Think Bigger. Aim Higher. Go Further.

Month: June 2015

Engineers Create Money

EIT GroupHere is a picture of one class of over 100 Mexican educated engineers sitting for the California EIT exams. During the 2 years that we conducted this program, we sent over 250 Mexican educated engineers to these US Board Exams. I must say that the whole process of making this happen was the most profound experience of my career. believe it or not, Engineers create money.

(Note: while professional engineering licensure reflects on a specific regulatory process discussed here, the use of the term engineer may be generalized to include all sciences and technical workers)  

But listening to the talk and banter of NAFTA, they were throwing around these words like money, value, risk, in ways that were simply did not match what I was seeing:

How could so many brilliant engineers be found in such a technologically underdeveloped country? The simple answer lies in the fact that for the developed world, modern finance allows for the capitalization of infrastructure projects. Engineering is, in fact, an extremely important financial instrument.

The Miracle of Capitalism

There is a large time gap between the moment that money flows to a project and the time that the project generates revenue. During this time gap, the profession of engineering serves to maintain the asset on the balance sheet. Engineering provides something called “assurance”. A bank and the insurance industry hedge each other’s risk, but without assurance the project cannot be capitalized. Again, capitalization and securitization FAILS without engineering assurance.

The 3-legged stool

3-legged stoolIn the preceding article, I said that the failure of NAFTA was that the financial service were successful in becoming a service of free trade while the engineering profession largely failed.  It is precisely the failure of the engineering profession to negotiate a meaningful Mutual Recognition Document which led the NAFTA to under perform. In essence, we kicked out one leg of the 3-legged stool.

Without the assurance of a viable professional engineering community, foreign direct investment in Mexico was limited to very high ROI investments, Government guaranteed construction, or partnerships with the Mexican oligarchy – in order to supplant an absent independent engineering sector.

Very large contracts for the sale of otherwise worthless desert land were being written contingent on 500 engineers being available to work in the foreign factory that would be built and guaranteed by the government.  Tacit or implicit, there certainly would be an incentive on all sides to not give engineers “wings” so that they could fly away, let alone enjoy free will.

I ran into trouble when the Federal Government found out that my program was doing precisely that – Mexican Engineers who passed the US Board exams were being scooped up by US Companies outside the jurisdiction of Mexico.  There was deep fear of a brain drain if the World learned that Mexican Engineers were as strong as we were measuring.

At one point a representative of the Mexican Federal Government negotiating NAFTA asked me to leave the country.  When the State of Baja California (governed by the opposition political party) heard about this, I was asked to stay and I lived in a private home under armed guard until the program could be completed.

The Big Flip

There is a great deal more to this story than I can not reveal in a short blog post, but the idea is clear.  Engineering productivity is an extremely important resource for the flow of money. Engineering assets play an important part in contractual agreements for tangible assets such as land and factories (factors of production).  They are central to the design and execution of international trade agreements.  Everyone wants to control engineering because to do so controls productivity.  In essence engineers CREATE money – money does NOT create engineers.

 

The Big Bang of Modern Globalization

Tijauna_slums_against_the_fence_largeThe early 1990’s saw the end of the Cold War,  spectacular advances in computers, the Evolution of the Internet, and a new world order fueled by commerce instead of warfare. Upon this landscape,  NAFTA is considered to be the Big Bang of modern Globalization. What is not often considered is how NAFTA, for better or worse, was to influence every free trade agreement that followed.  The Secret of NAFTA was the failure of engineering mobility and therefore the failure of real economic development.

What made NAFTA unique was the provision for the trade of services specifically, financial services and professional engineering services.  The former succeeded while the latter largely failed.  Herein lies the flaw that needs to be corrected.

Many people remember NAFTA as that giant sucking sound of US jobs going South of the Boarder. When I was a young and idealistic engineer I saw NAFTA as Mexico needing everything that US engineers provided. With the free trade of financial services, engineering projects could be capitalized – this had to be huge.

Intangible Assets are the REAL tangible assets

I found myself in Mexico in 1994 taking what was supposed to be a temporary assignment in a small engineering department of a private university right over the California border – I ended up staying 3 years.  This turned out to be the most profound experience of my professional career.

What struck me the hardest was how intelligent, resourceful, and creative the Mexican engineering students were.  By contrast, I saw the general stage of development of Mexico – at the time it was still being described by the Cold War label as a “Third World Country”.   Soon after, I witnessed a tragic devaluation of the Mexican Peso, where the local currency lost about 1/2 of it’s value against the dollar seemingly overnight.  To observe the reaction of the Mexican citizens, was simply indescribable.  I wondered how could money and jobs just disappear when there was so much work to do and so many people who could do it?

I decided that I’d like to test the Mexican engineering students against a known standard.  I developed a program that prepared a select group of 12 students to take the NCEES EIT examination (The Board Exams for US Engineers).  Their success rate was exceptional; 11 out of 12 passed.   Over the next two years we sent a random sample of over 250 Mexican engineers to the US Exams with a success rate comparable to the US engineers pass ratio.  If the engineers were equally intelligent and equally educated as US Engineers, then something else must be happening here.

Cause and Effect

I would later learn that economic development is a hugely complex subject.  However, at the time, I was deeply intrigued by the following idea:

If you throw economic growth (money) at a country are you guaranteed increased productivity?

The answer is NO. 

However, if you throw productivity at a country, are you guaranteed economic growth?  

The answer is YES.

Herein lays a tiny and nearly imperceptible flaw in NAFTA that needs to be corrected.

Technological change MUST precede economic growth. Economic Growth cannot precede technological change. 

We have gotten it backwards

Banks and and associated securities exists for the sole purpose of creating money to fund innovation. The REAL economy lives where the fact of innovation creates the REAL money.  This is the domain of Engineering, therefore, this is the direction that The Ingenesist Project has and will continue to focus on.

 

The Internet of Productivity

Internet-of-money(The Internet of Productivity challenges the Internet of Money and the Internet of Things the prevailing objective of the Internet / Crypto Currency ecosystem)

The simple idea that Crypto currencies represent “The Internet of Money” could be an extremely dangerous idea unless properly and fully considered. The problem may lie in the perception of money rather than the perception of the Internet’s ability to articulate money.

There are billions of words written about what money is and what money is not.   One of my guiding principles, however, is as follows: whenever I hear the word “money”, I replace it in my mind with the term “productivity”.  If the idea still makes sense, I’ll read on. If not, I’ll move on. The reality is that money must represent human productivity or else nobody would be willing to work in exchange for it; hence, there is a liquidity crisis.

True willingness is true freedom.

The operative, of course, is the term ‘willingness’. Shackles made slaves willing to work in exchange for sleep. Debt entraps people into the willingness to give up their future to survive the present. Free trade agreements are little more than sequestered productivity. Austerity measures are controls on money where there is no associated shortage of productivity.

Banksters on Steroids

Crypto-currencies are about to accelerate financial transactions to an astonishing rate. The organizations investing most heavily in crypto currencies today are the banks and insurance companies. Blockchain technology will allow them to eliminate their own brokers and the regulatory environment that constrains them while executing trades far faster than actual productivity can keep up. Thousands of hot-new BCT start-ups are looking for their day in the Wall Street sun. Governments are curiously absent, except for inserting their back-door taxation clause.   Meanwhile, start-ups demonstrating true benefits to mankind often fail for lack of money – not a lack of productivity.

The Big Play is on Productivity.

Everyone learned in high school economics that the factors of production for the Capitalist System are Land, Labor, and Capital (money). We learned that the benevolent merchant class allocates these factors in various combinations to produce everything that society needs. Today we learn that the BTC will accelerate the flow of capital and smart contracts will accelerate the allocation of land (title to property).  Decentralized exchanges will trade securities in an unregulated decentralized environment.  This is good because we can eliminate the labor of brokers.

What about labor? What about physical component of labor – the dreams and aspirations of 7 billion people? What about the physical component of land, our little spaceship Earth? Where does Blockchain technology explicitly accelerate human rights, where does blockchain specifically reallocate Earths precious resources for mankind through the miracle of decentralized consensus?  We need to keep our eye on the ball – it’s all about stealing the productivity of others.

The entire game is still contingent upon everyone in the World showing up to work everyday until they are no longer able to do so. It really has little to do with money, it has everything to do with productivity. Money is not where the focus needs to be.

Why Curiosumé?

My fear is that crypto currencies will fail to find decentralized liquidity without accounting for the fact of productivity in the consensus ledger. Curiosumé is the missing link that converts your “productivity” to cryptography.   A person’s past, present, and future productivity can be owned, controlled, and stored by that individual.  We all become capitalists of our own factors of production. It is available only to ourselves for exchange in whatever they feel is the highest allocation of our talents. That is true decentralization and something people are willing to work for.

Curiosumé is an analog to digital converter of knowledge assets that allows people to bypass the barter system and enjoy the same scale, liquidity, and capitalization of productivity as banks, governments, and corporations do with your money and title assets.

Things get really interesting when Curiosumé is combined with Blockchain Technology.   Anonymous until the point of transaction, Curiosumé creates a cryptographic tollbooth on personal data. If anyone wants to access the productivity of another person, they need to pay for it with their own.

The Internet of Money and the Internet of Productivity should be synonymous in the next global accounting system.  Wherever BTC proponents use the word money, insert the word “productivity” then imagine things like: Decentralized Integrated global productivity system, Decentralized and integrated global flow of productivity, decentralized smart keys to unlock decentralized smart contracts, decentralized exchange of productivity, Micro productivity.  But most importantly, consider a liquidity crisis on non-productive activity such as warfare, hatred, corruption, prejudice, endless consumption, etc.

The Complete Picture

Blockchain technology, not unlike the Internet itself, may someday be regarded as one of the greatest achievements of the human intellect. But like many great technological achievements before it, there are both positive and negative outcomes. We have a unique opportunity to alter the course of humanity in profound ways, but it is essential that we address the fundamental flaw of market capitalism: there is no accounting system for intangible assets – that is why they are called intangible.  We need to give people ownership of their own user-generated assets, that is, their productivity.  We need to build Curiosumé.

Smart Contract Application For The Construction Industry

Handshake

Rendering by Autodesk

The Ingenesist Project is developing a new class of business methods called The Value Game (TVG). When combined with Curiosumé, TVG forms a set of alternate economic incentives that may reward the preservation, renewal, and acquisition of shared assets, such as infrastructure and community.

BidPool is a smart contract application (for construction) that accomplishes 2 things:
1. It lowers the cost of procurement bidding from AxB to A/B.
2. It minimizes competition costs and rewards high integrity in a bidding process.
The Value Game: Bid Pool 

Problem:  Procurement/bidding competition is highly redundant, consumes a great deal of resources, and promotes variability.

For example: 5 contractors may spend $10K separately marketing, researching, and bidding on a project that only one will win. Further, each contractor may win only 1 out of 5 bids. The cost of these losses is ultimately wrapped into the total market cost of the industry. The Incentive to bypass is high.

Cost of bidding = A x B;  

where A = cost of goods sold, and B = number of bidders

Adjudicated smart contract:

Consider a process where a project owner and 5 contractors, are all selected by qualifications to play The Value Game.  Each one commits a $10K promissory note into a blockchain escrow account – this is what they would spend anyway for each bid attempt.  A 3rd Party Engineering firm writes the “Statement of Work” for the project. This SOW serves as common research for all contractors submitting a bid.

The Value Game:

Whoever submits the winning bid will pay the engineering fees ($10K) to the 3rd-party who produced the report. Everyone else gets his or her note cancelled or converted to a cryptocurrency to be used in future TVGs. If the owner does not select, the owner then pays for the report and can use it to hold another Value Game in the future.

Cost of bidding = A / B; 

where A = cost of goods sold, and B = number of bidders

Aligned Incentives

The Value Game realigns major incentives. As such, the projects benefit from:

  • Improve matching of qualifications – those most qualified to perform a job will inherently produce a better price.
  • Improve quality and seriousness of owners – owners will not wastefully exercise contractors and resolve unknowns prior to bid.
  • Eliminates bidding redundancy – everyone bidding on the same package instead of duplicating research, advertising, sales.
  • Reduces project variance – SOW migrates to contracts and downstream.
  • Reduces marginal cost of additional bidders – electronic SOW can be projected over wider market area.
  • More bidders can participate – New entrants can enjoy unbiased access to projects without retribution.
  • Increases transparency – SOW, RFP, RFQ, contract award becomes part of public ledger.
  • Reduces project costs – less volatility equals less risk. Fewer parts are duplicated between players.
  • Insulates conflict of interest – 3rd Party adjudication insulates potential COI’s
  • Corruption resistant – adjudication and public ledger creates transparency.

Summary:

Bid Pool is a Value Game that reduces the cost of procurement while realigning incentives to reward high integrity rather than low integrity in the construction industry.  Mined value is derived from front end COGS and the reduction of downstream project risks.  All additional project milestones may also be extended from the initial TVG or adjudicated on it’s own TVG.  These milestones may include contracts, work orders, exclusions, subs, insurance, financing, and change orders.

Finally, Curiosumé would generalize TVG to allow for  “anonymity-until-point-of-transaction” (AUPOT) while decentralizing the knowledge assets deployed to a project.

Powered by WordPress & Theme by Anders Norén

css.php