Do Economists Matter?

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Guest Columnist: Kingsley Moghalu

Short answer: Yes, but only if they are also economic thinkers. Not all persons who hold degrees or certificates in economics are economic thinkers. Not all economic thinkers hold formal economics degrees. The history of the world economy and many national economies has been shaped by economic thinkers. Some of these minds are technical economists, and others are not.

Let me explain: We are in a recession. Beyond that, Nigeria faces even more fundamental economic challenges such as achieving real economic diversification that must be anchored on industrial manufacturing and exports of value-added products rather than raw commodities or minerals. Critics and analysts have raised questions about the competence of economic management in Nigeria today and in recent years. And we have heard it bandied about that part of the problem is that the economic management team does not include notable economists and has “too many lawyers”.

The matter is more nuanced. As we engage in recession-induced ruminations on the economy, economics and economists, the real question we should be asking is whether the economy is being managed with a clear economic vision, substantive depth of knowledge of the issues that confront us, and exactly what steps to take in addressing them. The team with that task certainly should include technical economists. But something more fundamental is needed, because Nigeria has never lacked economists, inside and outside government. Yet we have not been able to diversify our economy away from oil after more than four decades. We remain a poor nation and have not been able to create the wealth of nations, only that of a few individuals. Part of the problem is that, after all these years, even our economists have gotten it mainly wrong. This doesn’t mean that economists don’t matter. It just means, in my view, three things: that they are not infallible, political will also has not been consistent, and the necessary policy space and empowerment has not always been forthcoming.

Economic thinkers have philosophical foundations. They have big and bold ideas about economic phenomena and their application to economic policy and to societies. Nigeria lost the plot on economic transformation after the era of truly distinguished economists like the late Dr. Pius Okigbo and Prof. Adebayo Adedeji. These were transformational thinkers and policymakers who authored original, authoritative writings on economic policy and economic transformation.

The economies of the wealthy industrialised nations have been heavily influenced by economic thought and fertile minds. Adam Smith, the British author of the commanding economic work “The Wealth of Nations”, is regarded as the founder of the modern economic profession. He was a moral philosopher with no formal training in economics. His famous 19th century book was an original work that set out a clear, easy-to-understand intellectual argument for the capitalist mode of production, organisation and free markets.

David Ricardo was a stock and loan broker. He similarly had no formal training in economics, and became a professional economist only after reading Adam Smith’s magnum opus. Ricardo’s 1815 “Essay on the Influence of a Low Price of Corn on the Profits of Stock” propounded the economic law of diminishing marginal returns when a fixed resource such as a fixed amount of land is worked for production. Ricardo’s most famous contribution to economic thought and policy, however, is the theory of comparative advantage that became the cornerstone of world trade.

The (also British) economist John Maynard Keynes remains arguably the most influential economist of the 20th century. Keynes, who played a key role in the establishment of the Bretton Woods institutions (the International Monetary Fund and the World Bank), influenced a strong role by governments, through deficit spending, in economic recovery after World War II. He rebutted neoclassical economic thought and its worship of free markets. The success of his ideas at the time is reputed to have “saved capitalism from itself”. Keynes studied classics and mathematics at Cambridge University. He had only an eight-week undergraduate training in economics and never sat for an exam on the subject! You cannot discuss Keynes without his subsequent critic, the great American economist and Nobel Laureate Milton Friedman who challenged Keynesian pro-growth fiscal management with a focus on “monetarism” (the role of the money supply), floating exchange rates and financial stability. Friedman’s economic philosophy helped the United States central bank, the Federal Reserve Bank, to slay inflation in the 1980s and helped contain the impact of the global financial crisis of 2008.

Three contemporary economists wield great influence today. One is the Nobel Laureate Joseph Stiglitz, famous for his cogent and powerful critiques of globalisation and its conventional wisdoms in his book “Globalisation and Its Discontents”, Justin Yifu Lin, the Chinese development economist and (like Stiglitz) a former Chief Economist of the World Bank who has explained the intellectual, philosophical and policy thrusts of the Chinese economic miracle, and Thomas Picketty, the French economist whose hugely influential recent tome “Capital in the 21st Century” questioned wealth and income inequality in Europe and the United States and has sold more than three million copies.

The underlying point is that intellectual and philosophical thought and inquiry on economic questions, and its application to public policy, is what makes a difference in the wealth and poverty of nations. This intellectual depth and rigour is what is needed in Nigeria’s economic policymaking framework today, and it is against its presence or absence that our economic policymaking should be judged. This necessary attribute for economic transformation assumes an understanding of economic philosophy and economic science, as well as (preferably) practical experience and track record in economic policy making. But it does not necessarily require a formal degree in economics.

Economic development, in reality, involves the application of several different disciplines. This is why, although technical economic-statistics number crunchers must provide inputs into economic policy for the policy process to have rigour and integrity, superior economic policymaking requires a variety of skill sets. Despite its claims to scientific status, the “dismal science” is still a social science, not a physical or biological one. It is neither medicine nor engineering, much less nuclear physics (which is why unanimity amongst economists is impossible). And so, as we have seen, some of the most influential economists in modern history were not formally trained or certified in the subject. If we were to follow the rather narrow view of who is an economist, we could come to the fantastically ridiculous conclusion that immortal economists such as Maynard Keynes were not economists at all!

Gordon Brown, a former British Prime Minister and a former Chancellor of the Exchequer, was one of Britain’s most successful finance ministers, but he holds bachelor’s, master’s and doctoral degrees in history. Christine Lagarde, the head of the International Monetary Fund (IMF), is a lawyer who was previously finance minister of France and prior to that the head of the global law firm Baker and McKenzie. Chief Obafemi Awolowo, a lawyer, was a highly successful Federal Minister of Finance in Nigeria. There are too many other examples to mention at home and abroad. And we should not forget that the economic transformations of China and Singapore were driven by economic policymaking elite dominated by engineers and lawyers respectively. In many cases it is the ability, depth and agility of intellect to understand, master and apply economic thought that matters.

The real questions that confront us in Nigeria are those of development economics and political economy. That means understanding and settling four main issues of development economics. The first is the linear stages of growth model which assumes (not always correctly) that increases in capital investment automatically result in greater economic growth. The second is the question of how to achieve structural change from a subsistence agrarian society to an industrial manufacturing and service economy. The third is where to place theories of international dependence that believe that the roadblocks to our development are essentially external rather than internal. And the fourth is the neoclassical or free market approach to development which argues that markets should be left largely unregulated and that governments should “hands off” the steering wheel of the economy.

Economics as a profession undoubtedly matters, even if it has been controversial for several reasons. One reason why it has not become more influential than it already is, is a tendency to deny the influence of other, non-economic factors (good or bad) such as politics and culture in shaping economies. The subject has also become increasingly inaccessible to publics over time as its disciples have resorted more and more to the esoterica of mathematical models. Economists are divided on this evolution. And the failure of economists (save one or two solitary ones) to predict the global financial crisis and the great global recession that followed, has done economics and economists no favours. Indeed, the promotion by some economists of behaviours and theories such as the “efficient market hypothesis” that resisted the effective regulation of financial markets and resulted in the booms and busts of banks and stock markets has humbled the discipline further.

Most importantly, economics matters for Nigeria. The sensible application of rational economic principles to statecraft must consciously overturn the dominance of political, populist and vested interest factors in policymaking that has been the biggest obstacle to Nigeria’s development. In the recent democratic era, a strong focus on economic reforms in the government of Olusegun Obasanjo was noteworthy. For this reason, we must prioritise and popularise economics amongst both the populace and our political leaders. This is important for Nigeria’s future. We are still a poor country mainly because we have as a nation failed the test of macroeconomic management and structural economic transformation. A famous slogan in the then US presidential candidate Bill Clinton’s political war room in the early 1990s read: “It’s the economy, stupid!”.

• Professor Moghalu, a former Deputy Governor of the Central Bank of Nigeria, is the author of “Emerging Africa: How the Global Economy’s ‘Last Frontier’ Can Prosper and Matter”