Zimbabwe: A Lesson in Economics for South Africans

After the new Zimbabwean President’s inauguration speech, a lot of African nationalists are disappointed that Zimbabwe might adopt SA-style land reform, despite the shade that Mugabe has been throwing at Mandela’s memory.

With 80% unemployment (this figure is uncertain due to the challenges in that country), Zimbabwe needs investors and no investor is going to risk capital in an environment where property rights are disregarded by the state. You only invest if you know that the capital you put in and any returns will be yours at the end of the day. This should be clear to everyone.

There are good reasons why you can’t just seize all capital and invest in your economy yourself. Firstly, any such seizure is prone to corruption, which tends to make the allocation of resources less efficient.

Secondly and related to the first point, a central authority allocating resources will never beat a market of free individuals making economic decisions about the property which they own (as opposed to state ownership which is ownership by “everyone”, i.e no one). Individuals act based on price information and their assessments of their needs and wants. Democratic governments act on the basis of popularity. Something can be popular politically but those same individuals are not necessarily willing to spend money on that thing; and something can be unpopular politically but the opposite is found to be the case when it comes to the buying decisions of those same people. Two examples representing both cases would be giving money to the less well-off and buying the services of a prostitute, respectively.

Finally, even if government managed to achieve the impossible and allocates resources as efficiently as the market (this is impossible for the same reason that you can’t tell me what the weather will be like tomorrow, but even more complicated because we have no good way to measure subjective human variables like happiness), exposing yourself to a global market makes your own market that much better, for the same reason that the free market is desirable. A bigger market means access to more investment capital but more importantly, it means access to more human minds to make sensible investment decisions.

So what Mnangagwa said about compensating farmers for land is the least that his party owes Zimbabweans. They still have to balance their budget, deal with corruption, protect property by abandoning their indigenisation program, etc. The most important thing after property rights is the rule of law (they are two sides of the same coin, in fact), and on that score the coup and immunity granted to Mugabe are very bad signs. I’m not in principle opposed to immunity, but it should have been done as part of a Truth and Reconciliation Commission-like process. The Zimbabwean Constitution also looks like it confers too much power on the President, even more than the South African Constitution. The rule of law won’t be achieved if the President is not subject to the law.

This is by no means a detailed analysis of Mnangagwa’s inauguration speech. These are just my thoughts on the reaction to what is probably a small part of the speech by my Pan-Africanist friends as well as an opportunity for me to discuss why Zimbabwe-style property seizures always produce bad economic consequences.