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Why economic philosophy matters: The globalisation play (3)

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Why economic philosophy matters: The globalisation play (3)

Why economic philosophy matters: The globalisation play (3)
March 09
07:07 2016

To KINGSLEY MOGHALU, a professor of Practice in International Business & Public Policy at the Fletcher School of Law & Diplomacy at Tufts University, Massachusetts, United States (U.S.), Nigeria should not exert its energies on monetary and exchange rate policies just to enlist in the global village. In this concluding part of a series, the ex-Central Bank of Nigeria (CBN) Deputy Governor believes the Federal Government should give more attention to fiscal, trade and industrial policies to grow and strengthen domestic economy. The banker-turned teacher is canvassing a revisit of all international treaties to which the country is a signatory.

GlobaliSation has been the most pervasive and influential secular phenomenon in world history. This process by which the economies and cultures of previously well separated nation states have become increasingly interconnected, this instant transmission of ideas, products and events across vast distances through the instrument of technology, has left no part of the world untouched. Least of all ours.

But globalisation has abolished neither the nation state, nor its borders. Nor has it wished sovereignty away as a legal concept. The nature of these concepts has merely modified to adapt to the nature of globalisation. It has, though, limited the scope of these attributes in weaker nations. Why this selective outcome of a phenomenon that is supposedly “universal”? It is because globalisation has drivers and passengers. It has points of origin and destinations. It has factories and it has markets. Though we now take it for granted as a cliché – a process that simply exists and is a fact of life -, globalisation is neither benign in its intent, nor agnostic in its belief. We fail to interrogate it at our peril, leaving our economies as mere markets – rather than factories – and passengers – rather than drivers – in the process. We are merely passengers in the process, with our 140 million mobile phones and the internet, because we lack the skills and technology to become a part of the production value chain of the goods of globalisation.

Since globalisation is such a pervasive reality, Nigeria and its leaders must interrogate and understand the phenomenon as a point of departure in seeking our place under the sun, our quest for the wealth of nations, our relevance and our competitiveness in a competitive world. In doing so, we must take a number of approaches. The first is to understand that we cannot shut globalisation out completely, no matter how “nationalistic” our instincts may be. One implication of this is the reality of capitalism and so-called “free” markets as the dominant economic framework in the world today, a subject I will address in more depth in the fourth and final part of this series.

Secondly, understanding this but recognising that we are nevertheless still possessed of our sovereignty, we must figure out how to engage with globalisation selectively and self-interestedly. This requires us to identify “where the rain began to beat us”, how we can correct this if possible, and the precise steps we need to take to become competitive in a globalised world. It is the combination of these two approaches, together with knowing where our focus and actions should be targeted, that will assure our economic ascendancy.

To demonstrate, we now know that human capital, which is to say, skill and productive knowledge which creates technological innovation, is what drives globalisation. Thus, without these prerequisites, Nigeria is a non-starter. So, we must prioritise, as President Muhammadu Buhari’s government is seeking to do, science and technology education and the creation of a skilled and technologically innovative workforce. But intent is one thing, effective execution is another. And it is the execution that we must measure. We must, as we all know, also prioritise domestic manufacturing to create jobs. This requires, at a most conservative stretch of ambition, a minimum of 10,000 megawatts of electricity generation in the next one year, 15,000 megawatts by 2018, and 20,000 by 2019, focused first, all in industrial-hubs such as Lagos, Nnewi/Onitsha, Aba and Kano. We should focus on these geographies not because others do not deserve electricity as well, but because effective prioritisation is a secret of economic success, and making these industrial hubs the priority will reduce the business and production costs of domestically produced goods. Electricity generation adds at least 20-30 per cent to these costs, which of course are passed on to consumers of products from bank loans to toilet roll.

It also requires that manufacturing firms are able to obtain foreign exchange (forex) to import essential inputs, since there is nowhere in the world that industrial scale manufacturing is able to restrict itself 100 per cent to local inputs. This is the very characteristic of economic complexity and globalisation, this ability to use foreign and domestic raw materials to create and export complex products competitively. Indeed, for most of the advanced countries, practically all the raw materials for their manufacturing are imported, and mostly from Africa! The alternative is a failure to grow the very industries and jobs we say we need to grow. And we must break the poverty-assuring cycle of having numerous inventions and innovators, but no real, effective policies and processes to move innovations to market as tradable goods. It is having our innovations and manufactures in our marketplace and as exports, that will create Nigeria’s wealth through our Total Factor Productivity (TFP). This TFP is the greatest influencer of the value of the naira in relation to other currencies. This way, the value of the naira will not be determined solely by the price of oil.

The next dimension of globalisation to understand and apply to economic policy, is world trade. This is the second major driver of globalisation after technology. Here, we need to link trade policy to industrial policy, and as well to science, technology and innovation policy. How? By creating necessary space in our domestic markets for our domestic product, innovations and manufactures.

The first two things to understand about world trade are that, one, 55 per cent of world trade is based on manufactured products, while only seven per cent is based on agriculture. Africa provides only a dismal one per cent of global manufacturing, which means that its ability to engage beneficially in world trade, and thus with globalisation, is severely limited. Two, the patterns of global trade are predominantly regional: Approximately, 70 per cent of Western Europe’s trade is carried out in Western Europe, and 55 per cent of North American countries’ trade is within that region, while the ratio is about 50 per cent for Asia. About 28 per cent of world trade by Latin American countries’ world trade is among the countries of that region, while it is 20 per cent for the countries of Central and Eastern Europe. Only 13 per cent of Africa’s trade is among African countries. Again, this shows that Nigeria, like many African countries is not well positioned in the globalisation phenomenon because the country is not competitive.

We must now position ourselves more aggressively to trade far more with African countries. A lot of trade goes on between Nigeria and our neighbours in West and Central Africa. But, much of this trade is informal and so, it is not captured in economic data and revenues. Formalising and increasing this trade is key.

To link trade and industrial policy, we must secure space in our domestic markets for our domestically-made products. Nigeria should now undertake a comprehensive review of several international trade treaties that our country entered into without thinking strategically to protect our infant local industries. Our leaders in the past have signed away access to our markets to foreign “partners” who manufacture and export to us at more competitive prices. The death of the textile industry and the invasion of Nigerian markets by Chinese products is one result of this failure to understand globalisation intellectually and apply that understanding to public policy and economic strategy.

Meanwhile, China itself, unlike Nigeria and many African countries, did not join the World Trade Organisation (WTO) at the global body’s inception in 1995. Instead, China negotiated for 17 years before signing the WTO Treaty. In that interregnum, the Asian giant extensively and strategically prepared its economy, businesses and markets for entry into the global economy on a competitive basis, even creating a Chines language “WTO Dictionary” for study by all Chinese businesses. Similarly, Russia negotiated for 19 years before joining the WTO.

In order for us to create appropriate space for Nigeria’s economic transformation away from oil, it is not enough to “buy naija” when our markets are so porous. We must address root causes by dealing with “where the rain began to beat us”. We must revisit international treaties such as the WTO, the Economic Community of West African States (ECOWAS) Common External Tariff (CET), and the European Union (EU)-sponsored Economic Partnership Agreement (EPA) that the EU has pressured smaller African states into signing and is desperate to have Nigeria and its huge market sign and “enter the bag”. The EPA, if Nigeria signs on to it, will further ruin the prospects for Nigeria’s industries to join the production value chains of globalisation. It will be for Nigeria the economic equivalent of a left-right knock-out punch. We are still reeling from the “left punch” of the dumping of Chinese goods on our markets. Another, from the right and from Europe to our dazed head, will leave us for dead. Like the famed boxing great Mohammed Ali, we must rope-a-dope in the face of brute strength as he did with George Foreman, “float like a butterfly and sting like a bee”!

Revisiting international treaties, necessary as I believe it is in this case, is not as easy as it sounds. It requires deep expertise in a combination of the substance of economic policy, diplomacy, and international law. This is especially the case for multilateral treaties involving several nations, and trade treaties typically fall into this category. It is best to reflect carefully before putting ink to paper in accession. Treaties, once signed, are binding on the signing country. A country may get out of a treaty unilaterally and legally in only three circumstances: One, there is a “material breach” by another party to the agreement that affects the ability and position of the country that wishes to exit from the treaty; two, there is a “supervening impossibility” for a party to discharge its obligations under the treaty; or, three, there is an unforeseen, fundamental change of circumstance from when the treaty was originally signed and ratified. As a last resort, a country may unilaterally “resile” (essentially, walk away) from a treaty. But this carries a heavy diplomatic and economic cost, and even the earlier three conditions are difficult to justify in international law.

So, how can Nigeria navigate this minefield and secure its economic future? First, our market is big and important enough to assert our interests, if we know how to and have the will. This is especially so in the case of the ECOWAS tariff agreement, of which Nigerian manufacturers have complained bitterly. In the case of the WTO, Nigeria can make use of the Special and Differentiated Treatment provisions of the WTO, and its present circumstances, to justify the necessity to impose prohibitive tariffs on imported luxury items for those who must pick their teeth with imported toothpicks, eat cavier, or drink champagne. This approach, which is “smart protectionism”, will (combined with others) promote local goods without disruptive measures that create undue dislocations in the economy. The “S and D” provisions in the WTO give developing countries special rights, including longer periods to implement the treaty obligations.They also include measures to increase the opportunities for developing countries to trade, and enjoin all WTO member countries to safeguard the interests of developing countries. Some of these provisions are even mandatory. Together, they provide an important loophole for Nigeria to carefully stage a comeback in international and regional trade and reposition its national economy.

If we attempt to do this, we will hear strong protests about “protectionism” from several countries. That should not deter us. China has not stopped pursuing its dominance as the world’s number one exporting economy because the U.S., Europe and Nigerian manufacturers are complaining about the Asian giant’s tactics. All great economic powers, from the U.S. to the British and the Chinese (more recently), have historically been first protectionist (and even in those centuries ago, the forces of globalisation were arguing otherwise) before subsequently opening up to international trade and even pushing the same globalisation agenda from a standpoint of economic and manufacturing strength.

It is to fiscal, trade and industrial policy that Nigerian economic policy should turn its serious attention, rather than emotive debates about monetary and exchange rate policy (to devalue or not to devalue the naira) by the Central Bank of Nigeria (CBN). These particular policies do not operate in a void. They simply complement or react to what happens in the real economy, which in turn is what determines the real value of our currency. We should know where and how to engage globalisation at the right points. We ought to be more discerning about where a well-articulated, philosophically grounded economic nationalism will best serve our national interests, and where we have to be somewhat more cautious given our prevailing structural realities.

Understanding and applying economic philosophy to economic policy also requires an appreciation of certain concepts of international relations by our policy makers. Chief among these is the concept of the “anarchical international society”. In spite of the rhetoric and reality of globalisation, there is in fact no such thing in reality as an “international community”, although we use the phrase as a cliché in the sense that countries are supposed to have become “their brothers’ keepers”. Many African nations, Nigeria included, have signed on to unequal treaties and operate their economies on the basis of this uncritical embrace of globalisation in the mistaken belief that its forces are benign or that they are obliged to do so as members of some presumed global village (believe me, if this village exists, the village chiefs here are not Africans!).

On the contrary, what we have, and what exists, is an international society of sovereign states that organise themselves around shared values and interests, mainly through trade, bilateral relations and international organisations, but otherwise pursue their fundamental interest as a primary objective. This creates inherent tensions and an unpredictability that some scholars of international relations have termed “anarchy”. The political and policy battles of the different negotiating rounds in the WTO such as the Doha Round, and the struggles for power and control of the Bretton Woods institutions (the International Monetary Fund (IMF) and the World Bank) between China and other emerging economic powers, on the one hand, and the traditional Western economic powers on the other, illustrates this concept. Put simply, the “international community”, just like other aspects of globalisation, has landlords and tenants.The problem is that the tenants frequently get eaten for lunch by the real landlords.

The economic relationship between African countries and China is yet another demonstration of this philosophical truth, as China deploys a strategic, self-interested and long-term policy towards African nations such as ours, while African nations have no individual or collective policy towards China. As the international relations scholar Hans Morgenthau noted: “And above all, remember always that it is not only a political necessity, but also a moral duty for a nation to follow in its dealings with other nations but one guiding star, one standard for thought, one rule for action: The National Interest”.

On the whole, economic globalisation has hurt Nigeria. The gains from opening up too quickly to liberalising international forces without adequate internal preparation have been few and very debatable. The problem was not liberalisation per se, but rather rushing it and letting the process slip out of our national control because we allowed the curse of the oil boom and the attendant fiscal profligacy and structural dislocations. The consequent IMF and World Bank imposed Structural Adjustment Programme (SAP) led to our de-industrialisation and thus to our lost decades of development because it put the financialisation of the economy (as the numbers of banks in Nigeria mushroomed) ahead of production. But, we cannot change history. We must adapt to the world of globalisation, but we must determine to succeed in it because others have. Ethiopia is not making our mistakes, and is prioritising manufacturing. Its manufacturing sector has grown by 10 per cent a year for the past ten years, driven by an emphasis on acquiring skilled labour, strategic partnerships with foreign investment in manufacturing industries, and the prioritising the provision of electricity and transport infrastructure to its industrial clusters.

In the next and final part of this essay, we will bring together the foundational need for a clear economic vision with which we began this discourse, the world view or “mental infrastructure” on which should embark on that mission, and our discussion of globalisation into an examination of capitalism and the recommended vision and policy choices for Nigeria.

-THENATION

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