The Complacent Economy

Two stories in the papers in the last week ought to serve as a wake-up call to policy makers in Nigeria. They illustrate the challenges facing the Nigerian economy that are capable of restricting the country to low growth and making it an innovation-free zone for years to come.

In the first, a big poultry farmer complained openly in the papers that there was a glut of eggs in the market. And his solution to this problem? He wants the government to pass a law that makes it ‘compulsory’ for students in the state to be given an egg a day. That was bad enough. But more disturbingly, he called on farmers to come together to ‘unify the price’ of eggs. All of this because the price of a crate of eggs has dropped to N580 from N1,200. I’ve learnt not to underestimate such people – you might wake up tomorrow and read that the state government has indeed passed a law to make eggs ‘compulsory’.

What is a crime in other places – price fixing – is said openly in Nigeria.

In the second story, the News Agency of Nigeria (NAN) reported that there was a scarcity of meat in Yola, a few days ago, when the butchers in the state decided not to come to work. Why? The butchers’ union was apparently electing officers for their union that day. That this caused a scarcity is perhaps an indicator that membership of that union is compulsory for all butchers.

None of these things are new. The queue of people who are trying to get government to ban something or create a law for them is literally endless. And any car driver in Lagos who has been unfortunate to have a flat tyre on the day the vulcanizers are having their meeting, can talk you through how hard it was to get a repair done. If you think ‘unifying prices’ is a novelty, read up on how the Pure Water Association in Lagos deals with members who dare to sell below the ‘agreed’ price.

These tactics have proven successful in the Nigerian economy over time. The moment the government gives in to one association, it is impossible to resist the thousands of others who want their own guarantee against market forces. Thus, a vicious cycle of association forming becomes like a runaway train. When you have an Association of Speed Limiter Vendors of Nigeria, you know that the handshake has crossed the critical boundary of the elbow.

Some of the greatest innovations of the last few years have involved combining existing technologies in new ways. The iPhone brought together a computer, camera, email and a bunch of other things that were previously available, albeit separately. Bringing them together unleashed new economic opportunities that previously did not exist. Uber is today worth close to $70bn, yet it would not have been possible without the iPhone. The real genius of the iPhone is that everything inside it would have cost tens of thousands of dollars to assemble individually. Yet the iPhone combined them in one phone for less than $1,000. If you can get pricing to work its magic in that way, you will unleash progress. This is true in almost every sphere of the economy.

But in Nigeria, once people form an association, the first thing they do is go after pricing to fix it at a level that guarantees them nice profits. What this means is that, the incentive for someone to challenge the existing price by finding new ways of doing things, is blunted or even becomes dangerous.

Under such conditions, growth is slow and the economy strolls along at a leisurely pace. Consumers are of course denied the benefits of innovation. Whereas Adam Smith famously said that the purpose of all production is consumption, this is turned on its head given that producers are able to do as they like.

When a producer knows that consumers have no choice (by ensuring all producers are part of a union and prices are ‘unified’), they can comfortably take a day off to elect their leaders or attend meetings. After all, a day’s earnings can easily be replaced by raising prices. Furthermore, more and more claims are made on government such that its ability to react to situations becomes severely curtailed.

One of my favourite American economists, Tyler Cowen, recently wrote a book where he complained about how America had become a complacent country. He illustrates this with data showing that in 1962, only 30% of the American government’s spending was spoken for before the fiscal year. By 2014, that number had reached 80% and is getting worse. In other words, all sorts of interest groups and entitlements have claimed so much of government spending in advance that it is very hard for the government to do ‘big things’. Nigeria today is not much different. 66% of current government revenues goes toward servicing debt. Typically, 80% of the government’s budget is spoken for before it is passed by salaries and other recurrent expenditure. The crucial difference is that America has all those roads, bridges, electricity and railways it had built before getting to the point of stasis.

Slowly but surely Nigeria has crept into this stasis where, without high oil prices, slow growth is all that is left. Shock therapy is needed to awaken the animal spirits in the Nigerian economy. The government might think it is ‘growing the economy’ by issuing carve-outs sectors for eggs, sugar, tomatoes, cement and a whole bunch of other things. In reality, what it is doing is signalling to the citizens that the way to make progress in Nigeria is to find ways to stop progress to your advantage, devil may care. This has now become a dangerously complacent culture.

It might be too late for the current generation of Nigerians to see large scale prosperity. But surely, those to come ought to at least have a better chance?