The events of the last few weeks clearly reveal the truth about the weaknesses of the capitalist system. The new world order in the last two decades has placed emphasis on the emergence of market driven economics where agents such as individuals and firms are encouraged to accumulate and allocate their resources as they wish.

The belief that all agents will act in a responsible and logical manner does not hold true after all. As governments gradually withdrew from the market place allowing the private sector to drive the economy, we have seen a total abuse and near destruction of a system widely touted for driving unprecedented global growth witnessed in the last 3 decades. The re-emergence of Russia on the world stage and the successes recorded by India and China are indications of the opportunities that capitalism and its variants as practised in different parts of the world provide.

Indeed, every economic system does have its weaknesses and to say that unbridled capitalism will solve every economic problem is a mere verbal expression. Needless to say that capitalism without adequate oversight and regulation is dangerous hence the coinage ‘the dangers of naked capitalism’.

Regulatory oversight must not only be effective but composed of highly intelligent minds that are capable of developing policy frameworks and legislations to prevent potential abuses and exploitation of the market system. Even the United States where some of the highest degree of free market economics is practiced is beating a retreat and buying stakes in its key financial institutions as a way to suspend the credit freeze that has spread worldwide.

Lessons for Nigeria

While Nigeria may have escaped the full wrath of the global credit crisis, I doubt if Nigeria would be fully insulated the next time there is any global financial crisis. In fact, the present global credit crisis may have contributed to the downturn in the performance of the Nigerian stock market as foreign investors liquidated their investments to cover losses back home arising from the mortgage debt crisis in the United States.

As Nigeria continues with its privatization efforts, government must take all necessary steps to re-tool its regulatory institutions. There is need to urgently address the following:

• Development of Institutional Capacity: Create national institutions that will outlive the individuals presently responsible for the management of such institutions.
  Institutions such as the National Agency for Foods, Drugs Administration and Control (NAFDAC), Economic and Financial Crimes Commission (EFCC), National Planning Commission (Bureau of Statistics), National Universities Commission and others fall in this category.
  In addition, legislations to give sound legal backing and clear operational framework to such institutions must be promulgated and passed into law.
• Financial Services Industry Reforms: The ongoing reforms in the financial services sector must be sustained. The regulatory institutions need to be strengthened to provide a more detailed oversight and supervisory function over the financial institutions. In addition, Nigeria by now ought to have private sector led credit rating agencies which will ensure that individuals can obtain loans and credit with little documentation and collaterals thereby spurring consumer spending and ultimately the credit creating capacity of the economy. (A new credit agency has been created in Nigeria but this initiative is largely hampered by the lack of a national identification system). http://www.incorporatenigeria.com/economic-hotpot/45-the-case-for-a-national-identification-system-part-1
• The informal financial sector also requires a major overhaul and regulatory oversight. Phony schemes outside the financial sector with promises of outrageous returns must be checked and operators investigated and prosecuted as it is believed that such individuals are responsible for financing illegal activities such as oil bunkering and money laundering.