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Deregulation, Subsidy Removal: My Stand — 2

By Dele Sobowale

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Quite unlike you, your article on subsidy has no definite stand….Idris
Part of the text message from Idris has been recalled in order to remind our readers that this series is a response to a reasonable challenge from a regular customer of our paper; and like all customers we owe a duty to inform and, if possible, to also entertain.

The first part of the series, last week, ended with the declaration that deregulation almost invariably results in permanent price increases. Most goods and services, as we all know, have traditionally been deregulated. Food stuffs and office stationery, entertainment and wearing apparels, cars and cattle, to mention a few, have never been subjected to official pricing.

Yet, I recollect that, as eleven year old boy, it was my lot when the Asian Flu struck in the 1950s, laying everybody in the house flat, to go to the market, buy food stuff and cook. For ten shillings, equivalent of one naira, given to me by my mother, assorted meat, ingredients, salt, vegetables, and firewood was procured to prepare meals for six people – and there was still a small change left.

Some deregulation took place during IBB’s Structural Adjustment Programme. Among these were hotels Nigerian Hotels owned by the Federal Government were sold to favoured individuals; at give away prices. Under Abacha, more deregulation was undertaken. Chief Ebenezer Babatope sold all the ships of the National Shipping Line for pittance. Obasanjo pushed the policy further when he disposed of the Nigeria Airways in a clumsy deal involving Virgin Airways.

In no single instance had the service charges, which were increased immediately, ever come down. The proponents of deregulation, in government and their N2N acolytes tell the greatest lie when they announce, as if it were true, that the pains of deregulation will be temporary. Invariably, they are permanent. That is the verdict of history and our own experience in Nigeria.

Globally, liberal or “progressive” governments, basing their economic policies on the Keynesian principle of massive government intervention in the economy had ruled he world, especially the United States, since the Great Depression of the 1930s. Governments had made investments in the “commanding heights” of the economy – transport, communications, banking, transport, housing etc. They also regulated prices, rents, tariffs etc.

Finance Minister, Okonjo-Iweala

Side by side with regulation went a whole range of subsidy programmes – free and compulsory primary and secondary school education, welfare packages (Medicare, Medicaid etc), unemployment benefits and subsidized, even free, housing. But, they came at a huge cost to nations – deficits and national debts mounted so much so as to make the US the greatest debtor in the world today.

Then, in the 1980s, again led by the USA, the developed Western and capitalist economies turned conservative. The elections of President Ronald Reagan in the US; Prime Minister Margaret Thatcher in Britain as well as conservative governments in Germany, France, Italy and Japan halted or slowed down the rising tide of subsidies and deregulation became the vogue.

Before that, communist and socialist countries, led by the defunct USSR and China had practiced subsidy on a wide scale ensuring that nobody was left unfed, naked or shoeless or without a roof over the head – no matter how Spartan the provisions might be. The fall of the Soviet Union and the return of Russia to the capitalist fold, also brought about a curtailment of entitlements to the needy. As in the West, deregulation first brought a wave of investments and increased job opportunities.

But, today, all the economies of the West, Japan and Russia now experience massive and intractable unemployment. Deregulation is proving to be a mirage as a means of providing sustainable full employment.

However, there is one fact in favour of deregulation. By opening up competition deregulation promotes more efficient goods and services delivery. So, there is a trade off. People pay for the improved efficiency. So, for that reason alone, I am in support of deregulation while bearing in mind that it might in the future create more unemployment – such as we are already witnessing in the banking sector which in Nigeria was deregulated when SAP was introduced.

Subsidy is another matter and a little bit more complicated. In layman’s language subsidy exists when people pay less than the market price for the enjoyment of goods and services – either in part or wholly. The most celebrated subsidy programme in Nigeria was the free primary education policy of the Action Group party led by Chief Obafemi Awolowo in the old Western Region.

Anyone making a blanket argument against subsidy would need to convince us that by that policy Chief Awolowo had not made the greatest impact in Nigeria since self-rule started. On the assumption that nobody would seriously contend that free education was a waste, we would proceed to summarise the merits and pitfalls with respect to subsidy programmes.

The truth is there is no perfect economic arrangement. Every measure produces its own group of “winners” and “losers”. Political ideologies determine who will gain or lose. That is why political manifestos are so important. They set out for everyone to see who will be favoured by the policy.  I favour subsidy programmes because what we lose to corruption is more than N1.3 trillion per annum and I can prove it.


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