<This article was written for Newly Elected President Obama on November 23, 2008>
The long presidential campaign is finally over. The voters’ demand for change has been heard. Many Americans believe the new president will have the vision to see us through the worst economic crisis since the Great Depression. It may be a forlorn hope. For, if the new administration doesn’t offer a vision for the Modern Information Age, then change for change’s sake will be useless. The Fed’s lowering of interest rates, the Troubled Assets Relief Program (TARP), the rescue plans, and the economic stimulus plans will not forestall the inevitable catastrophe. None of these actions – let alone wishful thinking -- will do any good if the market process is not overhauled, and overhauled soon. It’s not just the economy; it’s the market process.
The rapid spread of information has brought major changes to the quality of life for most Americans over the last twenty years. But this is misleading, for the gains are rapidly being overtaken by the costs to society as a whole. Weaknesses in the overall efficiency and effectiveness of the process call into question those who like to sing the praises of the Internet and the shrinking of the world from globalization. With no changes in the accompanying market process, these gains can no longer be sustained. If the economy collapses, then all of those gains will have been for naught.
With this in mind, let’s take a close look at what has happened in the market and society for the last twenty years; and, let’s also take off the rose-colored glasses, so that we can avert the collision course we are on.
Communication Changes in the Modern Information Age
In the Modern Information Age, communication has rapidly transferred from existing single-source based communication to multiple-source based communication. Moreover, with the development of networking technology, these multiple-source based communications could be re-integrated. Because this multiple- source based networked communication is very economical all over the world, and also possible in all directions, its potential impact was, and is, far greater than ever imagined. The result is a new paradigm, which could create far greater effects on efficiency and effectiveness than the prevailing paradigm. That is, single-source based communication, from which only simple arithmetical changes could be expected, has developed into the multiple-source based networked communication system, from which multiplying changes or even geometrically progressive changes (synergistic changes) can be expected. Moreover, by breaking down the existed local restrictions through the development of the World Wide Web, communication was no longer restricted by time and space.
The Development of Information Process in the Modern Information Age
The information process has rapidly matured, developing numerous synergistic information systems in the Modern Information Age. It has been made possible with the realization of dramatic efficiency increases and rapidly enlarged universal application devices (digital devices) through the Digital Revolution and also with the construction of IT Infrastructure for the Internet Revolution and the development of numerous synergistic information systems (digital contents, software applications or digital synergies) by applying multiple-source based networked communication. Because these synergistic information systems were developed with the base of digital code, they have been freed from the restrictions of time and space. Moreover, the logical development has been made possible with a fair rule and standard. That is, the efforts and investment for synergy development in the information process were not only economical, but estimates of the results could also be more accurately predicted. Accordingly, there have been no limits in maximizing the synergy effects in the information process. It has depended principally on imagination.
Therefore, with the rapid, economical spread of information itself and information-centered knowledge products and/or services, and the easy development and application of other information-related systems, such as automation systems with information devices, which benefited considerably from synergy effects, all of the individual members and units on the supply side could have greatly increased their productivity and product or service development capability. On the demand side, all individuals’ knowledge and recognition has increased, and this must have been directly linked to the escalation in the needs and wants of consumers.
The Development of the Market Process in the Modern Information Age
In the market process of the Modern Information Age, multiple-source based networked communication has not been utilized to its fullest potential, and, as a result, only arithmetical changes could have been expected from it.
There are too many different rules and standards in the market, which is also restricted by time and space. To make the multiple-source based networked communication more efficient in the market process and to develop synergistic effects, we must start by developing fair rules and standards in the market. However, until now, we have not found the ways to develop those conditions; instead, we have developed other ways to improve the market process, as follows:
Ÿ Market-Store Systems such as Wal-Mart and Target. Instead of developing marketplaces with multiple stores, market-stores with multiple products have been developed. They could produce market-store (or product) synergy effects to some degree, even if they are almost meaningless, but they also bring some negative effects to the market such as direct job reductions without any contributions for indirect job increases and marketing manipulations for maximizing their own profits.
Ÿ E-Auction and E-Retailer Systems such as E-Bay and Amazon.com. Although they had every incentive to use the multiple-source based networked communication, they adopted single-source based communication instead and blocked the possibility of producing synergy from the start. E-Retailer Systems also have similar positive and negative effects as Market-store systems.
Ÿ E-Marketplace Systems such as E-Bay’s Marketplace System and Amazon.com’s Marketplace System. Even though they adopted the multiple-source based communication for direct transactions between suppliers and customers, they still did not equip it with fair rules and standards in their marketplaces. Also, they still do not use the multiple-source based networked communication for the whole market process, including the actual supply chain process. Therefore, only products and services, which are not sensitive to the rules and standards, could be transacted through these systems, and the synergy effects from them are much less than expected.
Ÿ Numerous Collaboration Activities: Because they are mainly constructed by a multiple-to-one adding relationship, only arithmetically changing effects (or adding effects) could be expected from them.
The market process could have had some positive adding effects from widespread collaboration activities. That potential was never realized much. The market-store or product synergy effects made from Market-Store Systems and E-Retailer Systems could be offset by some negative effects made by them in most cases. The synergy effects from E-Marketplace Systems were too weak to be influential on the market. Therefore, the market process has remained virtually unchanged even in the Modern Information Age, because only arithmetical changes have been realized.
The Structural Gap between Market Requirements and Market Results
Numerous synergistic information systems with multiple-source based networked communications and other information-related systems such as automation systems with information devices have been developed in the Modern Information Age. Anyone influenced synergistically could also have multiplying effects in the market. So, we have had the capability of producing numerous geometrically progressive market changes; while on the other hand, the market results made through the market process which comprised the existing market systems could still have only produced arithmetical or limited progressive changes. As the requirements made through market changes could only have been satisfied by the results made through the existing market process, a structural gap has occurred in the market.
Major defects resulting from this structural gap have appeared in the market. They include:
¨ The Innovation has not contributed significantly to Indirect Job Increase.
Most economic experts have viewed the advances in information technology only in terms of technological progress, with little downside. That is, even if there is a direct job reduction, more indirect jobs would eventually be created due to innovation. However, in the real situation, the advances in information technology have done the opposite. Rather, there has been little room for indirect job creation in the domestic market. (Japan experienced this change earlier than others, because it had developed the capability of productivity and commercialization mainly due to the rapid development and spread of a lean production system like Toyota
Suppliers and service providers positively have adopted the advanced information systems and automation systems to increase their competitiveness and to make more profits. On the other hand, many ordinary workers lost their jobs, but not many indirect jobs have been created. This situation intensified the conflict between labor and capital.
¨ Only Globalization, Standardization, Commoditization-Oriented Activities have been facilitated.
The existing market process has not provided satisfactory consuming effects structurally to the market. This is because only arithmetical changes of effects on efficiency and effectiveness have been expected from the existing market process. On the contrary, the market, which has been directly influenced by the new communication paradigm, has required more multiplying or geometrically progressive changes. Thus there must have occurred some gaps structurally between the consuming effects provided by the existing market process and the market requirement.
Theses structural gaps eventually appeared as the missing phenomena of consumer spending in the market. That is, because consumer needs and wants increase faster than consuming effects, consumer spending will ultimately be curtailed.
Because the existing market process could create new businesses and jobs only in an arithmetical way it could not create enough income to satisfy existing market requirements. It is as if consumer spending was held back due to the limitations of the market process.
This curtailment of consumer spending has brought the abrupt increase of consumer price sensitivity, and this must also have caused the abrupt increase of excessive price competition in the market. This situation must have developed concomitantly with the rapid expansion of efficiency-increase-oriented (cost-oriented) globalization, standardization and commoditization activities such as off-shoring and outsourcing toward foreign countries with lower labor costs, and this must also eventually have been directly linked to the decrease of jobs or the reduction of income in the domestic market.
Moreover, because the existing market process has a fixed and closed marketing channel, it could not have handled all products or services. Keep in mind that there has been an increase in numbers and kinds of new products and services in the Modern Information Age and due to this, it should have required more marketing and distribution costs for new products or services. What this means is that the existing market process has actually impeded the creation of new businesses and jobs in the domestic market.
As a result of all this, the employment condition for lower- and middle-income workers has rapidly diminished, and this must also have widened the inequality of earnings between affluent and poor. Accordingly, the situation of consumer spending capability on the demand side must have been aggravated. Under these circumstances, a serious imbalance has occurred, culminating in a vicious cycle between the supply side and the demand side in the market.
To overcome this situation the Bush administration adopted a series of economic stimulus policies to improve the employment picture by promoting investment and consumption, rather than trying to change the outdated market process. Ironically, these measures have not only been ineffective in stimulating the economy, but they have also created numerous abnormal phenomena in the market. These include bubbles in the equity markets across the board, and an increasing economic strain on those in the lowest income bracket. These phenomena brought numerous economic and social problems such as the sub-prime mortgage failures, the credit crunches and the financial meltdowns we have witnessed in the past year.
The paradoxical economic situation
In order to stimulate the economy, we seek to promote business investment and consumption to increase jobs with expansionary stimulus economic policies. When the sum of increased consumption and increased consumer confidence by job growth is larger than the promoted consumption increase, the economy usually responds positively and is revitalized, so the argument goes, and a positive cycle for economic growth can achieved. Therefore, the economic stimulus policies are only a short-term expedient to be used only temporarily and in a limited way for inducing a positive economic cycle.
Yet, under present conditions, no matter how powerful the economic stimulus policies adopted, we will still fall short. When the degree of job growth created by the stimulus is weak, and the sum of increased consumption and increased consumer confidence is less than the promoted consumption increase, the economy cannot be sufficiently stimulated. Even if we had not adopted the stimulus economic policies, a vicious cycle between the supply side and the demand side would have been introduced into the economy.
Under the changed economic circumstances, we have had to adopt stimulus economic policies to avoid the vicious cycle in the market or economy, without finding any other longer term alternatives over the last several years. Moreover, as globalization activities such as importing, outsourcing and off-shoring have been activated, we’ve had to expand the degree of the stimulus policies to an extreme degree.
To make matters worse, financial deregulations have been excessive and abrupt, and as a result, the weight of consumer debt in consumer spending has rapidly increased.
One could contend that the sum of increased consumer debt, increased consumption by job growth and increased consumer confidence were similar to, or larger than, the promoted consumption increase. Yet, to so argue is to ignore the introduction of numerous abnormal phenomena such as the weakening self-generation capability of the domestic market, not to mention the further losses to the “Missing Class.” That is, even though the stimulus economic policies were adopted to stimulate and revitalize the economy, they have rather created a paradoxical economic situation, as only abnormal economic phenomena were intensified instead. (The “Missing Class” is Princeton University
This paradoxical economic situation has now persisted over the last several years, and our national competitiveness has steadily weakened, while the safety and welfare of the nation has worsened. Moreover, many unusual economic problems such as the sub-prime mortgage failures, and a vast financial meltdown and credit crunches, have now worsened economic conditions. We should expect many other economic and social problems in the very near future if we do not correct this paradoxical economic situation now.
What are the real causes of the current economic malaise?
Plain and simple, it’s the market process.
It is now widely accepted that modern information technology has been a boon to modern society. However, not everyone has benefited. Moreover, the market process has suffered. That is, a situation has been created in which some have benefited more than others. But, more importantly, the reduction of jobs in the domestic market has been a structurally unavoidable phenomenon, given the nature of the market process. No economic stimulus is sufficient to offset that decline in job growth. Rather, paradoxically, only economic abnormalities have been created by these stimulus measures. This time will be no different.
I believe that economic and social conditions are now so imperiled that they require changing the existing outdated market process to a more flexible, open market process, one that is better suited to the modern information age.
Some people might think what I am recommending is tantamount to economic heresy. “Why change the market process?” they say. Why not leave things alone, and they will correct themselves, as they always have? No, they will not correct themselves. However, we can take comfort in the fact that our free market system can provide all the necessary conditions we need such as information technologies, facilities, devices, and people for the development of a new market process. It is a restructuring, not changing free market capitalism.
The new flexible and open market process I recommend will contribute immensely to job growth in the domestic market and also the consuming effects on efficiency and effectiveness. Accordingly, it will provide a policy for better working conditions, solve numerous economic and social problems, and eventually stimulate and revitalize the economy.
¨ A Proposed Solution
The basic principle of the Digital Revolution is the development of mutually complementary relationships for the rapid increase of efficiency through the construction of a standardized format (digital format), and the rapid spread of universal application devices (digital devices). This creative and explosive power of a mutually complementary relationship is possible not only in the information process but also in the market process, even though many standardized formats need to be constructed. Therefore, if this principle is applied in the market process, efficiency will be increased and the universal work providers will benefit enormously.
The basic principle from the beginning of the Internet Revolution has been construction of IT infrastructure to make possible the development of abundant digital contents (digital synergies). It is also possible to construct IT and work process infrastructures in the market process by defining and clarifying the lines of responsibility. That is, no matter how far the distance or complex the connection, the entity responsible for protocol must always be specified and made clear. The need to define who is responsible became apparent through the development of the information age and has made outsourcing possible for networks involved in the work process. With that as a base, the conditions for fair rules and standards could be easily constructed in the market process. Many work process contents (work synergies) could thereby be developed; and the effectiveness of the market process would be significantly increased.
Therefore, increases in efficiency and in the number of universal work providers resulting from outsourcing have the potential to create many new businesses and increase the number of jobs as a whole through the development of mutually complementary relationships and numerous work process contents in the domestic market.
A new mutually complementary relationship could then be constructed between the information market or economy and the real market or economy, and this would revitalize the economy, solve many of our current economic and social disparities, and strengthen national competitiveness and the welfare of the nation.
The present paralyzed economic situation could then be changed practically overnight. This is the kind of “stimulus and rescue package” we need.
Therefore, to prevent the rapidly deteriorating damage of economic self-generation capability and avoid potential economic collapse we must construct a new market process as soon as possible.
I believe our current economic malaise is not just the
Author: Ho-Hyung Lee (luke.h.lee@gmail.com) - Ho-Hyung (“Luke”) Lee is by training a lawyer, an international businessman and entrepreneur – and an inventor. He is currently the president of Ubiquitous Market System, Inc. (UbiMS). Ubiquitous Market System is nothing less than a new synergy market system that will put us on the real path to prosperity.
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