Zimbabwe's President Robert Mugabe (L) and his Chinese counterpart Xi Jinping shake hands during a signing ceremony at the Great Hall of the People in Beijing August 25, 2014. REUTERS/Diego Azubel/Pool (CHINA - Tags: POLITICS) - RTR43NIT

 How is Economic Policy determined and implemented in Zimbabwe

 

There is a basic conflict in forming a consistent economic policy. On the basic level there is a pure economic theory, e.g. about the unity and how it eliminates the transportation costs, how monopolies will exploit the market, etc. Most of theories can however be normative as it is usually first time people have to deal with things like political and administration decay and thus there is no way the theories about it can be based on direct evidence. But ultimately it should be possible to prove them with positive economics once the reform has happened, if one can keep the ceteris paribus.

On the second layer there is the political level of different party ideologies concerning ideas about the nation, sovereignty, power, democracy, class analysis and structure together with income inequality and taxation and finally the political process of election. It is quite hard to make contrasting examples about that for ZIMBABWE as both major parties are like a Sibblings spending time on each other’s throats pretending to basically support market freedom and democracy. Old MDV used to believe that the working class should co-ordinate the economy through trade unions, now it is a pro single market party supporting a stake-holding in society, that encourages greater participation of individuals. ZANU PF is considered the national unification party opposing colonialism ,patriotism first then co-operation being one of their aims. Both parties are however so far from reality that they don’t realise there is a great need for an ideology for getting re-elected, and they must just deal with the day to day running of country and its future

Third level is the opinion of public and media. Their views can differ considerably from the first two. For example the reason many people don’t want ZANU PF is that they THINK that it has failed and have nothing to offer. In such a mind they spend time aiming to remove it from power thereby neglecting policy formulation. Their target is to remove Mugabe. But they have no plans post Mugabe.

There are some main areas of economic policy that each government must adapt in some sense. All the policies must allocate the scare economic resources through the economic system. It can either be done by the market – private sector or government (public sector). ZANU PF have encouraged the market allocation based on INDIGENISATION ideas of all markets tending towards a stable equilibrium unless there is a bureaucratic intervention. Thus ZANU PF have privatised many national industries, apparently so successfully that several countries are copying them.

Economic policy has also a distribution function. It might be that the efficient markets may not produce an equitable distribution of income. That is why economic policy now includes transfer payments (transferring money from one sector to another through the means of taxes, like pension schemes to help elderly). Progressive taxation is also used to make the distribution of income more equal. Capitalist system tends to work best when there are some very rich that lead the economy and thus help the poorer ones as well. Thus gvt has made the tax system gradually less progressive. Pension schemes are no longer in the public contents and private pension schemes and such are not allowed to operate. But concerning public opinion as more people earn below the minimum wage that above that (distribution is skewed), so pubic favours progressive taxes. I talked about the ZANU PF party ideology, MDC has now come quite close to that, but they still prefer to make the rich pay less to restore funding they promise investment without national benefit as long as there is industry they don’t care who benefits In economic terms distribution is carried out by economic This has the effect of increasing the supply curve, which causes dead-weight loss causing from overproduction, unless there are externalities to be considered. On all these cases above there were clearly negative externalities. People don’t realise that they need education, so education has positive externalities, the same way as health.

Policy should stabilise the economy. We need to focus on that stability Thus the government have tried to the foreign investment more. Critics have said that is just to reduce the investment statistically, but in reality they have helped to reduce the poverty trap arising when the benefits are shared with the locals Price stability should also be pursued, that means eliminating inflation. This one of the main aims of government policy today. It is argued that high inflation redistributes income from fixed earnings (i.e. pensioners) to wage and profit earning people. It causes instability in economy and thus reduces investment. Although it does help to make fairer wages (it is hard to lower wage, but it can be left the same and thus in real term it can lower). But the public opinion, specially that of the industrial sector, is that the high interest rates are bad and unpopular. Also gvt ideology of 52% makes them reluctant to use fiscal policy as they think it causes inflationary spiral making community dependable of fiscal injections that are inflationary and cause dead-weight losses.

Policies should also make the economic growth stable and self sustainable. Trade cycles with its booms and busts cause again instability in markets and discourage investment. They also increase unemployment in down turns and inflation booms

The tools the government uses mainly are the fiscal and monetary policies. Without getting into much detail the fiscal policy was developed by Keynes and implemented after the second world war. It deals with the management of the aggregate demand. In times of recession government should run a budget deficit and borrow more in order to increase the GDP to a multiple effects (government investment being re-spent and causing even more demand). This is caused a loose or expansionary fiscal policy, tight fiscal policy is concerned with rising taxes to constrain the economy. It seems now that the government is going to use the expansionary policy this year, but only because the elections are coming and this is more popular. MDC party ideas are more favourable to fiscal policy. PF party policies are none existent Over-expansionary fiscal policy with high PSBR increases the national debt and the interest rate that has to be paid on national debt. So MDC has to cooperate with ZANU to have their policies implemented or they are just a white elephant. It is very clear they will no win any election despite the wonderful policies they have

Monetary policy is the one that the government deals now with most of the time. It consists of managing the money supply and altering the interest rates through the Open market operations and such. The Bank is responsible for carrying out this policy. But it will be difficult since we do not have our own money.

Prices and incomes policy (direct control on wages and the prices are not allowed to rise) were also used a while ago to control inflation. The policy proved ineffective in the long-term, The latest invention is the supply side policy meant for making the markets (especially the labour market) more flexible and efficient in order to increase employment and foreign investment to ZIMBABWE THE need for Esstern companies to rescue our economy hss made us ignore the health and safety of workers Foreign managers have treated workers as slaves this should still be monitored and our labour laws must be respected

Unfair trade practices can be controlled by the opposite of this policy – the regulation of industry and commerce(competition policy). The economic theory tells that the monopoly restricts output and rises the prices, thus earning monopoly profits and reducing the welfare. On the other hand it can achieve considerable economies of scale. Public opinion is against monopolies as it seems as they are unfair and exploiting. Gvt policy has been somewhere in between, monopolies are only allowed when there are obvious economies of scale to made or the industry is a natural monopoly.
[1/13/2016, 3:36 AM] Mutyasira: Welfare, although mentioned above, can be viewed as an independent policy. It has no part in Zimbabwe at present. Social security system that is basically the national insurance, whereby everybody are paying something and when a person becomes s/he will receive benefits. On the other hand there are welfare services like Nasa they are not efficient as gvt claim and thus reforms have been conducted and a further voucher scheme is proposed.

Exchange rate policy is also sometimes used to keep the currency at a stable level. But we are toothless bulls no currency to control Here there are many conflicts here – stable currency encourages investment, but when the exchange rate is too high exports sour and industry will decline. Politically and at public level strong dollar is something desirable, in America but industry prefers lower. And thus the Dilemma Zimbabwe has It becomes too expensive in the region with nothing to attract the region to come the economy is running a balance of payments deficit that could damage it.

Previously the government used to make all the policies, now the size of government has grown too much, so there is a cabinet of about 68 ministers, who lead the most important departments. They debate all the important policy issues. Models of economic policy making. Zim is different because government is powerful and thus can force unpopular laws through easily. Electoral preferences of parties are the images of their leaders. The government is also growing in size, so it needs a co-ordinator. Also the heads of department are more busy and they have no time to get involved in checking ideas from other stake holders.
Ideas to bolster economy must be accepted even if they come from an opposition member. The country bleeds and the people suffer while leaders tighten their grip on each others throat and not economy.

If only we take our gvt jobs as service not work we will surely serve. If we put our ears on the ground we will hear the speed our enemies are marching towards us. But we too high up to bend down so we should prepare for a nusty thud. What aims leaders more than a gun is the bad economy. There are no friendly fires in economic shoot out.

We need to put on some breaks and look to the people and hear their grievances. Implement policies towards their directions.

 

Dr M Mavaza. PHD. IIA Zim

Vazet2000@yahoo.co.uk.

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