For a long time now in Nigeria and the world over, the hydra-headed economic challenge of wealth and income inequality has continued to stretch different economic interventions beyond the elasticity limit of their potency. The situation therefore calls for prompt and constant actions in the form of effective public policy formulation or overhaul and implementation.
Given the efficacy of public policy mechanisms, the natural question that may agitate an intellectually inquisitive mind then is, “What is Public Policy?” Wikipedia defines Public Policy as “the principled guide to action taken by the administrative executive branches of the state with regard to a class of issues, in a manner consistent with the law and institutional customs”.
Public policy is regarded as a dynamic, complex and interactive system by which public problems are identified and solved through formulation of a new policy or reformation of an existing one. It is therefore considered strong when it solves problems effectively, serves justice, supports government institutions and encourages active citizenship. Public problems that necessitate public policy intervention may be educational, social, political or economic. By implication, public policy may be economic, social, legal, political, educational, etc. The foundation of public policy is composed of national constitutional laws and regulations.
Difference between Wealth and Income
Income is a flow of money received, often measured on a monthly or an annual basis while wealth refers to the sum of the value of all assets, including money in bank accounts, financial investments, pension fund, value of a home, etc. In calculating wealth, therefore, all forms of debts will be deducted.
The recurrence of wealth and income inequality for many years now is very worrisome. Recent research confirms that 20 per cent of the global richest people control 80 per cent of the global wealth. Therefore, examining the global genesis and perspective of wealth and income inequality for proper analytical backgrounding and rational conceptual amplification is imperative.
Genesis of Global Wealth and Income Inequality
To backpedal on the economic memory lane, the renowned Scottish Economist Adam Smith was one of the first people to conceive a system for creating wealth through the promotion of entrepreneurship in 1776. Rather than divide fixed resources among competing groups and individuals, Smith, the father of capitalism, advocated the creation of more resources so that everyone could become wealthier. Smith in his concept of capitalism assumed that as people became wealthier, they would naturally assist the underprivileged ones in the society. But that did not happen.
Following the ideas of Smith, businesspeople in the USA, Europe, Japan, Canada and other countries began to create more wealth than before. They hired people to work on their farms and in their factories. Businesspeople soon became the wealthiest people in the society. Great disparities in wealth began to manifest as they owned large homes and fancy carriages while workers lived in low-profile areas.
Search for Equality and Birth of Communism
The German political philosopher Karl Marx appreciated the wealth created by Capitalism but condemned the poor working and living conditions of labourers in the 1800s. Marx decided that workers should take over ownership of businesses and share in the wealth. In 1846, he wrote “The Communist Manifesto”, outlining the process. Communism is a system in which the government makes ALL the economic decisions and owns all the major forms of production.
However, one major problem with Communism is that the government has no way of knowing what to produce. Another problem of Communism is that it does not motivate businesspeople to work hard because the government takes most of the earnings.
Embrace of Socialism
Given the shortcomings of Communism, Socialism was later embraced as an economic system. Socialism is based on the premise that SOME businesses should be owned by the government. Private businesses and individuals are taxed massively to pay for social programmes. Socialism acknowledges the major benefit of Capitalism, that is, creation of wealth, but strongly believes that wealth should be more evenly distributed. It believes that the government should create a more even distribution of wealth.
Implications of Wealth and Income Inequality in Nigeria
In April 2014, Nigeria declared that its GDP hit $509 billion due to economic rebasing. But Financial Times was quick to condemn the new GDP figure as being unreliable because it had not translated into improvement in the living standards of the citizenry, with wealth and income inequality gap still very wide.
Research also confirms that given the massive inflow of petrodollars, the Nigerian economy enjoyed an average growth rate of six per cent for about 12 years until the first quarter of 2015. Our foreign reserves hovered around $60 billion as at 2008 while the Excess Crude Account hit $20 billion. At the Forex market, the Naira was N150 to one United States dollar. However, the growth period was still characterised by increase in wealth and income inequality and poverty as the economic growth was largely achieved through oil and gas industry transactions.
The problem of wealth and income inequality became worse at the peak of the recent economic recession experienced in Nigeria. Even now that the situation is improving, with our foreign reserves put at $44.89 billion by the CBN as at Tuesday, 25th September, 2018, the crisis of wealth and income inequality still persists. Given the impression of economic buoyancy as well as suffering amidst macro-economic surplus, there have been persistent agitations on the part of the poor citizens always for improved welfare.
For instance, the Nigeria Labour Congress (NLC) proposed a new minimum wage of N56,000 to the federal government last year. Consequently, the federal government set up a 30-member tripartite National Minimum Wage Committee on 27th November, 2017 to negotiate a new National Minimum Wage for the workers.
NLC predicated the new minimum wage on the fact that since the N18,000 minimum wage was approved in March 2011, the average prices of goods have skyrocketed by almost 88.3 per cent. Labour claimed that a worker now needed N31,823 to buy the same amount of goods that N18,000 could buy in 2011. To hasten up federal government’s action on the new minimum wage proposal, the labour leaders recently issued a seven-day ultimatum to the federal government to address the issue fast or else, workers would embark on a nationwide industrial action from Wednesday, 26th September, 2018.
The problem of wealth and income inequality in Nigeria with attendant negative socio-economic consequences has compelled successive governments into formulating new public policies where there is none and reforming the existing ones where modifications are required.
The problem of wealth and income inequality has compelled the federal government to introduce different wealth creation or empowerment programmes like N-POWER Empowerment Programme, Youth Enterprise with Innovation in Nigeria (YOUWIN), Youth Initiative for Sustainable Agriculture in Nigeria (YISA), Subsidy Reinvestment and Empowerment Programme (SURE-P), Graduate Internship Scheme(GIS), Youth Empowerment and Development Initiative (YEDI), African Youth Empowerment Nigeria, etc
The tax policy of the federal government is equally strategically geared towards encouraging low-income earners to create wealth through entrepreneurship; protection of the poor; income redistribution, among others.
For instance, interest on agricultural loans with the minimum moratorium period of 18 months and the interest rate not above the base lending rate is exempted from tax-payment under Company Income Tax (profit tax). Also, cooperative societies registered under the relevant Act are exempted from tax-payment. Dividends received from small companies in the manufacturing sector in the first five years are equally exempted from payment of tax. Companies in the first four years of operation are also exempted from payment of Minimum Tax. So also are companies engaging in agricultural trade or business.
To stem the tide of the massive wealth and income inequality, the federal government is focusing more attention on the rich in the society for tax collection. For instance, on Monday, 24th September, 2018, the Federal Inland Revenue Service (FIRS) disclosed that it had raked in N13 billion from billionaire tax defaulters.
To bridge the wide wealth and income inequality gap created by illicit funds, President Muhammadu Buhari’s government has embarked on total onslaught against economic and financial corruption. In short, the amount so far recovered from those who looted our treasury runs into billions of Naira. The federal government has equally introduced Treasury Single Account to plug financial loopholes in the public finance.
To reduce the wealth and income inequality gap in the civil service, the federal government implemented a new minimum wage in March 2011 and is currently considering upward review of the minimum wage amidst labour union agitation.
Intervention Policies of Lagos State Government
Also, the Lagos State Government is taking proactive steps in terms of policy formulation and implementation to tackle the menace of massive wealth and income inequality in Nigeria as well as unemployment. For instance, former Governor Akinwunmi Ambode created the Ministry of Wealth Creation and Employment in 2015 upon assumption of office.
The Ministry of Wealth Creation and Employment has the mandate to state, initiate, formulate, execute, evaluate policies, set and regulate standards for all wealth creation and employment-related matters in the creation of value-chain systems. It also has the mandate to establish job registration centres and promote labour exchange programmes in each of the five divisions of Lagos State. The ministry has the mandate to collate data on employment and wealth creation matters in both private and public sectors.
It is equally to facilitate skill acquisition for graduates and upgrade the skills of artisans for employability and promotion of entrepreneurship. The ministry is also mandated to ensure broad-based capacity building, sensitisation and enlightenment for prospective stakeholders. It is equally part of the mandate of the ministry to engage the Board of Trustees of the State Employment Trust Fund (ETF) on promotion of wealth creation and employment.
To be able to effectively deliver on its mandate, the Ministry of Wealth Creation and Employment has in place programmes such as Entrepreneurship Skill Acquisition/Development and Employability Skills Training; Education MSMEs; Agriculture SMEs; Waste to Wealth; Artisans Training; Sustainable Development Programme with Ruff n Tumble (Betti-O School of Fashion); Yaba ICT Club; Graduate Internship Programme; Virtual Market for Artisans; Health SMEs; Mercy Corps; job centres, etc.
Reasons for Persistence
Experts have adduced a lot of reasons for the persistence of wealth and income inequality in Nigeria. They say budgets are presented as aggregate figures without reference to gender, age-group or class specification for proper composition, implementation, monitoring and evaluation.
Another reason adduced is government’s over-dependence on oil, which is estimated to contribute about 75% of Nigeria’s government revenue. They claim that this sector is not labour-intensive, has limited trickle-down effects of wealth and discourages other types of investment that might generate more employment in other more labour-intensive sectors of the economy.
Lack of effective regulation of labour-related issues in the private sector is also blamed for this menace in Nigeria. Experts claim that the Nigeria Labour Congress’ agitations for employee benefits are largely carried out in the public sector.
In spite of all the government efforts in terms of policy formulation, reformation and implementation to remedy this economic inequality situation, there is still a lot of room for improvement as government has not reached the menopause of its creative ability to do more. One of the areas the federal government should focus more attention on is empowerment through entrepreneurship. This is especially so because entrepreneurship has been identified as one of the major ways to create wealth. Existing SME operators can also diversify their business to boost profitability and by implication multiply wealth.
Workers and low-income earners too should cultivate the habit of personal savings. Increased savings lead to reduction in wealth inequality. The savings must equally be invested to achieve multiple streams of income.
Social Security should also be put in place. This is a government programme that provides monetary assistance to those with little or no income. Access to free medicare, through the health insurance scheme will reduce financial pressure on the poor and the attendant socio-economic tension or agitation.
Some people have equally suggested massive redistribution of income through application of income tax or other macro-economic policy instruments to take income from those with higher income and offer income to those with lower income.
The reality is that wealth and income inequality cannot be completely uprooted but can only be reduced. This is because it is impossible for everybody to earn the same income due to difference in educational qualifications; years of experience; difference in remuneration of different industries; difference in choice between self-employment and paid employment, etc.
Those who suggest massive income redistribution are simply aligning with the economic system of Socialism.
However, Socialism takes away some of businesspeople’s incentives to work early and work late because its motto is “From each according to his ability, to each according to his needs”. Thus those who work hard and prosper must share with those who do not work so hard or those who do not have such well-paying jobs. In Sweden, for instance, marginal tax rate, that is, the rate you pay on the additional money you earn after a certain income level, once reached 85 per cent, forcing professional tennis players, doctors, lawyers, businesspeople, etc., who made a lot of money and were heavily taxed to leave for USA, England, etc., with low taxes.
Just imagine taxing our local billionaire entrepreneurs that employ hundreds of workers as it happened in Sweden! This may lead to retrenchment of workers to cut cost. So unemployment and poverty will now aggravate the already worse situation of wealth and income inequality in the process.
Ironically, most of the wealthy people are willingly redistributing their wealth by setting up foundations and donating sizeable chunks of their wealth to charity. For instance, we have Dangote Foundation and others also have foundations.
On a note analytical finality, the problem of wealth and income inequality can be better solved through provision of equal economic opportunities, encouragement of entrepreneurship, provision of necessary social infrastructure, etc.
GOKE ILESANMI, Managing Consultant/CEO of Gokmar Communication Consulting, is a Communication Specialist, Motivational Speaker, Career Management Coach, Renowned Book Reviewer, Corporate Leadership Expert, Editorial Consultant, Certified Mgt Consultant and Fellow, Institute of Management Consultants of Nigeria (IMC).
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