Navigating protectionism in modern economic landscape: Lessons from U.S. Part 2

Furthermore, currency is an instrument used to facilitate exchange of values within an economy. The value of a Nation’s currency in comparison to another country is a measure of how the value of human capital and resources compares between them. In effect, it catalyses and dictates the flow of value, which goes a long way in determining the quality of life of citizens in a country.

From another perspective, the value of one currency to another reflects faith reposed by the citizens in the country. Putting it bluntly, the value of any currency to the other is an indication of aggregate level of patriotism and faith in a country. We are in this economic quagmire because most of our citizens have little or no faith in our currency, as patriotism has been eroded. Not less than 60 per cent of Nigerians that are financially literate have assets or cash in other currency as a store of value.

Seemingly, the abysmal value of our currency to other major trading currencies has its root in the policy “The market knows best” – Deregularisation. Deregularisation as a policy is good only if it’s applied to encourage intra-economy competitiveness. Taking this policy as a means to relate with other country, especially the one that are economically stronger, is completely suicidal. The IRA has now shown us that we are alone in that room; as the market doesn’t always know best! China has always been tagged currency manipulators because they refuse to float their currency. China, that is an undisputed manufacturing hub of the world refused to float but our government consider it a viable policy, certainly a critical variable is amiss in this line of thinking.

This is not a call for defending the unrealistic as it’s been done in the past, but for benchmarking of the value of the Naira to another currency in a way to be in sync with the overall economic targets. We lack the economic wherewithal to float the Naira, without restraint. The indices are not just there.

Recall, the reason for British refusal to ditch Pound sterling (£) for Euro (€) is not solely for the protection of sovereign identity, but largely to retain the unrestrained ability to make fiscal decision that is necessary for continued prosperity of their citizen. Right now, lesser percentage of the citizen wants to store their value in Naira. Most products and services in upscale areas of the country are now priced either in United States Dollar or the British Pounds Sterling. Even, majority of the elites transact in United States dollars. It is such a low for our economy and, each day seems to define a new depth of low.

Moreover, a key strategy governments’ employ to prevent economic stagnation, under normal economic conditions, is the regulation of the Personal Consumption Expenditures Price Index (PCEPI) within specific limits. This ensures that the majority of citizens retain discretionary income, by safeguarding their disposable income from being entirely consumed by essential living costs like food, housing, healthcare, attire, and transport. This goal is often achieved through the provision of subsidies. Subsidies play a pivotal role in promoting social equity and are essential for maintaining a substantial and equitable distribution of discretionary income throughout the economy.

Therefore, it can be asserted that the vitality of any economy is partially dependent on the amount of discretionary income accessible to a considerable portion of its populace. In Nigeria, the implementation of subsidy regime either in power or petrol exposes us to vagaries of both internal and external manipulators. In the IRA the tax subsidy implementation is performance-attached, incisive and unambiguously target driven.

This should be a motivation for us to also change the way we are handling our subsidy program. There is nothing wrong with subsidies, though a lot is wrong with our implementation. Subsidies should be introduced at the retail level not at the manufacturing or wholesale level.

Introducing subsidy through the producer or wholesaler point is a classic case of trickle-down economy and, we all know that what trickle down to the low-income group is insignificant, hence the prevalence of poverty despite huge subsidy. So the subsidy should be introduced at the last mile of the transaction or value-chain. Poverty will be reduced, not through palliative but, through creating an efficient subsidy regime, effective and creative tax administration, good fiscal policy that engender good currency exchange rate. Moreso, we can go steps further to push-start people out of poverty by enacting legislation that will pull most of the dead assets into the main transactional stream. The plethora of dead assets puts substantive resources or assets of the economy into an inactive mode thus entrenching poverty.

Without sounding cartoonishly rhetorical, our choices of economic policy and fiscal foresightedness are not geared effectively to squarely tackle widespread poverty in the country. Our policymakers should be aware that the era of “market knows best” or globalisation is obliterated; they are designed for continued pauperisation of the developing economy.

A discerning analysis of IRA will reveal that the name “Inflation Reduction Act (IRA)” is misleading. The IRA is protectionist themed legislation that uses tax incentives or subsidies to re-industrialize and reinvigorate existing ones. It’s a classical piece of policy direction that emphasizes the idea that, running the economy without a protectionist mindset is a herald for keeping the economy under the water and the people impoverished. So, we should be guided along this line of thought.
Concluded.
Bakre is a Digital Ethicist and Managing Partner Homo Economicus Limited, Lagos. He can be reached via: @latundebakre
olatunde , @heconomicus.com