The firms are, without a doubt, the powerhouses of prosperity. As the centre core for the creation of output, it provides wage income for members of the household. Through commercial exchanges and economic interconnectedness, they create other income-making opportunities for many business units. It also gives the government the fiscal power to carry out obligations and mandates. The most intriguing aspect of the firm is its entrepreneurial role in the organization of factor resources for production and profit-making. Firms comprise one person or more extensive systems of entrepreneurs burdened with effectively allocating the factors of production in such a way as to produce competitively. Allocative efficiency of factor resources is usually rewarded with a profit or penalized with losses. This allocative role is where the firm plays its most strategic position in prosperity creation. By seeking and obtaining resources for deployment in production, the firm sets in motion a chain of commercially viable exchanges between the buyers and sellers of those resources. That triggers a system which implicitly perpetuates the prosperity engineering process. Individual wage earners and investors who commit their resources in the process as well as the government benefits. The community benefits as well.
Therefore, through the lucrative performance of firms, the macroeconomic goals of the country are achieved. Two of those goals are quite distinct. The first is the growth rate of production. The gross domestic product, GDP, is unarguably the most widely tracked indicator of economic progress for any country. It grosses the total value of the output of the country. Although most economic activities take place at the level of individuals, nevertheless the totality of production value by the firms are always higher. This magnitude of firm value is particularly true when both formal and informally operating business units are in consideration. And typical of its structuring, firms engage lots of human resources to coordinate its production effectively. Human resources are typically required to activate and coordinate every other factor of production. That way, the firm demonstrates unequal capacity in facilitating the achievement of the macroeconomic goal of employment. The less the number of firms in a country, the more of a consumer economy that country will be. In effect, therefore facilitating the growth of many firms invariably makes the country produce more as well as have the capacity to consume more. Many African countries such as Nigeria live-off one of their critical natural resource endowments and deploy the revenue realized from it in subsidizing massive consumption rather than production. Government revenue is also largely derivable from the taxes that firms pay. Therefore, firms invariably sustain the fiscal life of the government. The higher the number of firms that are performing profitably well, the larger the potential size of governments’ realizable revenue. All things being equal, that also means the better the quality of government intervention in the provision of good governance and the rule of law.
Facilitating a highly clement environment for firm growth is perhaps the most feasible way of attracting foreign direct and portfolio investments. The elevated level of governance risks in Africa adversely affects the inflow of these direct investments. Insecurity, inadequate private property rights protection, government official corruption, and inconsistent policy implementation all contribute to a highly uncertain environment for businesses that cancel off much of the incentives for private investment inflows into the continent. Inadequate public goods provisioning, which heightens the costs of production, is also a significant hindrance. Recognizing by necessary policy action that speedy growth of firms equally means the rapid decline in unemployment and the upward growth of per capita income is primary for those who man the statecraft in Africa. By referencing the market and in turn, strengthening the market in its factor resource allocation, firms play a critical role in entrepreneurial prosperity creation. Entrepreneurial rivalry and the prosperity that rides on the back of it become possible through the market system. The healthier the market environment and the policies that support it, the greater the output, the employment, the income and possibly the overall socio-economic welfare of the citizens. Thes pluses are all due to the organizational agility of the firm, which benchmarks the market demand and supply conditions in acquiring and allocating factors of production. It also references the rivalry in the market in pushing its supplies when produced. In effect, the firms stand in the centre of the market, which is the heart of entrepreneurial prosperity.
Strong pro-market policies and programs are critical for the survival and growth of firms in any economy. By implication, they are essential to sustained inflows of foreign private investments and economic growth. Prosperity effectively rides on the back of productivity. Pro-market policies enhance efficient production. Firms can access inputs at competitive prices and can, therefore produce and sell at competitive prices. By fostering price advantages, pro-market policies strengthen the export of locally produced goods which further supports prosperity. Every unit increase in the capacity of firms to produce, all things being equal, results in corresponding improvements in the financial prospects that are open to the government. The more the firms that are operating profitably, the greater the collectable taxes by the government. That also further enables the government to play its roles more effectively.
The national income equation and the circular flow of the economy amply demonstrate the centrality of firms in national economic life. In the national income equation, firms represent the investment factor. Combined with the circular flow model, firms’ productive role in the generation of income used by the private and public consumption units is clarified. Taken together, it is undeniable that the country’s prosperity growth depends on how well the firms within it are doing. If they are in abundance, with approximately 80% of them being profitable, then it can easily be concluded that the quality of life in such a country will be relatively high given an equally high condition of the rule of law. But there is an area where the role of firms in the country’s prosperity equation is least emphasized. It is in the part that it plays in holding governments accountable. There are at least five diverse ways in which firms exercise this incredibly important economic responsibility. The first is through its civic and pressure group responsibility. Firms also by so doing sometimes influence political positions as well as affect specific standards in government operation. Thirdly, because of their more pronounced practice experience, they play better roles in both fashioning and suggesting the rules for competition as well as general industry regulations. Finally, because of their criticality in a country’s socio-economic success, they are in the centre of a country’s international economic diplomacy.
Trade unions are collections of economic agents that are working together to achieve better conditions for the activities. It can be at the level of human resource factors within an organization. But it could as well be at the level of enterprises such as the Association of Stockbrokers, or the Union of Cobblers. Such enterprises deploy every means possible to get the government to fashion policies that are healthy for their long-run profitable growth. Often, they are better able to spot flaws in government policy prescriptions that may even have adverse consequences for their operations in the unforeseen future. Being made up of astute entrepreneurs, they have a better knack for scenario analysis and can puncture government programs that do not currently or prospectively work in their favour. These activities imply that they help to put the government indirectly in check.
Some even go to the extent of influencing political outcomes. Though this may be frowned at, it nevertheless happens. Some firms go as far as furtively funding the political campaigns of candidates that they believe will be more favourable to the economic existence. Political candidates recognize this fact and try to carry them along. Even where there is no outright funding, trade unions with considerable numerical strength can also politically arm-twist government officials to enact favourable programs and policies. That way, business organizations successfully influence the standards in government operations. This is even more amplified because firms appear to be by far more efficient than the government. Forward-looking governments, therefore, sometimes leverage the knowledge and experiences of the more efficient firms in the design of the standards for the operations. For instance, in the first decade of the existence of the Nigerian Economic Summit Group, much of the goals of the summit appear to revolve around helping government officials to interact with and understand how to be efficient such that they could also create conditions that would enable private businesses to be more efficient as well.
While it is possible to adapt and contextualize industry competition laws and regulations from other countries, active players within the industry in question usually provide better insights into the tweaking and adaptation of such competition rules. In some instances, industry players have completely developed standards for competition and fairness, which the governments’ regulating agency reviews with minor modifications. Consequently, by influencing the laws that govern competition in the industry, firms somehow handhold the government. Consider two examples in the Nigerian banking industry where Lamido Sanusi, the former chief executive of First Bank and the former chief executive officer of Zenith bank, became governors of the central bank of Nigeria. Of course, high wire politics must have been behind banks indirectly taking charge of the leadership of the regulatory mechanism for their industry. Again, most diplomatic efforts by countries are geared towards the defence of their firms. The government wants to facilitate firms’ access to more funds and investments and consequently embark on a series of discussions at multilateral and bilateral levels. Such diplomatic engagements also occur to enable the ease of exports of a firm’s goods and services. Because the welfare of the firm is also at the very centre of diplomatic exercises, it indirectly influences governance.
Given the extraordinary importance of facilitating firm profitability performance, on the overall prosperity of the country, governments of Africa have at least four crucial incentives to provide for the good of the firms. The first is heightened provision of public goods, particularly those critical infrastructures such as electricity and roads that support high business performance. Others include favourable tax incentives, the enactment, and the implementation of robust pro-market policies as well as the effective promotion of the rule of law. The future of African businesses remains very bright if these four factors are given adequate attention. The reverse remains the case. However, firms in Africa need to go beyond production and profitable growth. They have a vital role to play in strengthening governance structures and the performance of governments in Africa. Much of Africa’s challenges, which adversely affect firm performance, are attributable to defective governance architecture. As already mentioned, business enterprises on the continent can better organize and lead in ways that will continuously put persons manning the statecraft under moderate pressure to work the rope of good governance.
Frontpage October 14, 2019