RI still needs time to deal with the digital era

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.