This article derives its title from a Report, “A Roadmap for Inclusive Prosperity (RIP)” released on 15th January, 2015 by the Global Inclusive Prosperity Commission (IPC), a group of 17 international experts from 5 countries co-chaired by Lawrence H. Summers, President Emeritus of Harvard University and former World Bank’s chief economist, and Ed Balls, member and Shadow Chancellor of the Exchequer in the British Parliament. Second, an earlier Report, “Prosperity Economics: Building an Economy for All (PEA),” co-authored by Jacob Hacker, a Yale University Professor and Nate Loewentheil, was released in 2012.
These two Reports are significant and relevant in the context of the current state of the Nigerian Economy for several reasons. First, they both have a central message of inclusive prosperity for all. Second, analytical rigor has been brought to bear on austerity economics and its discontents. Third, policies and programs to inform prosperity economics of inclusion have been proposed. Fourth, the discourse on the issues of insecurity, inequality, economy and corruption in the electoral campaigns still needs to be guided by clearly articulated positions based on careful research and thoughtful analysis as both the RIP and PEA have done.
This article focuses on prosperity economics of inclusiveness for growing the economy, while reducing pervasive inequality and high unemployment. We attempt here to provide a roadmap for a prosperous economy that all Nigerians, and not a few, can effectively partake and share in? Some pertinent questions emerge from the Reports. How does a growing economy serve the common good? How do we create a stronger, fairer and more sustainable economic model in which the many and not just the few benefit from rising prosperity now and into the future? How do we ensure that a dynamic market economy and a fair society can go hand in hand? How do we make economic growth a friend, not a foe, of inclusive prosperity? How do we make markets work for the poor? How do we ensure that all of society’s citizens have a stake in its prosperity, and therefore all of its citizens have a stake in its future? As the RIP has noted, these are not questions just for governments, but for corporations, civil society, and citizens as well.
Austerity economics and its discontents
PEA has a chapter on ‘Austerity Economics and its Discontents,’ which produce a vicious cycle of unequal growth, increasing insecurity, and unbalanced democracy. Even the Finance Minister and Coordinating Minister for the Economy (FM/CEM) is beginning to acknowledge the failures of austerity economics practiced in Nigeria when she discussed the key evidence of a vicious cycle of inequality, insecurity, poor infrastructure, corruption and institutions in a speech on “Vision for Sustained Prosperity in Nigeria” to the Atlantic Council in the USA in October 2014. According to the FM/CEM:“…The inadequate infrastructure is holding back economic growth by at least 2 percent per annum…Absence of adequate infrastructure in Nigeria, particularly poor electricity supply adds a massive 16 percent to business costs in Nigeria compared to 2 percent in South Africa, 5 percent in China and 10 percent in India…. Second, in spite of recent progress in economic diversification, Nigeria remains highly dependent on oil. Some 70 percent of government revenues come from taxes on the oil and gas sector, and oil and gas make up more than 90 percent of exports…Third…(with) inequality we face the challenge of economic inclusion and high youth unemployment. The pattern of growth in our economy is highly unequal. In other words, growth is fast but inequality has increased. …In Nigeria, the (Gini) coefficient rose from 42.9 in 2004, to 48.8 by 2010. …Such disparity in equality fuels social tensions and violence in the society…. Closely linked to this economic exclusion is the jobless growth trend that we have observed in recent years. Whilst jobs are being created in Nigeria, they are not being created fast enough to absorb the 1.8 million (Vision 2020 puts it at 4.5 million) new entrants into our labour force each year, leaving several of our youth unemployed….Our maternal and infant mortality rates are high, and we have large numbers of children out of school. The absence of social safety nets leaves the unemployed highly vulnerable to poverty….“Fourth, corruption continues to be a challenge, and happens to be one of the most talked about problems of the country.….Fifth is the security challenge we presently face, particularly the Boko Haram insurgency, which reached a crescendo when over 200 schools girls of the government secondary school in Chibok….Lastly, there is absence of appropriate institutions that will translate economic policies into practical solutions which can yield concrete results….” These are the words of the CEM.
With the growing insecurity and worsening economic misery, the poor are not experiencing the democratic dividends and the targets set in Vision 2020: a poverty rate of 21% by 2015 versus current over 50%; a life expectancy rate of 60 years versus 52%; infant mortality of 30 per 1,000 live births versus 85; a medium human development index (HDI) versus low HDI of 152.The HDI is a composite index, which measures progress in three basic dimensions of human development: a long and healthy life, knowledge and a decent standard of living. The exchange rate is now at over Naira 210 to $1, as against Naira148 to $1 when the Vision 2020 blueprint was prepared in 2009. A targeted ranking of ease of doing business index of less than 80 was envisaged as against a current rank of 170; the rating on the corruption perception index of less than 60 was the target compared to the current rank of 136. A target ratio of 20% of foreign exchange earnings coming from non-oil sectors versus 5%. Domestic refining capacity of 750,000 bpd was expected by 2015 versus the installed capacity of 445,000 bpd, which still runs on less than 30% of installed capacity.
Economic growth and inequality
How did we get to this state of socio-economic affairs? For one, austerity economics goes beyond the current austerity measures of pro-cyclical fiscal and monetary tightening induced by significant decline in oil prices. Its root can be traced to decades, especially the last 16 years of policies and programs with emphasis on a few elite, growth per se as against reducing inequality, a narrow focus on selected few winners in selected few industries. Thus, the current situation is man-made. But the myths of austerity economics in Nigeria is that for the few elites, representing 0.01% of the population with a third of the nation’s wealth, the glass is full to the brim. For the remaining poor majority, the glass is empty to the bottom: not even a half-full or half-empty glass. In essence, austerity economics ignore inclusive, shared, scale-able and sustained prosperity. The Harvard professor of political economy, Benjamin Friedman’s book on “The Moral Consequences of Economic Growth” has noted that we should be concerned not only about the success of the few most privileged, but also about the poverty of the most disadvantaged as well as the economic well-being of the broad majority of the population.
While some may use the Kuznets Curve by Nobel Laureate Simon Kuznets that while inequality may initially rise, they will improve at later stages of development. Academic and policy research at the IMF, World Bank, OECD, and other international organizations have demonstrated that growth is unsustainable with high levels of inequality. David Landes, the author of ‘The Wealth and Poverty of Nation’ asserts that nations should go beyond growth figures and illuminate performance and its consequences by moral concerns and goals. Furthermore, some countries have demonstrated in practice that the Kuznets Curve is not cast in stone and that its shape can be impacted by prosperity policies, programs and institutions. According to the Asian Development Bank, Malaysia’s triple bottom line prosperity model with the goal of improving the quality of life emphasises achieving high per capita income of $20,000; inclusiveness which enables communities to fully benefit from the country’s wealth; and sustainability, which balance present needs without compromising future generations. According to the IMF, “Economic growth in Algeria over the last decade has been relatively more favourable to the poor than to the rich helping to reduce inequality….Algeria’s pro-poor growth over the past decade coincided with a significant decline in unemployment and increases in social spending. Between 2000 and 2011, the unemployment rate fell steadily, from 29.5 per cent to 10 per cent. Over the same period, per capita spending on health and education doubled in real terms…these developments may have disproportionately benefited the poorer segments of society.”
Prosperity economics of inclusiveness
Prosperity economics of inclusiveness is founded on a virtuous cycle of shared growth, security, and corporate and democratic governance. The immediate economic objective of inclusive prosperity is to address the growing insecurity, widespread unemployment and pervasive inequality in Nigeria. As noted in the RIP, academic economic research has found that long spells of unemployment can permanently lower both workers’ earnings and potential GDP. The high unemployment rate of 24% and over 50% among the youth as well as low productivity may explain the gap between the actual GDP growth rates of 6.5% and 7% since 2009, half the targeted GDP growth rate of 13.8% in Vision 2020. Celebrating the current growth rate of 7% as high may encourage complacency at a time when the gap between the targets needs to be closed.
Unemployment needs fiscal stimulus
Government interventions on both the aggregate demand and supply side can make a difference with such levels of high unemployment. As Bradford DeLong and Lawrence Summers have argued in Fiscal Stimulus in a Depressed Economy “if fiscal interventions can affect long-term aggregate supply, the costs of fiscal stimulus are much lower than previously thought…That there are no long-term costs to doing nothing to increase demand is also wrong.” We note how the US President Obama responded with fiscal stimulus, and the US Central bank with monetary stimulus, during the great financial crisis. The pro-active and counter cyclical responses explain the more robust economic growth and reduction of unemployment rate by half to 5% in the USA, compared to the economic malaise with high unemployment rate in the Euro zone, especially in Greece and Spain.
The alarming unemployment crisis in Nigeria demands an immediate shock therapy with an intensive and acute care. Fiscal and monetary policies can help in the short-term to medium-term. Pro-cyclical fiscal and monetary measures should be replaced with counter cyclical measures, as the former would worsen the unemployment situation. Moreover, the current monetary and fiscal arrangements, which have been called into question under Boyonomics need to be examined and addressed. In Nigeria, the current unemployment situation calls for responsible fiscal stimulus package to stimulate both aggregate supply and demand especially of the poor and majority of Nigerians; the 99% will spend more to uplift the domestic economy than the less than 1% few elites that spend more on foreign goods and services.
Our high unemployment and insecurity are intertwined and require immediate scaling up of public sector investments in social safety nets, conditional cash transfers, public works and other public goods employing direct labour and can be stimulative across sectors, especially agriculture and manufacturing which are more labour intensive, and raise aggregate demand. Such public sector investments are not impossible as fiscal leakages from corruption, over-bloated high recurrent expenditure, and untapped revenue sources at both the Federal and State levels are plugged. Further, 2015 budget ratio of about 9 out of 10 in favour recurrent expenditures needs to be titled towards capital expenditure; prosperous economies in East Asia had up to 40% of budget in capital expenditures. For one, the rationales for 150 billion naira for the National Assembly and items including new presidential jets in the 2015 budget are difficult to understand, especially when austerity measures are being imposed on poor Nigerians. In addition, critical public sector reforms are needed in key areas: long-term fiscal sustainability at all levels of government, corruption, and democratic governance. It also requires freeing government from narrow corporate interests with a network of patronage and opaque system fueling rent-seeking opportunities and corrupting our democratic system with unrestricted campaign finance.
Full-employment monetary policy
Besides public investments and fiscal rationalization, another immediate step to support the objective of employment generation and job creation deals with monetary policy. The Central Bank needs to pursue a full-employment and welfare-oriented monetary policy objectives, which include lowering the high monetary policy rates of 13%, aimed essentially at foreign portfolio investors, with their capital feast and famine cycles. In its Nigeria’s Article 4 Consultation document of April 2014, the IMF notes that “the current policy stance poses a concern about longer-term inclusive growth: while inflation has come down from 12 1/2 percent at the beginning for 2012 to 8 percent at end-2013, lending rates remained unchanged reflecting no changes in the monetary policy rate established by the CBN, so that the maximum real cost of borrowing has increased from 10 percent to 17 percent, amplifying barriers to growth of SMEs that have no access to the equity market.” It is difficult for businesses, especially, SMEs and manufacturers to afford and grow businesses and employ more people with lending rates now more than 20%.
As I have argued in the article on “Monetary Policy at Cross-roads” in the Guardian in November, 2014, “while the mantra of monetarism has helped with price stability as defined by the CBN, the hawks within the MPC still do not believe that high unemployment rate is the number one economic evil today. With the high rate of unemployment and jobless growth, it is safe to state that the economy is already below its potential output; and added to it are the potential recessionary gaps from realized and emerging shocks. In this context, the marginal social benefits of reducing unemployment from a high of 24 percent outweigh the marginal social cost of inflation, which is still below defined target.” Other leading economists including Kenneth Rogoff, a former Chief Economist of the IMF and one of the early proponents of inflation targeting in the 1980s recently noted that excessive emphasis on low inflation targets can be counterproductive in the aftermath of severe shocks such as the Nigerian economy is currently witnessing.
Telecommunication revolution
Beyond the immediate fiscal and monetary policy measures to support job creation, each government or regime needs a signature economic success with scalable impacts on inclusive, shared, sustained prosperity. We note that the majority of federal and inter-state roads were constructed or planned during the regime of General Yakubu Gowon, which made road transportation an important economic signature achievement of the former head of state. In this context, what economic programs have worked in the last 16 years of our democracy that we can tap on as success story for inclusive prosperity? In the case of President Obasanjo, the revolution in the telecommunication sector is the remarkable and notable success that fits this bill. Nobody will argue that mobile phones increased hundred-fold from less than 1 million sets to over 130 million sets now.
Agriculture revolution
What is currently working and may fit the same inclusive, shared, sustained prosperity? The reforms in the agriculture sector are very promising for inclusive prosperity with potential scalable positive impacts on domestic food production, food security and hunger reduction, and food imports reduction, and employment generation. Agriculture stands a chance of being President Jonathan’s economic signature achievement with lasting impacts on inclusive prosperity. It is estimated that 10 million farmers now have access to subsidized fertilizers and seeds through the innovative electronic wallet system. Most other activities being currently touted as laudable achievements including YOUWIN, SURE-P, Social Safety Nets, and Industrial Plans remain as vaporware, inputs and are at very embryonic stages. For example, YOUWIN has created only 1,200 entrepreneurs in a country with over 50% of youths unemployed; let us get more serious. What are the cost-benefit analyses of some of these programs already being planned or implemented? Are they scalable? Relative to the resources earned over the past six years, with oil prices hovering around $100 per barrel, how much have been devoted to these latter day programs in absolute and relative terms, as per each Nigerian? The World Bank states that its mission is “working for a world free of poverty.” It is therefore surprising that it is at an election time that a program of social safety net, for example, is now being proposed by the economic managers, some of who spent upward of two decades at the institution.
Industrial revolution
Over the next five years to 2020, the main goal of prosperity economics of inclusiveness is to reduce unemployment and inequality and foster shared growth by creating jobs, fostering innovation, and expanding opportunity. Over the next five years and in view of current youth demographic structure, manufacturing, especially labour-intensive industries, should be the prime sector for inclusive and shared prosperity that can lead to higher employment generation, sustainable income generation stream, increasing foreign exchange earnings, fostering economic diversification and deepening value chain prospects. The goal is to more than triple the share of manufacturing value added to GDP from about 7% to over 20% in line with most of the countries of the BRIC, MINT and SANE, and in line with our own vision document. It will help to slow down the premature de-industrialization, symptomatic of the bulk of excess labor currently in street hawking and other non-tradable activities informal retail trade and housework services in cities, operating at very low levels of productivity and low-income trap.
The signature economic sector of labour-intensive manufacturing industrial revolution for inclusive prosperity is predicated on public-private partnership within a dynamic market economy that works for all. It is not that other sectors are not important, but given limited resources, prioritization towards an industrial revolution will achieve maximum impacts on unemployment, job creation, and inequality. As documented by Dani Rodrick, a Princeton University Professor of Economics, manufacturing has been the key to rapid economic growth and prosperity in Britain, Germany, the United States, and Japan, in East Asian countries and in China. Nigeria should not be an exception to this manufacturing phenomenon, especially given its large domestic market and its role as a regional economic powerhouse in West Africa. The vision 2020 specifies the key manufacturing sector requiring immediate attention. Its second pillar aims at optimizing the key sources of economic growth via economic diversification, transformation of production and exports structure from primary commodities to processed and manufactured goods, and enhancing efficiency and productivity in value adding sectors for global competitiveness. High priority sectors identified include petro-chemicals, non-metallic minerals, food and beverages, and textiles; low priority sectors were electrical and electronics, and motor vehicle and miscellaneous assembly are deferred to after 2020. However, in implementation, priority has been turned upside down, while we hear of establishing motor vehicle and assembly, the more labour-intensive manufacturing industries that will create far greater jobs have suffered low priority.
Many of the new economy business models rely on creating network externalities, requiring speed rather than size that connect firms and people, producers and consumers, capital and labour. As Ricardo Hausmann, a Harvard Economics Professor has argued in The Economics of Inclusion, ” the majority of people– need access to networks–the grids that distribute electricity, urban transportation, goods, education, health care, security, and finance. Lack of access to any of these networks causes enormous declines in productivity. …..A strategy for inclusive growth must empower people by including them in the networks that make them productive.”
The African Competitiveness Report, a joint publication of the World Economic Forum, the World Bank and the African Development Bank, of which I was joint coordinator and was initiated when I served as Director of Development Economics Research at the ADB, identified three key networks that are interlinked and crucial to the development of the manufacturing sector and competitiveness: power, education, and finance. Access to affordable finance, including micro-credit, is an important plank of the critical support for labour-intensive manufacturing that will drive inclusive prosperity. One of the greatest infrastructure networks impeding the growth of manufacturing is the power sector, with current installed capacity generating only 4,500 MW, a far cry from the 20,000 MW target set for 2015 in Vision 2020, and after spending about $28 billion in investment for the sector over the last 16 years. Manufacturers labour under the high business costs added by generating 70% of their own electricity requirements. A revitalization of power is needed in powering an industrial revolution in the next five years.
An educated work force with a training revolution
A well-educated work force is vital to a revitalized labour-intensive manufacturing sector. It provides opportunity to enhance vocational and technical curriculum, and work-force on- the-job training programs, which bring together educational providers and business to improve the productive capacity of the work force. Today, college education in the labour market is almost the same as what high school education was in the 1960s and 1970s. But, employers, especially multinational companies, are relying more on graduates trained in colleges from outside Nigeria, thereby further adding to the de-skilling of Nigerian- university trained graduates. As Laura Tyson, former chair of U.S. Presidential Council of Economic Advisers, and Lenny Mendon of McKinsey have noted that a highly trained labor force is a public good that is crucial not only to the prosperity of workers themselves, but also to the productivity of firms and the strength of the entire economy. It requires private-public partnership among governments, employers, trade association and educational institutions in identifying the skills that employers need, provide the structure to train workers and match them with available jobs. With education budget far below the UNESCO targets and while energy and resources have been expended on the proliferation of Federal Universities across 36 States, a more relevant, viable and sustained approach to support regional and industrial clusters would be to upgrade two federal universities per each of the six zones to world class centers of excellence for research, technological advancement, and industrial innovation. These would be the equivalent of Nigerian Ivy League Universities. Universal basic education up to final years of secondary school is essential, with more responsibilities devolved to the states and critical support provided by the federal government, especially in setting and ensuring uniform standards, hiring and empowering teachers.
Our prosperity is generated by and benefits everyone
In conclusion, as the PEA Report has noted: “Prosperity economics has a distinctive goal: shared prosperity. It also has a distinctive prescription: policies and institutions that broadly distribute opportunities for economic success, create the preconditions for productivity among all workers, and provide the broadest possible space for people to shape their own economic lives through voice in the workplace and through democratic politics. Shared prosperity, in other words, is a means as well as an end. As we all share in the production of prosperity, we all share in its rewards. The central idea of prosperity economics is this: our prosperity is generated by everyone.” Shared and inclusive prosperity is about socio-economic development that improves the security and welfare of people as enshrined in Section 14 (2) (b) of the 1999 Constitution of the Federal Republic of Nigeria, which states that ‘the security and welfare of the people shall be the primary purpose of government’, as well as that of business, civil society, and citizens. An effective developmental state combined with a dynamic market economy that works for all, and not a few, is a better route towards an inclusive prosperity.
**Dr. Temitope Oshikoya, an economist and public affairs analyst, writes from Lagos
