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Monthly Archives: November 2010

Nigeria-Political Corruption,Rent Extraction,Capital Flight and Poverty

Lagos Central Business District

Political corruption is used here to describe the practice,where public officials  abuse their power,office or public resources for personal gain.Acts of corruption may come in a variety of  forms: extortion,bribery, embezzlement,cronyism,nepotism and other forms of  malfeasant conduct.According to the organization for economic co-operation and development,OECD,corruption threatens good governance,sustainable development,democratic process and fair business practices.Governance suffers not only because public officials  seek bribes as a condition for doing their jobs,but also because government policies are deliberately made,to provide shakedown opportunities for  corrupt officials.

Corruption impacts negatively on development through the misallocation of resources,as infrastructure and public development projects are determined by public officials’ perception of bribery opportunities.As a result,society suffers as public funds are diverted away from deserving projects,in favour of “white elephant” projects.Political corruption also results in the misallocation of talent as the wrong sort of people seek political office,motivated entirely by the desire to steal public funds.Cronyism and nepotism also ensure the misallocation of talent,as square pegs are put in round holes.While in all these forms,corruption has a devastating effect on society,it is most injurious in the form of rent extraction,especially for this part of the world.

Rent extraction,or rent-seeking,defines the practice, where economic actors seek to earn income by capturing “excess returns” through the manipulation of the economic or political environment.This contrasts with profit-seeking behaviour whereby investors seek to extract value and earn a profit,through economic transactions,by the production of added wealth.When public officials use their legislated powers to manipulate the economic and political environment,in order to extract uncompensated value from economic actors,they are engaged in rent extraction.Uncompensated value represents the difference between the actual market value of a product or service,and the amount paid for that product or service,during the sale or transfer of the product or service.

The uncompensated value represents the loss to the public treasury every time a contract is over-valued or a public asset is under-valued.When a public official awards a contract for a sum that is in excess of it’s real value,the mark-up represents the uncompensated value.The same thing happens when a public property is under-valued,and therefore sold for a song.The mark-down is the uncompensated value.Officials endorse these contracts and sales only because they will get a share of the uncompensated value.This is basically how looting of public funds takes place.And of course these contracts go to companies which are favoured,not for reasons of technical competence or efficiency,but for their relationship to those in power,and willingness to play “ball”,thus promoting nepotism and cronyism.

Any business or economic environment defined by nepotism and cronyism,cannot be friendly to fair business practices.This has far-reaching consequences.As businesses discover that what really matter are political connections and not administrative or technical abilities,they will not be motivated to make the necessary investments in new technologies and techniques,to not only create greater value,but also to reduce negative environmental impact.Instead,businesses will be encouraged to invest in political connections,thus facilitating even more corruption.And of course the greater the resources invested in politics,the lower the investments made in creating real value.This vicious circle leads to a degraded business climate,characterized by low investment,ancient technologies and the distortions of inept regulation.

In a country in the grip of such unremitting corruption as well as an unattractive business environment,the idea will take hold that,the only way to make money,is being in government and not being in business.As the odds against genuine profitable businesses grow,the institutional capacity for absorbing investment will shrink.With a few exceptions,every body in Nigeria is a trader.This low investment capacity fuels capital flight,which continues to keep Africa poor.Public officials know,more than any one else,that the whole set-up is rigged against genuine business,and so they are unlikely to invest in the local economy.This results in billions of dollars,the proceeds of corruption,leaving the continent each year.

Imagine the opportunity cost to the continent.To fight capital flight,we have not only got to fight corruption, we also  need to fight to improve the business environment.We need to make regulations that boost competition and efficiency.We need rules that encourage investment,whether local or foreign.And we need to privatize.We should not be arguing about the theory and practice of privatization.It should be obvious that the best way to create value is through private initiative.The virtue of privatization,in theory,should be clear.What we should do is to focus our energy and time on the practice.If we do this,we can privatize transparently,and profitably,and we would reap the benefits predicted by the theory.

Nigeria-Good People,Insensate Society And An Absent State

Drinking Water

According to a UN body,more than 1,500 people have been lost to cholera,in Nigeria,this year.Most of the deceased were children.This is absolutely mind-boggling.You wonder how this can happen in this day and age.This is sheer  self-violence.Cholera is hardly HIV/AIDs.This is just the result of carelessness.Such gratuitous loss of lives.The UN body in question says the epidemic is driven by the lack of access to clean drinking water and hygienic toilet facilities.Obviously,it is the duty of the government to provide these facilities.Still i feel guilty,as should those of us that are healthy,and untouched physically,by this tragedy,because we have not cared enough to help as individuals or compel the government to do more.What sort of people are we?

Nigerians are good people,humane and involved.But only within the family or clan.Outside the family,we become hostage to cannibalism.Cannibalism,here,is used to describe a human condition marked by the absence of a sense of empathy:in other words,the inability to put oneself in another’s shoes.We lose our sense of fairness once we step outside the family.We cannot feel the  pain of the ‘other’.We just do not care about the direction of our society,as long as our family and friends are doing well.That explains,to an extent,the level of greed and coruption in the society.We do not consider the ‘other’ deserving of the same security,economic as well as physical,that we crave for our family and friends.We are just plain insensate.

The main  reason for this is that we rely on the extended-family system for succour.It is to the extended-family that you run,when you are in trouble or in need of support.And this because the state is absent.Because we cannot rely on the government for help in time of trouble,we tend to treat the state with levity,contempt even.This contempt is reflected in lethargic citizenship.We are apathetic about the state of our society.If we are to become fully engaged citizens,the state must make itself relevant in our lives.The state must become part of the individual Nigerian’s calculations.The state has to become a factor.To do this the government should establish a social-security or welfare system.

I know that some people,including myself,will argue that the government lacks the skills,competence,integrity and  resources necessary for establishing a viable welfare system.I quite agree that any such scheme,right now,is likely to suffer from political calculations.Still,such a scheme should be supported for two main reasons:first,it would promote the idea of our interconnectedness.If we are ever going to achieve greatness as a country,we must sign up to the holistic idea that,together we are greater than the sum of our individual parts.We must see ourselves as playing for the same team,irrespective of tribe or religion.Second,it would create government-dependency.In a limited form,depending on the government promotes good governance.

This is due to the reflexive relationship between government-dependency and government performance.Usually, where people expect a lot from the government,the government is forced to deliver.This is an instance of self-fulfilling prophecy.When people have high expectations of the government,they exert the pressure that is necessary to compel the government to meet those expectations.The reason the Nigerian state is not working for the people,is that the people do not expect much from the government.As a result,there is no pressure on the government to perform.The absence of the state has led to a society that is so socially atomised,that it abuts the Hobbesian jungle,where life is nasty,brutish and short.