Friday, 29th September 2023

Can we turn this ship around?

In the past two weeks, I have written two articles about the importance of government and state capacity. The first was on the phenomenon commonly referred to as the “tragedy of commons”.

In the past two weeks, I have written two articles about the importance of government and state capacity. The first was on the phenomenon commonly referred to as the “tragedy of commons”. A phenomenon where individuals acting in their best interest leads to worse outcomes for the entire group. A situation in which public cooperation, probably through an effective government, can lead to better outcomes. The second was on our pending debt crisis. Since the debt forgiveness episode in 2005, we have been on a debt binge and all our debt statistics (at least the ones that count) have been pointing towards another debt crisis. I argued that part of the solution had to involve paying more taxes.

If you frequently read my articles then the tone might have been a bit surprising. I am typically right-leaning. I usually champion free markets, argue for economic freedom, and talk about how we need to shrink the federal government and scrap many of its agencies. To be clear, those views are still true, but even I can admit that we still need an effective government anyway. There are still public goods that need to be provided after all.

That being said, the response to the articles has been somewhat interesting. If we can divide the responders into two groups; the citizens who pay taxes, and the government officials who spend them, then the responses went a bit like this. The citizens argued that government is wasteful and ineffective, and therefore cannot be trusted with more taxes. The government officials argued that no government can be effective if citizens do not pay taxes, and that “Rome wasn’t built in a day”. So, who is right?

The stance of both groups is similar to the positions taken by the United States and the Soviet Union during the cold war. In 1945, the United States demonstrated its nuclear capabilities with the strikes on Hiroshima and Nagasaki, cementing its position as the sole global superpower. In the following decade, the Soviet Union also developed its nuclear capacity. By 1949 it had detonated its first nuclear device, and the nuclear arms race was well underway. By 1962, both the United States and Russia had enough nuclear weapons to obliterate each other. The arms race was partly driven by the doctrine of mutually assured destruction, which can simply be described as guaranteeing that if one side gets bombed, the other side gets bombed as well. If one side loses, the other side loses as well. Of course, in hindsight, we know that the arms race wasn’t particularly very smart, exemplified by the near disaster that was the Cuban missile crisis. Still, there are lessons to be learned.

The nuclear arms race and the doctrine of mutually assured destruction have lessons for the impasse between citizens and the government. The citizens’ claim of an ineffective and wasteful government, which should not be trusted with more taxes, is largely true. It is difficult to argue for citizens to pay more taxes when you read about hundreds of millions of naira spent on lodges for traditional rulers, and on exotic cars for legislators. It is also true that the government spends an unhealthy amount on salaries and entitlements which are typically not the best use of taxes. Then, there is corruption. On the side of the government, it is true that it is very difficult to run an effective state if citizens do not pay taxes. Nigeria has one of the lowest tax to GDP ratios in the world, somewhere around six percent. It is very difficult to run an effective state and provide public goods if citizens do not pay taxes.

Unfortunately, if both parties continue with the status quo, then both are set for something similar to the scenario of mutually assured destruction. The federal government is at the cusp of a debt crisis and if the federal government goes bankrupt, then everyone, citizens and government officials alike, will feel the pain. The history of the two decades between 1979 and 1999 should be fresh in our memory. In those years, the federal government lurched from debt crisis to debt crisis, and the policy paralysis meant that the Nigerian economy had almost no growth over the two decades, and average incomes collapsed. The pain wasn’t felt only by government officials but by citizens as well.

So, what needs to happen? Just like the case with the nuclear arms race, we need to find a way to switch from out path of mutually assured destruction to a healthier path. We need to find a way to both pay more taxes, and at the same time get a more effective government. The citizens need to give the government a chance to be more effective, and the government needs to demonstrate that it is worth being given a chance. How we do that, or if we are capable of doing that, is anyone’s guess.

• Nonso Obikili is an economist currently roaming somewhere between Nigeria and South. The opinions expressed in this article are the author’s and do not reflect the views of his employers.