Too Big Government: The Hysteria of Developmental Quagmire


Monday, July 24, 2017 5:40PM / Proshare Research


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The Siamese relationship that exists between economics and politics often leads to one triggering a change in the other. This is not surprising especially in a period when the country finds itself in a deep seated economic cycle. The result is thus an erosion of disposable income and an overall inflammation in the misery index.  

The deep economic cycle has not restricted itself as causation to a fragile macro economy, rather it has begun the fanned coal for a political re-engineering. Thus, an understanding of the possible fall out that comes with political re-engineering, has become important to weigh on such issue in this particular study. 

This edition of the Proshare Confidential report will delve into the concept of government size and the prevailing structure of government, while taking a critical prognosis on the size of government and its relationship with growth. This will enable us to ascertain the effect of pro-poor policies on the macro end and determine if it has really shielded the poor from market induced inequality.  

At the same time, we will test if the popular Regan wisdom (“government is not the solution but in most cases the problem”; thereby in most circumstances when government participates in productivity, it is unconsciously building roadblocks to economic activity) does hold sway within the Nigerian context. 

Certainly, understanding the present role of government and its expenditure sheds light on how much capacity have been utilized by the prevailing structure.   

The study identified both the vertical and horizontal kind of political structure. At the same time the effect of individual structure on specific business indicators such as competitiveness, corruption, budget deficit to GDP and capacity utilization.   

The study also showed the concentration of power and the degree of devolution that is inherent in the Nigerian structure. Evidently, the Nigerian structure is a horizontal structure with a top to bottom channel; with power largely concentrated in the top and substantial economic responsibility resting at the top.  

The existing trios of exclusive, concurrent and residual list validates this position. It also bolsters the position by many that social transfers many times are largely restrictive to the urban areas and middle class.  At the same time, the thin resources available to the local government have also affected the quality of public goods.    

This study also alluded to the fact that developed economies are better at managing decentralization compared to developing economies.  Such scenario is partly due to weak human capital in the local government areas to manage their resources. It is not surprising that after decentralization the quality of public goods delivered is relatively the same.  

Although budget deficit slims down but the presence of over grazing and emergence of oligarchy stalls growth. In addition, the study carried out a comparison between Uganda and Indonesia, which has carried out some form of decentralization.  

While the study admitted that decentralization can be used as a tool to propel growth and ethnic integration, it is not a silver bullet. This is because the success of such process is largely dependent on the support of the people and more importantly the development of new institutions while strengthening the existing ones.             

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Previous Proshare Confidential Report(s) 

1.       The Nigerian Debt Conundrum and the Need for Automatic Stabilizers – Jun 2017

2.      Article IV vs. ERGP - The Third Way – May 2017

3.       Lifting The Veil off The Financial Sector – Apr 2017

4.   Towards An Economic Model for Nigeria; Going Beyond Symptomatic Responses - The Panama Model – Mar 2017 

5.      FX Utilisation in January 2017-Symptoms of An Opaque Structure – Feb 2017

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