Zimbabwe: When Price Controls Fail...

by hilzoy

When last we checked in on the slow-motion disaster that is Zimbabwe, Robert Mugabe had decided to impose price controls. Predictably, this just caused shops to become empty: when people cannot sell at a profit, they tend not to sell at all. According to the Zimbabwe Independent:

"Business lost over $40 trillion since government declared war on big business. As a result government lost $13,1 trillion in revenue and that is when the warning bells sounded, prompting a rapid policy shift on the matter."

Now that price controls have been called off, what do you suppose Mugabe has done? If you guessed imposing controls on wages, you win!

" Zimbabwe’s government slapped a six-month freeze on wages, rents and service fees on Friday, the latest step in what some analysts call an increasingly desperate campaign to sustain an economy gutted by hyperinflation. (...)

The new freeze, announced in Friday’s editions of government-controlled newspapers, is intended to combat an annual inflation rate that the government says exceeds 7,600 percent, and private economists say is twice that. It bars businesses from indexing wages or fees to inflation, a method employed in many wage agreements.

All increases must now be approved by a government commission, the state-run Herald newspaper reported.

The freeze follows a decree issued in late June that forced merchants and wholesalers to reduce all prices by at least 50 percent. Shoppers stripped store shelves of clothes, meat and other basic goods after that decree, and producers have largely failed to ship new stock because goods now sell for less than it costs to make them.

Most commodities are now available only on the black market, where prices have continued to skyrocket. Moreover, as the last remaining stocks of goods trickle out of factory warehouses and onto the market, Zimbabwe could soon see the start of an inflationary spiral that would make today’s prices seem cheap, John Robertson, a Harare economist, said in an interview.

“It could go much higher — 10 times as much for some things in the next couple of weeks, as goods cease to exist,” he said."

The BBC quotes Robertson as saying: "I just wonder when they will try and reverse the laws of gravity, because this does not work." It's a pity Mugabe doesn't seem to realize that.

Last January, I posted a compilation of catastrophes that had befallen Zimbabwe during the previous week or two: doctors and teachers on strike, water shortages, sewage treatment plants crumbling, people unable to go to work because the bus fare was too expensive, upper- and middle-class Zimbabweans resorting to urban gardening in desperation: you name it. Since then, things have gotten much, much worse, and yet somehow, mysteriously, the government is holding on.

Sometime, something will have to give; I only hope that whoever replaces Mugabe when it does has some shred of concern for the Zimbabwean people, who have suffered enormously.

Comments

[Jay C]

A minor point, hilzoy: presumably the multi-trillion "dollar" figures in your first para are Zimbabwean Dollars?

I realized it is hard to peg an equivalent hard-currency value on Third World funny-money (especially a currency inflating by the hour), but can you estimate what these figures might approximate out to in "real" dollars? And against what scale of a national economy (assuming Zimbabwe even has one left)?

[Brett Bellmore]

"It's a pity Mugabe doesn't seem to realize that."

Are you so sure of that? Governments of poor countries face a rather perverse incentive: Since foreign aid is usually channeled through the government, the worse the private economy gets, the more aid comes in, and the stronger the government becomes relative to the private sector. Third world dictators are actually made more secure by ruining their economies.

And famines? For your average 3rd world despot, just an opportunity to starve your foes to death without the world deigning to notice the genocide.

Rather than being an idiot, Mugabe may just be rationally, though amorally, responding to the incentives we provide.

[Brett Bellmore]

Oops. Italics off! You'd think they'd fix that bug, and automatically close html in each post...

[Gary Farber]

"Business lost over $40 trillion since government declared war on big business."

You don't question this. I do. Did Zimbabwe actually have "$40 trillion" until recently?

Is that Zimbabwe dollars? And if so, when is the figure taken from, and what was it worth in, say, American dollars, or Euros, at the time? Is this five years ago? Ten? Was it worth a hundred million American dollars? More? Less?

Because it damn sure wasn't $40 trillion American dollars. Or even $1 trillion American.

Context:

[...] The currency was formerly known as the Rhodesian dollar (R$), which was established in 1970 following the replacement of the Pound. At the time of Zimbabwe's independence in 1980, the dollar was worth approximately the same amount as the Pound Sterling; however, with much inflation and the collapse of the economy, the currency devalued significantly. By August 2005, the currency had devalued to Z$17,694.15 per US dollar at the official rate. The black market rate at this time was around double the official rate.

So when we're talking losing "$40 trillion," what are we talking about actually losing? If we don't know, this figure is absolutely meaningless. How many quatloos will it cost to bet on a Newcomer?

"You'd think they'd fix that bug, and automatically close html in each post..."

You would, but Typepad seems to be very stupid.

[Gary Farber]

Sorry, Jay C; my eye skipped over, and I hadn't read your comment before commenting on Hilzoy's post.

[Gary Farber]

"Rather than being an idiot, Mugabe may just be rationally, though amorally, responding to the incentives we provide."

What incentives and aid, precisely, that "we provide" to Zimbabwe are you referring to, Brett? Specifically which program, and how much? Cite, please?

[Brett Bellmore]

Granted, "we", as in the US government, are not presently sending aid Mugabe's way, but "we", as in the 1st world, are still doing so, by way of the UN World Food program, for instance, not to mention non-governmental efforts.

Mugabe is just a particularly nasty example of a situation which has been deplorably common in Africa. And the phenomenon of rulers deliberately attacking their own country's economies to cement their position is not unique to Africa; Chavez is currently doing exactly that in Venezuela, to help secure himself by rendering the country more dependent on the government controlled oil industry.

[Gary Farber]

Brett:

Granted, "we", as in the US government, are not presently sending aid Mugabe's way, but "we", as in the 1st world, are still doing so, by way of the UN World Food program, for instance, not to mention non-governmental efforts.

So you assert that this is the case to the point of "Rather than being an idiot, Mugabe may just be rationally, though amorally, responding to the incentives we provide."

So you stand by this claim. Mugabe is arguably responding "rationally, though amorally."

The true fault lies with Western food aid. Mugabe is rational, and simply unable to resist our evil incentives.

Just another case of how individuals bear no responsibility for their decisions, and society is to blame, I guess. Mugabe is depraved because he was deprived, officer Krupke.

Interesting reasoning.

[Gary Farber]

Crap. Somewhere in the maze of "verification" pages, blank pages, and error messages, and going backwards, this paragraph dropped out:

Brett:

Granted, "we", as in the US government, are not presently sending aid Mugabe's way, but "we", as in the 1st world, are still doing so, by way of the UN World Food program, for instance, not to mention non-governmental efforts.

So you assert that this is the case to the point of "Rather than being an idiot, Mugabe may just be rationally, though amorally, responding to the incentives we provide."

So you stand by this claim. Mugabe is arguably responding "rationally, though amorally."

The true fault lies with Western food aid. Mugabe is rational, and simply unable to resist our evil incentives.

Just another case of how individuals bear no responsibility for their decisions, and society is to blame, I guess. Mugabe is depraved because he was deprived, officer Krupke.

Interesting reasoning.

Didn't some used to consider this as "blame America first"?

[Brett Bellmore]

Where did you get that "bears no responsibility" business from? You think I don't believe people have a responsibility not to behave amorally???

The point I was trying to make is that Mugabe isn't an idiot, he's a monster. It gives people like him or Chavez too much credit to assume that they're too stupid to know what damage they're doing. They know, alright.

And that, yes, aid channeled through governments empowers monsters. Which we have, belatedly, figured out, but which the UN apparently isn't quite convinced of. Or maybe the UN just isn't all that averse to monsters. Given the composition of it's membership, that could be the explanation.

If we're gonna do foreign aid in cases like Zimbabwe, we're gonna have to figure out how to do it without strengthening the hand of people like Mugabe.

Governments, understandably, are too wedded to the notion that their own kind are entitled to do whatever they please to their own victims, so long as they don't muscle into another government's territory. A private sector solution is needed. Personally, forget the doctors, I think something along the lines of "Assassins without borders" would be helpful.

[Gary Farber]

"If we're gonna do foreign aid in cases like Zimbabwe, we're gonna have to figure out how to do it without strengthening the hand of people like Mugabe."

Since you seem to have acknowledged that the U.S. does not, in fact, give foreign aid to Zimbabwe -- "Granted, 'we', as in the US government, are not presently sending aid Mugabe's way" -- I'm a touch confused as to whom you are speaking of when you denounce "aid channeled through governments" as empowering "monsters."

I take it you're against the UN World Food program giving aid to Zimbabweans: is that right? Is it your contention that no food aid or aid of any sort should be allowed to enter Zimbabwe until Mugabe leaves power? Or do you advocate a broader and lengthier prohibition? Or what, exactly?

"A private sector solution is needed."

What do you advocate, exactly? Because that's more than a tad vague, as "solutions" go.

"I think something along the lines of 'Assassins without borders' would be helpful."

Yes, assassination generally leads to stability; history is replete with examples.

It's almost inevitable that as soon as a bad leader is assassinated, a vigorous and strong liberal democracy leaps into existence to replace him. Happens all the time.

Wait, I'm not sure that's quite right. Could you elaborate on specifically how Zimbabwe will go from:

1. Mugabe.
2. Assassination!
3. ?
4. Good government!

Because I'm thinking underpants gnomes may be involved at a crucial stage of planning here.

[gwangung]

If we're gonna do foreign aid in cases like Zimbabwe, we're gonna have to figure out how to do it without strengthening the hand of people like Mugabe.

Governments, understandably, are too wedded to the notion that their own kind are entitled to do whatever they please to their own victims, so long as they don't muscle into another government's territory. A private sector solution is needed.

And do private sector solutions work without the underpinnings of government institutions--i.e., the rule of law, the protection of private property, etc.--in place at the location in question?

[Brett Bellmore]

Well, you've got me there: What more could those laboring under the tyrant's lash hope for, than stability, the assurance that present trends will continue uninterrupted? Why, every lifer thanks God every day for the certainty that they'll never get out.

"I take it you're against the UN World Food program giving aid to Zimbabweans: is that right?"

I don't know, you could have read that as a suggestion that food aid not be channeled through the very government that's causing the famine, thus strengthening it's grip on society.

[Brett Bellmore]

"And do private sector solutions work without the underpinnings of government institutions--i.e., the rule of law, the protection of private property, etc.--in place at the location in question?"

LOL! And what item on that list do you think Mugabe is contributing to? You're making my case for me, you know...

[gwangung]

LOL! And what item on that list do you think Mugabe is contributing to? You're making my case for me, you know...

Actually, no, I'm not.

Think about it.

[Brett Bellmore]

I did. Assuming for the sake of argument that I accepted your premise, (That private sector aid can't function in the absence of government provided services.) and I don't, when did you expect aid to be available in Zimbabwe, with your vaunted "stability" keeping a government in place that doesn't provide any of those advantages of government you think are needed?

A stable situation where aid is needed, but can only make things worse, is not a valuable form of stability.

[Gary Farber]

"Well, you've got me there: What more could those laboring under the tyrant's lash hope for, than stability, the assurance that present trends will continue uninterrupted?"

Of course, no one suggested any such thing. But most folks fond of liberal democracy think it best that it be a reasonably stable one.

Again: can you please explain how assassination will lead to a stable liberal democracy, or any sort of liberal democracy, or any sort of reasonable government at all, in Zimbabwe?

And can you please explain what exactly you advocate in Zimbabwe by saying "A private sector solution is needed"?

What will such a "private sector solution" look like? What will be a couple of key elements of it?

[Brett Bellmore]

My proposed "Assassins Without Borders" would be a private sector solution, much as Doctors without Borders is.

And I don't think assassinating Mugabe would transform Zimbabwe into a liberal democracy. There's a hell of a lot of space for improvement, though, between there, and where Zimbabwe is now.

Now, what are you suggesting? That no tyrant, however vicious, no matter how destructive, could be so bad that his death would improve a situation? Sounds like what you're asserting, and I think that's nonsense. There are rulers so bad that simply removing them would improve things, and Mugabe is exhibit One.

[Gary Farber]

"Now, what are you suggesting? That no tyrant, however vicious, no matter how destructive, could be so bad that his death would improve a situation? Sounds like what you're asserting,"

If you're into pure hallucination, sure. There's no possible other way to derive any such "assertion" from my comments.

"My proposed 'Assassins Without Borders' would be a private sector solution, much as Doctors without Borders is."

Some might find your "solution" to Zimbabwe a tad thin in its detailed economic recommendations and projections, or the same as regards creating a new political structure for Zimbabwe, but if you're happy with this level of analysis and policy recommendation, Brett, I'm happy for you.

[hilzoy]

Brett: I would have thought that the difference between "if X would die, things would be better" and "I should arrange to have X killed" was pretty obvious. I imagine we can all think of someone we think the world would be better off without, and yet, despite that fact, most of us would not hire hit men to do away with that person.

[Gary Farber]

"I imagine we can all think of someone we think the world would be better off without, and yet, despite that fact, most of us would not hire hit men to do away with that person."

Indeed not.

I'd hire Elektra.

Modesty Blaise would be my fallback, along with Mrs. Peel.

Because when you want someone hit, ninja-trained hit women are the best way to go.

[Brett Bellmore]

"I imagine we can all think of someone we think the world would be better off without, and yet, despite that fact, most of us would not hire hit men to do away with that person."

True. Of course, the vast majority of people "the world would be better off without" are not tyrants directly responsible for suffering on a mass scale. But I guess we have to ignore such minor differences of degree.

[Gary Farber]

"But I guess we have to ignore such minor differences of degree."

Nonsense. I've proposed three assassins; whom would you nominate? Let's have specifics, laddie!

[Brett Bellmore]

"Nonsense. I've proposed three assassins; whom would you nominate? Let's have specifics, laddie!"

In the spirit of this, I'd nominate Remo Williams. If you're going to pick a fictional assassin, why not go for the best?

[Gary Farber]

"If you're going to pick a fictional assassin, why not go for the best?"

Better Chiun, then.

But there are many contenders. Deathstroke the Terminator. Matt Helm. James Bond. Derek Flint. Boris Badenov. Jason Bourne. Wolverine.

Boris Badenov is seriously under-rated. It's all a front.

I'm just taking the idea of assassination as a solution to Zimbabwe's problems as seriously as it deserves.

It's just that setting aside how it would play in Zimbabwe, and elsewhere, were it in fact, in reality, discovered that an assassin paid by the Americans had killed Mugabe, or even if it were credibly alleged, with little evidence, what's to stop someone just as awful from taking power the next day?

Assassination, as a rule, has not, in fact, historically been a remotely consistent tool for improving on even very bad rulers.

That's not to say that sometimes an improvement can't be had by that means, but that a) assassination has a cost of its own as regards the legitimacy of the succeeding government, and its longterm stability; and b) it's a complete roll of the dice, at best, setting aside all moral questions.

Rome wasn't particularly better off after Julius Caesar was stabbed, nor Vietnam after Diem was shot, nor did the French Republic guillotine its way very well to freedom, equality, or anything else, nor did the death of the Czar bring great happiness to Russia, nor did the assassination of Arch-Duke Ferdinand improve matters noticeably, nor that of President Mohamed Boudiaf of Algeria in 1992. The killing of Sadat didn't bring democracy to Egypt. I've lost track of how many leaders of Burundi have been knocked off in recent years. Nigeria has lost a couple of heads of state to acute cases of murder in my lifetime. The number of Latin American heads of state and government killed in office over the decades could fill out a football league.

There just doesn't seem to be a lot of evidence in the actual record for the hypothesis that assassination of even awful dictators tends to do much in the way of reliably leading to improved governments. Unfortunately. But matters of how states wind up highly oppressive tend to be more complicated than One Very Very Bad James Bond Villain, whom if knocked off, will unleash the native democratic and free spirits of the citizenry.

Witness how that theory has played out in Iraq in the past five years.

[liberal japonicus]

You guys might want to check out Golgo 13

[Daniel Goldberg]

I really don't think Brett's point was that unreasonable. There is development flowing into many third world countries, and there may be perverse incentives for totalitarian governments to act so as to deprive their populace.

In fact, none other than Amartya Sen's analysis supports Brett's point. Fact is, famines and other such disasters tend not to be caused by natural conditions, but by social and political structures, and in particular, totalitarian governments.

Moreover, Paul Farmer and many others have pointed out the perversity and colonial attitudes of many actors in international development. It is not at all a stretch to suggest that international development aid may play a role in totalitarian governments' oppression of their own peoples.

(Never in a million years did I think I would be citing Sen and Farmer in support of Brett)

[gwangung]

I did. Assuming for the sake of argument that I accepted your premise, (That private sector aid can't function in the absence of government provided services.) and I don't, when did you expect aid to be available in Zimbabwe, with your vaunted "stability" keeping a government in place that doesn't provide any of those advantages of government you think are needed?

When did I, in my question, talk about the CURRENT institutions?

And I thought that rule of law, respect for private property, was something almost everybody, liberals, conservative, libertertian, etc.was a sine qua non for private efforts to take root and propser?

[gwangung]

I really don't think Brett's point was that unreasonable. There is development flowing into many third world countries, and there may be perverse incentives for totalitarian governments to act so as to deprive their populace.

In fact, none other than Amartya Sen's analysis supports Brett's point. Fact is, famines and other such disasters tend not to be caused by natural conditions, but by social and political structures, and in particular, totalitarian governments.

Moreover, Paul Farmer and many others have pointed out the perversity and colonial attitudes of many actors in international development. It is not at all a stretch to suggest that international development aid may play a role in totalitarian governments' oppression of their own peoples.

This I do not doubt, and is in fact part of the reason I posed my question.

Getting rid of the current top man only removes the current top man. It does nothing to change the local controls and institutions, almost all of which do NOT respect the rule of law and do much to hamper modernization and development efforts. And these local agents would merely move into the vacuum suddenly created and carry on with business as usual.

Are we just trying to get rid of the local despot and merely hope we get someone better? If so, I think we'd do better by taking the money and going to the local craps game...

[Brett Bellmore]

"Better Chiun, then."

Nah, I'm talking late in the series Remo. Remember, Chiun retired when Remo got better than him. Besides, early series Remo wasn't available to the private sector, he was strictly working for the government.

[Timothy Burke]

Mugabe is not doing this all by his lonesome: there is a core group around him who share his interests. This group can't really afford to relax their grip on power, regardless of the circumstance.

I don't think the incentive of a bailout is much on Mugabe's mind, Brett. But you're right that this isn't just authoritarian vanity or pure craziness. The original price controls allowed military officers and police to do a substantial proportion of the stripping of goods from stores, I think very much by design. The calculations that Mugabe and the inner elite of ZANU-PF are employing now are painfully short-term but "rational" in a sense--they are now cascading from one act of band-aid banditry to the next, and fairly soon, they're going to run out of things to plunder. Mobutu went through a very similar cycle in Zaire late in his rule.