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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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