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Social value creation: African firms & the SDGs

By Rafiq Raji

1.0       Introduction

Many African businesses do ponder about how they can contribute to the development of their host economies. Firms can be integral parts of the development process. They can make direct investments in social welfare and do so profitably without being exploitative.[1] The application of market-based solutions to social problems is not without controversy. There are documented pros and cons.[2] Thus, the idea might not easily appeal to people in developed economies where things already work, where governments deliver public services efficiently and do so quite optimally, and where privatisations proved underwhelming in numerous cases. Still, in the African context, there are myriad problems that could be solved with private sector creativity, capital and drive. Public goods are likely to be delivered efficiently if there is a profit motive.

Nonetheless, there is always the risk of monopolistic or cartel behaviour. A firm or group of firms providing public goods could dominate an industry so much that they become uncontrollable. There is also the risk that the owners of such dominant firms extend their influence into politics and government. These concerns about “extraction” or “crony capitalism,” that is, “a political system in which the rich and the powerful get together to run the state – and the market – for their own benefit” are not unfounded.[3] Within the African context, there are other peculiar risks of a private sector-led social welfare system. Realising their importance in an environment with weak institutions, private firms may become law unto themselves.

Firms providing private goods and services could also contribute to African development by simply being excellent in their ordinary line of business.[4] For instance, a mobile telecommunication services provider might better serve its host economies by simply providing the best service at the best price. And as the case of Kenya’s M-Pesa mobile money service by the United Kingdom’s Vodafone shows, that excellence can manifest in excitingly impactful ways.[5] There are other examples. Singapore’s Dufil Prima successfully introduced a new and highly nutritious staple food – noodles – into the African diet that is affordable and beloved across classes.[6] Another example is Promasidor, which made milk accessible and affordable for the majority African poor with its Cowbell brand of milk products.[7] These are firms providing largely private goods but contributing in very profitable but mutually beneficial ways to social welfare.    

Thus, as a development paradigm within the African context, social value creation (SVC) extends beyond simply finding a market-based solution to a developmental problem. Sometimes, it is no more than a mindset change towards excellence in the core business of a firm that invariably ends up creating social value. This distinction is important to ensure that it is not confused with corporate social responsibility or philanthropy, which though are means towards some social value creation, are only so if that is the primary end in mind, and not some secondary after-thought owing to a guilty conscience.

Incidentally, Africa is ideally suited for firms looking to create social value at scale with relatively less effort and resources. Owing to dearth of capacity on many fronts, the continent is not likely to meet the United Nations’ Sustainable Development Goals (SDGs) on time. Thus, the purpose of the article is to provide a simple and yet encompassing framework to guide firms on how best they could help with filling the continent’s myriad developmental gaps and needs in a systematic, measurable, direct and yet profitable way.

2.0       Rethinking capitalism for development

Free-market capitalism is increasingly being criticized as not fit-for-purpose. When firms have been solely focused on maximizing shareholder value as in Western democracies, inequality rose disproportionately, underpinning the political dysfunction witnessed in America and elsehwere. In her 2020 book, Reimagining capitalism: How business can save the world, Harvard Business School professor, Rebecca Henderson, wonders “why and how we can build a profitable, equitable and sustainable capitalism by changing how we think about the purpose of firms, their role in society, and their relationship to government and the state (Henderson, 2020).”

This is a pertinent question for our time as “extractive elites monopolize economic activity and systematically underinvest (when they invest at all) in public goods such as roads, hospitals and schools (Henderson, 2020).” The subsisting “massive environmental degradation, economic inequality, and institutional collapse” are dysfunctions that may continue to endure if the western-type capitalism that underpins them is not rethinked (Henderson, 2020).

African countries, which see the increasing dysfunction in many Western capitalist societies, must now wonder if they should similarly adopt what had hitherto been dubbed the silver bullet for lifting their teeming populations out of poverty to prosperity. Multinational firms doing business on the continent may yet prove that is still the case. Besides, “states everywhere are failing. If we are to reimagine capitalism, we need the private sector to be part of the effort to rebuild our institutions and to fix government (Henderson, 2020).” There is nowhere in the world where this is more pertinent than in many African countries. And as Henderson (2020) asserts, “today’s firms have enormous power to influence governments if they choose to use it.” Africa is probably the one place where that influence could be most impactful.

These are not sentimental ideas.  For instance, “many of the central institutions of the nineteenth-century American economy – including the New York Stock Exchange, the Chicago Board of Trade, and the New Orleans Cotton Exchange – were voluntary associations formed to address the public goods problems thrown up by the maturing US economy (Henderson, 2020).” In Germany, business leaders made the informed decision to cooperate with labour leaders to institute new economic orders at critical post-war junctures that endure to this day (Henderson, 2020). Consequently, “Germany now has one of the world’s strongest and most equal economies (Henderson, 2020).”

Similar business-labour cooperation in the face of political vaccums has been associated with Denmark (Henderson, 2020). There is also a thriving African example. Cooperation between business and political leaders has been attributed for Mauritius’ relative economic success. Mauritius, which though “fractured along racial lines,” “was able to build a thriving, multicultural community and a strong free market”, making it “now one of the most successful countries in Africa (Henderson, 2020).”

Business can help in even more proactive ways. According to IE Business School global economy professor Daniel Lacalle in his 2020 book, Freedom or equality: The key to prosperity through social capitalism, the power of free markets can be applied to solve society’s myriad problems. “Capitalism has delivered the greatest increase in social welfare the world has ever seen, and it will continue to do so in all areas. We simply need to apply the power of free markets to solve society’s greatest problems (Lacalle, 2020).”

The main idea is the application of free market ideas towards solving social problems and making profits in tandem. According to Lacalle (2020), “social capitalism, which is private investment into the public good, is the best system for creating sustainable solutions that produce the maximum welfare for all.” The Nordic countries are good examples of where such an approach has proved to be remarkably successful.

That said, there are risks. Social value creation could be used instead as a ploy for value extraction by firms. University College London economics of innovation and public value professor, Mariana Mazzucato, shows clearly in her 2019 book The value of everything: Making and taking in the global economy how far and apart the two concepts of value creation and value extraction are.[8] And how governments and populations could easily be hoodwinked towards the latter, which is predatory, under the guise of the former, which is productive.

The financialization of the care home and water industries in the UK is a classical example of how “financial engineering of socially essential services can change the nature of an industry (Mazzucato, 2019). Thus, social capitalism could sometimes or inevitably result in the “transformation of public goods into private goods” owing to value extraction, as opposed to the intended social value creation of providing efficient and reliable services (Mazzucato, 2019). A better way might be for all firms, whether they produce private or public goods, to seek social value creation.

3.0 How do firms create social value?

In his 2020 book, Grow the pie: How great companies deliver both purpose and profit, Alex Edmans, a professor of finance and academic director of the Centre for Corporate Governance at London Business School, asserts a company’s primary objective should be “social value rather than profits.” Incidentally, firms that adopt this approach end up being more profitable over time than firms with a sole profit objective (Edmans, 2020). However, SVC is not corporate social responsibility (CSR). Nor is it philanthropy. Fundamentally, it starts with a firm asking itself “how is the world a better place by your company being here?” (Edmans, 2020). As firms control a lot of human and financial resources, they are very well-placed to create value for society. Edmans (2020) terms this positive sum approach to business as “pieconomics”. This is an approach to business in which creating value for society is the primary goal, with profits an inevitable consequence.

Figure 1: The SDGs-SVC-Development model

How is SVC different from CSR, though? “CSR typically refers to activities that are siloed in a CSR department, often to offset the harm created by a company’s core business (Edmans, 2020).” Instead, SVC is integrated into the core business with the primary objective of serving society. Still, CSR could also be used to create social value. A better distinction is shown in Table 1. Most CSR activities qualify as corporate philanthropy where activities tend to be special projects whereas SVC is more aligned with social responsibility and thus embedded in the day-to-day business of the firm. 

Table 1: Business & Society models
 Trade-off modelCorporate philanthropySocial responsibility
Ultimate purpose of firm existenceWealth creationWealth creationSocial & economic development
Financial v Social performanceTrade-off correlation < 0Jointly achievable Social => FinancialJointly achievable Social => Financial
Governance modeShareholders’ ruleShareholders’ ruleShareholders’ mode
Resource allocation criterionShareholders’ value maximization (SVM)SVM long-term + short-term social impactLT social impact ST financial impact
Type of social impact activitiesNone, unless necessaryAdd-on to normal (special projects)Embedded in normal activities
Economic logic of social actionsRisk protectionRevenue growth opportunitiesFully integrated
Source: Zollo (2004)[9]

According to Edmans (2020), social value creation is guided by the three principles of multiplication, comparative advantage and materiality. The firm’s spend on a stakeholder should create a surplus benefit to the stakeholder (multiplication). The firm should be the one best able to add value than others for the particular activity (comparative advantage). And the beneficiaries of this activity should be material to the firm’s business (materiality).

Edmans (2020) cites a few examples to illustrate how the principles work. Coca-Cola’s Last Mile intiative leverages its comparative advantage in last mile distribution and cold storage logistics to transport medicines across Africa, for instance. Another example is Singaporean-headquarted agribusiness Olam, which grows various crops across the continent. Olam’s ‘Growing Responsibly’ philosophy helps to ensure conservation and regeneration in its operations and the natural resources it exploits. Similarly, owing to its huge water consumption and the tandem effects on the environment, Coca-Cola invests in various safe drinking water projects across Africa. And simply in the pursuit of excellence, Vodafone’s M-Pesa mobile money service in Kenya has transformed many lives.

4.0       African businesses are well-placed for social value creation

The United Nations’ Sustainable Development Goals (SDGs) is a comprehensive framework for assessing the development needs of the continent. A firm, looking to create social value, would find the SDGs a good starting point. Where do African countries currently stand with respect to the SDGs? The continental scorecard is very poor (see Table 2).  According to the 2020 Africa SDG Index and Dashboards Report, no country had a good score for 13 of the 17 goals, for instance.[10]  The most pressing SDGs are good health and wellbeing (SDG 3), infrastructure (SDG 9) and peace, justice and strong institutions (SDG 16). Amongst the identified challenges in implementing the SDGs in Africa, the private sector could easily help with inadequate financial resources, lack of capacity in the civil service and civil society and lack of adequate data.[11]

Table 2: Status of the Sustainable Development Goals in Africa
GoalDescriptionCurrent status
1No poverty 2030 poverty target will not be met by any African region other than North Africa. In absolute numbers, poverty has increased.
2Zero hunger With the exception of North Africa, food insecurity in Africa persists at a rate of over 25%
3Good health and well-beingUnder-five mortality rates are highest in Africa and well above the global average
4Quality education 100% primary enrolment rate by 2030 likely if effort sustained. More than 50% of African countries already have over 90% primary enrolment rate. 
5Gender equality Sub-Saharan Africa average greater than global. Africa leads the world in appointing female legislators.
6Clean water & sanitation Access to improved drinking water within a 30-minute round trip is below world average and off-target
7Affordable & clean energy Half of Africa has electrification rates of less than 40%. North Africa on track to achieve 100% electrification by 2030
8Decent work & economic growth Over 40 African countries have unemployment rates of over 5%.
9Industry, innovation & infrastructure Internet usage in Africa remains very low. Nearly half of African countries have internet access of less than 20%.
10Reduced inequalities Growing evidence shows Africa is one of the most unequal regions in the world. In fact, inequality worsened in 25 African countries between 2000 and 2015.
11Sustainable cities & communities Africa is relatively less urbanized. 13 countries have formulated and 21 are in the process of implementing national urban policies.
12Sustainable consumption & production No data available on any of the indicators
13Climate action Africa is the best performing region in the world when it comes to CO2 emissions.
14Life below water No data available to assess progress
15Life on land Good amount of protected land dedicated to supporting diversity. With focused policy interventions, 2030 target could be met.
16Peace, justice & strong institutions Number of deaths owing to conflict or terrorism in Africa is significantly higher than the global average.
17Partnerships for the goals More than half of African countries have a national statistics plan that is fully funded and being implemented.

Source: The Sustainable Development Goals Center for Africa (2019). Africa 2030: Sustainable development goals three-year reality check. Kigali: SDG Centre for Africa. Retrieved from 

According to The Sustainable Development Goals Center for Africa, the SDG financing gap for Africa is estimated at between US$500 billion to US$1.2 trillion annually. Juxtapose that with more than 400 companies with gross sales of at least US$1 billion annually on the continent.[12] Yes, these firms likely pay their fair share in taxes. But clearly, there is so much more they could do on financing alone. More than half of the world’s poor are in Africa, with over 60 million children stunted and almost 300 million of its 1.2 billion population malnourished.[13] Many African firms can create social value in this regard as well. As shown in Figure 2, there are many other ways African firms could create social value. Firms involved in sustainable agriculture, water infrastructure or renewable energy would be creating social value by virtue of their products and services. Incidentally, these examples speak to the predominant needs related to food, water, housing, transportation and energy on the continent. In other cases, it could simply be via how firms doing business on the continent conduct their operations. Do they seek sustainable production, an inclusive workforce, gender balance and so on?  

Figure 2: Framework to assess the impact of listed companies on the SDGs

Source: United Nations (2020). Financing for sustainable development report 2020. New York: United Nations. Retrieved from   

And the evidence increasingly show that even in the African case, SVC can be profitable in the long run and loss-making when ignored. As shown in Table 3, when southern African firms invested in HIV/AIDS prevention and treatment, they not only helped save lives but enjoyed increase staff productivity and higher returns on their human capital. The Fairtrade chocolate initiative in Ghana is another good example. Cocoa farmers got paid more and participating firms secured better margins in tandem. And in instances where firms chose to be unethical like the UK’s Thor Chemicals in South Africa, it ended up paying a higher price.

There are recent examples as well. Nigeria’s Dangote Cement is building a cement-only multi-carriage road to the country’s busiest sea port in Lagos, for instance.[14] And in January 2021, multinational oil company Shell was ordered by a Dutch court to pay significant compensation to host communities as damages for environmental degradation owing to its exploration activities in the Niger Delta.[15] So even if in the African context, SVC may need to be decidedly less ambitious than the ideal in some cases, there is a lot that firms can do with so little.

Because of the peculiar political and socioeconomic contexts in many African countries, even if a company desires to put society first, it may find itself out of business before it is ever able to do significant good. Even Edmans (2020) admonishes that “while a company’s primary goal should be to create value for society, it’s important that it does so in a discerning way.” This is because even as it is true that companies which deliver great social value tend to also do well financially, it is not always the case. This nuance is even more pertinent in the African context. 

Table 3: Social value creation in Africa 
ExampleBusiness case
Investments in prevention, treatment and care of HIV/AIDS by companies operating in southern Africa (such as Eskom) have led to reduced incidence of the disease and improvements in workers’ quality of lifeReductions in the cost of benefit payments, employee training, overtime and casual wages, insurance premiums, supervision and management; increases in productivity and employee motivation, and retention of trained employees
Fairtrade chocolate, which provides a market for initiatives such as Kuapa Kokoo, a cooperative involving 35,000 farmers in Ghana farming according to social and environmental principlesThe Fairtrade movement is based on consumers’ willingness to pay a premium on products that are produced with high social and environmental standards, thereby providing more secure income to the cooperative’s members
During the 1980s and early 1990s, UK-based company Thor Chemicals’ mercury reprocessing plant in South Africa gave rise to severe pollution and health impacts on employees, including the death of two workers in 1993.The company’s blatant pollution and health offences gave rise to numerous protest and legal actions. Business partners discontinued their relationship with the company. In 1993, the company and three of its directors were charged by the South African state (though charges were dropped after the payment of a small fine). In 1994, the plant was closed down by the government. The company was subsequently sued both in South Africa and in the UK, with settlement payments totalling over $3 million.
The Nairobi-based Serena Group of Hotels has built a number of lodges and tented camps in East Africa. It has implemented extensive environmental management, community involvement, and enterprise development programmesThe acceptance of the Group’s activities amongst local populations has significantly reduced theft incidents. The Group has also won a prestigious “Green Globe” award, thereby improving its reputation in the travel industry. Sensitive siting, protection of resources, and good community relations add to their visitors’ ecotourism experience.
Source: Hamann (2006), IFC et al. (2002)[16] [17]

But even in the difficult African terrain, there are many instances where an SVC mindset would have been clearly more profitable. Take the earlier mentioned case of Shell Nigeria, which was ordered by a Dutch court in late January 2021 to pay compensation to farmers affected by oil spills from its operations in the Niger Delta. In addition to the financial reparations, Shell has also been ordered to install equipment to prevent further leaks. And while Shell argues the oil pipeline leaks were due to sabotage, there is no gainsaying that an SVC mindset – e.g., a duty of care – would have made the firm more enthused to ensure the leakages did not persist despite the high infrastructure and security costs.

Besides, Shell could easily have created social value by aiming for the SDGs via its operations to prevent pollution, waste generation and abuse of human rights (see Figure 2). By the recent Dutch court indictment, it clearly failed in regard of SDG 1 (no poverty) since livelihoods were lost as fishermen could not fish, SDG 3 (good health & well-being) in light of health costs to members of the host communities, SDG 6 (clean water & sanitation) owing to pollution of water bodies for drinking water, bathing, and laundry, SDG 11 (sustainable cities & communities), and SDG 13 (climate action).   

Another case in point is the construction of the Apapa-Oshodi-Oworonsoki-Ojota highway in Lagos, Nigeria, by Dangote Industries. Perennially out of repair, the highway is the main access road to the busiest sea port in the country. And every time it was repaired in the past, it almost always unraveled during the rainy season, with a constant sight of long queues of heavy duty trucks parked by the side of the road for a considerable distance. And while Dangote Industries would enjoy a 10-year tax rebate from the Nigerian government, the value to the firm and the Nigerian economy owing to the wider and expectedly more resilient all-cement road, would be far greater than the estimated tax concessions of about US$180 million (72.9 billion naira).

The initiative is multiplicative, leverages on Dangote Cement’s comparative advantage, and is material to its business and stakeholders. And even as Dangote does not explicity say the intiative would help with the SDGs, it probably should have consciously sought to do so. Clearly, the Lagos port road would help with SDG 1 (no poverty), SDG 9 (industry, innovation, and infrastructure), SDG 11 (sustainable cities & communities), and SDG 17 (partnerships for the goals).

In sum, the above examples highlight how in spite of the peculiarly difficult African business environment, firms could aim for social value creation in a systematic, measurable and sustainable way by mirroring the SDGs in their operations, CSR and philanthropy. The upside to the African case is that firms have so many opportunities for social value creation with relatively less effort and financial resources. And there is almost an immediate, direct and easily discernible development impact. Where all firms operating on the continent to adopt our SDGs-SVC-Development model, the sum of the whole would almost certainly make the achievement of the SDGs in many African countries more feasible. 

5.0       Conclusion & Recommendations

African businesses can contribute to the economic development of their host economies by deliberately seeking to create social value. Market-based solutions to social problems have been found to produce optimal public goods. And even by simply pursuing excellence in the normal course of business, a private goods firm could create social value similarly. Incidentally, Africa is ideally suited for global, pan-African and local firms looking to create social value at scale.

Our SDGs-SVC-Development model is a simple but encompassing framework that guides firms on how they could easily help with filling the continent’s myriad developmental gaps and needs. It relies on the United Nations’ Sustainable Development Goals to scope the continent’s development needs. Relying on various literature, we show how aiming for the SDGs creates social value. We also highlight the unique African case where but for increased engagement by all stakeholders, especially the private sector, targets for the SDGs are not likely to be realised. How is Africa a better place by your firm being here? How can you use your firm’s expertise to solve this social problem? These are the pertinent questions our SDGs-SVC-Development model hopes to enable firms operating on the African continent scope and answer with action.

Since studies on the relationship between business and society in Africa is relatively scant, the article’s continental bias is apropos. In Mauritius, a synergistic relationship between business and government underpins its relatively shared prosperity. Vodafone’s M-pesa in Kenya increased financial inclusion, helped in reducing poverty and is now being replicated across the world. Coca-Cola’s usage of its cold logistics and last mile distribution infrastructure to transport medicines and vaccines is another excellent example of social value creation. We also highlight the risks inherent in the provision of social services or public goods by the private sector. Under the guise of social value creation, firms have instead resorted to value extraction in many instances.

With more than 400 companies on the continent earning at least US$1 billion annually, the US$500 billion to US$1.2 trillion annual SDGs financing gap for Africa could easily be met if most firms on the continent (if not all) adopt a social value creation mindset. Beyond financing, firms could also provide expertise to make up for the identified lack of capacity in the civil service and civil society and inadequate data in many African countries. Additionally, firms could also create social value by virtue of their product and services. And even when firms are not involved in such naturally SVC-themed ventures like sustainable agriculture, water infrastructure, renewable energy and so on, they could easily create social value by simply conducting their operations in an ethical and sustainable manner.


[1] Lacalle, D. (2020). Freedom or equality: The key to prosperity through social capitalism. New York: Post Hill Press

[2] Estrin, S. & Pelletier, A. (2015). Privatisation in developing countries: What are the lessons of experience? London: Economic & Private Sector Professional Evidence and Applied Knowledge Services. Retrieved from

[3] Henderson, R. (2020). Reimagining capitalism: How business can save the world. UK: Penguin.

[4] Edmans, A. (2020) Grow the pie: How great companies deliver both purpose and profit. Cambridge: Cambridge University Press.

[5] M-pesa has completely transformed Kenya’s economy, this is how… (2017, January 4). CNBC Africa. Retrieved from

[6] Ojomo, E. (2016, May 5). Disruptive innovation: The most viable strategy for economic development in Africa. World Bank Blogs. Retrieved from 

[7] Meacham, M., Tymms, A., Moolman, T. & de Montgolfier, J. (2012, April 5). How companies overcome Africa’s five great challenges. Promasidor. Retrieved from 

[8] Mazzucato, M. (2019). The value of everything: Making and taking in the global economy. UK: Penguin Books

[9] Zollo, M. (2004). Philanthropy or CSR: a strategic choice. A special report by European Business Forum London 2004, pp. 18-19. Retrieved from

[10] The Sustainable Development Goals Center for Africa & Sustainable Development Solutions Network (2020). Africa SDG Index and Dashboards Report 2020. Kigali & New York: SDG Center for Africa and Sustainable Development Solutions Network. Retrieved from  

[11] The Sustainable Development Goals Center for Africa & Sustainable Development Solutions Network (2019). Africa SDG Index and Dashboards Report 2019. Kigali & New York: SDG Center for Africa and Sustainable Development Solutions Network. Retrieved from

[12] Leke, A. & Signe, L. (2019, January 11). Spotlighting opportunities for business in Africa and strategies to succeed in the world’s next big growth market. Brookings. Retrieved from

[13] The Sustainable Development Goals Center for Africa (2019). Africa 2030: Sustainable development goals three-year reality check. Kigali: SDG Centre for Africa. Retrieved from 

[14] Dangote (2019, December 30). The Apapa-Oshodi road will last for 40 years when completed, Dangote [Press release]. Retrieved from 

[15] Shell Nigeria ordered to pay compensation for oil spills (2021, January 29). BBC. Retrieved from

[16] Hamann, R. (2006). Can business make decisive contributions to development? Towards a research agenda on corporate citizenship and beyond. Development Southern Africa, 23 (2), pp. 175-195. Retrieved from   

[17] International Finance Corporation & Sustainability & Instituto Ethos (2002). The business case in emerging economies. Washington: International Finance Corporation

Capitalism: East or West?

By Rafiq Raji, PhD (Twitter: @DrRafiqRaji)

We are all capitalists now. Even still communist North Korea has a thriving black market. With so many variants of capitalism these days, it is increasingly hard to say definitively what capitalism is. According to Encyclopaedia Britannica, “Capitalism, also called free market economy or free entreprise economy, is an economic system, dominant in the Western world since the breakup of feudalism, in which most means of production are privately owned and production is guided and income distributed largely through the operation of markets. A little complicated? I’ll simplify. In the June 2015 issue of Finance & Development (F&D Magazine), a publication by the International Monetary Fund (IMF), authors Sarwat Jahan and Ahmed Saber Mahmud, break it down quite well. Whereas in socialist societies, “the state owns the means of production, and state-owned enterprises seek to maximize social good rather than profits,” “the essential feature of capitalism is the motive to make a profit (Jahan & Mahmud, 2015).”

According to Jahan & Mahmud (2015), capitalism is founded on the six pillars of (1) private property, (2) self-interest, (3) competition, (4) a market mechanism, (5) freedom to choose, and a  (6) limited role of government. And “the extent to which these pillars operate distinguishes various forms of capitalism (Jahan & Mahmud, 2015).” Broadly, there are two forms of capitalism: free markets and mixed (Jahan & Mahmud, 2015). And I agree with Jahan & Mahmud (2015) when they assert that “mixed capitalist economies predominate today”. Most of the world’s economies take a middle course between private and state ownership; with the preponderance of either one suggesting the tilt. Consequently, varied classifications have emerged. One system identifies four types of capitalism underpinned by entrepreneurship: “state-guided capitalism”, “oligarchic capitalism”, “big-firm capitalism” and “entrepreneurial capitalism” (Jahan & Mahmud, 2015). This is a needless complication for our purposes.

The goal is to compare how the West (e.g., United States) and the East (e.g., China) have gone about achieving prosperity at scale for their respective populations. There is consensus that but for China’s embrace of some form of Western-style capitalism, it would have remained in the doldrums. What is interesting in the Chinese case is that it took lessons from the various Western experiences and those of pioneering Asian peers, replicating what worked, while avoiding some of their mistakes. We could not say for sure as yet which of the East or West got it right. And as we move further along in the discussion, the recurring insight is that there is truly nothing new under the sun and that ultimately, African economies looking to lift their populations out of poverty, would find that it is how they adapt what they know about these systems to their own peculiar circumstances that would determine how successful they become.

Intelligent learning

In his 2020 book, “China: The bubble that never pops”, Bloomberg chief economist, Thomas Orlik, attempts to explain what underpins China’s continued economic success. To be honest, and Orlik (2020) acknowledges as much, China’s resilience continues to surprise many. And even as it braves crisis after crisis, the sceptics believe it is only a matter of time before it unravels. That said, most agree that China’s resurgence began with Deng Xiaoping’s accession to paramount leadership in December 1978 with his “resolutely pragmatic ‘practice is the sole criterion of truth’…guiding philosophy (Orlik, 2020).”

Firstly, in December 1978, China abolished agricultural collectives, beginning the “household responsibility” system. Orlik (2020) asserts this was a turning point in China’s economic evolution because “by restoring the link between effort and reward”, China’s farmers stopped free-riding on their compatriots and “put their backs into it”. “By 1984, 99 percent of rural households were participating in the [household responsibility] system, up from 1 percent in 1979. Next came “enterprise autonomy” for industry, gradual elimination of price controls, allowance for sale of “above-plan output” and a greater profit-sharing in favour of entrepreneurs (Orlik, 2020).

Naturally, China was thereafter ready to conquer the world. In this regard, China set up special economic zones, within which “import and export tariffs were relaxed, businesses could operate according to market principles, free of the constrictions of China’s still-planned economy (Orlik, 2020).” From a real GDP growth rate of -1.6% in 1976, China grew by 15.2% in 1984 and after slowing to a 3.9% rate in 1990, has been accelerating largely above 6% annually ever since. Yes, there are contentions about the accuracy of its output data. What is not in doubt is its economic success. Even so, it is still widely believed that its success would not be sustainable.    

Pundits expected China to unravel in 2016, for instance. One Washington Post op-ed in mid January 2016 captioned “The China bubble pops” triumphantly opined “no longer are the country’s economic managers viewed as magicians who can orchestrate rapid growth whatever the obstacles.” Its equity market was in turmoil and its debt markets were on steroids. According to Orlik (2020), the authorities faced an imposible choice. They could sustain the credit bubble till it popped or they could deflate it. Either choice would be consequential for economic and social stability. Maybe the mostly western pessimists should have held their horses a little bit longer. Because to the surprise of many, the Chinese authorities managed to pull out a rabbit yet again. “Two years into the deleveraging campaign, China’s policymakers had achieved faster growth, a steady debt-to-GDP ratio, and a shrinking shadow banking sector (Orlik, 2020).”

So, how did the Chinese manage to do the impossible? Orlik (2020) believes the resilience of the Chinese economy was underestimated. More importantly, the “ingenuity of policymakers” and “unusual resources of an authoritarian state” proved decisive (Orlik, 2020). The politics underpinning Chinese capitalism, which ordinarily constrains the kind of game-changing innovations that only a free society can incubate, did come in handy when crisis hit, though. Actually, at the initial stages of an economy’s development, freedom might not be as differential we might think. A firm, determined and visionary leadership matters more in those early days. For instance, after witnessing the United States’ decimation of Japanese cities Hiroshima and Nagasaki with nuclear bombs, the Chinese saw an urgent need to have nuclear weapons of their own.

But how to go about it? Since they did not have the know-how, they sought help from the Soviet Union, which obliged in the “spirit of communist brotherhood” (Orlik, 2020). But not for long, as Soviet politics tilted towards a rapprochement with the West. In Orlik’s (2020) narration, Chinese leader Mao was not particularly enthused about acquiring nuclear weapons in any case. China would go on to detonate an atomic bomb in October 1964, five years after the Soviet abandonment. How did they do it? They did it by “drawing on what they had already learned from some fourteen hundred Russian advisors, gleaning further insights from scientific publications in the United States and Europe, and peeking in on other countries’ weapons tests (Orlik, 2020).” 

They would later apply the same “copy” strategy to strengthen their industrial base in the 2000s. China joined the World Trade Organisation (WTO), boosting exports. It closed many of its state-owned enterprises and cleaned up its banking system. But “even as exports were booming”, with annual growth in overseas sales topping 40 percent, Chinese firms made limited technological input (Orlik, 2020). “Chinese firms and workers were confined to the low-value, low-wage task of snapping the pieces together (Orlik, 2020).” Instead, “high-tech inputs came from Japan, Korea, and Taiwan”, with American and European multinationals retaining ownership and control of intellectual property and brands (Orlik, 2020).

“Multinationals did their research and development in their home country, leaving China in the dark on how new products and technologies were developed (Orlik, 2020).” Clearly, if China wanted to develop further, it had to do something drastic. And that is exactly what it did. According to Orlik (2020), China decided it would have “control of the technologies that were necessary to the next stage of its development (Orlik, 2020).” Leveraging on its huge population of more than a billion people, China demanded foreign firms form joint ventures with local firms or required they “hand over valuable technology as the price of market entry (Orlik, 2020).” The rest as they say is history.

Balance matters

In his 2020 book, “When more is not better: Overcoming America’s obsession with economic efficiency”, Roger Martin, emeritus professor of strategic management at the University of Toronto’s Rotman School of Management, describes an American capitalism that has become “out of balance”. Americans feel left out from the economy. They do not “feel that the economy worked for them.” Additionally, “people were decisively disengaged from politics.” These were the findings from a study Martin (2020) prefaced his book with to show how Western capitalism is becoming increasingly underwhelming. As showed in the Eastern case, politics matter. And the whole essence of so-called “democratic capitalism” is the democratic component. But with people disillusioned with politics in the West, there is increasingly less democracy in the “democratic capitalism pudding.” The result? Increasing inequality, monopolies and an ineffective politics-business feedback mechanism. Big business could literally get any laws it wants passed through well-funded lobbyists. Politicians rely on donations from the business community to get and stay elected. Thus, the very elements of Western capitalism that recommended it to many, its free markets, transparent politics, and effective justice system, are increasingly falling victim to the deep pockets of business and associated corruption. “What was once a sterling feature of the American experience, economic mobility in the land of opportunity, has ground to a halt. Strong improvement in mobility in the 1940s and 1950s gave way to slower improvement in the 1960s and 1970s, and to slight decreases since (Martin, 2020).” But does that suggest the Eastern version of capitalism is better?

Martin (2020) argues that a preponderant focus on efficiency is largely responsible for the prevailing despondency with democratic capitalism in the United States. “Rather than striving singularly for ever more efficiency, we need to strive for balance between efficiency and a second feature: resilience (Martin, 2020).” According to Martin (2020), “a system is resilient to the extent that over time it can adjust to its changing context in ways that allow it to continue functioning and delivering its desired benefits (Martin, 2020).” And in the past, America demonstrated remarkable resilience. “In the depths of the Great Depression, American democratic capitalism was resilient. It shifted, adjusted, and adapted to the shocks to its core, but it maintained the combination of those two features: democracy and capitalism. In many other developed countries, democratic capitalism was not sufficiently resilient to survive and was replaced by fascism or communism (Martin, 2020).”

So, what has changed? How did a system, which came out of the trauma of the Great Depression even stronger, transform to the current sorry state? Martin (2020) blames the prevailing view of the American economy as an efficient machine. “Pursuit of efficiency is definitively not a bad thing. The rise in the standard of living of the average family in America from the Revolutionary War to the present is substantially the result of much higher efficiency today compared with that of centuries ago. But there is ample evidence that the pursuit of efficiency just isn’t working as well now – and hasn’t been for almost half a century (Martin, 2020).”

To fix things, Martin (2020) suggests seeing the economy as a complex adaptive system instead. That is, one that is not left unhinged, where profit is not the only motive, and allows for a systematic periodic adaptation to the inevitable change of circumstances, factors, and constraints over time. Ordinarily, it would be assumed that the American capitalist system would be easily adaptable to changing circumstances. After all, if a vibrant media keeps politicians on their toes, and errant public officials are replaced via the ballot box at regular intervals, and a meritocratic system ensures the best brains excel to the top, then the system should naturally evolve and correct itself as variables change, as they most surely do. And as Martin (2020) highlights, that was in fact the case in America once. That has changed, however. For instance, legislations are difficult to change once they become laws. Take Obamacare, which though loved by many Americans, was one legislation former President Barack Obama’s opponents in the Republican Party were determined to “repeal and replace” but have thus far failed to do (Martin, 2020). Knowing this, sponsors of self-interested legislations could milk the benefits for years before even the slightest possibility of a change. Martin (2020) suggests a remedy to the dysfunction: “Retire the machine model of the economy and consciously adopt the model of the natural system” with the three core features of “complexity, “adaptivity, and “systemic structure”.

Canada is proof western capitalism needs to have built-in safeguards. Does it surprise anyone that Canada was largely unscathed by the most recent global financial crisis despite its close connections with the United States? It was not just  good fortune. Martin (2020) points to certain features in the Canadian financial system to show why. For instance, there is a required decennial review provision in Canada’s financial regulatory regime. “Regardless of the situation, regardless of the political context, [Canada’s Bank Act] was to be formally reviewed every ten years (Martin, 2020).” Now shortened to every five years, the periodic review “enabled Canada’s regulators to balance continuity with change, tweaking regularly so that the system never becomes unbalanced (Martin, 2020).” There were other factors; like not allowing the big banks to merge, a more proactive informal non-punitive ex ante regulatory style, and so on. But the part about the review is more pertinent to our exposition as it is evidence that capitalism when left to its whims and caprices births an American and global financial crisis and when safeguarded like in the Canadian case, achieves better and sustainable outcomes.

That said, it might actually be erroneous to say America is in bad shape. Put another way, if the American economy seems sluggish or less vibrant, it could be argued to be the consequence and evidence of its success. That is the argument pushed by Dietrich Vollrath, economics professor at the University of Houston in his 2020 book “Fully grown: Why a stagnant economy is a sign of success”. “Slow growth, it turns out, is the optimal response to massive economic success (Vollrath, 2020).” According to Vollrath (2020), “starting around the early 2000s, the growth rate of real GDP in the United States dropped compared to the historical norm of around 2.25% per year, and now is somewhere around 1.0% per year (Vollrath, 2020).” Does that mean America is falling behind? Vollrath (2020) does not think so. Instead, he believes “compared to other developed economies, the growth slowdown in the United States is not extraordinary (Vollrath, 2020).”

According to Vollrath (2020), even though “China’s real GDP per capita grew very, very quickly compared to that of the United States in the past twenty years…[it] is not an indication that the US fell behind in the level of living standards.” In fact, Vollrath (2020) believes “even if China manages to retain its high growth rate, it will still be another twenty-five years before real GDP per capita catches up to the US level.” And he is doubtful that China would be able to sustain such high growth rates for long. In any case, an investigation into what underpins the prevailing US growth slowdown allows us garner insights into the potential pitfalls of Western capitalism to avoid. For instance, Vollrath (2020) finds that “the single most important explanation for the [American] growth slowdown was the decline in the growth rate of human capital per person.”

From a growth rate of 0.96% in the twentieth century, America’s human capital per capita has declined to -0.15% in the twenty-first century (Vollrath, 2020). “The fall in fertility rates during the twentieth century can explain much of that slower human capital growth”, Vollrath (2020) finds. And he argues this in itself is due to American success. Because as wages rose, Americans chose to marry later and have fewer children (Vollrath, 2020). Also, labour-saving household technologies “made remaining single a more attractive situation – for both men and women – and contributed to the delay in the age of marriage and a reduction in the marriage rate overall (Vollrath, 2020).” And having chosen to marry later, there was also a reduced amount of time to have and care for children. The resultant effect was slower population growth and by extension, reduced human capital.

Vollrath (2020) also suggests another reason for the American growth slowdown: “innovations are getting harder to find.” Another potential explanation, albeit tenuous, is the increased concentration of firms and the observed consequent reduction in net investment. This would be “consistent with the basic theory that firms with market power restrict output in favour of keeping their prices above costs (Vollrath, 2020).” It is also tempting to suggest that China’s rise underpins the American slowdown. This is not totally baseless.

There is evidence of significant American manufacturing unemployment owing to Chinese competition. But as Vollrath (2020) asserts, that in itself was not significant enough a factor in the American growth slowdown. “The growth slowdown would have happened even if China had never become a major exporter, as the US was already in the middle of a long-run shift away from goods production toward services production (Vollrath, 2020).” Yes, “China accelerated this in a small way but was not responsible for it (Vollrath, 2020).” What really underpins the American growth slowdown are “the drop in family size and population aging…[which] lowered the growth rate by about 0.80 percentage points all by itself,…the shift from goods to services [which] took off another 0.20 percentage points, at least…[and when put together, both]…account for the three-quarters of the drop in the [American economic] growth rate (Vollrath, 2020).”

Chart your course

Any form of capitalism can be dimensioned along three lines: politics, production, and profits. The politics determines the rules and ownership of production. How the surplus from production is shared determines the incentives for either efficient or innovative production or both. Efficiency could almost certainly be assured in a totalitarian state. Innovation, however, thrives better in free societies where risks are appropriately rewarded and the gains not expropriated by the state. Thus, what is ideal is to have an efficient and innovative production sphere. And as our exposition shows thus far, the eastern and western variants of capitalism have their pros and cons. The key then is not to be entrenched with either. Instead, an aspiring African country should look to take the pros from each type and do its utmost to avoid the cons.

Many African countries desire to follow in China’s footsteps. Unfortunately, they would only be able to do so to a limited extent. And as the increasing success of “copycat” Asian countries like Vietnam, Philippines and Bangladesh shows, even such small feats can still be transformational. However, even those countries may be approaching a premature climax. This is because the expectation that as labour costs rise in China, global supply chains would migrate to lower cost jurisdictions, may not materialise as much as hoped. The “mastery of a new generation of automated production processes may enable China to retain its low-cost advantage (Orlik, 2020).” Still, “China’s technological gains won’t end the migration of labor-intensive employment to Southeast Asia. But it could significantly reduce its scope (Orlik, 2020).”

More importantly, and certainly more relevant for African policymakers, is how the Chinese have approached development. In other words, what they have done is not really as important as how they have gone about doing it. Chinese policymakers’s success with bringing their 2015-16 financial market troubles under control did not happen by chance. According to Orlik (2020), an elite team from the central bank and thinktanks “delved into the history of the Great Depression of the 1930s and the great financial crisis of 2008, aiming to discover the underlying patterns at work (Orlik, 2020).” And even as they drew lessons from these experiences, they still charted an independent and clearly informed middle way that continues to be vindicated. For instance, when faced with the risk-reward tradeoff of opening its capital account, “China’s policymakers found a middle path – opening the capital account to long-term, patient investors while keeping it closed to the destabilizing influence of short-term speculators (Orlik, 2020).”

Quite frankly, China was not expected to make the transition from an investment-driven economy to a consumption-based one easily. “Ghost towns of empty property, local government debt, and shadow banking were all identified as triggers for a system-shaking crisis (Orlik, 2020).” Well, the pessimists have been proven wrong thus far. This is not entirely surprising. “China – for all its dysfunctions – can, when it needs to, move with unity of purpose (Orlik, 2020).” That is not something easily achievable in the West. In carte blanche competitive Western economies, “cooperative outcomes [are] harder to achieve (Orlik, 2020).”

That is not to suggest that Chinese capitalism may not yet unravel. Because despite its strong fundamentals, “China has faced and continues to face very serious structural problems (Orlik, 2020).” Still, the system has held up astonishingly well thus far. Why is that? Orlik (2020) identifies four factors at play: (1) “China has underappreciated sources of strenght” (2) “The tradeoff between policy choices is overstated” and (3) “As a single-minded, single-party state, China has unique resources”. Put another way, “one reason they’ve been successful: something economists call the “advantage of backwardness,” a path to growth simply by following in the technology and management steps traced out by global leaders (Orlik, 2020).” But is that enough? African countries are similarly poor as China once was but are yet to excel like it did. Orlik (2020) obliges: “What’s accelerated China up the development ladder is its 1.3 billion population and can-do-government.”

Besides, foreign firms did not mind giving away their technology in exchange for market access to more than a billion potential customers once the government insisted. A similarly determined African government could hardly muster as much clout. That could change, though. A continental free-trade area of as many customers on the continent means if similar cooperation can be inspired towards technology transfer, there might still be hope for Africa in this regard. Besides, China was at a vantage point to observe the successes and misadventures of neighbouring Japan, South Korea and Taiwan. “The combination of space for development, enormous size, access to foreign technology, and a ready-made blueprint for development gave China a major head start (Orlik, 2020).” “A high savings rate, controlled capital account, and a state-owned banking system” also helped (Orlik, 2020).

Also bear in mind that the state actually plays a more active role in Western democracies than is let on. This is the main point made by University College London economics of innovation and public value professor, Mariana Mazzucato, in her 2013 book “The entrepreneurial state: Debunking public vs private sector myths”. According to Mazzucato (2013), “despite the perception of the US as the epitome of private sector-led wealth creation, in reality it is the state that has engaged on a massive scale in entrepreneurial risk-taking to spur innovation.” Four prominent examples are the US government’s “Defense Advanced Research Project Agency (DARPA), Small Business Innovation Research (SBIR), the Orphan Drug Act (the EU passed its own in 2001, imitating the US act passed in 1983) and the National Nanotechnology Initiative (Mazzucato, 2013).”

In his 2020 book, “Has China won? The Chinese challenge to American primacy”, distinguished fellow at the Asia Research Institute, Kishore Mahbubani, assesses the seeming American lethargy as follows. “One reason the West can no longer dominate the world is that the rest have learned so much from the West. They have imbibed many Western best practices in economics, politics, science, and technology. As a result, while many parts of Western civilization (especially Europe) seem exhausted, lacking drive and energy, other civilizations are just getting revved up (Mahbubani, 2020).” And on China, Mahbubani (2020) had this to say: “Chinese civilization has had many ups and downs. [Thus] it should be no surprise that it is now returning in strength.” Thus, what may seem like maverick or courageous divergence from orthodoxy on China’s part, could be traced to its complex history and evolution, which was characterised by huge failures and successes in almost equal measure.

As Professor Wang Gungwu of the National University of Singapore observes in Mahbubani (2020), “while the world has had many ancient civilizations, the only ancient civilization to fall down four times and rise again is China. As a civilization, China is remarkably resilient (Mahbubani, 2020).” African countries which see China as a model must bear this in mind. The resilience that underpins China’s remarkable success cannot be learned. There is a necessary indigenous and experiential element. Mahbubani (2020) highlights this feature in the Chinese case succinctly: “Cultural confidence, which the Chinese have had for centuries, combined with what China has learned from the West [are what] have given Chinese civilization a special vigor today (Mahbubani, 2020).” Besides “America has been walking away from [its] institutions, while the rest of the world, especially China, has been walking toward them (Mahbubani, 2020).” 

Still, it would be hasty to dismiss America entirely. This is because it has entrenched cultural elements that suggest it would likely prove resilient and resurgent yet again. Where “in many societies, the tall nail that stands out is hammered down,…in America, the tall tree is worshipped (Mahbubani, 2020).” Thus, there is no gainsaying the fact that “no society has as powerful an ecosystem as America for producing strong individuals (Mahbubani, 2020).”  And eastern societies like China’s are not wired similarly. Put more dramatically, “China stood up again after a hundred years because of a towering figure like Mao Zedong. American society produces many Mao Zedongs (Mahbubani, 2020).” And despite China’s demographic advantages, America surpasses it by far in its ability to attract the best and the brightest.

Besides, “in America, the rule of law is stronger than the government of the day (Mahbubani, 2020).” We saw proof of that in how despite former President Donald Trump’s negative and disruptive tendencies, American institutions proved resilient. China has not been similarly fortunate; even by its own standards. For instance, President Xi Jinping has managed to install himself as leader for life in defiance or in spite of instituted term limits. And even as the Chinese Yuan is gaining ground in global marekts, it would hardly succeed in displacing the American dollar if China is unable to match America’s adherence to the rule of law and the primacy of democratic institutions over any individual, no matter how highly placed. And because America allows dissent, encourages and support diversity, and challenges conventional wisdom, it has created “the most powerful intellectual ecosystems in the world (Mahbubani, 2020).”  In China, where the reverse is the case, it is almost a certainty that its technological progress would be stunted at some point.

Still, China is almost certain to become the world’s largest economy in a decade or so. How long it would remain so when it does is anyone’s guess. But would that be evidence of the supremacy of its capitalism? After our exposition thus far, you could not say for sure. African policymakers would find useful ideas in both systems. Even so, there would always be peculiarities in their respective economies that require new and independent thinking.

Capitalism and development

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji, @macroafrica

The main idea in IE Business School global economy professor and fund manager Daniel Lacalle’s 2020 book “Freedom or Equality: The key to prosperity through social capitalism” is the “need to apply the power of free markets to solve society’s greatest problems.” In his assertion, “there are market-based solutions to all of our social problems.” Thus, Lacalle defines “social capitalism” as the application of “free market ingenuity toward solving social problems.”

Simply put, “the private sector, not the government, makes direct investments in social welfare.” It is not suggested that firms become charities. Not at all. Social welfare is simply good business. There is money to be made. Plenty of it. But you also add value to society in tandem. A so-called “win-win”.

The idea might not easily appeal to people in places where things already work, where governments deliver public services efficiently and do so quite optimally. In fact, social capitalism could easily be confused with “socialism” if the distinction is properly delineated. In a socialist system, the “community”, proxied by the state, owns “the means of production, distribution, and exchange”. For social capitalism, however, the “individual” remains at the core. Simply put, social capitalism is not collectivism.

And unlike socialism or communism, social capitalism evolves with the times. It is dynamic. It relies on an incentive system that recognises the motivations and weaknesses of human nature. Public goods are likely to be delivered efficiently if there is a profit motive. And the desire to ensure the money wheel keeps spinning motivates adherence to the rules.

So what would be the role of governments then? Their guiding philosophy should certainly be to help businesses in anyway they can. This is not as simple as it seems. When governments look at firms, they see taxes and how their budgets would be financed. In the system being proposed, governments engage businesses before the money-making begins.

In other words, they ask firms how they can help them achieve their targets. They engage the business community on a regular basis. If done right, the relationship becomes a symbiotic one, whereby concessions here and there translate into gains in social welfare. In Lacalle’s exposition, “the government [would] be a facilitator, not the executor, of social welfare.”

Naturally, you may wonder if such an approach might not create a system whereby there is ample but expensive pipe-borne water, power supply, and other social services. And there is always the risk of monopolistic or cartel behaviour, whereby a firm or group of firms dominate an industry so much that they cannot be controlled. There is also the risk that the owners of such dominant firms extend their influence into politics and government.

These are not unfounded. But is it not already the case that the rich influence politics and governments in most countries? And it has nothing to do with whether the country is wealthy or not. American lobbyists literally dictate key legislations and orders of the executive branch; albeit with some finesse. In poor countries, the rich are much more brazen. They have no qualms with parading the extent of their influence in government. And in some cases, they become the government themselves.

In other words, the potential risks of a private sector-led social welfare system are already there. What social capitalism ensures is that firms make money and engender social welfare in tandem. Privately-financed roads rarely have potholes. Consumers of commercially-priced electricity make sure to switch off the lights when going to bed. Needless showers are usually rare if water supply is metered. Our governments would certainly have less debt on their books consequently. We may not have as much corruption. And firms would certainly be interested in sustaining the political system that puts them first.

But should the priority of governments not be the people? Of course, it should. People want jobs. They want to live in a functioning society, where the roads are smooth, and electricity and clean water are taken for granted. The record of governments trying to do these on their own is very poor, however. Capitalism without a leash is similarly terrible, as the rising inequality and populist backlash in rich countries show.

Winston Churchill once described the dilemma succinctly: “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” With the right incentives and safeguards, firms could do for development what they do for themselves.

Capitalism and governance

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

What is capitalism? This is the question Harvard University professor Rebecca Henderson starts with in her 2020 book “Reimagining capitalism: How business can save the world “. Capitalism is certainly “the greatest source of prosperity the world has ever seen”. But it is also on “the verge of destroying the planet and destabilizing society”. Capitalism has been a huge success and a disastrous failure. Henderson’s thesis is that a rethinking may enable us enjoy more of the good and prevent or mitigate the bad.

According to Henderson, “the three greatest problems of our time” are “massive environmental degradation, economic inequality, and institutional collapse.” Fossil fuels, which drive our industries, are destroying the earth’s climate. Our oceans are becoming acidic, with sea levels rising in tandem. There is increasingly less arable land. And we no longer have enough fresh water to meet our needs. If we do not change the way we do things, there would be deeper economic recessions, more flooding, and hunger in the nearer future.

In Africa, we know a lot about environmental degradation. Foreign firms extract mineral resources from our lands with scant regard for sustainability. But are they entirely to blame if they do so in the full glare of the authorities with relative impunity? We also know about hunger, drought, and increasingly now, flooding. Imagine the bizarre contrast. One moment, we worry about little or no rainfall. Then it pours, and our worry turns to the harvest, as a big part is washed away.

We also know a bit about the value of fresh water. With dysfunctional or no water infrastructure in most of our cities, we find solace in water drawn from boreholes and wells, which we are barely able to purify enough to avoid falling ill. But even that is becoming scarce in fast-drying northern lands owing to climate change. Such is the value now placed on the resource that one African government is mulling the enactment of a law to regulate water as a resource like it does crude oil and other extractives. Talk about an example of capitalism gone too far or governance gone awry.

But our type of capitalism is not the free-market kind. Ours is crony capitalism, which Henderson defines as “a political system in which the rich and the powerful get together to run the state – and the market – for their benefit.” “Extractive elites monopolize economic activity and systematically underinvest (when they invest at all) in public goods such as roads, hospitals, and schools (Henderson, 2020).” Our elites are extractive. So even when they mean well – they rarely do – we find it hard to believe them.

Thus, if you wonder why there are uproars when supposedly development-oriented policies are announced, this is why. The people do not believe that they would be the ultimate beneficiaries. So when electricity tariffs are raised, petroleum pricing liberalised, and water about to be regulated, there is hardly any explanation by a government that would be convincing enough to its majority poor, whose already meagre earnings would afford them even less.

What is the role of business in all these? Whether our type of capitalism is underpinned by cronies or the vagaries of the markets or both, their shareholders are the main beneficiaries. So in order to keep their spoils, they have to be mindful of the gaps in public governance in their respective jurisdictions.

Our power companies should abide by the deliberate price discrimination mechanism in the regulations to ensure the poor are able to afford enough electricity for their needs. Oil and mining companies should extract resources in our lands with as much care as they do back home. And our governments should certainly not regulate the very basic amenities they have failed to provide.

What is the purpose of knowledge?

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Unsurprisingly, the Madagascar covid-19 “magic” potion turned out to be a faux cure, it has been found. Yes, the potion does cure something, malaria, no less, but it is not a cure for covid-19. I happened on the news while reading Michael Hunter’s 2020 book “The decline of magic: Britain in the enlightenment”. One could not help being amused by the uncanny parallels. Such is the nature of conjuring tricks. They are usually clothed in known or verifiable truths. To the undiscerning, they look “true” on face value, and unless you dig deeper, you would drink the kool aid and probably belch with satisfaction at your fallacious “wisdom” afterwards. Conjurors only thrive with the ignorant. Make informed choices. Focus on your goals and leave conjurors to their magic tricks. That is the advocacy and perhaps also the purpose of knowledge.

Appearances can be deceptive
The groundnut pyramids in the northern Nigerian city of Kano used to be a thing of wonder. A symbol of the old city’s wealth and progress. Then suddenly, they disappeared. To this day, there is a perception that the diminution of those towering heights were due to some failure or mismanagement. However, not many Nigerians know that their disappearance were actually due to progress and not misfortune. And there would not be many as ignorant if care was taken to check the data. In fact, the quantity of groundnuts produced in Nigeria more than doubled to 3.6 million tonnes in 2016 from 1.6 million in 1961.

The groundnut pyramids disappeared. But production continued and increased in fact. True, there was a significant lull in output to about half a million tonnes in the late 1970s and early 1980s. But by 1988, production was back to at least a million tonnes per year. Conjuring tricks are like that. The disappearance of the “pyramids” created the perception of a failed industry when in fact they were simply casualties of innovation and progress.

Knowledge is the key
As we are a very superstitious people, we fall victim to conjurors too easily. Why don’t we ever ask the self-acclaimed rainmaker to conjure up rain during the dry season or when there is a drought. Our fatalistic beliefs do not help either. It is astonishing how many still go up and about on our streets with careless disregard for recommended covid-19 precautions. In a few interactions, the refrain has typically been that “It is God that protects.” And that if one is destined to contract covid-19, there is not much one could do. Really? Yes, we should believe in God. But surely, we wouldn’t or shouldn’t go into the rain without an umbrella nor stand in front of a hungry lion or a speeding car just because we supposedly “have annointing”.

True, some deliberate foolishness have manageable consequences. But surely, not these. If you are a medical doctor that enjoys a nice cigar but ends up with damaged lungs or someone with the knowledge of his or her lactose intolerance but indulges in the sweet delight of milk & dairy and farts on end, surely you could not blame anyone for the consequences of your pleasures. Still, you may very well live a long and comfortable life in spite of your foolishness. But with covid-19? Certainly not. Not until a vaccine is found, at least.

With the coronavirus evolving, even as a viable vaccine is being sought for what it was thought to be just months before, a successful vaccine would probably take at least two years to develop. And there is no such thing as it is a “rich man’s disease” or that Africans are immune from the virus. Because even as we are very diverse, we share a lot of commonalities. Your race is not a consideration when you need a new kidney or liver. The foods we eat, whether pounded yam, pap, starch, eba, rice, or pasta, varied as they are, can all be classified based on the nutrients they provide the body and based on these are all the same.

A knowledgeable person could not have been fooled by the Madagascar potion. But to the extent that the possibility of its utility was widely entertained speaks to the human inclination for easy solutions. In his 2010 book “A New History of Western Philosophy”, English philosopher Sir Anthony Kenny wonders in the chapter about knowledge and its limits, the field of philosophy called epistemology, what the mark of genuine knowledge is and how it differs from mere belief. “Is there a reliable way to acquire knowledge of the truth and to eliminate false beliefs that are mere seemings?”, he ponders. These are questions that have occupied the thoughts of thinkers from antiquity.

A proper delineation of epistemological questions and varied answers over the years by philosophers in the field is broad and deep and would thus be diversionary for our purpose. But let us take an instance or two from Kenny’s highlights from one of Plato’s dialogues “Theaetetus” on the question of “What is knowledge?” to bring home the complexity of the subject.

“There are cases where people have true thoughts, and form true opinons, without having actual knowledge.” For instance, “if a jury is persuaded by a clever attorney to bring in a certain verdict, then if the verdict accords with the facts, the jurors will have formed a true opinion. But do their true thoughts amount to knowledge?” Socrates, who Plato was purportedly writing about had an answer to the question. But it is not of interest here. The goal here is to highlight how what may be deemed to be knowledge or truth may in fact be something else or simply just falsehood.

An excerpt from Sir Kenny’s exposition is simple enough to get some grasp of what knowledge could be. “Knowledge can only be of what is true; knowledge is only knowledge if it can appeal implicity or explicitly to some kind of support, whether from experience, reasoning, or some other source; and one who claims knowledge must be resolute, excluding the possibility of being rightly converted, at a later stage, to a different view.” After numerous deaths, Madagascar has asked for help to deal with covid-19. “If we know something,…we know that we know it, and know that we know that we know it (Kenny, 2010).”

Challenge the prevailing narrative
In my column of 7th April 2020, I discussed “The power of narratives” using insights from Nobel laureate Robert Shiller’s 2019 book “Narrative Economics: How stories go viral & drive major economic events” and how to manage them. In the pursuit of knowledge, you find repeatedly that what is deemed to be conventional wisdom is often not wise at all. In their 2020 book “Radical Uncertainty: Decision-making for an unknowable future”, former Bank of England governor Mervyn King and first dean of Oxford’s Said Business School John Kay highlight a resonant example to make the point.

It used to be the conventional wisdom that the build-up of acid in the stomach that supposedly caused ulcers were due to stress and a bad lifestyle. Australian pathologist Robin Warren thought different, asserting they were caused by bacteria instead. Teaming up with like-minded Barry Marshall, he found that “almost all gastric inflamations and duodenal and gastric ulcers” had one commonality: a bacterium they would call “Helicobacter pylori”. “Eureka!”, yes? You wish. What was a source of humongous profits for big pharma was now to be cured with antibiotics that could be procured for pittance? Warren & Marshall were rebuffed. But they did not relent. “It is now accepted that most gastric ulcers are caused by H. pylori, often acquired in early childhood.” The pair won the 2005 Nobel Prize in Medicine.

So, what is the purpose of knowledge? It is a rhetorial question at this point. But at the very least, you know enough not to accept the conventional wisdom without doing your own investigations. From the African perspective, using the stomach ulcer ailment as an allegory, there are many who have lost their way in the pursuit of solutions owing to superstitions and bizarre cultural beliefs. But even if you were one swayed by science, you clearly would have been at your wits end following medical advice considering they did not know any better before the dogged pursuit of truth by Warren & Marshall. Beware of the dominant narrative.

Dream awake
I also use the faux “Madagascar covid potion” as an allegory of a broader malaise in our cultures. We rely overly much on untested superstitions and herbalism. These beliefs continue to hamper our progress. In days of yore, we believed flights could only be experienced quite literally in our dreams, with our butt cheeks atwixt the long handle of a broom. Not until such silly beliefs were relegated as fodder for relaxing fiction did the idea of mechanical flight blossom and eventually triumphed. Now if you want to experience the joy of flight, you do not need to conjure up one in your sleep. You simply buy a plane ticket. And yet, we continue to hold dear many fictions as “culture.”

You do not need to wear a leopard skin, with a beaded gourd in hand, and shouting out loud incantations in some deep forest to engineer ostracism, stigma or slander. These are human phenomena that have existed and been used for millenia in war and peace times to various ends. Instead of falling victim to the “if you can’t beat them, join them” faux “wisdom”, we should resort to diligence, focus and hard work. And patience.

The key insight from Michael Hunter’s 2020 book “The decline of magic: Britain in the enlightenment” is its description of how science prevailed over superstitions. While the details might not be ideal for this page, the long and short of it is that science prevailed over magic because it made clear truth from error. And as Kay & King’s 2020 book “Radical Uncertainty” shows, even science has its biases and constraints owing to the human constant and its proclivities for stories and fantasticism, a dimension amply explored in Shiller’s 2019 book “Narrative Economics”.

We have to give up many of our silly beliefs if we desire progress. Evidence of the progress that is possible in the aftermath can be seen in the modern comforts we enjoy today. And not until the people who invented these things jettisoned these fantastic fallacies were they able to concentrate their thoughts towards true magic: aeroplanes, automobiles, mobile phones, satellites, and so on. Things that actually work wonders in the real world and in our lives. Things that do not exist only in our dreamy sleeps.

macroafricaintel | The power of narratives

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji, macroafrica

In his 2019 book “Narrative Economics: How stories go viral & drive major economic events”, Nobel laureate Robert Shiller highlights the two elements of what he means by narrative economics viz. “(1) the word-of-mouth contagion of ideas in the form of stories and (2) the efforts that people make to generate new contagious stories or to make stories more contagious.”

Put another way, narrative economics is the study of “how narrative contagion affects economic events.” Public beliefs affect major economic events. Economists are however reluctant to incorporate narratives in their studies because they are difficult to measure, sources can be hard to trace robustly, and so on. Shiller’s argument is that “economists can best advance their science by developing and incorporating into it the art of narrative economics.”

“Narrative economics, the study of the viral spread of popular narratives that affect economic behaviour, can improve our ability to anticipate and prepare for economic events”, he asserts.” This makes sense. Most would agree that “contagious popular stories that spread through word of mouth, the news media, and social media,” increasingly drive the economy.

“An economic narrative is a contagious story that has the potential to change how people make economic decisions” like hiring a worker, launching a business venture, or investing in a “volatile speculative asset.” Sport events have been found to affect the economic confidence of the locales or countries where they are being held, for instance. Similarly, it has been found that “shark attacks at local beaches can affect votes for local incumbents, and background music in advertisements can have a strong effect on consumers.”

There is much that we can relate with from this background by Shiller, especially in light of the deluge of information – most of which are predominantly false and increasingly hard to detect as such – we are constantly being bombarded with in regard of the ravaging and ongoing Covid-19 pandemic.

Boring truths, fantastic lies
Truth is boring. As human beings, we are more easily drawn to magical stories; even when we know they are false. It is one of the reason why even when a retraction or correction of a false publication is made, it tends not to have as much resonance as the lie it seeks to refute. The costs of false popular narratives on lives and livelihoods are real and lasting.

What you choose to do about them depends on your station and the costs to you, however. If you are a celebrity, any popular narrative, whether negative or positive, can be economically rewarding. If you are a politician or a government, false narratives matter a great deal. And thus, you must do your utmost to change them to your truth; albeit you never quite succeed in doing so entirely.

As an individual, the knowledge about the potency of narratives might make you a little bit more relaxed. Because just like we are wired to connect with stories, we also desire new ones. Thus, every narrative is necessarily the casualty of time.

Take the case of the recent and still ongoing bizarre narrative about fifth generation mobile networks (5G) being the cause of Covid-19. There have been a number of fires at cellphone towers in the United Kingdom on the back of this popular view already. Such is the potency of the narrative that the Nigerian ministry of communications was forced to issue a press statement insisting it had not issued a 5G licence to any firm as feared by some after the narrative went “viral”.

But surely, when the circumstances and our infrastructural needs require 5G, there should not be any hesitation in doing so. Still, it is abundantly clear that in that event, a great deal of effort would be required to convince people it poses no real danger to their lives.

Beware of the dominant narrative
David Katz, founding director of the Yale-Griffin Prevention Research Centre in America, has been suffering a great deal of grief lately. To my mind, it is not justified. He is being criticized for daring to suggest another way to manage the Covid-19 pandemic; with less of the increasingly mounting economic costs of the current consensus containment measure of lockdowns.

The goal here is not to prove that he has a point or not; albeit considering how poor countries are probably ill-advisedly copying their rich counterparts without properly considering their own unique limitations, some of his suggestions resonate with me somewhat. Instead, what one seeks is to point out the importance of not being unduly swayed by the consensus or dominant narrative.

What Katz suggests is a middle course of sorts; a balancing of the health and economic costs of the measures to contain the pandemic. It does not matter whether he is right or wrong. The key point is that there is a danger that a narrative dominates at the expense of other potentially good or better ideas. We must keep questioning our decisions and ideas, reviewing them when there is new information, and if need be, changing them if the benefits of doing so outweigh the costs.

Take the case of the media coverage of the Covid-19 pandemic. If you ask a random person anywhere in the world today about the number of cases in his or her locale or country, he or she would probably quite easily tell you what the figure is. Try asking about the number of recoveries, I would be hugely surprised if the individual is able to say it without some thought. Actually, I could not readily tell you what the figure is myself; that is, even as I make a deliberate effort to track the number of recoveries.

Yes, transparency is crucial. But if anyone wants the data, they could go to a well-advertised portal for the information. What government officials and the media should focus more on should be recoveries. As human beings are wired for sensational stories, a fact the media is well aware of, it would take a deliberate effort to focus on more positive stories. Still, the authorities could definitely make the change.

macroafricaintel | Good economics for African times (1)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji, @macroafrica

“Be vigilant, resist the seduction of the ‘obvious,’ be skeptical of promised miracles, question the evidence, be patient with complexity and honest about what we know and what we can know” (Banerjee & Duflo, 2019).

The field of economics would probably provide better answers to the world’s many puzzles if the above statement by Abhijit Banerjee and Esther Duflo – MIT economics professors, couple and Nobel laureates, highly distinguished and controversial in almost equal measure – in their 2019 book “Good Economics for Hard Times: Better Answers to Our Biggest Problems” is imbibed by all of its academics and practitioners. Alas, this is not always the case.

Like you probably discerned already, Banerjee & Duflo’s approach to economics is unorthodox and – quite understandably – tends to rub off on some of their still mostly conservative contemporaries the wrong way. That they are mavericks is what appeals to me. That, and the likelihood that their success would embolden many more in the profession who remain shackled by orthodoxy.

What they espouse – vigilance, scepticism, patience, and honesty – does not come easily to fellow economists. Ordinarily, they should. But they do not. Because if they did, we should have more answers than doubts about the many questions that remain unanswered in the affairs of men.

“Economics is too important to be left to economists”
Many an economist would swear by his or her rigour, objective scepticism, transparency and openness to new ideas. The evidence suggests otherwise. If you want to know how entrenched the mainstream types are, observe their reactions when some little known colleague proposes something very “brave” or “courageous”.

Of course, the same novel idea could very well find acceptance if a more accomplished type proposes it; usually with a few tweaks here and there and a new fancy name. The more recent case of Modern Monetary Theory (MMT), the backlash it has received from mainstream economists, and the increasing likelihood it may become “orthodox” in due course, is a good example.

Banerjee & Duflo (2019) highlight how economists are not as trusted as they once were; ranked almost the same as politicians in a poll conducted by YouGov in the United Kingdom, for instance. Why is this the case? Economists have not been “modest and honest about what [they] know and understand” and have not shown a willingness to try new ideas and solutions and be wrong.

Economists’ predictions have been wrong most times than they have been right. But we continue to make forecasts anyway. (They are useful in other ways.) And continue to be wrong most of the time. For example, we know now for sure that markets are not efficient and that humans do not always behave rationally. And yet these are key pillars upon which much of conventional economics rest on. There is certainly a realisation in the profession of a need for a radical rethink of our ways.

Change is slow and difficult, however. This is understandable. After all, it would be irrational for people who built their stellar careers on these fallacies over many decades to simply just do a turnaround, wouldn’t it? Still, by digging their heels in on these proven untruths, economists prove the point of human beings not being always rational. Yes, behavioural economics now blossoms. But it took a while.

Self-preservation is rational, not correcting errors is not. The clearly rational irrationality of some mainstream economists in holding on to proven fallacious orthodoxies, as if they need them to breathe, is evidence enough that what is currently accepted knowledge should be queried. And this should apply to all intelligent endeavours. In other words, learn the orthodoxy, but do not accept it as gospel. It is not religion.

Banerjee & Duflo are exemplars of this ethos. Their 2019 book does not purport to have all the answers as much as it suggests a more sceptical and open approach to unraveling the still many mysteries in the so-called dismal science and the world at large. Is free trade always a positive? Is there a formula for growth? The duo did not provide straight answers to these and other pertinent questions. That is all very well. Africa must find its own answers.

macroafricaintel | Good economics for African times (2)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji, @macroafrica

“Growth is hard to measure. It is even harder to know what drives it, and therefore to make policy to make it happen” (Banerjee & Duflo, 2019).

The obsession of the rich world’s economists with growth is understandable: growth has been anaemic in those parts for decades. And even with all sorts of unorthodox interventions, from quantitative easing to yield curve control, the needle has barely moved.

The conventional wisdom is that technological innovation and population growth should engender economic growth. While the latter has almost certainly been slowing – negative even – in the rich world over time, the same cannot be said of the former.

Still, the internet, artificial intelligence and many other productivity-enhancing technological feats of our time have surprisingly not been as revolutionary for growth like better and more education, electricity, the internal combustion engine, and others, were in the past.

There is a school of thought that believes trying to determine why this is the case is needless. This is because the answer may be more a child of time than effort; a sentiment echoed by Banerjee & Duflo: “Mostly, what is clear is that we don’t know and have no way to find out other than by waiting”.

Thus, as the duo also reckon, “the most important question we can usefully answer in rich countries [at this time] is not how to make them grow even richer, but how to improve the quality of life of their average citizen.”

African countries are not in the same boat with their rich counterparts in this regard; albeit 1-2% growth by its two largest economies in recent years makes you wonder aloud about that a little bit. Still, the authors agree: “It is in the developing world, where growth is sometimes held back by an egregious abuse of economic logic, that we may have something useful to say, though, as we will see, even that is very limited.”

No set path to growth
Economic growth is driven by skilled labour and capital; both of which are abundant in rich countries but scarce for the latter or imbalanced in poor countries. Adjustments to these variables can still result in significant shifts in growth and development for developing countries. For rich ones, however, what would be similarly impacting would have to be the kind of technological progress that makes already abundant skilled labour and capital even more productive. And while technological innovation is seemingly abundant, it has surprisingly not been as growth-enhancing as imagined. There are arguments about whether this is the case because we are measuring growth wrongly. That is not our focus here, however.

Industrial policy was hitherto frowned upon by conventional economists and policymakers. And yet East Asia’s success on the back of it is hard to ignore. This is a point Reda Cherif and Fuad Hasanov of the International Monetary Fund (IMF) make in their March 2019 working paper aptly titled “The Return of the Policy That shall not be named: Principles of industrial policy”.

They highlight how “True Industrial Policy” or “Technology and Innovation Policy” is a formula for growth when it abides by the following three key principles: (i) state intervention to fix market failures (ii) export orientation and (iii) the pursuit of fierce domestic and international competition.

I do not agree or disagree with their thesis. Instead, my goal is to show how what may be considered crude, ill-informed, or voodoo economics at the outset could later be celebrated by the same ex ante detractors. More fundamentally, it is evidence, like Banerjee & Duflo suggest, and as has been well-known in academic circles for ages, there is no one strategy for growth.

Banerjee & Duflo have a view on the East Asian example: “Those who herald the experience of the East Asian countries to prove the virtue of one approach or the other are dreaming; there is no way to prove any such thing. The bottomline is that, much as in rich countries, we have no accepted recipe for how to make growth happen in poor countries.”

The appropriate lessons from all these is not so much that because some form of state-driven economic development is now acceptable to the IMF, African countries should suddenly now see this as appropriate for their own development.

Instead, the lesson is that an economy must decide for itself what it needs to do to achieve sustainable development. Ponder this for a minute. Had the Asian countries now being celebrated taken the advice of the IMF and others to liberalise their economies and jettison state intervention, would they be the ‘miracle’ they are today? It is a rhetorical question.

As Banerjee & Duflo assert, “the bottomline is that despite the best efforts of generations of economists, the deep mechanisms of persistent eocnomic growth remain elusive.” Thus, my advice to African countries is to think independently about their respective situations and doggedly pursue the strategies they decide on.

macroafricaintel | Good economics for African (Nigerian) times (3)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji, @macroafrica

“Why are there so few cash transfer programs, anywhere in the world, that are universal and come without strings attached? One simple reason is money. Universal programs in which no one is excluded are expensive…Initially, most of the money will have to come from shutting down other programs…” (Banerjee & Duflo, 2019).

Nothing short of cash transfers will do
With a significant reduction in economic activity due to COVID-19 restrictions, there is likely a substantial reduction in money supply in tandem. Many companies would probably lay off staff, cut salaries and even close shop. Participants in the informal economy, forced to stay at home, and deprived of an income, would have no new money to spend. A central bank could fill that gap by printing money equivalent to the shortfall for the purpose of unconditional cash transfers.

This is not theory. The United States has passed into law a $2 trillion stimulus package to deal with the negative economic effects of the COVID-19 crisis. It includes a direct payment of $1,200 to each American citizen and $500 per child. Small and medium-sized enterprises would also be able to tap $350 billion in loans. Big companies would similarly have access to $500 billion in loans.

How would it be funded? Money printing, of course. And are there not worries about inflation and a ballooning of the fiscal deficit? In an emergency, these concerns are insignificant. Is this a solution available to other countries? If the medium of exchange in a country is a currency issued by its central bank, yes, of course.

Besides, the consequent increase in the money supply could simply amount to bringing the overall level back to normal, after likely falling off due to the restrictions, with a likely non-differential inflationary impact. But even if that turns out to not be the case, that is, an above-normal increase in the money supply with a resultant inflationary impact of similar magnitude, the increase in the price level might not be as significant as some fear.

This is because ordinarily, sellers of essential goods like food and others, would likely hike prices on the back of hoarding behaviour regardless. That is, even before demand and supply dynamics dictate a need for one. What giving money to everyone to buy essentials does is ensure that it is not only the rich that are able to buy whatever limited stock of goods that are available.

But if there is more money chasing fewer goods, would that not stoke inflation? In the absence of controls, yes it would. Rationing, which is already being done in some countries, would be necessary, clearly. And some countries have already started banning the export of food and crucial medicines.

Besides, the global lockdown has already started to create international trade-related logistical challenges: transporting imported goods is increasingly now with some great difficulty. Available food for sale in many countries now is probably just those imported and stored in silos long before restrictions took effect; and of course, those produced locally.

The other concern could be that the cash transfers may be diverted to other purposes by recipients? Yes, they could. But if well managed, the proportion diverted might not be differential. Besides, research suggests most of the money from cash transfers tend to used for the desired purposes by recipients.

What about those without a bank account and/or debit card? There would need to be a tailor-made solution for those. The authorities already have a database of the very poor for its social programmes and an existing system for transfering cash to them.

Besides, the authorities could simply announce that those without bank accounts come to designated government centres to receive cash or the equivalent in food supplies and also get registered with one of the public social programmes in tandem.

How much would it cost Nigeria to pay the 30,000 naira minimum wage to its 40 million individual bank account holders for 3 months, say? 3.6 trillion naira; about a third of the 11 trillion naira 2020 budget.

With people staying at home and the world on holiday, who would work on any of the planned capital projects of the government for the remainder of the year? As there might clearly not even be projects for the government to spend money on, it could as well get the money into the pockets of citizens to spend. Printing money might not even be necessary for the task. Reallocations and cuts could simply be made to the 2020 budget to accommodate it.

Besides, there is already elite and political support for an unconditional cash transfer programme. Senior leaders in the ruling All Progressives Congress (APC) and main opposition People’s Democratic Party (PDP) have already come out in support of one. A taciturn President Muhammadu Buhari thus far probably now has an opportunity to speak to his people about some really good news in this time of general despair. And no, it is not populism. It is common sense.

macroafricaintel | Rules of contagion

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

When I woke up to the news in late February of a confirmed case of COVID-19 in Nigeria, quite frankly, I was not surprised. It was inevitable; after cases started emerging in Europe, at least. With the benefit of hindsight, it is probably a good thing that our land borders had been closed a long while before the outbreak reached our shores. The border closure did not make sense economically at the time. But bizarrely and even paradoxically, it has turned out to be a blessing in disguise.

I am not really interested in what it is, COVID-19 or coronavirus; such fancy names, they give these viruses. As an individual, the best you can do is what you should ordinarily do in normal times: maintain good hygiene, eat healthy, exercise regularly, and so on. There are additional measures, of course. In figuring these out, I have been doing some reading. Yes, one follows the regular updates by the federal and state governments, World Health Organisation and others. But it is also important to understand what underpins the measures they announce and the advice they give.

In Nigeria, based on my own observations, our best shot at dealing with the crisis is finding and isolating whoever is infected before he or she mixes with the general population. This is because even as the majority of Nigerians desire to live clean and healthy lives, the poor circumstances of the majority of us suggest this remains a desire than reality for most. Thus, an outbreak of Chinese or Iranian proportions would almost certainly be devastating. We must not allow that to happen. And it is in our power to do so. How so?

The Chinese and Iranians made a couple of mistakes. There is a natural tendency to hide the undesirable for sometimes justifiable reasons like avoiding a panic, bad press and so on. But there are exceptions. It is widely known that a disease outbreak with the potential to become an epidemic or pandemic, must be quickly contained and communicated. The natural tendency is to hope that a full containment would make the latter needless. Time and time again, this has proven not to be the case.

Health epidemics are eventually revealed, no matter how hard a government tries to hide the facts initially. And the very measures, which if taken much earlier, would have prevented a worsening of the situation, tend to be implemented eventually. To find answers and put my observations in context, I read London School of Hygiene & Tropical Medicine associate professor Adam Kucharski’s 2020 book “The Rules of Contagion: Why things spread – and why they stop”. It was one of a couple of books recommended by the Financial Times for readers who might be interested in understanding epidemics – or pandemics if global – as we all grapple with the current one. I found some of Kucharski’s insights to be very instructive and shall share them forthwith.

A disease outbreak typically has four main stages: spark, growth, peak and decline. And in some cases, it is a cycle, repeating the four stages continously until the end. In my view, the individual can take the most effective precautions at the spark and early growth stages. If you do nothing then, there is little else you would be able to do as an individual that would likely really matter. Coercive measures, like quarantines, curfews, school closures, restrictions on public gatherings, and so on tend to be implemented by the authorities at the high growth stage. That is, when it is abundantly clear that an outbreak has reached epidemic proportions. But the individual who has not done the needful, like stocking up (not hoarding) on essentials, etc. would be greatly inconvenienced at this stage. Because at this time, it would take longer to procure these things and you would probably not get everything you seek. Thankfully, our situation in Nigeria has not reached that level yet.

By my reckoning, we are still at the spark stage. And thankfully, a very small spark at that; considering there is only one confirmed case of COVID-19 in Nigeria (at the time of this writing). By about a month from when that case was confirmed, in early April, say, our situation would probably be clearer. That is, we would then know for sure if there is going to be a growth stage, with more cases confirmed, or if as was previously the case for Ebola, we have successfully nipped the outbreak in the bud.

But what is the individual to do? In Kucharski’s narration, Andy Haldane, chief economist of the Bank of England identifies two typical responses by the public in past epidemics: flight or hide. The former is irresponsible, of course; and increasingly not feasible even for the well-heeled. Hiding behaviour is more ideal. This entails “dodging situations” that could lead to infection, washing hands, avoiding public gatherings and so on. Put more systematically, “outbreaks need three things to take off: a sufficiently infectious pathogen, plenty of interactions between different people, and enough of the population who are susceptible.” Which one of these three can the individual manage? Social interactions.

But are you going to just isolate yourself wherever you are? Certainly not. You could, if you could. But you would still need to go out from time to time. Still, it is generally accepted wisdom that large public gatherings should be avoided. And yes, Friday Muslim prayers and Sunday Christian services qualify as large public gatherings. You do not have to attend that party. A foreign trip can be postponed. An upcoming sports festival in one of the states should probably be postponed. As research finds that children have by far the most social contacts, especially in “intensely social environments” like schools, it may be wise for schools to be closed for a period of two weeks or more. (Kucharski highlights how schools are “potential mixing pot[s] of infection.”)

High-capacity mosques and churches are intensely social environments as well, and should probably be closed to the public for the same period. Our famed religiosity could be an inhibitor. Telling Nigerian Imams and Pastors to suspend their prayer events for a period, when many are likely to become even more religious, is not likely to sit well with many. This is not surprising. As I recall, at some point during the 2014-16 West African Ebola epidemic, it became increasingly astonishing that Liberia was recording greater success with managing the crisis than neighbouring Sierra Leone. The reason why became obvious soon enough. The large Muslim population in Sierra Leone continued to wash the bodies of their infected dead in the Islamic way, increasing transmission.

As a Muslim, I understand quite well the difficulty in subscribing to the more effective solution of burning the infected bodies instead. While in the end, that is an individual choice, the reason for the different outcomes are glaringly obvious. And for the current oubreak, Iran eventually closed its religious shrines and has stopped Friday prayers for the time being and Saudi Arabia has banned all pilgrimages to Mecca this year. These are sensible moves.

Precautionary measures are most effective when things are relatively okay. But naturally, there is a tendency to wait until the risks are writ large. And probably rightly so. Later certainty makes hindsight biting, however. Could the already more than 100,000 COVID-19 cases around the world have been lower had precautionary measures been taken earlier; that is, even as the current global response has been relatively swift? Maybe. Maybe not. And yes, it has probably not come to the point where we need to take such extraordinary measures in Nigeria. And hopefully, there would not be a need to. Still, why take the risk?