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Eric Bloch Column

Government’s endless repetition of errors

By Eric Bloch

IT is said that there are none so dumb as those who will not learn. If that is so, the Zimbabwean government must surely be the dumbest of the dumb, for it repeate

dly evidences a determination and resoluteness not to learn from its errors. Instead, it repeats those errors over and over again, in the process recurrently undermining an already exceptionally unstable, deeply distressed economy and worsening the hardships of the populace as a whole.

Government’s recurrent mistakes are manifold, including its annual inability to ensure timeous availability of agricultural inputs, outweighed only by its even more frequent making of formerly highly-productive agricultural lands available to the well-connected and well-endowed, but ill-disposed to work the lands, or to those with the will and ability to use the lands, but devoid of the necessary resources, albeit that there are endless promises that those resources will be forthcoming, which promises are invariably unfulfilled.

Equally pronounced and damaging mistakes include the never-ending scepticism and suspicions that result in the rejection of well-intentioned, constructive advice from bodies such as the International Monetary Fund (IMF) and countries as would readily befriend and assist Zimbabwe, resulting in the alienation of goodwill of many, including in increasingly great numbers, of Zimbabwe’s neighbouring states, as well as the European Union, the Commonwealth and the USA, in addition to a progressive weakening in relationships with various North African, Middle-Eastern and Eastern countries.

In like manner, government continues its endless overspend upon defence, a gargantuan governmental infrastructure massively in excess of national needs, perceived symbols of status and prestige (such as un-needed fighter aircraft to be used for three ceremonial fly-overs a year, vast motor cavalcades and the like) and much else as is of little benefit to Zimbabwe or its people, whilst concurrently it does not spend sufficient upon health, education, social welfare, economic development and much else necessary to ensure the well-being of the populace.

So great are the numbers of errors which government commits, not once, but over and over again, that it is near impossible to list them all.

However, among those which must inevitably be of very great concern are many which are economically related.

Over the last nine years, the economy has shrunk by more than 40%, resulting in a massive decline in numbers employed and world-record levels of hyperinflation. That, in turn, has transformed most of the populace into poverty-stricken sufferers, unable to feed themselves and their families adequately, let alone house, clothe and educate them and attend to their health and other needs.

All of these endlessly repeated errors have contributed to the economic morass that is Zimbabwe today. But there are very many others that are equal or greater contributants to it.

Foremost among the oft re-committed mistakes is that, in consequence of government’s deep-seated belief that it must have absolute control over all facets of society, whether political, social, judicial, economic, or otherwise, it relentlessly espouses the philosophies of a command economy, wherein everything is driven by governmental dictates and regulation.

The fact that no economy has ever in history prospered continuously in such a regime is of no concern to government, for its conviction of its own omnipotence and infallibility is so great that it is incapable of conceiving a possibility that an economy driven by its commands cannot succeed unless collapsed by the deliberate sabotage of nature and of Zimbabwe’s enemies (actual or perceived — with such perceptions being very many, occasioned by the intensity of government’s misplaced persecution complex).

Therefore, government disregards the decades of failed command economies of the former Soviet Union, of China under the draconian rule of Mao-Tse-Tung, of Tanzania under Julius Nyerere, Mozambique under Samora Machel, of Cuba, Argentina, and many other countries whose governments destroyed their economies by excessive state controls).

Among the most foolhardy of state regulations is the imposition of price controls. The motivations for such controls are invariably in order to prevent profiteering, contain inflation and protect the majority from exploitation. Hence, governments see price controls as pathways to maximising support from the populace, made to believe that governments are caring and attentive to the needs of the economically oppressed.

Similarly, consumers are usually imbued with a belief that prices are determined only by greed and not need, and must therefore be controlled. They are supported in such belief by consumer representative bodies which in many respects do outstandingly beneficial work for consumers but who, nevertheless, with undoubtedly best intentions, do them a disservice when they campaign for price controls and restrictions.

The reality is that price controls are invariably extremely prejudicial to consumers and harmful to economies. More often than not, the prices are unrealistically determined without adequate recognition of all concomitant costs to the acquisition or production of the relevant products, the marketing thereof, the unavoidable diverse attendant direct and indirect overhead costs, finance expenses, taxation and a fair return on capital employed.

Even when all those factors are correctly taken into account, prices are virtually never modified timeously in relation to changes in the costs, whether driven by changes in international prices, exchange rates, domestic inflation, interest rates, or otherwise.

As a result, businesses can rapidly not afford to sell the products, for the controlled prices can then only result in unsustainable losses or at best in inadequate, non-risk related returns.

Thereupon, either the businesses collapse, with consequential losses of capital, increased unemployment, lesser national economic activity, reduced inflows to the fiscus and numerous other economic ills.

In other instances, the businesses survive, thanks to their trade in other products, commodities, goods or services, but discontinue selling the unprofitable, price-controlled items. This results in progressively intensifying shortages of the price-controlled products, to the inconvenience and discomfort of the consumers.

Wheresoever the price-controlled products are of a nature essential to the consumers, the increasing non-availability and intensifying shortages rapidly fuel black markets operating outside of governmental control where the same commodities are available, but always at prices very considerably greater than the state-controlled prices.

All too often, the commodities in the black market are also substandard (fuel that is watered-down, foodstuffs that have passed their safe “use-by” dates and similar non-compliance with norms).

Shortage-driven desperation drives the consumers into paying vastly excessive prices whilst risking being the victims to fraud. There has been much evidence of this in Zimbabwe over the past few years, with especial reference to petrol and diesel, maize-meal, sugar, flour, bread, cooking oil, paraffin and soap, computer ink cartridges, motor vehicle spares, tyres and innumerable other products.

Not only have end-consumers been forced to resort to the black market, but so too has commerce and industry, resulting in immense increases in operational costs reflecting in prices (save where controlled!).

In order to survive, many businesses have also had to circumvent controls by modifying their products, as was seen — for example — when bakers could no longer produce a standard loaf of bread at the controlled price and discontinued baking that loaf, but instead produced “super-loaf”, rolls, confectionery, and novelty breads as were not subject to price controls.

Thus, whensoever price controls have been imposed, either consumers could not purchase their needs at any price or had to resort to substitutory products or the black markets, in either instance being confronted by even greater costs than had the prices of their requirements not been controlled in the first instance.

Government will never acknowledge it but vehemently and vigorously deny it. But the reality is that its price controls are a major fuellant of inflation and a great disservice to the populace even though many of the populace appealed for them, unaware that the result would not be an easing of their distress, but a grievous worsening of their lot.

Last week government demonstrated, yet again, its total inability to recognise the gargantuan economic prejudices of price controls.

The Minister of Energy and Power Development, Rtd Lieutenant-General Mike Nyambuya, announced that the cabinet had, on August 11 approved new fuel prices of $320 per litre of diesel and $335 per litre of petrol.

Such prices were clearly founded upon presently prevailing world crude oil prices and the recently established interbank exchange rate of US$1:$250, inclusive of procurement costs, Noczim Debt Redemption Levy, Carbon Tax, and government’s perceptions of the operating costs of fuel importers, distributors and retailers.

But those prices do not recognise that currency available to Noczim and through the interbank market does not suffice to fund all Zimbabwe’s fuel import needs and that, therefore, much fuel can only be obtained if foreign currency is sourced at a premium from “free funds”, being funds which do not mandatorily have to be repatriated to Zimbabwe and sold through the interbank market.

Therefore, Zimbabwe is about to be faced, once more, with horrendous fuel shortages, which will only partially be addressed at massive cost through the black market.

Commuter transport will become grossly inadequately available and that as will be available will be at prohibitively high cost (through price control circumventions), the operations of industry, commerce, mining, agriculture and tourism will all be severely hampered, the future of many businesses will once again be endangered and the long-awaited economic recovery, supposedly about to commence, will become another mirage.

Government must, one hopes, eventually learn that the only way to contain and curb price hikes is by having a virile, thriving economy, driven by productivity and competition.

Surpluses breed efficiencies and cost containment in order that price competitiveness can operate.

Price controls breed shortages, inflation and economic collapse. But will government ever be mature enough to learn and heed that, or will government continue its relentless pursuit of repetitive error?

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