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Dr Bongani Ngwenya
Preamble:
LAST week I was discussing with a friend and a colleague Dr N Ncube, a lecturer at Lupane State University.
Dr Ncube was on contact assignment in our Faculty of Education at Solusi University, and also participated in the April Block release programme as adjunct lecturer.
Our talk centred on the liquidity problem that the economy is facing. There is a lot of encouragement from the efforts by the Reserve Bank and the Ministry of Finance and Economic Development to address the problem.
The main issue here, is that as our economy started making a turnaround due to the introduction of the multi-currency regime from the hyper-inflation era, the economy has effectively become a cash market economy.
Dr Ncube raised a very pertinent aspect of a cash economy — people in this country buy cars for cash for example, furniture and other goods. The pre-dollarisation period had credit finance schemes and hire purchase financing arrangements.
Customers used to buy cars and other goods such as furniture through these credit financing facilities that saw an active participation of the financial intermediaries, ie banks.
This helped to contain the circulation of money within the financial system. Of late the Central Bank Governor (Dr John Mangudya) has been so much vocal about customers and the citizens having to get used to using plastic money, i.e. credit cards, point of sell cards, debit cards, VISA cards etc, in a bid to navigate the cash shortage.
Cash market economy tendencies have contributed to the liquidity problem by drawing money circulation away from the formal financial system to the informal sector.
It is the general pattern of transaction today that Dr Ngwenya for example can easily buy a car from Dr Ncube without any involvement of a bank at all, in a pretext of Zimbabwe being a free market economy.
Understanding the principle of free market economy in general
I want my readers to understand that I am not talking about a cash market economy here, but a free market economy in general, where there is free competition and market forces allowed to freely play.
A free market economy has seven main characteristics:
(l) people buy what they want, but only if they can pay for it;
(2) thus, money becomes necessary for life;
(3) people are forced to do anything and to sell anything in order to get money;
(4) maximising profit rather than satisfying social needs is the aim of all production and investment;
(5) discipline over those who produce the wealth of society is no longer exercised by other people — as in slavery and feudalism, but by money and the conditions of work that one must accept in order to earn money;
(6) rationing of scarce goods takes place through money — based on who has more than others, rather than through coupons — based on who has worked harder or longer or has a greater need for the good; and
(7) since no one is kept from trying to get rich and everyone is paid for what they do, people acquire a sense that each person gets or has gotten what he deserves economically, in short, that both the rich and the poor are responsible for their fates.
Challenges of a cash market economy
Coming back to the real issue in this economic focus, a cash economy has serious negative implications on the economy and the society at large. The velocity of circulation of money, income velocity of money and transactions velocity of money increases to put a lot of pressure on money supply. It is even worse in our situation where our monetary authorities have no control of the supply of the multi-currencies. Velocity of money is the speed at which money passes from one holder to the next.
Unfortunately, in a cash market economy, large quantities of the money pass from one holder to the next outside the formal financial system, that is, in the process squeezing out the formal financial system of liquidity available.
Cash market economy tendencies would also result in distorted investment priorities — as wealth gets directed into what will earn the largest profit and not into what most people really need.
In a cash market economy there is also growing social and economic inequality — the rich get richer and everyone else gets poorer, many absolutely and the rest in relation to the rapidly growing wealth of the rich. With such a gap between the rich and the poor increasing, egalitarian social relations become impossible — people with a lot of money begin to think of themselves as a better kind of human beings and view the poor with contempt, while the poor feel a mixture of hatred, envy and queasy respect for the rich.
Those with the most money also begin to exercise a disproportional political influence, which they use to help themselves make more money. There is also increase in corruption in all sectors of society, which further increases the power of those with a lot of money and puts those without the money to bribe officials at a severe disadvantage; increase in all kinds of economic crimes, with people trying to acquire money illegally when legal means are not available, and sometimes even when they are; reduced social benefits and welfare — since such benefits are financed at least in part by taxes, extended benefits generally means reduced profits for the rich; furthermore, any social safety net makes workers less fearful of losing their jobs and consequently less willing to do anything to keep them.
The same cash market experiences develop a set of anti-social attitudes and emotions — where people become egotistical, concerned only with themselves. “Me first”, “anything for money”, “winning in competition no matter what the human costs” becomes what drives them in all areas of life. They also become very anxious and economically insecure, afraid of losing their jobs, their homes, their sales, etc; and they worry about money all the time. In this situation, feelings as well as ideas of co-operation and mutual concern are seriously weakened, where they don’t disappear altogether, for in a cash market economy it is against one’s personal interest to co-operate with others. With all this, people of all classes begin to misunderstand the new social relations and powers that arise through the operations of a cash market economy.
Natural phenomena with a life and will of their own — money, for example, gets taken as an almost supernatural power that stands above people and orders their lives, rather than a material vehicle into which people through their alienated relations with their productive activity and its products have poured their own power and potential.
The market itself, which is just one possible way in which social wealth can be distributed, is taken as the way nature itself intended human beings to relate to each other, as more in keeping with basic human nature than any other possibility.
As part of this, people no longer believe in a future that could be qualitatively different or in their ability, either individually or collectively, to help bring it about. In short, what Marx called “ideological thinking” becomes general.
In conclusion, with people’s thoughts and emotions effected in these ways by their life in a cash market economy, it becomes very difficult for the Government to give them a true picture of the country’s problems.
It is more conducive to stability to feed people illusions of unending economic growth and fairy tales of how they too can get rich.
Exaggerating the positive achievements of society and seldom if ever mentioning its negative features is also the best means of attracting foreign investment.
Dr Bongani Ngwenya is a Bulawayo- based economist and senior lecturer at Solusi University’s Post Graduate School of Business. mailto:[email protected]/ [email protected]
Bongani Ndlovu