by Ho-Hyung (“Luke”) Lee
Every high government official and many top economic experts have tried to solve our continuing economic crisis and revitalize the economy over the last several years, but to no avail. Resembling the myth of Sisyphus, every attempt to restore the economic status quo has resulted in that huge boulder tumbling back to the bottom of the hill. If we do not break down the logic of the economic rules of the game – the real source of our problems -- I believe that every new effort will be just as ineffective and useless as everything else we have tried.
The Existing Maddening Economic Condition
We need an economic paradigm shift. Nothing else will do. The impasse we are now in I refer to throughout this article as the “existing maddening economic condition.” And it is maddening. But first, let me give a little history, before I give you my solution for this impasse. The development of the Modern Information Age made possible by the Digital Revolution and the Internet has unquestionably brought major changes to the market and to society as a whole. What is less widely acknowledged is that changes in the market process that were intended to increase its efficiency actually worsened employment conditions. And, as most everyone knows, stagnating employment means a stagnant economy.
A significant improvement in employment conditions was temporarily achieved in the IT and Internet sectors during the dot-com boom. However, efforts to reduce the number of transactions and functions in a chain of linearly constructed transactions—such as Wal-Mart, e-buyer, e-seller and e-auctioneer systems, and existing e-marketplace systems in the real market process—and to increase the efficiency of functions through numerous collaboration activities with all sectors of the market have actually worsened employment conditions. At the same time, these events contributed to the shift to a more efficiency-oriented supply side environment. That is, a mutually complementary relationship between the supply side and the existing market process has been more firmly established. To increase efficiency, the following major steps have occurred on the supply side:
• Sharp productivity increases from IT progress.
• Increased off-shoring and outsourcing to lower-labor cost countries.
• Broad adoption of automation processes equipped with information devices.
Yet, these changes also resulted in increased difficulties in job creation for middle- and lower-income workers and an intensified polarity between the poor and the rich. Moreover, they have also contributed to the weakness or near collapse of the general service industry and actually aggravated the employment situation. In my view, the existing market process has been too efficiency-oriented to the point where it has not created enough businesses and jobs to keep consumer spending at the desired level. This is strongly correlated with the worsening of the self-generation capability of the market.
This worsening of the self-generation capability of the market has lowered the level of consumer spending over time (Force ). It has been a major factor in the deepening of the recession.
To raise the level of consumer spending, there seemed to be little choice other than expansionary fiscal and monetary policies, along with stimulus plans, to keep the economy going. These measures have tended to act as a force to increase the level of consumer spending (Force ) to promote growth and prosperity.
When Force  is more powerful than Force , growth can appear in many parts of the market. However, the problem is that Force  is a continuous force, and Force  is only a temporary one. That is, when Force  disappears and Force  continues, the economy pulls back to recession. Thus, we have continually adopted excessive expansionary economic policies and enacted stimulus plans to stave off recession over the last eight to nine years. This has only postponed the inevitable deep economic decline into which we have now descended. This is what I mean by the existing maddening economic condition we are experiencing now. Is there a way out of this maddening spiral?
Because we have adopted these excessive expansionary economic policies and stimuli too often as a stopgap, we have experienced serious side effects in the market: (1) budget deficits at both the local and federal levels have ballooned significantly; (2) because of the monetary liquidity increase, various economic bubbles grew in size and number; thus, (3) the potential for inflation increased; and (4) other abnormal phenomena accumulated in the market. Each of these contributed to a sudden drop in the level of consumer spending, which propelled the economy into deeper recession.
What of course precipitated this crisis – i.e., the immediate cause -- was that we did not effectively regulate the creation of sub-prime financial products. Despite the potential risks of those products, financial institutions went ahead, as it was felt they contributed to increasing the level of consumer spending. We now know we were wrong. So, to our peril, we did not put a stop to what we now recognize as a dubious policy that exacerbated the situation. Finally, from the housing market bubble burst to the current financial meltdown, the economy has now plummeted to a level from which catastrophe looks probable.
What, then, is the real cause of the current economic and social crisis? The conventional answer is that it is the housing market bubble burst and the sub-prime mortgage system failures. That’s the simple answer. But what underlies those? Is it perhaps the existing market process itself? I can see free market ideologues cringe now. But with the market process as it exists now, the market as a whole cannot self-generate enough businesses and jobs to keep the level of consumer spending at the desired level. That is, the existing market process for the real market is too heavily efficiency-oriented and no longer suitable for the modern information market.
If we do not change this existing efficiency-oriented market process soon to a more effectiveness-oriented market process, that is, if we do not break down the logic of the existing maddening economic condition, I strongly believe that this economic tailspin cannot be stopped. At the very least, as long as the current conditions remain, we cannot achieve sustainable economic growth.
Changed Communication Capability and Development of a New Three-Dimensionally Integrated System through IT and Networking Technology
The increases in efficiency and application capabilities resulting from the digital revolution have made possible the development and spread of a multitude of digital devices. It has created many new businesses and jobs in the manufacturing and technology sectors of the market. It has also made possible the development and expansion of IT and computer networking technology.
Fast forward to today’s Modern Information Age. Through the use of IT and networking technology, communication has been rapidly transferred from existing linearly constructed communication—that is, one-to-one based communication such as telephone and telegraph—to two-dimensionally constructed communication, or one-to-multiple or multiple-to-one based communication such as radio and television. Moreover, with the further development of IT and networking technology, these two-dimensionally constructed communications advanced into three-dimensionally integrated communication such as the Internet. With the development of three-dimensionally integrated communication systems such as the Internet as a link between information sources and recipients, we could have made huge increases in effectiveness in information and created numerous new businesses and jobs in the IT and Internet sectors of the market.
A communication capability resulting from the development of IT and networking technology has already been established to develop these three-dimensionally integrated systems, not only in information but also in the real process of the market and society. Further, they can be produced intentionally, not just inadvertently as in the past. The full development of three-dimensionally integrated systems is now possible. Moreover, the global information exchange enabled by the World Wide Web has made them more broadly realistic.
Some efficient three-dimensionally integrated systems have already been realized. However, disappointingly, all of them are systems only for information transactions, not for real transactions. For example, the Internet is a link between information sources and recipients, an e-marketplace between information providers and customers, and e-platforms between software developers and users.
Because these three-dimensionally integrated information systems were developed with only the base of information (digital code), they have not only been freed from the restrictions of time and space but have done so in accordance with a fair rule and standard. That is, the efforts and investment for their development were not only economical, but the intended results could be more accurately predicted with a fair rule and standard in place. Accordingly, there are no limits to maximizing the effects. It has depended principally on their participants’ imagination. However, oddly, the conditions of real-world processes have not been considered at all. As a result of this oversight, we could not develop any efficient three-dimensionally integrated systems in real processes through the use of IT and networking technology.
This development of modern information accessibility has led to immense economic growth in the IT and Internet sectors around the world, beginning with the popularization of the Internet in 1996. However, the so-called dot-com economy between 1997 and 2001 failed to make profits or enlarge economic gains and, thereafter, engendered a bubble economy. Moreover, an improved communication capability has not been utilized to its fullest potential to develop three-dimensionally integrated systems in the real market process.
A Serious Mistake Made in the Real Market Process
Since e-procurement appeared, the e-market as a three-dimensionally integrated transaction model has been recognized for its efficiency. It is likely to yield greater efficiencies, up to maximum efficiency, by eliminating intermediaries from transactions between providers and customers and by facilitating competition among providers.
Nevertheless, it is difficult to construct an efficient e-marketplace in the real market process. Because the distribution and delivery of real (physical) products and services and the activities of providers and customers are directly restricted by time and space, there have been different rules and standards for transactions in the real market process. As a matter of course, we have developed numerous transaction systems and applications, including various collaborative function systems and applications such as eBay, Amazon.com, and numerous logistics and supply chain solutions, by simplifying the rules and standards through IT and networking technology. Here, a serious mistake was made, but nobody has recognized what that is, until now.
The mistake is that in developing those systems and applications, we have tried to simplify the rules and standards by manipulating—that is, classifying or limiting—the constituent factors of the transactions such as products, services, providers, and customers. Let us consider some examples. E-Bay’s auction system is an effort to simplify the rules and standards by a product or a service, and Amazon.com’s e-seller system is an effort to simplify them by a company (i.e., a seller). However, they both made the mistake of giving up the opportunity of facilitating competition among providers. The developers of eBay’s or Amazon.com’s e-marketplace system, or other home shopping systems have tried to simplify the system by the character of products or services. In this case, only products or services that are not sensitive to the rules and standards can be efficiently traded through these systems. Some big companies have tried to simplify by their buying power to manage purchasing alone (e-buyer model). Most collaborative function systems and applications have been developed through simplifying by services of individual functions. There are many other cases, but almost all of them have this characteristic of immediately increasing productivity and efficiency.
Because IT and networking technology have been used mostly for this purpose, the employment situation has continually worsened in the market. Things have gone wrong from the beginning. In a more bizarre twist, the more the Information Age has progressed, the more the employment situation has worsened, and policies aimed at improving the employment situation have been unsuccessful.
We need to consider a basic question once more. Why have there been so many different rules and standards? Have they been made due to the constituent factors of the transactions such as products, services, providers, and customers, or due to the restriction of time and space itself? I believe the latter is correct. However, to develop an efficient transaction system, not only must they be simplified but also a fair rule and standard must be put in place. Yet, without directly overcoming the restriction of time and space, it will be almost impossible to construct a fair rule and standard in the real market process. To simplify and also construct a fair rule and standard, IT and networking technology should have been used in such a way that directly overcomes the restriction of time and space. Unfortunately, no instance of that has yet occurred.
Breaking Down the Logic of the Existing Maddening Economic Condition
Real transactions are directly restricted by time and space. Without directly overcoming the restrictions of time and space, it is almost impossible to construct an efficient three-dimensionally integrated system such as the Internet and an efficient e-marketplace in the real market process.
By directly limiting the restrictions of time and space, such as directly limiting the market ranges, the same services (i.e., delivery times) of offerings from providers and the same price of like offerings from a provider at the final delivery point as a fair rule and standard would be established to regulate an efficient e-marketplace. By operating the supply chain infrastructure in a limited market range, the integration of a supply chain would construct a system like the Internet in the supply chain (real market) process.
I believe that such a three-dimensionally integrated market system with the Internet and the efficient e-marketplace combined can be easily developed that will effectively overcome the restriction of time and space by using IT and networking technology. It will neither participate in the production activities of the supply side nor influence the consumption activities of the demand side directly. Instead, it will provide direct, fast, and efficient links and marketplaces to both sides. Because each participating member can easily develop other applications on its own by using this supply chain infrastructure with other outsourcing service providers, it will be capable of increasing its own competitiveness by expanding its effectiveness in this open system. Numerous applications could also be developed in the real market, based on unlimited imagination. If it is developed and implemented in the real market, the existing efficiency-oriented market process would be changed to a more effectiveness-oriented market process, which is far more suitable to the modern information market. The self-generation capability of local markets would be improved, already an emerging trend in numerous micro-markets. This is how to break down the logic of the existing maddening economic condition.
If this new three-dimensionally integrated market system is fully implemented, the existing comparative competition paradigm for more market share would be changed to a new absolute competition paradigm for securing all customers. The centralized communication, volume, and distributed expense would induce the voluntary participation of all members of the market. This would significantly contribute to the improvement of employment conditions as a whole.
With the influence of this new, more effectiveness-oriented market process, the existing competition by size would be changed to a competition by quality and service. The existing efficiency-oriented mass production process and mass consumption would also be changed to a more effectiveness-oriented, diversified, or individualized production and consumption system. These changes would enhance local employment conditions considerably, and the business environment for middle- and small-sized companies and for the general service industry would also improve significantly. Moreover, companies that off-shored and outsourced to lower labor cost countries would come back into the domestic arena.
As a mutually complementary relationship is established between the supply side and this new more effectiveness-oriented market process, job creation for middle- and lower-income people could be enhanced, and the polarized gap between poor and rich moderated.
These mutually complementary phenomena for the improvement of employment conditions would be a positive force for economic recovery and revitalization. The improvement of the self-generation capability of the market could finally be transformed into a structural force to increase the level of consumer spending without sizeable lapses resulting in recessions.
In this scenario, a policy for a smoothly functioning economic environment would be established, and no more excessive expansionary economic policies would be needed. Thereafter, the budget deficit at both the local and federal levels would fall, and many economic abnormalities could be resolved naturally.
I strongly believe that this is the most effective path to get out of the current economic and social crisis and revitalize the economy. Some might think that it will be impossible to change the market process or that it will take too long, even though conceding that it would be desirable. But I believe the conditions and circumstances for the development of this new effectiveness-oriented market process are already in place. That is, information technologies, facilities, devices, and people are already in place to develop a new three-dimensionally integrated market system. The only issue that remains is the will to develop it. I believe that the solution is in sight. It only needs to be implemented. Once decision-makers are willing to make the necessary choices, it will be relatively easy to implement, and it will not take long to see positive results.
This new three-dimensionally integrated market system will powerfully induce the voluntary participation of all members of the market by providing various economic benefits to them—especially by creating many jobs, not just thousands of jobs, but millions of jobs.
The current economic crisis is worsening day by day, moving inexorably toward a depression. We do not have time to delay any longer. To stave off this worsening crisis and to revitalize the economy, I strongly recommend the national economies of the world and their government leaders initiate and support the development of this new three-dimensionally integrated market system as soon as possible—before it is too late.
Ho-Hyung (“Luke”) Lee (email@example.com) is by training a lawyer, an international businessman and entrepreneur – and an inventor. He is currently the CEO of UBIMS, Inc. ("Ubiquitous Market System").