Soludo and Public Finance

CHUKWUMA CHARLES SOLUDO AND PUBLIC FINANCE

Ozodi Osuji, PhD

     A friend sent to me the video of the Anambra gubernatorial debate. Last night another friend sent to me a video of an interview done by BBC Igbo with Chukwuma Charles Soludo.

     Mr. Soludo did not speak in central Igbo language but in the dialect of his village, so, it was difficult for me to understand him but for some reason I sat there and paid attention to what he was saying.

     Much of what he said is what folks call human interest material. He talked about his humble beginning, how he is an “onye ogbonye” from this village (where the interview took place, in his house?). He talked about how he was poor and managed to scale the heights of schooling. He said that his mother did not expect him to go beyond elementary school but how due to God’s grace he went to secondary school, university and did well as an undergraduate and was allowed to proceed to graduate school and obtained the highest degree in Economics and began teaching.

    He talked about been called by the occupant of Aso Rock to come and become an economic advisor and later became the director of economic planning and how he was invited to all kinds of committees at Abuja and got to know the political lay of the land. He said that he was offered the governorship of the Central Bank of Nigeria because of his excellent performance at previous jobs (Andy Uba had claimed that he begged for those jobs and was an apple polisher at them).

    The Central Bank job, he said, offered him opportunity to understand leadership at the economic pinnacle. He talked about how he was able to visit 115 countries, attend conferences, give lectures at economic gatherings (it would be interesting to see his publications and evaluate them). He said that he understands the highest level of the world’s financial activities. He claimed to have schmoozed with the movers and shakers of the world’s economy.

     Congratulations, Mazi Soludo. You have done well for you.

      He then talked about why he sought the governorship of his state. Unquestioned he said that he wants to work to transform the state to something like the Arab Emirates, Dubai and so on. He talked about how so far people from Anambra (he did not use the term Alaigbo, meaning that he is a village boy, a rustic, parochial, with limited horizon, apparently, he does not identify with all Igbos, talk more all Nigerians and Africans).

    His vision, he said, as explicated in his platform, his blueprint of what he is going to do as governor is to engage in massive Infrastructural development, build roads, bridges, seaports, airports, hospitals, industrial parks.

     Anambrans are no longer going to be scattering to all over Nigeria seeking jobs to eke out a miserable living, but the state would become the hub of business in Africa, if not the entire world, people from all over the world would come to Anambra to seek jobs.

     Anambra’s schools would be the best in the world and folks from the state would no longer have to go to the best schools in the world (Stanford, Caltech, MIT, Harvard, Yale, University of California, Berkely, UCLA, Princeton, Oxford, Cambridge, University of Paris…did I miss any, add them). His state is going to be like Boston, USA, where colonial Americans had their best schools before the best schools migrated to California (California has the top four universities in the USA, Caltech, Stanford, UC Berkely and UCLA…and hundreds of other universities, UCLA medical school has overtaken Johns Hopkins that used to be Number one in the nation).

     I gave the man high marks for aspirational thinking. But in government aspirational thinking is not performance activities.

       The Interviewer asked him how he is going to get the money to do all the wonderful things he said that he is going to do. He said that he had connections to the money bags of the international financial community, I suppose IMF, World Bank, and billionaires like Elon Musk, Jeff Bezos, Bill Gates, Warren Buffet and would attract them to come invest in his state. As an afterthought,  he added that if he needs to do so he could get loans (he did not use the term, loan ) and invest it and pay it back and not get the foreign loans and as is the case in Alaigbo, where folks do not like paying taxes, do not like funding governments, but expect government to bring in money and they gather, as they did in their villages, and would divide the money and pocket it.

     The Igbo conception of government is a place you go to get money, he does not yet know that governments are funded by the people, governments collect taxes and use that money to develop the land.

     The interviewer, who, obviously, is more sophisticated than Soludo, asked a follow up question, something to the effect that governments do not develop their lands by begging for money from the international community but by generating that money locally, so how you are, Soludo, going to generate money locally to pay for your grandiose projects?

     Soludo, had not thought about public finance and obviously did not expect questions on it and was clearly stumped and tried to wing it and babbled on and on in generalities about how he is not going to steal a penny from the people, how God has blessed him, and he is a rich man and does not need the people’s money to live well, he is already living well, thank you.

     He thought that he made a good point with that silly statement. Donald Trump told Americans that he was a billionaire (is he?) and that he does not need the $400, 000 paid the US President annually. He was elected and became the most corrupt president in the USA. He directed businesses to his properties; his hotels were to be rented by those who came from overseas to do business with his government. The man is simply a thief and we do not need to waste our precious time talking about the Mafia Mob boss.

      So, when Soludo tried the Trump angle my antennae went up. Is this man a practiced sociopath like Trump, is he going to steal, big time, and become as corrupt as the Donald is.

      The interviewer kept asking him to elaborate on how he is going to get the money to pay for his projects and he kept talking rubbish about understanding money (actually those who worked with him at the Central Bank said that he was lazy and probably the worst Governor of the  bank, that he had a chip on his shoulders and fancied his self very bright).

     He is above average in intelligence otherwise he would not have PhD; no one gets a doctorate degree without being above average in intelligence, but he is not gifted. The latency period between when a question is asked, and his response is too great; folks with superior intellect answer your question as you ask them without much thinking.

     The man’s IQ, I am going to estimate it, is around 125. That is good enough, but he is not a wunderkind (those have IQ of over 135).

       Anyway, I listened to this man and asked myself how he managed to be the governor of the Central Bank of Nigeria without being proficient on public finance, monetary policies and fiscal policies for he should have discussed how he is going to finance his projects.

     Well, he lives in Nigeria, the land of the blind where one-eyed folks are the kings. I shook my head and moved on.

       However, this morning I was thinking about Property Tax and the effect it had on the aristocracy in Europe. If you have  travelled in Europe you probably have noticed that most of the grand houses of the aristocrats are now either transformed to tourist attractions where folks come to pay money to visit or to bed and breakfast joints; this is because of the high taxes on them and their owners could no longer pay them and the only choice they have is to let them lay dilapidated or  transform them to money making ventures. Abandoned mansions litter European landscapes, testament to dead aristocracies. The bourgeoisie now rule the world.

     Well, I thought about Property Tax, not particularly about Soludo, because he did not impress me, but one thing led to another, and I decided to help the public understand the nature of public finance.

    This write up is aimed at high school graduate readership, so I will skip technical terms.

GOVERNMENTS NEED MONEY TO DO WHAT THEY EXIST TO DO,

PUBLIC FINANCE IS HOW THEY OBTAIN THE MONEY TO FINANCE THEIR ACTIVITIES

       Everywhere human beings are found, they live in groups. Each of them is an individual and has his own interests. Each human being looks after his self-interests.

     Because each person is primarily focused on what is good for him and his family and seldom thinks about what is good for other people, his activities tend to clash with those of other people. Thus, in the State of Nature, the English political theorist, Thomas Hobbes (Leviathan, 1651) speculated that people lived in perpetual conflict and the powerful used force to subjugate the weak and the weak organized to protect themselves. Thus, in nature people were at constant wars with each other. The result of this constant wars was that people lived lives of insecurity, and life was nasty, brutish and short.

      Hobbes said that the people formed civil government to protect them from each other’s depredations. He believed that without a powerful Leviathan, ruler and the apparatus of state control, people would kill off each other. Thus, everywhere primitive man had kings (except Igbos).

    Igbos lived in villages; all the adult men gathered, as an oha, and made their laws and selected some of them to execute them and gathered again to function as the judiciary to punish those who disobeyed their policies.

      Igbos had the most rudimentary form of government, but they did not advance to having Igbo wide government. Thus, anthropologists consider Igbos a stateless, primitive people.

    In his 1922 memoir, The Dual Mandate in British Tropical Africa, Frederick Lugard called Igbos savages of the lower Niger because they had not learned to obey organized power, authority and the rule of law; each of them wanted to be his own boss, king.

     Lugard and British administrators tried to appoint warrant chiefs for Igbos and those became literal thieves. They tried to initiate taxes, the basic source of revenue for governments, and since Igbos were not used to that practice (they used to gather to clear their village paths but did not pay other folks to maintain their roads for them hence there was no need for taxes) they went on a warpath, especially their women, hence the 1929 Aba women’s riots.

      The relevant point is that Igbos did not develop to the level of taxing themselves to generate the revenue with which to do the job of government. Thus, to the present, they tend to resent paying taxes but still expect well-functioning governments. That is not going to happen.

     Somebody must pay taxes and they use the revenue to pave the streets of Onitsha, Aba, Owerri, Umuahia, Igwe Ocha, Asaba, Abakalike so that they are not the water- logged swamps they currently are.

     A good Igbo leader must figure out a way to convince his people to pay taxes and manage their money, establish accountability methods. Soludo avoided this critical task for Igbo leaders to perform hence is not really the transformational leader he talks loads of rubbish on.

      But let us return to our brief account of political philosophy.

      John Locke, in his response to Hobbes (1688, Second Treatise on Government), agreed with Hobbes that we need government but in as much as we the people formed government to protect us, we can mandate it to do only what we want it to do; he advocated limited government, government that did not become autocratic and told the people what to do.

     Over in France, Charles Montesquieu was writing, in his Spirit of laws, said that government ought to be divided into three branches, legislative, executive and judiciary, to check tyranny, as was done in Britain.

      Jean Jacque Rousseau (1760) did not like government at all; in his seminal book, Social Contract he talked about how savages were noble because each lived alone and did not allow governments to lord it over him. But he is willing to accept government if it obeys the will of the people. His 1760 book set up the scenario where French men rejected their ancient regime and in 1789, guillotined the king’s head and the neck of his beautiful wife, Marie Antoinette of let them, poor people, eat cake.

     Back in England, Jeremy Bentham, John Mill and John Stuart Mill (called utilitarian) told us that governments should only do what is useful for the people. The people know what gives them pain or pleasure and would choose what policies that gave them pleasure (is this true, did the storm-troopers who stormed the US Capitol on January 6, 2021, asking for autocracy, looking for what is good for them; was Adolf Hitler’s Nazism, and Benito Mussolini’s Fascism good for Germans, Italians and the world?).

      We must have governments, the pragmatic English said.

     The Willy Italian, Nicolo Machiavelli (1513) told the prince, politician to do whatever he must do to stay in power and maintain the power of the state for the alternative is chaos and anarchy; if it means occasionally chopping off the heads of rebels, to augment his authority, so be it.

      In the Greek world, Plato in his Republic had dreamed that we came from a world where we were perfect and did the right things but on earth are imperfect and he yearned for a way to produce leaders who did the right things through rigorous training culminating in the philosopher kings, but the more realistic Aristotle said that he does not know if heaven’s archetype of perfection  exists or not and that the only world, he knows is the imperfect world of the here and now. In that imperfect but realistic world a few rule the many.

      All over the world, free men organize themselves and use slaves to do work for them. Aristotle was not a dreamer but accepted social reality as it is.

     We need government; the option we have is to make it a monarchy, or aristocracy, or oligarchy (such as the USA), or democracy, as in ancient Athens (if you have a powerful military to coral the masses into obeying authority and the law, for they are often motivated by irrational mob behavior).

      Karl Marx (1882), in Der Capital, salivated for a world where the workers ruled themselves, in communism or socialism; but in actual communist states brutal dictators like Joseph Stalin and Mao Zedong and Fidel Castro ruled the masses.

     You get the idea. We need government and make laws and policies and have a bureaucracy to implement those laws, the alternative is anarchy and chaos, as is becoming evident in contemporary Nigeria.

      Now that you have selected a few to rule the many and the government has ideas of what it wants to do, how do you generate the funds with which it does what it must do.

      You have to pay for the bureaucracy that enforces the laws, pay for courts and judges and prisons where criminals are sent to, pay for prisons and  their warden, pay for the military that prevents other nation-states from gobbling your own, pay for police force to corral the masses and make them fear going to prison hence obey the law, pay for some activities that we have now accepted as the function of government (such as infrastructure, education, health care and so on).

     The money to pay for government’s activities must come from the people, otherwise it is not their government. You get what you pay for (Nigerians do not pay for government and have politicians who rob them blind; the politicians rationalize their thievery by saying that they are not really stealing the people’s money, the money came from nature, oil was formed by nature due to trees and animals decaying into fossil oil).

      All over the world, where there had been governments, in the past five thousand years that human beings have recorded their history, the primary mode of funding governments and their activities, which is public finance, is through taxes.

      In our era there are diverse types of taxes, including personal income taxes on each citizen’s annual income, business/corporate taxes on business profits, Sales takes on goods and serves at the point of purchase, value added taxes, property taxes (n the USA counties, states, the federal government annually asses the market value of your house and tax you; states have different rates, most tax ten dollars  per every one thousand dollars value of the house, so, if a house is appraised as $250, 000, you pay about $2500 in annual tax on it and if you are unable to pay it, the government puts a lien on your property and eventually sell it) professional licenses, and sundry other taxes.

     Where there are natural resources, such as oil, private companies extract them and pay taxes (royalties) to the government. Royalty is an exception to the general rule that the people pay for their government through taxes. Natural resources do end and so people must still pay taxes to run their governments.

      Governments (usually the legislature determine the level of taxes people pay) and the chief executive officer of the state, sign it into law and the judiciary adjudicates the problems people have with paying taxes, and the law in general.

      If you live in an organized human polity, you must pay taxes, or your property is seized, and you go to prison.

     In the USA, refuse to pay taxes and the IRS takes you to court and judges pack you off to the big houses.

      Governments do not play with taxes for it is the source of money for their existence.

       In Nigeria where folks are living in Lala land, the people are seldom required to pay taxes and where such laws exist, they are cheated on and not rigorously enforced. In Nigeria government is funded by money from one resource, oil, and when it is gone the government would collapse. And Nigeria becomes what it is destined to become, a failed state. Indeed, the guys at Abuja see their job as gathering at the National Assembly, Also Rock, courts and bureaucracies to give themselves the highest salaries in the world, and steal whatever is stealable; they are waiting for their house of cards to collapse and they, like cowards, become refugees sloshing all over Africa for refuge.

    The primary function of government is generating revenue and spending it on protecting the people. Thus, the ministry of Finance/Treasury (IRS division), collects taxes, and the chief executive officer of the state, prepares annual budgets which show how much revenue is expected and how they are going to be spent, and how they are going to make sure that no one steals that money.

     Revenue, Budget, Expenditure; Recurrent budgets, Capital budgets. Balancing budgets, income receivable, income payable, daily journals, following accepted accounting principles; monthly looking at variants between budgets and expenditures (monthly financial statements), making adjustments;  Deficits, surpluses, borrowing money through floating bonds, borrowing from banks, especially international lending agencies (for poor countries, such as IMF and World Bank and others); these are topics that managers in public and private businesses talk about on a daily basis.

      Let us now expand on these ideas a bit. This paper must be limited to a few pages for Nigerians do not like to read more than one or two pages; left alone I could write twenty-five pages on public finance without getting up from my chair and in front of my computer.

REVENUE

Personal Income tax

      In the contemporary world, there are two forms of individual income taxes, progressive and flat tax. In progressive taxation those who make little pay little and those who make a lot pay a lot; most people agree that 33% of the individual’s income is the maximum you can take from his monthly income and anything beyond that he becomes resentful. In Russia they have flat taxation of about 17% of the individual’s monthly income. We can ascertain all employed people in the state, their incomes and the taxes they pay and estimate the money that would come to the IRS from individual income taxes, quarterly and annually.

Corporate/Business tax

      There are three forms of business organizations, sole proprietorship, partnerships and corporations. In sole proprietor and partnership, the owners pay taxes from the businesses’ adjusted income (gross income minus expenses). In corporations the business is legally deemed a person and pays taxes as persons do; again, 33% tax on business income is deemed the maximum before folks become angry.

Sales Tax

    In most American states they charge sales tax on products that you buy, it varies from five to ten percent. Given the volume of trade in a state we can estimate the revenue it would obtain from sales tax, annually.

Value added tax

     States vary in the tax they charge for value added to goods, 10% seem optimal.

Import duties

     When you import stuff from outside the country, most countries charge tax on them called import tax (some charge export tax). Based on the volume of a country’s international trade, we can statistically estimate the amount of revenue a state derives from this revenue stream. Annually, countries decide whether they were in the red or black, black means they sold more than they bought and red meaning that they bought more than they sold (Nigeria mostly buys everything and exports only mostly oil).

Estate tax

    When folks die their real estate is taxed before they are transferred to their children. This source of tax can lead the children to sell the real estate and move on.

Capital Gains tax

     If you do buy and sell stocks you do make profit, dividends, and those are taxable. Win the lotto and the government may take up to 33% of what you won!

Bonds

      Sometimes governments do not have money in hand to do something and sell bonds to obtain the money to do what they want to do; they borrow money from those who have them. The USA borrows money through Treasury Bills, bonds, sold to folks and other countries; the buyers receive annual interest on their principal, money and receive the principal back at agreed upon time, five, ten, twenty and thirty years; the longer is the bond before it matures, the more interest you get annually. Capital gains are taxed heavily.

    (Onitsha and Asaba folks could have floated bonds to build the Onitsha bridge and charge motorists toll fee instead of waiting for the federal government to build it for them.)

EXPENSES

Education

      It is these days accepted that it is the function of government to provide kids with education. In the USA it is from K-12th grades; in Scandinavia it is from day care to university. This is a large source of expenditure. (How much is Anambra spending on education?)

Health care

     All Western Europe provide their people with health care paid by the individual through monthly deductions from his wages. It costs money to insure the unemployed, children and the elderly.

Employment security

      People ideally must have jobs but sometimes they are unemployed. In most Western countries they are paid unemployment income (when employed certain deductions are made from their monthly wages for this cost).

Retirement, social security, pension

      Ideally, people must work from the time they leave formal schooling, which if it includes college is age 22 and retire at age 70. Thereafter, they are paid retirement income, also called pension and in the USA social security income (while employed a certain amount is deducted from their monthly wages and invested as part of the pension fund (which corrupt Nigerians, of course, steal and retired people are seldom paid for months, even years).

Police

      Laws are useless unless enforced. Without the police there will be no law and order in society so we need police, judges and prisons and prison wardens. They cost money. How much does a city, county, state and central government spend on policing matters?

Defense

      People are aggressive animals and always have their eyes on their neighbors’ territories, so you need a military (army, navy, air force, marine, coast guards, national guards) to keep out aggressors. Remove the US military and China would take the country in a moment, not to talk about undocumented immigrants from Central America trying to take over the country with their sheer number sneaking into the country. How much is appropriate spending on defense? The USA has gone overboard and now spends almost a trillion dollars annually on defense.

Infrastructure

      Governments at the city, county, state and federal levels have roads, bridges, airports, seaports, hospitals, schools and universities to pay for. Infrastructure enables businesses to do well in the political economy.

Wages of government employees

     Government workers, aka civil servants must be paid. We need the impersonal bureaucratic machine to implement government policies and laws.

Monthly Financial Statements

     Every unit of government, as every non-governmental business compiles its monthly financial statements delineating its received income and expenditures paid out and showing variances and plans to correct overspending or under spending.

National debt (deficits and surpluses)

      In the USA only the federal government can engage in deficit financing (the states can only spend what they received in revenues); that is, borrow money to provide government services. President Joseph Biden just got Congress to pass his $1.2 trillion dollars infrastructure plan. Most of that money will come from taxpayers but some would be borrowed. The US has a debt of over $25 trillion dollars. How much is enough?

FISCAL AND MONETARY POLICIES

John Maynard Keynes ideas on how to deal with recession, depression, inflation, are now collectively called fiscal and monetary policies.

     The great English economist, John Maynard Keynes authored many books on how to use the government to fight depression, recession, inflation and other issues with the capitalist economy’s tendency to boom and burst.

     When there is inflation, he recommends that the government increases taxes on individuals and businesses to remove money from the economy hence reduce the available money in people’s hands to buy stuff and increase prices, aka inflation.

    When there is depression, he recommends lowering taxes so that people have more money to spend, and that spending stimulates buying and through multiplier effect stimulate the economy. That is how the West overcame the 1930s depression; President Franklyn Roosevelt practiced Keynesian economics, which actually is a form of socialism (some say that only the massive spending on the military during the second world war overcame the depression).

      In addition to fiscal policy, taxation, that is, there is what he called monetary policy. The central banks of the world, called Federal Reserve Bank in the USA, are responsible for this policy.

     Commercial banks borrow money from central banks. Central banks increase or reduce the interests they charge them, prime rate. If the rate is increased banks reduce borrowing and have less money to lend to the people and people buy less hence reduce inflation; on the other hand, if there are depression, central banks reduce their rates and commercial banks borrow more money and lend money to businesses and people and that means people have money to spend and that stimulates the economy, add multiplier effect.

     Central banks these days play enormous roles in the quantity of money in the economy. Mr. Soludo, hopefully, understands the function of central banks and did his job well while the governor of the Nigerian central bank?

DISCUSSION

       During US presidential and or gubernatorial elections, each candidate presents his platform and the itemized projects he wants to accomplish, if elected. He gives the blueprint to economists and cost accountants to give him estimates of how much they would cost.

      If you want to build five thousand miles of paved roads, how much would it cost? A good cost accountant ought to easily figure that out.

       Then the candidate tries to figure out where he is going to get the money to pay for his proposed projects (usually taxes).

      He lays out the plans to the people: in effect, he says to the people, this is what I want to accomplish if elected to office and this is the cost, and this is how I am going to get the money to pay for it (see Taxes above).

      I watched Charles Chukwuma Soludo talking about what he is going to do for Anambra, and he did not tell us the cost and how he is going to finance it.

     I walked away telling me that he is probably an idiot or thinks that the people are idiots. Mr. Soludo, you are an economist, so do the needed as explained here.

      I devoted three hours this evening, (8-11 PM) trying to explain how governments generate revenue. Now, plug in the numbers, the data, and give them to your people and, hopefully, they would hold your feet to the fire, hold you accountable for accomplishing what you said that you would or else recall you from office or not vote for you come four years.

     The era of telling the people what they want to hear and not planning to do it should be over, especially for an intelligent and well-educated man like you.

     I do not expect you to be Orji Kalu, an amoral hustler comingling the people’s money with his own money.

CONCLUSION

     Mr. Chukwuma Charles Soludo, the above is what an educated constituency expects you to talk about and not the usual vacuous promises Nigerian politicians make for their listeners.

     Now be the man of your educational standing and let us turn Alaigbo, Nigeria and Africa around. We are tired of corruption and been called the poverty capital of the world and our leaders deemed not real leaders.

     The rest of the world increasingly is concluding that Africans cannot rule themselves well. You know the implication of that negative assessment of Africans, don’t you? Recolonization of Africans!

     Please become a leader, and not another Nigerian thieving clown masquerading as a leader.

    Please do not do what your predecessors do, with cap in hands, run to the Bretton Woods Banks and borrow money, and steal it, and hope that in time an Ngozi Iwuala Okonjo, an excellent technocrat, goes to them and begs for them to forgive the money Nigeria borrowed and squandered.

     They may not forgive the debt and the country collapses, as Greece did, and Angela Merkel of Germany saved her and today Greece is beholden to Germany.

     You may want to read some of my books on the Nigerian political economy and leadership matters. Thank you.

Ozodi Osuji, PhD

November 15, 2021

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