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 ( ) 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 ( ), 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.”

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