When traditional economics discuss economic management and economic performance, their talk is dominated not by the human factor, but by non-human factors such as financial resources, policy, economic activity and so on.
If you hear them talk, you would think economies are independent living organisms that created themselves, that think for themselves, that make their own decisions and that run themselves to deliver goods and services for other helpless living organisms called human beings.
One would think, hearing traditional economics, that all human beings need to do to is feed these creatures called economies with financial resources and raw materials and bang, the animals with produce goods and services that human beings then harvest and enjoy.
Strangely, even when there is a branch of economies called production economics, most economic debates are skewed towards the theoretical analysis of economic management in a way that treats economies as people independent, self-operating entities.
With traditional economic thinking and discourse, the strongest impression that is created especially in Africa is that of the existence of two independent entities;
1. A society of human beings and an independent economy that supports the society
Based on this theoretical construct, it the following then follows;
1. The society is dependent on their economy for its survival and wellbeing
2. The economy is an independent, self-perpetuating living entity which thinks for itself, and runs on its own intelligence and does whatever it pleases. Human beings can try to control it, but they have limited capacity to do so.
This conceptual view of economics is a reality and comes with its own consequences. This emerges from the concept that how we think about anything determines to a large extent how we behave in relation to the situation as well as what we do and what we cannot do in relation to the situation or phenomenon.
While it is a fact that society depends on the economy for its survival and wellbeing, this is only one half of the full story. The other half is that the economy is dependent on its society for its survival and wellbeing. In fact, in the beginning was the society and then the economy. Second, contrary to the predominant conceptual perception of an economy as a separate entity from society, the “economy” has no “physical” existence of its own, neither is it separate from the society that it serves.
One can argue successfully that the size and quality of any economy is a direct mirror of the economic mental equivalence of its society.
Economics begins with people and ends with people. Financial resources, theory, knowledge, machines and everything else are only as important as they help people to do their work well in Metaeconomics producing goods and services as safely, as effectively and as efficiently as possible. This is the basic truth; If you leave a few people in a desert without anything else but the basic means of survival, they can soon start a successful economy there if they have the sufficient mental capital to do so. If you leave a nine hundred trillion United States dollars and all the best industrial and commercial machines in the same desert without any people, there will never be an economy there. The money and the machines can only deteriorate until they are dysfunctional.
There are a few things that are at the core of the performance of every economy.
These are existing struggling companies recovering and turning around, existing thriving companies, businesses and organisations growing, new vibrant business, companies and organisations being created, revival and upgrade of existing infrastructure and the development of new infrastructure, government and government institutions, developing the capacity to employ more people, companies producing goods and services at a profit, the country being highly productive especially in terms of output per unit time and the country exporting more than it imports.
It is through these eight imperatives that wealth is created, that social services are provided and that jobs are created.
One may ask; “How about social services such as education, water, energy, health, security and so on?”
I would say if the eight imperatives above are operational, then providing these social services is a matter of operational and tactical efficiency because the means for doing so will already exist. Yes, governments can generate revenues independent of private enterprise but how much? Is it not that most of any government’s revenue comes from taxes? Can struggling and ailing companies provide enough tax to support the provision of social services?
Traditional economics frequently touches on these things, but only at a very shallow level, with very little focus, attention and intensity. The obsession is on analysis, policy and “fiscus’’ and investment especially foreign investment. In developing countries, traditional economics completely convince people that foreign investment is like to the economy, oxygen is to human beings. That an economy will neither recover nor grow significantly without foreign investment is taken for a natural, immutable economic law. The world is already awash with many cases of nations rich in terms of natural resources and into which oceans of foreign direct investment are flowing but whose physical, economic and social appearance is registering not the smallest evidence of what the nation possesses or is receiving.
The explanation is that in these nations, the amount of natural resources and the copious volumes of foreign direct investment they are getting are lacking another critical resource that is required to create wealth. This missing resource is mental capital.
How do I explain this differently?
Natural resources are not wealth. Foreign direct investment is not wealth. Wealth is created by combining natural resources, financial resources and mental capital. Of these three major ingredients, mental capital is the greatest and most important of them all.
Singapore is a small country in physical area, with no natural resources worth talking about. Small and relatively natural resource-poor as it is, what would you expect to see there because of its physical condition? But what do you see in Singapore? Is it a poor nation by any standards? How do you explain this? How would you counter argue the thesis that any country’s wealth is the equivalence of its mental capital, not the abundance of its own natural resources? How would you counter-argue someone who argued that economies are products of mental capital, not natural resources, not financial resources.
It is mental capital that attracts foreign direct investment into any country
It is mental capital that generates financial resources for any country, it is mental capital that directs the use of a country’s natural endowments and therefore, the economic results and the economic direction of every country are products of the magnitude and quality of the mental capital being deployed in the economy.
Africa is yet to emerge out of an era in which thinking and theory are treated with disdain and where many people and decision makers are tricked into believing that theory is not relevant to practice. For this reason, the voices of the academics, intellectuals, theorists, thought-workers and philosophers are treated with scorn and thinking is regarded as a useless exercise that amounts to nothing practical. What we see today in Africa and what we are battling to correct are the results of that philosophy of ignoring thinking, theory and mental capital.
The key to the success of any economy is never natural resources and financial resources, but the people. People provide the physical and the mental capital that create the country’s wealth. In other words, a country whose mental capital reserves are low will always struggle even when it has access to natural resources and other forms of capital.
Mental capital deployed will lead to an increase in economic performance while a loss in the form, quantity and quality of mental capital deployed will lead to a loss of economic output and hence to economic underperformance.
Successful economies are always a combination of the right mix of the right quality and amounts of all the eight forms of mental capital. Any deficit in any of the eight forms impacts negatively on economic performance. Strategic capital deficits are especially devastating for any economy.
The conclusion is this, in all cases of economic underperformance in Africa and other developing countries, the missing key is mental capital. Igniting economic transformation, triggering accelerated economic development and fast tracking any economy from failure back to vibrancy, prosperity and growth always must invariably include building sufficient mental capital to create the desired economy.