/Peteris Strautins (Pēteris Strautiņš), Economic Expert of DNB bank/
Too little attention is paid to the events taking place in companies in the discussions about Latvian economic development. The negotiations are mainly about the State policy and its measurable results, position in different international ratings, bureaucracy, courts, schools and so forth. That all is important, but not only that.
High quality processes in companies and other economic microstructures are invaluably important for economic development. In other words, that is how reasonably we act in our everyday work. The feeling that the destiny is determined by external forces which is characteristic of the residents of our land sometimes distracts attention from that. It is called external locus of control in the management theory. Neither our education, nor infrastructure are ideal, but sometimes too much fault is imposed on them.
The indicator of healthy company development is increase in value. That shows that a company is able to be more than a sum of its components and is able to earn more with a capital than the price of this capital. The value of a company also shows that it is not a leaky barrel, that satisfaction of whims for the owners is not more important than long-term and planned development process. A good owner of a company increases its value. Thos are able to create a financial value who have human values – patience, imagination, vision, bravery.
Like a lot of other economic parameters, since the nineties the value of companies has also grown several times. Therefore, the time, land and buildings of the people living in Latvia have become more valuable and that has taken place more rapidly than on average in the world. The fact that we are the country whose development level is higher than its wealth has created upward traction for wealth. In other words, the level of education, infrastructure and political culture in Latvia is rather high for the country with such an income level. We are an industrial country with ancient traditions. Out of all the development factors I would emphasize powerful companies as the most lacking factor as a combination of financial power, healthy organizational process and high quality market supply. A powerful company is an alive body which may not be pt together artificially from lifeless components. Nothing is able to imitate the natural birth and development process of companies. Nobody is able to guess what is necessary for economics so that its labour force, brain and iron merged in a beautiful and functional set. Economics is more clever than any economist and a large part of the public discussion about the economic policy is a discussion about how to ensure a birth of a child earlier than after nine months. The commercial nanoengineering of capitalism is almost as fine as the natural biochemical nanoengineering. The collective choreography of the capitalism managed by price signals is a wonderful example of spontaneous order. The increase of the value of a company is promoted by the upward spiral of creativity and diligence.
The capital of a company is power and symbolic weakness at the same time or vulnerability which is power of another kind. If a company is valuable, its owner has something to lose, he has skin in the game. That shows reliability of the cooperation partner. Therefore, the value of a company helps it to become even more valuable. Equity capital is the most expensive part of the capital and it is profitable to dilute it with loans. There is not a lack of such opportunities. This is a bad period for the lazy money of the world whose central banks currently make incur losses. On the other hand, the capital of a well-managed company is active money which still manage to earn well. The lazy money of the whole world currently losing the real value is not able to flow into the area of the active and earning money. Successful companies are not able and do not wish to absorb any amount of money. The amount of the accumulated funds is considerably larger than the possibilities of reasonable use.
Therefore, the lack of willing lenders is not a problem. However, dilution of the equity capital have reasonable limits. The times when banks were ready to take almost all risk of project implementation and were interested mainly in the market share have passed long ago. The money lent from outside may help economics but only to a certain extent. Foreigners may enter with investments in the equity capital but that will not be enough. A local process of creation and development of the equity capital is necessary. Even if some benefactor from outside with huge resources would like to graft this process on as a branch of an apple-tree, that would not be actually possible. The value of a company must be derived from the action of the most active and clever decision makers of society as naturally as a fruit grows on a branch of a tree. The most valuable capital is made by the people and land of Latvia.
Thereby, the increase of value of companies is the goal, means and result of the economic growth.
