THUR, JANUARY 18 2018-theG&BJournal-Too many times we have heard the complaint about affordable cost. Recently, I had a conversation with a group about quality of education in Nigeria. The main concern of one of the people in the group was not the quality but the exorbitant fees being charged by private schools. He argued that one hundred and fifty thousand Naira fee for a term clearly puts the cost of secondary school education beyond the reach of the ordinary man. I was quite sympathetic but I asked him to try and do the mathematics with me. I asked him to take into consideration how much the proprietors invested to build the school. Apart from the physical buildings, I asked him to factor in the salaries of the teaching and non-teaching staff and running cost including cost of fund and private electricity generation. Furthermore, I asked him to consider the risk that the school may not be able to attract students and even when it did, it may not be at a capacity where they can break even. Finally, I asked him to put himself in the position of the investor and tell me how much fees he would charge.
The point I was trying to make with him is that the spending power of the ordinary man does not change the basic cost of production of goods and services and indeed, bears no relationship to it. Clearly, if focus is on what is affordable, quality will be sacrificed increasingly. This point is very critical for us as a nation because for too long, we have tended to ignore cost of production in our economic choices while focusing more on spending capacity. It is this wrong focus that kept price of electricity and gasoline for instance, at economically unviable levels over a very long period and the price we paid and are still paying for it was lack of investments even as population increased annually resulting in chronically declining quality or availability. It is perhaps important to point out that this malaise is not just restricted to goods and services that the ordinary man pays for.
Indeed, our approach to negotiation and legislation of the so called national minimum wage is another evidence of this debility. In my view, the national minimum wage is a huge joke albeit a very expensive one. Everyone involved knows that the negotiated amount is grossly inadequate, yet governments at all tiers are unable to pay even the inadequate sum. In the first instance, it is a gross error for us to be legislating on a minimum monthly salary and then wrongly christen it minimum wage.
Wikipedia, the free Encyclopedia defines wage as ‘a form of remuneration paid by an employer to an employee calculated on some piece or unit basis’. It goes further to make a distinction between wages and salary stating that ‘compensation in terms of wages is given to workers and compensation in terms of salary is given to employees. Compensation is a monetary benefit given to employees in return for the services provided by them.’ The moral foundation for legislation for minimum wage is to protect the most vulnerable category of labour with limited negotiating power from undue exploitation. Thus, the minimum wage is supposed to be set as a certain amount per hour which is the unit alluded to in the above definition. Subsequently, the amount a worker earns a month will be a function of his skill and number of hours he puts in a month.
Unfortunately, labour in Nigeria has consistently gone into negotiation with government on minimum wage with scant consideration for productivity. Invariably, government focuses on available funding to negotiate what it can afford to pay which bears little relevance or relationship to skill and efforts. In effect, affordability is the basis of minimum salary negotiation in Nigeria rather than what labour actually deserves based on skill and productivity. This point is important because it is what propels reactions to prices of goods and services in the economy.
As labour fails to earn what it deserves because the employer (government) cannot afford it, labour in turn insists on prices of every good or service being controlled so that their meagre earning can afford them. This is the foundation of subsidy arrangements and the massive distortions that they bring into the economy. The corruption and inefficiencies in our economy can be directly traceable to the attempt to force down prices of goods and services to what is affordable notwithstanding what the cost of production is. Unfortunately, the global economy, of which we are a part, does not function in that manner. At any rate, the fact of disparity in incomes among various classes in the economy challenges the notion of the workings of affordability-based pricing.
Back in 1983, the civilian government of President Shehu Shagari, in response to drastic drop in oil earnings, sought to introduce some form of austerity measures to curtail the burgeoning national import bills. The military used it as an excuse to overthrow the administration accusing them of incompetence, corruption and a litany of sundry transgressions. Faced with the reality of running the economy however, the Major General Buhari regime dispatched soldiers to markets to whip traders into line and enforce an archaic price control mechanism that was unrelated to production costs. The result was chaos and a regime of hoarding and of scarcity when some items had to be classified as ‘essential commodities’. The economic lesson from that era was that no matter how powerful and autocratic a government is, it cannot decree out of existence the economic realities of the cost of production of goods and services and the interplay of the forces of demand and supply.
It was a chastised General Babangida regime that began the process of dismantling the rigid and unworkable economic structures of the nation to bring them to modernity. More than a quarter of a century since those liberalization reforms were introduced to the management of the Nigerian economy, the nation still remains resistant to basic reforms in the mistaken belief that things will happen merely because we wish them to.
In the real world, quality education costs money to provide and that cannot be altered by the fact of low spending capacity of the ordinary man. The appropriate response to affordability should be to increase earning capacity. That is the only way that one can pay for the quality of goods and services that he desires. This invariably means that the national minimum wage strategy must be altered to emphasize wages which must be linked to productivity and not what government can afford. This further imposes an obligation on government to evolve appropriate metrics for measuring productivity.
This will perhaps be another positive step in dismantling the rigidities and distortions in our economy, because affordable cost should be tied to earning capacity rather than to constant decline in quality of goods and services.
Clement T. Ofuani first published this article which remains relevant to date in 2012.
