By Tanu Jalloh
The Bank of Sierra Leone in particular and the economic policy focus in general have often targeted those issues that they strongly feel, but also think, are most likely to lead to economic growth, using all macroeconomic policy frameworks. Where are the microeconomics?
Granted that macroeconomics, as the case may be, could be said to be the aggregate of all business and transactions as they relate to government policy, overall growth, unemployment, and inflation; the very reason why the country’s technocrats have paid so much attention to understanding and using it. In essence, any success recorded at this level speaks to the overall effort of the country’s economic stability. Good news for the Bretton Woods, revered for reshaping post-World War II international financial system!
Interestingly, time has really gone by. However, how the country has ignored the rudiments of microeconomics and seemingly sentenced them to the real sense of the expression ‘small scale matters’, is the very reason we might come back someday to start anew. Before that day comes, the progress would remain on the high side while the low side would always be the microeconomics. Thus, I have the feeling that we can use this occasion as an opportunity to bring some relevance to bear on the little we already know about microeconomics and how they may serve as condiments to Sierra Leone’s economy.
The country goes macro all the time, inadvertently depriving microeconomics of its place in the mechanisms of state policy. As if to follow the trend of Sierra Leone’s overall approach to dealing with general economic issues, I have done very little, in the last few months under my Business & Economy column, to bring out the small scale aspect of dealing with the economy of a low income country like Sierra Leone. While I show some guilt, I also feel it was good I dealt with certain macroeconomics, especially at a time they featured prominently in the end-of-year assessment of the economy.
According to Economypedia, "Microeconomics is a division of economics, which studies the ways by which individuals, firms and families take decisions regarding allocation of the limited amount of resources at their disposal. The studies are done in a context of markets where goods and services are traded." Go back to my premise, the second sentence of the third paragraph above, and join me to conclude that microeconomics therefore touches the lives of the people on everyday basis.
Thus, microeconomics, as the name suggests, is economics on a small scale. It is economics as measured between firms and industries, but not between governments and economics. Any alternative arrangement to this, is what some people have come to regard as macroeconomics; in which case Sierra Leone seems to be a proponent, a circumstance it could live with for as long as the piper dictates the tune.
While, it is struggling to put on a national character, microeconomics is gaining favour from the activities of the private sector led terrain of the country’s economy. For instance firms use concepts and principles of microeconomics to understand their cost of goods and products, cost of labour and overall profitability. This in part gives an indication of how much private sector businesses should charge for those goods or services they provide. They also use this field of economics to determine their relative position in their industry and where they stand vis-à-vis the competition.
Invariably, understanding economics on a small scale could heighten participation at the lowest stratum of economic activities or interactions. In other words, microeconomics is important because it examines the way prices of products fluctuate according to both supply and demand. It is also important in how businesses and enterprises are run, how they make a profit or a loss, and how they relate to the rest of the industry.
Let’s attempt to carve a nexus between what we live to see as macroeconomics and the shock-absorber role played by microeconomics in a poor and weak economy as Sierra Leone. In the first instance, all of our day-to-day commerce is within the scope of microeconomics. Probably, a very small number of people, including the educated, know that household shopping, personal budgets, our salaries, and how our employers do business are all related to microeconomics.
In an informal setting, like in some rural areas where people do not make any effort to learn about their economic activities, explaining it could be a bit painstaking. But here in the urban centre we tend to appreciate and deal with microeconomics but we still believe in the ultimate power of the macroeconomics. For example how many people know that ‘opportunity cost’ is an important aspect of microeconomics. Any basic explanation would refer to it as the next best alternative in any given situation. It is the implied cost of not doing something that could have led to higher returns. The case of choices and how we deal with them!
Before I round up, let me make reference to established scholarly explanations as a way to give context to what we have attempted to explain in the arguments above. In his writings titled: “Microeconomic Approaches to ‘Growth’ and ‘Poverty’: A Sociological Comment,” Philippa Bevan of the Centre for Development Studies, Department of Economics and International Development, University of Bath, UK.
“In economics textbooks governments are economic actors with a responsibility for ‘public goods’, and economists, apart from those specialising in ‘corruption’, ‘governance’, or ‘political economy’, assume that it is not important that, in ‘non-capitalist societies’, politics tends to be organised around patron-client networks, and that many governments are overwhelmingly populated by politicians and bureaucrats whose aim, for all sorts of reasons, is to appropriate from a little to a lot of the country’s GDP, loans and aid, some of which is used to feed family and patron-client networks. This has implications for the translation of ‘theoretical policy’ into ‘policy-in-practice’. First the economic aspects of the policy are unlikely to work as intended since they are based on models which do not fit the reality, and second, unintended consequences of a political and/or socio-cultural nature may actually make things worse in the long-run.”
“National economic growth is ‘the increase in the total value of goods and services produced in an economy’ (Hanmer and Booth, 2001:1). This conceptualisation of economic growth is not a properly ontologically-grounded concept, in the sense that it reflects one identifiable real social change process; rather it is a measure of all sorts of aggregated changes (over a financial year in practice) resulting from different social processes involving changes in prices, more efficient performance of unchanged activities, and changes in activities. As the Hanmer and Booth definition confirms the word ‘growth’ often carries an implicit assumption that there is no decline, which is not born out by the experiences of many African countries in the last twenty years of the twentieth century (UNDP: 2000).”
