ILLUSIONS AND SOCIAL BEHAVIOUR
Inaugural Lecture delivered at the University of Ibadan
on 9th March, 1978.
by
Owodunni Teriba
Professor and Head,
Department of Economics
University of Ibadan.
UNIVERSITY OF IBADAN.
1978
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First published 7980
© Owodunni Teriba
ALL RIGHTS RESERVED
ISBN 978121076.1
IBADAN UNIVERSITY PRESS
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ILLUSIONS AND SOCIAL BEHAVIOUR
Mr Vice-Chancellor, Deans of Fecutties, Distinguished Ladies and
Gentlemen.
1Tis a great pleasure for me to have been called upon to deliv-Q.ar n
inaugural lecture on behalt of the Faculty of Social Sciences as part
of tM 1971- 78 inauguraflec'JJre series. In acceptinq the intivalion,
am fully conscious of the fact that I would be the second Professo
of Economics to participate in the new series since they were
instituted in 1972-73. And I do so with all academic humility.
My predecessor in office took advantage of the occasion of his
Inaugural Lecture five years ago to give a comprehensive history
and review of the Department of Economics and of its impressive'
record of progress and creditable achievements. I am happy to
report-that the Department has continued to make progress, ever
since, and, that, building on the very solid foundations inherited
from our 'founding fathers', we have blossomed into one of the
best on the African continent. Professor Ojetunji Aboyade is
already well known in this country as a first class economist and as
the dynamic Vice-Chancellor 'of one of the country's Universities;
but it is particularly in respect of his contributions as the first
Nigerian Head of the Department of Economics of this University
and, in many ways, the architect of the Department in its modern
~orm that I wish to acknowledge and pay tributes to him on this
occasion.
When I joined the. academic staff of the Department, thirteen
years ago, in December 1965,Mr. Vice-Chancellor, there were two
visiting Professors of Economics, both Americans, and eight other
members of staff, of whom only four were Nigerians. The current
academic staff of twenty is entirely and wholly indigenous, and at
least thirteen of this number are former students of the Department
and products of its programme of postgraduate training and staff
development. Apart from graduating an ever-increasing number of
students for the Bachelor of Science degree in Economics, we
currently offer a sub-degree professionai diploma in Statistics, a
virile postgraduate programme and are about to embark on a new
programme of post-graduate professional training in Business
Administration, all within the umbrella of the Department of
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Economics. In this regard, I am inclined to agree with those whc,
have argued that, at Ibadan, ours is more of a School of Economics
than a Department of Economics. I have had the privilege of
watching the continued development of the Economics discipline
at Ibadan in the last six years or so and the good fortune of working
with good, capable and devoted staff as colleagues in the cause of
progress of the Department. Mr Vice-Chancellor, all this is merely
by way of a short preamble, however.
In coming to grips with today's lecture, I should perhaps start by
emphasizing the obvious: that the world in which we live is full of
illusions. And, indeed, there are some who will argue that illusions
are as old as mankind itself. For, as long as man's perception of
himself and/or his environment is faulty and involves delusions or
false irrational beliefs which are opposed to, or constitute gross
distortions of reality, there will always be illusions. To say,
therefore, that social behaviour is predicated often on illusions is
probably not saying much that is novel or spectacular. What is
important, in essence, is the nature of illusions, their distance from
reality and the steadfastness with which they are maintained in
spite of contradictory evidence or experience.
In my choice of the topic 'Illusions and Social Behaviour' as the
theme of this lecture, I have decided to follow simply in the
tradition of my predecessors in the Faculty of the Social Sciences.
That tradition had usually conceived of occasions such as this as
providing a unique opportunity to reflect on matters which, though
of philosophical and academic interest, are of momentous
importance and contemporary concern to the wider society as well.
With almost two decades of development planning behind us, the
end-result of which is largely a catalogue of disappointed hopes
and unfulfilled expectations, it seems to me that there is no issue
more pressing for us today as a nation than that of providing
insights as to why we have performed so poorly. And illusions
would seem to me to be one of the key factors.
Illusions have indeed always occupied a central place within the
explanatory framework of such social science disciplines as
sociology, social psychology and political science. In political
science, for example, some of the very strange behaviours of
Kings, Presidents, and Emperors have through the ages been
explained largely on grounds of some messianic illusions of power
and/or grandeur, or the illusion of divine rights.The psvchotoorsts
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see in visual illusions a ready tool for the analysis of socio-
psychological disorders and aberrations. The sociologist, and even
the human geographer, see in the illusions that individuals or
groups of individuals have a better social life in the cities as one
of the prime causes of rural-urban migration, and the disillusions
which often follow as a root-cause of some of the social vices and
alienation for which many of the overcrowded cities of the world
are noted.
Mr. Vice-Chancellor, although I am a social scientist, I lecture
here this evening not as a geographer or psychologist, not as a
sociologist or political scientist, but as an economist, and I hope
you will readily understand if, in the course of this lecture, I have
chosen to confine myself mostly to that sub-set of social behaviour
known as economic behaviour rather than attempt to embrace the
whole gamut of social behaviour. I have no doubt, however, that
much of what I have to say about economic behaviour is of
relevance to social behaviour as a whole. Hence, "Illusions and
Social Behaviour".
II
Obsession is admittedly an occupational disease of the econo-
mist, but illusions have never been one of such obsessions. This
is understandable since the assumntion of rationalitv is central
to the cor~ of economic reasoning, and the 'economic man' is
assumed to be free of illusions. The real world of economic
phenomena is an extremely complicated sub-terrain, saturated
with a mass of data, ranging from the meaningful to the not so
rrl'eaningful, and it has always being the job of the economist to
make meaning ot thrs morass of data and impose order on it. And,
in the process of explaining various aspects of human behaviour,
the economist has found it necessary to attempt to reduce the
complexities of the real world to manageable proportions either by
means of theoretical abstractions or by means of statistical
methods. But, whatever the methodology, one enduring
assumption in economics and, therefore, o+economlsts is that of
rationality, and nowhere is this more evident than in the realm of
consumer .behaviour.
The. postulate of rationality is indeed the customary paint of
departure in the theory of consumer behsvicur. According to-this
tnsorv, a consumer attempts to allocate histimited money income
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among available goods and services' so as to maximise his
satisfaction. For each consumer, a rank ordering of the bundles of
goods available within the commodity space is established both by
his fixed money income and by relative commodity prices. As a
rational human being, he must select the most preferred bundle of
goods in the commodity space, given his budget. These are the
combination of goods from which he derives the highest level 01
satisfaction. True enough, his income is limited, and he is not able
to purchase unlimited amounts of all commodities. But his basic
problem, within this constraint, is essentially one of maximization.
From the analysis of utility maximization, demand curves can be
and have indeed been derived, and one of the presumed properties
of such demand functions is that they are homogeneous of deqree
zero in prices and money income, i.e., if all prices and money
income change in the same proportion, the quantity demanded
remains unchanged. This is the famous postulate in ·.economics,
knowns as the homogeneity postulate, a terminology derived from
the mathematical expression for a relationship in which a
proportionate change in all independent variables has no effect on
the dependent variable. The classical and neo-classical economists
not only subscribed to the no-money illusion assumption of the
homogeneity postulate, the)' incorporated it also into their labour
market equations. According to the classical economists, the
demand for labour as well as the supply of labour are a function of
the real wage rate, and it is this specification of the labour supply
function which constitutes one of the radical points of divergence
between classical and Keynesian macro-economics.
The origin of the concept of money illusion or, rather, the
positive assertion that people suffer from money illusion is
traceable to Professor Irving Fisher in a book titled The Money
Illusion, and published half a century ago. In its original
formulation, Fisher maintained that money illusion exists in-a
persistent "failure to perceive that the dollar, or any other unit of
money, expands or shrinks in value" and the corrollary tendency to
speak as if prices of commodities all happen to rise or fall at the
same time by coincidence. We simply take it for granted that a
dollar is a dollar, that a franc is a franc (and may I say in the context
of the Nigerian society of today, that a naira is a naira) that all
money Lsstable, just f1S centuries ago, before Copernicus, people
took it for gr'anted that this earth was stationary, that there was
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·really such a tact as sunrise 'or sunset. We knovy that .!unrise and
sunset are illusions produced by the rotation of the earth around its
axis. and vet we still speak of, and even think of, the sun rising and
setting" (Fisher, 1928, p. 4), According to Professor Fisher,
we need a somewhat similar change of ideas in thinking about
money. Instead of thinking of 'a high cost of living', as a rise in
price of many separate commodities which simply happen, by
coincidence, to rise at the same time, we should accept
instead that it is really ... the money unit which varies. (Fisher,
1928,p.4).
Here, the concept of money illusion is used to refer to ignorance
of price-level variability and the inability to see through the "veil of
money" to real magnitudes. Thus, by definition, an individual is
said to suffer from money illusion if an increase in his monetary
means causes him to feel better off and spend more regardless of
what has happened to prices. For such an individual, the
excess-demand functions for commodities will not depend solely
on relative prices and real wealth, inclusive of initial real balances
(Patinkin 1956, p. 22); and higher money wages are always
considered a good thing regardless of what is happening to prices.
The concept of money illusion is also widely believed to have
featured later in Keynesian economics which was propounded
eight years after Fisher first wrote about it. According to Keynes,
the demand for labour, but not its supply, is a function of the real
wage rate. Workers bargain for money wages rather than real
waaes, and whilst they will normally resist a reduction in money
wages, it is not their practice to withdraw their labour whenever
'there js a rise in the price of wage goods (Keynes, p. 9), From this
explicit postulation of worker acquiescence in declining real-wage
/
rates concomitant with a risin~ price level, several money illusion
interpretations of the General theory have been made even though
the term itself is nowhere to be found in the book (Aschheirn. 1977,
p. 323 . 327). Keynes' treatment of the demand for rnonev, i.e., the.
speculative demand function, has also. been interpreted as
containing elements of money illussion as reflected, for example, in
the assumed tendency on the part of. individuals to react to
chanqes in money balances even when these changes are
accompanied by equivalent changes in prices. Thus, while the
doubling of both the stock of money and prices should reduce the
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demand for real speculative balances, some proportion of the
increased money supply will seek an outlet in the purchase of
bonds, thereby permanently depressing the rate of interest
(Patinkin, 1976, p. 119).
Although the concept of money illusion has featured more
prominently in the discussion of consumption theory and has been
more critical in describing individual and household behaviour, with
regard to the commodity and financial markets, there is no reason
why it cannot analytically be generalised and extended equally' to
the realm of group behaviour, involving such corporate units within
the economic system as business enterprises and the government.
Firms, no less than individuals or households, can be assumed to
be subject to or free from money illusion depending on whether or
not their supply and demand functions 'are dependent on or
independent of relative prices and the real value of assets.
In all, the role of money illusion brings about an interesting
symmetry in which its presence is as crucial as its absence
concerning some aspects of theoretical analysis in economics. But
the relevant empirical question to ask at this stage, Mr.
Vice-Chancellor, is the applicability of illusions to the mode and
tenor of economic and social behaviour in our society. The
postulate that people sutfer from money illusion certainly implies a
relevant and empirically testable restriction on economic be-
haviour. It means that individuals or groups may behave as if they
were richer (or poorer) in terms of real income or wealth even
though their money income and prices might have risen (or fallen)
in the same proportion. The central thesis of this Lecture is that the
main strands of socio-economic behaviour in Nigeria have been
overwhelmingly dominated by an interplay of illusions. The money •
illusion, the buoyancy illusion, the planning illusion, the naira
illusion, the manpower illusion, the foreign exchange illusion, the
contract illusion, the development illusion, the illusion of figures -
all these have had their field day in the arena of socio-economic
behaviour in this country. If, if) the course of this Lecture, the
primary focus is on the behavioural consequences of only a few of
these illusions, and mainly, in as much as they relate to the public
sector, it is principally because the illusions are themselves often
'inter-related in their manifestations, and are more dramatically
illustrated by reference to the behaviour of public sector
institutions.
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III
Given the dynamics of wage-price adjustments in Nigeria,
whereby onlv marginal, if any, net gains accrue to wage and salary
earners from the exercise of wage reviews, it is easy to conclude
from the enthusiasm shown by the Nigerian working population for
the exercise of general wage and salary increases that they suffer
from money illusion. Quite apart from the impact of higher wages
and salaries on labour costs as components of production costs,
general wage and salary awards are known to have a veritable
announcement effect on prices in Nigeria. No sooner is there a
declaration of intention to grant general wage and salary increases
than prices of goods and services jump up in anticipation, often out
of proportion to the proposed or expected awards. When the
awards are eventually paid, the consequent increased demand
arising from them usually leads to even further increases in prices,
while the price increases in turn give rise to further distortions. By
manipulating the prices of goods and services, Nigerian
entrepreneurs, the speculators among them in particular, often
succeed in taking back much of the increased wages and salaries
which have been handed out to workers in the first instance. In this
regard, the role of market women, the landlords and the
distributors of essential commodities as agents of the announce-
ment effect of wage and salary increases on the price level is
particularly significant.
Nigerian workers, it would appear, are in apparent ignorance of
the circular behaviour of wages, costs and prices and, in
consequence, often demand and, when they get it, rejoice at new
rounds of wage increases which in reality bring them little or no real
increase i.n standards of living. Nowhere is this more exemplified
than in the jubilations and euphoria of "we have never had it so
good" that followed the Udoji awards.
The recommendations of the Udoji Commission were in
themselves extravagant and overgenerous in many aspects, but
the Military Administration at the time, given its waning popularity
simultaneously with its apparent desire. to extend military rule
beyond 1976, decide to enlist public support by outdoing that
Commision's recommendations. The result was that wage and
salary earners in the public sector had their salaries and money
wages doubled or trebled overnight, with stupendous arrears,
while substantial increases in wages and salaries were also
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promptly applied in the private sector. Predictably, price increases
followed sooner than later but, because of money illusion, the
immediate effect of the Udoji awards was to encourage individual
wage and salary earners to live and want to live more expensively
than before. Under the illusion of a larger pay packet, Nigerian
workers inundated the consumer-durable goods market with
unparallelled demand. The electrical applicances and electronics
market was probably the worst hit, and examples abound of
Nigerians who, in the process, had acquired television sets, fans,
radios or some other electronic gadgets only to be forced to sell at
half the purchase price a few months later in order to make ends
meet. The forces of money illusion were short-lived, in this
particular case, but not until some severe structural harm had been
done to many families and households.
The major lesson arising from the fore-going is not that the main
corpus of economic science no longer provides insights into
economic processes simply because they are developed on the
assumption of an illusion-free world, but that we recognize, more
explicitly, the limitations of the behavioural assumptions often
made in the process of abstraction and generalisations in the social
sciences. In economics, the ceteris peribus stance of pure theory is
always such that we need to move on to applied theories and
further empirical studies in the process of designing specific
policies to influence or guide social behaviour.
IV
Mr. Vice-Chancellor, there is another dominant illusion to which
the Nigerian body politic has been enslaved, particularly in the
planning context. This is the "buoyancy illusion". Briefly defined,
the buoyancy illusion consists of the mistaken identity of mere
financial buoyancy or newfound riches with economic buoyancy,
and the interpretation of such a fantasy or 'magical influx of
wealth' as a sufficient pre-condition for the take-off into
self-sustained economic growth. The illusion is of recent origin in
Nigerian history, both in its causation and in the weight of empirical
reievance. It dates back only to the 1970sand is not to be confused
wi~h the =corn in the export of primary products of the 1950s
Before the Nigerian civil war, and even during the initial period 01
post-war reconstruction, finance was seen and identified as the
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major constraint to development planning. In the First National
Development Plan, for example, public sector programmes, in
spite of their modesty, were expected to be constrained by an
uncovered gap of a substantial magnitude, amounting to some
N127.4million. Even the Second National Plan was drawn against a.
background of fear of f'eSI~urceshortages. The economy had only
just emerged from a civil war, and there was an immediate need
not only to rescue the economy from the economic abberrations
and defects arising from war disasters and ravages, but to evolve
also a new basis for development. The prospects of oil were at that
time certainly brighter than before, but OPEC had not acquired the
pre-eminence that it did a few years later as a cartel, and the view
that was generally taken of the petroleum resource by planners at
the time was that of a wasting asset, which should not be relied on
as the engine of growth. According to the Second National
Development Plan (p.135),
an unregulated activity in the mining sector could lead to a
situation where, because of current limited absorptive capa-
city, the country misses the opportunity to optimise the
returns from a process of rapidly extracted mineral resources,
while in the future with better absorptive capacity, the returns
are then no longer there because the resources have been ex-
hausted.The Government would strive for an optimal trade-
off between the desire for an immediate utilization of the
commercially valuable mineral resources and their rates of
extraction. The Plan document went further:
-This is particularly true of crude oil mining. Unless a judiciously
formulated policy is adopted and followed, the country will
suffer seriously from what is fast becoming an oil illusion ... It
is often forgotten that oil is an expendable resource, and that
the more it is exploited, the less there is for use in future ...
Mr. Vice-Chancellor, that was in 1970.
By the time it came to formulating the Third Plan, however.
Nigeria was already in the grips of the buoyancy illusion. While
observing that quite often, the development of most developing
countries was hampered by a trinity of constraints: savings, foreign
exchange and executive capacity, Nigerian planners, blinded
apparently by the phenomenal revenue increases of 1974 and 1975,
had come to believe that, in the case of Nigeria, there will be no
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savings and foreign exchange constraints to the development
efforts during the 1975-80 plan period and beyond. Even their
recognition that "manpower or executive capacity remains a
bottleneck to the development of the nation" was meant to
operate more as a guide to policy measures and institutional
building for subsequent manpower training and development
rather than as a constraint on the size and composition of public
sector programmes in the Plan. In the event, the nation has been
stampeded into yet another illusion, the Man-power Illusion,
whereby proliferation of institutions of post-secondary education in
the country is equated with manpower development. That
education is at best only one input or element in the matrix of
manpower training and industrial discipline and culture required
for manpower development is demonstrated, however, by the fact
that while more and more Nigerians are getting educated and, may
be, even over-educated; the critical manpower bottlenecks have
remained as ever.
Between 1970 and 1973, the importance of petroleum mining in
Nigeria had substantially increased and the sector was seen and
accepted by many to have become the main engine of growth and
the one that would launch the country into an era of
unprecedented prosperity. The combination of increased produc-
tion and increases in the price of crude petroleum products brought
this about. During the 1975-80 plan period, the expectation of the
planners was that petroleum would account for about 40 per cent
of our GDP and contribute approximately 85 per cent of foreign
exchange earnings and government revenues. From a production
rate of 0.77 million barrels per day in 1963, production of crude oil
had risen to 2.0 million barrels per day in 1973 and this was
expected to rise further to 3.0 million barrels per day by 1979-80.
With oil revenues expected to accrue in such unprecedented
proportions, there was an obvious need to utilise the money fast
before inflation eroded its value.
It was probably with this deep sense of monetary dynamics that
Nigerian planners came to the conclusion that the main strategy of
the Third Plan should be to expand development efforts along all
lines. What was forgotten was that the pressure of a steeply
increased aggregate demand associated with the process of
internalising development through the use of rapidly increasing oil
revenues would necessarily by itself fuel inflation at home if and
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wnen it was out of step with the nation's absorptive capacnv.
Whilst the basic planning problem of the first half of the 1970s·was
seen as that of moving an economy that had recently gone through
the crucible of a long and wasting civil war on to a new basis for
development, the objective of the Third Plan was seen essentially
as moving the economy on to a new level of development through
the use of a seemingly inexhaustible reservoir of oil funds. And the
bigger the Development Plan.. the better it was thought,
particularly since the burden of financing the component
programes and projects had been so deceptively lightened, almost
to the point that many policy makers were beginning to see it as a
zero burden. Such that even when the opportunity for plan revision
presented itself in 1976, following the change of leadership in the
military government, the overall size of the Plan, rather than
diminished, further increased from H30 billion to H43.3 billion.
The idea of a massive and accelerated rate of investiment
through state intervention as a means of promoting economic
development is not without support in economic development
theory. According to the "stages-of-growth" theories of the 1950s
and 1960s, the chief proponent of which was Professor Rostow,
the main constraint or obstacle on development was the relatively
low level of new capital formation or investment, and the trick of
economic development was simply a matter of how to increase
savings and investments. Since, by some Providence, there was
the massive accrual of savings and foreign exchange earnings from
oil revenue, the task of development in Nigeria, according to
this theory, would simply be interpreted as that of accelerated
mvestrnents. The behaviour of Nigerian planners is also explicable
by the "Big-Push" theory propounded by Professor Rosentein-
Redan some years ago. According to this theory, a high initial
amOUf11of social overhead capital is required for development to
take off, and accelerated investment is therefore a necessary tool
.of economic development. The same can be said of the theory of
unbalanced growth", in terms of the blessings and approval that
it seems to confer on the Nigerian development strategy embodied
in the Third National Development Plan. One of the crucial roles of
tl-)e state in the theory of unbalanced growth, as propounded by
Professor Hirschman, is to deliberately induce disequilibria as a
means of stimulating economic growth, and Nigerian planners
could rightly claim that, that was precisely what they set out to do
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i!1 the Third National Oevelopment Plan. But the repairing of
disequilibria is equally, also, according to the same theory, another
vital role of the state in the development process.
The criticisms of the "Stage-of-Growth", "Big-Push" and
"Unbalanced Growth" theories are well elaborated in the literature:
on development. It is sufficient for our presentpurpose to indicate
that they provide a weak pivot on which to harig the development
question, and should in no way be seen to constitute an unqualified
or unique guide to development policy. In any case, Mr.
Vice-Chancellor, it is one thing to argue that a course of action
pursued in the past has some basis in theory, and quite another to
.prove or conclusively demonstrate that a causal association exists.
What was particularly wrong with the Nigerian development
strategy of the 1970s was not whether it was founded on. the right
or wrong set of theories, but that its manner of application was
unsuited to the country's economic and social environment.
Behind every development theory is an implied or stated set of
economic conditions needed for the success of its prescribed
strategy of development. It is nothing but a 'planning illusion' to
embrace paths to development for which the appropriate economic
and cultural milieu do not exist.
The point about relating government policies to the general
context of development theory, as done above, is merely to invite
the attention of policy-makers and planners to the need to. be
guided by consistent and comprehensive, rather than partial,
analysis of the development problem. The pursuit of a rapid and
sustained economic development has more than an investment or
monetary dimension; accelerated expenditure of revenue from oil,
in that pursuit, represents only but the tip of the ice-berg of the
overall development question as to what combination of resource
policy, reform of attitudes and incentives, and which legal, social
and cultural institutions are necessary.
For a developing country, and indeed for any country, there are
always policy options and, therefore, crucial policy decisions to be
made at each structural turning point, concerning the limits of
.possible gains from particular strategies; the risks, and costs
involved; and, the merits of alternative strategies. Under the
buoyancy illusion generated by the oil boom, Nigerian policy-
makers seemed to have abdicated the responsibility for critical
social appraisal and action, and to have developed yet another
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illusion, the Naira Illusion. They suddenly came to the conclusion
that we had the money to do everything under the sun and to solve
all problems of underdevelopment immediately, with the result
that, in place of serious decision-making and conscious choice
among alternatives, the nation was made to embark on a spending
spree, by merely throwing money at problems. For example,
programmes such as the permanent Trade Fair Complex in Lagos,
FESTAC, OFN, Federal take-over of Universities, state take-over of
secondary schools and private hospitals, the introduction of
medical schools in all Universities, to. mention only a few, were
embarked upon without detailed analysis of total benefits and
costs. It is true, of course, that analysis causes some delay in
action but it may minimise waste of resources. However, if all
projects were to be executed in a hurry, little of value tends to be
accomplished, and the little that is accomplished may not even
justify the costs to the nation. Important as money is in economic
development, it does not, and cannot, by itself, and on its own,
develop a nation. Money is no more than a financial asset or tool,
and people make use of it, for good or for bad, in the pursuit of
economic development and social change. This is all well brouqht
out in the fields of monetary and development economics in which
specialize.
Under the buoyancy illusion, however, we seem to have for-
gotten that nature does not make a jump; that time is an important
element in the development process; ann, that, just as Rome was
, not built in a day, there was no way in which a nation could have
accomplished the required transformation of its economy
overnight, in spite of the good fortunes and magical influx of oil'
revenues.
As it is, development is a continuous process, not a
once-and-for-all affair. It proceeds in stages even though the
stages may never quite approximate the historical determinism of
Rostow's Stages. This is true in spite of the historical lessons of the
Chinese experience, the uniqueness of which we must admit, but
which some of Nigeria's most ardent socialists often deny by giving
the impression that Nigeria could perform the Chinese feat
overnight. It is important to emphasize the above points because it
is only aqainst the background of the canker-worm of a buoyancy
illusion that it is possible to appreciate and evaluate the magnitude
of the Third Development Plan which, both in its original and
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revised forms, has now turned out to be too large in size and'
unduly linear in strategy in the light of experience.
Some of the implications and limitations of a planning strategy
whereby, under the guise of a buoyancy illusion, the public sector
seeks to undertake within a plan-period a volume of investment
and administrative activities for which the economy lacks the
absorptive capacity are fairly obvious. Economic waste and
corruption, resulting from spending huge sums of money in haste,
and an endless proliferation of a multiplicity of hollow-shell
institutions that achieve or are capable of achieving so little, is one;
inflation of costs is another. In the contemporary Nigerian case,
the emphasis on completion time as the key factor in projecf
implementation has meant that the bulk of public sector
programmes are concentrated in the hands of a few supposedly
super-efficient foreign contractors who are naturally quite willing,
and, given the prevailing circumstances, have been able to use
their oligopolistic structure to dictate and inflate the costs of
development projects in geometrical progression. These two forces
not only negate the overall economic gains of the economy from
development activities, they have resulted in q lot of cheap money
floating around and the accrual of soaring profits to consultants,
suppliers and contractors, most of who are foreiqn - with all the
attendant implications both for the economy's future development
and sustained growth as well as for social equity among Nigerians
and between Nigerians andJoreigners.
'One further element in 'the endless chain of waste, arising
directly from the dramatic shift in the country's fiscal landscape
and increased centralisation of public' sector activites and
programmes in the 1970s but ultimately traceable to the buoyancy
and planning illusions, needs to be mentioned as well. Associated
with the' dominance, of the fiscal landscape by revenues from
petroleum activities was the growth of a vertical imbalance in
revenue allocation between the Federal and State Governments
whereby the Federal Government had at its disposal, relatively
large fiscal resources while some State Governments hardly had
enough statutory, revenues to spend even' on current accounts.
Ordinarily, there is a natural propensity for a strong (and especially
military-directed) centre to usurp the normal responsibilities of
States in any federation in the guise of the national interest. In
Nigeria, this propensity has been strengthened in the 1970s both by
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UNIVERSITY OF IBADAN LIBRARY
the fiscal dominance of the Federal Government, and the buoyancy
illusion generated by it. The result is a virtual take-over of many of
the normal functions of the lower tiers of government by the
Federal Government, with the resultant fiscal implications of waste
and the high costs of project execution direct from Lagos. The
State Governments themselves, with their new-found art of
lcompetitive deficit budgeting to attract Federal funds, have
contributed in no small way to the spiralling process of inflation and
fiscal distortions, all of which raise the price of development.
In Nigeria, the buoyancy illusion has been compounded by a
.faulty perception and a lack of full appreciation of what
development is, and the problem of under-development in
particular. Development, it would seem, is seen and measured by
our policy-makers planners and administrators in terms of concrete
structures and infrastructural facilities. This is evidenced by the
sheer weight of the construction sector and its sub-components in
toe 1975-80 plan, and the excess-demarid generated for
construction materials far in excess of domestic availability and
external procurement through imports. In turn, the emphasis on
complex structures has tended to encourage over-dependence on
foreigners, given the popular belief in our society that foreign
companies are far more capable of building faster and better than
their Nigerian counterparts.
The truth of the matter, however, is that economic
under-development goes far beyond deficient growth rates of
output and mere unavailability of gleaming structures, majestic
buildings, dual-carriaqe roads and overhead bridges. Economic
underdevelopment reaches, unfortunately, very deep into the very
thinking process, beliefs and basic attitudes, as well as the social
values and the way of life of a people. In the circumstances, it may
very well be that institutional re-organization and the reorientation
of the entire economic and social system rather than mere
accretions of value-added by concrete structures in the narrow
national income accounting sense is what defines the essence of
, development.Ln many Third World countries !oday, and even amongdevelopment economists, there is a growing disenchantment withthe emphasis on growth in GDP, a lot of which is unaccompaniedby development. In place of the exclusive focus of the '50s and '60s
on the rapid growth of the GDP as the objective of economic
15
UNIVERSITY OF IBADAN LIBRARY
development. emphasis has increasingly and percepuolv shitted to.
such additianal objectives as incame distribution and social equity,
paverty reductian and the qualitv of life. In essence, there are many
taday who. will argue that the condition of the poor is about the
anly legitimate overall facus of develapment, and that develop-
ment perfarmance should be measured by the extent of success in
poverty reduction and impravements of the social conditions o"f
life. In Nigeria, our pattern of develapment in the '60s and 70s has
been such that neither poverty nor inequity in income distribution
has been mitigated. If anything, they have been aggravated. Here,
we need anly to-recall a few critical factors such as the current food
shartage, poor hausing conditions and enviranmental decay in the
cities, and pervasive unemplayment and underemplayment almost
everywhere. The realities of the plight of the average Nigerian in
the 1970s is what same have aptly referred to. as "Nigeria's
Neglected Rural Majarity" and the urban poor.
The intense pluralistic nature of the Nigerian saciety with its
cultural diversity and its heterageneaus and multi-ethnic graups
partly defines the camplexities of its underdevelapment problems.
This feature af the society. tagether with an absence af industrial
discipline and a patent inability to usefully absorb, digest and
manage madern technalagy, specify the nature of the positive
challenges of economic development and of social change facing
the country. Thus, while develapment is ultimately a pragmatic
exercise, it is necessary that affairs relating to. it are conceived.'
designed and conducted in a philosophical context that seeks to.
cambine deep thoughts with wise actions. rather than routinized as
a bureaucratic art-farm af merely signing cantracts.and farming out
turn-key projects to. contractors. As a nation we need to. get aut of
the 'Contract IIlusian's whereby everybody wants to be purveyors.
commissioned agents and contractors of same kind, because of
the quick prafitsthat accrue, while few are prepared or encouraged
to. sail their hands in the critical and arduous tasks af real
production and develapment engineering. We need to. realise that
it is futile to. the extreme to. simply subcontract the implementation
of substantial and critical programmes of development to. fareign
countries and their nationals since, for the most, that would be the
surest way of undermining from the outset the growth-promating
impacts of such investments.
To. the extent that the overall objective of economic planning is
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UNIVERSITY OF IBADAN LIBRARY
· development, a planning illusion would necessarily generate a
'development illusion', even though the latter may in fact linger on
after the demise of its parent illusion, just like the scattered flames
that persist after a devastating fire. In a sense, it is the development
illusion which defines the current regime as one of frustrated
expectations and unfulfilled hopes and dreams in Nigeria. And it is
this same illusion that has goaded us on to a high propensity of
conspicuous consumption as a nation. Given the grandiose and
impressionistic magnitude of the Third Plan, both in its original and
revised forms, the huge sums of public funds devoted to myriads of
projects and programmes, and the resultinq increase in the
circulation of money in the economy arising from the rapid
monetization of government receipts from oil, most Nigerians have
come to believe and behave as if their country already had a place
in the hierarchy of developed nations, and that only prophets of
doom would caution and plead the contrary. They measure
development in terms of the soaring magnitudes of public
spending and are overly impressed by the billion-naira programmes
of public spending devoted to road construction, public buildings
and the expansion of consumption demand. The over-flowing of
tiny and ,narrow city roads with motor cars of all brands: the flood
of 'electronic gadgets, can-beer and, at one time, champaigne and
sparkling wines, into our markets are seen and accepted as
indications that we have indeed arrived as a nation. The social
expectations of NIgerians, it would seem, have been clouded by a
constellation of illusions, most of which are unreal and unrelated to
the realities of underdevelopment.
Government itself, through some of its policies and actions in ttle
past, has given the impression that Nigeria is already a rich and
.developed country and that the economy could expand
Isatistactorilv along all sectors to meet all current needs of the
Nigerian public. Shortages of consumer goods, for example, have
been viewed, not strictly in a structural sense, but in terms of
supply and distributional aberations to be remedied by massive
importation from abroad and price controls. at home. The futility
and high cost of enforcement of price controls in the face of severe
and acute shortages is now, of course, common knowledge but
Iprice control efforts have stubbornly persisted under the illusion
lthat the economy is basically able to meet the pressure of
.uncontrolled demand and that hoarding is the real culprit. From the
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UNIVERSITY OF IBADAN LIBRARY
study of economics, we know of course, that hoarding never
causes real scarcity; it merely exercerbates it. With soaring
fortunes in export earnings from oil, it was all too easy for the
country to abandon its policy of rigorous foreign exr:hange controls
of the '60s, and to open wide the flood-gates of imports. This
'foreign exchange' illusion has necessarily been short-lived,
however, given the realities of the foreign exchange bottlenecks
facing a country which devotes more than a quarter of its gross
domestic expenditure to imported consumer goods alone and has
to rely on importation as well for its intermediate and capital goods.
The real position is that Nigeria is an underdeveloped country
and has indeed remained one of the poorest nations of the world.
And scarcity, not affluence, is the very essence of underdevelop-
ment. The impression that Nigeria is now a rich country and that
the economy is growing rapidly is based on the reported
performance of our GDP in recent years. This impression is,
however, largely illusory for a number of reasons. First, there is the
illusion of figures, arising from the absolute size of the GDP as
reported for the '70s, even in real terms, but partly also from the
very unreliability of national income accounting underdeveloped
countries. According to the Central Planning Office of the Federal
Ministry of Economic Development, the real GDP of Nigeria in
1976/77 amounted to N16,905 million. But how reliable are figures
of this nature when the very basis of their calculation is mostly
guess-work and therefore highly suspect? Of what use also is
quantitative growth in GDP if and when it is unaccompanied by
qualitative development? The seemingly high overall growth rate of
16.4 percent recorded for the economy in 1976/77 is deceptive also
because of the preponderant share of it contributed by petroleum.
From less than 1 per cent of the GDP in 1958, the contribution of
mining production reached a peak' of 45.1 per cent of the GDP in
1973-74, and this was largely as a result of the rapid growth in
petroleum. But petroleum, as development economists know very
well, is by itself more an engine of structural inflation than of
economic growth.
Given Nigeria's vast and rapidly increasing population, it is not
surprising that income per capita in the country is still one of the
lowest in the world, and is far from the top as far as the African
continent is concerned, despite the impressive rates of increase
recorded in the GDP in the recent past. This is shown clearly in
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UNIVERSITY OF IBADAN LIBRARY
Tables 1 and 2. From Table 1, it can be seen that the GND per
capita for Nigeria in 1974 was less than five percent of the GND of
most of the developed nations of the world and constituted no
more than a fifth of the world average. Table 2, on the other hand,
has the interesting revelation that at least fifteen African countries
have GNDs per capita that are higher than Nigeria's and among
these are nations that are non oil-rich.
In any case, it is wishful thinking to talk of economic
advancement when most of the economic activities in the modern
sector are trading activities in the manufactured products of other
countries which, though highly remunerative .in terms of quick
profits, are not necessarily the foundations for economic take-off
into sustained growth; when the list of truly 'Made in Nigeria'
products is very short and the few industrial activities centre on
consumer-goods manufacture from imported intermediate and
capital goods; or when the real critical engineering sub-sectors
which are the life-blood arteries of industrial transformation, or, if
you like, the nuts and bolts of structural change, notably the
manufacture of agricultural and specialised industrial machinery,
metal and wood working machinery, transport equipment. etc., are
yet to be firmly established on the ground. In growth terms, the
truth is that Nigeria's diversified natural resource base is yet to be
TABLE I: NIGERIA'S GNP PER CAPITA IN RELA nON TO tHE
WORLD IN 1974 [FIGURES IN U.S. DOLLARS]
1. THE WORLD AVERAGE 1.422
2. EUROPEAVERAGE 3,313
3. SWEDEN 7,240
4. SWITZERLAND 7,870
5. CAMEROUN AVERAGE 2,323
6. U.S.S.R. 2,380
7. E.E.C. AVERAGE 4,656
8. UNITED KINGDOM 3,590
9. AISIA AVERAGE . 479
10. JAPAN 4,070
11. LAf,IN AMERICAN AVERAGE 953
12. CENTRAL AMERICAN AVERAGE 972
13. CANADA 6,190
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14. U.S.A. 6,670
15. THE CARIBEAN 912
16. AUST'RALIA 5,330
17. NEW ZEALAND 4,310
18. AFRICA AVERAGE 366
19. NIGERIA 280
Source: World Bank Atlas (Washington, 1976). Quoted in
V. P. Diejomaoh, "Planning for Balanced and Basic
Needs: Relevant Ideas for Nigerian Planning in the
1980s and Beyond", Paper presented at the
National Workshop on Planning Strategy for the
1980s, NISER, Ibadan, 1977.
TABLE 2: GNP PER CAPITA OFAFRICAN COUNTRIES; 1974
W.S. Dollars]
1. LIBYA 4,440
2, SOUTH AFRICA 1,210
3. ALGERIA 730
4. ANGOLA 710
5. TUNISIA 650
6. ZAMBIA 520
7. RHODESIA 520
8. CONGO 470
9. IVORY COAST 460
10. GHANA 430
11. MOROCCO 430
12. LIBERIA 390
13. MOZAMBIQUE 340
14. SENEGAL 330
15. MAURITANIA 290
16. NIGERIA 280
17. EGYPT 280
18. CAMEROUN 250
19. TOGO 250
20. UGANDA 240
21.. SUDAN 230
22 CENTRAL AFRICAN EMPIRE 210
23 KFNYA 2QO
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24. SIERRA-LEONE 190
25. MALAGASY 180
26. TANZANIA 160
27. ZAIRE 150
28. MALAWI 130
29. BENIN 120
30. GUINEA 120
31. NIGER 120
32. ETHIOPIA 100
33. CHAD 100
'34 BURUNDI 90
35. UPPER VOLTA 90
36. MALI 80
137. RWANDA 8Q
Source: (Same as Table 1)
harnessed and exploited fully for industrial development, and most
of the activities in the industrial sector are still not manufacturing in
the true sense of the term but mere assembly lines of imported
components behind tariff walls. And this is why, unlike other
countries that have experienced a real industrial revolution, the
forward and backward linkage effects of our industrial efforts of
the last few years have accrued more to the foreign suppliers of our
raw materials, intermediate and capital goods than to the domestic
economy.
VII
Mr. Vice-Chancellor, I have endeavoured during the course ot
this lecture to establish the simple point about the dependence of
most of our current economic behaviour as individuals, groups and
even as a nation on illusions and to underscore the implications of
the persistent and growing distortions in the country's develop-
ment process. Given the very nature of illusions, the predictable
end-result of whatever social behaviour-that are predicated on
them is bound to be frustrated hopes and disappointed
expectations. The relevant and, indeed, the logical question to ask
then, at this final stage is, where do we go from here and how do
we get out of the tempestuous jungle of illusions and re-order our
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UNIVERSITY OF IBADAN LIBRARY
social and economic priorities and behaviour such that we cease
from chasing the shadows of development? How do we, as a
nation resolve the economic and social crises arising from the
prevailing 'oil flu or fever' such that a gloomy future is not ours?
Under the illusion of buoyancy, the economy has been
overstretched beyond reasonable limits, so much so that, as a
nation, we seemed to have gone out of our depths. Our value
system, nay, our ways of life, all these have changed almost
beyond recognition and for the worst in the brief era of post-Udoj
inflationary spiral, and this has gone to the extent that nothing
seems to work or function well today within our economic
system-water: electricity, telecommunications, transportation, to'
mention a few. The result is that generalised shortages are the rule
rather than the exception.
Projections of the nation's financial situation, covering the next
half a decade, or so, indicate however that the honeymoon of oil
euphoria may be over and that the situation would be particularly
gloomy in the early 1980s due to predictable depressions in the
world market for oil. By the middle of 1975, for example, following
recessions in the advanced industrialised countries, Nigerian oil
production had already dropped to 1.4 million barrels a day from
the peak figure of 2.3 million barrels per day in 1974 - a far cry from
the planners' projections of 3.0 million barrels per day. And only
modest increases have been recorded ever since. Since the
buoyancy illusion was predicated on the resurgence of relative
financial prosperity associated with the oil boom of the mid-1970s,
it is only fair that its natural death should accompany the declining
rate of growth in oil revenues. Hopefully there is some indication
that the government itself is starting to appreciate this. We
probably now know better, as a nation, that phenomenal increases
in government financial resources and in foreign exchange
earnings at the disposal of the economy are not per se a sufficient
condition for econornic transformation; that the efficiency and
wisdom of resource allocation matters more than anvthinq else;
and that economic transformation, by definition, is hardly
achievable overnight even if there were to be no financial
constraints.
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If the economy is to cease from being overheated by uncon-
trolled demand, the next Plan will have to be less ambitious than its
predecessor. The crucial lesson to be learnt by all those who
manage public resources is that the Federal Government must
never again, as it did under the Third Plan, arrogate to itself those
social and economic development functions of the State which are
better and more efficiently performed by lower levels of
government; that the public sector as a whole should learn to resist
the temptation of biting more than it can chew, and should never
attempt a volume of investment and administrative activities for
which the economy lacks the absorptive capacity .• Indeed, the
exercise in connection with the Fourth Development Plan should
be seen as an opportunity for re-thinking and consolidation rather
than for embarking on grandiose schemes which are bound to
further result in the dissipation of public funds and public sector
efforts.
• We must learn to lower our currently inflated expectations and
hopes regarding the massive power of government for rapid social
action in solving all development problems. This we must do, not
necessarily because there is an innate ineptitude on the part of
those who manage the state appratus, but in recognition of the
constraints and obstacles facing the economy at our present stage
of development. In cutting back on public spending and
programmes, however, we must avoid the danger of indisciminate
and across-the-board prunning. The current impression that public
spending could be restrained uniformly all round, without
structural distortions to our development efforts, is no less illusory
than the erstwhile attempt to use oil revenues in solving all
development problems in double quick time. There are the issues
of priority, and of the hard choices to be made among alternative
uses of limited resources which no nation can avoid or iqnore
without courting disaster.
The existing structure of demand was cultivated and nurtured by
the illusion that ours is already a rich nation. With the infrastructure
on which to build a modern economy yet to be fully assembled,
and, with genuine doubts regarding our sustained ability to
maintain and service such a superstructure, it is evident that our
present level and pattern- of demand cannot survive without severe
demage to the economic system. In addition to the current
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UNIVERSITY OF IBADAN LIBRARY
efforts at expanding supply to meet the ever-rising expectations of
the public, the management of demand should henceforth receive
more attention. Shortages, as we have seen, are the vpry essence
of underdevelopment, and no amount of price control efforts could
obscure this fundamental axiom. There is no way in which all the
current needs of the Nigerian public could be met at our existing
level of development, hence the need to curtail excess demand in
general and tastes for non-essential commodities in particular as a
means of ensuring an equilibrium of demand and supply. In this
.eqard, what is needed is not to control the prices of non-essential
commodities, which has almost invariably resulted in the past in
the maintenance of artificially low prices, but to decontrol prices,
the effect of which will be to hold demand in check. Increased
taxation and compulsory savin.gs, though unpopular, are also some
of the other measures that could be used 1:0 curtail the pressur.e of
consumption demand, dampen -inflation and force people to bear
more of the real burden of development.
But, above all, we need to re-order our priorities such that the
production capacitv for goods that satisfy the basic needs' of the
vast majority of the population is enhanced. We also need to plan
to spend money more wisely and to avoid waste in all areas of
public spending both by curtailing expenditures on- complex
structures, luxuries, cultural fiestas, festivals and various other
types of white-elephants, and by reducing costs, particularly
contract prices. In this regard, the new low profile stance of the
present Military Administration is in the right direction but needs to
be generalised and extended to the private sector through a
combination of fiscal arid monetary policies rather than in terms of
pious hopes of emulation through demonstration effects.
With the susceptibility of Nigerian workers to money illusion, it
would seem logical to encourage gains in productivity to accrue to
them largely through lower product prices, improved working
conditions and fringe benefits rather than through higher money
wages. This. is necessary for avoiding the vicious circle of endless
wage-price inflation and the drastic erosion of the value of the
naira. But it also means that the wage increases that are forestalled
by the present policy of freezing wages would be passed on
indirectly to consumers instead of serving as a prop for declining
productivity.
Mr. Vice-Chancellor, I have deliberately devoted the latter part of
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UNIVERSITY OF IBADAN LIBRARY
this lecture to some of the positive actions that can be taken to
cure this nation of some of its illusions and rescue it from the
consequences of the illusions of the past. I wish to emphasize that
the overall goal should be to place the economy in a position of
self-sustaining growth. And I believe we can achieve this objective
basically, as Mabogunje has argued, ;'by doing things our own way
and at our own level and pace" (Mabogunje, 1977), Henceforth,
our emphasis should be on self-reliant development rather than
dependence on others for solutions to our basic e~onomic and
social problems. We need to plan for our own technological
development and to develop pride in things that we actually
produce, in our own culture and social values, the lack of which, in·
the past, has bred nothing but a "dependency illusion." We cannot
run away from the fact that development is a multi-dimensional
process which must be founded· basicallv 011 a country's own
capabilities and domestic resource base; such that whatever
foreign assistance is available in the pursuit of that objective is
nothing but supplementary. To proceed otherwise is to allow the
development tail to wag the dog, rather than the other way round ..
Talking about structural and social change, and of the policy
imperatives, I would like to end this lecture, Mr. Vice-Chancellor,
by emphasizing that the social consensus for and the political
acceptability of the required change in policy direction would
depend in part on good leadership. Far too often, in
underdeveloped countries, development problems are diagnosed
and expatiated upon ad nuseam but nothing concrete gets done
about them in the end by way of policy reforms; the critical
dilemma being the classic case of who amongst the decimated
community of rats is to bell the cat. I would like to believe and hope
that this is not the situation in our country today.
The prospects for structural change depend also in part on the
development-oriented attitudes of the generality of the population.
To generate these attitudes, is not easy, but we have no chelce as
a nation but to try. Here I believe the University has a vital role to
play. It can help directly with the important function of shaping and
influencing rather than accommodating and servicing existing
societal attitudes. It can also help directly with political education,
or providing the fulcrum for such education. But, above all, the
University must cure itself of its own illusions. It is not an ivory'
tower. It 1Spart and parcel of society. It must put its own house inl
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UNIVERSITY OF IBADAN LIBRARY
order. It must relentlessly involve itself in socially-relevant research,
advisory and consultancy services.
Mr. Vice-Chancellor, we in the Faculty of the Social Sciences
have already made a beginning in that direction. In the Department
of Economics, in particular, some of the staff research in recent
years have increasingly focussed attention on the development
process and the different manifestations of structural distortions in
Nigeria's economic development. Between us and our sister
Department of Geography, a Planning Studies Programme, with
both a training wing and a consultancy arm, was established
almost five years. ago. There is no reason why these efforts cannot
be intensified provided there is encouragement from the University
Authorities, not only in terms of funding but also in terms of the
recognition and appreciation that policy-oriented research and
economic consultancy are time-consuming, and are as valuable, if
not more valuable, than basic research in the course of economic
. I
and social transformation, even though they may not necessarily
be the most glamorous aspect of productive scholarship.
Vice-chancellor, Deans of Faculties, Ladies and Gentlemen,
thank you all for listening.
9th March, 1978 Owodunni Teriba
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REFERENCES
1. ASCHHEIM, JOSEPH (1977) "From Money Illusion to
Money Disillusion" Banca Nazionale Del Lavoro Quarterly
Review, December.
2. FEDERAL REPUBLIC OF NIGERIA (1975), Third National
Development Plan 7975-80" Central Planning Office, Federal
Ministry of Economic Development, Lagos.
3. FEDERAL REPUBLIC OF NIGERIA (1970), Second National
Development Plan 7970-74, Central Planning Office, Federal
Ministry of Economic Development, Lagos.
4. FISHER; IRVIN (1928), The Money Illusion, Adelphi
Company Publishers.
5. KEYNES, J.M. (1936) The General Theory of Employment.
6. MABOGUNJE, AKIN. L (1977) "On Developing and Develop
-rnent", 1977 University of Ibadan Lectures, Mimeo-
graphed.
7. PATINKIN, DON (1956), Money, Interest and Prices, Row,
Peterson and Co.
8. PATINKIN; DON (1976)' Keyne's Monetary Thought: A
Study oj-its Development. Duke University Press.
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