Overthrowing Reasonings And High Things
Ideas matter. They really do.
What people believe plays a very important part in economic development. And they come to believe whatever they believe depending on the ideas they are exposed to. If people believe that government has all sorts of magical powers to set and control prices, government policies to set and control prices will remain in place for a very long time even if they fail. So, to change policies sometimes, you have to attack the ideas behind them.
We should thank Goodluck Jonathan for one thing — when he wanted to remove fuel subsidies in 2011, it triggered a serious national debate about the very idea of subsidies. Those who argued for subsidies to be removed made a very strong case even if they lost that battle. Nigerians were forced to confront the failure and sheer corruption of the whole system. Ultimately, people decided that it was not safe to hand more money to a government that had exploded the very corruption it said it wanted to end. Still, a new anti-subsidy idea had been pumped into the air to contend with the monopoly the pro-subsidy idea had previously enjoyed.
Almost 5 years later, President Buhari removed subsidies and Nigerians responded with a shrug and moved on. Without that debate in 2011, I don’t think this could have happened.
But I am more interested in the ideas around markets in general and 2 recent stories help to illustrate this point.
Mega Prices for Mega People
When fuel subsidies were removed in May, the petroleum minister, Ibe Kachikwu, gave a price band for petrol to sell. The man is clever — the N145 upper limit clearly contained a decent amount of profit margin (I’m told it’s currently around a 10% margin at N145). But he also did something else — he allowed free entry into the market. All of a sudden, instead of being a target, the N145 price became a limit.
It is working. A cabal that calls itself Association of Mega Filling Station Owners of Nigeria (AMFSON) are not happy.
Kaduna — The Association of Mega Filling Station Owners of Nigeria (AMFSON) has vowed to lock up their filling stations over pump price disparity, saying if the Minister of State for Petroleum Resources who also doubles as the Group Managing Director (GMD) of Nigerian National Petroleum Corporation (NNPC), Dr. Ibe Kachikwu, does not do anything about the situation, another round of fuel crisis looms.
Addressing newsmen yesterday in Kaduna to express their grievances over the issue, National Secretary of AMFSON, Comrade Kenneth Nwachukwu, said the minister’s directive that some filling stations should sell for N130.00, N135.00, N140.00, and/or N145.00 per liter, was uncalled for.
Nwachukwu said since all marketers buy the product from same source, it did not make economic sense to force one marketer to sell at a lower or higher price than the other.
Note that they did not say this stuff in the middle of the night or anonymously. They said it confidently in broad daylight. That confidence is derived from the fact that price-fixing is still the dominant idea in Nigeria. In any other serious country, coming out to say something like this will immediately trigger an investigation by competition authorities. Recall how Apple and other booksellers were fined by the US authorities for fixing the prices of e-books. Their meetings were held in private dining rooms of New York restaurants to hide what they were doing.
Look at what the AMFSON cabal are complaining about. How dare some people sell their petrol at a lower price! We all buy petrol from the same source at the same price! The minister said the price should be no more than N145! We should all sell at the same price since we all buy at the same price!
This is the behaviour of Nigerians who are travelling abroad with 2 bags weighing 32kg each. When they see someone travelling with a small bag weighing only 20kg, they almost make that person feel guilty. How can you ‘waste’ 12kg like that? They will then try to give you stuff to carry for them. This is because the 32kg is a target to them and not a limit.
Look at the language they are now using — Kachikwu is ‘forcing’ some people to sell at a lower price. This is ‘uncalled for’. And of course, they do that thing that cabals always do when they have no useful argument — they issue threats. Make everybody sell at N145 or we will give you fuel scarcity.
But we know the real reason why they are upset. Even though selling at N145 per litre is profitable, volumes have gone down by up to 40% according to the fuel marketers cabal, MOMAN. So what they want to do is reduce consumer choice by fixing prices so they can at least eliminate one of the two problems they are currently facing — competition.
But Look at The Little Guy
Meanwhile, another story from Calabar illustrates another point about fuel pricing.
Motorists in the Calabar South axis of the Cross River State capital have continued to throng into a filing station along Mayne Avenue that has dropped the price of Premium Motor Spirit from N145 to N139 per litre.
Already, vehicular activities along the busy Mayne Avenue are experiencing traffic jam as a result of the development.
Southern City News observed on Friday that the fuel consumers have ignored other filing stations along the busy road for the station, which is located at Webber Street by Mayne Avenue following the reduction in price.
A motorist, Amaka Uche, described the development as surprising, considering the harsh economic realities in the business world.
According to Uche, it is shocking to note that at a time when most ventures are folding up due to low patronage, the company has reduced the price of PMS for the purpose of payback to loyal customers.
Even the consumer benefitting from a price reduction is expressing ‘shock’ that someone can drop prices by N6. Again, this is the effect of ideas — most people did not really hear the part where Kachikwu said N145 was the upper limit; they expected the price to be N145, period. The dominant idea is that petrol prices are fixed.
I recall a classmate of mine some years ago who once managed a petrol station here in the UK. He told me how they had some software that counted the number of cars entering the station every hour. Once the number of cars entering every hour fell below a certain number, he knew something was wrong. He would then ask one of the guys working in the station to quickly go down the road and check the price of their competitor. Without fail, that drop in the number of cars entering his station usually meant that their competitor had dropped their price by 1p. Immediately, he would drop his own price too and the number of cars would increase again.
The price drop might be a gimmick by the Calabar petrol station, but so what? What has been proved is the idea that it is possible to sell petrol for N139 and make a profit. One day, someone might even go as far as selling at a loss for a brief period just to gain some publicity. Some people want government to always ‘intervene’ to ‘control’ prices. Actually, if you let markets work properly — with free entry and exit —prices will be controlled.
And it is not just by competition, prices are also controlled by innovation. If fuel prices are rising, that is a signal for someone to enter the market with more fuel-efficient cars such that, people pay more per litre but use the same amount as before. If you don’t let markets work, the signal that prices convey will be lost.
And Now For A Rant
At the end of that piece, an official of the filling station in Calabar had this to say
In the past, you see hundreds of trucks loading from Calabar depot to be taken out of the country, but the situation has changed. We used to consume 400, 40 metric tons on a daily before the subsidy and the bulk of the product which has been subsidised found their way out of the country. The field is now level for those who genuinely need to invest. Now I am coming down to N139, another can go below
I feel strongly and very passionately about letting markets work properly. For me, it goes as far as being a moral issue. It is not a coincidence that some of the richest people we have seen in modern times came from poor backgrounds. John D. Rockefeller’s father was an alcoholic bigamist who went around selling fake drugs. Andrew Carnegie was born into poverty in Dunfermline, Scotland. Steve Jobs was given up for adoption by his parents. Henry Ford was born to immigrants on a farm. Thomas Edison’s father was a refugee in America. You can go on and on.
Of course, some wealthy people who have had an impact on the world were born into wealth. But that is the point. A market system allows the little guy to test his ideas freely and be rewarded for it by the market, if it works. In a system where someone or a bunch of people are responsible for deciding who gets what, the odds are against the little guy from a poor background. We are all subject to our biases, consciously or unconsciously. If entry to a market is determined by a committee, people who go to certain schools will have an advantage even if they don’t have the best ideas. If you know somebody, you are automatically ahead of the line. If you’re from the same town as somebody, you have a big advantage. If you practice the same religion as someone influential, you have hammered.
But when you have a functioning market system, your fate is determined by one person — the consumer in the market. You go straight to them with your idea and they pass verdict on you by opening their wallet, or not. That’s it. They do not even have to like you. People who hate gays have not stopped using their iPhones because Tim Cook, Apple’s CEO, is gay. Once all these sideshows have been relegated to second place, the field is now level. Anyone can then try their luck; whether they were born rich or poor.
I think I can now summarise everything I believe about markets with 2 words — Liberty and Dignity. Or Freedom and Respect. The freedom to try out your ideas in your own damned country. And the respect and dignity that comes when those ideas are successful no matter where you came from.
But first, the prevailing ideas need to be dislodged from their current position of monopoly. The idea that somebody needs to approve for you to test your ideas or enter a market. The idea that government is all-knowing and all-powerful. The idea that markets, if left ‘unchecked’, will cause people nothing but abject misery.
This is by no means easy to do. You cannot pass a law to change people’s minds about what they believe. And when markets work, the benefits are hidden or quiet. But when they fail, they are loud. It’s a tough task.
Me and religion now have an ‘interesting’ and ‘evolving’ relationship. But I still have some residual knowledge of the bible from my time growing up in a Baptist church. Whenever I think of the battle of ideas that needs to happen for Nigeria to make the kind of progress that will lift millions of people out of poverty, 2 Corinthians 10:5 always comes to mind. There are many translations available but I like the one from Darby. Allow me to paraphrase
overthrowing reasonings and every high thing that lifts itself up against the knowledge of liberty and dignity, and leading captive every thought into the obedience of freedom and respect
For me it is that important. And one must never tire of stating this case over and over again, morning, afternoon and evening, every day of the year. Once people come to believe that allowing markets to do their work is in their best interests, the rest is easy from the point of view of the needed economic reforms to set Nigeria on a different path. But ideas that tell people otherwise are sitting pretty with no counter ideas such that, even when they fail, they just get repeated again.
If you believe in these things, you have no right to keep quiet. Because it is your country too and every Nigerian’s passport is the same shade of green, you must state alternative ideas. Put them into the air so that people can breathe them and be forced to think about things in a different way.
If you don’t, then AMFSON and people like them can successfully blackmail the government and Nigerians in general to go back to their old ideas.