Wealth creation; a result of benevolence or self interest?

Wealth- the abundance of valuable resources or material possessions, or the control of such assets, is a central topic in every community. The endowment that wealth brings, enables and empowers individuals and the society to reach their aspiration(s).

Wealth- the abundance of valuable resources or material possessions, or the control of such assets, is a central topic in every community. The endowment that wealth brings, enables and empowers individuals and the society to reach their aspiration(s).

Thus, the importance of wealth creation cannot be over emphasised, especially at this moment in time when national budgets are being read.

Adam Smith saw wealth creation as the combination of materials, labour, land, and technology in such a way as to capture a profit. This results from the aggregate of the individual economic decisions that we make in our day to day transactions.

The government’s role is to enact and implement policies that make these decisions lead to prosperity- and abundance of wealth. Two main instruments; monetary and fiscal are used to achieve the desired objectives of the policy makers. Monetary policies are basically effected through the central bank mainly to control both inflation (which is a scenario where there is too much money chasing too few goods leading to intermittent price increases) and recession which is a business cycle contraction or, a general slowdown in economic activity.

Fiscal policies refer to taxation policies. The main reason why a government taxes its people is, of course, to raise revenue for its operations. But taxation can also be used to support the monetary policy tools to ensure stability and growth of the economy.

But the government can only go so far. The citizens, whose individual economic decisions shape the wealth creation capacity of the nation, are crucial. How do the various sectors of the economy perform? How are they organised? Do they have access to credit? What is the tax rate and base? Does everyone pay taxes? These, among others, are important questions that we must have good answers to.

If we take taxes as an example, we will note that poor countries tend to have higher tax rates. This is because the tax base is small. There is a large section of the populace that does not pay taxes because they are poor or otherwise. The government needs to be selfish here. A way must be found of bringing the section of population aboard the tax bracket.

Take the example of hawkers; instead of chasing them around, is it not more sensible to have them sell in the evenings and tax them. Encouraging them to use banking services and form associations and cooperatives gives them a voice and makes them able to access services that otherwise would be out of reach. It is also a good way of bringing order and self regulation to them. These serve to bring them into the mainstream economy. This is win-win scenario that we must creatively look into.

The other areas we must look at are the economic classes. We have a drop of the upper class, a small island of the middle class in a sea of low income earners. The quest is for the creation of a sizeable and vibrant middle class. Initiatives that would spur growth of the lower class enterprises, especially those that are run by the youth and the women are critical to ensuring success.

As we do all this, it would be prudent to remember that just as the Adam Smith said, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages”

Sam Kebongo is a skills and business advisory services consultant. He also teaches entrepreneurship at Rwanda Tourism University College. Email: sam.kebongo@gmail.com

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