Fronteza Oleg Usoltsev Blog on Analytics, Strategies and Development

10Mar/10Off

The Integrated Europe

The idea of the integrated Europe is not new. Political leaders have strived for establishing the European Empire for ages. The ball in this game of domination has changed hands repeatedly. But the key principles of domination were steadfast. The political leaders strived for strengthening their political influence over other countries of the European region and used religious, financial and military toolsets to reach that goal. That is the formation of the steadfast political union was in the heart of their activities and everything was subdued to this goal: society, finances, military force, religion, etc.

The life duration and strength of a union is determined by the two key principles: the common goal and the concurrence of interests. The union can survive while it has the common goal in its heart and while the interests of parties are concurred and have the relevant attachment points. When one party starts cheating on others, the union can be easily broken by external party using different approaches. Thus the very existence of the union is determined by the concurrence of political interests.

Whatever you say, the political interests will always drive the development of society. Hence any union cannot survive without the sound political union. Every person has its own interests. Every society has its own interests. A person can develop its own ideas and interests or they can be imposed upon it by more strong-willed persons or by persons who hold a higher social position. The basic interests of the average person are driven by its basic needs: the improvement of living conditions, the safety and stability. The interests of the average person are applied to itself and its nearest relatives.

Though the interests of the political leader are applied to the society, they are driven by its own ideas of the social development. The extraverted political leader strives for spreading its power over other societies by means of economic, military and financial toolsets, let alone the desire to gain access to resources and new markets. It develops aggressive foreign policy thus (for example, the Big Game between the Britain and Russian Empires in the Central Asia). The introverted political leader strives for gradually developing its society and uses economic and political approaches to establish the reliable economic and political relationships with other societies. It does not strive to dominate them to force own ideas on them and promote own interests thus.

Let alone other national and cultural issues, as I stressed, the union can survive while it has the common idea and while its parties are bound by common interests. The presence of sound political rules and of the relevant interest attachment points is vital to any union. The monetary and economic toolsets are conductors of political will and interests. Obviously, the idea of the European Monetary Fund pursues two aims. The first aim is to mitigate the influence of the International Monetary Fund on the region (the influence of the United States thus). The second aim is to create a toolset to enforce the political interests in the region. The second aim has to do with the endeavour to strengthen the political union indirectly.

The very existence of the European Monetary Fund will undermine positions of European players in the monetary realm, thus undermine their political weight in the region. Any toolset is subdued to political interests and ambitions. As I explained above, every political leader and every nation concerns for national interests first of all. By the very nature, before committing to do something, you ask yourself a question: what is the use of that for me? You may have some material interests or just feel the moral delight to do something. Political leaders concern for the national interests first of all. They are supposed to do that, at least. The national interests are expressed in the form of political interests and economic benefits.

A union always has a leader. The political union has the political leader as well. Otherwise it is a political merry-go-round. If interests of union parties are attached to the interests of the union’s leader, then the union can be considered as politically coherent. The monetary and economic toolsets in the politically coherent union is used to develop the common line of interests and enforce the common political rules in order to preserve the coherence and strength of the union. If the union is politically weak and if its parties do not have the relevant interest attachment points, then union toolsets will be used by the leading party to force the political ideas on others and promote own interests. Moreover, such a union can be disorganized by external parties using different destabilization strategies.

Hence, the idea of the European Monetary Fund is reasonable if there is a political cohesion in the union. I do not think there is a strong political cohesion in the European Union now. The implementation of the European Monetary Fund will be lop-sided and even if it helps to secure the monetary stability to the certain extent, it will not facilitate the creation of the sound political union. The political union is vital in the multinational and multicultural environment such as the European Union. Once the political attachment points are found and cemented, the economic attachment points must be found and cemented.

Frankly, I do not consider a union bound by a single currency as a good idea. The history teaches us that it is hard to maintain political balance in the union and quakes of different magnitude take place repeatedly. The root cause is the leading persons itself, their personal qualities, ambitions and intelligence. The qualities of the leading person are amplified by its political team.

The single currency is a two-edged weapon. On the one hand, it facilitates the enforcement of political interests and monetary cohesion. On the other hand, it throws a running knot on the leading party of the union: every time when a quake takes place in the union, it is leveraged by external parties to weaken union’s positions. In the light of that, the economic cohesion is vital to the union. The economic cohesion takes the second place after the political cohesion. The economic balance rules together with relevant attachment points of the economic strategies of the union’s parties allow creating the economic cohesion and developing the union’s economic development strategy. The more parties in the union, the harder it is to find the relevant attachment points, but it is a must.

The modern European Union lacks for both the political and economic cohesion. Thus the European Monetary Fund may solve some of existing monetary problems and fill some of monetary gaps in the European Union, but it will not help to create the sound political and economic cohesion in the long run. Now the political and economic ground of the Union is very shaky and it is leveraged by different financial speculators. In the next discussion I will consider the matter of credit default swaps and standard derivatives as a whole.

Filed under: Analytics, Economy, Global Economy, Market Analysis Comments Off
8Mar/10Off

The Prospects of Virtual Counterparts

Recently I have received an interesting inquiry about the prospects of substitution of professional actors and actresses with their virtual counterparts and computer-generated models in movies. Also, it will help to water down the pure economic and other non-entertaining themes.

The psychological aspect of the matter suggests that virtual counterparts and computer-generated models will not substitute the professional actors and actresses completely. They may complement them in order to create a kind of virtual surrogates. It is said "the virtual surrogates may be used to create an image of "perfect actor" or "perfect actress", among others options". The idea of "perfect counterpart" stems from the intrinsic characteristic of humans which is expressed as the conscious or unconscious admiration for the physical perfection.

For example, the ancient Greeks imprint their admiration for the physical perfection in their sculptures. We are born with the intrinsic desire for perfection. While we learn the world by means of our five basic senses, i.e. while we are babies and before learning to think, we are inclined to sense the natural perfection of other humans. Later on we learn to identify them as "beautiful" or "ugly". Our sense of perfection evolves with our thinking and finally we come up with the expression of physical perfection. Our children’s understanding of perfection gradually evolves into the mature sex appeal (now we are talking only about humans, not about diamonds).

So, what does it mean in our case? It means that we are inclined consciously or unconsciously to admire the perfection and beauty in life and on the stage. We strive to idolize it in the form of sex symbols – the symbolization. Our eyes and ears are inclined to contemplate and perceive beautiful bodies and voices, by the very nature. Movie stars strive for developing their "perfect image" and music starts strive for developing their "magical voice" or "magical music". We are kids in hearts for ages, despite the physical age, and we are always inclined to observe the perfection and beauty through our basic senses.

Both the "perfect actress" and the "perfect actor" mean the physical perfection. But due to other factors it is not wise to talk about the complete perfection (moreover, it can lead to psychological and physical disorders). It is better to talk about the moderate perfection. Simply speaking, it is a physical perfection which you can reach naturally i.e. it is a natural bar that limits your physical capabilities, let alone artificial stimulators e.g. which are used by bodybuilders. Anyway, the virtual counterparts can be used to image such a moderate physical perfection but not the over-perfection.

But applicability of the virtual counterparts is limited by the nature of humans as well. The limit is set up by our irrational or emotional behavior. Whatever you say about the development of technologies, the pure computer-generated models will never be able to behave emotionally – thanks to the intrinsic emotional origins of humans. The emotional nature of humans is unpredictable and even if it is put into a logical framework it will look too assumed. Simply speaking, we will lose the courage and emotional coloring of the world. It is boring.

If logic orders the world, then emotions color the world. I think, the capability to portray emotions is one of the key capabilities that professional actor or actress develops. As I said, emotions make us live, make us take to heart, make us experience sudden happenings and the screenplay as a whole. Emotions are the pure prerogative of humans. We can capture them, but it is hard if possible to develop them programmatically with computer models. The virtual counterparts can help to bring in the moderate perfection, to enhance the emotional component by means of special effects or to substitute in certain cases, but I do not think the idea of complete substitution is a good one - we can end up with another realm of the animated cartoons.

With regard to the material and technological areas, here everything is pretty simple. The material area is always about the money and time, different risks thus. Not a secret that creation of special effects and rendering of computer-generated scenes are both capital and time intensive. The technological advancements and human-machine interfaces facilitate the development of virtual counterparts and simplify the rendering of computer-generated scenes, but technologies should always be the supplemental toolsets. Ultimately, movie technologies, and the virtual surrogates in particular, are a kind of make-up: they can be used to create the moderate perfection and to enhance the emotional coloring. But it is improper to talk about the complete substitution at all.

Filed under: Analytics, Business Development Comments Off
5Mar/10Off

Rethinking The Economic Indicators

The very nature of any metrics system is to provide with a non-contradictory set of measures to express the current state of an entity by means of numerical values. The prime goal of a metrics system is to create a framework which can be used to define the comfort zone and to warn of the entity’s state deviations from its comfort zone. The comfort zone can be defined as the state of an entity when its internal processes secure its gradual organic growth. A deviation from the comfort zone causes internal processes of an entity to disorder and hinders the healthy organic growth of an entity.

For example, we are used to measure the health state of our body with the set of indicators such as the blood pressure, palpitations of the heart, the temperature, the level of acidity, etc. We use these measures to define the comfort zone that secures growth of the healthy organism, the gradual organic growth, and we treat any deviations as abnormal events that disorder normal metabolic processes and lead to different illnesses. We use different toolsets to measure the current state of the organism and to identify deviations and anomalies. When the health state indicators signal about a deviation from our comfort zone, we use different approaches in order to return to the normal state, the comfort zone, and to mitigate the side effects.

Another example is the natural processes. Though the Nature does not care of how we call and measure its states and how we comprehend its comfort zone, nevertheless we use the relevant measurement system to understand the nature of its internal processes and circles, to monitor them as well. Both natural and anthropogenic events force its processes to deviate from the comfort zone. It triggers different permutations and environmental adjustments. The intrinsic immune system of the ecosystem engages the mechanism of self-recovery and adaptation. The ecosystem heals itself and evolves thus. The man-made energy chains and anthropogenic factors change the normal evolutionary proceeding of the ecosystem, like a catalyst which not only speeds up a process but shifts attendant permutations in other direction as well. They cannot be considered as the only factors that trigger global permutations. They shift the normal evolutionary proceeding of the ecosystem, like you change your path when you face with obstacles.

Let’s say, you are walking on the street, normal day, and suddenly it starts raining. You do not have an umbrella and you have to find a place to keep under cover until the rain ends. You are entering a near-by bar to have a shot and to warm up. You are feeling good but you have to change you plans and arrangements now. The longer it rains, the more global changes you have to do, and more shots you can have. How deep you will change your plans? Maybe, you have to cancel some arrangements? So, the sudden rain, the natural force, has made you adapt your current proceeding. The traffic jam is another example of the anthropogenic force that can make you change your current proceeding.

Numbers and metrics systems facilitate our comprehension of the world and its processes. They allow us to establish logical and rule-based frameworks to monitor and control the state of man-made systems. They allow us to logically explain natural events. But they are always auxiliary toolsets that must be used to maintain a system in its comfort zone. Every entity has its comfort zone that secures its healthy and organic development: a person, a society, the ecosystem, etc. A person finds its comfort zone through self-identification by means of its needs. The society finds its comfort zone by means of social needs. If the society is in its comfort zone, then it can gradually develop and evolve into the healthy social ecosystem. When it comes off its comfort zone because of the revolutionary development and reckless races, it becomes a weak society.

Since we are used to apply numbers and metric systems to measure each and every, we need some metric system to monitor and control the health state of the social ecosystem. We developed the economic system and the set of economic indicators such as the inflation, the gross domestic and national product, etc. to measure the economic value created by the society. We developed the monetary system and implemented such indicators as the interest rate, the leverage, the liquidity and capital, etc. to account and manage the material value. We developed monetary toolsets such as banks and exchanges to transfer and accumulate the material value. We implemented sound policies and approaches to maintain the stability of economic processes in the society, didn’t we? It looks like we did everything required to secure development of the healthy social ecosystem. Then why there are bubbles, financial crises and economic disasters? Is it the natural evolutionary proceeding of the society? Will such the evolution create the healthy social ecosystem? Will you develop the healthy body be means of reiterative crises, collapses and crashes? I doubt strongly.

The root cause is immature comprehension of the economic measurement system that we created. Yes, we have created the system to measure the economic value added and use it to measure the national happiness and health state of the social ecosystem. But the devil is in the numbers. Basically, the problem is not in the indicators itself but in their application. Nowadays the economic indicators are not applied to measure the covering of social needs, to maintain the society in its comfort zone and secure its gradual development based on social needs (basic needs - improvement of living conditions and secondary needs – safety and stability). Moreover, has any country defined the comfort zone of its society that secures its gradual development? Nowadays, the economic indicators are used mainly to drive the development of society by means of competition with others societies. It causes economic races. The price of races is the high level of debt and the reiteration of economic crises.

As I said, the competition is natural and intrinsic to human beings. The healthy and constructive competition is good because it is driven by gradual self-improvement and allows evolving into the healthy social ecosystem. In this case, the social self-improvement can be defined as the gradual development of social needs (basic needs - improvement of living conditions and secondary needs – safety and stability), not driven by unreasonable external races. Does your society care that you have the world highest GDP growth rate, when it strives to survive? By the very psychology, the average person does not care about the rate of GDP growth at all. But it cares about the satisfaction of its basic social needs (basic needs - improvement of living conditions and secondary needs – safety and stability).

Reckless economic races, as wars, work the society and economy to death by stockpiling debts and wasting resources. The GDP growth must not be driven with your bestial ambition to dominate others societies by numbers. It must be driven with the gradual and reasonable development of your society by means of the gradual development of social needs (basic needs - improvement of living conditions and secondary needs – safety and stability). Gradually develop the needs of the social ecosystem and feed it wisely.

The economic indicators must not be used to drive the social development. They must be used to define the comfort zone of the society, taking into account its current development stage. They must be used to monitor the current state of internal social and economic processes. They must be used to develop the well-founded program of internal social development by means of the gradual development of social needs (basic needs - improvement of living conditions and secondary needs – safety and stability). They must be used to monitor the progress of gradual social development. They must not be used to compete with other societies. A mouse will not become an elephant if it eats twice more. It will put on the weight and die swiftly.

I understand the bestial wish of leading persons to satisfy their basic needs but they are at the level, where their basic bestial needs must not dominate. They are on the level where well-founded and socially introverted decisions must be made. Otherwise they are misfit. Extroverted society that burns with desire to dominate the world by means of races and wars will never develop into the healthy societies. Moreover, it can ultimately stall the social evolution as a whole. It may have good numbers, but its social ecosystem will be weak and it will face with crises repeatedly. Ultimately, such a society will end up with political crises and crises of confidence and respect. And the social standstill as a result.  Do not try to remake the world, remake yourself first. Calm your bestial ambitions and think about the society that has been entrusted to you. Lead by example, lead by healthy society, do not lead by numbers only.

Filed under: Analytics, Economy, Global Economy Comments Off
3Mar/10Off

Thoughts about Toyota

I am very disappointed with the issues surrounding Eiji Toyoda's masterpiece. My disappointment is not about financial numbers and the threat of losing the crown of World Number One car-maker by the numbers. It is about losing Toyota's true development way and neglecting priorities that have been driving its development for the last decades.

I am frustrated to watch how Toyota has fallen a prey to reckless races of the latest decades of the 20th century under the influence of the common world tendency "to lead by numbers and by beating earning estimates". It has lost its true development way and, as a result, it has lost its reputation, respect and social honor. I am frustrated to watch how Toyota is betraying its simple development priorities: quality, safety and value. It has fallen a prey to monetized and logical management methodologies that treat the quality and safety as another component of the economic value added. The quality, safety and value are the core of the social value added and other stuff spins around it.

Toyota has neglected its business philosophy, which has been methodically structured and monetized by Western companies. But Eastern and Western way of thinking and world views will never match, because they are based on different perceptions and real value views. Western nations may logically structure perceptions of Eastern nations, but they cannot not inherit their way of thinking and world views thus. It is the matter of historical spiritual and mental evolution of Eastern and Western nations. Unfortunately, under the influence of globalization, the Land of the Rising Sun has lost its ground and replaced its true way of thinking with monetized management principles. And it played a cruel trick on Toyota. Hence, it has got into quicksands.

The true value can be created only when the relevant social value added is created. In the case of Toyota, it must return to its roots. It must reshuffle its current way of business thinking and philosophy. It must return to principles of quality, safety and value. They must overthrow the way of thinking that force it to win support from investors and analysts driven by numbers and possessing monetized minds, though it is hard to achieve in the present time of dominating monetized way of thinking. Toyota, as any other company, must strive to win support from society and people, who buy their vehicles because they are safe and high-quality.

Though nowadays it is hard to overthrow the stiff principles of beating earnings consensus and of earnings management, Toyota must be the first who puts the social value added in the heart of its business. The reckless race does not add the social value, it builds up debts and leads to the loss of trust and respect. Ultimately, it leads to loss of honor, reputation and creation of weak society as a whole. Even if you can recover financial numbers, you may fail to return the respect and reputation. As for me, I prefer businesses with the strong social value added and the sound reputation of "the business of quality, safety and value".

Now it is time for Toyota to return back to its roots that have made it the World Number One, even if not by the cherished numbers so beloved by monetized minds of modern investors and analysts but definitely by the social value added, owing to the reputation of business with the socialized way of thinking and "the business of safety, quality and value". The latter will ultimately make the company the World Number One by numbers as well. Lead by example, be the World Number One in the society first of all and only then among analysts and investors with monetized minds.

Filed under: Analytics, Business Analysis, Business Development Comments Off
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