Zimbabwe economics 101

We are the local government-pay up!

Economics studies the allocation of 'scarce resources'. Modern economics, unlike classical economics, totally ignores the causes of scarcity. In modern economics, resources are allocated by the forces of supply and demand.

Zimbabwe has an economic crisis. In economics, and Zimbabwe, the central economic problem is  resource scarcity. Resource scarcity in Zimbabwe is worsened by corruption.Corruption has become the sole  resource allocation mechanism.

Zimbabwe has the worst wage system in the world. Employees go months on end without pay, whilst executives and directors reportedly live on millionaire salaries and benefits. Employees live in absolute poverty, working without pay, when they are paid they pay contributions to state organisations that fail to fulfill their obligations. These same state organisations pay large amounts to executives who are non-performing.

Sanctions are being blamed for Zimbabwe's economic problems. With the plundering of national resources, it is becoming clear the real problem is local in nature. Zimbabwe will remain in absolute poverty as long as individuals keep stealing wealth, through non-performing state organisations. Given the poor performance of parastatals and exorbitant payments to some individuals, it seems the sole purpose of these parastatals is to take from hard working underpaid Zimbabweans.

Currently, over 80 quasi-government state sponsored organisations exist with layers upon layer of bureaucracy. The majority of these institutions do not deliver services at all. Nearly all, 80 plus, parastatals are loss making. These institutions are extractive and have been since their initial inception in the 1980s. The whole thing looks like a mafia conspiracy set up to bleed Zimbabweans dry. Zimbabwe's political mafia puts the Sopranos and The Godfather himself to shame.

Zimbabwe has become a feudal economy. An institutionalised patronage system has been created to serve the interests of a few 'Lords'. The main cause of Zimbabwe's worsening scarcity is wealth extraction by these 'lords who run the show', totally mismanaging enterprise (supply and demand) to the point of national bankruptcy.

Any low level employee, who has served in a parastatal, will know they are powerless to deliver any credible change. Political interference and corruption have become the forces of demand and supply in Zimbabwe's economy. With no change in sight, a scarcity of cash and capital will continue to haunt Zimbabwe.

Opportunity Costs

Opportunity cost is the alternative benefit foregone. If you have $1, and can either buy a loaf of bread or a piece of fish; opting for bread means you miss out on the fish. On buying bread, the fish becomes the opportunity cost.

In real life choices have complex consequences. Opportunity cost shows the dynamic between limited resources, unlimited wants, and the consequent need to make choices. In 1998, Zimbabwe participated in the DRC war.  This  US$200 million campaign ended up costing the country US$1 BILLION. At the time, Zimbabwe desperately needed infrastructural investment and fuel shortages were disrupting local development. Going to war cost the country more than the direct US$1 Billion costs, for  lenders also cut development aid in frustration. Furthermore, blatant waste demonstrated the state was not serious about developing the country.

Opportunity cost is more complex than a guns and butter trade-off. Some decisions have longer running consequences. Zimbabwe currently has international debts of over $10 Billion. The DRC war represents 10% of this amount, and brought no benefit to the Zimbabwean economy. If money had been put into infrastructure, Zimbabwe's current water and electricity shortages could have been mitigated.

Reviving the Economy

Practical economics is not taught in class. Those few nuggets of wisdom picked up in standard textbooks are useful less than 1% of the time. Zimbabwe has a desperate financing need. It is no surprise standard economic theory, which fits into elegant looking models, has been of no value. Economics 101 teaches for a state to finance public expenditure it can either tax, print more money or increase real economic growth.
In Zimbabwe's case, printing money is out of the question. Hyperinflation just a few years ago was a nightmare. As the US Dollar is now legal tender, the Reserve Bank can no longer print bucket loads of green to feed an inefficient consumption economy. Tax collection remains shambolic, as the the ruling elite evades taxes with impunity. Zimbabwe's only way out of the quagmire is through generating long-term real economic growth. So far, Economics 101 has given less than its 1% in helping with Zimbabwe's practical problem.
Mainstream economics text books are worse than useless when it comes to prescribing practical economic guidelines. As Zimbabwe learnt in the 90s, with the Economic Structural Adjustment Programme, following the advice of international aid agencies, and their elaborate economic theory models to the letter; pure economics can be poisonous.
Werner Sombart(1947) clarified growth can be realized through entrepreneurship, modernizing the state and improving technology -The ideas of Sombart are excluded in mainstream economics. Investing in innovation, technology and invention is a long-term process.China started emulating and copying technologies in the 1940s, it only started realizing rapid growth in the 1980s. State development occurs in a cultural context, as such it is another long-term process. This leaves the entrepreneur as the source of immediate long-term growth potential. Conventional economics texts fail to clarify how entrepreneurial potential can be encouraged, given their mathematical foundations. As such, practical economic growth advice for Zimbabwe cannot be found in 101 Economics class and Zimbabwe needs many more productive entrepreneurs.