For better or worse, economics will remain the queen of the social sciences for the foreseeable. The Greek philosopher Aristotle may have famously described politics as the master science, but for much of our twentieth century, it is the discipline of economics that has dominated the landscape of policy and decision making. Indeed, the great economist John Maynard Keynes noted: “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”
Economic science has helped us to better understand the origins of the wealth and poverty of nations. Up to the 1920s economics was largely political economy. The application of statistics, probability theory and higher algebra brought new intellectual rigour – and confidence – to the discipline. The first Nobel Prize in economics was awarded to Paul Samuelson in 1970. Samuelson was a neo-Keynesian who applied econometric theory in a manner that helped revolutionise the very foundations of the discipline. From then until now, no one could claim to do serious economics without rigorous training in probability, the higher calculus and matrix algebra. This is as it should be.
Even with these developments, the field was still open to a diversity of approaches and methods. The Austrian economist Friedrich August von Hayek and the Swedish Gunnar Myrdal shared the Nobel Prize in 1974. These two economists distinguished themselves by deploying the tools of political economy and institutional economics to analysing the economic problems of their epoch; approaching the discipline as an intellectual handmaiden in the pursuit of liberty and the Aristotelian Good Life as they understood it.
From the 1980s onwards, the so-called ‘neoclassical counter-revolution’ changed everything. Economists began to place their subject at par with physics. According to the British historian and philosopher of economics, Roger Backhouse, new mathematical theories may have appeared “deeper, simpler and more general than their predecessors, but they say nothing about the world”. Increasingly cut off from reality, economics became, as John Kenneth Galbraith once described it, an “extremely useful … form of employment for economists”.
Markets became the ruling idols of the age. Big government was seen as the villain. Scholars working within the paradigm of rational choice theory went so far as to approach government and politicians as actors who work purely from narrow ‘self-satisficing’ motives. The logical solution flowing from this doctrine was that government had to be rolled back and the ‘commanding heights’ of the economy placed exclusively in the hands of the private sector. Ronald Reagan in the United States and Margaret Thatcher in Britain became the champions of the new economic orthodoxy. Several countries in Eastern Europe, notable among them Poland and Hungary, embraced monetarism with much gusto as the bitter pill they must swallow if they were to emancipate their people from serfdom.
Within Africa and other developing countries, the Washington Institutions virtually coerced our debt-ridden tyrannical governments to succumb to structural adjustment reform programmes. We were compelled to ‘roll back’ the frontiers of the state, liberalise the external sector, cut back on social spending and sell off most of our public enterprises at a give-away.
The results were calamitous. Millions of people became impoverished. Child and maternal mortality literally doubled. School enrolment fell below the levels that were attained during the first two decades of independence. Budgetary cutbacks in the higher education sector crumbled our once proud universities. Our best minds fled abroad in droves, never to return. As the physical infrastructures decayed, industry was going into freefall. The ensuing unemployment led to the emergence of a new army of unemployed youths. Violent crime, militancy and all sorts of atavistic tribal warriors in addition to religious revivalism and violent millenarian cults became the order of the day.
The Great Recession has exposed the follies of the neoclassical orthodoxy. It is a well-known fact that the worst hit nations in the global financial crisis have been those that swallowed hook, line and sinker the prescriptions of neoclassical economics – the USA, Britain, Ireland, Iceland and the nations of Southern Europe. Those that have weathered the storm are precisely those that ignored them – Germany, Brazil, Malaysia, China and other emerging economies. It is for this reason that the investor George Soros and the Institute for New Economic Thinking (INET) are leading the efforts to reform the foundations of economics and to make it more relevant to the challenges of our twenty-first century.
For us in Nigeria, it would be utter folly to return to the wrong-headed policies of the past. Sound macroeconomics – low inflation, a prudent monetary policy regime and a sound financial and institutional environment are imperative for growth and collective welfare. But inflation alone cannot be the objective of the central bank. It would have to be complimented by commitment to boosting jobs and growing the real sector.
We do not need big government. Rather, we need smart government and an efficient, professional and incorruptible bureaucracy that delivers. We must have strong strategies for growth. Attention must also be given the regional dimensions of growth, focusing on our sprawling urban agglomerations; modelling the aggregate demand for the electricity, water, sanitation, transport and other physical infrastructures that our people will need as our population expands. We must invest in infrastructures, science, innovation and human capital. We have to revolutionise agriculture so as to ensure food security for all.
We need nothing less than an agriculture-led industrial revolution that will lift our people out of millennial poverty while enabling us to compete in the new integrated global marketplace. The laudable initiative in terms of the creation of the National Competitiveness Council by Trade and Investment Minister Olusegun Aganga is a step in the right direction.
Henceforth, we must approach anyone that peddles half-baked economic theories with a healthy dose of scepticism. Our focus must be on how to grow our economy, achieve industrial-technological take-off and fulfil our world-historic ambition to be among the leading nations of the twenty-first century.
OBADIAH MAILAFIA
Chef de Cabinet, African, Caribbean and Pacific Group of States.
