sivamahan, & Clark, 2001). Much of the emphasis in past innovation studies in these sectors has been on the creation and spread of technology per se, and not so much on understanding the role of different actors in processes of institutional innovation and change. In this study, we use an innovation system approach to investigate institutional innovation in a part of the forestry sector the handmade paper industry in Nepal. In particular, we go beyond the normal concerns of the national innovation systems approach to identify specific actors, and to explore poverty reduction and social inclusion dimensions. As we found many examples of positive institutions (as regards contemporary social development indicators) in our case study, we investigated the implications of this in the context of the growing literature on positive deviance (Sternin, 2002, 2003) and for development planning and intervention in general. The period under study in this research included a phase when a large project was designed to promote the handmade paper industry. This allowed us to reflect on the behavior of past development actors in influencing the growth of the industry and their role in influencing the initiation and spread of socially responsible institutions in the industry. The main purpose of the paper is to present the findings of an exploratory study looking at recent social dynamics in the handmade paper industry. While two earlier studies (Messerschmidt, 1988, 1995; New ERA, 1995) reviewed the outcomes of the innovative handmade paper project described (in part) here, this is not a restudy in the conventional sense, as we do not analyze the recent historical processes and outcomes of the components of the original project. 2 Rather, this is a new study, whose primary purpose is to ask questions of the rapidly growing overall industry: What has happened in the industry in recent years? What are the long-term prospects of the industry? In particular, what are the answers to these questions when viewed from the perspectives of resource sustainability, social responsible institutions, and economic sustainability? The paper also discusses the role of the Community Development Through the Production of Handmade Paper Project (CDHP project) to help rejuvenate the industry, and what lessons can be learnt for innovation theory. The authors felt the timing of this study was pertinent given the current development discourse on: (1) the promotion of private for profit based entrepreneurship in the context of globalization, and (2) criticism of Nepal s current development vis-à-vis responsible social and environmental practices, good governance, rural livelihoods, poverty reduction, and gender equity ( second generation issues). 3 The International Labor Organization (ILO), in its recently released Economic Security Index, ranks Nepal at the bottom of the world scale, based on job security, income, union representation, workplace safety, health care, social security, etc. (ILO, 2004). While this picture is true for some economic sectors, we found that a wide range of diverse practices within the handmade paper industry are socially inclusive, responsible, egalitarian, and sustainable (both in terms of continuation and environmental resources), and these are part of policies and institutions of good governance and civil society. This case study shows how innovative Nepalese actors are doing this and, because it is a dynamic local indigenous process, why it appears the systems are institutionally sustainable. (Thus, our approach stands in contrast to institutional models transferred from elsewhere, and to models that are relevant only to the special conditions of projects and programs.) The secondary purpose of this study is to explore these cases of positive deviance as regards socially responsible behavior within Nepal s economy. 2. RESEARCH FRAMEWORK AND METHODS The main research framework for our exploratory study is an actor innovation systems framework. There is a growing literature on innovation systems research (Biggs & Matsaert, 1999; Douthwaite, 2002; Hall et al., 2004). Some of this has much in common with the growing number of studies on the ethnographies of aid agencies (Rossi, 2004; Sharma, Koponen, Gyawali, & Dixit, 2004). Our study also touches on unique circumstances of positive deviance, in that we have unexpectedly found the industry to have many institutional innovations of this kind (see STC, 2003; Sternin, 2002, 2003; Sternin & Choo, 2000). Major actors in the industry were identified and key informant interviews conducted with these actors. In addition, secondary data on the industry were reviewed and are given in the bibliography. Reliable statistics on the industry are difficult to find. This is due not only to the normal prob-

3 PAPER INDUSTRY OF NEPAL 1823 lems of data collection, but also because it would be very expensive to try and gather reliable figures on even such things as the number of lokta paper production units actually operating at any one time, or the percentage of handmade paper products made from lokta fiber or from cotton waste and other natural fibers. Because of this, we have tried whenever to triangulate our information from as many sources as possible HANDMADE PAPER IN NEPAL In Nepal, handmade paper is made from the fibers of lokta and other natural fibers. Lokta is the fibrous inner bark of the high elevation forest shrub called Daphne bholua and Daphne papyracea. It grows gregariously and abundantly on the south slopes of Nepal s Himalayan forests between 1,600 and 4,000 m (c. 5,250 13,000 ft). Long-lasting qualities and resistance to insects and mildew make lokta paper popular. Historically, lokta paper was a single purpose product used primarily for recording government records and religious texts. Since at least the 12th century AD, production of traditional handmade paper has occurred at several locations in the rural hills of Nepal, most notably the central district of Baglung. As early as the 1930s, however, handmade paper production began to decline due to paper craft imports from Tibet. By the 1960s, the traditional Nepalese paper industry was virtually moribund due to competition by mass produced paper made by machine in India. In the 1970s, before rejuvenation of the industry began, only a few families in Baglung and neighboring Parbat District retained the traditional knowledge of handmade lokta paper production (see Tables 1 and 2 for a summary of different phases in the recent history of the Nepalese handmade paper industry). Today the handmade paper industry is growing at a rate of 15% per year, and harvesting lokta and rural papermaking occurs in at least 16 hill districts. It is currently estimated that about 70% of all handmade paper products in Nepal use lokta fiber, and 30% use cotton waste and other recycled natural fibers. Lokta handmade paper production is a forest-based industry. It relies as much on a ready supply of Daphne bark as it does on the skills of traditional paper makers and block printers, and on markets for end products. There are four main steps in manufacturing the paper and paper craft products: harvesting the lokta bark, processing the paper pulp, producing craft products from the finished paper, and marketing the final products. 5 Many paper producers follow a participatory group approach in organizing their works. Examples are the Community Forest User Groups (CFUGs) associated with the Malika Handmade Paper Enterprise in Bajhang District and the Pandit Kamala Enterprise of Dolakha District (Subedi, 2004). These groups have high involvement of women, poor and disadvantaged members from their communities. 6 Groups form primarily on a neighborhood basis for rural-level cutting, paper production, stove construction, and transport, as well as for block printing, cutting, grading, and packing at the factory. Most paper-making groups form with little regard for caste, gender, or ethnicity (Messerschmidt, 1988, 1995). The predominance of women working in this industry is a result of Nepalese socioeconomic tradition, rather than of a conscious gender policy initiative. Recently, the ongoing conflict and economic conditions have reinforced the local employment of women, as men have fled villages both in fear and in search of overseas employment mainly in India, Southeast, and East Asia, and the Middle East. Table 1. Phases in the recent history of the handmade paper industry in Nepal Up to 1970s 1970s 1980s 1990s 2000s Decline of tradition, against imports of modern paper Revival of handmade paper making, based on tourist demand Rejuvenation: CDHP project implemented (UNICEF/SFDP) Rapid expansion industrywide Growth of formal commitments to social responsibility and fair trade

4 1824 WORLD DEVELOPMENT Table 2. Major events in the rejuvenation and growth of the Nepalese handmade paper industry Up to 1970s s s s s... Handmade lokta paper making tradition exists in Nepal since the 12th century AD, principally along the trans-himalayan trade route through the central hill districts Nepalese paper used extensively for government and religious documents Tibetan paper imports reduce market for Nepalese lokta paper (1930s+); indigenous handmade paper industry suffers Industrial quality paper imports from India further undermine Nepal s lokta paper industry HAN established (1972) Nepal tourism industry grows, with interest in paper crafts SFDP starts in Asia and Nepal ADBN named SFDP lead agency in Nepal (1975); first projects in agricultural and forward and backward linked sectors Community forestry program starts under the DOF (1978) UNICEF project feasibility studies conducted (1980) UNICEF project begins (1980) BCP established with market guaranteed through UNICEF/GCO (1980) First SFDP loans to rural paper makers (1980) Sustainable lokta harvesting practices studied (1983) and first resource management plans written and implemented (1984) First Nepalese paper UNICEF greeting cards sold globally BCP encourages international marketing by private producers Major private lokta paper craft company (GPI) founded (1985) Japanese paper making technology introduced (1985) IFAT formed (1989) BCP adopts Japanese technology (1991) Former BCP manager starts private handmade paper company (1991) BCP joins IFAT (1990s) FTGN founded (1993) and registered as NGO (1996) External evaluation of SFDP paper making project (1995) HANDPASS founded and registered (1996) UNICEF temporarily suspends orders from BCP ( ) Nepalese paper product NGOs and entrepreneurs attend IFAT trade conference in Italy (1999) GPI supplies Body Shop, International, major marketing crisis FTGN exhibition and workshop on fair trade challenges and opportunities (2000) FTGN issues first joint catalog featuring handmade paper and other handicraft products (2002) HANDPASS workshop on participation in international trade fairs (2002) HANDPASS and HAN training on paper making techniques and product development (2002) HANDPASS seminar with CBI on sector marketing (2003) Industry lobbies for improved regulatory process to protect lokta resources and industry Estimated over 13,000 registered CFUGs Maoist insurgents and RNA restrict access to the high forests; thus, to the harvesting of lokta resources and movement of products/inputs Pilot experimentation with Private Public Alliance (PPA) in certification for NTFPs (2002) FSC accreditation award to FECOFUN (2005)

5 PAPER INDUSTRY OF NEPAL 1825 Interest in rejuvenating lokta craft papermaking occurred as the tourism industry in Nepal began to grow in the 1970s. After a steady decline in papermaking (in the late 1970s), encouraging evidence of a potential international market presented itself. In this climate of optimism for handmade paper and paper craft products, the United Nations Children s Fund (UNICEF) and the Agricultural Development Bank of Nepal/Small Farmer Development Program (ADBN/SFDP) launched the CDHP project in 1980 (hereafter called the project ), with close government involvement and coordination. This was the first donorfunded attempt to revive indigenous paper making processes. 7 In the late 1980s and early 1990s, with the growth of popularity of lokta based and recycled fiber products, Nepalese entrepreneurs sought out and developed international trading partners. Currently, the Cottage Industry Department reports 377 registered handmade paper production industries, out of approximately 600 units operating in the country. Of these, 175 manufacture about 30,000 metric tons of paper products each year. Yet, despite this major increase in handmade paper production, large lokta resources remain untapped. Lokta-based handmade craft paper products continue to offer considerable economic sustainability due to their high-quality niche market potential (Dhakal, 2004). 4. REJUVENATION OF THE HANDMADE PAPER INDUSTRY The early history of rejuvenation of handmade paper is dominated by the activities of the UNICEF-sponsored project. In 1980, encouraged by the success of the (then) newly created SFDP and a felt need to revive the declining handmade paper industry in rural Nepal, the CDHP project was launched. The goal of the project was to rejuvenate lokta handmade paper and block-printing traditions as an economic base for community development. The project had a rural development focus, and its designers set out to achieve this goal by addressing basic needs, starting from below (at the local level), and using the structure and processes of the integrated rural development approach. The assumptions and operating principles of this approach constituted good development practice at the time, the early 1980s (Messerschmidt, 1988, 1995). The project objectives were to (a) provide community development in rural areas, primarily among lokta cutters and paper makers, and (b) reduce poverty through new employment opportunities in the same areas. An anticipated outcome was active involvement of poor and marginalized groups by improving livelihoods for small farmers and other rural lokta paper makers, landless laborers, and the disadvantaged poor; developing self-reliance among these groups by enabling them to plan and carry out community development projects; and adapting government and institutional delivery mechanisms to the local needs of the rural poor (Messerschmidt, 1988; UNICEF & APROSC, 1981). In addition, the project facilitated the creation of a private (quasi-governmental), Kathmandu-based paper craft products factory, called Bhaktapur Craft Printers (BCP). The BCP bought lokta paper stock produced in rural areas and then used another indigenous Nepalese technology, block printing, to produce high-quality paper products for an international market. To ensure that market, UNICEF s Geneva-based Greeting Cards Operation (GCO) guaranteed to buy the product. Paper produced by the project for greeting cards was part of UNICEF s Basic Services in Local Development Program, combining economic and community development functions with rural and urban components to revitalize and expand a traditional craft production process (ADBN, 1982; UNICEF, 1980). A key ingredient of the project s overall development objectives was that, in rural areas, small-scale loans from the SFDP assisted rural households in paper production. As handmade paper production relies on labor-intensive technology, the project supported neighborhood groups, mobilized by a social mobilizer called a Group Organizer, posted to the papermaking villages by ADBN. 8 On the urban side, BCP bought all the highest quality handmade paper that village participants could produce, and converted it into greeting cards, stationary, and the like, for sale to GCO. Twenty-five percent of BCP profits reverted back to support community development activities in the rural sites, and social development activities among the BCP factory employees. When the project began in 1980, harvested lokta resources came exclusively from the Hatiya Forest in Baglung District, and papermaking occurred in the nearby villages of Pang and Nanglibang in Parbat District. Eventually,

6 1826 WORLD DEVELOPMENT the project expanded to include lokta cutters and paper makers in nearby Myagdi and Lamjung Districts. Prior to implementation, UNICEF engaged a team of forest scientists to study lokta ecology and growth in order to inform project administrators and rural participants of the most sustainable resource management and harvesting techniques. They recommended specific strategies, such as rotational cutting, and care in cutting stems (for effective coppicing), and conducted training with cutters and paper makers. The project staff also established small wood lots as sources of fuel on which to cook the lokta pulp (called bast ), to make paper. In some areas, forest officers and CFUGs continue to follow those comprehensive resource management guidelines today for lokta preservation (Acharya, 2003; Development Associates, 1997). However, even in some of the BCP areas of Parbat, the guidelines for lokta maintenance are not kept to (Subedi, Ojha, Nicholson, & Binayee, 2002, pp ). Lokta resource sustainability remains a high priority concern within the lokta craft industry. Sustainable harvesting, however, is no longer considered to be a major long-term technical problem, for even when over harvested, lokta coppice and new growth from seed are ready for harvest within 8 10 years. Several studies of the project are important to be mentioned here to provide historical background and analysis, and a basis to describe other entrepreneurial activities within the industry but outside of the CDHP project. The first study by Messerschmidt, entitled Success in small farmer development: Papermaking at Pang and Nanglibang, Nepal, appeared in World Development in 1988 (revised and reprinted in 1995). The 1988 study provides a history of the SFDP, the basic program upon which the project was set up, outlining its institutional style, structure, and functions. That study also described local sociocultural traditions, leading to the inception of the CDHP project. The important catalytic role of local Group Organizers is noted, and the project s use of indigenous approaches, technologies, and natural and human resources that enhance rural family welfare are detailed. The article concludes with a discussion and observation about what makes such forms of rural development successful, including a comparison of project assumptions and practices with development thinking of the time. 9 Here was a project that appeared to be viable ecologically, socioculturally, and economically (as long as UNICEF s GCO continued buying the handmade paper products). Certain aspects of the project s initial successes are undisputed. The most obvious is the rejuvenation of lokta-based handmade paper production, followed by an increase in rural employment and income, as well as project-supported community development initiatives such as access to clean drinking water, sanitation facilities, preschool teacher training, education for village children, and development of fuel wood plantations (Messerschmidt, 1988, 1995). It began as a classic special project, which helped with the continuing opening up of a new niche market that, in the words of one observer, was an opportunity for success just waiting to happen (Michael Thompson in Messerschmidt, 1995). The industry had a promising future, embodying many of the ingredients for long range success, including goals of poverty reduction and improved quality of life through community development. As we demonstrate, however, the actual growth of the industry took place in socially innovative ways that were, in significant ways, quite different from the design of the original project. From a purely economic perspective, UNI- CEF s guaranteed market for lokta paper products might appear to be the most important component of the project. The 1988 analysis, however, argues that economic incentives alone are insufficient for such a project to succeed. Instead, attention to and support of preexisting social and cultural values in project design and implementation, in addition to the guaranteed market, are as important as the underlying economic rationale for success. (In more contemporary terms: culture matters as much as economics; see Harrison & Huntington, 2000.) The 1988 article concludes: Indications of success in human terms can be seen in participants dedication to project goals because, in part, the project is based on local technological tradition, the proud renewal of the ancient craft of papermaking. Success is also seen in the enthusiasm expressed as the people s traditional knowledge is used by developers to solve project problems. And, not least, it is evident in the strength of project work groups and of the style of leadership that developers established based on the simple logic of [adapting] the local social structure... [Thus] project design and evaluation require early attention to variables in the local socio-cultural environment (Messerschmidt, 1988, p. 733). A separate impact study of the project in 1995 reaffirms these successes, pointing to the

7 PAPER INDUSTRY OF NEPAL 1827 sustainable human development derived from the initial objectives and activities, including:...reviving traditional culture and skill, promoting labor-intensive technology, providing employment and income and thereby supporting the lives of thousands of poor families, halting the accelerating trends of migration, supporting development of children and women, earning foreign currency, and more importantly, providing basic services in the areas of health, child care, water, education and sanitation that affect the entire community (New ERA, 1995, p. viii). Today the project activities continue in attenuated fashion, producing paper in the districts, manufacturing paper crafts through BCP, and channeling a percentage of the profits back to community development in the rural districts. Current activities still reflect many of the initial objectives (though UNICEF no longer funds it, and SFDP has been restructured). BCP still relies on lokta paper from rural villages, and almost exclusively on its market contract with GCO. Until recently, UNICEF was closely involved in advising BCP on management of the project s community development funds. Some of the original rural community development objectives, however, have been difficult to implement, and should GCO discontinue buying paper (as it did briefly during ), BCP in its present form will face serious problems. 10 The earlier assessments of the CDHP project show what promotion of indigenous technical knowledge in rural areas can achieve when the designers are aware of and build on existing socially responsible behavior. The project was a success, because its planners and implementers built upon cultural values that already existed. Interestingly, as we shall now discuss, it appears that developments in the industry reinforce this earlier conclusion for development planners. 5. RECENT GROWTH OF THE INDUSTRY The recent growth of the handmade paper industry has been remarkable. From a state of a decline in the 1970s, it has been, until recently, a rapidly growing industry. During , the average yearly expansion rate was 22%. This figure began to decline, however, in , to 10%. In , according to official statistics from the Handicraft Association of Nepal (HAN), the export of handmade paper products (the great majority of sales) was about US$4.25 million. While the CDHP project and BCP concentrated exclusively on lokta fiber for handmade paper, other firms have concentrated on recycled fibers, such as cotton waste and other natural fibers. Currently, it is estimated that lokta based products make up about 70% of handmade paper and recycled fiber products 30%. While in the early 1980s, BCP was the most important firm in the industry, today BCP s contributions to the total industrial output is small, between 5% and 10%. Today Get Paper Industries (GPI), the largest company and the biggest exporter, uses almost entirely recycled paper. By one recent estimate, the industry provides employment to 4,155 families, or about 21,000 persons, with women making up 80% of those employed (Dangol, 2003). This may seem a small impact on poverty in absolute numbers, but in an industry where (typically) whole neighborhoods or communities are involved, it has significant local socioeconomic impacts. While the project promoted group -based development at all stages in the handmade paper value added chain, the industry has always been characterized by diverse institutional structures, and this diversity continues today. In rural areas, there are private microenterprise lokta producing units as well as communitybased units. However, most of the paper manufacturing companies are private enterprises (including nongovernmental organizations NGOs) where, as we point out, there is a high degree of socially responsible business practice. We now look at three aspects of the recent growth of the industry: (a) niche market development, (b) growth of private and social entrepreneurship, and (c) resource management and sustainability. (a) Niche market development UNICEF helped introduce Nepalese handmade paper to the world through the CDHP project, including the BCP factory and GCO, which provided an excellent platform to advertise and promote handmade paper products internationally. At first, the global attraction to Nepal s handmade paper products was based upon perceptions of an exotic handmade craft and a culture of concern for people and the environment that is, humanitarianism, social responsibility, social ethics, a remarkably high-quality product, and resource sustainability. Also marketed is a touch of romantic

8 1828 WORLD DEVELOPMENT idealism, by identifying lokta products as part of an age-old ethnic folk tradition from the remote Himalayas. This attraction continues to be promoted by many private and NGOs producing lokta paper in Nepal. Handmade in Nepal has become an international sales slogan, and social and environmental consciousness is part of the industry image. The result is a socially responsible, resource sustaining industry. Handmade paper manufacturers in Nepal stress two main features about their product: First, paper is handmade following traditional production technology, and produced from pure lokta grown sustainably. Second, the industry also produces paper from other fibers, recycled paper, fabric, etc. 11 The expansion to other paper stock began in 1985, with the introduction of a Japanese technology that employs energy and resource-efficient factory methods with labor-intensive handmade craft production. A key aspect of the Japanese technology is a method of recycling and reusing lokta paper trimmings and the use of cotton waste and other recycled fibers. 12 General Paper Industries (now known as Get Paper Industries, or GPI, founded in 1985), was the first to adopt the new Japanese technology (see Table 2). GPI was Nepal s first major private handmade paper making company, and began by using BCP s lokta scraps as raw material, purchased at the market price. GPI continued to buy BCP s scrap lokta until 1991, when BCP itself adopted the Japanese recycling technology and scrap lokta was no longer available for sale. 13 Meanwhile, GPI expanded into nonlokta recycled handmade paper products made from waste papers and recycled cotton, which soon dominated its product line. The exploration and development of international niche markets for handmade paper has been led by the private/ngo sector. For example, Lewis (1998) describes how in the early 1990s, Body Shop International (BSI) had encouraged GPI s rapid expansion by taking a large percentage of GPI s output. This created an overdependence on BSI so that when the market shifted, GPS was left without other buyers. The implications and outcomes were difficult for both partners. However, it led to BSI working with GPI to develop a successful diversification strategy for both local and international markets. Now GPI is the largest firm in the industry with about 30% of all handmade paper export sales. On the development of international niche markets for handmade paper and other craft products it has also been the long-standing entrepreneurship of members of local NGOs such as the Association of Craft Producers, and other members of the Fair Trade Group, Nepal, that have been particularly important (Limbu, 2002). Some of these local NGOs started producing quality craft goods for local and international markets in the 1970s. This concern with developing international markets is illustrated by the discussions on globalization and Nepal s accession to the WTO at a recent fair trade conference in Katmandu in 2003 (Fair Trade Group of Nepal FTGN, 2003). The handmade paper business organization called the Nepal Handmade Paper Association (HANDPASS) has made this a priority in its work, and held a special industrywide marketing strategy workshop in (b) Growth of private and social entrepreneurship During the 1990s, many private sector business entrepreneurs, seeing the potential to develop a growing international market for handmade paper products, joined the papermaking industry. 14 (The private sector here includes both for-profit companies and NGOs.) Included among these were two previous BCP employees; one had been a BCP previous general manager and one a technician. Together, they founded Nepali Paper Products P. Ltd. (NPP) in NPP allocates funds toward employee adult education classes and a scholarship fund for the children of its poorest workers. It also maintains a program for local community development in areas where lokta is procured. NPP is a Nepalese company that in recent years has been awarded the Genevabased international ISO accreditation for high business standards, and is a member of Global Compact, an international alliance against the use of child labor. NPP is, therefore, subject to the monitoring of two international certifying agencies. Besides being one of the first private companies to be established in the growing industry, GPI has also been a leader in social entrepreneurship. In 1991, GPI established an ancillary organization called General Welfare Pratishan (GWP), funded from 25% of the GPI s profits; a travel and tour agency operated to generate income for social service activities; and (as with other philanthropic organizations and programs) GWP receives additional funding from

9 PAPER INDUSTRY OF NEPAL 1829 international agencies, foundations, and NGO grants. GWP also renovates and builds schools, provides scholarships to disadvantaged girls, supports HIV/AIDS awareness among vulnerable groups throughout Nepal, and maintains a tree plantation program (Bhattarai, 1994). GPI is a member of the Federation for Alternative Trade and is monitored under its code of conduct. Another influential firm in the industry as regards promoting social responsibility in business is Lotus Paper Crafts (LPC), 15 which was formed in the early 1990s. Its manager came from an engineering background, with no previous experience of the handmade paper industry. The company is dedicated to producing high-quality lokta-based handmade paper products for an international market. LPC comes under the umbrella of Lotus Holdings (LHs), which provides financial and social services to 11 associate companies. LHs actively promotes corporate social responsibility (CSR) in private business. LPC was founded in 1998 by its associate members who had been pursuing socially responsible behavior in business for many years. Like all other associates of LHs, LPC signs a Social Code of Conduct under which it provides education and day-care services to the children of employee families, as well as health insurance and fair wages (as per the law) to the workers. LHs also supports a Nepalese NGO called Hoste Hainse, which is assigned to independently administer employee benefits, and provide regular, independent, transparent, and publicly available social audits of all LHs companies. 16 GPI and NPP dominate the industry, each of which contributed about 27% to the total official export figures for Nepal in Their major markets are in the United States, United Kingdom, France, and Japan. Besides the export market, some producers and buyers supply a steady tourist and local Nepalese middle class market in Kathmandu and other urban areas, as well as links to Internet-based international markets. Their web sites provide international access to Nepalese paper products, information about traditional manufacturing techniques, and description of associated social programs and assistance to workers communities. Closely allied to these expressions of social responsibility by major companies is the paper industry s current concerns with fair trade ethics. Several of the larger NGOs manufacturing handmade paper products belong to FTGN. This was formed in 1993 by a group of seven like-minded social entrepreneurs. This group was formally registered as an NGO in 1996 and now has 13 members, including the Association for Craft Producers (ACP), a professional group providing design, marketing, and technical services for low income, primarily female craft artisans. ACP maintains welfare, retirement, and loan funds; counseling services; educational allowances; and medical provisions for its employees. Although ACP was formally established in 1984, its director of long standing has been active in socially oriented commercially viable enterprises since the mid 1970s (Limbu, 2002). Like many of the FTGN member, ACP is committed to the revival of Nepal s indigenous handicrafts. In the context of handmade paper, mention should be made of another FTGN member, the Women Development Service Center of Janakpur, which was established in 1979 to promote production and marketing of the popular Mithila cultural paintings on handmade paper. Mahaguthi, one of Nepal s oldest NGOs, also belongs to FTGN. It goes by the mottoes: Crafts with a Conscience and Fair Trade at Grass Roots. Mahaguthi helps over 1,000 poor and marginalized producers and artisan groups to supply many international marketing outlets. Another NGO is Sana Hastakala, whose name translates as small handicrafts. Established under the auspices of the UNICEF (independently of the CHDP Project), it assists small, home-based handicraft producers, most of whom are women, and provides a local storefront outlet for many crafts including BCP s lokta paper products. Together, these and other FTGN members pursue a collective marketing strategy and publish a joint catalog ( Some prominent international buyers require their suppliers to abide by codes of trade conduct that include social and environmental programs. Thus, fair trade and social consciousness activities feature prominently in the niche marketing strategies of many paper product wholesalers and retailers worldwide. 18 Being part of the FTGN enables commercial units to provide some of the socially responsibly assurances. Only NGOs can be members of the FTGN, however. Several of the major actors in the handmade paper industry (GPI and BCP) as well as ACP and FTGN are members of an international fair trade organization, the International Federation for Alternative Trade (IFAT), established in Fair trade objectives espoused by these organizations

10 1830 WORLD DEVELOPMENT include (a) working with low income and marginalized producers (mainly women); (b) supporting ethical work place practices; (c) promoting safe working conditions, equal employment opportunities, and concern for workers health and quality of life; (d) respecting workers cultural and ethnic identities; (e) providing educational facilities and programs; and (f) maintaining the environment to assure a sustainable resource base and continued employment (see NRI, 1998). FTGN administers the code of conduct procedures for IFAT. As the industry further expanded during the 1990s and early 2000s, a number of government and international agencies, private sector organizations, and associations have become involved. They serve such functions as the regulation of employment practices, quality control, fair trade, and export. (Table 3 lists significant actors and how they were instrumental in the industry at different points in time.) These include the Nepal government s Department of Small and Cottage Industries, the Trade Promotion Center, the Nepal Chamber of Commerce, and the Federation of Nepalese Chambers of Commerce and Industry. There are also two handicraft associations: the government-sponsored HAN, and the more recently established private business service organization, the HANDPASS. The creation of HANDPASS in 1996 marked a significant change in the overall conduct of the industry. This business service organization was founded to strengthen and promote handmade paper enterprises; by 2003, it had 32 registered members. Membership dues follow a sliding scale based on ability to pay. The main Private firms, NGOs and associations Bhaktapur Craft Printers (BCP) Fair Trade Group, Nepal (FTGN) Federation of Community Forest Users, Nepal (FECOFUN) Federation of Nepalese Chambers of Commerce and Industry (FNCCI) General Welfare Pratishan (GWP) Get Paper Industries (GPI) Handicraft Association of Nepal (HAN) Nepal Handmade Paper Association (HANDPASS) Nepali Paper Products P. Ltd. (NPP) Lotus Paper Crafts (LPC) Lotus Holdings (LHs) Asia Network for Sustainable Agriculture and Bioresources (ANSAB) Association for Craft Producers (ACP) Table 3. Main actors in Nepal s handmade paper making innovation system International agencies and associations Greeting Cards Operation (UNICEF/GCO) International Federation for Alternative Trade (IFAT) Japan International Cooperation Agency (JICA) Small Industry Promotion Program (SIP-P) UNICEF/Nepal Community Development Through the Production of Handmade Paper Project (CDHP) Body Shop, International (BSI) Forest Stewardship Council (FSC) Nepal government agencies Agricultural Development Bank/Nepal-Small Farmer Development Program (ADBN/SFDP) Department of Forest Research and Survey (DFRS) Department of Forests (DOFs) Department of Small and Cottage Industries (DSCI) Nepal Tourism Board (NTB) Royal Nepal Army (RNA) Trade Promotion Center (TPC) Local and other Community Forest User Groups (CFUGs) Cookstove makers Lokta harvesters and porters Maoist insurgents Paper craft buyers (local, global) Paper transport workers Private research firms Rural paper makers Urban factory workers

11 PAPER INDUSTRY OF NEPAL 1831 objectives of HANDPASS include (a) developing mutual understanding and fraternity among the handmade paper production groups and product manufacturers; (b) promoting paper making enterprises in rural areas, and improving the lifestyle of low income communities; (c) ensuring that the handmade paper making industry continues to be an environmentally sustainable and socially desirable enterprise; (d) helping paper manufacturers in product development and marketing, as well as in skill enhancement; and (e) promoting handmade paper as one of Nepal s leading export commodities. The association assists rural and urban paper makers, craft producers, exporters, and product sellers by providing information, consulting services, and technical advice in order to assure maintenance of paper and product quality. It conducts workshops, seminars, training programs, and exhibitions; carries out market surveys and research; and publishes bulletins, a newsletter, and other informative materials. It also lobbies government on industry concerns and serves (informally) to monitor the industry. HANDPASS is mainly sustained by receiving 1% of the levee imposed on the export of handmade product by the HAN. HAN, founded in 1972, also plays an important role in industrial development, not only of handmade paper but also in all handicraft sectors. It serves as a government business certification agency; conducts technical trainings, workshops, and seminars; provides members with information on trade and export policy; publishes promotional materials; and sponsors trade missions, exhibitions, and craft competitions. Financing comes from a small tax on the sales of its members. In , the US$4.24 value of handmade paper products made up about 10% of the total exports of handicraft goods (US$36.22 million) under HAN. In 2003, HANDPASS and HAN, with the support of the Swiss/Nepal Small Industries Promotion Program, organized a two-day seminar on Lokta Production and Handmade Paper Making in Nepal: Problems and Way Out. 20 Further development of international markets was a main discussion point. While many private companies and NGOs have been innovative in investing in new product designs, and seeking out new niche markets, several smaller producers are simply producing inferior copies. This issue is now under discussion among HANDPASS members, who are providing support and advice to businesses to encourage more creativity in the industry. 21 Other international connections have also helped the private industry entrepreneurs to improve their marketing. For example, following the Lokta production seminar, Nepal s Trade Promotion Center put the HANDPASS secretary in touch with an independent European consultancy firm, the Center for the Promotion of Imports from Developing Countries (CBI) in The Netherlands, to help the association prepare a sector wide international marketing plan. To some extent, there is now a coming of age in the handmade paper industry where there is an overriding recognition that niche markets (international and local) have to be developed and maintained by Nepalese social entrepreneurs and overseas partners creating high-quality new products and designs. This awareness is reflected by the preoccupations of HANDPASS, FTGN, ACP, etc., and reflected in the frequent articles on the handmade paper industry in the local press and monthly journals aimed at local expatriates, tourists, and the Nepalese middle classes in Kathmandu (Dhakal, 2004; Newar, 2003; Poudyal, 2004a, 2004b). (c) Resource management and sustainability There exists a large natural resource potential for the lokta paper industry in Nepal. Some manufacturers estimate that the 2003 usage of lokta (30,000 metric tons) represents only a small percentage of the estimated 110,000 metric tons national availability. Nonetheless, in some districts, there is evidence of diminishing lokta resource due to over harvesting (see Acharya, 2003; Poudyal, 2004a, 2004b; RSS, 2002; Subedi et al., 2002, pp ). 22 In addition to lokta harvesting practices and the use of wood for preparing lokta pulp, two other aspects of resource management are of concern to the industry. First, some members of the industry estimate that illegal sales of lokta across Nepal s southern border to India represent up to 10% of the yearly harvest. HANDPASS is working with government officials to improve the regulatory system and ensure that paper production occurs in the same region or district as lokta harvesting. Second, the ongoing Maoist insurgency is affecting lokta harvesting, with economic and poverty impacts. The conflict, coupled with the Royal Nepal Army s strategy of pursuit and engagement in remote forest tracts, has curtailed access to lokta forests in many areas. The

12 1832 WORLD DEVELOPMENT ramifications of the conflict are many and diverse; for example, in Bhojpur District during 2003, nine handmade paper factories were closed because the local administration imposed restrictions on caustic soda used in making pulp, believing that the Maoist may use it for producing explosives (Kathmandu Post, November 29, 2003). In addition, some Maoists have targeted the paper making industry as a capitalist enterprise, essentially driving lokta cutters out of forests. Paper makers prefer to operate in the rural districts as close to the lokta source as possible, where the rural workforce is readily available, and where transportation and storage costs are kept to a minimum. Given the conflict, however, some papermaking operations have sought safer, but more costly, locations. The industry is also experiencing declining demand for lokta products as the tourist industry is declining due to the conflict. Meanwhile, however, export markets continue to expand. Any analysis of forest resource management needs to take into account the role of CFUGs as emerging actors in the industry. When the CDHP started in the early 1980s, there were very few CFUGs. The Nepal Community Forestry (CF) Program, which promotes user groups, has grown phenomenally in recent years. By 2005, there were over 13,000 registered CFUGs nationwide, an increase from only a few hundred in the mid-1990s. Under the CF Program, the Department of Forests assists community groups to prepare five-year operational plans to facilitate handing over designated local forest resources to them. In addition to the management of timber, the CF Program has come to recognize the importance of managing alternative forest resources (nontimber forest products, NTFPs), including lokta and fuel wood. 23 Where lokta falls under the control of local forest user groups, there is evidence that lokta resources management is more likely to be sustainable, as CFUGs are required to draw up and follow up resource management plans. In this context, HANDPASS recently approached the Federation of Community Forest Users, Nepal (FECOFUN) to meet local group representatives from lokta producing districts to discuss lokta management practices by CFUGs. The interest is high in those mid-hill districts where lokta grows, and a number of groups already include lokta management in their operational plans. 24 Where forest user groups are not working well with district forest officers (for a range of political and other reasons) or where lokta extractions is from national forests, then the issue of who has access to lokta extraction licenses becomes highly political and contentious. In Myagdi District, where the BCP has been involved for many years, the district level FECOFUN has recently initiated proceedings against the Department of Forests, implicating BCP in obstructing CFUGs from marketing lokta from their forests to other buyers. 25 Currently there is a widespread development interest in the promotion of lokta and in alternative forest resources and other NTFPs. For example, the Department of Small Scale Industry gave trainings in collecting and making paper to women of Baglung as part of an alternative Energy Promotion Center and Paper and Poverty Employment Program (Tripathi, 2004). Another example of this interest was a workshop focused on opportunities and policy challenges for alternative forest products in an increasingly globalized world, organized in 2003 by the Asia Network for Sustainable Agriculture and Bioresources (ANSAB, 2003). This workshop complimented an earlier study on the assessment of community based forest enterprises in Nepal, where case studies of lokta production were analyzed (Subedi et al., 2002). ANSAB has coordinated a Private Public Alliance (PPA) program to promote certification and sustainable marketing of Nepalese NTFPs, including lokta, while contributing to responsible forest management in Nepal since With the pilot initiatives of PPA, the Rainforest Alliance/SmartWood has awarded the first Forest Stewardship Council (FSC) certification in Asia for community-based NTFP management to the FECOFUN in January 2005 based on evidence of social, environmental, and economic sustainability. The pilot certification includes 11 CFUGs in a certified pool comprising about 10,500 ha of forests land in Bajhang and Dolakha Districts. Most of the certified CFUGs are managing lokta in their respective community forests, and handmade paper manufacturing companies such as Himalayan BioTrade and Malika Handmade Paper, both of which promote responsible business practices, are in the process of obtaining the FSC Chain of Custody (CoC) certification (ANSAB, 2005). Recently, a major community forest project published a study entitled Rural Entrepreneur Development: a Pro-poor Approach to Enterprise Development through Community For-

13 PAPER INDUSTRY OF NEPAL 1833 estry. Central to this and other studies by the same agency have been concerns about how to ensure that an equitable share of value added in the production and marketing chain of all forest products went to poor people (Nurse & Paudel, 2003; Pokharel, Nurse, & Hem Tembe, 2004). Another example of the growing interest in this area is a large donor project designed to provide business development services for alternative forest resources and products in Nepal. While the major emphasis is on the support for the marketing and production of herbs and spices in Nepal with a focus on strengthening of private sector service providers, some of its activities relate to lokta production and marketing. From a social responsibility perspective, an important dimension of this business development service project is that one of the implementing partners, LHs, brings with it a track record of effectively developing codes of corporate social responsibly in private and NGO operations. 26 Against a background of widespread skepticism and criticism in the literature, of the ability of the Government of Nepal to facilitate development, it appears that at the macroinstitutional and policy levels at least some of Nepal s existing trade policies, regulatory practices, and development projects have facilitated the rapid growth of the handmade paper industry. Especially relevant and responsive in this regard have been such government and quasi-governmental organizations as the Department of Small and Cottage Industries, HAN, the Federation of Nepalese Chambers of Commerce, and the Trade Promotion Center. Without doubt, overall the national community forestry policy is being effective in improving the management of lokta forestry resources. 6. ANALYSIS AND DISCUSSION (a) Social responsibility in the handmade paper industry a case of positive deviance There is a growing body of literature on what can be learned from situations of positive deviance in different social arenas. In its simplest terms positive deviance represents situations where, by some indicators, better things are happening than in the majority of cases (see Buscell, 2005; Sternin, 2002, 2003; STC, 2003). Traditionally, attention has been given to microlevel community examples, such as investigation about why some children in a poor community are better nourished than others, though both live under similar socioeconomic conditions. This type of investigation has existed for many years, but it was not always called positive deviance. For example, the work of Tendler (1997) on good governance in Brazil investigates how and why in a specific region of Brazil examples exist where, by contemporary development indicators, good things are happening, while neighboring regions with similar base conditions are rife with corruption, nepotism, and poor levels of development indicators. In Asia, Jain (1994, 1996) has investigated managerial reasons as to why a number of large NGO and government programs have been successful (where others have failed). In Bangladesh, in the early 1970s, the Ministry of Rural Development organized a series of investigations to search out, understand, and write up the policy and practical implications coming out of a wide range of positive development situations in the field (sponsored and unsponsored; see Yunus & Latifee, 1975). More recently, Uphoff, Esman, and Krishna (1998) have touched upon similar themes in their case studies of successes, just as Messerschmidt (1988) earlier investigated why the UNICEF handmade paper project in Nepal was successful. In our study regarding positive deviance and successes we see some difference in approaches of the observers, and in what they investigate and reveal. In the case of the positive deviance studies, the entry point is where something positive or better than average is already observed and where there is no presumption that there was, or must have been, a project, a program, or a policy that gave rise to the outcomes. In the case of many success stories, the entry point is often part of an outsider s development intervention perspective of the world. For example: Why was the development project a success? The difference is that the question for positive deviance is not about project inputs or outside sponsorship, but about preexisting or coexisting positive nonproject success stories. Focusing strictly on project or program inputs, from the outside, as the key to success can lead to a preoccupation with the inputs, agencies, special agendas, and catalytic actions of intervention-minded development agents and agencies. With positive deviance studies, however, there is no preconceived idea that an out-

14 1834 WORLD DEVELOPMENT sider s development actions were important or even present. Rather, positive deviance starts with what positive behaviors are working on the ground regardless of project inputs. Hence, it can lead to development actions that build on the positive in the most cost-effective and locally owned manner, with the least project support. When we started this investigation, we were uncertain about what would be happening now in the handmade paper industry. We knew the early (1980s) history and that the industry had grown, but we knew little about the social aspects and outcomes of that growth, nor whether the industry was sustainable from economic and environmental perspectives. While this is only an exploratory study, we argue that there is sufficient evidence to indicate that this is an industrywide case of positive deviance vis-à-vis all three development indicators of environmental, economic, and socially responsible outcomes. (i) Environmental considerations The main resources for handmade paper are lokta bark, cotton wastes, recycled paper or rags, fuel wood and caustic soda or potash for cooking the lokta bast, and dyes for adding color. It has been established that there are very large areas of lokta resource untapped as yet in the Nepal Himalayas. At a maximum, it only takes eight years to grow Daphne shrubs either from seed or from coppicing. While there are some reports of over-cutting coppice stock, there are also indicators that the industry is lobbying the government to get forest offices to play a more proactive role in monitoring existing regulations to maintain sustainable lokta stocks. There is evidence, too, of viable and well functioning and resource sustainability-conscious community groups such as the FSC-certified forest users groups mentioned above. In addition, where well-managed CF user groups do operate, the local regulation of lokta harvesting is part of the overall resource management plan. Regarding the necessary fuelwood for cooking the bast, there are concerns that this can put undue pressure on local fuel wood sources. The issue is not new (see Poudyal, Oli, & Gautam, 1996); it was addressed in the CDHP project in the early 1980s through the development of fast-growing fuel wood lots (Messerschmidt, 1988). This is, however, an aspect of the CDHP project that has slipped over the years. From interviews with members of the industry, we were told that, relatively speaking, this is now not seen as the major issue it once was. Industry representatives argue that (a) the wood requirements of the handmade paper industry are small compared with other demands for wood; (b) the preferred wood fuel is from dead or fallen trees, not green-felled timber; (c) some commercial buyers of lokta paper are actively promoting sustainable wood lots among their suppliers (e.g., GPI and NPP); (d) many lokta paper makers have begun using alternative sources of fuel (e.g., gas, kerosene, electricity); and (e) where effective forest user groups exist, there are management plans that regulate fuel wood needs for paper makers. 27 One other environmental concern relates to the chemicals used in papermaking, including caustic soda for processing the bast, and dyes used for coloring some of the paper. In the past, paper makers used potash in the bast cooking process, but this required a considerable amount of fuel wood to be burned. Generally, paper makers now use caustic soda (where possible), a chemical not considered to be a serious environmental hazard. Regarding dyes, Nepal has banned harmful chemical dyes, and we found no evidence that the handmade paper industry is violating the law. In fact, the major commercial units in the industry make a point of not using harmful dyes, and HANDPASS both endorses the regulations and promotes the use of natural dyes by its members (Dhaubhadel, 2003). There have been no reports of unexpected negative environmental side effects because of the use of recycled fibers, another major resource used by parts of the industry. (ii) Economic considerations As we have seen, handmade paper producers are finding good international markets, and are increasingly supplying the growing demand for high-quality Nepalese craft products. Perhaps the biggest contribution that the original project made to the revival of the industry was the social marketing of Nepalese handmade paper Christmas cards internationally, conducted by UNICEF. This aspect of the project has had a profound long-term effect on the entire industry. Since those early days of the CDHP project, though, it has been the social entrepreneurs of the industry who have been most active in attending international trade fairs, fostering partnerships and links with established international buyers, diversifying their products to meet buyers needs, and seeking

15 PAPER INDUSTRY OF NEPAL 1835 professional advice from international consultants. One of the major goals of the HAND- PASS has been to help its members develop strong international markets. From an economic perspective, it appears that private entrepreneurs in the handmade paper industry are very much abreast of the challenges of developing viable international markets. In no sense are they waiting for government, or anyone else, to either provide or open up markets for them. Consequently, one can argue that the industry has a good chance of being economically sustainable in the future. This appears to be the case even noting that handmade products from Nepal are often more expensive than comparable products from other countries, and that Nepalese entrepreneurs have to compete on the basis of uniqueness, quality, and in keeping with stringent fair trade and socially responsible codes of conduct. 28 (iii) Social responsibility considerations Perhaps the most interesting features we found in this study were the depth and diversity of socially responsible behavior in the handmade paper industry. This diversity and some of the long-term socially responsible traditions that exist at the foundations of Nepalese society lead us to conclude that socially responsible behavior in the paper industry is sustainable in Nepal well into the future. 29 We see this socially responsible behavior coming from five interrelated sources: (1) traditional community development practices of social responsibility and volunteerism that are deeply rooted in Nepalese society; (2) fair trade codes of conduct to which social entrepreneurs adhere; (3) CSR codes of conduct arising in the private sector; (4) agreements built into membership in HANDPASS, the industry s major business association; and (5) the general policy, project, and legal context. (1) Traditional commitments to community development. There is a long history in Nepal of a commitment to socially responsible and voluntary community development (Messerschmidt, Yadama, & Silwal, 2005; Yadama & Messerschmidt, 2004). In the context of handmade paper industry, the largest company, GPI, is illustrative of a viable company that adheres to the IFAT codes of practice and, at the same time channels 25% of its profits into a community development NGO noted for its high and long established reputation (since 1991). Similarly, BCP has IFAT accreditation and continues to support community development programs. NPP also has a local community development program in areas where lokta fiber is procured. (2) Fair trade codes of conduct. The second major source of socially responsible behavior is the development of fair trade codes of conduct. In Nepal, we have seen that these traditions go back a long way. Currently, the largest handmade paper company, GPI, is a member of IFAT, as are BCP and FTGN. As such, these organizations are monitored under the certifying codes of conduct of IFAT. Many of the major NGOs that market handmade craft products, including paper products, are members of FTGN, which has its own monitoring procedures for compliance to its code of conduct. These initiatives are related to other social responsibility initiatives, but have and continue to develop relatively independently. The recent award to the FECOFUN of the first FSC Certificate in Asia is another example of international recognition of compliance to fair trade principles. (3) CSR. The third source of interest comes from the CSR promotional work of LHs. LHs special commitments to social responsibility focus largely on the rights of children, the banning of child labor, and ensuring that children of poor families in their employment have access to education and medical attention. One of the influential firms in the handmade paper industry is LPC, a member of LHs. LHs has also made significant inputs, both in terms of financial assistance and moral support, to the development of the industrywide HAND- PASS. (4) HANDPASS. The fourth notable feature of social responsibility in the industry is the nature of its major business service organization, HANDPASS. This association was founded in 1996 and comprises members who are either (or both) handmade paper manufacturers and exporters (traders). This means, for example, that when members attend international trade fairs to develop markets, they are in a position to assess both the financial and the social responsibility implications of possible new market developments. Many of the core goals and objectives of HANDPASS membership focus on socially responsible behavior. These are not just add-ons to profit driven

16 1836 WORLD DEVELOPMENT entrepreneurial behavior, but are underlying principles, illustrated by the fact that HAND- PASS has lobbied the government to change the tax laws in order to bring them in line with those of most high income countries so that funds transparently allocated to worker health, welfare, child education, and community development are tax deductible. It is not coincidental that many of the organizations concerned with social responsibility in the handmade industry are the ones with long traditions in prompting the rights of women and children, as the handmade paper industry is dominated by women workers. HANDPASS represents a good example of an effective, influential, and socially responsible Nepalese civil society organization. To some extent, it can be argued that HANDPASS represents an institutional innovation that local actors created to address what are now called in the forestry sector second generation issues. 30 Significantly, HAND- PASS was not the creation of a development program or project, but was created by socially responsible entrepreneurs in the industry. Its continuing viability (which includes finding funds to sustain its work) and its relevance to challenges of the industry indicate that it has developed its own sustainable capability by being relevant and responsive in the continuously changing local and international contexts. Many development projects would envy such outcomes from their planned policy, program, and project interventions. (5) General policy and legal context. The fifth feature of socially responsible behavior concerns the government laws and regulations that effect handmade paper activities. While in many industries, laws and actions of the government are described as lacking, inadequate, not enforced, etc., in the case of the handmade paper industry, it appears that the legal system is helping to create better levels of social behavior. The major industries in the sector recognize unions; the IFAT and CSR codes of conduct are all monitored and all require that child labor laws, etc., are enforced and that accounts of companies are open for inspection, especially as regards the tax and other business records. One major paper making company is proud to have received the international ISO award for good company practice based on maintaining high standards in observing labor laws and honest business practices. Skeptics might ask to see how these laws and codes are monitored and compliance maintained. While we agree these are legitimate concerns, we maintain (based on interviews) that the existing labor legislation, the various codes of conduct, and the transparent methods for monitoring, all imply that there is a widespread culture of social responsibility in this industry to keep within the legal labor and business frameworks of the country. All the major firms welcome unexpected visits to their factories, which reinforces our confidence that compliance to the law and codes of conduct are being maintained. This makes it an industry with a different culture than those covered under the ILO publication cited at the beginning of this paper (ILO, 2004). (b) Lessons for innovation theory and development practice (i) Searching for the positive We have found that the handmade paper industry has many examples of new institutional innovations that serve to improve social indicators (jobs, working conditions, child welfare, health care, etc.) in the industry. These are effective and useful in the current political and economic climate of Nepal. A hypothesis that this research has lead to is that there are many such illustrations of new institutional innovations in Nepal. Subsequent to our initial research on the subject, this line of research was followed up in a major study of groups and group-based development in Nepal. We had no trouble finding case studies of socially responsible and innovative processes at the micro, meso, and macrolevels (Biggs et al., 2004). While many observers of Nepal s development and current socioeconomic and political conditions concentrate on the negative, this study of the handmade paper industry and our separate (but related) research on positive development group behaviors has shown that positive innovations are continuously arising in Nepal and there is a basis for building upon these examples. 31 Interestingly, no one can claim that these sustainable socially responsible institutions found in the handmade paper industry were primarily the result of external ideas. While, yes, as most cases of innovation, there has been and continues to be contact with outside ideas, virtually none of the institutional innovations we have documented here (or in our group development study) were solely the direct result of a project, a program, or a policy.

17 PAPER INDUSTRY OF NEPAL 1837 (ii) The degree of diversity and complexity of institutional innovation The handmade paper case study shows that there is no single institutional model of social responsible behavior. There are many sources of innovation. We certainly do not find that there is any one source or idea that is being scaled up. Our confidence that socially responsible behavior will continue in this industry is based on the depth and diversity of the organizations, management practices, and codes of conduct that exist now, and which are continuously changing to address the changing social and economic contexts. (iii) The role of the UNICEF/CHDP project Clearly, the CDHP project played an important role in helping to rejuvenate the handmade paper industry, starting in the early 1980s. The introduction of handmade paper to the world by UNICEF, in its popular Christmas Card series, was a remarkably successful act of social marketing. Because the project was designed to build upon and strengthen local institutions, especially those of a socially responsible kind, the project can be seen as successful in doing just that. However, subsequent institutional innovations, such as those needed to keep the industry abreast of international markets and create new socially responsible codes of conduct, have come not from the project staff, but from the private and social entrepreneurs in the larger industries and actors in the government. (iv) Sources of innovation Many people think of innovations originating from a research center, or from a project and then being scaled up or spreading. Agricultural research and extension systems often promote this view of the world, with improved varieties being developed in (public sector) research stations, and the useful ones then being adopted by farmers as a result of scaling up by promotional work of extension agencies. In the case of the handmade paper industry, we see, as regards institutional innovations, things are far more complex than that. Yes, there was great interaction of the industry and with the project in the earlier years, but more than that: the project based its management methods at the village level on local group practices. The design of the community development side of the CDPH project was also largely based on institutional structures adopted from local traditions of community development. It was because of this sensible approach to project design that the early days of the project were such a success. In the larger industries, local social entrepreneurs have continued to use, and more importantly to change and adapt these local socially responsible institutions, to changing local and international conditions. Consequently, what we find in the industry today, are not institutional innovations emanating from the project; rather, they are a range of innovations emerging from within the wider industry. The awarding of the first FSC certification in Asia for community-based NTFPs to FECOFUN is just one of the recognitions by an international agency of recent local institutional innovation in Nepal. Another observation is that these emerging institutional innovations are not fixed or static, but are continually being changed by social entrepreneurs to address today s everchanging situations. This observation also means that we have a completely different social process taking place compared to situations where people speak of the institutionalization of a new policy, or the implementation of a new set of codes of conduct, or the scaling up of the results of a special project, or a demonstration. In this study, it has been instructive to see that the human agency behind socially responsible innovations came from within Nepal. The original project was successful because it was based on long established traditions of community development and more macro level traditions of social development behavior (Yadama & Messerschmidt, 2004). Concerning the source and spread of technical innovations, we saw that one of the major technical innovations in the industry, the introduction and use of Japanese technology for processing recycled paper, was first used in the private sector and then was adopted by the project s production unit, the BCP. (v) The importance of individual personalities in innovation processes We have tried to avoid mentioning the specific names of individuals in this paper. We have found, however, that the names of certain effective persons kept on coming up. These are individuals who are, indeed, positive deviants within the larger society. Some of the most important social entrepreneurs have worked on being effective in this arena since the 1970s. It is possible that while some actors in the government and political arenas spend

18 1838 WORLD DEVELOPMENT a lifetime working their way up in an institutional hierarchy, there are other individuals who spend their lives being innovative in socially responsible ways; though, of course, there is inevitably some overlap among these groups. 7. CONCLUSION We argue in this paper that there is a broad range of different types of socially responsible institutional behavior in Nepal s handmade paper industry. These innovations are embedded in many of the long-held cultural values of Nepalese society. The depth and diversity of these current institutions constitutes the robustness of such behavior in the industry. This positive deviant behavior is in contrast with situations where there is a high use of child labor and lack of health facilities, etc., as in other industries. Although this is an exploratory study, we feel we have presented sufficient evidence to support our arguments. While we all know of development projects and program evaluations that have purposively gone out to collect the good news in order to show that a particular development intervention has had a successful impact, we do not think we have fallen into that trap. At the start of our study, we were curious to find out what was happening in the handmade paper industry since the first impressions of success on the UNICEF funded CDHP project. What we encountered were the positive indicators and processes that we have described and analyzed here. When asked why this is happening, we see two main reasons: First, there is an international demand for handmade products produced under socially responsible conditions. In this, both Nepalese and international social entrepreneurs are being innovative in opening up and maintaining markets. Second, there are Nepalese social entrepreneurs who have been committed for years to developing business practices that encourage this type of behavior, which leads to continued growth of the industry. NOTES 1. For an early review of alternative innovation theories, see Biggs and Clay (1988). There are many empirically based critiques of the linear and pipeline frameworks of agricultural and natural resources approaches to technology generation and diffusion (Biggs, 1990; Douthwaite, 2002; Gurung & Menter, 2004). 2. Details of changes in the SFDP, the creation of Small Farmers Co-operatives, and the restructuring of the ADB, Nepal, are given in Wehnert and Shakya (2003) and Koch, Maharajan, Sharma, and Wehnert (2004). As far as we know there have been no publicly available overall long-term studies of the changes in and outcomes of the UNICEF part of the original CDHP project. 3. See note As with all low cost exploratory studies such as this, there is a wide range of issues where critics can say that the data presented are inadequate to support the arguments. We accept some of these criticisms, but hope we have provided sufficient information to sustain our qualified findings. We purposely concentrated on the socially responsible behavior of the units that process the great majority of handmade paper in Nepal. A complimentary study that needs to be done, but was beyond our resources, is an analysis of the value added shares in the industry that go to different social groups such as lokta cutters, gatherers of recycled cotton and paper waste. Such an analysis would need to be done carefully as, for example, lokta harvesting is sometimes conducted by villagers who are also members of local forest users groups, handmade paper cooperatives, or local private handmade paper enterprises. 5. Production processes are described in Trier (1972) and Messerschmidt (1988, 1995). 6. The group approach to development in Nepal is more thoroughly discussed in Biggs, Gurung, and Messerschmidt (2004), and for the handmade paper industry by Messerschmidt (1988, 1995). 7. All major acronyms used in this paper are listed in Table For a recent analysis of the outcomes of social mobilization and other components of groups based strategies across all sectors of Nepal (see Biggs et al., 2004).

19 PAPER INDUSTRY OF NEPAL Accounts of successful project initiatives in the rural development literature were, and remain, relatively rare. We say rare not because successes are not there but because quite often aid actors need problems and failures to fix in order to justify new development initiatives. (Successes are discussed later in the paper.) We recognize that success is in the eyes of the beholder, and that it is a term used extensively and selectively by various development actors wishing to effect ongoing policy processes and development practices. An example related closely to the focus of our study is the array of alternative views of Nepal s community forestry (CF) program that promotes decentralized CF user groups. There are some who present the CF program as an internationally renowned success that has promoted true social and economic development in Nepal s villages. Others see it as a program that has resulted in well-recognized improved forest management, but at the expense of social equity, in which many development goals are not achieved and where the social and economic circumstances of some of the poorest and most marginalized groups in Nepal have actually been made worse. For a discussion of alternative perspectives, see Biggs and Messerschmidt (2003) and Biggs et al. (2004). 10. The overall loan and community development for small farmers, a major underpinning of the original project, reached its highest point in , but declined thereafter as ADBN was restructured under an institutional development program. The responsibilities of ADBN s subproject offices (SPO), which previously organized and administered the SFDP in rural sites, were recently transferred to the Small Farmer Cooperative Limited (SFCL), owned and administered by local farmers. ADBN still gives loans to lokta producers as a normal part of the new SPO/SFCL activities, but there is no longer a special lokta program as there was during the early 1980s (ADBN, 2002). GCO buys 90% of BCP s handmade paper output, under an exclusive contract. BCP has also searched for alternative markets, especially since the season when the GCO unexpectedly (temporarily) canceled its orders. The privatization of BCP has also been discussed. At the time this study was conducted in , however, links with UNICEF continued to dominate BCP. 11. In recent years, an alternative fiber called argeli has also been developed for paper making, with Japanese support. The result is basically a one-product paper, used almost exclusively for printing Japanese paper currency, the Yen. Argeli paper is made from a fast growing Daphne-related shrub called Edgeworthia chrysantha. A small argeli harvesting industry now flourishes in Nepal but, under a special arrangement between the two governments, the raw material is shipped from Nepal to Japan for processing. Buyers of nonrecycled waste products, however, prefer pure lokta-based paper over argeli-based paper, for lokta s greater tensile strength and durability. 12. Japan has had a long established tradition of its own for manufacturing handmade paper crafts using lokta fiber-based paper, about which Nepalese producers were initially only vaguely aware. In 1985, the Japan International Cooperation Agency (JICA) approached the Nepal government to suggest that it introduce Japanese technology to the Nepalese producers, and interested Nepalese entrepreneurs were taken to Japan for training. 13. It is interesting to note that one of the most important technical innovations in the industry was the adoption of new Japanese technology for recycling lokta wastes and other fibers. In this instance, it was GPI, a private company, that first took it up and only subsequently did BCP, as part of the CDHP project, adopt it. 14. There is now a broad-based industry with many producers, traders, and buyers. In Kathmandu, some traders have substantial stocks of handmade paper, which helps to address problems of fluctuating supplies of fiber. 15. Locally in Nepal, corporate social responsibility is defined to include providing education to the children of workers, wages as per the law, and health insurance for employees, often with concern for empowering women. Some firms do much more in this regard. This fits within international codes of conduct that assure the implementation of welfare activities to company employees and their children. The Fairtrade Foundation (2004), for example, emphasizes social responsibility as including offering disadvantaged workers a chance to increase their control over their own future, have a fair and just return for their work, continuity of income, and decent working and living conditions through sustainable development (Fairtrade Foundation, 2004, quoted in Raynolds, Murray, & Taylor, 2004; see also Young, 2003). For examples of analysis of the issues involved in drawing up and ensuring compliance to codes of conduct see Barrientos, Dolan, and Tallontire (2003) and Nadvi (2003). 16. Several LH companies are also involved in the woolen carpet industry, each of which follows the voluntary global labeling initiative called RUG- MARK, dedicated to ending child labor and providing educational opportunities to those children who previously worked in the industry. Other Lotus-associated companies provide conventional business services, but always under the codes of conduct of CSR.

20 1840 WORLD DEVELOPMENT 17. These figures are based on official export statistics from HAN. These percentages would be a little lower if the exports of BCP were included in the official statistics. The BCP exports are not included in HAN s figures as BCP exports still come under a special UNICEF agreement with the government of Nepal. In , GPI is the fastest expanding exporter. 18. For examples, see Hastakala, and others. 19. The Nepalese members of IFAT are FTGN, ACP, Women s skill Development Services, Pokhara, GPI, and BCP. 20. The Small Industry Promotion Program (SIP-P) is a joint project of the government of Nepal and Swisscontact (a Swiss NGO). The SIP-P facilitates small industry cooperation with local chambers of commerce, trade associations, producer groups, and service delivery organizations for the development of selected sectors including handicrafts. Although the seminar concentrated on lokta handmade paper, the meeting covered issues related to all handmade papers. 21. Concern with quality products for international markets has been heightened by recent problems in other areas of Nepalese handicraft production. For example, the popular pashmina woolen shawl industry of Nepal has suffered from problems of overproduction and lax quality control. 22. The lokta resource estimates are from Nepal Paper Products (NPP), P. Ltd. Current industry concerns with resource management are discussed in Acharya (2003). HANDPASS has also lobbied the Department of Forests to consider establishing stronger measures to further protect lokta resources at the source. Technically, the Department of Forests issues licenses to lokta harvesters for cutting in specific areas to protect the resource and raise revenues. The regulations are difficult to enforce, however, especially in remote locations and given current security concerns related to a nationwide Maoist insurgency. Under current circumstances, it is difficult to monitor or police them effectively. 23. Alternative forest resources or AFRs (also called NFTPs, or nontimber forest products ) are defined as forest-derived substances that serve as the raw materials for value-added commodities production and may include timber-based resources (Messerschmidt & Hammett, 1998). The distinction is between the raw resources and their value-added products. For example, lokta fiber is the forest resource from which handmade paper is processed. Similarly, while big timber is used for building materials and furniture, alternative timberbased forest resources such as scraps and leftover after milling become the raw material for making wooden toys, tool handles, and sawdust for fuel. Other AFRs include, for example (there are far too many to list), babiyo grass from which a kind of rope is woven, and a complex of forest resources called jaributi that are refined and processed into a variety of medicinal products. 24. For examples of user group management of lokta resources see DOF and UNICEF (1984), Lama, Robinson, and Rai (1996), Malla, Shakya, Karki, Mortensen, and Subedi (1999), and Shiva and Mathur (1996). For a comprehensive early account of lokta and paper making see Trier (1972). For details on the effective management of lokta for the Malika Handmade Paper Private Ltd. of Bajhang District, Nepal, see Subedi et al. (2002, pp ). Comparatively, for problems arising in lokta management in Parbat, one of the early CHDP Project districts, see Subedi et al. (2002, pp ). For an overview of community forestry in Nepal, see Biggs and Messerschmidt (2003). 25. The license system for Daphne extraction has favored large companies and militated against community based enterprise development engaging in the handmade paper market independently. Often licenses are allocated in a highly nontransparent manner. The lokta extraction license structure, which relates to the right to export lokta collected in national forests (and not community forests) has in practice been used to monopolize all exports of lokta out of districts, with the District Forest Officer s support. This obstructs a free market and price competition, and also makes it difficult for small units within the district to get an assured supply of lokta. (Reviewer s comments on an earlier draft of this paper.) 26. The project is known as the BDS MaPs Project (Business Development Services Marketing, Production and Services). It is led by the International Development Enterprises (IDE) with Winrock International, ANSAB, Lotus Opportunities, and the World Wildlife Fund Nepal Program as development agency partners. It is funded by USAID and DFID. 27. In order to be totally confident that the industry is sustainable for environmental considerations, a detailed study of the industry would be necessary. What we are arguing here is that there is adequate evidence that environmental sustainability issues are being addressed by major companies, CFUGs, and HANDPASS, the industry s business organization (see Subedi et al., 2002).