Economic terrorism

It was a rainy morning of October 2008, Her Majesty waked up. She asked for her dresses, as in the morning she will see Mr. Brown. Honestly she liked much more Tony. 

Never mind, during this hard times may be Gordon can explain her something. She was a bit nervous. The financial markets are shaken and she does not like such news. She remembered all the recessions since the Great Depression. She definitely hates this.

Gordon came and she was listening him. And in her mind again Tony. Why Tony let this man to talk so much and so complicated? She understands not a single word.

Gordon left. She called Edward. Is there any chance to get some explanation to these financial events? Edward looked a bit worried, but promised to help.

She was wondering while finishing her tea. Today it got more bitter taste than usual…

Few months later Edward came to her office;

 Mam, I need you for a presentation. So what is

this all about?

Your Majesty asked me if I could get some explanation for the crisis. Please let me take you there.

Good Edward, just make sure they will speak English.

 

Certainly Mam…

Who will I meat this time?

Professor Luis Garciano.

She listened the man, all the analysis of the previous situation as well as the possible ways to get out from it.

The Queen have asked one simple question:

 ‘How come nobody could foresee it?’

The professor answered: 

“I think the main answer is that people were doing what they were paid to do, and behaved according to their incentives, but in many cases they were being paid to do the wrong things from society’s perspective.”

(Guardian, 26 July, 2009 ) - See more at:

http://triplecrisis.com/conflicts-of-interest-and-the-financial-crisis/

The Queen went home and called Edward.

Edward, where did you hide this bright man till now?

1535 July 6th was a shiny day… Thomas was sitting in his cell and felt a sort of relief. The last hours of his life. He accepted his destiny.

Being and advisor to the King is not always a lucky job. Anna is a clever woman,

very clever. Managed to pull in her whole family…

The King – I tried to save him, but cannot. The God will judge him anyway…

Someone knocking on the door – Sir Thomas, we came for you…

The history changes right?

At 1535 if His Majesty did not like his advisor, they just beheaded him. That is what happened to Thomas More and to many in his seat. Why the King did not liked Thomas? Hmm… because he did stand for his values. And he was ready to die for that. Thomas gave pretty good advices, but he also had some principles.

What about today?

Today the economic science getting closer and closer to Astrology or Fortune telling. However there is a big difference. The astrologist or any fortuneteller are paid to predict our future. We pay and they say what they think about.

Our modern day economists, sorry the majority of them are in many ways sitting on the both ends of the economic processes. 

They are the one supposed to predict and guide their nations and businesses in their future strategies, but on the other end they are by many ways the beneficiaries of multiple private businesses. By the income the majority gets far higher benefits from their “private” functions.

On the “lower levels” it is very clear, that the financial advisors usually guide us for those financial products, which give higher benefit for them, I mean for the advisors and not you as a customer…

http://business.time.com/2012/03/29/your-financial-adviser-might-be-a-lemon/

Sounds funny right? In fact more complicated a scheme, more chances you have to lose money. They all play on one single factor – your secret desire – the human greed. They all promise you higher than the market returns. But in fact this in general terms impossible. So at the end of the day you will be happy to get out from such schemes and feel lucky if you did not lose money. On the other end your financial advisor will make sure, that he gets his payment the first day you entered into the deal…

Before the crisis majority of those so-called financial advisers failed to present the truth to the customer. That was one of the major problems leading to the catastrophe.

What happens to a doctor, if he gives the wrong medication, or makes you harm due to incompetence or negligence. The doctor will be fined, or prohibited from further practice or in worst case even jailed.

What happened to those advisors, who made you lose your money?

Absolutely nothing. They got paid, they might said sorry and now they are sitting in the same chairs or in some others and giving exactly the same advises. And they make sure, that you do not read those small letters at the bottom of the contract you just about to sign.

Think about this…

Do you think on the “higher levels” the situation is better?

Don’t be so naïve:

“Academic financial economists hold many roles in the private financial sector, from serving on boards to ownership of financial services firms. Often academic economists serve as consultants for financial firms. The desire to obtain and hold a consultancy, which serves as an additional source of income, may bias these economists’ views of the appropriate contours of financial regulation. A similar but stronger argument can be made for those economists that serve on boards of important and large private financial companies or who work as ongoing employees of the firm. Still other economists have founded or co-founded their own financial services firms and retain either an ownership role, a role as a chief economist or as a co-founder. It is clear that these economists might have a vested interest in the nature of financial regulation.”

http://www.peri.umass.edu/236/hash/21508c46597af702bdb9a396fe9250fb/publication/430/

Just let me give you one more sentence from the above study examining how much the “high scholars” are involved in the private sector..

“More specifically, of the nineteen economists that we included in our study, we found that thirteen, or almost 70%, worked in some capacity with private financial institutions. In our sample, two of the financial academic economists are co-founders of private financial services firms where they work in key positions, one as managing partner and the other as chief economist. In the case of the former, the firm is owned by all the managing partners, making the former an owner of the firm. In the case of the latter, we were unable to determine ownership. 

A third economist works for two banks, in one case as president and in the other as director. Eight of the financial academic economists serve on the board of directors of private financial firms and two economists were identified as consultants or affiliated experts for private financial firms. Since it is difficult to identify consultancies unless either the company or the economist mentions it, it is likely that more than two economists served as consultants.”

And this robbers work from inside, so even a bunch of handsome policemen cannot stop their actions...

In the meantime study does not trace those cases, when the scholar’s research is funded by a private entity. In case they would check this aspect as well, it would definitely show even worst situation from the one they describe.

In general there must be a focus on those, who advise any government and their relationship with the private and public sectors. Otherwise we shall walk into the next disaster…

In general it makes no sense to let the wolf to look after our lambs. And I let you think about one question.

How long shall we let this situation?

The ghost protocol and the theory of economic relativity

It was no big celebration, however it happened. 

The 5^th anniversary of the collapse of Lehman Brothers, or in other words the start of the 2008 financial crisis.

5 long years – at least someone managed to take off the sign of Lehman’s.

What else happened?

During the crisis plenty of promises were done. A lot of money spent this or that way.

 

Barack Obama and Angela Merkel were reelected. Their people were happy with the way they solved the problems right?

Bo Xi Lai was sentenced to life in prison and Ben is sent back to the elementary school to get some additional English lessons.

And?

Some of those promises were fulfilled – on both ends of the Ocean, by different ways, but the banks were forced to report more for newly established state institutions,

the banks got some money and had to promise not to spend this money on too much risky businesses. 

China was shaken a bit and 80% of the people on this planet Earth, mainly those, who are not citizens of those great nations creating all this troubles suffered like crazy – only from this burst of bubble…

Some of the “shadow banking” disappeared from the world map. (By the way if you do not know what is shadow banking, please look at this link http://www.imf.org/external/pubs/ft/fandd/2013/06/basics.htm)

And some survived. However largely this shadow is still around us and plays a fun game of “catch me if you can” with the regulators (meaning governments)…

All in all we know one thing – the governments did a bit of facelift on their financial system's regulation and in fact nothing changed at all.

The next bubble is nicely coded into the system.

Why we mention the shadows, as at the time the majority opinion was, that the banks with the effective help of the shadows made far too much risks and they were the root for the collapse..

It seems like yes…

And now there is a moderate debate about how and what to regulate, is the regulation enough or too much…

In fact the moment the governments need to bail out their banks, they must have the right to regulate them… This sounds logical.

However no one knows what would happen if they do not bail out anyone. We can only refer to the past, if no bail out, than it would be another Great Depression.

Just to remind you; 

Franklin D Roosevelt had used his 1933 inauguration speech – in the depths of the Great Depression – to declare that the"money changers have fled from their high seats in the temple of our civilisation".

He went on: "We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit." (http://www.theguardian.com/business/2013/sep/15/five-years-after-lehmans-new-crisis-ahead)

But in our modern case the governments bailed out not only the banks, but some shadows and a lot of private businesses as well, like the automobile industry… And they definitely did not even think about Roosevelt's ideas.

Where is that money? In my previous post we called this phenomenon as “meltdown”…

Hmm… There must be someone, like the magician in the circus…

Ohh no… the money in fact never disappears… The one disappeared was never there! Some guys were thinking it is there, but it was not… That is the great act of real magic right?

How this can happen?

Not so simple, but we shall try to think about it…

The economists since thousands of years learned to think in figures in two dimensions, same as the bankers since the times of the Templars. Value and time.

However in those good old times, they have learned something. On one end someone gave money, on the other end someone else will receive less. Someone asks for money, they lend them and after certain time they have to give back more. If not, they will become bad boys…

But then it started to grow, that someone lends money to another one, than that lends it further and further and each on this chain will earn some money. The money started to flow anywhere and everywhere.

In the books this money multiplies… And it supposed to boost the economy.

Originally it is assumed, that somewhere, somehow this money shall be spent for some assets, goods or services.

But in our modern case our money just circling from one to another financial institution and doing absolutely nothing, but multiplying itself.

And it does it with the efficient assistance of the shadows… In fact the shadows are the one making possible to make this vicious circle…

And not only – you need to have financial assets to increase the effect even more…

Just an example;

Apple went public at 1980 and started to trade at USD 22 per share and it grew till 5 years ago to USD 100 per share. Since last 5 years it managed to grow from 100 per share to 700 and now it is around 500. 

Does anyone can honestly believe, that Apple net worst is up by 5 times since 2009? That is the real magic right? Or we can ask ourselves is this a “fair value”?

But we need to come back to the money.

It is a strange thing – we have experienced a real revolution in communication. I remember those days, when to make an oversea phone call was a matter of half a day exercise. I also remember the times, when in the night I was standing over the telex machine to get the latest Reuters report on some commodities. Also, when change of “keys” between two banks took several days, sometimes weeks.

Today the communications work with the speed of light. 

And the economic thinking works like an old and tired elephant.

You can ask me why? You look around. The crisis is 5 years behind us, but in fact nothing substantial was done.

What was done is only temporary.

Any economist or even future economist in any school will tell you, that the money flows on the easiest direction. Money does not like to be regulated.

Same as a river – you can change its course, you can flow it even reversed, but at the end of the day that river will appear somewhere you even did not expected.

The comparison with the river is good, but it is also

wrong. The water influenced by gravity usually flows down.

The money can flow in any direction.

Anywhere. But not like gas, which fills up any empty space. No, the money flows where it likes to be, where it can multiply.

So again regulate or not regulate?

My answer would be – first need to understand.

How?

Need to change our view and our approach to the question.

It is time to understand, that the economy is not a two dimensional system, including the financial markets. They have three dimensions! Which on is the third? The space.

We also need to understand, that no static models can be used to understand the current state of the economy. But this should be only the beginning.

I admire A. Einstein for his brilliant mind.

I am looking forward to find an economist, who might comes to the idea to apply the
E = mc² 
in the economic science.

We can start from the observation, that the economic processes are happening in separate time from their results; 

It is like the magic. You come home and you see, that your vase is standing on the table. But in fact it is broken long time already or it does not belongs to you at all. 

You only see something, but you do not know about it. You remember the situation? 

Ben wakes up 2 weeks before the Lehman’s collapse and feeling a bit headache about the housing market. He goes to Barack and says to him, that there is a bit of problem, but our economy is perfectly strong… And Barack goes for golfing with no worry..

And Ben was standing at that time on a half melted iceberg, thinking, that he is still in the middle of the North Pole… Is he so stupid? No, not really…

In other words, in the economy things are happening not in the time when we notice them and also not to the extent we expect them to be.

If you get sick, you can go to a doctor and he can say what is your problem. The doctor can decide if he is going to operate you or send you for further tests or just send you home and order you to sleep.

In the economy, when the sickness appears, it turns out to be already there. Very simple – because of the nature of the economy and the finance we see only the results, but even the results we never see in real time. And here we come to the theory of economic relativity.

And there is one more question? Can we push back our economies,

as they were before? Answer is no, absolutely not.

 

So after the 3 dimensions and relativity, we came to the question of irreversible processes.

In the economy nothing is reversible. This unfortunately needs to be understood as a basic principle.

And the main problem of today’s economic advisors and decision makers that they have learned a lesson and they also learned years ago how to deal with certain situations. 

They think they have their central banks, some finance committees, ministries of finances, advisory and supervisory boards, and they can regulate or deregulate the markets, increase or decrease the interest rates, issue or buy back some bonds, print new money etc.

But these are the tools of the prehistoric man who lived in the cave and it took him half a day to ignite a fire…

The problem is not in the money, not in the regulation or deregulation, not in the shadow finances and even not in the banks.

Unless we do not know how to understand the basic economic and financial processes and will not put upside down all what we have learned until now, we shall be nowhere…

In fact we shall be somewhere – we shall be back to good old crises situations… Most probably more and more often and if not, than it means, that the crisis shall last for longer and longer periods...

Politicians usually love to scare their audiences, that the economy will stop, this or that will collapse. In fact the economy works at any time in every moment, the economy never stops. But it can be a pleasant experience from the participants or it can be a misery for all.

Let me come back to  the shadows –  the "bad guys" were shrinking more than to half in those days of Lehman's collapse. By the way before those turbulent days the shadows were bigger, than the “official” banking sector…

So the Americans were all happy - shadows are gone!… But all the same shadows the next day appeared in the majority of the emerging markets. This "franchise" had to be exported immediately abroad!

And what happened later? Later the shadows changed their faces and came back to America. 

 

But now they are no more shadows, we better call them ghosts – as the main auditing companies in the US (not the government, as they have no clue) estimate them for 10-20 trillion USD net worth for the last year… 5 years ago during the collapse of Lehman's their value dropped to 8 trillion…

Nice right? So where did we get with all this money spent and all the regulation done? The same day Mr. President waked up with the suggestion what to change; there were already dozens of new ghosts created, before even he could take his morning coffee…

And here we stop a bit…

Some of you may remember the times of the real threat of the global nuclear war.

But even those, for whom the Bay of Pigs invasion is a history, might seen several films referring to the times of Cold War. In all this films some big guys were carrying some metal coffers, in those coffers there were some codes and some keys and before someone could launch a nuclear attack, they had to make a decision, put in a lot of codes, keys and had to communicate to the enemy on some phones…

So why this was all done?

To avoid an unwanted incident and unwanted war.

As even 50 years ago, the military powers started to use automatic control systems. Those systems could spot out the enemy and give a reply in moments after they find out the treat. Far much faster, than any human being can do.

For the nuclear weapons they have also designed such systems, but after a while they understood, that in case of a false signal, they should not start a full scale nuclear war against each other risking by the way to wipe out the majority of the people on the Earth.

Why I describe all this?

Today most of the financial companies reacting based on pre-written algorithms, specialised softwares. Meaning by automotive ways.

Without any hesitation, decisions are made in a quarter of second and they sell or buy and react practically in an autonomous way.

The human contribution comes in giving the necessary tasks, programming and analysing the data. Majority of the transactions today made by machines with random human interference.

What happens on the level of the policy makers?

They have no system of spotting out the nature of the financial transactions, the main flows and the possible future dangers. The amount of data they collect now proved to be useless in most of the cases together with the tools for analysing those data..

On the top of this they have no quick response systems. Ben's and Barack's delays during the last financial crisis  cost trillions of dollars!

However the technology is there – just jump on the other side of the road to the ministry of defence (or Pentagon:-))… It is all there… Not only the technology. but also the full know-how. At least they can make some use of those guys. 

We have command control centres for everything, even for chicken farms, but not for economic decision making - nice right?

However this kind of technology can work, if the decision makers are aware of what they want to know and against what they want to protect themselves… But to answer those questions we shall need to come back on our triple question:

-       - 3 dimensional economics;

-       - Theory of relative economics;

-       - Non reversible processes in economics

Until then, the biggest achievement of those decision makers was to make “stress tests” over the banks…

Great – if you do not know how to swim, they can keep you half a minute under the water and you shall be dead.
If you are a good swimmer and have some time to exercise in advance, you shall survive probably even 3 minutes…

But will this help to you if a massive tsunami comes? No, definitely not…

But no problem - let the banks learn how to swim, as swimming lessons are always good for health!

We shall follow next time from here…

Socrates contra mcdonalds

Socrates contra mcdonalds

 

“We must think of rationality not in terms of justification, but in terms of criticism. And we must think of criticism not as an offense, or as a show of contempt or disdain, but as one of the greatest signs of respect that one mind can show to another.”

Mark Amadeus Notturno

Originally I planned to share with you some thoughts about some economic theories. And again something happened.

On the f-book several of my friends started to circle the ingredients of McDonalds french-fries.

ohhhh…. That’s sounds surreal!

As usual I have changed my mind at the last minute, so this time we shall talk a bit about another of my favourite multinational companies and we shall also not forget about our main topic and will look after some economic theories in connection with this.

 

So…

It is hard for me to write down McDonalds properly, so lets call it “Meki” – this is anyway their nick name in Hungary, which also refers a bit on the voice of the goat, which in Hungary says “mek-mek” and it also refers to a lovely cartoon from the 70^th, called “Mekk Master”…

Make it short; let’s just call them “Meki”…

When we start to talk about them, we need to see the history (as usual)…

The main food in Meki is the “Hamburger”… This originally means on german language – someone from Hamburg. 

You may remember, when JFK made the speech in Berlin, than he called himself a “Berliner”.

So that also means a tasty sausage, the girls in Berlin loved him for this, as they also loved those sausages…

So, the Hamburger was invented around 1900 in USA and it gained national recognition at the 1904 St. Louis World's Fair when the New York Tribune namelessly attributed the hamburger as, "the innovation of a food vendor on the pike.”

http://www.highbeam.com/doc/1G1-7049156.html

I will not make you totally bored, just let me mention, that originally it was done from some bread buns and some ground meat.

I first met with Meki in Vienna around 1984. This was a love from the first sight!

I decided, that I visit them 3 times!

First time, last time and never again!

But I have also had the rare chance to see them coming to Hungary and Russia!

 

Behind the “iron curtain” people thought, that Meki represents the way of happy life and freedom. How naïve right? That is the enormous queue in Moscow!!! 

Later Meki made an advert campaign in Hungary at 2008. They were selling their burgers for the same price as at their opening in 1988… It was my first time to realise, that there is such a big poverty in Budapest.

I have seen a bigger queue in Hungary only this March, when the Krishna charity group were distributing free food for the poor in the centre of Budapest.

And now lets stop for a minute.

June 2012 Meki reveals the ingredients of its products with an aim to become more “consumer friendly”.

And it comes as a sort of a shock, that the french-fries, which supposed to be done from potato and fried in edible oil, done from 17 different ingredients. Just take a look…

Potatoes, canola oil, hydrogenated soybean oil, safflower oil, natural flavour (vegetable source), dextrose, sodium acid pyrophosphate (maintain colour), citric acid (preservative), dimethylpolysiloxane (antifoaming agent) and cooked in vegetable oil (Canola oil, corn oil, soybean oil, hydrogenated soybean oil with THBQ, citric acid and dimethylpolysiloxane) and salt (silicoaluminate, dextrose, potassium iodide).
At a glance, many of the ingredients above are hazardous to human health, including those which are genetically modified (canola oil, corn oil, soybean oil), hydrogenated (soybean oil), chemically preserved and antifoaming (THBQ, citric acid, dimethylpolysiloxane), and artificially colored (sodium acid pyrophosphate).
http://www.undergroundhealth.com/mcdonalds-reveals-17-foul-ingredients-in-their-french-fries-including-gmos/

You have here a number of toxic ingredients and also a number of those processed from genetically modified (meaning highly harmful) substances.

Good to know about this right?

And one year later the next news are coming.

16^th of July 2013. Meki opens its restaurant in Vietnam!

After KFC, Lotteria, Burger King, Subway, Pizza Hut and Starbucks, as well as the Philippines' favorite chain Jollybee.

 

The franchise was given to Henry Nguyen.

Henry said: "I have dreamed of one day opening a McDonald's restaurant in my native country ever since my return to Vietnam more than a decade ago.”

I had another dream several years before – how to help to the victims of the “Agent Orange” and how to stop that in the future. “Agent Orange” is also a US “franchise” – the consequences of it still a huge problem in Vietnam.

http://www.projectagentorange.com/

You can take a look on this site. Me, I personally visited several projects in Vietnam and organised some feasible help to those affected children and adult victims. I do not want to disturb anyone by those photos. Just let me share with you one detail. I have had several volunteers came to Vietnam with an aim to help. Out of dozens, only one person could manage the mental tense caused by seeing the enormous suffer of those Agent Orange victims...

So I have a different dream!

My dream is to stop all this chemicals, no matter if they come from Monsanto or Meki, stop them from destroying the health of the people around the World.

Monsanto by the way made mega money on the Agent Orange and refused to pay a penny in compensation to anyone, including the Vietnamese people.

http://www.nytimes.com/2005/03/10/nyregion/10cnd-oran.html?_r=0

Do you know, that Meki is using ingredients from Monsanto?

http://www.thedailydigest.org/2013/04/08/monsanto-mcdonalds-sara-lee-proctor-gamble-and-gmo/

So Mr. Henry I hope you know that your dream means to poison further your native land and nation by Monsanto, but this time through the help of Meki right?

Why you do this? Did the Vietnamese people do something terribly wrong to you Mr. Henry?

Can you tell us any other reason you do this? Is this revenge?

The Vietnamese people in general do not really like the bread. They hate the cheese, they are not really in favour of pickles, mustard and the fried potato. And they are in general against the flavour and taste of ground meet sold in Meki. The entire concept is simply not in this culture. Not at all!

Did you ever see the “triumph” of Meki in Hong Kong? As in that cosmopolitan city virtually no Asian person goes in to a Meki shop, unless they are homeless, need to go to the toilet or want to use the free Wi-Fi.

And the situation is similar in China – take a look on this nice photo from Shanghai.

Or this is the best of the best:

Guangzhou Airport – the sign says, that the Meki is near the Public Toilet! That is the place where they belong to right?

Henry, why don’t you open free shelters for homeless, free Wi-Fi hotspots and public toilets?

And one advice – please make sure Meki does not distribute their food even not for free…

At least you will not poison your nation right? You need to give a try. Honestly…

If you want to know something about Monsanto just go through this…

http://www.sourcewatch.org/index.php/Monsanto

By the way in reversed case, if US would have a legal dispute over a case harming their own people, they would never allow any company to enter their market or any company in connection with that particular company… (In our case Monsanto and Meki)

But we talk about this case also for another reason. Meki in fact told several times, that they do not sell food but they sell the business. Franchise is a great business. 

And here we are. At the point – they can do this, as they have years of experience, they have their business model. They have an absolute advantage in the know-how of this kind of business.

So we better stop again in here and think about another term, we have not yet used, but I want to introduce for you.

The comparative advantages;

Through the industrial revolution the economic thinking also started to develop. First Adam Smith mentioned in his book “The Wealth of Nations” published at 1776, that 

"If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage."

But the theory itself was exploited by David Ricardo at 1817 in his book “On the Principles of Political Economy and Taxation”

He brought an example involving England and Portugal. In Portugal it is possible to produce both wine and cloth with less labor than it would take to produce the same quantities in England. However the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, and only moderately difficult to produce cloth. In Portugal both are easy to produce. Therefore while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. Conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at a lower price, closer to the cost of cloth.

The conclusion drawn is that each country can gain by specialising in the good where it has comparative advantage, and trading that good for the other.

(here you can read the book online http://www.econlib.org/library/Ricardo/ricP.html)

Why it is so important from our point of view?

It is essential, that a local or national economy, an enterprise be able to position itself against others. In general Ricardo’s view was, that economies able to use his findings could benefit for everyone.

This theory moved later a great number of economists to work further on Ricardo’s idea. 

However we have to say, that there was no efficient model developed, which would be useful to predict future economic situations. But in general it triggered a vitally necessary awareness of the decision makers about importance for considering this factor.

Ricardo’s theory did not really worked in free market, global and dynamic conditions, but it lead to the next stages of scientific development,

The competitive advantage:

Competitive advantage seeks to address some of the criticisms of comparative advantage. Michael Porter (and do not mix him please with Harry Potter…) proposed the theory in 1985. Porter emphasises 

productivity growth as the focus of national strategies.

Competitive advantage rests on the notion that cheap labor is ubiquitous and natural resources are not necessary for a good economy. The other theory, comparative advantage, can lead countries to specialise in exporting primary goods and raw materials that trap countries in low-wage economies due to terms of trade.

Competitive advantage attempts to correct for this issue by stressing maximising scale economies in goods and services that garner premium prices (Stutz and Warf 2009).

The main point of the competitive advantages idea is, that in certain fields of economy (production or other sectors), the national economy or an organisation is able to outperform any competitor.  

This can happen in different fields, such as natural resources, like as high grade ores or inexpensive power, or access to highly trained and skilled personnel human resources. New technologies such as robotics and information technology can provide competitive advantage, whether as a part of the product itself, as an advantage to the making of the product, or as a competitive aid in the business process (for example, better identification and understanding of customers).

The competitive advantage should be the ability to stay ahead of present or potential competition, and superior performance reached through competitive advantage will ensure market leadership.

Also it provides the understanding that resources held by an economy or firm and the business strategy will have a profound impact on generating competitive advantage.

The main parts of competitive strategy are:

Cost Leadership Strategy

Differentiation Strategy

Innovation Strategy

Operational Effectiveness Strategy

 

Do you think this an important issue?

You decide for yourself:

Project Socrates was a US Defense Intelligence Agency program established in 1983 under Ronald Reagan.

This classified program, founded and directed by physicist Michael C. Sekora, had a two-fold mission: 

Determine the true root cause of the United States' declining ability to compete, and then use this understanding to develop the means to rebuild the country's competitiveness.

According to Project Socrates:

"(B)ird’s eye view of competition went far beyond, in terms of scope and completeness, the extremely narrow slices of data that were available to the professors, professional economists, and consultants that addressed the issue of competitiveness.

The conclusions that the Socrates team derived about competitiveness in general and about the U.S. in particular were in almost all cases in direct opposition to what the professors, economists and consultants had been saying for years, and to what had been accepted as irrefutable underlying truths by decision-makers throughout the U.S.”

http://economyincrisis.org/content/spurring-americas-economic-renaissance

What was discovered in the Socrates Project was that to rebuild America’s economic competitiveness, key decision-makers throughout the US in federal and state governments, industry, academia, and the press must make five significant shifts in their thinking:

#1    The US must change from economic-based planning back to technology-based planning.

#2    Technology-based planning is the foundation needed to address the wide range of functions in the private and public sectors that comprise the US economic competitiveness issue.

#3     The world is poised for the next revolutionary step in technology-based planning, the Automated Innovation Revolution, and for the US to regain its ability to compete economically with its technology-based planning, it must generate and then lead the Automated Innovation Revolution.

#4     A Techspace Map and Map Navigation Tool were initially developed within the Socrates Project of the US Federal Government, and then refined within the private sector, and these make it possible for the US to generate and then lead the Automated Innovation Revolution.

#5    To generate the maximum economic competitive advantage from the Automated Innovation Revolution for the US, the Techspace Map and Map Navigation Tool must be used to develop symbiotic technology strategies at the country, state and organization levels, enabling the full range of US resources to be utilized in a coherent, flexible, and independent fashion, not in conflict with America’s open, democratic society.

http://www.tradereform.org/2010/08/mike-sekora-towards-a-technology-based-strategy/

And why do we mention all this?

First time in the history there was a defence strategy run over economics. For what purpose was this done?

To re-gain the competitive advantage!

And I just ask a silent question – is this a war or not?

By the way the Bush administration after a while closed down this project.

Was this project successful?

You may judge yourself –

“More than anything else, though, Reagan's sunny disposition 

helped Americans recover from the cultural and economic shocks of the 1970s, and have made Reagan an icon for many.

“The last century, I believe, he would go down as the most effective president,” said former Rep. Matt Salmon

http://www.washingtontimes.com/news/2011/feb/3/reagans-enduring-legacy/#ixzz2f3dnDIhU

And I let you think about this, as later we shall come back in more details on some parts of the above discussion; Unless something happens again?