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The Narrowing Benefits of the Market

28 Dec 2012

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Guest Columnist : Chudi Offodile

Chudi Offodile

Prof. Kamene Okonjo, the mother of the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, has been released by those who abducted her and held her for five days. She is one of the latest victims in what has become a lucrative trade in Nigeria for some time now. As we celebrate her release from captivity, we also await the next abduction or kidnapping that is sure to come, sooner, rather than later.

Of course, the bombings, particularly of churches in Northern Nigeria, have become a regular feature of our existence. Put simply, there is general insecurity in Nigeria, North and South. And the question must be asked: how did we get to this point? What has failed - our politics or our economics, or both?

The economic option we took as a country in 1986 during the reign of military president, Gen. Ibrahim Babangida - a free market economy - led to the expansion of Nigeria’s economy but also created, as we can all see, one of the most unequal societies in the world. Successive governments after the Babangida regime ended in 1993 ‘trusted the market’ and believed in its efficiency as against a slumbering, corrupt and inefficient government. The market was expected to provide jobs for the teeming masses of Nigerians. All the government was supposed to do was provide the enabling environment and everything else will follow. It has not really worked out that way.

The finest economists were brought into government, from the private sector, the International Monetary Fund (IMF), the World Bank, on the strength of their understanding of the market economy. Dr. Chu Okongwu, Dr. Kalu Idika Kalu and Chief Olu Falae and a few others inclusive.
Gen. Sani Abacha took over and brought in a renowned chattered accountant, Chief Anthony Ani, to take charge of the finance portfolio. Abacha could relate to figures not the ‘grammar’ of the effusive economists of the Babangida era. He altered the course of the economy without herding it in any particular direction.

Enter the whiz kids of the Obasanjo presidency to wit, Prof. Chukwuma Soludo, Nasir el-Rufai and Dr. Okonjo-Iweala amongst others. President Olusegun Obasanjo and his team re-asserted the force of the market, expanded and largely modernised the economy. The banking consolidation grew the economy massively, the telecoms revolution and power sector reform rolled back by President Umaru Musa Yar’Adua but now back on stream under President Goodluck Jonathan will surely grow the economy even more. The problem is that the effect of this growth is felt at the very top. Put simply, the benefits accrue to less than one per cent of the population. It has provided almost 200 private jets but no jobs for majority of the citizens.

In his book, The Price of Inequality, Nobel Prize-winning economist, Joseph E. Stiglitz, observed that “the virtue of the market is supposed to be its efficiency. But the market obviously is not efficient. The inability of the market to generate jobs for so many citizens is the worst failure of the market, the greatest source of inefficiency and a major cause of inequality”. Stiglitz goes further to say, “those markets by themselves often fail to produce efficient and desirable outcomes and there is a role for government in correcting these market failures, that is designing policies that bring private incentives and social returns into alignment”.

It has not been very easy for the government in Nigeria and in most countries to design the policies needed to bring private incentives and social returns into alignment, because the forces that have been at play at creating these unequal outcomes, are self-reinforcing. And this is how Stiglitz explains the situation. “The failures in politics and economics are related and they reinforce each other. A political system that amplifies the voice of the wealthy provides ample opportunity for laws and regulations – and the administration of them – to be designed in ways that not only fail to protect the ordinary citizens against the wealthy but also further enrich the wealthy at the expense of the rest of society.”

The concentration of the real economy in Lagos and the concentration of power and resources in the Federal Government are the two main factors that may have frustrated the percolation of the gains of the market economy. Both have been very injurious to the wellbeing of the country’s economy. In discussing the economy of Nigeria, no one will be offended if you use Lagos and Nigeria interchangeably. Lagos is Nigeria and Nigeria is Lagos.

Markets are shaped by laws, regulations, policies and institutions and these have distributive consequences compounded by the fact that the markets have no inherent moral character. A combination of these factors ensured that 80 per cent of Nigeria’s investible capital flow in the direction of Lagos with the consequence of almost a state of arrested development in the rest of the country with the exception of Abuja and the derivation states. Nigeria operates effectively, a one city economy and even from the point of view of national security, it is a dangerous situation.

There is every need therefore, to reformulate policies to ensure a more equitable, more efficient and a more dynamic economy. First should be the recalibration of the 36 states in Nigeria, the creation of ‘new markets’ or new outlets if you like. More resources from the federation account should go to the states and the policy banning state governments from establishing or owning banks should be reviewed.

Many will agree that more resources from the federation account should go to states but free market purists will balk at the idea of state ownership of banks or holding of shares in banks by states, making reference to past abuses and the usual government has no business in business rhetoric. The N2.37 trillion loss posted by AMCON is money stolen by private sector players within the banking model prescribed by the same purists. Michael J. Sandel, author of the international bestseller, Justice, makes reference to what he calls “the persisting power and prestige of market thinking, even in the aftermath of the worst market failure in eighty years”.

A visit to the derivation states, particularly Akwa Ibom, Rivers, Bayelsa and Delta States, will show clearly that development is possible at the state level with more resources. I argue that in order to internalise the development process in those states and make it sustainable, the states must be able to facilitate the domiciliation of credit capital that would help create a local business elite not just government contractors.

Government policy allows for ‘regional banks’ to be set up by private individuals if they can put up N10 billion. Morality as we noted earlier is not one of the attributes of the market and private capital is usually not sentimental. What factors will make private capital opt out of Lagos and berth in Sokoto or Ebonyi or Ekiti State? Only the government can make this happen and I make the point that it is the responsibility of the government to do so, even in a free market economy.

The thinking of Nigeria’s Central Bank Governor, Sanusi Lamido Sanusi, on these issues are not very clear. But one policy that will help narrow the economic divides in Nigeria and one which should be reviewed is the policy that denies government the right to establish banks. The central bank cannot hide behind past political abuses. They should be able to enforce corporate governance rules across public and private banking institutions.

We must unlock the potentials of state power by allowing the federating states to invest in regional banks with the mandate to fund local entrepreneurial and business activities. With more effective centres of development created across the country, more businesses will sprout creating more employment and bridging the inequality between the wealthy and the poor.
To rely on a handful of individuals and corporations to provide employment in a country of about 160 million people, by granting them all manner of concessions and waivers, flies in the face of reason. Poor Aliko Dangote, he has tried to pay back by investing in industries and creating jobs. Now he is offering university graduates even those with master’s degrees, jobs as truck drivers. This is emblematic of market failure and symptomatic of a nation in decline.

To answer the question I posed earlier whether it is our economics or our politics that failed or both, I would once again quote Stiglitz.  He says that “even though market forces help shape the degree of inequality, government policies shape those market forces. Much of the inequality that exists today is a result of government policy, both what the government does and what it does not do. Inequality is the result of political forces as much as of economic ones”.

Offodile, a lawyer, public policy analyst and former member of the House of Representatives, is the Editor-in-Chief of www.editorialnigeria.com

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