Nigeria and Policy-Maker’s Dilemma

In Nigeria, as across much of the developing world, policymakers are facing pressure to change economic and social models in order to address a range of emerging challenges such as inequality, slowing growth, fiscal imbalances, and environmental pressures.

Changes need to be made to the prevailing policy approaches to ensure that policy setting are appropriate to a new context, and so that policymakers can continue to deliver the desired outcomes.

And over the next few decades, policymakers will need to respond to the substantial, disruptive changes that are likely across the world, from the changes in demographic structure to the socioeconomic crisis.

A modified version of the policy status quo is unlikely to be sufficient to address many of these challenges. The better analogy would be periods of more significant policy change, such as in the 1970s, mid-80s/90s, and the last 10 years, in response to major new economic and social challenges that emerged across the world, and of course, Nigeria.
And yet there has been fairly little policy change to date.

This is broadly true in Nigeria, where there has been the inconsistency of policy direction, as it is elsewhere across most developing countries. Although there is awareness among policymakers that Nigeria, and indeed the world is changing, it is difficult to identify major structural policy changes. Rather, there seems to be a common view that an improved version of an existing current policy approach is all that all is required to respond satisfactorily.

So, what explains this apparent policy lethargy in Nigeria? One part of the answer is our policymakers’ risk aversion. Almost by definition, policy change is costly and uncertain. Alternative approaches are uncertain and unproven, and the politics of major change can be challenging. Hence, there is a clear incentive for our policymakers to delay making a change: waiting may either resolve some of the challenges or make the need to respond more pressing and obvious.

This is particularly the case in Nigeria today. We are undoubtedly a flailed country. Our policymakers have become accustomed to a particular policy approach working very well, and have an expectation that this will continue. So, when economic and social outcomes worsen relative to historical standards of performance, they tend to stick with the status quo while the policy approach is still working tolerably well. A new approach will often not seem warranted – at least not yet.

The choice between ‘kicking the can down the road’ (or making tactical adjustments to the current approach) and making a structural change to the strategic direction is a difficult one. I call the challenge of determining how seriously – and when – to respond to a challenge ‘the policy-makers dilemma’, because of the similarities with the famous innovator’s dilemma in the private sector.

The late Harvard academic Clayton Christensen developed this concept of ‘the policy-makers dilemma’ after observing the tendency for established incumbent firms to ignore disruptive innovations because they were not seen as important enough to require a change to the established business model. Firms were more responsive to existing ways of doing things and not sensitive enough to disruptive innovations. They were often aware of the change, but it was not seen as worthwhile to respond. The dilemma is the extent to which the firm incurs costs, and moves away from a successful model, to respond to this disruption.

The difficulty in responding is why market leaders are commonly overtaken by new dynamics. By the time that the competitive threat becomes large enough to get the full attention of the firm, it may be too late. Challenger firms (think GT Bank, Flutterwave) may have become the dominant player before the incumbents think it sufficiently important to respond.

Ironically, perhaps, it is the more successful firms that are more likely to act in this way. Well-performing firms can be held captive by the success of their existing approaches and there is understandable reluctance to move away from a model that is still working tolerably well. Indeed, Christensen argues that it is exactly the successful, well-managed firms that may be at most risk of failing to respond to disruption. Management practices and capabilities that enable them to succeed in mainstream markets are also those that make it more likely that they don’t respond well to disruptive innovation. The things that have made them successful may make failure more likely.

Of course, Nigeria is not a business, so won’t go out bankrupt in the way that corporate entities do. But a failure of governments or policymakers to respond to structural changes in their operating environment can lead to compromised outcomes. Economic history over the past decades is full of examples of how the country’s performance deteriorated substantially (for example, she was once one of the most promising countries in Africa, and indeed the world). This can be because successive governments (administrations) continue with a policy approach that is no longer appropriate for a changing environment.

The Nigerian state seems to find it difficult to make the strategic policy choices to respond to the emerging disruptions, in a similar way as the firms that Christensen documents. This is sometimes because the alternatives are not yet clear, or because our elected politicians/policymakers kept using a short-term decision-making horizon. And sometimes it may be because there is not sufficient social consensus (or low trust in politicians) to allow policy-makers to make the change.

But the observed apathy in responding to disruptive change is also due to the nature of the decision-making process within the Nigerian government. So, what are the things that can be done to strengthen the capacity of government at all levels – federal, state, and local – to address the policy-makers dilemma? I would suggest three things:

First, investments should be made to respond to the changing world and the strategic challenges and opportunities that would be presented. This understanding would allow policymakers to better judge when structural change is required as opposed to a tactical response and avoid having tensions accumulate into a crisis.

For example, dealing with declining competitiveness and ease of doing business directly through measures to improve productivity is preferable to short-term measures such as a loose fiscal policy that can create more problems than they resolve.
Second, conversations about change should be informed by rich data so that there is a shared understanding of the outcomes that are being generated – and how they compare with historical outcomes, and with other countries. And the policy conversations should also be informed by how other, similar our peers are responding to these dynamics.

Given the extent of uncertainty, it is important to understand how other countries are interpreting the change and responding. Context matters, and there is no template for success, but Nigeria can learn from its peers. These country observations will make the debate about the need for change more concrete and real.

And third, there need to be institutions and cultures that are comfortable with challenging the status quo. Dogmatic attachment to the existing policy approach needs to be confronted. Nigeria presently has an institutional culture that discourages contrarian views, as such, a major factor in explaining why and how warning signs are missed. And these behaviors are seen at all levels of government – federal, state, and local.

To address this, it is important to encourage strong debate, constant testing of existing approaches, and investing in a pipeline of new ideas. This can be achieved through dedicated units or teams that have a mandate to constructively challenge the orthodoxy and develop policy alternatives – and who are less attached to the current approach than the mainstream government agencies.

In a period of disruptive change across developing countries like ours, the Government of Nigeria needs to strengthen its strategic capacity to enable it to respond to the policy-makers dilemma. In essence, developing the capacity to detect weak signals of emerging change is important, that way, the country’s policymakers can better judge when and how to respond.

This way, the policymaker’s dilemma can be recognized and deliberately addressed.