There are two ways to get rich, according to Tulsi Tawari, author of CoW vs ToW: The Final Battle. One, by creating wealth and, the other, by transferring wealth created by all to personal coffers without adding any value to it. The second, mere hording of capital, he says, is equivalent to theft. The second also gives a wrong picture of the economy, in which all seems well or getting better — with signs of affluence. But, in reality, wealth is concentrated or accumulates in the hands of a few. This actually sets of a vicious cycle that impedes overall economic growth of a society ridden with income disparities, poor purchasing power and little incentive for innovation. This book by the CEO of Alternate Approaches helps us understand the pitfalls in current methods of wealth creation and how it can be checked with policy intervention and personal effort. There may be a happy middle ground after all, where socialistic ideals and capitalistic spirit of innovation can meet and fete.
What is the central idea behind CoW to ToW and how is it relevant in today’s time?
Any economy grows, when individuals invest their personal ‘time’ in wealth-productive-activity (ie, making and selling things in various forms, desired by others who are willing to pay in return). This is when, each individual gains extra income, by simultaneously increasing the ‘total-pie’ of wealth. This is Creation of Wealth (CoW). It happens in two forms: one, linear-growth through production and sales; two, exponential-growth through technological innovations that enhance time and resource efficiencies for all at once. However, not all economic transactions necessarily are CoW, as can be seen all around, in every country. There are many forms of transactions among people, where one or more people gain income, while the total-pie of wealth either remains stagnant or declines. This is when, one’s wealth grows at the cost of economy as whole, termed as Transfer of Wealth (ToW), resulting in draining of economic growth. Simply measuring CoW as growth, and ignoring to measure ToW, is the real reason behind gross mismatch between growth numbers and real state of economies.
When ToW is within tolerance, say 5% or so of total-pie, it is acceptable and absorbed as natural aberration. However, when ToW actually becomes the dominant factor over the CoW activities, economies are led to: concentration of capital in fewer hands, widening disparity, loss of prosperity at all levels, lack of work and income opportunities, as prevalent in today’s times, world over, especially visible in erstwhile champions of economy, such as US and Europe.
Economy suffers through ToW, in at least four definite and distinct ways: First, speculation… when power of capital is misused to ‘suck’ others’ earned money, while no fresh wealth is added to total-pie.
This causes four major damages: (i) blocking of ‘surplus capital’ in economy away from CoW opportunities; (ii) wasted-time of people and resources engaged, thus reducing the total-pie; (iii) decrease in purchasing power of people when object of speculation is basic need such as food, health, house and so on. For instance, land and house prices in India multiplied by more than 1000% during 2005-15! when people invest in real estate properties, with idea to sell at higher price, without really adding new form of new value to the property or to anyone, the gain to individual does not increase the total pie; (iv) damaging ‘mindset’ of people, with temptations for speculative gains rather than contributing genuine CoW.
Second, manipulation… when power of intellect is misused to scheme and loot, in the garb of free-enterprise. While thefts from banks and national exchequer are direct and obvious, much sinister thefts are happening in the form of “intellectual-corruption (or, say white-corruption) at multi-levels, at varying scales. For instance, while national economies are looted at one stroke through global ‘currency-trades’, individuals are being manipulated today in all domains of life, such as healthcare, education and food.
Third, parasitic… when human-time is wasted in idling due to ‘lack of opportunities to work (ie, unemployment) or ‘deliberate avoidance’ while continuing to draw gains from ‘total-pie’. This causes further damage, as wasted-minds, and triggering anti-social activities.
And last but not the least, wealth-destructive… when total-pie and or quality of life is negatively affected, both immediate and long-term, we may still count them as positive economic growth in numbers. For instance, a large number of cancer patients may arise from use of tobacco or chemical pesticides in agriculture; or, weapon-making economies grow at the loss of assets and lives in other nations; or, global-warming and pollution through consuming beyond limits.
At $1,600 India’s per capita income has grown remarkably from 1991, a five-fold increase from $300, but income disparity is at its highest, what explains this?
Growth in per capita income is a measure of growth in total fresh wealth created in the economy. However, the ownership of the created-wealth is not necessarily genuine. There are hidden ways, not so obvious, in the economy, which allow few individuals to gain extra income through ToW activities, as elaborated above. Speculation, or worse still, manipulative-speculation causes concentration of capital in fewer hands and leads to deliberately widening disparity in society.
The book speaks of intellectual corruption and misdirected use of money as ‘transfer of wealth’, how is that so?
Let us use an example: why is currency-trade ToW? Currency or money was created by human ingenuity, to accelerate the wealth-creation opportunities beyond barters. Left to barter as the only form of doing business, humanity may still be restricted to limited growth. Money allowed exponential expansion of knowledge through multitudes of transactions within each product. However, like in barter, money or currency is meant to measure value-added in CoW transactions. No one should be allowed to gain money without simultaneously adding value to the other party or total-pie. So, by definition, any money gained, without adding fresh wealth in total-pie is economic-theft. This is when ‘sanctity of money’ is compromised, and must be treated as greatest travesty of economic order. Preserving sanctity of money through policies, is the single most important need of all times, especially today, when things have really gone out of hands, through ‘gross manipulations with sanctity of money’.
The recent de-monetisation exercise failed because the government underestimated the ingenuity of Indians to pump the entire money back into circulation in the banking system. Has the bigger objective of stubbing out black money failed? What’s your assessment?
No policy action should be viewed in simplistic manner of success or failure, especially the one of historic demonetisation. Let us look at multilayers within. Yes it failed in isolating-out of black money due to reasons you mention. But then there are many other issues which we should not lose sight of:
Firstly, the real positive contribution of demonetisation to India is in matters of attitudinal-transformation, which cannot easily be assessed in short-term numbers. Over a period of few decades, largely everyone has found reasons to justify tax-avoidance, in the face of corrupt government/bureaucracy that completely destroyed the ‘culture of honesty’ in business and economy. That deprived Indian economy of advantages of competitive excellence of free-enterprise, in more than one ways, in the forms of shoddy products and services, killing of honest enterprises and entrepreneurs, brain-drain in want of merit-based opportunities abroad and so on. In the long run, this de-mon will be remembered as ‘revival initiative of economic-honesty’. Secondly, this one-act affected every Indian, thus creating a massive awareness and dialogue with each other as one-nation. Both these are positive outcomes, whether intended or not.
Considering black money as the sole issue is an error, since all black-money is not negative, especially the informal economy. The real culprit in today’s economy is “white-money corruption” not the black-money as much. As explained in ToW elaboration, due to over 1000% increase in house prices, the younger generations today start their lives with a major handicap of huge debts, simply to seek shelter. So, the government and society instead of distracted with concerns for black money as the sole major issue, should not ignore the ‘greater demon’, i.e. “ToW”!
You have mentioned that internet is the greatest enabler for any entrepreneur or small business that is poised to grow. But, barring a handful of start-ups, a majority of SMEs continue to struggle, owing to the lack of finance and opportunities. The disparity between start-ups and SMEs is growing only wider by the day? Where do you think we are going wrong?
Our economy today is largely in the grip of a) brokers/traders who use power of money, political contacts, to control monopoly positions through capital-might; b) intellectual corruption which is controlling major capital of the world including India, with least interest in empowering genuine CoW ideas, rather are busy to drive a few monopolistic opportunities.
Both these capital-dominant forces are not allowing people to become free from survival-economies. The best talents are tied up in inferior roles of manipulating balance sheets and/or markets, or at best managing routine production activities with linear output ratios.
Where we are going wrong: leaving small entrepreneurs alone to fight odds, while marketplace is unfairly tilted against them; whether in form of unbearable high-costs of advertising, high cost of capital, lack of eco-systemic support, working capital woes due to delayed payments, corrupt-institutions adding to their costs and harassments, and such.
What is needed are a major fillip to ‘entrepreneuring’, especially knowledge-based enterprising. The government should take policy actions in specific domains, to curb speculative possibilities and incentivise surplus capital’s movement towards youth and enterprise in a big way, say a million new entrepreneurs, even allowing a few failures. The aggregate demand is not going to disappear just because new entrepreneurs fail once. The attention should shift from formal education to learning while working for masses. The MSME sector (including rural entrepreneurs) need to be empowered with the help of institutional mechanisms to counter systemic inefficiencies.
You mentioned in the book any entrepreneur who works on creating a new product or service for his respective target market is a creative entrepreneur, but a lot of top notch start-ups in India are mere replicas of tested and proven businesses in other developed markets, a handful of real innovative ideas are still confined within the labs of IITs and other institutions. The challenge is that a lot of these ideas may not see the light of the day.
What you say is 100% true, as of now. The reasons being policy makers do not understand root-intricacies of how wealth is created and how exponential growth happens. What is required is a mechanism to identify and nurture ‘creative entrepreneurs’ from a school-going age. It is possible to measure the “worth” of a creative-talent earlier in life. Remember, each major innovation in the economy provides routine productive jobs to lakhs or millions in future times.
High-end knowledge-entrepreneurs (i.e., working professionals serving large sector) should also be identified and provided with golden shake-hands in the form of tangible and intangible assets, with definite income-making new opportunities, where risks are shared and mitigated with care and caution. These knowledge-enterprises would pave path to exponential growth of economy in frontier technologies, for the next 20-25 years.
How do you make the connect that economic crises in the past and the in the future is an outcome of misdirected money and wasted human-time in non-value-adding or even wealth-destructive (i.e., transfer of wealth) activities?
Assume Rs.100 of money exists in an economy at some point. Let us consider Rs.75 is deployed CoW with productive efficacy of 2 and Rs.25 towards ToW with depletion factor of 0.4; Thus, total new economy would be = 75x2 + 25x0.4 = 160
Assume, another scenario when CoW as Rs. 25, with productive efficacy of 1.4 while ToW as Rs.75, with depletion factor of 0.2;
Thus, total new economy would be = 25x1.4 + 75x0.2 = 50
So, depending upon what percentage of capital is deployed in ToW activities, and what is the productive efficacy of CoW investment (linear in case of routine production; and exponential through technological innovations), the output can be disastrous or exponentially positive.
From around mid-1970s ToW activities have hijacked the western (subsequently followed by Asian) economy big time. The past four decades are a disastrous story via the so-called financial economy; if we are saved a bit it’s because of exponential positive outputs from the likes of creative entrepreneurs such as Steve Jobs, Tim Lee and a host of others who are still contributing.
The concept of time derives a new meaning in the book, it calls for individuals’ need to keep a tap on the time spent in routine activities vis-a-vis time invested in value adding in self, thereby pushing towards building of a ‘creative entrepreneur’. Can you elaborate?
When we learn a new skill, we begin to grow from within. Over a period of time, this ability becomes matured and the work we do becomes effortlessly natural. This is when this acquired skill continues to bring greater income or growth, as long as this skill has demand in marketplace. The day the demand is over, the skill has lived its full life. All the gains till opportunity lasts are actually a result of the “initial period of learning and maturing this skill” when we did not have it to start with. We generally appreciate ourselves and our times when we gain greater income, and treat the initial period of learning and maturing as struggle. That is due to our short-sightedness. All the fruits that are borne by a tree, would not exist, without firstly the period of nurturing seed to becoming a tree, till first fruit begins to appear. Creating the unknown is superior to managing the known. So, once a skill is matured, one can begin to delegate routine work to a junior team, and free one’s own time to learn ‘another greater skill’, thus pave the path to create another new tree bearing new fruits. If a person who can create, keeps oneself occupied in managing routine activities (i.e., what is natural to happen with sincere care by a junior talent), one’s time is grossly under-utilised.