3rd November, 2015
By Oluwagbenga Oyebanji
Theories and economic arguments are short-sighted, because we are talking about human beings. Poverty has nothing to do with Keynesianism and Friedmanism but applying common sense economics. Since most economic policies are creating huge gap between the rich and the poor, I think common sense economics is the answer.
The greatest challenge facing most economies is closing the gap between the rich and the poor. How could this huge gap be reduced? Can it be reduced through political ideology? It is a wild goose chase, because ideologies actually create more problems. The fundamental problem with America’s politics are Republicans and Democrats, the two political parties only see politics from the prism of winning and losing. Common sense economics is about economic growth and development, it is the only economic policy that can balance the economic space of any democracy. The Keynesians and the monetarists don’t realize that time and space are the only factors in economic policy application. During the Great Depression, Frank Delano Roosevelt applied Keynesian economics which was the foundation of the ‘New Deal’.
The economic policy that could work at that time were Keynesian theories because based on the time and context all the economic capsules prescribed would cure the economic disease at that time.
Then came Milton Friedman with monetary policy application to economic governance, Ronald Reagan brought Reaganomics which highly emphasized on lean government and giving the market autonomy without government’s interference. The result was full employment deficit. Bill Clinton’s model continued with FDR/JFK democrat Keynesian philosophy, the result was full employment surplus.
Most politicians base their beliefs on ideology without understanding time and space as factors in economic model application. During FDR America was just coming from first world war, so it made sense to apply Keynesian model because the economy was depressed. JFK was practically different because it was post Second World War era which was practically different from FDR’s era. There was a change factor, because there was a change in time. All democratic presidents have similar economic policies while republican presidents share the same economic ideology. Keynesian and monetarist battle is about political ideology and not about the electorate.
The 70s brought a recession the world had never witnessed before, caused by crude-oil price increase of 1973. This economic recessive episode was caused by Yom Kippur war in the Middle-East which directly influenced the price of crude-oil. The Israel-Arab war created a panic buy from western industrialized nations which led to what economists referred to as supply shock. Richard Nixon was the US President then. Again ideology came to play, interest rate was high, the economy struggled. The supply shock lasted for 20 years between 1973-1993. Ronald Reagan’s economic policy was supply side economics. He allowed the market dictate the economy and tax cut was given to businesses. He reduced unemployment rate and inflation to 5.7% and 4.4% by 1988, thus Reaganomics was born.Bill Clinton had the most favourable tenure with no major wars and crude-oil price was stable during his 8years in office. The digital world brought a revolution never witnessed by any government. The digital/internet age was the secret of Clinton’s success.
The 21st century came with its own challenges. September 11 terrorist attack, occupation of Iraq which brought about crude-oil price increase and pressure on the world economy. The astronomical increase of crude-oil price brought another supply shock, this time with a different characteristic, high unemployment, mortgage crisis, high inflation and two major wars. Economists again coined a term called ‘Great Recession’. It is a political error to think ideology will solve or reduce this recession. Some achievements had been made but we are seeing a global trend which had never been before, unemployment is low, inflation and interest rate are low but the gap between the rich and poor is wide. Regardless of the supply and demand side economic policy of Bush and Obama, little has been achieved.
What we need in this era is ‘Common Sense Economics’, sustainable job and economic growth can only be achieved when a conducive environment is created for entrepreneurs, because they are the engine of growth in the economy. What do entrepreneurs need to create jobs and grow the economy?
Entrepreneurs will grow an economy faster in Common Sense Economy, where the tax code and fiscal policy encourage and don’t penalize would-be entrepreneurs. Transport sector must be upgraded to meet the realities of the nation’s transport demand, energy/power must be green driven to reduce climate hazards. Education system must be upgraded towards entrepreneurial education and not the present skilled labour orientation. Factors of production have four components, land, labour, capital, and entrepreneurship, the other three resources are going to be a waste without an entrepreneur optimizing these resources. According to the economist that first coined the word, Jean-Baptiste Say, “An entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.” An entrepreneur sees other factors of production as a resource, land, labour and capital regardless of the economic policy, the focus is more about optimization and not maximization.
Politicians have to put on their thinking cap and see democracy as a means and not an end in itself. Democracy is not about elections but creating economic optimization for all citizens. University education only focuses on creating skilled and knowledge workers. The entrepreneur knows that resources are limited, so the focus is on optimizing the resources and making profit. Because he knows that without profit he can’t be in business. That’s why an entrepreneur uses a tool called innovation to exploit change and create a new market. Politicians need to consult entrepreneurs on any policy, they shouldn’t assume based on ideology, because assumption is the pathway to failure.
Common Sense Economy is about optimizing the resources of any economy and not maximizing like the present model politicians adopt. This economic model is the model where entrepreneurs are the focal point of fiscal and monetary policy. Ideological focus is always on winning elections and after elections the winner takes all, but common sense economy focuses on the agents that grow the economy which are entrepreneurs, because this factor of production can actually be taught. This is the way out and the only path that reduces the gap between the rich and the poor.
President Buhari has lots of work to do. He needs to be reflective and strategic about building a strong foundation for Nigeria’s economy and politics. He has to change the way politics is seen in this country. America has failed the world in leadership, he has to refocus Nigeria into attaining the position of a global power. This is the first time in the history of Nigeria’s politics that everybody has unanimity of expectation. All hopes are pegged in the hole of Buhari’s promises. The challenges he has to confront include creating 10 million jobs in 4 years, infrastructures are dilapidated, he is surrounded by political vultures and opportunists. Where does he go from here? He needs to know the only way to rise to this high expectation is “Common Sense Economy”.
What Common Sense Economy asks for is placing great premium on infrastructure and human capital development. To view entrepreneurs as partners in growing the economy. The transport system is obsolete and can’t meet the demand of Nigeria’s economy. President Buhari has to focus more energy on transportation to boost commerce, the present transport system is archaic. The rail, road, water and air, if properly harnessed, can create 5 million sustainable jobs in four years. Agriculture has gone beyond subsistence level, the bus-stop for agriculture now, is technological agriculture which is using bio-technology, nanotechnology and robotics to boost productivity because this is the second industrial age.
Finally, education should be given a utmost priority. We can learn from Singapore when it comes to pre-primary, primary and secondary education, but in the case of tertiary education, America is the leading light. From these two we can formulate our educational policy using Singaporean/American model. The difference between poor nations and rich nations is quality education, that is what secures the future. Nigeria will be great if “Common Sense Economics” is applied. Long live Nigeria! “The labour of our heroes past shall never be in vain”.
–Oyebanji is an entrepreneurial consultant/Publisher of SuccessPoint Magazine. E-mail: [email protected]; Twitter: @oluwagbenga6