Archives for January 2012

The Momentous Nature of the Opportunity Cost Concept

We start each day making choices – “should I hit the snooze button and get 10 more minutes of sleep, or should I get up and start my day 10 minutes earlier?”. Immersed in our daily routines, we sometimes forget that every choice we make (even the tiniest ones) have an opportunity cost implied.

It seems common we lack understanding the opportunity cost concept and its importance.

The pervasiveness of the opportunity cost cannot be higher. There is seldom any decision, in any human field,  that doesn’t have anything to do with it, at any level: individual, family, company, national and global level.

Simply expressed, the opportunity cost is the cost given up by choosing a) instead of b), or c), or any other alternative. When selecting a job, a girlfriend/boyfriend, a trip, a car to buy, the decision arrived to, necessarily implies having given up the rest of the alternatives. When the decision made is appropriate, the opportunity cost tends to be irrelevant; otherwise, it can become very onerous, indeed.

When the opportunity cost concept is combined with that of inertia, things get much more complex, yet more interesting. We humans tend to have very well defined –and most of the time, hard-to-crack habits. Unfortunately, some of them aren’t commendable; the good habits, understandably, must be kept and enhanced. For that purpose, the capacity to learn from others and from life itself is priceless.

Going back to what I’ve previously mentioned in other posts: acting as an “individual-clump”, it is of vital importance to keep this in mind whilst making decisions. By this I am referring to the fact that we should not only have ourselves in mind when choosing from a variety of options, we should consider the fact that as individuals, we are inherently a part of this social clump. It is of vital importance to consider all sorts of opportunity costs that we stumble upon, in order to act more effectively as this greater individual we are all a part of.

One of the major aspects of an increasingly globalized world is the abundance of choices. Hence, the great importance of learning, and striving to making better decisions everyday, whenever possible. It sounds simple enough, but most of the time it isn’t.

As the saying goes, what cannot be measured cannot be improved. This measurement specifically refers to the opportunity cost. We all are fully aware that both, the (w)World and the way countries are governed are far from perfect. Nonetheless, it is quite easy to differentiate the better managed countries from the less privileged ones. Taking that notion further, it is possible and indeed useful, to make rough comparisons among nations’ performances. For that purpose, an indispensable step is to select a reference group, as the benchmark against which everyone outside the group should be compared to. Once that exercise is made, some astonishing results emerge; for example, China’s 2010 GDP per capita was US$7,600; if China had a GDP per capita equal to that of Lituhania (US$16,000), Russia (US$15,900) or Chile (US$15,400), it would mean an additional production of around $10 trillion US dollars of goods and services every year. Ten trillion dollars is currently the combined yearly GDP of Japan, Germany, Russia  and Poland, the third, fifth, sixth and twentieth economies in the world. This is China’s opportunity cost when compared to Chile, Russia and Lithuania.  By making this kind of comparisons, it is very easy to gain a better handle on the Chinese economic miracle –which has more to do with remarkable rate of economic growth (a huge plus), than with current affluence of the Chinese population which, on the average, is still very poor, very far from a developed nation standard. During 2010, the average GDP per person in China was slightly less than a third of that of Portugal ($23,000).

Naturally, this kind of comparisons, however valid and useful, will not automatically lead to a good port if a skillful program isn’t implemented to take advantage of the colossal potential (wasted opportunity cost) implied. GLOBALIZATION, the book, contains multiple easy-to-understand comparisons like the previous one, all leading (lead) to workable, self-sustainable solutions.

Globalization: A Constant Throughout the Ages

globalizationGlobalization has been the ever present means of mankind’s evolution. A constant throughout the ages.

There is a need to understand how globalization is not only this intangible phenomenon we are all participants in –whether we are aware of it or not, but an extremely powerful tool we can use as a mold for our future. And by we, I mean, every person and every nation. There is a permanent need to learn the correct application of this ever-present phenomenon.

The world has always fascinated me. Even when I was a child, understanding how the world works and its interactions has been my passion. And in my life-long journey of learning, I’ve not only had court-side seats to, but have also been a player in, two very different arenas: business/economic/financial and social entrepreneurship.

On the topic of globalization, curiously enough, no well-known book to date has set together the who is who, the whats, and the whys in an integrated, comprehensive manner. We can all identify these factors separately, but it is key to place and analyze them alongside, in order to  connect the dots.

Likewise, curiously enough, no well-known book to date on the subject has sufficiently focused on History, Leadership, Governance, and Social Entrepreneurship as four fundamental pillars of globalization. A strong and consistent emphasis on human values is indeed indispensable to appropriately approach globalization. At the end of the day, globalization is about human beings, human values, and human needs.

My book, GLOBALIZATION, is an easy-to-understand compendium of the subject, presenting a rich and very valuable content, with multiple practical examples from all over the world.

GLOBALIZATION. Opportunities and Implications. The ABCs to a Global Social Revolution will be released on February 1st.

Understanding Historic Economic Theory

History cannot be properly understood without an adequate comprehension of basic economics.

Human knowledge is holistic, a big piece of integrated, well-structured experiences. Specialization in learning is a good thing, but it should not be carried away too far, since doing so creates all kinds of misunderstandings due to partial comprehension of how things work. The study of and daily practice in specialized fields of human knowledge is indeed a very useful approach to learning and solving situations, provided that the overall context is not lost within that specialization process.

One of the areas of human knowledge where the lack of a particular know-how proves very costly is in the economics/history binomial.  Economic principles and practices, among many other elements from different disciplines, are truly indispensable to gain the proper perspective in human history. Otherwise, the knowledge of history is mutilated at best and highly distorted at worst.

Metrics are an indispensable tool to measure and understand many key historic phenomena. Economics provide those metrics. Without adequate metrics, the understanding of many historic events can be seriously distorted.

The same logic can be applied to a proper understanding of globalization. That is why in my book, Globalization, economics plays a large role as an indispensable ingredient to an adequate understanding of such a complex phenomena. Economics, however, should only be visualized as a means toward greater accomplishments, not as an end in itself.

Why History Defines Our Future

Anticipating the future is always extremely difficult, and most of the time it proves to be highly inaccurate. Nonetheless, making intelligent inferences about the most likely future outcomes is a crucial task for individuals, society and businesses in general. Planning could not exist without it.

There are two elements of utmost importance, as an indispensable foundation for the future:

  • Where do we come from and
  • How we got to where we are now

In short, know the past. The present globalization stage makes knowledge of the past and the trajectory we all have had in arriving to where we currently are more evident than ever.

Granted, knowing the past, in itself, cannot guarantee anything. Not knowing the past, however, is a great drawback, a most potentially harmful and risky circumstance. Knowledge of history is important at all levels: individual, family, corporate, country and mankind in general.

The lessons that can be learned from an appropriate analysis of the past are as abundant as useful. Which is why so many great thinkers have wisely admonished mankind about it. George Santayana, used to say with irony: “Those that do not remember the past are condemned to repeat it.”

In my book, Globalization, this factor has been thoughtfully considered. Humanity has this never-ending cycle, also applicable to any given country. We all come from the most simplest roots: cavemen. We then grossly evolved into many other barbaric stages: the Huns with torturous practices, the Vikings with their unstoppable aggressions, and the Aztecs with their human sacrifices, and contemporary mankind with two great world wars, among many others.

Naturally, mankind has also displayed abundant positive traits and contributions along the way. As centuries have passed by, humanity has gradually been evolving intellectually (and even morally), as we should. Our ancestors began to seek a standing place for their revolutionary ideals: La Fête Nationale (French Revolution), the American Civil War, and the Indian Independence movement, among others. Currentlly, according to Gideon Rachman (Financial Times columnist), we are in the midst of the age of mounting indignation”: riots in London, the Arab Spring, and the Occupy-Wall Street movement, among others. In a parallel, simultaneous, very encouraging development, mankind has been highly focusing on the voice of the single individual, and its  inseparable collective entity version.

We shouldn’t only learn from humanity’s history at large, but from our own family’s and the company we work for as well. The never-ending cycle does not only apply to the clumps of society which happen to form a country, but it also applies to each person which is a part of that clump. We need to take advantage of the fact that we have begun to act more effectively as this greater individual and hop on the tracks that is leading us towards the next stage of human development within the never-ending cycle.

The vast accumulated knowledge and experiences of humanity to this date lend themselves handsomely for truly great improvements in the near future.  And based on our previous cycles, it looks like this new stage of development promises to be a fantastic opportunity for society to raise the human cause to new heights, through a Revolutionary Evolution. We owe it to our ancestors, to the world and to ourselves.

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