One key step before economic diversification

While the Dutch Disease caught up with the Netherlands in the 1960s, and the United Kingdom in the 70s, these originators of the much taunted ‘dutch  disease’ had long been healed of their diseases, but Nigeria appear to be a bad case – a case of secondary infection that appear worse than primary casualties! That […]

While the Dutch Disease caught up with the Netherlands in the 1960s, and the United Kingdom in the 70s, these originators of the much taunted ‘dutch  disease’ had long been healed of their diseases, but Nigeria appear to be a bad case – a case of secondary infection that appear worse than primary casualties! That is why every lip in Nigeria is quick to recommend that the way forward for the Nigerian economy is ‘economic diversification’. I was lately thrilled by a young ‘expert’ who propounded further, that indeed, that the solution lies in ‘revenue diversification’ , and not ‘economic diversification’. Never worry, the young expert was not allowed to go without a clear explanation that revenue diversification actually results from economic  diversification.
True to it, most elderly  minds in economic principles would jump at the postulate that economic diversification entails the identification of growth-drivers within the economy; the formulation and implementation of trade policies that encourages private innovations and encourages initiatives through international partnerships and trade associations; a regime of  business-friendly regulations;  adoption of  global best practices in  ways that increase and sustain competitiveness, and increasing an economy’s  ability to withstand shocks  from technology and  markets. It stands for a regime of efficiency  in  an economy’s traditional  sector (s), as well as developing skills and competences into new areas in a way that helps an economy  develop multiple sources of income for households and other economic agents.
Economic diversification is a baseline modesty in addressing,  and promoting the mitigation of  potential risks in the income stream of a country. It, therefore, involves the breaking of new income-earning grounds, in addition to improving efficiency in the management of existing opportunities. However, it is also fair enough to  believe that economic diversification refers  more to efficient  deployment of today’s resources, than it does  to  referring to  exploring further  grounds to mitigate earnings volatility and weak governance infrastructure that diminishes national earnings quality.
Economic diversification is not an alternative to working institutions.
Economic diversification is a key  result expected of a well-working institutional framework of a good government. Impliedly, economic diversification may not engender a well-working government. Rather, a well working government must exist before an efficient and an effective economic diversification can happen.  Economic theory in the main, holds that there are numerous conditions that must exist with regards to how the government conducts its business before diversification could propel the expected benefits. The primary initial condition is that government business must be conducted with tacit private sector consciousness. Hence, economic diversification  is a flow – a continuum,  not a static phenomena, neither is it an event. It must mirror a circular perimeter, without fetters!
Critically,  institutions must be working well if the influence of corruption on economic diversification is to be minimized. Economic diversification can not exist alongside pervasive corruption. It is compelling for a country to avoid economic diversification if it is not sure of  how to expunge corruption from its respiratory  system.  If for face-saving reasons, a country dares proceed  with economic diversification while adopting a cosmetic stance on combating corruption, then, such a country should be prepared to face the severe consequences of entrenched corruption erupting into severe socio-politico cum economic crisis. Even in the face of these  crisis , beneficiaries  still engage in feasting with profound deafness,  feeling  that all is well. The deceit is further heightened with the temporary reprieves  that corruption bring; helping  entrepreneurs work around bureaucracies, and  rearranging the  queues.
Apart from these, relating diversification to the need to balance political interests in a democracy raises  a key fundamental question for developing economies – that democracy is a rule by politicians;  only politicians determine what should be; what is available, who gets what, where and how. It is indeed believed that any  economic diversification that does not put the political interests  uppermost, is doomed to fail from conception. Arising from the questioning of the definition of ‘democracy”  as ‘the rule by the people’, pluralists  have argued that   ‘democracy does not mean and cannot mean that the people actually rule in any obvious sense  of the term ‘people’. .., but that democracy  implies  that the people have the opportunity of accepting or refusing the men who are to rule them …, that democracy is the rule of the politician.
Politically speaking, the man is still in the nursery who has not absorbed, so as to remember  the saying attributed to one of the most successful politicians that ever lived in the US: “what business men do  not understand is that exactly as they are dealing in oil so I am dealing in votes”. In Nigeria, the big question is whether those who buy and sell votes  would be able to undergo the self-sacrifice and discipline  that is required to ensure economic diversification; economic diversification that thrives on an initial condition of zero tolerance for corruption.
If the economy proceeds to deceive itself by hoping to achieve success without total war on corruption, then,  the State looses control and capacity to manage  the extent that a vicious circle sets in. This vicious circle  would then, in a final swoop,  destroy  the private wealth-making- power. What of the temptation for an appeasement policy?
 Entrenching  an  appeasement  policy  would  destroy  the prospects of economic diversification. Does it then mean that it would have been better not to avert crisis that could have arisen without the appeasement policy? Not really, but it is better to avert the  presence of the reasons why the appeasement policy became inevitable in the first place. If government is pursuing a policy of appeasement, economic diversification would achieve a much less than an optimal result.
The marxists believe that capital impose constraints on political power, and that political power is coterminous  with  economic diversification. This position holds that government can only support economic diversification if only government officials are in control of the economic resources and means of production. It holds that the quest  by government officials to control the means of production and economic resources explain the reason why economies are inherently unstable; and that as the State continuously issue regulations to ensure political control and support, that the State bears increased costs, and  promotes fiscal and monetary crisis.
 Dr Godwin Owoh is the Executive Chairman, Society For Analytical Economics, Nigeria, and was an adviser to former CBN Governor Prof. Chukwuma Soludo.