/NIGERIA: POST COVID-19 ECONOMY

NIGERIA: POST COVID-19 ECONOMY

While the coronavirus pandemic rages on globally, our lives are more than sure to assume a new normal in the new beginning – post-COVID-19. The theme of this piece is what can Nigeria do differently to improve its economic growth, away from the uncertainties of global oil prices. This article is not about the regrets of the mistakes of the past, but to correct it. Let us start with the basics. The government is elected by the people to express the value judgement of the majority. In doing so, the actions the government takes, therefore, must be directed toward giving the greatest happiness to the highest number of people. This doctrine was the works of the 18th Century British Jurist, philosopher and social reformer, Jeremy Bentham, who founded the movement called Utilitarianism. Bentham concluded that the value of an action or goods is determined by its utility. One of the pillars of human happiness is the individuals’ choices. It is why we prefer democracy to other forms of government. It is why capitalism, despite its failings, is desirable. The market where we all assemble to express our happiness by choice of what to buy to satisfy our needs preferably should be free – a free market. However, our individual desires, mostly driven by self-interest, create an unintentional by-product. That is as it affects the equilibrium within the economy as money flows unequally into various sectors of the economy, creating distortion in economic growth. These distortions are what lead to wide income disparity, which creates disaffection in a country and jeopardises peace and the prosperity of the nation itself in the long run. To this, every government tries to subsidise the poor, at least to fund their basic needs to mitigate these differences. If people’s preferences are tilted towards free choices, that is what makes them happy. To pay for the subsidies to fund the poor to secure peace and tranquillity, the government must tax the rich. It does not matter much whether the government taxes the income of rich people or imposes a tax on the things the rich people desire. In economics, certain services are luxuries, such as servants where there is an unequal distribution of income and wealth, like in Nigeria. In contrast, Sweden, where there is a much more equal distribution of income and wealth, almost nobody can afford servants. One of those that realised this at the beginning of the 20th Century was Vilfredo Federico Damaso Pareto. He was an Italian engineer, philosopher, political scientist, sociologist, and an economist. He advanced modern economics from Adam Smith’s moral philosophy to the now data-intensive platform of scientific research and mathematical equations. In his publication, “Manuel D’ Economie Politique” in 1909, Pareto argued that individuals’ choices, which make people happy, can still produce equilibrium within the economy. His arguments fall within the 18th Century Jeremy Bentham’s Utilitarianism. It was in the field of microeconomics that Pareto pioneered the development of income distribution. He was the first to discover that income follows a Pareto distribution (named after him), which is a power-law probability distribution. The Nigerian economy seems to lack Pareto Efficiency. It may be argued as being one of the causes of economic depression and social instability in the Nigerian society. For example, we all may feel happy spending money to communicate – recharge cards to the tune of N21 trillion- or gamble in the region of N0.76 trillion. These are the individual choices that make us happy. Pareto argues that the government will then increase taxes (income and capital) in those sectors. The resources from the tax receipts are then allocated to critical areas of the economy (health, education, infrastructure) that people do not currently spend to attract much income. Most of the vital sectors (health, education, road, rail, essential utilities) are not supposed to earn money in any case, but indispensable to the economy. If tomorrow, the roles are reversed, taxes are used to effect equilibrium in the marketplace. And the sector that people’s spending follows is treated similarly. The primary purpose of the government is to allocate resources in such a way that it will be Pareto-efficient. There is an infinity of Pareto-efficient allocations of public funds, each with a different distribution of income or utility between various members of society. It is proven that distribution of abilities, human capital and wealth affect income-earning potential, which then determines the pattern of consumer demand in an economy. The federal budget should reflect this because it has become the wish-list of everyone. Its expectation is for the budget to induce the economy to pick out each and every one of the possible Pareto-efficient allocations at its competitive equilibrium. That has been conspicuously missing in Nigeria’s budget planning. It has mainly pivoted on the global price of oil, which is outside the compass of our control. It is doable like in finance, where the world’s central banks do that regularly by mopping up liquidity from the economy to curtail inflation. That’s what is supposed to be the mechanism and the basics of Nigeria’s budget design. The latest introduction of stamp duty on shelter will distress and depress that sector that was already struggling, for instance. There is room for both equity and efficiency in any economy, but we should be able to separate them. There are bound to be continually gross distortions in the Nigerian economy if the budget does not reflect a remedy. A distortion exists whenever society’s marginal cost of producing a good does not equal society’s marginal benefit from consuming that good. For instance, the government could use taxes and welfare benefits to redistribute income earning potential such as education and thereby enforce its value judgement about equity. In the meantime, the government ought to leave the market economy to take care of allocative efficiency. This neat solution is nearly impossible unless it is ideologically driven. For example, many see taxation itself as a distortion in a free-market that inherently has a default against equity, and will resist. It shows governance is not a walk in the park and a task for politicians and their advisers to balance. The value judgement of the government in power is crucial, dictated by the fundamental axiom of action toward the greatest happiness to the highest number of people as the measure of right and wrong.