HOW THE LOSS OF PROPERTY RIGHTS CAUSED ZIMBABWE'S COLLAPSE
December 6, 2005
The economic collapse of Zimbabwe was caused by land reforms that ignored property rights and the rule of law, says Craig J. Richardson, associate professor of economics at Salem College.
Although unconstitutional, Zimbabwe President Robert Mugabe's government authorized the seizure of nearly all of the 4,500 commercial farms between 2000 and 2003. By 2003, the economy was imploding with increasing speed, at 18 percent per year. Inflation was running at 500 percent, and Zimbabwean dollars lost more than 99 percent of their real exchange value.
- Financial investors fled, worried other businesses might be seized next; foreign direct investment fell to zero by 2001, and the World Bank's risk premium on investment in Zimbabwe rose from 4 percent to 20 percent that year.
- Commercial farmland lost an estimated three-quarters of its aggregate value between 2000 and 2001 as a result of lost property titles; Richardson estimates that one-year loss was $5.3 billion -- more than three and a half times the amount of all foreign aid given by the World Bank to Zimbabwe since 1980.
- By the end of 2001, 700 had companies closed; industrial production declined by 10.5 percent in 2001 and 17.5 percent in 2002.
Richardson estimates the independent effect of land reforms, after controlling for rainfall, foreign aid, capital and labor productivity, led to a 12.5 percent annual decline in gross domestic product (GDP) growth for each year between 2000 and 2003.
Richardson says the lesson learned here is that well-protected private property rights are crucial for economic growth and serve as the market economy's linchpin.
Source: Craig J. Richardson, "How the Loss of Property Rights Caused Zimbabwe's Collapse," Cato Institute, Economic Development Bulletin, No. 4, November 14, 2005.
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