Addendum to Part I:

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This is not part II yet. Its coming latest by sunday. May be we can move all discussions to another thread that will be linked to this one. And restrict discussions to those correcting and critiqing the chapters of the tutorial. Thanks Micheal, Buda and Batunde for the inputs. I do intend on linking Economics with politics towards the end of the presentation. Like Micheal said, what is a national economy without a true contract between the governed and the governors. Obviously, the role of the governor is to protect the well-being of the people performing economic activities and to ensure an enabling environment. Infact, the shape of the government, whether it is federalism, republican or military, should be suited to its job of protecting the economic activity. While this sounds simplistic, if one looks at the context of Nigeria one might ask, whose economic activity is the current government is protecting? The continual acts of government that goes against the working/middle class Nigerians, already tells you that the government is protecting the interests of the elite/foreign mutlinationals How did it come to this? (See below). Again the above argument may sound simplistic, but following through, one will arrive at the same conclusion many political theorists have previously deduced. Which is, as the middle class grows in purchasing power, there will eventually be a natural change in the affairs of the governor. Indeed, a political theorist, has linked the revolution of society to the willpower of a strong middle class. The ideal history of a government, is one formed by the society after the society has reached a certain level of economic activity that they feel needs to be protected and sustained by a governing body. Does that sound like the history of the American federation to you? You bet. The governing body then has a clear mandate from the people, will be formed to suit the poeple, will out of necessity be democratic to answer to the people, and will create policies to meet its mandate. On the other hand, when power was handed over to Nigeria, there was no clear and defined mandate from the working people/middle class besides the need to independently rule and abstract notions of poverty reduction and prosperity. Not to discount the efforts of patriotic Nigerians who genuinely worked hard to ensure Nigeria worked for the people. The likes of Awolowo, Azikwe, to mention a few. However, largely, there was a vacancy in terms of a middle class pushing and driving the government. Indeed, those who eventually stepped in to fuel the mandate were the diabolical elite, and greedy foreign muti-nationals. This shaky foundation will eventually manifest itself in a series of coups, a civil war, continual threats of civil wars, and eventually, as late as 2006, a geriartric holding the country hostage, driven by his own corruption, and the greed of the super-rich who profited from his own government. As we go along, we will see how a sound economic foundation of a society will be linked to good politics. Part II coming up. Suggestions are welcomed by the way.

Now here is Chapter II. So far so good. Okay I will take a break. I'll take any questions and pass it unto him. I can also discuss and interprete where this applies to Africa.

Part II: On The Evolution of the Economy

Brief Historical Perspective

The United States America, the largest Economy on earth. The Epitome of a capitalist Society. The land of the free market. The land of opportunities where the sky is as high as you can dream. Some say the United States was formed out of the need for free market and Capitalism. But was this true?

According to The American Economic History by Carole Scott, in the 17th and 18th century, America was a colony of primitive subsistence farming and monopolistic mercatilism.

"Therefore, farmers living very far from a river or a port were subsistence farmers, that is, they did not produce for the market."

The "Self-made man" was once idolized in the 17th century America, as a man who produced all his goods for daily living by himself.

Infact, some aspects were no different from what we have in Nigeria today, which is the import of Goods from Colonialist nations.

"For several decades their survival depended on imported goods, and they were unable to export enough to pay for them.. A century after colonization began in the North American English colonies, they had developed an economy based on the export and imports between themselves and Europe and the Caribbean. New York ultimately became the center of this commerce."

However a series of events led to the Free Market Capitalist America that we know today. The mechanism for this change will now be discussed below.

The Evolution of the Economy

In an article appearing on the American Economic Review in 1995, and written for the Federal Reserve Bank of Richmond Working Papers, Goodfriend and John McDermott formulated a coherent theory of industrialization. They drew inspiration from the Economic history of Europe to formulate a theory of the evolution of society from household subsistence economy to an industrialized economy. Not to go into details of the mathematical formula, I will present the interesting results of the model. I have tried as much as possible to simplify the results. If you are interested in the detailed mathematical model, you can look up the article referenced below.

Let us begin with a primitive society of an initial sparse population in which the household produce their own goods for their own consumption. This is the subsistene society of Colonial America and the dominant economy of many African countries. The subsistence economy is family based, and uses primitive technology to achieve its ends. The reasons for the primitive technology is that productivity in subsistence economy is largely dependent on the size of the household. The members of the household percieve little improvement with specialization of production, learning and innovation on the wealth of the household. The larger household rather than small sized household with significant intellectual capital is king in a subsistence economy. Indeed, the Farmers in Nigeria are known to have many wives with lots of children to farm the land, a focus on human workers rather than human intellectual capital.

As the population of the society grows, trade begins between households. Note that this trade assume two things:
(1) There are means (cash, barter) with which households can trade
(2) The costs of transport is sufficiently low enough.

The greater the population size, the greater the wages a household can benefit from trading, and the more goods the household can buy with its wages. The household will begin to do a comparism between the wages and goods it can derive from the market, and the wages and goods it can derive from subsitence farming. Once the wages and goods it can derive from the market far outstrips what it can derive from subsistence production, the households shift to a market economy . This is the transition from primitive economy to a market economy. Market economy is usually accompanies by urbanization or city/town structure. Indeed, the Yoruba Kingdom according to historians was described as having cities with market centeres.

To recap, this transition was aided by the following factors
(1) The means to do trade (cash, barter)
(2) Cheap transport for goods
(3) Suitable population size to make trade possible.

A sneak preview of what you will learn in upcoming sections of my tutorial is this: It is known that Nigeria continually remains largely in primitive substinence economy (~70-85%). Hence the reason will be due to absense of one or more of the factors which aid transition to market economy. Population size is not a problem in Nigeria. Transportation, does become a problem with intermittent fuel scarcity and poor quality of roads. But this has not really significantly impacted trade between villages and cities. What stands out the most in those three factors is the means to trade, which is cash. We all hear the phrase “Ko si owo lowo awon ara ilu�. That is “There is no money in the hands of the people�. And inflation in Nigeria does not help the intermittent increase in salaries. As a result, many households stick to primitive substinence living and push back the transition to industrialization. Is the act of shortage of cash a result of mismanagement by our leaders (can I hear Banks Consolidation), with or without support by foreign diabolical elements? I will discuss all of that later when we strategize on how to move Nigeria to a market economy and then to an Industrialized society.

Back to the evolution of society. We are at the market economy. So how do we attain an Industrialized society? As the population grows, so will the demand for specialized goods and services grow. What do I mean? In a polution of 500, there might be only 10 people demanding “goat liver� as a food. Hence any wise household will not specialize in producing “goat liver� because of small demand and little wages from such a venture. However, as the population grows the demand for goat liver increases to a point that a household can obtain living wages from just producing goat meat. This is called specialization. It is characteristic of the Pre-Industrial stage.

What does specialization lead to? Specialization leads to a learning process in which one acquires knowledge and human capital relating to the production process in which one is involved in. This knowledge is used to improve the skill and productivity for the process that one is specializing in. This knowledge is also put into innovation, to help increase the production process. The innovation could include, tractors, mills, textile machines. This process of innovation is the hall mark of industrialization. It is characterized by rapidly increasing productivity beyond that predicted by human population alone. This is because of the interplay of human knowledge and capital.

I end this section with the following. Nigeria is in ~70-85% primitive susbstinence economy with significant impediments on its path to transition to a market economy. These impediments, as highlighted above, are the scarcity of cash, and the intermittent transportation problems(Fuel scarcity). The scarcity of the cash should not be mistakened as the lack of ability of Nigerians to supply to a market. A testament to the ability of Nigerians to supply to a market is the diversion of effort to the 70-80% susbstinence economy. The scarcity of the cash is merely inhibiting trading. There is no permission to trade. And with a small active market, we push back industrialization. By now, it will be clear, why I had strongly advocated against some of the suggestions in “A Plan for Nigeria�. My apologies for the arrogance I showed. However, most of the plans suggested could only be afforded by a society which is very market based and to some degree industrialized. Of what use are some resources, when the Nigerians, who are largely subsistence rather than trading, cannot pay for them? Indeed, in an article I cited in another thread, the implementation of many industries became defunct because of the little market justifying the cost of implementing and managing of the industries.. First problems first, moving Nigeria from substincence Economy to Market Economy. The strategy to achieve this is discussed later.

We have barely began to break the ice. In the mean time, any suggestions? criticisms? Anything I need to clarify, because i had to skip a lot of things for fear of writing a chapter the size of the US Constitution?

(1) Marvin Goodfriend and John McDermott, Early Development. January 1994 Federal Reserve Bank of Richmond Working Paper No. 94-2

(2) Dr. Carole E. Scott, AMERICAN ECONOMIC HISTORY, Online text available at http://freepages.history.rootsweb.co...economics.html

I still see it as a means to where people put their trust into.

Since cash is not available to the bulk of any majority population, the majority of the population will put their trust in their livilehood. At least they can safely predict that instead of when inflation going to hit. Ask any investor in the West and they are on a look out for inflation.

But still you get old and will have to pass it down.

So it's a continuous cycle.

But inflation isnt considered in the cashless society. But other factors just as important are.

It appears Nigeria has two or more economies at work.

The cash society and the cashless society. Two sets of keys that open two different set of doors. The foundation on both are trust.

The United States in reference to Nigeria should not be utilized. Much of the land in the US was shifted from one population to another through government and private interest. So, that is why Americans are always on the move inside and outside the country. Due to these interest. But if we are going to shift back to a subsistence way of life which will most likely happen (depression) everyone in this country will not make it. Too much dependence on foreign resources and an already exhausted domestic resources. This is dangerous to say the least.

But Nigeria seems to have an established population and I dont see no effort to remove them from their lands entirely for infrastructure adjustment to market economy.

For minor changes yes, such as dam building, bridge building etc but not in terms of wealth and its exploitation.

Just my opinion of the above.

Nice analysis. A few points I'll like to discuss.

defyfear wrote: