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 re- sources sectors. In the light of empirical evi- dence, simplistic pipeline and linear theories and frameworks have given way to broader innovation system approaches, where the behavior of actors in the broader political, cul- tural, aid donor, trade, and economic arenas are seen as important as any of the specific ef- forts 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 * 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 incor- porated. We also acknowledge personal (nonmonetary) assistance given during the original research (mid-1980s) and during this new study (2002–05) 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 representa- tives of the trade associations involved in Nepal’s hand- made 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. World Development Vol. 33, No. 11, pp. 1821–1843, 2005 Ó 2005 Elsevier Ltd. All rights reserved. Printed in Great Britain 0305-750X/$ - see front matter doi:10.1016/j.worlddev.2005.06.002 www.elsevier.com/locate/worlddev 1821 sectors (Douthwaite, 2002; Hall, Bockett, Tay- lor, 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 under- standing 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 exam- ples of positive institutions (as regards contem- porary 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 gen- eral. The period under study in this research included a phase when a large project was de- signed to promote the handmade paper indus- try. This allowed us to reflect on the behavior of past development actors in influencing the growth of the industry and their role in influ- encing 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 hand- made 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 ques- tions 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 sustain- ability? The paper also discusses the role of the Community Development Through the Produc- tion of Handmade Paper Project (CDHP pro- ject) 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 dis- course on: (1) the promotion of private for profit based entrepreneurship in the context of globalization, and (2) criticism of Nepal’s cur- rent development vis-a ` -vis responsible social and environmental practices, good governance, rural livelihoods, poverty reduction, and gen- der 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 represen- tation, 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 soci- ety. 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 sustain- able. (Thus, our approach stands in contrast to institutional models transferred from else- where, and to models that are relevant only to the ‘‘special conditions’’ of projects and pro- grams.) 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 explor- atory 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 ethnograph- ies of aid agencies (Rossi, 2004; Sharma, Kopo- nen, 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 innova- tions 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- 1822 WORLD DEVELOPMENT lems of data collection, but also because it would be very expensive to try and gather reli- able figures on even such things as the number of lokta paper production units actually operat- ing at any one time, or the percentage of hand- made paper products made from lokta fiber or from cotton waste and other natural fibers. Be- cause of this, we have tried whenever to ‘‘trian- gulate’’ our information from as many sources as possible. 4 3. 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 abun- dantly on the south slopes of Nepal’s Himala- yan 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 govern- ment records and religious texts. Since at least the 12th century AD, production of traditional handmade paper has occurred at several loca- tions 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 Nepa- lese 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 natu- ral fibers. Lokta handmade paper production is a for- est-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 ap- proach in organizing their works. Examples are the Community Forest User Groups (CFUGs) associated with the Malika Hand- made Paper Enterprise in Bajhang District and the Pandit Kamala Enterprise of Dolakha District (Subedi, 2004). These groups have high involvement of women, poor and disadvan- taged 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 pack- ing at the factory. Most paper-making groups form with little regard for caste, gender, or ethnicity (Messerschmidt, 1988, 1995). The pre- dominance of women working in this industry is a result of Nepalese socioeconomic tradition, rather than of a conscious gender policy initia- tive. Recently, the ongoing conflict and eco- nomic conditions have reinforced the local employment of women, as men have fled vil- lages 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 PAPER INDUSTRY OF NEPAL 1823 Table 2. Major events in the rejuvenation and growth of the Nepalese handmade paper industry Up to 1970s 1970s 1980s 1990s 2000s —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 (1996–97) —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) 1824 WORLD DEVELOPMENT Interest in rejuvenating lokta craft paper- making occurred as the tourism industry in Ne- pal began to grow in the 1970s. After a steady decline in papermaking (in the late 1970s), encouraging evidence of a potential interna- tional 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 Devel- opment Bank of Nepal/Small Farmer Develop- ment Program (ADBN/SFDP) launched the CDHP project in 1980 (hereafter called ‘‘the project’’), with close government involvement and coordination. This was the first donor- funded attempt to revive indigenous paper making processes. 7 In the late 1980s and early 1990s, with the growth of popularity of lokta based and re- cycled 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 approxi- mately 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 produc- tion, large lokta resources remain untapped. Lokta-based handmade craft paper products continue to offer considerable economic sus- tainability due to their high-quality niche mar- ket potential (Dhakal, 2004). 4. REJUVENATION OF THE HANDMADE PAPER INDUSTRY The early history of rejuvenation of hand- made 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 be- low’’ (at the local level), and using the structure and processes of the ‘‘integrated rural develop- ment’’ approach. The assumptions and operat- ing 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, primar- ily 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 disadvan- taged 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 crea- tion of a private (quasi-governmental), Kath- mandu-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 prod- uct. Paper produced by the project for greeting cards was part of UNICEF’s Basic Services in Local Development Program, combining eco- nomic and community development functions with rural and urban components to revitalize and expand a traditional craft production pro- cess (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 tech- nology, 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 per- cent 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 Hat- iya Forest in Baglung District, and papermak- ing occurred in the nearby villages of Pang and Nanglibang in Parbat District. Eventually, PAPER INDUSTRY OF NEPAL 1825 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 rota- tional 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 guide- lines today for lokta preservation (Acharya, 2003; Development Associates, 1997). How- ever, even in some of the BCP areas of Parbat, the guidelines for lokta maintenance are not kept to (Subedi, Ojha, Nicholson, & Binayee, 2002, pp. 10–13). 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 har- vested, 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 de- scribe other entrepreneurial activities within the industry but outside of the CDHP project. The first study by Messerschmidt, entitled ‘‘Success in small farmer development: Paper- making at Pang and Nanglibang, Nepal,’’ ap- peared 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 insti- tutional style, structure, and functions. That study also described local sociocultural tradi- tions, 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 develop- ment ‘‘successful,’’ including a comparison of project assumptions and practices with devel- opment 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 undis- puted. 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 com- munity development initiatives such as access to clean drinking water, sanitation facilities, preschool teacher training, education for village children, and development of fuel wood planta- tions (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 hap- pen’’ (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 prod- ucts 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 con- temporary 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 tradi- tion, the proud renewal of the ancient craft of paper- making. 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 (Messer- schmidt, 1988, p. 733). A separate impact study of the project in 1995 reaffirms these successes, pointing to the 1826 WORLD DEVELOPMENT 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 thou- sands 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 atten- uated 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 develop- ment objectives, however, have been difficult to implement, and should GCO discontinue buy- ing paper (as it did briefly during 1996–97), BCP in its present form will face serious prob- lems. 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 ap- pears that developments in the industry rein- force 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 1998–2004, the average yearly expansion rate was 22%. This figure began to decline, however, in 2003–04, to 10%. In 2003–04, according to official statistics from the Handicraft Associa- tion of Nepal (HAN), the export of handmade paper products (the great majority of sales) was about US$4.25 million. While the CDHP pro- ject 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 in- dustry, 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 pa- per 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 community- based units. However, most of the paper man- ufacturing 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 devel- opment, (b) growth of private and social entre- preneurship, and (c) resource management and sustainability. (a) Niche market development UNICEF helped introduce Nepalese hand- made paper to the world through the CDHP project, including the BCP factory and GCO, which provided an excellent platform to adver- tise 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, so- cial responsibility, social ethics, a remarkably high-quality product, and resource sustain- ability. Also marketed is a touch of romantic PAPER INDUSTRY OF NEPAL 1827 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 con- sciousness is part of the industry image. The result is a socially responsible, resource sustain- ing 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 intro- duction of a Japanese technology that employs energy and resource-efficient factory methods with labor-intensive handmade craft produc- tion. 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 non- lokta recycled handmade paper products made from waste papers and recycled cotton, which soon dominated its product line. The explora- tion 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 suc- cessful 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 devel- opment of international niche markets for handmade paper and other craft products it has also been the long-standing entrepreneur- ship 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 pro- ducing quality craft goods for local and inter- national markets in the 1970s. This concern with developing international markets is illus- trated 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 market- ing strategy workshop in 2003. (b) Growth of private and social entrepreneurship During the 1990s, many private sector busi- ness entrepreneurs, seeing the potential to develop a growing international market for handmade paper products, joined the paper- making 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 gen- eral manager and one a technician. Together, they founded Nepali Paper Products P. Ltd. (NPP) in 1991. NPP allocates funds toward employee adult education classes and a scho- larship 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 Geneva- based 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 certify- ing agencies. Besides being one of the first private compa- nies to be established in the growing industry, GPI has also been a leader in social entrepre- neurship. 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 pro- grams) GWP receives additional funding from 1828 WORLD DEVELOPMENT international agencies, foundations, and NGO grants. GWP also renovates and builds schools, provides scholarships to disadvantaged girls, supports HIV/AIDS awareness among vulner- able groups throughout Nepal, and maintains a tree plantation program (Bhattarai, 1994). GPI is a member of the Federation for Alterna- tive Trade and is monitored under its code of conduct. Another influential firm in the indus- try as regards promoting social responsibility in business is Lotus Paper Crafts (LPC), 15 which was formed in the early 1990s. Its man- ager 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 Hold- ings (LHs), which provides financial and social services to 11 associate companies. LHs ac- tively 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 busi- ness 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 em- ployee benefits, and provide regular, inde- pendent, 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 offi- cial export figures for Nepal in 2001–02. 17 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 mid- dle class market in Kathmandu and other urban areas, as well as links to Internet-based international markets. Their web sites pro- vide international access to Nepalese paper products, information about traditional manu- facturing techniques, and description of associ- ated 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 eth- ics. 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 Associ- ation for Craft Producers (ACP), a professional group providing design, marketing, and techni- cal services for low income, primarily female craft artisans. ACP maintains welfare, retire- ment, and loan funds; counseling services; edu- cational 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 commer- cially viable enterprises’’ since the mid 1970s (Limbu, 2002). Like many of the FTGN mem- ber, 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 Develop- ment 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 (www.peoplink.org/ftgnepal). Some prominent international buyers require their suppliers to abide by codes of trade con- duct that include social and environmental programs. Thus, fair trade and social con- sciousness 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 responsi- bly 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 mem- bers of an international fair trade organization, the International Federation for Alternative Trade (IFAT), established in 1989. 19 Fair trade objectives espoused by these organizations PAPER INDUSTRY OF NEPAL 1829 include (a) working with low income and marginalized producers (mainly women); (b) supporting ethical work place practices; (c) pro- moting safe working conditions, equal employ- ment opportunities, and concern for workers’ health and quality of life; (d) respecting work- ers’ cultural and ethnic identities; (e) providing educational facilities and programs; and (f) maintaining the environment to assure a sus- tainable resource base and continued employ- ment (see www.ifat.org; 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 orga- nizations, and associations have become in- volved. 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 instrumen- tal in the industry at different points in time.) These include the Nepal government’s Depart- ment 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 hand- made paper enterprises; by 2003, it had 32 reg- istered members. Membership dues follow a sliding scale based on ability to pay. The main Table 3. Main actors in Nepal’s handmade paper making innovation system Private firms, NGOs and associations International agencies and associations Nepal government agencies Local and other —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) —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) —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) —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 1830 WORLD DEVELOPMENT [...].. .PAPER INDUSTRY OF NEPAL 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... 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... 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... 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’’... 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... of the in uential 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 HANDPASS (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... 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... 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... and Winrock International (2002) 31 An example of negative reporting in the handmade paper industry is the often cited ‘‘over cropping’’ of lokta resources These reports in the newspapers and sometimes in development reports, give evidence from specific cases While we do not dispute their information, what is often lacking is balanced reference, including industrywide actions that are already in practice... diversifying their products to meet buyers’ needs, and seeking PAPER INDUSTRY OF NEPAL professional advice from international consultants One of the major goals of the HANDPASS 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 . examines the recent dynamics in the rapidly growing handmade paper industry in Nepal. The paper argues that the industry is sustainable from social responsibility. reflect on the behavior of past development actors in influencing the growth of the industry and their role in influ- encing the initiation and spread of socially responsible