In the article entitled ‘Global financial crisis and a call for the return to mixed economy’ Dr. Mbita Chitala calls for Zambia to go back to being a ‘developmental’ and ‘interventionist’ state, with nationalization, protection and isolation. To be fair, he did not use the word ‘isolation’, but his arguments against globalization, foreign direct investment (FDI) and international financial institutions amount to that. Let’s start by examining his main points.
Cause of the financial crisis
Like many others, Mbita Chitala blames the current recession on capitalist ‘greed and selfishness’. But these failings are not confined to business persons. They are also common among civil servants and politicians. It is better to avoid emotive words and to recognize that self-interest is common to all human beings, and, as Adam Smith understood when he spoke of the ‘invisible hand’, is normally a very positive influence. After all, the most effective way to improve our own economic position is to serve the needs of others.
How did the ‘credit crunch’ come about? The problem originated from America’s Reinvestment Act of 1977, which was used by successive governments to gain popularity by putting pressure on banks to give high risk loans to homebuyers who did not meet the banks’ normal lending criteria. Congress was told that the government sponsored enterprises (GSEs) Freddie Mac and Fanny May would purchase the ‘subprime’ loans, and so rid them of non-market risks. These GSEs then ‘securitised’ the loans and sold huge quantities of these toxic packages on to the financial markets. This boosted house prices and encouraged more and more buying and risky lending, until eventually the bubble burst and caused widespread panic. The banks and the financial regulators were not blameless, but in essence the crisis was government created.
The Economist warned about this housing bubble three years ago, but without effect. As for an article on 2nd February 2009, where the magazine “idolised Karl Marx and put him on their front cover page with the question, What would Marx think?”, Dr. Chitala is misinformed. There was no such article, picture or caption.
Results of the global crisis
It is still too early to judge how long the global crisis will last or what its results will be. The fiscal stimulus which the G20 countries, led by the US and EU, have embarked upon has won general support, but the dangers of inflation caused by creating funds from nowhere may have been seriously underestimated.
Mbita Chitala’s warning that “the systemic crisis of capitalism is leading to a rapacious struggle for the earth’s resources” which could lead to “self-destructive apocalyptic wars” is wildly overblown. Wealth creation now depends less and less on physical resources. Human resources are vastly more important. Look around the world and you see that wealth depends primarily on education, institutions and entrepreneurship. Some of the world’s richest countries – for instance, Japan, Switzerland, Hong Kong, Singapore – have no physical resources at all. The great advantage of America, the capitalist HQ of the world, is undoubtedly its people.
A mixed economy?
Mbita Chitala would like Zambia to return to its former ‘mixed economy’, with extensive nationalization and government controls. How much sense would that make? Enterprises owned and managed by governments are hardly ever efficient, and Zambia’s experience of them has been disastrous. Of the few that still remain – Nitrogen Chemicals, Times of Zambia, ZAMTEL, ZESCO – none is or was successful. Let our government put its own house in order and learn to operate efficiently, with civil servants becoming genuine servants of the people, rather than extend inefficient and often corrupt hands into running more businesses.
Look around the world: wealth wherever it exists depends on free and competitive markets. Protection, which Mbita Chitala would bring back, means protection against the healthy influences of competition, trade and technology. Turning our back on globalization would be as sensible as declaring that the world is flat!
The way forward
How can Zambia come through the recession and reinforce the progress of recent years?
- By encouraging our local entrepreneurs and removing any unnecessary restrictions inhibiting their operation.
- By opening up fully to the beneficial influence of modern communications and international commerce, investment and ideas.
- By promoting education and knowledge of all kinds, especially in the fields of technology and business.
- By living within our means, restraining inflation and keeping taxes moderate.
- By opening up the rural areas and training our people in efficient farming methods.
- By fighting corruption.
Murray Sanderson (Guest Blogger)