Fukuyama on political decay
FRANCIS Fukuyama makes a pertinent point: political decay occurs when systems fail to adjust to changing circumstances. He adds: “There is something like a law of conservation of institutions. Human beings are rule-following animals by nature; they are born to conform to the social norms they see around them, and they entrench those rules with often transcendent meaning and value. When the surrounding environment changes and new challenges arise, there is often a disjunction between existing institutions and present needs. Those institutions are supported by legions of entrenched stakeholders who oppose any fundamental change.”
Dying for NATO
Things are moving fast internationally. Too fast for the slothful to comprehend. The United States economy is determinedly sliding into a recession, thanks to its surrogate war with Russia. Biden’s rating is now below 30 percent, and America says it does not favour both Biden and Trump in the next polls.
In Europe, Germany now tells its citizens to go for daily cold showers to save energy. Putin is choking the pipes which historically have delivered gas to energy-dependent Europe, Germany especially. Prices for gas are set to shoot through the roof, stoking fires of already bad inflations across the continent.
Meanwhile, Ukrainians continue to die for NATO, in a crazy frenzy of national mass suicide. This earth my brother!
Idealism versus realism
Elsewhere is Europe, only Macron’s France and Spain seem set to escape the raging slowdown. But their growth rates have been revised downwards. Hard on the heels of Biden’s failed trip to Saudi Arabia, both Greece and France are hosting Mohammed bin Salman, the Saudi crown Prince. Ideals of human rights have been cast aside as the two struggling economies pursue realpolitik.
Energy Needs beat Human Rights; let pusillanimous idealists in this part of our world know that. Nations, after all, have interests, not moral codes.
Consumed by own fire
Even more exciting is US-China relations, as defined by US idealism over Taiwan, China’s rebellious province. US’ Pelosi sought to visit Taiwan, to the fury of China which promised a dire response. That frightened President Biden who promptly sought a tele-meeting with President Xi. That happened on Thursday, for two long hours.
After that encounter, the Chinese Foreign Ministry issued a mouthful of a statement, the sum of which was to warn the US, “Those who play with fire will perish by it!” Where I work we say: No Comment!
Auction, private sector idea
The foreign currency auction facility happened at the instance of the private sector. The purpose, according to the private sector which conceived the idea, was two-fold: price discovery through competitive bids, and efficiency in distributing forex in the economy.
A few sessions into this private sector-led and built idea and institution respectively, Government heeded an outcry from small men and women in the economy by expanding the auction to cover SMEs. That was the only addition Government made to this private sector initiative. There was happiness, and for a while things moved well.
Punters versus businessmen/women
But with time, negative behaviours and imbalances encrusted, chief among which was the abuse of precious currency secured through the auction system, and entertaining far in excess of the currency which was available. The former translated into mayhem in the economy, thanks to illicit, black market activities by leading actors from the same private sector which had conceived the idea in the first place.
That revealed a yawning gap between real businessmen and women on the one hand, and sheer punters who reap fabulous rewards for running a casino economy, on the other. The only difference was that while punters bet on probability and luck, these nefarious speculators drawn from the private sector worked on the certainty of gods, to the extent they own creation, own the game, the players, the ball and the whistle!
Exchange rate ratchet
The latter translated into unmet allocations, the unwholesome effect of which was to batter faith in the utility of the auction facility. Much worse, the gap between the awarding of bids and their substantive honouring, negated price discovery.
Here is how. A bid done today often would be honoured a month or two down the line, by which time the spot price of foreign currency on the weekly auction would have changed, predictably against the local unit. It is well known that exchange rate in our circumstances takes the uni-directional thrust of a ratchet: always against the local unit.
That meant the winning bids would have long changed by the time the actual allocation is eventually met, to the detriment of both the winning bid and the central bank.
When all lost
The winning bidder in that he/she will have lost opportunity through delayed disbursement; the central bank in that it would end up releasing precious currency on historical price, as opposed to spot price. Not only that. The Economy was the biggest loser in the whole equation.
Not just by way of allocative inefficiencies; but also by way of built-in benefits of speculation related to the differential between historical rate and spot rate! The very mechanism meant to aid price discovery, and to play antidote to speculative behaviour, became itself the hatchery of twin problems of price distortion and baneful currency speculation.
By the time the Executive gave instruction to the Central Bank never to entertain more winning bids than it could accommodate by way of disbursements, the damage both to faith and efficacy, had already been done. Expectedly, foreign currency traded outside the formal structures of the auction; spot prices for precious currency were being discovered outside the auction system which, instead of being the horse, became the tandem pulled by black market rates.
When being rational meant unlawful
Outside and beyond formal business, the common man soon got to know that each auction meant a new, higher exchange rate weekly. That expectation solidified into a definite routine, in all minds and markets: black, white, blue, yellow or brown! We found ourselves in a vicious cycle, an exchange rate rut and morass which spawned speculative behaviour, making currency speculation worth everyone’s while.
In such a set-up, even innocent, law-abiding citizens became criminals, circumstantial criminals, thanks to a new reality which bore down heavily on them. A context had arisen in which the choice was stark: being a rational economic animal — which meant breaking the law; being lawful — which meant being an irrational economic animal. What a dilemma of citizenry!
Monetising a fiscal function
When the private sector got government to acquiesce to the auction floor, government gave the private sector a lot more than its good faith; it surrendered its core SOP: standard operating procedure. In public finance, we draw a distinction between the fiscal and the monetary.
The former is a domain of Government; the latter belongs to monetary authorities, the RBZ in this case. To the extent foreign currency which drove the auction floor came from taxes, the raw material for the auction floor came from the Fiscus.
Yet the auction was being run by the monetary authorities. This is how far government bent over backwards to accommodate the private sector, in the process distorting its standard institutional functions and procedures.
The positive side of the auction system
Today we live in the nightmare of demons unleashed by the well-meant auction system which has now gone awry. Outside these demons, the auction floor assisted with price discovery through market mechanisms. This benefit held, until the onset of distortions already alluded to.
Outside the demons, the auction system saw industrial activity creeping up from as low as 30 percent to the current level of more than 60 percent capacity utilisation. Zimbabwe’s exports have grown, as has our export receipts. SMEs have been capacitated, making them veritable players in the Economy.
Employment has risen, benefiting the youths especially. The dividend from the auction system is beyond gainsaying, which shows by way of divided opinion on the merits and demerits of the auction system. But this is as far as it goes.
The baby; the bath!
Alongside some nefarious beneficiaries of Government infrastructure tenders, some players on the auction system have really abused Government goodwill. They have dabbled in the black market, unleashing demons I have alluded to. By so doing, we all stand blighted, leading many to ask if and whether the auction system still serves any useful purposes anymore, indeed whether it is worth dying for at all.
But that raises another spectre: that of throwing the baby together with the bath water. Rarely — rarely— does a pendulum forcefully pushed by hard circumstances swing moderately; it plays in the zone of extremities, either way. We have to be composed about this thing so the baby does not drown in the muck we want to throw away.
Strategy and structure
Which is to say? Firstly, we must accept circumstances have changed, against an institution launched way back when then, it was still in sync with the times. Now it is clearly fossilised and running on “transcendent meaning and value”, to use Fukuyama’s phrase.
The law of conservation of institutions must now be ousted, if we are to avoid decay, and so we have an institution made to purpose and times. What form that takes is inspired by what challenges the times spew, which the auction system must resolve. To use a management cliché, structure follows strategy.
Age of autarchy
Repurposing? Maybe. Which means a good situational analysis. We live in times where the national, the local, and the international, the global, have melded in more than insistent and overbearing ways. Globally, supply chains are broken, on the back of a collapsed international order.
Globally, nations have retreated from the collective global village, all of them turning and looking inward. We are back to the age of autarchy or, as imperial Britain was wont to say, the age of national splendid isolation. Against such a background and outlook, the law of comparative advantage gives way to sheer survival at any cost. And I am using “cost” literally, not figuratively.
Nothing costs too much any more, because global efficiencies have broken down, leaving all nations grappling with lower order needs. The whole globe is running on a war economy!
The New National Question
So, our national response to that changed global situation is by way of domesticating value chains, starting with the basics we require to reproduce ourselves nationally, as Maslow would counsel. Assuming the auction system remains, it must be re-fashioned to answer to Zimbabwe’s basic needs, premised on local production and beneficiation, for a buy Zimbabwe based on growing local brands.
Production precedes trade: it is that basic, except to supermarket economies. I know Munyaradzi Hwengwere will find this musical; the importance of his area of activity can hardly be overemphasised now, possibly in the long run. The time to domesticate value chains is now, at the end of which we buy Zimbabwe, thus launching national brands for the world market from home. To me, this is the new national question.
Back to Keynes, our saviour
Where stands the auction system? There, as a funding mechanism for industrial activity and options which fit in with prioritised value chains we seek to domesticate so we meet those basic things we need to self-reproduce as a nation: around food, shelter, water, health, etc. Public goods we need as a people, itself a province for Government through the Fiscus.
I hope I have impliedly answered to whom and to where the auction system should now relocate, and how it should be repurposed! Instead of the old bambazonke where the auction system winds up funding inherited imperfections by way of the Rhodesian Economy, an economy of monopolies and oligopolies run on patrimony, and where a few conspire to undermine public weal, the time may have come for us to use the same auction system to, firstly, break monopolies and oligopolies by multiplying actors in the production of key basics; secondly, only to allow bids from actors who fit within identified value chains the Government prioritises to meet the needs of our people.
We have to stabilise prices; we have to rely on local brands; we have to ready ourselves to launch global brands from local production, local markets and local tastes.
For far too long we have been eating Europe and America; we now have to eat Zimbabwe, SADC and Africa. After all, that is who we are by Independence. So, limit bids to those players who share the national plan on creating value chains. The rest can go to the open market!
This is what central planning is all about: a fiscal assignment based on executive priorities towards which allocative decisions get skewed. I am being staunchly Keynesian, and make no apologies for it. We are in war!
The surrender requirement
There is the vexatious issue of earnings retention by exporters, and the surrender requirement after a given time. It does not require a genius to know the surrender requirement is resented by exporters, and has spawned many ills, the most obvious of which is externalisation through transfer pricing. We must get to the bottom of those misbehaviours, which is fear of loss of value associated with the local unit as it is, and for now. I know the local unit will gather in strength, going into the future.
But for now, it cannot store value; if anything, it is speedily got rid of, upon receipt. That compounds the problem of velocity, and all that comes with it.
Overcoming national folly
So? Let’s be integrated in thought and strategy: if value or loss of it, is what big exporters worry about, why not couple surrender clause to a commodity like gold, including gold coins, so we increase circulation of the US dollar in the Economy, which is our wish, but without prejudicing exporters?
Of course we have to contend with the national folly where a Zimbabwean, forced to choose between an ounce of real gold and its spot equivalent by way of the greenback, the foolish Zimbabwean will kick past the ounce of precious gold, in a mad rush for US paper! We donkeys are quite clear: we never prefer the container that delivered masese — dregs of malt — to malt itself, which is our staple.
We straightforwardly rush for dregs of malt, even if served on dust, to greedily feed fat! We seem to know where real value lies, than foolish Zimbabweans!