We need to question how we reward value as a society. You cannot have so many billionaires and yet so much poverty and unemployment. What then have these billionaires created of value that serves to justify their wealth?
Dr. Makanjuola, Resident Surgeon LUTH, Lagos, Nigeria
image via mediafreedominternational.org
The IMF, World Bank, African Development Bank believe that to drive development in the third world, particularly in Africa, there is need to make the local investment climate suitable to foreign investors. They insist that governments that must benefit from their funds must put in place policies that guarantee the safety of foreign investments, ensure emphasis on improving public infrastructure so as not to erode investors’ profits and enable ‘fair’ competition for foreign investors by removing subsidy regimes that prevent foreign investors from risking capital for critical ventures. For many governments that buy into this argument, there usually is the hope that the foreign investments that result from pursuing these dictates will enable their country’s economy pick up and that the ventures that start up will generate employment for their teeming unemployed.
That many governments still buy into this model despite poor antecedent results remains a puzzle that is explained only by that these governments are simply desperate for these funds and that they lack a better alternative source of funding.
These policies do create jobs. However most of the jobs created are usually of a temporary nature i.e. contract jobs with few benefits and minimum wages. Most of the high earning jobs created are usually filled by expatriates or friends and family of the political elite of these nations. As a result, the direct benefits of these policies benefit western economies/companies and the political elite that collaborate with these companies.
The real economy i.e. the one that concerns the ordinary man is however unaffected and employment numbers remain dismal especially as more children of ordinary citizens come of age and begin to seek for jobs.
The trickle down effect is thus a myth and it benefits only the top tier economy of the elite and expatriates. Most of the high growth figures for developing economies, that make use of trickle down policies, apply only to large companies and it is no wonder that the outlook for the ordinary citizens despite strong macroeconomic figures remains bleak.
Nigeria’s Coordinating minister for the Economy
Unfortunately these same policies are being pursued vigorously by the Nigerian coordinating minister for the economy, Okonjo Iweala. Her approach is no surprise given her background and work experience in the World Bank. Hence, consciously or not, her training makes her execute policies that benefit the imperialistic interests of the West.
It saddens me that most of the people here will not be able to afford these top level programs in the USA. Most of those who can will be those who have a rich father or uncle who has become wealthy dubiously.
US top official at a recently held top level MBA fair in Lagos, Nigeria
Her policies are creating jobs. But the question is jobs for whom? Can young school leavers who only boast of First degrees, fill these vacancies? Most of these jobs are open mostly to those with skills that are beyond what the first degree can confer. Also a lot of the technical positions are usually for those with multiple years of experience in the field. However as most of these job functions are new in Nigeria, it implies that there will be few local people who can have the relevant skills for these jobs and thus only those with foreign training and work experience can fill these positions. And can the children of the ordinary man afford to study overseas? Is it not the elite, with their stolen funds who can foot the exorbitant study fees for their children overseas? Hence one can thus see the self perpetuating ways of the rich and why jobs in Nigeria go to the children of the political elite and their cronies. Most of the children of ordinary citizens must remain content with low pay contract jobs or must remain unemployed.
The foregoing thus explains the myth of the trickle down effect of international development bank policies. Simply put they do not work to the benefit of the ordinary citizen but they rather serve to accentuate economic disparity between the elite and ordinary citizens of developing economies.
Central Bank Governor, Nigeria
image via ynaija.com
Many times these policies sacrifice the little gains made by ordinary citizens in the guise of reducing budget deficits or meeting absurd monetary policy rate targets. Take for example the recent bid by Lamido Sanusi’s central bank of Nigeria to avoid inflation. In order to do this, he has increased the cost to banks of holding on to funds hence most of them have to turn their cash over to the CBN thus reducing their ability to lend. Thus real economy operators who seek funds must borrow at exorbitant rates and this increased borrowing cost is passed on to the consumer. This leads to higher prices for basic commodities, higher cost of living and further erosion in whatever value is left for ordinary citizens. Yet has the CBN governor addressed the real cause for the large amount of funds in the various banks? Is it not due to outrageous salaries of the political elite and the wanton and imprudent spending of the government he is working for? Why should the CBN governor not seek to address this? Why should the poor man on the streets and the hard working entrepreneurs of the real economy pay for the indiscretion of the political elite? Is it because it is more difficult to force change against the ruling elite than against the ordinary man?
Logo of Lagos State, Nigeria
image via lasg-ebs-rcm.com
Yet it is not only the federal government of Nigeria that pursues these self serving policies. Even states run by so-called opposition parties with the possible exception of Osun state make use of these policies that cater to the elite. Take for example Lagos state. In many places in the state, informal markets spring up in the evenings. Many of these people who trade in these markets cannot afford to pay rents or taxes in the demolished markets that have now been rebuilt into lock up shops. The Lagos state government asked many of these people to return to their places of origin forgetting that Lagos is what it is because of the various and large number of people who seek their living within its boundaries. Without such a number it will not be the great commercial hub it currently is. Imagine how much more these traders will make daily if they could get to trade during normal hours. Imagine how much better they will be able to take care of their families. Many of the policies of this government cater to the interests of the state’s political and economic elite and the real cost to the ordinary Lagosian is that he pays higher and multiple taxes at every turn and is subject to living in fear of the arbitrariness of the state government’s numerous uniformed officers.
The real economy can however be affected positively if economic policies relevant to the ordinary people are pursued. To do this, the following must be done:-
A) Invest in public infrastructure:
The focus should be on roads and power. Contracts issued in these sectors should be to local small and medium enterprises rather than to foreign companies or large local firms. The SME’s that receive these contracts can hire expatriates to provide whatever technical skill they lack. The cost for this will of course be covered by their contract bid.
Investment in power will keep small scale artisans e.g. tailors, welders etc employed while good roads especially from rural areas to the cities will ensure that farmers get good returns for their produce.
Contracts to local SMEs will lead to employment for ordinary citizens without the need for ‘connections’ and will help improve local technical capacities.
You simply cannot grow an economy by promoting the interests of its elite; you grow an economy by directly addressing the economic challenges of your poor and working class. You grow an economy by connecting with the ordinary man.
Adebayo Alonge, ‘Solutions Ideator’
B) Focus on Micro financing
The loans that benefit the people are not the huge sums negotiated in billions of dollars in Paris but rather the small thousands of naira disbursed through cooperatives to small business people. The CBN’s focus should be on how to ensure that microfinance loans have interest rates that are affordable to the small business owner rather than stifling economic activity in its bid after illusionary inflation control.
C) Outlaw foreign accounts for the political elite
A lot of stolen funds are in foreign banks unable to create value for the local economy. In the absence of the will or ability to stem corruption, if political office holders, their families and cronies can only have accounts within Nigeria, a lot of expansionary value as per increased lending at lower interest rates can be done by local banks. Also the availability of these funds close by may spur the looters into thinking up economic activities in a bid to get their loot to work and in the process this will create jobs and increased local productivity. This will increase the chances that export oriented industries will emerge given that possible surpluses will be generated and this will be of immense benefit to multiple sectors of the economy.
African leaders need to connect with their people. If they love their people rather than rule them, their people will love them back in return. This will prevent the numerous conflicts over resources on the continent.
Joyce Banda, President Malawi
image via malawivoice.com
D) Use savings to create welfare fund
The Nigerian government needs to cut public spending drastically. It needs to reduce significantly salaries and allowances paid to public officials, serving and retired political office holders. It needs to cut down the public work force given the huge redundancies in many ministries all over the country. It needs to adopt a unicameral legislature and streamline public offices nation wide.
The savings made should serve as welfare fund for the unemployed. This will motivate citizens to try out entrepreneurship without the fear of economic ruin if they fail in their ventures. The attendant benefits will be immense as creative and innovation industries will emerge .
E) Focus on technical education
image via johnpool.net
A lot of the unemployment seen today is due to the larger number of university graduates churned out yearly. The university is not set up to train students to apply solutions on their own. It is set up so that its graduates provide manpower for corporations. As these corporations are mostly non existent or fill vacancies using expatriates, unemployment is high amongst university graduates who are in the majority given the recent societal craze for the university degree.
Technical schools on the other hand prepare their graduates to be self sufficient- able to apply solutions for themselves within the context of their environment.
The reason why so many graduates today seek paid employment almost by reflex is because of where they have trained. Artisan trainees set up their workshops on attaining ‘freedom’ from their masters. It is this sort of artisan and technical education that the government should aim to encourage. The export industry of India is built on this premise and is why many households in India have factories however small; whose products solve problems millions of miles away on other continents. This can be Nigeria’s story as well.
image via justynsmith.com
The coordinating minister for the economy, Dr. Okonjo Iweala needs to reassess the policies she is currently pursuing. She needs to take seriously the recent comment in Nigeria by the Malawian President Joyce Banda, on the need for African leaders to connect with their people. She needs to connect with the ordinary man in Nigeria so as to assess whether her policies affect him positively or otherwise. This will help her modify her policy thrust in a manner that impacts positively on the ordinary Nigerian rather than enriching those close to the seat of power. Trickle down economic policies do not work. President Bush of the USA tried it to disastrous effects. The IMF and World Bank have tried it in numerous countries with disastrous effects to the livelihoods of ordinary people. You simply cannot grow an economy by promoting the interests of its elite; you grow an economy by directly addressing the economic challenges of your poor and working class. You grow an economy by connecting with the ordinary man.
UPDATE: Trickle Down Is A Lie