The Sunday Mail
A country should inquire on the mindsets that form its collective understanding of the economy.
Reflecting on the past year’s events in Zimbabwe, many of the top level economic decisions focused on the issue of debt. It is good for us to ponder that when we say the country is in debt of, say US$7 billion dollars, that debt is apportioned to whose heads exactly?
Whose future cash-flows securitise that obligation?
Casual interpretation seem to conform to the view that the Government is the one in debt.
To further affirm that interpretation, back in July we witnessed the passing of a debt assumption bill in which Government is widely understood to be taking over Reserve Bank of Zimbabwe debt obligations.
I would like to offer a competing perception of the agent accruing these obligations, the agent who is actually in debt.
Consider a situation in which a country issues a bond of US$10 billion on January 1, 2016.
This bond is supposedly meant to source finance for new infrastructural development projects, institutional capacity building, and other provisions of socio-economic advancement.
Let’s say the government in this scenario is borrowing under the intentions of sustaining a 10 percent GDP growth rate over the next five years, growth on which the nation hopes to service debt accrued on the bond issuance.
I encourage the nation to take the view that the debt is an investment into the productivity of economic agents within the economy.
The provisions that public funds are spent on are an investment into the improved ability of productivity by the country’s citizens.
For instance, that US$10 billion bond is meant to grow output by economic agents that use public infrastructure. It is meant to increase the likely future output by prospective economic agents who receive education from the public school system.
It is meant to sustain prolonged output by economic agents who utilise public expenditures in,say health,by lengthening their work lives. The debt is an investment of different implications for all these levels of the workforce, ultimately meant to improve productivity.
Unforeseen, suppose the country at hand falls on hard times only two years after the bond issuance.
The country was exposed to a recession because of unavoidable regional or global risk factors. A downward spiral occurs across its macro-economy. Public expenditures lose expected potency, and in some instances of emergency relief, funds have to be diverted from prior planned allocations.
Now, if these bad times cause the country’s workforce to leave in large numbers, debt is serviced on whose productivity?
Assume that population growth rate is low at less than 1 percent, along with prospective entrants choosing to pursue careers abroad after benefiting from the still relatively good public school system, who then will sustain productivity to care for the country’s ageing retirees?
Basically, the present and future workforce on which the country invested in has subsequently left and is not returning the investment made into its productivity.
Thus, four years into accruals, the country faces a massive debt overhang; yet the assets on whose productivity was invested in are now contributing elsewhere.
To the remaining citizens, is this scenario fair?
The beneficiaries of debt have left the burden of payment onto the remaining workforce. Indeed, under this perception, national debt obligations should be a shared benefit and shared obligation; an investment that has mutually vested interest across different levels of a country’s citizenry.
But Zimbabweans do not see things in that manner, do we?
Of course I do not mean to instigate any form of tension, but I mean to use this perception as testimony to the lax attitudes we have in understanding the shared stake we actually have in capital and debt.
At any moment in time, a country has a fixed amount of capital.
While that amount is extremely difficult to compute because of continuous fluctuations of inflows and outflows, that amount of capital can be perceived as fixed at any moment.
Depending on the economic competence found within a country, capital is constantly being allocated towards choices of activities that are meant to create a return on that capital. This is commonly referred to as capital accumulation.
I would suggest that governments comprehend that they have the greatest discretion on how capital circulates within a country. This can be through a variety of means spanning from regulatory laws, fiscal and monetary policy, and more directly, national budgets.
However, just because governments may have the greatest discretion of how capital is directed in an economy, it is important that they comprehend the fact that ultimately, they should merely be custodians and stewards of capital.
In fact, governments should act as the “invisible hand” that Adam Smith coined, as in practice no market is entirely a free market.
But for governments to act in such a manner, they must appreciate that they are not owners of capital itself, nor are they the bearers of debt!
Instead, they must perceive capital and debt as being dispersed amongst citizens.
What governments must act on then is to make sure that capital within its citizenry accumulates, and through a skillful hand on the economy, governments should retain a situation where capital is invested in a manner that incites adequate productivity to create greater capital accumulation within its citizenry.
This is the fundamental reason why governments borrow.
Corroborating with this view, citizens must then develop an understanding that amongst us there is a fixed amount of capital at any one moment.
We will either act to accumulate that capital or decrease that capital through our productivity.
Thus, when our Government accrues debt, it is an act of investing capital into our productivity potential of which we all have a shared mutual interest in seeing a return create capital accumulation. Developed countries share this perception of capital and national debt within their citizenry.
This is the context that incites a society to offer more distributed access to public services that enhance citizens’ productivity potential and contributory roles to capital accumulation.
For instance, the mutually shared interest in capital is why developed economies make it a point to offer universal healthcare and education subsidised not by Government capital as widely perceived, but by capital accumulated from the productivity output of all citizens.
If we assimilated this type of understanding on capital, Zimbabwe would perceive empowerment not as a one man for himself, or Government duty of provision, but as a shared national project where we all have one interest.
What we are essentially saying is that we want to create an economy where capital is distributed in a manner that benefits from the enhanced productivity potential of every citizen contributing to capital accumulation.
With this mindset, we perceive the poor as a drain to our national capital accumulating potential, not as a sad state of affairs.
We then take personal offense when school children drop out of school, or when fellow citizens fail to access health care.
I believe that the significant reason why poverty is more tolerable in Africa than it is in developed economies is simply because we still fail to perceive fellow citizens’ misfortune as a direct drain to our capital accumulating potential as a nation.
As we end the year that was led by a predominantly debt focused narrative, I hope that we can enter 2016 with a new perception.
Our debt situation as a country is an indictment on our ability to invest in the productivity potential of Zimbabweans.
We need to create capital accumulation that services that debt and grows our economy and wealth.
