Understanding crony capitalism and why it’s probably bad for you.

Government sets the rules. More often than not the rules determine who “wins” and who “loses” in any given scenario. Changes in government policy also sometimes change who “wins” and who “loses”. Take for example a policy that seeks to “promote local book printing” by banning imports of books. First who loses? Well everyone who buys books. The banning of imported books will make books more expensive for everyone who buys books. So everyone who buys books will have to pay a bit more than they used to. [If it were cheaper then there would be no need for a ban.] Now who wins? The guys who print books of course. Banning imported books means they sell a lot more books and make a lot more money. So they win from such a policy. Well they and the few people they hire. Creating jobs is always the excuse isn’t it.

 

Which bring us to the crony capitalism part. If you are in the business of printing books locally, can you somehow convince the government to ban imported books? Either by promising them you will create a few jobs, or just by bribing the government officials who make these decisions? Not that I’m accusing anyone of bribery. It could be something as transparent as financing political campaigns. The outcome is still the same though. As a business it is possible to buy up politicians and encourage them to make policies that make you a winner. That is exactly what crony capitalism is. Businesses buying up the rule makers to make rules that make the businesses winners.

 

Now there is nothing technically wrong with having business friendly regulation. Except when it works at the expense of the ordinary citizen. For example, if the government raises tariffs on rice imports, the common man is the loser. Because he/she has to pay more for rice. The only people who win are the farmers who grow rice, and technically only those who grow surplus rice. That is, rice of a value significantly higher than everything else they consume. This theme is repeated every time the government bans or raises tariffs on something.

Which brings us nicely to the PDP fundraising dinner. A quick glance at the list of donors makes it very clear what is happening. Businesses financing political campaigns probably with the hope for policies that will make them winners. Benefactors from the auto policy, rice policy, cement policy and others all coming together to sponsor the political party that will ensure they keep winning.

In most countries businesses donating to political parties and campaigns in straight up illegal. In others they can only donate anonymously. But of course in Nigeria where anything goes, they can finance campaigns and dictate policy all to their benefit, not necessarily to the benefit of the country or of Nigerians. If you want to understand why government policy in Nigeria often sounds like it’s for the well connected business men and not for the common man/woman, then the fundraising dinner is the place to start.

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2 thoughts on “Understanding crony capitalism and why it’s probably bad for you.

  1. hi Nonso, being an academic i will appeal to your intellect. Nations do not grow by allowing others dump products on them this has been happening in NG for decades. All the Western Countries protect their turfs, if NG has decided to do this, i think it is commendable. We need to increase capacity utilisation of our local industries (that is the only way employment can be provided). In doing this, the perfect market scenario cannot play out, you first need a market before you perfect it (i.e. there will initially be few players before the market deepens and new entrants come in to compete). Unfortunately a lot of local nigerians are graduates but not many are educated so some of these things are difficult to explain.

    1. Just a correction; Nations don’t grow by protecting their turfs. They grow by cornering other countries turf. It is unlikely that the cartelization of industry we are doing now will result in any kind of growth. The kind of industrial growth we require cannot be sustained by the relatively small Nigerian market but will require that we participate in the global market. But the article isn’t about industrial policy. It is about making rules that benefit a few at the expense of the many.

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