Oxfam’s May 17th report titled Inequality in Nigeria: exploring the drivers, rightly identifies several factors impacting Nigeria’s state of poverty and economic inequality, some of which include the public sector’s misuse of resources and a widening gap between the rich and the poor. The report garnered much attention from Nigerian based news outlets, such as Punch and ThisDay, and international media houses, such as Newsweek and NPR. And although the report successfully represents Nigeria’s current economic state, it missed an opportunity by focusing on government policy as the way to alleviate Nigeria’s poverty.
Here are four reasons why the Oxfam report missed the key point behind real transformational growth in Nigeria:
- Alleviating poverty alone will not inspire growth
Much of the Oxfam report fixates on ending poverty, but as I wrote in a recent piece for the Guardian, that’s where the development industry is misguided. While Oxfam argues that the combined wealth of the five richest Nigerians could end extreme poverty, we should ask: how can the five richest Nigerians develop thriving enterprises that can create employment, fund businesses, and promote sustainable development? The development industry’s incessant focus on ending poverty promotes a culture of mediocrity where funding schools, wells, and toilets only serves as a temporary fix, and delays the real transformation needed to build prosperity. But because we are so fixated on ending poverty, in our minds, it’s the best we think we can do. It isn’t.
- We cannot place too much reliance on policy
Oxfam urges the Nigerian government to take several actions, including strengthening policies and laws for the economic empowerment of women, making the tax system more progressive, and bringing down the astronomical and indefensible high cost of governance. The cost of governance in Nigeria is astronomically high, and when you juxtapose that cost with the level of poverty in the country, it is unconscionable. However, in the process of urging the public sector to get involved, the report criticizes the government about its “indefensible high cost.” Unfortunately, criticism doesn’t always incite action — particularly within a monopoly. We should consider that we are trying to get the government to do what it vehemently won’t want to do. And overt criticism hardly works in those circumstances.
- Shaming wealth does not help eradicate poverty
The report’s focus on income inequality indirectly, and perhaps unintentionally, shames wealth creation. But paradoxically, it is wealth creation—not poverty alleviation—initiatives that sustainably eradicate poverty. Consider America in the 1800s. During that time, America’s GINI coefficient, a measure of income inequality, was abysmal at around 60% or 0.6. Yet, the 1800s was also a time of unprecedented wealth creation for many Americans. Oxfam quotes Nigeria’s GINI coefficient at roughly 43% (0.43). Just as it did for America circa 1820, investments in market-creating innovations will give rise to big businesses that create employment for millions. As citizens become wealthier, they demand more from and of their governments. These demands eventually lead to better laws, institutions, and governance in the country.
- Growth requires innovation
As important as innovation is to reducing inequality and creating prosperity, the word innovation does not appear in the report. Not once. Unfortunately, this report is a microcosm of the development industry. Many in the industry have diagnosed the problems of poor countries as corruption, poor infrastructure, lack of education, dysfunctional institutions, etc., and thereafter recommend rich-country-type policy solutions that solve those particular issues. However, a careful observation of how rich countries achieved wealth, reduced inequality, and solved a majority of their issues shows that entrepreneurs made investments in market-creating innovations. Many rich countries struggled with all the issues poor countries today struggle with, but were catapulted to prosperity through investments in market-creating innovations. Policy solutions rarely work without existing markets to absorb them.
The Key to Prosperity: Market-creating innovations
Investments in market-creating innovations are the most viable engines of growth and prosperity. For example, the Ford Model T automobile democratized cars in America; M-PESA democratized financial services for millions in Kenya; and Galanz democratized microwave ovens in China. These innovations transformed complex and expensive products into simple and affordable products, making them available to the masses, and not just the elite.
What’s distinct about these types of innovations is that they create a market that enables nonconsumers—a segment of the population who would benefit by owning or using a product but cannot due to the product’s cost, time, or the the expertise needed to use it— to pull the innovation into their lives. The corresponding market that gets created, typically by leveraging technology and developing a new value network. The new market then pulls in the requisite infrastructure, education, and institutions in order to remain vibrant. Innovations that create markets, it seems, precedes development.
The book, The Entrepreneurial Adventure: A History of Business in the United States, explains that, during the development of the United States, it was the government-funded infrastructure projects that were the most corrupt. Ultimately, it was market-creating innovations that pulled in the necessary infrastructures and institutions that created a virtuous cycle in America. We have the development equation backwards.
On the richest give Nigerians eradicating poverty, it is important to note that, a tenth of the wealth of the richest American, Bill Gates, could eradicate extreme poverty in America, affecting 13 million people. But that should not be the focus. If countries aggressively invest in market-creating innovations, we not only have a better chance at closing the inequality gap, but also at eradicating poverty and creating prosperity across the globe.