The Politics of Privatization

Scientific socialism refers to the combination of political and economic science and empirical scientific methodologies in attempt to achieve socialism, where socialism is the belief that people are equal and should therefore equally share in a country’s resources.

 

In 1980, the post independence Zimbabwean government adopted scientific socialism as its developmental and governance paradigm.

 

 

One of the economic strategies associated with this paradigm was the extension of State Owned Enterprises (SOEs).

 

It is not a fluke that the government chose to adopt scientific socialism instead of free market capitalism in 1980 for two fundamental reasons.

 

 

Firstly Zimbabwe’s independence was achieved at the height of the “Cold War,” when the Soviet Union and the Western powers led by the United States were competing for geo-political and economic influence across the globe.

 

 

Since Zimbabwe’s liberation struggle was largely supported by Eastern European and Asian ideology and resources, it was natural in 1980 for the Zimbabwean state to adopt an economic paradigm that leaned towards communism.

 

 

Secondly, the ZANU-PF government in 1980 (unlike the South African ANC government in 1994) wanted to see social services and employment urgently extended to the majority black population after years of white minority rule and colonial oppression.

 

 

In this context soon after independence, the ZANU-PF government passed sweeping legislation that gave free primary education and free healthcare for the poor.

 

 

The new government also introduced consumer price controls, worker committees and black trade unions.

 

 

While it was Ian Smith’s pre-independence government that began buying controlling stakes in key agro-processing and textile industries prior to independence, the post-independence government continued with this culture, and today Zimbabwe has around 107 State Owned enterprises, many of which are burdened with mismanagement, debts and high wage bills.

 

 

It is true that on the basis of populist voter mobilisation just after 1980, parastatals made political sense as they provided black workers with jobs at both working class and managerial levels in a highly racialized economy at that time.

 

 

In simple terms, in 1980 and in the early years after independence, State Owned Enterprises won votes for ZANU-PF.

 

 

However, over time these parastatals have become bloated and barely functional.

 

 

In fact a reports from the auditor general’s office dating back to 2015 suggest that many parastatals are characterized by weak corporate governance resulting in huge financial losses and misappropriation of funds.

 

 

For that reason there is good cause to privatise non–performing parastatals; after all, SOEs are meant to benefit the taxpaying citizen, and not are not meant to milk the taxpayer.

 

 

The Pros and Cons of Privatisation

 

 

According to reports, the Zimbabwean government is selling off its shareholding in Air Zimbabwe, ZESA, NRZ, ZB Holdings, Agribank and Zimre Holdings.

 

 

Apparently the government is soon to add more enterprises to this list.

 

 

If indeed Zimbabwe is embarking on a privatisation process, it is important that we discuss the pros and cons of privatisation.

 

 

Some of the pros of privatisation can be listed as follows:

 

 

  • Improved efficiency. Private companies have a profit incentive to cut costs and to become more efficient. In this context privatization is positive.

 

  • Lack of political interference. Across the world, SOEs are motivated by political pressures rather than sound economic and business sense. As we have seen in Zimbabwe in the past SOEs were used to ‘sponsor’ million-marches and other political events.

 

  • Short term view. Across the world, it is common for governments to think only in terms of the next election, and this often has long term consequences. Perhaps privatization brings private sector pragmatic long term planning to SOEs.

 

  • Increased competition. Privatisation of SOEs occurs alongside deregulation and the enactments of legislation to allow more firms to enter the industry and increase the competitiveness of the market. This is positive and welcome.

 

  • Government will raise revenue from the sale. Selling state-owned assets to the private sector raises significant sums for the government. The UK government benefited from privatization in the 1980s as did the Russian government in the 1990s.

 

 

Some of the negative aspects of privatization can be listed as follows:

 

  • Natural monopoly. Privatisation runs the risk of creating monopolies. The risk of privately controlled monopolies is that they tend to raise prices and exploit consumers.

 

  • Public interest. Some industries like ZESA, arguably perform an important public service. In this context their privatization should be considered with enough due diligence and with the national interest in mind.

 

  • Government loses out on potential dividends. While it is true that SOEs are often poorly managed, government should consider whether or not these entities would be good sources of revenue if they were managed better. In this context government could consider employing better management staff and techniques rather than privatization.

 

  • Foreign Ownership of Key Assets. The greatest threat presented by privatisation is the foreign ownership of key state assets. In this context, perhaps our government leaders should pursue the privatisation process guided by our indigenisation laws, and should allow youth consortiums and women consortiums to benefit from the privatisation processes.

 

 

Conclusion

 

 

It is true that the era of scientific socialism has passed, and I agree with the notion that the world is capitalist and that there are no free lunches. Zimbabwe needs to embrace competitiveness, and privatisation is the first step in that direction.

 

 

While many business leaders and politicians have welcomed the idea of privatisation, there seems to be consensus that the process of privatisation should be conducted on a case by case basis and that adequate due diligence should be applied.

 

 

Furthermore, from a political point of view, 2018 is an election year, and therefore government should perhaps consider whether privatisation should take place before or after elections.

 

 

Finally, the privatisation processes in Zimbabwe should be guided by the principles of indigenisation, and should involve youth and women business consortiums as those subgroups make up the bulk of the electorate.

 

Tau Tawengwa

 

Executive Director

 

Email

zimrays@gmail.com

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