Friday, November 28, 2014

A New Inter-Supply-Chain-Net as a Solution for the Current Economic Crisis

(Reposted from the Huffington Post, November 24, 2014)

By Ho-Hyung ("Luke") Lee

Many high government officials and top economic experts have tried to solve our continuing worldwide economic recessions and revitalize the economies over the last several years, but to no avail. Resembling the myth of Sisyphus, every attempt to improve economic performance has resulted in that huge boulder tumbling back to the bottom of the hill.

In the Modern Information Age, two major changes for jobs have come to pass in the supply side of the market: (1) Increased IT efficiency in robotics, various software applications, and electronic transaction systems and (2) Increased off-shoring and outsourcing to lower labor cost countries. These changes have killed a lot of jobs in the domestic market, and our economic experts have already recognized this. However, very strangely, they have not seriously considered the increasingly unfair conditions for competition between big companies and small- and medium-sized companies in the market (or supply chain) process.

Most small- and medium-sized companies are still using a conventional supply chain process with 3 or 4 separate transactions and no streamlined supply chain networks. On the other hand, many big companies such as Wal-Mart and Forever 21 have streamlined supply chain networks--normally consisting of only one or two transactions--between their own or partnered suppliers and their retail stores. In this situation, small- and medium-sized companies have inevitably lost their businesses and their workers their jobs. Actually, jobs have been killed on a large scale in almost all industries.

More seriously, it seems that a vicious cycle for jobs has already formed between the supply side and the existing market (or supply chain) process.

As a result, those negative employment conditions eventually led to the worsening of the self-generation and recovery capability of the market, and this has operated as a force to lower the level of consumer spending over time. This has been a persistent source of recurring recession.

In this situation, it seems that our governments had no other choice but to adopt various excessive expansionary economic policies and stimulative economic plans to avoid economic malaise. That is, they expected to use them as a force to keep the level of consumer spending high. But, unfortunately, they were effective only temporarily and even produced various abnormalities as side effects in the market. These contained a huge risk to the level of consumer spending and of forcing the economy into sudden recession. This raises the question of how long we can keep adopting excessively expansionary economic policies and enacting stimulus plans to stave off recession. Japan, being an island economy, may prove to be the laboratory animal here.

Even if many economic experts are still trying to find a solution on the policy side alone, I think no sustainable solution is there any longer, because the self-generation and recovery capability of the market is still worsening.

A good doctor does not simply prescribe medicine for a disease. He or she first must understand that the medication is only a stimulus to support the self-generation and recovery process. If s/he finds the body has a weak self-generation and recovery capability, the doctor tries to restore that capability first and then adjust the medication according to the condition of the patient, because s/he knows that a medicine could also be a poison. Likewise, I believe our market economy has also its own self-generation and recovery capability. If it is seriously damaged, the treatment consisting only of stimulus policies and plans could actually be harmful to the economy, contrary to their intended purpose. It seems that we have already adopted too many economic stimulus plans without properly weighing the condition of the self-generation and recovery capability of the economy over the last several years. In my view, there will be no sustainable solution through policy alone until the self-generation and recovery capability of our market is restored to a certain degree.

When the Internet was popularized in 1996, many people, especially young talented people, immediately recognized the collective power of the Internet and started creating new businesses and jobs, mostly in the IT and Internet sectors of the market. That was the Internet Revolution. Then, why haven't we developed an Internet-like system also in the real goods markets? Can we develop such a system? I believe we can.

I have determined there is no public platform (or infrastructure) for the whole supply chain process in our markets - not one in the whole world. We have developed numerous e-commerce platforms over the last 20 years, almost all of them for communication alone, not for the entire supply chain process. Communication is only one function in the whole supply chain process. If this is true, it points to a solution of the real problem.

We can easily develop a public platform (or infrastructure) for the whole supply chain process. It's like the Internet, but instead of a collective platform for information, it's a collective platform for the whole supply chain process in real goods. Because it is constructed as a partnership by collecting the power of all participating members, everyone can benefit from the size of the supply chain infrastructure in the form of collective power. It is a new Inter-Supply-Chain-Net.

If this new Inter-Supply-Chain-Net is developed and implemented in the market, many small- and medium-sized companies and even individuals will immediately realize that they could easily construct numerous retail networks in the market without spending a lot of money and durably compete with companies the size of Wal-Mart and Forever 21 - and make a lot of money if they provide the best quality and price.

The Inter-Supply-Chain-Net will have the potential to induce a Supply Chain Revolution in real markets, similar to the Internet Revolution in information. This will create thousands of new businesses and millions of jobs in almost all sectors of the market. Then, the self-generation and recovery capability of the market will increase growth and prosperity.

In this scenario, a policy for a smoothly functioning economic environment would be established, and no more excessively expansionary economic policies would be needed. Thereafter, the budget deficit at both the local and federal levels would fall, and many economic abnormalities could be resolved naturally.

Surely this will be regarded as the solution for the current economic crisis.

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