The Source of Wealth

Written by D.Jargalsaikhan
Friday, August 07, 2009.
UB Post

A man was planning his time and money to climb to the peak of a mountain. After lifelong preparation and effort, he finally reached the top. When he looked around he found out that it was the wrong mountain. The reason was that he used the wrong tools to measure his direction and progress throughout his mission. If careless in our plans for the future, Mongolia may end up like this man.
Every nation needs to use the right instrument to measure its success in creating and distributing wealth. One way of measuring this progress, which is employed in Mongolia today as it was in the socialist past, is through economic inputs – for example, investments through financial, natural and human resources. This method is also used for managerial performance evaluation. The rationale is that society will be richer as consumption increases.
This one-sided approach creates illusions and plants wrong beliefs and false expectations in society. In economics, countries with abundant natural resources or huge population are called ‘nations with comparative advantages’, but not all such nations are rich.
In our “wonderful rich homeland with ocean-like resources” as is sung in a popular Mongolian song, half of us is living on the verge of starvation. The good news is that Mongolia is not the only poor country in the world: there are plenty in Africa and Latin America today. The bad news is that most of these countries stay poor because the educated population leaves while the rest are kept under some dictator’s pressure for years until the other desperate tribe plots a coup-d’état just to put its own dictator in power. Then the same scenario starts all over again. This chain of ruling takes centuries because wealth is measured by inputs. There is no measurement by results, outputs and outcomes. Governments in these countries never report on how they spend their resources. Those who challenge them are arrested for attempting to uncover state secrets.
Another way of measuring a nation’s wealth is by comparing inputs with outputs and outcomes. This formula counts the values created by each tugrik invested, each ton of minerals processed or each hour of labor applied. Whenever this ratio – called ‘productivity’ – is used, operations are more effective, the economy is healthier, there is less waste, and society is more conscious.
Productivity is a measurement that does not stem from a government resolution or someone’s orders. It comes as a necessity of a particular environment, whether it is the environment of competitiveness or competition. Only competition presses a country, an industry or a firm to increase its own productivity. Those who can increase it win, and those who cannot, lose.
Competition creates productivity, and productivity creates a nation’s wealth. Looking at Mongolia closely, one finds conspiracy instead of competition, which produces redistribution instead of production. Furthermore, only conspirators, distributors and their gangs get incredibly rich while the majority gets poorer.
In a competitive environment, information comes to all players at the same time. These players have equal access to supplier companies, the services of related institutions are of higher quality, the location has sufficient infrastructure, and skilled labor is shared. Nations that provide such environments in one or more industries become countries with competitive advantages.
After studying some 80 countries and regions over the last 20 years, Harvard University researchers concluded that countries that base their policies, laws and institutions on productivity grow much faster than those who do not. Take Singapore or Finland for instance as suitable archetypes for Mongolia.
In order to increase our nation’s wealth, we first need to create healthy competition in the economy. It should be our top economic policy priority. The government must not be a player itself. Instead, it should draw clear rules and make each player follow them.
The government should transfer every function to the private sector and undertake only those tasks that cannot be performed by private enterprise such as national security, protection of properties and human rights.

True competition creates productivity, makes all of us efficient, and also increases state wealth. If we use the right tools to point us to the right direction, there is still a chance for us of climbing to the top of the right mountain.