1/Production Economics 101
The Zim clarion call is to produce. But where does production come from? There is already excess capacity in industry & many hard workers & entrepreneurs. The land, Skill & market is there. But no production. Why?
The Zim clarion call is to produce. But where does production come from? There is already excess capacity in industry & many hard workers & entrepreneurs. The land, Skill & market is there. But no production. Why?
2/ Imagine 2 countries. One has all the natural resources, & entreprenuers, while the other has no resources, no skill set, no entrepreneurs but has capital. Capital being a pool of savings. Suppose you give these countries 20yrs. Which one will be more developed than the other?
3/ Analogously which is more important or valuable. A treasure chest brimming with gold or the key that unlocks the chest. It turns out, the world is full of locked treasure chest and only a few master keys.
4/ The country with capital will naturally see resources, labour, entrepreneurs move to it. Because of all scarcity - Capital is the more scarce. Not land, not labour, not treasure chest. So labour will carry its chest to Kapital. So will entrepreneurs carry ideas to Kapital.
5/ So in which land is production happening? Why did all factors of production move one way? but Capitol did not move the other way?
to be continued....
to be continued....
6/ People don’t get what Kapital is. They think it’s money. It’s not. An example of Kapital is best understood by someone with a purchase order. Or a labour contract. Imagine two equal businesses & one gets a purchase order from exactly same client. Now in b&w, not ad hoc.
7/ Which is more valuable. Labour with a contract or ad hoc? What is the value? What is valuable is the contract. Not because it can be monitized, but it forces business & labour to plan ahead, it incentivizes performance, engenders Trust, creates Credit.
8/ Imagine EBay when it started. Two individuals far from each other, never possible to know another engaging in an exchange over the internet. Buyer TRUST they’ll get product without defect over the post. Seller ASSUMES cheque won’t bounce. Transaction took two weeks. ....
9/ Can you see that the value is NOT the internet or EBAY. The KAPITAL is in the societal Values and TRUST in the process and Contract that can be effected. This track record built over time, in bad & good times is Capital.
10/ Where Capital exists as explained above, an individual with a good idea and no money, gets eg supplier credit for raw materials. They don’t run away after a cycle. When they do, the law is enforceable. And value is preserved or restituted. ..... tbc
11/ Imagine if EBay in our example redirects and confiscated goods and money on their platform. And onlookers argued that buyers & sellers knew the risk they were entering into, so tough luck. It’s not the financial loss that matters. It’s the breakdown of Trust.
12/ And so owning a piece of land is not Kapital. Even if you can produce on it. It’s latent potential is not realized because it has no contract. Noone else recognizes its promise. Contrast with a trillion dollar business on NYE. Owns nothing physical. But has all Kapital.
13/ Zimbabwe for 20 yrs has destroyed Kapital. It travels around the world asking for FDI But it won’t succeed because it destroyed the fundamentals of Kapital. So plant & machinery is not a promise of a future but just scrap metal. Take the same plant to Bots it turns to Kapital
14/ In the theory of social contract that conceived government, it must defend the rights of property. It defends property in all facets, land, labour, money. Over a long period of time, society naturally generates capital. Eg Profit suddenly has a P/E & turned to wealth!
15/ And so there is no production in Zimbabwe because there is no savings. No savings because of No Kapital. So skilled people, great infrastructure, abundant land, diversified industry ALL come to naught. Worthless. No contract, no trust, no rule of law= zero Kapital.
The End
The End
