Understandably, these adverse outcomes are fuelling a concerted pushback against the Tinubu administration's apparent preference for market-based solutions to some of the economy's seemingly intractable trade-offs.
After years of prevarication by successive federal governments, the Bola Ahmed Tinubu administration bit the bullet on the removal of subsidy on the pump-gate price of petrol. Given the toll that subsidy has exerted on public finances, it is scant surprise that prognoses on the economy's outlook have brightened. The new government floated the naira's exchange rate too. Again, raising the prospects of a more efficient management of the nation's scarce external reserves.
Yet, against the backdrop of the previous government's cack-handed policy on the economy, these were always going to be difficult decisions. If nothing else, the continuing pass through to the economy of the botched banknotes swap scheme early this year was always going to sour the tolerance for reforms. Sadly, the cost of living adjustments that the populace is having to make on the back of the new government's rapid-fire policy changes have driven up poverty rates across the country. Eventually, not only will consumer spending collapse as people get poorer, the unemployment rate, already at dismal levels, will rise further, as business investments contract in adjustment to reduced consumer spending. The odds of government spending picking up the resulting slack lengthens, as the cost to the Federal Government of servicing its debt portfolio outpaces its earnings.
Understandably, these adverse outcomes are fuelling a concerted pushback against the Tinubu administration's apparent preference for market-based solutions to some of the economy's seemingly intractable trade-offs. A growing cohort of the local commentariat is advocating the taking of pruning shears to government as an alternative to the pains that the people currently bear. A more efficient, qualified and focussed bureaucracy is a non-negotiable requirement if the Nigerian economy is to finally make the much-advertised transition from a public sector-led to a private sector-driven format. The argument for bringing down the cost of governance is a handmaiden of our search for market-based solutions.However, the main argument for markets is not just that the scarce resource base available to governments means that they cannot do all in an economy. If we were to leave things at that, then any improvements from the reorganisation of the Nigerian economy would only have it return to its past addictions in the near future. Markets are not a temporary expedient for boosting the efficacy of limited government spending. They are where innovation, risk-taking, and cutting-edge management practices take place in an economy.
Given enough suppliers in any market, the incentive for each is to deepen market share or boost profitability by developing new products or cheaper means of delivering services. This is the route from Nokia's dominance of the mobile phone industry several years ago, to the iPhone's pre-eminence today. It is the path that describes why Tesla's market capitalisation is in multiples of the traditionally dominant manufacturers of petrol-engine vehicles. It is also the route from the exorbitant cost of a mobile phone package in the country a few years ago, to the flogging of ultra-cheap SIM cards by a diverse array of vendors today.
Down this path, one possibility presents itself for the two main reform initiatives of the Tinubu government. Both the price of petrol and the external price of the naira have been left to the markets to determine. And in both markets, a surfeit of demand over supply is currently pushing prices up. As the experience of planned economies remind us, a government cap on prices in these circumstances results in queues and queue-jumping. Higher prices, on the other hand, reduce demand until a new equilibrium is reached with available supply. In a market with few restrictions to the entry and exit of both buyers and sellers, higher prices have the additional effect of incentivising new supply sources, which invariably help push prices lower, again until a new equilibrium is reached with the prevailing levels of demand. Giving the multiplicity of transactions in any such market, governments struggle, as is evident in our recent experience, to anticipate these equilibriums.
Having moved the price discovery process in both the foreign exchange and petrol markets on to the price mechanism, the Tinubu government is challenged to remove all the kinks in these markets' respective supply chains that may reduce the responsiveness of suppliers to changes in prices. Still, market volatility means the market does not always get these equilibriums right, especially in the face of shocks. And often this occurs in industries where the gains from investing in the provision of a good or service are not fully internalised by the business providing it. In other words, markets fail.
Governments may seed the process by which markets innovate, as the experience of the Defence Advanced Research Projects Agency in the US shows. Governments ought, indeed, to design safety nets to ensure that economic entities that cannot innovate or whose bid to innovate come a cropper, do not forfeit their potential to contribute positively to society's growth and development, and that individuals associated with this process do not become public charges. But governments usurp the market's ability to aggregate discrete data, and to achieve allocative efficiencies on this basis, only at great cost to society. This is the lesson of the Soviet Union's implosion. It's the same with what China's transition to a market-based economy from 1979 teaches.
PREMIUM TIMES aligns with the Tinubu government's reform direction, even as it is troubled by the privations that the larger number of our people have had to bear of late on this account. Given the inefficiencies that we have engineered into our system over the years, there is no gainsaying the fact that the gains from reforms were always going to come with much pain. Invariably, in reforming economies, these pains are as disruptive as their incidence is immediate. The gains, on the other, trickle in over longer-term horizons. The four-year electoral cycle and the burden of underdevelopment in countries such as ours, then doom reforms of this nature to stop-start cycles that maximise their pains, while putting off their benefits.
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This dynamic may be mitigated by government emplacing pro-poor policies, including conditional cash transfer schemes that reduce the incidence of rising costs on the poor and vulnerable. PREMIUM TIMES recognises that the infrastructure for these pro-poor initiatives are in place, but worries that the interoperability of the diverse databases without which more efficient disbursement under such schemes will not be possible, requires additional reforms of their own. While calling on the Tinubu government to immediately implement the agglomeration of biometric and demographic data required to drive targeted pro-poor programmes, we believe that the most important reform initiative would be those, through better schooling and healthcare outcomes, that lend a fillip to the quality of our domestic human capital endowment.
The irony is that this latter category of reforms is where the market fails, and the government comes into its own. Those who would have our governments play more visible roles in the management of the economy should therefore nudge them towards those places where the economy is likely to get the most benefits from every naira spent.
