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Who earns the first dollar?

From New Zealand Tree grower May 2011

In the early 1990s I attended a talk that changed how I look at the economy. The central theme of the address was the question − who earns the first dollar? Capital gains may create wealth for the individual but do nothing for a national economy.

Seven figure bonuses may be paid to successful manipulators of the global financial systems. As the bonuses are real, it gives the impression that massive wealth has been magically created. But has it?

We have the impression, especially from their earnings, that doctors, accountants, lawyers, and especially market bankers, actually create wealth. They may be well paid but only rarely do they actually create wealth. It is surprising that there appears very little evaluation of who or what actually creates wealth in an economy.

In the present global economic downturn there is much discussion of the future New Zealand economy. There is promotion of us becoming a service or tourist economy but that overlooks the fact that these industries do not create wealth. We would become more dependent on others creating wealth in the first place. Do we have any comparative advantages relative to other economies? A common feature of service economies is that they are generally dependent on relatively low wages. Do we really want that? Is such an economy sustainable in the long term?

Who, or what initially creates wealth? They are mostly industries –

  • Extractive, especially mining
  • Growing such as agriculture, forestry and horticulture
  • Manufacturing, creating goods.
  • Our future may be more sustainable and profitable if we based our economy on what are our comparative advantages −
    • A relatively low population
    • Abundant sunshine and a high average rainfall
    • Young and generally fertile soils.

We are very good at growing produce such as food and wood but appear to be not so good at marketing, and especially profitable processing. Rather than promoting
a service and tourist economy we may have a more sustainable and a more profitable future if we concentrate on better marketing and profitable processing of our primary production.

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Disclaimer: Personal views expressed in this blog are those of the writers and do not necessarily represent those of the NZ Farm Forestry Association.

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