This paper reviews options for reform of the opium economy within a holistic world context, emphasising the economic forces at work at each stage of the marketing chain. Rather than choosing between prohibition and legalisation, the paper proposes an incremental approach that would move steadily from a prohibitionist framework to one that was increasingly liberalised. The approach focuses on squeezing-and ideally eliminating-the profits earned in the illicit trade. It would do this by: diverting trade from illicit traffickers to public agencies; enhancing illicit costs by continued active interdiction; and, in due course, adopting forms of predatory pricing to further squeeze illicit profits. As the illicit trade withered, local markets in consuming countries might become feasible, which-as in the case of alcohol and tobacco-could be regulated and taxed with the aim of minimising harm, suppressing demand and promoting appropriate treatment and education.

Bhutan and Nepal have followed differing hydropower development strategies. Bhutan has co-operated with India and power export earnings have helped fund a broadly successful economic, environmental and social programme. In contrast, Nepal turned to the World Bank and other donors to fund its power projects. When World Bank funding for Arun III was withdrawn in 1995, its programme was thrown into disarray and it remains to this day a net power importer. Nepal’s current economic, environmental and social malaise can in part be attributed to these past decisions in the power sector by the Government and World Bank.