Thursday, May 30, 2013

The Real Cause of the Current Economic Crisis and a New Inter-Supply-Chain-Net as a Solution

The U.S. and nearly every other developed nation face continued, severe economic problems.  Despite being years into ‘recovery’, few solutions actually work.  Why?

The Real Question

Almost everyone in the G-20 nations is using the Internet.  What does the Internet do?  It serves as an efficient public infrastructure or platform for the whole information process.

Before the Internet was introduced in 1996, we could only develop individual private software for something to improve efficiency and also create effectiveness at the same time.  However, afterwards, on the basis of that efficient public Internet, we could create numerous effectiveness-oriented applications.  Accordingly, we created numerous new businesses and jobs, but only in the Internet and IT sectors of the economy.

Then, why haven’t we also developed such an efficient public infrastructure or platform for the real market (or supply chain) process?  Not even a single one in the whole world?

A Serious Mistake Made in Developing Real Market Process Systems and the Real Cause of the Current Economic Crisis

There are two main ways to develop a process system between multiple providers (or information sources) and multiple customers (or information recipients) by using information technology.  One indirect way is to develop transaction systems first for functions by manipulating —that is, classifying or limiting—the constituent factors of the transactions such as products, services, providers, and customers, and then networking those systems as an integral process for efficiency.  The other way is directly constructing a public process infrastructure or platform.

Only four basic requirements exist for constructing an efficient public process platform between multiple providers (or information sources) and multiple customers (or information recipients):

1.      The rules and standards for transactions are simplified and transparent.
2.      Fair conditions permeate competition.
3.      The responsibility line for every participating member is clear from the start.
4.      It should be applicable everywhere.

Because information consists of digital codes, its transactions have not only been freed from the restriction of time and space but have done so in accordance with a fair rule and standard. Therefore, by developing the protocol for clarified responsibility lines and the World Wide Web for ubiquitous applicability, the Internet as an efficient public process infrastructure or platform developed in information with few hitches—but only in information markets.

On the other hand, the distribution and delivery of real (physical) products and services are directly restricted by time and space.  So, many different and complex rules and standards evolved in many incompatible IT systems for real transactions (or distributions) between single providers and multiple customers (internet sales), or between single customers and multiple providers (private supply chains).  

To simplify those many different and complex rules and standards and impose fair conditions for competition, what must be done?  Information technology must directly overcome the restriction of time and space to directly improve the conditions of real-world processes.

Unfortunately, nobody has tried this, and as a result no efficient public process infrastructure or platform for real markets has developed.

This was a serious oversight or mistake, and I believe it must be the real cause of the current economic crisis.  Let’s see why!

A Hidden Critical Flaw in Our Economy and the Changed Economic Environment

Only private real market (or supply chain) process systems have developed for both improving efficiency and creating effectiveness at the same time under each individual’s responsibility by using information technology, mostly by big companies and only for their own benefit.

Because supply chains have been constructed by networking (or integrating) their function transaction systems and developed by manipulating the constituent factors of their transactions, (1) the number of transactions and functions in the 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 nearly all industries of the economy.

In this situation, the businesses of small- and medium-size companies (SME) have unavoidably weakened and over time been destroyed, and many jobs in SME have disappeared.  Moreover, because entry costs to markets rose too much, new business creation has fallen.

Actually, all electronic real market process systems ever developed in the Modern Information Age have served as ‘Job-Killing Systems’ or as ‘New-Business-Creation Blocking Systems’.  This is the hidden critical flaw in our economy, the infamous ‘Unintended Consequence’ of runaway IT exploitation in a system lacking a fair rule for competition.
More seriously, these real market process systems as tributaries of the market have caused an  alteration in the economic environment by seriously weakening employment conditions all over the supply side.  Correspondingly, the self-generation capability of the market has dried up, seriously and continuously, over time.  All streams flow toward ‘efficiency’.

In this situation, can we solve the current economic crisis only with powerful expansionary economic policies and stimulus plans?  No, it will be almost impossible, structurally, and a strong case can be made that further gross, untargeted stimulus can only worsen market conditions in real goods and services.  We already know such huge stimulus has not created jobs or businesses.

A New Inter-Supply-Chain-Net as a Solution

The Inter-Supply-Chain-Net is a game-changing efficient public platform for the whole real market process which directly overcomes the restrictions of time and space through information technology.

To simplify the rules and standards and create fair conditions for competition, the market will be divided into multiple limited market ranges for directly overcoming the restriction of time and space, not for manipulating the constituent factors of transactions.  Such a system would replace the feeble supply chains of SME by consolidating them (at modest cost) within limited market ranges.

Some basic supply functions, similar to digital codes in information, will be automatically established in each limited market range with voluntary participation of outsourcing service providers for business functions through a third party IT brain – centralized volume through centralized communication.

Then, finally, all four basic requirements will be satisfied for constructing an efficient public real (physical) process infrastructure or platform (the Inter-Supply-Chain-Net) between multiple providers and multiple customers.

On the basis of this efficient public Inter-Supply-Chain-Net, we will also be able to create numerous effectiveness-oriented applications in the real market by using various outsourcing service providers.  Accordingly, we will then be able to create not just a few but numerous new businesses and jobs in the real economy by lowering cost of entry.  In sum, the Inter-Supply-Chain-Net has the potential to induce a Supply Chain Revolution in real markets, similar to the Internet Revolution in information.

I believe this is the most effective solution for the current economic crisis.

By Ho-Hyung ("Luke") Lee