OPEN ECONOMY: Looking for new political-economic balance

24 May, 2015 - 00:05 0 Views

The Sunday Mail

The most overlooked shortcoming to Government’s economic approach is its incorrect rubric for performance-based evaluation.

It is affecting implementation of policy and, consequently, actual policy returns. The reason is simple.

Embracing philosophy demands no tangible economic work!

That is to say, when a government functions on partisan philosophy alone and performance is based on just philosophy, everybody is guaranteed to be doing great work.

An evaluation of philosophy can only involve interrogating if people uphold partisan convictions, of which the response, “Yes!” is suffice to feel assured that agents are indeed “functioning”.

However, this is not the fault of Government alone. Our electorate has not only embraced this evaluation mechanism, but continually enforces it so as to pressure their incumbents, misguidedly, with the hopes of getting them to deliver economic desirables.

It is evident in prominent economic discourse. Partisan philosophies are the rubric on which performance evaluation is measured.

“Is the revolutionary party in conformity with its identified ideals? What perception is the party likely to give out by shifting from traditional doctrine?”

Unfortunately, this not only narrows out much needed room for compromise which canny policy-makers need to actually achieve our philosophies – often against resistance from immovable global influential structures – but more importantly, economic fundamentals in too many instances owe no loyalty to partisan extremes.

For these two reasons, it is essentially requisite for any country wanting to enjoy economic prosperity and political satisfaction, to equally revere both political philosophy and economic fundamentals!

The reality of Zimbabwe’s economic situation right now is that Government is ill-advisedly pursuing demand contracting policies (austerity), trying to lure more foreign aid and loans, while at the same time leaving the private sector – both local and foreign – to function within repressive supply side dynamics.

The economy cannot grow.

To be specific, we are struggling to sustain an overly centralised economy in proportion to the resources available to Government – an overly centralised economy, which, unfortunately, is guarded by conservative partisan philosophy.

As a result, Zimbabwe is in a state of inertia.

Inertia happens when a country is unresponsive and fails to adapt to existing economic conditions, yet it cannot alter its perspectives to develop new realities. Not just stuck in its ways, but literally stuck because of its ways!

So is our story right now. What is needed in Zimbabwe is effective implementation and execution of provocative, bold, politically unconventional structural reforms to get the economy moving.

Our highest priority, of which we must tenaciously commit to, must be to de-leverage the economy and raise incomes level relative to debt. This process seems radical considering our traditional economic management. As such, the greatest hindrance to such actions is that they challenge conservative partisan philosophies.

On the demand side of the economy, which emphasises consumer spending, priority policies must be focused on getting money into consumers’ hands and incite them to keep it circulating within formal sectors (not for the purpose of tax revenue, but to develop a vibrant and reliable formal ecosystem).

There are two considerations here.

First, the greatest influence on consumer demand is social service provision. Disposable income is what’s left only after consumers attend to these essentials! Government lacks fiscal capacity to avail social services through sustainable financing mechanisms; the costs of sufficiently providing quality social services is contractionary to the economy as it’s founded on an inescapable debt cycle.

So, we must start to consider how to diversify the ways in which these services are organised, provided and financed. Options include increasing decentralisation, outsourcing of certain tasks to capable low-cost providers, or building relationships to attract greater non-government organisation involvement in social service provision.

Admittedly, this is where direct aid would be most effective; specific in purpose and at no interest rates. Social service expenses take up a large chunk of consumer incomes, so with lower costs or more financial relief, consumers will have more money to spend in commercial markets.

Second, it is imperative that we become accepting of subsistence outside of Government dependence in instances where it is not necessary. This also applies in agriculture where the majority of the population makes its living.

For example, small scale farmers have suffered from keeping the Grain Marketing Board as a monopoly at a fixed price.

This market structure has had unintended consequences.

There are more rewarding value chains through contract farming; in more than just grains might I add.

Moreover, with a more open agriculture sector, we can expect and welcome financial support to farmers that is led by private ventures such as seed, fertiliser and mechanisation companies jostling for position in what can be a vibrant free market.

The result will be higher incomes for our agrarian-based population.

The supply side cannot be rigid in policy just to suit conservative partisan familiarity. Our supply side economics must be progressive to keep pace with efficiency and competitiveness!

If we are to get the supply side going, it really depends on enterprises being able to invest, deploy new technologies, commit to testing untried business models and innovate cost structures.

These are actions best done, and should be done by the private sector, incentivised by the objective function of profit motive. Government business is inherently less adaptive, less creative and less effective in taking these desirable actions.

The overall effect of our existing structure is that many value chains dependent on state monopolies are not productive.

The challenge with a resource stretched government, especially being the dominant market player, is that an economy becomes vulnerable to far too many inefficiencies and dead weight. As a result, competitiveness in quality and cost of our national output falls.

It is up to the private sector to not only correct, but capitalise on untapped productivity potential in the economy, of which there is plenty! This, however, is dependent on how much rope Government is willing to extend to the private sector and acknowledge its importance in igniting higher productivity.

Conservative hard-liners view these structural reforms as “neo-liberal” and relinquishing control of the economy to the interests of business. Two points here.

The point of focus is: Who owns business? That is why empowerment policies are focused on achieving indigenous ownership.

Patriotic business!

Second, ultimate control of the economy is in regulative power, which will always be the duty of Government.

Hard-line partisan philosophies are an economic fallacy. Karl Marx’s economic notions were largely dependent on the virtues of competitive productivity.

Free market capitalism has only flourished on the backbone of the deepest social safety nets. Partisan identities contrived from hard-line philosophies only leave economies vulnerable to politically indifferent challenges that require economic pragmatism.

Lessons abound world over.

Failure to respond to clear economic necessity is retained within the polarised identities of Republican v Democrat, Labour v Conservative, and so on.

Only the Chinese, and it shows in their economic ascension, have consciously untied themselves from the inertia caused by traditional partisan philosophy.

If there is a philosophical identity a political party and its electorate benefit from holding onto, economically, it must be “pragmatic”!

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