Economic summitry and need for expertise in Buhari’s government

Wole Soyinka, the Nobel Literature Laureate, recently urged President Muhammadu Buhari to convene an emergency conference on the state of the economy. Soyinka is hardly known for his views or interventions on economic matters. But these are extraordinary times. And his call is a sign of the times, of the state we are in. The economy is bad, Soyinka said. “It’s obvious; it’s so bad”. And he is right. In fact, the economy is so bad, dear readers President Buhari has just declared that Nigeria “cannot afford to sell foreign exchange to parents to fund their children’s education abroad”, because such demands are putting “unnecessary pressure” on the naira. “We can’t just afford it”, the president said. “That’s the true situation we are in”. Thus, payment of overseas tuition fees will now join the infamous list of 41 foreign products classified as ineligible for foreign exchange from the central bank.

Surely, when a country starts saying that educating its young citizens in the best universities and colleges in the world is expensive or “unnecessary”, especially when its own education system is dysfunctional, as Nigeria’s university system is (for instance, no Nigerian university is among the 1000 listed in the 2016 QS World University Rankings), then that country is in deep crisis. And, let’s face it, Nigeria is in a terrible state. The economy is comatose and the government is helpless. So, it’s understandable that concerned Nigerians are calling for an emergency economic summit. But an economic conference can’t replace the process that is endogenous to government itself. Specifically, I would argue that an economic summit is no substitute for leadership, vision and expertise within government. Without these three elements being embedded within government itself, any economic conference would be a waste of time and effort, a mere talk shop.

And, in my view, the Buhari government has so far not sufficiently demonstrated these elements. The president talks frequently about the economy but his views are largely driven by ideology or personal predilections. Of course, everyone knows that Buhari is not an economic expert nor, indeed, is Vice President Yemi Osinbajo, who, as chairman of the National Economic Council, coordinates the nation’s economy. Neither is what the famous economist John Williamson called a “technopol”, that is, an economic technocrat who assumes positions of political responsibility. But that is not a bad thing. However, it’s a desideratum that political leaders should surround themselves with first-class economic technocrats who can judge what institutions and policies are needed to turn an ailing economy around. In other words, they should have a strong economic team. So far, this government doesn’t have such a team.

Now, don’t get me wrong. The president and the vice-president are honest and patriotic leaders, men of impeccable integrity, who have good intentions and mean well for this country. The problem, however, is that, unlike God, who looks at people’s heart and judges intentions, market actors or, what is known collectively as “the markets”, do not just respond to good intentions; instead, they respond to specific incentives, based on explicit calculations of their costs and benefits, and, as utility maximizers, react to changes in the net benefits of the various alternatives available to them. Any failure to understand what influences market behaviour or how to adjust incentives so as to influence market behaviour, is, therefore, a failure of economic management, no matter how good one’s intentions are, or how popular one’s ideology might be.

I have read some misleading comments recently that economics is not a precision science and, therefore, presumably, a government can afford to muddle through economic management, in a trial and error manner, hoping for the best! But this is a recipe for economic disaster. The theories of choice, rationality and opportunity costs that drive much of economic thinking have strong predictive powers. Indeed, the purpose of positive economic analysis is to derive a set of testable predictions that can be verified by empirical evidence. And, as the Economist magazine showed in recent article, a scientific survey has demonstrated that economics, though not perfect, has a higher replication rate than some of the natural sciences, such as medicines, psychology and genetics!

So, economics matters hugely to government. Thus, when a government lacks a strong economic team or an embedded economic technocracy, it is making policy in the dark, without robust, high-quality and evidence-based analytical input that enables it to understand how different factors, such as government interventions, affect the markets or the impact of different incentives on human behaviour in a range of settings. In the UK and most other Western countries, every government department or ministry has a dedicated team of analysts, including economists, statisticians, operational researchers and social researchers, whose analysis is central to the work of government. But such a robust approach to policy-making and governance is mostly lacking in Nigeria, where even the use of basic statistical data to inform policy formulation and evaluation is a rarity.

And, truth be told, no amount of economic summits can address these underlying structural weaknesses, particular the negative culture and attitude to economics and economic analysis. Think of it, Nigeria has had several economic summits. Even as I write, one or two are being held or are in the offing. Nigeria is, indeed, good at economic summitry, but such summits have amounted to no more than jamborees or talk shops. And this is because they were often not underpinned by political leadership and vision as well as economic expertise. This is not a criticism of economic conferences or summits. They can work when they are part of the process of policy-making and are backed with actions.

For instance, when Bill Clinton was first elected president of the US in November 1992, he knew he would inherit a bad economy, especially a huge deficit. A month later, on 15 December, he held what is now called the Clinton Economic Conference. He gave three reasons for the conference. First, to give an assessment of “where our economy is today”; second, to bring together a diverse and talented group of Americans and get ideas and input on “how we should implement our economic plan”; and third to “reconnect the American people to their government, and to ask for their help, too, in making economic progress”. One fact stands out for me in these reasons. President-elect Clinton already had an economic plan; the aim of the conference was partly to test this plan with experts and receive their ideas and input. Yet, here we are, nearly a year into President Buhari’s government, Nigerians are still asking the president, “where is your economic plan?” But the truth is that an economic conference cannot do that job for this government!

Another example was President Barack Obama after his election in November 2008. He inherited a terrible economy, in the aftermath of the global financial crisis. He too held an emergency conference, albeit a mini one, with leaders of business, government and academia, as well as with a transition economic advisory board, which included top chief executives and the investor Warren Buffet.

However, for both Clinton and Obama, the economic conferences were only sounding boards to test ideas. In the end, it was their leadership, vision and the economic expertise they assembled that drove the success of their economic policy and management. For instance, President Clinton appointed Robert Rubin, former chairman of Goldman Sachs, as his Treasury Secretary and established the National Economic Council to, as he puts it, “coordinate all the various parts that deal with economics”. This was in addition to other important sources of economic advice, such as the Council of Economic Advisers. Clinton was, indeed, a president who knew the value of economists and he surrounded himself with some of the best economic technocrats. And, as one analyst put it, Clinton’s efforts “fuelled a period of confidence in the financial markets”. He wiped out the deficits and presided over “the 1990s boom”.

President Obama did similar things. In 2008, he said “We do not have a moment to waste” in facing up to America’s deteriorating economy, and immediately went on to assemble an economic team “with the vision and expertise to stabilise our economy and get America back on track”. For instance, he appointed Timothy Geithner, former president of the New York Federal Reserve Bank, as his Treasury Secretary, and Lawrence Summers, a Harvard economics professor, as his top economic adviser and head of the National Economic Council. Today, as Obama himself declared recently, “the US has the strongest, most durable economy in the world”. He added: “We have risen from recession freer to write our own future than any other nation on Earth”. Indeed, he resuscitated a sick economy!

The lesson of these cases is that an economic crisis can be turned around. Markets and economic actors usually respond to good incentives. But only with leadership, vision and expertise can a country create such incentives. And the literature on economic reform supports this view. For instance, in a study on successful economic reforms, economists Jose Pinera and Joan Nelson found that there are three critical success factors. First is the presence in government of a team of economists with a coherent view of what needed to be done and who command the instruments of concentrated executive authority; second, the presence at the top of a political leader with vision of the future; and third, the existence of a comprehensive programme of economic reform.

For me, hardly any of these factors currently exists in Nigeria. For instance, I don’t see a strong and coherent economic team, with the expertise and authority to drive change. The National Economic Council is more or less a political body, not an economic one. Compare it with the US version, for instance. Furthermore, President Buhari’s obduracy on economic matters and his economic management by diktat would do little to engender market confidence. And that’s hardly the leadership and vision needed for economic change. Then, consider the lack of a comprehensive economic reform programme. All these issues need to be addressed before an economic conference can be meaningful; otherwise it would be a mere talk shop!

 

Olu Fasan