Restoring Prosperity to Zimbabwe

In the midst of increasing socialization in Zimbabwe and spiraling poverty, there are many who still believe that the answer to the country’s woes is greater centralization of the economy.  In an International Relations course in Southwestern Community College, students were given a prompt which announced their roles as leaders of Zimbabwe and described the current economic conditions which hampered a real recovery.  Surprisingly, despite the data provided by the prompt, the majority of students (who were organized into groups of four or five) overwhelmingly favored greater economic welfare for the unemployed and greater nationalization of the state’s natural resources.  These decisions were made under the pretense of “helping the people”, and no doubt they were made under good intentions.  But, unfortunately, it goes to show how shortsighted many people are when concerning poverty, government spending and paths to recovery.  Admittedly, most students agreed that there had to be an immediate end to hyperinflation, and some groups even suggested to simply stop printing money (although, they also suggested an increase in government spending).  There were also many groups which supported deregulation of the industry and welcomed foreign investment, although these were, by far, a smaller percentage of the class.  Mainstream sources give a severe misrepresentation of the principles of the generation of capital.  The truth is that Zimbabwe does not need greater centralization and the foundations of a solution to prosperity are not specific to deregulation, although economic liberty is a keystone to any developing economy.  The answer to Zimbabwe’s problems lies in the guarantee of property rights.

In the years following Robert Mugabe’s election as president, the new government of Zimbabwe enacted a policy of “land reform”, which effectively redistributed land from the wealthier and more efficient commercial farms (predominately owned by white businessmen) to poorer black citizens.[1] The policy stems from the apparent disparity between the richer soil owned by the commercial farms and the poorly developed lands of the collective farms owned by small-time, black farmers.  The majority of the collective farms were poorly irrigated, dry and scorched.  This had little to do with the availability of water, however.  Although Zimbabwe only accounts for seven percent of the total land area of the African continent, it holds ninety-three percent of all reservoir water surface area.  The problem had entirely to do with the lack of adequately defined property rights, as collective farms were heavily regulated by local chiefs and other forms of government, and the parcels of land themselves were heavily farmed and eroded.  Irrigation tubes built in public land were often plundered and were not maintained by the private sector, guaranteeing sub par deliverance of water to collective farms.  Although these factors were recognized by a number of government employees, Robert Mugabe decided to begin his redistribution program.[2]

By 2005, there were fewer than 500 white farmers in the country, down from over 5,000.  Many were driven out with government troops, who killed both white farmers and their black employees alike.  Ironically, the black employees who should have received the land, according to the intentions of Mugabe, did not.  Instead, the nationalization of former commercial farms led to widespread unemployment, as these vast tracts of land were instead given to party loyalist.  New farmers were inexperienced, leading to a dramatic drop in productivity.  Zimbabwe, a former exporter of foodstuff, has become reliant on foreign food aid.[3] For example, prior to the expropriation of land commercial farms provided the majority of the country’s tobacco crop, employing nearly half a million people.[4] Today, millions of Zimbabweans face starvation and the worsening economic conditions have led to an increase in government-inspired and funded tyranny.[5] Many continue to blame extensive droughts and the end of foreign government aid to Zimbabwe, including loans by the International Monetary Fund (IMF).  In order to pay for the spiraling costs of government programs, the government resorted to the wanton printing of money which caused hyperinflation, leading to a 99% devaluation of the Zimbabwean dollar.  The root of the problem is not the lack of money, or more accurately capital, but the lack of property rights which allows for the capital to be represented and used for economic development.

In 2000, Peruvian libertarian economist Hernando de Soto published a book called The Mystery of Capital.  In his book, de Soto explained why capitalism succeeded in “the West” and why it has failed in less developed countries (LDC).  According to his thesis, this disparity is not due to any inherent cultural or genetic disadvantage, the lack of entrepreneurial spirit, or the deficiency of savings, but to the lack of defined private property rights which disallow citizens of third-world countries to user their property as collateral to garner loans.  As a result, there is an obvious lack of investment.  In some countries, it can take many years to legally acquire rights to a certain property, and even then these rights are not entirely guaranteed.  Hernando de Soto goes to prove how total savings in the Third World are many times greater than the total amount of foreign aid by the First World.  This thesis was later used by Thomas DiLorenzo, in his 2004 book How Capitalism Saved America, in order to explain the failures of early colonization attempts by British companies in the 17^th century.  These reasons can be applied to the Zimbabwean case.  DiLorenzo makes the case that early pilgrims, devoid of property rights, had no motivation to work harder and invest their labor in land which was not theirs.  In other words, they worked sufficiently hard to meet their contract requirements.  It was only after the introduction of private property that the colonies began to prosper.  As explained by DiLorenzo:

Private property was thus put into place, and the colony immediately began to prosper.  There was no more free riding, for each individual himself bore the full consequences of any reductions in output.  At the same time, the individual had an incentive to increase his efforts because he directly benefited from his own labor.

This applies to Zimbabwe, because the lack of defined and protected property rights eliminates incentives to invest.  Rampant government expropriation has caused a drop in confidence, as businessmen have little way of knowing what the government will seize less.  Also, given the lack of defined property rights, these cannot be used as collateral for loans, given that the loaners cannot be guaranteed of the permanence of the property.  In other words, if the property is seized by the government, or it turns out that it is claimed by another person, then the loaner ultimately loses the guarantee of the return of the value of the loan.  As a result, there is not just a decrease in the incentives to invest, but a decrease in the motivation to lend the money to facilitate that investment.

Interestingly, in January 2009 the Reserve Bank of Zimbabwe published a report on the importance of private property to economic development.[6] In the report, it’s mentioned that economic performance relies on investment, which is promoted through clear and respected property rights.  Property rights are defined by the bank as the right to consume, sell, rent, mortgage, and transfer the property.  In the report, the author suggests that the government should enact policies to develop these property rights and protect them through legal measures, and goes as far as to claim that this will spur an increase in investor’s confidence, leading to a return to economic prosperity.  The report not only applies this to farming, but also to mining and factories in Zimbabwe.  Unfortunately, it seems as if these calls for political reform have been largely ignored by Robert Mugabe and the other factions of government which hold authoritarian sway over the nation.  Instead, Mugabe continues to shift the blame to other factors.  The Zimbabwean president went as far as to suggest that the economic troubles in the country are due to an international gay conspiracy.  Mugabe has made clear his opinion on homosexuality, and even accused former Prime Minister Tony Blair of being the head of a “gay government” of the “gay United gay Kingdom”.[7]

Given the extent of calls for reform within the government’s own ranks and the fanciful tirades given by Robert Mugabe, it’s patently obvious that the Zimbabwean leader is detached from reality.  This means that until he is replaced by whatever means (natural death, coup, et cetera) Zimbabwe is not likely to see a productive land reform which would allow for a return of the efficient commercial farms of before.  This also means that other extensive natural resources in the country, including gold, iron and other metals, will not be exploited.  It is important to realize that foreign investment and ownership is not something to fear and avoid, but should be welcomed.  Foreign investment of private capital will be a decisive factor in Zimbabwe’s economic recovery, once the foundations have been set for this recovery.  Private property, regardless of the race, sex or sexual orientation of the proprietor, must be respected by the government and by the law.  Only through the establishment of stability and the end of arbitrary land seizures by the government can local and foreign entrepreneurs begin to invest.

Other causes of Zimbabwe’s woes are purely superfluous to this underlying cause of the severe depression being suffered.  Of course, unrestricted government spending (over fifty percent of the gross domestic product), subsidization of inefficient sectors of markets and other government interventionism lead to greater instability and poverty.  But, the elimination of these tyrannies will only decrease the severity of the struggle, as oppose to catalyze economic growth.  Ultimately, the most important factor which will lead to recovery is the respect of private property rights by the Zimbabwean government and the end of collectivization and nationalization.  Perhaps the one “positive” outcome of the human tragedy that is Robert Mugabe’s Zimbabwe is that we now have a perfect case study against modern collectivization.  It is troubling, however, that despite the clear support for privatization and large commercial farms by the evidence—the evidence being that these commercial farms offered better standards of living, through their wages, than collective farms—there are those who still believe in central economic calculation.

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[1] Terrell, Timothy D., “Mugabe’s Famine”, Ludwig von Mises Institute Mises Daily, 16 September 2002: http://mises.org/story/1048

[2] Richardson, Craig, “How the Loss of Property Rights Caused Zimbabwe’s Collapse”, Cato Institute Economic Development Bulletin, 14 November 2005: http://www.cato.org/pub_display.php?pub_id=9294

[3] Koinange, Jeff, “Tale of two farms in Zimbabwe”, CNN, 30 March 2005: http://www.cnn.com/2005/WORLD/africa/03/30/zimbabwe.farmers/index.html

[4] Standley, Jane, “World: Africa Zimbabwe faces farming anarchy”, BBC News, 25 November 1998: http://news.bbc.co.uk/2/hi/africa/222097.stm

[5] Keane, Fergal, “Famine plagues Zimbabwe”, BBC News, 21 January 2003: http://news.bbc.co.uk/2/hi/africa/2678557.stm

[6] Gono, G., “The Role of Property Rights in Investment Promotion”, Reserve Bank of Zimbabwe: http://www.rbz.co.zw/pdfs/2009%20Mps/Role_property_rights.pdf

[7] Barrow, Greg, “World: Africa The real Commonwealth Summit”, BBC News, 15 November 1999: http://212.58.226.17:8080/1/hi/world/africa/521672.stm