Economics is laced with historical events that have shaped nations, and that still bear relevance today. And, so, recently I have been thinking about the importance of economic history to any nation, any government. And, in particular, I have been asking: how seriously does Nigeria take the lessons of economic history? Are we a people that learn from our economic past? Well, my view is that we are not, and that’s the focus of my discussion in this week’s column. But, for context, let’s first explore some ideas about history itself. What do we know about the relevance of history? Why is learning from history important?
The answer, I would say, can be found in the several thousand of quotes about history. From these immortal words, some dating back hundreds of years, two common themes emerge. The first is that we can’t understand the present, without knowing the past. And the second, as Confucius put it, is that if you want to define the future, you must study the past. Machiavelli said the same thing in a slightly different way. “Whoever wishes to foresee the future”, he said, “must consult the past.” So, history has connections to the past, the present and the future.
History’s biggest allure is that it’s recorded experience, an account of what occurred in the past. As the Greek historian, Thucydides, pointed out, “history is philosophy from examples”. Of course, this assumes that such an account of the past is not, as Thomas Carlyle put it, a “distillation of rumour” or, in the words of William Stubbs, an English historian, “a pack of lies”. My point, though, is that factual and unadulterated history, to the extent that such exists, has real and immeasurable value and implications.
No wonder Abraham Lincoln, the 16thUS President, told his people, “Fellow citizens, we cannot escape history…”And George Santayana put it this way: “those who fail to learn from history are doomed to repeat it.” Another variation of that quote says that “those who cannot remember the past are condemned to repeat it.” But the reality, as the German philosopher G W F Hegel pointed out, is that “nations and governments have never learned anything from history, or acted upon any lessons they might have drawn from it”. So, then, this much we know: despite history’s importance, some people, some nations have a tendency to ignore it. But we also know that those who deny history are haunted by it!
Okay, so much for the theory, let’s look at Nigeria’s experience through the prism of economic history. Now, economic history is particularly fascinating because it’s one area where there is so much in the past, where the past so often repeats itself, and yet where lessons are so often not learned. In a stimulating book titled “The Ascent of Money: A financial history of the world”, Niall Ferguson, one of my best economic historians, shows how every financial crisis in history has been preceded by policy failures and compounded by inappropriate policy responses. The pattern is familiar: a country enjoys an economic boom, often fuelled by cheap money, but instead of saving and investing to insure itself against probable future adversity, it embarks on loose monetary and fiscal policies. And, then, as is often the case throughout history, the boom turns into a bust.
Of course, that is a near-perfect description of Nigeria. The inability of successive Nigerian governments to manage economic booms is legendary. The failure of past governments to save and invest during periods of boom, not to mention the failure to diversify the economy, is at the heart of the country’s perennial economic problems. Thus, Nigerian governments, past and even present, have failed to learn anything from the history of economic crises.
But there is a bigger lesson that Nigeria has failed to learn. This is that, through economic mismanagement, a once prosperous country can quickly fall into decline. A case in point is Argentina, which was once one of the ten richest countries in the world. In fact, its name means the land of silver, but today it is, broadly speaking, a byword for economic crisis. As Ferguson puts it in his book, “The economic history of Argentina in the 20th century is an object lesson that all the resources in the world can be set at nought by financial mismanagement.” In 1890, Argentina’s debt default brought Baring Brothers, an investment back, to the brink of bankruptcy, and since then the country has descended from one economic crisis to another, particularly in the 1980s, 1990s and early 2000s. Once, the World Bank froze lending to Argentina because it failed to tackle its bloated public sector deficit.
Of course, to some extent, that is a familiar story, isn’t it? In the 1960s, Nigeria was on a par with, if not richer than, most of the Southeast Asian countries, such as Indonesia and Malaysia, but today it lags considerably behind these countries on most measures. And why? Well, Nigeria decided to follow a tried, tested and failed development path. While Indonesia and Malaysia moved towards the East Asian growth model of export-oriented industrialisation and strong expansion in agriculture, and adopted liberal economic policies, Nigeria favoured an inward-oriented economic policy, and shielded itself under a mono-economy in which crude oil accounts for 90 percent of its export earnings. Indeed, once upon a time, Nigeria was so rich that its leader reportedly said that money was not the country’s problem but how to spend it! But who can say that now? Economic history teaches us that a country is doomed to failure if its leaders lack vision and wisdom, and its people lack discipline, to manage its economy well! Unfortunately, even now, Nigeria is still ignoring the lesson of its recent history.
Anyone who is looking at President Buhari’s government today and also remembering his military regime of 1983-85 would almost certainly be tempted to scream: “déjà vu, history is repeating itself!” The economic crisis that Buhari’s administration is facing now is almost a repeat of the one his military regime faced in 1983-1985. At the heart of both crises are collapsing oil prices and fiscal revenues. Furthermore, the pressure for policy reform that his administration is facing from the international financial system, including the World Bank, the IMF and private financial institutions, is similar to the pressure that his military regime faced from the same institutions between 1983 and 1985. And, no prizes for guessing, his response to both crises follows exactly the same pattern: an inward-looking political control of trade, industrial and exchange rate policies that is isolating the Nigerian economy from the international economic and financial systems.
Take another read-across between the two Buhari eras. During the Buhari military regime, Nigeria’s lines of credit were cut because the regime rejected pressure from the IMF and the World Bank to embark on structural reform of the economy. Even western private sector lenders would not extend loans to Nigeria, insisting the government must reach an agreement with the IMF first before they could do business with it. In order to avoid the cross-conditionality, the regime approached Saudi Arabia for a $1 billion loan as an alternative to IMF or World Bank financing.
And what are we seeing now? A near-repeat of history, of course! Although Nigeria’s lines of credit have not been formally cut, the World Bank, the IMF and, indeed, western private financial lenders would not extend any loan to Nigeria in the current circumstances unless it implements self-correcting measures to address the structural defects in its economy. But Nigeria, under President Buhari, doesn’t want to carry out any structural reform. And, so, just like he did in 1984, Buhari is seeking help from non-Western countries that would, perhaps, not demand reform. For instance, the government has approached China for a $2 billion loan. China, of course, has a “hear nothing, see nothing and say nothing” policy that suits the Buhari government perfectly well!
But the truth, which bears repeating, is that western multilateral, bilateral and private lenders will not advance any loan to Nigeria unless it implements serious economic reforms, including changing its controversial exchange rate policy. Last week, the IMF published a report calling on countries to implement structural, fiscal and monetary reforms to prevent another economic crunch. Nigeria knows that unless it is seen to be doing something on structural reform, it would receive no sympathetic hearing from western lenders. The Buhari government recognises this and says it is “not desperate, there are options”, as the Finance Minister, Kemi Adeosun, recently told the Financial Times. Those options, presumably, include getting the “cheapest possible money”, as Adeosun puts it, from countries like China that would not pressure Nigeria to implement any reform.
Let’s be clear. Nigeria is ignoring the lesson of history. It is embarking on “a borrowing spree”, as the FT puts it. The government wants to borrow $9 billion to meet its record budget deficit. It says that it would use the money to pay for infrastructure projects. Of course, Nigeria needs to fill a huge infrastructure gap, but the truth is that no serious economy ever pays for large-scale infrastructure projects through predominantly debt-financed public investment. China’s debt-fuelled economy is already facing a reversal. Think of it. The Nigerian economy is seriously contracting, oil revenues are unlikely to grow in the near future, thanks to cheap oil, non-oil exports is starting from a very low base, and the global economy, including that of China, is facing headwinds, which would transmit adverse growth shocks to oil-dependent countries, such as Nigeria. In these circumstances, the Buhari government is certainly taking huge risks by embarking on such borrowing and spending sprees, and, what’s more, doing so without a comprehensive economic reform programme.
This government doesn’t only need economic technocrats, it also needs economic historians. At the moment it lacks both, and, sadly, it is failing to learn a key lesson of economic history, namely, that behind most economic crises lie a structurally defective economy, loose fiscal or monetary policies, including “cheap money”, huge debt and deficits, a dirigiste economic policy, and, generally, economic mismanagement. Buhari needs economic historians, where are they?
Olu Fasan
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