Indonesia's future: Competition and education

Indonesia's future: Competition and education

By Elwin Tobing

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."

The writer is an economist who lives in Boston, the United
States.