Editor’s Memo

Powered by illegality
Vincent Kahiya

I AM back from my short but very eventful break during which fuel went up from $200 000 to close to $300 000 a litre, the RBZ introduced

a new $100 000 bill and promised to unleash even larger denominations. The price of a loaf of bread went up “illegally” to $135 000 from $85 000 and the cost of urban transport also went up “illegally” to $80 000 trip. Boarding schools doubled school fees “illegally”, rentals went up and so did municipal rates and charges.

Our rulers who have been waving the NEDPP as the panacea to our predicament have continued to find it difficult to explain the current cycle of poverty. This week Industry and International Trade minister Obert Mpofu was telling us the hike in the bread price was “illegal” because government had not given it the go-ahead.

He said it was “mischievous” for bakers to say production costs had gone up because the price of wheat had not gone up. The Ministry of Transport has also told us the new kombi fares are illegal because they have not been sanctioned by government.

When bread went up “illegally” in February Mpofu was on hand to produce the threat. “We have already assigned police officers and inspectors to visit those bakeries and supermarkets that are charging between $65 000 and $70 000 for a loaf,” he said.

“Government allowed the bakery industry to increase the price of bread to $44 000 and that is the price we recognise. Any other price increases are illegal and we will take the perpetrators to task.”

Nothing of course happened to the perpetrators. The price of bread did not come down because of this imperiously feeble threat.

Mpofu’s statement this week is a carbon copy of the threat he issued in February and in his heart of hearts he does not expect the bakers to reduce the price.

Bereft of reason is the minister’s belief that the price of bread can only go up when wheat prices go up. The minister is aware that diesel has gone up, phone tariffs have skyrocketed to the extent that $100 000 now gives cellphone users two minutes airtime! Electricity tariffs have gone up and companies’ wage bills have at least doubled since the last hike in bread price.

Mpofu I am sure remembers his counterparts in government urging industry to give workers huge salary increases to match the “hefty” 300% increments awarded to civil servants in May.

And so it is illegal for industry to absorb the additional costs by increasing the price of bread? Perhaps yes, because Gideon Gono’s master stroke, the $100 000 bill, cannot buy a loaf of bread, or a pint of milk. It cannot even buy a pen!

Mpofu and his colleagues have to realise that measures to mitigate inflationary pressures, including price controls, interfere with the free working of the economy. No government regulation can take account of all the complex changes that occur within different industries. Prices of some goods may be falling while those of others are rising; such changes often reflect differences in production costs. The straitjacket of controls prevents the economy from adjusting to such changes in relative costs.

During World War II the US government in its quest to organise the economy towards military goals introduced price controls. Consumers were given coupons entitling them to buy limited amounts of essential goods to make sure that everyone got a fair share. When controls were discontinued after the war, prices rose rapidly for several years because of the excess purchasing power that had accumulated in consumers’ savings. But inflation in the US never exceeded 15% in any single year — modest compared to our 1 042%.

Hugh Rockoff, professor of economics at Rutgers University in New Jersey, says “restrictive monetary policy is the operation that cures inflation, and price and wage controls are the anesthesia that suppresses the pain”. But ours is a very sick economy and the illness has been exacerbated by too many operations carried out on the patient by incompetent surgeons in total disregard of convention.

This is where the illegality started Obert. This nation is powered by illegality. Where would industry be without the forex black market? Where did Gono source the forex he bought with the $46 trillion he printed last year? Is government not the chief distributor of fuel that finds its way onto the black market?

The government has raised the spectre of illegality. Now it must live with it.