Aug 22, 2012


When we talk about prosperity, first thing in mind is wealth.
Regarding individuals, we will be talking about his value of assets and money in the bank.
Companies are too assessed in similar manner. But when we talk about a country, it cannot be assessed in similar manner. Money we can take as Treasury money and how about assets? A country's assets would be referring to facilities or buildings or land?
So, the next idea of a country's prosperity would be economic or GDP growth. Just like how we value a company's share price according to its ability to grow. In company, the growth would in sense of earnings and profit. But, a country no matter how much it earns, it will still be used up for its citizens. GDP growth is a good representation for a country's prosperity?
GDP has few measure approaches, namely, production, income and expenditure. Even though they included all money related transactions within the country, they miss the fact that the money still stay in the country and it will not increase the country's prosperity. Next point in GDP approaches is that they have included exports and imports. This is the main thing that contributes to a country's prosperity. Foreign Direct Investment (FDI)  is another vital factor to a country's prosperity. Foreign investors will pump in money into the country and this will makes the country money cycle increased by amount injected by them.
My main idea of prosperity will be:
The more money cycles throughout the country, the more prosper is a country.
Another failure of GDP measures is it doesn't includes those underground transactions. No matter how good is a country's security or intelligence agency, criminals will always find ways to launder their illegal proceeds. Normally, this dirty money could reach up to billlions in a year in gigantic countries. They would then keep in tax haven country.
Going back to topic of FDI, FDI can bring prosperity for long term but if you look at 50 years horizon, those investors could be the one taking money out of the country. Don't forget they are foreign investors and their main shareholders are in their country. This is why it is important that FDI injection should be utilised by government to boost the economy from job creation, technology transfer, etc.

Main aspect of prosperity would be taxation system. Taxation can take away multinational companies' earnings, foreigners' income and maintaining a healthy balanced distribution between the citizens. What I meant by balance between citizens is wealthy ones should be taxed at higher rate to distribute the money back to poor ones for them to gain ability to work (education support). It won't be a good thing if billions was kept in the bank by a certain billionaire. You could say that the bank can loan to companies and individuals but how do you know that they can utilise the money better than the government? Unless your government is pretty corrupted or ineffective. This is why government system (democracy) or ability or honesty (anti-corruption agency) is important to make sure your country prosper and in turn, upgrade or increase quality of your life by upgrading utilities or facilities. Increasing workforce in the country would attract investors to invest just like Singapore. This is beneficial to the citizens and investors as well as the country.

In this world of free trade, World Trade Organisation have been trying to prevent case of monopoly or advantage by a certain country as it would hurt other country's economy. This is why America and China was currently not in good terms. China currently is the leader in production. Flip over an electronic component and you will see 'Made in China'. The main reason is that China has accepted a lot of FDI over the past few decades. Currently, it is the largest exporter in the world. China have a huge wealth of foreign reserve to use too. The government make use of that reserve only when needed. When recession hits China in 2008, it doesn't need to depend on the act of printing money like America. China has back-up plan with strong economic growth unlike America who was facing economic deficit since the time of Clinton.

Taking loan from IMF or printing money is not way to increase prosperity. The interest could be high in monetary terms and printing money would just hurt the economy where the currency would gets weaker. Just like making bonus share issues, currency like share price will drop.

Certainly, protectionist measures would actually increase prosperity but WTO would be monitoring and could act on a country when it is thought of having such policy. China have been accused of undervaluing their currency to attract FDI. According to Purchasing Power Parity BigMac Theory, Yuan really seem to be undervalued. But, this would still need investigation by WTO. In capitalist world, only the real capitalist minded country would be the most prosperous.

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