Subsidies: Working the Monkey and Feeding the Baboon

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“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” Ronald Reagan (1911-2004).

People naturally love freebies. However, the reality is that there is hardly anything that is free in life in the true sense of the word, except perhaps, air. But even air may come in a form that is not attractive for use depending on what part of the globe you are or what time of the season it is. In the temperate region, you may need to convert the air at a cost to ensure that you have the right temperature for comfort and survival. It is the same in the tropic regions where the temperature would have to be adjusted downwards for comfort. It may also be germane to point out that some types of ‘air’ are also expensive and make profitable lines of business to sell them.

Since the advent of crude oil as the prime mover of the Nigerian economy, subsidy has become a recurring feature in the country’s economic discourse. The preponderance of oil proceeds led to undue reliance on oil proceeds for practically all aspects of development and growth. In less than two decades following the positive oil shocks that came with the establishment of the OPEC cartel, Nigeria’s economy became monolithic. Before oil, Nigeria was the world’s largest exporter of palm oil and groundnuts. It was among the top five exporters of cocoa, cotton, rubber and several other commodities. Agriculture was the main stay of the economy and there was a fledgling manufacturing base that was growing to feed off the huge raw material base. All that is now history.

Sadly, while we groan under the burden of a monolithic economy, in which incomes have since shrunk, we have not been able to address the attendant subsidy legacy that developed during the era of seemingly unlimited income from crude oil. We love freebies and any attempt to take away some of these freebies has met with organized resistance and even institutional constraints. Subsidy has become a yoke on the neck of Nigeria’s economy, which has slowly squeezed life out of it. More pathetic is the fact that with the structure of subsidies in the country, the actual benefits go to the top instead of the bottom. The baboons are still having a field day at the expense of the labouring monkeys, it would seem!

Subsidy is defined as a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.

Literature has it that agricultural subsidy in the US, started with the Morrill Act of 1862 that established the land- grant to teach agriculture and other related subjects. Several other acts followed in quick succession, eg, The Hatch Act of 1887 and the Federal Farm Loan Act of 1916 which created cooperative banks to provide special subsidized loans to farmers. That was the genesis of the Farm Credit System, a government-sponsored financial behemoth with more than $280 billion in assets. By 1933, President F.D. Roosevelt signed the Agricultural Amendment Act, AAA, which was arguably the first major successful attempt to subsidize agriculture.

Presently, direct subsidy to agriculture in the US is over $20b annually. If account is taken of indirect subsidies like tax breaks, insurance and research and other subsidies, the figure will begin to look more humongous at around $180b per annum.

Besides agricultural subsidies are subsidies on different types of goods and services and the purpose is always to guarantee price, protect the industry or protect consumers. The jury is still out as to how well these purposes are served by different kinds of subsidies.

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