From The Economist (UK), 28
November
The Zimbabwean
model
The pros and cons of opting out of the global economy
Orthodox economists sometimes get it wrong. For example, when a
government fixes the prices of various goods below what they cost to produce,
and fails to provide the necessary subsidy to fill the gap, orthodox theory
predicts that there will be empty shelves in the shops. But in Zimbabwe, this is
not how things have turned out. Retailers there have indeed run out of all
manner of price-controlled goods. But for some reason they can still get hold of
toilet paper. So, instead of empty shelves, Zimbabwean shoppers encounter aisle
upon aisle of roll upon roll, where the bread, sugar and oil used to be. Ignore,
for a moment, the headlines about murder, torture and election-rigging. For an
interesting economic experiment is being conducted in Zimbabwe. To the foes of
globalisation, President Robert Mugabe's views are unexceptional. He argues that
"runaway market forces" are leading a "vicious, all-out assault on the poor". He
decries the modern trend of "banishing the state from the public sphere for the
benefit of big business." What sets him apart from other anti-globalisers,
however, is that he has been able to put his ideas into practice. In countries
where the IMF calls the shots, governments have to balance their budgets on the
backs of the poor. Having told the IMF to get stuffed, Mr Mugabe is free not to
do this. The official estimate is that Zimbabwe's budget deficit will be about
14% of GDP this year; the government is frantically borrowing and printing money
to cover the shortfall. Inflation is now 144%, and it is predicted to top 500%
next year.
Mr Mugabe argues that price rises are caused by greedy
businessmen. His solution is price controls. For the past year or so, these
applied only to everyday essentials, such as bread and maize meal. Shops were
ordered to sell such goods at fixed, low prices. Unfortunately, Mr Mugabe was
right about those greedy businessmen. Rather than lose money, they stocked their
shelves with toilet paper, or tried to dodge price controls by modifying their
products. For example, since bread was price-controlled, bakers added raisins to
their dough and called it "raisin bread", which was not on the list. Not to be
outsmarted, on November 16th the government extended price controls to
practically everything, from typewriters to babies' nappies. Some things have to
be imported, however, and it is hard to prevent foreigners from profiteering. Mr
Mugabe is anxious that petrol, for example, should be affordable; otherwise,
people will not be able to get to work. A strong currency should help, so he has
frozen the exchange rate for the past two years, and denounced as a "saboteur"
anybody who suggests devaluation. Since Zimbabwe's inflation is a tad higher
than America's, nobody wishes to surrender hard currency at the official rate of
55 Zimbabwe dollars to one American dollar. The black market rate is several
hundreds to one; the government blames speculators. To lay hands on foreign
currency, Mr Mugabe has no choice but to rob exporters. Those whose products are
bulky and hard to smuggle (tobacco farmers, for instance) must surrender half of
their hard-currency proceeds to the government, which repays them in crisp new
Zimbabwe dollars, at the official rate.
This is not nearly enough, however, to keep Zimbabwe supplied
with petrol (the distribution of which is a state monopoly). So, this month, the
finance minister announced a clampdown on the black market: all bureaux de
change are to be shut. He also asked expatriate Zimbabweans to remit money home
via the central bank, which will confiscate almost all of it. For some reason,
they prefer informal channels, such as Internet-based firms that accept cash
offshore and issue friends and relatives back in Zimbabwe with local currency or
vouchers for supermarkets. For most problems, a coercive solution can be found.
The government's debt-servicing costs are too high? Force financial institutions
to buy treasury bills that yield far less than the rate of inflation. People are
running out of food? Confiscate grain from those who have it ("hoarders") and
distribute it at an artificially low price through a state monopoly grain
distributor. Ordinarily, this would somewhat dampen commercial farmers'
incentive to grow food. But since most of them have been driven off their land,
what does it matter?
It would be nice to think that the rest of the world has
nothing to learn from Zimbabwe. But Mr Mugabe has many admirers. His fellow
Africans cheer his defiance of the old colonial powers. Namibia's government has
promised a similar land-grab. South Africa, showing comparable paranoia about
currency speculators, recently conducted a pointless investigation into whether
banks had conspired to undervalue the rand. Globally, few policymakers favour
going the full Mugabe, but many believe that a little bit of price-fixing won't
hurt. Price supports for EU farmers, for example, persist because their
governments are rich enough to keep subsidising them, and because the costs are
spread across the entire population, who are often unaware that they are being
fleeced. Influential charities argue that poor countries should also be paid a
"fair" price for their products. Oxfam, for example, contends that the price of
coffee is "too low" because multinationals manipulate it. The charity is
campaigning for it somehow to be raised. It may seem harsh, when faced with the
misery of an Ethiopian coffee farmer, to argue that it would be more efficient
to let the price mechanism deliver its message ("Grow something else")
unmuffled. But greater efficiency leads to greater wealth, and vice versa, as
Zimbabwe so harrowingly shows. Nowhere has withdrawn so swiftly from the global
economy, nor seen such a thorough reversal of neo-liberal policies. The results
- an economy that has contracted by 35% in five years, and half the population
in need of food aid - are hard to paper over.
