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  1. 1. Understanding the Economy using Macro-Meso-Micro Analytical Framework, Development Programming and Machinery for Development Planning LECTURE 2
  2. 2. Introduction  This lecture will establish the analytical framework for understanding the workings of an economy from the macro level activities of Government to the meso or middle level and terminating at the micro level where consumers and producers operate.
  3. 3. Introduction  Economic management at the macro level deals principally with fiscal and monetary policies to stabilize the economy by restoring equilibrium after perturbations from booms and recessions.  This is done by managing economic activities to ensure reasonable GDP growth rates, ensuring acceptable money stock, affordable debt serving obligation, moderate inflation rates, manageably external and internal debt stock, pro-trade exchange rate and a business-friendly interest rate as well as effective custom and excise tariff regimes.
  4. 4. Introduction - Macro Economy  At this macro level, Government must maintain tax revenue profile to enable Government meet her obligations and reduce fiscal gap. Also, Government tries to maintain a favourable Balance of Payment (BOP) position for a superior risk indicator, export commodity concentration ratio, low import non-compressibility ratio and high credit rating.
  5. 5. Introduction - Macro Economy  Policies at the macro level further push for a low infant mortality, low morbidity, better health status, good population per doctor ratio, maintain good nutrition level as well as making sufficient food availability along with high adult literacy, primary and secondary school enrolment and low school drop out rate working policy desires.
  6. 6. Introduction - Macro Economy  The pursuant of these policy desires must be within the boundaries of safe environmental space. This balance of policy interactions occupy the attention of policy makers on a day-to-day basis at the Federal level.
  7. 7. Introduction - Macro Economy  At equilibrium, the right mix of policy variables will produce a desired level of economic variables to the satisfaction of everyone in the society. When the point is reached (the optimal point) the following hold:  “everybody gets the right types of goods and services he or she wants at the right prices, in the right quantities, at the right places and at the right time” and  “people at the right ages and with the requisite skill and from the right jobs in the right places, at the right times and on the right wages”
  8. 8. Introduction - Macro Economy  The stylised facts must hold for all levels of government, that is, at the federal, state and local government levels of governance.  The expectation is that when this happens, they impact favourably on the micro level of the economy; i.e household and producers.
  9. 9. Introduction - Micro Economy  The micro level of the economy harbours all the households that supply labour for work and capital through savings for investment.  It is also home to agricultural and non-agricultural firms from manufacturers producing units, service organisations and others that use factors of production, land, labour, capital and management skills to produce goods and services that household members (male, female, youth and children) consume and for the market.
  10. 10. Introduction - Micro Economy  Government policies initiated to stabilise the economy at the macro level must impact favourably on households and firms at the micro level. If not, there will be general discontent in the society; a sign of Government’s failure.  In a more elaborate sense, the household is at the core of this analysis of the micro economy. The household is considered as the members eating from the same “pot” and live together under an authority who is the Head and can be either a male or a female member.
  11. 11. Introduction - Micro Economy  Decisions on member activities and their consumption, acquisition, use and collation of assets are made within the household as well as being an important producing unit active in different firms as suppliers of labour and provider of funds for investment in agricultural and non- agricultural enterprises.  The Head of the household derives their incomes from different rural and urban-based formal and informal enterprises such as small, medium and large-scale firms activities, government employment, private formal and informal enterprises, self employment endeavours, and charitable bodies.
  12. 12. Introduction - Micro Economy  In general, it is expected that well informed policies at the macro level will impact positively on these enterprises from which households earn the incomes.  Operating between the macro and micro components of the economy is the middle economy (or meso economy) through which macro level policies transmit their effects on the micro economy.
  13. 13. Introduction - Meso Economy  The meso economy, comes in two forms; as infrastructure and markets and these serve as conducts for the macro policies.  There are three group of infrastructure, namely, economic, social and institutional. The functionality of all items of infrastructure is key to economic development.
  14. 14. Introduction - Meso Economy  Economic infrastructure consists of roads, railways, waterways and ports, Government facilities, electricity and irrigation systems.  Roads, railways, and waterways enable logistic support for the movement of persons and goods, communication facilities and interconnections.  Electricity provide energy and irrigation systems power all-year and expensive agricultural production.
  15. 15. Introduction - Meso Economy  In general, economic infrastructure promote enterprise and push the economic forward. Physical infrastructure promotes welfare and supports livelihood covering the provision of education, and health services as well as portable water for domestic and industrial use.
  16. 16. Introduction - Meso Economy  Social institutions, unlike economic infrastructure constitute wealth transferring mechanism which impact positively on the welfare of persons. Well functioning social infrastructural system ensures development and blissful life.
  17. 17. Introduction - Meso Economy  Institutional infrastructure comes with what organs of Government contribute to managing the economy. Ministries, Departments and Agencies (MDAs) including the security apparatus of Government including fire fighting facilities constitute institutional infrastructure.
  18. 18. Introduction - Meso Economy  The other leg of meso economy is the market which comes in three groups; product, factor and financial markets.  Markets could be official (formal) or parallel, black or unofficial (informal).  In Nigeria, most households trade in at least one of these markets as consumers or producers of products and as a supplier or users of factor services. It is through this meso economy that macro-level policies are transmitted to the Nigerian markets.
  19. 19. Introduction - Meso Economy  Product markets have exportable, importable and non- tradable products.  Exportation and importable make up tradable products.  Non-tradables are goods and services produced and distributed within the country in view of the high transport cost or productive tariffs.  Tradable goods and services are traded across borders. Cocoa, oil palm produce, rubber, cotton, rice, sugar, wheat and vegetable oils are all examples of agricultural exportables which are susceptible to changes in macro level exchange rate policies and trade policy changes.
  20. 20. Introduction - Meso Economy  Parallel (or black or informal) markets are illegal and thrives on illegal activities such as smuggling or illicit dealings. Such markets bestow rent on the participants and disrupt the market.
  21. 21. Introduction - Meso Economy  Factors of production have their markets too. Household members derive their income from selling their labour in the formal and informal markets. Changes at the macro level after the labour market.  During boom, when fiscal and monetary policies are expansionary, rural-urban migration is the other of the day and during recession, return migration occurs with consequences on rural labour supply. As rural labour is non-traded, factors such as fertilisers and agro-chemicals are tradable inputs in Nigeria.
  22. 22. Introduction - Meso Economy  A third market is the financial market where financial services are sold and bought. Financial markets respond to monetary policy changes and therefore affect house- hold and producers who use goods and services through changes in credit-availability and scarcity.  The informal financial market is large because the formal credit market through the banking system is restricted in the Nigerian agricultural space. The foreign exchange market is also restrictive to rural agriculture.
  23. 23. Introduction - Meso Economy  In summary, the adequacy of all items of infrastructure along with well-functioning markets are sine qua non for development. They constitute the enabling environment for socio-economic development.  They are the engine that drive an economy and have to be managed by any serious Government. The flow of interaction between the macro, meso and micro management of an economy in an abridged sense is shown in diagram 2.1. A more elaborate diagram of the system can be found in the book.
  24. 24. Introduction - The flow of Interaction Figure 2.1: The flow of Interaction between macro, micro and micro components of an economy. Micro Economy Monetary policy on money supply and financing, fiscal policy on taxes, trade, output, inflation and government expenditure and revenue Infrastructure economic, social and institutional Market output, input and financial Household persons and assets Firms Agricultural and non-agricultural
  25. 25. Introduction - Development Programming We close this lecture by discussing development programming and the machinery of Government.  Development programming in Nigeria is largely biased in favour of the Federal and State domain with no or very little attention to the Local Government, Political Ward and Community geographical and administrative space.  For inclusive development programming, all facets of the economy and people should be covered. This explains why deliberate efforts should be made for planners and policy makers, the political class and technocrats, to execute development programmes from the bottom-up.
  26. 26. Introduction - Development Programming  In fact, the conventional wisdom is that development from the grassroot should start from the Community to the Political Ward to Local Government Area to the State before being capped at the National level with the Household as the ultimate beneficiary as shown in concentric circle in Figure 2.2.
  27. 27. Introduction - Politico-Administrative Structure Household (Household Head) Community (Community Leader, Oba, etc.) Political Ward (Councillor) Local Government Area (Chairman) State (Governor) The Nation (President) Figure 2.2: Concentric Circle of the Politico-Administrative Structure of Nigeria
  28. 28. Introduction - Politico-Administrative Structure  The beauty of the concept is that each segment has a traditional/political caretaker who is responsible for championing development on behalf of the people.  We have:  The President for the nation;  The Governor for the state;  The Chairman for the Local Government Area;  The Councillor for the Political Ward;  The Community Leader for the Community who can be an Oba, Obi, Emir or any other depending on the area; and finally  The Household Head, who could either be a male or female.
  29. 29. Introduction - Politico-Administrative Structure  Any policy at the Nation, State or Local Government Council (LGC) level must impact positively on the household through the design and formulating of appropriate programmes.  This approach to development programming is the foundation on which the magnificent and massive superstructure of the state and the nation is built.
  30. 30. Introduction - Politico-Administrative Structure  This fact is recognised in the design of the politico- administrative structure of Nigeria in which we have the President, Governors, Local Government Chairpersons and Councillor as political caretakers who are being complimented by State House of Assembly members, House of Representative members and Senators with designated districts made out of political wards. All members of the political class, from councillors to the President come out of the political wards, communities and households.
  31. 31. Development Planning - Agglomerative Force Theory  The conceptual underpinning of this development programming is the Agglomerative Force Theory which advocates that the Political Ward should be developed into economically active centres by mobilising them to accommodate various types of private and public enterprises within each Local Government Area headquarters.
  32. 32. Development Planning - Agglomerative Force Theory  These economic activities should be supported to pursue social and economic goals for the maximisation of returns; both profits and peoples’ welfare.  The centres or headquarters of each domain will then be developed by an agglomerative force like a “glue” tantamount to an economic osmotic pressure to attract (pull) more and more activities that will promote socio- economic development.
  33. 33. Development Planning - Agglomerative Force Theory  Such phenomenon can be aided by governments’ establishment of functional economic, social and institutional infrastructural base in conjunction with private investment from residents and diaspora funds.  The development centres e.g. central location in wards or city or town or LGA headquarter will house the investments and public sector offices and primary schools and public health centres.
  34. 34. Development Planning - Agglomerative Force Theory  Outside the city centre, there will be residential houses for low income inhabitants and small to medium-sized small-scale industrial establishments. Post-primary schools and higher institutions can also be located outside these city centres with large establishments and high- income inhabitants in the outskirts of the city. This outskirts also harbor agricultural enterprises, farms and agro-processing plants.
  35. 35. Development Planning - Agglomerative Force Theory  A pictorial representation of the concept of the agglomerative force theory is depicted in figure 3. Centre for business activities Farms Public section offices/low income houses Centre of Political Ward/LGA Headquarter Manufactures businesses and high income houses
  36. 36. Development Planning - Agglomerative Force Theory  Using Nigeria as an example, the 8,822 Political Wards and/or 774 LGAs can serve as the pull centres with the potential of being developed into development points. Each point with its peculiar features and comparative advantage will provide impetus to contribute to the social development of the country.  All the foregoing can only happen with a well-organised and forward looking administrative machinery of Government under an ideal situation.
  37. 37. Ideal Administrative Machinery of Government for Growth and Development Planning
  38. 38. Role of Government in Growth and Development Planning  The basic role of Government is to solve societal problems and cater for the multifarious needs of the households/people. The role includes protection of life and property, regulations of individual and group behaviours, provision of services and leadership in socio- economic development.
  39. 39. Role of Government in Growth and Development Planning  The ability and resourcefulness in meeting the expectation of people is a measure of good governance of any administration and this reflects in the general standard of living of people, their welfare and prosperity of the nation.  A prosperous nation begets high welfare standard on her people and good living condition with enough to eat, shelter to live, clean water to drink, school and health facilities to attend, security of people, work to do, income to live on and a good environment.
  40. 40. Role of Government in Growth and Development Planning  This explains why Government is so important in everyone's life and regarded “as the most precious of human possessions”. Also, for Government to be effective in her pursuit of governance, she must be managed by an equally effective administrative machinery.
  41. 41. Role of Government in Growth and Development Planning  Such an effective machinery administrative support is an organised collection of selected persons who serve in the civil service and parastatals, we now collectively call Ministry, Department and Agencies (MDAs) which are manned by technocrats, now referred to as “Public Sector Managers” which includes civil servants and those in Departments and Agencies who are collectively called public servants plus those politically appointed and elected representatives.
  42. 42. Role of Government in Growth and Development Planning  The public sector managers initiate development programmes and execute them. Performing the role alone or allowing the private sector to do this or in collaboration with one another is a universal debating phenomenon.  But the conventional wisdom now is for the Government to let go public investments that the private sector can handle better, but provide workable infrastructure to make private investments more productive.
  43. 43. Role of Government in Growth and Development Planning  The private sector is presently the engine of growth, hence privatisation is the order of the day with many variations, namely, Build Operate and Transfer (BOT) and other public-private cooperative operations.  This is the future of economic management in Nigeria as the public sector has realised that for the sector to progress, the private sector is expected to be the “bigger partner with Government providing the needed services and infrastructure to keep the wheel of development moving.”
  44. 44. Role of Government in Growth and Development Planning  This is why the Federal Government is buying 20% investment in Dangote refinery to guaranty that Dangote crude oil provides the Nigerian fuel market petroleum products for all to enjoy.  The bottom line here is that economics management in general and agriculture development in particular, Government must stop participating in direct production, input supplies, product sales and input distribution and a host of other activities best undertaken by private sector operators.
  45. 45. Conclusion  In conclusion, public sector managers are expected to assist in creating an environment which will facilitate efforts at broadening the frontiers of socio-economic development through private sector.  In addition, they should be good managers by ensuring dedication, honesty, accountable, frugality, courteousness, love, openness, willingness to help and cooperation in the workplace and interactions with the public.
  46. 46. Conclusion  On the part of the system, efforts have to be made to make public servants happy by making sure that the following conditions hold:  Salaries and allowances are paid as an when due;  Work materials are available; and  Basic items of infrastructure in form of electricity, water and functional facilities and conveniences are available.
  47. 47. The End