Marcus Cake

We need to build the Web 3.0 online social, industry and political networks on the critical path to Web 4.0 and pull in the next stage of financial markets, economic development, environmental sustainability, awareness, life, work and global governance. We need five online networks to solve the worlds problems by 2012 or we decline into conflict for generations. A global community could transform the world in 365 days by building the Web 3.0 online networks on the critical path to Web 4.0.

Regulated capitalism is the last man standing. We have no choice but to make it work. We must, however, acknowledge that regulated capitalism has failed its citizens comprehensively. The failure of regulated capitalism is equal to the collapse of central planning. The communists recognised their system had failed and chose to implement something else. Will capitalists do the same? Or will we try to save the status quo at any price? Will bailouts move on to other “too big too let fail” activities that prevent the operation of creative destruction?

This presentation was given by Sequoia Capital to their portfolio companies. It provides a visual and graphical insight into the causes of the current financial crisis and how the US became bankrupt. I thought I would embed it in a post for your convenience. Highly recommended!

The United States government could make a profit on its “bailout”. Bailout is an emotive term that is popular in an environment of fear and uncertainty. The primary fear being that the funds will simply replace losses in financial institutions and be government expenditure. The US government would be buying residential mortgages with an exposure to residential property prices that have a recoverable value in the future. Residential mortgages are a safe and predictable asset class (as a portfolio). The US government could make a profit - it depends on three things.

The US system has collapsed. Failed financial firms are trying to convince the government to invest in them. The selling proposition? - “too big to let fail!” Understandably, the US congress are making further enquiries before writing a cheque for US$800 billion dollars. The US already terminally insolvent - even with unprecedented growth it can not repay its debts. Another US$800 billion won’t push it over the edge. It passed the edge a while back. A private receivership committee may have been formed in international markets. It will operate in “opaque channels”. A private online political network would be essential coordinate timely international activities amongst US creditors. The aspirations of the average American remain the same. They can be sold a “story” by mainstream media that permits further avoidance of debt repayments or justifies activities that acquire international “leverage”. An E-democracy online network and/or a US insolvency online network could be used to inform the US public. Maybe, they will assume responsibility, or maybe they would prefer not to know.

The 2009 demographic depression will be exacerbated by a food and energy crisis, the decline of the USD dollar in value, the decline of the USD as the world’s reserve currency, a global credit crisis, the world’s central banks pursuing inconsistent policies, competing interests in the Middle East and other challenges now confront the world at a singular point.

The primary ego on the world stage today is the US - its excessive consumption, insolvency, military aggression and use of 60% of the world’s savings make it the world’s most gluttonous consumer. Its military acquisition of the worlds resources may be the greatest strategic move in history. It provides resources to pay back unserviceable debts and leverage other countries on the global stage. However, the destruction of relationships in the process will crowd out an opportunity to deliver a sustainable future for the planet. Unrelenting ego by the US may win the resource wars, but the destruction of global relationships in the process sacrifice the opportunity for a sustainable future. An online network may not save the world, but could a collective conscious network.

We need to deploy five online political, industrial and social networks to avert disaster by 2012. Existing structures that rely on proprietary ownership of information, distribution channels, institutions and regional approaches are unable to solve our most pressing problems. Even if they could solve the problems, they are simply unable to coordinate a global endeavour in a rapidly closing timeframe. I had previously written that online networks could be delayed for up to 50 years by three epic battles. In some aspects of our global community, we can wait 50 years (and there is only an opportunity cost). However, for some specific problems, online networks need to be built, acquire a significant audience, and achieve their objective by 2012.

Online networks which embody every facet of industrial, social and politcal aspects of our modern society are inevitable. They simply offer a superior way to interact and transact. The transition to a global community based around online networks will take six months, sixteen years or fifty years. The timeframe will depend upon the outcome of three epic battles. The battles are economic development vs geostrategy, community knowledge vs intellectual property, and online networks vs closed systems. Online industrial, political and social networks which are involved in these battles could be delayed for decades.

What if we did have cars that cost $25 and got 1,000 miles to the gallon? What if the Moore law rates of innovation and improvement could be applied to the world’s problems. What if Moore’s law rates of improvement applied to aircraft engines, car engines, carbon dioxide emissions, industrial pollution, cures for disease, energy and minerals usage, education and leadership. Our world is evolving. Advances in technology present new ways to organise. Online networks are likely to be a step forwards. An expansion of intellectual property laws is likely to be a step backwards. If there was a new way to deliver greater rates of innovation, we have a compelling need to solve specific global problems. We need to question that our underlying assumptions of how to organise.

The objectives of open source will change over time. As open source evolves and proves its capability, it will move beyond technology, beyond specific industries, to all other aspects of our society. This has been suggested in the past. However, existing organisations are not sufficiently motivated to apply advances in technology to promote development. Business, social and political entrepreneurs that establish online networks are likely to be the primary force for change.

This article outlines the first four stages of the development of online networks and the .Net boom. The objective of the online network in each stage is identified.

China has one trillion dollars in foreigh reserves. This has been accumulated over many years of patient and successful exporting. China earns US$140 billion per year from the United States alone. Apparently, most of the one trillion dollars is invested in low-yielding US bonds. According to the IMF, China only needs 650 billion (65% of one trillion) to provide a safety buffer to operate its economy. China is considering reallocating US$350 billion into other investments that may provide a higher yield. With ongoing trade surpluses, it could invest one trillion dollars over the next yen years. China could become the world’s largest private equity investor.

My definition of the word hacker has evolved. From programmers cracking computer security (called crackers) to my modest efforts to improve my golf and, now, to skilled people contributing to online networks that reflect their passions and interests. A hacker has the tenacity and persistence to solve problems, often for the sake of solving it. They have the vision of architects, the skills of engineers and empathy of a mother with her upset child. They make significant sacrifices in pursuit of their goal. They navigate around, or though, barriers in their path. They do not rest (if inspired) until the problem is solved, or the challenge is overcome. If only my golf, could be described in these terms.

Online networks will be an essential tool of hackers. The will capture and focus the unique contribution of other hackers. Collective talent, energy and innovation will reshape industrial, social and political frameworks over the next decade.

Halliburton is restructuring its business to reflect new realities. The suppliers of oil are in the middle east. The largest customer for oil will soon be Asia. Capital is moving to non-US markets. An increasing proportion of revenue and capital will come from outside the US.
What makes a company a US company? Is it where its customers are? Is it where they have most of their employees are? Is it where future growth will come from? Is it where shareholders reside? Is it where it is incorporated? Subtle changes occured in Halliburton and the world which have all accumulated over time. A change in incorporation may simply reflect new realities. The Halliburton is a very public statement of global shifts. I do not know what conclusion can be drawn from the strong political reaction.

To ensure their survival, all organisations must serve the interests of their stakeholders. In the case of corporations, that is the shareholders. Corporations do not have the luxury of serving the wrong constituency. Quarterly reviews of performance and the possibility of takeovers serve as important tools to keep corporations focused on their constituency.

The problem with the world today is that there is not an convenient and effective means to aggregate and distribute the unique contribution of each individual. This is particularly true where problems may rest with government and large corporations which are perceived to have unlimited resources for “public relations”. Without an effective and convenient means to contribute, each individual quite rightly assesses any contribution to be futile. It is highly unlikely their activity will result in the desired outcome.

The internet offers a new means to overcome the futility of contribution. The rise of online industry, social and political networks will provide all individuals with the opportunity to make a contribution. We will be surprised at the phenomenon that will reshape the world over the next twenty years. As the real underlying problems of the world are publicised, collective communities will assemble to solve them.

The patent system emerged to motivate business to organise people to develop new technology. Without providing an exclusive opportunity for profit, business would not assemble the structure and people necessary to create new technology. Technology means ways of doing things. This includes information technology, biotechnology and healthcare. If the global objective is the creation of new technology, then there is another way to organise.

The US consumer has driven much of the world economy for decades. It has been the perceived centre of the world for many industries. This is shifting. The primary source of global growth is likely to be Asia and Europe. This is a demographic reality as hundreds of millions of people in Asia enter the middle class. We only need to survive the shift from US centric to global.

Global capital will need to be looking for investment opportunities in Asia and Europe. Some markets are too small or have insufficient experience to deliver efficiency. The internet is likely to play a greater role in making the global capital market more efficient. Online industry networks will have an essential role to play in improving the allocation and efficiency of the capital allocation process.

Demographic shifts are the primary force that drive fundamental change. One billion consumers of US standards are to emerge. The United States will be an important market, but not the primary consumer or financial market in the world. Fiscal mismanagement by the United States will exacerbate the decline of the United States, but it is demography that will result in a more global market. The world will be “better” if the world can evolve from unsustainable debt funded consumption for the benefit of one country to global markets which share the benefits of economic development.

What strategies do countries need to adopt to enjoy higher levels of consumption and retirement in one generation? What short-term sacrifices would each citizen need to make? Which countries have leadship that could formulate and implement the required changes? Would the citizens tolerate the short-term sacrifices?

Friday, August 11,
2006 ~ 8:34 a.m., Dan Mitchell Wrote:
Article explains the valuable role of tax competition.
Western European politicians hate tax competition, and an
article on the Globalpolitician.com website provides an excellent
explanation:

The Flat Tax Revolution in Eastern Europe
presents a challenge to Western Europe, as companies are bound to move to
neighboring states to avoid paying the near-confiscatory taxation (especially
when you combine the income tax with corporate, capital gains and dividend
taxes) levied in the “Old Europe” to support the Welfare State system.
Furthermore, whereas hiring an employee in the Old Europe more closely resembles
a Catholic wedding, where no divorce is possible except in the most extreme
cases (and even then, companies face union strikes and negative media
attention), in the formerly Communist states, one can hire an employee without
the fear of being stuck with someone who’s incompetent, lazy, unqualified (e.g.,
lied in the resume about qualifications) or simply obsolete. Western Europe
shutters at the thought of a person being obsolete (and, naturally, nobody in
the Old Europe is lazy or incompetent), but if a business can replace a person
with a computer that can produce more in less time and with less expense, it
becomes a necessity in order to keep up with the competition (imagine a
horse-and-buggy mail delivery business competing with a business providing
emailing and faxing services). Likewise, if your competitor can save costs by
operating in a country with lower taxation, they will be able to price their
goods cheaper, thus forcing you to either lose your profit margin, go out of
business or move to a place that will allow you to compete on a level playing
field. However, lowering taxes is very difficult in Old Europe because much of
the population is so dependent on the Welfare State that they can no longer
imagine any alternative and see the lowering of government spending as a sure
way to increase poverty and cause other ills in every imaginable field, from
education to health care. Faced with a stark choice of fighting their electorate
to force through unpopular reforms or stagnating economy with a constantly
outflow of job-creating companies, Western Europe hopes it has found the third
way – attacking Eastern Europe and threatening it into raising taxes in line
with Old Europe. After the Flat Tax was introduced in Slovakia, German
Chancellor Gerhard Schroeder reacted by accusing it of unfair competition for
“dumping” tax rates to stimulate domestic economic growth and attract foreign
investment. This charge has also been leveled against other East European
nations that are moving towards a free market. Responding to German Chancellor’s
attacks, Slovakian Finance Minister Ivan Miklos asserted, “I understand he’s
under pressure from German investors and entrepreneurs who are criticising the
high taxation and not optimal business environment in Germany.”
http://globalpolitician.com/articledes.asp?ID=2020&cid=3&sid=8

The United States also driving companies away from their home market. Sarbanes-Oxley Act, increased regulation and complexity have increased the cost of raising capital and the risk of non-compliance. Offshore centres are attracting companies away from the United States. “23 of the 24 firms recently looking to raise more than a billion dollars in capital chose to list overseas rather than in the U.S.”

“Low-tax jurisdictions play a valuable role in the global economy. Economic research indicates that so-called tax havens provide a tax-efficient platform for cross-border investments, help boost saving and investment, and thus increase global economic growth. Tax havens also encourage good policy in non-haven countries … The United States is the world’s largest beneficiary of tax havens and tax competition, both because the U.S. is a tax haven for foreigners and because tax havens facilitate the flow of capital to the American economy. ”

Approximately, 33-40% of the worlds financial assets and 50% of financial market transactions occur in offshore jurisdictions. In recent years, onshore countries have collaborated to stamp out “harmful tax competition”. The offshore jurisdictions are, and will remain, a critical part of the financial system. The internet and standardisation of offshore “products” has made offshore accessible to all. The onshore economies may continue “enforce” existing laws which seek to tax residents on world wide income. They may engage in “tax competition” or restructure misunderstood and unworkable tax systems. Whatever happens, the internet is likely to play a significant role in facilitating change.

I recently read a series of articles by Paul B. Farrell at Marketwatch.com . I will extract a paragraph from each article to encourage you to read them. “The Planet of the Apes is a perfect metaphor for the way America’s 95 million investors are being psychologically manipulated and controlled by a small cartel of less than one million people in and around Wall Street. For both that 95 million and the one million the stakes are huge, because $8.6 trillion is invested in mutual funds alone.” “Research from critics like Vanguard’s Jack Bogle have longed warn that Wall Street and the financial-services industry are “skimming” one-third off the top of investors returns, substantially reducing your retirement assets. Some critics like Boston research firm Dalbar go further: Most investors make less than inflation, but are clueless because they’re brainwashed to think otherwise.”

The Open Source model of building software harnesses the collective knowledge of a group of volunteers to build complex software. Over the next few years, collective knowledge networks like the open source movement will move beyond developing open source software, to manufacturing and distributing products products and services in other industries.

Offshore financial centres had a reputation for being havens of criminal activity. The following five year old articles show this reputation is undeserved.They suggest that the “persecution of tax havens is not the fight against money laundering but the fight against low taxes”. The persecution of “tax havens” was simply an instrument of the nation state to protect domestic tax revenues from foreign tax competition.

Today, the majority of financial centres are well regulated and well respected. The also offer companies and investors the opportunity to reduce compliance costs and take advantage of countries dedicated to servicing their needs. Some countries are focussed on attracting a specific type of company. They enact legislation that is necessary to provide a respectable base for specific types of business. For example, the Isle of Man is focussed upon attracting EBusiness. These smaller financial centres are likely to be significant beneficiaries of the globalisation of financial markets. Business owners and entrepreneurs may choose to incorporate in these centres and derive significant benefits. They will need to pay taxes on any foreign income they derive or is attributed to them by their tax laws. The majority of financial centres are havens for business, rather than a means to reduce taxes.