Where Trade Platforms Fall Short: Global Trade and Monopoly
William Laraque, Managing Director at US-International Trade Services
19.01.2016 11:45 am
Periods such as the one we are experiencing, during which the best laid economic plans are laid low by poor management, affect countries as well as corporations.
Corporations are evaluated by the quality of their balance sheets and by their cash flow, the income stream generated by astute management.
The two are in fact related. "A business fails because the managers do not possess the necessary intuitive skill, foresight, initiative, perseverance and intellectual power to compel its success."~Arthur Stone Dewing*
The skill and efficacy with which countries are managed are indicated by the psychological evaluation of their currencies and financial management; by holders of other currencies and those impacted by currency fluctuation. Just as profitability reflects on a corporation's management, a country's currency appreciates and is held in high regard (or not) relative to the microeconomic and macroeconomic management of the subject country in comparison with the microeconomic and macroeconomic management of other countries. Interest rates and rates of inflation can be compared using formulae and algorithms but how do you compare the political and economic management of countries and the resulting psychological impact on their currencies? Can one predict the value of the ruble against the USD based on how well Putin will diversify Russia's economy in the current global economic and geopolitical context? Russia's is a relatively simple example in comparison to that of Saudi Arabia and the future of the Riyal.
Today's TXF briefing is another long, episodically occurring exhortation for the complete digitization of global trade; "the increased visibility and the ability to audit and track all transactions reduces the risk of fraud and regulatory non-compliance," it is avowed. "Through digitisation corporates will also have the opportunity to get quicker and easier access to finance," the avowal continues.
This thesis is made absurd by the organization of SWIFT alone. For example, in order to meet some of the necessities in global trade, SWIFT has created a KYC capability. As any novice to international trade finance is aware, reducing the risk of fraud and meeting the needs for regulatory compliance, requires a lot more than KYC. I have recited a portion of the litany of needs for regulatory compliance in my LinkedIn post on Excelsior. I do not doubt for a moment that Excelsior was poopooed and promptly set aside by those who do not possess a deep knowledge of global trade and global trade finance. I did not receive one, not one critical examination or comment in LinkedIn concerning Excelsior. This indicates two things to me. Deep knowledge is not easily acquired, nor is it easily appreciated. Secondly, the technological whipper-snapper, intent on digitizing everything in sight, has not the depth of knowledge needed to design and run a global trade platform which will keep all participants out of jail. Unlike in Monopoly, participants in global trade, the PPI or principal party in interest, does not get a get out of jail card.
The process of global trade requires O2O or Online to Offline platforms. The process requires judgement and a level of human decision-making that machines are incapable of. What is the algorithm for analyzing political and commercial risk? Let us address political risk, for a moment. An AIG study showed that countries go from stability and equilibrium to hell in a hand basket, chaos in a can, in an average of 21 days. This risk is difficult for highly-educated humans to assess. How many foresaw the Iranian revolution of 1979? Can we expect computer algorithms to fill in this void in human assessment and judgement?
*Professor of Corporate Finance— and a founder of the Harvard Business School