Civ 005 What is an economy REALLY? Created by James on 6/18/2013 8:21:48 AM
The word economy is frequently used and frequently abused.
Having been exposed to a basic understanding of economics in the 1980s, I have from time to time pondered the question, “What is this thing we call an economy?” This article seeks to answer that question based on my observations over many years.
The following headlines seem to me to be the most relevant subject areas in determining the success or failure of an economy, with particular reference to the economy of South Africa at present.
SUCCEED BY ENGINEERING AGAINST FAILURE
In considering the points that follow there is a fundamental principle applied by engineers, which is "succeed by engineering against failure". This principle requires that we identify the things that cause failure and manage them out of the project or environment in order to achieve successful outcomes.
Thus, when the points below address negative issues, this is done from a perspective of addressing factors that cause failure in order that we may design failure out of the economic system.
AN ECONOMY IS A SYMBIOTIC COLLECTION OF HUMAN BEINGS
Over the last few years, as I have become increasingly aware of the importance of early childhood experience, and as outlined in my two Opinions last year [Civil Engineering, July & August 2010, Ed], I have concluded that an economy is a collection of people who harness knowledge and experience symbiotically to create a financial dispensation that is better than that which existed previously.
And so we see a close correlation between symbiotic increases in knowledge and experience and the growth of an economy and, by extension, loss of knowledge and experience leading to a contraction of an economy, which is the threat facing South Africa today.
Symbiosis refers to the productive coexistence of organisms in nature or to the productive coexistence of people in an economy.
One person identifies a need in society and starts a business in order to service that need. In order for that business to run effectively, other knowledge and experience, and other products are required, and so the operation of that business symbiotically creates the need for other businesses or enterprises, and so the economy grows.
If the vision of those who are starting businesses and other enterprises is ambitious, the resulting economy will stretch limits and push boundaries. If the vision of those people is constrained, as in a survival economy, the resulting economy will be constrained.
It is the attitude and vision of people that determine the scale and success, or otherwise, of an economy. Thus we see that in some nations there is much greater prosperity than in others.
2% OF THE POPULATION DEFINE THE ECONOMY
It has been said that 2% of a population know how to create wealth, and that these people define the level of prosperity of the society; that 12% know how to mobilise talent and resources to assist the 2% to create wealth; and that the remaining 86% are oblivious to the workings of the economy and think that wealth happens by magic or favouritism or some sort of behind-the-scenes connivance directed at depriving the majority of that something which is actually theirs.
The lack of awareness of this statistic is a major problem in most economies today, and in particular in South Africa today. Where politics and other actions alienate those who know how to create wealth and those who know how to assist them to create wealth such that those people leave, as has been happening in South Africa for some time now, the economy starts to decline. The decline may not be visible to those who are not aware of the finer details of how an economy works, but they are visible nonetheless.
If South Africa is to provide wealth for all its people, it needs to attract and retain those who know how to create wealth and those who know how to assist them to create wealth.
AN ECONOMY IS NOT SOMETHING THAT CAN BE REDISTRIBUTED
Inherent in the previous points is a realisation that an economy cannot be created by redistribution.
If the people who are not wealthy knew how to create wealth they would be wealthy. Theoretically there is nothing preventing them from becoming wealthy.
Commercial farmers operate large farms not because they were given the farms as some sort of hand-out, but because they have proven their ability to mobilise resources of capital, machines, people, etc to conduct agricultural endeavours on previously undeveloped land in a manner that allows them to draw a moderate income and still have money left over to buy seed, fertiliser and other inputs, as well as pay workers.
If the workers knew how to do this, they would have moved on already.
ENGINEERING, TECHNOLOGY AND METHODOLOGY ARE CENTRAL
Technology and technical aptitude are central to the success of an economy.
A society that carefully applies technology, and maintains and nurtures that technology, is one that will prosper. A society that drains finance away from maintenance of infrastructure and construction of new infrastructure such that existing infrastructure decays and becomes derelict, as is increasingly happening in South Africa, will eventually sink into poverty and so-called third-world status.
ATTITUDE, MORALE AND WORDS MAKE OR BREAK AN ECONOMY
People with a positive attitude and work ethic, and positive morale, build up other people, and the resulting synergies raise the level of emotional energy in the community, and this in turn creates wealth-creating activities.
Negative and destructive words destroy morale and break down the fabric of society. Constantly complaining that the bulk of the economy is "dominated" by white males, when white males have contributed greatly to creating the economy in question, is destroying morale and creating a situation where those who are deemed to be offenders because of their gender and skin colour are increasingly incentivised to seek other countries which recognise their skills and abilities.
The same discrimination, previously, in the reverse direction, was equally destructive, but taking unacceptable behaviour and turning it around in the opposite direction does not make it any more palatable or effective.
LEAN AND FACILITATIVE GOVERNMENT STIMULATES AN ECONOMY
Universally, around the world we see that governments which limit their direct involvement in the economy stimulate growth far more effectively than those that get actively involved in the economy and try to manipulate and control it.
An economy is a consequence of the collaborative and cooperative efforts of human beings who know how to create wealth; it is NOT the outcome of bureaucratic interference in the economy by people who clearly do not know how to create wealth – otherwise they would be independently wealthy in their own right.
EARLY CHILDHOOD EXPERIENCE CREATES THE FOUNDATION FOR AN ECONOMY (AND FOR EDUCATION TO BUILD ON)
I continue to see how the performance of adults is framed by their experience in the first seven years from conception.
Personality, work ethic, career interest, behaviour in relationships, and many other characteristics of human endeavour are informed and dramatically shaped by early childhood experience.
If we desire to see wealth distributed more widely, we need to distribute the knowledge and experience in early life that will enable the majority of the population to eventually contribute more directly and more dynamically in growing the economy. In the absence of such stimulation, and in the presence of badly planned and badly executed experiments, such as Outcomes Based Education which affected an entire generation, we will see a degradation in the economy twenty to fifty years later.
While having a lesser impact, primary, secondary and tertiary education must naturally all be of a high standard if the economy is to thrive.
ALL THE REST
There are any number of other factors that inform the viability of an economy, but I believe that those listed above are the principal factors. If these factors are addressed there is a reasonable prospect that an economy will prosper. If they are ignored, or worse still, countered, the economy will degrade, although it could take up to fifty years to become visible.
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