The significance of stock markets

26 Feb

Just noticed that I haven’t posted any economy-related topic yet. So let this be the first.

I once read an article in Philippine Collegian complaining about why our nation continue to regard stock markets as an important thing for our economy. The paper stated that real markets (where products like rice, sugar, etc.) are sold should be our nation’s focus. I can’t remember exactly all that are  said in that Collegian article because I tend to throw away papers with really shitty discussions.

Make no mistake, I’m not of the right and hell, I don’t even subscribe to capitalism fully. I consider myself a liberal. But it’s unfortunate when someone from the left writes stuffs just for the sake of attacking the opposite side, without even researching a bit on what advantages the other side has to offer.

So I guess I’ll just simply list down three of the advantages of having a stock market:

1. Stock markets offer the easiest way to raise capital for corporations seeking expansion. Expansion of corporations means more jobs being created, and more product being produced, and more services being rendered.

2. Stock markets offer a democratization of a corporations. It’s better to have corporations owned by literally thousands of people than to have corporations controlled by few individuals (kinda like oligarchy, isn’t it?). Only through stock markets you can achieve that.

3. Stock markets offer rich folks an easy way to liquify their current assets in order to raise ample fund for starting another company in an underdeveloped area. For example, a seasoned or veteran entrepreneur is quite sure a certain industry has potential for growth, but no one is going there. So he decided to sell some of his current assets at maximum price possible in order to raise fund for his next venture. Through the stock market, he can sell those assets at the maximum value possible. After rasing the fund, he establishes a new company in that area he is eyeing. The end result: His former assets remain functioning,  employing people, and producing products. These assets merely changed owners. But more importantly,  a new company was established. And that’s good for the nation. Imagine Philippines without Sun Cellular and you’ll get the idea. Sun Cellular would not exist today if the Gokongweis didn’t de-invest some of their former assets.

Those are the three reasons on why stock markets play a significant role in a nation’s economy. The Collegian isn’t wrong at all when it stated that we should take care of the “real markets.” However it failed to understand that a dynamic trading of assets through stock markets is as important as these “real markets.”

– Tyrel Jonas Mora

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