Commentary — VI offered ideas for ‘capital mix’

Here’s a question relevant to the layperson in economics: What mix of scarce resources best fits in with the outcome and vision of an investor, a policy maker, or even a consumer looking at starting a business? This question is key to why the creative management of capital is vital for prosperity.

A related question is equally important: What are the best combinations of the components of capital — land, technology, machinery, equipment, finance, management and enterprise, for instance — that achieve the desired outcome and drive prosperity?

The term “capital” has expanded from being simply physical assets that produce wealth — such as land, factories, machinery, finance and technology — to include the more human factors that drive wealth and productivity, such as management, labour, innovation, risk and enterprise. Far from fixed, capital possesses variables and differentials.

Now, how a country’s leaders, businesses and labour force choose which components of capital to prioritise is critical in getting to the desired place: El Dorado. To that end, the human factor is king. Wise policymakers fully understand that reality, and they never risk the integrity of a country’s capital assets with poor human resource management.

 

In the VI

Consider the Virgin Islands, which is a trading nation. It hosts an offshore financial services economy, with tourism as second pillar and main employer. Consequently, the territory must ensure that it possesses the enterprise, labour force and management to derive maximum productivity and output. That means adopting all the components of capital in appropriate proportions while investing in the right type of learning to derive the maximum output from that capital.

The VI requires specialists and administrators in financial services, such as accountants, bankers, corporate lawyers, trust managers, middle managers, and many others. The education system must drive the preceding tale by directing resources in these areas. Capital in this context is the leadership, management and skills that combine with finance and technology to achieve the specific outcome of increasing revenues from this industry.

 

On the water

It is so too with the travel, maritime and tourism industry. There is the need for mechanical engineers, civil engineers, architects, marine technicians, navigators, surveyors, oceanographers, chefs, hotel and moorings managers, restaurateurs, aviators, boat captains, and workers with expertise in wide-ranging areas including refrigeration, boat engines, sail making, and so on and so forth.

Additionally, of course, the territory requires all the other appropriate learning and skills that build and drive a society in areas such as police, search and rescue, coast guard, public service, agriculture, transportation, building, infrastructure, healthcare, education and more. All the preceding are capital that mix to generate wealth individually and corporately, as they aid in overall wealth creation and boost gross domestic product.

Therefore, appropriately combining the various components of capital is crucial to prosperity. For example, the decision where to invest by both government and private sector should take the components of capital into account to mix and derive the best output and outcome.

There is no attaining a vision without understanding how the best combinations of capital will achieve that vision. There is no point spending huge sums on artwork for a hotel instead of on good furniture and catering — or, for a restaurant, birdcages instead of comfortable seating and tables.

 

The way forward

How should the VI find the best capital combination? As one example, investing in Prospect Reef will factor in most of the components of capital, both before the development’s completion and after.

Before development, the design and construction of a new resort and business park will require the right amount of debt capital, spending on project management, inputs of enterprise, engineering and construction skills, machinery, innovation, land development, and so on.

Then after the project is completed, deft capital combination will be needed in the form of debt capital such as cash flow, hotel and moorings management, resort management, marketing, technology, culinary and hotel management skills, maritime skills, security and more.

Airport expansion will also require deft capital mixing and combining. The appropriate combinations of capital will depend on the vision and dream of an expanded facility.

How to combine the various components of capital to derive the best economic and social outcomes is the road to true prosperity — and the main task of the visionary.