Fallacies of the subsidy removal narrative (I)

We have heard the argument in favour of the removal of subsidy in the Nigerian economy a zillion times almost to the point of nausea. 

In the wake of the recent withdrawal of subsidy on petroleum products in the country, the debate on the subject ever in the public domain has gained heightened traction. 

The main thing I deduced about the discourse is that from the point of view of its proponents, subsidy amounts to an economic heresy responsible for all or a greater part of the distortions in our economy and indeed our lives. 

If we are to believe them, subsidy encourages waste in that it allocates scarce resources to individuals who feed fat on those resources without returns to the system. In the case of petroleum products, it encourages the smuggling of the products across the border for premium dividends to those who engage in that activity. 

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So instead of funnelling such massive amount of resources to individuals why not remove it and channel it to sectors like road infrastructure, education and health which would benefit the people more?  

The argument on subsidy has been so forcefully canvassed by its merchants that a great many Nigerians have been led to believe that indeed subsidy is akin to a four-letter word of which we should feel ashamed of. And against better judgement (because it is actually a fallacy that subsidy is bad) we should make haste in dispensing with it even if in the long run we will come to rue this decision as a people and as a country.

In this article, I intend to go against the herd instinct that Nigerians often exhibit on such matters and convincingly and conclusively debunk the idea that subsidy is an economic anomaly. In doing this, I intend to go into unchartered territory in the subsidy debate which its merchants, right from where the idea originates to its foot soldiers here in Nigeria, have deliberately hidden from us.

The baseline of this article is that there is no country on earth that does not implement subsidies in varying forms and extent for a number of reasons. And while every other country, including and especially in countries like the United States of America and Britain which compel other countries to implement subsidy removal, apply subsidies in their economic system, Nigeria should not be hasty in subsidy removal just because America-controlled International Monetary Fund (IMF) imposes it on us.    

Sometimes, subsidies are implemented for the purpose of maintaining social harmony and equilibrium so as to keep the strata of society, especially the lower strata, from alienation which will enact consequences that may cause revolutions, insurrections etc. This is the phenomenon of the social welfare system which older developed countries in Europe, which have experienced violent class warfare in the course of their histories and the disastrous consequences they wrought, have opted to implement. 

On another plane, countries, in order to mitigate the effects of fierce economic competition from outside, try to provide subsidies to their corporations so as to firstly protect such corporations and secondly to provide them with favourable platforms for beating the competition in local and global trade and commerce. 

Yet another reason for subsidies is to protect corporations that are termed as vital national security assets.  If a corporation is deemed vital to a country’s corporate survival, such a corporation will be peppered with layers and layers of subsidies in order for it to perform its role in keeping afloat so as to continue its national security role. 

From these three perspectives on subsidy implementation, I want to proceed to examine how the countries that are pushing us stridently to implement the removal of subsidies on virtually every aspect of our lives, are ironically and unapologetically implementing subsidies in their economies.

Take the United States of America the high temple where the idea of subsidy removal emanates from.

In the US, subsidies in the form of affirmative action for African-Americans, grants and endowments for schools and universities, provisions for housing, health and transportation are implemented by the government. 

US agriculture is one area that is heavily subsidised by the government. From loans and grants to provision of seedlings, farm implements and research findings, US Department of Agriculture also arranges to buy off a greater portion of the farm harvests of farmers at favourable prices and place them in silos and other storage facilities in order to determine price controls.

As a matter of fact, the US Department of Agriculture in many instances arranges to either destroy these products or leave them to rot so as to insulate American farmers from price volatility and foreign competition which results in bankruptcy and foreclosures. 

By far, the sector which receives the most subsidies in the form of waivers, tax breaks and over-the-odds sweetheart contracts from the US government is the defence sector. Here the Lockheed Martins, Raytheons, Northrop Grummans, Boeings and thousands of other defence companies are the principal beneficiaries. Considered the pillars of national security and US power projection globally, the US government makes no bones about funnelling trillions of dollars’ worth of subsidies to these companies in several ways to keep them afloat.

Here, the principle of efficient economic management which under guards the calls for the removal of subsidies in Nigeria by US-controlled IMF does not apply. Where it concerns its vital economic and strategic interests, the US government chooses to ignore what it preaches to others under the doctrine of economic management.

In the US, these subsidies are in keeping with the purview of overall national development objectives which ensure that citizens are healthy and well fed, housed and provided with education. It is not a whimsical policy implemented at the pleasure of any administration that can be yanked off just like that.

Also, no international organisation of whatever standing or any other nation can be allowed to determine how it is implemented or not because they are backed by law and enshrined as part of the ground norm of the American constitution. Any attempt to tamper with or remove them would either attract a plethora of lawsuits or in the extreme, violently challenged. 

So why are we in Nigeria unquestionably rushing to implement this toxic policy which has the potential to injure our nation eventually when even the principal promoters of it don’t even contemplate it in their jurisdiction? (To be continued)