Saturday, October 9, 2010

What has Happened to the Economy of the Modern Information Age; and What Should We Do About It?

When we see the relationship between the supply side and the demand side of the economy as a system of human activities related to the production, distribution, exchange, and consumption of goods and services of the nation, the supply side not only (1) supplies products and services to the demand side, but (2) provides jobs.  At the same time, the demand side (3) purchases products and services from the supply side. Therefore, in order to ensure a sound and improving economy, there must be a mutually positive balance among the three without damaging the economic self-generation capability.

In other words, the economy should develop the self-generation among (1) the degree of consuming effect made through products and services from the supply side, (2) the number of jobs provided by the supply side and (3) the degree and character of consumer spending made in the demand side.

When we knew the economy was headed for a downturn in the past, an increase of employment could be achieved through the temporary promotion of investment and consumption mainly by economic stimulus policies.  This could also be linked to the further increase of consumption again, and thus the stagnation of the economy could be prevented. That is, through economic stimulus policies, a mutually positive balance among the three could be realized without damaging the self-generation capability.  

Today, however, the promoted investment and consumption by economic stimulus policies have not been linked to the increase of employment as much as desired.  Accordingly, a chronic consumer spending insufficiency has crept into the market.  In other words, economic policies cannot serve any more as stimulators as they have in the past.  

What has happened in the economy then?

Let’s see how the world has changed.  Over the last 20 years of the Modern Information Age, we have experienced greater increase of efficiency and effectiveness from information exchange and application than could have been imagined in the past. We also experienced the world wide information exchange through the development of the World Wide Web.  With this, the rapid and economical spread of information has greatly influenced and brought major changes to all individual participants in the market. Almost all of the individual units on the supply side have greatly increased their productivity, product development, and commercialization capability. The ratio of employment to investment has been reduced. On the demand side, consumer knowledge and recognition have increased greatly, and this is directly linked to the abrupt escalation in consumer needs and wants. This must have operated to press the increase in consumer spending on the demand side.

On the other hand, the efficiency and effectiveness as a result of the process made from the market as a whole must not have been changed much since there were no major changes in the existing market systems. Market systems are the systemic series of individual actions that realize the market process. That is, no major changes were made in the consuming effect of products and services supplied from the supply side, and the increase of employment must have weakened.  

As the pressure for the increase of consumer spending in the demand side kept increasing, the situation on the supply side remained as it was.  As a result, a serious imbalance and a vicious cycle between the supply side and the demand side have occurred.

To overcome this situation we erroneously attached too much weight to temporarily solving the issues of consumer spending and employment, only we did so by rigidly adhering to economic stimulus policies that worked in the past, instead of trying to improve the market as a whole.

This excessive use of ineffective economic stimulus policies has greatly damaged the economic self-generation capability of the nation, and also contributed to the numerous abnormal phenomena in the market we have witnessed the past year.

The real issues are these:  How can the existing outdated market systems be transformed into the new market systems, which are more suitable to the Modern Information Age; and how can we develop a new market process better suited to the Modern Information Age?

The new market process we develop will significantly increase the consuming effect of products and services supplied from the supply side by greatly improving the efficiency and effectiveness of the process itself.  It will also improve the condition of employment. The economic self-generation capability of the nation will be recovered gradually, and the creation of abnormal phenomena in the market will also be reduced.

Fortunately, information technologies, facilities, devices and people are already in place to develop this new market process. The only issue remains how to develop it.

To prevent further damage and to revitalize the economy as soon as possible, I strongly recommend the government initiate and support the development of this new market process for the Modern Information Age.

Written by:     Ho-Hyung Lee ( - 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.

No comments:

Post a Comment