Quote: So, what does all this tell us about Nigerian billionaires? The first is that rentier or crony capitalism is the dominant form of capitalism in Nigeria. Few became billionaires without special favours from the state
Last year, the Financial Times launched what it called “the new agenda” on capitalism. The FT started by describing free market capitalism as “the foundation for the creation of wealth, which provides more jobs, more money and more taxes”, and has spectacularly reduced poverty and raised living standards worldwide. However, the newspaper argued, the liberal capitalist model is now under fire. But why? Well, because capitalism’s seeming focus solely on maximising profits and shareholder value is seen by critics as myopic and wrong. Thus, instead of “shareholder capitalism”, some are now calling for “stakeholder capitalism”, which considers not just shareholders’ interests but also the interests of other groups, including the community. “The long-term health of free enterprise capitalism will depend on delivering profit with purpose”, the FT concludes, adding: “It is time for a reset”!
But the agenda to “reset” capitalism is controversial. Recently, Warren Buffett, the chairman and CEO of Berkshire Hathaway, came out strongly against it. Buffett’s intervention is strange because he is not only one of the world’s top billionaires, with an estimated net worth of $89bn, but also one of the world’s most generous philanthropists, who has given billions of dollars to charity. The FT calls him “capitalism’s kindly grandpa”. So, why is he opposed, as it seems, to the concept of corporate social responsibility?
Well, Buffett’s argument is that the only duty of a company’s management is to increase the value of the shareholders’ shares and that it’s not up to corporate managers to spend the shareholders’ money on environmental or social issues. Shareholders can spend their dividends on any environmental or social issue they like, as Buffet himself does by donating billions of dollars to charity, but corporate managers should focus on maximising profits and shareholder value. Put this way, Buffett is not opposed to corporate social responsibility but wants the decision to be made by shareholders themselves, not by corporate managers. But his critics argue that companies have a duty to bring about a better society through social activities, otherwise they would lose the moral licence to operate.
So, who is right: Buffett or the moralisers? Well, both are right, but the moralisers have a stronger case. Let’s turn to our authority: Adam Smith, the father of capitalism, himself!
To be sure, Adam Smith was strongly in favour of the profit motive and even the greed or self-interest that underpins it. As he famously said in The Wealth of Nations, “It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own interest”. In other words, no entrepreneur or capitalist starts a business for charitable activities; rather, their primary motive is to make money, a lot of money! But Smith argued that with that self-interested desire to make money, the capitalist ends up promoting the interest of the society as well. But how?
Well, if an entrepreneur wants to make a lot of money, he or she needs to produce what society wants and can afford. For instance, broadband internet, computers and mobile phones make lives enjoyable and thus benefit society. Those producing them become very rich as a result, and if they want to be richer, they must improve the quality of the products and make them widely available at low prices. In doing so, they become extremely rich, but also create jobs and pay taxes. Surely, by producing life-enhancing goods and services, and by creating jobs and paying taxes, the entrepreneur is promoting the public interest, even without doing charitable activities.
But there are two snags. The first is about fair competition. What if the entrepreneur is benefiting from rentier or crony capitalism? What if he or she is operating effectively as a monopoly, and enjoys protection in the domestic market, which allows him or her to make excessive profits and thus become super rich? What if the entrepreneur has so captured the state that policies are made at his or her behest and not in the interest of the whole society? And what if the entrepreneur is not even paying the right amount of tax? Well, this is not Adam Smith’s capitalism. Rather, it is, as Martin Wolf wrote in the FT, “capitalism rigged to favour a small elite”. And it is that kind of capitalism that makes people angry about capitalism! But the true capitalism is free enterprise capitalism, the emphasis being on the word “free”. Which is why Adam Smith anchored capitalism on competition and proper regulation. So, any true defender of capitalism must be a strong believer in, and advocate of, fair competition underpinned by sensible regulation.
Which brings us to the second issue. Even if a company or an entrepreneur is operating fairly, producing life-enhancing products, creating jobs and paying proper taxes, that may not be enough. And this is where social corporate responsibility comes in. We live in a world where there is so much poverty, inequality and social degradation. In that world, it doesn’t look good if large companies and billionaires simply turn a blind eye. Before Adam Smith wrote The Wealth of Nations (1776), he wrote The Theory of Moral Sentiments (1759), in which he argued that pity or compassion drives the emotion we feel to the misery of others. “That we often derive sorrow from the sorrows of others is a matter of fact”, he said. Maybe he was being too optimistic, but the truth is that the capitalism that is not compassionate is not true capitalism. After all, as the Bible says, to whom much is given, much is expected!
So, what does all this tell us about Nigerian billionaires? The first is that rentier or crony capitalism is the dominant form of capitalism in Nigeria. Few became billionaires without special favours from the state. Indeed, former President Olusegun Obasanjo once boasted that he created 25 billionaires. “My aim when I was in government was to create 50 Nigerian billionaires. Unfortunately, I failed. I created only 25”, he said. But market forces, not presidents, should create billionaires. But what about taxes? A famous British politician, Peter Mandelson, once said that he was “intensely relaxed about people getting filthily rich as long as they pay their taxes”. So, are Nigerian billionaires paying their taxes? Well, no! Tunde Fowler, the former chairman of the Federal Inland Revenue Service, FIRS, was once quoted as saying that “over 6,772 billionaires don’t pay tax”. If true, that’s really sad!
But what about philanthropy? To be fair, Nigerian billionaires are engaged in philanthropical activities, with some donating to several causes, such as Femi Otedola’s N5 billion donation to the Save the Children Fund, Aliko Dangoke’s donation towards the Ebola crisis or Tony Elumelu’s entrepreneurship programme. But, let’s face it, compared with their counterparts elsewhere, Nigerian billionaires are not doing enough to help tackle poverty and inequality in this country, dubbed the “poverty capital of the world”.
A few years ago, the Chinese government launched a programme to end extreme poverty. Chinese billionaires and conglomerates immediately piled in to support the programme, with the tech giant, Alibaba, pledging to spend RMB 10 billion in rural areas. Of course, it is the government must pursue sensible policies that help create wealth and spread it more widely to reduce extreme poverty and inequality. But those who became billionaires under the current imperfect system should contribute to reducing the level of misery in Nigeria.
So, the FT is right. So is BusinessDay in its recent restatement of its commitment to free enterprise. Both are following in the footsteps of Adam Smith. Capitalism must have a human face, and, for me, Nigerian billionaires should give a lot more back to this country.