Creating Value And Closing The Gap
Wealth creation is an amazing thing which I have been thinking about recently, after being courted to join the Nuskin network.
It is entirely possible to create value in anything and everything and once that value is established, we have wealth. Nuskin is fantastic because the value just keeps going up as the network grows and it is all perfectly legal and legitimate.
Facebook, Instagram, Zynga and the rest are also examples multi billion dollar businesses that are quite asset free. Unlike the Nuskin model, they are based on their franchise and intellectual values.
Just like this Superman comic that went on auction at the recent Comic Con in San Diego which my Mr Kiasu friend attended.
Sold for a few cents when it was published, it is now worth a minimum bid of USD325,000. So the owner is at least USD325,000 richer and that goes into the economy when he spends or, even better, buy this Batman comic and make its owner rich too.
If you get to thinking, this is how property works as well.
Bungalow on Balmoral Road was worth say, 30 million. But build an apartment block on it and it is worth 150 million. So a magic 120 million appears.
All this is possible only when we have people working to pay for it but it is getting much harder now.
“Nothing lasts forever but a global trend that set in 30 years ago shows no sign of ending: a steep rise in the share of income that goes to profits and a corresponding decline in labour’s slice of the economic pie.” Reuters
When profits increase but wages do not, there is an imbalance. Particularly when the profits are not taxed back into society.
When income does not grow proportionately to costs like, for instance, housing prices, it has a spiral effect cumulating into a climatic shock like the sub prime crisis.
Singapore managed to avoid that fate so far because wages have been growing and now we are one of the richest countries in the world.
However, when profits grow at the expense of wages, a scenario like the American Dream is destroyed.
In an article by Miles Covak in of the NY Times, “Hard work and perseverance will always be ingredients for success, but higher inequality has sharply tilted the landscape and made having successful parents, if not essential, certainly a central part of the recipe.”
We are lucky it is happening in America which summarises much of Miles Covak’s paper on income inequality (http://milescorak.files.wordpress.com/2013/07/income-inequality-equality-of-opportunity-and-intergenerational-mobility.pdf), US has the highest level of income inequalities and lowest earnings elasticities amongst the countries he studied in the developed world.
By that it means that hard work means less and a father’s income affects their offspring’s.
Yet from the trend, wage is not the solution. Because wages will never keep up with profits which is someone else’s income and the gap will continue to widen. We have to create wealth instead, like Superman comic style, if not for us, then for the sake of our children.
And since we are mostly not smart enough to think up a Facebook that is worth billions for all the gigabytes that it consists of (plus some real estate and patents), we will just have find a way to create value through investments.
Does anybody want to buy my Swatch Xmas collection or my Playmobil pirate ship ?