gold_flamingo (gold_flamingo) wrote,
gold_flamingo
gold_flamingo

saving the world in five easy steps

One of my readers asked me how to fix Zimbabwe.  It turns out the answer won't fit in the LJ comment box.  So here's what I've got:

As you can imagine, this is a question with a rather complicated answer.  The first step is to get rid of Mugabe, who not only has a psychotically skewed notion of economics but is also willing to suffer the destruction of his country and the death of his people to maintain his hold on power (note his comment in late June that "The MDC will never be allowed to rule this country -- never ever.  Only God who appointed me will remove me, not the MDC, not the British.").  His track record of facilitating the starvation of his politcal opponents and seizing shipments of food aid for political purposes does not exactly inspire confidence that support from NGOs or foreign governments would be successful. 

Fortunately, there are signs (despite his rhetoric) that his hold on power may be waning.  He and Tsvangirai are currently in negotiations, and despite a media blackout there are some rumors that Mugabe may accept a mostly ceremonial role and turn executive power over to Tsvangirai.  Of course there have been rumors like that since the elections in March, and it hasn't happened yet.

Once Mugabe is out of power, steps must be taken to rebuild confidence in the Zimbabwean currency, which may or may not include revaluing it depending on how much the new ZW dollar has declined by then.  Freezing prices, as Mugabe has tried repeatedly, is essentially ineffective because it just forces economic activity into the black market.  Basically what gives currency value is the fact that it can be exchanged at a relatively stable rate for something else of known value.  For much of American history, we had a Gold Standard, for example, in which the value of a dollar was fixed as being worth a specific quantity of gold.  Many other countries essentially use the American dollar as a standard, by fixing the exchange rate of their currency with the USD at 1:1.  However, this only works if it's true - if you really can get US dollars in exchange for your local money.  Confidence in this system is maintained by the government keeping a hefty reserve of foreign currency (in this case dollars), which can if necessary be exchanged for local currency to back up this claim and control the money supply.  Over the long run, this can cause some problems as your local currency gains and loses value based on US prices rather than local economic conditions, but compared with hyperinflation it's a cakewalk.  At the moment, Zimbabwe has basically no foreign currency reserves with which to back up the value of its currency.  So foreign nations will have to lend Zimbabwe's central bank significant funds in dollars or euros to build confidence in ZWDs (as Clinton did in 1994 for Mexico).  Of course it would be ridiculous to do this with Mugabe in power as he would just spend the money. 

Of course controlling inflation requires more than just currency reserves.  It also requires a fiscal policy that maintains sufficient but not excessive levels of circulating currency and does not just print money to pay debt, and it requires that there be a somewhat functional economy.  Inflation occurs when prices go up, and prices go up when goods are scarce and demand is high.  Obviously just about everything is scarce in Zimbabwe right now, and someone is going to have to start spending money to get things moving again (economic stimulus) - possibly through microlending programs so people can get businesses back on their feet, invest in seed and fertilizer for agriculture, etc.  Other countries should lower tariffs on Zimbabwean mineral exports, etc. to further encourage growth (though not all exports are good - more in this in a moment).

Of course the imminent food crisis has to be taken into consideration.  Famine is only partially a tragedy of shortage.  It fuctions in two related but distinct ways: 1)There is no food to buy, and 2)There is no money to buy what food is available.  Item one is a problem of distribution: food must be brought in, which occurs through aid (food being given), importation (food being bought), and allocation (food being moved) - in times of poverty and famine, often there is food in one part of the country while another part starves, due either to poor physical and economic infrastructure (no distributors, bad roads, high fuel costs, few trucks, high transaction costs) or to pricing - if no one in the starving area has money, people with food will make more by selling it elsewhere (hence why some countries export food during famines).  The government should buy grain from agriculturally successful areas and sell it at controlled prices in areas lacking food.

This of course brings us to point 2 - no money to buy food.  A number of African countries have successfully averted famine with employment programs - hire the poor so they can afford food (again, this only works if there is food to buy).  Pave roads.  Build schools.  Basically engage in public works programs like the US did during the Depression.

These, however, are relatively short term fixes for addressing an immediate crisis, and it's important to keep this year's shortages from snowballing into next year's famine through disruption of agricultural efforts.  In order to improve the food supply overall, investments must be made in teaching successful farming techniques, providing varieties of seed well suited to the local environment, and subsidizing fertilizer.  The UN-sponsored Millennium Village Project (headed by Jeffrey Sachs)  has had remarkable success in trial areas around Africa (Malawi, Kenya, etc.) by implementing this type of combined approach even in the most desperately poor and unpromising areas.

In addition to agricultural improvement, health is of vital importance.  People dying of AIDS or malaria can't farm.  This is why multi-faceted programs also focus on simple health measures: availability of clean water, insecticide-treated bed nets to prevent malaria (especially for children), AIDS testing and education, etc.

The problem isn't that we don't know how to fix these things.  The problem is that we don't invest enough money in doing so, and that no investment is enough without the responsible participation and support of the local government.  You cannot effectively promote develpment in a kleptocracy.  You cannot sustain economic growth in the midst of a civil war.  Endemic corruption and violence have a chokehold on much of Africa, and NGOs can't fix that.  Most of the solution must come from within the political culture of the country itself - though a community of nations which credibly promotes actual democracy and censures corruption and oppression would also help. 

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