Crony capitalism has been identified in many studies as a serious problem in many countries, hampering the entry of new businesspeople and limiting the rights of expansion of established companies while allowing the “friends” of people in high places to get ahead, or at very least giving favour to established businesses even if they are inefficient.
It tends to work when resources are scarce, and the allocation is done subjectively; government contracts can be another source. This is not just a developing world problem. A major row blew up in Britain last year over emergency contracts for public health supplies and equipment, when normal purchasing systems for the National Health Service were relaxed and suddenly a bunch of new suppliers emerged who all seemed to be best friends of a senior member of the Tory party.
And in America it is common practice for rich people to make political donations to the incredible advertising expenses that every successful American politician needs to fund, although a fair number of corporations hedge their bets by donating to candidates from both major parties.
There are some who even go as far as looking in just the private sector, where being friends and being former school friends of someone can lead to more business. This is, after all, why some people say they play golf as it is good for business, although there is a strong suspicion that this is just an excuse to get out of home or office to play a game they enjoy.
But at the core, it is the attitude of largely ignoring who you are and concentrating on who you know.
This attitude is entrenched in Zimbabwe, despite the major efforts of the Second Republic to make the objective reality quite different. But generations of business people have grown up and spent their whole working lives in this sort of environment.
We see this with the comments being made over the major effort of Reserve Bank of Zimbabwe governor Dr John Mangudya to know list all the successful bidders for foreign currency on the RBZ auction system since it was launched in June last year.
People glance at the list and then ask: “Did everyone deserve to buy this currency?” In other words, they want to know why someone who was a competitor, or a newcomer to Zimbabwe business, or even someone who does not play golf was allotted currency when they bid. Possibly they wanted the currency to be allotted only to themselves, or “people like us”, or at least to people they knew.
They miss the point of the auction system entirely.
The crony capitalism and the “chumocracy” dates to colonial times. When business ownership was basically restricted to whites in the early colonial days, everyone knew everyone else. There was still a Victorian social divide between those who had family money or held good jobs in public service or offered professional service and those who worked for a living in business. The old Salisbury Club for example was not keen on electing businessmen until they at least became “merchant princes”.
As the white population grew this “chumocracy” became less obvious, although the political system did ensure that competition from the majority was unlikely to be a factor, let alone an important factor. But people like Tiny Rowland were able to break in, despite being a significant outsider in the white community and eventually even Jewish businessmen were elected to the “Salisbury Club”.
Officials were now involved, mind you, after the Second World War when the British Empire was desperately short of US dollars. You could buy anything from the sterling area, Britain and the colonies and dominions outside the American continent, but had to get permission to buy form the USA or any other country in the dollar area, which included Canada and the West Indies.
Then came UDI, and a system was set up where the Government officials made the decisions on resource allocations. Committees were set up to decide the main allocations. Civil servants issued import permits. Foreign currency was a Reserve Bank function, and the interlocking committees were responsible for matching currency with the permits.
We were talking about total control. Private possession of foreign currency was criminalised, and we are talking about strenuous efforts to track down anyone with even US$1 in the cupboard.
The point was that business decisions were made by officials and civil servants and just about everyone in business outside a vendor had to work within that system to survive, let alone flourish. Presumably those who were allotted the currency reckoned they “deserved” it.
At independence and with the lifting of sanctions, there were opportunities for change. There was a lot, but the basic system was retained, partly because detailed economic micromanagement was still an ideological factor in many socialist systems, but also for the more praiseworthy desire to open the economy to the previously excluded with some affirmative action.
But, by retaining the old UDI system, officials decided which indigenous Zimbabweans would benefit and be able to move ahead, rather than introducing more difficult but more general policies that would allow anyone with ideas, skills, business sense and the ability to work hard to move upwards. So the system was still subjective, choosing individuals.
The attempts at reform in the 1990s, frequently aborted as the First Republic decided to print money rather than build the economy to have more real money made, did open some doors to newcomers from outside the system. But the hyperinflation meant we were back in the old days, since someone, a human official, had to decide who would be allowed to buy foreign currency at the official rates and who would not.
The switch to using US dollars, and the simultaneous placing of just about everything on the open general import licence for the first time in decades opened the economy to all. But it was not a solution. The rush to import smashed a lot of local industry, eventually partially solved by returning to import permits for a wide range of goods, with officials one again deciding who could import what.
At the same time the First Republic’s fascination with deficit budgeting and printing money, this time electronic printing of what amounted to fake US dollars, saw the Reserve Bank resume its old role, reluctantly now, of trying to keep the wheels on the economy by making allocations of the real US dollars to those who would otherwise sink. But once gain we now had two sets of officials, civil servants issuing import licences and RBZ officers allocating foreign currency.
Perhaps everyone was deserving, but that decisions of “deserving” was a subjective decision by a civil servant or a central bank officer.
The Second Republic started making the needed changes. For a start it appeared that all this subjective and friend-to-friend dealing had led to serious rises in corruption. So that had to be tackled and better procurement systems put in place. The present one sees pre-qualification for just about everything and then those qualified can bid for each tender. This even allowed rapid tenders for health supplies, since everyone given two days to bid was at least know to be qualified. So we missed Britain’s chum problem, although we still had to clear out a minister and a few officials.
Secondly, after trying a managed float through the interbank system, the Government and the RBZ took the major plunge and went for the big bang, the foreign currency auctions. There is still official input. The actual stuff you are allowed to bid on the auctions to buy is listed. But, and this is critical, no one decides who buys what on the list, or who buys what quantities that are on the two lists.
The Reserve Bank is now the referee and polices the system. It is now longer a player. The Government retains its role as a planner. But does not micromanage. Regardless of who you are you will get a fair deal, the same as everyone else.
For the first time in 55 years Zimbabwean businesses have to operate as to who and what they are, not who they know or what system they have to game. Welcome to tomorrow.