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Good and bad economic policy Good and bad economic policy
by Joseph Gatt
2021-02-12 11:46:44
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For me, you need three things in any economic policy.

First thing you need is mastery.

Second thing you need is incentive.

Third thing you need is a solid network.

If you have those three things, your economy will probably grow exponentially, and you won't have to worry about recessions. Hiccups might happen every now and then, but the hiccups will be cyclical, not structural.

econom00001_400Good and poor mastery

I've been to a lot of economies where lack of mastery is the norm. There are no good plumbers, no good engineers, no good electricians, no good writers, no good farmers, no good cooks or chefs and so on and so forth.

So the education system should focus on mastery. Not grades. Not rankings. Not competition. Not tokens. Not bribes for teachers. But mastery.

What do I mean by mastery?

You need individuals to master their skills. You need plumbers who know their plumbing. Construction workers who know how to build. Farmers who know how to farm. Engineers who know how to fix machines. Administrators who know how to manage. And factories where people know how to come up with a good product.

So the education system needs to train individuals who master the skill and craft.

How do you master a skill? By sitting through tests and getting straight As? NO.

You master a skill by observing people who master the skill. You look at masters get the job done. You ask questions. You try once and fail. You try again and fail. Three years later, you're a master yourself.

Of course the more skills you master, the better.

But in any given economy, you need chefs and cooks who master cooking. You need salesmen who are masters at sales. And you need accountants who are masters at accounting.

What a lot of economies do is exclude certain individuals from mastering skills. In some countries, women are not allowed to master skills other than parenting. In other countries, working class people have no incentive or opportunity to master new skills.

So phase one of economic development: mastering skills. Not getting straight As and going to Harvard or Yale. But mastering skills.

Good and bad incentives

A lot of countries have asked me how you create incentives for economic development.

My answer is simple. I can't just go down the road, hijack a store, and own the store. Right?

So how do I start a store or a factory or a service-based business?

First, I need to register my business. But in so many countries around the world, there's a great deal of opacity when it comes to the procedures needed to start a business. Administrators won't tell you clearly and concisely what you need to do!

Second, I need a business bank account. Yet in so many countries, even bankers don't know what they should do to open a business bank account.

So you're in a country where you want to start a business, have no idea what paperwork you need to register your business, and the banker won't let you open a business bank account.

Then you need to rent or build land to operate your business. Again, in some countries land in scarce. In other countries, land is available, but administrators don't know what the procedures are to safely rent you or sell you that land. And the regulations are not clear when it comes to doing the necessary construction for business purposes.

Then there's the communication barrier. If I'm going to start a business, I need good media so I can advertise my business. I need a network so people know I exist. I need to be able to research and study the market to make sure there really is a demand for my product.

So those are the many good and bad incentives to start a business.

Good incentives should include a competent workforce that masters the trade. But also a clear legal framework, a good banking system, clear tax laws, and a good network of people, and the ability to research the market.

Good and bad networks

“I only speak to family members. If you're not a family member, don't come talk to me.”

“I only talk to Harvard graduates. If you are a Yale graduate, you are worse than bacteria.”

“Women are not welcome to this group.”  

“I only talk to people from my caste. If you're not from my caste I'm not allowed to touch you, much less talk to you.”

“You are not a member of the ABC business group. You can only become a member of the ABC business group through invitations. If you are not acquainted with a member of the ABC business group, you are not allowed to join.”

“Outsiders are never invited to parties and networking events... officially for security reasons.”

So you have opaque networks, which makes business an insider affair. If you're not an insider, you won't get a single client.

How do you expand business networks? Right now it's outsiders of business cliques trying to become insiders. Insiders of business cliques rarely look at what happens outside. Even worse, insiders of business cliques often get really angry when outsiders are invited.

So insiders need to so what goes on outside, and invite people from outside.

Which brings me to an important final point.

Someone once told me that the Chinese people have competition in their blood and that they love competing. Or that the Japanese are fierce competitors.

It's the complete opposite. The Chinese and Japanese are in fact so scared of competing, that they often rig the game to avoid competition. How do they rig the game? By creating very opaque networks, where businessmen trade exclusively inside those opaque networks, and steal the population's money, either by franchising stores (that often collapse after 2 months) or by imposing de facto monopolies.

Problem is, the Chinese and Japanese are often very impatient, and reinvest the money they stole in big projects, and often lose it all in what become ghost towns and ghost factories.

So, in a healthy economy, you should not be scared of competing. And not being scared of competing means inviting everyone to join business groups. Business group members of course need to be careful, but they also need to be allowed a fair shot at doing business.

That's how you win at the economy.

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