Oluwole Olatubi

This article’s intent is to cause a paradigm shift in the business of governance, enhance its role in the international and local economy; and highlight in commonsensical terms, what it must do differently to achieve a different set of results.

An antonym for the’ visible hand’ theory would be the’ invisible hand’ theory of Adam Smith. In his book, Wealth of Nations, Smith postulated that the invisible hand is the best guide for the economy; consequently government intervention in the economy isn’t needed. In the’ invisible hand’ theory Smith assumes individuals try to maximize their own good (and become wealthier), and by doing so, through trade and entrepreneurship, society as a whole is better off.

A biblical account will suffice here for illustration purposes only. In the book of 2 kings beginning from Chapter 6: 24 to Chapter 7:9 is the story of a nation under siege from its neighbour. The siege had the effect of a trade embargo. The embargo coupled with levels of low output in the local economy (famine), resulted in an economic recession. An economic recession is characterized by stagflation (high unemployment and inflation) and low levels of trade and investment.

Please permit the writer to digress a bit. In another biblical account, the book of Genesis chapter 47:13-26, tells us of a country (Egypt) that fed the world during a period of famine for seven years whilst it was going through a famine. So what did Egypt do differently? Egypt planned for the future. Based on the bleak economic outlook of the country, it diversified its economic base from a largely, mono based agrarian economy, to an industrial economy, comprising, chemical and agro allied processing and storage facilities; invested in logistics and security to transport and protect what was produced.

To diversify is to vary in order to spread risk or expand. For example when the famine began in Egypt and money demand was high, the government avoided printing money and its attendant risk of inflation and price level increases (devaluation) by expanding the monetary base or high powered money to include only factors of production. In the story we were told that when money finished, the people paid for grains with their factors of production namely land, labour, machinery (oxen for ploughing and horses for transportation) and after settling their sustenance issue, the government actively engaged the factors of production, by empowering their former owners to manage them in return for a fifth of their profit.

The Wealth of Nations

So in essence, the government created a minimal level of social welfare for its citizens, empowered its entrepreneurs to be productive using what accountants will refer to as creative accounting or off balance sheet financing by arranging a sale and leaseback financing arrangement. So instead of multiplying the financial sectors abilities to create paper money through the multiplier effect, it chose instead to multiply the real sectors ability to produce goods and services thereby avoiding an economic recession.

Egypt’s prestige and power increased tremendously in the comity of nations. No nation could afford any form of isolation or trade barrier with Egypt on whatever ideological grounds. They all depended on Egypt for survival. The pyramids of Egypt attest to its hegemony in world affairs. The pyramids are considered one of the wonders of the world till today in terms of engineering technology and prestige just like the USS Reagan.

To diversify is to vary in order to spread risk or expand. For example when the famine began in Egypt and money demand was high, the government avoided printing money and its attendant risk of inflation and price level increases (devaluation) by expanding the monetary base or high powered money to include only factors of production. In the story we were told that when money finished, the people paid for grains with their factors of production namely land, labour, machinery (oxen for ploughing and horses for transportation) and after settling their sustenance issue, the government actively engaged the factors of production, by empowering their former owners to manage them in return for a fifth of their profit.

From the above we see that the Egyptian government restricted itself to economic planning and diversification, security, social welfare and tax regulation. Back to our earlier illustration, the siege, coupled with other factors like an impending war, led to a higher level of risk and uncertainty in the political and economic system of the country. As a result people were disinvesting. Even children were not spared. They were eaten.

Ultimately there was a total loss of confidence in the system. The depression can be likened to the great economic depression of the 1930s in terms of severity. Interestingly the situation gave rise to three distinct schools of economic thoughts. I would represent these thoughts in its modern economic parlance.

Keynesians: This school of thought backed a government led intervention in the economy. These are the people that cried to the king to save them.

Neo Classical: These are the risk takers group who I will refer to as the entrepreneurs. They preferred instead to be led by their self interest and preservation. This group comprises the lepers in the story, gave teeth to the ‘invisible hand’ theory by Adam Smith.

Monetarist: This group comprises the government officials (bureaucrats). They are more inclined to monetary policies as a tool for influencing output and price levels. I will refer to them as the central bank people. Biblical account has it that whilst the government was helpless, the risk takers group representing the lepers turned an economic depression into a boom in the possible shortest time. However the bureaucrats perished.

So what are the lessons to be drawn from this story? The first lesson is the principle of economics of scale and its attendant operational efficiency which simply states that you specialize in areas where you enjoy a comparative advantage over others. Economies of scale are the cost advantages that a business/government can exploit by expanding their scale of production/governance. The effect of economies of scale is to reduce the average (unit) costs of production/governance and increase your operational efficiency.

I will use the government as a focal point because they enjoy a unique and comparative advantage of being a sovereign besides the current mantra of reducing cost of governance.

1. The government is a sovereign. A sovereign is best endowed to deal with issues of regulation, protection of lives and properties, dispute resolution and collection of taxes and other statutory revenues than any individual or group of individuals, because they are the legitimate representatives of the people. Consequently Sovereignty bestows on the sovereign the inalienable exercise (coercion or persuasion) of the instruments of state policy for ends of a desired and expected goal.

The story mentioned that the lepers (entrepreneurs) feared some punishment from the king if they failed to disclose their new found wealth to the king. This is tax regulation in its purest form which is a charge against a citizen, person or property or activity for the support of government. Tax relies heavily on disclosure. So in essence, disclosure should not be limited to a prerequisite for occupying elected or appointed political offices in the land. Therefore Tax authorities should understand that disclosures issues cannot be left alone to the code of conduct tribunal to resolve.

2. Every form of economic activity is regulated, therefore any time government veers into economic activity he falls short of a principle of natural justice-nemo judex in causa sua; no person can judge a case in which they have an interest. Government ability to engender confidence in the economy through an unbiased judicial system is therefore seriously impaired.

The government is a sovereign. A sovereign is best endowed to deal with issues of regulation, protection of lives and properties, dispute resolution and collection of taxes and other statutory revenues than any individual or group of individuals, because they are the legitimate representatives of the people. Consequently Sovereignty bestows on the sovereign the inalienable exercise (coercion or persuasion) of the instruments of state policy for ends of a desired and expected goal.

In the words of Strive Masiyiwa on the rule of law and “The rule of law drives investment. No serious investor simply puts up money without looking at the rule of law in a country. What exactly do I mean by the rule of law? Aristotle said more than 2,000 years ago, ‘the rule of law is better than that of any individual’. It means that government officials are held accountable under the law; that laws are just and applied equally to all; that laws protect everyone’s fundamental rights; that the legal process is fair and efficient and that courts operate with independence and integrity.” Nigerian experience with States investing in business (ECONET) would have informed this thought.