July
12
2010


- Compiled and written by Entrepreneurial Business School -

Why are certain economies booming, while others struggle and its people are suffering and sometimes even starving?   What are the fundamental differences between poverty and economic success? Two main factors or forces responsible for this difference will be discussed in this article.

The first distinction is surely the innovative, and entrepreneurial mindsets, people in successful economies have. National entrepreneurial cultures, experienced in prosperous economies, were all sparked by the first entrepreneurs who created innovations (Solutions to problems) and started to trade in the form of bartering. A knife, was for example, traded for a fork. But if one person wanted a knife but the other not the fork the transaction could not take place. To solve this trading problem, money was invented and demand and supply (the market mechanism) was created, in order to determine the prices/values of various product/services. Higher standards of living became a function of the intensity and volume of trading. Economic prosperity is therefore a function of the number of solutions (product/services) an economic community produces, and then trade with. The amount of money a person will make is also the result of how well the solution on offer is perceived in the market. Any solution, in high demand but short supply, will fetch a high price in a market economy. It is also important to state the fact, that the reason to buy, is primarily to solve a problem. Therefore, the more people manage to create solutions to problems and then trade with them, the higher the standard of living will be. In other words the more we help one another, by trading in solutions to problems, the higher the standard of living and the more prosperity we will enjoy.

This brings us to the second main factor responsible for creating wealth and prosperity.  This factor is the climate in which we play the economic game. This climate provides the parameters in which to operate.  It is important that these parameters should create basic order (the legal system). More important however, is the fact that we need economic freedom in order to apply our talents to solve problems and to freely trade with these solutions, utilising the market mechanism to determine prices. In other words; the least this interference is, the higher the growth, and the higher the standard of living will be.  The true free market system, as applied in Hong Kong and in other countries, where economic miracles happened, has proved itself over and over to be the better option.  Studies done by Dr. Milton Freedman (Economic Nobel Prize winner) and many other leading economists, have found that a high degree of economic freedom goes hand in hand with economic growth and prosperity.

The major driving forces creating economic growth are: (1) a climate of economic freedom (which serves as a catalyst), (2) an entrepreneurial culture where people develop and then trade with solutions to problems.

We are all born as highly innovative beings who love to explore, invent and create.  We are also provided with numerous problems, screaming for innovative and creative solutions.  All we need is the freedom to apply our talents in solving these problems.  We therefore need a climate of basic law and order on the one hand, but critically important on the other hand, we also need economic freedom.  It is during this creative problem-solving process that we normally experience self-actualisation.  We are all blessed with different talents, begging to be utilized to the benefit of all on this planet. If we could all apply these gifts, we would not only be able to satisfy the ego, but also benefit one another in an optimum manner.  By using our God-given abilities to solve problems, we will, in effect, not only benefit man, but we will also benefit our planet as a whole. Human and environmental problems are one and the same.  Man needs the planet in order to survive.

Economic growth needs to occur in order to create a better standard of living for all. The general perception of the average person is unfortunately that economic prosperity is a function of resources like oil, gold, copper, etc.  Today, in the modern economy, the importance of these kinds of resources has largely been marginalized. There was however, a time in history, when the wealth of countries, governments and kings, were determined by the amounts of land they owed, and the mineral wealth their countries possessed.  It is the strong memory of these historic times, which is the cause for the current illusion regarding the importance of resources.  This mindset was also the driving force behind colonialism, and the indicator of power and wealth right up to the early and even the middle part of the last century.

Prosperity in the new economy is not achieved by the richness of the minerals owned, but rather by the transformation of these resources into problem solving products.  Creativity   innovation and entrepreneurship are necessary to turn minerals and metal into valuable problem solving articles.  These resources are totally useless, unless they are transformed into problem-solving articles and artefacts like motorcars, aeroplanes and machines.  Wealth is created by those that develop the ability to transform minerals, metals and oil into something useful.

In the new economy today, some of the wealthiest countries in terms of mineral resources are rated as very poor.  The general standard of living is sometimes below the breadline.  These countries are also normally characterised by violent political fraction fighting, diseases, hunger and general poverty.  Examples are most African countries, most Middle Eastern countries, parts of South America, Russia, as well as others in Eastern Europe.  Russia and most countries in the Middle East possess massive mineral wealth, but the great majority of people living there are desperately poor.  Why are these countries so poor?  The simple truth is that prosperity is created by creativity, innovation and entrepreneurship and not by resources per se.

Prosperity is the primary result of the natural abilities of the human mind to solve problems.  The major problem-solving instrument, utilised effectively in the prosperous economies of the world, is called business. Businesses compete with one another in their quest to make money by solving customers’ problems.  The businesses providing the more effective and efficient solutions, will make the most money.  The businesses that fail to satisfy customers’ needs optimally will go out of business. Any business can therefore only survive, if it can effectively and efficiently manage to solve problems for people, and/or organisations.  These problems have also to be solved in such a way, that the receivers of these solutions are willing to pay for it. This willingness to pay is the acid test, determining the real value of the solution.  The word “business” is synonym for the action of trading – “you give me something I want, and I will give you something you want.” If both parties give and receive satisfactorily, they have done business.  Business, however, is more than the trading of articles or artefacts – business is also the trading of talents in the form of services.

Trading in services has become the biggest source of economic activity in the first world today.  The services industries are normally responsible for 80% and more, of the economic activities in wealthy first world countries.  Manufacturing activities account for only between 10% and 15% of economic activity in modern economies.  Most people however, still have the perception that wealth is mainly created by the manufacturing of articles and artefacts. This false impression is caused by the memory of the industrial revolution, and the huge impact this economic phase had on the general standards of living.  Fact is, products are only demanded and manufactured because of their capability to solve problems.  A bed, for example, is used to solve the problem of comfortable sleep, and a car is used to solve the problem of moving from one area to another.  All products are therefore only manufactured because of the services they provide to potential buyers.

The ultimate need for a product or a service is therefore identical.  Both are used to solve a problem for the buyer or customer.  In modern economic terminology, solutions to problems have become known as the satisfaction of needs.  However, if a need is analysed, it always comes down to an unsolved problem in the mind of the customer.  The basic motive underlying the desire to buy is always seated in the perception that a product or service will solve a problem.  Even compulsive buyers purchase things in an attempt to solve a specific kind of problem.  A good salesman will convince you that you need a product or service, by spelling out how the product or service will solve your specific problems.  A solution to a problem is therefore always the primary reason to buy – any good salesman will tell you this.

It should be clear by now, that economic growth and higher standards of living are created by innovative solutions to problems.

All countries with a high standard of living, achieved this growth by solving problems effectively. This became possible through freeing creative minds by upholding a true free market system, and by developing the potential of their people. In this environment, people will develop entrepreneurial mindsets, and apply their creativity and innovative talents, and search for problems to be solved.  We all have different talents, which make each of us a master of a specific field.  If we can apply our unique abilities to solve problems, economic growth will increase, and the world will become a planet of peace, prosperity and harmony.  Prosperity is definitely not achieved through taking, but rather by giving. We need to erase the outdated and harmful mindsets that individual wealth resulted from effectively competing for scarce sources. This very harmful frame of reference is unfortunately still perpetuated by ignorant publicity, as well as by misinformed teachers of the youth.  The more people apply their creative minds and provide solutions to problems, the more wealth they will have.  In a free market environment, people will be more than willing to pay you, if you could solve their problems efficiently and effectively.  These solutions could be in the form of services and/or products or a combination.

The package needed for economic growth, is therefore a free market climate, entrepreneurial mindsets, and, very importantly, the basic knowledge and understanding of how wealth can be created for all.

We have to understand that wealth is not scarce – it is simply a result of solutions to problems.  We have to question our old beliefs regarding the source of wealth.  Wealth is not a function of owning natural resources – wealth is a function of applying the mind, and creating solutions to problems.  The economic history and magical successes achieved by the small island, Hong Kong, is proof of this.  With zero minerals and limited agricultural resources, the community proved once again that a free market climate and entrepreneurial thinking provided the recipe for economic success.  The small island of Hong Kong achieved its success without what is perceived to be the needed traditional resources.  Even more remarkable to most, was the fact that they did not even have a government.  Law and order was provided by Britain thousands of miles away, but apart from that, nothing else.  This remarkable community was largely made up of refugees from Mainland China.  They were people who strove for economic freedom and fled from the bondage of a communistic regime.  Hong Kong provided the right climate, in which they could apply their innovative and entrepreneurial talents for their own benefit.  It is now history, but these people with their entrepreneurial mindsets, managed to create a world-class city from nothing.  It all started very small.  It all began by solving problems for the ships visiting their port, as well as each other’s problems. They used their differentiated talents, and traded these solutions they generated.  Economic activity later started to snowball, and Hong Kong grew into a monument of economic success.  The example of what happened in Hong Kong, has not only inspired the so-called free world to greater freedom, it has also inspired their gigantic communistic neighbour, China.  This giant is now in the process of providing more and more economic freedom to its people.

China today is starting to emerge from poverty, and is expected to fully join the free world within the next decade or two. How wonderful it will be, if their millions of people could also start to use their talents to solve problems, and to trade the solutions with us.  The wakening of this giant, will surely add substantially to the creation of wealth in the world.  We can also start looking forward to the contributions of Russia, India and Africa in the near future.  This will mainly happen when the success of China starts to influence the mindsets and perceptions of a critical mass of people.  This critical mass will help the free world to reach the tipping point, and the world economic scale will swing away from poverty to prosperity.  The mindsets of people will then have changed accordingly, and they will start thinking abundance as apposed to scarcity.  This new mindset will only start developing when people realise the creation of wealth and the solving of problems go hand in hand. We need to understand that the creation of wealth is not accomplished by exploitation or by taking from others – it is created by the process of effective problem solving.  We need to realise that the creative abilities of the human mind is the vital key in transforming scarcity into abundance.  Creativity, innovation and entrepreneurship, and not wars and fighting, will therefore provide the solutions.

The first world has shown that they can over-produce food at will.  By applying their minds via new technology, it sometimes happens that foods have to be destroyed in wealthy economies.  This is done in order to prevent surpluses.  This proves the fact that nothing needs to be scarce, not even food.  If the human mind has the ability to formulate a problem, it automatically has the ability to solve it as well.  It is estimated that the average human, at present, is only using between 4 and 12 percent of their brain potential.  We are created with diverse talents, and should start to use some of our potential.  It seems if we are only utilising the tip of the iceberg in relation of what we are capable of.  We have only started on the road to real economic growth.  A free market climate is necessary to be the catalyst, for new inventions and innovations, to come.

We conclude by stating again, that prosperity is a function of the creative, innovative and entrepreneurial abilities.  We need to be free to choose, and be free to develop and to trade our talents, for personal benefit.  The wonderful result, of developing our talents, for personal gain, is that in the process, we are also benefiting all.  We do however, need to rethink the way we educate our people.  We are generally caught up in the job-seeking mindsets, educated into us by school and tertiary syllabuses.  Education is still very much designed to the needs of the industrial era and needs to be redesigned.  As we highlighted in this article, is entrepreneurship, creativity and innovation not only the key to a better standard of living, but also the key to our future growth.

We need to create new mindsets in our students through the contents, and the way, we teach them.  The scarcity mindsets our generation are programmed with need to be replaced in our youth by the belief of abundance.  In analysing the factors, which create economic growth and prosperity, we should realise that abundance for each and all is possible and achievable.  There are, however, huge hurdles to overcome.  The biggest challenges are to change the mindsets of educators, and the people designing educational courses.  These people’s thinking is unfortunately moulded into job-seeking mindsets with limited entrepreneurial thinking or flair.  It is therefore difficult to believe that government employees could be up to this mammoth task.

Economic realities will eventually cause this transformation process in education to happen, but it will be slow and painful.  The education system will keep on producing job seekers to a point where unemployment levels reaches disastrous levels.  It will in the end be up to businesses to solve brooding educational problems as well.

In the next article we will focus more on specifically the educational demands of the new economy.


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