Buhari as the quintessential Obama (1)

IT is atypical for an American president to invite a nascent Head of State from Africa to the White House, especially less than one month after the latter’s inauguration. To some observers, therefore, Obama’s invitation to Buhari for a White House parley on July 20 would seem to be an aberration and a surprise. But an analysis of both leaders’ circumstances suggests that such a meeting is a no-brainier.

Buhari and Obama were elected during a period of economic turmoil and distress. When Obama was elected in 2008, the U.S. economy was in dire straits and reminiscent of contemporary Nigerian economy. With unemployment rate hovering around 10 per cent, the U.S. economy was losing 800,000 jobs monthly. Budget deficits were spiraling out of control, pushing the country’s debt stock to unsustainable levels. Obama not only met an empty treasury, like Buhari, but was also saddled with a whopping debt burden of about $10 trillion or 72 per cent of GDP. At that time, also, the U.S. was on the verge of defaulting on its debt obligations – which would have been unprecedented in the nation’s history. Millions of Americans were losing their homes to foreclosures, and default rates on household debts (especially credit cards and mortgages) became widespread. Asset prices, particularly houses and stocks, plummeted at rates never seen since the Great Depression.

Apart from economic challenges, both presidents inherited expensive and drawn-out wars, which they pledged to end upon their election. Whereas ending the wars in Afghanistan and Iraq was a major mantra in Obama’s election campaigns in 2008, a major platform in Buhari’s campaign for the presidency was the promise to end the scourge of Boko Haram. Just like Nigerians clamoured for change during the last elections, Americans wanted change so desperately in 2008 that an unknown, longshot candidate became the first black president of the country. When people clamour for change, they’re taking a big risk. The change they get may be better or worse than what existed before. This explains why risk-averse people prefer “the devil you know to the one you don’t know.” Looking back, many Americans would say that the risk they took in 2008 was well-calculated. The U.S. economy has rebounded, albeit with some risks ahead. Unemployment rate has fallen from 10 per cent in 2009 to the current level of about five per cent. Ironically, the problem now is that many employers are having difficulty finding workers to hire. Perhaps more instructive is the fact that U.S. budget deficit is now less than half of what it was when Obama first took office. Obama has also significantly reduced the presence of American troops in Afghanistan and Iraq. In a sense, he has virtually fulfilled all his electoral promises, well ahead of the end of his presidential tenure.

Given the striking similarities in both leaders’ circumstances, Buhari would do well to borrow Obama’s “economic magic wand.” If he does, he’ll be surprised to learn that Obama turned the U.S. economy around, not through austerity measures, but by spending more! A few days after his election, he appointed Harvard economist and former Treasury Secretary, Larry Summers, as his Chief Economic Adviser. That same day in Chicago, he announced his intention to launch an economic stimulus programme at a scale never seen before in the country. He justified the scale of the stimulus programme by referring to the severity of the economic challenges he inherited. Despite pushbacks from Republicans in Congress, Obama managed to implement a stimulus programme worth almost one trillion dollars. His economic stimulus strategy was predicated on the premise that the way to resuscitate a jobless and non-inclusive economy is not through belt-tightening, but via expansionary fiscal and monetary policies. Any first-year economics student would tell you that, ceteris paribus, a one-million Naira increase in government spending generates additional rounds of spending in the economy, which subsequently results in an increase in employment and national income through a phenomenon known as the multiplier effect.

Obama’s stimulus strategy focused on “shovel-ready” projects that created jobs almost instantaneously, as well as on programmes that delivered immediate cash to Americans. The projects and programmes include infrastructure, education, health, renewable energy, tax incentives, unemployment benefits and other social welfare provisions. Shortly after Obama’s inauguration in January 2009, Americans began to receive stimulus cheques in their mailboxes or get temporary tax reliefs that raised their disposable income. As an unapologetic proponent of “Middle Class Economics” – the notion that a virile middle class is a sine qua non for a robust economy – much of Obama’s stimulus money went to middle-class Americans, who were the most squeezed by the economic crunch. Obama knew that channeling stimulus money to the rich was superfluous, as this often gets either stashed away in some offshore secret bank accounts or spent on luxurious items that don’t add value to the economy. With the rapid infusion of cash into the economy, American households subsequently went on a shopping spree; restaurants began to be busy again; demand for goods and services soared, and consumer confidence returned. Business owners became more optimistic in the economy and thus increased their investment and employment.

Though Buhari is yet to formally unveil his economic blueprint, he should resist the temptation of embarking on belt-tightening as an end in itself. The Buhari administration appears to be drumming-up the need to “reduce the cost of governance.” While this is an unassailable proposition, he should be circumspect about what he intends to cut. In the process of reducing the cost of governance, care should be taken not to jettison investments and projects needed to enhance the country’s productive capacity. Rather than focus on cutting spending per se, Buhari should also consider increasing spending in sectors, projects and programmes that boost the economy, generate employment and promote inclusive growth. These sectors include infrastructure, labour-intensive manufacturing such as textiles and footwear, agro-processing, health and education.

Nigeria is arguably a country where a massive economic stimulus programme is urgently needed. I don’t know of any Nigerian who is unaware of the very large stock of slack human and natural resources in the country. We are all witnesses to the country’s bloated informal sector, replete with millions of underemployed youths. Most of Nigeria’s graduates are roaming the streets unemployed or engaged in menial jobs.

Meanwhile, there is a huge infrastructural deficit that can be partly filled through public work projects executed with direct labour. These projects would provide temporary employment to unskilled workers in government-funded projects, which would enable these workers to gain experience needed for permanent jobs. Thus, targeted stimulus spending on productive and value-creating projects would sustain growth, while also making it more inclusive.

Buhari has the pedigree to shepherd a massive stimulus programme. He’s known to abhor profligacy, which means that stimulus money will be spent prudently. He detests graft and corruption, which implies that stimulus funds won’t disappear into Swiss bank accounts or used to purchase private jets. This, of course, depends on whether he’ll be able to prevent those around him from corruptly enriching themselves – something his predecessor failed to do. Like Obama, he cares deeply for the downtrodden, which suggests he’ll focus stimulus spending on job creation and economic empowerment.

• To be continued tomorrow.
• Onyeiwu is a Professor of Economics at Allegheny College, Meadville, Pennsylvania, USA.