Reforms: Can Nigerians trust the markets?

Economic reforms, whether in the form of liberalisation programmes or privatisation of state-owned enterprises, are part of a continuous search for greater efficiency in resource management. At each level of economic attainment, there is a belief that the efficiency level can still be expanded, with some tinkering of the system. This is the prism through […]

Economic reforms, whether in the form of liberalisation programmes or privatisation of state-owned enterprises, are part of a continuous search for greater efficiency in resource management. At each level of economic attainment, there is a belief that the efficiency level can still be expanded, with some tinkering of the system. This is the prism through which the current efforts aimed at returning the Nigerian economy to the dictates of market forces should be assessed.

These measures will bode well and endure, with Nigerians embracing them, if there is a commitment to the plan. The resurgence of market fundamentalism in the country will produce lasting results if it is anchored on a deliberate choice to unshackle the Nigerian economy from the forces that have kept it a perpetual “potential”.

Generally, the choice of what arrangements to adopt in the production, distribution, and consumption of goods and services in a country is a political one. It is the political leadership that decides on the operating system in an economy. It then goes shopping for the technocrats who are willing and able to implement or enforce the structure.

It is also the leadership that determines what happens to that system subsequently. Whether it holds to that agreed system or allows infringements without consequences is up to the political leadership. Whether offenders are deterred through appropriate sanctions, without differential treatment, is up to the leaders. That also determines how long such infringements will last before the system is corrected.

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That explains why the multiple exchange rates regime that has just been changed as well as other arrangements, including the controversial petrol subsidy, lasted for so long under the previous administration. The political system then, in collaboration with the monetary authorities, especially the leadership of the central bank, in the case of the exchange rate, held unto a system that was clearly out of sync with reality in the market. But the political leadership hung onto it because it was convenient to some interest groups.

Markets do not force themselves upon governments, countries, or regions. They wait on the sidelines while the authorities fiddle with their own whims and proclivities until they run into a ditch or hit a brick wall. This usually manifests when the system breaks down and policies fail to work. Then the governments begin to talk about reforms.  

Markets are good disciplinarians.  The markets will test our will and our patience. They will test our resolve to stand by the principles and rules of law and of the markets themselves.

For sure, markets are not without their shortcomings, but of all the forms of organising economic activities and resource allocation, they remain the least inefficient. The market system is the hallmark of capitalism and simply says that the price at which a resource is exchanged should be determined by the inanimate interplay between the buyers and sellers.

But the biggest challenges to the market-based economy will come from those who have lived and benefited from the protective walls of controls and other rigidities put in place in the economy.

Let me also point out here that there is perhaps nothing like an unfettered market system, where there is no form of control.

Yes, markets do fail. They fail when they are unable to allocate resources in accordance with our expectations. When the pricing of goods and services fails to take account of certain actions of individual actors in the economy whose negative actions cannot be accounted for or priced so they can be paid for.

But, the failure of markets is easier to remedy than the impact of powerful individuals in a non-market environment, without rules and regulations. The powerful hijack the system and manipulate it to their advantage.  

Markets cannot exist in isolation from the physical and social infrastructure needed for them to be effective. While the physical infrastructure ensures the smooth running of the production and distribution and even consumption functions, the social infrastructure is to ensure that the activities are carried out in accordance with acceptable standards. 

The essential social infrastructure here are the institutions needed to superintend the behaviour of markets and operators. Without them, the market economy veers off its trajectory.

After all, Adam Smith, the father of capitalism and advocate of minimal government, said the government should concentrate on providing the infrastructure on which the system would run. In his doctrine of laissez-faire, he argued that the government should concentrate on the provision of a conducive environment that will ensure the stability of the system.

For instance, we need good roads and rail lines to transport our goods and services cost-effective. Nigerians have hardly benefitted from the concept of public goods: those things that the state is best placed to provide, especially given the large scale on which those things have to be provided.  

Markets are efficient but that is a relative sense. If the fundamentals of the environment do not guarantee low-cost production in a given jurisdiction, there is very little the markets can do to achieve this. How then does the talk about competitiveness in such an economy make sense?

And if the market applies only to a segment of the people while the big guys operate behind the protective walls, then the essence of reforms will be lost. That was what was obtained under the segmented forex market. The protective walls provided a haven for round-trippers and rent-seekers.

Where people are used to self-help as the formula for survival, the virtues of the market will make little meaning to them. Nigerians have lived as orphans in many aspects of life: even the barest provisions taken for granted in other jurisdictions are luxuries to the average Nigerian.

This is especially so for the lower segments of society where life has become almost unbearable in every respect. They will perceive the talk about market forces as an attempt by the state to hand over to a more dangerous tormentor. It will be difficult to depend on the market entirely when all these issues remain unaddressed.