October
31
2011

-Mauritz Bekker-

 Please re-visit the article titled;  ”The History of Entrepreneurship” before you read this.

Why are certain economies booming, while others struggle? What are the fundamental differences between wealth and poverty? The answers to these questions will be exposed in exploring the logic behind the wealth creation process. Some answers could also be embedded in  the drivers of wealth creation.

The general perception of the average person is unfortunately that wealth is created by owning valuable resources like; gold, oil, iron, copper, etc.

Today, in the modern economy, the importance of these kinds of resources as economic wealth drivers, 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 scarce resources.

In the modern world some of the wealthiest countries in terms of mineral (valuable) resources are rated as very poor with the general standard of living below the breadline. These countries are also normally characterised by violent political fraction fighting, diseases and starvation.

Wealth creation in the modern world is therefore not necessarily a function mineral wealth. Riches is rather the result of the ability to transform raw materials into useful and marketable products. Any mineral, metal or natural substance which can not be transformed into a useful product is of little value.

This artefact created will then only be useful, if it has the ability to solve some or other problem, for which people in the market place, is willing to pay for. This is always the acid test in determining the possible marketability of a new invention The value and therefore the marketability of a simple product like a chair is embedded in the fact that it solves the problem of uncomfortable seating.  Entrepreneurship is necessary to turn raw materials into valuable problem solving products.  These raw materials are therefore valueless unless they can be transformed into problem-solving artefacts, like motorcars, aeroplanes and machines.

Wealth is however only partly created by those who have the ability to transform raw materials into something useful. Prosperity is also created by the design of various marketable 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 economies. Some people however, still have the perception that wealth is mainly created by the manufacturing of products. 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.

Products, like services are only manufactured because of their capability to solve problems. A bed is designed to solve the problem of uncomfortable sleep, and a car is used to solve the problem of man’s inability to travel fast enough 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 boils 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 shoppers purchase things in an attempt to solve a specific kind of emotional problem.

A good advertisement will convince you that you need to buy a product or service, by spelling out how the product or service will solve your specific problem(s). A solution to a problem is therefore always the primary reason to buy – any good salesman will endorse this statement-

Prosperity is therefore achieved by an economy’s ability to create and trade quantity as well as quality innovative solutions to problems.

The person or business providing the more effective and efficient solution, as perceived by customers, will make the most money. Customers will benefit optimally where businesses compete freely with one another in their quest to make money. by solving customers’ problems better than the competition.   The business that fails to satisfy customer needs optimally, simply goes out of business. Any business can therefore only survive, if it can effectively and efficiently manage to solve problems for other businesses, people and organisations better an/or cheaper than the competition.

These problems also need to be solved in such a way, that potential buyers of these solutions are willing to pay for it. This willingness to pay is the acid test, determining the real value of the solution.

It is therefore reasonable to assume that prosperity is the primary result of the natural abilities of the human mind to solve problems, where the solutions are in the form of products and services which are traded freely. The word “commerce” 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.

This brings us to another fundamental factor needed in order to create wealth and prosperity.  This factor is the environment in which we play the economic game. This economic environment provides the parameters in which to operate.  It is important that these parameters should create basic order (the legal system), but even more important, is need to assure economic freedom.

We need economic freedom in order to apply our differentiated and unique talents to solve problems for other human beings, and then be allowed to offer these solutions to people, businesses and other organizations, who are in need of them. The values of these solutions should then determined by the interaction of demand and supply,

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 wealth and prosperity.

-The article to follow will explore our potential to break the shackles of poverty-


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