Books: The Wealth of Nations

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Category: Business & Finance

Created on Monday, 03 February 2014 00:00

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Books: The Wealth of Nations

The book’s broad themes

The first theme in The Wealth of Nations is that regulations on commerce are ill-founded and counter-productive. The prevailing view was that gold and silver was wealth, and that countries should boost exports and resist imports in order to maximize this metal wealth. Smith’s radical insight was that a nation’s wealth is really the stream of goods and services that it creates. Today, we would call it gross national product. And the way to maximise it, he argued, was not to restrict the nation’s productive capacity, but to set it free.

Another central theme is that this productive capacity rests on the division of labour and the accumulation of capital that it makes possible. Huge efficiencies can be gained by breaking production down into many small tasks, each undertaken by specialist hands. This leaves producers with a surplus that they can exchange with others, or use to invest in new and even more efficient labour-saving machinery.

Smith’s third theme is that a country’s future income depends upon this capital accumulation. The more that is invested in better productive processes, the more wealth will be created in the future. But if people are going to build up their capital, they must be confident that it will be secure from theft. The countries that prosper are those that grow their capital, manage it well, and protect it.

A fourth theme is that this system is automatic. Where things are scarce, people are prepared to pay more for them: there is more profit in supplying them, so producers invest more capital to produce them. Where there is a glut, prices and profits are low, producers switch their capital and enterprise elsewhere. Industry thus remains focused on the nation’s most important needs, without the need for central direction.

But the system is automatic only when there is free trade and competition. When governments grant subsidies or monopolies to favoured producers, or shelter them behind tariff walls, they can charge higher prices. The poor suffer most from this, facing higher costs for the necessities that they rely on.

A further theme of The Wealth Of Nations is that competition and free exchange are under threat from the monopolies, tax preferences, controls, and other privileges that producers extract from the government authorities.

For all these reasons, Smith believes that government itself must be limited. Its core functions are maintaining defence, keeping order, building infrastructure and promoting education. It should keep the market economy open and free, and not act in ways that distort it.

Production and exchange

The Wealth Of Nations begins with Smith explaining production and exchange, and their contribution to national income. Using the example of a pin factory, Smith shows how specialisation can boost human productivity enormously. By specialising, people can use their talents, or acquire skill. And they can employ labour-saving machinery to boost production. Then they exchange those specialist products, spreading the benefits of specialisation across the whole population.

How far and how fast the benefit spreads depends on how wide and efficient is the market. Often, employers try to rig markets in their own interests, and call on governments to help them. But the best interests of ordinary people are served if policymakers avoid such interventions and promote open competition.

The accumulation of capital

Smith goes on to say that building up capital is an essential condition for economic progress. By saving some of what we produce instead of immediately consuming it, we can invest in new, dedicated, labour-saving equipment. The more we invest, the more efficient our production becomes. It is a virtuous circle.

Thanks to this growth of capital, prosperity becomes an expanding pie: everyone becomes richer. But capital can be lost, through mistakes, or theft, or profligate government spending. Governments should aim to allow people to build up capital in the confidence that they will enjoy its fruits, and should be aware that their own taxation and spending will eat into the nation’s productive capital.

Economic policy

Just as individuals gain from specialisation, says Smith, so do nations. There is no point trying to grow grapes in Scotland, when they grow so plentifully in France. Countries should do what they are best at, and trade their products. Restrictions on international trade inevitably make both sides poorer. Legislators think too much of themselves when they believe that by intervening, they can direct production better than the market can.

The role of government

Smith is critical of government and officialdom, but is no champion of laissez-faire. He believes that the market economy he has described can function and deliver its benefits only when its rules are observed – when property is secure and contracts are honoured. The maintenance of justice and the rule of law is therefore vital.

So is defence. If our property can be stolen by a foreign power, we are no better off than if our own neighbours steal it. And Smith sees a role for education and public works too, insofar as these collective projects make it easier for trade and markets to operate.

Where tax has to be raised for these purposes, it should be raised in proportion to people’s ability to pay, it should be at set rates rather than arbitrary, it should be easy to pay, and it should aim to have minimal side effects. Governments should avoid taxing capital, which is essential to the nation’s productivity. Since most of their spending is for current consumption, they should also avoid building up large debts, with draw capital away from future production.

The Wealth Of Nations today

Smith’s world was very different to ours, of course, before the Industrial Revolution changed everything. At yet, by showing how the freedom and security to work, trade, save and invest promotes our prosperity, without the need for a directing authority, The Wealth Of Nations still leaves us with a powerful set of solutions to the worst economic problems that the world can throw at us. The free economy is an adaptable and flexible system, which can withstand the shock of the new, and cope with whatever the future brings.

Source: adamsmith.org

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Cedi In A Free Fall...

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Category: Business & Finance

Created on Thursday, 30 January 2014 00:00

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Cedi In A Free Fall...

The fast depreciation of the cedi is gradually hurting local businesses. As a result of the depreciation, goods imported into the country have become expensive on the local market.

The situation has also slowed down businesses, as producers face challenges in procuring raw materials, while customers are unable to buy the goods on the market.

The US dollar, which used to sell on the local foreign exchange market for GH¢2.20 before the 2013 Christmas, is now selling at GH¢2.60, while the British pound, which used to be sold about GH¢3, is now selling at GH¢4.20.

The same goes for the euro and CFA, with the euro now selling at GH¢3.50, while the CFA is going for GH¢4.80.

The cedi has already depreciated by three per cent against the major international currencies this month.

In 2013, the local currency suffered a 17-per cent depreciation.

The year-on-year depreciation shows a 21.96 per cent depreciation of the cedi against the dollar; 28.88 per cent against the pound sterling; 23.98 per cent against the euro and 25.54 per cent against the Swiss franc.

Central Business District (CBD) of Accra

In separate interviews, traders within the Central Business District (CBD) in Accra told the Daily Graphic that the depreciation of the cedi was gradually affecting their businesses.

They complained that business was now moving slowly, as customers were not able to afford some of the items on the market.

When the Daily Graphic visited the Aflao Station in Accra, Mr Asare Konadu, a shop attendant, said after the Christmas festivities, business had slowed down, with little or no sales.

“Nowadays people no longer buy the goods as expected because they complain that their money can’t afford the prices we offer them,” he said.

“But it is not our fault. When we go out to buy the goods, the prices there are different because we pay in dollars and we need to sell at prices that can give us profit,” he added.

Asked whether he had any idea why the cost of the dollar had gone up, Mr Konadu said part of the reason was the rising cost of living which did not adequately match the salary of the ordinary Ghanaian.

“Day in, day out there is an increase in the tariff of one utility or another, but there is no corresponding increase in salaries and so people are left behind,” he said.

He, therefore, urged the government to work hard to stop the fall of the cedi and also to stabilise the economy for the benefit of Ghanaians.

Madam Ruth Adabla, a cashier at the Broadway Forex Bureau in Accra, said there was a high demand for the dollar but it was difficult for the company to get it on the market. She could not immediately say why there was an increase in the demand but expressed optimism that the coming months would be much better.

At the Fads Forex Bureau at Adabraka, Mr Adam Aziz said $100 now sold at GH¢250, while it was bought at GH¢240 last December.

AGI on cedis’ depreciation

The Executive Director of the Association of Ghanaian Industries (AGI), Mr Seth Twum-Akwaboah, in an interview, said the increase in demand for the major foreign trading currencies had been the cause of the cedi’s depreciation, which had effects on various aspects of the economy.

He said Ghanaian industries imported most of their raw materials for production and, therefore, the demand for the major foreign currencies had become high.

Mr Twum-Akwaboah explained that when the high demand for foreign currencies was without a corresponding increase in supply, then the cedi would definitely depreciate.

He said the shortage of and irregular access to the major foreign currencies are also a major factor.

“Increasing local production will, in the long term, address the effects of the cedi’s depreciation against the major foreign currencies, especially in the industrial sector,” he added.

Way forward

Mr Twum-Akwaboah said increasing local production would mean less importation of raw materials, hence a reduction in demand for foreign currencies.

He, therefore, called on all stakeholders, including the government, to ensure that local production was increased to control the demand and supply of foreign currencies.

Bank of Ghana (BoG) intervention

Meanwhile, the Bank of Ghana will, next week, outline measures to arrest the fast decline of the cedi. A source close to the BoG told the Daily Graphic that the bank would take action against those who violated foreign exchange regulations.

It described the dollarisation of the economy as a major problem.

Some commercial banks are complaining they do not have enough dollars to aid their operations, attributing the shortfall to the limited supply of the currency by the BoG.

But the source at the BoG said there had been an increase in demand from the commercial banks. It, however, said the BoG needed to manage the situation, so that the country’s reserve was not depleted.

Source: Daily Graphic

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Desperation, hopelessness to blame for corruption – CCG Gen. Sec.

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Category: Elections & Governance

Created on Friday, 31 January 2014 00:00

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Desperation, hopelessness to blame for corruption – CCG Gen. Sec.

General Secretary of the Christian Council of Ghana, Rev. Dr. Kwabena Opuni-Frimpong, has revealed that desperation and hopelessness are the cause of excessive corruption in the country.

According to him, most people are no longer ashamed of corruption and stressed “it is a sign of desperation and hopelessness” in the country.

“People who have lost hope in themselves and others are those who are convinced that they cannot survive by doing the right things and therefore they will do anything for survival,” he asserted.

The Christian Council General Secretary stated this in his sermon during the 50th Anniversary Launch of the Ghana Police Church in Accra last Sunday.

He continued: “Our leaders, religious, political, traditional, etc who want to use the resources entrusted to them for the wellbeing of others for their selfish gains are desperate and hopeless about their future. They have lost hope in tomorrow if they have to maintain human values and dignity. They are therefore willing to do anything to survive.”

Suicide

Touching on the upsurge in suicide cases, he said people commit the act because they have lost self-confidence and dignity.

He bemoaned the fact that people of different age and professional background have now resorted to committing suicide to deal with their predicaments and described it as “very unfortunate”.

Rev. Opuni-Frimpong said it is important for national institutions, media and other bodies to inspire and give hope to its constituents, and undertake the necessary steps to help people develop their self-confidence and dignity, even in the midst of their predicaments.

He added, “our public discourse is too much politicized and therefore do not inspire hope in those who are hurting. We need objectivity in governance and public discourse. If something is good, let as us, both parties in the majority and minority say it is good so that we can help a hopeless person to revive hope.”

Selfishness and nationalism

Touching on nationalism, he bemoaned the fact that most Ghanaians have lost their sense of patriotism because they have become selfish. He said people now care about themselves more than the collective wellbeing of all.

According to him, the economic and academic gaps between the poor and the rich, the rural and urban are becoming wider every day, stressing that, the poor in our societies are becoming poorer while the rich is becoming richer without stronger opportunities for the poor to benefit from the riches of the rich. “There is the urgent need for us to discuss identifiable national ideals, values and philosophies in our media and other public discourse. We must revive the sense of patriotism as we seek to enjoy the blessings of jubilee” he noted.

Jubilee Celebration

Speaking to the theme of the anniversary which is Jubilee, he said it is an affirmation that God is has pleasure in the prosperity of his people. Quoting from Leviticus 25:8-17, he disclosed that, jubilee is a moment of forgiveness, freedom, reconciliation, fresh opportunities and hope.

According to him, the current state of corruption, hopelessness, suicide and crime are indications that Ghana is yearning for jubilee and everyone must avail him/herself for God to use to bring it to pass.

He said church programmes must bring jubilee and assurance of hope to orphans, sick and the less privilege in our society.

Source: CCG Communications Unit

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Tax political parties first before churches - Christian Council of Ghana

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Category: Religion

Created on Thursday, 30 January 2014 00:00

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Tax political parties first before churches - Christian Council of Ghana

The General Secretary of the Christian Council of Ghana, Rev. Dr. Kwabena Opuni Frimpong says the state must first tax political parties and old student associations before considering taxing tithes and collections at churches.

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