Invisible wealth, and its role in determining fate of our economy

By XN Iraki

Astronomers shocked the world in the 1930s when they said that 90 per cent of the universe is invisible, despite the countless stars you at night. And this invisible material, which they called "dark matter", holds the key to the eventual fate of the Universe, whether it will end in a whimper, or with a bang, to quote Poet T.S Elliot… or was it Robert Frost?

Bold economists might follow the same logic, and declare that 90 per cent of the country’s wealth is invisible, but it holds the key to the eventual fate of the economy; whether it will grow, stagnate or collapse.

Too many people think of the visible wealth, money in terms of notes, bank accounts. However, most of the wealth in this country, and indeed worldwide, is invisible. It is not tied in the land we fight for, and finally get buried in once nature finally wins over us.

The greatest inefficiencies in our economic system are those that affect invisible wealth. The best example is traffic jams, which are worsened by life-giving rains. It also includes the policeman who stops you to waste your time, to the civil servant who makes you wait while they talk on the phone.

Thinking boldly and broadly, most of the wealth is not tangible. It is invisible, supported by our faith and expectations of the future. For example, why does the value of stocks fall overnight wiping lots of wealth from our portfolios? Isn’t the wealth in the stock exchange "invisible" like the "dark matter" in deep space? What of the money or wealth held in derivatives? How much wealth is held by our faith in future and institutions?

Dark matter

Let us quickly go through the invisible or "dark matter" of wealth, how wealth can be created and held invisibly.

Reputation is one "dark matter". How much money do people make from their reputations, from entertainers to writers, preachers, and actors? Don’t reputable schools, medical, and law firms charge a premium for their goods and services? Once you have a good reputation, it becomes easier to make money. And once that reputation is destroyed, your wealth is destroyed too.

Reputation is often a matter of perception, earned over a long period of time, making it priceless, and a powerful source of economic leverage.

Quality is another invisible matter. If you produce quality goods and services, you will charge a premium. Typically, customers cannot see the quality, they can only believe in it. People often believe something is of high quality, even when they have not used competing products. We buy certain cars and products because we believe they are of higher quality, often without evidence, relying strictly on reputation.

Firms have realised this, and now segment their markets, and make money out of giving the segments quality products and services. Banks extend hours and charge you for that. Even Mercedes have started producing a Vitz-like car, highly priced because people equate Mercedes to quality.

Honesty is another "dark matter". Honesty breeds good reputation, which in turn lead to trust in you. This again can lead to premium charges for products and services. You will rarely feel the pain of paying for honest services. Think of your mechanic and his honesty in fixing your car when what happens below the bonnet is a mystery to you.

Swings in the economy

Brand is another "invisible wealth". Think of great brands, from Coca Cola to Kenya Inc. Think of the premium we pay for imported brands, and feel good about it! Think of the high rent you pay staying in a tiny house in well known residential areas of Nairobi. You can pay Sh50,000 for a two bed roomed flat in Lavington (brand), but pay Sh30,000 for a five bed roomed house in a nameless estate.

Expectations are perhaps the greatest type "dark matter". The swings in the economy are often driven by our expectations, including emotions. It is no wonder that the frontiers of economics and finance are in behaviour, from behavioural economics, to behavioural finance.

Our economy is suffering because too many of us focus on what can be seen, money, land, forgetting the invisible, from reputation to honesty and value system; which is more long lasting and will outlive all of us. Successful entrepreneurs are those that focus on the "dark matter" of the wealth creation, making lots of wealth.

Money in form of coins and notes like visible matter well in the universe is only a small percentage of national and personal wealth. And just like "galactic dark matter", invisible wealth may determine the fate of our economic growth.

—The writer (xniraki@aol.com) is a lecturer at the University of Nairobi, School of Business.