Federalist No. 17

In Federalist No. 17, Hamilton again continues his discussion of the insufficiency of the present confederation to preserve the union.

In this essay, he moves on from the discussion of the ability of a loose confederacy to both claim and protect the territories, posts, and natural resources that it should be entitled to and away from the discussion of the increased risk of Civil War presented by a loose confederacy to address the objection that the government of the Union [may be] too powerful and enable it to absorb those residuary authorities, which it might be judged proper to leave with the States for local purposes.

To this end, Hamilton admits that he is at a loss to discover what temptation the persons entrusted with the administration of the general government could ever feel to divest the States of the authorities of that description. He notes that commerce, finance, negotiation, and war seem to comprehend all the objects which have charms for minds governed by that passion; and all the powers necessary to those objects ought, in the first instance, to be lodged in the national depository. After all, we must deal with foreign nations as one nation, or we are no better than a collection of loose confederacies, regardless of what title we convey on the union.

Furthermore, the administration of private justice between the citizens of the same State, the supervision of agriculture and of other concerns of a similar nature, all those things, in short, which are proper to be provided for by local legislation, can never be desirable cares of a general jurisdiction. As such, the Union would see no benefit in pursuing them at the federal level, so there should be no cause for concern because it is therefore improbable that there should exist a disposition in the federal councils to usurp the powers with which they are connected; because the attempt to exercise those powers would be as troublesome as it would be nugatory.

But even, for argument’s sake, if we assume that mere wantonness and lust of domination would be sufficient to beget that disposition, it is the case that it will always be far more easy for the State governments to encroach upon the national authorities than for the national government to encroach upon the State authorities.

Furthermore, there is one transcendent advantage belonging to the province of the State governments, which alone suffices to place the
matter in a clear and satisfactory light, — I mean the ordinary administration of criminal and civil justice. This, of all others, is
the most powerful, most universal, and most attractive source of popular obedience and attachment. As a result, this great cement of society, which will diffuse itself almost wholly through the channels of the particular governments, independent of all other causes of influence, would insure them so decided an empire over their respective citizens as to render them at all times a complete counterpoise, and, not unfrequently, dangerous rivals to the power of the Union.

How do you measure savings?

It’s a tough question, but if you’re good at what you do, and you want to “win” at the end of the year, be sure you factor in currency fluctuation, inflation, and, if necessary, demand shift, because, on a per-unit basis, you can always save against market average if you’re good at your job and normalize the expenditures.

Here’s the foundation for a simple formula you can use to make this measurement. In reality, it will be a bit more difficult as you’ll have to calculate the actual increase in cost due to a change in the commodity index (as the commodity will only be one cost component in the total cost of the good being purchased), the realized difference in the exchange (as the currency conversion may cost you additional basis points), and the demand shift relative to a fixed interval, and not a fixed point, in time. But this simple example will suffice to show how, if you calculate appropriate unit costs, you really can’t lose even if the overall spend in the category goes up (because, without your efforts, it would have went up a lot more). And this is just fine (as long as you don’t double count the savings some other way).

Let’s say that, using appropriate benchmarking, backed up by indices and correlating cost models that are accepted by finance as reasonable, you calculate that the average market price per unit is $12 and you sign a contract for $10, for an expected savings of $2. Then, a year later, you find that the result of commodity inflation increases the cost per unit $1.20, for an increase of 10%, and the currency exchange increases $0.05 not in your favour, for an increase of 5%. What have you saved?

Savings/unit = (market cost/unit) – amount paid * (1 + currency increase) = 13.2 – 10 * 1.05 = 13.20 – 10.50 = 2.70

  market cost / unit = (base price/unit + cost increase/unit)

% Savings/unit = (savings/unit) / (market cost/unit) = 2.70 / 13.2 / 20% (WOW!)

Now, let’s say next year, you agree to a price increase to $10.50, but inflation increases unit costs by another $1.80 and the currency exchange only falls to $0.03 not in your favour. How did you do year over year?

Savings/unit = (13.2 + 1.80) – 10.5 * 1.03 = 15 – 10.5 * 1.03 = 4.19

% Savings/unit = 4.19 / 15 = 28% WOW!

  Costs increased 10%, but you increased your savings of 20% against market average to 28% against market average year over year! Looking at the big picture makes a difference since accepting 50% of the cost increase saved you considerably in the long run as prices continued to rise.

Federalist No. 16

In Federalist No. 16, Hamilton continues his discussion of the insufficiency of the present confederation to preserve the union.

In this essay, Hamilton begins by noting that it has been seen that
delinquencies in the members of the Union are its natural and necessary offspring; and that whenever they happen, the only constitutional remedy is force, and the immediate effect of the use of it, civil war. Truer words could not have been said as History served to prove Hamilton right (with the civil wars that would still erupt until the Union was complete and in agreement on core principles).

Furthermore, if there should not be a large army constantly at the disposal of the national government it would either not be able to
employ force at all, or, when this could be done, it would amount to a war between parts of the Confederacy concerning the infractions of a league, in which the strongest combination would be most likely to prevail, whether it consisted of those who supported or of those who resisted the general authority. In other words, while civil war could occur within a Union, the potential for civil war is much higher between a loose conglomeration of confederacies.

In addition, where military is concerned, even in those confederacies which have been composed of members smaller than many of our counties, the principle of legislation for sovereign States, supported by military coercion, has never been found effectual. Plus, it has rarely been attempted to be employed, but against the weaker members; and in most instances attempts to coerce the refractory and disobedient
have been the signals of bloody wars, in which one half of the confederacy has displayed its banners against the other half.

So, if we want to minimize the chances of civil war, a Union is much better than a loose collection of confederacies, especially when the Union stands as one.

Three Critical Operating Imperatives to Mitigate Increasing Volatility

This summer, Patrick Burnson, the Executive Editor of the Supply Chain Management Review, published a great piece on Operating Imperatives to Mitigate an Increasingly Volatile 2012 that summarized the findings of a recent Hackett Group piece on “Six Imperatives to Respond to Increasing Economic Uncertainty”.

In brief, the six imperatives were:

    • Pursue World-Class Cost Levels
      Typical companies can realize average savings of 27 percent on the delivery of their main business services functions by achieving world-class performance levels.
    • Reduce Complexity
      In finance, for example, reducing application architecture and data complexity can enable process cost reductions of nearly 50 percent.
    • Redesign Process, Governance, and Organization Models
      Adopt business process reengineering focused on an end-to-end approach for both transactional and knowledge-centric process.
    • Move from Functional Centralization to Global Business Services (GBS)
      Oranizations that migrate to a GBS model typically go through three stages of complexity, and most are still moving from stage 1 to stage 2, which is the basis for our last post where we asked how advanced your shared services really are.
    • Build a Common Integrated Technology and Information Architecture
      Hackett Group’s research confirms that the IT strategy of technology architecture rationalization is a top priority.
    • Upgrade Talent to Support Today’s New Realities

Talent is the most critical competitive differentiator today.

But as far as SI is concerned, if you really want to mitigate volatility, the three you need to focus on, in order, are:

  1. Upgrade Talent
  2. Reduce Complexity
  3. Implement Better Technology

Because if you do this, the other three factors will fall into place. Talent realizes the best way to get results is to work efficiently and effectively and will start by trying to reduce unnecessary process complexity. If you let them do this, they will be able to redesign process, governance, and organization models to better fit your organization. This will allow them to not only impelemtn better technology, but do so in an integrated fashion. Then they will be able to get consolidate views of data that will translate into decision support information that will allow them pursue world-class cost levels. In this effort, they will determine if the best results will be obtained by keeping the function in-house or moving to a GBS model. And then the new realities will be supported.

It’s ultimately all about talent, technology, and transition — and talent has to come first.

Federalist No. 15

In Federalist No. 15, Hamilton returns to the helm to address the insufficiency of the present confederation to preserve the union; a topic he will take up in the next few essays. He does so very astutely in the questions that he asks. Consider the following:


Have we valuable territories and important posts in the possession of a foreign power which, by express stipulations, ought long since to have been surrendered?
These are still retained, to the prejudice of our interests, not less than
of our rights.

Are we in a condition to resent or to repel the aggression?
We have neither troops, nor treasury, nor
government.

Are we even in a condition to remonstrate with dignity?
The just imputations on our own faith, in respect to
the same treaty, ought first to be removed.

Are we entitled by nature and compact to a free participation in the navigation of the Mississippi?
Spain excludes us from it.

Is public credit an indispensable resource in time of public danger?
We seem to
have abandoned its cause as desperate and irretrievable.

Is commerce of importance to national wealth?
Ours is at the lowest
point of declension.

Is respectability in the eyes of foreign powers a safeguard against foreign encroachments?
The imbecility
of our government even forbids them to treat with us. Our ambassadors abroad are the mere pageants of mimic sovereignty.

Is a violent and unnatural decrease in the value of land a symptom of national distress?
The price of improved land in most
parts of the country is much lower than can be accounted for by the quantity of waste land at market, and can only be fully
explained by that want of private and public confidence, which are so alarmingly prevalent among all ranks, and which have
a direct tendency to depreciate property of every kind.

Is private credit the friend and patron of industry?
That most useful
kind which relates to borrowing and lending is reduced within the narrowest limits, and this still more from an opinion of
insecurity than from the scarcity of money.

In other words, the current confederacy of the time could not:

  • secure the valuable territories and foreign posts that would be the right of the Union
  • repel an aggression by a foreign empire
  • remonstrate with dignity
  • freely navigate the Mississippi
  • secure the public credit required for a strong nation
  • engage in free and unrestricted commerce
  • gain sufficient respectability in the eyes of foreign powers to prevent unwanted encroachments
  • etc.

In other words, given the lack of power, resources, and population within each of the separate loose confederacies, neither on its own could hope to preserve the union against an attack thereon.
That’s why Hamilton implores us to make a firm stand for our safety, our tranquillity, our dignity, our reputation and at last break the fatal charm which has too long seduced us from the paths of felicity and prosperity.