Exit, Voice, and Capture
Why does the Nigerian business community tolerate policies that are damaging to their interests? Business guilds have a fair amount of political power in many countries. It makes sense that these large companies would use their political voice to combat regulations that hurt their profits, yet this is not typically the case. Some people suggest that the court system is to blame, as it can take years for cases to conclude, and companies may be shut down in the interim.
However, if a group of firms comes together in solidarity, it would be more difficult for one firm to be unfairly targeted. So why do firms hesitate to join together and dissent against bad policies?
Collective action problems
Atedo Peterside, a former investment banker, and influential businessman had expressed similar views on the business community in Nigeria after the shooting of protesters at the Lekki tollgate in 2020. He spoke out against banks that blocked customers’ accounts for participating in the protest, which he believes is illegal. Peterside is a vocal supporter of youth involvement in politics and voter education. Despite this, he is not convinced that companies can come together and positively influence the policy direction and business environment. At an event by EnterpriseNGR in October, he asserted the irrelevance of firms organising themselves against bad policies while responding to the keynote speaker Stefan Dercon. Here is what Dercon said for context;
“Nigeria is a looser in the gamble on development. You have amazing enterprising individuals and dynamic businesses but Nigeria will top the league of the most extreme poor people in the world and is in the company of Madagascar and Democratic Republic of Congo.
“When I observe Nigeria today I can only say that the state of Nigerian enterprises is really bad. The state of Nigerian economy is really not very good. But the financial sector can survive because of its resilience. But you know that Nigeria is being left behind compared to other countries. The policies are really bad but that is one element of it.…. don’t abdicate responsibility [as the people] who are actually creating wealth in this country and actually adding value [You] should not abdicate responsibility to actually playing that role as well.
I do think from what I have seen in other countries that it is the business community that will indicate the lever of change because there is no politics without the business community. If you look at other countries, it is actually the business community that begins to speak in a unified voice. The business community will play a very central role in the elite bargain around promoting development and ensuring that growing the economy is the central thing to do.”
Dercon was not saying something new or controversial here — but Mr. Peterside disagreed and I found his words interesting. Here is the relevant quote;
“You were talking as if you thought that there is hope in our business sector in terms of bringing about reforms. I totally disagree. I see no hope whatsoever. The hope that we have in this country comes from the youth. There are two reasons. One, I think that there is a strong element of Stockholm syndrome at work the business community to which I belong, which is when a prisoner begins to love those who imprisoned him. The business community competes to fall in love with the people in government who have destroyed their businesses and their clients. So there is no hope there. We can streamline on the youths who are far more in number and have less to lose because he who is down needs fear no fall’’
I like Atedo’s perspective, but I do question whether Stockholm Syndrome adequately explains the lack of action from the business world. A more reasonable explanation is that this is a collective action problem at play. In such cases, when a group of companies attempts to lobby for better policies, some members may take advantage of the situation and attempt to only receive the benefits without contributing to the costs.
This can lead to an equilibrium where firms have no desire to join forces and speak up unless there is a way for them to punish those who do not participate. Which then increases the incidence of state capture as individual companies compete to lobby for better policies for their private benefits.
Doing business, fast and slow
There is another reason I will speculate is responsible for the lack of political action from the business community. The cold harsh reality of doing business in a developing country. I got the idea from an interesting paper by Mary Hallward-Driemeier and Lant Pritchett from eight years ago. The basic gist is that in a developing country, businesses often rely on negotiating deals with regulators to quickly get things done, rather than adhering to formal rules.
This has led to a disparity between firms that are in close contact with the government and those that are not. As a result, companies that are able to act quickly may not be motivated to join forces with other businesses to push for change and better policies concerning the overall business environment.