Aba And The Path To Economic Freedom in Nigeria

In light of declining oil prices on the world market since the middle of 2014 due to the expansion of fracking in North America among other developments, Nigeria just like most petro-states has been exposed as being over-reliant on oil as the main source of economic activity, government revenue, and foreign exchange. Consequently, Nigeria has been in a massive economic down turn in the past few years with collapsing government revenues, increasing levels of debt, rising levels of inflation, and rising unemployment. Compounding the crisis has been the economic interventionism of the Nigerian government especially in the currency markets with capital controls which have been compounded by policy incoherence and uncertainty. In short, the policy incoherence of the Nigerian government has made the down turn worse and has created a very uncertain economic climate in which some businesses have scaled back on expansions plans while others have folded all together and the levels foreign investment have dramatically contracted.

With hard economic times, the chorus for true and lasting economic reforms which shift Nigerian away from being a petro-state has increased. Suggestion ranging from patronizing nationally manufactured goods to a program of increasing Nigeria’s business competitiveness by at least 50 places in the world have been suggested. While many of these suggestions have great intentions, all suggestions except the idea of increasing Nigeria’s business competitiveness by at least 50 places miss the mark totally and are statist/protectionist policies which at best will bring Nigeria temporary result which can’t last and would never make a country like Nigeria to achieve its potential.

Recently, I came across a campaign encouraging people to buy products from Nigeria’s manufacturing hub of Aba in Eastern Nigerian in order to strengthen the Naira (Nigeria’s currency) and promote economic activity and encourage Nigeria’s federal government to come up with appropriate policies to encourage the growth of Aba. While this effort is encouraging and will definitely lead to individual businesses getting potential investors to invest in them along with the necessary capital and expertise they would need in order to expand, this effort does not address the underlining problem which a country like Nigeria needs to tackle head on; the sorry state of economic freedom which stands at 115/173  in the world. What Aba and Nigeria needs is not the disproven infant industry model but rather the widest scope of economic freedom possible in which entrepreneurs and businesses have the widest scope of commercial freedom. In a climate with the widest scope of economic freedom possible, even though individual industries might not like its impersonal nature -which is why big business and entrenched industry players never lobby for economic freedom- this system is what lifts all boats together and radically transforms societies and has brought billions throughout history out of grinding poverty.

If asked to name a place which one day I believe can rival the manufacturing hubs of China, I would say Aba in a heartbeat without much thought. The level of industriousness, hustle in its rawest and most unrefined form and go-getting attitude in Aba is what keeps the city chiming in spite of the obstacle around it. Within a system of the most economic freedom possible, Aba within a few decades can become a major world manufacturing hub. From making leather derived products such as bags and shoes to reverse engineering many products, Aba gives a glimpse of what some of the so-called poorest in the world are capable of if a climate of economic freedom exist. The sad thing is that in many places which desperately need economic freedom to reach their potential and release their people from grinding want and poverty, too many from those who occupy the lowest to the highest positions of society have never fully grasped what economic freedom is and look at it with very deep suspicion and spout many economic fallacies too many to count.

For Aba and Nigeria to thrive and become some of the most economic free places on earth, the model of Hong Kong should be carefully studied. Over 60 years ago, Hong Kong was a poor third world territory within the British Empire heavily damaged during the Second World War and was being flooded with refugees fleeing communist China. On virtually all levels, Hong Kong was worse off than other nations within the British Empire and had no resources except a natural deep sea port. But under the leadership of Hong Kong’s Financial Secretary  and later Governor General, J.J. Cowperthwaite, policies which moved Hong Kong toward the path of economic freedom began being implemented at a time when such principles were said to be dead and everything from heavy state interventionism in the western world on one side of the spectrum to state controlled central planning on the other side of the spectrum ruled the day. Some of these policies implemented included sound and secure property rights, stable monetary system, the enforcement and sanctity of contracts, zero state meddling in the setting of prices of any kind, a light and predictable regulatory framework, a low and flat tax rate along with a simple tax code, zero state subsidies or bailouts for industries, virtually unrestricted free trade, and the rule of law. Cowperthwaite did something interesting; he instructed the office which collects statistics to stop the practice because he figured that doing so increased the urge for interventionism in the economy. In fact, Cowperthwaite spent most of his time protecting Hong Kong from the meddling of London because what he implemented in Hong Kong never had the sanctioning of London because at the time quasi-socialism and massive state interventionism was the norm in the highly uncompetitive British economy of the time. Since the Index of Economic Freedom began being published in 1975, Hong Kong has always held the #1 spot. It’s been said, that the so-called Asian Tigers got their inspiration from what Cowperthwaite did in Hong Kong and began imitating.

For a country like Nigeria, implementing the Hong Kong model will face more difficulties than Cowperthwaite ever faced.  Cowperthwaite never had a legislature or contesting interest of a complex country to deal with and was the man who for all intents and purposes called the shots.  In one area, rather than piece meal reforms, a one strike must be made at all impediments which hamper the formation and operation of businesses. Technicalities and legalities should be examined into how with one law all regulations are repealed and the regulatory process is given a new and clean slate to begin from and mechanisms which guide the growth and review of regulations are put in place. If a few piece meal reforms are made and hundreds of major and minor regulations till exist which impede the performance of those reforms, opponents of more economic freedom will castigate those reforms as not working when in fact a web off intricate and unseen impediments still exist. The position of property rights must be well defined and secured and constitutional level protections must be put in place which address this issue and allow property owners to use and transfer their property as they see fit along with protections which prevent the arbitrary destruction, seizure, and diminution of the value of property without proportional compensation. For the most part, Nigeria has probably the best financial system in Africa but the missing link is the position of private property which can be used as collateral. In terms of government taxation/size-of-government as a share of the economy, this is the only area in which Nigeria has very high and exceptional marks in terms of economic freedom and would be the envy of economic liberals worldwide. At a taxation level of 2.8% of the economy (thanks to oil revenue), Nigeria must do all that is possible to maintain that level despite whatever urge might exist to set goals to increase it. But more can be done to reduce the current flat income tax rate of 24% by around 10 points (Hong Kong has a flat rate around 15%) along with its corporate tax (it should look into totally eliminating the corporate tax and taxing only dividends and thus eliminating double taxation of corporate profits) and capital gains tax; in fact, such a move would massively stimulate economic activity.

As Adam Smith said in The Wealth of Nations – the book which guided Cowperthwaite – over 200 years ago:

“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.”

Even though operating under a very harsh climate with some of the least economic freedom on earth, the industrious small and medium size traders and craftsmen of Aba have thrived in spite of the barriers before them. As developing world nations and petro-states explore their options as they face a myriad of economic challenges, they must never forget that the ultimate resource which they have are their people. They must have an unwavering faith in the ability of their people to radically transform their societies when given economic freedom. Just as the people of Hong Kong did the heavy lifting of transforming Hong Kong after Cowperthwaite put in place the most economic freedom possible and its complementary institutions, so can the people of the developing world and many petro-states do if given the same.

 

 

Two Modes of Learning

Throughout anyone’s lifetime -whether done purposely or not- learning will be a constant. Whether learning in a formal setting like school or a work place or in countless informal settings in which our everyday interactions occur, learning is something we can can’t dodge. In today’s world, in order to stay relevant learning has to be constantly done and self directed. But everything we learn can be classed under two categories – closed or open. As will be discussed below these two modes of learning have powerful implications which go beyond how they affect individuals and have effects of society and its flourishing.

In the closed mode of learning, people learn towards an objective or an answer. People know the end in sight but all they care about is somehow devising some way of reaching that end; the logic of how that end is reached can be damned once that answer is obtained.Too many times, under this mode people fail to truly grasp what they are learning and once the usefulness of that information has passed (e.g. using it to pass a final or exam), people eventually fail to retain that information. In many ways, the schooling system falls within this category with the test and syllabi students are trained towards mastering. For example, if taking a Calculus II course, learning how to integrate by parts is a requirement which has to be ticked off. In order to integrate by parts, most students (especially engineering students and students who are not applied math majors) have a neat mnemonic they use (I confess I am guilty of this) but any mathematics major will tell you that using that trick is garbage  and would somehow come up with that answer to your amazement just like a very elementary calculus problem is being solved.

Under the open mode of learning, no objective or answers are worked towards. In this category, people learn in order to understand and know all the steps and logic of the topic they are attempting to learn. For example, as an aerospace engineer by background, I am learning machine learning. I have no question per sey I am try to answer or any objective (beyond mastering the subject) I am working towards. The closest thing to an objective for me is my a plan to use machine learning at a later stage in my startup. I simply looked for all books related to machine learning I could find and began systematically reading them up and also programming different machine learning algorithms so I can first hand see how they work. Along the way, I even tweak around some of these algorithms so I can see how they work under different conditions and with different set of data. Under the closed mode, rarely do people tweak things around and think about different scenarios.  I have also encountered difficulty along the way in setting up the different algorithms and also understanding some concepts. But I have no answer manual which I can refer to or that smart kid in class who everyone gets all the help from. I simply have had no choice but to think through what I am doing and really try to get down to the logic of what I am trying to solve and use all the resources at my disposal to the best of my abilities. This mode of learning actually can occur be both within a school setting also outside a school setting; more outside a school setting most of the time. Within a school setting, this tends to happen more towards the graduate level (i.e. masters and PhD) in which students have specific topics and problems they are working on.

Both modes of learning have their advantages, draw backs, and implications. As much as the goal should be get students into an open mode of learning, due to the fast paced nature of formal schooling with the limited time available and the course load, this is difficult to achieve. But for individuals who educate their kids, this is possible to achieve because time is very flexible and almost unlimited and kids can be gotten from an early age to solely focus on subjects in sync with their aptitude and preferences. But a draw back under the closed mode of learning is that too often kids never develop a life long habit of independent learning and their natural curiosity is stunted. Furthermore, from an early age, kids begin developing the mentality which fits a regimented life and society (regimented in the sense of people telling you how to live your life) in which you get order from above (in this case the syllabus and course objectives) and you simply learn how to stay on course on a narrow path and never deviate and ask critical questions. For not deviating or asking any questions, you are rewarded in different forms; the most obvious being almost automatic grade promotion.

Without a doubt, the open mode of learning is the most superior mode. It is under this mode that people fully get to understand subjects under consideration and fully grasp its logic in all its steps and interconnections. It is also under this mode that individuals  have been driven to asked very critical questions which have lead to the challenging of once agreed consensus and dogmas which have lead to progress is different fields of study and endeavor. In many ways, the human progress which have revolutionized the world and made the world more comfortable for had their origins within this mode of learning.

As the educational system continues to produce mediocre results despite the educational funding trend line being on the upswing for decades, maybe it is time to fundamentally examine and challenge the prevailing mode of learning/teaching within the educational system. Its might be in challenging the prevailing mode of learning that students will be put on a path in which they will learn how to be better critical thinkers who ask questions and have a genuine love for learning. Maybe finally will all the precious tax payer money spent on education yield proportional results.

Environmental Conservation, Time Preference, and The Ultimate Resource

Though the concept of Time Preference has its origins  and the bulk of its applications in issues to do with economics and finance, time preference is a phenomenon which can be used to describe all human actions and interactions and a lot of social phenomena we see going on around us ranging from the action of individuals to that of whole societies. Defined simply, time preference is the ratio of consumption to savings or the ratio of present to future valuations. For example, I have a bundle of 7 apples and I would like to eat 5 right now and save 2 for consumption at another time.  In that case I have a high time preference because I place more value on consuming now than consuming at some point in the future  and saving during that interlude. But if I decide to change that ratio to 4 apples now and 3 applies in future, my time preference drops and begins moving in a direction which places more value on consumption in the future and saving in the present.The lower my time preference, the more value I place on a good or goods being forwarded for future consumption and the more I accumulate goods in the present, which allow me to survive during the interlude between the present and future set time.

For every resource (e.g. oil, coal, natural gas, or forestry resources) which society consumes, it has its time preference and rate at which it consumes such resources. Every now and then alarms bells are rang about the dangers of the rate at which certain resources are being consumed and the dangers of such deposits running out. Thus, the government intervenes to alter the natural rate of time preference which comes about through free interplay. Such measures assume a couple of things: it assumes the individuals are “shortsighted” in their use of scarce resources and their preferences have to be overridden by a more“farsighted” time preference of resource consumption, it also assumes that future generations would use resources in a less efficient manner and privileges must be conferred on future generations, and it fundamentally sees the world as static and unchanging.

Thought no entrepreneur or businessman can know with all certainty future or even current trends, businessmen and entrepreneurs are in a better position to forecast this than government bureaucrats or planners for a number of reasons. People in the business community work within the setting of the market economy in which market generated price signals and the action and inaction’s of consumers guide their actions and allow them to best gauge how to put scarce resources to use. Furthermore, business people work within a profit/loss environment in which their goal is to avoid losses as much as possible by putting scarce resources to their best use in the most efficient manner possible so that the future value of the resources which they control increases rather than decreases. For all resources which might be under private control, the goal is to increase its future capital value and entrepreneurs will be guided as much as possible to use such resources in a way which makes sure that their future value always increases. But many times, when resources are under public control or privately controlled resources are constrained in their usage by  rules aimed at supposedly decreasing their usage due to some harm, many of these incentives are removed.

Through time, successive generations are always better off and wealthier than previous ones. Even in some of the less well of nations of the world, people who have been long around enough to see how things have changed through the decades say that on the net such societies are better off in one form or the other(even if my a small and marginal amount!). With increased levels of wealth comes better standards of living and better knowledge on how to use the worlds scarce resources and extract them. Constantly, research is always going on in regards to how to better extract resources. For example, take the shale oil revolution in the United States in the past decade or so, it came from people working within a profit/loss environment in which they were looking for greater efficiency gains by getting at shale rock which people once wrote off as impossible to extract from. But in a system in which bans are put on further extraction of such resources or such resources are brought under public control, in many instance such incentives don’t exist and such resources are turned into purely consumption goods. As the late economist Julian Simon argued in The Ultimate Resource, people are the ultimate resource. As Simon showed in his book, contrary to previous scares about the ability of the world to sustain increasing numbers and scares about natural resources and minerals being depleted, humans have proven to be the ultimate resource as they have shown an unparalleled ability to adapt and use such resources even better. Using basic econ 101, argued that if resources are truly being depleted, it means their supply is dropping and not keeping up with demand which would lead to increasing prices for such resources. But as Simon showed, adjusted for inflation, the price of many basic minerals such as copper and zinc dropped over time.

Fundamentally, many doomsday warnings about certain resources being totally depleted stem from seeing the world in static terms rather than dynamic terms. At any one point or period in time, the world has a certain pool of technical ability and know how along with knowledge on what resources exist. But as time goes by the state of things change; certain resources might be used up while new ones are discovered, even new and innovative methods for reaching previously unreachable resources might be deviced, new and better substitutes for certain resources might be discovered which makes the use of certain resources not worthwhile, and previously worthless matter might become highly prized resources. For example, take a look at the rise of crude oil. Crude oil was once a nuisance which farmers always had to deal with in their farms and no saw any value in the black viscous substance but towards the end of the 19th century that all began changing with the rise of the petrochemical industry which would power modern industrial society and nations would go to wards and conflict over. At the same time, whale fat, which was the main fuel for heating and lighting before crude oil began falling out of wide spread use which helped in reducing the hunting of whale which at the time had sent whales into near extinction.

At the end of the day, humans are the ultimate resource and are able to control events which unfold around them and adapt as things change. As has been argued, rather than entrepreneurs and businessmen being unscrupulous and not being farsighted the use of resources under the exclusive control, they have have every incentive not to negligently misuse resources under their control because if they do so it looses its future value. But more fundamentally, with time society always gets wealthier and is better off. As society gets better off, society has better knowledge and technical know how on how to use and extract resources. If we truly want to preserve the worlds resources and leave a better environment for prosperity, discussions needed to focus more on the interplay better private control of the extraction and processing of resources and how over time knowledge on how to better extract and conserve these resources usually increases.

 

Something To Consider In Environmental Debates

With the decision of the Trump administration to pull the United States out of the Paris Climate Change Agreement, old and intense debates relating to the environment and global warming have comeback into public contention. One of the debates has to do with the issue of sacrificing the planet and the environment on the alter of economic growth and wealth creation. Though this point seems plausible and logical on the surface, its a binary fallacy which never gets the critical examination which it deserves. Upon examining this issue, alternative modes can be shown which promote human welfare and in the long run help in preserving the environment.

Lets say a power station  or an industrial facility which involves combustible processes emits some kind of gas  or even CO2 which has negative environmental effects on the atmosphere, steps must be taken to mitigate such. In order to mitigate such, facilities have to change how they conduct their industrial processes or upgrade their equipment with more up to date equipment which mitigate such. Such  involves cost which can range from the cost involved with the acquisition of new equipment to the training staff in how to run new equipment and processes. In many cases this involves a cost which involves scaling down or using more inferior processes in one section of the facility/process or shifting the cost to consumers and third parties. In the case of a power generating facility, this translates to higher cost charged for electricity. This affects everything from residential energy consumption to industrial energy consumption. This alters everything from peoples standard of living to industrial output and productivity. For combustible processes, this alters the quantity and quality of output. Let me ask: in what setting can such be better afforded, a rich and wealthy nation or a poor and underdeveloped nations? Obviously, even though, no one can escape some kind of cost and trade offs being made, rich and wealthy nations can better afford this because  of the level of wealth and technical expertise.

The Netherlands is a nation which is  below sea level with about 2/3rds of that country being vulnerable to flooding. But over the years, the Netherlands has gained a reputation for its world class management of a system of levees aimed at preventing that nation from being drowned by the Atlantic. Compared to other areas of the world such as Bangladesh which has large areas of its coast at sea level and barely above the sea, the Netherlands does not seem to have a problem with periodic flooding like Bangladesh does especially during the tropical monsoon season. Which leads me to ask: what is the difference between Bangladesh and The Netherlands? Even though both nations have areas which are vulnerable to surging ocean currents, why does one seem not to suffer from such while other does? The difference is that the Netherlands is a more wealthy nation which can afford  critical protections from surging ocean levels while Bangladesh is one of the poorest nations on earth and can’t afford such.

Which leads me to the crux of this article. In discussions about preserving the environment, maintaining or even accelerating rates of economic growth – especially in underdeveloped nations – must at the center of all discussions and not just scoffed at. As I have shown with the hypothetical scenario which I painted above and the example of The Netherlands and Bangladesh which I gave, taking preventative measures to protect the environment and keep safe from its wrath in many cases comes at a cost and involves trade offs. These cost and trade offs are better afforded the richer and more prosperous a nation is.

Thus, adopting environmental protection policies which have the effect of retarding economic growth – no matter how slim or marginal it might be on paper – might in the end be self defeating and adversely impact those who are not prosperous enough afford necessary steps which might need to be taken.  Furthermore, this could have the effect of slowing down the global fight against extreme poverty and hunger and could wipe out the gains which have been made in the past 30-40 years especially in Asia. The recipe in this regard for economic growth needed put underdeveloped nations in a position of being able to afford and absorb these cost is very clear and has been tested through time. That is economic systems which move more in the direction of the market economy; economic regulations and rules which are not too burdensome, are predictable, and easy to keep track of; secure property rights; and the rule of law. Finally, ask yourself, between The Netherlands which is better able to afford these cost and Bangladesh which can’t, which country comes closer to meeting the criteria outlines in the previous sentence?

 

Social Media Interactions

The rise of social media in everyday life both as a tool for interacting with peers and advancing our professional lives is one of the most phenomenal developments of our time which is still playing itself out. With this development, ideas are instantly able to spread over vast distances in a matter of seconds and people are able to engage in vigorous debate. But with every great advancement and development comes a downside. A downside is the depersonalization of our interactions with people and conversations and debates taking on mean and nasty tones at times.  I’ll confess I am guilty of this and I am sure many people who have been social media users for any great amount of time are also guilty of this to some degree or the other.

To overcome this tendency, people need to get out of the attitude of trying to win debates and hammering people into submission. More than not, peoples minds are always made up on issues and topics. Except if you know all the nuances of an issue and topic, you probably will not change peoples minds. Even if you get them to think questions you pose, very few people are humble enough to accept they are wrong.

With the tone many people take in trying to counter people, it reinforces their preconceived notions about those they interact with and they simply dig in further into their beliefs. This simply creates a never ending loop in which each sides belligerence strengthens that of the other.

In interacting with people, come up with devices for preventing conversations from taking on a mean tone like remembering the are people. Think about how you will interact if the person was a close friend, family members, or someone you know. Ask if you will take on a brash and aggressive tone. Furthermore, ask yourself if the debate or back and forth is worth it in the first instance. If its not, don’t bother yourself with engaging in such, you lose nothing by simply walking away and using your time and energy towards other things.

Most of all, just be a decent person and show respect and courtesy even to those you don’t agree with.

 

Don’t Obsess Over The News

Yes, don’t preoccupy yourself with current events and the news!

Once upon a time, I believed in the goodness of being “well informed” and reading news/media publication after publication everyday (time consuming activity!). I never though deeply about the utility this action had in the larger scheme of things. All I knew, or was rather told, was that doing this would help me in being a better person prepared for the world in the long run. But with time, I began having second thoughts and began changing.

This is not to say I am not current on the news – I simply don’t obsess over the news or try follow it in any discernible pattern anymore. But in fact, I still am probably more informed on what is going on than most people! One of the reasons I broke with this habit was that I discovered with time that the media peddles in negativity, conflict, and division.

In the place of wasting inordinate amounts of time with “keep up with the news” I began reading scientific publications, economic and social science publications, fictions and non-fiction classics in genres ranging from literature to scientific, and learning new skills. Or when I’m not in the mood for such, I spend my time watching Netflix or something on YouTube.  Think about this, which would help in the long run: obsessing about what publications like the New York Times and Washington Post are saying over a sensational story like Trumps surrogates allegedly trying to create a back channel with Russia or taking on a challenge like learning machine learning from scratch with no computer science background?

Furthermore, the news is never an really a strong indicator of where society is headed. Science and its applications is what drives the world and makes the current standard of comfort and living possible. Following scientific publications in a field like artificial intelligence gives a better idea of how the world would look like 20-30 years down the line than chasing op-eds in The New York Times or Washington Post.

The mind is very precious and also incredibly amazing; its from the mind all the wonders and achievements of the world springs forth from. Whether you like it or not conflict of sorts exist for the control of thoughts and thought patterns. Once you fully realize this, you will be okay!