Benchmarking the German Social Market Economy model (Part 2)

Last week we considered the concept and evolution of the social market economy model in Germany. We took the view that this model has been a factor in the remarkable success that the country has enjoyed for more than a half-century.

Today, Germany is in the first league of industrial-technological democracies; the fourth largest economy in the world after USA, China and Japan. German technology is second to none in quality and standard; a world leader in automobiles, industrial machinery, pharmaceuticals, precision engineering, petrochemicals and ICT. Although the economy has experienced the general slowdown that has afflicted the EU, Germany has been spared the worst impact of the Great Recession. This owes in large part to flexibility of its economic system, the resilience of its institutions and the robustness of its banking system.

Following the trauma of two world wars, Germany has been blessed with a succession of able leaders standing on the shoulders of giants such as Friedrich the Great and Otto von Bismarck: Konrad Adenauer, Willy Brandt, Helmut Schmidt, Helmut Kohl, Gerhard Schröder and Angela Merkel. The re-unification of the East and West in October 1990 was a remarkably successful project; healing as it did the open wound of a divided nation.

Germany remains the undisputed leader of the New Europe. Like a big elephant in the forest, Germany is sometimes resented by its smaller European colleagues. This is the common fate of regional hegemons such as America, China, Brazil and Nigeria. Germany has rarely flexed its muscles both within and outside Europe; delicately positioning herself as a voice of civility, moderation and enlightenment in international relations.

This is not by any means to overlook the frailties and imperfections of the German model. In the first place, in spite of the fact that they have been deeply remorseful and repentant, Germans will have to live with the existential reality of a dark past that will not go away any time soon. School children in England are still being taught that Hitler died only yesterday and that the Germans are a barbaric, cold-blooded and savage lot. When I talk with my European friends I still notice a trace of ambiguity with regard to Germany. The German machinery of government exhibits evidence of heavy bureaucracy and red-tape. Productivity is flagging. Heavy dependence on exports is portentous with risk. Although home to great universities such as Heidelberg, Humboldt, Freiburg, Munich and Tubingen, none is among the first 25 on the global league table. The German education system still operates at the second division.

Be that as it may, if there is one country in the world that we in Nigeria need to benchmark ourselves against, that country is Germany.

German economic success clearly shows that markets matter, and so do institutions. There has to be a healthy mix between state and market in a manner that promotes balanced prosperity. We need a strong state based on constitutionalism, the rule of law and respect for order.

The Germans do not joke with the idea of Ordnum (order). The Westphalian state as we know it today in international theory and law is of German invention. Max Weber famously defined the state as that organisation that has monopoly over the use of legitimate violence. Securing the common peace is the first duty of civil government. From order, the state then focuses on building a national consensus while providing critical public goods, including social welfare for its citizens. As far back as 1792, the statesman Wilhelm von Humboldt wrote his influential The Sphere and Duties of Government, laying the foundations of what we know today as the welfare state.

From the German experience, we are convinced that government holds the key to our long-term prosperity.  In their book, Why Nations Fail, Daron Acemoglu and James Robinson demonstrate that the difference between rich and poor countries has little to do with natural-resource endowment. The determinants of economic success derive from rule of law, institutions, social stability and leadership. Indeed, natural resources could prove to be more of a curse than a blessing. What we need is an eco-system that incentivizes creativity, innovation and enterprise, in addition to the existence of a developmentally-oriented state driven by strong leadership with a sense of national vocation and purpose.

Until the Great Recession which swept like a hurricane across the advanced industrial economies, the reigning orthodoxy was that government is the enemy of the people, not their friend. Ronald Reagan in America and Margaret Thatcher in Britain anchored their Anglo-Saxon monetarist programmes on the belief that ‘big government’ inhibits free market enterprise. They proceeded to ‘roll back’ the state through massive programmes of deregulation and liberalisation. We in Africa were virtually coerced into undertaking structural reforms, with disastrous consequences in terms of de-industrialisation and deepening poverty.

Today, we know better. We know that the Anglo-Saxon model is not the Gold Standard of economic orthodoxy. We know that there can be market failures and informational asymmetries that undermine market efficiency. The work of the new institutional economists — in particular Douglass North, Ronald Coase and Elinor Ostrom – has brought back attention to the critical role of government and institutions in the making of the prosperity of nations. From the work of economists such as Hyman Minsky and Robert Shiller, we also know that untrammelled liberalisation of capital markets can generate dangerous financial bubbles.

The effective functioning of the state as understood in our twenty-first century requires the following: the presence of the rule of law; monopoly of the use of violence; effective administrative control; sound management of public finances; massive investment in human capital, including education, health, knowledge, training and skills; enhancement of citizenship rights through expanded opportunities for participation and ensuring reciprocal rights and obligations to all citizens without discrimination based on gender, faith or ethnicity; development of a competitive and forward-looking market economy. This requires both high quality visionary leadership and a sound, professionalized civil service. Public policies must be suffused with the ideals of social justice, inclusive growth and what the late Harvard political philosopher John Rawls termed ‘public reason’.

It is also imperative that we diversify the economy away from dependence on petroleum. For centuries our glorious continent has been nothing but a supplier of crude raw materials to the rest of the world. The lessons of world development make it abundantly clear that if all of us are producing the same raw materials we will reap the whirlwind through terms of trade loss and what economists term ‘the fallacy of composition’. We need a well diversified economy anchored on SMEs and regional industrial clusters producing for local and world markets.

Drawing from the German experience, Nigerian decision makers need to consider the following: first, reaffirmation of the centrality of market principles; second, better enforcement of contracts through improvements of the workings of the judicial system; third, anti-trust and anti-monopolies legislation to ensure fair competition and to break the back of all sorts of iniquitous cartels in cement, sugar, diesel importation, trucking and pharmaceuticals; fourth, creation of a welfare system and robust social safety nets for the unemployed, the elderly and the vulnerable while promoting labour-management cooperation and avoiding keeping the poor trapped in welfare dependence; fifth, human capital development through education, skills training and universal access to healthcare; sixth, commitment to nation building while forging a broad national consensus on the fundamentals goals of national development; seventh, promotion of a fairer system of taxation that makes the rich and affluent pay their due; eighth, promoting of SMEs as the backbone of the national economy; ninth, diversification of the economy and developing strong international trade networks; and lastly, reaffirmation of the autonomy of the central bank, with price stability as its primary mandate and also robust supervision of the banking and financial system so as to minimise risk of instability.

In concluding these reflections, I must say that it is with dismay that I notice how divided our country has become. I recently visited the Niger Delta, Ile-Ife, Ibadan, Anambra and other parts of our country. Never before have I seen such embitterment and alienation.  My own home state of Kaduna has come under the stranglehold of murderous militias that appear to have tacit encouragement by the state. The blood of the holy martyrs has reached the gates of heaven. It may spell doomsday for our country if we trudge the same discredited path of wickedness, appeasement and callous disregard for humane values.

For a country with the size, resources and innate potentials of Nigeria, I am persuaded that progress can only come about through the forging of a new consensus among the power elites. Nation building is a vital requirement for successful economic transformation.

Nigeria is the heart of Africa. We have a manifest destiny as the leader of our continent and of the black race. If the Nigerian Project fails, Africa fails. But we can only fulfil our destiny if we resolutely pursue the path of enlightenment and civilisation. As far as I am concerned, the 1999 constitution that we currently operate is an illegitimate document fabricated in the smoky barracks of General Abacha’s brutal dictatorship. As a result, it is replete with juridical mischief, blatant gerrymandering and gross inequities, not to talk of the dull and unedifying prose. Because it never emerged from the universal will of ‘We, the people’, it will never truly be enshrined in the hearts and minds of the Nigerian people. The current 36-state structure is increasingly unsustainable. For many of our citizens, government is the enemy, not the servant of the people. The work of constitutional and economic reform must begin today if our country is to avoid disintegration.

 

(Being the Concluding Part of the Keynote Address to the Roundtable Organised by the Konrad Adenauer Foundation, Held at Sandralia Hotel, FCT Abuja, Thursday 8 December 2016).

 

Obadiah Mailafia

 

 

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