In a recent publication titled ‘Negative Scale’ in BusinessDay, Opeyemi Agbaje made a beautiful presentation on the concept of scale by which economists generally refer to the relationship between the size of a firm or an operation and its cost/efficiency of production.
In layman’s language, a firm enjoys positive economies of scale when, as the firm expands its production capacity by adding labor, capital and/or other factors, its firm’s average cost of production decreases. This basically means that the-bigger-the-better. The flip side, decreasing returns to scale, explains a situation where a firm attracts increasing cost of production (and reduction in production efficiency) as its scale of operations increases; this, basically speaks to a situation of the-bigger-the-worse.
Opeyemi’s writing stretched the economic concept of decreasing economies of scale to explain what he poignantly labeled “negative scale” in Nigeria, wherein we do not solve problems or deal with difficult issues until they attain “negative scale”. He had as incontrovertible example, the state of telecommunications services in Nigeria which got so bad before 2001. Added to the telecom example is the power situation, education and health services and, recently, the menace of Boko Haram. Things have to get to pathetic levels in order to warrant serious government attention.
I wish to add to Agbaje’s concept a somewhat different perspective wherein an otherwise efficient public institution is increasingly saddled with additional responsibilities until it becomes unwieldy, inefficient, and unable to even carry out its initial functions. One example unfolding at the moment is the plan of the Federal Government to further burden the Revenue Mobilization Allocation and Fiscal Commission (RMAFC) with the functions of the Fiscal Responsibility Commission (FRC) which it (the Federal Government) intends to scrap.
Working on the recommendations of the Orosanye Committee set up by the Federal Government in 2011 to study the overlapping functions of federal parastatals and advise it on how to realign such parastatals, a recently-released government White Paper accepted to scrap the FRC and transfer its functions to the RMAFC.
The implementation of this advice risks creating diseconomies of scale or negative scale (a la Agbaje). RMAFC’s original responsibilities, as contained in the third schedule to the 1999 Federal Republic of Nigeria Constitution (as amended) are listed as: (a) monitor the accruals to and disbursement of revenue from the Federation Account; (b) review, from time to time, the revenue allocation formulae and principles in operation to ensure conformity with changing realities…; (c) advise the Federal and State Governments on fiscal efficiency and methods by which their revenue can be increased; (d) determine the remuneration appropriate for political office holders, including the President, Vice-President, Governors, Deputy Governors, Ministers, Commissioners, Special Advisers, Legislators and the holders of the offices mentioned in sections 84 and 124 of this Constitution; and (e) discharge such other functions as are conferred on the Commission by this Constitution or any Act of the National Assembly.
Hitherto, RMAFC has been known for managing the distribution of revenue from the Federation Account in line with the Revenue Allocation Formula and advising governments at all tiers on appropriate remunerations for political office holders.
To further saddle upon RMAFC with the responsibility of supervising, planning, preparing, executing, monitoring and evaluating the Medium Term Expenditure Framework, the Federal Budget, borrowing and debt management, etc. may be way too much for the Commission to bear.
Opeyemi’s article attributed decreasing returns to scale to, among other things, problems of administration and coordination. This is one problem that an unwieldy RMAFC will have. The tendency is that an increase in functions will lead to a fall in efficiency – a classic case of negative economies of scale.
As Opeyemi wittily captures it, there is such a thing as too-much-of-a-good-thing! He posits that the traditional assumption that scale is always a good thing has been proven wrong with Clayton Christensen’s theory of disruptive innovation.
He also points to the key lesson of the Vietnam War to the effect that a smaller, well-motivated and well-led army may deploy asymmetric strategies to defeat better-equipped and larger armies. He also lent credence to his small-could-be-better postulation by drawing on the illustration of David vs Goliath.
The Federal Government has a lesson or two to learn here. For starters, it is wishful thinking to expect the RMAFC to operationalize the spirit, if not the letter, of the Fiscal Responsibility Act (FRA) 2007 with better efficiency and lower cost than a nimble and razor-focused FRC. FRC is clearly a David when it comes to the war against arbitrariness in fiscal management. A purpose-built lean-and-mean machine, it stands a better chance of getting better results than a RMAFC which original assignments center on the flamboyant tasks of sharing the national cake.
The FRA 2007 and the FRC which it brought to being are results of over half a decade of tireless advocacies, studies and legislative work. They represent enormous progress towards transparency, accountability and rule-based management in the nation’s fiscal topography. The promulgation was celebrated by best-practice organizations and friends of Nigeria in the expectation that the nation’s fiscal practices would no longer be left to the intentions and timetables of political leaders, however well-intentioned. It was hoped that with the advent of the FRA 2007 and the FRC, every authority in the nation’s fiscal space would be guided by the organic budget law which does not change yearly with each budget cycle.
The fact that in recent times, the National Assembly has severally used provisions of the FRA 2007 to seek to steer the executive arm towards certain directions regarding macroeconomic management is indicative of the poignancy of the FRA and the momentum which its implementation by the FRC has gathered. To seek to slow the momentum cannot be said to be in the interest of accountability, transparency and orderliness which it promotes.
It took the FRC five years to achieve this level of momentum and, in the event of the implementation of the Orasonye Committee recommendation concerning the FRC, there’s no gainsaying that it will take RMAFC as much or even longer time to come close to FRC’s current momentum. That’s too much rigmarole for a nation that truly wants to leverage the benefits of its recent epiphanic position as the largest economy in Africa.
