The injustice of state-funded elite prosperity

 Government policies that favour the middle-class and elites, worsen inequality

By Tunde Obadina

In a 1955 report on the Nigerian economy, a World Bank mission to Britain’s west African colony noted that the attitude of the local population to the state could impede the country’ progress. They observed that while Nigerians desired material progress, many did not realise that wealth creation is only achievable through the efforts of the people.

“No progress can be made unless the people themselves are willing to assume the main burden of the development effort. The mission found this not fully appreciated in Nigeria. Nigerians in all walks of life tend to look too much to the government, more specifically to the British colonial officials, for the fulfilment of their aspirations. The heavy reliance on government is frequently coupled with a strong distrust of its actions and motives…”

“The need for self-help is not understood by the African businessman who looks to the government, and the government alone, for financial assistance in the expansion of his business instead of joining with others in a partnership or other form of common enterprise. It is not understood by rural communities and their leaders who demand school and hospital facilities but are not ready to pay for them by increased tax assessments. It is not understood by those who deplore graft and corruption in the hospitals, in the produce inspection service, in the railway and in private business, yet are unwilling to take effective action against these abuses.”

At the time the World Bank made these observations, Nigerians could dismiss them as bigoted rantings of agents of imperialism. Over sixty years later, we know differently. The belief that it is the responsibility of government to provide citizens with the conveniences of modern civilisation remains strong, especially among the elite. The expectation is that the state will deliver free or subsidised education, healthcare, electricity, transport infrastructure, water and sewage system and other items and services that come with economic development. Yet there is aversion to taxation.

State dependent elites have opposed the development of capitalism. This is a system based on private ownership of capital in which consumers pay market prices for goods and services they purchase. Dependency on the state largely explains the vehement opposition to economic liberalisation reforms including scrapping government subsidies and price fixing. Attempts to liberalise petrol pricing trigger protests and strikes even though fuel subsidies benefit mainly the wealthiest in society. The elite oppose electricity tariff increases even though their households consume most of the country’s on-grid power production.

The elite who have benefited most from state spending pay little recognition to the fact that almost all desirable products and services are the outcome of production, involving costs paid by someone. Government financed or subsidized facilities such as schools, health centres, road networks, power stations, water and sewage systems are built and maintained with scarce resources.

In the current welfare system for the rich and middle-class, the state supports virtually every facet of the lifestyle of the wealthiest 10% of households in Nigeria while the poorest 40% receive little or no subvention. Compare a typical affluent family living in Lagos or Abuja to a poor household in any remote village in the country. The rich family occupies a home cooled by air-conditioners powered by subsidized electricity and running water and sewage systems fed by subsidised water. They operate cars that consume subsidised petrol and run on state-financed roads. Family members travel to local and foreign destinations on aeroplanes that use subsidised airports. The children not in private schools attend the best state financed schools and universities.

Now consider the circumstances of the poor family. Their home is unconnected to the national power grid, so they spend their money on more expensive and unsubsidized forms of energy, such as candles and wood There is no flowing water in the home so household members walk long distances to fetch water or pay dearly to buy the commodity from water vendors. The only form of transport available in the village are human legs. Where the children have access to government schools, these institutions have the barest minimum of facilities. There is little prospect of secondary school education and university is even more remote.

A cost-benefit analysis of the impact of state economic management will show that for the poor the costs outstrip the benefits. The reverse is the case for the wealthy. Yes, poor people pay little or no taxes, but they bear the costs of government policies in other ways. For example, restrictions on food importation means low-income households pay more to feed themselves. Money creation by cash-strapped governments fuel inflation, which erodes the purchasing power of the little money poor people have.

The wealthy could argue that they deserve to benefit more from state expenditures because they contribute more to the national coffers. This is largely a fallacy. Many members of the wealthiest 10% pay little or no taxes in a country where tax evasion is rampant. Even tax-paying millionaires and billionaires are not always net contributors to society. For instance, many owners of state subsidised profit-making businesses, such as cement makers, sugar refiners, and pharmaceutical, pay less in taxes than they gain in economic rent. Economic rent is the difference between what an owner of a factor of production Is paid and what he would have earned under free market conditions–i.e., without protectionist policies, such as tax breaks, import restrictions and subsidy receipts. If protected local manufacturers operated under free market conditions, they could not price their products as high as they do without external competition. A part of their current profits is a tax on consumers.

It is not wrong for individuals to aspire to wealth. What is unjust is government enabling already privileged members of society to enjoy economic benefits and concessions that are not available to the poor and given at their expense. Wealth is not immoral; it is an aspiration that can drive economic growth that reduces poverty. However, prosperity should be earned and not gifted by the state.