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  Lemme tell ya this: I don't believe that a change or a simple wealth creation addition (easily done) to accounting principles (e.g. GAAP) would change people's behaviour and the latter is the problem....  

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Changing the conversation

If we want growth, we have to start talking growth.

SWELLENDAM – The latest dismal GDP figure has certainly been something of a shocker. But have you noticed when you have a group of people lamenting their plight, how the mood changes when you get them to focus on doing something about it?

The reason is simple and has been captured in life lessons over the ages, including scripture and regular inspirational dictums before and after Peale, Ziglar, Covey, and Robbins. The truth is that we are more in control of what we give than what we get; of the contribution than of the reward. And if you want to live a life of agitation and disturbance, then focus mostly on reward.

One of the most puzzling things about economics is the inordinate, perhaps even exclusive emphasis placed on reward. None is more revealing than the way we account for the performance of enterprises – and then even only in the most narrow outcome of profit. That sets off a scramble by other role-players for maximum extraction, rather than contribution. Being the individual cell of the entire economic body, enterprise sets the tone for all economic behaviour at an individual and institutional level and makes finance minister, Pravin Gordhan’s call for unity against adversity difficult to achieve.

For many decades, this behaviour has been chipping away at economic wellbeing, the symptoms of which are too many to cover here, but the most profound and significant is the shift in behaviour from aspirations to expectations, to the point of entitlement. The destructive effects of a narrow, inward and reward-focused enterprise environment have seen the creation in recent decades of a plethora of counter measures aimed at ensuring good governance and sustainability. But all have missed an essential truth: the need to shift the strategic focus from reward to contribution. This can be achieved with one simple act; moving the key metric from profit to wealth creation, or value added. Value-added measures contribution. Profit is part of distribution. Value-added measures giving. Profit measures getting.

It was this thought that has led to the compilation of what I have called the Contribution Account©.

 Capture 1

Source: Author

Let me say at the outset that I am not an accountant, and this is not a new accounting format, rather an operational process that guides behaviour towards maximum wealth creation and optimum distribution; towards contribution rather than reward, and most importantly towards growth rather than containment. It was the culmination of much intense discussion with many role-players in my consulting days, including accountants, senior executives, and organised labour representatives.

It was originally based on the value-added statement, and subsequently the cash value-added which moves depreciation and amortisation from “providers of capital” in wealth distribution to outside suppliers. Earlier, in an article in the prestigious accountant’s mouthpiece, Accountancy SA, I argued for the same thing to be done to interest. Both of these arguments have been detailed in previous articles and in my e-book: Common Purpose; Common Fate.

I think it could be taken a step further, by moving personal income tax from the employee section to the “state” row, which currently reflects only company tax and corporate social responsibility expenses. (My adjustment as well). There are many difficulties in accurately reflecting this amount for each company, but working on an average of 18% of personal income, the employee share of wealth creation would drop to 45% and the state’s share increase to 25%. This excludes the indirect taxes such as VAT and duties. It also excludes local government taxes on individuals.

The Contribution Account© is captured in the middle column of the illustration, and the five strategic pillars of maximum wealth creation and optimum distribution in the immediate left and right columns respectively. These can be exploded further into operational metrics shown in the outer columns and further still to reveal the magnificent tapestry that makes up the essence of wealth creation. Note how the standard accounts and shareholder metrics are captured as part of distribution: supporting an essential truth – all benefits accrue from wealth creation itself; from contribution before reward; from giving before getting.

I have sung the praises of this approach so many times in previous columns that they need not repeating. But even a superficial glance at the essence reflects simplicity, palatability, and far greater transparency than standard accounts do. And it is becoming far more relevant in a sluggish economic growth environment.

In one swoop, one captures most of what the prescriptions, regulations and volumes of new accounting requirements try to achieve: transparency, sustainability, sound governance, ethics and greater stakeholder focus. These are underpinned by all of the King Reports. But none of these measures challenge the supremacy, pervasiveness and inexorable drivers that are entrenched by the standard accounts. Indeed, in most cases they are seen to be a burden to them. The contribution approach is virtually guaranteed to shift the emphasis away from reluctant compliance to passionate common conviction; from restraint to growth and to role-player solidarity.

Attention and intention are circular and inextricably linked. If we need economic growth and greater stakeholder cohesion, then there is no better way of achieving it than reflection in the way we measure it.

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Thulisile Nkomo

Thulisile Nkomo

NFB Private Wealth Management
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can I refer to Vietnam and how it has been able to achieve its incredible gdp growth (+5% since 1985) . well here it is:

“Vietnam’s socialist-oriented market economy is a developing planned economy and market ”

they have also been able to re-build the country from the bottom up since the end of the Vietnam war. so these are the 2 requirements – without these you are talking in the wind or even worse

Stop wasting time talking and trying to reinvent the wheel, all we have to do is get the “circle of money” started, everything else falls into place…. “Brain tease”, is SA bold enough to jump start the economy? or try this? Share the largest portion of the 1,3 Trillion Rand budget with the people eligible for work and current working class; in a form of specific vouchers, e.g transport(cars, bikes, public), repayment on 1st homes, Life, pension and medical insurance, electricity, water, education, clothing, basic foods, etc….. off course they would have to spend it or loose it if they did not use it in a specified period, each month. A balance of the money in cash paid will filter to the relevant businesses, offices for services required as people consume and with their vouchers…. It will jump start the economy immediately from the buying power potential and consumerism once people get into it.
Again its the same money passing through many hands and channels and everyone feels that they have been paid and ultimately ends up back in the government Treasury. Do the same over and over again each month/year or as many times as required….If we can make sure the loop of spending is fulfilled, we have nothing to loose obviously.
It is no different to Employers are already paying people wages/ salaries in cash rands (not vouchers) and people are spending it on their basic needs (mentioned above) and government is sitting with the rest of their cash (% Tax on earnings). Government should give it to the people as they know how to spend it and will spend on stuff and services they need (consumerism)……
Some countries are bold enough to implementing negative interest rates. …Africa’s debt is only 0.0255% of world GDP. The world has nothing to loose if we try this now.
Let’s try something, its not any different to earning a wage/ salary and those who never had an income will through this scheme, and we might be able to remove hopelessness and despair and become more positive as a nation. If SA try it for 1 month at a time you could stop it at any stage if it does not work.

They already get vouchers to spend on basic needs. They are called bank-notes.

Brilliant.

Surely this thing of growth is one of the basics of the first year subject Governing a Country 101???

So why was it not applied? Because we have the wrong people in management, simple as that.

I am so sick of hearing what we must do to stop this or that. The basics where never applied from 1994 onwards, we have this government led by the wrecking ball smashing everything and in the same breath calling on us to fix it.

Lemme tell ya this: I don’t believe that a change or a simple wealth creation addition (easily done) to accounting principles (e.g. GAAP) would change people’s behaviour and the latter is the problem. People adjust their behaviour to the environment in a manner that is in their own best interest. In South Africa parasitism (living on the wealth created by others) is a rewarded and protected activity whereas wealth creation ( your words not mine) is viewed with abject suspicion and recompensed with putative taxation. People will be incentivised to create wealth when the incentives to parasitise others are removed. These include state grants, sheltered state employment and ubiquitous graft, theft and pillaging in all its guises. The culture at fault is something for nothing (“mohala” culture if you like).

To create wealth one needs three classic ingredients: capital, land and labour.

South Africa is capital starved which is exacerbated by the high hurdle rates (required investment return) that the ANC regime has ensured because of its inability to govern and ongoing looting of the fiscus.

South Africa is starved of human capital owing to the ANC regime’s policy of workplace ethnic cleansing and the labour is of the wrong sort. A plethora of freelance horticulturalists, metal stress acoustics engineers and domestic sanitation engineers. Too few inventors and entrepreneurs. Too few people that can make things happen and have the wherewithal to create viable enterprise.

When people make capital available for investment it is in most cases not their own. They therefore have a fiduciary responsibility to ensure the capital is invested within the ambit of the legal framework and clients expectations in such as way that maximises the returns taking cognisance of the associated risks.

The mohala philosophy has its origin in statism, particularly the modern welfare state that is a net consumer of wealth i.e. is something the ANC pefected not invented (as if they could invent anything). This is underpinned by fiat (debt based) money and a general acceptance by the populace that it is okay, even a good thing) to be robbed of the value of your money by the ongoing debasement of the currency. ” A little inflation is good- it oils the wheels of commerce”.

People have little or no conception of how fiat money and especially destabilisation of the interest rate structure feeds rampant currency and interest rate speculation. This has led to another class of parasites that feed off those that produce wealth: the financial sector.

Yes, one has to produce wealth before one consumes it and others who produce none, are rather well versed at it. Your blood, sweat and tears.

We will be truly free when we are liberated from the chains of statist decree and debt based money.

It is a good and honourable thing and indeed one’s foremost duty to one’s country to pay tax to the ANC regime.

Not.

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