Learning from Failure: Property Rights, Land Reforms, and the Hidden Architecture of Capitalism

Abstract

how to pull a country out of poverty, how to spur growth, how to improve living conditions. This emphasis on positive outcomes is even reflected in their vocabulary: “third world” countries are now “developing” countries, regardless of whether they are developing or not. Yet what about a country undergoing a rapid and devastating economic collapse? Curiously, development economics has devoted little attention to studying this phenomenon, and there is scant research to explain how it happens. Consider Zimbabwe—a state which, since 2000, has been in an economic tailspin. Today, it is shrinking faster than any other country on earth that is not at war. Zimbabwe’s currency is nearly worthless from hyperinflation; its financial institutions are in disarray; its world-class farms sit idle; and its manufacturing, mining, and export sectors are declining steeply. The informal exchange rate for the Zimbabwe dollar is Z$150,000 to US$1; six years ago, it was Z$55 to US$1. With millions of people having fled the country and millions more out of work and close to starvation, the question arises: “What exactly went wrong in Zimbabwe, and how did it take place so quickly?” Certainly Zimbabwe’s problems have been the subject of scrutiny by the international community. By 2003, real output had already dropped by one-third, and the International Monetary Fund (IMF) was determined to know why. In its yearly Article IV report, the IMF produced a laundry list of potential culprits, including loose fiscal and monetary policies, a fixed exchange rate highly out of sync with “street prices,” and price controls. The IMF blamed these “inappropriate economic policies” for the collapse. President Robert Mugabe’s land reform program, along with the ongoing HIV/AIDS pandemic, were identified as “exacerbating” Zimbabwe’s newfound poverty, but not the primary reason for it.1 The IMF’s recommendations were consequently macroeconomic in nature: they included freeing up price controls, as well as exchange and interest rates, and clamping down on the money supply. Yet what the IMF’s analysis never sufficiently addressed was how and why the rapid collapse of Zimbabwe’s economy occurred in the first place. D ev el op m en t P ol ic y O ut lo ok