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BOSTON
(JP): In his book, The Wealth of Nations,
published in 1776, Adam Smith, the founder
of modern economics, made famous the idea of
the invisible hand. Smith observed that in
properly functioning commercial markets,
businesses and business people serve society
even if to do so is not a conscious
intention. Smith's notable lines,
"...every individual generally neither
intends to promote the public interest, nor
knows how much he is promoting it. He
intends only his own gain... By pursuing his
own interest he frequently promotes that of
society."
Smith
wrote this book two decades before the
Industrial Revolution took place, before
Alfred Morse invented the telegraph in 1838,
and before the first electronic computer,
ENIAC, was unveiled in 1946 at University of
Pennsylvania, U.S. It was one century before
Karl Marx's Capital. Smith lived during a
time and in a society where business people
were considered to be second class citizens.
With
today's revolution in information
technology, the undisputable triumph of
capitalism, and the emergence of business
people as important figures in society, the
invisible hand theory no longer seems
relevant. Businesses have been compelled to
serve the public interest consciously out of
a need to survive. The driving force is the
relentless competition in the marketplace.
Competition is proving to be a marvelously
effective regulator of commerce.
Unrelenting
competition today has forced businesses to
maintain the highest levels of product
quality and customer service. At the same
time, competition compels producers to keep
their prices low. Ultimately, businesses, if
they want to survive, must strive to serve
the interests of society.
Microsoft
is a good example. Its success is due to its
ability to upgrade the quality and
simultaneously lower the prices of its
products. The same strategy applies for many
Internet companies. Priceline.com and
lowestfare.com have gained popularity
through offering lower prices than that of
their competitors.
Several
factors are contributing to this new era of
unrelenting competition which renders the
invisible hand irrelevant. First is the
demise of Marxism. Its failure has elevated
capitalism to an uncontested position in the
economic and business worlds. Almost
anywhere in the world today, from Beijing to
New York, the spirit of capitalism is
thriving and driving everyone from the most
privileged to the working class into the
markets. The victory of capitalism is the
triumph of the market.
Clearly,
we are not only living in the Information
Age but also the Marketing Age. All commerce
is subsumed into marketing. Products,
services and even people, increasingly
succeed contingent on their marketing
strategy. The need to market has become so
urgent and the marketing so insistent that
an individual consumer can not hide from
increasingly sophisticated marketing
campaigns.
Advertisements
are everywhere. In the U.S. for instance,
the average consumer is subjected to
approximately three thousand advertisements
every day. Any business that does not keep
up with consumer expectations of cost,
quality and service will loose their market
share and eventually their business as well.
The
second factor contributing to the
irrelevancy of the invisible hand theory is
the drastic reduction in business start-up
costs. The revolution in information and
communication technology have reduced the
cost of information and made it much cheaper
to establish new businesses. According to
the U.S. Commerce department, new business
start-ups in the U.S. are approaching one
million per year. This means that a growing
pack of hungry new competitors are ready to
capture market share, increasing the tension
of competition.
In
1997, when Joseph Park and Yong Kang, two
high school students in New York, were not
satisfied with a company's online service,
they set up their own online shopping
company with the concept of same-day free
one-hour delivery for all products. Today,
the company has revenues of million dollars.
The
growing Internet economy has created a new
and intensely competitive environment for
everything from retailing to securities
marketing. In 1999, the Internet economy
already amounted nearly to US$350 billion,
according to figures released by the Center
for Research in Electronic Commerce at the
University of Texas.
It is estimated that the amount will
jump to US$1.3 trillion in 2003, accounting
for 9.4 percent of total business to
business sales (Business Week, Oct. 4,
1999).
Another
key factor is the entrepreneurial boom. In
today's information and marketing age,
admiration and appreciation seem to follow
those who have had distinctive success in
the business arena. This has promoted the
status of business people in society. Steve
Jobs, Jeff Bezos (founder of Amazon.com) and
Bill Gates are as famous as Bill Clinton,
and they are role models for a young
generation of people throughout the world.
Entrepreneurial courses of study in the U.S.
colleges have become as attractive as
computer and information management courses.
So,
what are the implications for our economic
development? No one could argue that our
consumer agency, aiming to protect and
promote the rights of consumers, is still
very inefficient. On a macro level, the
economic and industrial policies conducted
during the New Order regime tended to put
consumers' rights secondary to that of
producers.
Our
national economy is still far from being
customer-centered. Rather, it tends to be
producer-centered. This has created
inefficiencies in our economy as producers
are not compelled to deliver products with
the highest quality, cheapest prices and
best customer service.
The
primary agenda for our commercial policy
should be to convert our business
orientation from being producer-centered to
being customer- centered. A
customer-centered economy, as Adam Smith
suggested, is beneficial to everybody:
producers, suppliers, customers and
stockholders.
This
conversion can be achieved by enhancing fair
and free competition in all segments of
industry. It's time to end monopolistic
practices across industries, from cement to
agriculture products, which extensively
developed during the New Order regime. This
is especially true for the communications
industry. The Telkom and Indosat monopolies
have made the cost of information and
communication very expensive for
Indonesians, creating and spreading
inefficiencies throughout all industries.
To
catalyze the conversion in our society,
another essential factor is the promotion of
an entrepreneurial culture within our
society. Entrepreneurial skills have to be
an integral part of the educational
curriculum from junior high school to the
college level. Unemployment rates for the
high school educated labor force are still
very high. Joseph Park and Yong Kang are
only 19 years old, but they have already
created more than 300 jobs.
In
today's knowledge-based economy, creativity,
which is inspired by knowledge, is much more
important to the wealth of nations than
either capital or labor. The imperative of
economic competition is clear: the future of
our economy must be based on the
entrepreneurial skills and creativity of our
young generation. This will only be achieved
through a significant improvement in the
quality of our education system. Spurring
our economic performance is impossible
without education.
As Peter Drucker, a
guru of modern management, remarked,
"the greatest change will be in the
form and content of knowledge, in its
meaning and its responsibility, and in what
it means to be an educated person."
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