GAAMA metrics.

Introduction

Economic activity is divided into normative and non-normative categories. Normative economic activity is a near-equilibrium condition that is driven by incentives and commands. Incentives are motivationally related rewards attendant to profit objectives. Commands are a composite of rules and standards. The Danish philosopher, Soren Kierkegaard, stated that life is lived by looking forward, but learned by looking backwards--similarly with the command components of standards and rules. Standards are prospective societal policies. They are systemic prescriptions that enable the realization of industry norms relative to cultural values. Standards are defined in terms of "mass" indicating the number of people effected by the command and "materiality" indicating the relative importance of the command. Rules, on the other hand, are the retrospective codification of best-practice procedures that define operational efficiency. They are systemic proscriptions that explicitly delineate organizational limits in terms of gravitas (the seriousness of a violation as measured in terms of the amount of a fine and/or duration of a sentence) and granularity (the degree of precision required to ensure compliance). Rules are societal tests that validate a standard's end-condition.

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The FLITE Model illustrates the integration of standards and rules in emerging economies. If capital markets are to contribute to the "culture of confident expectations" that enhances economic development, they adhere to the standards of: Fairness, Liquidity, Integration, Transparency, and Efficiency ("FLITE"). These standards are further defined by the related rules.

GAAMA

Economic development is a reflexive process. Governance structures such as markets and firms define each other as they evolve. However, unless commands are proportionate to the current level of commercial activity, conducting business in the normative economy is not cost effective. Furthermore, unless incentives are relevant to their cultural experience, entrepreneurs lack sufficient motivation to "buy-in" to the development process. Core competencies become mismatched with comparative advantages as technical expertise is substituted for relevant business experience. The misdiagnosis of the initial condition of the Soviet Union as being an inefficient market and the subsequent implementation of market remedies for firm maladies created far-from-equilibrium conditions and unintended consequences for the both the supply and demand functions of the normative economy that resulted in GAAMA Markets.

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To better manage these far-from equilibrium conditions, the GAAMA Model is introduced to analyze non-normative economic activity. GAAMA is an acronym for:

* Global: widespread in terms of mass and materiality;

* Asynchronous: not timely information;

* Asymmetrical: unequal access to or incorrect information;

* Market: economic / financial system; and

* Activity: researching, pricing, transacting, clearing and settling, and inventorying.

The GAAMA model is a diagnostic tool for measuring the degree of societal compliance with the established governance structure. It analyzes non-normative economic activity evidencing far-from-equilibrium conditions caused by standards that are either too high or too low, interacting with too many or too few rules for a given level of commercial activity. GAAMA is a knowledge transfer system that combines rules and standards to analyze non-normative ranges of economic activity. Like "Alice's looking glass," the GAAMA Model provides metrics and understanding where non-normative commercial activity is the norm.

GAAMA markets are created when commands are disproportionate to incentives for a given level of commercial activity. Attempts to control an economy by using too many rules or too high standards result in reduced resiliency and increased risk of systemic failure. Additionally, GAAMA markets can be created whenever rules are confused with standards and employed prospectively to become commercial censorship. For those goods and services that have attained a critical mass of societal sponsorship, excessive commands do not limit activity. Rather, they serve as GAAMA incentives to direct the order flow to controlled, offshore, balkanized, or underground market that is the low-cost point of sale.

The GAAMA Model graphically represents profit potential attendant to the internalization of transaction costs and conversion of "dead capital." This enables command economy externalities to be internalized by self-sustaining entrepreneurs. These activities are omnipresent in transitioning economies and provide a testament to man's economic adaptability (Reference Appendix B for GAAMA illustration).

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The GAAMA Model is a three-dimensional, non-linear paradigm. It reflexively integrates rules and standards to restructure non-normative economic activity. The x-axis depicts the volume function. It delineates commercial activity resulting from too many rules that cause confusion (i.e. the tax code) and/or too few rules or best practices that cause uncertainty (i.e. solving a computer problem without the help desk). The x-axis resolves bad trade practices. The y-axis displays the pricing function. Standards that are too high are exclusionary operational supports that direct order flow, while standards that are too low are indiscriminate price controls that act as a disincentive to commercial activity. By way of illustration, the tax code has specific rules applicable to the depreciation expense deductible for personal computers. Each rule in the tax code is held to the societal standard that it be assessed "fairly" and held to the cultural standard of "progressivity". The z-axis represents a ratio of commands-to-incentives for a given level of commerce. The z-axis posits that the smaller the ratio of commands-to-incentives, the larger the area of normative economic activity to provide a societal net benefit.

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The Market Activity Matrix defines regulatory redlining by delineating near-equilibrium versus far-from-equilibrium conditions of commercial activity. It provides a frame of reference to ensure that governance is proportionate to the level of commerce and relevant to the business culture. It is a 3x3 matrix that replaces an undifferentiated one-size-fits-all approach of trial-and-error antecedents. The business parameters of market share, margins, and multiples form the columns of the matrix and are expressed in terms of percentages. The business drivers of scale, scope, and span comprise the rows of the matrix and are expressed in terms of dollars. The Market Activity Matrix establishes prudential norms...