HomeBusiness DigestRedefining the role of govt in the economy

Redefining the role of govt in the economy

THE Zimbabwean economy has over the years been largely dominated by the government as the lawmaker, regulator, business owner (competitor/supplier), consumer, financier and tax collector at the same time.

Victor Bhoroma

The evolution from a socialist and command-based economy where the government is at the centre of key economic activities such as agriculture, energy generation and petroleum distribution, mining, tourism, real estate and banking to a free economy which favours private sector investment has been very gradual.

Advancement in globalisation and the quest to harness private sector investment have brought to the fore the need for government to deregulate the economy, give authority to custodians of key institutions and allow market forces to play their part.

In addition, the collapse of industry-defining state entities such as Air Zimbabwe, National Railways of Zimbabwe, ZimGlass, Zimbabwe Broadcasting Corporation, Hwange Colliery, Zimbabwe United Passenger Company, Kingtons, Cold Storage Company, and ZiscoSteel has demonstrated that government cannot play all economic roles without creating market inefficiencies.

Over-regulating the economy has also helped to breed bureaucracy, undue political interference, parallel markets, weak institutions and a rent-seeking mindset in the public sector.

An economy is a system in which the supply and demand for goods and services plays a primary role in a competitive marketplace. On the other hand, a government is the system or a group of individuals governing an organised community. The government is a mechanism for determining policy in socio-economic management and is a means by which those governance policies are enforced.

In Zimbabwe, conflict between major economic players and the government emanates from the latter’s idea of influencing all economic activities through politics. Even though governance cannot be weaned from a political system, politicisation of the government often leads to poor socio-economic development. Political decisions have not always been in the best interest of a vibrant economy and are partly to blame for the market inefficiencies present in Zimbabwe. In order to create a conducive environment for business, the following roles of the government in a market economy should be clear:

Legal framework, strong institutions
This is one of the key functions of the government that is exercised through the Zimbabwean parliament. Enacting laws and a justice system that ensures that key institutions such as the rule of law, tax system, economic policy, contracts, financial markets, property rights and governance are respected and enforced in the economy. Institutions increase the security that the risk of incurring in an economic transaction is matched by the full assumption of its commercial benefits such a profit, business growth and wealth creation.

The failure of most Third World countries, especially in Africa, is premised on weak institutions that are mirrored on personalities or political organisations without the much-needed independence. In such situations economic decisions follow personal interests, patronage and ethnic lines.
Economic stability and growth

This role seems very obvious yet it has been so elusive in modern Zimbabwe. Economic stability is maintained through policies implemented by cabinet.

These policies touch on every aspect of the local market and include monitory policy to control money supply in the market. Similarly the fiscal policy looks at the taxation levels and government expenditure in the economy.

High inflation rates, market shortages and over-supply of Real-Time Gross Settlement “money” in the economy clearly point to failure on the part of government to take decisive action to stabilise and grow the economy.

Fostering competition
Competition is very essential in a free market. The government should always maintain an independent regulator role to facilitate creation of new businesses that challenge and disrupt the market.

The government should not protect or sustain inefficient monopolies as it is akin to supporting poor product or service quality in an economy.

Sectors that currently need competition include broadcasting (TV and radio), energy generation and distribution, rail transportation, fixed telephony and downstream petroleum importation into Zimbabwe.

Besides improving service quality, licensing more players widens the tax base for the government and creates employment.

Government should be preoccupied with ensuring that every business in an economy is a player through paying taxes, employing locals, buying local goods and contributing to infrastructure growth than to decide who should be licensed or do business in the country.

Public goods and services
This role goes without saying.

It is important to ensure consistent funding for public infrastructure such as roads, dams, bridges, ports, accommodation, electricity and amenities.

Infrastructure growth has a direct bearing on economic growth as it lowers cost of doing business and allows access to the market.

Other public services such as defense, police and prisons are also key in maintaining peace, security and order in the market.

Income redistribution
Social security services such as pensions, health care, insurance and occupational safety have multiplier effects to economic growth in Zimbabwe.

These services should always be reviewed according to the cost of living so as to maintain livelihoods, incomes and spending patterns in the economy.

Similarly, income and wealth redistribution in the country is achieved through taxation, welfare benefits, land redistribution and public services. The gulf between the rich and poor or between various provinces in terms of economic activity in Zimbabwe is widening.

The government should offer economic incentives for investment in rural areas and marginalised cities. In a way, this can be a long-term strategy in managing rural-to-urban migration, overpopulation in Harare and formalise small businesses.

Correcting externalities
Economic growth in a free market brings in negative or positive externalities.

Of particular concern are negative externalities such as pollution, high crime rate, drug abuse, traffic congestion, road accidents, corruption and diseases.

Taxation and various penalties should always be punitive enough to control such examples of market failure. Though some may not be prevented, the government should not be complicit or provide fertile ground for negative externalities.

The best way to do so is to have an independent justice system that punishes and corrects these externalities in the local market.

Overall, the above roles are what the Zimbabwean government needs to prioritise with a clear focus on promoting economic growth.

Playing conflicting roles such as regulating and business ownership, competing and tax collecting, financing and consumption at the same time creates market inefficiencies such as the scenario in the local market.

Market forces should be left to determine prices in the economy unless the services are deemed strategic such as national security, research and development, education, culture preservation, central registration and environmental protection.

Over-regulating and micro-managing the economy breeds bureaucracy in government, parallel market growth, weak institutions and a rent-seeking mindset in the public sector.

Bhoroma is business and economic analyst with expertise in business management aspects. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on vbhoroma@gmail.com or Skype: victor.bhoroma1.

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