HomeCommentErich Bloch: Social Contract Essential To Economic Recovery

Erich Bloch: Social Contract Essential To Economic Recovery

IN his 2008 first quarter Monetary Policy Statement, the governor of the Reserve Bank of Zimbabwe (RBZ), Gideon Gono deplored Zimbabwe’s failure to implement a social contract with conviction and constructiveness, perceiving so doing to be a prerequisite of a comprehensive economic recovery.

 

He said: “As monetary authorities, our hearts are heavy at the realisation that well over 16 months down the road since we first advocated the urgent adoption of a social contract in early 2007, this virtuous path has not been fully followed through.

Had we collectively shown maturity, tolerance and a burning desire for a better Zimbabwe through the adoption of the social contract, we would not be having today’s widespread shortages of basic commodities and other economic ills afflicting us.”

He justly contended that had a social contract been pursued with determination “our inflation level would have by now receded to single-digit”, and that “by now we would not be suffering from the scourge of price controls”. He stated that, in contradistinction “we allowed sectoral and personal bravados and selfish interests to rule the day and now we are paying the price, and it is a very heavy one indeed.

We allowed political expediency to override the virtues of a noble programme which was meant to deliver a better Zimbabwe for all Zimbabweans.”

In particular, with great forthrightness, he said: “Events over the past years, and more so over the past few months and recent weeks, have clearly shown that it is not just naïve, but utter folly, to separate the economy from the politics of the day.”

Pursuant to these forcefully expressed views, he submitted that what therefore “is needed is a radical political maturity by all Zimbabweans, and an audacious policy shift” by all social partners in Zimbabwe to break away from the shackling “business as usual” mindset, and appealed to “all stakeholders, comprising government, labour, business and civil society to put Zimbabwe first and go back to the negotiation table for the establishment of a mutually agreed and implementable social contract.”

To reinforce his contentions (the validity of which cannot credibly be disputed), RBZ published a supplement to the Monetary Policy Statement, detailing “The role of social contracts in macro-economic stabilisation and achievement of national cohesion”.

It noted that a social contract is an agreement by all stakeholders which, in the case of Zimbabwe, should be targeted at inflation reduction, macroeconomic stability, recovery and growth. In particular, the social contract would be “underpinned by several protocols, prominent of which is the Incomes and Prices Stabilisation Protocol.” The objectives of those protocols would primarily be:

*Management of prices and incomes movement;

*Promotion of macroeconomic stability, economic recovery and sustainable socio-economic development;

*Ensuring that price restraining measures have regard for cost factor developments;

*Improvement in productivity levels and enhanced production capacity utilisation;

*Employment creation;

*Skills development, retention and attraction;

*Attraction of local and foreign investment;

*Ensuring availability of foreign currency within formal system, for all legitimate transactions, with reduced exchange rate price distortions;

*Driving export growth, with assured exporter viability;

*Reduction of smuggling and “other leakages”;

*Restoration of foreign lines of credit.

The focus upon a substantive social contract, which is one that all stakeholders “buy into” without reservation, and with unqualified conviction and determination, is not an exercise into hypothesis, without foundation.

Over the past 80 years, almost every recovery of economies that had been horrendously decimated had a cornerstone of a social contract. Such contracts have been the foundations of the economic recoveries of innumerable countries.

Thus, Gono was proposing recourse to a tried and proven vehicle to restore Zimbabwe’s economic wellbeing.

The examples of success driven by social contracts are very many. They include Germany’s Weimar Republic which, from 1922 to 1924, suffered inflation exceeding 800 billion% (which makes Zimbabwe’s horrific hyperinflation seem insignificant!). After it, admittedly belatedly, resorted to a comprehensive social contract, inflation fell to single digit levels within less than three years.

In the 1970s, Israel and Italy suffered gargantuan economic declines, characterised by immense inflation, vast reductions of Gross Domestic Product to negative levels, enormous state funding deficits, surging unemployment, and collapsed value of currency.

The same circumstances pertained in the 1980s in Brazil, Bolivia and Ireland, and in Argentina and the Czech Republic in the 1990s, to name but a few of many countries that have, over the last 30 years grossly mismanaged their economies, but where the maturity of stakeholders was such that they collaborated with real intent to reverse the economic ills, and who subordinated political and other aspirations to the overriding need to achieve economic recovery and remove the ongoing suffering of the majority of the populations of their countries.

Zimbabwe’s economy will not enjoy real recovery until government, business and labour have a real willingness to work together, and to place national interest before their own.

First and foremost, the National Incomes and Pricing Commission must be dissolved, and price controls by the state discontinued, save for wholly strategic, basic commodities and, instead, the contracting parties must agree to a total freeze of all prices, salaries and wages, and governmental imposts, save and except for adjustment when necessary in response to factors exogenous of Zimbabwe.

Concurrently, there must be effective measures to restore productivity in all economic sectors, with especial focus upon agriculture, manufacturing and mining.

Real emphasis is needed upon creating an investment conducive and facilitative environment, and upon restoration of harmonious, cordial international relations.

Of equally great importance is that there be determined efforts to reduce and contain governmental expenditures.

Until these measures are unhesitatingly pursued, through the medium of a social contract, the economy’s continuing decline is inevitable.

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