The tragedy of sub-national governments’ welfare mindset

The ‘invisible hand’ idea as postulated by Adam Smith is one of the most fundamental equilibrating relations in Economic Theory. He is of the opinion that self-interest will result in an optimal allocation of capital for the society. In his words, “every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to the society”.

He also notes that what is true of investment is true of economic activity in general. His assumption is that “every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it”. He concludes that “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from the regard of their own interest. The individual is led by an invisible hand to promote an end which was not part of his intention”. The invisible hand, in this case, is the aspiration for social wellbeing.

If we substitute the sub-national government for the individual in this case, the expectation will be for the judicious application of the resources at their disposal, but in their own case, to consciously promote public interest. Over the better part of our 57 years of post-independence existence, however, these entities seem to have been on a mission to perpetuate the exact opposite of what is expected of them. They all gather at the end of each month to share in the money they’ve contributed little or nothing to, despite the fact that each sub-national is equally as endowed as the next. The unintended consequence of this periodic federal allocation ritual is now a collection of insolvent, unproductive and dependent state governments with false sense of entitlement bordering on the victim ideology of welfarism.

Unfortunately, the federal government still takes the flack for every instability in the polity, irrespective of its architect. Nigeria is an entity with 36 sub-national governments and one federal capital territory, yet, only nine states- Lagos, Rivers, Bayelsa, Delta, Akwa Ibom, Abia, Edo, Ondo and Imo- contribute anything meaningful to the national coffers. Ironically, these unproductive states also have brazen appetite for spending. The total annual budget of all the 36 sub-national governments in 2017 is about N6.5trn, almost at par with the N7.3trn proposed spending by the federal government, yet their projected total revenue is N2.86trn.

This gets more alarming when we consider the internally generated revenue (IGR) as the true revenue, with the projected sum total of about N750bn by all the states, of which Lagos alone accounts for about 39%. We have states like Borno, Yobe, Zamfara, Kebbi and Jigawa at the extreme end of the spectrum, annually consuming equivalent of 4,390.6%, 3580.1% 3384.8%, 3053.7% and 2700% respectively of their IGR while Bayelsa, Delta, Lagos, Rivers and Akwa Ibom expend equivalent of 209.5%, 211.8%, 247%, 260.5% and 338.7% of their IGR respectively (13% derivation was added to the IGR of the oil producing states). To make matters worse, more than 70% of the sub-national governments’ spending is on recurrent expenditure. So invariably, most of the state governments are recklessly spending the money they do not have the hope of ever repaying now, or in the life hereafter.

From an economic standpoint, the fact that Nigeria still exists is nothing short of being one of the 7 wonders of the modern world, but I’m not sure for how long the burden of 36 states, the federal capital territory and the federal government can continue to be borne majorly by revenues generated from activity in just nine states. Lagos state has demonstrated that there is life outside the crude oil revenue, and if there is any dignity amongst the states with the welfare mindset and attitude, they will be the ones to set the roadmap for the generation and equitable distribution of the national wealth for a sustainable future. As presently constituted, Nigeria can forget any vision 2030, 2050 or 20-infinity as development won’t be achieved without the active and reasonable contribution from all the sub-national entities.

Olugbenga A. Olufeagba