Thought for the Day: Contribution through Innovation
Keith Rankin, 19 February 2015
A few days ago I noted these stories (Biggest house prefabricator in hands of receivers and House builder owes $17.5m to creditors) in the NZ Herald relating to the receivership of eHome.
If the housing problem that we face was just about the cost of building houses, the innovations of eHome would be a really important part of the solution. In addressing this issue of building construction costs, eHome evidently invested "a bit ahead of its time" in new methods involving acquisition of the latest high-tech prefabrication machinery from Europe.
The important story here is that the company is up for sale, and it will probably be sold with its high-tech assets for much less than those assets cost eHome. Thus the economic benefit of eHome's risk-taking investment will still be available to us, albeit under the management of whoever buys this company.
It tells us an important general story. That the economic contribution of businesses and people is often quite unrelated to their taxable incomes. EHome, as a relatively new company, may have never earned any taxable income. Its successors almost certainly will earn income and pay tax. Yet it was eHome itself who made the biggest contribution by starting the venture in the first place.
Our economic history is littered with innovative yet 'failed' companies whose work was critical to the economic development of the developed world. Their contribution is measured by their investments (in the correct sense of the word 'investment'), sinking capital tied up in new ideas and new technology. Their contribution is not measured by the lifetime profits they have made or the taxes they have paid. Such risk taking companies enabled much income to be made, and improved many people's lives; it's just that they themselves did not make much of that income. Many of the most important risk-takers were not the most successful.
We also note that, in economic history, the relative importance of ordinary workers (including those who have spent time unemployed, and those whose risk-taking led to accident or illness) has been much greater than the relative incomes of the working class. And we note that, in history, the relative contribution of women has been much greater than their relative incomes.
That's why universal welfare provision is so important. Contribution-based social insurance schemes reward people in proportion to their lifetime financial success, and not in proportion to their contribution to our social and economic wellbeing.
I don't know the full circumstances of eHome. But I note that what they did was real investment; a world away from the faux 'investment' of people who speculate in already-existing assets. And I wish their business successors all the best in being able to construct affordable and sustainable houses in the future.
ENDS