Nobel prize in economics was about Zimbabwe

13 Oct, 2017 - 00:10 0 Views
Nobel prize in economics was about Zimbabwe Minister Patrick Chinamasa

eBusiness Weekly

Chris Chenga
Last week Richard Thaler, an American economist and Professor, won this year’s Nobel Prize for Economics. Oddly, Thaler’s work has been existent for some time now. Thaler’s most popular book titled “Nudge” was published back in 2008. Within the recent year he has not advanced any notably new thesis. Perhaps then, Thaler’s recognition from the nominating committee is an urge for the economics practice to appreciate his already compiled body of work on human behaviour, and its effect on economics.

Richard Thaler specialises in Behavioural Economics. Behavioural economics is about psychological, social, and emotional influence on the economic decisions taken by individuals, groups, or businesses.This can be simplified to human impulses and motivations. Behavioural economics further goes on to understand the consequences of human behaviour on metrics such as commodity valuations, capital markets, retail prices, and professional conduct.

Zimbabweans’ bad behaviour
As a commentator on the Zimbabwean economy over the past several years, it seems that ours is an economy of continuous strife in behavioural economics. Of course, that does not inherently mean that we are a lamentable exception. Every economy tussles with the impulses and motivations of its stakeholders. But, maybe more than many others, we are often victim to the bad side of stakeholder impulses and motivations. Either our governance is fighting the malevolence of bad impulses and motivations, or instead it is inadvertently encouraging deplorable impulses and motivations.

It has become redundant to bemoan the prevalence of corruption and rent seeking in how our public institutions function. Corruption and rent seeking represent the worst in economic impulses and motivation, and the dire fact of our economy is that there is systemic affirmation of corruption and rent seeking. It is almost cultural in how these institutions carry out their day to day. The harm, however, is not confined to public institutions themselves, but there is a precedence they set for the macro-economy as a whole.

Also think back to 2014, Zimbabweans had reached discontent with the plague of moral hazard in the banking sector. A moral hazard is a situation in which a financial institution gets involved in a risky lending knowing full well that it will eventually be protected against the risk, but the counter-party will suffer the burden of defaults. This was standard practice by lenders for some time. Further cases of corporate malfeasance, depositor abuse, and insider lending had not only frustrated the public, but had saddled the sector with non-performing loans, or outright bank closures to the point of regulatory intervention.
A Banking Act, ZAMCO, and ongoing court settlements are all residual events caused by an economy’s unattended vulnerability to malevolent behaviour.

Thaler tells governments to query; could such behaviour been foreseen to avoid such catastrophe? If Zimbabwe was conscious of impulses and motivations, one would argue so. Lest we forget, an eventual debt assumption bill of over a $1billion was also over accruals that had already accumulated years before dollarised era. Since 2015, Zimbabwe has been plagued by behaviour that contradict the intentions of public policy. Consider the instances of currency and commodity arbitrage, retail profiteering, and outright contestation of policies such as S.I.64 by cross-border traders. Even urban zoning ordinances struggle against the survival impulses and motivations of vendors. The question then for policy makers should be to ask: why is public policy frequently challenged by prevalent behaviour of the very stakeholders policy purports to serve?

There is bad encouragement and re-enforcement
Thaler encourages governments to be cognizant of undesirable or unfitting citizen behaviour; not from a politicized consequence, but one of economic consequence. Political and economic consequence conflict more frequently than we are aware of in Zimbabwe.
Consider the bad re-enforcement in the consumption of public services. Macro-economic pressures do not support free access and universality of public services. When national revenue cannot pay for the provision of public services such as education, sanitation, or health care, the nation accumulates a debt pile as per our current situation. Yet, there is often re-enforcement for citizens to consume these services without paying for them.
For instance, there is a propensity to ignore paying public school fees. Even parents with the money are culpable here. Citizens often downplay the importance of utility bills such as electricity and water.

The bad re-enforcement comes from a politicised perspective which shows in instances like the debt write off of urban utilities a few years back. Today parents are not chased up for unpaid fees. In fact, parents shield behind free access and universality of these services.
The bad re-enforcement also reflects in poor economic productivity. Consider the mental condition of farmers on resettled land. Conceded that for over a decade government has availed inputs to most farmers at largely discounted rates, sometimes even free, there is no enforcement of a productivity imperative.

Thus, though hardly publicly admitted, many resettled farmers lack the productivity desire necessary to contribute to national output. This year’s Command Agriculture model is interesting however. A new model this season of input disbursement has farmers graded in terms of last season’s productivity and payback. This is the kind of re-enforcement that stimulates desirable impulses and motivation in farmers.

Then there is good encouragement and re-enforcement
There is hope! More recently economic governance has begun to intentionally encourage and re-enforce virtuous behaviour; albeit the models have a ways to go until they are ideal. Consider the aforementioned model on this season’s Command Agriculture, or the idea of a 5 percent export incentive. Think about the STEM initiative that started in 2015. Richard Thaler proposes what is termed a “nudge”, which is a subtle push of positive reinforcement and indirect suggestions by government to try to achieve non-forced compliance by citizens. The STEM initiative almost fit within Thaler’s “opting in v opting out” theory where governments providing incentives such as easier sign-up, progressive rewards, and other strategies that influence citizen enrolment into programs that are desirable to an economy’s future, such as STEM professionals.

Identify the correct causation of behaviour
But positive re-enforcement comes after identifying the causation of bad impulses and motivations. Unfortunately, we still often makes the wrong diagnosis. For instance, we are culpable of generic blame. Notions like accusing Zimbabweans of having a reckless propensity to spend are not true. In fact, lower income economies force people to spend more impulsively because there is not enough income to motivate the long termism of a savings culture. We frequently chastise consumers for the preference for foreign goods, yet we discount that foreign goods tend to be of higher quality and better pricing points.

Similarly, the decreased favorability in education that was once cultural in homesteads is caused by an economic outlook that does not reward academic and professional excellence.
Hence, youth dropping out, or choosing trading occupations that do not need professional competence are not traits of a misguided generation. Instead, disenchanted graduates are not materially convinced of the dividends of mere academic excellence as generations beforehand. There is widespread misconception that youths are bad debtors, and simply refuse to pay back creditors from malevolent volition. Youth loans defaults occurred at the similar time that structurally the economy began to contract.

Without identifying the correct causation of prevalent behaviour, governments cannot propose the right models to stimulate more desirable behaviour. But here’s a thing about social psychology, as government correct the right causes, economic stakeholders show their appreciation too.

The rewards of reciprocal favorability
By identifying and rectifying the causes of bad behaviour, citizens are more likely to voluntarily reciprocate. Virtuous impulses and motivations begin to flourish. For instance, according to Thaler, citizens develop their own conscience such as “fairness theory”.
This has important economic implications. It explains, for example, even when economic pressures would force a multi-pricing regime, many retailers have stuck by the monetary imperative of singular pricing. It also explains how even with dwindling foreign currency reserves, manufacturers in the economy have tried their best to avoid parallel markets for foreign currency. They are empathetic.
Contrary to most critics, what governor Mangudya and to a lesser extent former Finance Minister Chinamasa have brought to the economy is reciprocal favourability. They have not been as exceptional in actual policy, but they have been good at tapping into the conscience of key stakeholders’ impulses and motivations.
It does not happen too often in developing economies, but as some economists have suggested in their writings, some policy makers in developed economies are successful for no other reason except that they are trusted and liked! Ultimately, policy makers and governance are dealing with people! It goes a long way to be an affable and trustworthy policy maker.
Naturally, as human beings, more than abstract economic legislation and enforcement, our impulses and motivations respond directly to personable connection! The Nobel Prize for Economies this year tells Zimbabwe, let’s improve our behavioural economy!

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