By Paddington Masamha
Zimbabwean problems are multi-faceted. Pro-government analysts largely associate the source of our economic tribulations with the economic imperialism of the West currently being pursued in our motherland through sanctions. A contrasting view to this argument pinpoints dictatorship, limited democratic space, constrained economic freedom, massive systemic corruption and the decision making monopoly of one party among the most commonly cited reasons.
Emanating from an economic standpoint, a country’s economic system largely determines the functioning, growth and development of a nation. The Zimbabwean economic distress is fundamentally exacerbated by the current government’s insatiable desire for command systems. The liquidity crisis, currency crisis, burgeoning of black markets, fuel and basic commodity shortages, labour unrest (e.g. doctor, nurses and teachers strikes) and inflation spiral are a by-product of maintaining unsustainable command economic and political governance systems.
Basically, all economies are faced with the same economic problem of resource scarcity. An economic system which undertakes to address the three major questions of what, how and for whom to produce determines the approach that a state elects to tackle the economic problem of resource allocation, distribution and utilisation.
Traditionally, governments used to command industries regarding what goods must be produced, how much should be produced, and at what price they should be sold. In such scenarios where the state adopts a central planning or administrative authority which determines how economic resources are allocated, command or planned economy consequently becomes the economic system.
Theoretically, command systems have largely been recognized as a means of doing away with wasteful free market competition. Additionally, economic theory undertakes a view point that a planned system leads to a more equal distribution of income and wealth since the basic economic questions of resource allocation are state determined. Given that within a command system, the administrative central planning office determines prices; the containment of inflation is assumed hypothetically possible.
Any modern society which gets attracted to these potential advantages largely ignores the fact that such merits exist mainly in theory. Practically, whenever any government has maintained a system of central planning; the inevitable problems associated with state resource rationing have been commonplace. For instance; given the usual state resource rationing schemes the usual problems of resources shortages (e.g. fuel, basic commodities), queues and black markets are the usual plague of command systems.
By and large, command systems by their very nature they limit, discourage and look down on the free participation of the masses. Economies which have long-been engrossed in such economic systems have developed into bureaucratic oligarchies. As a point of reference, a government which shows an obsession of making choices for its own people fundamentally reduces its own people’s liberty and the pursuit of happiness. Such is the Zimbabwean case. The economic fundamentals have been higgledy-piggledy all because of an unsustainable command economic system.
Fundamentally, the assumption that the state has ‘state technocrats’ (central administrative systems) which can efficiently and effectively allocate resources is just a questionable conjecture. Besides having the usually cited common problem of state bureaucracy, poor planning has always been a common state weakness.
Planned systems efficiencies assume that state agents are great resource planners, organizers, controllers and leaders. Practically, our motherland’s state leadership has perennial contradicted the fundamental requirements of a functional command economic system. Traditionally, command structures have instead been state vehicles to loot state resources through state capture and corruption.
Through a study of economic history, one can quickly remember the Nazi Germany and Soviet Union’s central planning systems. The modern day empirical cases of command systems are North Korea, Cuba and Myanmar. These historical and modern examples of command systems have had their own success stories, but in most cases command tactics usually collapse or fail.
The widely cited Chinese revolution is usually cited as an example of how central planning can yield tangible results. However, regardless of having significant central planning elements, China’s corporations largely operate based on the price mechanism which is the main anchor of a market economy. As such, Adam Smith’s invisible hand is more pronounced than the government muscle within the economy.
African leaders lack the skill to meticulously establish a conducive environment for the ‘invisible hand’ to answer the basic economic questions. For instance, Zimbabwean leaders have been stark with finding the correct balance of government economic involvement and allowing the free market forces to allocate the scarce economic resources. Therefore, throughout Zimbabwean history various significant elements of central planning have comprehensively dwarfed the economy’s policy formulation and intervention mechanisms.
Though free market forces might seem to be maintained on the face value, the Zimbabwean economy’s main economic sectors are controlled by the state. Currently Zimbabwe does not have a central planning committee which answers those three basic economic questions, but almost each and every economic sector has a regulatory authority which determines prices for most commodities or services.
At the very core, since the introduction of the bond note; the Reserve Bank of Zimbabwe maintained a fixed exchange rate system till 20 February 2019. During this pegged exchange rate regime; the most exciting thing to note was that, when economic agents (i.e. individuals and corporates) are trading with any of the foreign currencies (e.g. rand, pula, USD, pound, etc.); the free market forces of demand and supply were being upheld by utilizing the commonly applicable international foreign currency exchange rate systems. However, in cases involving the surrogate bond note vis-a-viz any authorized basket of currencies; the 1:1 parity condition stood. This was meant to treat the surrogate bond note as if it had the same intrinsic value with the US dollar.
Having established a 1:1 parity position and faced with the usual problem of foreign currency shortages associated with command systems, the Reserve Bank of Zimbabwe established a foreign currency allocation scheme. No matter the justification for such a policy stance, the open signal is that the Zimbabwean monetary system is a command based monetary system where the R.B.Z.’s foreign currency allocation committee determines who, when and how the foreign currency is apportioned. As it stands, the foreign currency allocation scheme has proven to be an inferior system. The liquidity constraints within strategic companies such as Delta, RioZim, pharmacies and health institutions is evidence of the financial catastrophe of central resource allocations.
The surrogate bond note was subjected to Gresham’s law of having the overvalued bad money (bond note) driving out the undervalued good money (US dollars). The foreign currency shortages created a massive foreign exchange market and hence the bond note speculative attack was inevitable. Having publicly admitted such market developments, monetary authorities established the inter-bank foreign exchange market. Sadly, a system which is supposed to be based on the free-floating exchange rate system is still subjected to significant command elements.
Within the fuel industry, it is public knowledge that central planning is the administration tool being utilized by the state controlling institutions within the industry. For instance, Zimbabwe Energy Regulatory Authority (ZERA) is a corporate body responsible for governing the petroleum product prices. As such, even though the free market systems were to be allowed to determine prices; the regulatory body intervenes through establishing petroleum prices which trading is deemed legally permissible.
Fundamentally, Zimbabwe is an agro-based economy. As such, it is justifiable for any government to deliberately intervene or formulate policies that bolster its comparative advantages. Sadly, most government interventions have largely been counter-productive; given the level of corruption and state resource patronage. For instance, programs such as agricultural mechanization schemes, agricultural input schemes and fuel subsidies, have largely been instruments of pursuing political party agendas instead of state development.
Having a series of failed agricultural intervention mechanisms, the Command agricultural scheme is now the new order. Ordinarily, state programs should be primarily hinged on benefiting the masses both from an operational and program financing standpoint. Unfortunately, given the command nature of the new policy intervention measure, Zimbabwe still faces the perennial shortages of grain. In effect, Zimbabwe still imports part of its grains. The state of commercial agriculture in Zimbabwe needs serious state attention.
Outstandingly, command schemes in modern societies are intolerable. The role of the state should instead be limited to dealing with public externalities (e.g. pollution, prostitution, traffic congestion), provision of public goods (e.g. roads, national defense and security) and incentivizing the production of the usually under produced merit goods (e.g. education, health)
The Zimbabwean economy seemingly has free market systems in some economic sectors. However, a brief identification of the key sectors driving the economy will reveal a general view point that the majority of Zimbabwean prices are state controlled.
Just as a starting point, financial institutions’ bank charges (particularly monthly service fees, transfer charges, withdrawal fees, etc.) are determined by the R.B.Z. Some may argue otherwise, but whenever a sector has a regulator who determines price caps or restrictive measures, the market players’ freedom to manoeuvre is very limited.
Within the telecommunications sector, the Post and Telecommunications Regulatory of Zimbabwe (POTRAZ) approves the pricing schemes of firms operating within the oligopoly market. The insurance firms are under the arms of Insurance and Pensions Commission (IPEC). This scenario is largely the available policy position within the Zimbabwean economy at large.
It stands to be argued that though no physical evidence of a central planning committee is available to answer those basic economic questions, the modern type of command management is now sector specific where a regulatory authority is established to control and approve pricing policies of firms within the industry.
Zimbabwe has historically adopted a system of price controls. Within the agricultural sector, the government from year to year sets minimum prices of grains upon which trading is deemed legally permissible. Employee incomes have also been subject to state controls where National Employment Councils within specific sectors have largely been negotiating for commensurate employee remuneration packages.
During the times of the former leader, President Robert Mugabe; the deliberate use of price control committee e.g. (National Incomes and Pricing Commission (NIPC)) was a common practice. The widely known July 25 2007 price control which grounded the economy and left empty shelves is a prime case study.
Yes, some controls are necessary so as to eliminate the excesses or negatives of free market systems but the case for Zimbabwe is a failure by the leaders to find a balance between free economic system and command management. As such, it is widely common to find Ministers, regulatory boards and special interests groups within the economy threatening entrepreneurs whenever they adopt any policy positions that hedge their business and financial risks. The commonly used language is the threat to ‘withdraw operating licences.’
From observation, once a leadership is long-engaged in the command management tactics, even non-economic issues are solved using the same approach. Basic issues which require open negotiations are marred with authoritarian commands, use of threats and abuse of central government power. The widely cited cases are the command tactics usually utilized to extinguish the potential civil service strikes, mass stay aways and public demonstrations.
Over all, the Zimbabwean leadership has for long been engraved with a serious desire for excessive control and command policies. Driven by the desire to engineer humanity, private corporations and state institutions; the country’s leadership has over the years adopted excessive and counter-productive regulatory regimes.
Unfortunately, the excessive regulatory structures have degenerated into oppressive, repressive and exploitative economic systems. The ultimate result has been reduced level of production, poor resource allocation and distribution. Command systems have left us with a distressed society, stifled space for entrepreneurship, black markets and its associated shortages among other economic conundrums.
Modern societies are now largely dependent on the price mechanism of the market economy. In an economy where the price mechanism is at play, a price acts as a ‘signal’ within a market economy to influence the demand for and supply of goods and services.
As such, any government which purports to be adopting economic liberalization should be seen to have an economy where the allocation of resources is determined by the independent decisions and actions of individual consumers and producers in markets guided by the price signals as opposed to state policy commandments.
Going forward, economic liberalization and command mechanisms cannot core-exist in a single state and achieve tangible results. A clear choice between market based systems as opposed to the widely primitive concept of planned economic system is more desirable.
Modern societies in this global world can only be competitive and thrive through market based or liberal economic systems. The policy incongruence of singing the ‘Zimbabwe is Open for Business’ melody whilst the economic system is heavily embedded in command economics is an unsustainable economic policy stance.
Paddington Masamha is an independent Financial and Economic Analyst. He can be reached on email [email protected] and Twitter @PMasamha