Why the economy is an ecosystem

Background

From time to time we hear the rhetoric that “strong companies make strong countries”. Reasonably, some persons may see this as an absurdity because of the prevalence of wealth inequality today. According to Fortune.com, just eight persons own half of the world’s wealth. In Jamaica, we see Range Rovers and BMWs driving by zinc fences and Prados being washed by wiper boys at the stoplight, so what does the phrase really mean?

A Rainforest

In the World of business, there is a whole universe of problems being solved by companies every day. This universe creates a vibrant ecosystem of companies, micro, small, medium and large which collectively meet the needs and wants of humanity every day. This ecosystem, known as the economy, is not different from the biological ecosystem of a rainforest.

“Demand”, known as the ability and willingness to purchase goods and services is like the energy from the Sun, providing energy for all the plants in the forest, including trees. The plants, which are like small and medium sized enterprises (SMEs) composes most of the rainforest, providing oxygen and food for nearly all the animal life in the forest. The plants regulate rainfall, supply insects with nectar along with leaves and fruits as food for larger animals. The trees are large businesses, providing shade, shelter and larger amounts of food and oxygen than smaller plants on an individual basis but far less on a collective basis. Similarly, SMEs collectively create most of the employment and growth in the global economy. Thus the animal life of the forest chiefly depends on the plants for survival, as the World’s economy relies on SMEs.

Stormy times

If there was a major storm that wiped out 75% of the plants, but left most of the stronger, larger trees in the forest intact, then the entire dynamic of the rainforest would change. Rainfall would be severely reduced, threatening the surviving 25% of the plants and there would be much higher water stress on the larger trees. Fruits and leaves for animals would diminish in supply, causing large migration to other forests. The lack of activity from animals would reduce pollination and seed distribution, reducing plant growth in the forest even further. This storm is what separates a flourishing economy from one that is struggling and requires intervention such as continuous planting to restore the health the ecosystem. This “continuous planting” can be seen as buying from SMEs and investing in these companies through vehicles like Jamaica Stock Exchange.

Finally

Poor countries are generally underscored by weak and numerically few SMEs, which stronger countries in contrast have in much greater number. Just as forests need a strong number of plants in relation to trees to be healthy and sustainable, a healthy relationship between SMEs and larger companies is needed to make economies strong and sustainable. This is due to the irreplaceable impact of SMEs. Massive wealth inequality stems from a bad mix of big businesses and SMEs which can stem from economic threats such as low financial literacy, brain drain, severe recessions, high interest rates for long periods, an unstable exchange rate and excessive tax rates to name a few. It’s not merely growth that brings prosperity in a forest or an economy but the quality of growth that takes place.

By Julian Morrison

Julian is an Investment Advisor at the JMMB Group with experience in Insurance, Banking and Economics. He holds a Wealth Management and Financial planning certificate and another in Mergers and Acquisitions from the Jamaica Stock Exchange. Julian is also a member of the Jamaica Chamber of Commerce and takes a special interest in the development of Micro, Small and Medium Sized Enterprises (MSMEs) in the Caribbean.