HomeAnalysisCrony capitalism and its perils (Part I)

Crony capitalism and its perils (Part I)

Zimbabwean corruption has evolved over the years and reached endemic levels. The corruption cancer has ravaged political, business and religious organisations with a vengeance.

Paddington Masamha,Economic analyst

Regardless of how economically destabilising and damaging corruption has become, there is a much worse monster which has proven to be unabated and a silent killer to the Zimbabwean economic recovery efforts. This monster is crony capitalism.

The business dictionary defines crony capitalism as an economic environment that is nominally free-market, but allows for preferential regulation and other favourable government intervention based on personal relationships. Thus it is basically an economic system characterised by close, mutually advantageous relationships between business leaders and government officials. In most practical cases, there is collusion between those managing power and trade. The granting of contracts, strategic government appointments and business regulations are largely applied taking due regard to the existing relationship (either friendship or political affiliation). Cronyism thus disregards individual or company abilities or suitability to get government business.

Currently, cronyism is rampant in heavily-indebted countries. However, it was popularised by the Asian economic crisis of 1997. Empirical evidence shows that the Asian market had widespread cases of close and enduring relationships between business, governments and banks which actually triggered the financial crisis. Emanating from the Asian experience, crony capitalism thus becomes an economic system where the allocation of public resources as well as the adjudication of commercial disputes is generally made to favour those who have a close relationship with political leaders or government officials (by blood or by bribes).

Crony capitalism largely relies on relationships (school mates, boyfriends and girlfriends, family relationships, natural friendships, political relationships etc.). Cronyism largely manifests itself in corporations headed by managing directors, chief executive officers, corporate executives or management who are in most cases friends or cronies of political leaders. Without mentioning any names or corporations, Zimbabwe has largely been affected by this form of capitalism where the allocation of economic resources and business opportunities within the country has largely been skewed towards the privileged elite or politically-connected “cronies”. In most cases, the issues have not become public knowledge given that the transactions might not involve the physical exchange of bribes, but certain political favours being exchanged with preferential treatment from the regulators, while entrepreneurs, in turn, make political donations.

The local press has largely exposed these instances where “cronies” have been having unfair advantage over meaningful competitors. However, given the usual lack of evidence to support the allegations, the media has been found wanting in trying to substantiate the allegations. Those who are loyal to political leaders or related to them in some way have squandered state resources given their poor performance on business contracts that they gain unfairly.

In other instances, the crony capitalism linkages are established through financial transactions (mainly bribes to be specific). In a very interesting manner. A number of business contracts have been awarded to special type of cronies (i.e. fellow brethren from religious denominations). This new type of cronyism where privileged members of a religious group working in senior government positions award government contracts to individuals who come from their congregations is slowly becoming widespread – religious cronyism. Those cronies in exchange pay back the favours through decorating the payments with biblical lingo (thus attempting to make the cronyism gains clean). These underhand activities, though not officially documented, are rife in the Zimbabwean economy. To make matters worse, the cancer of cronyism is unregulated and usually surfaces when the perpetrators have amassed massive economic rents or gains.

An additional breeding ground for cronyism is the “old schoolboy network”. In Zimbabwe, it is a common societal problem that resources are allocated, whether at a micro-level (families, villages, etc.) or macro-level (corporations, government ministries, constituencies, etc), on the basis of “who do you know” — in vernacular it is commonly known as chizivano. Such a basis of resource allocation does not in any manner consider individual or corporate capabilities, but consideration is merely on that original relationship of knowing each other before the current transaction. In Zimbabwe it has become commonly acceptable for old school (primary, secondary of tertiary) friends to ride on their old connections and swindle public resources. These old school connections make the business playing field uneven.

Imperatively, all these groups of people exploit their connections for the sake of making money, sometimes illegally and or sometimes unethically. For instance, one can observe at national level rich people who make friends with politicians for the obvious reason of seeking the protection which comes with public offices. Politicians will obviously publicly deny these scenarios, but the Zimbabwean economic recovery machine is being derailed by such unpalatable connections.

By and large, the economic gains in our society largely do not depend on merit, but instead on whom one knows. These favours enable powerful groups to benefit to the detriment of weaker groups in society that lack the ability to influence government. It is common cause that the gap between the rich and the poor will keep widening, given that those without high-ranking “cronies” or politically strong connections will remain marginalised.

At national level, these instances of cronyism have largely been noticeable in government offices responsible for the procurement and issuing of government business contracts. State institutions, particularly the widely known loss-making parastatals, have not been spared from the cronyism. Areas where concerns have been raised include public procurement offices, government tenders, grants and subsidies, scholarships, contracts just to mention a few. Cronyism is not only at national level, regional and local government offices have also largely been following this criteria of cronyism when allocating government resources.

Corruption scandals have been higher with regards to local authority tenders and land allocation scandals. The widely common form of crony observable at local level is likely based on the connections emanating from “family ties”. It is common in one region to notice that those of the Moyo or Nyamuzihwa, Chirandu, Dhewa, Mhofu or Shumba totem control certain government offices by virtue of their family members being at the helm of public offices. This cancer has even spread in private organisations and has been partly responsible for corporate failures.

In the private sector, one can observe that the employment criterion in a single organisation can be favouring a chosen group of people from a particular clan, totem, surname, ethnic group or political circle. At this stage, one can notice that where cronyism exists, nepotism and corruption are also prevalent.
At household and individual level, we have cases where the general members of the public have complained about village headmen, chiefs or community leaders showing massive favouritism when conducting resource allocation initiatives (mainly drought relief donations and/or government agricultural support initiatives).
In all these cases, it is the cronies who have thrived at the expense of those who are not connected or rather have weaker connections to the most influential community, regional or national leaders.
As previously alluded to, cronyism has even penetrated the religious circles where the elite within the church hierarchy with incredible influence have placed their friends and families in influential or strategic church positions regardless of individual abilities. Thus, connections take precedence over merit-based promotions.
Regardless of how rife this economic monster has been spreading in Zimbabwe, it is important at this stage to state that the degree of cronyism is hard to quantify. This is largely exacerbated by the fact that cronyism, by its very nature, is secretive and an illegal act.

Basing on the experiences of the Asian countries, the spreading of crony capitalism is largely fuelled by the existence of poor public governance. Public governance issues have become a buzzword in most developing countries. As such, Zimbabwe is not insulated from experiencing the perils of cronyism. The public governance issues which create a breeding ground for cronyism are usually the noticeable deviations from the rule of law or excessive and arbitrary government regulations.

Corruption is not a new phenomenon. Throughout the history of human creation, corruption has been at the centre-stage of society. From time immemorial people have commonly been indulging in impurity and detestable practices. The current generation has, however, been window-dressing the corruption syndicates through coining cosmetic terms such as networking so as to justify cronyism, corruption and looting.

Paddington is an economic and financial analyst. He holds a Master’s degree in Finance and Investments with the National University of Science and Technology and a Bachelor of Commerce (Honours) degree in Finance with the same institution. A chartered secretary by profession, the writer is a graduate member of the Institute of Chartered Secretaries Association of Zimbabwe. He also holds an executive diploma in Business Leadership and is a graduate member of the Zimbabwe Institute of Management. — pmasamha@gmail.com.

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