The Sunday News
Bongani Ngwenya
In free enterprise economies, consumers have the supreme power to decide what the market should produce through leveraging their consumer sovereignty.
Consumer sovereignty is the theory that consumer preferences determine the production of goods and services in the economy.
It is the assumption existing in an economy that consumers have and exercise power over producers through the decisions they make in purchasing the goods and services provided by the corporations. This means consumers can use their spending power as “votes” for goods and services they want.
In return, producers will respond to those preferences and produce those goods and services. In simple terms consumer sovereignty is the power of the consumers to manipulate and influence the forces of the market as long as those forces still exist in the market. They determine what should be produced in the market. Thus, a lot depends on the psychology of the consumers.
Consumer sovereignty has been typically associated with being prevalent in a free market economy, due to more privatisation and lesser or no Government intervention in the form of statutory instruments restricting imports for example.
Imports actually strengthen consumer sovereignty and bring robust competition in the market that help minimise and stabilises prices in the domestic market.
The consumer is sovereign when, in his or her role of citizen, he or she has not delegated to political institutions for authoritarian use of the power which he or she can exercise socially through his or her power to demand or refrain from demanding.
The free enterprise economy is the true counterpart of democracy — it is the only system which gives everyone a say. When everyone goes into a shop and chooses one article instead of another they are casting a vote in the economic ballot box — with thousands or millions of others, their choices are signalled to the production machines and investments and help to mould the world to be just a tiny fraction nearer to people’s desires for goods and services of their preferences.
In this great and continuous general election of the free economy, nobody, not even the poorest, is disfranchised — all consumers are voting all the time.
Too much Government intervention in pretext of protecting the domestic industry is counterproductive to consumer sovereignty because it is designed to prevent people from getting their own way in terms of choices of what to consume and not.
The argument is Zimbabwe’s economy has not been managed on a free enterprise economy principles.
The modus operandi in the Zimbabwean economy kills consumer sovereignty and the potential robustness of the economy in terms of providing a market full of a variety of consumer products of the consumers’ choices and preferences.
The management of the Zimbabwe’s economy has always been command driven in the sense that consumers consume what is available and not necessarily what they chose to consume in order to satisfy their wants.
A case in point, though may sound controversial, monetary transactions in the Zimbabwean economy are now dominated by electronic payment systems with more than 96 percent of local transactions now being conducted through plastic, internet and mobile money.
“While the use of electronic forms of payment came as a result of cash shortages, it puts the country ahead of other countries across the globe that are working towards achieving a cashless society”, said Reserve Bank of Zimbabwe governor Dr John Mangudya when he presented his 2018 monetary policy statement.
He said the central bank was encouraged by the quantum leap in the usage of electronic and mobile banking systems by the county’s banking public.“The growth in the use of plastic money, away from cash transactions, was phenomenal in 2017 to the extent that more than 96 percent of the $97,5 billion — from the 1 billion transactions — processed in the entire country in 2017 were through electronic and mobile banking systems,” said Dr Mangudya.
The Government and the central bank are very excited about this development because for them it is lessening the pressure on the demand for hard cash by the consumers, the hard cash that is not available. The argument is that Government is managing the cash crisis at the expense of consumer sovereignty.
In other economies electronic monetary transacting is a financial sector product that is being offered for the convenience that it serves, that is enabling consumers to transact with the convenience of not having to carry around large sums of hard cash.
However, the economic truth is that consumers maintain their consumer sovereignty. They choose to transact electronically or in hard cash.
The position is different with our situation. It is by both design and default that electronic transacting has reached a 96 percent level in Zimbabwe. It is by design from the side of the Government as electronic transacting in the country has effectively become an instrument of conveniently managing the cash crisis, while on the other hand it is by default that consumers transact electronically as they have no choice in the absence of hard cash in the economy.
The similar scenario is extended to other consumer products in the market, with limited industrial capacity utilisation and the state of the economy since the hyperinflation era of 2008 consumers have been subjected to consuming what is available in the market with the Government even prioritising and determining what products should be imported and what products should not be imported, literally killing consumer sovereignty.
The independent Zimbabwe adopted a sanctions managing economic system from the Smith regime and continued in that mindset even after there were no longer any threats of sanctions, with the fallacy of protecting the consumer from the perceived unscrupulous producers through a coterie of price controls.
While the producers were hedged through subsidies, in the thicket of all this, consumers sovereignty was sacrificed.
Somewhere along the line this trajectory was abandoned with Government intervention continuing in the form of import restriction measures, with one import restriction instrument after the other, further stifling consumer sovereignty and hamstring the robustness of the economy.
In conclusion, literature suggests that economies that promote consumer sovereignty develop the robustness that leverages their growth. While consumers enjoy their sovereignty, corporations profiteer from their efforts to meet the consumers’ product and services preferences and choices, and the economy flourishes in the process.
Dr Bongani Ngwenya is based at the University of KwaZulu-Natal as a post-doctoral Research Fellow and can be contacted on [email protected]
