By Tunde Obadina
Nigeria’s newly elected government will probably come under pressure from trade unions to hike the national minimum wage. Labour leaders have of late complained that the current wage floor of N18,000 (US$92) per month is not enough to support a decent standard of living. This rate, equivalent of US$3 a day, is certainly poverty pay for workers in both single and two working parent families. Nonetheless, the government should resist any demand to raise the minimum wage.
This advice will appear callous to those who believe that minimum wage protects low-paid workers and boost their purchasing power. It is a morally appealing contention while the case against it is counterintuitive. Pay regulation seems moral only when viewed from the perspective of the workers who benefit from it. Clearly, someone earning US$2 a day in a free labour market is made better off by his employer being compelled to pay US$3 a day. But the unemployed are not made better off. Bearing in mind that Nigeria’s minimum wage law applies only to establishments that employ 50 or more persons, those toiling for less than US$3 a day in small firms also do not benefit from the law. Official minimum pay does not provide social protection for the most vulnerable workers in society, as claimed by its supporters, because the most vulnerable and lowest paid workers exist outside the system. It is a minority of relatively better-off employees who are privileged by the law.
The legislation is part of a number of state interventions that divide the economy into two segments – the formal and informal sectors. The former is comprised of individuals and companies that benefit substantially from government protection and subsidies, while the masses in the informal sector receive little or no state support. It is people in the formal sector that primarily gain from government welfare expenditures, including subsidies on fuel, electricity, housing and other public services. This is also the sector where governments shower businesses with concessions in acts of cronyism disguised as promotion of economic development. It is here that labour regulations apply.
The informal sector, often dubbed as unregulated markets, is where the majority of the population struggle to survive. Less than 20% of Nigeria’s roughly 60 million workforce are in the formal sector and fewer than seven million are part of the official compulsory pension scheme. The formal sector is small throughout Africa. According to the IMF out of sub-Saharan Africa’s around 450 million workforce, fewer than 40 million are on formal payrolls.
The law protects the lowest paid workers in the formal sector by shutting out informal workers from the segmented labour market. Without the legal barrier very low earning workers would compete in open job market and accept a level of pay though below the desired minimum wage is higher than their current income. Critics of capitalism denounce such competition an immoral race to the bottom.
But such moralising is credible only from the standpoint of workers on the right side of the wage barrier. For those at the very bottom rung of the income ladder it is not a race to the bottom. Indeed, for millions who now work for little or nothing, the opportunity to work for minimally higher pay in medium and large sized companies is a forward step. According to a 2010 household survey by the Nigerian Bureau of Statistics out of 54.6 million Nigerians classified as informal sector workers, 9.4 million were unpaid and 4.9 million were apprentices. This suggests that up to almost 15 million adults worked for virtually no financial compensation.
Where is the justice in a legal system that traps millions in small informal jobs or on farms, with little prospect of escape from poverty? Every man and woman should be free to choose to sell his or her labour to corporations at a price acceptable to the worker. Larger companies offer prospects for career advancement often unavailable in small enterprises.
Like it or not, labour is a commodity with a price that is subject to market forces – that is, in the absence of government price-fixing. Decent jobs are everywhere in acute short supply. The formal sector in Nigeria as elsewhere in Africa is not creating many new jobs. In this situation the many competing for the few employment opportunities do so by making themselves attractive to employers. This may seem cruel but it is the nature of trade. Governments are able to secure a minimum wage for some workers only by excluding others from the protected job market. Drawing an arbitrary compensation line does not increase the numbers of quality jobs available, it simply ring fences those able to access premium jobs.
Advocates of minimum wage should consider that had such legislation been in force in the United States after the abolition of slavery far fewer black people would have gained paid employment. Former slaves who gained employment in white own factories did so largely by under cutting white workers, whose unions fought hard to keep blacks out of mainstream job markets. Had employers been compelled to pay a minimum wage they would have employed only whites, not only because of their own racism but also to avoid conflict with white employees who resented working with black people. It was market forces that opened the doors to job markets for black people.
It is the same market forces that today can transform the job market from one that traps a large section of the working population in informal jobs that pay extreme poverty wages or none at all.
Welfarists will contend that minimum wage law protects workers from exploitative, high profit-making corporations. But economic transactions in a market economy take place between two consenting parties. Any undue interference by a third party violates the freedom of both transacting parties. The wage law does not only stipulate the lowest compensation an employer may offer labour, it also determines the minimum that a worker can accept to hire his or her service. By so doing it effectively tells those unable to command the minimum wage that they are better off languishing in extreme poverty than hiring their labour for an amount that may improve their present condition but is below the state prescribed rate. This is not a decision that the state or well-fed welfarists have the moral right to make. Many supporters of minimum wage are so fixated by a moral imperative to deny wealthy employers that they are blind to the consequential and immoral entrapment of people at the very bottom of the income ladder.
Tuesday 12 May 2015
Thursday 7 May 2015
The roots of anti-immigrant violence
By Tunde Obadina
The recent outbreak of mob violence against foreigners in South Africa illustrates the point that racism is not peculiar to any one race or historical period. Xenophobic attacks that claimed lives in Durban and Johannesburg targeted black people from other African countries as well as other non-white immigrants.
Anti-immigrant sentiment is not limited to treatment of foreign nationals by local people. It also relates to the uneasy relationship between host communities and migrants from other parts of the same country. In recent decades thousands of people have been killed in different parts of Nigeria in bloody clashes between so-called indigenes and settlers, often stemming from xenophobia similar to what occurred in South Africa.The display of xenophobia has been especially disturbing because it made victims of citizens of African countries that actively supported the struggle to end apartheid and white minority rule in South Africa. The violence was seen by many on the continent as a stab in the back perpetrated by black South Africans who having gained power behaved with the same bigotry as did their former oppressors. But there is more to it than ingratitude. Anti-foreigner sentiments and violence has been present in virtually every country in the world. It was not that long ago when Nigerian leaders expelled Ghanaians after blaming them for their country’s economic woes.
One of the underlying causes of anti-immigration hysteria is nationalism. This is when individuals identify with a particular group, based on geo-political origin or ethnicity or race, and believe the interests of this community are of primary importance. Nationalism often stem from the belief that those who share a common race, language, history and culture have an affinity which not only makes them different from the others but also ascribes them certain exclusive rights.
Nationalist rights often relate to property. People who identify with a particular nation or race invariably believe that their membership of that group affords preferential rights or access to things that belong to that community.
This is why rioters in South African accused outsiders of stealing jobs and business opportunities that rightly belong to the South African community. Protesters blamed their poverty or inability to prosper in their homeland on foreigners who occupy jobs, use resources and exercise opportunities that “belong” to them.
This nationalist perspective is not unique to South African. Ethnic nationalists in Nigeria’s oil-producing Niger Delta contend that the mineral resources in their region belong to local people. They demand that local inhabitants must have job preference in the oil industry on the basis that such work opportunities rightly belong to them.
This world view of entitlement raises the question, what, if anything, are the property rights that come with being a member of an ethnic or racial group? Do locals in Johannesburg, Lagos or London have intrinsic claims to products or services or other intangibles in preference to outsiders? In a society based on private property rights the answer is no. There is no birthright to jobs, housing, healthcare, transport and other goods or services that are produced by individuals or companies. Individuals possess ownership rights only to those things that they have created, purchased or been given by their owner. So it is absurd to cry that outsiders have stolen jobs or grabbed other economic opportunities because these benefits stem from private property. Even public property, such as roads and government buildings, are the property of the state.
Being a part of a community does not confer entitlement to things we have not created. If it means anything it is being given an entitlement to contribute to and to build for a common good.
The culture of entitlement that fuels anti-migrant views has been encouraged by government policies that discriminate in favour of indigenous groups. For example, affirmative action schemes that reserve jobs and benefits for local people encourage the belief among the beneficiaries that they have preferential rights to scarce resources. The Black Empowerment programme in South Africa that provided a launching pad for creating a black African wealthy elite encouraged ordinary black South Africans to think that they too, as surviving victims of apartheid, are entitled to the fruits of liberation.
What was not understood is that freedom from racial or colonial subjugation did not entail transfers of entitlement to private resources. The struggle against slavery, racism and colonial rule were not about individuals assuming control of resources that were never theirs. It was about them having the right to choose how they use what does belong to them, including their body and mind, without coercion from the state. It was a struggle to enable every individual in society to have the right to choose how and where to live; how and where to work; who to marry or not marry; etc.
Put another way, racism was the violation of the private rights of individuals based on their racial, ethnic or national origin. The oppressors used force or the threat of force to exclude members of a castigated group from participating in certain markets. Under slavery, slaves were denied self-ownership, which is the most fundamental human right, and were barred from virtually all markets. Under apartheid, the law curtailed the rights of non-whites in terms of where they could live, work, eat, school, etc. The system was not terrible because it denied black Africans entitlements to unearned benefits. It was obnoxious because it systematically constrained black people from using resources they owned, including their labour, to the best of their ability.
When considering the underlying cause of institutional racism there is a tendency to focus on prejudice and other emotions that engender dislike of people of different origin. There is more to it. Racism and nationalism are also forms of protectionism. By excluding subjected people from participating in certain markets, discrimination protects members of the favoured community from competition. For example slavery, colonialism, apartheid and Jim Crow segregation in America protected white workers from the entry of black workers into job markets that were the preserve of whites. Hatred that many white workers felt for black people stemmed partly from fear of losing their privileged status and livelihoods, especially considering that oppressed black workers were likely to accept lower wages for jobs occupied by whites.
Unfortunately, black South Africans who attack migrants behave in a similar manner to white racists who used force to keep black people out of markets they wanted exclusive rights to.
The recent outbreak of mob violence against foreigners in South Africa illustrates the point that racism is not peculiar to any one race or historical period. Xenophobic attacks that claimed lives in Durban and Johannesburg targeted black people from other African countries as well as other non-white immigrants.
Anti-immigrant sentiment is not limited to treatment of foreign nationals by local people. It also relates to the uneasy relationship between host communities and migrants from other parts of the same country. In recent decades thousands of people have been killed in different parts of Nigeria in bloody clashes between so-called indigenes and settlers, often stemming from xenophobia similar to what occurred in South Africa.The display of xenophobia has been especially disturbing because it made victims of citizens of African countries that actively supported the struggle to end apartheid and white minority rule in South Africa. The violence was seen by many on the continent as a stab in the back perpetrated by black South Africans who having gained power behaved with the same bigotry as did their former oppressors. But there is more to it than ingratitude. Anti-foreigner sentiments and violence has been present in virtually every country in the world. It was not that long ago when Nigerian leaders expelled Ghanaians after blaming them for their country’s economic woes.
One of the underlying causes of anti-immigration hysteria is nationalism. This is when individuals identify with a particular group, based on geo-political origin or ethnicity or race, and believe the interests of this community are of primary importance. Nationalism often stem from the belief that those who share a common race, language, history and culture have an affinity which not only makes them different from the others but also ascribes them certain exclusive rights.
Nationalist rights often relate to property. People who identify with a particular nation or race invariably believe that their membership of that group affords preferential rights or access to things that belong to that community.
This is why rioters in South African accused outsiders of stealing jobs and business opportunities that rightly belong to the South African community. Protesters blamed their poverty or inability to prosper in their homeland on foreigners who occupy jobs, use resources and exercise opportunities that “belong” to them.
This nationalist perspective is not unique to South African. Ethnic nationalists in Nigeria’s oil-producing Niger Delta contend that the mineral resources in their region belong to local people. They demand that local inhabitants must have job preference in the oil industry on the basis that such work opportunities rightly belong to them.
This world view of entitlement raises the question, what, if anything, are the property rights that come with being a member of an ethnic or racial group? Do locals in Johannesburg, Lagos or London have intrinsic claims to products or services or other intangibles in preference to outsiders? In a society based on private property rights the answer is no. There is no birthright to jobs, housing, healthcare, transport and other goods or services that are produced by individuals or companies. Individuals possess ownership rights only to those things that they have created, purchased or been given by their owner. So it is absurd to cry that outsiders have stolen jobs or grabbed other economic opportunities because these benefits stem from private property. Even public property, such as roads and government buildings, are the property of the state.
Being a part of a community does not confer entitlement to things we have not created. If it means anything it is being given an entitlement to contribute to and to build for a common good.
The culture of entitlement that fuels anti-migrant views has been encouraged by government policies that discriminate in favour of indigenous groups. For example, affirmative action schemes that reserve jobs and benefits for local people encourage the belief among the beneficiaries that they have preferential rights to scarce resources. The Black Empowerment programme in South Africa that provided a launching pad for creating a black African wealthy elite encouraged ordinary black South Africans to think that they too, as surviving victims of apartheid, are entitled to the fruits of liberation.
What was not understood is that freedom from racial or colonial subjugation did not entail transfers of entitlement to private resources. The struggle against slavery, racism and colonial rule were not about individuals assuming control of resources that were never theirs. It was about them having the right to choose how they use what does belong to them, including their body and mind, without coercion from the state. It was a struggle to enable every individual in society to have the right to choose how and where to live; how and where to work; who to marry or not marry; etc.
Put another way, racism was the violation of the private rights of individuals based on their racial, ethnic or national origin. The oppressors used force or the threat of force to exclude members of a castigated group from participating in certain markets. Under slavery, slaves were denied self-ownership, which is the most fundamental human right, and were barred from virtually all markets. Under apartheid, the law curtailed the rights of non-whites in terms of where they could live, work, eat, school, etc. The system was not terrible because it denied black Africans entitlements to unearned benefits. It was obnoxious because it systematically constrained black people from using resources they owned, including their labour, to the best of their ability.
When considering the underlying cause of institutional racism there is a tendency to focus on prejudice and other emotions that engender dislike of people of different origin. There is more to it. Racism and nationalism are also forms of protectionism. By excluding subjected people from participating in certain markets, discrimination protects members of the favoured community from competition. For example slavery, colonialism, apartheid and Jim Crow segregation in America protected white workers from the entry of black workers into job markets that were the preserve of whites. Hatred that many white workers felt for black people stemmed partly from fear of losing their privileged status and livelihoods, especially considering that oppressed black workers were likely to accept lower wages for jobs occupied by whites.
Unfortunately, black South Africans who attack migrants behave in a similar manner to white racists who used force to keep black people out of markets they wanted exclusive rights to.
Tuesday 5 May 2015
The poverty of anti-capitalism
By Tunde Obadina
It is an irony that progressives who claim to advocate for poor people in developing economies often prescribe an ideology that is detrimental to the interests of those they supposedly support. They rant about the evils of capitalism and urge poor-nation governments to restrict foreign capital and curb the activities of multinationals. They contend that the pursuit of profit, especially by foreigners, invariably results in cruel exploitation of the weak, as happened during the eras of slave trade and colonial rule that preceded modern-day globalisation.
This view of capitalism as a cause of poverty is nonsense. The reality is that over the past 250 years, trade and the pursuit of profit have lifted billions of people out of extreme poverty. To understand why we need to first be clear on what poverty entails. Wikipedia defines it as “the state of one who lacks a certain amount of material possessions or money.” This description is fine as far as it goes. But there is more to deprivation than being broke. A person from a wealthy family who for religious and other ideological reasons chooses to live with minimum possession of material goods is not poor, at least not in the sense the term is commonly used in relation to people in underdeveloped countries.
A more appropriate definition is provided by the United Nations which described poverty as “the inability of getting choices and opportunities…and … lack of basic capacity to participate effectively in society”. Individuals are poor because they lack options to access or create wealth. A peasant living off a tiny plot of land that cannot yield more than subsistence revenue is poor if he has no other source of livelihood. It is the lack of means to acquire higher income that traps people in poverty.
From the standpoint of the poor farmer the capitalist who offers to buy his land or to hire his labour for payments greater than his current income is a bringer of opportunity. In offering employment the capitalist has placed value on the farmer’s labour which previously did not exist. He presents him with choice.
Painting employers simply as exploiters is sheer absurdity. Each party to an employment transaction has a choice – they can say yes or no. The fact that in developing countries large numbers of people queue for low paying jobs reflect the dearth of choice and opportunity available in these places where millions toil for very little compensation. For a person earning $1 a day the prospect of getting $2 a day for the same amount of work is an improvement.
Capitalism is an economic system in which the factors of production are wholly or largely privately owned and operated for gain. It is a system of production through investment and the operation of markets. Owners of assets engage in free exchange, with outcomes of mutual benefit. As crude as it may sound to some, human labour is an economic asset which combined with capital creates goods and services. When person A is employed by person B to perform an economic task, what transpires is that A exchanges the hire of his labour for monetary compensation from B. He does this to gain the difference between any costs incurred in delivering his service and the remuneration paid him. In other words, he profits from hiring his labour – if he didn’t, he would not voluntarily make the exchange. By the same token the employer hires labour to gain the difference between the wage he pays and the market value of the item produced by the labour.
In negotiating the price at which a transaction is executed both parties seek to advance their own interest. In the end they may reach a price acceptable to both. If not, the exchange does not happen and they go their separate ways. It is important to bear in mind that there is no intrinsic value to the labour of any person. Their economic worth is determined by how much others value the products of their labour. Workers are paid according to the worth of their input into the productive process. A skilled footballer in Nigeria may earn only hundreds of dollars per match, while with equal amount of ability the same player may fetch thousands of dollars in the UK premier league.
Economic underdevelopment reflects the fact that economies at early stages of development have fewer markets and labour prices tend to be lower than exist in advanced economies. But this has not been a static situation. Markets have evolved and deepened in Africa, compared with conditions prior to the emergence of capitalism. Two hundred years ago a subsistence farmer was utterly trapped in his economic condition. He had no prospect of selling his land or hiring out labour. Today, millions of Africans make their living from a wide range of occupations that were inconceivable a century ago. Markets have evolved in so many different spheres of human activity that in the proportion of people involved basic cultivation of food is fast declining.
Sustainable jobs are created through market operations. Or more specifically, they arise through production of marketable goods and services. The employment revolution in East Asia arose from individuals and companies combining capital and labour to produce goods sold for profit, mainly in the wealthy western markets. It was pursuit of profit through production that gave rise the so-called Asian economic miracle. Without production, the more varied and higher paying jobs that lifted millions of out of poverty would not have happened.
Yes, higher paying jobs. It is a common mistake to view the employment opportunities provided by export-orientated factories in developing countries as low-paying. Certainly, levels of pay are substantially lower than those that exist in advanced economies, which is what gave Asian producers their competitive advantage over domestic manufacturers in the importing countries. But the wages and working conditions in emerging economies were improvements for workers who previously earned even less money scraping a living off low yielding land. Capitalism brought higher wages to workers who entered productive markets, even if the pay conditions were abysmal relative to compensations in developed economies. Indeed it was the juxtaposition of higher wages in Asia paid to produce low-cost goods destined for western markets that was the crucial basis of East Asia’s industrial revolution. Globalisation was effective because it enabled poor people in less developed nations to trade profitably with rich consumers in advanced economies.
It is a mistake to think that governments in developing countries can create enough descent jobs to meet the demands of their citizens for higher earnings. Unlike profit-making companies, whose labour costs are eventually paid for by consumers, when governments employ workers to produce things that no-one is willing to pay for, it is taxpayers who foot the bill. As only a small proportion of the workforce pay tax funds available to government to retain subsidized employees are limited.
Another misconception is the idea, often propagated by opponents of capitalism, that capitalists are super-rich people who make up a tiny and exclusive segment of society. The presentation of the typical capitalist as the CEO earning 400 times the wage of the lowest paid worker or the investor banking millions of dollars from dividend payouts is a misrepresentation of capitalism. Sure, there are capitalists who are multimillionaires and billionaires, but most are not. Some make profit levels that are little above the minimum wage.
A person who buys a wheel barrow to set up a business to collect rubbish for a fee is a capitalist, even though at the end of his working day his profit is pittance. If this rubbish collector decides to hire a worker to help expand his operation, he becomes an employer. In many respects the nature and dynamics of this small rubbish collection business is not fundamentally different from the operation of a multimillion dollar refuge disposal business.
Capitalism is not simply about the activities of rich capital owners, it is about voluntary investment and exchange in the production and sale of goods and services, at all income levels of society. It is a system in which each individual is able to use what belongs to him, including his labour, to pursue his desires to the best of his ability, without interference from the state or any other authority except to protect the right of others to the same freedom.
It is a fact that much of the economic progress in Africa and other developing regions in recent decades has been the result of grassroots capitalism, individuals investing in production for profit as rubbish collectors, shopkeepers, barbers, garment makers, private school owners, telecoms equipment providers, etc. This is how underdeveloped economies will develop, if only the state gets out of the way of economic activities that do not impinge on the property rights and safety of others or endanger the environment.
It is an irony that progressives who claim to advocate for poor people in developing economies often prescribe an ideology that is detrimental to the interests of those they supposedly support. They rant about the evils of capitalism and urge poor-nation governments to restrict foreign capital and curb the activities of multinationals. They contend that the pursuit of profit, especially by foreigners, invariably results in cruel exploitation of the weak, as happened during the eras of slave trade and colonial rule that preceded modern-day globalisation.
This view of capitalism as a cause of poverty is nonsense. The reality is that over the past 250 years, trade and the pursuit of profit have lifted billions of people out of extreme poverty. To understand why we need to first be clear on what poverty entails. Wikipedia defines it as “the state of one who lacks a certain amount of material possessions or money.” This description is fine as far as it goes. But there is more to deprivation than being broke. A person from a wealthy family who for religious and other ideological reasons chooses to live with minimum possession of material goods is not poor, at least not in the sense the term is commonly used in relation to people in underdeveloped countries.
A more appropriate definition is provided by the United Nations which described poverty as “the inability of getting choices and opportunities…and … lack of basic capacity to participate effectively in society”. Individuals are poor because they lack options to access or create wealth. A peasant living off a tiny plot of land that cannot yield more than subsistence revenue is poor if he has no other source of livelihood. It is the lack of means to acquire higher income that traps people in poverty.
From the standpoint of the poor farmer the capitalist who offers to buy his land or to hire his labour for payments greater than his current income is a bringer of opportunity. In offering employment the capitalist has placed value on the farmer’s labour which previously did not exist. He presents him with choice.
Painting employers simply as exploiters is sheer absurdity. Each party to an employment transaction has a choice – they can say yes or no. The fact that in developing countries large numbers of people queue for low paying jobs reflect the dearth of choice and opportunity available in these places where millions toil for very little compensation. For a person earning $1 a day the prospect of getting $2 a day for the same amount of work is an improvement.
Capitalism is an economic system in which the factors of production are wholly or largely privately owned and operated for gain. It is a system of production through investment and the operation of markets. Owners of assets engage in free exchange, with outcomes of mutual benefit. As crude as it may sound to some, human labour is an economic asset which combined with capital creates goods and services. When person A is employed by person B to perform an economic task, what transpires is that A exchanges the hire of his labour for monetary compensation from B. He does this to gain the difference between any costs incurred in delivering his service and the remuneration paid him. In other words, he profits from hiring his labour – if he didn’t, he would not voluntarily make the exchange. By the same token the employer hires labour to gain the difference between the wage he pays and the market value of the item produced by the labour.
In negotiating the price at which a transaction is executed both parties seek to advance their own interest. In the end they may reach a price acceptable to both. If not, the exchange does not happen and they go their separate ways. It is important to bear in mind that there is no intrinsic value to the labour of any person. Their economic worth is determined by how much others value the products of their labour. Workers are paid according to the worth of their input into the productive process. A skilled footballer in Nigeria may earn only hundreds of dollars per match, while with equal amount of ability the same player may fetch thousands of dollars in the UK premier league.
Economic underdevelopment reflects the fact that economies at early stages of development have fewer markets and labour prices tend to be lower than exist in advanced economies. But this has not been a static situation. Markets have evolved and deepened in Africa, compared with conditions prior to the emergence of capitalism. Two hundred years ago a subsistence farmer was utterly trapped in his economic condition. He had no prospect of selling his land or hiring out labour. Today, millions of Africans make their living from a wide range of occupations that were inconceivable a century ago. Markets have evolved in so many different spheres of human activity that in the proportion of people involved basic cultivation of food is fast declining.
Sustainable jobs are created through market operations. Or more specifically, they arise through production of marketable goods and services. The employment revolution in East Asia arose from individuals and companies combining capital and labour to produce goods sold for profit, mainly in the wealthy western markets. It was pursuit of profit through production that gave rise the so-called Asian economic miracle. Without production, the more varied and higher paying jobs that lifted millions of out of poverty would not have happened.
Yes, higher paying jobs. It is a common mistake to view the employment opportunities provided by export-orientated factories in developing countries as low-paying. Certainly, levels of pay are substantially lower than those that exist in advanced economies, which is what gave Asian producers their competitive advantage over domestic manufacturers in the importing countries. But the wages and working conditions in emerging economies were improvements for workers who previously earned even less money scraping a living off low yielding land. Capitalism brought higher wages to workers who entered productive markets, even if the pay conditions were abysmal relative to compensations in developed economies. Indeed it was the juxtaposition of higher wages in Asia paid to produce low-cost goods destined for western markets that was the crucial basis of East Asia’s industrial revolution. Globalisation was effective because it enabled poor people in less developed nations to trade profitably with rich consumers in advanced economies.
It is a mistake to think that governments in developing countries can create enough descent jobs to meet the demands of their citizens for higher earnings. Unlike profit-making companies, whose labour costs are eventually paid for by consumers, when governments employ workers to produce things that no-one is willing to pay for, it is taxpayers who foot the bill. As only a small proportion of the workforce pay tax funds available to government to retain subsidized employees are limited.
Another misconception is the idea, often propagated by opponents of capitalism, that capitalists are super-rich people who make up a tiny and exclusive segment of society. The presentation of the typical capitalist as the CEO earning 400 times the wage of the lowest paid worker or the investor banking millions of dollars from dividend payouts is a misrepresentation of capitalism. Sure, there are capitalists who are multimillionaires and billionaires, but most are not. Some make profit levels that are little above the minimum wage.
A person who buys a wheel barrow to set up a business to collect rubbish for a fee is a capitalist, even though at the end of his working day his profit is pittance. If this rubbish collector decides to hire a worker to help expand his operation, he becomes an employer. In many respects the nature and dynamics of this small rubbish collection business is not fundamentally different from the operation of a multimillion dollar refuge disposal business.
Capitalism is not simply about the activities of rich capital owners, it is about voluntary investment and exchange in the production and sale of goods and services, at all income levels of society. It is a system in which each individual is able to use what belongs to him, including his labour, to pursue his desires to the best of his ability, without interference from the state or any other authority except to protect the right of others to the same freedom.
It is a fact that much of the economic progress in Africa and other developing regions in recent decades has been the result of grassroots capitalism, individuals investing in production for profit as rubbish collectors, shopkeepers, barbers, garment makers, private school owners, telecoms equipment providers, etc. This is how underdeveloped economies will develop, if only the state gets out of the way of economic activities that do not impinge on the property rights and safety of others or endanger the environment.
Saturday 2 May 2015
The missing oil money saga
By Tunde Obadina
I doubt that Sanusi Lamido Sanusi, the former governor of the Central Bank of Nigeria (CBN), will apologise to Nigerians for apparently mistakenly alleging that the Nigerian National Petroleum Corporation (NNPC) failed to remit colossal amounts of oil revenue to the treasury between January 2012 and July 2013. But it is the case that a forensic audit of the NNPC conducted by the global accountancy company PriceWaterhouseCoopers released in April found that the corporation did not withhold money but actually overpaid the state.
Mr Sanusi said in a letter to President Goodluck Jonathan in September 2013 that over the 19 month period state-owned NNPC lifted US$65bn worth of crude oil on behalf of the government but remitted only US$15.2bn revenue, leaving US$49.8bn unaccounted for and outstanding. Media reports of the then CBN governor’s astonishing assertion fuelled speculation that almost US$50bn of public money had gone missing, no doubt pocketed by corrupt politicians, government officials and NNPC administrators. After the NNPC disputed the allegation, Mr Sanusi in December lowered his estimate of the shortfall to US$12bn. Later in February 2014 he told the Senate it was US$20bn that the NNPC needed to account for.
This saga of the missing oil money raises a number of questions. How and why did Mr Sanusi, an international award winning central banker, get his revenue figures so wrong? Why was he able to maintain his credibility even though he revised his allegation at least twice? Why was the public so ready to believe that the national oil company stole such a huge sum of money?
From the start it should have been clear that the claim that US$49.8bn was missing from the state coffers was improbable. This would have amounted to a loss of US$2.62bn a month or US$31.45bn for the whole of 2012. Nigeria’s entire gross federation revenue in 2012 was about US$65bn, including both oil and non-oil incomes. It was far fetched to think that almost half of the state’s total income could go missing from a single source of leakage. If it were true, how much money would have been available to pay for the running of the bureaucracy, fund capital projects, service debts, maintain subsidy payments and other real government expenditures, when account is also made of revenue losses through other leakages, such as numerous embezzlements by non-oil related federal and state officials?
The fact that the PriceWaterhouseCoopers audit exonerated the NNPC of the specific charge of not remitting oil money does not mean the state corporation is fit for purpose – it is not. Indeed, the report criticised the way the NNPC operates and recommended an urgent restructuring. It also stated that the corporation should refund to government US$1.48bn due from unsubstantiated costs, duplicate subsidy claims and computation errors made in its upstream operations.
The missing oil money saga showed that the management of Nigeria’s finances is so lacking in transparency that major agencies of the state have very different information on public revenue flows. This opaqueness has led to publications of various reports in recent years that allege grand scale corruption in Africa’s largest economy. These headline grabbing allegations have not served to make the public more aware of the operation of corruption in the oil business but have made people more accustomed to the notion that their country is losing staggering sums of revenue from the nefarious activities of those in power.
It seems that people are reconciled to the existence of grand graft. How else can we explain why an allegation by the central bank, believed by many to be true, that nearly half or a quarter of state revenue had disappeared did not trigger street protests but mainly fatalistic resignation? In most other countries such a controversy would not been limited to the pages of newspapers. Trade unions and other civil society organisations would have been up in arms demanding accountability and for heads to roll.
The current state of public consciousness in Nigeria with regards to corruption does not act as a deterrent against routine abuse of power in the country. On the contrary, it encourages complacency with regard to relatively smaller levels of theft and misappropriation of public resources that is the real problem facing the country. With frequent headlines of billions of petrodollars being misappropriated, the siphoning of millions by many different officials and theft of a few thousand barrels of crude may seem unremarkable and go almost unnoticed. But the reality is that corruption is the daily theft of money from many different sources which individually amount to thousands or millions of dollars and when aggregated add up to a colossal loss of potential resources for development.
Spurious allegations of super scale thefts of oil revenue also encourage the belief among ordinary people that the government is loaded with money and the failure of the country to achieve rapid development is simply due to the mismanagement of oil windfalls. The thinking is, if the loss of a quarter to a half of federation revenues to corruption between 2012 and 2013 did not result in the collapse of the state system, this surely indicates that Nigeria is buttressed by huge financial reserves. Of course, this is not the case. The problem is not that governments have plenty of money which they poorly manage; rather it is that they mismanage very scarce resources.
I doubt that Sanusi Lamido Sanusi, the former governor of the Central Bank of Nigeria (CBN), will apologise to Nigerians for apparently mistakenly alleging that the Nigerian National Petroleum Corporation (NNPC) failed to remit colossal amounts of oil revenue to the treasury between January 2012 and July 2013. But it is the case that a forensic audit of the NNPC conducted by the global accountancy company PriceWaterhouseCoopers released in April found that the corporation did not withhold money but actually overpaid the state.
Mr Sanusi said in a letter to President Goodluck Jonathan in September 2013 that over the 19 month period state-owned NNPC lifted US$65bn worth of crude oil on behalf of the government but remitted only US$15.2bn revenue, leaving US$49.8bn unaccounted for and outstanding. Media reports of the then CBN governor’s astonishing assertion fuelled speculation that almost US$50bn of public money had gone missing, no doubt pocketed by corrupt politicians, government officials and NNPC administrators. After the NNPC disputed the allegation, Mr Sanusi in December lowered his estimate of the shortfall to US$12bn. Later in February 2014 he told the Senate it was US$20bn that the NNPC needed to account for.
This saga of the missing oil money raises a number of questions. How and why did Mr Sanusi, an international award winning central banker, get his revenue figures so wrong? Why was he able to maintain his credibility even though he revised his allegation at least twice? Why was the public so ready to believe that the national oil company stole such a huge sum of money?
From the start it should have been clear that the claim that US$49.8bn was missing from the state coffers was improbable. This would have amounted to a loss of US$2.62bn a month or US$31.45bn for the whole of 2012. Nigeria’s entire gross federation revenue in 2012 was about US$65bn, including both oil and non-oil incomes. It was far fetched to think that almost half of the state’s total income could go missing from a single source of leakage. If it were true, how much money would have been available to pay for the running of the bureaucracy, fund capital projects, service debts, maintain subsidy payments and other real government expenditures, when account is also made of revenue losses through other leakages, such as numerous embezzlements by non-oil related federal and state officials?
The fact that the PriceWaterhouseCoopers audit exonerated the NNPC of the specific charge of not remitting oil money does not mean the state corporation is fit for purpose – it is not. Indeed, the report criticised the way the NNPC operates and recommended an urgent restructuring. It also stated that the corporation should refund to government US$1.48bn due from unsubstantiated costs, duplicate subsidy claims and computation errors made in its upstream operations.
The missing oil money saga showed that the management of Nigeria’s finances is so lacking in transparency that major agencies of the state have very different information on public revenue flows. This opaqueness has led to publications of various reports in recent years that allege grand scale corruption in Africa’s largest economy. These headline grabbing allegations have not served to make the public more aware of the operation of corruption in the oil business but have made people more accustomed to the notion that their country is losing staggering sums of revenue from the nefarious activities of those in power.
It seems that people are reconciled to the existence of grand graft. How else can we explain why an allegation by the central bank, believed by many to be true, that nearly half or a quarter of state revenue had disappeared did not trigger street protests but mainly fatalistic resignation? In most other countries such a controversy would not been limited to the pages of newspapers. Trade unions and other civil society organisations would have been up in arms demanding accountability and for heads to roll.
The current state of public consciousness in Nigeria with regards to corruption does not act as a deterrent against routine abuse of power in the country. On the contrary, it encourages complacency with regard to relatively smaller levels of theft and misappropriation of public resources that is the real problem facing the country. With frequent headlines of billions of petrodollars being misappropriated, the siphoning of millions by many different officials and theft of a few thousand barrels of crude may seem unremarkable and go almost unnoticed. But the reality is that corruption is the daily theft of money from many different sources which individually amount to thousands or millions of dollars and when aggregated add up to a colossal loss of potential resources for development.
Spurious allegations of super scale thefts of oil revenue also encourage the belief among ordinary people that the government is loaded with money and the failure of the country to achieve rapid development is simply due to the mismanagement of oil windfalls. The thinking is, if the loss of a quarter to a half of federation revenues to corruption between 2012 and 2013 did not result in the collapse of the state system, this surely indicates that Nigeria is buttressed by huge financial reserves. Of course, this is not the case. The problem is not that governments have plenty of money which they poorly manage; rather it is that they mismanage very scarce resources.
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