How Insurers, Bankers and Private Wealth Compete for Global Trade

The Value Creation?Process

In the words of Mariana Muzzucato, "I use value in terms of process by which wealth is created - it is a flow. This flow of course results in actual things, whether tangible (a loaf of bread) or intangible (new knowledge)."

W.E. Deming also commented on value creation. In his words, if you can’t describe what you are doing as a process, you don’t know what you’re doing.?

"In trying to steer the economy in particular directions, policymakers are - whether they recognize it or not - inevitably influenced by ideas about value. The rate of GDP growth is obviously important in a world in which billions of people still live in dire poverty. But some of the most important economic questions today are about how to achieve a particular type of growth. Today, there is a lot of talk about the need to make growth ‘smarter’ (led by investments in innovation), more sustainable (greener) and more inclusive (producing less inequality)."?~ Mariana Mazzucato.??

Refugees, the Blockade and Political Ramifications

War in Ukraine alone has resulted in 7 million refugees. The concurrent blockade by an autocrat of the Black Sea and the Sea of Azov, has imperiled the food security of 40 million persons living in Africa.?This global disaster along with the risks posed to millions by airborne particles created by the burning of fossil fuels, has fed a cult of ignorance, thanks to the propaganda of autocrats. This ignorance is recognized by both scientists and such visionaries as Asimov who noted the prevalence of this cult in America:

This cult is now fueled by social media - which prolongs its existence.?

As Seneca noted:?

This has been turned into the mantra of a cult of cynicism which refutes the developments of science.

Deming observed that: Science is far from a perfect instrument of knowledge. It’s just the best one we have. In this respect, as in many others, it’s like democracy.?

"We live in a society exquisitely dependent on science and technology, in which hardly anyone knows anything about science and technology.?Science is more than a body of knowledge; it is a way of thinking. I have a foreboding of an America in my children's or grandchildren's time?– when the United States is a service and information economy; when nearly all the key manufacturing industries have slipped away to other countries; when awesome technological powers are in the hands of a very few, and no one representing the public interest can even grasp the issues; when the people have lost the ability to set their own agendas or knowledgeably question those in authority; when, clutching our crystals and nervously consulting our horoscopes, our critical faculties in decline, unable to distinguish between what feels good and what's true, we slide, almost without noticing, back into superstition and darkness." ~ Carl Sagan

As Deming foresaw, the change in value creation comes from the producer, not the consumer and ultimately, change comes from leadership.?

In the U.S., the financialization of global trade has been directed into a libertarian agenda by private wealth and into representation without taxation by a Wealth Defense Industry (WDI). Also affecting the perception of wealth?creation is role/goal confusion and what I call the Silicon Valley Myth, the confusion of Payments with the simplicity and elegance of global trade finance. This myth is reinforced by delusional vaporware:

and confusion as to the role of lawyers in enforcing patents and copyrights in the value creation process.

Vision and Opacity

The purpose of the Internet is to foster communication among disparate groups which might create new economies and a new empowerment of the individual. Rooftop solar and distributed micro-grids were to provide freedom from central utilities and centralized government control. The reality is altogether different. Rooftop solar and off-grid living is everywhere embattled. Local “regulated” public utilities charge exorbitant fees to connect a rooftop solar system to the grid and most small homeowners can’t afford the connection/conversion fees.?

The same problem arises in the effort to connect SMEs to global trade. Their needs are not being addressed by software companies that are intent on selling services that do not address the need for accessibility and ease of use. SMEs trying to become a part of global trade also have to contend with monopolies, oligopolies and the growth everywhere of job killing corruption.?

SMEs and Vaporware?

Small businesses need access to financing, credit enhancement and mitigation of risk in order to thrive at global trade. Blockchain and cryptocurrency cannot address these needs except through "deep knowledge;" (Deming), a deep understanding of logistics, trade settlement and trade finance.?

What we have here is a failure to communicate!?(Cool Hand Luke)

Financiers do not understand logistics and logisticians do not understand finance. Applying blockchain-based “transparency” to opacity is vaporware. It is attempting to solve the wrong problem.?Fintech's confusion of Payments with Global Trade Finance is a similar delusion which dates back to the time of Nikola Tesla and Thomas Edison. Tesla ended up digging ditches in NYC whereas Edison's innovations with light, electricity generation and music are enduring and have scaled globally.

Logistics and the Disconnect

The blockchain myth-maniacs referring to the opacity of the global trade process overlook EDI (electronic data interface), GPS (global positioning systems), AMS (Automated Manifest System), the automation of customs clearing procedures, and C-TPAT, a means of securing the supply chain (containerized cargo) against terrorism, all systems already available, tested and fully operational.?

Disintermediation?of Banks

The initial disintermediation of banks in financing the corporation began with cash management. It was continued with Supply Chain Finance (SCF) which has disrupted the traditional relationship between vendors and manufacturers that export.??Finally, insurers are using the "tail," the excess of premiums over payouts - to finance cross-border trade.?

The Great Hope?

After the failure of SWIFT in garnering the rewards of global trade with "four-corner interoperability," the remains of the day are either for banks or insurers to utilize "deep knowledge" (Deming) of the process of global trade and use of the "full stack" of technological innovations, including e-commerce, to convert the current chaos in global markets and logistics into opportunity and value creation.?

The Solution?

Correlation* is a reversal of the cynicism of Oscar Wilde and Voltaire.?Oscar Wilde described a cynic as one who knows the price of everything but the value of nothing. Voltaire, the greatest cynic of his time, wrote that the more often a stupidity is repeated, the more it gains the appearance of wisdom. This is also the propaganda platform of autocrats.

Perhaps we can reverse what both Wilde and Voltaire described by repeating so often a deep knowledge of global trade that it overcomes both cynicism and endures Schopenhauer’s process in coming to life.?

The Schopenhauer Process: All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.

The process will also have to also pass the Howard Aiken test. Aiken, one of the founders of IBM, said that one should not worry about people copying one’s ideas "because if you come up with something truly new, you’ll have to cram it down people’s throats."

Correlation*

"Fair Winds and Following Seas"

With Correlation*, the principal product of The Following Sea?https://thefollowingsea.com?the buyer and seller separately communicate the distinctive QR coded (Quick Response) Manifests, invoices and purchase orders, that represent what was ordered by the buyer’s P.O. and separately, what was manufactured and shipped by the seller, via invoice and draft (bill of exchange or demand for payment).?

The distinctive QR encoded manifests are sent to the Lending/Forfaiting Bank by the exporter upon wheels up of an aircraft or upon a vessel leaving the port of embarkation. This is done electronically.?

The buyer separately creates POs or Purchase Orders that are also distinctly QR encoded and transmitted to the Lending/Forfaiting Bank electronically.?

Settlement and Payment?

Settlement and Payment are, as usual, determined by the underlying terms of the sales agreement or contract between seller and buyer and Incoterms 2020:

The seller creates a distinctive QR encoded manifest that becomes embedded as a Non-Fungible Token (NFT):

?using Blockchain:

Embedding the QR codes in NFT binds the QR code to a public contract - the underlying agreement for which visibility and authentication are thereby provided.

Matching?

A match of P.O. and Invoices that are chosen to be discounted or early paid, are financed or paid?by the lender. Payment and settlement occur in an automated fashion as all commercial and political risks are covered by credit insurance before the matching process.?

Geolocation and EDI are used to determine the actual location of the shipment, the truck, aircraft or vessel on which the goods are laded. This provides comfort to the buyer and to the financing entity which can trace the whereabouts of moveable assets.?

Fintech and the Financial Industry

The role of the financial industry in the value-creation process is to facilitate small business access to trade and global scaling by becoming the local Trade Services Utility or TSU:

Matching the distinct QR encoded manifest and the shipper’s invoices of the seller with the distinct QR encoded POs of the buyer, after covering the political and commercial risks with credit insurance, allows automated payment and settlement to take place.?

Once a match is established, it becomes the basis for the automated financial institution’s payment and settlement of the underlying transaction, by Bank Payment Obligation or BPO:

When there is no match, a reconciliation takes place. If the match is still unresolved, an investigation of possible fraudulent presentation takes place.

*@William A. Laraque Correlation March 2021: All Rights Reserved