TJP

Robert Gabriel Mugabe it is Time to Exit

Byron A. Ellis

October 26, 2007

Whenever prices of goods or services are set below the market-clearing price, the quantity demanded will exceed the quantity supplied.

Zimbabwe, under Robert Gabriel Mugabe, recently implemented a form of price controls. Mugabe, who has two degrees in economics, ordered a reduction in shop prices by at least half or more.

Mugabe’s ill-conceived decree ensures further calamity to Zimbabweans in the form of shortages. But Mugabe should know better, he has been exposed to economic theory. He should know that if markets are not allowed to clear, supply will diminish and demand will expand, leading to shortages: empty shelves.

So, it is difficult to understand why he has constrained prices, since not only shortages will occur; but, when prices are not allowed to fluctuate freely two other effects come into play: wealth transfer and non-price discrimination.

Wealth transfer occurs when Zimbabweans travel long distances to the South African border to buy products not available in Zimbabwe. It also occurs when Zimbabweans return with excess products for sale at uncontrolled prices.

Discriminatory behavior result when non-monetary and non-market criteria are use for payments. That is, potential suppliers will tend to favor certain customers to the detriment of others.

Price controls also affect the quality of goods and services produced. Producers and providers will not want to incur extra costs for product and service improvements if they cannot recoup their cost.

Price controls also leads to the creation of “black markets,” and an increase in crime. So, why would Mugabe implement such a strategy?

Mugabe can best serve Zimbabwe as an elder statesman. He should gracefully let younger Zimbabweans lead the country. It is time for other African nations to signal that his departure cannot be further delayed. He should look towards the shinning example of Nelson Mandela, who willingly transferred power to younger South Africans.