7

Understandi ng
Facts, Myths, Policies

Manufacturing








This week, we continue our series on the facts, myths, policies and theories
surrounding the manufacturing concept. Feel free to send your comments or
questions to me at k.osafehinti@limeassociates.com.ng. We will try to publish
and treat as many of these as possible in subsequent editions.

Continued from last week
We consider now the
manufacturing thesis in light of the
broader arena of human
psychology, macroeconomic
policies, and economic cycles. The
goal is to give a snapshot of the
echoing effects of faulty policies
based on rash assumptions fuelled
by a complete denial of human
nature, propagated by typically
those who should know better (but
do not!).
It would be demonstrated that the
majority of the ills that afflict human
society can be traced to a falling
of the economic system which in
turn is brought about a failure to
promote manufacturing. It hoped
that policymakers will in effect
realize once for all that
manufacturing is not a panacea to
poor economic performance
(giving the impression it is one in a
long list of possible or potential
cures) but the only solution to this
age long monster.

Society and the pursuit of
happiness
People congregate into society for
the express purpose of achieving,
via sheer majority, a much more
fulfilling existence (in terms of better
safety and security, increased
economic performance as well as
greater social interaction) than
would have been possible on an
individual basis. Further,
authoritative representatives in
societies are constituted to ensure
Kola Osafehinti
Managing Partner, Lyme Associates Nigeria
that the greater pool of resources
brought together to meet these
basic needs is adequately and
properly distributed to all members
of the society in an equitable
fashion. Be it monarchies,
democracies, parliaments (the
senate of ancient Rome for
instance), or the rule of councils
(Pre-colonial eastern Nigeria), all
must cater to these basic needs or
risk deposition by the larger
populace. This is in fact basic
human nature and holds true
throughout human history. All this is
done to ensure that a level playing
field is established within the fabric
of society that gives room for the
development of the individual on
the basis of his ability to excel and
succeed. Hence his personal
success (differentiated from and
dependent upon the provisions of
general services, be it security,
land, or access to shared
resources) is a personal matter to
which he must allocate his efforts to
and to who alone the benefits
thereof accrue. Hence to rise
above the basic status of what the
general society can offer is an
individual quest that is executed
religiously.
Over the ages the definition and
description of what the individual is
to expect from the society he/she
dwells in has evolved considerably
from the provision of shared
security, or extra farm hands (in the
days of farming communities) to
include the need for provision of
infrastructure, access to education,
jobs, cultural and social security,
religious freedom, to mention just a
few.
All these are the ingredients the
individual members of todays
societies require and demand from
the society, in order to fulfill their
mandate for individual
advancement.
As the individual advances in life
and in success, more and more
effort is poured to maintain (and
improve) the status quo by seeking
out various means of further
personal advancement.
Business ideas are sought that give
immediate profits (tactical
advantages) or guaranteed long
term dividends (strategic
possibilities).
Unfortunately, manufacturing is its
most basic form does not offer any
of these advantages readily and to
the degree that other sectors of
the economy would have provided
to the individual.
Hence, a majority of individuals,
investors and financiers, would
typically shy away from
manufacturing, until such a time
someone or some entity or some
event causes there to be significant
benefit attached to investment in
this peculiar sector.
Manufacturing, however, holds
great promise for the majority of
members of any particular society
in which is actively practiced.
Manufacturing for instance, holds
the promise for more jobs, new and
better products, discovery of new
technology, higher earnings
(spread across the society in
general) and so on and so forth.
However, a simply trade business
holds more promise for the
individual investor or financier than
manufacturing. Hence, it would
appear that there exist no
immediate benefits to engage in
manufacturing or manufacturing
related activities for the individual
(be it a person, an institution or
investor).
Hence, the individual will seek out
non-manufacturing related
ventures to promote and engage
in, which is in detriment (so to
speak) to the larger society. This
leads to the inevitable inequalities
in society: the rich get richer, while
poverty is prevalent among the low
income class.
Inequality has been shown to
breed all manner vices such as
corruption, robbery, murder,
prostitution and so on. Hence the
fabric of society is strained and
distorted out of proportion and
unhappiness pervades the land.
However, by virtue of the fact that
society is formed to ensure such
circumstances are avoided, it
becomes a matter of absurdity, in
the sense that the representative
authorities in society do not
actively remedy the situation.
The leaders of society, (be it
elected leaders or hereditary
monarchs etc.) are tasked with the
safeguarding of the fabric of
society in the provision of the
desired services, resources,
opportunities that lend weight to
the equal playing field earlier
enumerated.
Manufacturing, as demonstrated in
previous editions of this column, is
the only means to achieve these
objectives (supply of basic
resources that eradicate
inequality) in increasing number
and at expanding levels of
sophistication.
Hence the onus of development
and promotion of the
manufacturing sector lies squarely
on the shoulders of the elected (or
otherwise) representatives of the
society, whose underlying
objective should be the
advancement of the cause of the
majority to ensure the seeking of
personal advancement is
unhindered and unabated.
These representatives, whom are
collectively called the government,
as the primary caretakers of society
(its institutions, resources, peoples
and prosperity) should therefore be
the primary investors into the
manufacturing sector as they are,
on behalf of the people, the
recipients of the sectors greatest
dividends.
Whenever the responsibility of the
promotion of this sector is left by
assumption or design, wholly or
partly, in the hands of private
individuals, financiers or investors, its
fortunes dwindles as its promotion is
not conversant with the basic
objectives of these individuals for
personal advancement as
enumerated by the points made in
the preceding paragraphs.

Understanding the role of
manufacturing in Economic cycles
(bubbles, booms and busts
A fact of economic systems that
have consistently baffled
economists from the days of Adam
Smith to modern day economic
schools is the issue of bubbles,
booms and busts: cycles of
economic prosperity, downturn
and recession (leading to
depressions in some terrible cases).
It would be demonstrated that
these events are by no means
mysterious and ample evidence
exists to support (and by extension
predict) their occurrence, causes
and mitigation.
Support for manufacturing (ample
or non-existent) would be identified
as the root cause of these cycles.
Furthermore, it will be illustrated
that policies that were built around
false notions of human behavior
was at times responsible for
dwindling support for
manufacturing.
First differentiation will be made
between economic booms and
market booms. The former
describes accelerated growth in
the outlook of the entire economy
with the attendant increases in
productivity, job and wealth
creation, government revenue,
infrastructure and technology. A
market boom refers to the increase
in investment in a particular sector
or segment of the economy due to
some perceived notion of better
future prospects. This development
is typically characterized by
periods of sustained private sector
investment, which leads to industry
expansion, which may in turn lead
to rising prices and/or returns per
investment. Booms in real estate (or
construction), telecoms, and
mining (resource exploration)
readily come to mind as examples
of such cases. It is instructive to
note that booms in certain market
(except in manufacturing of
course!) may have very limited far-
reaching effects to the whole
economy. Take for instance the
boom in the construction industry in
Nigeria. Between 2002 and 2010
the construction industry
experienced a cumulative
average growth rate (CAGR) of
35%. However its overall effect to
the whole economy (in terms of job
creation, total earnings etc.) has
remained abysmally low. The lesson
here is that even though a number
of firms have recorded impressive
turnovers from this boom, none of
that has translated into real gains
for the economy as a whole.
The housing boom in the USA
between 2002 and 2007, help some
firms achieve outstanding results
but in the long run was detrimental
to the society (this case being
marked by unimaginable sharp
practices and questionable
procedures on the part of
regulators and banks) and lead to
the near collapse of the entire
financial system.
Nonetheless, we focus on
economic booms (the expansion
and growth of an entire economy)
rather than market booms in the
following discourse.
To be continued next week.