Monday, February 6, 2012

Shock Therapy: Jeffrey Sachs Prescription for Nigeria

Professor Jeffrey Sachs is a well known and widely respected American economist who remains the youngest economics professor in the history of Harvard University. His success in prescribing solutions to developing countries problems is at best mixed. His best and most influential work was in Bolivia where his economic prescription helped reduced that country’s hyper inflation and stabilized the polity. He spend considerable time in studying Bolivia peculiar problem and at the end, his plan which includes ending government subsidies, eliminating import quotas, helped reduced Bolivia’s hyperinflation from 11,750% to 15% per year from 1985 to 1987. It is hard to argue against his success in Bolivia until you examine the results of the same prescription in Boris Yeltsin’s Russia.

It is against this background that one can better understand his strong support for the Nigeria’s government sudden removal of petroleum subsidy on January 2, 2012. Professor Sachs went further than any Nigerian government official to argue in his Op-ed in the New York Times that “when Nigeria won relief on its external debt in the mid-2000s, the savings on debt service were actually redirected to meaningful social investments in states and local governments...” I seriously doubt any Nigerian government official can make this claim with any modicum of seriousness. In actual fact, at the government sponsored debate held in Lagos before the withdrawal of subsidy, virtually all the government official in attendance attest to the fact that Nigerian people are right to be skeptical about any promised dividends from the subsidy removal given previous results. What we know from the National Assembly probe is that the surplus gained during the mid-2000s was largely expended on an ill fated attempt by the Obasanjo’s regime to amend the constitution to gain an additional third term.

The problem with Professor Sachs’ prescriptions for Nigeria is a fundamental lack of understanding of Nigeria situation. In Bolivia, Professor Sachs spends considerable time studying the problem of Bolivia and even lived in that country. At most, Sachs barely knows the fundamentals of the Nigerian economy. It is apparent that he thinks Nigeria has a centralized economy when in actual fact Nigeria economy is oligarchy driven. Majority of the national corporations are in actual fact owned by the few oligarchs who used them as tools to further their nest, inflating contracts and influencing policies as they go. This indeed also explains the failure of Sachs’ prescription for Russia. It would be recalled that Sachs advised Russia (under the Yeltsin administration) for two years from December 1991 to January 1994. As Nancy Holmstrom and Richard Smith pointed out the drastic decreases in industrial output over the ensuing years, a near halving of the country's GDP and of personal incomes, a doubling of the suicide rate, and a skyrocketing unemployment rate is indirectly traceable to Sachs’ prescription for Russia.

One can only hope that on Professor Sachs’ next trip to Nigeria he will ask his Nigerian host to show him where the “meaningful social investments in states and local governments” in the mid-2000’s really are. If they are honest they will probably point him to the Swiss and Cayman Island bank accounts where they stashed the funds, but I will not bet on it!

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