Civics 9 Unit 7 Economic Policies

1. Civics 9 � Unit 7Economic Policies

2. The Economy The economy is a system used by society to produce and distribute goods and services. Every society has an economic system Before colonial rule Zambia had a subsistence economy. This means that each village produced and consumed all its own goods and there was little trade. People used the barter system instead of money Read more about the barter system here In the modern economy goods are shipped around the world and money is used instead of the barter system

3. The Government and the Economy The government must ensure order, stability and growth of the economy It achieves this through its economic policy Providing direct services such as education, health, police, roads, water, and sanitation Enforcing economic laws to protect labour, private property, and consumers and promote standards of safety and hygiene Promote a stable and growing economy so that prices do not rise quickly and so the standard of living of people increases Direct assistance to companies and individuals. A subsidy is financial assistance from the government to a company or an individual. Tax goods from other countries to help Zambian producers Helps the poor, the old, and the disabled

4. Capitalism vs. Socialism Government does not interfere in economy Does not fix prices People are free to own property Those who own property employ others to earn a profit This system was adopted in Zambia in 1991 by the MMD Government controls economic activity Government sets prices Government owns farms, mines, factories, and companies This system was adopted by UNIP from 1964-1991 Also called a command economy or a planned economy

5. Economy in the First and Second Republics KK did not like the free market system because much of Zambian economy run by foreigners. He felt political independence without economic independence was useless Humanism was based on socialism so UNIP transformed Zambia�s economy from free market to a command economy Parastatal companies were created and national economic development plans were used to guide the economic policy

6. Mulungushi Economic Reforms (1967-1968) President Kaunda announced a socialist economy in order to achieve humanism Ownership of land transferred to the state Only Zambian citizens could run transport services Government nationalized (took over) the 25 biggest companies by buying their shares In 1969 mining companies were nationalized as part of the Matero Economic Reforms

7. The UNIP Government in the Economy Government now controlled 70% of Zambia�s Gross Domestic Product (GDP) through parastatal companies supervised by ZIMCO (Zambia Industrial and Mining Company) President Kaunda was the chairman of ZIMCO and appointed the managers of the parastal companies The government set the prices and anyone who used different prices could be arrested and punished

8. National Economic Development Plans These included the: Transitional National Development Plan (1965-66), First National Development Plan (1966-1970), Second National Development Plan (1971-1976), Third National Development Plan (1980-1984), and the Fourth National Development Plan (1989-1993) The aims of these plans were to: Lessen the dependence on copper by developing manufacturing industries Increase the number of jobs Develop rural areas Expand social services such as education and health Improve transport, communication, and power The Government of Zambia recently released the Fifth National Development Plan to help set economic and development policy

9. What is a Parastatal? A parastatal company is a company owned by the government Some parastatal companies during the First and Second Republic were: the United Bus Company of Zambia (UBZ), Zambia Airway, Zambia Breweries, Zambia State Insurance Company, Zambia Educational Publishing House, Chilanga Cement, Zambia Sugar Company, National Milling Company, etc. Many parastatal companies were privatized or shut down by the MMD government after 1991

10. The Demise of UNIP�s Reforms UNIP�s reforms enabled Zambia to control its own economy but there were many economic problems in the 1980s Shortages of mealie-meal, sugar, cooking oil Very few jobs and much poverty Failed to diversify the economy

11. MMD�s Approach The new MMD government in 1991 blamed: Political interference of parastatal companies. People were often appointed for supporting UNIP, not for being good managers. Price controls Lack of competition because the government protected its large parastatal companies from competition so the companies were often inefficient Liberalization was the process of introducing the free market economy

12. Liberalization of Zambia�s Economy Liberalization included: Privatization of many parastatal companies by selling them to private companies or individuals. The Zambia Privatization Agency was established in 1992 to sell the companies. The Zambia Privatization Agency�s website can be found here Removal price controls so businesses could set their own prices Removal of subsidies which were used by the UNIP government to help companies that were losing money and to keep prices low Removal trade restrictions to allow goods to be brought in from other countries Removal of exchange controls to allow people to get foreign currency (like US Dollars or British pounds). UNIP had limited this. A bureaux de charge is where currency is exchanged. Established the Lusaka Stock Exchange. This is where shares are bought and sold. Shareholders receive a portion of a companies profits. Anyone can own a part of companies such as Chilanga Cement or Zambia Sugar Company

13. Advantages of the Free Market The MMD believed that there were many advantages to a liberalized system: Efficiency because companies are forced to compete for customers Freedom of choice because people can choose between many companies Incentives for people to work because there are potential gains to be made from working hard People who work hard can become rich and are free to keep their wealth

14. Disadvantage of the Free Market As a result of liberalization there were also some negative consequences: Many people lost their jobs and became unemployed Companies were closed down The free market system was not a solution to the fundamental problem of poverty facing Zambia

15. Questions What does nationalization mean? What are three differences between capitalist and socialist economic systems? Which of these systems was followed during the First and Second Republics? Why did the MMD want to end the socialist economic system in Zambia? What were some advantage of this decision? What were some disadvantages?

16. Answers Nationalization is when the government takes over businesses from their owners To find the differences between capitalism and socialism go to that slide. Socialism was followed in the First and Second Republics MMD wanted to end this system because it believed that capitalism was more efficient, provided freedom of choice for consumers, and provided incentives for people to work hard See the slides on advantages and disadvantages for this answer