Zimbabwe: When Price Controls Fail...

Hilzoy watches the disaster that is Zimbabwe:

Obsidian Wings: Zimbabwe: When Price Controls Fail...: When last we checked in on the slow-motion disaster that is Zimbabwe, Robert Mugabe had decided to impose price controls. Predictably, this just caused shops to become empty: when people cannot sell at a profit, they tend not to sell at all. According to the Zimbabwe Independent:

Business lost over $40 trillion since government declared war on big business. As a result government lost $13,1 trillion in revenue and that is when the warning bells sounded, prompting a rapid policy shift on the matter.

Now that price controls have been called off, what do you suppose Mugabe has done? If you guessed imposing controls on wages, you win!

Zimbabwe’s government slapped a six-month freeze on wages, rents and service fees on Friday, the latest step in what some analysts call an increasingly desperate campaign to sustain an economy gutted by hyperinflation. (...) The new freeze, announced in Friday’s editions of government-controlled newspapers, is intended to combat an annual inflation rate that the government says exceeds 7,600 percent, and private economists say is twice that. It bars businesses from indexing wages or fees to inflation, a method employed in many wage agreements.

All increases must now be approved by a government commission, the state-run Herald newspaper reported.

The freeze follows a decree issued in late June that forced merchants and wholesalers to reduce all prices by at least 50 percent. Shoppers stripped store shelves of clothes, meat and other basic goods after that decree, and producers have largely failed to ship new stock because goods now sell for less than it costs to make them.

Most commodities are now available only on the black market, where prices have continued to skyrocket. Moreover, as the last remaining stocks of goods trickle out of factory warehouses and onto the market, Zimbabwe could soon see the start of an inflationary spiral that would make today’s prices seem cheap, John Robertson, a Harare economist, said in an interview.

“It could go much higher — 10 times as much for some things in the next couple of weeks, as goods cease to exist,” he said."

The BBC quotes Robertson as saying: "I just wonder when they will try and reverse the laws of gravity, because this does not work." It's a pity Mugabe doesn't seem to realize that.

Last January, I posted a compilation of catastrophes that had befallen Zimbabwe during the previous week or two: doctors and teachers on strike, water shortages, sewage treatment plants crumbling, people unable to go to work because the bus fare was too expensive, upper- and middle-class Zimbabweans resorting to urban gardening in desperation: you name it. Since then, things have gotten much, much worse, and yet somehow, mysteriously, the government is holding on.

Sometime, something will have to give; I only hope that whoever replaces Mugabe when it does has some shred of concern for the Zimbabwean people, who have suffered enormously.

Thabo Mbeki to the white courtesy phone, please. A Security Council resolution and an OAU resolution placing Robert Mugabe under the Ban of the Globe would, I think, be very welcome right now.

Comments

[christofay]

Let's look at the failing 3rd world government at home, if Cheney gets his new product "War on Iran: And We're Serious this Time, Nukes," will a general strike help slow down the rush to war? We're all detached.

[Doug]

As long as the courtesy phone is white, it is unlikely to be answered.

[Peter]

Among his many university degrees, Robert Mugabe has a master's degree in Economics from the University of London, something he acquired by distance-learning after he became Zimbabwean Prime Minister in 1980. Given his recent economic policies, perhaps the University of London should consider retracting his degree?

[D-Slam]

If they had oil we'd have liberated them a long time ago.

[Don Quijote]

Zimbabwe, Population 12 million, 98% African, less than 1% European, the Europeans own all the valuable real-estate.

Who in their right mind would have expected such a setup to work?

My guess is that the economy will start to get back on track as soon as all the Europeans are driven out.

Don't be shocked if South Africa goes through a similar process.

[assman]

"My guess is that the economy will start to get back on track as soon as all the Europeans are driven out.
"

And you base that conclusion on what exactly? Zimbabwe's current policy has driven whites out of the country and it is a disaster. So maybe the solution is the opposite. To attract more Europeans, whites and investment back into the country. If the policy isn't working why would you want to do more of it.

[Maynard Handley]

"Business lost over $40 trillion since government declared war on big business. As a result government lost $13,1 trillion in revenue and that is when the warning bells sounded, prompting a rapid policy shift on the matter."

I assume this refers to Zim $s so, to be fair, this actually corresponds to a loss of, what, 40 US$?
When hyperinflation has hit you so badly, do any of these numbers actually mean anything?

[Anon]

The calling of the collapse of Zimbabwe is approaching a fever pitch. What is happening here?

Too low taxes?
Too high government spending?
Nonexistant government bond market to soak up excess liquidity?

No analysis here.

Personally I see meddling by disgruntled European oligarchies possibly undermining the currency through counterfeiters. I'm quite sure England could create any currency that Mugabe could create at 2x the quality. It's so much easier than a coup and so much more profitable.

http://www.zimbabwesituation.com/aug17_2006.html

[NE PDX]

No analysis? Fair enough. But this is one blog post, and it's hard to sum up 27 years of history in one post.

http://www.mdczimbabwe.org/

I'd gladly dis-enfranchise every European left in Zimbabwe, if every black African could cast a vote in a free and fair election.

They said of Mao that if he had died in 1955, he would be considered the greatest Chinese leader in history. If he had died in 1965, he would have been considered a great leader, but with some serious flaws. Alas, he died in 1975.

With Mugabe, you could say the same thing. Just change the dates to 1982, 1992 and 2???

[assman]

"Personally I see meddling by disgruntled European oligarchies possibly undermining the currency through counterfeiters. I'm quite sure England could create any currency that Mugabe could create at 2x the quality. It's so much easier than a coup and so much more profitable."

Proof? Or did you just snatch that statement out of your ass.

Personally I think aliens came down and hypnotized Mugabe into destroying Zimbabwe in order to realize their plans of creating a mutant slave race devoted to their God, Creaton.

[Peter]

Don Quijote says:

"Zimbabwe, Population 12 million, 98% African, less than 1% European, the Europeans own all the valuable real-estate. . . My guess is that the economy will start to get back on track as soon as all the Europeans are driven out."

Well, although exaggerated, the figures you quote are so high-level as to be meaningless for actual policy-making. Let's go a little deeper, shall we. Before the recent farm seizures, perhaps as many as 30% of the black population in formal sector employment were employed on white-owned farms. Seizing these farms illegally, and without warning, meant that these farm-workers (black, all) were suddenly reporting to new owners.

Perhaps no problem with that, except:

- the new owners were almost all members of the city-based black elite with no interest in the day-to-day effort of farming, and

- the new owners were not inclined to maintain the infrastrure of investment on the farms -- machinery, irrigation systems, distribution networks. Formal-sector Zimbabwean agriculture had been among the most technologically advanced of any in the world -- you don't produce a third of the world's traded tobacco crop without advanced machinery and distribution systems, for example.

The end-result of the illegal seizures of farms was a sudden drop in production and a sudden loss of employment by black farm workers.

The saddest part of this saga is that the ZANU-PF Government of Robert Mugabe knew all this would be likely before the seizures. Back in 1980, when Mugabe first came to power, his administration embarked on a careful and judicious (and legal), transfer of white-owned farms to black farmers on a willing-seller, willing-buyer basis. Because of the risk that such transfers would cause a drop in production and in employment, the Government at that time did not consider technologically-intensive farms for transfer.

Such knowledge of the likely consequences was either forgottten or ignored when the farm seizure began in 2000. Or, perhaps even worse, the Government even relied on these being the consequences of its action -- an unemployed, starving, population is more amenable to Government direction than a productive, employed one.

Unfortunately, Zimbabwe's current Government is evil and malicious, and willing to use any and all means to stay in power, including theft, torture and murder. Among the regime's weapons is the rhetoric of black empowerment, but without any substance except for the tiny ruling elite. This inauthenticity fools no one inside the country, but, it seems, many outside.

[Dave L]

"Personally I see meddling by disgruntled European oligarchies possibly undermining the currency through counterfeiters."

Ahh, taking time away from your primary job of advising the South African Health Ministry on AIDS-related issues, I see.

Actually, these lunatic comments serve the useful function of making clear how hopeless matters are in Zimbabwe - the poison left by racist white rule trumps any kind of rational discourse, and Mugabe will find defenders no matter what he does.