Management through modelling will transform the economy - FFC Media
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Management through modelling will transform the economy

At the heart of business relationships is trust. In the absence of a trusting relationship, it is almost impossible to make a deal. Blockchain platforms automate business relationships, regardless of whether there is trust between the parties.

When we talk about the blockchain, we are talking primarily about the automation of trust.

However, when the question arises — “What does a business look like, if trust is automated in it?”, There is a deep silence!

The ancient Greek philosopher Xenophon said: «If horses could draw, they would draw gods in the likeness of horses.» So, trust automation is a completely new paradigm of thinking.

Just as a horse would draw a “horse god” in its own image and likeness, our thinking builds an image in which two unfriendly subjects to each other can suddenly make a deal or something like that among themselves.

But trust automation is not a tool, not a mechanism, or even a method of interaction. This is a new environment, a new ecosystem in which old concepts do not work. In this environment, new phenomena take root, such as replacing the institution of property with the institution of relations, and I will try to show how this phenomenon forms a new economic space.

New habitat

A paradigm shift and the formation of a new environment is a multi‐vector transformation of the economy and society. In this article, we will touch on three vectors by which the function of money changes, the transition from closed enterprises to open enterprises, and the transition from linear‐discrete guidance to management through modeling. These are the main directions of transformation. In reality, there are more, but these are key.

The main directions of transformation

1. Change the function of money.

Money is a mechanism for servicing value, whose rules are drawn up by a legal shell, called a contract. A contract is drawn up at the intersection of supply and demand, so we can say that if there is no contract, then there is no value, and without value there is no money.

In the new habitat, the contract and the money is one. There is no money without a contract, and there is no contract without money. This is the essence of any cryptocurrency, as a special case of blockchain technology implementation.
Programmable, that is, contract money is no longer a philosophical concept, but a technical fact. Bitcoin confirms this. For example, in Bitcoin, you can program the rules for obtaining the embedded value, and even automate the legal part of the contract.

From this emerges the fact that the management of contractual relations is the management of aggregate value.
Today, central banks are involved in managing aggregate value in the economy. They issue new money and set an interest rate to speed up or slow down the economy.

In the new paradigm, the activity of central banks is changing. If a contract and money becomes a single inseparable whole, then central banks become redundant. They simply have no mechanisms for managing contractual relationships that form an aggregate value.

The transition from the traditional economy to the “blockchain economy” is similar to the transition from the Jewish system of monetary relations to the Islamic banking system.

As a result, concepts of value management as a theory of interest rates and the time value of money require at least a revision. It is one thing to consider a return on debt obligations by assigning an interest rate, and it is quite another to evaluate how value is created through participation in contractual relationships.

Since contractual relationships and the value they create are inseparable concepts, new technologies make us think about what value is in a new emerging paradigm. And how in the new paradigm to manage value creation.

2. Changes in production relations.

In the modern world financial system, the bond with the production economy has broken down. For example, the world’s GDP is about $ 70 trillion, and the ratio of world debt to world GDP is almost 300%, according to McKinsey. That is, within the global financial system, the declared debts are three times more than the values​produced!

According to estimates by the McKinsey agency, world debt in recent years has grown by $ 57 trillion, of which $ 25 trillion. — increase in public debt. In turn, the derivatives market is $ 1.2 quadrillion, which is 17 times the world’s GDP! The reason is known. As explained in the last article, the debts always (!) Grow faster than the real growth of the economy (link here to the old article will be very good)

Money in the modern world loses its original meaning. Probably, the world community could have survived this if it had let itself through the great “reset” of debt obligations, as was done in the past, for example, during the Great Depression.

But this time there will be no reboot, because a technical alternative has appeared that transforms the world into another state. Thanks to blockchain technologies, a great redistribution of assets and their revaluation will occur in the near future.

3. Inversion of control.

Automation of trust rebuilds approaches to the mutual use of resources. On the example of the Internet, as a decentralized system, it is clear that information is a mutually usable resource, and the more users have specific information, the higher its (resource) value.

Companies operating on the basis of digital platforms confirm this trend. The more effective the sharing of information on the platform, the more users, the higher the value of the platform as an asset. Closed businesses live in the paradigm that information is a value that must be hidden. Blockchain technologies are moving towards the development of open economic systems.

The emergence of blockchain technology allows you to create decentralized ecosystems with effective sharing of production capacity. If we compare new ecosystems with the existing digital economy, it will become clear that blockchain platforms are second generation digital platforms. Their economic value is tens and hundreds of times higher than the platforms of the first generation.

The blockchain automates trust, and thus removes the function of control over execution from the managerial level. As a result, production cycles become self‐verifiable components of the system. And the control function becomes technically simulated.

New technologies automate control, allowing each production cycle to become a self‐verifiable component of the system. This eliminates the need to maintain the control function — because control is an integral part of the blockchain technology.

Management turns into a technical model that organizes chains of production cycles.

In the future, the request for production capacity will come from the outside, for example, the model will request only one production process from a long production chain. New production can be collected from the «granules» of different production processes. This opens up exciting prospects for increasing production efficiency. At the same capacity it will be possible to produce tens and hundreds of times more.

I will say more, in the pursuit of production efficiency at the level of production chains, there will be a need for proper “granulation of production processes”: any external customer can use any granule or set of granules from the production chain. A full production cycle will be formed at the model level, and automated logistics will close the chain.

It is highly likely that in the economy of the future, production facilities will be mutually used and not belong to producers of final goods. The value of the asset and the responsibility of the owner will be tied to a specific module of the production chain. Perhaps, by analogy with the XaaS (Something‐as‐a‐Service) model, a CaaS‐Capacity‐as‐a‐Service scheme will emerge.

It is the managerial unit, not the production unit, that will take over the function of producing goods. And production units will be engaged in «granulation, containerization and reorganization» of production cycles in such a way as to attract the maximum number of users.

4. Management through simulation

It is necessary to understand that the management model is not a “pancake”, but a “layer cake”. Each «layer» of management consists of several levels, which have their own sub‐levels and each of them has its own control models of a lower level.

If we model the economy as a habitat, then we can see at least four levels: philosophical, legislative, institutional, and the level of production relations. Each of these levels has its own rules and models. So, for example, the philosophical level forms legislative models, and those, in turn, institutional environment. The institutional level ultimately forms the relations of production.

The transition to control through simulation changes the linear‐discrete guide to «network». And such a metamorphosis occurs at every level of management.

In the “economy on the blockchain,” management does not occur through a “decree from above,” but through the design of the environment in such a way that its development goes without control of the governing party. With this approach, the micro‐production cycle, the enterprise, and the entire economy are modeled in roughly the same way.

Today, there is virtually no feedback to assess the quality of legislation. Modeling and the formation of a new environment will accelerate the identification of inconsistencies of the legal framework with the production needs of the economy.

Management through simulation will allow point to connect the technology of big data, artificial intelligence to accelerate, accumulate and classify experience, forming an effective feedback mechanism.

The digital economy creates a completely new production relationship. The “containerization” of production microcycles into new income‐generating flows transforms the existing landscape of the economy in a most radical way.

And here interesting opportunities are opened when translating legislative activity into a modeled meta‐level. Legislation can be expressed in the form of a technical model. The emergence of such a model will allow you to create enterprises with built‐in system for the implementation of legislation and reporting. In the global space, legislation working as a technical model is becoming a new mechanism for maintaining statehood, regardless of geographic boundaries. Power will be maintained technically, through the implementation of social and state functions embodied in the contractual relationship.

Forming a new environment is a big challenge to the economy and society, in response to which three tasks need to be accomplished:

  • develop a methodology for working in a new environment;
  • organize close interaction between production, technical environment and the legislator;
  • develop practical solutions based on concepts that would unite ecosystems in a single space.

Conditions of stability of the new paradigm.

In the new paradigm, the number of participants is more important than ever. The very essence of new technologies is reduced to building ecosystems on the principles of coöperation. In the new economy there is a sharing of knowledge and production capacity.

One approach to creating a new economy is to develop a model for building production in academic consortia, where the university, the legislator, and the industry would work in a single space, in a single technological, research, and management chain.

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