Market economy is prone to regular government interventions, particularly in countries mimicking true capitalism, which is typical of developing economies, including Nigeria. The classical economists who introduced capitalism hinged on market mechanism with its ‘invisible hands ’ through the work of Adam Smith, as vividly explained in his “Inquiry into the Wealth of Nations”, did not consider the need for any intervention to keep an economy on track.
For many years, the market mechanism magic worked perfectly until the world’s economic growth expanded rapidly through rapid industrialisation. Karl Marx, the architect of communism/socialism, had predicted the death of capitalism due to some inherent contradictions in the ideology of the free market and invisible hands. The Marx prediction almost came through between 1929 and 1936 when there was what was generally referred to as ‘the Great Depression’ involving all countries practising capitalism.
But John Maynard Keynes rescued capitalism with his introduction of government intervention to correct the problems associated with market mechanisms. Hitherto, the government was not expected to be involved in hiring workers beyond those that would carry out some administrative functions, keeping law and order and thus providing an environment conducive to the private sector businesses to operate and function optimally in the production of goods and services for mankind.
During the depression, businesses were collapsing; there were huge job losses, the value of money was going down and exchange rates depreciating massively, all of which led some entrepreneurs, who had borrowed huge amounts of funds for their hitherto thriving businesses, to take their lives, possibly because they were not Nigerians. You can trust Nigerian entrepreneurs or businessmen that suicide would be the last option, if at all, when business gets to the level of bankruptcy. They will be ready to shift the burden to the common man who saves from the little he/she earns. They can set up an Asset Management Corporation of Nigeria to buy the debts while they move on to the next level of affluence, denying they ever owed any bank such a humongous amount.
With such a global depressing state taking too long and indicating that the market mechanism could not resolve its crisis, Keynes opined that only the government could intervene to solve the problem. He suggested that the government must go beyond providing administrative inputs into economic activities and engage in production as a way of injecting funds, employing people for production and introducing effective demand. The application of his government intervention doctrine brought relief to the world economic quagmire from 1936. Since then, the free marketers know that there is a limit to which markets work effectively and efficiently.
Since the adoption of the World Bank/IMF sponsored economic reforms for developing countries tagged ‘Structural Adjustment Programme’ in the 1980s, the countries’ economic activities and processes have been liberalised and market mechanisms doctrine adopted wholesale, without the Keynesian flavour of caution. The Bretton Woods institutions believe much in the classical doctrine of market mechanism and assumed that the economic structures of the SAP-adopting countries were the same as that of the advanced capitalist economies. They were wrong!
The Economic Commission for Africa, under the leadership of Prof. Adebayo Adedeji as the Executive Secretary of the continental body, had warned of the danger of adopting SAP as delivered, given the structure of the African economies, but the warning was ignored. Even the ECA introduced an alternative to SAP tagged AFF-SAP for the benefit of the African countries, again, it was ignored by African leaders who believed more in the World Bank for whatever reason. The liberal economic policies imposed gradually eroded the powers of the government to intervene and eventually resulted in massive failure in many of the countries. Things have never been the same for the countries thereafter.
Over time, however, many developing countries have come to realise the importance of government interventions in preventing the deleterious effects of market failure; possibly because they have seen the advanced economies doing the same. In the recent economic recession in 2007/2008 when the capitalist economies of the West were caught in the housing bubble problems that started in the United States and the more recent recession caused by COVID-19, the advanced economies used various intervention methods to promote both consumption and production to survive and re-invigorate their economies and keep them afloat. In trying to copy the art of intervention, many developing countries missed the points on types that can work for each country, the modus operandi, and the need for country-specific intervention methods.
Government intervention types include providing tax reliefs for producers, funding consumers, subsidising production costs, subsidising inputs and outputs, engaging in public-private partnerships, et cetera. Government officials need to familiarise themselves with the various types of interventions, particularly subsidies and the nature of subsidy to provide for consumers, producers, importers, exporters, creditors and debtors.
In terms of the modus operandi, it is imperative that the operators and beneficiaries meet and reach agreements. If the government intends to intervene in some industrial concerns, the ministries of industry, finance and an appropriate department in the Central Bank of Nigeria would need to hold meetings with the appropriate arm of the Manufacturers Association of Nigeria to discuss expectations of the government from the industrial sub-sector concerned. The same arrangement would be made for general interventions. If the government, for example, expects higher outputs and employment generation, it must obtain current data on the output and employment of the businesses concerned. This would serve as the basis for discussion.
The government will be intervening with a specific amount in two or three tranches and expects growth of a minimum of two or three per cent in output with 100 or 200 new employments within the first year of the release of funds and only those that are able to fulfil the agreement will benefit from the second tranche. An agreement is reached with an MOU signed by the entrepreneur and MAN as a witness and guarantor. There will also be punishment for diversion of funds.
When the government is providing foreign exchange for importers and exporters, even if through the EXIM Bank, the arrangements for the return of the funds need to be documented and the punishment for defaulting properly agreed upon and signed. A situation in which businesses get foreign exchange for inputs and produce for exports without the return of all or part of the foreign exchange is unhealthy.
For businesses generally, financial interventions should not be made, seen and/or used as gifts. It should be seen as an extension of credits that have to be paid back. When the United States intervened in the market in the 2008 depression period, the small and big businesses that were helped to keep afloat paid back the loans after a moratorium. When Nigeria extended credits to businesses between 2010 and 2012, it was taken as a largess. Those who were to wake up the textile industries, the aviation sector and agro-allied businesses went away with the money as a gift such that one of them, we were informed, went to invest the money in an energy business in another country.
Even, the CBN under the Godwin Emefiele intervention exercise in 2015 gave banks some foreign currency intervention fund that has never been accounted for to this day. One hopes the ongoing investigations into the finances of the CBN will unravel what happened to the funds and the affected banks made to return the money with interest.
In the case of public-private partnerships, experts in the arts of the game from MDAs and the private sector need to be involved after feasibility studies on cost-benefit analysis to choose the appropriate PPP for a particular project or number of projects. The modes of operation of the different interventions are different and should be understood, and carried out with the required transparency and accountability.
A situation in which the government engages in economic intervention or provision of subsidy or introduction of tax relief without engaging the beneficiary and even demanding returns on such favour cannot yield a productive outcome as it is easy for the beneficiaries to claim ignorance. Engaging the potential beneficiaries, even on the type of intervention they need, should be encouraged to avoid wastage. This implies that the government should not assume it knows what the businesses require. Businesses that can add to the national electricity supply, for example, deserve some subsidy as an incentive for others to copy.
Documentation in the form of requirements or needs, and memorandum of understanding should be part of the record for future reference. More importantly, elements of corruption must be minimised. A better Nigeria is desirable and possible.