124 - The World is Flat

Thanksgiving Break, round 2: 124 was The World is Flat: A Brief History of the Twenty-First Century, by Thomas L. Friedman (Farrar, Straus and Giroux, 2005).

Jacket excerpt: "When scholars write the history of the world twenty years from now and they come to the chapter 'Y2K to March 2004,' what will they say was the most crucial development? The attacks on the World Trade Center and the Pentagon on 9/11 and the Iraq war? Or the convergence of technology and events that allowed India, China, and so many other countries to become part of the global supply chain for services and manufacturing, creating an explosion of wealth in the middle classes of the world's two biggest nations and giving them a huge new stake in the success of globalization? And with this 'flattening' of the globe, which requires us to run faster in order to stay in place, has the world gotten too small and too fast for human beings and their political systems to adjust in a stable manner?"

OK, so a week or 2 ago, I started keeping a little file card-sized notebook beside me when I read, to jot down quotes or interesting ideas or what have you that I stumbled across in my literary travels. Because just plain reading all the time (while the rest of my family watches Star Trek: The Next Generation in the next room) isn't quite geeky enough. Well, until now, most books have generated 2-4 tiny pages of chicken scratch.

Until now. Until I read The World Is Flat, and found myself with 28 pages of notes. Yes, they're small pages, but still. Father Thyme saw me with the book in one hand and my notebook in the other over my Turkey Weekend trip, and thought I'd somehow forgotten to tell him I'd started a Ph.D. program. For the, oh, 5 or 6 people out there who haven't come across it yet, this is a fascinating book. You can question some of Friedman's conclusions, but I guarantee that if you read it, you'll never again look at India, China, or globalization the same way again.

Friedman's principal argument is that somewhere around the year 2000, technology brought the world's economy into the third wave of globalization. Globalization 1.0 lasted from 1492 until @1800, and involved "countries and governments ... breaking down walls and knitting the world together, driving global integration." 2.0, lasting until about 2000 and powered by falling transportation and then telecommunications cost, saw multinational corporations transcend national borders in their search for markets and labor. And then came 3.0.

"The dynamic force in Globalization 3.0 -- the thing that gives it its unique character -- is the newfound power for individuals to collaborate and compete globally. And the lever that is enabling individuals and groups to go global so easily and so seamlessly is not horsepower, and not hardware, but software -- all sorts of new applications -- in conjunction with the creation of a global fiber-optic network that has made us all next-door neighbors. Individuals must, and can, now ask, Where do I fit into the global competition and opportunities of the day, and how can I, on my own, collaborate with others globally?

"But Globalization 3.0 not only differs from the previous eras in how it is shrinking and flattening the world and in how it is empowering individuals. It is different in that Globalization 1.0 and 2.0 were driven primarily by European and American individuals and businesses. Even though China actually had the biggest economy in the world in the eighteenth century, it was Western countries, companies, and explorers who were doing most of the globalizing and shaping of the system. But going forward, this will be less and less true. Because it is flattening and shrinking the world, Globalization 3.0 is going to be more and more driven not only by individuals but also by a much more diverse -- non-Western, non-white -- group of individuals. Individuals from every corner of the flat world are being empowered."

I read the introduction with the usual skepticism about Friedman's seeming rah-rah take on the Bangalore tiger; "What are the implications for India's culture and future if their best and brightest are starting work at 6 pm and doing the West's grunt work?" This particular doubt was premature, though, as Friedman goes on to explain that this isn't what's happening at all:

"Neither India not China nor Russia has a critical mass of talent that can handle the whole product cycle for a big American multinational. But these countries are steadily developing their research and development capabilities to handle more and more of these phases. As that continues, we really will see the beginning of what Satyan Cherukuri, of Sarnoff, an American research and development firm, has called 'the globalization of innovation,' and an end to the old model of a single American or European multinational handling all the elements of the development product cycle from its own resources. More and more American and European companies are outsourcing significant research and development to India, Russia, and China."

So how did we get here? What forces prompted the circumstances described so vividly in Chapter 1, events so significant, if Friedman is correct, as to constitute a sea change in political, social, and business models? Chapter 2, somewhat grandiosely titled "The Ten Forces that Flattened the World," spends over 100 pages on this question, identifying and discussing the following forces:

1. The fall of the Berlin Wall on 11/9/89, which "tipped the balance of power across the world toward those advocating democratic, consensual, free-market-oriented governance, and away from those advocating authoritarian rule with centrally planned economies." Especially significant were the repercussions in India, where then-finance minister (now PM) Manmohan Singh abandoned the Cold War-era, Soviet-designed planned economy in favor of a more open one.
2. Netscape going public in August 1995, closely followed by the release of Windows 95, which ushered in the late '90s internet boom, the dot-com bubble, and a huge overinvestment in fiber-optic cable -- which Friedman proclaims "a disaster for many of the companies and their investors ... [but] a great boon for consumers." (More on that later.)
3. Work flow software and protocols(specifically, XML and SOAP) which enabled different computer systems, within and even across companies, to talk to one another. This, coupled with the first two items, brought us to a watershed moment of sorts:
   

"We need to stop here and take stock, because at this point -- the mid-1990s -- the platform for the flattening of the world has started to emerge. First, the falling walls, the opening of Windows, the digitization of content, and the spreading of the Internet browser seamlessly connected people with people as never before. Then work flow software seamlessly connected applications to applications, so that people could manipulate all their digitized content, using computers and the Internet, as never before.

"When you add this unprecedented new level of people-to-people communication to all these Web-based application-to-application work flow programs, you end up with a whole new global platform for multiple forms of collaboration. This is the Genesis moment for the flattening of the world. This is when it started to take shape."

4. Open-Sourcing, a bottom-up, grassroots approach to developing software, operating systems, or just about anything else where the author makes her work available free to all comers, generally with the stipulation that they not sell it, and share their own contributions and improvements in return. Sounds crazy and almost un-American, but we need only look at the success of Linux and Wikepedia (which even I was familiar with) and Apache (which I wasn't) for proof that it works. Friedman deems the open source movement "an important flattener because it makes available for free many tools, from software to encyclopedias, that millions of people around the world would have had to buy in order to use, and because open-source network associations -- with their open borders and come-one-come-all approach -- can challenge hierarchical structures with a horizontal model of innovation that is clearly working in a growing number of areas."
5. Outsourcing has long been the bogeyman in the closet where the U.S. is concerned, and perhaps it's here that I most appreciated Friedman's balanced, non-hysterical treatment. He suggests that India may be "the luckiest country in the history of the late twentieth century," as the U.S. fiber-optic explosion allowed it to benefit at no cost from the excess cable capacity and bandwidth. Take the grunt work of Y2K remediation, which Indian engineers could do far more cheaply than their American counterparts, and follow it up with the dot-com bust, which drastically reduced companies' available capital, and made the Y2K-tested Indian engineers look like a real bargain. Says Indian-American hedge fund manager Dinakar Singh, "India had no resources and no infrastructure. ... It produced people with quality and by quantity. But many of them rotted on the docks of India like vegetables. Only a relative few could get on ships and get out. Not anymore, because we built this ocean crosser, called fiber-optic cable. ... For decades you had to leave India to be a professional. ... Now you can plug into the world from India. You don't have to go to Yale and go to work for Goldman Sachs."
   
6. If the near-exclusive emphasis on India thus far seems like Friedman's ignoring the biggest elephant in the room, offshoring is where China comes to the party. Offshoring takes outsourcing a step further, not just having a specific, limited function performed by another company, but moving the whole factory to another country, where it "produces the very same product in the very same way, only with cheaper labor, lower taxes, subsidized energy, and lower health care costs." Friedman argues that China is not "simply racing everyone to the bottom" with low wages, product quality, and workplace standards"; rather, "China's real long-term strategy is to outrace American and the E.U. countries to the top." Moreover, companies offshore not just to take advantage of cheaper labor costs, but to gain a toehold in host countries' markets -- a trend which goes both ways. "While much attention is paid to American countries going offshore to China, little attention is paid to the huge attention is paid to the huge amount of offshore investment coming into America every year, because foreigners want access to American markets and labor just like we want access to theirs."
7. Earlier in the book, Friedman introduces the coefficient of flatness: "The fewer natural resources your country or company had, the more you will dig inside yourself in order to survive." While the first example he offers is India's investment in science and technology education, in lieu of the natural resources and infrastructure it lacked, it's equally applicable to Bentonville, Arkansas -- birthplace of Wal-Mart and thus, of supply chaining, "a method of collaborating horizontally -- among suppliers, retailers, and customers -- to create value." By purchasing the goods it sells directly from the manufacturers, rather than through wholesalers, and by using sophisticated inventory-management systems, Wal-Mart is able to keep its costs down. I was just starting to raise my eyebrows again at this apparent lauding of Wal-Mart, when Friedman acknowledges that in many cases, the company's "ruthless quest for efficiency" crosses the line to become "a degree of ruthlessness period." I'll allow that Wal-Mart's supply chain management may be a brilliant innovation, but I still object on principle to giving a company whose workers can't afford health insurance credit for leveling the playing field. And I know this isn't a book about the wicked ways of Wal-Mart -- there are plenty of those out there -- but I do wish Friedman had paid a bit more attention to this issue.
   
8. Insourcing: In many ways, Wal-Mart really is the 900-pound gorilla: it can do whatever it wants. However, as Friedman points out, "not every company ... can afford to develop and support a complex global supply chain of the scale and scope that Wal-Mart has developed." Therefore, yet another opportunity was born, with traditional courier services like UPS turning their hands to servicing and synchronizing supply chains the world over. This, in turn, breeds still more flattening, as supply chain managers convince clients to adopt consistent rules, labels, and tracking systems.
   
9. In-Forming: At this point, some of the flatteners are seeming a little forced, making me wonder if Friedman opted for some catchy phrases and a nice, round number, rather than stopping at a more natural point. Nonetheless, I did find his description here interesting: "In-forming is the individual person's analog to open-sourcing, outsourcing, insourcing, supply-chaining, and offshoring. In-forming is the ability to build and deploy your own personal supply chain -- a supply chain of information, knowledge, and entertainment. In-forming is about self-collaboration -- becoming your own self-directed and self-empowered researcher, editor, and selector of entertainment. ... In-forming is searching for knowledge. It is about seeking like-minded people and communities."
   
10. The Steroids: Again, the phrasing here is a bit cute, but the point is a solid one: new technologies like cell phones, file sharing, VoIP, and wireless internet access, can't help but "amplify and turbocharge" the flatteners mentioned previously.

From here, Friedman goes on to suggest that the convergence of all 10 flatteners, the evolution of new ways of doing business that allowed these technologies to boost productivity, and the arrival of 3 billion new players (chiefly from China, India, Russia, Eastern Europe, Latin America, and Central Asia) on the global stage constitutes a triple convergence. In a chapter on "America and the Flat World," he argues that in the main the U.S. will benefit more from free trade than from protectionism. Moreover, no matter how ominous the flat world sounds, he's convinced that the U.S. still has the right stuff to come out on top, if only we apply ourselves: the best research universities in the world, important traditions of openness and intellectual property protection, a tremendous domestic consumer market, and a relatively stable political system. (Friedman also includes flexible labor laws on this list; I'm not sure I agree, though this may be another philosophical gripe of mine as much as it is a factual one.) This may all be true, I can't help thinking he's minimized the short- and intermediate-term pain that's confronting our less-skilled workers in the meantime. He urges workers to become a new kind of untouchables -- people whose jobs cannot be outsourced -- by, if all else fails, being uber-adaptable, and learning how to be a lifelong learner; good advice, to be sure, but hardly a fail-safe solution for all or even most displaced workers.

The next section of the book -- chapters entitled "The Quiet Crisis" and "This Is Not a Test" -- attempt to convince the reader that while the U.S. could weather this global, triple-convergence storm comfortably if we made up our collective minds to do so, that's not the track we're currently on. In short, we're not devoting sufficient funds to math, science, and technology research and education, nor are we fostering enough enthusiasm for these fields among our young people. Applications to law and business school continue to rise, but two-thirds of the top science and math students in American high schools are the children of immigrants, and a plurality of science and engineering graduate students in our universities are foreign-born. Once again, just when things are starting to sound a little xenophobic, Friedman calls for improvements in the U.S. -- strong political leadership, portable employee benefits, low-cost post-secondary educational opportunities for all, corporate social activism -- that it's mostly hard to argue with (though of necessity, a few pages on wage insurance vs. unemployment insurance, and parenting to promote delayed gratification, seem pretty superficial).

The last three sections address the questions of what the world's flattening means for developing countries, companies, and world geopolitics. Nations, suggest Friedman, fare best when they have strong, visionary leaders willing to use their power to push for positive change (rather than to line their own pockets), and a cultural willingness to pull together and sacrifice for the sake of economic development. Likewise, companies will flourish in the flat world to the extent that they dig inside themselves to identify their core competencies; leveraging available technologies to "reach farther, faster, wider, and deeper" and to customize individual clients' experiences; and constantly identifying and strengthening their core, and outsourcing those functions that aren't differentiating.

I was most intrigued by the section on geopolitics, which (in a sharp departure from the rest of the book) takes an extended detour to examine where and why the world isn't really flat -- that is, why some people, cultures, and entire countries haven't yet made it onto the level playing field. The reasons, says Friedman, are many. Many, including significant pockets in India and China, are too sick, entire societies ravaged by HIV/ AIDS or malaria for lack of funds, medicine, or even a viable health care delivery system. Others are too disempowered; they may see the level playing field, but lack the education and infrastructure (often due to local governments' shortcomings) they need to get in the game. Most frightening, perhaps, are those who are too frustrated, which includes much of the Arab Muslim world; people who are uncomfortable with the pace of change and contact thrust upon them by outside forces, especially when it gives them a less-than-favorable view of where they stand. The argument here veers a bit too close to Dubya's jingoistic "they hate our freedom" blather, but does make some interesting points: the slow pace of scientific and technological advancement in the Arab world; the parallels between radicals channeling young men's alienation in 1930s Germany and today's Middle East; and the failure of moderate Islamic political leaders to offer a more progressive interpretation of Islam to counter that espoused by the radicals.

Lastly, setting the stage for Friedman's next book, there's the problem of too many Toyotas; in other words, if most of the new kids on the playing field want a U.S.-style standard of living, we're bound to face an energy shortage and/or energy wars before too long. From here, it's a logical step to his Dell theory of conflict prevention:

"No two countries that are both part of a major global supply chain ... will ever fight a war against each other as long as they are both part of the same global supply chain. Because people embedded in major global supply chains don't want to fight old-time wars anymore. They want to make just-in-time deliveries of goods and services -- and enjyo the rising standards of living that come with that."

Here's the rub, though: Many countries and factions aren't part of a major global supply chain. And BTW, it's not just the CEOs that use open-sourcing and supply chaining to their benefit; al-Qaeda's figured much of this stuff out, too.

Utterly fascinating stuff, all of it. Not surprisingly, I think Friedman's a little too optimistic in singing the praises of the free market; sometimes markets fail. And I'll need to digest the text a bit more completely before I can offer any sort of balanced evaluation; this is weighty material. I'll say one thing, though -- I can't wait till my hold on Hot, Flat, and Crowded comes in.

"There are two ways to flatten the world. One is to use your imagination to bring everyone up to the same level, anf the other is to use your imagination to bring everyone down to the same level."