Emerging Markets Infrastructure Project Investment: Issues and Opportunities

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Global investment in real estate and infrastructure projects are on the rise. Preqin’s 2018 Infrastructure Fund Manager Outlook notes that institutional investors have heavily invested in the infrastructure asset class for solid diversification and stable returns. Indeed, the report ascertains aggregate asset under management (AUM) quadrupled from US$99bn to US$418bn over the past decade. The industry is expected to increase exponentially over the next decade. Globally, North America and Europe present the most viable of real estate and infrastructure opportunities. However, a bundle of emerging markets economies follow a close third. Global emerging markets infrastructure investments are currently fueled by Asia Pacific’s growth as opposed to other developing regions. Total deal value for the Asia Pacific amounted to roughly US$50bn over the past five years, with more dry powder allocated to projects within Asia.

Feasible emerging market infrastructure projects usually have a Public Private Partnership (PPP) structure, especially for risk mitigation. As we had examined in US Infrastructure: A Case for Public Private Partnerships, PPPs are beneficial as the private entity internalizes life-cycle costs during the majority building phase of new projects, while the project is listed as public investments on the government balance sheet. Purely public sector projects tend to be inefficient, and have full political risk, while purely private projects may have higher returns, but would not have the accountability of check and balance which sovereign involvement brings. Even so, there are many challenges which investors, financiers, and infrastructure fund managers must take into consideration primarily for emerging markets.

Challenges Faced:

The Macquarie Group is one of the global leaders in asset management with US$356bn AUM, and is considered to be the top global infrastructure finance advisor as at 2017. The Group has dispensed significant pain points and mitigating factors with regards to project investment in emerging markets. Most issues stem from long standing bureaucracy, lack of transparency, corruption, geopolitical and cross border risks. Highlights are follows:

Bid and Post-Bid Processes:

In short, red tape from every conceivable side of the project is challenging at best. Emerging markets tend to have delays in bid preparation, unclear bid guidelines, erratic time to submit request for proposals, and restrictive bid processes which place heavy tariffs on the build-operators of the project. In addition, project ‘hand-holding’ requires higher cost of bid bonds and of additional advisors, planners, quantity surveyors and numerous government officers. In addition, deciding on the best commercial funding structure for the PPP would most likely not be as clear or timely as with developed country projects. For instance, financing default from the private side of the PPP may lead to immediate freezing of project assets, as opposed to debt coverage negotiation.

Terms of Concession Agreements:

Land Acquisition is one of the most troublesome components of the project process in emerging markets. The land surveying, land release, ground approvals and resource rights processes, especially in real estate type transactions, take an inordinate amount of time. The best PPP investment projects that may circumvent this onerous component would be public works and transport type projects, where the government already has clear ownership of the sites in question, with full government use of site resources. Also, there is a huge communication gap in terms of the types of environmental and regulatory requirements needed for all emerging markets projects. As the Macquarie Group states, most delays in their infrastructure portfolio stems from having to backtrack and fulfill regulations that were not mentioned from pre-bid inception onwards.

FOREX Challenges:

Forex issues come in second only to land acquisition challenges in emerging market PPP project fulfillment. This is by no means theoretical as I am currently battling this challenge. In many parts of LATAM & the Caribbean multi-million infrastructure developments are offered a mere US$200.00 a day by Central Banks due to paucity in supply and treasury mismanagement. From an investment perspective, Forex volatility for projects denominated in local currencies may create lower yields due to cross border risks, and hedging for many emerging markets currencies is not available.

Macroeconomic Inefficiencies:

In addition to the Macquarie Group’s points supported above, project developers and financiers know that labor supply, labor quality, labor laws, as well as tariffs on materials, material supplies and weather factors are extremely dictating of successful project fulfillment. Most emerging markets may seem to have a dearth of labor supply. However, educated construction labor may be hard to find, and to keep. Many viable emerging market infrastructure projects that have been fully funded have stalled indefinitely due to a lack of both construction and management labor. Unfortunately with PPPs government policy would require local labor to be sourced, creating a chicken and egg situation.

Solutions Presented:

Emerging market project development, financing and investment fit in with high risk, high reward appetite. Yet as we mentioned before prudent infrastructure investments give solid returns and add practical diversification to portfolios. Therefore emerging markets project financing and investments are not to be avoided, but to be mitigated. Successful project investment takes a great deal of sovereign and macroeconomic research, whether per project or via an infrastructure fund. The Macquarie Group pinpoints several requirements needed for investor comfort when it comes to infrastructure investing, and especially for emerging market conditions.

  1. Stable Political Environment:

    Note that a stable political environment will not mitigate red tape. However, mitigated political risk allows PPP projects to be safeguarded against event risks such as coups, and freezing of foreign investments.

  2. Stable Economy with Growth Potential:

    Overall a stable economy with high credit rating gives comfort of low default risk. However, it is necessary to delve further into macroeconomic variables such as labor and capital intensive predilections. Does the country have stringent union interests? Does the country’s labor have the educative capacity to cost effectively get PPP projects done? Are there punitive tariffs on capital intensive projects? It is necessary to ensure the emerging market country accounted for PPP infrastructure projects in its annual budget, broken down by sectors such as transport, seaports, utilities etc.

  3. Open and Transparent and PPP Bid Process:

    Is the country’s public procurement and bid processes in line with international standards and policy frameworks? What is the track record of successful PPP projects in terms of pre-bid to completion timeline? It is necessary to be in close contact with the country’s department of public works, transport and infrastructure to get a detailed log of such a track record before investing in any project, or in any fund.

  4. Stable Financial Market:

    This one is tricky for actual returns, especially as most emerging market projects are structured in local currencies. If investing in an infrastructure fund, the risk is mitigated. If there is direct investment in the PPP project, the risk is heightened, no matter how stable the financial market is. And don’t be fooled by oil-based emerging market countries. One would believe that such countries would have strong cross border Forex capabilities. However, if the projects are non-energy infrastructure, FX paucity and volatility can still be an issue. It’s necessary to examine the country’s central bank and its monetary policy beforehand.

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Family office growth and governance

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Family offices are powerful, a financial force to contend with. Even many in the financial world have yet to understand the family office’s sheer influence, especially when retail investing, private equity and venture capitalism have the limelight. The family office has deliberately preferred to remain relatively incognito when it comes to announcing investment and wealth management strategies.

The family office serves as wealth and trust management of high net worth families. Families can be defined as multi-generation family businesses, as well as high net worth individuals who may have come into inheritance or independent net worth. The family office can comprise an individual, department or separate firm whose sole objective is wealth management and legacy planning for the family. The single family offices (SFO) serves the investment needs of one family while the multifamily office (MFO) is structured much like an asset management firm, providing customized wealth management and planning to a larger number of families and high net worth individuals. This explanation may sound simple; rest assured, the family office structure is one of the most complex in the entire investing sphere.

Family offices are on the rise, and institutional investors are feeling the effects. U.S. Bank’s Ascent Private Capital Management has coined the term “insti-viduals” to describe the marked increase in family office dealflow usually presented to traditional institutionals such as pension funds. And why should the finance industry be surprised? We have had constant challenges with U.S. public pension funds and alternative investors such as hedge funds metting out disappointing returns. While traditional institutionals and hedge funds are very regulated, family offices do not have to register with regulators once investment advice is kept within ten generations of ancestry.

According to Campden Research’s most recent family office report, family offices hold more than US$4 trillion of assets, and the global average for assets under management (AUM) comprises US$921 million. Family offices are fast approaching the alternative investment cumulative AUM of US$5.7 trillion, albeit with much less sensastionalism. Indeed, The Wall Street Journal reports that since 2011 three dozen hedge funds have converted into family offices. The symbiosis between family offices and private equity is also strong and growing, where family offices are taking higher stakes in private equity deals.

Such astounding growth demands a inherent need for continuity. We are confident that the family office is stepping in to fill investment gaps left by failing institutionals and alternative investors. Upon exclusive study of the Family Office Exchange’s FOX Guide to the Family Office, The Family Office Club’s Family Office Report and Trusts & Estates’ expert panel discussion of The Famiy Advancement Sustainability Trust (FAST), we suggest beneficial processes for family offices. In this regard, measures of internal policy ensure family office longevity and legacy.

The Family Office Exchange (FOX) stipulates critical management issues faced by family offices:

  • Goals for the Family and Roles for the Family Office: Ultimately, family investment, philanthropic and legacy objectives dictate the family office’s focus. Issues are further subdivided by:
    • Ownership and Governance;
    • Scope of Services and Delivery Process;
    • Cost of Offices and Allocation of Fees;
    • Operating Structure and Management Talent;
    • Network of Internal and External Advisors;
    • Communications and Client Reporting;
    • Back Office Systems and Procedures.

FOX Family Office Benchmarking™ provided surveyed data from its family office membership concerning family office risk perception. Most families are initially worried about financial and operational challenges. Business risks such as talent acquisition, operating structure, and investment advisory comprise a hefty 37% of the families’ risk perception. Economic and financial risks comprise 26% of risk concern. However, when it came to actual family challenges such as legacy continuity, the family risk perception measured a mere 7%. Via Trusts & Estates’ Family Advancement Sustainability Trust (FAST) analysis, the risk reality shows quite the opposite.

On examining the quantitative and qualitative data of family business challenges affecting the family office, roughly 60% of disruptions and failure stemmed from family communications and generational problems, while only 3% of issues arose from financial and investment advisory challenges. Talent and advisory acquisition in the financial industry does not pose a threat to the family office in our current workforce environment. The Institutional Investor reports a marked increase in hedge fund managers either leaving lagging funds to manage family offices, or converting hedge funds into family offices for streamlined clientele. Private banking divisions at Citigroup, Morgan Stanley and J.P. Morgan have dedicated top senior bankers to be primarily responsible for multifamily office dictates. Family offices have a wealth of investment and estate talent to choose from. Given the flexible regulatory nature of a family office, top talent once constrained in the institutional arena may find room to expand expertise for the family office. In short, it is truly the “Ownership and Governance” issue that needs prioritized attention.

FAMILY OFFICE GOVERNANCE

As with any enterprise, family office governance policies need to be formulated long before execution of any financial and operational implementation. Family offices are in need of much more qualitative guidelines for business and wealth continuity. The Family Office Club based out of Key Biscayne, Florida gives specific insight into structuring family office ownership and governance guidelines via The Family Office Report. Remember, unlike standardized business or investment firms, each family office would have highly tailored objectives, so customization of certain objectives and criteria would be necessary. However, this framework helps with organizational structure across the board. Key components are as follows:

  1. Mission, Vision, & Goals:

    The mission is the starting point for what The Family Office Club coins “The Family Compass.” Family businesses may already have commercial mission and vision statements. However, the family office is responsible for management of the actual family’s qualitative mission, vision and goals. These are high level objectives for wealth creation, succession, philanthropy and legacy.

  2. Ethics & Values Policy:

    The ethics and values policy defines what is acceptable to the family’s core values when it comes to external talent, vendor transactions, business acquisitions, paths of philanthropy, and internal code of conduct. The ethics and values policy covers all issues of compliance such as money laundering, insider trading and bribery concerns. This policy should be reviewed consistently in strategy sessions with both family and external professionals within the family office.

  3. Investment Mandate:

    As expected, this mandate delineates family office investment governance. The investment mandate sets the investment criteria and asset class composition of investments for the family office. All taxation, income growth, wealth creation strategies, liquidity concerns and payout requirements must be detailed in this mandate. According to the Family Office Club, the Chief Investment Officer is responsible for the creation of this mandate, along with input from the CEO and vested family members. The mandate can be revised on a monthly basis. Quantitative social capital investments and philanthropic endowment strategies should be included in this mandate, if applicable. This mandate also aids the family office in shareholder activist campaigns when the need arises.

  4. Key Performance Indicators:

    Key Performance Indicators (KPIs) are highly detailed and action specific dictates per each member of the family office. Measurable outcomes are expected for involved family members and external hires. We would suggest broad KPIs be set for all external vendors, businesses and asset managers who deal with the family office. The Family Office Club suggests creation of at least three KPIs per member, as well as three “smart numbers” comprised of various KPIs for the entire family office.

  5. Systems & Processes:

    Systems & Processes here covers the details needed for organizational continuity within the family office. Where the ethics and values policy or strategic plan may deal with broad succession planning, systems and processes deal with the documenting of detailed processes carried out per member, so that in the case of natural causes or termination, talent or legacy replacement can occur without severe disruption to actual procedures. According to the Family Office Club, each member may add to a mini-process book, which then should be reviewed by selected family office executives.

In addition to the governance policies stated above, the family office will greatly benefit from the creation of a Family Advancement Sustainability Trust (FAST). The FAST is a brainchild of Marvin E. Blum, JD, Thomas C. Rogerson, Gary V. Post, JD of the Blum Firm. The FAST has the structure of a directed trust, but encompasses more than the typical mandate for disbursement of funds to heirs or philanthropic beneficiaries. In the authors’ own words, the FAST is “A pool of funds to invest in the family members—in the family relations, development, and advancement—rather than just distribute to the family members.” The FAST comprises four committees: the Trust Protector Committee, the Investment Committee, the Distribution Committee and the overall Administrative Trustee. Both family members and outside professionals within the family office comprise these bodies. The FAST is primarily for continued family education, family cohesiveness and legacy in both qualitative and quantitative concerns.

The family office has existed across geographies and dynasties, quietly providing funding and making investments long before our global banking system came into play. Modern day family offices are now formalized, and are stepping in to fill investment gaps that are fast being created by lagging institutional and alternative investors. Thus, it is of utmost importance that existing and newly created family offices implement solid governance practices to ensure financial, operational and legacy continuity.

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The Blueprint for Community Banks in a Digital World

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Historically, community banks have been the pillar for any community, as they take care of the needs of the local businesses and families. They have been instrumental in helping the American economy recover from the 2008 financial crisis, as they are highly capitalized and better prepared to withstand an economic crisis than their larger counterparts. Nonetheless, community banks are disappearing at an alarming rate. The total number of banks insured by the FDIC decreased from 7,087 in 2008, to 4,938 in 2017 – a 30% decrease in less than 10 years; this was mostly due to abundant M&A activity, as well as more than 500 bank failures.

Heavy regulations account for a large part in the growing consolidation. A new survey from the Federal Reserve and Conference of State Bank Supervisors found that community bank compliance costs have increased to 24% of community bank net income, in the past two years alone. For almost all bankers (96.7%), regulatory costs were the deciding factors when considering an acquisition.

Bank regulations are a two-edge sword, with both edges cutting deep into community banks’ ability to survive. First, overregulation heavily handicaps community banks from competing for their vital place in the financial ecosystem through increased regulatory costs, increased requirements for capital with fewer sources, burdensome new risk management requirements, new rules dictating every consumer financial product, etc. Eighty-two percent of U.S. bankers claim that government regulations are not on par technology advancement, severely impeding growth.

Second, and equally important, regulations create friction between banks and their consumers. They make it difficult for banks to offer their customers what they want and how they want it. The nail in the coffin: these friction points serve as inspiration for fintech entrepreneurs and other nonregulated competitors to come up with innovative solutions.

The only way to escape from between a rock and a hard place, is to be BOLDER.

The biggest adjustments banks will have to make, is to become the masters of their own fate. Banks cannot expect to survive by simply navigating the regulatory environment and waiting for interest rates to rise.

As financial technology brings a myriad of new capabilities with exponential uses, the banking industry is heading into a new, untapped market, which has not yet been regulated. It is imperative that bankers do not wait for regulators to leisurely catch up and introduce static rules, which often inhibit growth. Bankers understand their industry’s challenges much more deeply than regulators; they have the most skin in the game. They either get ahead of the technological curve, by embracing new technologies and taking action, or fall behind. Behind their competitors, behind the banking industry, behind the needs of their customers. Banks must aim to shape the new competitive landscape, or risk being an outsider in other players’ environment.

Although community banks find themselves in an impossible situation, being the cornerstone of communities for decades, comes with certain advantages over their financial technology and banking competitors.

ADVANTAGES AND RECOMMENDATIONS:

Advantage #1: Trust. In 2017, eighty-six percent of U.S. consumers still place community banks as the number one institution to securely manage all their personal data. Community banks still have the people’s trust, and they must capitalize on it. Trust is power. Trust is something many fintech companies can only dream of earning. The fact that customers trust community banks to protect their information, execute transactions and hold on to their money, puts community banks in a position of power, when competing with the banking and financial technology industry.

Advantage #2: Deep relationship with their communities. Technology alone will not be able to replace community banks, at least not in the foreseeable future. This is because community banks have specialized in the exact things technology severely lacks: emotional intelligence, personal relationships, and as previously mentioned, having the trust of their community.

Community banks focus on providing traditional banking services in their local communities. They are “relationship” bankers as opposed to “transactional” bankers. Long-term relationships with their communities allows to better understand their borrowers and gives them nonstandard data, which they can use to make credit decisions. In many cases, local businesses/startups can only depend on community banks for loans, as they might not always be able to satisfy the more rigid requirements of big banks.

No other institution/technology can support their local communities better than these banks. Big banks are too rigid, and technology alone could never fulfil the role of a bank. Technology can only enhance and automate processes, which make banks more efficient. Innovative technologies are there to serve the banks and their communities, not the other way around. The community bank, as an institution, is here to stay. However, individual community banks’ fates depend on how well they adapt to the new market.

Recommendation #1: Focus intensely on helping customers achieve their goals. That is it. To do so, they must focus on “changing the bank” rather than “running the bank.” The old way of running a bank is making them irrelevant, unable to meet the demands of their customers. The way banks take charge of their own destiny, is by taking an aggressive stance to “change the bank.” It all starts with the team.

Recommendation #2: Assemble a team with a high market intelligence: hiring banking executives with 35 years of experience in the old banking model is not recommended, especially if they do not have an elevated level of current market intelligence. They will not be able to change the bank. As with most other industries, banking needs to adopt and embrace the modern workforce, based on freelancing, flexibility and scalability. As of today, 16 percent of bank’s workforce already engages with freelance workers, and thirty percent of bankers believe this number will increase by fifty percent in 2018. The bank needs to become an agile, efficient, on-demand institution. The workforce needs to reflect these values.

The benefits of the modern workforce represent a new, albeit indispensable access to a wide-ranging pool of in-demand skills and knowledge, that transforms the bank from a static and rigid institution, into an agile entrepreneurial and innovative organization.

Recommendation #3: Employ artificial intelligence and other digital ecosystems, on a large scale. Technology can outperform all employees when it comes to matters of the back-end office and operations. However, the motivation here is not to eliminate the need for employees, but rather to free the employees from tedious and menial tasks, and allow them to focus on engaging with and serving their customers. As the bank evolves to a digital-first business model, bankers must step up their efforts to create relationships with their communities, and actively help them accomplish their goals.

In the end, banks need to once again become the leaders of their communities, helping and enabling their customers to achieve financial success in any way possible. When banks help people achieve more, people will become increasingly confident in this partnership, and will renew their commitment. The old way of “running the bank” will only achieve running the bank into oblivion. As new technologies and systems emerge, banks cannot wait for regulators to tell them how to engage. Banks must learn and adopt these new advances, in a way that makes them leaders of their communities once again, and in the process, teach regulators how to create a more functional regulatory environment.

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When Will We Stop Blindly Pissing Away Money Down the R&D Rat Hole?

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Let me start by saying that I am a physicist and have been involved with many of the leading U.S. research facilities over the years — Los Alamos National Laboratory, Sandia Laboratories, just to name two.  I also directed the Socrates Project under the Reagan administration.  So the quick knee-jerk reaction to the title that “I don’t understand research and development or the value of technology” holds no water at all.  Please don’t even try to argue this point.
Research and development (R&D) does not equate to a competitive advantage in the marketplace or on the military battlefield.  Knowledge for knowledge’s sake is a worthwhile pursuit.  Totally agree.  But it is conceptually flawed and detrimental to the objective — being competitive — when companies and governments use the need to increase economic and military might as justification for higher expenditures on R&D.  But yet this is the rapidly rising battle cry among the leading thinkers in Congress, the Pentagon, academia, think tanks, and the press — “Raise R&D funding levels, and America’s future will be secured.”  How so far from the truth.
One highly critical set of decision makers who suffers from this R&D is the key to competitiveness thinking is the leadership in the office of the Secretary of Defense.  But this was all avoidable.
In the late 1980s, I “assisted” in writing legislation that would force DoD out of this R&D is the key to competitiveness thinking.  As a member of the intelligence community, working directly with the U.S. Congress was considered a hanging offense.  But I was willing to risk it because I foresaw that DoD thinking in this manner would lead to the massive dilemma that DoD is now at a loss to address — the rise of China as a military threat and the almost total erasure of U.S technology leadership on which our military strength is based.

The legislation mandated that the Secretary of Defense develop and present a Department of Defense technology strategy to Congress every year.  It was a process that would force DoD out of its R&D is the key to competitiveness thinking.  The legislation passed, and for all intents and purposes, lies dormant and unexecuted to this day.

But let me go back to the beginning of the story — The Socrates Project.

Throughout the 1980s, I was the Director of the Socrates Project within the U.S. intelligence community.  I also initiated the program.  The Socrates Project had a two-fold mission.

1/ Utilize the full range of intelligence to determine the true underlying cause of America’s declining economic and military competitiveness, and then 2/ use this understanding to develop the required solution.  We were fully successful in both aspects of our mission.

What we determined (and covered in our last blog but is worth restating) was that the cause of the decline was America’s shift from technology-based to finance-based planning that began at the end of World War II.

In finance-based planning all decision-making is based upon manipulating the acquisition and utilization of funds, and the final measure of success is how well we optimized the fund exploitation to achieve the objective — generating a profit.

In technology-based planning, the foundation of all decision-making is the outmaneuvering of the competition in the acquisition and utilization of the technology.

How effectively an organization or a country outmaneuvers the competition in the technology exploitation fully dictates the level of other resources and how they must be utilized to generate a competitive advantage.  The other resources include but are not limited to manpower, natural resources, time and funds.

Where technology-based planning starts with the foundation of maneuvering in technology for a competitive advantage that then dictates the rest of the business plan, finance-based planning leaves technology exploitation, which dictates competitive advantage, to chance.  The manipulation of funds, which is the focus of finance-based planning, often leads counter to generating a true competitive advantage in the marketplace or the military battlefield.  The finance-based planning organizations of the U.S. pride themselves in being highly effective in what equates to rearranging the deck chairs on the Titanic.

What is competitive advantage?

All competitive advantage is a matter of satisfying the customers’ needs better than the competition, where the customer needs are defined from the customers’ perspective and covers the full range of their needs.  This goes for both commercial and military competitive advantage.  If you are not excelling at satisfying one or more customers’ needs, no amount of slick marketing, branding, or financial optimization — Financial shell games — matters.  The organization is going to die.  Or in the case of DoD, be totally ineffective.
Outmaneuvering the competition in the acquisition and utilization of technology is a multi-faceted, fluid, on-going chess game played with the technologies of the world.  Winning at this technology chess game requires a technology strategy.  When I use the term “strategy,” I am not using the simplistic, conceptually flawed term that is traditionally passed off as “strategy” in the business community.  Strategy is not the same as a vision statement, a target list of products or services, a road-map, an exercise in consensus building, or glorified trend analysis that really belongs at the racetrack.
In the case of a technology strategy, the limited resource is technology, where technology is properly defined as any application of science to accomplish a function.
A technology strategy consists of a coherent set of offensive and defensive technology acquisition and utilization maneuvers.
The set of technology acquisition maneuvers consists of the full range of means to acquire the technology that the organization requires, and prevent or hinder the competitor from acquiring the technology that it requires.  At some points in time, the technology strategy may be executing maneuvers to acquire technologies for the organization, while at other times, it will be executing maneuvers to retard the competitors from acquiring technology, and at other times it will be doing both.  Research and Development (R&D) is just one of the mechanisms in the full set of technology acquisition maneuvers.  But when this one mechanism is used, it is both very precisely and accurately targeted and is done in a systematic coherent process interconnected with a full range of precisely planned offensive and defensive acquisition and utilization maneuvers.
Just executing the one mechanism of R&D is extremely costly and highly ineffective for generating and maintaining a competitive advantage.
The U.S. using R&D as the sole means to address technology exploitation for a competitive advantage makes it a one-trick-pony knuckle-dragging Neanderthal event next to a modern agile fighter with a full range of fighting techniques and weapons at his disposal.   The Neanderthal may get in one or two good hits, but the modern fighter will consistently outmaneuver him until he is fully exhausted, and then he is simply and unceremoniously eliminated.
So, from Socrates’ intelligence-based view, who was the modern agile fighter?
It was then and now has developed into the China we know today.  China was executing very aggressive, highly coherent countrywide technology strategies that, if left unchecked, were guaranteed to enable China to evolve to sole super-power status faster than any country in history.
It was seeing the utter futility of the DoD R&D approach to technology exploitation, and China’s aggressive technology strategies that caused me to risk my neck and career to draft the legislation that would transform DoD into the agile, multi-faceted fighter needed to ensure our military super-power status and contain China’s aggressive technology-based strategies for military, economic and political dominance.
The legislation passed but has never been executed. Since then, as we all can see now, China has gone from barely being on the Pentagon’s threat radar and even then only because of its massive manpower and communist government to, by some people’s estimates, being the #1 threat to the U.S. with that threat rapidly growing by the day.
Is R&D important?  You bet it is — We have some of the best researchers and research facilities in the world. But R&D is only effective when it is a coherent element in a complete, holistic technology strategy to achieve and sustain competitive advantage.
We need to stop being the Neanderthal before it’s too late.  We must evolve or expire.

By Michael C. Sekora – Past Director of the Socrates Project, President of Quadrigy, Inc. affiliated with Operation U.S. Forward

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Smart v/s Wealthy

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While you may think that being smart, motivated, and talented would logically make you wealthy, unfortunately, this is often not the case.

Smart and talented people often have a flair for the unusual, complicated, or different. They don’t like to follow the KISS principle (keep it simple, stupid), which is required to make money.

So, being smart or talented isn’t going to help you unless you can use those smarts to figure out a way to simplify those tasks that will make you money. This isn’t easy, because it goes against everything that you have ever done and is counter to how you were taught to think. However, it is necessary for a business to succeed and why smarts and talent alone don’t predict entrepreneurial success and hence wealth creation.

Too much to lose… and, with the most to lose, a wide range of other options available, and the penchant for more intricate, complex endeavors, don’t be surprised when the person “Most Likely to Succeed” from high school ends up in corporate America and one of the more average students finds success in his or her own business.

So what are the basics to know to make real money?

  1. Don’t get a salary. A salary will never make you money.
  2. Don’t try to save money by not buying stuff you need. That’s a myth. The best way to save money is to make more.
  3. Empower quality people by introducing them to each other. Introduce them and stay out of the way. This is real networking. Not fake networking where people hand business cards to strangers.
  4. When you have wealth, never invest more than 5% of your wealth in any one idea.
  5. Don’t enter regulated businesses or the ones with lots of competition. Enter a business with a monopoly. This means high profits, high perks, great education.
  6. Be around people who love you and whom you love. Eliminate people who bring you down.
  7. Look everywhere for what is hidden. The people who understand the wealth creation process hide the money very carefully. The people who don’t know have TV shows about it.
  8. Lose the bad habit of engaging in zero sum competitions with other smart people. Many smart people tend to flock to fields which are already saturated with other smart people. Only a limited number of people can become a top investment banker, law partner, Fortune 500 CEO or humanities professor. Yet smart people let themselves be funneled into these fields and relentlessly compete with each other for limited slots. They all but ignore other areas where they could be even more successful, and that are less overrun by super-smart people. Instead of thinking outside the box, smart people often think well within a box, a very competitive box that has been set up by other people and institutions to further someone else’s interests at the expense of the smart person.

Now that you know, go create the wealth you deserve … and maybe then I can start calling you “real smart”.

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