Joy of The Craft

Like many other software engineers, I spend most of my time on tasks that fall under the broad category of “work”. In 2018, my full-time position barely amounted to half of that time. I spent the…

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A Tale of Two Nations

A CASE FOR THE STUDY OF ECONOMICS

The USA and Nigeria have a lot in common, and the disparity in their economic outcomes is not sufficient to invalidate this assertion. To a large extent, they are both conflations of diverse ethnicities. They both play home to people with a considerable level of ingenuity — although they differ in innovation. They are both democratic systems that employ the free-market economic model. And while we can agree that the US has a mature democracy when compared to the nascent form of governance in Nigeria, we must be careful not to attribute their socio-economic outcomes solely to their style of governance.

For both nations, it will be helpful to investigate the central tenor that undergirds how their people handle resources. This is necessary because we know that the central tendency in any society is merely a reflection of the average of the behaviours of the individuals that constitute it. In other words, we describe a society as a capitalist type if the largest portion of its population practise their trades in direct consonance with capitalist principles. And we do the same for a socialist society, too.

That said, we shall juxtapose the mechanism — at the level of the individual — by which resources are allocated in the two countries. Hopefully, by reviewing how their respective citizens allocate private resources, we can get a sense of what drives the state economies. And if we succeed, chances are that we might be able to learn a thing or two to make practical recommendations for the weaker economy to adopt.

As we know, the four scarcest resources accounting for the socio-economic advancement of individuals or nations are time, energy, food, and money. And the efficient utilization of these categories of resources will form our basis for comparison. Note that we said the efficient utilization and not the abundant accumulation of unprocessed resources. For if it were a case of an abundance of resources, countries like Switzerland and Japan cannot dare to hold a candle to any of the OPEC nations.

So what then is the underlying mechanism for resource allocation in the two countries i.e. Nigeria and the USA? Well, on average, we, Nigerians, do not allocate resources optimally: be it food, energy, money, or time. We show a general lack of understanding of economics as the rationale for efficient resource allocation.

This observation may seem unsavoury for readers in certain quarters, but we shall walk through a few instances to expatiate on this claim.

FOOD

When in season, farm produce in Nigeria are undervalued and sold for a paltry sum. This happens because the farmers and the middlemen lack the right technology for year-long preservation. The absence of such technology means imminent glut, thus, causing producers to hastily dispose of their agricultural produce to available buyers, who, on their part, momentarily enjoy ‘good’ deals only to pay twice over when the harvested crops go out of season.

Just about every Nigerian is accustomed to this cycle of seasonal scarcity of agricultural produce. Sadly, this under-compensation experienced by the farmers is not as alarming as the colossal waste that happens when farm produce are in season. In Benue State, for instance, people get so inundated by mangoes during the rainy seasons that they make no effort to conserve. This is the same attitude displayed for yams and oranges when in season, and it ties well with the claim that an estimated 60% of the annual food produced in Nigeria go to waste.

In direct contrast to the Nigerian experience, the average American does not know the concept of seasonal farm produce. Prices are relatively stable all year round. This is made possible partly by their farmers' conscious investment in food preservation technologies. And partly, by their government’s food security policies. Even more ironic, is the outsized quantities of agricultural produce US farmers churn out in comparison to Nigeria: Americans produce far more to guarantee a steady surplus while still having a much higher commitment to food preservation than we do.

ENERGY

The prevalent and alarming waste of electrical energy in Nigeria is self-evident and does not require special investigation to show. Such waste is partly a fault of the government, and partly that of a vastly poor majority of residents — the impulse to waste is somewhat connected to poor economic stability at the individual level.

On its part, the Nigerian leadership bears responsibility for interfering with the free market pricing of electricity. Such interferences, although well-intentioned, often results in counter-productive outcomes. To understand this better, let us review how the free market works.

Price, in the free market, has a roughly established trajectory and it goes thus: when price is used to allocate any resource, the cost goes down over time due to the learning-curve effect. And also because sellers, bound to enter markets where no inhibition exist, and where profit abides, crash the short- and long-run profit to zero.

For instance, in Lagos, Nigeria, between 1999 and 2010, a private payphone calling centre was a business with little entry barrier. There were a plethora of GSM payphone outlets with their characteristic yellow-coloured umbrella which became part of the basic landmark for giving directions to strangers. These payphone call-points soon become parts of the roadsides, they got obscured in the background. If you had lived within these areas at these times, you can be sure to overhear by-standers giving geographical directions with the following details:

“…when you get to the bus stop, you will see a GSM lady at the beginning of the street…”

Such was the then reality to demonstrate how proliferated the business was. Nowadays, these common sights are no more because the learning-curve effect made the technology for phone-making cheaper. Also, market competition dragged down the long-run profit and put all the smaller players out of business. Thankfully, this dislocation of smaller players has a salutary effect on society as a whole: the transactional cost reduces with technological maturity. This is to be expected for free market commodities or goods.

The above illustration may not apply to all scenarios. It, however, applies to commodities that are subject to free-market forces of which electricity in Nigeria, is not. The price of electricity has always risen despite the unreliability of the service. Why is this the case? It is primarily because of price control by the government of the day. The control of electricity prices is a practice that run across all successive governments since Nigeria’s independence. An action that has been quite consequential for everyone, even the utilities.

Admittedly, the above argument is simplistic: the energy challenge in sub-Saharan Africa is multifactorial and can’t be blamed solely on government interference with the free market. There are other causes. For example, the energy industry has a major entry barrier by way of huge initial investment costs. This cost makes a pseudo-monopolist of every player who makes it through the barrier; and drags with it the usual shortcomings of all monopoly: consumer welfare losses. Nevertheless, the interference by the government, whenever it goes beyond mere regulation, is the most potent factor responsible for energy wastage.

How far-reaching is the consequence of market interference? World Bank data has reported the cost of self-generated electricity to be between N88 to N130 per kWh. This cost far outstrips the ill-advisedly subsidized N30/kWh of grid supply currently obtainable. Put differently, the average Nigerian, in generating their own electricity, pays three times more to generate 1kWh privately. This reveals, particularly from the growing number of private generators, that the citizens are willing to pay more for a service that is reliable but, unfortunately, are denied all opportunities to be judicious with their resources. Such a denial stems from energy subsidies that relegate free-market price as the optimal means of resource allocation.

Even worse, is the realization that this misnomer is bound to continue considering that a basic knowledge of economics is not amongst the requirement for political leadership selection.

Now to the other contributors to energy wastage: the consumers. A good number of Nigerian consumers exhibit contradictory tendencies with respect to electric power. In one moment, they display a high sense of responsibility by how efficient they use energy from self-generating sources — hardly is the case that anyone powers on their generating set with no specific need in mind for power. In another moment, when the subsidized grid supply is available, they devolve into wasteful economic agents who switch on lighting points even when natural light is in abundance, and would rather install inefficient incandescent light bulbs over energy-saving LED variants.

This selective pattern of energy usage should not come as a surprise to us. It is to be expected as the pattern of behaviour appropriate for any such instance where the cost of consumption is borne by an entity separate from the actual consumer. The Nigerian government, due to political expediencies, is subsidizing energy for the citizenry. This action is counteracting and creating consumers who are disincentivised to be efficient.

Price remains the most efficient means of allocating resources. And societies where consumers pay the price for the value they seek, are the ones well set up for efficient behaviours. America is one such society.

In America, the price of electricity is determined by the market. And such a set-up present everyone (producers and consumers) with the motivation to be efficient. For instance, the utilities have got so innovative, they went beyond prepaid metering mechanism (against the predominant postpaid regime in Nigeria) to adopting time-of-use tariff: a tariff system that incentivizes consumers by offering to charge a much lower rate if consumers shift their energy usage to off-peak periods like midnight hours. Here, everyone wins. Utilities get to extend the life of their infrastructures while consumers get to spend less on electricity.

TIME

Time is the most unique of all resources — it is perfectly irreplaceable and grants no one any head start in life. It serves as a leveller that gifts everyone an equal chance to change their future by how well they transact with their present, regardless of their past. I reckon time, as a resource, to be truly unrivalled in importance, so that in fairness to all humans, God gives us an equal amount (24hours)to transact with, daily. The same cannot be said for energy or food or money which all have variability in their distribution either as a consequence of geography, genetics, inheritance, or technology.

In Nigeria, no other proclivity to waste resources is more pervasive than that of time-wasting. And I believe this is at the root of all wasteful tendencies of the average Nigerian. If we can squander, what in my estimation, is the most important and irreplaceable resource with such recklessness, what then is energy or food?

To make sense of this propensity to waste time, it is plausible to posit that our climatic condition is partly responsible for this behaviour. We have such a benign climate, it does not necessitate any sense of urgency. Compare it to the malignant climatic conditions of the West, and we can begin to have an idea. The American climate has made energy availability so crucial, some people who lack heat energy sources have been reported to die from cold during winter seasons.

This treacherous climate of the West plays a role in regulating the conduct of Americans. It strictly narrows their options to right and wrong responses with nothing in between. For example, in keeping up with appointments, buses, or train schedules, the average American has learnt to be prompt and punctual or risk coming under the biting weather. This kind of experience is alien to the average Nigerian because we have a broad spectrum of options when it comes to appointments such that even official meetings are delayed to accommodate our late coming.

Another key contributor to the habit of time-wasting in Nigeria is the payment of salary over wages. People who earn wages are paid strictly for the value they create within the hours they worked which may be hourly, daily, or weekly; while those on salary are paid monthly based on the nature of the contract and not necessarily on the number of hours —there are days when salary earners are unproductive to their employees but still get paid.

On the basis of how average labour is compensated, the realities seem to suggest that wage earners are more accountable with their time than salary earners. We can stop to think about why this is likely to be true. When people are paid by the hour, there is a complimentary reminder that time is valuable. So, after an 8-hour job, the average American is presented with the option of either taking on another task for the remaining hours of the day to increase their earnings or frittering away these “free” hours by loafing around. The former has been the preferred option as evidenced by more and more people working two to three jobs per day.

This is hardly the case in Nigeria where the average worker is paid after 30 days. This approach is deceptive, because, although devoid of any malice on the part of the employer, it tricks the employee to overvalue the lump sum paid to them as salary. You bet the reaction will be different once employees are trained to deduce their daily rates by dividing their month-end salary by 30. Even for employers, there is much to be said about how much value their salary-earning employees create per unit time.

An additional effect of not using billable hours to remunerate a vast majority of Nigerian workers is that the remaining hours of the day, after the routine nine-to-five cycle, can rapidly go unaccounted for as commuting time. This general lack of appreciation of the value of time explains the non-seriousness of most state governments to eradicate bad and poor road networks as the main cause of loss of man-hours due to traffic congestions.

Aside from the many failings of leadership in Nigeria, we can see from the above arguments that there exists beneath the obvious, a fundamental issue that explains why a transformative economic change is at best out of immediate reach, and at worst a pipe dream.

The plot above is derived from data acquired from gapminder.com. The time series plot was made using ggplot2 packages in R. The plot gives a quick summary of this write-up.

Looking at the figure, if we choose to ignore America which has shown such exponential growth in income per person over time on the pretext that we have to compare apples to apples, the noticeable uptick displayed by Ghana and Rwanda in the last decade, cannot be ignored. Interestingly, Rwanda was almost wiped out from the face of the earth in the 90s as indicated by the plot during the genocidal era, yet they have chosen to rise with practicable economic policies that are gradually becoming self-evident.

In conclusion, it is obvious from the foregoing that there is a general lack of knowledge of practical economics within the Nigerian populace. Therefore, as a starting measure, there is a need for advocacy groups to push for the teaching of economics as a compulsory subject in all secondary schools in Nigeria.

In my days as a younger student, I was required to choose Additional Mathematics over Economics if I were to proceed to the university as a STEM major. That was a poorly thought-out proposition. Like mathematics and English Language, Economics should be made compulsory for every student since scarcity and optimal decision making does not exclude anyone.

If a resource has only one usage, then no one should care about economics. If however, resources have alternative uses, as they do, we want to be sure that our choice of what to deploy the resources into is the one that returns an optimal value.

In the same vein, if there is no scarcity, then we should not bother about economics? But being faced with scarcity as an existential constant, making decisions based on cost-benefit analysis is the sure way to go, and the tools of economics confer that power on us to make optimal decisions.

To further extend this argument, it can be inferred that the current proliferation of MBAs amongst Nigerian schools suggests the existence of a skill gap in practical economics in the middle-class landscape of the labour market. This is becoming more obvious as more people embrace free enterprise and entrepreneurship.

I recently concluded a program in economics, and it is within this lens that I can understand the growing fascination we have for the likes of Ngozi Okonjo-Iweala, Charles Soludo, Wumi Iledare, and Sanusi Lamido.

If you enjoyed this piece and want an investigation of other concepts from their first principle, please click any of the below links.

Thanks for stopping by!

Joy of The Craft

A Tale of Two Nations

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