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The Three P's (Vol. 11)

Updated: Feb 7, 2023

analyticsbox | Aug 04, 2021

Politics Sign

The Recipe for Success

There are 3 key ingredients that go into a successful economic system, if we get these right, then the economy will grow and prosper! So what are they?

PHILOSOPHY. The most fundamental issue is who is supreme, the individual or the state? A winning philosophy is based on the notion that we own our own lives and we have the right to do as we please. This is basic human nature -- the desire to be free. This gives us ‘rights’, and so long as we do not violate other people’s rights, we are free to do as we please. Seems obvious, but in some countries or societies, the state or ruler is supreme and ‘dictates’ the lives of its citizens. That is not an environment conducive to proper incentives and success. Freedom is! It is properly aligned with human nature.

PSYCHOLOGY. Incentives work! Adam Smith in The Wealth of Nations, described the ‘Invisible Hand’. It is the simple notion that self-interest that motivates us. If we own our life and labor, then we should be able to keep the fruit of our labor, our property. We are rewarded for what we do. That motivates us to work harder or smarter or create new things that others want. We succeed when we satisfy the needs/wants of others. The psychology is right. We are rewarded for our efforts. In states where people are not rewarded for their effort, they are not motivated to work harder or smarter, and that is not a recipe for success.

POLITICAL SYSTEM. Societies are organized in some manner for a group. A government is formed by various means. Taking power by force is one method. Or a government can be created by the people for the people. For systems organized or maintained by force, freedom is curtailed. With the loss of freedom, incentives to improve one’s condition also disappears. A society like this will not grow and prosper, the incentives are not there. In a government by the people that respects and protects the rights of individuals and allows them to keep the ‘fruits of their labor’, the society and the individuals within it will prosper, as the incentives are properly aligned with human nature.

The Bottom Line

A political system which recognizes the citizens of a political unit (usually a country in modern times) as free and recognizes and protects their rights, is based on a sound philosophy in concert with human nature - individual supremacy. This provides the incentives for individuals to improve their condition, with the unintended consequence of improving the society as a whole.

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