Capitalism is an economic system where private individuals or businesses control the exchange of economic goods for a profit. The production of goods and services is based on supply and demand - a market economy. In a socialist system, the production and distribution of goods is controlled or regulated by the community or the government.
These are two very different economic systems, and they have an impact on the development of a country. However, none truly define how Nigeria is currently set up.
Defining Nigeria's Economic System
It is difficult to define which system drives the Nigerian economic model. The argument that it is capitalist will not stand. Why? Data shows that ease of the acquisition of private property, freedom of choice, self-interest, and competition, all of which are crucial elements of a thriving capitalist or market economy, are absent in Nigeria. Nigeria ranks poorly in the ease of starting and running a business. This includes poor performances in vital factors such as registering properties and obtaining construction permits.
In addition, there are well-documented problems of high transport costs, protectionist trade policies, and inadequate power supply which altogether create an environment inhospitable to private sector development. Factors that damage private business confidence.
Key elements of the socialist system are also missing in the Nigerian socio-economic climate. In Nigeria, the means of production are concentrated in the hands of a certain percentage of the population as opposed to the entire population. This unequal distribution of control and consumption is, to an extent, aided by limited government protection for emerging businesses in specific markets and tax incentives provided by the Nigerian government for monopolistic companies. Perhaps the only element of a socialist economy which is present in Nigeria is the significant role of the government in decision making and economic planning.
What System is Nigerian Trying to Operate?
In 2017, The Ministry of Budget and Planning published an elaborate economic growth and recovery plan (ERGP). The plan is driven by certain principles including leveraging the power of the private sector, and the promotion of social cohesion. In theory, this suggests that Nigeria is trying to work as a mixed economy, a system incorporating both capitalist (free market function) and socialist ideals.
By developing the ERGP, the government furthers one of the most critical characteristics of socialism: a government planned economy. However, launching a grand economic growth and recovery plan is one thing; having the capacity to implement it is another. Does the government have the capacity to regulate and provide the goods and services for the economy to promote equality as socialism dictates?
Going by the figures in 2017/2018, it is difficult to see how. Government revenues dropped from ₦911 billion to ₦680 billion while there was an increase in government spending from ₦624 billion to ₦795 billion.
There is also a question of the government's judgment or competence in specific interventions in the private market. The subsidising of the petrol market, for example, has negatively impacted the economy as a result of fluctuating oil prices. The government's attempts to regulate the naira during the oil crash in 2014 also arguably made things worse.
How Can We Help Ourselves
As evident in the ERGP, the Nigerian government considers the appropriate economic model as being somewhere in between capitalism and socialism, which aligns with the approach of many countries - a mixed economy. However, given the government's revenue constraints and ability in market intervention; it should consider a unique role.
The government should promote an enabling environment for the private sector to boom. Recognised methods of fostering private sector efficiency include faster registration processes for new businesses and relaxation of taxes and levies for private investors. Increased freedom being given to the private sector through government intervention has proven successful in the likes of China.
In creating an enabling environment for the private sector, government policy should ensure that it also creates an environment for a well functioning labour market. It is not just about businesses but people too. There are structural unemployment and pay issues where people are earning peanuts. The government can aide the job market by improving the flexibility of skills with a strong education system supported by vocational training, or greater flexibility of labour by aiding the creation of transport infrastructure.
The government can also ensure a more favourable climate for the development of alternative income streams. Such measures may include reduction of taxes for SMEs or subsidies on loans obtained by start-up companies.
The government doesn't have to do everything; it cannot afford to hire everyone. But by creating an enabling environment for both businesses and people, Nigeria might push its way to prosperity.