Digital transformation begins with essentials - FFC Media

Digital transformation begins with essentials

Exclusive: Theses of the report by Dmitry Kosten at the St. Petersburg International Economic Forum 2019.

Those who do not create their own essentials will be dependent of someone else.

Colleagues, at first I would like to voice two points on the digital transformation of the economy.

  • The first is the need to transition the economy to the principle of ecosystem.
  • And the second is that the traditional vertical management model does not work in the ecosystem.

In an ecosystem, management takes on a new quality. It transforms into a simulated component. And modeling, in turn, requires knowledge of the complete control cycle. A complete management cycle requires a transition from a fragmented view of the world, through the distribution of labor and specialization, to the construction of a complete picture of the world.
And until we can achieve this, no digital transformation will occur.

I argue that the transition to an ecosystem‐based economy is a super‐task facing the Russian economy.

In an ecosystem, a jump in efficiency is achieved tens or hundreds of times due to three factors:

  • First, the maximum mutual use of production capacity.
  • Secondly, due to the transition from competition to coöperation.
  • And, thirdly, through the transformation of management from subjective to objective activity.

A jump in efficiency is achieved through the use of blockchain technologies. These technologies form new essentials. Therefore, a key factor in the transformation of the economy are new essentials.

Old concepts in the new paradigm are powerless

Blockchain technologies are more than 10 years old, and there are practically no business cases. The reason is that in the blockchain paradigm, the old concepts of market relations fail. Formulas such as “demand determines supply,” or “commodity‐money‐commodity,” lose their meaning. And the entities corresponding to the new paradigm have not yet been formed.

The struggle for survival forces the manufacturer to make cheap (but bad) products in order to stimulate demand. Thus, the inflation of values​physically drains and destroys the system. This is an objective process that cannot be stopped without switching to a qualitatively new model. And this is a classic scenario of a revolutionary situation.

Translated into modern realities, the following situation has developed:

  • Bankers do not want how to live in a new way.
  • Lawyers can not judge and put in the old way.
  • Hiring experts” continue to offer “platforms”, while life requires other socio‐economic models.

The situation has two ways:

  • The first is to wait for the collapse of the system, and then in a state of emergency to mobilize all resources for the transition to a new way.
  • The second is to plan the transition to a new economy today.

A change of mind format is required

And this transition to a new economy requires a change in the format of thinking. There are no business cases — because technologies require new socio‐economic relations and institutions, but they are not. We need new essentials, we need a new paradigm.

For example — the institution of trust, which creates the blockchain, elevates the concept of public use to a whole new level. And it breaks the traditional institute of ownership.

Another example is technology automating trust, and the legislator continues to expand and deepen regulation. Obviously, the blockchain is working on the emancipation and achievement of flexibility, and the legislation on clamping and cementing. Why regulate what is controlled automatically?

This does not mean that the regulator is not needed. It is needed — but needed, but not as a tool that hinders the development of technology. However, this requires control based on an understanding of the full picture of the world. And here the emerging institution of trust opens up new essentials for us. (hereinafter, all the terminology belongs to D. Kosten, editor.)

Essential 1. There are will be no more banking money

Dear colleagues from the banking sector can create steylkokoiny, can come up with new models for Central and commercial banks. They can legally allow, then prohibit, then again allow cryptocurrencies and its various variations. All this fuss will in no way alter the fact that the old system has lost exclusive power over essentials. A new entity has emerged: a contract and money is a single inseparable whole.

In a new context, it becomes obvious that the world can be built on the principle of an ecosystem, where

  • the theory of interest rates is replaced by the principles of Islamic banking,
  • lending principles are replaced with the principles of project financing,
  • competition is replaced by coöperation
  • the concept of ownership is determined by the scope of useful use,
  • and where economic growth is achieved not through addition, but through design, which removes systemic tension from the economy, and makes it possible to achieve a jump in efficiency tens and hundreds of times higher at the same production capacity.

Gentlemen, these are not just slogans, they are technological facts that we are ready to develop!

Today the link between the financial and industrial economy is broken. For example, debt obligations in the world are three orders of magnitude greater than world GDP; and the derivatives market is twenty times larger (!) than the world’s GDP. Money has lost its meaning.

The contract and money as a whole — return the financial and production balance to the system.

The traditional system of monetary relations, built on the basis of debt obligations, is transformed into a system built on the basis of real assets — contractual relations.

Key elements of the financial economy, such as interest rate theory and the time value of money, require a complete revision.

Essential 2. Return to the unity of image and meaning

In classical culture, any concept implies a unity of image and word.
The modern word CONCEPT means the same thing. When people say that a person lives “not according to the rules”, it means that he says one thing and does another.

In management, of course, there is subjectivity. And subjectivity opens up the possibility of substitution of meanings. In a world where there is no unity of image and word, it is impossible to build an ecosystem. So it is impossible to achieve a jump in production efficiency.
It turns out that lack of understanding destroys the ecosystem. And this is the main point of the blockchain technology — the formation of an institution of trust.
Technologies require a return to the unity of image and meaning.
Consider an example of the substitution of meanings through the discrepancy between the image and the word.

The Civil Code of the Russian Federation classifies a technical record (token) as a “digital right”. In fact, a token is “digital property”.
We decompose in parts:

  • Token is a digital registry entry. A record is a technical bundle (relation).
  • Ownership is modeled as a set of relationships, and law is modeled as a constraint of relationships.
  • The legislator does not define the concept of “digital property”, but defines the concept of digital law. That is, there is a limiter, but there is no subject limit. This is the substitution of meanings.
  • As a result, legislation is not synchronized internationally. The concept of ownership is global, and the concept of law is local. What the global legislator called local, and vice versa. So the wrong wording becomes an obstacle to the transition to the ecosystem.

Essential 3. There will be no platforms – only models

Colleagues, you need to understand that the automation of trust will radically change the principle of technological solutions. Today, a narrow view prevails in the industry that trust is data exchange. From here, technologies are viewed as a way to integrate platforms through shared data usage.

But the same principle applies to the general use of production processes and cycles. In this context, the concept of the platform disappears. There is an ecosystem of granules and components, which combines a single production goal.

The production goal is formed at the level of the technical model of management. Therefore, platforms are being replaced by an ecosystem of management models that are engaged in assembling and reassembling production chains. In this format, the level of decision abstraction is increased several times. And here again there is a need to understand the full picture of the world.

Blockchain is not a technology for sharing data, and not a technology for optimizing production processes. This is management technology.

Management is divided into two components — decision making and control over execution. Blockchain automates trust, and thus removes the control function from management.

As a result, production cycles become self‐verifiable components of the system. And the control function becomes technically simulated.

Essential 4. Management will be modelling

With automation control, management is reduced to making decisions that are formalized in the model. These models use information in the context of the goal.

In the ecosystem there is no vertical of power. Therefore, control modeling should occur on a full cycle — from the formation of the vision, down to the application solution.

Consider what a full control cycle is. (please see russian variant of article, editor’s note)

In the figure, on the left is drawn a column of the complete control cycle. At the ideological level, vision first appears. The vision is formalized into a concept. The concept is detailed in the model. The model generates practical applications. Full cycle management is the ability to create a vision and translate it into practical applications.

So blockchain does not fit into the modern management model. The model regulates trust, and the blockchain automates it. Need a new model.

We rise to the conceptual level. The concept implies a centralized model as a consequence of the need for control. But control is automated. Need a new concept.

We rise to the level of ideology and realize that vision, as well as management, is subjective, and is formed on the basis of a person’s worldview, which in turn depends on the psycho type.

The psycho type does not reflect a person’s IQ, but reflects how he is guided in decision‐making.

And here an interesting phenomenon opens that the automation of trust is needed only by a person. Only man has concepts of conscience and shame. The only way to build an ecosystem without intra‐systemic stress is to build an ecosystem of the conscience.

It turns out that an ecosystem with a human face is the only way to achieve maximum economic efficiency of the mutual use of production capacity.

An economy built as an «ecosystem» will constitute a new economic landscape

Colleagues, new technologies allow you to build a new type of economy, working as a single platform, but based on the principle of ecosystem.

When modeling the economy as a habitat, at least four meta levels are observed:

  • Philosophical
  • Legislative
  • Institutional
  • Relationship Level

Each level has its own rules and models. So, for example, the philosophical level forms legislative models, and those in turn institutional environment, and those form production relations.

All this works as a single organism. Blockchain forms a trusting environment. Simulated control allows fast assembly and re‐assembly of production cycles. Big data gives feedback on the quality of management models. Artificial intelligence changes management patterns, achieving the most effective socio‐economic balance.

Technical solutions reflect our understanding of the world. New technologies require an expanded understanding of the world.

And in conclusion I would like to repeat:

  • Those who do not want to create their essentials – will be subordinate to someone else.
  • Technical solutions reflect our understanding of the world.
  • New technologies need new essentials!

Thanks for attention.

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