December 02, 2002
The Zimbabwean Model of Development
The Economist's Economics Focus considers the Zimbabwean model of development. It's point--by and large an accurate one--is that the policies adopted by Mugabe are implicitly those that follow from a number of the standard critiques of the "Washington Consensus." Indeed, it was by watching experiments like those of Mugabe that the "Washington Consensus" developed in the first place...
Posted by DeLong at December 02, 2002 07:37 AM
The Zimbabwean model
Nov 28th 2002
From The Economist print edition
The pros and cons of opting out of the global economy
Get article background
ORTHODOX economists sometimes get it wrong. For example, when a government fixes the prices of various goods below what they cost to produce, and fails to provide the necessary subsidy to fill the gap, orthodox theory predicts that there will be empty shelves in the shops. But in Zimbabwe, this is not how things have turned out. Retailers there have indeed run out of all manner of price-controlled goods. But for some reason they can still get hold of toilet paper. So, instead of empty shelves, Zimbabwean shoppers encounter aisle upon aisle of roll upon roll, where the bread, sugar and oil used to be.
Ignore, for a moment, the headlines about murder, torture and election-rigging. For an interesting economic experiment is being conducted in Zimbabwe. To the foes of globalisation, President Robert Mugabe's views are unexceptional. He argues that “runaway market forces” are leading a “vicious, all-out assault on the poor”. He decries the modern trend of “banishing the state from the public sphere for the benefit of big business.” What sets him apart from other anti-globalisers, however, is that he has been able to put his ideas into practice.
In countries where the IMF calls the shots, governments have to balance their budgets on the backs of the poor. Having told the IMF to get stuffed, Mr Mugabe is free not to do this. The official estimate is that Zimbabwe's budget deficit will be about 14% of GDP this year; the government is frantically borrowing and printing money to cover the shortfall. Inflation is now 144%, and it is predicted to top 500% next year.
Mr Mugabe argues that price rises are caused by greedy businessmen. His solution is price controls. For the past year or so, these applied only to everyday essentials, such as bread and maize meal. Shops were ordered to sell such goods at fixed, low prices. Unfortunately, Mr Mugabe was right about those greedy businessmen. Rather than lose money, they stocked their shelves with toilet paper, or tried to dodge price controls by modifying their products. For example, since bread was price-controlled, bakers added raisins to their dough and called it “raisin bread”, which was not on the list. Not to be outsmarted, on November 16th the government extended price controls to practically everything, from typewriters to babies' nappies.
Some things have to be imported, however, and it is hard to prevent foreigners from profiteering. Mr Mugabe is anxious that petrol, for example, should be affordable; otherwise, people will not be able to get to work. A strong currency should help, so he has frozen the exchange rate for the past two years, and denounced as a “saboteur” anybody who suggests devaluation. Since Zimbabwe's inflation is a tad higher than America's, nobody wishes to surrender hard currency at the official rate of 55 Zimbabwe dollars to one American dollar. The black market rate is several hundreds to one; the government blames speculators.
To lay hands on foreign currency, Mr Mugabe has no choice but to rob exporters. Those whose products are bulky and hard to smuggle (tobacco farmers, for instance) must surrender half of their hard-currency proceeds to the government, which repays them in crisp new Zimbabwe dollars, at the official rate.
This is not nearly enough, however, to keep Zimbabwe supplied with petrol (the distribution of which is a state monopoly). So, this month, the finance minister announced a clampdown on the black market: all bureaux de change are to be shut. He also asked expatriate Zimbabweans to remit money home via the central bank, which will confiscate almost all of it. For some reason, they prefer informal channels, such as Internet-based firms that accept cash offshore and issue friends and relatives back in Zimbabwe with local currency or vouchers for supermarkets.
For most problems, a coercive solution can be found. The government's debt-servicing costs are too high? Force financial institutions to buy treasury bills that yield far less than the rate of inflation. People are running out of food? Confiscate grain from those who have it (“hoarders”) and distribute it at an artificially low price through a state monopoly grain distributor. Ordinarily, this would somewhat dampen commercial farmers' incentive to grow food. But since most of them have been driven off their land, what does it matter?
It would be nice to think that the rest of the world has nothing to learn from Zimbabwe. But Mr Mugabe has many admirers. His fellow Africans cheer his defiance of the old colonial powers. Namibia's government has promised a similar land-grab. South Africa, showing comparable paranoia about currency speculators, recently conducted a pointless investigation into whether banks had conspired to undervalue the rand.
Globally, few policymakers favour going the full Mugabe, but many believe that a little bit of price-fixing won't hurt. Price supports for EU farmers, for example, persist because their governments are rich enough to keep subsidising them, and because the costs are spread across the entire population, who are often unaware that they are being fleeced. Influential charities argue that poor countries should also be paid a “fair” price for their products. Oxfam, for example, contends that the price of coffee is “too low” because multinationals manipulate it. The charity is campaigning for it somehow to be raised.
It may seem harsh, when faced with the misery of an Ethiopian coffee farmer, to argue that it would be more efficient to let the price mechanism deliver its message (“Grow something else”) unmuffled. But greater efficiency leads to greater wealth, and vice versa, as Zimbabwe so harrowingly shows. Nowhere has withdrawn so swiftly from the global economy, nor seen such a thorough reversal of neo-liberal policies. The results—an economy that has contracted by 35% in five years, and half the population in need of food aid—are hard to paper over.
Personally I thought it was one of the worst articles Pam Woodall has ever written (if it is still her who writes them).
Essentially her argument is this. There are only two policy models -- the Washington Consensus or the anti-globalization movement. Mugabe's zimbabwe is more like the latter. Therefore any criticism of the Washington Consensus model is wrong.
Talk about creating Straw Men.
Funny, I didn't see anything in this piece suggesting that "any criticism of the Washington Consensus model is wrong."
It was an interesting and valuable excercise to note that many of the extreme policy prescriptions (of the more radical elements) of the anti-globalization crowd are being tried (again) and are failing (again). That's a long way from saying that American capitalism is perfect.
Having seen the green, beautiful, prosperous, and peaceful Zimbabwe turned into a Third World hellhole by Comrade Bob Mugabe, with no bottom in sight, I am dismayed, but not surprised, by what is happening. The description in The Economist is a sad echo of the Soviet Union in the Thirties. Why are prices going up? It must be the greed of "speculators"! This is like blaming the thermometer for the patient's fever. But this should not be surprising. One of the first things Comrage Bob Mugabe did upon gaining power was to give witch doctors equal legal standing to medical doctors, so blaming and smashing thermometers is to be expected. My greatest fear is that if this can happen to Zimbabwe, then what chance does South Africa have to escape such a fate on a much larger scale?
I wasn't aware that "murder, torture and election-rigging" were the implicit policies that follow from a standard critique of the Washington Consensus. But since the Economist informs me that I can safely ignore this small facet of life in Zimbabwe (if only for a moment!), far be it from me to question the argument that "inefficient" economic policies will always and everywhere lead to reduced wealth.
how long till brad is vilified by his readers for not seeign how evil it is that farmers aren't getting high enough prices, or that oil is too costly. Damn those big businesses that are keeping the price of oil up!
I've realised that brad is basically rational and decent, if overly leftwing... its the comments that rock!
thanks for the improv Matthew et al.!... have you guys considered the comedy store and the rest on sunset?
I really liked the article and I am grateful to you for giving me the chance to read it as I do not subscribe to the Economist. But did you have permission to reproduce a print or subscription article in toto?
Zimbabwe - My next stop on the World Domination Tour(tm)!
In response to Matthew, I might note that the trouble with anything except an Open-Exchange model is the difficulty in maintaining it at a certain level. As the article so beautifully illustrates, price controls lead to inflation and budget deficits; attempts at controlling exchange rates to battle inflation lead to currency black markets and more budget deficits; budget deficits and frozen exchange rates lead to a lack of hard currency (and so on)...
Basically price controls and harsh import/export controls are the slipperyest of slopes, leading very quickly to a collapse of the economy. If your internal economy is large enough (the Soviet Union for example) you might be able to last quite a while. But Zimbabwe just isn't big enough.
I think the story that best illustrates this comes from Robert Hienlien's trip to the Sovient Union in the 1960's: While strolling through an open-air market he found several babushkas selling burnt-out lightbulbs by the stack. Asking his interpreter what that was about he was astonished to find that there was a shortage of light-bulbs so severe they had been restricted to government offices and factories; you could not buy them in stores for any price. So people would take burnt-out lightbulbs to work and exchange them for working ones when the boss's back was turned.
In a free market the price of lightbulbs would have risen and more people would have gotten into the lightbulb-making business. But where lightbulb manufacture and prices were controlled you had shortages leading to corruption and a black market for something that would normally be trash...
Matthew nails it.
The piece nicely illustrates the follies of Picardian ("make it so!") price administration, but these are wrapped in the wrong argument (false polarities), drawing the wrong conclusions.
Could it be that the idiocies of runaway prescriptive IMF neoliberalism create fertile conditions for contagion of the otherwise infertile idiocies of runaway prescriptive Mugabe command economics?
I don't think the editorial is saying that ""murder, torture and election-rigging" were the implicit policies that follow from a standard critique of the Washington Consensus."
The second sentence of the editorial begins "Ignore, for a moment, the headlines about murder, torture and election-rigging. For an interesting economic experiment is being conducted in Zimbabwe." And it then talks about Mugabe and his criticism of globablization and what he's done about it economically.
It seems to me that the editorial is saying, "Everybody hears about the "murder, torture, and election-rigging' but there are other interesting things happening too. In particular, there are economic things happening. Mugabe talks like he is taking seriously a lot of the criticisms of the 'Washington Consensus' and he is instituting policies that are directly contrary to the Consensus. Alas, they have made the country less prosperous rather than more."
Ah... and here comes the giant problem with the kind of sweeping, detailed government intervention that I often glibly propose for such problems as intellectual property in pharaceuticals: governments always seem to be controlled by some kind of self-interested elite. It may be bad when Bush imposes 30% steel tariffs and bars Canadian timber imports, but imagine if the scope of the state were extended to the whole of the economy, and the minutae of the workings of markets!
My response is to say, "Mugabe isn't a dumb guy. He probably knows the effect price controls have. So why is he doing it? Is he really dumb enough to think he's helping his country?" Instead, I think a real question is not how inefficient the policies are, but who is benefiting from them: no one doubts that the steel tariffs are inefficient. We instead immediately look at who gains from such policies. Similarly, I have a very, very strong feeling that in price-controlled, hyperinflationary Zimbabwe, some people are getting very rich.
Gosh, where is Jesse Jackson when you need him? Isn't the United Nations going to take action? The politically correct “multicultural” left are responsible for this disaster. They have downplayed this horror because Mugabe and his cronies are black. Also, this disaster partly answers Brad DeLong’s earlier question about why it’s so difficult to provide advanced pharmaceuticals to the poor of the world. Do we really wish to place these precious medicines in the hands of Mugabe’s thugs?
This is precisely why critics of the Washington Consensus are always calling for rethinking of some of those policies that have been proven wrong or not working. Many countries have followed the consensus and gotten nowhere or just a few people in them got rich. That is why there will always be revolt in these places and in the absence of a logical plan or theory as a suplement to the "consensus" what we will get is crazy people filling the void. There will never be a shortage of wild ideas, even recycled old ideas, to go around. And these policies by Mugabe are not even the wildest ones, we have not seen everything yet. Until the reasonable people give the poor people of the world a working strategy for development that benefits the poor some crazy person will stir up the masses and lead them to destruction but it will be too late before they realize that.
The Economist writes, "The results—an economy that has contracted by 35% in five years, and half the population in need of food aid—are hard to paper over."
The Left has been papering over the results in Cuba for the past 40 years. I doubt they will have any difficulty papering over the results in Zimbabwe for the last 5 years.
"Instead, I think a real question is not how inefficient the policies are, but who is benefiting from them: no one doubts that the steel tariffs are inefficient. We instead immediately look at who gains from such policies."
On C-Span, I saw a bunch of Democratic politicians (and at least one Republican) who were clamoring for the tariffs, in front of the White House, in the days before the tariffs were imposed. (Not to mention all the steelworkers.) I guess all those people expected to gain.
Mark -- Who's in charge of papering over the rest of Latin America? Russia? Other HWCS* victims?
*Harvard/Washington Consensus Syndrome
"Mark -- Who's in charge of papering over the rest of Latin America? Russia? Other HWCS* victims?"
You mean, like the h@llholes that are Chile and Costa Rica?
Interested readers should go to this site:
...and choose the Advanced Search for "Latin America and the Caribbean."
You'll get the following ranking for Overall Index of Economic Freedom:
Chile, #1 in Latin America, and #16 in the world, with an overall score of 2.00 (where 1.00 is perfect).
Costa Rica, #8 in Latin America, and #44 in the world, with an overall score of 2.65.
Next, go to this site, and check out per-capita GDPs:
Chile at #41 (where ties are unfortunately counted as 1 position, so this overestimates their overall ranking), with $12,500.
Costa Rica at #64, with $6,700.
It's really quite simple...wealth correlates very well with economic freedom.
P.S. I didn't choose any Caribbean countries like Bermuda, since I was mentally putting them in the Caribbean, rather than "Latin America." If I had chose Caribbean countries, the correlation would be even more striking.
Good lord, Mark, even if you ignore Heritage's wacky definition of economic freedom, the size of the data set is 2 points.
Oh, and another thing: the question was asked about who was in charge of papering over "Russia?"
Like Cuba--except this time, for 70 years, rather than 40 years--it was the Left.
I see a clarification is necessary.
Who is in charge of papering over the Zimbabwe-like decline of post-Communist Russia under the prescriptions of HWCS?
(That's Russia, btw, not "Russia".)
Good lord, David. I read your posts, and think "I basically agree with that," up until the gratuitous slam of liberals or the left.
I'm a liberal, and I would put a bullet into Mugabe's brain if I had the chance.
"Good lord, David. I read your posts, and think "I basically agree with that," up until the gratuitous slam of liberals or the left.
I'm a liberal, and I would put a bullet into Mugabe's brain if I had the chance."
You are probably a neo-Liberal. However, Jessie Jackson and his ilk run the show on all issues pertaining to scoundrels who are not white. The Nancy Pelosis and Ted Kennedys dominate the Democrat Party. They will allow you a spot on the bus only if you sit in the back and remain quiet.
What is a neo-Liberal? This is someone who has been conned into believing that the left wing of the national Democrat Party gives a damn about what they have to say.
There is a fundamental error here, like criticising Stalin's liquidation of the Kulaks because they hurt "his" people, or criticising Marx's ideas of ruining the bourgeoisie with a depreciating currency. They don't hurt Mugabe's people; they are HELPING them, and producing precisely the intended effects.
If you point at the great suffering, you are pointing at precisely what Mugabe wants to do to his enemies and - more importantly - his potential enemies, the ground from which future enemies might spring. The sufferers are NOT Mugabe's people, just the other people who happen to live in that country. So what if you think they have rights? Mugabe and his people don't agree, and it's their opinion that counts.
To point out to Mugabe's Zimbabwe as an example of country following policies contrary to the Washington Consensus is kind of... dishonest.
After all, one might well pick Malaysia, with a good track record after adopting capital controls...
Let's see: how do you think Zimbabwe would be doing if its budget were balanced, its currency were floating, its trade were unhindered, while running a violent program of agrarian reform, transferring ownership of commercial agicultural land to subsistence peasants? I bet they would be just as bad as they are now.
Hence, the Economist's point not taken.
I thought it would be clear that the first sentence I wrote (implying that the editorial suggested that murder etc. was somehow due to Zimbabwe's opposition to the Washington Consensus) was sardonic. Sorry. My intent was to argue that with so much political and social upheaval occuring in Zimbabwe, to claim that the reduction in the nation's output over the past five years is directly attributable to its economic policies is facile, at best.
Thanks for the correction. I honestly missed the sarcasm. Perhaps I've encountered too many anti-globalization people who talk like that and are completely serious.
You are, of course, right that too much is going on in Zinbabwe to say with certainly that economic policies are the only--or even major--reason for the decline in GDP.
Of course, it is difficult to say just what "economic" policy is. Much of government spending goes to pay Mugabe's friends and supporters. Since Mugabe does a lot of this, he has a big deficit. He has chosen to finance it basically by printing money. This has led to inflation which he has tried to fight by price controls and foreign exchange controls. He has also extended government control over things like buying petrol. How much of this goes in the "economic" box and how much in the "political" and how much in "not otherwise classified?"
I know what to do regarding Mugabe and the Zimbabwe horror story. The United Nations rarely criticizes any other nation than Israel. Let’s spread the story that Mugabe and his cohorts are Jewish! I predict that no later than tomorrow morning the UN will demand an invasion of Zimbabwe. Isn't Mugabe's name listed somewhere in The Protocols of Zion?
Great argument, David!
You are quite smart for a 10 year old!
RonK writes, "Who is in charge of papering over the Zimbabwe-like decline of post-Communist Russia under the prescriptions of HWCS?"
Suppose a man is in a leftist prison for 70 years. He has leftist cancer. Then, right before he gets out of prison, he has surgery to remove about half of his cancer. When he gets out of prison, he doesn't get immediately better, but gets even worse.
Would you say that freedom from the leftist prison, or surgery on his leftist cancer, was his problem?
P.S. My prediction for economic growth in Russia, from 2000-2010:
less than 2%/year--->less then 10% chance
greater than 6%/year---->20% chance.
My predictions for Zimbabwe for 2000-2010, if Mugabe isn't removed from power in the next 3 years:
less than 0%/year growth--->60% chance
less than 2%/year growth--->100% chance
Ho, hum ... suppose a man lived 300 years in a colonialist prison, he has colonialist cancer, etc, etc, ... zzzzZZZZZZZ
The sad reality is that 200+ years into the Age of Economics we have nary a hint of a clue to account for the Wealth of Nations ... and we are no more likely to find one at Heritage or Fraser than at a WTO protest or a Michael Moore film.
Hong Kong's first place finish in the Indices of Freedom is especially risible, as are the HK per capita GDP stix (for reasons that should be obvious to the skeptical inquirer).
RonK writes, "Ho, hum ... suppose a man lived 300 years in a colonialist prison, he has colonialist cancer, etc, etc, ... zzzzZZZZZZZ"
Well, then why is Hong Kong, which lived in a "colonialist prison" with "colonialist cancer" until 1999, so rich?
Australia was a "colonialist prison" with "colonialist cancer" until 1942...why are they so rich?
This is exactly the rubbish that the Economist is talking about when they talk about "papering over." But like I wrote before, leftists can paper over anything for any length of time. (Even to the point of saying economists don't have a clue about how to account for the wealth of nations.)
RonK continues, "The sad reality is that 200+ years into the Age of Economics we have nary a hint of a clue to account for the Wealth of Nations ... and we are no more likely to find one at Heritage or Fraser than at a WTO protest or a Michael Moore film."
Heh, heh, heh! Let's see whether the economists on this site agree with you...that they're clueless after 200 years. (If it was true--which it most certainly isn't--there'd be no reason to pay for economists.)
"Hong Kong's first place finish in the Indices of Freedom is especially risible, as are the HK per capita GDP stix (for reasons that should be obvious to the skeptical inquirer)."
It's *Economic* Freedom, not political or social freedom. For political or social freedom, you would need to go to a place like Freedom House:
Mark Bahner writes 'Australia was a "colonialist prison" with "colonialist cancer" until 1942...why are they so rich?'
That's news to me, about Australia being rich (as well as the "colonialist" bit, after Federation and the Statute of Westminster etc. anyway). Of course, there were quite a few overlapping windfall gains over the last fifty-some years, but they weren't all ploughed into long term resources, so we are not comfortably secure even in what we still have today.
Not the least of the windfalls was the way countries like Argentina deliberately opted out of playing to their strengths at crucial points; but of course that is the obverse of not ploughing things into long term resources. I sometimes wonder what might have happened if all the primary producer countries had pursued broadly similar industrialisation/import substitution policies in the same era.
Mark -- re HK, my reference was clearly to indicies of economic freedom, not political freedom ... why else would I specifically cite Heritage and Fraser? And are you sincerely ignorant of the major distortions of measurement in every major component (freedom, GDP, population) affecting this "apex" data point? [exercise left to the reader]
Re wealth of nations, we could bat cases back and forth forever, and always find auxiliary hypotheses -- precursor conditions or time lags or unanticipated policy changes or (thx PML) unpredicted blunders by competing nations -- to paper over any divergent data. We could swap sides and have at it again ... it's as good a game as tic-tac-toe, no better, no worse.
More economists than you realize realize that economics is inauthentic science (though our gracious host strikes me as a True Believer). And you are correct, there are people who pay economists. And if fundamentalist econ described the world, this would mean that econ means something, wouldn't it? [Strictly, no, but that's wandering farther afield than necessary.]
But people pay economists mostly to teach econ, write/talk about econ, promote sales of economic assets, comply with anti-fundamentalist regulatory schemes, or justify somebody's political preferences. Economic predictions themselves tend to be predictably non-predictive ... especially so in the arena of national fortunes, but also in re states, cities, even firms.
It's not complete bunk (more like Aristotelian proto-science, if the science ever pans out) but it's close. Too bad, especially seein' as how the models and arguments are so much fun.
I wrote, 'Australia was a "colonialist prison" with "colonialist cancer" until 1942...why are they so rich?'
P.M. Lawrence responded, "That's news to me, about Australia being rich..."
According to this website, Austalia's per-capita Gross National Income is $25,780 using purchasing power parity, which ranks it #19 out of 144 countries. Or, using the Atlas method, the per-capita GNI is $19,770, which is #29 out of 144.
It seems to be a near-universal human trait that people don't like being labeled "rich." But suffice it to say that over 5 billion of the worlds 6+ billion people wouldn't mind having wealth like Australians.
P.M. Lawrence continues "...(as well as the "colonialist" bit, after Federation and the Statute of Westminster etc. anyway)."
Well, Australians may consider themselves to have been "independent" earlier, but I was going on the fact that:
"Rather, at least until 1942, the UK parliament had the power to legislate for Australia, and Australia did not appoint any ambassadors until during World War II. Furthermore, Australia did not separately declare war in 1939: Britain was at war and therefore Australia was, too."
I would say that the fact that the legislature of Australia couldn't decide for itself whether or not to be in WWII means that Australia was still a "colony" as late as 1939.
"And are you sincerely ignorant of the major distortions of measurement in every major component (freedom, GDP, population) affecting this "apex" data point?"
I'm unaware of any distortions that would put Hong Kong's "economic freedom" or "GDP per capita" so far down that it wouldn't qualify in the top 10% of all "nations" in that regard (i.e., the top 14 out of 144 countries). Note: This comment refers to Hong Kong before it was returned to the "People's Republic" of China.
"Re wealth of nations, we could bat cases back and forth forever, and always find auxiliary hypotheses -- precursor conditions or time lags or unanticipated policy changes or (thx PML) unpredicted blunders by competing nations -- to paper over any divergent data."
Yes, like I wrote before, The Economist doesn't seem to realize that leftists can paper over anything. East Germany versus West Germany, North Korea versus South Korea, the "People's Republic" of China versus Taiwan and Hong Kong...it's all "debatable" to a leftist.
"Those who fail to learn from history are condemned to repeat it."
Just ask anyone in Zimbabwe. At least, anyone who isn't a leftist. :-/