Professor Kingsley Moghalu, a former Deputy Governor of the Central Bank of Nigeria (CBN), teaches International Business and Public Policy at The Fletcher School of Law & Diplomacy at Tufts University in Massachusetts, United States, in this first part of a series, argues that those at the helm of affairs must build a sustainable economic future for the country by looking beyond oil.
Nothing concentrates the mind of a profligate, commodity-dependent nation like a fine crisis of crashed oil prices and an embattled currency. Even then, given our past record with oil booms and busts in which we get born again when oil prices crash but backslide once they recover, one cannot be certain that we would have learnt our lessons if the price of crude were to ramp up to $70 a barrel, let alone the pipe dream of $100 oil, in the next two years.To build a sustainable economic future beyond oil,Nigeria must now address the aching need for a clear economic vision, situated in a philosophical framework, from which public policy should be derived.
This is the philosophical self-examination that Nigerian economic policy has not done since the Structural Adjustment Programme (SAP) was introduced by the government of Gen. Ibrahim Babangida in 1986. Yet, we can see that this tension has continued to shadow economic policy by successive Nigerian governments and public or elite reactions to these policies to this day. This has been especially so since the return of democracy in 1999. Today, this tension is encapsulated in the suspicions, support or criticisms of what has been termed “Buharinomics”.
To be sure, President Muhammadu Buhari’s government is itself yet to publicly indicate a clear economic philosophy beyond what is evident from the president’s comments and policy actions, which is that he is pro-poor in his inclinations rather than pro-elite. This is important in itself because the real test of success in economic transformation is not just how much the elite or the middle class prosper, but even more importantly for an underdeveloped nation such as ours, how many millions of the poor are transported from poverty into middle class status. This test is what has been adopted in China, South Korea, Brazil, India, United Arab Emirates and Chile in the past 50 years, and is what is at play in Vietnam, Bangladesh, Ethiopia and Rwanda today. So, President Buhari’s pro-poor focus is right because to give the poor a way out of poverty is, to use a turn of phrase from another former military leader, Gen. Yakubu Gowon, “a task that must be done”. The question is: how?
It is necessary to remind ourselves that the SAP, whether we consider that it was right or wrong, a success or a failure, was a child of circumstance and not of choice. It was an externally induced policy response to a balance of payments crisis that was long in the making. That crisis resulted from cumulative structural and policy missteps that began in the 1970s because of the oil boom, and came to a head in President Shehu Shagari’s government. If we had managed our economy more wisely and not lost our head to a wasting natural resource, Nigeria would not have experienced the kind of wrenching economic crisis that the then Head of State Gen. Buhari inherited when he came to power as a military leader on December 31, 1983. The same scenario, without question, is true today.
In this four-part series, I intend to open a philosophical inquiry into our national economic vision and aspirations, with the aim of establishing that the key to prospering and mattering as a nation, beyond being a point of global commodity and human extraction for hundreds of years, is the reinvention of our minds to understand what creates the true wealth of nations and how to apply those basic understandings to economic policy and governance.
The wealth of nations always has philosophical foundations. It is these fundamental understandings and how we share and apply them as a nation, rather than going “upandan” (up and down) with no particular compass or lodestar in view, that makes the difference between success, failure, or a journey that takes longer than should really be necessary. This might surprise those who have placed much stock on the technical equations of economists, which are doubtless also important, but really as a back-up that gives validation toa philosophically grounded economic vision.
As such, I will address in this series four issues. The first is why a national economic vision is important. Second,I will demonstrate the umbilical cord between the philosophical concept of worldviews and why America and China rule the world and why Nigeria is yet to fly. The third part will examine the importance of the forces of globalization and, even more importantly, understanding their implications for the economic man or woman in Nnewi, Kano, or Lagos and how we should navigate those currents. Finally, I will discuss how all these subjects wrap up in capitalist economics, why capitalism does not automatically create the wealth of nations, and what exactly Nigeria should do to make capitalism actually work for it and its citizens, not just for a few plutocrats.
Why does an economic vision matter? The “vision thing” matters because it sets out a national ambition for transformation against a canvas of both the long term and a destination. Second, it matters because, if communicated effectively it can, to deploy the Nigerian politician’s ultimate phrase, “carry the people along”. Third, it matters because visioning is the ultimate task of leadership. Managing, which is a different thing, is the necessary next level below,and ensures that visions become reality. Fourth, a national economic vision, which must be anchored on a discernible economic or political philosophy, makes derivative policy more robust by imbuing it with internal consistency. And fifth, clarity of vision matters because there are different and competing economic visions that have delivered prosperity to different parts of the world, so the real mystery of economic transformation is that no one economic vision is the ultimate elixir in every clime or circumstance. Economics is not exactly an exact science!
Thus, as I have argued in my book Emerging Africa: How the Global Economy’s ‘Last Frontier’ Can Prosper and Matter, this clarity about the basis on which we seek to prosper and matter is a fundamental requirement for economic transformation in Nigeria and other African countries. Anything short of this is a muddle, and we have been in a muddle for some time. This is the case despite the illusion some have self-interestedly created, that Africa is “rising”, when in fact nothing about the structure of its commodity-dependent economies has changed in any fundamental manner.
You might be saying, as you read this: “But what about Sani Abacha’s Vision 2010, Yar’Adua’s Vision 2020 and Goodluck Jonathan’s Transformation Agenda?” Good question. Here’s the answer: These documents, worthy efforts though they are, lacked a foundational worldview, which is to say an interpretation of the world and why it is the way it is, the world economy and Nigeria’s place in it as a basis for a clearly articulated quest for economic development and transformation. They lacked a grand, unifying vision for Nigeria that will guide any government in power, regardless of its political leaning. There was subsequently no single strand of narrative that connected every action of governance and economic management to that vision. The vision need not be verbose (Rwanda’s Vision 2020 is just 30 pages). And these “visions” were not embedded in the various structures of governance, and were not executed with consistency, discipline and grand strategy, with targets and milestones measured constantly against implementation. Conversely, Malaysia adopted these approaches, and has already achieved most of its Vision 2020. That vision was articulated in 1991 by Dr. Mahathir Mohammed, the Asian country’s driven, articulate and inspirational Prime Minister at the time.
Nigeria has veered since 1999 from a capitalist economy accompanied by far-reaching liberalization reforms to one that now appears to be leaning towards a welfare state and a commanding role for the government, all without an interrogation, let alone an articulation of any economic philosophy as a basis on which we hope to attain prosperity in the long term. This approach, by definitionad hoc in nature, of “doing” things before thinking deeply and developing coherent, long-term strategies has not served Nigeria well. It is what has created the reality of running around in circles after 55 years. We cannot carry on this way.
Former President Olusegun Obasanjo guided and empowered the private sector but was in the driving seat. The private sector dominated President Goodluck Jonathan’s government, leading to the “subordinate state” in which some business titans became alternate centers of power and “captured” the decision-making process of an elected government. Today, the captains of money and commerce appear unsure of their place under President Muhammadu Buhari. Beyond the seeming mistrust between the president and the “oligarchs”, state-business relations, a process of collaboration between the state and market players such as the Manufacturers Association of Nigeria (MAN) and the main chambers of commerce, remains necessary. The outcomes of those consultations ought to be evident in public policy.
Presidents Obasanjo and Jonathan both believed strongly in business as a major driver of the national economy. The liberalization of the telecommunications industry, which the former spearheaded,had a huge and positive economic impact. Thus Nigeria progressively rose to become Africa’s largest economy based on a “rebased” Gross Domestic Product. But the electric power sector remained moribund, with our national wattage embarrassingly one-tenth of South Africa’s. Poverty and unemployment rates have remained high because the trickle-down effect on the common man from the Olympian heights of the neo-liberal economic paradigm has not happened. What’s the point of being Africa’s largest economy if poverty, unemployment and infrastructure deficits have remained high despite the efforts of successive governments?
Enter President Buhari, from a field apparently left of center, with his government taking on huge welfare obligations at a time of declining fiscal revenues. Let’s be clear: a social safety net of some sort is necessary in every society. But welfare economics needs careful thinking before jumping into, for the simple reason that the welfare state as an economic model, just like all the others, has its unique, inbuilt problems. The most important of these is sustainability. How will wealth be created before it is shared or redistributed, or are we to simply to borrow and “manage” our resources and “share” from a progressively empty pot?
Many observers of Nigeria’s economy sighed with relief when, after much debate and controversy, President Buhari did the right thing and walked back from an apparent commitment that his government would pay a monthly stipend of N5,000 to millions of unemployed Nigerians, but rather would focus on investments in infrastructure and other productive aspects of the economy. The relief was not because any genuine patriothates the poor and would not want their progress. It was because even in the best of times such a huge expectation would have been difficult to implement. Moreover, given Nigeria’s present economic distress, it is well-nigh impossibleto do so at this time without severe and negative fiscal, monetary and other long term-consequences.
The populism of political campaign rhetoric is frequently a different thing from the reality of things when politicians are voted into office, and populist instincts are a problematic basis for sound economic policy. Not understanding this subtlety has been a bane of governance in Nigeria, and highlights the prevalent short-termism instead of a longer term worldview. On the other hand, the Buhari government’s policy announcement of its intention to spend N60 billion to economically empower 1 million artisans (there should be more participants, with a sum like N60 billion), is doable and would make direct economic impact if well-conceived and implemented effectively.
Thus, we need to return to the basics before we proceed on possibly flawed assumptions. First, we must assume, and affirm, that Nigeria operates a market economy in which the state nevertheless should play an important role. But what exactly should that role be? Do we or should we have a developmental state, or a “night-watchman” state? This is the critical question. In the night-watchman state the economy is believed to run on the assumption of efficient markets. The role of the state is simply to regulate the playing field, protect individual and property rights, and then get out of the way. This is the neo-liberal paradigm, articulated influentially by the Massachusetts Institute of Technology (MIT) professor Robert Solow, which argues that growth is created by production and innovation. This creates “rents”, or payments that exceed the opportunity cost of an asset. This is different from rent-seeking, in which wealth is transferred mainly by government actions (such as inflated contracts, import duty waivers for cronies, petroleum products import subsidies, or the discretionary allocation of oil blocks). The neo-liberal paradigm, in its pure form (not the corrupted form we have practiced in Nigeria) actually tries to dislodge rent-seeking by reducing the state’s role in the economy.
The concept of the developmental state, intellectually championed by thinkers and politicians such as Meles Zenawi, the late President of Ethiopia, challenges the night-watchman or neo-liberal paradigm. Developmental state theory argues that the neo-liberal state idea is a reflection of the historical evolution of western capitalist societies, and that it assumes that all things are equal, which is not the case at all in developing countries. The state must therefore consciously drive development by shaping the economic market-place in pre-determined directions consistent with the needs of development, and not just the idiosyncrasies of the market-place.
As we will see when we discuss the different kinds of capitalism and their relevance to the Nigerian conundrum, this approach to economic development requires a highly capable state in which public policy is driven by highly competent, knowledgeable and motivatedindividuals. If a country tries this approach and those in the lead are wrong or lack the requisite economic and public policy knowledge, good intentions alone will mean nothing in the end, and the consequence of error can be high. The level of competence and focus of its leadership and bureaucrats, under the brilliant lawyer Lee Kuan Yew, is why Singapore rose from being an Asian backwater to become a prosperous nation.
Ethiopia and Rwanda, the two main examples in Africa of the developmental state, are in fact pursuing growth with transformation objectives in different ways. In Ethiopia which has a population of 80 million people, the economy remains under significant state control even as the private sector expands, and the financial sector is yet to be fully liberalized. But there is a clear emphasis on and industrial manufacturing economy and the acquisition of technical skills necessary for the viability of this model of development. In Rwanda, President Paul Kagame leads a country with a developmental model that is heavily private-sector driven, but a strong state sets the overall strategic agenda and executes with ruthless discipline. Corruption practically does not exist in Rwanda. One million people have verifiably been moved from poverty into the middle class already. The country of 10 million people is pursuing a Singapore-based development model, is developing an information technology based economy, and aspires to become a middle-income country by 2020, all from ground zero two decades after the Rwandan genocide of 1994. Kagame has been extraordinarily effective at mobilizing the buy-in and participation of Rwandans in the country’s development vision.
All of this is different from a command economy or a big but unproductive state, in which government controls the levers of economic activity but lacks the ability to produce and allocate efficiently, while impeding the possibility of more efficient outcomes that could be created by market competition. This is especially so when a country has already repositioned to a broadly market economy for many years, after the failure of state controls in the first place.
What is the path forward for Nigeria? It lies in returning to the drawing board and building the right philosophical foundations for national prosperity. We cannot turn back the hand of the clock and return to the command economies of the pre-SAP era, which also failed partly because of the weakness of their conceptual foundations and our progressive inefficiencies as societal values became eroded, but we can re-position for a better tomorrow. And the place to begin is in the mind.
•To be continued
