Inequality In Nigeria: Even It Up By Slicing It Down

For the past three years, issues surrounding economic inequality have captured public policy debates- partly due to the seminal work of the French economist Thomas Piketty and his collaborators. These debates have largely been conducted along ideological lines. But one is tempted to think that such colouration loses relevance when discussing inequality in a developing economy like Nigeria. This, however, would be naïve. The reason is that economic inequality is both a positive and normative issue. Hence it’s almost impossible to make efficiency arguments about inequality while ignoring the moral questions surrounding it. This is because a vastly unequal society has implications far-reaching than the economic.

There are questions of freedom, human dignity and social justice at stake. It’s no longer news that wealth can buy you an inordinate amount of political influence. Which then goes on to decide representation and even the basic economic structure and the reward system of a society. I will briefly discuss these interconnections in the light of the Oxfam report about global wealth inequality as it relates to Nigeria and certain misconceptions surrounding them.

A few years ago, the Nigeria Deposit Insurance Corporation (NDIC) said that 88 percent of deposits in Nigerian banks are owned by just 5 percent of bank customers. While this does not suggest an injustice of any kind or evidence of design, it reveals something quite fundamental about a certain kind of inequality in Nigeria. Most Nigerians, facing a high cost of living and a standard of living that is yet to recover to its 1981 peak, do not have enough to save and invest or even plan their retirements. There isn’t enough data to confirm, but I will guess that a similar pattern will be seen in other stores of wealth like capital investments and home ownership.

This category does not exclude the so-called middle class. One reason I would venture is the failure of income growth to keep pace with GDP growth during Africa’s miracle decade in which Nigeria fully participated. A miracle decade that was largely due to high commodity prices, and consequent expansion and consumption of services. This structural transformation of the Nigerian economy has had three major social and economic implications. Commodity-dependence and government’s dominance of the sector led to the kind of political bargaining that benefits only the richest and their favoured. Continued expansion of government services with crowding out effects on the private sector and leaving low earners in the private sector dangerously exposed. Thirdly, the associated balance of payments resulted in less and less investment in valuable social services and the non-oil export sectors which mainly deepened the foregoing vicious cycle. The combination of these three forces created a Nigerian economy that looks like its growing (never mind the recent oil price and CBN engineered forex shocks) but largely leaving the majority of its citizens behind while those at the top of the wealth distribution are jostling for the Forbes list.

So what can be done?

This is where the discussions get fuzzy and various moral intuitions and social preferences come into play. Proponents of redistribution gets accused of envy or being irresponsible “Marxists” who hate riches and prosperity. This augur well with popular sentiments in Nigeria. We are trapped in the paradox of public contempt of fraud and corruption while remaining quitely tolerant (even cooperative) of it under the guise of partisan alliances because everybody is a rich man-in-waiting and it could be your turn tomorrow. Another attitude is to take the uninformed and reductionist approach of equating redistribution with confiscation of the wealth of the richest.

Thankfully we are not in the US and we don’t have to waste energy on many of these silliness. Nigeria has many low-hanging fruits that is preferable to our current “beggar-the-poor” economic structure.

We need to restore the dignity of work in Nigeria. The current zeitgeist is a tacit acknowledgement that honest work no longer pays. This is very problematic. Like I pointed out earlier, even people not living in poverty are caught in what’s called the ‘’fragile middle’’ where they are one or two salaries away from trouble. It’s enough to evoke empathy with the thousands of state government workers who are being owed several months’ pay in the ongoing municipal fiscal delinquency. Government needs to radically readjust the structure of spending and cut the excesses of our political elites and their relentless pursuit of luxury with public funds. There are also other labour market reforms that can help. I’m not sure what the appropriate level of minimum wage should be, but it should be enforceable in the private sector as well.

The rampant culture of prolonged unpaid apprenticeship should be discouraged. Many leftists in the west decry the decline of unionization and stress the value of more bargaining power for labour. I think participation in labour unions should be voluntary. Collective bargaining has been abused here. Unions and associations have turned themselves into another rentier class who regularly extort unwilling merchants and artisans under the protection of legal recognition. This is economically destructive and morally repugnant. There is need for emphasis on skill acquisition and our compulsory youth service scheme should be rethought accordingly. Investment in urban infrastructure and technology cannot be overemphasised. We need to upgrade and if need be, rebuild slums to raise the quality of life. Meaningful land reforms that gives dwellers tenure and mortgage schemes that will liberalize home ownership are long overdue. The list of what can be done is long and I’m sure smarter people can come up with a lot more.

On a final note. It’s obvious that most of these remedies require large scale public investment that government might say its impossible due to current fiscal realities. Most government agencies are now on an aggressive revenue drive that is manifesting in stamp duties and ludicrous fines. This could have adverse economic consequences of collapsing government revenue even further by killing businesses.

There are two areas I think government should seriously consider. We don’t take advantage of consumption (another source of inequality) taxes as much as we should. There’s room for a progressive property taxes and other luxury goods like private jets. We should also consider sugar and alcohol (watch out champagne drinkers!) taxes.

This would raise a lot of money and has health benefits too. Secondly, there’s widespread misallocation of valuable real estate in the economy. Land and government properties in highly commercial areas are constantly being sold to private cronies or non-profits. A lot of revenue and value can be realized by allocating these to taxable and promising businesses.