Zambezia (1982), X (i).A DEVELOPMENT STEATEGY FOR ZIMBABWE*ANN SEIDMANDepartment of Economics, University of ZimbabweZIMBABWE'S NEWLY INDEPENDENT Government has inherited a paradox:Zimbabwe enjoys one of the highest average per capita incomes in Sub-SaharanAfrica, but the majority of its population remains among the most impoverished inthe world. Indeed almost a century of colonial capitalist rule has left Zimbabwewith several contradictory characteristics.1First, over the decades, the colonial governments have helped shape aprosperous commercial farming sector, financing essential infrastructure, providingdirect and indirect subsidies, and helping to create supportive marketing and creditsystems. At the time of independence, some 6,000 farms produced 14 per cent ofthe Gross Domestic Product, 95 per cent of all marketed agricultural produce, andabout 33 per cent of the nation's exports. Yet in 1980, only 25 per cent of thesefarms paid any income tax,2 yielding less than 6 per cent of all income tax revenuereceived by the Government. Some view this commercial farming sector as the keyto the production of foodstuffs to enable Zimbabwe to assume the role of a regionalbreadbasket; but it is important to realize that almost 50 per cent of the output infact came from a mere 10 per cent of the farms, predominant among them a fewtransnational corporate affiliates like those of the Anglo American Group. By wayof contrast, many, if not most, of the 320,000 farm-workers, almost a third of thenation's wage-labour force, subsist in conditions hardly better than thosenineteenth-century slaves on American plantations, their families housed in tinythatched shanties without running water or electricity. Even now, after the twoincreases in the minimum wage, farm-workers earn little more than Z$2 a dayŠand the newspapers report that some commercial farmers refuse to pay even that.3Secondly, a prosperous mining sector has emerged, dominated by trans-national corporations, again led by the Anglo American Group. Despite this*An inaugural lecture delivered before the University of Zimbabwe on 13 May 1982.'Data relating to Zimbabwe, unless otherwise stated, is drawn from the following sources:Zimbabwe, Monthly Digest of Statistics: February: 1982 (Salisbury, Central Statistical Office, 1982);Zimbabwe, Income Tax Statistics, Fiscal Year 1979/80 (Salisbury, Central Statistical Office, 1981);Reserve Bank of Zimbabwe: Quarterly Economic and Statistical Review (1982), III, iv. Conditions ofworkers and peasants are described in Zimbabwe, Report of the Commission of Enquiry into Incomes,Prices and Conditions of Service [Chairman: R.C. Riddell) (Salisbury, Gov. Printer, 1981). Thestructure of ownership of mines, commercial farms, and manufacturing industries is analysed in D.C,Clarke, Foreign Companies and International Investment in Zimbabwe (Gwelo. Mambo Press, 1980),and A. Seidman and N.S. Makgetla, Outposts of Monopoly Capitalism: Southern Africa in theChanging Global Economy (Westport CT, Lawrence Hill, 1980), up-dated by annual reports ofcompanies and by other information from the Registrar of Companies, Harare.2 A third of these were corporate farmers,"The Herald, 16 Apr. 1982.1314A DEVELOPMENT STRATEGY FOR ZIMBABWEsector's importance in exports, it claims to produce less than a tenth of thenational product.4 Government financed the roads, water and electricityŠessentials to this sector's prosperityŠbut in 1980 mining companies paid less thanZ$4 million in taxes, roughly 2 per cent of revenue from income tax. Again by wayof contrast, over 60,000 Black mine-workers earn wages below those of miners inSouth Africa. Even after the Government raised the minimum wage, it remainedless than 25 per cent of the wage that transnational mining companies must paytheir workers in the United States.Thirdly, the output of the manufacturing sector, the pride of the previousregime, more than tripled in dollar terms during the period of U.D.I., rising to 25per cent of the national product. By independence, Zimbabwe boasted the secondlargest industrial sector on Sub-Saharan Africa, substantially larger in terms ofoutput and employment than that of its independent neighbours. The Smith regime,collaboratiog closely with transnational corporations and local minority-ownedfirms, intervened extensively to foster the growth of import substitution industries.This rapid expansion of manufacturing, however, further aggravated the distortednature and external independence of the economy, for:(a) The sector became increasingly geared to producing military hardware,and the luxury and semi-luxury requirements of the high-incomeminority;(b) Transnational corporate affiliates, evading U.N, sanctions by operatingthrough their South African regional headquarters, provided machinery,equipment and intermediate goods, fostering growing concentration andexternal dependence;(c) Almost three-quarters of the expanding manufacturing employmentcentred in Salisbury (47 per cent) and Bulawayo (22 per cent); and,(d) Manufacturing industry grew relatively more capital-intensive ratherthan labour-intensive. By 1980 it employed 159,000 workers, 15 percentof all paid workers, but only 4 per cent of the adult labour forceŠonly oneand a half times as many as were employed in domestic service.Growth in the manufacturing sector led the post-independence boom. Yet much ofthis growth constituted a once-only expansion, utilizing existing idle capacity inresponse to the rising post-war demand spurred by increased minimum wages.Factory managers today argue that U.N, sanctions and government controlsintroduced during U.D.I, led to much of their machinery and equipment becomingobsolete. They now call for relaxed foreign exchange in the world market. Some4 This seems to be circumstantial evidence that the mining firms engage extensively in understatingtheir output and In under-invoicing their exports to transfer profits out of the country untaxed, despiteexchange controls.ANN SEIDMAN15add that rising wages make It essential to replace labour.5 Meanwhile, mostZimbabweans cannot yet afford to buy the goods manufactured by the modemmanufacturing sector, small African entrepreneurs, some in the very heart of thecity of Harare, recycle cast-off clothing, shoes and furniture for sale to the still-impoverished majority.These contradictory features of Zimbabwe's inheritance stand out in fargreater contrast when one stands back to view the whole national economyŠaclassical case of'growth without development'.6 A handful of commercial farmsspreads over the best half of the the national land area; transnational mines dig upand export the nation's mineral wealth; a narrowly circumscribed manufacturingsector produces luxury and semi-luxury goods for the high-iocome minority. Thesehave emerged out of a century of colonial rale as prosperous enclaves in a sea ofpoverty. Some 850,000 peasant families, about three-quarters of the population,still live crowded on rocky or sandy, infertile, overgrazed lands. These CommunalLands still lack tarred roads, adequate water suplies and electricity. Few peasantfamilies have access to enough land to produce a surplus for sale. Here live most ofthe under-employed women, children and old folk. From these labour reserveshave come, over the years, the hundreds of thousands of low-paid wage earnersŠmostly menŠwho work on the commercial farms, mines and factories to producethe nation's wealth.For the purposes of this lecture, I should like to summarize the main theoriespurporting to explain this paradox. I hope, then, to suggest which seems moreconsistent with the evidence that we in the Economics Department have beengathering. Finally, I will then consider the implications of this 'test' for theformulation of a development strategy for Zimbabwe.CATEGORIES OF THEORIESFor convenience, it can be said that these theories can be put into two categories,the 'liberal neoclassical' and the 'transforming institutionalise. Each category, ofcourse, includes widely diverse groups, but there are such fundamental differencesbetween the two, in their underlying methodologies, as well as in their resultingexplanations and prescriptions, that the distinction proposed is justified. Econo-mists in both camps agree that increased specialization and exchange andcontinually advancing techniques of production underlie the rising productivityand living standards potentially available in the twentieth century. They generallyagree, too, that the nation must invest about 25 per cent of its national income in5B. Mswaka, C.K. Mukwashi, J. Mukwashi and A, Sibanda, 'Research Project on IndustrialStrategy in Zimbabwe: Report on the Formal Sector' (Salisbury, Univ. of Zimbabwe, Dep, ofEconomics, Pilot Research Project, mimeo, 1981).*R.S. Clower, G. Dalton, M. Harwitz, and A.A. Walters, Growth without Development; AnEconomic Survey of Liberia (Evanston IL, Northwestern Univ. Press, 1966).16A DEVELOPMENT STRATEGY FOR ZIMBABWEproductive sectors if the rate of growth of the national product is to outpacepopulation expansion and to provide more goods and services to every citizen.7 AsFigure 1 (a) illustrates, consumption by individuals or government, whether in theform of social services or military expenditures, cannot exceed about three-quarters of the national product, leaving a quarter for investment in expandingproductive capacity.Figure 1 (b) illustrates that, if the nation fails to invest roughly this much everyyear in expanding-production, the national income will decline. Government willinevitably find itself forced either to slash its expenditures or to borrow. By slashingsocial expenditure, it may lose legitimacy. By borrowing, it may aggravateinflationary pressures and increase future balance of payment problems.Both camps, in other words, agree on the necessity to expand investmentannually to ensure continually increased productivity and a growing nationalproduct in order to steadily raise the population's living standards. Theirfundamental disagreement centres on the root causes of the fact that, althoughexpanding investments have fuelled an on-going technological revolution, the gapbetween the 'have' and the 'have not' nations and groups within nations hascontinued to widen. This disagreement breeds still sharper debate about what to doto overcome that growing gap. To understand why their policy prescriptionsdisagree, we must first examine their explanations of the paradox, for proposals forsolution must address the causes that the explanations reveal.Liberal neo-classical explanations. These embrace such widely diverse theoriesas those of the monetarists, including Friedmanites and advisors of the Inter-national Monetary Fund, and of Keynesians.8 This simply underscores my pointthat sharp debates persist within these categories. Nevertheless, liberal neo-classicists agree on basics: private enterprise, competing in the market to maximizeprofits, is most likely to foster the best allocation possible of resources. Put anotherway, under competitive conditions, the market forces of supply and demand tendtowards an equilibrium in which marginal costs equal marginal revenues, and allfactors of production receive returns determined by their marginal productivity.This category of 'grand theory' generally holds that the state should create theinfrastructural framework within which the market forces may operate freely. Fewwould altogether exclude government intervention. All agree that governmentsshould tax to finance essential infrastructure and regulate money supplies throughcentral banks. They differ, often bitterly, over the kinds of tax and monetarypolicies to be introduced as well as the extent of government investment in socialinfrastructure and participation in parastatals.'World Bank, World Development Report 1980 (Washington DC, World Bank, [1981]),8S. Griffith-Jones and D. Seers, 'Monetarism and the Third World', IDS Bulletin (1981-2),XIII, i, 27, 60.National output/incomeConsumption = 75% of National Income3VConsumption exceeds National IncomeNVWQI3S NNV18A DEVELOPMENT STRATEGY FOR ZIMBABWENeo-classicists would generally hold, I think, that foreign capital and settleringenuity led, in Zimbabwe, to economic growth and technical advance, creatinghere the most industrialized state in Southern Africa outside South Africa itself.With varying degrees of vigour they would explain as a major cause of Zimbabwe'sinherited paradox, the former government's imposition of racist restrictions whichbarred African participation in the anticipated multiplier-spread effects. I charac-terize these particular views as 'liberal' to distinguish them from those of other neo-classicists who maintain, as do some in South Africa to this day, that the formerregime's racist economic policies pursued the most appropriate neo-classicalpath.Liberal neo-classicists would urge the elimination of racist laws and policiesat all levels and in all sectors of the Zimbabwean economy. The present ownership(including directorship and shareholdings) of the efficiently-operating commercialfarms, mines and manufacturing enterprises, however, should remain intact.Expanded non-discriminatory educational institutions should provide Africanswith essential skills, and managers and supervisors should employ them in both theprivate and public sectors as quickly as they acquire the necessary qualifications.Some liberal neo-classicists maintain that traditional institutions and attitudesamong Africans in the past combined with racist policies to inhibit Africanparticipation in national growth. They frequently cite rapid population growth andlarge families as hampering would-be African entrepreneurs from making thesavings necessary to accumulate and re-invest capital.Others hold that communal-land tenures and Africans' lack of title to landexplain why banks failed to lend them needed funds. Such African institutions andattitudes, these economists suggest, help to explain why Zimbabweans, in commonwith Africans in countries not characterized by racist policies, failed to amasscapital to enter effective competition with foreign settlers and firms. The allegedinability of Africans to accumulate and re-invest capital appears to underpin thewidely held assumption that the domestic economy cannot generate the capitalnecessary to finance the import of new machinery and equipment to enableZimbabwe to compete in the world market. The logical conclusion follows thatZimbabwe's new Government should pursue policies designed to attract additionalforeign capital.Transforming institutionalists. These include widely diverse political econo-mists, Marxist and non-Marxist, from Gunnar Myrdal to Andre Gunder Frank andSamir Amin. These fundamentally reject neo-classical models and analytical toolsas static, incapable of capturing the reality of the institutionalized features of themodem world economy. They focus on the historical evolution of institutionalstructures that introduce exploitation and monopolistic elements leading todistorted national and international development. Unlike neo-classicists, they viewthe state and law as always and everywhere intervening in the economy despiteANN SEfDMAN19myths and ideologies to the contrary. In general, they endorse a transition to somesort of socialism. Like some neo-classicists, however, they disagree amongthemselves on critical issues, including the role of class forces and the state inparticular historical circumstances, the essential features of the transition process,and even fundamental characteristics of socialism itself, I lump them together as'transforming institutionalists' because, whatever their differences as to thetransition and the ultimate goal, they agree on the present necessity of transformingthe inherited state and institutional structures governing the political economy tofulfill the legitimate aspirations of the mass of the population.The transforming institutioeaiists' explanation for Zimbabwe's paradoxfocuses on the historical role of the colonial state, collaborating closely with settlersand the interests of foreign companies, in shaping Zimbabwe's institutions to fostermonopolistic minority ownership of the major means of production: the commercialfarms, mines and manufacturing sectors. The state employed racist legislation tocoerce the African population into a low-cost labour reserve. Land legislationpushed Africans off the best agricultural land into overcrowded Tribal TrustLands. Discriminatory marketing authorities favoured settler-owned commercialfarms. Taxes forced male Africans to migrate in search of wage employment. Bythe time that the liberation forces won independence, the mere elimination of racistlaws could change only the form, not the content, of the institutionalizedexploitative capitalist system which had impoverished the mass of the Africans. Noindividual Africans could ever hope to compete with the powerful settler andtransnational corporate capitalist groups which had, over the last century, achieveddomination of the nation's major productive assets.In sharp contrast with liberal neo-classicists, the transforming institutionalistsassert that the Zimbabwean economy could, and did, generate growing amounts ofinvestible surpluses. They emphasize that the racist state shaped the insti-tutional framework to ensure that the settler-corporate groups, working in closeconcert with banking and financial interests, accumulated and re-investeddomestically generated capital to strengthen their monopolistic control. In theU.D.I, period, the Smith regime successfully introduced exchange and importcontrols, tariffs, and joint state-private ventures to help mobilize and direct thosesurpluses to expand and diversify the manufacturing sector. Transnationalcorporate capital, operating through its regional headquarters in South Africa,collaborated in this process because:(a) the repressive regime kept wages and taxes extremely low, ensuringrecord profit rates;(b) the Rhodesian economy provided a valuable high-priced market forsurplus manufactured goods and a useful source of low-cost rawmaterials for their South African factories; and,(c) until the liberation forces emerged as a serious threat in the late 1970s,the transnational corporate managers believed that the Smith regime20A DEVELOPMENT STRATEGY FOR ZIMBABWEwould successfully continue to provide a buffer against the 'winds ofchange' blowing south across the continent.This 'growth without development' during the U.D.I. period, fostered by extensivestate capitalist intervention, provides ample proof, according to the transforminginstitutionalists, that Zimbabwe's economy did and still can generate significantinvestible surpluses. This, they conclude, leads logically to a very differentconclusion from that of the neo-classicists.The critical differences between the theories. One fundamental differencebetween liberal neo-classicists and transforming institutionalists, which affectstheir proposals for immediate state action, lies in their respective conclusions as toZimbabwe's ability to generate, accumulate and re-invest capital. Their disagree-ment over this issue leads them to propose different policies in the immediate futurewhich lead to qualitatively different development strategies.Convinced that Zimbabwe cannot itself generate adequate investible sur-pluses, neo-classicists urge the creation of conditions necessary to attracttransnational firms to invest: a go-slow on land reform, the elimination of foreignexchange and import controls, and the imposition of ceilings on wages and taxes.Transforming institutionalists claim that the economy can and does generatesufficient investible surpluses. The state, representing the people, must take stepsnow to implement a major land reform to provide the 850,000 peasant families nowcrowded into the Communal Lands with adequate land to begin to increaseproductivity and raise their standards through their efforts. Simultaneously, theGovernment should assert control over the commanding heights of the nationaleconomy and redirect the sizeable locally generated surpluses to finance plannedprojects to spread increasingly productive employment opportunities to all sectors.In time, it should engage the mass of the people in carrying through a transition toincreasingly socialized ownership of the nation's productive asssets.These arguments involve disagreements over innumerable factors toocomplex to examine in detail here. I propose to limit my examination of theevidence to two questions: Can Zimbabwe generate sufficient capital to finance amore balanced, integrated, self-reliant pattern of development? If so, what happensto that capital ? From my answers to these two crucial questions, I will try, briefly,to suggest their implications for the formulation and implementation of anappropriate development strategy for Zimbabwe,CAPITAL ACCUMULATION AND OUTFLOWGathering evidence on these issues is something of a detective job. Banks andfinancial institutions traditionally shroud their activities in secrecy, claimingconfidentiality to protect their clients' interests. During U.D.I, they deepened andextended this secrecy to conceal how the transnational corporate communityGross capitalformationReportedoutflowof profitWhat happensto the rest?1975G.D.P, = 100%= Z$l 917 millionGross Operating Profit = 45%= ZS833 million1978G.D.P. = 100%= Z$2 231 millionGross Operating Profit =39%= Z$867 million1980G.D.P. = 100%= Z$3 312 millionGross Operating Profit = 42%= Z$l 386 millionFigure 2: WHAT HAPPENS TO INVESTIBLE SURPLUSES PRODUCED IN ZIMBABWE'22A DEVELOPMENT STRATEGY FOR ZIMBABWEcollaborated with the Government to mobilize funds in Zimbabwe despite U.N.sanctions. The task, then, is to piece together bits and pieces of evidence fromwidespread sources in an effort to create a coherent picture.The National Accounts reveal that gross operating profits over the last decadereached between 40 and 45 per cent of the national product, or G.D.P. (GrossDomestic Product) at factor cost. These gross operating profits indicate a roughorder of magnitude of the real surpluses produced within the economy and, inprinciple, available for investment (see Figure 2).9 In 1975, the last good yearunder the old regime, about 25 per cent of the G.D.P. was invested. Thisrepresented the minimum that economists in both camps generally considernecessary to initiate self-sustaining growth. By 1978, under the double impact ofthe international recession and the mounting liberation struggle, investmentdeclined to 15 per cent of the G.D.P., although gross operating profits stillaccounted for almost 40 per cent. The Smith regime borrowed increasingly heavilyto finance its growing military expenses. In the first post-independence year, 1980,investment jumped 80 per cent to reach a somewhat higher share (18 per cent) of amuch larger national product. The new Government, however, began to borroweven more to pay for its rapidly multiplying expenditures on social services.Most locally generated surpluses accrued to transnational corporate affili-ates, estimated to control 70 per cent of the assets in the modern sector.10During U.D.I., the government exerted considerable pressure on these firms toinvest in manufacturing to reduce dependence on imports and augment exportearnings. Analysis suggests first that the foreign firms, along with local state andprivate enterprises, invested in ways which aggravated the dualism plaguing theZimbabwean economy, and second, that a major portion of the investible surpluswas never invested in the economy at all. Stringent foreign exchange controlsintroduced during U.D.I, restricted the officially permitted net outflow of capital toless than 5 per cent of gross operating profits in 1975.The former regime set relatively low taxes on companies. Yet, although thecompanies and their shareholders retained over three-quarters of their reportedprofits in the country, they actually invested only half of them. Every year, theyretained investible surpluses equal to about a tenth of the G.D.P.,11 instead ofinvesting them to expand productive activity. The investment of this additional'These figures, based on a series of heroic estimates, can be nothing more than indicators ofsurpluses generated locally. One could argue, however, that they are conservative indicators for theyexclude the very high salaries enjoyed by about 8 per cent of all employees. These salaries total about halfthe nation's wage and salary bill, representing median Incomes of Z$8,G00 to Z$10,000. The salariesexceeding this median, one could conservatively claim, represent the share of investible surplus, perhapsas much as Z$400 million, paid out to the highest paid salariat,10 For discussion on the role of foreign capital in Zimbabwe in global terms, see C. Stoneman,'Foreign capital and the reconstruction of Zimbabwe*, Review of African Political Economy (1978), XI,62-83."These retained surpluses equalled 9 per cent in 1975, rising to 16 per cent in 1978 and 1980.ANN SEIDMAN23Table ITHE AVAILABILITY OF UNUSED INVESTIBLE SUPLUSESIN ZIMBABWE, 1975-1980197519781980Gross Domestic Product (a)Gross Operating Profits (b)Capital formation (c)Remittances abroad (d)Z$millionI 91783346779%10044254Z$million2 23186733035%10039152Z$million3 3121 386596140%10042185Direct taxes levied on companies (e) 138Remainder: unused investiblesurplus produced (f)18712537716133517 16Notes:aG.D.P. at factor cost paid by resident producers to resident and non-resident factors ofproduction for all goods and services within national boundaries.b Gross Operating Profit is factor income (after payment of wages and salaries) attributableto factors of production employed but not necessarily owned by the establishment. Part of it isdistributed to owners of the factors of production in the forms of investment income (interest,dividends, distributed profits) and to other final recipients in the form of transfer income (directtaxes, pensions, bursaries, etc.). Estimates of the depreciation of capital goods are not currentlyprepared in Zimbabwe, so the accounts do not give net operating profits. One could argue that thesignificant investible surpluses returned to the less than 10 per cent of all wage and salary earnerswho earn about half the nation's wage bill, constitute additional surpluses Š perhaps as much asZS400 million.cGross fixed capital formation is made up of all purchases, lease-hire acquisitions and own-account production of fixed assets, less sales of similar fixed assets, whether for new capitalformation or to replace depreciated capital (net capital formation figures are not a¥ailable). Abouta tenth of gross fixed capital formation reported in 1975 and 1978 represented residential housing,most of it for the high-income minority; in 1980 investment in residential housing rose 110 per centover 1979 to 13 per cent of total capital formation. In a society geared to meet the needs of thepopulation, this share could be sharply reduced, permitting redirection of these funds to moreproductive employment activities.dNet investment income paid abroad, as officially reported (profits, dividends, interest,etc.),eCompanies, public and private, pay about 60 per cent of Zimbabwe's direct taxes. Ofindividuals' income taxes, salaries constitute about 80 percent. Taxes on the investible surplusesreturned to self-employed individuals constitute a negligible additional per cent of the G.D.P.(about 1 per cent in 1980).^Unused investible surpluses remaining in Zimbabwe are funds remaining after taxes,depreciation and outflow of investment income, either in the hands of companies or individuals. Ina Keynesian sense, these may be said to be hoarded, as they are not used for new capital formation.Source: Calculated from Zimbabwe, National Accounts of Zimbabwe Rhodesia 1978(Salisbury, Central Statistical Office, 1980); Monthly Digest of Statistics: February: 1982;Income Tax Statistics: Fiscal Year 1979-1980 (Salisbury, Gov. Printer, 1981).24A DEVELOPMENT STRATEGY FOR ZIMBABWEinvestible surplus in 1980Šsome Z$517 millionŠwould have almost doubledtotal capital formation that year. To the extent that companies used these funds tofinance internally their working requirements for working capital, rather thandrawing on banks, the banks' loanable funds lay idle. The persistent high liquidityof the commercial banks, in other words, reflected in large part the failure of thecompanies to use available surpluses for new capital formation.Some economists argue that rising wages significantly reduced the investiblesurpluses in post-independence years. In 1980, however, the total wage bill grew ata somewhat slower rate than that of Gross Operating Profit. Perhaps moreimportantly increased minimum wages contributed substantially to the 1981economic boom, particularly in consumer-goods industries.12Several critical questions remain: What happens to the expanding investiblesurplus generated annually within Zimbabwe? Why is so much invested in wayswhich aggravate the inherited dualism of the national economy? Where go thosesurpluses not invested? The answers to these questions lie, at least in part, in theclose links between the banks and the financial institutions which help mobilize andinvest the nation's savings, and the transnational corporate interests which, overthe years, have drawn on them to finance their growing domination of the modern-sector mines, commercial farms and factories. Let us look briefly at these links.The inherited financial Institutional structure. DrD.C. Krogh, Governor of theReserve Bank of Zimbabwe, declared after independence:Zimbabwe has a financial structure that is more sophisticated than normallyfound in an economy of this size, which is due to Salisbury previously havingserved as the financial centre for the former Federation of Rhodesia andNyasaland. This has been promoted by strict exchange controls over a longperiod and also the fact that between 1966 and 1980, the country hadrestricted access to international money and capital markets. A relativelyadvanced payments system exists and the spread of institutions is such that avery effective mobilization of savings is possible. This has been of significance,not only in facilitating the overall development of the economy, but also inenabling Government to finance its large budget deficits mainly fromdomestic borrowing."Figure 3 illustrates the bare-bones structure of Zimbabwe's financial institutions.Their assets a year after independence totalled roughly Z$4,000,000,000, alarge sum for a developing country with a population of only eight million.The Reserve Bank of Zimbabwe remains the government's bank and primaryinstrument of state intervention in banking and finance. In line with neo-classicalprescriptions, it exercises powers typical of most central banks in developing12 e.g., Reserve Bank of Zimbabwe: Quarterly Economic and Statistical Review (1980), I, ii, 7."Ibid, (1980), I, i, 8.Figure 3: FINANCIAL INSTITUTIONS IN ZIMBABWEŁ69-NIIŁS00WCOOOXzouCO5HiwOOXHZou5*Q5e<Q2PQRESERVE BANKCOMMERCIALBANKS tAssets = Z$ 1,151Standard (A)*Barclays (B)*ZImbank (C)*Grindlays (D)MERCHANTBANKSAssets - Z$ 28"/Merchant BankRAL*Syfrets (C)Standard (A)Export. Credit Insurance Corporation(A), (B), (C), (D)*FINANCEHOUSESAssets = Z$1S9Grindlays (D)Notes: Z$ = millions(A), (B), (C), (D) = the four commercial banks; these letters attached toother institutions indicate known links between them and the particular banksŁindicates known links with Anglo American GroupBUILDINGSOCIETIESAsset* - Z$615CABS*BeverleyPOST OFFICESAVINGSBANKAssets = Z$32663 INSURANCE COMPANIESAssets = Z$601(Old Mutual* = half)PENSION FUNDSAssets = Z$630(Self-administered Z$356Administered by InsuranceCo mpa n ies Z$2 74)Sources: Reserve Bank of Zimbabwe: Quarterly Economic and Statistical Review (1982), III, iv; Zimbabwe, Report of the Registrarof Insurance for the Year Ended December 31, 1982 (Cmd. R.Z. 10, 1983), 5; Zimbabwe, Report of the Registrar of Pension andProvident Funds for the Year Ended the 31st December, 1982 (Cmd. R.Z. 10, 1983), 3-4.26A DEVELOPMENT STRATEGY FOR ZIMBABWEcapitalist economies. During U.D.I., it retained close ties with the South AfricanReserve Bank, especially after U.N. sanctions cut it off from other internal links. Itrelied heavily, particularly in the area of foreign exchange control, on thecommercial banks.The Commercial Banks have over Z$ 1,000,000,000 in assets, play a centralrole in mobilizing and re-investing domestic savings. Over the years, especiallyduring U.D.I., they became closely interwoven with transnational corporateaffiliates, particularly those of the Anglo American Group,14 as well as with otherfinancial institutions.15 At independence, four foreign-owned banks controlledcommercial banking in Zimbabwe. The largest, owning over two-thirds ofZimbabwe's bank assets, are Standard and Barclays, both subsidiaries of Britishbanks. During U.D.I, they functioned through their South African affiliates, whichin turn own almost two-thirds of South Africa's bank assets; and the AngloAmerican Group is represented on both their boards of directors in Zimbabwe.16The third largest bank in Zimbabwe was Rhobank which owns 16 per cent of thenation's bank assets; the Rhobank shares owned by the South African Nedbankwere purchased by the new Zimbabwe Government in 1981 and the bank's namewas changed to Zimbank,17 although its management and policies were to remainunaltered for two years. The fourth bank is Grind!ays, which holds only about 12per cent of Zimbabwe's bank assets; this is owned by National Grindlays Bank, aBritish bank in which 49 per cent of the shares are held by Citibank, the secondlargest in the United States.18Merchant banks and discount houses, mostly created in the days ofFederation, grew rapidly during U.D.L to help mobilize domestic finance andprovide international linkages to foster the continued growth of transnationalcorporate affiliates, despite U.N. sanctions. They retained and developed close tieswith the commercial banks and associated transnational corporate interests withregional headquarters in South Africa.19Credit policies of the commercial banks tended over the years to fostertransnational corporate and settler domination of the so-called 'modern' enclavesi4T. Chimomhe, 'Commercial Banks in Zimbabwe' (Harare, Univ. of Zimbabwe, Dep, ofEconomics, Research Project, mimeo, 1982),"Reserve Bank of Zimbabwe: Quarterly Economic and Statistical Review (1980), I, i, 9,""The Anglo American Corporation, the biggest mining finance house in South Africa, actuallyowns about a third of Barclays South Africa; and Anglo's International Group Chairman sits on theBoard of Barclays International.17 Zimbank's largest shareholders, after Nedbank, had included an affiliate of the Old Mutual, aSouth African insurance company, as well as Anglo American group affiliates, RAL Nominees, andseveral pension funds.18 Zimbabwe. Monthly Digest of Statistics: March: 1981 (Salisbury, Central Statistical Office,1981), 33.19 Anglo American itself established the largest merchant bank, RAL, in 1956. RAL's chairmansits on the boards of about 80 financial and producing companies. Anglo American also owns a third ofBard Discount House Ltd, in which Barclays, Standard, Grindlays and Zimbank all hold shares.ANN SEIDMAN27and so contributed to dualism. The Reserve Bank, operating along typical andneo-classical lines, gave them free reie to decide who would receive credit and howmuch. The commercial banks loaned most of their funds to the private sector.Government's share grew rapidly only in the late 1970s as recession slowed privateInvestment and the Smith regime borrowed heavily to finance its expandingintervention in the economy; it peaked at 29 per cent in 1978 and fell back to only11 per cent of a much larger share of the total in the post-independence boom.Throughout the 1970s the banks had excess liquidity, that is, the Reserve Bankwould have permitted them to lend out far more funds than they did. This reflectsthe failure of the private sector to invest all the domestically generated capital inproductive investment. In 1979, the Reserve Bank raised the required minimum ofliquid assets that the banks must hold, but this merely masked their inability tocontribute positively to investment.Table IIPUBLIC AND PRIVATE SECTOR LOANS MADE BY COMMERCIALBANKS IN ZIMBABWE, 1968-1981(AS PERCENTAGES OF TOTAL LOANS)Private SectorCorporate andUnincorporatedEnterprise196819781981826773PrivatePersons13722Non-Resi-dents34PublicSector162911Unallowedand TimingAdjust-ments*4Š6-8Total(Z$ millions)109.0255.8453.0* The total private and public sector loans exceeded 100 per cent in 1978 and 1981 becauseof a growing unexplained minus figure under 'unallocated and timing adjustments', which rose toZ$16 million in 1978 and Z$40 million in 1981.Source; Calculated from Central Statistical Office, Monthly Digest ofStatistics: February: 1982, 59 (Table 19.2); Clarke, Foreign Companies and Investment inZimbabwe,After independence, the national economy began to experience significantinflationary pressures. The Reserve Bank raised the interest rate twice In 1981,apparently accepting the I.M.F.'s conventional explanation that the commercialbanks, by expanding credit too rapidly, fostered the growth of the money supply at apace exceeding that of the production of goods. But the causes of the inflation lay,primarily, in the rising cost of imported goods, and in the government's increaseddomestic borrowing necessary for financing expanded social services, unless itwere to resort to higher taxes. The Reserve Bank had no powers to deal directly28A DEVELOPMENT STRATEGY FOR ZIMBABWEwith these underlying causes of inflation. Instead the interest rate was raised butthis in turn raised the cost of financing government's growing internal debt, andreduced the ability of smaller would-be entrepreneurs, many of them African, toborrow funds.Allocation of credit by the commercial banks acting in collaboration withtheir corporate clients tended to aggravate the economy's dualism. They loanedfunds primarily to clients in Salisbury and Bulawayo (60 per cent of all loans and 14per cent of all advances were made in these two centres), re-inforcing factorsfostering location of almost three-quarters of manufacturing industries in those twocities. Their sectoral loans (see Table III) likewise fostered the distorted growthpattern. They went mostly to commercial farms, manufacturing, finance andinsurance, and distribution, all dominated by transnational corporate investments.The transnational mining firms relied heavily on re-investing and their owninternally generated surpluses, rather than bank borrowing.Table IIICOMMERCIAL BANK LOANS TO THE PRIVATE SECTORSIN ZIMBABWE1968 1979 1981AgricultureMiningManufacturingConstructionFinance and insuranceDistributionOthers2541929201610520318242220935119115Several factors may explain the changes in the sectoral pattern of thecommercial banks' allocation of credit over the past decade. Agricultural loans,almost entirely to commercial farms, declined during U.D.I, as the governmentstepped in to help that ailing sector by subsidizing particular crops most affected bysanctions, providing some Z$136 million, from 1968 to 1977, to tobacco farmsalone. The state-owned Agricultural Finance Corporation roughly tripled its loansto commercial farms, from Z$43.6 million in 1968 to Z$121 million in 1979. In1980-1, as the commercial farms recovered, the banks also extended credit tothem. The mining sector apparently depended heavily on self-financing. A seniorANN SEIDMAN29official of Anglo American explained20 that the Group affiliates always sought touse funds accumulated in Zimbabwe, rather than bring finance from South Africa,The Group transfers funds from well-established prosperous projects to others justgetting started or suffering losses. It uses its extensive ties with the bankingstructure only when necessary. It sometimes actually makes short-term loans to thebanks. Manufacturing, though dominated by foreign capital, drew heavily onlocally generated Investible surpluses through the banks to finance its rapid growththroughout U.D.I. The banks also used their international ties to help Industry tofinance the import of machinery, equipment and intermediate goods despite U.N.sanctions. In the post-independence boom, manufacturing borrowed even morehea¥ily to finance its expanding needs for working capital.Commercial banks* loans to the finance and insurance sector grew relatively,as well as absolutely. This reflects the role of the commercial banks in the profitablebusiness of other financial institutions especially merchant banks and discounthouses, which engage in activities that they cannot undertake themselves.Other financial Institutions, such as insurance companies, pension funds andbuilding societies, work in close contact with the transnational banks In mobilizingand re-inYesting domestically generated capital. During U.D.I, the insurancecompanies, prohibited by the Smith regime from shipping their profits home orinvesting outside Zimbabwe, made their vast accumulated funds, over Z$60Qmillion by 1979, available primarily to large transnational corporate affiliates andto the government.21 Two-thirds of the 63 direct insurers in the country have theirheadquarters in either Britain (19) or South Africa (20). The largest, The OldMutual, based in South Africa, handles roughly half the nation's insurancebusiness. Re-insurance is a major device by which insurance firms may transferdomestically generated funds to their parent companies,22 Zimbabwean re-insurance premiums on non-life insurance alone, totalled Z$25 million in 1979,before the post-Independence boomŠa potentially significant drain of domesticsavings out of the country. Zimbabwe insurance companies also paid almost Z$ 12million from 1977 to 1979 as 'management expenses* to their parent companiesabroad.Pension Funds, made up of employers' monthly deductions from employees*salaries along with their own (tax deductible) contributions, expanded rapidly20 R. Lander, interview with N.S. Makgetla, May 1981. This apparently differs from the case inBotswana, where the mining sector relied heavily on bank finance for working capital. See N.S.Makgetla, 'Finance and development: The case of Botswana*, The Journal of Modern African Studies(1982), XX, 69-86."The information on insurance companies is derived from T, Chimombe et al., 'InsuranceCompanies in Zimbabwe' (Harare, Univ. of Zimbabwe, Dep. of Economics, Pilot Research Project,mimeo, 1982); figures later than 1979 have not yet been published.UK. Murray (ed.)» Multinationals beyond the Market: Intrafirm Trade and the Control ofTransfer Pricing (Brighton, Harvester Press for Univ. of Sussex, Inst. of Development Studies, 1981),92.30A DEVELOPMENT STRATEGY FOR ZIMBABWEduring U.D.I,, adding workers' savings to the capital available to transnationalcorporate affiliates.23 By 1980, pension fund assets totalled Z$63O million. Again,managers of these funds, in liaison with insurance companies, which handle nearly45 per cent of the assets of Funds, and with banks, make all policy decisionsrelating to the distribution of benefits and investments. These pension funds teed tobenefit higher-paid and long-serving employees which is often to the disadvantageof African employees.Managers of pension funds have within broad guidelines loaned the requiredminimum to government. They invested over half the funds in shares, loans oracquisition of properties for firms in the modem sectorŠoften transnationalcorporate affiliates. By 1980, they had also invested almost Z$30 million outsideZimbabwe; the Railway Pension Fund, alone, for example, had invested Z$24million of the railway-workers' savings abroad!The three building societies, created through a series of mergers duringU.D.I., channel would-be home-owners' savings into investments in commercialand residential housing.24 By 198!, they had accumulated Z$615 million in assets.They lend about a fifth to government. Most of the rest constitute mortgages inmajor urban centres, primarily for high-income home-owners and commercialenterprises. Shareholders and directorships tie all three societies to the majorforeign-owned insurance firms: CABS to the Old Mutual, Beverley to PearlAssurance, and Founders to Guardian Royal Exchange Insurance and Com-mercial Union Fire Marine and General Insurance. The societies typically requiretheir mortgage-holders to insure with these firms, a major source of insurance andre-insurance premiums which may, as I have mentioned, drain capital out of thecountry.The outflow of nationally generated Investible surpluses. As former colonieshave achieved independence, transnational corporations, with the assistance ofassociated financial Institutions, have devised many methods to evade govern-ment-imposed exchange controls and so to drain domestically generated surplusout of the economy. Zimbabwe's National Accounts suggest that this has occuredhere, too, and increasingly so, both relatively and absolutely, since independence!Table IV shows that the outflow of funds, in the form of business and holidayallowances, investment income, salaries, pensions, migrants' funds and propertyincomes paid abroad, almost doubled, in absolute terms, from 1978 to 1980. If oneadds half that amount to the Z$150 million possibly siphoned out through over- and23 The information on pension funds is derived from T. Chimombe et al., 'Pension Funds and theAccumulation of Capital in Zimbabwe' (Harare, Dep, of Economics, Pilot Research Project, mimeo,1982).24 The information on building societies is derived from T. Chimombe et al., 'Building Societies inZimbabwe' (Harare, Dep. of Economics, Univ. of Zimbabwe, Pilot Research Project, mimeo, 1982).ANN SEIDMAN31Table IVINCREASED INVISIBLE OUTFLOWS ON ZIMBABWE'SNATIONAL ACCOUNTS, 1976-1980Business and holiday allowancesInvestment incomeLabour incomePensionsMigrants' fundsProperty incomeOther private transfersTOTAL:As % of exportsAs % of investible surplus197644.361.212.85.316.83.710.7154.827.717.51978(Z$ millions)51.447.713.37.715.04.910.3150.324.717.5198092.282.922.829.723.98.817.4276.930.419.9Source: Calculated from th Central Statistical Office, Monthly Digest of Statistics:February: 1981, 13 (Table 9.1).under-invoicing,25 then, in 1980 alone almost Z$300 million, almost a fifth of thedomestically generated investible surpluses, may have been drained out of thecountry, Zimbabwe, since independence, is estimated to have attracted less thanZ$25 million in new foreign capital investments.26 In contrast, the funds drainedout of the economy might easily have financed the Government's deficit of $253million in 1980, leaving more than $100 million over to invest in building somedozen new factories in rural areas.The conclusion from the above evidence must be that Zimbabwe doesgenerate sufficient amounts of iovestible surpluses, amounting by 1980 to overZ$l,300,000,000. Invested in a planned way in balanced agricultural andindustrial development ie the past, these funds over the years could have providedsignificant increases in productive employment opportunities and higher livingstandards for the impoverished Zimbabwean majority. Instead, transnationalbanks and financial institutions mobilize these domestic savings primarily toenable transnational corporate affiliates to finance the more profitable growth ofthe 'modem' enclaves. Government borrowed some of the remainder which it25 Estimates based on studies done elsewhere show that sums equivalent to 10 per cent of importsand 15 per cent of exports are transferred out ofthe typical Third World country in this way; see Murray,Multinationals beyond the Market, 305-6.26A.M. Hawkins, 'New African Markets: Zimbabwean Business Opportunities* (London,International Conference on the Investment Opportunities in Zimbabwe, 1981).32A DEVELOPMENT STRATEGY FOR ZIMBABWEwould ultimately have to repay with interest. Insofar as they could evade exchangecontrols, the transnationals shipped a significant share of the rest out of the countryto their regional headquarters in South Africa and beyond.THE IMPLICATIONS FOR ZIMBABWE'S DEVELOPMENT STRATEGYBased on their different explanations, liberal neo-classicists and transforminginstitutionalists propose immediate measures leading to qualitatively differentlong-term development strategies.Neo-classicists conclude that, if Zimbabwe cannot generate enough capital, itmust create an 'attractive investment climate'. Only that, they say, will bring innecessary foreign capital with its modem technologies, management and inter-national markets. Thus they recommend low wages and low taxes on profits, andthe elimination of exchange and import controls. The government should buildinfrastructure, and, if necessary, it may participate in joint ventures to get projectsstarted. Some neo-classicists hold that tariff protection will attract foreigninvestment in manufacturing. Others, asserting that tariffs permit foreign mono-polies to maximize profits by raising domestic prices, urge tariff reduction.Basically, however, all these prescriptions assume that transnational corporateinstitutions must continue to make essential investment decisions.Transforming institutionalists claim that two decades of experience inindependent African states, not to speak of Zimbabwe's own circumstances, teach adifferent lesson. The neo-classicists simply advise Zimbabwe to join almost fiftyother independent African states in competing for foreign capital. Over the last twodecades, none of them has won that competition; in the first year of independence,Zimbabwe 'attracted' less than Z$25 million in foreign investment. But SouthAfrica, where apartheid oppression still ensures minimal wages and taxes, has'attracted' over half the continent's transnational corporate manufacturing invest-ment. Furthermore, a development strategy that would dismantle the exchange andimport controls imposed after U.D.I, would merely facilitate the more rapidoutflow of domestic savings. Most African governments, adopting this neo-classicist recommendation, today confront mounting balance of payments deficitsaggravated by the drain abroad of profits, interest and dividends. Like Zimbabwe,committed to financing improved social services while keeping taxes down, theyhave had to borrow heavily, both internally and externally. Inflationary pressureshave multiplied, sharply reducing the living standards of the mass of theirpopulations. They have sunk deeper into a quagmire of external dependence,weighed down by international debt repayments accompanied by soaring interestrates.2711S. Griffith-Jones and D. Seers, 'Monetarism and the Third World', 6-13, describe a series ofLatin American cases to illustrate these consequences of the I.M.F.'s typical neo-classical recommend-ations.ANN SEIDMAN33The transforming institutionalists, therefore, argue that Zimbabwe does notneed to attract foreign capital. Instead the government should take control of thecommanding heights of the national economy: the basic industries, foreign trade,and financial institutions. This would enable it to capture and redirect its ownlocally generated funds to a more balanced, integrated pattern of development tomeet the people's needs. Transforming institutionalists do not, of course, pretend topossess ready-made blueprints for this kind of strategy. As an old friend of mine, aPolish economist, who headed the Economics Department of the University ofGhana when we were there back in the days of President Nkrumah, once said tome:Implementing capitalist-orientated development strategies is relatively easy.You just leave the institutions and market forces to go on functioning as theyhave in the past. Building socialism is much more difficult. You must plan thedetails of proposed agricultural and industrial projects to restructure thenational economy. At the same time, you must fundamentally alter theinherited state and institutional structures to ensure the plans are carried out.The formulation of a long-term development strategy for Zimbabwe, and thedesign of the institutional changes required to implement it, necessitates extensiveinterdisciplinary research. That research must concern not only the kind of changesto be made but, once they have been implemented, their consequences. Myobservation as to the implications of this discussion for Zimbabwe's developmentstrategy, therefore, might be viewed as no more than a tentative agenda forresearch. That research could fraitfiiliy engage all the faculties of this university foryears to come. Let me briefly make some observations concerning, first, the criticalareas of institutional change identified by transforming institutionalists as essentialto the carrying out of their alternative development strategy; and, second, someingredients which they suggest could be incorporated over the next twenty yearsinto that strategy, once those changes have been made.First, as to the institutional changes required to lay the foundations for re-structuring the national economy. The state, representing the wage-eamers,peasants and the unemployed Š the mass of the population Š must quickly takecontrol of the commanding heights of the national economy. I will not attempt,here, to evaluate the steps that have, or might have, to be taken to ensure that thestate represents, and responds to, the concerns of the majority. I leave that task toour colleagues in Political Science. Self-evidently, however, the whole trans-formation process will involve an on-going clash between the interests of thedisinherited majority and those enjoying the status quo: commercial farmers, civilservants, transnational corporate managers and directors, all those who live in theMount Pleasants of the nation. A 'silent class struggle'28 will emerge over everyM A term coined by I. Shivji, The Silent Class Struggle (Dar es Salaam, Tanzania PublishingHouse, 1976).34A DEVELOPMENT STRATEGY FOR ZIMBABWEproposed new change. Government control over basic industries, foreign andinternal wholesale trade, and banks and financial institutions may favour one sideor the other in the silent class struggle. Transforming institutionalists caution thatunless government builds two-way channels to hear from and respond to the needsof the masses, its decisions may favour not the disinherited, but the old and thenewly emerging ruling classes.Under the exigencies of U.D.I, the previous regime intervened extensively inbasic industries through its participation in parastatals like the Industrial Develop-ment Corporation and the Rhodesian Iron and Steel Company (now ZISCO). It didso in the interests of the ruling minority. Transforming institutionalists suggestcareful analysis of these forms. Government should now extend and redirect itsintervention to reduce transnational corporate control over investment decisionsand reshape basic industry to help restructure the national economy.In the area of foreign trade, transforming institutionalists urge the strength-ening of the inherited foreign exchange and import controls to retain domesticallygenerated capital and redirect it to investment in more appropriate plannedprojects. The state also needs to create new institutions to intervene more Š notless Š directly in foreign and internal wholesale trade, first to reduce dependenceon South Africa and the transnationals based there, and secondly, to develop newtrade links to facilitate the proposed national transformation. The new MineralsMarketing Authority constitutes one such innovative aproach. Governmentintervention should strengthen the nation's ability to bargain with transnationalcorporate buyers and suppliers of technology and other imports. It may seekalternative trading partners among socialist, Third World and competing capitalistcountries. Government could also direct new institutions to augment foreignexchange earnings by processing the nation's hitherto crude exports.The transforming institutionalists maintain that the key role of the intertwinedforeign-controlled banking and financial complex in mobilizing nationally generatedsurpluses necessitates direct state intervention. Only state participation can ensurethe re-direction of these surpluses to planned projects. Direct governmentparticipation in banks would provide an instrument for checking on the accumu-lation of capital by productive enterprises and monitoring the extent to which theirexpenditure contributes to the fulfilment of national plans. Nationalization ofinsurance firms, pension funds, and building societies, as in other African states,would enable the state to broaden the services that they perform in order to meet theneeds of the entire Zimbabwean population. It would also ensure the investment oftheir accumulated domestic savings to meet national needs.Transforming institutionalists underscore the necessity of accompanyingthese institutional changes with an effective tax programme, supplemented by aneffective incomes policy and a leadership code. On the one hand, the inheritedpattern of distributed profits, high salaries and 'perks' still enriches a narrowminority in the civil service, parastatals and the private sector. On the other, the 12+Ł -IANN SEIDMAN35per cent sales tax throws much of the burden of government spending on the lowest-income earners. A carefully designed tax programme, in the context of a policydesigned to reduce these income differentials could:(a) provide government with increased revenues to finance its current budgetfor expanded social and infrastractural services;(b) contribute to a minimum 'development budget' to enable governmentitself to participate in financing key industrial and agricultural projects;and,(c) give government the instruments to guide effectively additional privatesector investment in projects planned in the context of its overalldevelopment perspectives.29My second set of observations concern the resource-allocation aspects of thekind of long-term strategy that transforming institutionalists might recommend. Allthe proposals for institutional change presuppose that the national planners will, infact, formulate such a strategy Š initially say, for twenty years Š to transform thenational economy to spread employment opportunities and raise the living standardsof all Zimbabweans.30In the short term such a strategy might provide inputs, markets and creditfacilities to stimulate the expansion of small-scale African-owned rural andinformal-sector industries, such as tailoring, carpentry, brickmaking and shoe-making, for example. These could provide jobs while producing consumernecessities for the low income population.31 Government intervention shouldprevent modern factories from competing with these smaller projects, and, indeed,re-shape the manufacturing sector to produce appropriate tools and other inputs,wherever possible by using local resources, to help these smaller industries toincrease their productivity. At the same time modem factories could continue toproduce more complex inputs for, and increasingly process the outputs of, themining and large-scale farm sectors for domestic use as well as for exports.Over a longer time-span, Zimbabwe's embryonic steel, engineering andchemical industries might expand as the nucleus of an intermediate and capitalgoods sector in order to reduce the economy's dependence on imported machinery,29 Private investors could choose to pay fairly heavy tax rates or Invest in planned projects, such asincreased production of specialized crops on unutilized commercial farm lands, the location of industrialprojects in rural areas to produce appropriate inputs for the manufacture of consumer necessities andtools and equipment in order to raise rural productivity, or the processing of mineral and agricultural rawmaterials for domestic use and for export in order to augment foreign exchange eaminp in the context ofS.A.D.C.C.'s regional development strategy.30For more detailed suggestions, see A. Seidman, 'Zimbabwe Needs an Industrial Strategy'(Salisbury, Univ. of Zimbabwe, Dep, of Economics, mimeo, 1980); see also A, Seidman, Planning forDevelopment in Sub-Soharan Africa (New York, Praeger, 1974),31 Univ. of Zimbabwe, Dep. of Economics, 'Rural Industries in Zimbabwe', and 'A Survey ofSmall Scale Industries in the Informal Sector' (Salisbury, Univ. of Zimbabwe, Dep. of Economics PilotResearch Projects, mimeos, 1981).36A DEVELOPMENT STRATEGY FOR ZIMBABWEequipment and basic materials. Here, transforming institutionalists agree with neo-classicists. Zimbabwe by itself lacks an adequate market for efficient capital goodsindustries folly utilizing modem economies of scale, Zimbabwe's population,though inhabiting an area twice that of England, is smaller than that of London. Thelow incomes of most Zimbabweans limit potential domestic sales. To build basicmanufacturing industries, therefore, Zimbabwe requires some form of export.Transforming institutionalists fundamentally disagree, however, with neo-classicists, who, like transnational corporate managers, urge relaxed foreignexchange controls, low wages and low taxes so that Zimbabwean factories cancompete on the world market. Relaxed foreign exchange controls, they point out,would foster the import of machinery and equipment to expand the existingdistorted industrial sector, aggravating their capital-intensive features and dim-inishing their employment potential. Holding down the wages of the lower-paidworkers would not only ran counter to efforts to improve the workers* livingstandards, but also thwart the growth of the domestic market for new industriesmore appropriate to the people's needs. Elimination of tariffs and import controlsaltogether, as some neo-classicists urge, would enable transnational corporatemass-production industries, based in developed economies elsewhere, to squeezedomestic industries out of business altogether. In the case of Zimbabwe,furthermore, unplanned expansion of manufactured exports to compete in theinternational market is doomed to failure because:(a) the developed countries impose protective barriers against importedmanufactured goods;(b) South Africa, which has been buying a major share of Zimbabwe'smanufactured exports, has threatened to end Zimbabwe's preferentialstatus. In any event, the new Zimbabwe Government seeks to lessen thenational economy's dependence on South Africa; and,(c) Zimbabwe's neighbours, operating under similar conditions, manufacturesimilar products. They will resist competitive penetration of theirnational markets, justifiably complaining that Zimbabwe seeks toachieve industrial growth at their expense.32Thus, by pursuing this path, Zimbabwe alone could never succeed in buildingthe capital-goods industries required to achieve self-reliant development. It wouldinevitably remain externally dependent on transnational corporate exports fromtheir factories in South Africa or elsewhere.32 In the same way, Kenya's refusal to agree to planned regional expansion led to the imposition oftransfer taxes, essentially internal tariffs, which constituted a major step towards the ultimate breakup ofthe East African Common Market; see A. Seidman, 'Towards Integrated Regional Development inSouthern Africa' (Salisbury, Univ. of Zimbabwe, Dep. of Economics, mimeo, 1980); for discussion ofhow a common market aggravates uneven regional development, and of the East African CommonMarket experience with details of factors leading to its breakup, see A, Seidman, ComparativeDevelopment Strategies in East Africa (Nairobi, East African Publishing House, 1971),ANN SEIDMAN37These arguments underpin the proposition endorsed early by the newZimbabwe Government, that this country should co-operate with Its S.AJD.C.C.neighbours to build Intermediate and capital-goods industries. The S.A.D.C.C.countries, joined together, enjoy far greater capacity than does any one of them,alone, to build essential basic industries,33 They can and do produce many of therequired Inputs: iron, copper, lead, nickel, chrome, and other ores; agriculturalcrops, from sugar and cotton to vegetable oils; and all forms of energy, includingcoal, hydro-electric power, oil and even uranium. Combined, they enjoy a joint-market of 50 to 60 million people with spending power of Z$2O,CXK3,OOO,WX) ormore. They annually generate, between them, over Z$5,000,000,000 in investiblesurpluses. United, they could bargain far more effectively with transnationalcorporations and socialist and other Third World sources, for additional capital,technologies, markets and, if necessary, managerial personnel.In short by the first half of the twenty-first century, S.A.D.C.C. memberscollectively could build the basic capital-goods industries needed to transform theirseparate economies into a united, self-reliant industrialized region. In time, eachmember country could build po!e-of-growth industries based on its comparativeresource ad¥antages5 and utilizing the fall range of available economies of scale,S.A.D.C.C. member states, drawing on engineering and other faculties of memberuniversities, could build a regional body of technical experts, supplemented ifnecessary by contracted personnel, to undertake the necessary feasibility studies.Without these, of course, one can only conjecture as to the industries appropriatefor each country: for example, Zimbabwe might expand its iron and steel outputalong with associated fabricating and engineering industries; Zambia mightdevelop its copper smelting, refining and ultimate fabrication of copper and brassproducts; Angola could build a petrochemical complex; Botswana might establisha tannery and produce leather products; Mozambique could build ship-yards andconstruction industries. More 'footloose' industries, like transport equipment andmachinery and plants for farther processing of petrochemical outputs might belocated complementarity throughout the region. The use of standardized parts andequipment in all projects wherever possible would facilitate their eventual localproduction at later stages. The key point would be avoid duplication andcompetition. National planners could then maximize internal linkages to stimulatethe growth and productivity of agriculture and smaller domestic industries. Thecritical issue is not which project might ultimately prove suitable for each state.Rather it is how to co-ordinate the planning and mobilization of national andregional surpluses to finance such planned projects in every country, guaranteeingthe essential regional market for their output at prices adequate to assure theirviability."S.A.D.C.C, 'Industrial Co-operation* (Blantyre, S.A.D.C.C, Conference, presented by theTanzanlan Government, 1981). See also Seidman, 'Towards Integrated Regional Development inSouthern Africa'.38A DEVELOPMENT STRATEGY FOR ZIMBABWEZimbabwe and the neighbouring member states of S.A.D.C.C. can achievesuch goals, of course, only if they can reach the necessary minimum threshold ofinter-state co-operation required to formulate and implement a long-term regionaldevelopment strategy. They have already agreed in principle to build jointinfrastructural projects, co-ordinate their national plans, and create a regionaldevelopment bank. Our preliminary research in the Economics Departmentsuggests, in addition, that pairs of neighbouring member states of S.A.D.C.C. maybe able to accelerate progress towards attainment of the necessary minimumthreshold of co-operation by setting up permanent negotiating committees thatmeet regularly to reach bilateral and multilateral trade-and-payments agreementsto expand regional trade without using hard currencies. Zimbabwe, for example,might reach a contractual arrangement with Mozambique to sell manufacturedconsumer necessities, tools and equipment in exchange for the shipping cost itincurs as it shifts trade from South African ports to Beira and Maputo. Numerousother examples might be suggested. For example, Zimbabwe might also negotiate along-term contract with Botswana to buy processed Magadi salt and sulphur (nowburned off at Selebi-Pikwe) for its chemical industry, in exchange for manufacturedgoods that Botswana now imports from South Africa; it is estimated thatZimbabwe already produces some 80 per cent of the manufactured goods thatBotswana currently buys from South Africa. Botswana already freights Selebi-Pikwe copper-nickel matte to Bulawayo for processing, instead, as previously, ofshipping it through South African ports to AMAX's Louisiana refinery. Zimbabwemight also arrange with Zambia to exchange steel, produced by the parastatal,ZISCO, for copper bars and rods manufactured by Zambia's parastatal, SAMEFA,as well as other items.Bilateral agreements of this kind might create greater mutual trust and co-operation needed to extend, for example, the Zimbabwe-Zambian electricityauthority to include Mozambique, with its vast Cabora Bassa hydro project, on oneside, and Botswana, with its Marapule coal plant, on the other. The construction ofa regional electricity grid could facilitate expanded industrial production whilereducing dependence on South African and transnational based there. Such aregional power grid might enable Zimbabwe, at least for the present, to forgoconstruction of the second stage of the Wankie thermal plant, avoiding thecurrently proposed heavy external borrowing of Z$ 1,000,000,000 or more.Instead, Zimbabwe could draw on contractually guaranteed power generated bytwo of its neighbours. Botswana, likewise, could import power from its S.A.D.C.C.neighbours for its new Jwaneng Diamond Mine rather than, as now planned,renewing its dependence on South Africa for power imports. Botswana constructedthe Marapule coal plant at great expense to end imports from South Africa; but theMarapule plant could not be expanded without further heavy expenditures whichBotswana does not consider justified at this time. The recollection that Zambia andthe then Rhodesian regime continued, despite diametrically opposed politicalANN SEIDMAN39perspectives, to exchange contractually agreed power supplies throughout theperiod of U.D.L should help allay fears that Zimbabwe might become too relianton Mozambique or Zambia for imported power. Over time, bilateral andmultilateral arrangements could help to build up a body of co-operative experienceand mutual trust, contributing to the creation of the more permanent regionalinstitutions required to implement a long-term regional strategy.SUMMARY AND CONCLUSIONSZimbabwe, today, confronts an inherited paradox characterized by enclaves ofgreat wealth in a sea of poverty. Liberal neo-classicists tend to locate the cause inthe racist policies of the previous regime, combined with traditional Africanattitudes and institutions which, they allege, hamper domestic capital formation.They, therefore, propose elimination of racist policies and new governmentmeasures to open the economy to international market forces in order to attractforeign capital.The evidence, however, seems more consistent with the explanation offeredby the transforming institutionalists. The previous colonial capitalist state shapedracist institutions to coerce Africans into a low-cost labour force to work the farmsand factories owned by settlers and the transnational corporations. These annuallyproduce huge surpluses. Transnational corporate affiliates, collaborating closelywith foreign-dominated banks and financial institutions, mobilized and channelledpart of these domestically generated surpluses into investments in profitableenclaves, aggravating the dualism inherent in the whole system. Especially asindependence neared, they have devised a variety of means, despite foreignexchange regulations, to ship as much as possible abroad.The transforming institutionalists' explanation, substantiated by a consider-able body of evidence, logically leads to a very different approach to development.Acting on behalf of the working people, the state should restructure the inheritedsets of institutions, especially those - controlling the commanding heights; basicindustries, foreign and internal wholesale trade, and banks and financial institutions.The state could then utilize these to capture and redirect the domestically generatedsurpluses to finance a long-term industrial strategy designed to spread productiveemployment and raise living standards. A landlocked, economically small countrylike Zimbabwe, however, cannot support the capital-goods industries ultimatelyrequired to build a self-reliant economy. Therefore, in the context of S.A.D.C.C.,the national government and its neighbours should move to achieve a minimumthreshold of co-operation. By the first half of the twenty-first century, their unitedefforts, backed by their plentiful combined resources, capital and markets, couldtransform the regional economy into a modem balanced, integrated, industrializedarea capable of providing high living standards for all its inhabitants.