Originally appeared on The Morning
By Dhananath Fernando
Bill Gates famously said: “My daughter won’t marry a poor man.” His definition of poor here is interesting. He explains that a person who wins $ 100 million is not wealthy: “He is simply a poor man with a lot of money. 90% of lottery winners eventually return to where they were before as they do not know how to recreate wealth.” “Wealth” is primarily the ability to create “wealth”, explained Bill Gates.
He further explained this with an example: “One day, a bank vigilante found a bag full of money, and delivered it to the bank manager. People called him an idiot, but in reality, this gentleman was just a rich man who had no money. A year later, the bank offered him a receptionist position, three years later he was in charge of clients and a decade later, he managed the regional branch of the bank. The bonuses of hundreds of employees he managed here were beyond the value he could have stolen.” Bill Gates concluded: “Wealth is a state of mind, my friend. That’s what I meant by ‘my daughter won’t marry a poor man’.”
Sri Lanka can learn from this story. A majority of Sri Lankans believe that the country is wealthy, given our resources. We have a sea of marine resources strategically located in the silk maritime route, natural harbours such as Trincomalee, a phosphate mine, and many more. However, as per Bill Gates’ definition, none of these resources create wealth. In economics, resources that cannot create and recreate wealth are no different to having no resources.
This is not endemic to Sri Lanka. Venezuela, which was the world’s fifth largest crude oil producer, is a poor and unstable country now. Afghanistan, which is also a very resourceful country in minerals and land, does not seem to have a very promising future. Nepal, which has the tallest mountains in the world with the potential to generate hydropower, often experiences blackouts. On the other hand, countries which do not have a rich history nor any resources – such as Singapore – found prosperity and wealth in a few generations. They simply knew the art of recreating wealth.
Sri Lanka has always prioritised sovereignty. However, we fail to comprehend that erosion of wealth is indeed erosion of sovereignty. Most of our scarce resources do not create any wealth, instead it consistently erodes existing wealth.
Many Sri Lankans and large scale businesses believe that the Government needs to provide them protection. This ideology has hindered our potential to keep up with global developments and has severely discouraged budding businesses and entrepreneurs. The businesses owned by the Government are managed by political appointees and government officials. They haven’t risked their money, nor do they know anything about business. As a result, they know very little about recreating wealth. There are no consequences to them if they were to lose large amounts of money.
The common denominator of the loss-making state owned enterprises is that they are allowed to manage a business without risking any money. Most trade union action also takes place in these very loss-making enterprises such as the Ceylon Electricity Board, the Ceylon Petroleum Corporation, and the Ceylon Transportation Board.
The state institutes that make profits also do not create any wealth. Like a man who steals money, they are just poor institutions with little to no profits. Most state institutes make profits either due to hampering competition or by monopolising the sector. For example, the two lottery boards are owned by the Government with no other lottery players in the market. Institutions like the Civil Aviation Authority are monopolies. The government milk supplier makes profits by hampering competition with higher effective tariff rates.
The role of the state should be to maintain safety nets for the poor. However, the state can’t even manage its core functions due to erosion of wealth. State owned airlines lose more money in eight months than the country’s annual budget for Samurdhi.
As per Bill Gates’ example, we are not creating wealth, but over the years we have made a habit of losing the wealth we have. As a result, we have now reached the bottom of poor economic management. The recent credit rating downgrade by Moody’s and Central Bank’s directive on exporters confirms the crisis we are in. As per the news reports, we have submitted documentation to secure $ 3.5 billion from Oman to sustain our fuel supply. This means the country’s future fuel supply is at a potential risk. This will discourage investors and foreign direct investments (FDIs). We already have LP gas and sugar shortages. Even if the price controls have been removed, there are no dollars to open and clear letters of credits for banks to operate. Our misperceptions in thinking that resources are indeed wealth, have made Sri Lanka what it is today.
Wealth is the ability to create wealth. Poverty is the state of thinking about money or resources as wealth without realising how to recreate wealth. Bill Gates was absolutely right.
The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.
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