Labour intensive project expenditure will quicken recovery
by Emeka Osuji
September 20, 2017 | 1:52 am| | | Start Conversation
Nigeria recently exited a recession that hit the nation like a hurricane. Thankfully, that hurricane has been downgraded to a tropical storm, with winds so weak that homes are no longer threatened. A positive growth rate of about 0.5per cent is considered reasonable given the place we are coming from. However, the recession has cost us some arms and limbs, which would require time to heal and grow out. In the intervening period, conventional wisdom recommends that Nigeria conducts itself more diligently to prevent another land fall because all that is required for tropical storms to transform to hurricanes is an increase in the wind speed. Besides, there is nothing in the universe that prevents a hurricane from making a second or third land fall. Worse still, a family of hurricanes may wish to visit a place consecutively at intervals of their choice. Caution is therefore in order.
During that period of recession, we hopefully learnt some lessons, which we could have read from the history books, rather than our own experience. However, the law of nature is clear about the destiny of the stubborn fly that is hard of hearing and follows corpse everywhere: a place in the grave with the dead. Hopefully, we will put this hard-earned experience into practice going forward.
First, we cleared any doubts we may have had on the future of economies without strong consumer demand, driven by stable and rising disposable income. They go south and remain there until something happens for consumers. All those interested in the prosperity of the nation must contribute their quota to stimulate and sustain consumer demand. Indeed, one of the low hanging fruits for accelerating economic recovery, during or soon after a recession, is investments in areas or sectors capable of mass employment that democratizes effective consumer demand. What comes to mind here is agriculture and infrastructure spending, particularly in the areas of cooperative small-holder activities, construction and housing. The labour intensity that characterises infrastructure spending, especially, speaks directly to the usually large unskilled component of the unemployed. It activates the value chain in the informal sector and galvanizes its operations.
We must understand that the impact of any government expenditure in the economy depends substantially on how much that expenditure can ratchet itself into larger income for the society. This is what economists call the multiplier effect of public expenditure, which has a positive relationship with another fancy term, the Marginal Propensity to Consume (MPC). This is the proportion of additional income that is spent on consumption.
Generally, the MPC is higher among the poor and since low income and casual jobs predominate the jobs usually created by infrastructure spending, the potential of such spending to impact domestic consumption is higher. This is because the potential income increase will largely find its way into the market through increased consumer spending. This stimulates recovery. Thus, notwithstanding any academic controversies as to the relative magnitudes of the MPCs of the rich and the poor, the later will spend more of their additional incomes than the rich. Their spending is also more on local items and less therefore less likely to be made on foreign goods.
Another low hanging recovery fruit is a deliberate income transfer or redistribution meant to move resources from the rich to the poor through. The effectiveness of this policy is derived from the differential in the Marginal Propensities to Consume of the two classes of people. Income redistribution happens when government taxes the rich heavily and uses the proceeds to provide all kinds of support services and goods to the low income, including housing and transportation. Unfortunately, Nigeria is not famous for its great job in this regard. If anything, Nigeria is a specialist in inequality propagation.
Take housing for example, and the failure is so clear. While the monetization policy on government housing for top civil servants had merit (though translucently executed to favour the same top civil servants), there is no reason why we have no government accommodation for very poor and elderly citizens. Nigeria has a housing deficit of about 17 million units. Given available resources, however you compute it, our central government should be able to build at least 16 million low income houses in eight years. It is so easy to do, only that corruption and inflexibility of the perquisites of public office have not allowed us and nothing outlandish is going on to curb them.
If we could curb contract inflation, which is said to make Nigerian projects three times more expensive than those in other countries, we should conveniently build two million two-bedroom houses, akin to the Council Flats in England in a year. Ironically, a large proportion of these flats are now occupied by Nigerian retirees in London and other parts of the UK. It is embarrassing that Nigeria still funds foreign medical bills for government official, especially those who individually can afford it, while our hospitals shut down as doctors protest non-payment of their low salaries.
In a country where there is abundant evidence that the most critical challenge facing households is accommodation, isn’t it a sad commentary that no government has been able to crack the housing challenge? The federal government is squarely responsible for this failure because it cannot take more revenues than the 36 states and the Capital Territory put together and expect the states to do anything meaningful in this regard. Not with a system of government that makes emperors of our governors who are beyond accountability and have “constitutional empowers” to do whatever pleases them with the revenue of their states. Or how do you explain the fact that nobody is able to challenge them.
Economies in recession are treated as fragile objects. Policy makers are careful not to exacerbate the situation, even in the face of tough challenges. Instead, they promote investment, peace and harmony without which recovery is impossible. I urge us to spend the limited resources we have on projects that have multiplier effects rather than rush to open avoidable theatres of war and worsen the humanitarian crises we inflict on the world, as we seem ready to do in the South-east. The fact that all parts of Nigeria are now ready to discuss the terms of our unity should give us hope. Those who are in a hurry to kill their brothers should know that aid agencies are tired of us and that everything is on the social media. There is nothing that cannot be settled on a round table provided there is equity,love and justice.
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