Zimbabwe, like many developing nations, stands at a critical juncture in its economic journey. While the allure of external investment and the necessity of tax revenue are undeniable, a truly transformative economic leap hinges on a fundamental understanding of where the lifeblood of a thriving economy originates: robust and dynamic institutions.
External capital and taxes serve as vital supplements, but they are insufficient to ignite the self-sustaining engine of economic growth.
New currency, power of job creation
Zimbabwe's history with currency instability underscores the urgent need for a credible and stable medium of exchange.
A bold approach to introducing a new currency could simultaneously address unemployment through a Job Guarantee (JG) programme.
Under a JG framework, the government acts as the employer of last resort, offering employment at a living wage to all willing and able citizens. Crucially, the new currency would be the sole means of payment for this government-created employment. This immediately imbues the new currency with intrinsic value — it is the only way to earn a livelihood through this guaranteed employment.
The elements of a successful JG programme include:
- Universal eligibility: Open to all citizens willing and able to work.
- Living wage: Providing a basic but dignified standard of living.
- Productive work: Focusing on projects that benefit the community and build infrastructure like road repair, environmental conservation, public services.
- Decentralised implementation: Allowing local authorities to identify and manage projects based on community needs.
- Counter-cyclical nature: Expanding during economic downturns when private sector employment shrinks as the private sector recovers and absorbs JG workers.
- The advantages of implementing a new currency through a JG programme are manifold:
- Anchored value: The currency's value is directly tied to labour and the goods/services produced by JG participants.
- Job creation: Directly addresses unemployment and underemployment.
- Economic stimulus: Injects new purchasing power into the economy.
- Infrastructure development: Facilitates the completion of essential public works.
- Social stability: Reduces poverty and inequality, fostering social cohesion.
- Fiscal discipline: While the initial outlay is government spending, the subsequent taxation in the new currency creates a natural feedback loop, ensuring the currency's sustainability.
The redemptive power of taxation
A paradigm shift in understanding the role of government finance is crucial.
The conventional notion that governments must tax before they can spend is a misconception, particularly when a sovereign government issues its own currency. In reality, the government can and often does spend first, and then tax later.
Consider the historical precedent: ancient kings did not levy taxes before commissioning the construction of palaces or mobilising armies.
They decreed their expenditure, and their authority as the issuer of the currency (often in the form of inscribed metals or other tokens) was sufficient to command resources.
Taxes were subsequently levied to provision the state and, importantly, to create a demand for the currency.
Citizens needed the currency to pay their taxes, thereby giving it value and ensuring its circulation.
In some instances, after collecting taxes, rulers might even destroy a portion of it, demonstrating that the purpose wasn't solely to accumulate wealth but to manage the monetary system.
In a modern context, a government that issues its own currency is not constrained by its prior tax receipts when it decides to spend.
Government spending injects the currency into the economy.
Taxation then serves several key purposes:
- Creating demand for the currency: As mentioned earlier, it compels citizens to use the currency.
- Redistributing wealth: Progressive tax systems can help to reduce income inequality.
- Funding public services: While not a prerequisite for initial spending, taxes are the primary mechanism for sustainably funding ongoing public services in the long run.
Therefore, Zimbabwe's government can strategically initiate spending – particularly through a Job Guarantee program paid in a new currency – to kickstart economic activity and create employment before significant tax revenues are collected in that new currency. The subsequent taxation will then solidify the currency's value and provide the resources for future government operations.
Money Creation
The power to generate significant capital lies within a well-functioning financial system. Consider this: money, in its modern form, is largely created, not simply stored. This creation occurs most powerfully when a credible borrower seeks a loan from a strong financial institution. This act, seemingly simple, triggers a multiplier effect through the fractional reserve banking system. Banks are required to hold only a fraction of their deposits in reserve, lending out the remainder. This lent money is then deposited elsewhere, allowing for further lending, and so on. The lower the reserve ratio, the greater the potential for money creation. Developed economies often operate with significantly lower reserve ratios, even approaching zero in some instances, reflecting the trust and stability within their financial systems. This allows for a far greater leveraging of existing capital into productive investments.
For Zimbabwe to unlock this potential, the focus must shift towards building these strong financial institutions. What constitutes such an institution? Firstly, trust and stability are paramount. This requires sound regulatory frameworks, independent central bank oversight, and transparent governance to protect depositors and investors. Secondly, efficiency and innovation are crucial. Financial institutions must be adept at assessing risk, channeling funds to productive sectors, and embracing technological advancements to facilitate transactions and access to capital. Thirdly, capitalization and liquidity are essential to absorb shocks and ensure the availability of funds for lending. Finally, a culture of responsible lending and borrowing must be fostered throughout the system.
Once these pillars are in place, the act of a credible borrower – an individual or business with a viable plan and a track record of responsibility – seeking a loan becomes a catalyst for economic expansion. This newly created money fuels the establishment of new businesses, generates employment opportunities, and drives value addition across various sectors.
The Loom of Creation: Weaving Zimbabwe's Economic Destiny
In the grand tapestry of economic development, Foreign Direct Investment and tax revenues are vital threads, adding color and strength. Yet, the loom itself, the very instrument capable of weaving a prosperous future, lies within Zimbabwe's own hands. It is the power to cultivate robust financial institutions, where trust blossoms and capital flows to the deserving. It is the courage to mint a new currency, not as a fleeting promise, but as a tangible reward for the labor of its people, anchoring its worth in the dignity of work.
For when strong institutions stand tall, they become the architects of possibility, birthing the very lifeblood of commerce with each loan extended to a credible hand – a hand holding a dream, a plan, a commitment to build. What defines this credible borrower? Not just a ledger free of debt, but a vision etched in diligence, a spirit of enterprise ready to sow the seeds of progress.
And the state, the sovereign weaver, need not wait for coffers to fill before casting the first threads of creation. It can spend, investing in its people, in its future, knowing that the act of creation itself will generate the very means of its sustenance. Taxes, then, are not the prerequisite, but the echo, the returning tide that balances the flow, ensuring the river of commerce runs strong and true.
So, let Zimbabwe look inward, not with scarcity in its eyes, but with the profound understanding that within its grasp lies the power to forge its own economic destiny. Let the foundations of strong finance be laid, let the new currency rise on the wings of employment, and let the state spend with the confidence of a sovereign, knowing that the true wealth of a nation is not just what it gathers, but what it empowers its people to create. For even without the immediate embrace of foreign capital or the full weight of taxation, Zimbabwe can, through the guided creation of its own economic instruments, weave a future rich with opportunity, stability, and the enduring promise of prosperity.
- Dr Nota is an economist, public health expert, compliance and ethics professional as well as an author. He is the founder of Navala Global , LLC and Nota Consulting Group. He previously served in academic and policy roles in the United States. These weekly New Perspectives column are coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consultants (Private) Limited, pat president of the Zimbabwe Economics Society (ZES) and past president of the Chartered Governance & Accountancy Institute in Zimbabwe (CGI Zim). Email – [email protected] or Mobile No. +263 772 382 852
