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The Loss of Property Rights and the Collapse of Zimbabwe
Craig J. Richardson
Extracted from The Cato Journal, Vol. 25, No. 2 (Fall 2005)
September 2005

http://www.sarpn.org.za/documents/d0001190/index.php

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Introduction
What in the world happened to Zimbabwe? Although the country certainly had its share of difficulties during the first twenty years since independence in 1980, it largely dodged the famines, civil strife, and grossly mismanaged government policies so common in other sub-Saharan African countries. Through the 1980s, its annual real GDP growth averaged over 5 percent, and unlike other African countries, agricultural yields were large enough to allow the country to export grain to other countries. In the following decade, economic growth slowed, and government policies were less than efficient, but Zimbabwe still managed to grow an average of 4.3 percent, in real terms.¹ The government also offered free education and relatively good access to medical care. Population growth was slowing, and direct foreign investment increasing. With rich mineral assets, an educated workforce, and beautiful natural wonders, Zimbabwe appeared to have the best chance to be an African success story.

However, in the year 2000 and continuing through 2003, the Zimbabwean government initiated a land reform policy that involved forcibly taking over white-owned commercial farms, ostensibly to redistribute this property to landless blacks. The rationale for this policy was to redress the British seizure of fertile farmland in the late 1890s, which resulted in hundreds of thousands of blacks being pushed onto lower grade communal lands.

No compensation was paid to the commercial farmers, and hundreds of thousands of employed black farm workers were left without jobs. Despite a ruling from Zimbabwe’s Supreme Court that the action was illegal, the Mugabe-led government continued with the land takings. These land reforms marked an important turning point for Zimbabwe: It was the first time in its 20 year history that laws regarding property rights were no longer respected or defended.

Three years later, Zimbabwe had gone from a place of hope to one of the grimmest places on Earth. The economy collapsed by 5 percent in 2000, 8 percent in 2001, 12 percent in 2002 and perhaps as much as 18 percent in 2003 (OECD 2004: 357). Inflation was running at 500 percent and Zimbabwean dollars had lost more than 99 percent of their real exchange value (IMF 2003: 28). However, at the same time the IMF, the UN and the OECD blamed the "severe drought" in 2001/02 for causing much of the food shortages and resulting economic difficulties, along with a host of other factors, including AIDS, poor fiscal and monetary policies, and rigid price controls. Although the other factors certainly contributed negatively to Zimbabwe’s economy, the land reforms and the changes in rainfall were the only variables that appeared to change dramatically from 2000-2003. Thus, they are the primary suspects in plumbing the reasons for Zimbabwe’s quick collapse.

The central question posed here is this: Which played a more important role in Zimbabwe’s economic collapse, the damage to property rights or the drought? I argue that the land reforms were the primary driver of Zimbabwe’s sudden collapse, not the lack of rainfall. To do so, the paper is presented in four parts. First, I give a brief overview of the literature that covers the link between property rights and economic growth. Second, I correlate official Zimbabwe government rainfall data with GDP growth, and also use this data to rank the severity of the 2001/02 drought versus other droughts in the past 50 years. Third, I illustrate the precise mechanics of Zimbabwe’s collapse, by showing how the damage to property rights destroyed three key, yet invisible components of the marketplace, in sequence. They included investor trust, followed by land equity, and then entrepreneurial knowledge and incentives. Last, I use OLS regression analysis to independently assess the impact of the rainfall, land reforms, political strife, labor productivity, capital formation and foreign aid on Zimbabwe’s economic growth. I conclude that the land reforms alone were responsible for an estimated 12.5 percent average decline in GDP growth. Rainfall played a minimal role in the GDP contraction.

The collapse of Zimbabwe is thus a dramatic natural experiment that serves as a compelling case study on the economic consequences of damaging property rights.

Cato Journal, Vol. 25, No. 2 (Spring/Summer 2005). Copyright © Cato Institute. All rights reserved.
Craig Richardson is Associate Professor of Economics at Salem College (Winston-Salem, NC). He sincerely thanks Barrie Richardson, Chris Mackie, Art Goldsmith (Washington and Lee University), Hernando de Soto, Arthur Goldsmith (UMass Boston) and Milton Friedman for their helpful comments and support in writing this article. The author welcomes comments from readers. Email: cjr@salem.edu

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1. This excludes 1992, which had the worst drought in 50 years, causing GDP to sharply drop by 9 percent in that year only (World Bank Development Indicators). There were no other years of negative growth during this decade except for 1999, which experienced –0.7 percent growth.

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