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(ZIMPAPERS) Herd mentality kills Zimbabwe’s economy

Herd mentality kills Zimbabwe’s economy

RECENTLY I noticed a trend among fishermen. If one fisherman says a certain dam is biting well, most fisherman would abandon their usual dams and go and fish at the new dam.

The fascinating aspect is that only the first fisherman to reach the new dam will catch a lot of fish. Those who join the rush later will not catch as much.
Once the catches are limited most fishermen will abandon the dam and look for another one.

This behaviour continues forever. These fly-by-night fishermen hop from one dam

to the other. The extent of the benefits they derive is determined by how early they get the information.
Generally, most fishermen follow this cycle. However, very few fishermen resist the temptation to follow where everyone else is going. The only inhibiting factor can be the number of dams available for such activities. The major driving force is the need to maximise catch. Most fishermen are tempted by the need to catch a lot of fish using as little effort as possible.
On the other hand, there are fishermen who are loyal to certain dams. They catch more by understanding the structure of the dam. Their concentration levels are so high such that when the speculators are moving out they are not disturbed by their moves.
They are in the dam for the long haul. They are interested in overcoming any obstacles, which might be encountered while fishing. They may visit other dams but they still have one permanent dam. In areas where there are very few dams, migrating from one dam to another might not be possible.
If there is only one or two big dams the issue of attractive spots becomes topical. Most fishermen will rush to fish at the so-called attractive sports. You will notice certain spots of the dam will be overcrowded while most spots will be very free. This points to the fact that very few fishermen are courageous enough to try new hunting grounds. Usually the people who start fishing at the super spot benefit and those who follow later lose out. Also people would like to go where other people are going.
People like to do what other people are doing. This happens in every facet of life. People would like to put on the type of clothes that other people are wearing.
Similarly, some people would like to send their children to schools where their peers are sending their children to.
This behaviour is similar to herd mentality. The term herd mentality is derived from the word “herd” meaning group of animals, and “mentality” implying a certain frame of mind (Wikipedia).
Therefore, herd mentality describes how people are influenced by their peers to adopt certain behaviours, follow trends, and/or purchase items. The examples of herd mentality include the early adopters of high technology products such as cellphones and iPods, as well as stock market bubbles and crashes, sporting events, trends, fashion in apparel, cars, etc. The idea of a “group mind” or “mob behaviour” was first put forward by 19th century French psychologists Gabriel Tarde and Gustave Le Bon.
Herd behaviour in human societies has also been studied by Sigmund Freud and Wilfred Trotter whose book “Herd Instincts in Peace and War” is a classic in the field of social psychology. Worldwide investors lost money in the junk bonds in the 1990s. Investors lost their money in the telecoms bubble in the 2000s.
According to Gailbraith and Hale (2004) the Dot .com bubble (sometimes referred to as the IT bubble ) was a speculative bubble covering roughly 1995-2000 (with a climax on March 10, 2000 with Nasdaq peaking at 5 132,52 in the intraday trading before closing at 5 048,62 )during which the stock markets in industrialised nations saw their equity value rise rapidly from growth in the more recent internet sector and related fields.
Maznick (2003) says the period was marked by the founding (and in many cases, spectacular failure) of a group of new internet-based companies commonly referred to as dot.coms.
Companies were seeing their stock prices shoot up if they simply add “e” prefix to their name and or a “com” at the end. Below are the examples of some of companies that went bust around the year 2000.
Boo.Com went bankrupt in May 2000. Start ups.Com — the ultimate dot.com start-up — went one way in 2002.
Freeinternet.com filed for bankruptcy in October 2000. After the telecoms bubble, the world almost came to a standstill due to the property bubble which caused the worst recession ever.
Leonhardt (2005) says real estate bubbles are inevitably followed by severe price decreases (also known as house price crash) that can result in house owners holding negative equity (mortgage debt higher than the current value of the property).
The financial crisis of 2007-2010 was related to the collapse of real estate bubbles, notably in the United States.
Some of the major economies which were affected by this bubble were Australia, United Kingdom, China, Denmark, India, Japan, Spain and Canada, to name but a few.
Same story always repeats itself in these bubbles, the first investors cream it out and the last investors lose out.
Allow me to give a chronology of “the businesses” in Zimbabwe dating back from the early 1980s. They might not be in the actual chronological order.
The first business that most indigenous business people were running successfully was that of running bus companies. There was a time nearly every businessmen wanted to own a fleet of buses. Immediately afterwards, there was an emergency taxi boom.
There came a very popular business of import and export where economic rent (1983 to 1990) was extracted from the ability to get certain licences for importing certain goods into the country.
This was followed by ostrich farming. Everyone wanted to go into ostrich farming where there was a guaranteed market for ostrich and its eggs overseas. This was closely followed by mushroom growing wave, flower growing wave, tomatoes (greenhouse tomatoes) and pig farming waves.
There was also a lucrative trade in electronics imported from South Africa and Botswana. There was a shift in local football ownership with quite a number of black businessman owning their own football clubs.
What immediately comes to mind are teams like Fire Batteries (Mr Lovemore Gijima Msindo), Amazulu (Mr Delma Lupepe), Blackpool “the Ndochi Boys” (Mr B. Muchedzi & Company).
Few have survived like Motor Action and Caps United. Only those with lasting financial power and passion for the game are still around.
The period between 1992-2003 was the boom in financial services in Zimbabwe. It started with the opening of merchant banks followed by commercial banks then micro finance institutions. The last one was a boom in asset management firms.
The period between 1995 and 1996 saw Harare almost come to a standstill due to a lucrative money making schemes known as pyramids. Most people were rushing to the banks hoping to become instant millionaires.
Offices were abandoned as employees and managers joined queues to deposit money at the bank. As usual, pyramids collapsed leaving people holding nothing.
Imported second-hand clothes made a huge impact around 1995. These were imported mainly from Mozambique. The years 1998-2005 experienced an unprecedented business in the importation of second-hand Japanese vehicles for resale here in Zimbabwe. Car dealers were all over the shore. The period after 2000 saw traders flying to China to bring in clothes for resale back home.
At one time, most shops were only stocking clothes brought in from China. The only suits available for men were Armani and Boss from China. Between 1999 and 2008 foreign currency trading was on everyone’s mouth. Money transfer companies and Roadport were churning out fabulously rich young traders overnight.
Most people were on the cellphones quoting foreign currency rates. The bubble burst with the introduction of the multi-currency regime. Due to the acute shortage of fuel around 2005 to 2008 most houses became instant service stations. Fuel dealers were ranging from two-litre dealers to 10 000-litre dealers. Around 2007 diamond trading was the buzzword. All roads led to Chiadzwa until the authorities sought to control this trade.
Between 2008 and 2009 people were talking about chicken farming. During the 2010 World Cup in South Africa the only business worth talking about was taxis. Harare was flooded with taxis in anticipation of the thousands of tourists who were supposed to visit Zimbabwe during this showcase.
In 2009 everyone was talking about mining. Today most businessmen are going into mining ventures.
The Governor of the Reserve Bank of Zimbabwe, Dr Gideon Gono, once described Zimbabwe as a casino economy. It is suffering from excessive herd mentality.
Some say Zimbabweans are basically copycats. Once someone starts a venture in a particular area everybody else rushes to cash in on the idea. Most copy cats collapse while strong companies survive. Those who survive are those which offer better and quality service in that area. This is the beauty of capitalism.
These short-term hypes have helped fewer entrepreneurs to get capital to establish bigger ventures. The challenges which emanate from herd mentality are that all resources will be targeting one sector while other sectors will be left to suffer. Herd mentality is normally synonymous with short-term gains. This has the effect of redistributing income from productive long-term activities such as manufacturing and farming to short-term speculative ventures with very quick turnaround times. This can result in consumer economies where everything on the country’s supermarket is imported.
The get-quick-rich schemes killed the savings culture in Zimbabwe as the beneficiaries increased their consumption thinking that the money-making stream would perpetually flow. But money that comes easily goes away easily as well. To be continued next week
l Ben Chiganze is a Managing Consultant at CLC Training International. He can be contacted via e-mail: chiganze@mweb.co.zw

Labels: ECONOMY

posted by MrK @ 4:31 PM