Civ 002 The essence of sustainable wealth creation Created by James on 6/18/2013 5:39:31 AM
The “redistribution of wealth” has been a major focus in South Africa in recent decades.
There is an unstated assumption that wealth creates itself and is unjustly appropriated by certain individuals at the expense of those who justly deserve to participate in that wealth.
Is that a valid thesis?
For more than twenty years I have been seeking to bring “the disciplines of engineering” (consistent and reliably successful outcomes) to the information technology industry – a journey which has been underpinned by a deeply held belief that engineering provides thought patterns and knowledge that are supportive of successful outcomes by preventing failure and that my training would permit me to indeed establish the requirements for successful IT outcomes.
During the ensuing challenging and at times traumatic journey I have sought among other things to understand the concept of value, the relationship between value and cash and therefore the concept of wealth. I have done this as a participant and observer in life and the events of the decades during which I have been able to engage with the world around me. I hold that if one does not understand how value is created it is impossible to embark on any type of engineering, information technology or other project with any prospect of REAL success, where by REAL success I mean an enduring, sustainable outcome that produces a net GAIN in the quality of life of those it touches.
While this analysis initially was focused only on information technology and the reasons for the 70% outright investment failure rate for IT and why 19 out of 20 ERP (business computer systems) fail to meet management expectations, I more recently came to realize that these same findings had a bearing on South Africa in the twenty first century.
This article sets out to summarize some key findings based on an assertion that “wealth” is the concept that best summarizes the state of being of human beings that we are all at least nominally striving for. Wealth in terms of this definition comprises state of health (physical and mental wellbeing), security, quality of food, accommodation, finances, etc. If to this we add the concept of “abundance” it is apparent that few people in our society know how to create enduring wealth in their own lives, let alone the lives of a substantial number of people. I suggest for your consideration that the truly wealthy create meaningful employment well above the poverty line for substantial numbers of people.
Wealth is therefore the result of focused and effective human endeavour, enterprise and effort conceptualized and executed by human beings. Assets, whether buildings, farms or cash are NOT wealth and do NOT create wealth, ONLY human beings create wealth. Taking from those who at some level have succeeded in creating some measure of tangible wealth and giving to those who manifestly do NOT know how to create wealth (if they did they would not need the handouts), diminishes the resources available to those who know how to manage wealth and thereby drains the pool of human motivation that creates enduring wealth. The only truly viable means of assisting those of impoverished circumstances is to create opportunities for them to fall under the mantle of those who do know how to create wealth that they may in time benefit… but this is not the essence of my message.
What are the essential components of creating wealth?
Based on my analysis, I suggest for your consideration and as a basis for discussion that the following eight factors are pivotal in creating wealth.
Percentages after each point indicate the estimated relative contribution of each factor in creating wealth. The impact that the absence of these factors has on destroying wealth is also shown as a percentage in brackets.
- Appropriate assets well designed, built, maintained and operated provide a platform that MAY contribute to wealth creation – 2% (22%)
Assets do NOT create wealth, people do.
One of the most destructive myths in South Africa today is that assets are wealth.
Farm are reallocated and fall to rack and ruin because the farm was NOT wealth, the gainful operation of the farm may have created sustenance and some semblance of wealth but the land and the plants and the animals were NEVER the source of that wealth, the effective management by people created wealth.
Football stadiums do NOT create wealth, they are a huge drain on the active capital of the nation and, when funded with loans represent an enduring burden on the ability of the nation to support those who need some measure of support.
Reallocating the money that should be used to maintain infrastructure (roads, sewerage, water supply, electricity reticulation), is NOT wealth redistribution, it is theft from the wealth of the future to create an illusion of wealth in the present that will finally devastate the future if not rapidly turned around.
On the other hand, the effective application of technology to gear the human and natural resources of a nation or organization is vital. Every nation that has succeeded in truly raising living standards to high levels and minimizing or eliminating poverty has done so through the effective application of appropriate, well maintained and well operated technology to gear the abilities of its people. However, the technology is NOT the source of the wealth, the people who conceptualize, design, build and operate the technology are the source of the wealth.
On the other hand technology that has fallen into disrepair, including all those infrastructure components mentioned above will eventually become a massive sink draining prosperity out of the economy as is already starting to happen through the tyre and shock absorber tax (potholes and raveling road surfaces) and other insidious consumers of effectiveness, efficiency and cash that are progressively subtly dragging South Africa into deeper and deeper future discounted poverty.
Thus assets are vital in creating wealth and in destroying wealth but other factors are more critical.
- Ways of doing -- policies, methods, procedures, standards, ways of doing, create a framework that MAY contribute to wealth creation – 3% (15%)
The way things are done, methods, policies, standards, etc contribute to wealth creation but are also NOT wealth, the ability to do these things assist human beings to generate activities that are exchangeable for cash or near cash which improve the quality of life but they are not in and of themselves wealth.
As with appropriate assets these factors are a necessary qualifier for a wealthy existence, in their absence the creation of wealth in real terms is all but impossible BUT there are other factors which have a more fundamental impact.
Of the items listed here policies have the greatest ability to destroy wealth but they do NOT create wealth, effective policies create a suitable context and may stimulate wealth producing activities but inappropriate policies can destroy wealth creating endeavour.
It is a myth that governments create wealth and the attempts by our present Government to present itself as the guarantor of wealth and well being is at best futile and at worst laying the seeds for civil war borne out of increasing poverty and disillusionment.
- Discipline, accountability, safety, security, crime deterrents, punishment that fits the crime minimize wealth consumption and wealth destruction and MAY create a context for wealth creation – 8% (24%)
In the current generation we seem to have lost sight of the importance of discipline, accountability, etc.
We abolish the death penalty and when murder rates rise to a level where we cannot possibly accommodate all the murderers in jail with required standards of compassionate care our politicians fail to own their mistakes or take responsibility for the crime rate in a way that makes any impression. After more than a decade of doing roughly the same things it is time to do something different.
Public calls to “kill the farmer (boer)” and “bring me my machine gun” plant mental seeds that can ONLY add fuel to the fire and at the same time drive more and more of the people who do have even some limited knowledge of how to create wealth from the country. Every well educated and economically active person who leaves the country sheds geared suffering, deprivation and continued lack to the poorest of the poor and even the not so poor. The multiplier effect of one lecturer, teacher, doctor, engineer, etc leaving the country robs the people of this nation of significant potential to create wealth.
Return to the death penalty for murder, robust and appropriate punishment for robbery, rape, etc are vital building blocks in any attempt to bring wealth and that requires that those in positions of leadership in Government set an appropriate standard.
- Ways of being -- attitude, motivation, pride, caring, compassion, love, patriotism, commitment to excellence, leadership accelerate human endeavour toward the creation of wealth – 11% (2%)
Well motivated people can produce far more than demotivated people. The public utterances mentioned above are sapping the morale of the people of this nation. Leaving the country is a constant topic, the fall into decay and disrepair of the infrastructure are all sapping the will of people to invest time and money in building the future. It is not readily apparent but the seeds of accelerating decay are widely present for those with eyes to see.
However, once decay has set in and is manifesting in rotting infrastructure a change in morale will have little effect on real economic upliftment, it is difficult to create wealth when more and more of your energy is being consumed as a consequence of the failure of Government to concentrate on its core responsibilities including reliable future focused infrastructure.
When a major mining house that has been central to the creation of wealth in this country for over a century is rumoured to be divesting of its mining assets because it is negative about the future of the country it is time to take note!
- Relationship, communication, constructive interaction between human beings is a vital part of creating wealth – 12% (3%)
Relationships, trust, the effective interaction of human beings with one another is a fundamental requirement for wealth creation and a viable nation. Increasing ant-white racism and harsh discrimination and the resultant backlash are tearing at the very fabric of the rainbow nation and are everywhere apparent for those not too afraid of being thought politically incorrect to notice.
Effective relationships and partnerships between people are a vital element of creating wealth. Once destroyed it will take a long time to rebuild and the ability of such rebuilding to influence seriously decayed infrastructure rapidly will be limited.
- Effective management of time, finances, human resources, assets -- are a vital component of creating a net positive gain in the economic dimension that creates tangible financial wealth – 14% (4%)
People who are truly wealthy know how to manage time, finances and other resources and, above all, to manage people.
Only a small number of people truly know how to do this with real effect such that productive and profitable employment is created for many others. Driving those people out or causing them to turn their endeavours to other shores is one of the most damaging things that is currently happening in this country.
Putting people in charge who do not know how to do these things is a recipe for disaster and has been government policy for the last sixteen years with the resultant degradation of infrastructure, etc that has been referred to throughout this article.
- High value decisions based on appropriate and reliable information, concisely and conveniently packaged and delivered IF well executed will create wealth – 20% (5%)
People who create substantial wealth do so through taking high value decisions. Two people can sit in the same meeting and take totally different decisions. One decision can initiate actions that create wealth, another decision can sabotage or destroy wealth creation.
Few people know how to take high value decisions consistently. Such people must be nurtured and not branded because of the colour of their skin and made to feel unwelcome and unwanted in the land of their birth or their adoptive land.
South Africa is divesting itself of high value decision makers and that, alone, is enough to tip us over the edge of technological and economic ruin that characterizes much of Africa.
- Relevant knowledge and experience acquired throughout life but particularly in the first seven years of life creates the platform from which real wealth is acquired – 30% (25%)
In all of the above, relevant knowledge and experience effectively and efficiently employed are at the heart of wealth creation.
Such wealth cannot be redistributed, or confiscated, or nationalized. It is the consequence of a lifetime of learning or not learning, of growing or not growing in wisdom or foolishness.
But there is increasing evidence that the impacts of the first seven years of life are huge, that many who succeed succeed because of what they took on board in those first years and that most who fail fail as a consequence of what they took on board during that same period.
An official who grew up in an area of rutted tracks will consider himself to be performing well when there are only “a few” potholes whereas an official who grew up in an environment where potholes were unheard of will consider the situation to be downright dangerous and unacceptable.
In my next article I will elaborate on the importance of early childhood knowledge and experience acquisition in shaping the future of a human being and suggest that this, rather than genetics, is a pivotal factor in determining the ability of a human being to generate wealth. Suggestions will be made for measures that could be taken to greatly improve the ability of the next generation of South Africans and possibly even the current generation, to create sustainable wealth.
The bottom line is that there are huge problems in this country BUT that there ARE measures that can and should be taken.
I raise the problems because as an engineer I know that success comes from preventing failure and in order to prevent failure I must first acknowledge that failure is an inevitable consequence of failing to prevent every single possible cause of failure from activating in the structure or system that I am responsible for designing.
If South Africa is not to slip into the oblivion and poverty of much of Africa it is now time to take energetic new measures towards wealth creation by removing ALL racial clauses from legislation and policy and encouraging any person who has some level of knowledge and experience with regard to creating wealth to create wealth in whatever legitimate way they can identify.
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