How should we define the role of policymakers in improving the efficiency of the economy’s primary participants? Here are lessons form the first time business had a definitive say in politics.
Recently, a journalist friend of mine obtained an internal memo sent by one of the new-generation banks to their staff, ordering them not to engage in politics in any form, or donate to political parties. Jude Feranmi, until recently, the national youth leader of KOWA, was forced out of his job at a blue chip firm, because of his involvement in politics, an involvement which did not affect his work output in anyway.
Events over the last three years have shown that approach to be not only short-sighted, but actually suicidal as discussions about the appropriate role of the government in the economy have begun to dominate the business community.
It is worth reflecting on some of the lessons we can glean from the first time in history when an emerging economic class decided that it was in their pecuniary interests to have an active say in the political direction of their country. It all began with a political and religious crisis in 17th Century England.
During his four-year reign, King James II became directly involved in the political battles between the concept of the divine right of kings and the political rights of the Parliament. James’s greatest political problem was his Catholicism, which set him against the two dominant political parties in England. At the time, religion was a polarising issue because of the Protestant Reformation which had divided Europe between the rich Catholic monarchies of France and Spain, and the ascendant Protestant economies of England, the Dutch Provinces and Sweden. France was the pre-eminent military power but had been unsuccessful in subjugating the Dutch, the commercial superpower of the time.
English merchants, who were on the side of the Dutch, feared a military alliance between the Catholic monarchs of England and France, but as long as James did not have a son, his daughter, Mary, a protestant, was next in line to the throne. Mary’s husband was her cousin William Henry, the Dutch prince of Oranje. Then in 1688, King James II had a son.
In late 1688, a group of English elites invited William and Mary to invade England. They did so and deposed James II in a relatively bloodless coup, the Glorious Revolution.
One crucial key to the Glorious Revolution, was that the sponsors were influential London merchants who were displeased with the economic policies of James II, such as consistently increasing taxes; frequent and arbitrary seizures of private property; as well as frequent arrests of dissenters including professors at Oxford; his inability to deal with England’s chronic currency crisis; and England’s rising import bill. These merchants hoped that William would bring his successful economic policies to save a wobbling England.
William’s accession to the throne shifted English allegiances from France to the Netherlands and led to an influx of Dutch merchants and financiers. Dutch businessmen brought knowledge of Dutch financial institutions and helped reorient the world’s financial levers away from Amsterdam, then the global centre of financial innovation to London – a pre-eminence which it has not relinquished since. Among Dutch innovations in public finance was the systematic dedication of revenues to the service and amortisation of the public debt. Before 1688, the English borrowed very little and financed wars and large public works simply by increasing taxes – a distinctly unpopular choice. The London Exchange was founded around this time, the predecessor of the present London Stock Exchange. Finally, William III in 1694 issued a series of royal proclamations that laid the ground for the institution of paper money. In 1694, the Bank of England was formed, modelled after the Dutch Wisselbank, and laid the foundations of modern central banking.
In addition, after 1688, a representative institution, Parliament, replaced the more unilateral ‘monarch and council’ as the decision-making body that regulated the English economy. Over the next century, and before the Industrial Revolution, the English economy grew by about 200 per cent at a time when the national population grew by less than 60 per cent. The supremacy of Parliament within the English constitution provided a platform for new merchant interest groups to assert their interests; to protect markets via regulation; to assist infrastructure projects and to deregulate trades allowing for the accumulation of capital for investment in industrial manufacturing.
So, what can we as a struggling middle-income economy, much like pre-Glorious Revolution England learn from this?
I’m not suggesting that our businessmen invite Bill Gates to rule Nigeria. No. To my mind though, big business should become more involved in politics and should sponsor candidates who understand, and can build a state administration which can sustain a sound monetary system and secure private property, an important precondition of rapid economic growth. Just sitting on the sidelines and talking about the importance of property rights, rigorous fiscal management, etc without examining the underlying political architecture that will manage these reforms is insufficient. Businesses create jobs. Arbitrary government kills jobs.