Inclusivity, trust, consistency key to policy implementation

BY ESTHER MAPUNGWANA

Following the abrupt announcement of Statutory Instrument 127 a number of economic players had mixed reactions to it. Some consumers and trade unions believe SI will protect the low income earners from being bullied by businesses while businesses strongly believe it is destructive to economic stability and may lead to price hikes as it resembles a price control mechanism.

However, of greatest concern to the majority of stakeholders was the lack of consultation before the implementation of the policy which questions its acceptance, compliance level  and its success.

Zimbabwe is a country that has undergone economic turmoil, which the government should have learnt some lessons from. Enforcing a monetary policy without any form of consultation in a country with weak administration structures may result in policy failure.

In February 2009, Zimbabwe discarded its own currency and adopted a multiple currency regime. Due to liquidity crunches the monetary authorities introduced a surrogate currency called “bond notes” and coins to ease the foreign currency bleeding.

The bond notes and coins were introduced at an exchange rate of US$ 1:1 bond note. Upon issuing the bond note in 2016, several monetary pronouncements have been made as a follow up in trying to stabilise the business environment in the country, including SI85 of 2020.

Against this background the monetary authorities have failed to be consistent in both policy and utterance. A number of studies have shown that businesses and investors adjust to flight mode where there is no consistency and stability.

Building trust and confidence in the Zimbabwean economy is one of the most essential steps to revive the economy and attract the much needed investment. Although the government may have introduced SI 127 in good faith of wanting to curb the unscrupulous parallel market foreign exchange dealers, the approach the government used was not appropriate for successful policy implementation considering the fragility of the Zimbabwean economy

According to the World Development Report of 2017, policies are not spot transactions such as buying a book or using a taxi; they require consistency over time. However, reaching and sustaining agreements can be difficult because economic and political conditions may change, and the incentives for policy makers to deviate from established goal-oriented policies can be strong.

To promote sustained development, it is particularly important to ensure that those in power can credibly deliver on promises made to citizens beyond the political cycle. Imagine that a worker would like to save for retirement by contributing funds to a pension.

If that worker does not believe the government can credibly commit to not expropriating those funds and returning them in the future, he or she will likely choose not to save. In line with the economic theory of incomplete contracts, policies must include commitment devices to ensure their credibility.

Commitment devices help ensure the credibility of policies over time, even in the face of changing circumstances. In this sense, institutions can be thought of as technologies that allow society and individuals to engage in the pursuit of long-term goals, even in the face of changing circumstances.

In all countries, but mainly in low-income or fragile contexts, commitment is a fundamental condition to prevent the escalation of conflict to violence. Whether conflicting parties are able to reach credible agreements to renounce violence and endow the state with a monopoly on the legitimate use of violence is a crucial condition to prevent escalation.

When commitment to deals is not credible, contending sides tend to walk away from the bargaining table and violence prevails: warring factions may renege on peace agreements, policy makers may default on promises to transfer resources to discontented groups or regions, disputants may fail to abide by court judgments, or police officers may abuse citizens instead of protecting them.

The influence of commitment is not exclusive to security. Economic growth requires an environment in which firms and individuals feel secure in investing their resources in productive activities. Credible commitment to pro-growth policies and property rights is, in this way, also essential to ensure macro-economic stability and to enable growth.

People’s perception of the credibility of commitments can also increase their willingness to cooperate — say, through tax compliance — and to coordinate, following rules in response to the belief that others will follow as well. Theoretically, delivering on commitments builds trust in institutions over time and strengthens voluntary compliance.

“Empirical results from lab experiments carried out for this Report are consistent with this notion, whereby binding commitments lead to greater cooperation and more redistribution of resources among players”, the report elaborated.

The report further pointed out that trust is a central aspect of strengthening governance and delivering on development. Trust is related to positive outcomes in terms of economic growth, as well as government performance (Putnam 1993; La Porta and others 1997).

“But what exactly is trust, where does it come from, and why does it matter? This report defines trust as the probability that an actor assigns to other actors of delivering on their commitment, conditional on their past behaviour.”

In the game theory literature, this is known as reputation. The literature distinguishes between two key kinds of trust: interpersonal trust and institutional trust. Interpersonal trust refers to trust among individuals. It can arise from their relationships such as shared ties, or it can be present as a social norm.

The notions of bonding social capital and bridging social capital are relevant to interpersonal trust. Bonding social capital—the horizontal ties within communities and among organisations — can bring about a sense of purpose and identity, encouraging social cohesion. Bridging social capital consists of the cross-cutting ties that breach social divides, such as economic class, ethnicity, and religion.

If the bridging of social capital is missing, it can lead to balkanised societies, in which strong ties within communities actually work against the collective interest, holding back development.

Institutional trust refers to society’s trust in organisations, rules, and the mechanisms to enforce them. Institutional trust can arise from elements based on relationships, or it can be a function of repeated commitment.

This report focuses on institutional trust, built by repeatedly delivering on commitments, such as by enforcing contracts or not defaulting on pledges and obligations. This type of trust is important because it strengthens the capacity to commit (outcome legitimacy), and ultimately it enables cooperation and coordination by inducing voluntary compliance’’, reads the report.

According to OECD regulations should be developed in an open and transparent fashion, with appropriate and well-publicised procedures for effective and timely inputs from interested national and foreign parties, such as affected business, trade unions, wider interest groups such as consumer or environmental organisations, or other levels of government.

Consultation improves the quality of rules and programmes and also improves compliance and reduces enforcement costs for both governments and citizens subject to rules.

Governments should consult with all significantly affected and potentially interested parties, where appropriate, at the earliest possible stage while developing regulations (OECD, 2020[2]).

When involving stakeholders early in the policy cycle — at the stage before the preferred solution has been identified and the paragraph wording drafted, and at the stage when the administration is still able and willing to significantly change the regulatory draft — governments can achieve much better effects and improve regulatory outcomes.

Against the above background the Zimbabwean government should critically take policy consultations seriously for all policies, especially economic policy implementation to be successful.

Considering the economic history of the country, sudden policies may not result in compliance and where there is no compliance there is likely to be policy failure,  consultations bring voluntary compliance and also they bring better ways and ideas of policy  implementation without jeopardising the economy.

Mapungwana is a local independent economist and consultant. These weekly New Horizon articles are coordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society  and past president of the Institute of Chartered Secretaries and Administrators in Zimbabwe. Email: kadenge.zes@gmail.com/ cell: +263 772 382 852