PART I: THE FAILURE OF THE DEMOCRATIC MODEL:
CHINA IN THE LEAD, USA STILL ON THE STARTING BLOCKS WITH MAGANOMICS, EUROPE NOT YET ON THE RACETRACK ~ ARE WE READY FOR THE CHALLENGE?
An Anthropologist looking down on planet Earth from Mars could come to the conclusion that nothing much is working in the major social organization system which we call Democracy.
The description below is not just a description of the American system but can be seen in most other Democracies, with increasing frequency:
WE HAVE AN UNTRUSTWORTHY PRESS:
The Press, which some Political Philosophers in the 1960s called the 4th Branch of Government, has become dysfunctional. The Journalists are supposed to report facts and nothing but the facts. Instead, however, the most reputable Press organizations spend their time stirring up emotions by publishing unsubstantiated statements and innuendoes. Most then copy each other in the rush to divulge the latest sensational news and gossip to a dwindling audience who do not necessarily believe such ‘news’ is fact but who simply enjoy the emotion and entertainment. The end result is that the citizen is at best misinformed.
WE HAVE UNTRUSTWORTHY ELECTORAL PROCESSES:
Very few trust the electoral process. The paper vote is in question because of past documented abuses. Electronic voting methods are no better because they have been set up without proper security systems and, therefore, any Hacker can tamper with them. The Governments do not seem to truly want to secure the electronic voting environment. Voter registration itself is abused by all parties involved.
WE HAVE DYSFUNCTIONAL ELECTED BODIES:
The elected Bodies are dysfunctional. Party discipline is breaking down to the point where there is no clear and visible consensus on any issue. Minority Groups, helped by the influence of Lobbyists, do their best to freeze the legislative process in order to freeze the Government. We could say that we are in the era of the tyranny of the minorities and the lobbies when an aggressive 20% minority group can impose its will on a 60% majority. When this happens, it is the majority which is being oppressed and this means that we are not in a true Democracy anymore. This is true, not just in America, but also in Europe and elsewhere.
WE HAVE DISEMPOWERED GOVERNMENT:
The Government is freezing into place by itself. An entrenched bureaucracy knows it can refuse to implement any directive from the Executive Branch by stalling just 2 to 3 years. Bureaucrats can rarely be fired, and are not affected by the elections, so one does not need to be qualified to hold any position of responsibility. It is just a matter of seniority and playing office politics well.
WE HAVE BUDGETARY MALPRACTICE:
Even worse, with increasing frequency, the Government goes for months without a budget. Ongoing wars / military actions are funded outside of the Official Budget in a totally opaque manner so as not to put soldiers’ lives at risk, as a result of budgetary delays and holdups impacting both the supply chain and personnel levels.
The American legislative Branch once even imposed a Law that required brutal Budget cuts, up to 10% across the board, to almost all Government Agencies’ budgets, including the military, even in the midst of a war.
WE HAVE DISASTROUS DEBT MISMANAGEMENT:
Debt, which underlies the whole economy, has become a bad “four-lettered” word. Governments are going bankrupt in trying to provide poor-quality Health Services for most of their Citizens.
WE HAVE WHOLE-SYSTEM OBSOLESCENCE:
Worse still, the whole system has become obsolete and elected officials are not focusing on implementing effective solutions in the proper timeframe.
ALLOWED CHANGE IS MASSIVELY OUT OF STEP WITH ACTUAL CHANGE:
- Business and Governments have become fully digitized. Computer networks are the backbone of everything. Obsolescence in the Computer World is 4 years or less, which means that systems must be updated and changed every 4 years in order to stay compatible with the rest of the world – yet all changes in the Government follow a minimum 5-year budgetary cycle before implementation.
- The FAA has been trying to modernize the Air Traffic Control System for the last 50 years and it is still in process.
- The Pentagon needs at least 30 years to field a so called “new” complex weapons system.
- In the Health sector, the Veterans Administration (VA) in the USA was formally launched in 1930 to provide health care for the military and their family. However, since 1990 (27 years already), the VA has been undergoing a continuous transformation and improvement process ending up in the 2014 scandal which is still nowhere close to a solution in 2017.
THE BUSINESS OF BUSINESS IS ACCELERATING:
The Corporate world is moving ever faster. Corporations have to submit to the tyranny of the stock market and file improving results every 3 months.
THE MONEY WORLD HAS BECOME MANIC & MYOPIC:
The Stock Market and the Financial Market move at nanoseconds’ speed according to automated and opaque computer algorithms. The Commodities markets have been taken over by computerized trading and are substantially disconnected to supply and demand with wild swings that earn huge profits for Hedge Funds operators on the way up and on the way down.
Even the Central Banks like the USA FED, the EU ECB and others, have acknowledged that the tools at their disposal to control the financial aspects of the economy are no longer effective. The accepted paradigms do not seem to work as they did.
For example, normally when the economy is going to full employment, inflation is supposed to pick up. This is not the case today.
The financial market has moved to negative speed, which means that the effect shows up before the act. Now, the effect follows the mere expectation of an act by the Central Bank. So, in most cases, simply the announcement of a future act is sufficient to obtain the full effect, even though the act may never happen.
ESSENTIAL SERVICES ARE ROUTINELY ALLOWED TO DEGENERATE:
Infrastructures like the water network, which is indispensable for life, is 50 to 100 years old and is leaking both potable water and toilet water at the rate of 50% or worse.
The Electrical Grid, which is indispensable for the economy, must be doubled. However, investments of this magnitude are lacking because the return on investment is too long compared to the returns available in the financial markets.
The Pipelines Networks – which must be repaired and expanded in pace with the economy – are effectively abandoned, since it can take 20 or 30 years to obtain the necessary building permits. Very long term debt, which has been used to finance existing networks in the past, being guaranteed by local Governments, is not obtainable in the appropriately short time-frame today.
PART II: AN ECONOMIC REVERSAL IS REQUIRED — THE CHINA CHALLENGE
CLEARLY WE MUST CHANGE THE PARADIGM TO STOP THE SYSTEMIC FREEZE:
We will see below that the only way to get out of the decomposition of the Democratic system is to use any number of external Task Forces to implement well defined goals.
The extraordinary existing debt level of most countries has led, rightly or wrongly, to budget constraints, which in turn have led to a stalling economy and stagnation.
Stagnation at the very least is creating anxiety about the future among the population. The Press adds to this anxiety and causes outbursts of emotions. Emotions lead to violence which in turn can bring socio-economic revolutions of the “have-nots” against the “haves”, unless a war against a scapegoat is conveniently started.
LEARNING THE LESSONS OF HISTORY:
By analyzing the shifts of wealth during post-war eras, it can be seen that war does not necessarily result in the best interest of the majority of the “haves”. It is not only a poor economy which directly leads to war, but also the emotional level of the population in general.
The clear answer to this convoluted and compounded problem is of course to jump start the process of Infrastructures Renewal worldwide. This economic activity will create full-employment and facilitate wealth-creation for the next 20 or 30 years.
THE FRANKLIN ROOSEVELT NEW DEAL AND THE MARSHALL PLAN, PLUS THE EQUIVALENT MACARTHUR PLAN IN ASIA, ARE WELL KNOWN EXAMPLES OF PROVEN SUCCESSFUL SOLUTIONS:
To move the US economy out of the Great Depression, Franklin D. Roosevelt, in 1933, launched a great stimulus program called the New Deal. Then in 1935, he launched the second New Deal. The Second World War interrupted the stalling actions of the Conservative groups.
To this day there is a continuing argument about the true and exact impact of the New Deal, particularly considering the impact of the war. One thing for certain is that the Depression was stopped in 100 days and the economy started expanding.
All American Infrastructures, but particularly the electrical Grid, got a boost from the New Deal.
THE ECONOMIC CHAOS WHICH FOLLOWED WORLD WAR I, PARTICULARLY IN GERMANY, WAS ONE OF THE CAUSES OF THE RISE OF NAZI GERMANY AND WORLD WAR II:
In June 1947, George C. Marshall, who was the US Army Chief of Staff during the War and Secretary of State after the War, launched the “Marshall Plan” to rebuild and modernize the Industry of war-torn Europe and stop communism.
Between 1945 and 1961, the USA “gave” close to $1 Trillion to Europe under this plan. The UK received 26 %, France 18 %, Germany 11 %.
The Marshall Plan covered 21 countries in Europe. The European Economies had all but recovered by 1952. Without a doubt the Marshall Plan was instrumental in increasing the modernization and competitiveness of the German Industry.
If the UK and French Industries did not modernize as well it can be due, in part, to their investments in the Colonies, for example as described below:
- Between 1945 and 1960 the French Government built, from scratch, the infrastructures (roads, railroads, harbors, airports, hospitals, housing … ) of at least 12 countries in West Africa.
- This incredible effort was substantially paid for by the French Ministry of Finance, after a major and destructive war, and at a time when France itself was receiving funds from America for its own reconstruction.
In Asia, General MacArthur had a similar plan to the Marshall Plan in place from 1945 to 1952 to help the Japanese economy and the South East Asia countries. There again the economies have responded as expected and the Japanese became extremely competitive. The South East Asian “Tigers” followed, with only a few years’ delay.
INCREASED INFRASTRUCTURE INVESTMENT DID NOT INCREASE DEBT:
This extraordinary sequence of financial events:
The New Deal, followed by World War II funding, followed by both the Marshall Plan and the MacArthur Plan happened without an increase in the USA Debt (actually a sharp decrease) as is shown by the two charts below (Fig. 1 and Fig. 2).
Fig. 1 : USA DEBT AS % OF GDP — 1900 to 2016
Fig. 2 : USA GDP — 1945 to 2016
France also had a decrease in Debt while funding Infrastructures in Africa, in addition to those in its own country (Fig. 3 below).
Fig 3 : FRANCE DEBT — 1800 to 2010
PIB (Produit Intérieur Brut) en Euros constants de 2012 = GDP (Gross Domestic Product) in Euros at 2012 equivalent value.
Dette en % du PIB = Debt as % of GDP
CHINA IS OUT IN FRONT:
Today, China is engaged in building its own infrastructures at record rates, and most recently has launched the Belt and Road Initiative (started in 2013) with an $8 Trillions estimated budget (in addition to the China Infrastructures domestic budget of $1.6 Trillion already engaged).
THE CHINA BELT AND ROAD INITIATIVE IS THE FUNCTIONAL EQUIVALENT OF THE USA NEW DEAL / MARSHALL PLAN / MACARTHUR PLAN:
The Belt & Road Initiative will have the same economic accelerator effect for China as the Marshall Plan had for the USA. If the USA does not start a New Marshall Plan to rebuild its own infrastructures, the China Road & Belt initiative will go unchallenged and the result will be the start of the “China Golden Era.”
PART III: THE POLITICAL IMPERATIVE
NETWORKS AND LOCAL COMMUNITIES:
Infrastructures are so essential for the economy that it is inconceivable that the Legislative Branch and the Executive Branch would not have some manner of control over them. Furthermore, the cost to the consumer is of prime social and political importance.
Today, it is unacceptable for any developed Nation to allow any group or community to go totally without potable water, electricity or heat in the winter. This means that prices tend to be kept uneconomically low. This, in turn, means that Private Enterprise cannot participate in the production and distribution without a substantial amount of subsidies which, ultimately, have to be voted on by the elected officials.
Electricity production, and in many cases electricity transport, can conveniently be outsourced to private enterprises called Utilities. However, it has become clear that Utilities cannot expand at the required rate for a number of economic and profitability reasons.
Making electricity available in rural locations is clearly not profitable. Investing in surplus capacity is generally not a profitable proposition either, and long-term amortization makes matters worse.
This is why, in many cases, Electricity is subsidized.
The economics of water distribution and watershed management are even more problematic. Living in a country which charged every citizen the true cost of water would be directly comparable to living in a country that only had toll-roads, which middle-income and lower-income families could not use at all, because they simply could not afford to do so.
This is why, in almost all cases, Water is subsidized – everyone has to have water.
THERE IS AN ABSENCE OF RELEVANT FINANCIAL EXPERTISE:
For local communities to subsidize Public Private Partnerships (PPP) they need direct access to the Financial markets and they need financial expertise to manage those markets, like Hedge Funds, over long periods of time.
This financial expertise is out of reach for the smaller communities.
At the State Level, most states have reached their maximum borrowing capacity. On top of this, interest rate fluctuations have wrecked the State budgets. High interest rates mean that most are locked out of the Banks and the financial markets.
A PARADIGM SHIFT & PRAGMATIC ACTION ARE REQUIRED:
Clearly, as previously stated, we must change the paradigm to stop the systemic freeze.
Traditionally, the Utilities have chosen a vertically centralized business model. Electricity is traditionally produced in a large production facility with low unit costs. Then the electricity is distributed via an extensive Grid.
More recently, surplus and shortfall have been exchanged through a commodity market.
The Utilities are usually supervised by a State Commission in order to keep their costs under the control of the elected officials.
THE ARRIVAL OF RENEWABLE ENERGIES, IN PARTICULAR SOLAR AND WIND, IS CHANGING THE PARADIGM.
• Renewable energy can be produced by small scalable production units and networked through a Grid.
• Renewable energy is on and off by nature, (no solar energy at night, for example) so storage is essential.
• Renewable energy is fast becoming cheaper than carbon-based energy.
Instead of changing and adopting the renewable energies business model, however, most Utilities have tried to have them outlawed and kept out of the distribution Grid. In some States, Utilities are pushing for Laws to stop homeowners from installing solar panels on the roofs of their homes.
• Renewable Energy is perfect for Rural and Small Communities because they can become self-sufficient and generate income by selling the surplus.
Small Communities can generate cheaper electrical power by using locally produced renewable energy which is distributed through micro-grids and mini-grids as required.
• Renewable energy is also naturally weather resilient.
For any significant change to happen, however, the existing Utilities will have to be compensated in order to avoid economic havoc, which will prove very costly in the end.
WATER, WATER, EVERYWHERE:
The water-issue is more complex because not only do we have to manage an expanded distribution network on a mini-Grid business model, but we must also optimize the whole ecosystem of the watershed.
It is the multiplicity of scientific fields involved which takes the solution outside of the Business Model of any Utility today. This subject is discussed in detail on the GPE website. (For more information – please click here.)
PART IV: REACHING THE BASE FOR TRUE ECONOMIC IMPACT
EXPANDING INTO BANKING AND INVESTING IN TRAINING & EDUCATION
- Most Infrastructure projects are in the $100 million plus range and many reach into the Billions.
- This amount is spent in a matter of 3 to 5 years, which means a very large number of Jobs.
- After obtaining budget approval from the legislature, the Government opens the project for competitive bids.
- The winning Prime contractor then outsources some of the tasks to specialized sub-contractors.
- This traditional top down approach has not proven to consistently produce quality work on time.
In most cases the winning Prime Contractor cuts corners to bid as low as possible, hoping to recoup through cost overruns and delays and through changes in specifications. Quality, on-time delivery, sustainability, resiliency, community-social-enhancement, ecosystem improvement and related themes are all concepts which are foreign to the traditional approach. Often maintainability is an afterthought.
REACHING FOR THE BASE MEANS EXPANDING THE TRADITIONAL PROJECT IMPLEMENTATION APPROACH IN TWO WAYS:
First by expanding into Local Banking, and second by developing and implementing an innovative approach to Training and Education.
EXPANDING INTO LOCAL BANKING
The traditional approach typically uses Big International, National or Regional Banks to exclusively facilitate fund-transfers and financial-management.
- Rarely are small Local Banks used by the Prime Contractor.
Yet it is the small local Community Banks that finance the Small and Medium Enterprises (SMEs), which have the greatest economic impact on the local level of the Community.
Using the typical 1 to 10 bank-leverage ratio, if a substantial financial part of a large project was transferred to any number of small local Banks, this would mean that $ Hundreds of Millions would be available for the Local Banks to make loans to local industry and artisans. This in turn would start a sustainable economic process in and of itself, in addition to all of the economic benefits arising directly from the Project.
Increasing the funding capacity to the local SMEs via Local Banks naturally creates Local Jobs and increases the Local Tax intake, which allows for more public services in the Local Community and less budgetary pressure on the State.
Pushing the Project Funding into the small Local Banks will require a banking expertise which is usually beyond the Prime Contractor’s expertise and business model.
INVESTING IN INNOVATIVE TRAINING & EDUCATION:
Traditional Project implementation rarely involves true, deep maintenance training – except at extra cost. Detailed maintenance training involves some degree of technology transfer, which most companies resist. Yet all Projects today involve a great number of computers at various levels of operations. Consequently, efficient operations and maintenance also requires knowledge of the computers’ function, purpose and hierarchy.
It is extremely important to note that in order to obtain the maximum long-term economic benefit from any Infrastructure Project, the Local Community must ordain, as part of the project, the setting up of the following:
- A local maintenance shop Community College.
- A regional new generation Technical College, and
- A technical curriculum Chair and Research Labs at the national Technology University.
The superficial outlines of these three components detailed below are just that – superficial.
Because multiple scientific disciplines are involved, and because science is moving at great strides every day, flexibility is required so that this training and education model can evolve over time and stay at the forefront of scientific knowledge and application.
This type of continuous evolution and pioneering advancement at the tip of scientific knowledge is, by and large, outside of the realm of Bureaucracies.
- The local maintenance shop Community College, must be equipped with the latest computerized test computers and must teach Level I (box level), level II (board level) and level III (chip level) maintenance for each technology used in the Project.
- The regional Technical College must be equipped with the latest computer teaching aids including simulation to teach Industrial Supply Chain (on real software) and Logistics, Additives 3D Printing and Manufacturing (with real printers), CAD-CAM (on real software) among other modern technologies.
- The national Technology University must receive copies of all software and computer equipment used for a complete detailed understanding of the technology at the design level including simulation with augmented reality and virtual reality. The key element is the creation of a Chair and a Scientific Research Laboratory so that Knowledge can be kept updated at all times.
PART V: THE DAWN OF THE SWISS FOUNDATIONS
SPIFIS – THE FINANCIAL ACCELERATOR:
The traditional Project cycle is as follows (in very simplified terms):
- The National or Local Community identifies a need and a detailed description is used to invite proposals from Private Industry.
- The Prime Contractors submit a low Bid with no extras.
- Often the Bid is structured as a Private Public Partnership (PPP) or a Build Own and Operate (BOO), or a Build-Operate-Transfer (BOT) endeavor.
- If the Community does not provide the financial collateral needed, it logically stands to lose control, in the medium term, of the eventual cost to the consumer.
- This approach has proven to produce low-quality work, frequent delays, cost-overruns and no extra economic benefits for the Community.
To obtain the maximum Public Benefits as described in this document and elsewhere in the Deep Dive Section of the Global Project Engineering Website, it will be necessary to use a number of quasi-public Single Purpose Infrastructure Foundations In Switzerland (SPIFIS).
- The SPIFIS has no owner and is dedicated to do just one well-defined project, so it is truly dedicated to maximize Public Benefits.
- The SPIFIS can exist for 50 years or more so it can manage very long whole term projects.
- The SPIFIS does not have the time constraints of a government entity so it is agile and can respond immediately to a change in circumstances which always happen over time.
- In many ways the SPIFIS enjoys the same flexibility, adaptability and sustainability as Private Enterprise.
FOR EACH INFRASTRUCTURE PROJECT THERE SHOULD BE TWO SPIFIS – ONE “FINANCE SPIFIS” AND ONE “PROJECT SPIFIS”.
The purpose of the Finance SPIFIS is to manage only the financial aspects of the Project and to profit fully from the financial markets.
It is similar to a sovereign fund or hedge fund, but acts like a Trust as far as financial risk is concerned. The only purpose of the Finance SPIFIS is to ensure the smooth flow of funding over time for the specified project.
The Finance SPIFIS will also interact with the Local Banks to ensure optimum funding of Local SMEs for a maximum Local Tax intake by the Local Community. The Finance SPIFIS will also finance Project-related research in order to update the technology used by the project over the long term.
The purpose of the Project SPIFIS is to manage all aspects of the Project implementation and particularly to synergize all the different part of the Project Ecosystem.
In addition, the Project SPIFIS will focus on Training & Education to facilitate the smooth longevity and sustainability of the Project.
IT IS EXTREMELY IMPORTANT TO NOTE THE FOLLOWING:
The SPIFIS cannot be corrupted financially (because of multiple overlapping compliance audits), or politically (it is outside of the political system). It can be operated remotely anywhere, even in dangerous regions and it will be active for many generations.
Global Project Engineering
1 Carrefour de Rive
1207 Geneva – Switzerland
Tel : + 41 22 735 7900
Article By: Dr. Michael Nesterenko, CEO Global Project Engineering