LECTURE 2

Understanding the Economy using Macro-Meso-Micro Analytical

Framework, Development Programming and Machinery for
Development Planning
Introduction

 This lecture will establish the analytical

framework for understanding the workings of an
economy from the macro level activities of
Government to the meso or middle level and
terminating at the micro level where consumers
and producers operate.
Introduction
 Economic management at the macro level deals
principally with fiscal and monetary policies to stabilize
the economy by restoring equilibrium after perturbations
from booms and recessions.
 This is done by managing economic activities to ensure
reasonable GDP growth rates, ensuring acceptable
money stock, affordable debt serving obligation,
moderate inflation rates, manageably external and
internal debt stock, pro-trade exchange rate and a
business-friendly interest rate as well as effective custom
and excise tariff regimes.
Introduction - Macro Economy

 At this macro level, Government must maintain tax

revenue profile to enable Government meet her
obligations and reduce fiscal gap. Also, Government tries
to maintain a favourable Balance of Payment (BOP)
position for a superior risk indicator, export commodity
concentration ratio, low import non-compressibility ratio
and high credit rating.
Introduction - Macro Economy

 Policies at the macro level further push for a low infant

mortality, low morbidity, better health status, good
population per doctor ratio, maintain good nutrition level
as well as making sufficient food availability along with
high adult literacy, primary and secondary school
enrolment and low school drop out rate working policy
desires.
Introduction - Macro Economy

 The pursuant of these policy desires must be within the

boundaries of safe environmental space. This balance of
policy interactions occupy the attention of policy makers
on a day-to-day basis at the Federal level.
Introduction - Macro Economy

 At equilibrium, the right mix of policy variables will

produce a desired level of economic variables to the
satisfaction of everyone in the society. When the point is
reached (the optimal point) the following hold:
 “everybody gets the right types of goods and services he or
she wants at the right prices, in the right quantities, at the
right places and at the right time” and
 “people at the right ages and with the requisite skill and
from the right jobs in the right places, at the right times and
on the right wages”
Introduction - Macro Economy

 The stylised facts must hold for all levels of government,

that is, at the federal, state and local government levels of
governance.

 The expectation is that when this happens, they impact

favourably on the micro level of the economy; i.e
household and producers.
Introduction - Micro Economy

 The micro level of the economy harbours all the

households that supply labour for work and capital
through savings for investment.
 It is also home to agricultural and non-agricultural firms
from manufacturers producing units, service
organisations and others that use factors of production,
land, labour, capital and management skills to produce
goods and services that household members (male,
female, youth and children) consume and for the market.
Introduction - Micro Economy

 Government policies initiated to stabilise the economy at

the macro level must impact favourably on households
and firms at the micro level. If not, there will be general
discontent in the society; a sign of Government’s failure.
 In a more elaborate sense, the household is at the core of
this analysis of the micro economy. The household is
considered as the members eating from the same “pot”
and live together under an authority who is the Head and
can be either a male or a female member.
Introduction - Micro Economy
 Decisions on member activities and their consumption,
acquisition, use and collation of assets are made within
the household as well as being an important producing
unit active in different firms as suppliers of labour and
provider of funds for investment in agricultural and non-
agricultural enterprises.
 The Head of the household derives their incomes from
different rural and urban-based formal and informal
enterprises such as small, medium and large-scale firms
activities, government employment, private formal and
informal enterprises, self employment endeavours, and
charitable bodies.
Introduction - Micro Economy

 In general, it is expected that well informed policies at the

macro level will impact positively on these enterprises
from which households earn the incomes.

 Operating between the macro and micro components of

the economy is the middle economy (or meso economy)
through which macro level policies transmit their effects
on the micro economy.
Introduction - Meso Economy

 The meso economy, comes in two forms; as

infrastructure and markets and these serve as conducts for
the macro policies.

 There are three group of infrastructure, namely, economic,

social and institutional. The functionality of all items of
infrastructure is key to economic development.
Introduction - Meso Economy

 Economic infrastructure consists of roads, railways,

waterways and ports, Government facilities, electricity
and irrigation systems.
 Roads, railways, and waterways enable logistic support
for the movement of persons and goods, communication
facilities and interconnections.

 Electricity provide energy and irrigation systems power

all-year and expensive agricultural production.
Introduction - Meso Economy

 In general, economic infrastructure promote enterprise

and push the economic forward. Physical infrastructure
promotes welfare and supports livelihood covering the
provision of education, and health services as well as
portable water for domestic and industrial use.
Introduction - Meso Economy

 Social institutions, unlike economic infrastructure

constitute wealth transferring mechanism which impact
positively on the welfare of persons. Well functioning
social infrastructural system ensures development and
blissful life.
Introduction - Meso Economy

 Institutional infrastructure comes with what organs of

Government contribute to managing the economy.
Ministries, Departments and Agencies (MDAs) including
the security apparatus of Government including fire
fighting facilities constitute institutional infrastructure.
Introduction - Meso Economy
 The other leg of meso economy is the market which
comes in three groups; product, factor and financial
markets.
 Markets could be official (formal) or parallel, black or
unofficial (informal).
 In Nigeria, most households trade in at least one of these
markets as consumers or producers of products and as a
supplier or users of factor services. It is through this
meso economy that macro-level policies are transmitted
to the Nigerian markets.
Introduction - Meso Economy
 Product markets have exportable, importable and non-
tradable products.
 Exportation and importable make up tradable products.
 Non-tradables are goods and services produced and
distributed within the country in view of the high
transport cost or productive tariffs.
 Tradable goods and services are traded across borders.
Cocoa, oil palm produce, rubber, cotton, rice, sugar,
wheat and vegetable oils are all examples of agricultural
exportables which are susceptible to changes in macro
level exchange rate policies and trade policy changes.
Introduction - Meso Economy

 Parallel (or black or informal) markets are illegal and

thrives on illegal activities such as smuggling or illicit
dealings. Such markets bestow rent on the participants
and disrupt the market.
Introduction - Meso Economy
 Factors of production have their markets too. Household
members derive their income from selling their labour in
the formal and informal markets. Changes at the macro
level after the labour market.
 During boom, when fiscal and monetary policies are
expansionary, rural-urban migration is the other of the
day and during recession, return migration occurs with
consequences on rural labour supply. As rural labour is
non-traded, factors such as fertilisers and agro-chemicals
are tradable inputs in Nigeria.
Introduction - Meso Economy
 A third market is the financial market where financial
services are sold and bought. Financial markets respond
to monetary policy changes and therefore affect house-
hold and producers who use goods and services through
changes in credit-availability and scarcity.
 The informal financial market is large because the formal
credit market through the banking system is restricted in
the Nigerian agricultural space. The foreign exchange
market is also restrictive to rural agriculture.
Introduction - Meso Economy
 In summary, the adequacy of all items of infrastructure
along with well-functioning markets are sine qua non for
development. They constitute the enabling environment
for socio-economic development.
 They are the engine that drive an economy and have to
be managed by any serious Government. The flow of
interaction between the macro, meso and micro
management of an economy in an abridged sense is
shown in diagram 2.1. A more elaborate diagram of the
system can be found in the book.
 Introduction - The flow of Interaction
Figure 2.1: The flow of Interaction between macro, micro and micro
components of an economy.

Micro Economy
Monetary policy on money supply
and financing, fiscal policy on taxes,
trade, output, inflation and
government expenditure and revenue

Infrastructure Market
economic, social output, input and
and institutional financial

Household Firms
persons and assets Agricultural and non-agricultural
Introduction - Development Programming
We close this lecture by discussing development programming and the
machinery of Government.

 Development programming in Nigeria is largely biased in favour of

the Federal and State domain with no or very little attention to the
Local Government, Political Ward and Community geographical and
administrative space.
 For inclusive development programming, all facets of the economy
and people should be covered. This explains why deliberate efforts
should be made for planners and policy makers, the political class and
technocrats, to execute development programmes from the bottom-up.
Introduction - Development Programming

 In fact, the conventional wisdom is that development

from the grassroot should start from the Community to
the Political Ward to Local Government Area to the State
before being capped at the National level with the
Household as the ultimate beneficiary as shown in
concentric circle in Figure 2.2.
Introduction - Politico-Administrative Structure
Figure 2.2: Concentric Circle of the Politico-Administrative Structure of Nigeria

The Nation (President)

State (Governor)
Local Government Area (Chairman)
Political Ward (Councillor)

Community (Community Leader, Oba, etc.)

Household (Household Head)

Introduction - Politico-Administrative Structure
 The beauty of the concept is that each segment has a
traditional/political caretaker who is responsible for
championing development on behalf of the people.
 We have:
 The President for the nation;
 The Governor for the state;
 The Chairman for the Local Government Area;
 The Councillor for the Political Ward;
 The Community Leader for the Community who can be an
Oba, Obi, Emir or any other depending on the area; and
finally
 The Household Head, who could either be a male or
female.
Introduction - Politico-Administrative Structure

 Any policy at the Nation, State or Local Government

Council (LGC) level must impact positively on the
household through the design and formulating of
appropriate programmes.
 This approach to development programming is the
foundation on which the magnificent and massive
superstructure of the state and the nation is built.
Introduction - Politico-Administrative Structure
 This fact is recognised in the design of the politico-
administrative structure of Nigeria in which we have the
President, Governors, Local Government Chairpersons
and Councillor as political caretakers who are being
complimented by State House of Assembly members,
House of Representative members and Senators with
designated districts made out of political wards. All
members of the political class, from councillors to the
President come out of the political wards, communities
and households.
Development Planning - Agglomerative Force Theory

 The conceptual underpinning of this development

programming is the Agglomerative Force Theory which
advocates that the Political Ward should be developed
into economically active centres by mobilising them to
accommodate various types of private and public
enterprises within each Local Government Area
headquarters.
Development Planning - Agglomerative Force Theory

 These economic activities should be supported to pursue

social and economic goals for the maximisation of
returns; both profits and peoples’ welfare.
 The centres or headquarters of each domain will then be
developed by an agglomerative force like a “glue”
tantamount to an economic osmotic pressure to attract
(pull) more and more activities that will promote socio-
economic development.
Development Planning - Agglomerative Force Theory

 Such phenomenon can be aided by governments’

establishment of functional economic, social and
institutional infrastructural base in conjunction with
private investment from residents and diaspora funds.
 The development centres e.g. central location in wards or
city or town or LGA headquarter will house the
investments and public sector offices and primary schools
and public health centres.
Development Planning - Agglomerative Force Theory

 Outside the city centre, there will be residential houses

for low income inhabitants and small to medium-sized
small-scale industrial establishments. Post-primary
schools and higher institutions can also be located outside
these city centres with large establishments and high-
income inhabitants in the outskirts of the city. This
outskirts also harbor agricultural enterprises, farms and
agro-processing plants.
Development Planning - Agglomerative Force Theory

 A pictorial representation of the concept of the

agglomerative force theory is depicted in figure 3.

Farms

Centre for business activities

Centre of Political
Ward/LGA Headquarter

Public section offices/low income houses

Manufactures businesses and high income houses

Development Planning - Agglomerative Force Theory

 Using Nigeria as an example, the 8,822 Political Wards

and/or 774 LGAs can serve as the pull centres with the
potential of being developed into development points.
Each point with its peculiar features and comparative
advantage will provide impetus to contribute to the social
development of the country.
 All the foregoing can only happen with a well-organised
and forward looking administrative machinery of
Government under an ideal situation.
Ideal Administrative Machinery of Government
for Growth and Development Planning
Role of Government in Growth and Development Planning

 The basic role of Government is to solve societal

problems and cater for the multifarious needs of the
households/people. The role includes protection of life
and property, regulations of individual and group
behaviours, provision of services and leadership in socio-
economic development.
Role of Government in Growth and Development Planning

 The ability and resourcefulness in meeting the

expectation of people is a measure of good governance of
any administration and this reflects in the general
standard of living of people, their welfare and prosperity
of the nation.
 A prosperous nation begets high welfare standard on her
people and good living condition with enough to eat,
shelter to live, clean water to drink, school and health
facilities to attend, security of people, work to do, income
to live on and a good environment.
Role of Government in Growth and Development Planning

 This explains why Government is so important in

everyone's life and regarded “as the most precious of
human possessions”. Also, for Government to be
effective in her pursuit of governance, she must be
managed by an equally effective administrative
machinery.
Role of Government in Growth and Development Planning

 Such an effective machinery administrative support is an

organised collection of selected persons who serve in the
civil service and parastatals, we now collectively call
Ministry, Department and Agencies (MDAs) which are
manned by technocrats, now referred to as “Public Sector
Managers” which includes civil servants and those in
Departments and Agencies who are collectively called
public servants plus those politically appointed and
elected representatives.
Role of Government in Growth and Development Planning

 The public sector managers initiate development

programmes and execute them. Performing the role alone
or allowing the private sector to do this or in
collaboration with one another is a universal debating
phenomenon.
 But the conventional wisdom now is for the Government
to let go public investments that the private sector can
handle better, but provide workable infrastructure to
make private investments more productive.
Role of Government in Growth and Development Planning

 The private sector is presently the engine of growth,

hence privatisation is the order of the day with many
variations, namely, Build Operate and Transfer (BOT)
and other public-private cooperative operations.
 This is the future of economic management in Nigeria as
the public sector has realised that for the sector to
progress, the private sector is expected to be the “bigger
partner with Government providing the needed services
and infrastructure to keep the wheel of development
moving.”
Role of Government in Growth and Development Planning

 This is why the Federal Government is buying 20%

investment in Dangote refinery to guaranty that Dangote
crude oil provides the Nigerian fuel market petroleum
products for all to enjoy.
 The bottom line here is that economics management in
general and agriculture development in particular,
Government must stop participating in direct production,
input supplies, product sales and input distribution and a
host of other activities best undertaken by private sector
operators.
Conclusion

 In conclusion, public sector managers are expected to

assist in creating an environment which will facilitate
efforts at broadening the frontiers of socio-economic
development through private sector.
 In addition, they should be good managers by ensuring
dedication, honesty, accountable, frugality, courteousness,
love, openness, willingness to help and cooperation in the
workplace and interactions with the public.
Conclusion

 On the part of the system, efforts have to be made to

make public servants happy by making sure that the
following conditions hold:
 Salaries and allowances are paid as an when due;
 Work materials are available; and
 Basic items of infrastructure in form of electricity, water
and functional facilities and conveniences are available.
The End