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Friedman
is a Pulitzer prize-winning foreign affairs correspondent for The New York
Times. The global economic
playing field is being leveled by a number of factors: hence “the world is
flat.” This is a follow-up to his
highly popular book on global economics, The Lexus and the Olive Tree. I found it brimming with information and
ideas illustrated by fascinating stories and anecdotes. While it covers a surprisingly broad range
of topics it is an economic perspective and the world is bigger than
economics.
Massive
investment in technology, cheaper computers worldwide, and an explosion of
digitizing software, has created a platform where intellectual work can be
done and delivered anywhere in the world.
Knowledge centers are connected in a single global network. Any activity that can be digitized,
automated, and moved [and parts of nearly everything can be] will be. Everyone is now competing for the same
work. The driving forces are
multinational companies. (6-9)
India
has 70,000 accounting grads starting at $100/month every year. (14) Wages and rents in Bangalore are less than
1/5 of Western capitals. (18) 245,000
Indians answer phones from all over the world in high-wage, high-prestige
jobs. (24) Smaller hospitals are
shipping CAT scan images to radiologists abroad for interpretation. (16) In order to reduce the cost of market
research Wall Street investment firms have outsourced much of it to places
like Bangalore. (29)
Benefits
go both ways. While the U.S. has lost
service jobs to India, exports from American-based companies to India have
grown. (28)
China’s
economy is growing dramatically. (34)
A Communist official in China said, “First we will have our young
people employed by the foreigners, and then we will start our own companies.”
(36)
JetBlue
has 400 reservation agents working from their homes (homesourcing) in Salt
Lake City. (37) Costs are lower and productivity is much
higher. 23.5 million Americans (16%
of U.S. work force) work at home.
(38)
“This
flattening process is happening at warp speed and directly or indirectly
touching a lot more people on the planet at once.” This book offers a framework for how to manage this phenomenon
to our benefit. (46-7)
Forces that Flattened the World [Friedman lists ten.]
11/9/89 Fall of the Berlin Wall. “It tipped the balance of power across the
world toward those advocating democratic, consensual, free-market-oriented
governance.” “Economies would be
governed from the ground up, by the interests, demands, and aspirations of
the people, rather than from the top down, by the interests of some narrow
ruling clique.” (49) “It also allowed
us to think about the world...as a seamless whole.” (51)
8/9/95. Netscape went public. Internet browsing and email were the new
killer apps (applications) that allowed data to be stored and retrieved
anywhere. The first web site was put
up in 1991. (56) “Digitization is that magic process by
which words, music, data, films, files, and pictures are turned into bits and
bytes—combinations of 1s and 0s—that can be manipulated on a computer screen,
stored on a microprocessor, or transmitted over satellites and fiber-optic
lines.” (64)
Self-organizing
collaborative communities are writing software. “Thousands of people around the world coming together online to
collaborate in writing everything from their own software to their own
operating systems....” Shared,
constantly improved by its users, and made available for free to anyone. (82)
It makes available for free many tools that millions worldwide do not
have to buy to use and with which they can challenge hierarchical
structures. (102-3)
“Bloggers,
one-person online commentators, who often link to one another depending on
their ideology, have created a kind of open-source newsroom.” “A tiny group of relatively obscure news
bloggers were able to blow the whistle that exposed the bogus documents used
by CBS News’s Dan Rather in his infamous report about President George W.
Bush’s Air National Guard service....”
(93)
A
Wiki is a web site that allows users to directly edit any web page on their
own. (94) There are wiki dictionaries, encyclopedias, textbooks, etc. (95)
The
key event triggering massive outsourcing was Y2K. India had many capable people with few jobs. America needed many software engineers to
adjust the internal clocks of their computers. The work was outsourced to Indian engineers. After the dotcom bubble burst, companies
had to reduce costs and the Indian companies had the experience and
credibility.
“Offshoring...is
when a company takes one of its factories that it is operating in Canton,
Ohio, and moves the whole factory offshore to Canton, China.” (114) On 12/11/01 China joined the World Trade
Organization, agreeing to follow global rules governing imports, exports, and
foreign investments. (114) China
created a whole new level of offshoring.
“Because
China can amass so many low-wage workers at the unskilled, semiskilled, and
skilled levels, because it has such a voracious appetite for factory,
equipment, and knowledge jobs to keep its people employed, and because it has
such a massive an burgeoning consumer market, it has become an unparalleled
zone for offshoring.” (116-17) “China’s real long-term strategy is to
outrace America and the E. U. countries to the top, and the Chinese are off
to a good start. China’s leaders are
much more focused than many of their Western counterparts on how to train
their young people in the math, science, and computer skills required for
success in the flat world....”(118) However, China will not be truly flat
until they have political reform. (126)
Offshoring
is also coming to America because foreigners want access to American markets
and labor. (123)
Supply-Chaining
is a method of collaborating horizontally—among suppliers, retailers, and
customers—to create value. “As
consumers, we love supply chains, because they deliver us all sorts of
goods...at lower and lower prices.”
However, they also expose us to higher pressures to cut costs, wages
and benefits. (129)
Insourcing. UPS is not just delivering packages but
synchronizing global supply chains for both large and small companies. (Their airline is the 11th
largest in the world!) (142) “UPS
comes inside a lot of companies now and takes over their branded vehicles to
assure on-time delivery.” (143) UPS
engineers come right inside your company; analyze its manufacturing,
packaging, and delivery processes; and then design, redesign, and manage your
whole global supply chain.” “There
are companies today...that never touch their own products anymore.” (144)
In-Forming. Web-searching. Individuals can find information about anything. Search engines are the equalizer of
knowledge. (150-52) “Live your life honestly, because whatever
you do, whatever mistakes you make, will be searchable one day.” (158)
More
new technologies—digital , mobile, personal, virtual—amplify the other
flatteners. Storage is growing
exponentially. File sharing (a la
Napster) is increasing in sophistication.
Multipurpose laptops, cell phones, and handheld personal
organizers. Voice over Internet
protocol services (like Skype), Videoconferencing. Wireless. (163-67)
The Triple Convergence
1. About 2000, all 10 flatteners started to
work together.
2. This new playing field merged with new
ways of doing business.
3. A new group of several billion people from
China, India, and the Soviet Empire joined the playing field. (175)
“The
big spurts in productivity come when a new technology is combined with new ways
of doing business.” (177)
The
triple convergence “is the most important force shaping global economics and
politics in the early twenty-first century.” (182)
In
1985 the global world consisted of North America, Western Europe, Japan, and
chunks of Latin America and other countries, about 2.5 billion people. After the Berlin Wall fell, another 1.5
billion people joined them. (182)
“Natural
talent has started to trump geography.” (194) Chinese undergraduates at Yale: 40 in class of 2001.
276 in class of 2008. (193)
Boeing has 800 Russian engineers and scientists (on their way to 1500)
collaborating on computer-aided airplane design. Russian engineers have outsourced elements of their work to
Hindustan Aeronautics in Bangalore. (195-6)
Sorting Out
When
the world moves from a vertical model to an increasingly horizontal model
everything is affected. (200)
Flattening squeezes out the inefficiencies. That may threaten “the distinctive places and communities that
give us our bearings, that locate us in the world.” “Some of those “inefficiencies” are the institutions, habits,
cultures, and traditions that people cherish precisely because they reflect
nonmarket values....”(204, per Michael Sandel)
We
are moving from command and control to collaborate and connect. “The boss can do his job and your
job.” “He can give you instructions
day or night. So you are never out. You are always in. Therefore, you are always on.” (213) “The tensions among our identities as
consumers, employees, citizens, taxpayers, and shareholders are going to come
into sharper and sharper conflict.” (214)
“The
Wal-Mart shopper in all of us wants the lowest price possible....” “But the Wal-Mart worker in us hates the
benefits and pay packages.... And
the Wal-Mart citizen in us knows that because Wal-Mart...doesn’t cover all
its employees with health care, some of them will just go to the emergency
ward...and the taxpayers will end up picking up the tab.” (215)
You
should assume that anything (not just CDs and movies) can be counterfeited
quickly and sold without royalties to the inventor. (217) “Who owns what?” is sure to be a
contentious political and geopolitical question in a flat world. (218)
“The
flattening process relentlessly trims the fat out of business and life,
but...fat is what gives life taste and texture.” (220) “The consumer in
me wants lower phone bills, but the human being in me also wants to speak to
an operator when I call 411.” (221)
How will it affect America?
“Even
as the world gets flat, America as a whole will benefit more by sticking to
the basic principles of free trade, as it always has, than by trying to erect
walls.” (227) Idea-based workers do
well in globalization. (230)
Tell
your kids, “You have to constantly upgrade your skills.” (237)
Become an “untouchable,” in one of 4 categories: be special, specialized
(not fungible), anchored (requires to face-to-face contact in a fixed
location), or really adaptable (constantly acquiring new skills). (Fungible work is work that can be
digitized and transferred to lower-wage locations.) (238)
“There
is something about post-World War II America that reminds me of the classic
wealthy family that by the third generation starts to squander its
wealth. The members of the first
generation are nose-to-the-grindstone innovators; the second generation holds
it all together; then their kids come along and get fat, dumb, and lazy and
slowly squander it all.” (252)
“The
truth is, we are in a crisis now, but it is a crisis that is unfolding very
slowly and very quietly.” It involves
the steady erosion of America’s scientific and engineering base. (252-3)
Three
gaps exist: numbers (not enough people in the sciences), ambition (poor work
ethic), and education. Jobs sent
abroad save 75% on wages but gain 100% in productivity! Immigrants are always hungry. “American 15-year olds are below the
international average when it comes to applying math skills to real-life
tasks.” (252-72)
“The
flattening of the world is going to be hugely disrupting to both traditional
and developed societies. The weak
will fall farther behind faster.” (279)
“...much political stability is built on economic stability, and
economic stability is not going to be a feature of the flat world.” (280)
Developing Countries. What sort of policies do
developing countries need to undertake to thrive? China has passed up Mexico in exports to the U.S. (310) Open markets are the only sustainable
vehicle for growing a nation out of poverty. (314)
China
1990 – 375 Million living on less than $1/day
2001 – 212 million
Sub-Saharan
Africa
1990 – 227 million
2001 – 313 million (315)
“Every
region of the world has its strengths and weaknesses, and all are in need of
reform retail to some degree.” (317)
“Countries grow out of poverty not only when they manage their fiscal
and monetary policies responsibly from above, i.e. reform wholesale. They grow out of poverty when they also
create an environment below that makes it very easy for their people to start
businesses, raise capital, and become entrepreneurs, and when they subject
their people to at least some competition from beyond....” (318)
“The
jobs are going to go where the best-educated workforce is with the most
competitive infrastructure and environment for creativity and supportive
government. It is inevitable.” (323,
quoting John Chambers)
One
cannot analyze a country’s economic performance without reference to
culture. A key factor “is the degree
to which it has internalized the values of hard work, thrift, honesty,
patience, and tenacity, as well as the degree to which it is open to
change....” (324) How open is your
culture to foreign influences and ideas?
To what degree is there trust within the society? Is the country concerned with the masses
or indifferent to their own poor? (325)
You
must have openness to adapt and adopt from others. This explains why so many Muslim countries have been struggling
as the world goes flat. “...the
Muslim world today is dominated by a religious clergy that literally bans ijtihad,
reinterpretation of the principles of Islam in light of current
circumstances. Think about the whole
mind-set of bin Ladensim. It is to
‘purge’ Saudi Arabia of all foreigners and foreign influences.” (326)
“A
system that privileges the men from birth on, Landes also argues, simply
because they are male, and gives them power over their sisters and other
female members of society, is bad for the men. It builds in them a sense of entitlement that discourages what
it takes to improve, to advance, and to achieve.” (326)
Some
Intangibles: Ability to pull
together. Leaders with a vision who
will push for change rather than enrich themselves. Valuing education.
(330-32).
Companies
Dig
inside yourself. You have to be the
very best, the most creative thinker.
You have to offer something totally unique. (344) Take quick
advantage of all the new tools for collaboration to reach farther, faster,
wider, and deeper. (345) Collaborate with your customers, allowing them to
serve themselves and enabling them to act really big. Do more through collaboration within and
between companies. “One of the core
competencies of the business today is partnering.” (355) Constantly identify and strengthen your
niches and outsource the other stuff to increase knowledge jobs and creative
processes.
Geopolitics
Hundreds
of millions have been left behind in the flattening process. This chapter deals with how things could
go wrong, the biggest forces impeding the process and what to do about it. (375)
In many ways the line is the line of hope. 3 billion are caught in a trap of no hope and therefore have no
chance of making it into the middle class.
Either they are too sick and poor or their local governments are too
broken for them to believe they can make it.
(376-79)
The
flat world puts different societies and cultures in much greater direct
contact with one another. Some are
threatened, frustrated, and even humiliated by this contact, which makes it
very clear where they stand in the world.
“All of this helps to explain the emergence of one of the most
dangerous unflattening forces today—the suicide bombers of al-Qaeda...” (392)
A
lot of anger is bubbling over from the Muslim world and particularly the
Arab-Muslim world. Many live under
authoritarian governments that deprive their people of a voice in their
future and deprive millions of opportunities to achieve their potential.
(392) Increasingly these young people
are being dominated by, and defined by, religious militants and extremists,
who give vent to the frustrations in that part of the world by simply lashing
out. (393)
The
9/11 hijackers were not fundamentalists but adherents of an extreme, violent
political cult. They were
well-educated children of privilege.
(395) “They converted Islam into
a political ideology, a religious totalitarianism.” The profile of the classic revolutionary is deracinated, middle
class, shaped in part by exile. “For
them Islamism is the new universal revolutionary creed....” (396)
Between
1980 and 1999, Arab countries produced 171 international patents. South Korea alone registered 16,328
patents. (398) “...many Muslims want
both stagnation and power: they want a return to the perfection of the
seventh century and to dominate the twenty-first, as they believe is the
birthright of their doctrine....” “People grow angry when faced with an
intractable dilemma; they lash out.”
The word ‘humiliation’ always comes up very quickly. (399) “There is a feeling of hopelessness among
the Muslim countries and their people.
This humiliation is key.” “Humiliation is the most underestimated
force in international relations and in human relations.” (400)
“Arab
regimes...have been very passive in countering them [Islamo-Leninists] with a
modern, progressive interpretation of Islam.
This is because almost all of these Arab-Muslim leaders are
illegitimate themselves.” (402) There
is passive support among the population because “too many good decent people
there feel the same frustration and tinge of humiliation....” Re 9/11, “many Arabs and Muslims were
celebrating the idea of putting a fist in America’s face—and they were
quietly applauding the men who did it.” (403)
Another
barrier to the flat world will be an energy shortage—or even energy wars—when
a few billion people all begin to get cars and refrigerators, etc. There are 1000 new cars on the streets of
Beijing every month!
(407) China is now the second
largest importer of oil in the world.
Finding oil and preventing Taiwan from becoming independent dominates
their foreign policy. (409)
If
we do nothing about alternative energy sources “we will be strengthening the
very worst political systems in the world—like Sudan, Iran, and Saudi
Arabia.” (411)
An
all out world-shaking war would destroy the collaboration and supply
chains. But these global supply
chains are a restraint on “geopolitical adventurism.” (420)
“Any sort of war or prolonged political upheaval in East Asia or China
would have a massive chilling effect on the investment there and on all the
progress that has been made there.” (421, according to Michael Dell) “They know there is a big economic pot at
the end of the rainbow and they are really after it.” (403, quoting Glenn
Neland, V.P. for Dell) China and
Tawain are deeply embedded in several supply chains for computers and
consumer electronics. This will
affect war decisions just like it did in the India-Pakistan standoff. In many cases there is more to be gained economically
than geo-politically. (428)
“The
most vexing geopolitical problem for flat-world countries” is that
globalization also works for al-Quaeda.
(429) “It has helped to
solidify a revival of Muslim identity and solidarity....” (430) “It enables the small to act big, and...it
enables small acts—the killing of just a few people—to have big effects.”
(431) “The Internet is an enormously
useful tool for the dissemination of propaganda, conspiracy theories, and
plain old untruths....” (432) It is “more
likely to transmit irrationality than rationality because irrationality is more
emotionally loaded, it requires less knowledge, it explains more to people,
it goes down easier.” (432, quoting Yaron Ezrahi) “There may be nothing more dangerous today than a failed state
with broadband capability.” (435)
“We
can live with a lot. We lived through
9/11. But we cannot live with nuclear
terrorism. That would unflatten the
world permanently.” (436) The only strategy is to limit the supply of fissile
material, to get much more serious about collecting it and putting it
away. (437)
Friedman’s
rabbi said the flat world reminded him of the Tower of Babel! The heresy was an effort to build a tower
to the heavens so they could become God.
(438)
Technology
cannot keep us safe. We have to find
ways to nurture a hopeful, life-affirming, tolerant imagination in those who
would destroy the world....” (447)
Nothing
has contributed more to retarding the emergence of a democratic context in
places like Venezuela, Nigeria, Saudi Arabia, and Iran than the curse of
oil. As long as the monarchs and
dictators who run these oil states can get rich by drilling their natural
resources—as opposed to drilling the natural talents and energy of their
people—they can stay in office forever.”
(460) “Give ma $10-a-barrel
oil, and I will give you political and economic reform from Moscow to Riyadh
to Iran. If America and its allies
will not collaborate in bringing down the price of crude oil, their
aspirations for reform in all these areas will be stillborn.” (462)
“It
is imperative that we be the best global citizens that we can be—because in a
flat world, if you don’t visit a bad neighborhood, it might visit you. And it is imperative that while we remain
vigilant to the new threats, we do not let them paralyze us. Most of all, though, it is imperative that
we nurture more people with the imaginations of Abraham George and Fadi
Ghandour.” (entrepreneurs from poor backgrounds, 468).
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