Still on Soludo’s Solutions

Summing up Soludo’s repetitive word-count tasks creativity in brevity. One thing is clear; for Soludo, Financial liberalization or Deregulation is the only (and only!) solution to Nigeria’s bagful of economic challenges. The problem is the devil in the details of his one-(deregulation)-policy-cures-all Nigeria’s economic problems. I can identify three unacceptable myths in Soludo’s “provocative” liberalization-cures-all-economic […]

Summing up Soludo’s repetitive word-count tasks creativity in brevity. One thing is clear; for Soludo, Financial liberalization or Deregulation is the only (and only!) solution to Nigeria’s bagful of economic challenges. The problem is the devil in the details of his one-(deregulation)-policy-cures-all Nigeria’s economic problems. I can identify three unacceptable myths in Soludo’s “provocative” liberalization-cures-all-economic ailments-drug. First is the myth of flexible exchange rate adjustment. According to Soludo;, “…., countries that allowed relative prices (including exchange rate) to become the key “adjusters” during terms of trade shocks have almost always done better than those that resorted to price (exchange rate) and other distorting controls”.  Soludo’s policy preference by no means preclude other policy options. Policy choices are man/woman-made, not God-ordained. Since the collapse of the global market of 2008, central bankers have creatively initiated scores of unorthodox/ unconventional monetary tools. It is no longer at ease (apology to Chinua Achebe) for central banks worldwide with the old orthodox least resistance measure of just maintaining “price stability” which led to the collapse in the first instance. Nigeria is not an exception.
Monetary policy has radically departed from failed Sulodo’s one drug-inflation-targeting exchange rate management because achieving  low inflation does not mean other macro economic variables; (economic growth, employment, capacity utilization and balance of payments) will fall in line. Importantly the lesson of the recent times is that monetary policy, (orthodox or new) is not sufficient for sustainable recovery.
Monetary policy must be complimented with expanded targeted public spending. Since 2009, under the Anerican Recovery and Reinvestment Act president Obama has stimulated American economy with as much as $831 billion. Given the sea of mass needs, I commend President Muhammadu Buhari’s  proposed  expanded budget of about N6 trillion for 2016 compared to last year’s, N4.4 trillion.
But even at that, the proposed budget spending is still one of the lowest in the world. The global annual average spending for the world’s 20 largest economies (in terms of GDP) is $16,110 per citizen. Norway and Sweden top the list with per citizen spending of $40,908 and $26,760 respectively. The federal government of the USA spends an average of $11,041 per citizen (per capita), ahead of only South Korea ($4,557), Brazil ($2,813), Russia ($2,458), China ($1,010), and India ($226) in the twenty largest world economies. Nigeria’s 6 trillion Naira budget translates to less than $150 per citizen annually. 
After agonizing on the paucity of data, Soludo still inexplainably went ahead to declare dogmatically that; “…the economy did far better under SAP especially in terms of employment, output growth, poverty and in some years even inflation.” 1990s was actually the SAP decade. The peak of de-controls, flexible exchange rate (devaluation), being the policy features of SAP was actually in the 90s. Strangely Soludo is silent on impact of SAP on  critical labour market factors such as jobs and wages.
Is relative price of labour not a critical success factor in productivity and development? What about the real effective wage rate (REWR)? SAP)enthrowned wage-freeze without price control. Soludo’s reopens the wound of SAP riots/NLC strikes of 80s. The twin policies of Naira devaluation and serial “removal” of subsidies on petroleum products mean the price inflation far more exceeded the wage concessions such that in real terms the prevailing negotiated  N18,000 (Soludo falsely presented as a Jonathanian  award!) worth less than N120 minimum wage of 1981! 
Soludo’s second myth is trade liberalization. I am on the same page with him for an “emergency action on industrialization”! But why “Emergency” when  trade liberalization could have magically led to industrialization according to Soludo dogma?. Emergency calls for a mix of state and market policies not one doctrinaire policy dogma.  We must change the narrative of the continent from that of ‘resource curse’ to resource beneficiation, value addition and mass employment through industrialization. Happily the leading African Industrializer today is a Nigerian, Aliko Dangote.
Soludo’s romanticism with “market determined exchange rate”/ “Developmental Exchange rate strategy” within the context of trade liberalization combined with cynicism about protectionism is academically  unhelpful in this respect. In 1985 (SAP year), for instance, textile industry with as many 120 firms  nation-wide employed some 1.2 million direct and indirect jobs.
By 1990s SAP’s mutually assured destructive policies of deregulation notably devaluation (high costs of inputs and depressed demand) and trade liberalization (massive imports and smuggling) turned hitherto productive industrial estates of Aba, Port Harcourt, Kaduna, Kano and Lagos into some Industrial cemeteries (sorry; churches!) with attendant mass job loses and mass poverty arising from loss of wage income. It is time for a wholistic pro-active strategy to international and regional trade. First growth should be job-led, SAP’s growth is jobless growth. Secondly, we must revisit the simplistic theory of international trade that assumes that everybody is a winner when the reality is that developing countries are perpetual losers. Adams Smith wrote about the Wealth of Nations, not Weatlh of some nations. Japan still imposes
780 per cent tariff on rice imports. EU’s tariffs on food imports are worse than outright bans, deliberately ensuring “…that African nations exports mainly low-value-added raw foodstuffs”. America is the “freest market economy”. But it is also a “land of protectionism”. Soludo should revisit his political economy, it explains the world than his partisan neo-classical economics.  I suggest we all help Buhari administration and the state governments to reinvent industrial policy with clear cut strategy for urgent domestic value addition, get these restless (and increasingly reckless) youths to be productively engaged! President Buhari and the new Ministers of Industry, Trade and Investment, should find useful the recommendations of 2014 Nigeria Industrial Revolution Plan and the Committee on the Economy, Trade and Investment of the 2014 National Conference.