Monday, August 29, 2011

How to solve the economic crisis


The "economic crisis 2.0" is a popular theme in the media right now and most certainly this is something that everyone of us should be concerned about. Stockprices have been falling for months, GDP growth has slowed to zero, most western nations, businesses and households have debts that really cannot increase and China is fighting with inflation. The methods used to soften the "economic crisis 1.0" in 2008 cannot be used this time anymore. So what is the solution and what are the methods we can use this time?

The Reason
In order to find a solution for the crisis I would define the primary reason for it. It is a bit abstract, but nevertheless it is true. The reason any economic crisis is that the things we do and how we do them no longer maches the technological and social situation of the society. By this I mean the following:
- we overproduce some goods and services and underproduce others. This results in stores, businesses and factories being closed
- the skills of people and jobs desired do not match the needs of consumers. This results in unemployment.
For example the financial sector, that really does not create much value for the society, has grown unproportionally big and has to lay off thousands of employees now. On the other hand we could use a much bigger green energy sector that would produce the electricity needed after "Peak Oil" and German closure of nuclear powerplants.

The Solution
If you look at the abstract level then the solution for the crisis is actually easy. :-) Mostly because this crisis is caused by just the ordinary economic cycle and not by a natural or demografic shift like running out of oil, being hit by a meteorite, climate change or the population becoming too old. (Somoe of these will be the reasons for the next and much more serious economic crisis. Sorry for being pessimistic here. :-))
So the recipe to solve "the economic crisis 2.0" is that many of us must start to do something different or differently. We must reorganize the society a bit. But not much, probably just about 5-10%. :-) Some of us must change what we do, take a job on another field for example. Most of us should do our work more efficiently, work more or consume less. If enough people make change in their lives then the national economics will go to surplus again and the Western economies would be able to start paying back the debt to China.

The IT
...and here is where IT steps in. Information Technology has been the enabler for more than 50% of economic growth in the last 20 years and there is much more to gain from IT. Today the processes inside an organization are more or less supported by IT and the efficiency gains from implementing new IT systems is moderate (but they are there). The real "undiscovered territory" lies in the area of inter-organization information exchange. There are very little systems that support processes involving many organizations. Amadeus and IATA airline ticket booking systems can be described as an example here.

The brakes
The faster we reorganize the better. The faster "economic crisis 2.0" changes to "economic growth x.0" the better for all of us. But there are phenomenons that are making the necessary shift slower and agonizing:
- The mindset of people and the desire to continue doing the same thing, the same way and hoping to earn more by doing so. (...and this includes the financial innovators whose algorithmic trading can be blamed as being one of the reasons for economic crisis 1.0)
- Labour laws and trade unions who support the status quo and do not allow the necessary employment market changes to happen

and on the IT field:
- Exaggerated fears on data security. Data security analysis can close any IT initiative. One can always find a 0,00001% probability of a break in and close down a project that might bring 0,001% GDP growth.
- Lack of leaders and leading organizations who would build inter-company IT systems. These are difficult projects that might need even 5+ years of investing.

So lets get rid of these breakes, re-organize and change the crisis to a growth period..... until the 3.0.

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