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Nigeria: Now You Know, Govts Are the Economic Managers

Kayode Komolafe

8 October 2008

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Lagos — It was intriguing last Friday in Abuja listening to experts as they discussed "when and how" governments should intervene in markets so as to avert a degeneration of the global economic crisis. This reporter was facinated by the fact that these were experts who would ordinarily worship in the temple of market forces now pondering what role governments should play in clearing the mess created by the greedy operators in the market. Before the current global crisis of capitalism euphemistically called global financial crisis or credit crunch, the question would rather be "why should the government intervene in the normal operations of market forces at all?"

The forum was the THISDAY Town Hall Meeting III. The first session chaired by the president of the Nigerian Stock Exchange, Mr. Oba Otudeko, examined the question: "When and How should Governments Intervene in Markets?" The reality was that the question was already being answered in the headquarters of world capitalism, the United States of America, where President Bush has already signed into law a $700 billion bailout plan after a heated debate in the Congress. Institutions such as insurance giant AIG, Lehman Brothers, and Merlyn Lynch are suddenly in need of rescue packages, which only governments can provide in the circumstance. European governments following the Irish example are frantically taking steps to save their own banks. They are not waiting for any "invisible hand" of the market to do it for them. To do otherwise is to invite the Armageddon to visit their economies. And that would be unpardonably irresponsible in the eyes of the voters. Here we are talking of a clime where votes actually account.

At the THISDAY Town Hall Meeting III, two Americans representing the mainstream views on the American political economy were conspicuously part of the enlightening proceedings. They are Larry Summers, former US Treasury Secretary/former President Harvard University and Steve Forbes, Chairman/CEO Forbes Magazine. Both tended to speak to the Nigerian condition in the context of the crisis. While Summers said that the jump in the oil price was a once in -a-century opportunity for Nigeria to turn its economic fortunes around, Forbes was optimistic about the potential of Nigeria fulfilling the dream of the administration of President Umaru Yar'Adua that Nigeria should be among the 20 top nations by 2020. However, it was our own Chukwuma Soludo, the Governor of Central Bank of Nigeria (CBN), who called for a "coordinated, collaborative response" to this crisis, which is already chillingly reminding some people in the United States of the Great Depression of the 1930s that followed the crash of 1929. THISDAY chairman, Nduka Obaigbena, who moderated the meeting, called it the "Soludo Doctrine". Incidentally, it was the Commander-in-Chief of the global market forces himself, President George W. Bush of the United States, who has struck the same chord as Soludo by calling for a "well-thought out' response which must be a 'coordinated joint action " by the industrialised countries. Bush also announced that there would be a meeting of finance ministers of G7 nations by weekend in Washington to discuss the crisis. Remember no one is calling for the meeting of CEOs of multinationals to ponder on the problem. Before now, enthusiasts of globalisation told us that these big companies would soon eclipse the nation-states because of their influence in the political economies of, especially, the poorest countries. But today, everybody is looking up to governments whether it is a lame duck and beleagured one like that of Bush in the United States or an effervescent one as that of Nicholas Sarkozy in France. By the way, before Bush's interventionist call of yesterday, Sarkozy had earlier called for some caution in the free- wheeling approach to capitalism. So much for globalisation.

The call for government's intervention became more strident yesterday amidst the increased volatility of the markets. The symptoms of the crisis were becoming more profound. The Iceland government took over the nation's biggest bank. Taiwan vowed to protect the despositors' savings in the event of bank failures. Although each European nation had decided to save its economy its own way, the European Union finance ministers managed to reach an agreement on increasing guarantee for bank savings accounts to $68, 250. In fact, Wall Street stocks fell. The Chairman of Federal Reserve Bank, Ben Bernanke, reportedly said the economic outlook was grimmer. People are saying it is not only the Wall Street that needs a rescue, but the people on the Main Street too should be protected. Australia is cutting interest rates while Britain is putting together a "comprehensive" rescue package for its banking system. Even Russian Prime Minister Vladimir Putin, who had blamed the crisis on the "irresponsibility' of the American system, is facing the challenges of the two Moscow main Stock Exchanges which reportedly suffered huge losses and had to remain open several hours on Monday. So far, no nation is waiting for market forces to sort things out in the face of a threat of a financial Tsunami.

The mood in the United States is already being compared to what happened during the Great Depression. Historical parallels are already being drawn. Now, this is far from being hyperbolic. It required the ideas of John Maynard Keynes to bail out capitalism of the crisis associated with the Great depression; there are surely men of ideas thinking about how the current crisis would be resolved in a way to elongate the life of global capitalism.

In fact, experts such as the Nobel Laureate in Economics and former Chief Economist of the World Bank, Professor Joseph Stiglitz, said the crisis was predictable. Recently, Stiglitz posed the question from an American perspective: "How Did We Get into This Mess?" His answer is as follows: A unique combination of ideology, special-interest pressure, populist politics, bad economics, and sheer incompetence has brought us to our present condition.

"Ideology proclaimed that markets were always good and government always bad. While George W. Bush has done as much as he can to ensure that government lives up to that reputation-it is the one area where he has over performed-the fact is that key problems facing our society cannot be addressed without an effective government, whether it's maintaining national security or protecting the environment. Our economy rests on public investments in technology, such as the Internet. While Bush's ideology led him to underestimate the importance of government, it also led him to underestimate the limitations of markets. "We learned from the Depression that markets are not self-adjusting-at least, not in a time frame that matters to living people. Today everyone-even the president-accepts the need for macro-economic policy, for government to try to maintain the economy at near-full employment. But in a sleight of hand, free-market economists promoted the idea that, once the economy was restored to full employment, markets would always allocate resources efficiently. The best regulation, in their view, was no regulation at all, and if that didn't sell, then "self-regulation" was almost as good.

The underlying idea was, on the face of it, absurd: that market failures come only in macro doses, in the form of the recessions and depressions that have periodically plagued capitalist economies for the past several hundred years. Isn't it more reasonable to assume that these failures are just the tip of the iceberg?

It is, of course, in the reckless nature of capitalism to ignore such cautionary words. Surely, there would be harvest of ideas on how to tame the crisis. That is what experts are paid to do.

Meanwhile, there are some trends decipherable in the crisis that should interest even the layman especially the one located in the third world.

First, it is instructive that as the crisis worsens we are not hearing that the global financial policemen from the International Monetary Fund (IMF) and World Bank are breathing down on the necks of the United States and European nations as they design and implement their rescue packages. The IMF and World Bank are not imposing packages on the rich nations the way they would do to the poorer countries. The IMF and World Bank medicines to the economic ailments of poor countries always abhor government's intervention. The Breton Woods institutions would lecture the governments of these poor countries on the virtues of subjecting their wretched economies to the discipline of market. Why are they not imposing the Washington Consensus on the United States and Europe as they strive assiduously to rescue their respective economies from slipping into depression? Our experts and other enthusiasts of market forces orthodoxy should explain these issues to the people who have borne the brunt of their ruinous, imported neo-liberal policies.

Secondly, the greed and recklessness at the Wall Street have been blamed for the crash in the United States. It is also a failure of regulation. The American Congress is already interrogating CEOs of companies to know "what went wrong" with the economy. In recent years in Nigeria, economic management has been reduced to "deregulation" and "liberalisation" of virtually all sectors. In this free market orgy deregulation is often mistaken for lack of regulation. The centrality of regulation to modern economic management has been brought to the fore by this brewing crisis. Those who stay at the periphery of capitalism here and insist that in the age of deregulation, privatisation, and liberalisation governments have no roles to play in economic management should watch closely what the metropolitan capitalists are doing to save their economies. So much for the shibboleths of an economy run by market forces.

The moral of the foregoing is simply this: governments are put in place to manage economies. When the chips are down it is the visible governments that play the crucial roles of economic managers. In the west, that is why governments are elected. It is also important to strengthen the role of regulatory institutions because the logic of capitalism is that it is prone to crisis. Only effective regulation can tame the beast of capitalism. During the debate on the $700 billion, one American legislator criticised the plan as "financial socialism' which is "un- American". He got the phraseology wrong. What is on display in the United States and Europe is state capitalism. It is needed now to save global capitalism from its crisis.

All told, to face the challenges posed by the global crisis, the Nigerian government should gear up for competent governance, which should entail enlightened economic management. For, there is no economy anywhere that is left for market forces to manage.

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