Wednesday, November 16, 2011

The Real Cause of the Current Economic Crisis and a Suggested Solution

by Luke Ho-Hyung Lee

Every high government official and many top economic experts have tried to solve our continuing economic crisis and revitalize the economy over the past several years, but to no avail.  It seems an even bigger and longer-lasting crisis, with an economic tsunami, lies ahead.  Why have existing policies not been effective?  Why did this situation happen in the first place?  Even though many experts are studying this issue, none have found clear answers to these questions, let alone a solution.  Could they be looking in the wrong places?
I have noticed that the current economic situation is analogous to diabetic disease.  Generally, it is difficult to detect diabetes from a single, simple symptom before it develops a serious complication.  This is because this one symptom, apart from any other, does not look to be seriously harmful to the body and because it is not easy to detect the relationship between the symptom and the disease.  Likewise, it will not be easy to determine the real causes of the current economic conditions which afflict us.  If each complication is treated separately, the proper treatment will escape us.  Moreover, this may also cause other potential, perhaps fatal, complications.
Market (or supply chain) process is the bloodstream of the economy.  If the existing market process is outdated or not suitable for the modern information market, all the efforts we are now pursuing for solving the current economic crisis and revitalizing the economy will be ineffective and eventually useless. Unfortunately, nobody except me has seriously considered this yet in their ruminations about the economy.
Characteristics of Real Transactions and the Construction of Efficient Market Systems in the Real Market Process
We have developed numerous market (transaction or supply chain) systems or applications for real transactions in our history, and they have realized the 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 many different rules and standards (or complex conditions) for real transactions between multiple providers and multiple customers in the real market process. Therefore, it has been very difficult to construct an effective market (transaction or supply chain) system that is regarded as fair and straightforward in the real market process.  
To construct an effective market (transaction or supply chain) system or application in the real market process, what must we do?  Not only must the rules and standards (the conditions of transactions) be (1) simplified but also (2) made fair, transparent, and straightforward (3) by directly overcoming the restrictions of time and space (i.e., by directly improving the conditions of real-world processes).                                                         
Have we ever constructed any such market (transaction or supply chain) systems or applications in the real market process? Yes, we have constructed many, such as LA Fashion District as a wholesale marketplace and retail farmers’ markets in many local areas.
We have also developed numerous e-market (e-transaction or e-supply chain) systems or applications for real transactions including various collaborative e-function systems and applications such as eBay, Amazon.com and numerous e-logistics and e-supply chain solutions through the use of IT and networking technology in the Modern Information Age.
Have we also developed any such e-market (e-transaction or e-supply chain) systems or applications by following the same requirements for the construction of an effective market (transaction or supply chain) system or application in the real market process? No, we have not developed any in such a way at all. Then, what has happened?
In developing those e-market (e-transaction or e-supply chain) systems and applications, we have tried to simplify the rules and standards or to construct a fair rule and standard only by manipulating —that is, classifying or limiting—the constituent factors of the transactions such as products, services, providers, and customers, instead of by directly overcoming the restriction of time and space. 
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 with a fair rule and standard among providers.  The developers of eBay’s or Amazon.com’s e-marketplace system or home shopping system have tried to simplify the system and construct a limited fair rule and standard by the character of products or services.  In this case, only products such as dry goods or services lacking time sensitivity, which are not sensitive to the rules and standards, can be effectively traded through these systems.  Some big companies have tried to simplify rules only by using their buying power to manage purchasing alone (e-buyer model), in effect creating monopolies without fair rules of trade.  Most collaborative e-function systems and applications have also been developed only through simplifying them by services of individual functions.  There are many other cases, but almost all of them have this characteristic aim:  an immediate increase in productivity and efficiency.
At a glance, people might wonder what is wrong with these. Actually, things have gone wrong from the beginning for the employment situation in the market or economy, but nobody has recognized why it has happened and how serious it has been, until now.
Because IT and networking technology have been used mostly in this way for developing those e-market (e-transaction or e-supply chain) systems and applications, (1) the number of transactions and functions in a real market (or supply chain) process has shrunk remarkably—as with Wal-Mart, e-buyer, e-seller, and e-auctioneer systems, and existing e-marketplace systems in the real market process—and (2) numerous collaborative activities to increase efficiency of function have arisen in all sectors of the economy.  Moreover, (3) big companies have developed private information-based supply chain networks in all industries in which they are engaged.  In this situation, employment continually declined, and policies aimed at improving it have been unsuccessful.  Let me explain more details about these:
(1) The number of transactions and functions in a real market (or supply chain) process have been remarkably reduced
This diagram explains how much the reduction of the number of transactions and functions in a real market (or supply chain) process has contributed to the worsening of employment in the economy as a whole.
In the existing functional supply chain process, every supplier has been in the situation of competition by size for more market share.  That is, they suggest similar prices for a similar product--around $10 for a hypothetical product.  If a supplier can offer a better price, such as $9 for Supplier H, by reducing the number of transactions and functions in its supply chain process, it could get more market share. Suppliers B, D, F, G, and I would lose some market share.  It seems nothing is wrong here under the current theory of a free market economy.  Yes, nothing is wrong with the current free market economy, but something else must be seriously wrong, as shown above.
The suppliers, who cannot offer better prices, as well as the small wholesalers and retailers in their supply chains, lose their businesses.  That is, the whole supply chain in this market becomes unstable:  loser suppliers are easily destroyed, along with their suppliers, and as a result, conditions permitting employment, especially for middle- and lower-income workers in those supply chains, seriously deteriorate.  Some suppliers could be subordinated to a strong function player such as Wal-Mart for survival, but the situation will still worsen.
Let me ask you directly:  “Can you change this worsening course of the employment situation with the old economic policies or stimulus plans?”  I believe it to be impossible in most existing functional supply chain processes.  That’s the real problem.
(2) Numerous collaborative activities to increase the efficiency of market functions have created oligopolies
This diagram explains how increasing the efficiency of a function itself in the existing functional supply chain process through collaboration has contributed to the weakening of employment in the economy as a whole.
Structurally, the more the collaboration for a separate function is activated, the worse employment levels become, under competition by size for share.
As seen in Diagrams (1) and (2) together, the efforts for efficiency increase in this existing functional supply chain process have contributed to the weakening of employment in the economy as a whole, unavoidably and continuously.  This worsening employment condition has had a greater impact on middle- and lower-income workers than anyone else.  On the other hand, those same efforts have provided a better opportunity for increasing income to the more affluent.  Thus, there has been a greater polarization between poor and rich due to market forces. 
Here, a question could be raised: Can the existing functional supply chain process with competition by size for market share be changed only by manipulating the constituent factors of the transactions such as products, services, providers, and customers?  Structurally, it’s impossible.  Without directly overcoming the restriction of time and space, it will be almost impossible to construct a fair rule and standard for all in the real market process.
(3) Many private information-based supply chain networks have been developed in all industries of the market, mostly by big companies
This diagram shows Zara’s case as an example.  Zara, the largest clothing company in the world, developed a private information-based supply chain network by vertically integrating its logistics and collaborative functions through the use of IT and networking technology and now needs just two weeks to develop a new product and get it to stores, compared with a six-month industry average, enabling Zara to launch around 10,000 new designs each year, far more than its competition.
Zara has been remarkably successful over the last 20 to 30 years, and as a result, Amancio Ortega, Chairman of Zara, was named the ninth richest person in the world by Forbes in 2010.
But what happened to others in the industry?  Most small individual designers and manufacturers were much less competitive than Zara, and only some of them could be absorbed by Zara.  As usual, the employment situation for middle- and lower-income workers in this industry has seriously and relentlessly deteriorated.  Unfortunately, Zara is no longer an isolated case.
Large companies in every industry have developed similar private information-based supply chain networks for their own distribution, and those big companies have used their supply chain networks only for their own benefit.  Thereafter, sadly, the employment situation for middle- and lower-income workers has seriously worsened in almost all industries, worldwide. 
Strangely enough, this situation is just as if there were no public bridges or tunnels in San Francisco or New York – no Golden Gate Bridge, no Lincoln Tunnel.  Correspondingly, no effective public information-based supply chain infrastructure has been developed in the real supply chain processes of the market.  That’s the real problem, but without directly overcoming the restriction of time and space, it will be almost impossible to develop a public supply chain infrastructure in the market.
The Changed Economic Environment in the Modern Information Age
More seriously, these events have contributed to the shift to a more efficiency-oriented supply side environment and changed the whole economic environment in the Modern Information Age.  That is, a mutually complementary relationship between the supply side and the existing market process has been firmly established, and this has completely altered the economic environment. 
Yet these changes also resulted in increased difficulties in job creation for middle- and lower-income workers and in a wider polarization between the poor and the rich.  Moreover, they have contributed to the weakness or near collapse of the general service industry and aggravated unemployment.  In my view, the existing market process has been so efficiency-oriented that it has not created enough businesses and jobs to keep consumer spending at the desired level.  This is strongly correlated with the decline of the self-generation, or recovery, capability of the economy.  This illustrates once again why Henry Ford paid premium wages to his workers:  he wanted them as customers.  But the workers impoverished by Zara cannot afford even its cheaper goods.
The decline in the self-generation capability of the market has reduced the level of consumer spending over time (Force [1]).  I believe this has been the most important factor in the worsening of the recession. (The self-generation (or recovery) capability of the market:  The market itself generates enough businesses and jobs, and also enough efficiency increase, to keep consumer spending at desired levels.)
To promote 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 consumer spending (Force [2]) to promote growth and prosperity.
When Force [2] is more powerful than Force [1], growth appears in many parts of the economy.  However, the problem is that Force [1] is a continuous force, and Force [2] only temporary.  That is, when Force [2] disappears and Force [1] continues, the economy falls back into recession.  Thus, we have repeatedly adopted excessive expansionary economic policies and enacted stimulus plans to stave off recession over the last nine to ten years.  These only postponed the inevitable deep economic decline into which we have now descended.
Because we have adopted these expansionary economic policies and stimuli too often as a stopgap, we have experienced serious side effects in the market:  (1) budget deficits and privatization of public goods and services at both the local and federal levels have increased significantly; (2) because of huge liquidity increases, various economic bubbles formed, as in  commodities and real estate; thus, (3) the potential for inflation increased; and (4) other abnormal phenomena accumulated in the market.  Each of these contributed to a sudden lowering of the level of consumer spending to propel 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 over-leveraged financial products such as sub-prime mortgage 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 better.  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 and Federal budget crisis, the economy has plummeted to a perilous level.
What is the real cause of the current economic crisis?
So, what is the real cause of the current economic malaise?  Is it still the housing market bubble burst or the sub-prime mortgage system failures?  These are just secondary or incidental causes.  Then, what underlies them? 
I can see free-market ideologues cringe now.  But with the market (or supply chain) process as it exists, the economy as a whole cannot self-generate enough businesses and jobs and also enough efficiency increase to keep consumer spending at the overall desired level.  That is, the existing functional supply chain process for the real market is too heavily efficiency-oriented and no longer suitable for the modern information market.
What has caused this existing functional supply chain process to be too heavily efficiency-oriented?  It appears to be fact that we have not developed any effective e-market (e-transaction or e-supply chain) systems or applications for real transactions by directly overcoming the restriction of time and space (i.e., by directly improving the conditions of real-world processes). Oddly, the conditions of real-world processes have not been considered at all, and accordingly, constructing a fair rule and standard for all has been ignored. This is wrong.  So, I believe the real cause must be the disregard of the conditions of real-world processes in developing those e-market (e-transaction or e-supply chain) systems or applications for real transactions in the Modern Information Age.
Why were real-world processes disregarded?
I would refer to something called the ant death spiral, an event that occasionally takes place in the natural world.
The cause of this behavior is the technology ant societies use for ground navigation. They follow pheromone trails on the ground laid down by other ants, or they simply follow other ants visually. The system works well normally.  A scout ant goes out and finds food.  Other ants go back to get more by following the scent trail, or by following each other.  However, if a loop gets created, the ants will march blindly, sometimes circling until they die.
Unfortunately, it seems that human beings sometimes exhibit similar behavior by blindly following the previous order.  I think we have made the same mistake in the economy over the last 20 to 30 years of the Modern Information Age, and it has created an economic death spiral.
I think it’s time to break down this cycle and explore a new order for survival.  This time we may be saving the world economy.
What should we do? What could be the solution?
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 effective e-market (e-transaction or e-supply chain) system for real transactions defined as an e-marketplace system with a fair rule and standard for all and a public information-based supply chain infrastructure 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 for all would be established to construct an effective e-marketplace.  By operating the public supply chain infrastructure in the limited market range, the integration of a supply chain would be facilitated to construct a system as a platform in the supply chain (real market) process like the Internet as a platform in information.
I believe a public information-based supply chain infrastructure system with an effective e-marketplace can easily be developed that will overcome the restrictions of time and space by using IT and networking technology. 
If a public information-based supply chain infrastructure system is developed and fully implemented in the real market, the existing efficiency-oriented market process would be changed to a more effectiveness-oriented market process, which is more suitable for the modern information market.  This would significantly contribute to the improvement of employment on the whole.  The self-generation capability of the market would improve as well. 
With the influence of this new, more effectiveness-oriented supply chain process, the existing competition by size would change into competition by quality and service.  The existing efficiency-oriented mass production process and mass-market consumption model would also be altered into a more effectiveness-oriented, diversified, or individualized production and consumption system.  Owing to these changes, local employment conditions would improve considerably, and the business environment for middle- and small-sized companies and for the general service industry would improve significantly.  Moreover, companies that off-shored and outsourced to lower labor cost countries would come back to the domestic arena.
As a complementary relationship is established between the supply side and this new effectiveness-oriented market process, job creation for middle- and lower-income workers would be enhanced, and the polarized gap between poor and rich moderated.
This synergy for employment 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 permanent structural force to steady, and then increase, the level of consumer spending. 
In this scenario, a policy for a well-functioning economic environment could be established, and expansionary economic policies would rarely be needed.  Thereafter, the budget deficits at both local and Federal levels would decline, and many economic anomalies be resolved naturally.
I strongly believe that this is the most effective path to get out of the current economic crisis and to revitalize the economy. 
I hope this public information based supply chain infrastructure system with the efficient e-marketplace can be developed as soon as possible, implemented quickly and effectively in the market, and save the world economy.

About the Author
Ho-Hyung (“Luke”) Lee (luke.h.lee@ubims.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"). UBIMS, Inc., is a patent-pending startup with a cloud-based software designed to link manufacturers and businesses directly, provide time and cost savings in supply chains, and promote new job and business formation as outlined above, particularly in “A New Supply Chain Process for the Modern Information Market.”

Monday, October 24, 2011

Parable of the Metropolis on a River

by Luke Ho-Hyung Lee and Jess Parmer
Let’s suppose a large city straddles a sizeable river, and that commerce between its two halves was carried out with boats and barges originally.  As this city passed into modern times and its commerce grew, it became clear that for business to grow, one or more bridges had to be built by the largest companies, which restricted travel to their own vehicles running between the company and its suppliers, or between the company and its markets, across the river.

Problem solved, right?  Well, problems never cease, so let’s consider the new economy which the bridges created.
Unemployment rose sharply
1.       Because the first large company to build a bridge for supply and commerce was quickly imitated by other large companies, the small companies were confined to using boats and barges, so that many of the small companies went out of business, and thousands, even tens of thousands, of jobs were lost, never to return.
2.      Because efficiency became the main issue for competition, every company, both small and big, actively sought any possible way to increase its own efficiency, and coming into the Modern Information Age these efforts focused on adopting IT for productivity increases; off-shoring and outsourcing to lower labor cost cities or countries; and adoption of robotic machines and automation in manufacturing processes.  These worsened the employment situation in the city.
3.      Moreover, because those bridges had been developed mostly by big companies and used only for their own benefit, the market entry of new products or new businesses developed by small companies and individuals were structurally blocked.  Only a few new products or new establishments developed by big companies were easily introduced into the market on planned schedules.  This led to a new type of monopoly or oligopoly tailored to the Modern Information Age, and in this situation job creation eroded, and the large companies became known as net job destroyers.
Decline of Consumption
In this situation, the employment condition of the city steadily worsened, and, as a result, the level of consumer spending also fell.  At some point, a vicious cycle between the supply side and the demand side arose in the economy of the city.
Rise of Pronounced Income Inequality
Because it was very difficult and expensive for each company to build such bridges independently, only big companies could easily build, and a structurally unfair trade condition led to the dominance of the big companies and their workers over the small companies and their workers.  In this situation, income inequal­ity between rich and poor ballooned. Political turbulence increased, and several large companies, along with larger mid-sized ones, collapsed financially, even as interest rates fell into negative real figures, adjusted for inflation.  Lend-ing virtually ceased.
What is the real cause of these problems?  And what could be the solution?
Clearly the cause of the problems in the city of the parable is that there were no public bridges.  Without public infrastructure, supported by widely held relevant concepts, no solution can emerge.  Instead, it is revolutionary concepts which become paramount—concepts drawn from outside the crippled economy—and shed light enough for solutions to be found.  What is needed is an economic fulcrum point.
The politicians and the business persons running the large companies are too conservative to see this.  Their faith in the pronouncements of economists leads them to adopt ever less promising policies:  they encourage speculative real estate investment; new stock and bond issues flower almost overnight; banks and brokers develop new instruments for speculating in commodities; even new boats and barges are built.  The city’s government demands as the price of political peace that the unemployed be fed, housed, clothed, and protected from disease and physical disability, assuming as public debt the services once supplied by the large companies, and even some small ones.  Meanwhile, the remaining large companies pursue ever more stringent efficiencies, further reducing the opportunities for economic expansion for the capital not already in their hands, and some banks manage to make even more money than the large companies.  Tax evasion becomes a civic sport.
Then, what should the people and leaders of the city do to solve such major problems and revitalize the economy?  The revolutionary idea is that they should construct bridges for public use as soon as possible.  If appropriate infrastructure in the form of bridges is constructed on the river, many of the city’s major problems could be solved without serious confusion or outlandish expense, and the economy would be revitalized
A Bridge between Suppliers and Customers in the Modern Information Age
Let’s suppose that there is a river between suppliers and customers in the market.  How have we crossed this river?
Before the Modern Information Age, more specifically before IT and information networking technology was as advanced as in the Modern Information Age, we could cross the river by using various supply chain functions in the market, such as wholesalers.  These supply chain functions were like those ships and barges on the river.
One day in the Modern Information Age, a company named Zara developed supply chain networks for its product or service distribution by integrating them with its upstream supply chain through the use of IT and information networking technology and crossed the river.  The result was tremendous.  Its efficiency and market effectiveness became far superior to that of other companies.  Thereafter, many other companies in every industry also tried to develop the same information based supply chain networks as Zara’s.  Those information based supply chain networks were like the private bridges on the river.
However, since a seller’s customers typically are geographically scattered, and significant expense and effort are required to operate actual distribution functions such as warehouses and distribution centers, it has typically been very difficult and expensive for each company to develop such networks independently, even if they could utilize the information technology.
Moreover, like the private bridges in the city of the parable, today’s big companies have permitted use of their own information based supply chain networks only for their own benefit.  That is just as if there were no public bridges in San Francisco–no Golden Gate or Bay Area Bridges.  Correspondingly, no public information based supply chain infrastructure has been developed in the market.  This has been the real problem, and the same major problems in the economy of the parable’s city, such as lower employment, reduced consumption, and income inequality have also occurred in the actual economy.
Public Information Based Supply Chain Infrastructure as a Solution
On September 8, 2011, President Obama shared his ambitious plan for the American Jobs Act to grow our economy.  Will it work?  As in the city of the parable, without first developing the information based supply chain infrastructure as a bridge for public use, I believe it will be almost impossible to solve our current economic problems and revitalize the economy, no matter how powerful the economic policies or stimulus plans adopted.  The President’s plan might be able to fend off urgent problems for a time but could also create or accumulate unforeseen abnormalities in the market.  It lacks a revolutionary fulcrum point.
Then, together with the development of a public information based supply chain infrastructure, could his plan be effective?  It could be--if this remedy is adopted as soon as possible and implemented in the market quickly and effectively, I believe that it will solve current major economic problems including job creation and revitalizing the economy.
Some might still wonder how a public information based supply chain infrastructure could change the whole economic situation quickly and effectively.
Information is instantly effective all over the world in the Modern Informa­tion Age.  The information based supply chain infrastructure is the public supply chain infrastructure that will be operated by information.  Operating software for the public supply chain infrastructure could be easily developed and implemented all over the United States.  I believe the solution for the software is already in sight.  It only needs to be developed and implemented.  To do it, or not to do it, that will be totally up to those who invest in it.  But we stand now on the edge of a double-dip recession and possibly another Great Depression.  Time is not on our side. 

About the Author
Ho-Hyung (“Luke”) Lee (luke.h.lee@ubims.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").
Jess Parmer (jess.parmer@ubims.com ), Ph.D., by training a classicist and archeologist, owns and operates a small business.  He is a partner in UBIMS, Inc.
UBIMS, Inc., is a patent-pending startup with a cloud-based software designed to link manufacturers and businesses directly, provide time and cost savings in supply chains, and promote new job and business formation, particularly in “A New Supply Chain Process for the Modern Information Market.”

Thursday, August 25, 2011

Job Creation in the Modern Information Age

by Luke Ho-Hyung Lee

Jobs Created In the Modern Information Age


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. The increases in efficiency and application capabilities resulting from the introduction of personal computers in the early 1980s have made possible the development and spread of a multitude of digital devices and realized the digital revolution. 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.
Through the use of IT and networking technology, many new businesses and jobs could also be created by developing many network-based software applications in the information technology sector at that time. Moreover, with the further development of IT and networking technology and the introduction of the World Wide Web, we could finally have developed and popularized the Internet as a meta-platform between information sources and recipients, and realized the Internet Revolution. It has made huge increases in effectiveness in information and created numerous new businesses and jobs by developing numerous web-based software applications. Furthermore, through the development of many kinds of sub-platform and cloud computing solutions, many more new businesses and jobs could have been created by developing numerous sub-platform & cloud computing-based software applications.
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, this improved communication capability has not been utilized to its fullest potential in other sectors of the market, mostly the real market, and for some reasons, employment conditions in the real market have been steadily and seriously worsened.
Increased Individual Job Creation Capability in the Modern Information Age

According to the U.S. Patent Statistics Chart, the total number of patent applications in 1963 was 90,982, and that in 1981 was 113,966. It had increased only 25.3% in 19 years (from 1963 to 1981).
On the other hand, the total number of patent applications in 1982 when personal computers were introduced was 117,987, and in 1995 was 228,238, a significant increase of 93.4%. Furthermore, in 1996 when the Internet started being popularized, that number was 211,013, and in 2010 was 520,277. It had more sharply increased by 146.6% over 15 years. If we assume that the Modern Information Age started in 1982 with the introduction of personal computers, the total number of patent applications has already increased more than 340% over the Modern Information Age.
Patent applications could be regarded as new ideas, new recipes or new businesses, and new jobs as well. Therefore, it could be said that no matter how good or poor the general employment situation has been, the individual job creation capability itself has increased significantly in the Modern Information Age. There must be something seriously wrong between the worsening of employment situation and the increased individual job creation capability.
What Has Happened in the Modern Information Market?
Paul Romer, NYU Professor of Economics, said in his article “Economic Growth”, “Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable final products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material.”
Yes, I totally agree with him in general, especially in production, but I still think something else must be wrong in our market or economy. Because even if the individual recipe (job) creation capability has increased significantly in the Modern Information Age, new recipes (new ideas or new businesses) still have not been implemented enough in the market to realize the economic growth. What is really wrong in our market or economy? We should figure out first what that is.
This time I would suggest you examine carefully the existing market or supply chain process in our market or economy. Let’s see the following diagram:

As you may already have recognized, there are many different kinds of supply chain methods in the existing market or supply chain process. This includes both conventional and electronic (i.e., information-based) methods. Isn’t there any common characteristic in those many different supply chain methods? Directly speaking, almost all of them are being used to construct a functional supply chain network for a supplier or for a function player in the chain. Then, can’t our existing market or supply chain process mainly consist of conventional and information-based functional supply chain networks? ... Yes, it can and does. It will be easy to find this fact.
Then, what is wrong with those functional supply chain networks for the economy?
Like Taylorism or scientific management in production, this functional supply chain network was also developed to improve the efficiency of supply chains mainly through mass volume. Because it should be constructed by each individual supplier or function player for its own individual benefit, a comparative competition for more market share has been naturally constructed in the market as a market competition paradigm.
In this case, structurally, big companies with mass volume have positions in constructing more efficient supply chain networks superior to small companies with small volume, and existing standardized products made through mass production could be handled more easily and have better deals as well than new products mostly made through craft production. Moreover, only big companies could easily construct their own more efficient information-based supply chain networks. Since a seller’s customers typically are geographically scattered, and significant expense and effort are required to operate actual distribution functions such as warehouses and distribution centers, it typically has been very difficult and expensive for each company to develop such networks independently, even if they could use the same information technology.
As a result, the following situations have occurred in the modern information market or economy.
·         Under the existing comparative competition situation for more market share, big companies with more efficient information-based supply chain networks have secured much more market share than usual, and accordingly, many small companies with less efficient conventional supply chain networks have lost much of their business.
·         Because these more efficient information-based supply chain networks have been developed mostly by big companies and used only for their own benefit, the market entry of new products or new businesses developed by small companies and individuals has been structurally blocked. Only some new products or new businesses that were developed by big companies could have been easily introduced to the market on planned schedules.
·         A more serious thing is that even if much of conventional mass production methods have been already transformed into more task-oriented optimization of work methods in the modern production process, this movement for more efficient information-based functional supply chain networks has even facilitated more the negative activities of Taylorist production such as off-shoring and outsourcing to lower labor cost countries, and adoption of robotic machines and automation process, and created  more negative side effects on employment and income equality than before in the modern information market.
In this situation, even if the individual job creation capability has increased significantly, new jobs couldn’t have been actually created much, and the employment situation has instead steadily worsened in the Modern Information Age. Correspondingly, the self-generation and recovery capability of the market has also weakened gradually and continuously. As a result, the level of consumer spending has inevitably fallen, and at some point, a vicious cycle between the supply side and the demand side was created in the market or economy.  
Therefore, with the existing functional supply chain networks, the more the Information Age has progressed, the more the employment situation has worsened, and policies aimed at improvement of the employment situation have been unsuccessful. Moreover, no matter how powerful the adopted expansionary economic policies and stimulus plans were, they have been ineffective and almost useless. They have even been harmful to the economy by creating and accumulating various abnormal economic phenomena in the market.
Then, what should we do? It is simple. We should change the existing functional supply chain process to a new supply chain process that could be more suited to the modern information market or economy.
Change to a new supply chain process? What is that, and how can we do it?  
Craft Production vs. Mass Production
Many people still think mass production always brings more efficiency and productivity than craft production. Do you agree with this?
Let’s think of the exemplar of Toyota Motor Company. In the early 1970s, Toyota was in serious financial trouble, while its efficiency and productivity were very low. To get out of its financial trouble, Toyota had no other choice but to increase its efficiency and productivity. Thus, Toyota experimented with many different production methods within the existing mass production paradigm by making many trials and errors. But the results were always disappointing.
Finally, Toyota tested a new method, without any big expectation, that nobody ever tried before. The result was just amazing. Both efficiency and productivity increased significantly, and application capability also improved greatly. As a result, it easily overcame its financial trouble at that time, and has led the world automobile industry since then.
Toyota’s production system is known as a lean production system.  Unquestionably, it is, but I think something more important is missing. I believe the true Toyota production system is a platform-based craft production system with a fair rule of competition.
Toyota workers are provided a production line as a platform with the same basic machines and a fair condition for competition, and each worker is treated as a craftsman and allowed to integrate all machines in the production line. In this situation, a worker has a clear responsibility for the productivity and application capability he produces, and he has a competitive relationship with other workers. Therefore, he will try to increase the productivity and application capability for each machine and the productivity capability of the whole production line in order to increase his own productivity and application capability. In other words, a competitive and cooperative relationship has been instituted between a worker and machines, and among workers.  From the construction of these competitive and cooperative relationships, Toyota could finally increase efficiency, productivity and application capability. The increase was multiplicative, not additive, as we had in mass production on the Fordian model.
But it seems many people still worry about the effects of other factors in mass production such as off-shoring and outsourcing to lower labor cost countries, robotic machines and other automation.
Let’s assume that there was a street dancer. He loved dancing, and people in the street liked his dancing. But he had no idea how to make money with his dancing. One day somebody introduced him a famous TV dancing competition “So You Think You Can Dance”, and suggested he should participate in the competition. The producer provided a platform with the same basic facilities and training, and a fair condition of competition for all participants. The street dancer did his best by doing all kinds of duties (i.e., many different styles of dancing and choreographies) and became America’s favorite dancer.
On the other hand, there was a card-turner in a mass game. His job was just swiftly exchanging one card for another in a pre-scheduled manner. Because his job was so simple, he could be easily replaced by somebody else or even by a machine.
Let me ask you directly:  If you have a chance, do you want to see the same mass game every time or to enjoy watching different styles of dancing performances in different times? I believe ordinary people would like to see a mass game once or twice at most, but to see different styles of dancing every time possible. Then, do you think a professional dancer could be easily replaced by ordinary people or even by a machine? I believe you never think so. Likewise, I believe that if the prices are the same, consumers will buy more craft products than mass products. Craftsmen cannot be easily replaced by robotic machines or automation, and their work cannot be easily made off-shore or outsourced to other places.
Therefore, it seems clear that, even if individual craftsmen are all different in their capabilities, if craftsmen are provided a platform with the same basic machines or facilities and a fair condition for competition, they could produce much more efficiency and productivity than those from mass production, and their works cannot be easily replaced or made by off-shoring or outsourcing, or robotic machines and automation.
A New Supply Chain Process for Job Creation
Toyota’s production system was developed before IT capability was advanced. Its communication totally depended on human intelligence.  Most importantly, Toyota developed a fair condition for competition in its production line and secured appropriate efficiency to its workers by providing basic machines to all workers with a form of infrastructure. With this system, Toyota achieved the high increase of efficiency, productivity and application capability in its production line in multiplicative way. (“So You Think You Can Dance” competition also has the same principles as Toyota’s production system.)
Here an important question could be raised: “Can the principles of Toyota’s production system be applied to the supply chain process?” Yes, it is quite possible.

In the supply chain process, even if suppliers and customers are able to conduct direct transactions with the support of information systems, the delivery time and cost for real products are typically key issues to customers. To reduce the delivery time, a supplier’s product is preferably delivered to a location close to the customer, and its delivery to the final delivery point is performed in the fastest way possible. To reduce delivery costs, the delivery method of a product between its production point and its final delivery point is preferably performed in the most efficient way possible, and its final delivery point is preferably located as near as possible to the customer.
To realize these conditions, the market is divided into multiple limited market ranges, and information-based supply chain infrastructure as a platform with basic functions that would be provided to all suppliers and service providers. Also, suppliers or service providers could directly manage (i.e., integrate) the overall supply chain through a third party IT brain.
Delivery starting point for a product would be the first function in the limited market range with the customer, and the last function would be the final delivery point. Deliveries in the limited market range are preferably performed by the most efficient means available, and the cost will be shared by joined affiliated suppliers according to volume base. The centralized communication, volume and distributed expense would also facilitate the voluntary participation of outsourcing service providers.
Finally, then, efficiency will take place, and a fair condition for competition will be constructed for all suppliers and service providers.
In this situation, a supplier has a clear responsibility for the productivity and application capability it produces in the supply chain, and it has a competitive relationship with other suppliers. Therefore, it will try to increase the productivity and application capability for each function in the supply chain and the productivity capability of the whole supply chain in order to increase its own productivity and application capability. In other words, a competitive and cooperative relationship has been instituted between a supplier and supply functions, and among suppliers.  From the construction of these competitive and cooperative relationships, each supplier would be able to achieve much higher efficiency, productivity and application capability than before.

As seen in the above diagram, if a supplier suggests an exceptional price such as $8 (Supplier D) in this new supply chain process with information-based supply chain platform, it will be able to secure all customers in the market.  Even if it has a smaller profit margin on its product, it will potentially be able to make a much higher profit from centralized volume.
Then, what will other suppliers do?  They will have no choice but to follow the price.  At the same time, each of them will start developing new and more differentiated products.  I believe this will induce the creation of new enterprises and jobs in all sectors of the market.
If this new information-based supply chain infrastructure is fully implemented in the market, the existing comparative competition paradigm for more market share would be changed to a new absolute competition paradigm for securing all customers, and 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 platform-based craft supply chain process in the supply side, 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. Due to these changes, local employment conditions would be improved considerably, and the business environment for mid-size and small companies would also improve significantly.
As a mutually complimentary relationship is established between the supply side and the new platform-based craft supply chain process, job creation for middle- and lower-income people could be enhanced, and the polarized gap between poor and rich would also be moderated. This would, in the end, contribute to the improvement of the self-generation and recovery capability of the market.
These mutually complementary phenomena for the improvement of employment conditions could finally be transferred to a structural force to increase the level of consumer spending.  This would create a virtuous cycle between the supply side and the demand side for economic recovery and revitalization.
Under this scenario, a policy for a working economic environment would be established, and no more expansionary economic policies would be needed. Thereafter, the federal budget deficit could be reduced, and many economic abnormalities could also be resolved naturally.
MGI  said on June 2011 in a Report, An economy that works: Job creation and America’s future, “The United States faces an immediate challenge:  finding employment for 7 million people still out of work from the 2008–09 recession and reviving robust job creation in the decade to come [and it]  will need to create a total of 21 million new jobs in this decade to put unemployed Americans back to work and to employ its growing population.”
If this new information-based supply chain infrastructure is fully implemented in the market, can we find employment for 7 million people in a short period of time and create more than 21 million new jobs in the United States alone in this decade? Yes, it is quite possible.
This new information-based supply chain infrastructure could be a meta-platform in the real market process, just as the Internet is a meta-platform in information. Therefore, it has a potential to induce a supply chain revolution in the real market process, similar to the Internet Revolution in information. That is, numerous applications could be easily developed in the real market, based on unlimited imagination. 
Moreover, as individual job creation capability has increased significantly in the Modern Information Age, I believe there is huge new business and job creation waiting in the market. If an easy, open and fair access to customers, such as this new information-based supply chain infrastructure, is provided, these forces will react immediately and create many new businesses and jobs in the market.
I strongly believe that this is one of the most viable and effective solutions for job creation in the Modern Information Age – and for the current economic crisis.
About the Author
Ho-Hyung (“Luke”) Lee (luke.h.lee@ubims.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"). UBIMS, Inc., is a patent-pending startup with a cloud-based software designed to link manufacturers and businesses directly, provide time and cost savings in supply chains, and promote new job and business formation as outlined above, particularly in “A New Supply Chain Process for the Modern Information Market.”