Adam Smith defined wealth as “the sum of all productive labor”. Productive labor is labor that produces valued goods used by consumers. Wealth is created by:
Growing crops (agricultural)
Extracting resources (mining)
Making goods (manufacturing)
Designing new and useful products (applied engineering)
Wealth of a nation is measured by the amount of productive labor created in the private sector. Wealth for individual companies is measured by net profits. No net profit, no wealth. Net profits increase when the following performance characteristics are optimized:
Best Price and Value
Product Performance— Features, Functions, Durability, Appeal
Productivity — Lowest Costs and Use of Resources
Product & Service Quality
Innovation and Market Analysis
Company Reputation
Product Availability
Consumer Awareness
When you become the best in these characteristics among you competitors your net profits will increase, sales volume will accelerate and your wealth will grow. Achieving high performance of these characteristics requires a six-discipline cultural process called competitive growth. Plan on intense efforts of at least 18 months to accomplish this performance.
If wealth is not created, it cannot be distributed or consumed. The most important vocations are those that create wealth. Manufacturing is critical to our growth, prosperity and quality of life. Without manufacturing we cannot pay for government, our military, lawyers, doctors, bankers, teachers, policemen, firemen, entertainers or other service providers that consume wealth.
According to Adam Smith, three ingredients are required to create wealth:
Self interest
Division of labor
Free trade
The rate of accumulating wealth determines the overall wealth of each entity such as an individual, a company or a nation. In financial measures, this is called net profits. Net profits occur when valued goods produced and sold are greater that the resources required to produce, market and distribute them. The rate of producing wealth is called productivity and measures the efficiency of producing wealth. Wealth equates to profits. Profits require free trade. Free trade depends on the private sector. Without the private sector there would be no abundance of wealth.
When individuals, companies or nations are more productive than other individuals, companies or nations, they become wealthier while related entities become less wealthy. This performance is called competitive productivity. This means that wealth creating entities that have greater productivity will accumulate more wealth. Nations that accumulate and fairly distribute wealth using the free enterprise system provide a higher quality of life, better security and prosperity for its citizens. These nations excel in global financial performance. Productivity enhances net profits, competitive productivity increases market share and reduces the influence of less efficient competitors.
Richard Artes –
About the Author:
Richard Artes is an education developer and consultant serving the manufacturing industry. He can be reached at artesrichard@aol.com