Economy: Radical proposals for growth (part 1) Capital requirements .. New farmers can be successfull if given financial support

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LET me start off with Ruskin’s quote: “No man can become largely rich by his personal toil, but only by discovery of some method of taxing the labour of others.”
How did Bill Gates, Warren Buffet and company become billionaires in one lifetime without somehow exploiting the labour of others? Well quite frankly it’s impossible.
With regards to how to grow the Zimbabwean economy we’ve seen it all and heard it all, I’ve read all the long-winded, big worded articles, all well-articulated, yet with very little substance. The devil is in the detail. Whilst criticism comes easy, feasible solutions to the current economic problems clearly do not. I myself am not an economist, so I am not an expert on the matter. But every article that I have read from the “experts” does not seem to address the core problem of Zimbabwe’s economic decline and stagnation. It is obvious that capitalism in its current form does not work, for if it were so great, how do you explain the poverty which continues to exist even in the most prosperous nations?
Before my father passed away in 1997, he wrote a book called “Capitalism of the Masses” in which he put forward his ideas on what was wrong with the Zimbabwean economy at the time (back in 1993 believe it or not), and how it would eventually collapse if we did not address the pending crisis. Well, he was right! It was tragic that at the time other people did not have his kind of foresight. I never quite understood what my father was going on about at the time. He was continuously criticising the government, which let’s be honest, at the time a good 99.9% of the population thought was doing a fantastic job. That is until I re-read his book “Capitalism of the Masses”. This book is essentially an analysis of the Zimbabwean economy in the 80’s through to the 90’s and what was being done wrong and how the economy could have been saved from impending disaster by turning it around through adopting this “Capitalism of the Masses”. Now, “Capitalism of the Masses” is not a new or radical idea, it was first proposed by Louis Kelso and Mortimer Adler and called “Binary Economics”; also see their book The Capitalist Manifesto (1958).
Not being an economist, I decided to familiarise myself with the terminology, concepts and ideas behind microeconomics (which deals with economics of consumers, households or individual firms) and macroeconomics (which is the branch of economics that studies the overall working of a national economy). Now, please take into account the fact that I actually did quite OK in my “A” Level maths and subsequently went on to study mechanical engineering at the UZ way back in 1997, before continuing my engineering studies in the UK. So I would like to think that my understanding of mathematics is not bad. I have to admit though, that in my quest to understand the basics I could not get my head around some of the ideas and so-called “theories” in macroeconomics. It is not that macroeconomics is difficult; it’s just that it does not make any mathematical sense, nor does it follow the simple rules of pure or analytical maths and calculus. It is a good pretender.Advertisement

Macroeconomic “theories” make too many assumptions to reach a desired solution and then expect the reader/learner to simply swallow the result as fact when it comes across more as fiction. It identifies a trend, attempts to fit a curve by forcing an equation on the trend, but the actual mathematical foundation on which it is built does not hold up under rigorous inspection. Now the supply and demand part of economics is pretty simple and easy to understand. It’s the rest of it that quite simply does not make any mathematical sense. I am well aware that a lot of the advanced macroeconomic “theories” were written by some supposedly brainy people; some from Harvard, MIT, Yale, Oxford, Cambridge etc. – you name it. But this does not stop some of these fundamental theories from being quite absurd and illogical in some cases. It’s no surprise that at the height of our economic meltdown in 2008, former RBZ governor Gideon Gono threw some of these books out the window and kept the money printing press well-oiled.
The real point that I am trying to make is that Zimbabwe needs radical economic change if it is ever to bring itself out of the current economic quandary. We need to deliberately turn the world as we know it upside down and change our set way of thinking, which is not an easy task. We need to reassess our understanding of the meaning of economic freedom. Free your mind first and the rest will follow. An idea will always remain an idea, until someone takes it, implements it and follows it through to its fruition. Every idea depends on how you “pitch” it to your intended audience. The idea, or concept, that I am talking about is “Capitalism of the Masses” (or Binary economics as it is better known). The idea of binary economics does not need a sales pitch; it is so simple and rational that once you understand it, you will naturally ask “well why have we not adopted the idea up until now”?
Of course, in our particular case, our government has in the past embarked on policies which were quite detrimental to the economy at the time, i.e. ESAP, the war in the DRC, the one-time un-budgeted payment to the War Vets, the fast track land reform, printing money to the eventual obliteration of our own currency. Every Zimbabwean knows the complete story of how we arrived where we are. Whilst some policies like the land reform exercise were quite justified, it’s the way in which they were implemented that proved disastrous. The State effectively made itself the custodians of the land in Zimbabwe, and the owners of one of the means of production. One argument has it that you need collateral, i.e. land collateral in the form of title deeds to secure a loan so you can buy seeds, fertilizers and other inputs to continue farming. Yet on the other hand I understand the government’s reluctance to offer title deeds, as the land can be reclaimed by banks if a farmer cannot pay back the loan, and we all know how unscrupulous banks can be. The banks would probably go on to sell the reclaimed land at extortionate prices to the only people who can afford it, i.e. foreign entities, subsequently raising the cost of land and disenfranchising the intended beneficiaries.
The obvious problem here is not the ownership (so-called property rights) of the land, as has been regurgitated innumerate times by supposed “experts”, but the access to capital for the ordinary man. The relocated farmer does not have access to capital, and herein lays the fatal flaw of capitalism in its current state. The bankers have provided a possible solution to this conundrum whereby the government sets up some kind of rotating fund which can be used to back the 99-year leases issued to resettled farmers, and this quite frankly seems like a brilliant idea to me. The fund could come from a percentage of taxes specifically collected from agricultural production. If common sense prevails it will only take the stroke of a pen to implement this change, and the problem of access to capital, for the resettled farmers at least, could have a possible solution.
Binary economics
Binary economics can be best explained with the following example. Let’s take commercial farmer Jones who owns a few thousand hectares of prime commercial farm land in Zimbabwe where he grows tobacco. For instance, let’s say he employs 100 workers, paying each $1,000 a year for working on his farm. So he spends $100,000 a year on wages. Farmer Jones sells his tobacco crop for say US$1 million. Let us assume that for that particular year, farmer Jones spent $200,000 on seed, fertilizer, inputs, transport and all other overheads. So his gross profit before tax would be $1 million minus $100,000 in wages, minus $200,000 in costs = $700,000 gross profit before tax. For simplicity let us not dwell on how he got the farm in the first place, i.e. maybe he bought it or maybe he inherited it.
Suppose he also has to pay a tax of say 40%, this would make his net profit of $700,000 – $280,000 = $420,000. Of course ALL this profit is for farmer Jones alone. I admit that I have exaggerated the profit to get my point across, but here is the question! Who put in the labour? Who put in the capital? Does farmer Jones deserve to walk away with such a profit because it was his capital and his expertise? What is farmer Jones going to do with this new capital he has earned from his previous capital? Clearly, he must be an extremely knowledgeable (or exploitative) man to earn such a profit, I’m sure this skill and expertise should be studied and somehow applied and adapted by some companies on Wall Street.
Let us make another supposition that the government gives the same 100 workers a non-interest loan of $1 million or $10,000 per worker to buy inputs, seed etc and purchase tractors and other farm equipment. Let’s say these are non-interest individual loans repaid at $1,000 per year over 10 years. A small administration fee could be charged, but this is not necessary. These farmers work collectively on the farm and earn the same profits as farmer Jones described above. So the profits would be $520,000 (note $100,000 on wages not included here) divided by 100 workers or $5,200 per worker.
So each worker now has $5,200 extra per year to continue and expand their farming operations, and to also pay back the loan. They also have enough money to save and make further investments. Let’s suppose that the government takes a bold step and cuts the tax rate to 20% and legislates the other 20% as mandatory savings (i.e. previous 40% tax broken down into 20% tax + 20% savings). The 20% savings is deposited into the central/reserve bank where it can be used by government for further investments and start-up capital for other enterprises on the same basis. Also note that the savings proposed will naturally earn a 0% interest for each of the 100 farmers.
So the 100 farmers now each pay back $1,000 of the loan for that year. They decide to increase their output the next year and invest $300,000 for inputs, or $3,000 each. So from the net profit of $5,200 that each farmer received, now subtract the $1,000 loan and the $3,000 for inputs. This means that each of the 100 farmers is left with $1,000 as disposable income. Remember that the 100 farmers already have savings in the bank which are also earning interest and will accumulate over the years. 20% legislated savings of the $700,000 comes to $140,000 between 100 farmers or $1,400 for each farmer for the first year.
Just to recap this second scenario, the 100 farmers now have $1,000 disposable income, $1,400 in savings and have already invested $3,000 in next year’s harvest for an increased output. Now, compare this to the $1,000 that they would have had from working for Farmer Jones which will not allow them to save, not allow them to invest in next year’s season and generally leave them living from hand to mouth without accumulating wealth. Any sane person will see that there is something fundamentally wrong with the current set up where only those with lots of capital are the only ones who can have access to more capital, i.e. capitalism of the few.

What expertise … White former farmers benefited from banks support and cheap labour