F. E. Ogbimi contends that increasing interest rate does not reduce inflation, but increasing employment

We know there are persistent inflation pressure in low-productivity-, one-sector- agricultural-artisan African economies, especially Nigeria’s. We are also hearing of inflation pressure in the technologically-advanced economies in Europe, America and Asia. We are also hearing that Central Banks all over the world are meeting to increase interest rates as they always do. Indeed, the United States of America’s Federal Reserve Bank has increased interest rate by 0.75 per cent.  Economists and other social scientists, accountants, bankers, etc., who populate central banks and related global institutions like the World Bank and IMF as they do always, are wrong in suggesting that interest rates be increased as solution to inflation. Lack of sense of history and lack of understanding of the science which underlies the economic development process, are two of many debilitating reasons economists and related experts cannot manage our economies well. Economists and their friends do not understand how a national economy works. They merely deify money and see the economy inside the bank rather than see the bank inside the economy.

Our theory of employment, “Solution to Co-Existent Low Productivity, High Unemployment and High Inflation (Ogbimi, 1995),” published in the Nigerian Journal of Economic and Social Studies (NJSS), Vol. 37, No.2,3, pp, 223-251, which revealed the relationships among employment, productivity and inflation showed clearly that large increase in employment (in quantity and quality) and consequent improvement in productivity or production is the true antidote to inflation. Of the three fundamental variables that characterize the economy:  employment, productivity and inflation, employment is the independent variable while productivity and inflation together are the dependent variables.

That means that the statuses of production/productivity and inflation in an economy are always determined by the level of employment in it. The theory also showed that the inflation curve is the image of the productivity curve and vice versa. The inflation curve is a parabola (bell-shaped curve opened up) resting on top of the productivity hypabola (bell-shaped curve opened down) and vice versa. Our theory of employment therefore demonstrated that employment (in quantity and quality) is the blood of the economy. Large increase in employment leads to large increase in the knowledge, skills and competences available and being applied in the economy. These in turn lead to increase in productivity/production and reduction in inflation. 

Our theory of employment also showed that any economy may be in one of three statuses. The statuses are: Low Productivity, Low Employment (High Unemployment) and High Inflation, otherwise known as stagflation (one); Optimum Productivity, High Employment (Low Unemployment) and Minimum Inflation (two); and Low Productivity, Full Employment and High Inflation (III).

Quite importantly, the analysis showed that in the region between position one and two, increase in employment leads to increase in productivity and decrease in inflation. That is, improvement in productivity is the true antidote to inflation. In the region between position two and position three, increase in employment leads to decrease in productivity and increase in inflation. This is the region Phillips (1958)     claimed to have identified in isolation. It has since been wrongly applied: promoting retrenchment when increase in employment should be promoted in low productivity-, one-sector-, artisan-agricultural African economies that have long been experiencing mass unemployment, by the World Bank and IMF. 

Nigeria and other African nations are in status I – stagflation, while the technologically advanced nations (the industrialised) are between position I and position II. The management of an economy from one fundamental position to another, say from I to II, is a transformation from an undesirable status into a desirable status.

Economists were brought up to believe that money (capital) play very important role in the economic development of a nation (De-Fleur, et al., 19977). Consequently, they either do not know or do not understand the implication of the historical evidence that all the rich nations in Europe, America and Asia were poor village-nations (like the poor nations in Africa today) for many centuries during which they learnt very slowly and achieved industrialization before becoming rich. Hence, promoting industrialization is the most important factor for reducing poverty in the developing nations. Because economists do not understand the relationship among employment, productivity and inflation in an economy, they do not know that one or two of the variables cannot be dealt with in isolation. 

Our theory of employment is a confirmation of our algebraic theory of industrialisation based on the observation that the intrinsic value of the learning-person appreciates with learning rate and time; the learning-person is an appreciating asset (AA) which the growth may be modelled by a growing function like the compound interest formula. Scaling of the basic equation demonstrated that the Sustainable Economic Growth and Industrialisation (SEGI) process of a society may be modelled by five learning-related variables. The variables are (Ogbimi, 1996): Ni, the number of people involved in productive activities or employment level in the nation (1); Moj, the level of education/training of the people in the nation and those involved in productive activities (2); Lk, the linkages among the knowledge, skills, competences and sectors in the economy (3); the learning rate or intensity in the economy, especially that of the workforce (4); and np, the experience of the workforce and the learning history of the society.

All of these variables are related to the learning-people and they are directly related to the economic strength of the economy.  This means that the more the number of people involved in productive activities, the higher the average education/training of the people/workforce, the more the linkages among the knowledge, skills and competences possessed by the people/workforce and society or by the sectors of the economy, the higher the learning rate in the society and among the workforce and the more the learning experience of the society and workforce, the more productive the economy becomes.

Our industrialisation theory also demonstrated that the number of people involved in learning (education, training, employment and research), is the variable that determines the health of an economy.

Many individuals and groups of intelligentsia and intellectuals work to suppress the truth.  I praise the Nigerian economists who allowed our theory of employment to be published in their journal. I am a retired professor of the Science of Development (Technology Management). I have written the following books:

 1. Solution to Mass Unemployment in Nigeria, 160pp + ix; 2. Understanding Why Capital Investments Cannot Promote Sustainable Economic Growth and   Industrialization, 130pp + x; 3. Understanding Why Learning Is the Primary Source of Growth, Industrialization     and Development, 110pp+vii; 4. Understanding Why Education and Training Are Indispensable to Rapid Industrialisation and   Development, 120pp +viii; 5. Causes and Remedies for Poverty in Africa, 124pp + viii; 6. Understanding the Theory and Practice of Federalism and Democracy, 238pp     +  vi; and 7. Understanding Why Privatisation Is Promoting Unemployment and Poverty    and Delaying    Industrialisation in Africa.

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