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Eric Bloch Column

State’s fixation on price controls

GOVERNMENT clearly is unable to learn from its own experiences. The only time, during the last 15 years, that there was a continuing decline in Zimbabwe’s rate of inflation was from 1994 to 1997, when the state belatedly pursued

its Economic Structural Adjustment Programme (Esap).

The principal characteristic of Esap was economic deregulation, and that characteristic was fundamental to the upturn enjoyed by the economy during those three years. However, in late 1997 government succumbed to the pressures of the war veterans, undertaking to give them lump-sum compensation payments, assuming an unsustainable fiscal commitment. Doing so, compounded by a foolhardy commencement of an extremely destructive programme of land reform, motivated government to abandon the fundamentals of Esap, which had been incorporated in a successor economic programme, styled the Zimbabwe Programme of Economic and Social Transformation (Zimprest).

It needed to do so in order to have something to blame for the inevitable reversal of the economic upturn. That was necessary in order to deflect blame from itself, and since then Esap has been the recurrent “whipping boy” of the government, allegedly responsible for the pronounced economic collapse (alongside the British government in general, and Tony Blair in particular, aided and abetted by George Bush!)

The fact that Esap had successfully placed the economy upon a path towards recovery was irrelevant, just as the allegations against the international community were — and continue to be — spurious.

Government had never been committed to Esap, notwithstanding that it had itself constructed that programme. It could not be committed to anything which ran counter to authoritarianism, for it was (and still is) imbued by an absolute addiction to the concepts of total control.

Having been forced by pressure to commit limited, inadequate state resources to war veterans (actual and pseudo), which would result in massive fiscal deficits, which would fuel inflation, which would trigger economic decline, government needed scapegoats, and Esap was very suited to that purpose. An immediate and continuing consequence was that once again economic regulation became the order of the day and, as the economic decline progressively worsened, so the extent of regulation has intensified.

With inflation once again upon an upward spiral, the regulatory focus is once again directed towards price controls, despite the many negative and adverse consequences that they had occasioned in the past.

In June, the secretary for Industry and International Trade, Rtd Colonel Christian Katsande said that government would not accept prices of goods increasing beyond 10% (although he did not specify the frequency at which such increases could be made!)

He said government was “meeting with stakeholders … to formulate new prices for basic commodities and see how we can control prices of other goods and at what rate.”

He continued that government was aware “of some unscrupulous retailers” who would effect “shocking price increases” for various goods and transport services, and that such “illegal pricing” would not be condoned.

To reinforce this stance, he said: “For example, there is no good reason to increase on old stock of clothes, furniture, electrical gadgets and other food stuffs that are already on the shelves.”

However, there is often a good reason that he completely overlooked, and that is that whilst the cost of “old stock” does not increase, operating costs do, and must be recovered through selling prices, failing which the business must fail. Salaries and wages have, in the main, been rising quarterly, rentals often rise on a quarterly or half-yearly basis, electricity and communication charges have been increasing regularly, and similarly other overheads have been surging upwards. Thus, even when stocks are old, prices must nevertheless be increased.

The government policy of curbing price increases by regulation, instead of by measures that contain inflation, was similarly stated last month, at a ZNCC seminar, by the deputy Minister of Industry and International Trade, Phineas Chihota. He stated: “Prices of basic commodities have continued to rise to unaffordable levels, hence the government has to come in full force and fulfil one of its major roles, that is to protect the viability of industry whilst, on the other hand, protecting the consumers.”

He continued: “The importance of basic commodities to the livelihood of the majority of Zimbabweans had prompted government to control and monitor the prices of such goods as maize meal, wheat, flour and bread.”

The fixation with price controls also motivated the Minister of Industry and International Trade Obert Mpofu to state last week that government would not tolerate any price increases greater than 10%. He did not, however, endeavour to reconcile that percentage with the month-on-month inflation rate for May, (being the last released rate) of 13,1%! Government is determined to demonstrate to the electorate how deeply caring it is, and how it is striving to protect the populace from the avaricious stratagems of industrialists, wholesalers and retailers who, incredibly, do their utmost to assure the survival of their economically embattled businesses.

But in doing so, government recurrently disregards two economic fundamentals. The first is that none are disposed towards trading at prices which result in losses and, therefore, if they cannot attain the prices that viability requires, they discontinue producing or selling the relevant products.

That applies whether it is that the required prices are ones which customers are not prepared to pay, or are maximum prices imposed by government. In either event, the products cease to be available.

That brings the second fundamental into play. Shortages become the norm! Product scarcities become more and more pronounced. And, if the products concerned are essentials, then a black market in those products soon develops, and the populace can only obtain those essentials at very much higher prices.

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