NIGERIA: PUBLIC SECTOR SPENDING AND THE MYTH OF ECONOMIC GROWTH.
Stagflation can be described as a period of slow movement in economic development or growth coupled with increase in prices, high unemployment and decline in consumer spending. It is a very cumbersome economic problem for policymakers in respect of how to find sustainable resolution within the purview of available economic strategies.
Ours is even problematic because of the lack in manufacturing architecture which is fundamental if we are going to get ourselves out of this economic quagmire that we have engineered because of failure to diversify our economy coupled with our legendary wastefulness. We have pre-stagflation a mono-culture economic paradigm basically relying on petroleum dollars for our survival suddenly the whirlwind of economic treachery came and has blown to expose the profligate backyard of Nigeria with the downward spiral witnessed concerning the price of Oil worldwide.
This article is not a blame apportioning piece rather it is my attempt to analyse randomly looking for nexus in terms of finding appropriate framework policy wise to our economic problem given the option presented to us of increasing public spending to simulate economic growth.
Let me say it loud and vividly here that I am not an advocate of/for public sector spending as a panacea to achieving long term economic growth rather I subscribe to seeing private sector as the engine room of economic growth and the role of government must be to create an enabling environment/regulatory guidlines for the private sector to participate fully in all sectors of the economy.
No monopolistic preferential treatment whatsoever must be entertained to engender a level playing field for competition that way we will have a robust environment for investment.
It is common knowledge that governments generate income mostly from taxation in a productive economy broadly speaking and that would depend largely on private businesses or consumer spending etc. However, in an environment of policy inconsistency investors and consumers would be circumspect when it comes to making decision about financial commitments.
I am perturbed by the recent public disagreement on policy direction between the monetary/fiscal authorities on the instrumentarium to be used in influencing economic activities in Nigeria given the difficult economic problem confronting us; this open disagreement might seem an action in democracy and independence but it does not engender confidence in the market. Therefore, officialdom need to stop forthwith contradictory pronouncement on the economy because of its psychological implication on confidence.
Please, do not forget that the public sector as it is constituted presently takes a large chunk of government revenue as recurrent expenditure yet we do not see the impact of that spending leading to economic growth rather we are acummulating debt paying salaries and emoluments or perks of office of officialdom and civil servants. We need to sometimes take difficult decisions by cutting down or downsizing workers or reducing the benefits of the three arms of government drastically to free up funds for this ''short term'' stimulus spending since that is the orthodoxy we have accepted going forward.
Increase public sector spending short term to narrow infrastructure deficit is not a bad idea but is it sustainable in the resolution of economic recession long term?
Historically this option has not worked in Greece, Spain and Portugal rather it exacerbated those nations debt burden and currency depreciation orchestrated by stagflation with inherent economic profligacy. Most countries in our situation would call in private investors economic innovation and spending to generate economic growth by reducing taxation which shall create incentives for manufacturing or mass production by adding value to indigenous raw materials, economic diversification rather than import dependency.
I would prefer a situation where the private sector investment plays a major role along this trajectory rather than government spending money we do not have which would eventually lead us to what I am given the phrase Fallacy of Growth.
According to TAJUDEEN EGBETUNDE in his essay in the Fountain Journal of Management and Social Sciences he noted that efficient utilization of debt stock tends to decline beyond a level and further acquisition of debt leads to a decline in productivity.
This is exactly one of the reasons why I am worried about the level of public debt in Nigeria given our resolve to adopt keynesian orthodoxy of spending ourselves out of recession, can the economy withstand the level of debt servicing requirements this will generate put differently where is our ability to pay back given the high interest rates on domestic borrowing not to mention the structural adjustments that might be imposed if and whenever we consider external borrowing.
Jobs are being created daily in the informal private sector of our economy that are well beyond what the government can imagine this is another level of private individualistic initiative that can generate economic growth and funds for government if these groups of businesses are formalized and given support. We do know that small businesses are the engine room of the economies of Nations like Australia, China, Japan because of their contribution to GDP.
Note that Japan has been in recession now for over a decade but the SMEs have kept the country going.
I do not see public sector spending in Nigeria that can rival SMEs contribution to our economy. My advice to the government is to look into any mechanism that can be put in place to encourage this sub-sector to grow exponentially again within formalization.
I have accepted the fact that we have decided to spend ourselves out of recession (Keynesianism) but I have my reservations. Let us wait and observe the multiplier effects of public sector investment in infrastructure on economic growth in an economy deficient in manufacturing and dependent on primary product whose commodity price is also contingent on externalities or factors beyond our control. The jury is still out on this policy.
OTUNBA ADE ILEMOBADE is a philosopher
Twitter: @pearl2prince
Ours is even problematic because of the lack in manufacturing architecture which is fundamental if we are going to get ourselves out of this economic quagmire that we have engineered because of failure to diversify our economy coupled with our legendary wastefulness. We have pre-stagflation a mono-culture economic paradigm basically relying on petroleum dollars for our survival suddenly the whirlwind of economic treachery came and has blown to expose the profligate backyard of Nigeria with the downward spiral witnessed concerning the price of Oil worldwide.
This article is not a blame apportioning piece rather it is my attempt to analyse randomly looking for nexus in terms of finding appropriate framework policy wise to our economic problem given the option presented to us of increasing public spending to simulate economic growth.
Let me say it loud and vividly here that I am not an advocate of/for public sector spending as a panacea to achieving long term economic growth rather I subscribe to seeing private sector as the engine room of economic growth and the role of government must be to create an enabling environment/regulatory guidlines for the private sector to participate fully in all sectors of the economy.
No monopolistic preferential treatment whatsoever must be entertained to engender a level playing field for competition that way we will have a robust environment for investment.
It is common knowledge that governments generate income mostly from taxation in a productive economy broadly speaking and that would depend largely on private businesses or consumer spending etc. However, in an environment of policy inconsistency investors and consumers would be circumspect when it comes to making decision about financial commitments.
I am perturbed by the recent public disagreement on policy direction between the monetary/fiscal authorities on the instrumentarium to be used in influencing economic activities in Nigeria given the difficult economic problem confronting us; this open disagreement might seem an action in democracy and independence but it does not engender confidence in the market. Therefore, officialdom need to stop forthwith contradictory pronouncement on the economy because of its psychological implication on confidence.
Please, do not forget that the public sector as it is constituted presently takes a large chunk of government revenue as recurrent expenditure yet we do not see the impact of that spending leading to economic growth rather we are acummulating debt paying salaries and emoluments or perks of office of officialdom and civil servants. We need to sometimes take difficult decisions by cutting down or downsizing workers or reducing the benefits of the three arms of government drastically to free up funds for this ''short term'' stimulus spending since that is the orthodoxy we have accepted going forward.
Increase public sector spending short term to narrow infrastructure deficit is not a bad idea but is it sustainable in the resolution of economic recession long term?
Historically this option has not worked in Greece, Spain and Portugal rather it exacerbated those nations debt burden and currency depreciation orchestrated by stagflation with inherent economic profligacy. Most countries in our situation would call in private investors economic innovation and spending to generate economic growth by reducing taxation which shall create incentives for manufacturing or mass production by adding value to indigenous raw materials, economic diversification rather than import dependency.
I would prefer a situation where the private sector investment plays a major role along this trajectory rather than government spending money we do not have which would eventually lead us to what I am given the phrase Fallacy of Growth.
According to TAJUDEEN EGBETUNDE in his essay in the Fountain Journal of Management and Social Sciences he noted that efficient utilization of debt stock tends to decline beyond a level and further acquisition of debt leads to a decline in productivity.
This is exactly one of the reasons why I am worried about the level of public debt in Nigeria given our resolve to adopt keynesian orthodoxy of spending ourselves out of recession, can the economy withstand the level of debt servicing requirements this will generate put differently where is our ability to pay back given the high interest rates on domestic borrowing not to mention the structural adjustments that might be imposed if and whenever we consider external borrowing.
Jobs are being created daily in the informal private sector of our economy that are well beyond what the government can imagine this is another level of private individualistic initiative that can generate economic growth and funds for government if these groups of businesses are formalized and given support. We do know that small businesses are the engine room of the economies of Nations like Australia, China, Japan because of their contribution to GDP.
Note that Japan has been in recession now for over a decade but the SMEs have kept the country going.
I do not see public sector spending in Nigeria that can rival SMEs contribution to our economy. My advice to the government is to look into any mechanism that can be put in place to encourage this sub-sector to grow exponentially again within formalization.
I have accepted the fact that we have decided to spend ourselves out of recession (Keynesianism) but I have my reservations. Let us wait and observe the multiplier effects of public sector investment in infrastructure on economic growth in an economy deficient in manufacturing and dependent on primary product whose commodity price is also contingent on externalities or factors beyond our control. The jury is still out on this policy.
OTUNBA ADE ILEMOBADE is a philosopher
Twitter: @pearl2prince
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