Saturday, April 09, 2005

From “The Politics of Babangida” by Dele Rotimi, in Vangaurd, Lagos, Nigeria, 6 April 2005:

“As a matter of fact, economics in our time has recorded fundamental departures from the free market fixities and rigidities of the classical schools of Adam Smith. From the last century onwards to the present, the Western states have made large concessions to the economics of socialism. Today, all over Europe even the jobless are paid benefits by government, as against the old doctrine of capitalism that only those who are in employment have a moral right to earn money.”

Babangida was ousted as a military dictator and is now trying to make a come back in Nigeria. Rotimi, correctly, is opposed to Babangida’s return but he makes a poor economics’ case against Babangida, which contains numerous errors. He advocates a subsidy-ridden economy on the Soviet model, where the people get below cost food and fuel and the political apparatus, cynically, is protected against valid opposition that proposes to run a growth economy without subsidies and without the usual inane policies of ‘statism’.

Adam Smith never advocated inflexibility in the appropriate policies for an end to monopoly or the interference of government. He was flexible about the measures and the time scale of remedial action to the problems of great societies.

Rotimi castigates Babangida for his abandonment of state subsidies for important consumer commodities in Nigeria, which led to popular riots (unsurprisingly) and rapid price inflation when he responded to public dissent and relaxed his sensible policies. Rotimi’s error is to defend price subsidies. They seldom work, they end in tears because the state cannot afford them indefinitely and they lead to corruption and wasteful mismanagement (state price controls lead to inspection and rules, and bribes tempt the inspectors). Above all they create a culture of dependence among the people. And it does not matter whether it is the goods consumed by the very poor that are subsidised or the goods consumed by the middle classes. Witness the ferocity of the middle class when ‘subsidies’ are curtailed, as shown recently in the UK when the government withdrew free university education.

What Rotimi calls the ‘economics of socialism’, or ‘welfare capitalism’, had nothing at all to do with Adam Smith because he was dead long before capitalism developed out of the industrial revolution of the 19th century. Employment pay was unknown in Smith’s day, not because he and others ignored what Rotimi calls the ‘toiling masses’ (betraying Rotimi’s an affinity with Soviet rhetoric), but because nobody in the 18th century considered such innovations common in the 20th century! To make ‘large concessions’ to the ‘economics of socialism’, capitalist economies had to become much richer than was imaginable in mid-18th century Scotland (by all standards a very poor country). It was never a ‘doctrine’ of capitalism that the unemployed had no ‘moral rights’; philanthropy and charity and state funded welfare grew up alongside the rising wealth generated by capitalism. Before capitalism, bad as it was for those at the bottom of the heap, it was much worse in the preceding millennia for everybody other than the very rich and powerful; with capitalism in the 19th and 20th centuries per capita income right through the social scale reached levels unprecedented throughout history.

Free people in markets do better than under dictatorships, Babangida’s included; free people under the rule of law do better than people living in almost every state in Africa who are subject to that continent’s many dictatorships; free people trading with rich countries that are burdened with highly subsidised and high priced food (even taxed too) from the Common Agricultural Policy, much of the surplus of which is dumped into poor countries, would do much better if Europe abandoned these elements of the ‘economics of socialism’ and let markets feed it and the poor countries too. Using scarce tax revenues in poor countries to subsidise consumer products, while much of the rest of the country’s taxes on productive sectors are confiscated in scams, corruption, wasteful monuments and heavily (subsidised) internal security forces, is no solution for Rotimi’s ‘toiling masses’, or the middle classes.

Adam Smith was never part of the problem for the poor of Africa – he is part of the solution.


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