Slump in Oil Prices: A Progressive Way Out

Slump in Oil Prices: A Progressive Way Out

Guest columnist Bola Ahmed Tinubu

A wash in the great tide of politics, we must not forget why politics
can be a noble endeavour.  It leads to governance. When done correctly,
governance can reform a nation and improve the lot of the people. In the
hands of the ignorant and the mean, governance cast abundant misfortune
upon a nation and upon the welfare of its citizens.

This commentary concerns governance and policy more than it does
politics. I offer it to generate debate on an important economic issue.
No matter who is in power, we must do whatever is in our capacity to
steer the nation away from economic woe. The people have suffered too
much hardship already. Neither side of the political divide should seek
to purchase transient advantage at the high price of dousing the people
in greater economic calamity. Thus, I suggest this progressive’s
position on how best to shape economic policy during this period of
falling oil prices. I state this hoping those in charge will take
pertinent advice from any quarter. My prayer is that they are not so
stubborn as to adhere to a strategy that will deepen the economic misery
of our people even when better policy measures are proffered.

I confess to writing this also for a reason essentially political but
non-confrontational. It accentuates the distinction between the
conservative Peoples Democratic Party (PDP) and the progressive All
Progressives Congress (APC). The nation faces momentous elections when
next year turns to its second month.  The choice is a stark one; but
many people do not believe as such. The differences are vast especially
regarding economic policy. On the one side, the PDP champions a
conservative, elitist economic model based on the theory that wealth
money must first go to the already rich and well-heeled  who shall
determine how small a fraction of it will trickle down to the rest of
society.

On the progressive side, we believe government can fillip economic
growth and development in such a way that brings the fairness of
prosperity to all of society. We don’t seek to penalise those who
already have but we will do our utmost to remove from the clutch of
poverty the bulk of our people. We seek to turn the hungry suffering of
our poor and working classes into a dignified livelihood that provides a
dignified existence for all.

Global oil prices have fallen from over $100 a barrel to approximately
$80 per barrel. This slide has caused a corresponding drop in
government’s dollar revenues. With this, the federal government claims
it has less money at its disposal and the paucity of dollars
necessitates austerity measures. Most people accept this position as
gospel; debate about its correctness has been nil. Yet, the stakes are
much too high to assume this subjective position as an economic
certitude or uncritically accept its propriety. What they proclaim as
policy is not based on any unassailable economic principle. It is
statement of economic bias that beckons to the wealthy while auguring
unnecessary hardship for most Nigerians.

Look at jobless and poverty levels as well as the diminished status of
our middle class. After viewing these statistics, most objective
economists would conclude Nigeria is mired in a long-term, secular
depression.  Forget the rosy GDP numbers. They signify a great economic
and financial segregation between those who have and others who have
not. If we continue with the policy preferences of the current
administration, the haves shall become the “have–mores” and the
“have-nots” shall become the “have even less.”

The vast majority of the claimed GDP growth has fallen into the laps of
those already enjoying obvious luxury.  The rest of the people are left
to gaze at the enormity of the income and wealth chasm separating them
from the cabal orchestrating the discordant political economy. While a
small group flourishes, the rest of the nation subsidises their economic
bounty. A tight confederacy rides an economic skyrocket while the bulk
of the people languish in the swamp. For one group, the economy is
effervescent. For the other, it is catatonic. Nigeria is one nation with
two economies.  

For this government to speak of austerity is to further enrich the
affluent while casting the average Nigerian into greater hardship and
deeper socio-economic depression. As with the Euro zone the past five
years since the global financial crisis, austerity has not solved the
dire economic weakness of the nations that employed this sickening
remedy. All austerity has done is tighten the grip of the wealthy on the
economy while weakening the position of the middle class and the poor.

Austerity weakens aggregate demand, deflating an economy already
fatigued and against the ropes. Those with hefty portfolios, profit as
the value of their holdings appreciates by the very dynamics of
deflation. Those who don’t have, find money even dearer to come by. 
Jobs and commerce disappear. Debt climbs. Deflation turns a noble but
poor household into a committee of beggars and street urchins. The
austerity that the current administration offers is an insensitive,
myopic policy that lends primacy of favour to meaningless accounting
figures instead of the material wellbeing of the people. Austerity
undermines our economic pillars and breaks the spirit of the people.
Austerity is the merchant of pessimism and hopeless futility. If you
desire a nation of thralls, by all means continue this bleak path. If we
want a nation of prosperity and economic justice, a different course is
our due.

Listen carefully to the position of the Goodluck Jonathan
administration as articulated by the finance minister and you shall
collide into the barricades of illogic and its weighty consequences. The
claim is that government is low on funds because the lower price of oil
means fewer dollars are being collected from oil sales. This sounds
logical but for one fundamental point. The dollar intake is basically
irrelevant to determining the amount of naira the government commands
and places into the political economy. This fundamental point reveals
the government’s position to be the antiquated relic of a past era. It
is the way of the gold standard which ceased to exist over 40 years ago.
As such, government’s stance is based more on superstition than on the
actual functioning of modern economy with a sovereign fiat currency of
its own.

The last I looked, Nigeria operates a naira-based economy not a
dollar-based one. There is no legal or moral restriction strictly
limiting the amount of naira in the system to match the amount of
dollars collected via oil sales. More importantly, there is no economic
justification for the close linkage implied by the government. If we
take its position at face value, the Jonathan administration is
advocating that we effectively place the naira and thus our fiscal
policy on a “dollar standard”. The world jettisoned the gold standard in
1971 because it proved unworkable, reducing the policy space in which
governments could pursue fiscal programmes promoting full employment and
social welfare. We should likewise reject this government’s imposition
of a dollar standard on our nation’s fiscal operations.

Under the gold standard, a national government took pains not to incur
budgetary deficits that exceeded the dimensions of its gold reserves.
This was because the currency had no value by itself. Its value was
based on the convention that the currency was backed by the nation’s
gold holdings. Those governments that ran deficits had to pay those
debts in gold. Given that gold supplies were always and everywhere
finite and exhaustible; a nation had to keep its deficits within the
confines of its ability to pay debts in gold. Because of this
straitjacketing effect, nations would abandon the gold standard during
harsh economic times in order to give them the fiscal freedom to
rejuvenate their economies. This was the case during the Great
Depression with the major economic powers. This should be the case with
Nigeria today since the bulk of our people live in conditions redolent
of the Great Depression or any other depression for that matter.

Our government persists that it must limit fiscal outlays to the amount
of dollars the nation holds. Similar to the operation of the discarded
gold standard, following this path is to strap ourselves to austerity
and the chronic deflation of austerity produces.

Worse, it serves to enthral the fiscal policy of our sovereign nation
to the monetary policy of another country. That nation plies monetary
policy to serve its interests and not the economic interests of Nigeria.
I am baffled why this government would give such power over the fate of
our economic wellbeing to another nation that does not incorporate our
interests into its decisional processes. This government makes our
nation the economic servant of another so that government may turn about
to make the Nigerian people its economic servant. While there is a
certain logic to this dynamic, it is a perverse and debilitating one.

Because we operate a sovereign fiat currency the federal government
issues at its sole discretion, the federal government can never be
rendered insolvent in naira. This means it can run naira fiscal deficits
indefinitely. The only outer bound is to ensure the fiscal expansion
does not incur damaging inflation rates. There is no logical reason to
peg the flow of naira into the economy to the flow of dollars received.
The correct perspective is not to mechanistically restrict naira
expenditure to dollar intake. This would be tantamount to those crippled
with economic blinders forcefully leading those who can see we are
heading for disaster. It points to deflation, recession and worse. The
better methodology is to ascertain, then achieve, the level of naira
expenditure needed to expand the economy and create jobs without causing
inflation to rise to dangerous levels. This is how broadly-shared
prosperity is generated in a sustainable manner.

In this way, the nation’s economic engineers should focus primarily on
allocating value and opportunity to our underutilised labour force and
our idle, yet potentially productive capital in a way that promotes
wealth creation and expansion of aggregate demand. It is this
sustainment of aggregate demand that empowers the nation to rescue
itself from the whirlpool of economic contraction. This avenue is more
benign than the one the federal administration now advocates. Their way
calls for us to forget growth and for government to preoccupy itself
with allocating economic misery among those segments of the population
too poor and weak to contest the immiserating actions of government
against them.

In the face of recessionary headwinds, government should run
countercyclical fiscal policy by using its naira sovereignty to fund
fiscal deficits. The deficit is not simply for the sake of running a
deficit; the funds cannot be spent on non-productive matters.  It must
be used to fuel infrastructural and other projects that not only employ
great numbers of people but enhance the overall productivity of the
economy.  The funds must be used to backstop state governments in a
nonpartisan manner so that each state government may continue to pay
salaries and pursue projects essential to that state’s economic critical
path.

To accomplish this, the federal government needs to reverse the
inimical “dollarization” of the national economy in two ways.  First and
most importantly, it must abandon the out-dated peg of fiscal policy
and expenditures to the dollar intake.  The one actually has no
correspondent nexus to the other. Any commanding connection we give it
is an artifice not an economic necessity. Related to this, we must
reverse a trend that has gained momentum under this government. Among
government-aligned elite, the fad has been to conduct domestic business
transactions in dollars.  Policy must “nairasize” the economy by
requiring all domestic transactions occur in our legal tender. As this
is done, the government’s infinite ability to issue naira will come to
outweigh the limitations inherent in the overuse of the finite supply of
another nation’s currency for transactions wholly internal to our
domestic economy.

Inflation is the major risk of running budget deficits to spur growth.
We can contain inflation to acceptable levels by ensuring additional
government expenditures are for items that can be supplied domestically,
particularly labour. Naira paid to poor and working class people mostly
circulates in the domestic economy, spurring additional local commerce
and production. This is because their consumption patterns do not
approach the level of import expenditures associated with their
wealthier compatriots. Related to this, we must decrease our level of
superfluous imports.

These measures will place downward pressure on the naira. Devaluation
will not be destructive but it will be noticeable. For most nations,
such devaluation would be welcomed as it would make export industries
more competitive, thus creating jobs and export earnings in the process.
However, this will not be the case initially for us because of the
moribund state of our industrial sector.  Here, government would need to
initiate crash programmes aimed at enhancing those domestic industries
perched on the borderline of international competitiveness.

In the end, the policy I propose is not without risks, inflation being
the chief concern. Yet, if wisely prosecuted, the rewards of job
creation and economic growth allocated among the bulk of the populace
outweigh the inflationary risk. More to the point, the policy now
pursued bears no risks at all.  It is certain to toss the average man’s
economy into a stagnation that will resemble the onset of a major
recession. Saving the people from this unnecessary plight is sufficient
imperative to eschew the policies of old and embrace the progressive
course.

I offer this advice, this warning, because the people have suffered
enough hardship. I offer this advice in the slim hope those in power
will ignore the messenger and objectively weigh the quality and humane
nature of the message. If so, they will spare the people the grief
visited upon a vulnerable people when their government blindly imposes
last century’s policies in a modern setting inappropriate to the old
strictures.

Regardless of our partisan affiliations, let us consecrate this land by
dedicating ourselves to the betterment of the poor, weak, and needy
members of our national family. Let this moment not pass like so many
others where we have demanded that the most vulnerable among us bear the
greatest weight of the national burden. Let us give them the hope,
change and dignity they deserve and human decency demands. This is how
we make the nation great. When I speak of a common sense revolution,
this is what I mean.

• Tinubu is a National Leader of the All Progressives Congress (APC)

 • Culled from THISDAY backpage Editorial