SCARCITY of resources is the world’s greatest challenge. There just isn’t enough of everything to go around. Because we cannot produce infinite quantities of everything, we are forced to make choices. Every economy is thus faced with three basic economic questions. What to produce, how to produce and for whom to produce. These three are answered by choosing between traditional economies, free market economies (capitalism), command economies (communism) or mixed economies.
In the 18th century, Adam Smith, referred to by some as the Father of Economics; introduced the world to what we know as the Laissez faire theory. This is “the belief that economies function best when there is no government interference”. This is one of the guiding principles of free market economies. Laissez faire is a French phrase that means to “let be”, to “leave alone” or “allow to do”.
Adam Smith believed we should “let economies be”. He came up with the “invisible hand theory” which basically explains that individuals seeking self-satisfaction benefit the society more than they would if they tried to benefit society directly. In Smith’s free market economy, the actions of buyers of goods and services (consumers) in their pursuit of maximum personal satisfaction; and the actions of producers in their pursuit of maximum profits; automatically work together to answer the three basic questions of Economics. What to produce, how to produce it and for whom it should be produced.
A century later, Karl Marx, the father of Communism, introduced the world to the dangers of capitalism. He argued that in as much as Adam Smith’s free market economies guaranteed high output; the output could never be fairly distributed among populations. Marx said capitalism was unstable and it was inevitable that over time; the rich would only get richer and the poor poorer. He advised that when societies became rich enough, they should opt for economies where governments have complete control over what to produce, how to produce it and for whom to produce. His aim was to eliminate the class system and thus distribute income equally among citizens.
The working class, fed up with their lives of poverty, while the upper class citizens lived in luxury, truly identified with communism and a number of revolutions sprung across Europe. Capitalism and Communism found themselves in a bitter competition throughout most of the 20th century but by the 1990s we can safely say Command Economies had failed dismally and most nations were “in agreement” that the economic questions were best answered by freeing markets.
In as much as Capitalism triumphed over Communism, nations realised that governments could not be completely left out of economic decisions. The free market had its own problems. Most private companies are not interested in producing public goods, which are goods that are unprofitable but benefit everyone; for example street lights. Underproduction of merit goods is another disadvantage of free market economies. Merit goods are those goods that are beneficial to the society such as education and health. Left to its own devices, a free market would price these goods at unattainable levels so governments intervene by providing these for free or at subsidised prices so that the poor also benefit.
This has led to the popularity of mixed economies. The role of the government in mixed economies is to create and enforce laws that enable markets to operate efficiently and in an orderly manner. Governments are also obliged to provide a currency with a stable value which is what is used to measure and control prices. Stable prices and full employment are the main goal.
The government aims to protect the public and to preserve private enterprise. Lipsey and Chrystal, in their book “Economics” advise that whenever governments intervene, “care must be taken however, not to kill the goose that lays the golden egg”. What this means is that the government’s role may be to balance out the classes as explained by Marx but they should never do it in such a manner that kills enterprise, the economic factor that combines land, labour and capital to produces goods and services for us.
The Zimbabwe government is killing the goose that lays the eggs for the majority of the population that the government itself has impoverished. We find ourselves faced with a seemingly unstoppable rise in prices. Several shops have closed or hiked their prices in the past few weeks. There are major shortages of basic commodities. The government’s response is to order the shops to re-open and suppliers to sell at a loss. A few days ago, bakeries announced that they wanted to increase prices but the government intervened and prevented the price hike.
What the government is employing is the command branch of a mixed economy, which in a functional economy would be noble, but in a defunct economy is pure lunacy. No government can successfully command producers to go against the nature which drove them to enterprise in the first place – the pursuit of profits.
Smith explained it aptly. He said “it’s not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but their regard to their own interest…” What Smith is saying is producers are not in business out of kindness. They are in business out of self-interest; in this case, to make money. Profits are their only incentive and they will not operate for anything else other than to make profits. What are the chances then, that Zimbabwean bakers will continue producing bread at a loss?
When Marx introduced the idea of command economies, he explicitly pointed out that only when societies became rich enough should the state take over control of economic activities. Here is the Zimbabwean government, at the nation’s poorest, forcing command economics on businesses that are sourcing not only their own inputs but also their own currency.
Instead of taking measures to sort out our currency challenges, the government peddles the falsehood that the bond note is at par with the United States dollar and tries to force businesses to help them peddle that false narrative. They expect businesses to buy foreign currency from the black market, import goods and sell them at a loss. How insane and outrageous is that?
It is corrupt and highly unethical for the government to fix prices, causing producers to take the fall for their inability to provide a stable currency. It is theft at a grand scale to try and get political mileage by forcing businesses to incur maximum losses as opposed to the profits that motivated them to get into business in the first place.
Command economies are characterised by meticulous planning. Any decision governments wish to impose, they must plan for in advance. Production must be planned based on current trend, which are then used to forecast demand cycles. It involves a lot of data analysis and once that is done for example in the bread industry, inputs are sourced in advance; there has to be a certain availability of fuel for distribution and costs of production must be calculated and planned for. It is therefore criminal for a government to wake up and fix the price of bread without taking into account the above mentioned requirements. Command economics does not start at fixing prices it starts at ensuring supply. The government of Zimbabwe is clandestinely employing command pricing while masquerading as a mixed economy to the world.
It becomes even more disturbing when one takes into account that the government has neglected all of its roles expected in a mixed economy. They have failed to provide public goods. Our roads are in bad shape. We have no street or tower lights. The only public good the government is providing is defence and that is currently working to “defend” the government against its citizens. It is the same with merit goods. Zimbabwean hospitals are in a shambles. There are no drugs, the buildings are dilapidated and the staff demoralised.
Zimbabwe at the moment is not a traditional economy. It is not a command or even a market economy. It clearly is not a mixed economy. None of these are answering the basic economic questions. I am afraid we are not any kind of economy because we are under complete economic capture by the state.