Markets may be impersonal. But where they are allowed to function with few lets, they efficiently (better, at least, than all other competing ideological constructs) move resources to where and when economies can best use these. Efficient, though, they may be, the outcomes of markets may not necessarily be equitable. But neither is the distribution of talent and competence in any society. Governments may, therefore, tax and spend to compensate for market failures.
In one of those banana republics in South America… or was it a petrodollar state in Africa? I am not certain which it was, now. Truth, though is, what does it matter? The story is probably apocryphal, anyway. But one day, according to the one from whom I heard it told at a point-and-kill joint somewhere on Lagos Island, the head of a leading manufacturing company in that country approached that of a top bank to ask that the latter intervene on her company’s behalf with the head of the country’s central bank. The penalty for falling foul of the monetary authorities a couple of years back, was that the manufacturer had been kicked out of the official market for foreign exchange. With a large company of external investors, and huge dollar debt service costs, the manufacturer had struggled to source foreign exchange from the higher-priced black market to meet its dividend and debt payout requirements. The plea, through the banker, a friend of the central bank president, was for pardon from the latter.
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Access to the official markets for foreign exchange would considerably push the manufacturer’s costs down. When it came, forgiveness was conditional, however, if the last raconteur of this tale is to be believed. The president of the central bank insisted on a commission (in the local currency) for welcoming the manufacturer back to the official market. Given how large the manufacturer’s annual need for foreign exchange was, the resulting baksheesh was ginormous. “And pray tell, how could any of this have become public knowledge?” The now excited (and probably inebriated, to start with) storyteller turned beetroot red in the face. Apparently, the windfall was divvied up three ways, instead of four. The central bank president got his share, as did the bank boss and his treasurer. All forgot, however, to share-in the treasurer for the manufacturing company. He it was who turned the story into a tale for speakeasy rumour mills.
True or not, the problem with examples such as this in democracies such as ours, is that they take place away from the compliance regimes and requirements for transparent conduct, whose absence undermines good governance. These possibilities have other implications, by the way. The additional local currency paid by the manufacturer to the players in the financial services space is a cost that consumers get to bear if the manufacturer passes it on through higher prices. Absorbed on the manufacturer’s profit and loss account, it is revenue lost to government (from lower taxes), shareholders (shrunken dividends), and workers (stagnant wages). It is as if a tax were applied to an industry operative by a regulator, and the proceeds transferred to non-governmental individuals.
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Two threads from previous conversations around how best to fix the Nigerian economy still matter. The economy’s transition from a model based on the government’s provision of goods and services to one based on private sector provision. And regulation of key industry sectors based on the principle of enhancing consumer welfare. Government will still need numbers in sectors like public health, education, internal security, and defence.
Almost inevitably, the point is reached where the individuals in these parallel value chains make a pitch for some, if not all, of the powers of the state. The funds available to them, then, require larger performances if their need for conspicuous consumption is to be sated, however, temporarily. This undermining of the popular will is only the most obvious of the failings of systems of governance that entrust decisions on the economy’s resource allocation in the hands of individuals – no matter how well-intended. Yet, the story of much of Asia’s economic growth is replete with examples of strongmen who undermined the popular will. Where is the catch? The bigger problem is with the extensive damage that episodes like the one with which this piece begins wreck on an economy’s efficiency.
Markets may be impersonal. But where they are allowed to function with few lets, they efficiently (better, at least, than all other competing ideological constructs) move resources to where and when economies can best use these. Efficient, though, they may be, the outcomes of markets may not necessarily be equitable. But neither is the distribution of talent and competence in any society. Governments may, therefore, tax and spend to compensate for market failures. They may also democratise access to quality primary and secondary schooling to equalise whatever opportunities exist in their societies. But they may not support regimes that incentivise corruption and the sub-optimisation of the use of society’s scarce resources.
In deciding to remove the subsidies on petrol and domestic dollar access, which prevailed before it assumed office, the Tinubu administration appeared to get this logic. Only to fail in its application of the thinking to other spheres of the management of the economy. Two threads from previous conversations around how best to fix the Nigerian economy still matter. The economy’s transition from a model based on the government’s provision of goods and services to one based on private sector provision. And regulation of key industry sectors based on the principle of enhancing consumer welfare. Government will still need numbers in sectors like public health, education, internal security, and defence. In other words, in those spheres where markets fail to deliver optimally. Elsewhere, with markets left to function properly, we could do with a much scaled down public sector presence.
Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
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