Income Generation Vs. Wealth Creation
Many people confuse income generation with wealth creation. These are two very different concepts. Income generation simply means increasing the number of financial transactions so money more frequently changes hands. If I go to McDonalds and buy a hamburger, McDonalds can then pay an employee who goes out and buys clothes and the cycle continues. Commerce is essential and good but it has its limitations. The problem with these very simple transactions is that they do not increase the supply of money in the community. Money simply changes hands. Commerce is almost entirely a private sector affair. Very little public sector support or intervention is needed for commerce to flourish. In fact, the less government the better.
Commerce in Tucson is typically fairly healthy because we have a large number of tourists and retirees who bring their income from other areas to buy goods and services. So, when times are good commerce increases and money continues to change hands. When a recession hits, however, the tourists stay home and retirees stop moving here. Money for commerce dries up. The other problem with simple commerce is that we are almost entirely dependent on people moving here for income to grow. Our population, and the city footprint, must constantly grow to create more income that creates the demand for more growth. Many people are opposed to seeing Tucson grow so there is constant friction between the “growth” and “environmental” camps.
Wealth creation, on the other hand, means exploiting existing resources to produce goods and services that can be exported outside of the region and around the world. Wealth can be used over and over again. It has a multiplier effect that exists independent of commerce. Wealth creates income but the multiplier effect is much more robust and it does not depend solely on population growth or attracting new consumers to the region. Wealth is renewable and produces the goods and services that can be exported and create income for many, many years or perhaps even forever.
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Income Generation
Vs.
Wealth Creation
Many people confuse income generation with wealth creation. These are two very different concepts. Income generation simply means increasing the number of financial transactions so money more frequently changes hands. If I go to McDonalds and buy a hamburger, McDonalds can then pay an employee who goes out and buys clothes and the cycle continues. Commerce is essential and good but it has its limitations. The problem with these very simple transactions is that they do not increase the supply of money in the community. Money simply changes hands. Commerce is almost entirely a private sector affair. Very little public sector support or intervention is needed for commerce to flourish. In fact, the less government the better.
Commerce in Tucson is typically fairly healthy because we have a large number of tourists and retirees who bring their income from other areas to buy goods and services. So, when times are good commerce increases and money continues to change hands. When a recession hits, however, the tourists stay home and retirees stop moving here. Money for commerce dries up. The other problem with simple commerce is that we are almost entirely dependent on people moving here for income to grow. Our population, and the city footprint, must constantly grow to create more income that creates the demand for more growth. Many people are opposed to seeing Tucson grow so there is constant friction between the “growth” and “environmental” camps.
Wealth creation, on the other hand, means exploiting existing resources to produce goods and services that can be exported outside of the region and around the world. Wealth can be used over and over again. It has a multiplier effect that exists independent of commerce. Wealth creates income but the multiplier effect is much more robust and it does not depend solely on population growth or attracting new consumers to the region. Wealth is renewable and produces the goods and services that can be exported and create income for many, many years or perhaps even forever.
A wealth creation strategy is one that coordinates public policy and private resources to take advantage of existing strengths that can be turned into enterprises to produce goods and services that can be exported.
There are 5 ways and only 5 ways to create wealth:
1. Take it out of the ground (mining, farming, etc.)
2. Turn raw materials into marketable goods (manufacturing, construction)
3. Take it out of someone’s head (new technologies, consulting services)
4. Have people pay you to see what you did not take out of the ground (eco-tourism)
5. Provide transportation facilities for shipping services (transportation and warehousing hub)
A good wealth creation strategy would identify, coordinate and package the natural strengths of the region so that they could be easily accessed by private individuals who understand how to use them to produce and distribute goods and services. Education, public safety, transportation, natural resources, governance, regulation and financing are all crucial to this effort. To be effective, we need a true partnership between the public and private sector with the primary goal being wealth creation that will ultimately benefit all our citizens.
Courtesy of:
Rick Hodges