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FROM a
recent column, several e-mails questioned the concept of
“wealth creation.” On an individual level, this seems to
be a very simple idea. We all understand that in order
to increase our personal wealth, we can obtain
additional riches by working, begging, borrowing or even
stealing it. However, this is not wealth creation.
Eighteenth-century political economist Adam Smith
describes wealth creation as the combining of an idea
with the necessary capital, materials, labor and
technology in such a way as to capture a profit. Or, put
another way, to “add value” to an idea or resource to
make it more valuable, and thereby create wealth.
The
overwhelming majority of people never create any wealth,
although they may be part of a wealth-creation system.
What most of us do is play a part in someone else’s
wealth-creation “factory.”
Every
national economic system and every business divides into
two separate phases: wealth creation and wealth
distribution.
The
BusinessMirror is designed as a wealth-creating
enterprise. I may be a small part of that effort.
However, I did not conceive, plan or fund any part of
this machine. Dozens of people, very important to the
overall task and very creative in their own right, trade
their time and skills in return for payment. They are
not wealth creators, but they do share in the process of
wealth distribution.
There
are many hundreds of components that work together to
make an automobile function. Yet, all of those parts
serve no purpose until they are brought together with an
overall plan that forms the parts in such a way to
create an automobile. Further, the car must keep working
successfully after it is created.
Many,
many people are wealth creators. From the smallest
sari-sari store to the vast business conglomerates of
our local tycoons, all these create wealth and then
distribute some of that wealth.
Not all
businesses that start are able to achieve success. In
fact, a high percentage of businesses fail, given enough
time. Studies show that businesses usually fail for two
reasons: an inadequate amount of resources and poor use
of those resources. Great ideas never get going because
they do not have the resources, primarily financial, to
develop. Often, resources are allocated improperly; for
example, too much effort and money for marketing and not
enough on product development.
Therefore, it would seem that a wealth-creation
“factory” needs a good idea, plenty of resources and the
considerable expertise to use those resources wisely to
develop the idea.
The
government, then, should be the ultimate creator of
wealth. In principal, it can tap all ideas possible;
has, in effect, unlimited resources and the power and
authority to organize those resources; and should be
able to attract all the expertise available for any
particular enterprise.
Imagine
yourself, then, as an owner of an existing business or
an individual with a commercial idea, a concept for a
movie or a plan to simply to do something a better way.
Further, imagine you have what the government has:
virtually unlimited financial resources, the ability to
make your own rules and laws and the ability to hire
every expert you would need. Do you think you could
build a great wealth-creation mechanism?
Yet, the
average street vendor probably does a better job of
wealth creation than any government.
When
governments take an active role in wealth creation, it
is usually a catastrophe.
Virtually every “Philippine National” corporation has
been a failure. The Philippines is not unique. Nearly
every “British National” corporation was and is a
financial disaster. The same is true with the
United States’
government-owned and -controlled corporations.
Governments are not wealth creators because it is easier
to concentrate on wealth distribution through income
taxation and spending on government “programs” for
political- power expediency.
Governments want control of the economy, yet, they are
terrible at creating wealth, which is what an economy is
supposed to do. And yet, they want to control the real
wealth creators, and usually do so to such an extent and
with such incompetence that they hamper the private
sector from their wealth-creation efforts.
Control
over the petroleum and mineral industries, although the
government has not been able to successfully operate a
profitable business in either of those sectors, has
crippled development in these areas of wealth creation
for 20 years. Government intervention has made most
agricultural ventures barely profitable and certainly
barely marginal for the farmers.
The
current food and fuel supply/price situation needs an
effective response from the government. And the nation
may not be able to bear any further government projects,
programs or plans. The government should adopt one
policy mandate, and it should be only: “Does this policy
assist and enhance the private sector to create wealth?”
American
revolutionary intellectual Thomas Paine (in a role
similar to both Apolinario Mabini and Marcelo del Pilar)
wrote, “Lead, follow or get out of the way.” He also
wrote, “That government is best which governs least.”
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