No austerity but just rewarding inefficiences

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Financial Matters Tinashe Kaduwo

WHILE austerity measures are needed to improve long-term economic performance, are the current measures being pursued in a just manner?

The 2% tax on transactions has affected the poor more, while the hike in fuel duty benefits were offset by subsidies being given to industry. Prices have soared, the social welfare has been eroded and confidence is now wearing thin instead of being restored.

Economic sanity appears like a mirage. There is urgent need to reflect carefully on the distributive consequences of government’s austerity measures and think about how, if required, they can be modified and implemented in a just manner. Currently, all government has done is take income from the hands of the poor and redirect it to the elites and industrial sector, while doing nothing to return the favour.

Aggregate supply is falling faster than aggregate demand, resulting in price increases. Subsidies being offered to the industrial sector are all but rewarding inefficiencies, worsening the welfare of the population, who are now facing the wrath of rising prices, falling real wages and eroded welfare.

High government debt has brought the economy to the current state where the ordinary man in the street is now feeling the pain. However, its genesis is the stuff of scandal.
For instance, government feared a complete financial meltdown and bailed out banks through the Zimbabwe Asset Management Company (Zamco).

This indeed contributed to the spike in government debt as Zamco acquired more than US$1 billion of banks’ non-performing loans, over 5% of gross domestic product just to shore up the ailing financial sector. Government then embarked on austerity to correct the ills of yesteryear. It is indeed difficult for many Zimbabweans to avoid the sense that these austerity measures are savage in scope and effect.

Close to five months on, it is worth thinking more carefully about the normative justifications given for these austerity packages. Given the way political discourse is typically framed, these measures are naturally described as necessary, but to achieve what valuable ends?

As Aristotle noted long ago, political life is not only about determining the best means to our ends, it is also about ascertaining what those ends should be. Probably the dominant form of justification of these austerity programmes in public fora is utilitarian, that is, where the focus is on achieving the greatest good for the greatest number. However, as American political philosopher John Rawls observed, this obsession with increasing the size of the cake to be distributed is consistent with the sacrifice of those at the bottom end of society. This is exactly what is transpiring in the country. It is the lowly paid civil servants, for instance, that have seen their salaries whittled down to the equivalent of US$100.

The government’s priority role should be ensuring that the worst off are made better off given the widening inequalities. Perhaps, rather than simply focusing on the overall utility produced, this would be a better benchmark for assessing the justice of austerity programmes. The 2% tax, hike in fuel prices and supressed wage bill growth in the civil service led to many protests although politicians try to shift the blame to other factors.

The financial services sector, for example, led by the Reserve Bank of Zimbabwe, played a contributory role to the rising government debt. This raises some fundamental philosophical questions, which need to be addressed. The first concern is the concept of political obligation. Why should the citizens pay the costs, in terms of higher taxes, for the failings of the financial sector? If that is the case, do the average citizens have austerity obligations?

Assuming that austerity is inevitable, a second philosophical question naturally arises: How is the burden to be spread? As it stands, the increases in taxes have affected the poor to a far greater extent. Policies should have been implemented that ensure the burden of austerity did not fall on those who could least cope and who had the least involvement.

Kaduwo is a researcher and economist. — kaduwot@gmail.com

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