TAKING STOCK: Profits generate capital


One of the persons I do business with is fond of attributing profits entirely to capital investment. He is more wrong than right. It is frequently the other way around: profits generate the capital.

Consider Bill Gates and Microsoft. Gates started small, incredibly small. He had no family wealth and virtually no capital. Today, he is the world’s richest man and his company Microsoft has turned thousands of its shareholders – which includes many of its workers – into millionaires and some into billionaires.

What was the source of this wealth? Was it capital? No. When Bill Gates first went into business, many were wealthier than him. Almost all companies had more resources than Microsoft’s. He and his company created the capital – the wealth – which ultimately put him ahead of every person on this planet.

Does his increasing wealth, meanthat the rest of us have become poorer?

Do the billions of dollars with Microsoft mean that everyone else in the world is short by these billions?


We made Bill Gates rich by voluntarily paying for his ‘Windows’ and other products. We did not give him the money to make him rich, we gave it to him because our benefit from his products exceeded what we paid for them.

Gates became rich because his products increased productivity of every user of his products.

The world rewarded him because by doing so they rewarded themselves. He gave us a language, which made our computers talk to each other and to us. We gained and we only gave a portion of these gains to Gates. The source of Gate’s wealth was not capital – he had practically none when he started – it was the result of his benefiting each one of us by increasing our productivity. We are all a little richer and the world a lot richer because of Microsoft. Even those who don’t use his products are better-off because of the world’s increased productivity.

What we need to do is to create conditions for many more Bills in this world

to work their magic and make all of us richer. Today’s tragedy is that there are only a handful of countries where conditions exist for people to succeed as spectacularly as Gates did. He could do it because he was in America. If he was in Nepal, there would have been nothing. No Bill Gates, no ‘Windows’, no Microsoft.

The success of the recently concluded ‘NRN’ conference shows how well Nepalis have done outside of their own country. The reason is that Nepal makes earning profits far more difficult than most other countries. Entrepreneurial activity is practically non-existent, such are the disincentives for people who want to do something.

America had the environment for Bill Gates to do what he did. He could work with companies like IBM and offer his products. A rich country with many businesses, offers a lot more opportunity for success – the road for a newcomer is that much easier.

When Gates succeeded with his Windows, his contracts ensured that he would get his due share. IBM and others could not renege on their commitments even if they wanted to. The US gave a clean and corruption free justice system to Gates. Nepal couldn’t have.

Gates could expand his empire without bureaucrats breathing down his neck. His company could hire the best brains from around the world. He was free to buy the best of what the world offered with his dollars. His company could make investments wherever it wanted to. America protected Gate’s wealth and his title to Microsoft shares. He could keep, sell or bequeath his shares to his heirs or to his charitable foundations. No one extorted money from him by threatening to close his businesses. Nepal could not have offered any of this to Gates.

If Nepal wants to have entrepreneurs, it must let its businessmen function without fear and onerous restrictions. Give them the ability to buy, sell, invest, transact, or enter into legally enforceable contracts with anyone anywhere in the world. Untie the hands of citizens of this country. Let them be free in this globalised world. Their profits will create the capital necessary to transform this nation.

(The writer can be contacted at: everest@mos.com.np)