RI still needs time to deal with the digital era

By Rhenald Kasali

Jakarta (JP): We step into 2001 with a number of arguments among economists who say that many of those who claim to be economists do not understand the actual condition of our economy. The result is a striking difference between on-paper calculation and the actual economic condition.

Prof. Mubyarto refers to this as people economics, which the economists do not understand. This criticism may be right, so many economic forecasts and policies are difficult to adopt in business practice.

On the other hand, the economists are still striving to understand the New World, called the New Economy.

The New Economy is a culture established by an informatic revolution. Whereas the Old Economy was established by the industrial revolution, which generated mass production to attain economies of scale. The flow of information in the Old Economy era is a physical flow of information; its market is called a marketplace, its currency is bank notes, coins and checks. Its bill is called an invoice. Books, news and letters are printed on paper and are tangible.

On the other hand, the New Economy is based on a digital flow of information, saved in the form of bytes with extraordinary delivery speeds, its currency is a digital currency, its market is in marketspace, its daily access is in news portals and its flow of changes occur in seconds.

Unfortunately, there are not many economists exploring the New Economy concept. Meanwhile, the death toll due to Old Economy practices keeps increasing.

Encyclopedia Britannica is one of them. For more than 200 years it has graced the living rooms of middle-class families worldwide. It has become an intellectual symbol. Each of its books is very thick, its size is big and it contains more than 40 million words. Cost of one set ranges from US$1,500 to $2,200 (depending on quality of binding). Spending that amount, a middle-class family feels that it has bought value in an intellectual content.

Moreover, an encyclopedia is a symbol of an educated middle- class family. But now, if you still keep a thick encyclopedia on hand, you may be called "old" by the younger generation. Because all physical utilities are symbol of the Old Economy.

Indeed, Encyclopedia Britannica suffered a very hard time upon introduction of the New Economy. In 1990, its position was supplanted by Encarta (Microsoft), Grolier and Compton, which were able to present an encyclopedia in the form of CD-ROM for only $50 to $70. Information on CD-ROM is saved in digital form; not only words, but also video, audio and images. Encyclopedia Britannica was late to respond. The Benton Foundation -- a trust owned by University of Chicago, the owner of Encyclopedia Britannica -- considered Encarta as just a children's plaything and said it was impossible to substitute Encyclopedia Britannica. But the fact is Encarta and other encyclopedia software quickly usurped Encyclopedia Britannica. Marginal costs for producing one Encyclopedia Britannica set is $250 plus $500 for sales commission. Whereas marginal costs for producing a CD-ROM is only $1.50. So it should not have been a surprise when in 1995, Encyclopedia Britannica sales dropped to 80 percent, and this big company was panic stricken. Finally in 1996, Encyclopedia Britannica was sold for half of its book value.

The above mentioned case demonstrates how fast and dramatic the New Economics of Information can change the rules of competition, allowing new players and supplanting products to render obsolete such traditional sources of competitive advantage as a sales force, a supreme brand and even the world's best content.

A similar development has also threatened the insurance agency business, travel agency business and scores of other businesses. Thousands of businesspeople in Singapore and Taiwan worry on the day when Indonesia's common people can contact directly their commodity buyers in Europe and the United States.

There are at least three major things that the New Economy can generate. First, it allows for disintermediaries, or a cut back of intermediaries' role. Second, the New Economy encourages outsourcing which results from industrial deconstruction to several new separate industries but is linked to one information network. Third, the New Economy demands a new work attitude, which relies on high reliability.

How far does the New Economy influence Indonesia? Sadly, there is still a big mess to unravel, particularly concerning law enforcement, which becomes a prerequisite for smooth economic transactions in the marketspace. Besides, it takes a long time to educate consumers in using the New Economic line as a transaction line. In the U.S., for instance, consumers are easy to move into the cyberworld because its market has long been introduced to shoppers by catalogs by Sears & Roebuck since 1888 [sic].

Besides, there is a wide technological gap between the old generation and younger generation here, so the New Economy practically becomes a "plaything" of those under 25 years of age.

Therefore, application of the New Economy in Indonesia needs modifying. So the choice is not only Brick & Mortar to become Click & Mortar, but also Click & Bricks, or exploiting multimedia as a whole, such as LippoShop does. However, it does not mean that we should totally avoid the New Economy; but we need breakthroughs because this technology is now in our hands and its adoption happens rapidly. Indeed, we need greater creativity to handle Indonesia's market with this new concept.

The writer is a contributor based in Jakarta.