Negative Scale

In economics, scale is implicitly assumed to be a good thing-when economists talk about “economies of scale” they refer to “factors that cause the average cost of producing a commodity to fall as output of the commodity rises” (Dictionary of Economics-The Economist) as the marginal cost of producing additional items falls. They may be talking about “internal economies” which accrue to firms due to technological factors such as large fixed plants and machinery, specialization, research and development or non-technological factors such as market power in procurement, inventory management or distribution; or “external economies”-ancillary services of benefit to all firms in an industry e.g. availability of skilled labour, infrastructure, supply chains, business associations or clusters etc. Scale economies are often presented as the explanation for predominance of large firms in contemporary global economies. However economists have also developed the concept of “diseconomies of scale”-the “increase in long –run average costs which may set in as the scale of production increases” (op cit.) due to differing optimum scale of different processes within a production process; problems of administration and coordination; and logistics and/or other costs which may offset scale economies of production at large production facilities. In short (and this is somewhat counter-intuitive but true), there can be too much of every good thing, even regarding economies of scale! Business and military strategists have similarly traditionally assumed that scale is always a good thing-the expectation being that the bigger firm will prevail in competitive markets or that the bigger army will defeat a smaller army. Both of these assumptions have been proven to be wrong with Clayton Christensen’s theory of disruptive innovation been an implicit acknowledgement of the ability of nimble innovative “disrupters” to change the industry’s power structure and the Vietnam war reminding strategists that a smaller, well-motivated and well-led army may deploy asymmetric strategies and defeat better-equipped and larger armies. The Bible of course records the epochal defeat of the Philistine giant soldier, Goliath by David! This article is however based not strictly on economics, business or strategy, but around my observations about a peculiarly Nigerian phenomenon which I have characterized as “negative scale”! In Nigeria, we do not solve problems or deal with difficult issues until they attain “negative scale”!!! Anyone familiar with the state of telecommunications services in Nigeria before 2001 will understand why telecommunications sector reform was by-and-large uncontroversial. For fifty years or more, we had a telecommunications monopoly that provided at the most 400,000 telephone lines for a country of 100 million people…yet we managed! We paid exorbitant amounts to secure those fixed NITEL lines and the “090” mobile phones of its mobile subsidiary MTEL, yet we adjusted; some of our people even carried Thuraya satellite phones (and felt they had by so doing elevated themselves above the rest of us) …yet we persevered! Then one day the NITEL exchanges started catching fire-Ikeja, Apapa, Lagos…etc. The matter had attained negative scale and we moved to solve the problem. Why did we have to wait until the power sector situation became completely untenable before we wrote the power sector policy in 2001; enacted the Electric Power Sector Reform Act four years later (!); and suspended its implementation till 2010 before President Jonathan launched the Power Sector Roadmap? Of course because the matter had to reach negative scale before a minimum consensus could be agreed on what to do about it! Why have we waited until public education and health services completely collapsed before we thought it was necessary to do something serious about it? Indeed some will argue that we are yet to react to the state of education and healthcare in Nigeria with the kind of emergency responses the situation really calls for-did we not notice when the pass rate in schools certificate exams fell to 70%... 65%... 60%... 55%... 50%... 45%... 40%... 35%... 30%....why did we wait until the situation had become completely equivalent to a failed education sector before we started responding? How come no one noticed when the poverty rate in Nigeria moved up from less than 30 percent to about 70 percent over a three decade period? How come until youth unemployment officially approached 40% did policy makers begin to talk about unemployment? Do we have to have an insurrection before our elite realize that current inequality and social exclusion is probably unsustainable? Why have we generally ignored the failures in infrastructure, security, healthcare, civil service, unemployment, poverty, policing, and other areas of national life until they reached “negative scale”? It is the way we have reacted to “Boko Haram” and “Fulani Herdsmen” that best illustrates the incapacity of the Nigerian political leadership and economic elite to forge consensus and take action on any matter, no matter how grievous until the matter attains catastrophic levels! The Nigerian government did not impose a state of emergency on the North-East epicenter of “Boko Haram” until the terrorists had killed over 4,000 people and crimes against humanity were officially proclaimed by the International Criminal Court. The opposition scarcely commented on “Boko Haram” during the first three years of the terror upsurge except to seek political advantage therefrom and even opposed imposition of emergency rule in the region. Until a few weeks back, the Nigerian government tried its best to ignore the curious and deadly phenomenon of so-called “herdsmen” who carried AK47s, committing ethnic cleansing and genocide as they killed people across the entire central Nigeria and beyond in 50s and 100s! Perhaps Nigeria itself is an example of “diseconomies of scale” or in my peculiar characterization, “negative scale”!!!