Economic Liberalisation and the Nanny State

Olumide here. We asked people to send us questions on Nigeria’s development over Twitter. One of the questions, from @EssentialBolu, is: why should we continue to Liberalize our economy& still not have an antitrust/competition regulation in place. The question was sent to Ifeanyi Uddin. This post is his response.

With the Nigerian government continuing to stumble, hand-over-foot, down the path to privatising its public utilities, an old argument about how useful economic liberalisation is for an economy such as this is beginning to rear its head. Citing problems with agreeing terms with trade unions in the electricity industry, the relevant domestic authority has once again put off its planned review of electricity tariffs until next year. Alas, higher tariffs are inevitable if we are to attract new suppliers of electricity to the national grid, a key need if we must meet our higher targets for electricity supply.

At some point in this country (this was around the mid-1980s, when the Babangida administration took its economic catechism ― privatisation and deregulation ― to the re-organisation of the Nigerian economy) the heated discussion around the utility of economic liberalisation looked like becoming a referendum on capitalism.

The catalyst for this debate was the acknowledgement that regulations and restrictions on economic activity had to be lifted as part of the economic liberalisation process. The image associated with this corner of the debate in the popular mind was of the unrestrained pursuit of profits and wealth by a small elite with access to and use already of the apparatus of the state. Because we were proposing to privatise portions of the national heirloom as part of this process, there was a danger that the whole liberalisation thing was subterfuge for passing on the “commanding heights of the economy” to our elite via a garage sale. It did not help the other side of the argument that by the mid-80s, cracks had begun to appear in the notion of the state as a tool of social justice, and as a result, concerns were well expressed over extremes of want and plenty coexisting in some unstable equilibrium. A state already ineffective as a tool for social justice was always going to get worse were existing restrictions and regulations on economic activity to be lifted.

Yet the truth is that the “restrictions and regulations” bit is but one-half of the definition of economic liberalisation. Alone, these fail as policy initiatives. The smaller government mantra evoked by them has resonance only within the context of increasing private participation in an economy.

Stephen Littlechild, a guru, if ever there is such a persona on privatisation, describing the United Kingdom’s approach to regulating the privatised utilities (Beyond Regulation, 2005) summed the liberalisation process up in the phrase: “competition where possible, regulation where not”. According to him, competition in any sector of the economy responds “to the wishes of customers”, “encouraging efficient production and investment”, “stimulating product differentiation and innovation”, and “passing on these benefits to customers”. Regulation however is different. Although designed to protect customers from monopoly, if the monopoly in question is a government one (and without adequate care, newly privatised monopolies, too), all regulation and the raft of rules do, is protect utilities as opposed to customers, reduce incentives to efficiency, and provide opportunities to gold-plate. Sounds familiar? NITEL, NEPA, etc! The economic liberalisation challenge in the UK was to “provide a new kind of regulation, one that would improve the incentives to efficiency in the monopoly sectors and encourage innovation. Regulation was nonetheless seen as a last resort, appropriate only where the other and better method of competition was unlikely to be applicable” (Littlechild, op cit).

In Nigeria, there is a vast space that is unregulated, except that is by customers’ expressing themselves through their purchasing behaviour. Fast moving consumer goods, handsets, personal computers, groceries at the open markets, etc. And this is as it should be. Competition between product/service providers and the customer exercise of his/her choice are all that is needed to ensure efficient resource use here. Regulation and an anti-trust statutes (in the sense of laws “intended to promote free competition in the market place by outlawing monopolies”) should be contemplated only where the market is not functioning properly, and then only for as long as it takes for a competitive market to grow in the said sector.