The compelling case against government involvement in business

Business is an activity or activities that a man engages in for a living. It is an occupation, a trade or a profession one does for profit. Business in the real sense is more than a means of earning income; it is a way of satisfying customers’ needs efficiently. It is a form of risk-taking to generate profit. Business is a pool of risks. These features negate the motives of having a government in place. Government business should not be risky. Government’s roles include social, economic and environmental development of the people through efficient management of man-made and natural resources and the provision of basic infrastructure. The primary aim of any government is to provide an enabling environment for the people to live well through ensuring that there is adequate security, giving hope to the downtrodden and providing succour to the vulnerable (social investment). Government’s job is primarily the provision of welfare and security for the people irrespective of their party affiliation, religious beliefs or tribes, according to the 1999 Constitution of the Federal Republic of Nigeria in Chapter 2, Section 14, Sub-section 2b.

Historically, government’s involvement in business worldwide has mostly not been palatable as businesses are best done by private individuals or groups of individuals. There are various submissions in favour of government operating businesses called state-owned enterprises (SOE). Though some businesses require large initial capital to be successful; they should be embarked by the government jointly with experienced business men and women. Businesses like rail transport, large-scale farming, large-scale manufacturing, etc, require huge capital outlay that individuals and groups may not be able to undertake. Government has all it takes to source huge capital because government is a continuum but does not have that wherewithal to drive business to fruition.

Moribund government businesses like Cocoa Board of Western Nigeria, Nigeria Coal Corporation (NCC) based in Enugu, Eastern Nigeria, and government part divestment in NICON Noga Hilton Hotel, are examples of why the government should not run business. Most citizens see government business as no “man’s business” and mainly focus on how they will survive at the end of their tenure in the government business and not on how the business will thrive and become a unicorn. Some directors of NITEL who ruined the once enviable government telecommunication company with the tallest building in Nigeria, ended up setting up thriving telecommunication companies. Such government business organisations like Gateway Hotels in Abeokuta, Ijebu Ode and Sango Ota, Ogun State; Bendel Line, Nigeria Airways, Nigeria National Shipping Line, Bendel Breweries, Gateway Bank of Ogun State, Trade Bank of Kwara State, etc, could not survive because they belonged to government which main focus is social services.

Government decision-making process is laced with bureaucracy and may be cumbersome for commercial business survival! Nigeria National Petroleum Corporation (NNPC) is still surviving because it is not run like a business but a social service provider. It acts like a drain pipe for the wealth of the nation and does not favourably compare with privately run petroleum companies in terms of “capital application efficiency” or “return on investment”. National Insurance Corporation of Nigeria (NICON) is still alive today because it has been privatised as National Insurance Company Limited (a privately operated company). The business arm of NNPC is no longer part of the corporation but a limited liability company known as NNPC Limited. If the businesses floated by the government are mainly run by public servants without private investors’ contributions, they will run at a loss!

Businesses’ main goal is generation of profit and they only live to their corporate social responsibilities (CSR) and statutory responsibilities like tax payment, pollution control, production of quality goods, etc, because there is a government agency to control and penalise them if they do otherwise. Late Obafemi Awolowo invested in many companies under the Oodua Group of Companies (Odua Group) from the highly lucrative cocoa industry of the Western Nigeria government. Odua Group had three hotels. These are: International Airport Hotel, Ikeja, Lagos State; Premier Hotel, and Lafia Hotel all in Ibadan Oyo State. What are the states of these hotels apart from the International Airport Hotel in Lagos today? The Defence Industry Corporation of Nigeria (DICON) in Kaduna, is a waste because it was set up by the government and not because it was unviable.

Burton Folsom, a professor of history at Hillsdale College, Prager University, USA, wrote that “economic growth comes from entrepreneurs risking their own money, not from politicians risking your money,” in a January 21, 2019 article titled, “Why private investment works and government investment does not” published on Proshare.com. 

According Folsom, in 2011 a solar power company named Solyndra declared bankruptcy. “A company going bankrupt is not news. But Solyndra was not just any company. Its biggest “investor” was the federal government which had given it $500 million. That was news. But, really, it shouldn’t have been. If history is any guide, it was quite predictable. The government is a very poor investor. And always has been.”

There are countless examples of government investments that went ‘sour’, but two should serve our purpose here, professor Folsom reported. After the Civil War, American leaders were anxious to connect the country’s North, South, East, and West regions together with transcontinental railroads. Congress therefore gave massive federal aid to build the Union Pacific, the Central Pacific, and later the Northern Pacific Railroads. But all the three roads had huge financial problems. The Union Pacific, for example, was mired in financial scandal from its inception, went bankrupt several times, and had to rebuild large sections of track thanks to shoddy construction practices. At that same time, James J. Hill, a businessman, with no federal aid whatsoever, built a railroad – the Great Northern – from St. Paul to Seattle. The second story by Folsom is that of the aeroplane.

By the opening of the twentieth century, the major nations of Europe and America were frantically at work trying to invent a flying machine. The first nation to do so would have a huge military and commercial advantage. Great American politicians of the day and others argued that building an aeroplane was a national emergency. The government needed to pick the best aeronautics expert and fund him to achieve the laudable goal. That expert was Samuel Langley. Federal officials gave Langley funds for two trial flights. When his first attempt failed, and the plane splashed into the Potomac River, Langley was not deterred. But when his second flight failed, Langley and the politicians gave up. To everyone’s surprise, nine days after Langley’s failure, the Wright brothers, Orville and Wilbur, two bicycle mechanics from Dayton, Ohio, with $2,000 of their own money, produced an aircraft. On a beach at Kitty Hawk, North Carolina, they flew the first plane. Within five years they had constructed an aircraft that they sold to the government for military defence. Government is not set up to initiate and run businesses. Government should only do business by going into partnership with private investors who bear the risks.

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