It’s the economy, stupid

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BY MUONGORORI
FOR MOST people the situation in Zimbabwe is quite bewildering. They find it hard to work out what is happening and to understand why. In fact, if you observe a few simple but fundamental rules, it is quite easy to understand the economic collapse and the speed with which it has destroyed what had been a model, if small, economy.
In my own business, I have to observe these simple rules every day – or go out of business. So I watch the following issues very closely, on a daily basis:
1. Does my staff feel they are a real part of the business and have a real say and stake in what goes on? If not, I cannot command their loyalty and commitment to the business – and without that, we simply cannot succeed in the long term
2. Are we making more money than we are spending? It’s very simple really – you can ignore the issue of profitability because that can mean many things, but you cannot ignore your cash flow. In basic terms if you are not making more money than you are spending, you are going broke.
3. Management is about managing change. Our working environment is changing every day – sometimes by the hour. You cannot do much about the changes taking place but you can learn how to surf the waves and enjoy the process. If you do not, you will pretty soon find yourself on the beach.
If you print more money to fund day-to-day transactions, you reduce its value. By doing so, government destroys value and savings; by running the presses at the Reserve Bank they secretly tax their people by reducing the real value of what they earn or own.
If a nation spends more than it earns it has two options – it can borrow the money from others or it can print money. If they borrow from ‘captive lenders’ and take advantage of their power to do so on uneconomic terms, then they pay a lower return than would be demanded in a free market. Both happen in Zimbabwe. We run a budget deficit that is extraordinary by historical and world standards – last year it was over 60 per cent of GDP.
When borrowing even at these levels cannot fund spending, we print money, vast amounts of it – and in doing so we foster inflation and destroy value. This is why real earnings of everyone in Zimbabwe are now down to about 10 per cent of what they were 20 years ago. This is why all pensions are no longer worth the paper they are written on.
The failure of the pensions industry to protect the interests of their clients is an absolute disgrace. In my own case, I contributed to five separate policies for all my working life, and when they matured it would have cost the company more to write me a letter thanking me for 50 years of servitude and write a cheque that would not buy me three loaves of bread.
Only markets can allocate resources efficiently and make the hard decision as to what a product or a service is worth. You interfere with this principle and you will pay a terrible price.
My first principle of business was developed because I believe people only look after what they own or have secure tenure over. When I was a small boy, my family fell on hard times. We moved from a large home in an up-market area to municipal housing occupied by low-income families. When we had been there for a few years, the City decided to give us title. We were allowed to treat the rent we had paid as a deposit and were given a bond for the rest. The transformation was immediate; people painted their homes, put up walls and planted gardens. I have never forgotten that lesson.
In the agricultural sphere it is the same – the foundation of productive agriculture is a sound and secure tenure system within a functioning legal system.
In Zimbabwe we have violated all these fundamental principles and are now paying the price. The loss of security of tenure has destroyed our farms. The failure to observe basic discipline in our economic affairs is driving inflation to historic levels, the attempt to halt inflation by exercising control is now wiping out what is left of our economy.
Countries, like ordinary people, can only learn from their mistakes. We are certainly doing that and I see in that process great hope. Perhaps when finally we throw off the yoke that we were landed with in 1980, a new generation of leaders will come to the fore and having seen what happens when you disobey the basic rules of economics, will instead make the necessary decisions to take the country in a radically new direction. It’s not rocket science.