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While people were focusing on the boom and bust of the dot-coms, Rajesh explained, the real revolution was taking place more quietly. It was the fact that all over the world, people, en masse, were starting to get comfortable with the new global infrastructure. “We are just at the beginning of being efficient in using it,” he said. “There is a lot more we can do with this infrastructure, as more and more people shift to becoming paperless in their offices and realize that distances really [do] not matter... It will supercharge all of this. It's really going to be a different world.”
Moreover, in the old days, these software programs would have been priced beyond the means of a little Indian game start-up, but not anymore, thanks in part to the open-source free software movement. Said Rajesh, “The cost of software tools would have remained where the interested parties wanted them to be if it was not for the deluge of rather efficient freeware and shareware products that sprung up in the early 2000s. Microsoft Windows, Office, 3D Studio MAX, Adobe Photoshop-each of these programs would have been priced higher than they are today if not for the many freeware/shareware programs that were comparable and compelling. The Internet brought to the table the element of choice and instant comparison that did not exist before for a little company like ours... Already we have in our gaming industry artists and designers working from home, something unimaginable a few years back, given the fact that developing games is a highly interactive process. They connect into the company's internal system over the Internet, using a secure feature called VPN [virtual private network], making their presence no different from the guy in the next cubicle.”
The Internet now makes this whole world “like one marketplace,” added Rajesh. “This infrastructure is not only going to facilitate sourcing of work to the best price, best quality, from the best place, it is also going to enable a great amount of sharing of practices and knowledge, and it's going to be 'I can learn from you and you can learn from me' like never before. It's very good for the world. The economy is going to drive integration and the integration is going to drive the economy.”
There is no reason the United States should not benefit from this trend, Rajesh insisted. What Dhruva is doing is pioneering computer gaming within Indian society. When the Indian market starts to embrace gaming as a mainstream social activity, Dhruva will already be positioned to take advantage. But by then, he argued, the market “will be so huge that there will be a lot of opportunity for content to come from outside. And, hey, the Americans are way ahead in terms of the ability to know what games can work and what won't work and in terms of being at the cutting edge of design-so this is a bilateral thing... Every perceived dollar or opportunity that is lost today [from an American point of view because of outsourcing] is actually going to come back to you times ten, once the market here is unleashed... Just remember, we are a 300-million middle class-larger than the size of your country or Europe.”
Yes, he noted, India right now has a great advantage in having a pool of educated, low-wage English speakers with a strong service etiquette in their DNA and an enterprising spirit. “So, sure, for the moment, we are leading the so-called wave of service outsourcing of various kinds of new things,” said Rajesh. “But I believe that there should be no doubt that this is just the beginning. If [Indians] think that they've got something going and there is something they can keep that's not going to go anywhere, that will be a big mistake, because we have got Eastern Europe, which is waking up, and we have got China, which is waiting to get on the services bandwagon to do various things. I mean, you can source the best product or service or capacity or competency from anywhere in the world today, because of this whole infrastructure that is being put into place. The only thing that inhibits you from doing that is your readiness to make use of this infrastructure. So as different businesses, and as different people, get more comfortable using this infrastructure, you are going to see a huge explosion. It is a matter of five to seven years and we will have a huge batch of excellent English-speaking Chinese graduates coming out of their universities. Poles and Hungarians are already very well connected, very close to Europe, and their cultures are very similar [to Western Europe's]. So today India is ahead, but it has to work very hard if it wants to keep this position. It has to never stop inventing and reinventing itself.”
The raw ambition that Rajesh and so many of his generation possess is worthy of note by Americans-a point I will elaborate on later.
“We can't relax,” said Rajesh. “I think in the case of the United States that is what happened a bit. Please look at me: I am from India. We have been at a very different level before in terms of technology and business. But once we saw we had an infrastructure which made the world a small place, we promptly tried to make the best use of it. We saw there were so many things we could do. We went ahead, and today what we are seeing is a result of that... There is no time to rest. That is gone. There are dozens of people who are doing the same thing you are doing, and they are trying to do it better. It is like water in a tray, you shake it and it will find the path of least resistance. That is what is going to happen to so many jobs-they will go to that corner of the world where there is the least resistance and the most opportunity. If there is a skilled person in Timbuktu, he will get work if he knows how to access the rest of the world, which is quite easy today. You can make a Web site and have an e-mail address and you are up and running. And if you are able to demonstrate your work, using the same infrastructure, and if people are comfortable giving work to you, and if you are diligent and clean in your transactions, then you are in business.”
Instead of complaining about outsourcing, said Rajesh, Americans and Western Europeans would “be better off thinking about how you can raise your bar and raise yourselves into doing something better. Americans have consistently led in innovation over the last century. Americans whining-we have never seen that before. People like me have learned a lot from Americans. We have learned to become a little more aggressive in the way we market ourselves, which is something we would not have done given our typical British background.”
So what is your overall message? I asked Rajesh, before leaving with my head spinning.
“My message is that what's happening now is just the tip of the iceberg... What is really necessary is for everybody to wake up to the fact that there is a fundamental shift that is happening in the way people are going to do business. And everyone is going to have to improve themselves and be able to compete. It is just going to be one global market. Look, we just made [baseball] caps for Dhruva to give away. They came from Sri Lanka.”
“Not from a factory in South Bangalore?” I asked.
“Not from South Bangalore,” said Rajesh, “even though Bangalore is one of the export hubs for garments. Among the three or four caps we got quotations for, this [Sri Lankan one] was the best in terms of quality and the right price, and we thought the finish was great.
“This is the situation you are going to see moving forward,” Rajesh concluded. “If you are seeing all this energy coming out of Indians, it's because we have been underdogs and we have that drive to kind of achieve and to get there... India is going to be a superpower and we are going to rule.”
“Rule whom?” I asked.
Rajesh laughed at his own choice of words. “It's not about ruling anybody. That's the point. There is nobody to rule anymore. It's about how you can create a great opportunity for yourself and hold on to that or keep creating new opportunities where you can thrive. I think today that rule is about efficiency, it's about collaboration and it is about competitiveness and it is about being a player. It is about staying sharp and being in the game... The world is a football field now and you've got to be sharp to be on the team which plays on that field. If you're not good enough, you're going to be sitting and watching the game. That's all.”
How Do You Say “Zippie” in Chinese?
As in Bangalore ten years ago, the best place to meet zippies in Beijing today is in the line at the consular section of the U.S. embassy. In Beijing in the summer of 2004, I discovered that the quest by Chinese students for visas to study or work in America was so intense that it had spawned dedicated Internet chat rooms, where Chinese students swapped stories about which arguments worked best with which U.S. embassy consular officials. They even gave the U.S. diplomats names like “Amazon Goddess,” “Too Tall Baldy,” and “Handsome Guy.” Just how intensely Chinese students strategize over the Internet was revealed, U.S. embassy officials told me, when one day a rookie U.S. consular official had student after student come before him with the same line that some chat room had suggested would work for getting a visa: “I want to go to America to become a famous professor.”
After hearing this all day, the U.S. official was suddenly surprised to get one student who came before him and pronounced, “My mother has an artificial limb and I want to go to America to learn how to build a better artificial limb for her.” The official was so relieved to hear a new line that he told the young man, “You know, this is the best story I've heard all day. I really salute you. I'm going to give you a visa.”
You guessed it.
The next day, a bunch of students showed up at the embassy saying they wanted a visa to go to America to learn how to build better artificial limbs for their mothers.
Talking to these U.S. embassy officials in Beijing, who are the gatekeepers for these visas, it quickly became apparent to me that they had mixed feelings about the process. On the one hand, they were pleased that so many Chinese wanted to come study and work in America. On the other hand, they wanted to warn American kids: Do you realize what is coming your way? As one U.S. embassy official in Beijing said to me, “What I see happening [in China] is what has been going on for the last several decades in the rest of Asia-the tech booms, the tremendous energy of the people. I saw it elsewhere, but now it is happening here.”
I was visiting Yale in the spring of 2004. As I was strolling through the central quad, near the statue of Elihu Yale, two Chinese-speaking tours came through, with Chinese tourists of all ages. Chinese have started to tour the world in large numbers, and as China continues to develop toward a more open society, it is quite likely that Chinese leisure tourists will alter the whole world-tourism industry.
But Chinese are not visiting Yale just to admire the ivy. Consider these statistics from Yale's admissions office. The fall 1985 class had 71 graduate and undergraduate students from China and 1 from the Soviet Union. The fall 2003 class had 297 Chinese graduate and undergraduate students and 23 Russians. Yale's total international student contingent went from 836 in the fall of 1985 to 1,775 in the fall of 2003. Applications from Chinese and Russian high school students to attend Yale as undergraduates have gone from a total of 40 Chinese for the class of 2001 to 276 for the class of 2008, and 18 Russians for the class of 2001 to 30 for the class of 2008. In 1999, Yiting Liu, a schoolgirl from Chengdu, China, got accepted to Harvard on a full scholarship. Her parents then wrote a build-your-own handbook about how they managed to prepare their daughter to get accepted to Harvard. The book, in Chinese, titled Harvard Girl Yiting Liu, offered “scientifically proven methods” to get your Chinese kid into Harvard. The book became a runaway best seller in China. By 2003 it had sold some 3 million copies and spawned more than a dozen copycat books about how to get your kid into Columbia, Oxford, or Cambridge.
While many Chinese aspire to go to Harvard and Yale, they aren't just waiting around to get into an American university. They are also trying to build their own at home. In 2004,1 was a speaker for the 150th anniversary of Washington University in St. Louis, a school noted for its strength in science and engineering. Mark Wrighton, the university's thoughtful chancellor, and I were chatting before the ceremony. He mentioned in passing that in the spring of 2001 he had been invited (along with many other foreign and American academic leaders) to Tsinghua University in Beijing, one of the finest in China, to participate in the celebration of its ninetieth anniversary. He said the invitation left him scratching his head at first: Why would any university celebrate its ninetieth anniversary-not its hundredth?
“Perhaps a Chinese tradition?” Wrighton asked himself. When he arrived at Tsinghua, though, he learned the answer. The Chinese had brought academics from all over the world to Tsinghua-more than ten thousand people attended the ceremony-in order to make the declaration “that at the one hundredth anniversary Tsinghua University would be among the world's premier universities,” Wrighton later explained to me in an e-mail. “The event involved all of the leaders of the Chinese government, from the Mayor of Beijing to the head of state. Each expressed the conviction that an investment in the university to support its development as one of the world's great universities within ten years would be a rewarding one. With Tsinghua University already regarded as one of the leading universities in China, focused on science and technology, it was evident that there is a seriousness of purpose in striving for a world leadership position in [all the areas involved] in spawning technological innovation.”
And as a result of China's drive to succeed, Microsoft chairman Bill Gates argued to me, the “ovarian lottery” has changed-as has the whole relationship between geography and talent. Thirty years ago, he said, if you had a choice between being born a genius on the outskirts of Bombay or Shanghai or being born an average person in Poughkeepsie, you would take Poughkeepsie, because your chances of thriving and living a decent life there, even with average talent, were much greater. But as the world has gone flat, Gates said, and so many people can now plug and play from anywhere, natural talent has started to trump geography.
“Now,” he said, “I would rather be a genius born in China than an average guy born in Poughkeepsie.”
That's what happens when the Berlin Wall turns into the Berlin mall and 3 billion people converge with all these new tools for collaboration. “We're going to tap into the energy and talent of five times as many people as we did before,” said Gates.
From Russia with Love
I didn't get a chance to visit Russia and interview Russian zippies for this book, but I did the next best thing. I asked my friend Thomas R. Pickering, the former U.S. ambassador to Moscow and now a top international relations executive with Boeing, to explain a new development I had heard about: that Boeing was using Russian engineers and scientists, who once worked on MiGs, to help design its next generation of passenger planes.
Pickering unraveled the story for me. Beginning in 1991, Boeing started assigning out work to Russian scientists to take advantage of their expertise in aerodynamic problems and new aviation alloys. In 1998, Boeing decided to take this a step further and open an aeronautical engineering design office in Moscow. Boeing located the office in the twelve-story Moscow tower that McDonald's built with all the rubles it made from selling Big Macs in Moscow before the end of communism— money that McDonald's had pledged not to take out of the country.
Seven years later, said Pickering, “we now have eight hundred Russian engineers and scientists working for us and we're going up to at least one thousand and maybe, over time, to fifteen hundred.” The way it works, he explained, is that Boeing contracts with different Russian aircraft companies-companies that were famous in the Cold War for making warplanes, companies with names like Ilyushin, Tupolev, and Sukhoi-and they provide the engineers-to-order for Boeing's different projects. Using French-made airplane design software, the Russian engineers collaborate with their colleagues at Boeing America -in both Seattle and Wichita, Kansas-in computer-aided airplane designs. Boeing has set up a twenty-four-hour workday. It consists of two shifts in Moscow and one shift in America. Using fiber-optic cables, advanced compression technologies, and aeronautical work flow software, “they just pass their designs back and forth from Moscow to America,” Pickering said. There are videoconferencing facilities on every floor of Boeing's Moscow office, so the engineers don't have to rely on e-mail when they have a problem to solve with their American counterparts. They can have a face-to-face conversation.
Boeing started outsourcing airplane design work to Moscow as an experiment, a sideline; but today, with a shortage of aeronautical engineers in America, it is a necessity. Boeing's ability to blend these lower-cost Russian engineers with higher-cost, more advanced American design teams is enabling Boeing to compete head-to-head with its archrival, Airbus Industries, which is subsidized by a consortium of European governments and is using Russian talent as well. A U.S. aeronautical engineer costs $120 per design hour; a Russian costs about one-third of that.
But the outsourcees are also outsourcers. The Russian engineers have outsourced elements of their work for Boeing to Hindustan Aeronautics in Bangalore, which specializes in digitizing airplane designs so as to make them easier to manufacture. But this isn't the half of it. In the old days, explained Pickering, Boeing would say to its Japanese subcontractors, “We will send you the plans for the wings of the 777. We will let you make some of them and then we will count on you buying the whole airplanes from us. It's a win-win.”
Today Boeing says to the giant Japanese industrial company Mitsubishi, “Here are the general parameters for the wings of the new 7E7. You design the finished product and build it.” But Japanese engineers are very expensive. So what happens? Mitsubishi outsources elements of the outsourced 7E7 wing to the same Russian engineers Boeing is using for other parts of the plane. Meanwhile, some of these Russian engineers and scientists are leaving the big Russian airplane companies, setting up their own firms, and Boeing is considering buying shares in some of these start-ups to have reserve engineering capacity.
All of this global sourcing is for the purpose of designing and building planes faster and cheaper, so that Boeing can use its cash to keep innovating for the next generation and survive the withering competition from Airbus. Thanks to the triple convergence, it now takes Boeing eleven days to build a 737, down from twenty-eight days just a few years ago. Boeing will build its next generation of planes in three days, because all the parts are being computer-designed for assembly, and Boeing's global supply chain will enable it to move parts from one facility to another just in time.
To make sure that it is getting the best deals on its parts and other supplies, Boeing now runs regular “reverse auctions,” in which companies bid down against each other rather than bid up against each other. They bid for contracts on everything from toilet paper for the Boeing factories to nuts and bolts-the off-the-shelf commodity parts-for Boeing's supply chain. Boeing will announce an auction for a stated time on a specially designed Internet site. It will begin the auction for each supply item at what it considers a fair price. Then it will just sit back and watch how far each supplier wants to undercut the others to win Boeing's business. Bidders are prequalified by Boeing, and everyone can see everyone else's bids as they are submitted.
“You can really see the pressures of the marketplace and how they work,” said Pickering. “It's like watching a horse race.”
The Other Triple Convergence
I once heard Bill Bradley tell a story about a high-society woman from Boston who goes to San Francisco for the first time. When she comes home and is asked by a friend how she liked it, she says, “Not very much-it's too far from the ocean.”
The perspective and predispositions that you carry around in your head are very important in shaping what you see and what you don't see. That helps to explain why a lot of people missed the triple convergence. Their heads were completely somewhere else-even though it was happening right before their eyes. Three other things-another convergence— came together to create this smoke screen.
The first was the dot-com bust, which began in March 2001. As I said earlier, many people wrongly equated the dot-com boom with globalization. So when the dot-com boom went bust, and so many dot-coms (and the firms that supported them) imploded, these same people assumed that globalization was imploding as well. The sudden flameout of dogfood.com and ten other Web sites offering to deliver ten pounds of puppy chow to your door in thirty minutes was supposed to be proof that globalization and the IT revolution were all sizzle and no beef.
This was pure foolishness. Those who thought that globalization was the same thing as the dot-com boom and that the dot-com bust marked the end of globalization could not have been more wrong. To say it again, the dot-com bust actually drove globalization into hypermode by forcing companies to outsource and offshore more and more functions in order to save on scarce capital. This was a key factor in laying the groundwork for Globalization 3.0. Between the dot-com bust and today, Google went from processing roughly 150 million searches per day to roughly one billion searches per day, with only a third coming from inside the United States. As its auction model caught on worldwide, eBay went from twelve hundred employees in early 2000 to sixty-three hundred by 2004, all in the period when globalization was supposed to be “over.” Between 2000 and 2004, total global Internet usage grew 125 percent, including 186 percent in Africa, 209 percent in Latin America, 124 percent in Europe, and 105 percent in North America, according to Nielsen/ NetRatings. Yes, globalization sure ended, all right.
It was not just the dot-com bust and all the hot air surrounding it that obscured all this from view. There were two other big clouds that moved in. The biggest, of course, was 9/11, which was a profound shock to the American body politic. Given 9/11, and the Afghanistan and Iraq invasions that followed, it's not surprising that the triple convergence was lost in the fog of war and the chatter of cable television. Finally, there was the Enron corporate governance scandal, quickly followed by blowups at Tyco and WorldCom-which all sent CEOs and the Bush administration running for cover. CEOs, with some justification, became guilty until proven innocent of boardroom shenanigans, and even the slavishly probusiness, pro-CEO Bush administration was wary of appearing-in public-to be overly solicitous of the concerns of big business. In the spring of 2004,1 met with the head of one of America's biggest technology companies, who had come to Washington to lobby for more federal funding for the National Science Foundation to help nurture a stronger industrial base for American industry. I asked him why the administration wasn't convening a summit of CEOs to highlight this issue, and he just shook his head and said one word: “Enron.”
The result: At the precise moment when the world was being flattened, and the triple convergence was reshaping the whole global business environment-requiring some very important adjustments in our own society and that of many other Western developed nations-American politicians not only were not educating the American public, they were actively working to make it stupid. During the 2004 election campaign we saw the Democrats debating whether NAFTA was a good idea and the Bush White House putting duct tape over the mouth of N. Gregory Mankiw, the chairman of the White House Council of Economic Advisers, and stashing him away in Dick Cheney's basement, because Mankiw, author of a popular college economics textbook, had dared to speak approvingly of oursourcing as just the “latest manifestation of the gains from trade that economists have talked about at least since Adam Smith.”
Mankiw's statement triggered a competition for who could say the most ridiculous thing in response. The winner was Speaker of the House Dennis Hastert, who said that Mankiw's “theory fails a basic test of real economics.” And what test was that, Dennis? Poor Mankiw was barely heard from again.
For all these reasons, most people missed the triple convergence. Something really big was happening, and it was simply not part of public discourse in America or Europe. Until I visited India in early 2004,1 too was largely ignorant of it, although I was picking up a few hints that something was brewing. One of the most thoughtful business leaders I have come to know over the years is Nobuyuki Idei, the chairman of Sony. Whenever he speaks, I pay close attention. We saw each other twice during 2004, and both times he said something through his heavy Japanese accent that stuck in my ear. Idei said that a change was under way in the business-technology world that would be remembered, in time, like “the meteor that hit the earth and killed all the dinosaurs.” Fortunately, the cutting-edge global companies knew what was going on out there, and the best companies were quietly adapting to it so that they would not be one of those dinosaurs.
As I started researching this book, I felt at times like I was in a Twilight Zone segment. I would interview CEOs and technologists from major companies, both American-based and foreign, and they would describe in their own ways what I came to call the triple convergence. But, for all the reasons I explained above, most of them weren't telling the public or the politicians. They were either too distracted, too focused on their own businesses, or too afraid. It was like they were all “pod people,” living in a parallel universe, who were in on a big secret. Yes, they all knew the secret-but nobody wanted to tell the kids.
Well, here's the truth that no one wanted to tell you: The world has been flattened. As a result of the triple convergence, global collaboration and competition-between individuals and individuals, companies and individuals, companies and companies, and companies and customers— have been made cheaper, easier, more friction-free, and more productive for more people from more corners of the earth than at any time in the history of the world.
You know “the IT revolution” that the business press has been touting for the last twenty years? Sorry, but that was only the prologue. The last twenty years were just about forging, sharpening, and distributing all the new tools with which to collaborate and connect. Now the real IT revolution is about to begin, as all the complementarities between these tools start to really work together to level the playing field. One of those who pulled back the curtain and called this moment by its real name was HP's Carly Fiorina, who in 2004 began to declare in her public speeches that the dot-com boom and bust were just “the end of the beginning.” The last twenty-five years in technology, said Fiorina, then the CEO of HP, have been just “the warm-up act.” Now we are going into the main event, she said, “and by the main event, I mean an era in which technology will literally transform every aspect of business, every aspect of life and every aspect of society.”
FOUR: The Great Sorting Out
Moreover, in the old days, these software programs would have been priced beyond the means of a little Indian game start-up, but not anymore, thanks in part to the open-source free software movement. Said Rajesh, “The cost of software tools would have remained where the interested parties wanted them to be if it was not for the deluge of rather efficient freeware and shareware products that sprung up in the early 2000s. Microsoft Windows, Office, 3D Studio MAX, Adobe Photoshop-each of these programs would have been priced higher than they are today if not for the many freeware/shareware programs that were comparable and compelling. The Internet brought to the table the element of choice and instant comparison that did not exist before for a little company like ours... Already we have in our gaming industry artists and designers working from home, something unimaginable a few years back, given the fact that developing games is a highly interactive process. They connect into the company's internal system over the Internet, using a secure feature called VPN [virtual private network], making their presence no different from the guy in the next cubicle.”
The Internet now makes this whole world “like one marketplace,” added Rajesh. “This infrastructure is not only going to facilitate sourcing of work to the best price, best quality, from the best place, it is also going to enable a great amount of sharing of practices and knowledge, and it's going to be 'I can learn from you and you can learn from me' like never before. It's very good for the world. The economy is going to drive integration and the integration is going to drive the economy.”
There is no reason the United States should not benefit from this trend, Rajesh insisted. What Dhruva is doing is pioneering computer gaming within Indian society. When the Indian market starts to embrace gaming as a mainstream social activity, Dhruva will already be positioned to take advantage. But by then, he argued, the market “will be so huge that there will be a lot of opportunity for content to come from outside. And, hey, the Americans are way ahead in terms of the ability to know what games can work and what won't work and in terms of being at the cutting edge of design-so this is a bilateral thing... Every perceived dollar or opportunity that is lost today [from an American point of view because of outsourcing] is actually going to come back to you times ten, once the market here is unleashed... Just remember, we are a 300-million middle class-larger than the size of your country or Europe.”
Yes, he noted, India right now has a great advantage in having a pool of educated, low-wage English speakers with a strong service etiquette in their DNA and an enterprising spirit. “So, sure, for the moment, we are leading the so-called wave of service outsourcing of various kinds of new things,” said Rajesh. “But I believe that there should be no doubt that this is just the beginning. If [Indians] think that they've got something going and there is something they can keep that's not going to go anywhere, that will be a big mistake, because we have got Eastern Europe, which is waking up, and we have got China, which is waiting to get on the services bandwagon to do various things. I mean, you can source the best product or service or capacity or competency from anywhere in the world today, because of this whole infrastructure that is being put into place. The only thing that inhibits you from doing that is your readiness to make use of this infrastructure. So as different businesses, and as different people, get more comfortable using this infrastructure, you are going to see a huge explosion. It is a matter of five to seven years and we will have a huge batch of excellent English-speaking Chinese graduates coming out of their universities. Poles and Hungarians are already very well connected, very close to Europe, and their cultures are very similar [to Western Europe's]. So today India is ahead, but it has to work very hard if it wants to keep this position. It has to never stop inventing and reinventing itself.”
The raw ambition that Rajesh and so many of his generation possess is worthy of note by Americans-a point I will elaborate on later.
“We can't relax,” said Rajesh. “I think in the case of the United States that is what happened a bit. Please look at me: I am from India. We have been at a very different level before in terms of technology and business. But once we saw we had an infrastructure which made the world a small place, we promptly tried to make the best use of it. We saw there were so many things we could do. We went ahead, and today what we are seeing is a result of that... There is no time to rest. That is gone. There are dozens of people who are doing the same thing you are doing, and they are trying to do it better. It is like water in a tray, you shake it and it will find the path of least resistance. That is what is going to happen to so many jobs-they will go to that corner of the world where there is the least resistance and the most opportunity. If there is a skilled person in Timbuktu, he will get work if he knows how to access the rest of the world, which is quite easy today. You can make a Web site and have an e-mail address and you are up and running. And if you are able to demonstrate your work, using the same infrastructure, and if people are comfortable giving work to you, and if you are diligent and clean in your transactions, then you are in business.”
Instead of complaining about outsourcing, said Rajesh, Americans and Western Europeans would “be better off thinking about how you can raise your bar and raise yourselves into doing something better. Americans have consistently led in innovation over the last century. Americans whining-we have never seen that before. People like me have learned a lot from Americans. We have learned to become a little more aggressive in the way we market ourselves, which is something we would not have done given our typical British background.”
So what is your overall message? I asked Rajesh, before leaving with my head spinning.
“My message is that what's happening now is just the tip of the iceberg... What is really necessary is for everybody to wake up to the fact that there is a fundamental shift that is happening in the way people are going to do business. And everyone is going to have to improve themselves and be able to compete. It is just going to be one global market. Look, we just made [baseball] caps for Dhruva to give away. They came from Sri Lanka.”
“Not from a factory in South Bangalore?” I asked.
“Not from South Bangalore,” said Rajesh, “even though Bangalore is one of the export hubs for garments. Among the three or four caps we got quotations for, this [Sri Lankan one] was the best in terms of quality and the right price, and we thought the finish was great.
“This is the situation you are going to see moving forward,” Rajesh concluded. “If you are seeing all this energy coming out of Indians, it's because we have been underdogs and we have that drive to kind of achieve and to get there... India is going to be a superpower and we are going to rule.”
“Rule whom?” I asked.
Rajesh laughed at his own choice of words. “It's not about ruling anybody. That's the point. There is nobody to rule anymore. It's about how you can create a great opportunity for yourself and hold on to that or keep creating new opportunities where you can thrive. I think today that rule is about efficiency, it's about collaboration and it is about competitiveness and it is about being a player. It is about staying sharp and being in the game... The world is a football field now and you've got to be sharp to be on the team which plays on that field. If you're not good enough, you're going to be sitting and watching the game. That's all.”
How Do You Say “Zippie” in Chinese?
As in Bangalore ten years ago, the best place to meet zippies in Beijing today is in the line at the consular section of the U.S. embassy. In Beijing in the summer of 2004, I discovered that the quest by Chinese students for visas to study or work in America was so intense that it had spawned dedicated Internet chat rooms, where Chinese students swapped stories about which arguments worked best with which U.S. embassy consular officials. They even gave the U.S. diplomats names like “Amazon Goddess,” “Too Tall Baldy,” and “Handsome Guy.” Just how intensely Chinese students strategize over the Internet was revealed, U.S. embassy officials told me, when one day a rookie U.S. consular official had student after student come before him with the same line that some chat room had suggested would work for getting a visa: “I want to go to America to become a famous professor.”
After hearing this all day, the U.S. official was suddenly surprised to get one student who came before him and pronounced, “My mother has an artificial limb and I want to go to America to learn how to build a better artificial limb for her.” The official was so relieved to hear a new line that he told the young man, “You know, this is the best story I've heard all day. I really salute you. I'm going to give you a visa.”
You guessed it.
The next day, a bunch of students showed up at the embassy saying they wanted a visa to go to America to learn how to build better artificial limbs for their mothers.
Talking to these U.S. embassy officials in Beijing, who are the gatekeepers for these visas, it quickly became apparent to me that they had mixed feelings about the process. On the one hand, they were pleased that so many Chinese wanted to come study and work in America. On the other hand, they wanted to warn American kids: Do you realize what is coming your way? As one U.S. embassy official in Beijing said to me, “What I see happening [in China] is what has been going on for the last several decades in the rest of Asia-the tech booms, the tremendous energy of the people. I saw it elsewhere, but now it is happening here.”
I was visiting Yale in the spring of 2004. As I was strolling through the central quad, near the statue of Elihu Yale, two Chinese-speaking tours came through, with Chinese tourists of all ages. Chinese have started to tour the world in large numbers, and as China continues to develop toward a more open society, it is quite likely that Chinese leisure tourists will alter the whole world-tourism industry.
But Chinese are not visiting Yale just to admire the ivy. Consider these statistics from Yale's admissions office. The fall 1985 class had 71 graduate and undergraduate students from China and 1 from the Soviet Union. The fall 2003 class had 297 Chinese graduate and undergraduate students and 23 Russians. Yale's total international student contingent went from 836 in the fall of 1985 to 1,775 in the fall of 2003. Applications from Chinese and Russian high school students to attend Yale as undergraduates have gone from a total of 40 Chinese for the class of 2001 to 276 for the class of 2008, and 18 Russians for the class of 2001 to 30 for the class of 2008. In 1999, Yiting Liu, a schoolgirl from Chengdu, China, got accepted to Harvard on a full scholarship. Her parents then wrote a build-your-own handbook about how they managed to prepare their daughter to get accepted to Harvard. The book, in Chinese, titled Harvard Girl Yiting Liu, offered “scientifically proven methods” to get your Chinese kid into Harvard. The book became a runaway best seller in China. By 2003 it had sold some 3 million copies and spawned more than a dozen copycat books about how to get your kid into Columbia, Oxford, or Cambridge.
While many Chinese aspire to go to Harvard and Yale, they aren't just waiting around to get into an American university. They are also trying to build their own at home. In 2004,1 was a speaker for the 150th anniversary of Washington University in St. Louis, a school noted for its strength in science and engineering. Mark Wrighton, the university's thoughtful chancellor, and I were chatting before the ceremony. He mentioned in passing that in the spring of 2001 he had been invited (along with many other foreign and American academic leaders) to Tsinghua University in Beijing, one of the finest in China, to participate in the celebration of its ninetieth anniversary. He said the invitation left him scratching his head at first: Why would any university celebrate its ninetieth anniversary-not its hundredth?
“Perhaps a Chinese tradition?” Wrighton asked himself. When he arrived at Tsinghua, though, he learned the answer. The Chinese had brought academics from all over the world to Tsinghua-more than ten thousand people attended the ceremony-in order to make the declaration “that at the one hundredth anniversary Tsinghua University would be among the world's premier universities,” Wrighton later explained to me in an e-mail. “The event involved all of the leaders of the Chinese government, from the Mayor of Beijing to the head of state. Each expressed the conviction that an investment in the university to support its development as one of the world's great universities within ten years would be a rewarding one. With Tsinghua University already regarded as one of the leading universities in China, focused on science and technology, it was evident that there is a seriousness of purpose in striving for a world leadership position in [all the areas involved] in spawning technological innovation.”
And as a result of China's drive to succeed, Microsoft chairman Bill Gates argued to me, the “ovarian lottery” has changed-as has the whole relationship between geography and talent. Thirty years ago, he said, if you had a choice between being born a genius on the outskirts of Bombay or Shanghai or being born an average person in Poughkeepsie, you would take Poughkeepsie, because your chances of thriving and living a decent life there, even with average talent, were much greater. But as the world has gone flat, Gates said, and so many people can now plug and play from anywhere, natural talent has started to trump geography.
“Now,” he said, “I would rather be a genius born in China than an average guy born in Poughkeepsie.”
That's what happens when the Berlin Wall turns into the Berlin mall and 3 billion people converge with all these new tools for collaboration. “We're going to tap into the energy and talent of five times as many people as we did before,” said Gates.
From Russia with Love
I didn't get a chance to visit Russia and interview Russian zippies for this book, but I did the next best thing. I asked my friend Thomas R. Pickering, the former U.S. ambassador to Moscow and now a top international relations executive with Boeing, to explain a new development I had heard about: that Boeing was using Russian engineers and scientists, who once worked on MiGs, to help design its next generation of passenger planes.
Pickering unraveled the story for me. Beginning in 1991, Boeing started assigning out work to Russian scientists to take advantage of their expertise in aerodynamic problems and new aviation alloys. In 1998, Boeing decided to take this a step further and open an aeronautical engineering design office in Moscow. Boeing located the office in the twelve-story Moscow tower that McDonald's built with all the rubles it made from selling Big Macs in Moscow before the end of communism— money that McDonald's had pledged not to take out of the country.
Seven years later, said Pickering, “we now have eight hundred Russian engineers and scientists working for us and we're going up to at least one thousand and maybe, over time, to fifteen hundred.” The way it works, he explained, is that Boeing contracts with different Russian aircraft companies-companies that were famous in the Cold War for making warplanes, companies with names like Ilyushin, Tupolev, and Sukhoi-and they provide the engineers-to-order for Boeing's different projects. Using French-made airplane design software, the Russian engineers collaborate with their colleagues at Boeing America -in both Seattle and Wichita, Kansas-in computer-aided airplane designs. Boeing has set up a twenty-four-hour workday. It consists of two shifts in Moscow and one shift in America. Using fiber-optic cables, advanced compression technologies, and aeronautical work flow software, “they just pass their designs back and forth from Moscow to America,” Pickering said. There are videoconferencing facilities on every floor of Boeing's Moscow office, so the engineers don't have to rely on e-mail when they have a problem to solve with their American counterparts. They can have a face-to-face conversation.
Boeing started outsourcing airplane design work to Moscow as an experiment, a sideline; but today, with a shortage of aeronautical engineers in America, it is a necessity. Boeing's ability to blend these lower-cost Russian engineers with higher-cost, more advanced American design teams is enabling Boeing to compete head-to-head with its archrival, Airbus Industries, which is subsidized by a consortium of European governments and is using Russian talent as well. A U.S. aeronautical engineer costs $120 per design hour; a Russian costs about one-third of that.
But the outsourcees are also outsourcers. The Russian engineers have outsourced elements of their work for Boeing to Hindustan Aeronautics in Bangalore, which specializes in digitizing airplane designs so as to make them easier to manufacture. But this isn't the half of it. In the old days, explained Pickering, Boeing would say to its Japanese subcontractors, “We will send you the plans for the wings of the 777. We will let you make some of them and then we will count on you buying the whole airplanes from us. It's a win-win.”
Today Boeing says to the giant Japanese industrial company Mitsubishi, “Here are the general parameters for the wings of the new 7E7. You design the finished product and build it.” But Japanese engineers are very expensive. So what happens? Mitsubishi outsources elements of the outsourced 7E7 wing to the same Russian engineers Boeing is using for other parts of the plane. Meanwhile, some of these Russian engineers and scientists are leaving the big Russian airplane companies, setting up their own firms, and Boeing is considering buying shares in some of these start-ups to have reserve engineering capacity.
All of this global sourcing is for the purpose of designing and building planes faster and cheaper, so that Boeing can use its cash to keep innovating for the next generation and survive the withering competition from Airbus. Thanks to the triple convergence, it now takes Boeing eleven days to build a 737, down from twenty-eight days just a few years ago. Boeing will build its next generation of planes in three days, because all the parts are being computer-designed for assembly, and Boeing's global supply chain will enable it to move parts from one facility to another just in time.
To make sure that it is getting the best deals on its parts and other supplies, Boeing now runs regular “reverse auctions,” in which companies bid down against each other rather than bid up against each other. They bid for contracts on everything from toilet paper for the Boeing factories to nuts and bolts-the off-the-shelf commodity parts-for Boeing's supply chain. Boeing will announce an auction for a stated time on a specially designed Internet site. It will begin the auction for each supply item at what it considers a fair price. Then it will just sit back and watch how far each supplier wants to undercut the others to win Boeing's business. Bidders are prequalified by Boeing, and everyone can see everyone else's bids as they are submitted.
“You can really see the pressures of the marketplace and how they work,” said Pickering. “It's like watching a horse race.”
The Other Triple Convergence
I once heard Bill Bradley tell a story about a high-society woman from Boston who goes to San Francisco for the first time. When she comes home and is asked by a friend how she liked it, she says, “Not very much-it's too far from the ocean.”
The perspective and predispositions that you carry around in your head are very important in shaping what you see and what you don't see. That helps to explain why a lot of people missed the triple convergence. Their heads were completely somewhere else-even though it was happening right before their eyes. Three other things-another convergence— came together to create this smoke screen.
The first was the dot-com bust, which began in March 2001. As I said earlier, many people wrongly equated the dot-com boom with globalization. So when the dot-com boom went bust, and so many dot-coms (and the firms that supported them) imploded, these same people assumed that globalization was imploding as well. The sudden flameout of dogfood.com and ten other Web sites offering to deliver ten pounds of puppy chow to your door in thirty minutes was supposed to be proof that globalization and the IT revolution were all sizzle and no beef.
This was pure foolishness. Those who thought that globalization was the same thing as the dot-com boom and that the dot-com bust marked the end of globalization could not have been more wrong. To say it again, the dot-com bust actually drove globalization into hypermode by forcing companies to outsource and offshore more and more functions in order to save on scarce capital. This was a key factor in laying the groundwork for Globalization 3.0. Between the dot-com bust and today, Google went from processing roughly 150 million searches per day to roughly one billion searches per day, with only a third coming from inside the United States. As its auction model caught on worldwide, eBay went from twelve hundred employees in early 2000 to sixty-three hundred by 2004, all in the period when globalization was supposed to be “over.” Between 2000 and 2004, total global Internet usage grew 125 percent, including 186 percent in Africa, 209 percent in Latin America, 124 percent in Europe, and 105 percent in North America, according to Nielsen/ NetRatings. Yes, globalization sure ended, all right.
It was not just the dot-com bust and all the hot air surrounding it that obscured all this from view. There were two other big clouds that moved in. The biggest, of course, was 9/11, which was a profound shock to the American body politic. Given 9/11, and the Afghanistan and Iraq invasions that followed, it's not surprising that the triple convergence was lost in the fog of war and the chatter of cable television. Finally, there was the Enron corporate governance scandal, quickly followed by blowups at Tyco and WorldCom-which all sent CEOs and the Bush administration running for cover. CEOs, with some justification, became guilty until proven innocent of boardroom shenanigans, and even the slavishly probusiness, pro-CEO Bush administration was wary of appearing-in public-to be overly solicitous of the concerns of big business. In the spring of 2004,1 met with the head of one of America's biggest technology companies, who had come to Washington to lobby for more federal funding for the National Science Foundation to help nurture a stronger industrial base for American industry. I asked him why the administration wasn't convening a summit of CEOs to highlight this issue, and he just shook his head and said one word: “Enron.”
The result: At the precise moment when the world was being flattened, and the triple convergence was reshaping the whole global business environment-requiring some very important adjustments in our own society and that of many other Western developed nations-American politicians not only were not educating the American public, they were actively working to make it stupid. During the 2004 election campaign we saw the Democrats debating whether NAFTA was a good idea and the Bush White House putting duct tape over the mouth of N. Gregory Mankiw, the chairman of the White House Council of Economic Advisers, and stashing him away in Dick Cheney's basement, because Mankiw, author of a popular college economics textbook, had dared to speak approvingly of oursourcing as just the “latest manifestation of the gains from trade that economists have talked about at least since Adam Smith.”
Mankiw's statement triggered a competition for who could say the most ridiculous thing in response. The winner was Speaker of the House Dennis Hastert, who said that Mankiw's “theory fails a basic test of real economics.” And what test was that, Dennis? Poor Mankiw was barely heard from again.
For all these reasons, most people missed the triple convergence. Something really big was happening, and it was simply not part of public discourse in America or Europe. Until I visited India in early 2004,1 too was largely ignorant of it, although I was picking up a few hints that something was brewing. One of the most thoughtful business leaders I have come to know over the years is Nobuyuki Idei, the chairman of Sony. Whenever he speaks, I pay close attention. We saw each other twice during 2004, and both times he said something through his heavy Japanese accent that stuck in my ear. Idei said that a change was under way in the business-technology world that would be remembered, in time, like “the meteor that hit the earth and killed all the dinosaurs.” Fortunately, the cutting-edge global companies knew what was going on out there, and the best companies were quietly adapting to it so that they would not be one of those dinosaurs.
As I started researching this book, I felt at times like I was in a Twilight Zone segment. I would interview CEOs and technologists from major companies, both American-based and foreign, and they would describe in their own ways what I came to call the triple convergence. But, for all the reasons I explained above, most of them weren't telling the public or the politicians. They were either too distracted, too focused on their own businesses, or too afraid. It was like they were all “pod people,” living in a parallel universe, who were in on a big secret. Yes, they all knew the secret-but nobody wanted to tell the kids.
Well, here's the truth that no one wanted to tell you: The world has been flattened. As a result of the triple convergence, global collaboration and competition-between individuals and individuals, companies and individuals, companies and companies, and companies and customers— have been made cheaper, easier, more friction-free, and more productive for more people from more corners of the earth than at any time in the history of the world.
You know “the IT revolution” that the business press has been touting for the last twenty years? Sorry, but that was only the prologue. The last twenty years were just about forging, sharpening, and distributing all the new tools with which to collaborate and connect. Now the real IT revolution is about to begin, as all the complementarities between these tools start to really work together to level the playing field. One of those who pulled back the curtain and called this moment by its real name was HP's Carly Fiorina, who in 2004 began to declare in her public speeches that the dot-com boom and bust were just “the end of the beginning.” The last twenty-five years in technology, said Fiorina, then the CEO of HP, have been just “the warm-up act.” Now we are going into the main event, she said, “and by the main event, I mean an era in which technology will literally transform every aspect of business, every aspect of life and every aspect of society.”
FOUR: The Great Sorting Out
The triple convergence is not only going to affect how individuals prepare themselves for work, how companies compete, and how countries organize their economies and geopolitics. Over time, it is going to reshape political identities, recast political parties, and redefine who is a political actor. In short, in the wake of this triple convergence that we have just gone through, we are going to witness what I call “the great sorting out.” Because when the world starts to move from a primarily vertical (command and control) value-creation model to an increasingly horizontal (connect and collaborate) creation model, it doesn't affect just how business gets done. It affects everything-how communities and companies define themselves, where companies and communities stop and start, how individuals balance their different identities as consumers, employees, shareholders, and citizens, and what role government has to play. All of this is going to have to be sorted out anew. The most common disease of the flat world is going to be multiple identity disorder, which is why, if nothing else, political scientists are going to have a field day with the flat world. Political science may turn out to be the biggest growth industry of all in this new era. Because as we go through this great sorting out over the next decade, we are going to see some very strange bedfellows making some very new politics.
I first began thinking about the great sorting out after a conversation with Harvard University's noted political theorist Michael J. Sandel. Sandel startled me slightly by remarking that the sort of flattening process that I was describing was actually first identified by Karl Marx and Friedrich Engels in the Communist Manifesto, published in 1848. While the shrinking and flattening of the world that we are seeing today constitute a difference of degree from what Marx saw happening in his day, said Sandel, it is nevertheless part of the same historical trend Marx highlighted in his writings on capitalism-the inexorable march of technology and capital to remove all barriers, boundaries, frictions, and restraints to global commerce.
“Marx was one of the first to glimpse the possibility of the world as a global market, uncomplicated by national boundaries,” Sandel explained. “Marx was capitalism's fiercest critic, and yet he stood in awe of its power to break down barriers and create a worldwide system of production and consumption. In the Communist Manifesto, he described capitalism as a force that would dissolve all feudal, national, and religious identities, giving rise to a universal civilization governed by market imperatives. Marx considered it inevitable that capital would have its way-inevitable and also desirable. Because once capitalism destroyed all national and religious allegiances, Marx thought, it would lay bare the stark struggle between capital and labor. Forced to compete in a global race to the bottom, the workers of the world would unite in a global revolution to end oppression. Deprived of consoling distractions such as patriotism and religion, they would see their exploitation clearly and rise up to end it.”
Indeed, reading the Communist Manifesto today, I am in awe at how incisively Marx detailed the forces that were flattening the world during the rise of the Industrial Revolution, and how much he foreshadowed the way these same forces would keep flattening the world right up to the present. In what is probably the key paragraph of the Communist Manifesto, Marx and Engels wrote:
All fixed, fast, frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life and his relations with his kind. The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere. The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. To the great chagrin of reactionaries, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilised nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrow-mindedness become more and more impossible, and from the numerous national and local literatures there arises a world literature.
The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian nations into civilisation. The cheap prices of commodities are the heavy artillery with which it barters down all Chinese walls, with which it forces the barbarians' intensely obstinate hatred of foreigners to capitulate. It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilisation into their midst, i.e., to become bourgeois themselves. In one word, it creates a world after its own image.
It is hard to believe that Marx published that in 1848. Referring to the Communist Manifesto, Sandel told me, “You are arguing something similar. What you are arguing is that developments in information technology are enabling companies to squeeze out all the inefficiencies and friction from their markets and business operations. That is what your notion of'flattening' really means. But a flat, frictionless world is a mixed blessing. It may, as you suggest, be good for global business. Or it may, as Marx believed, augur well for a proletarian revolution. But it may also pose a threat to the distinctive places and communities that give us our bearings, that locate us in the world. From the first stirrings of capitalism, people have imagined the possibility of the world as a perfect market— unimpeded by protectionist pressures, disparate legal systems, cultural and linguistic differences, or ideological disagreement. But this vision has always bumped up against the world as it actually is-full of sources of friction and inefficiency. Some obstacles to a frictionless global market are truly sources of waste and lost opportunities. But some of these inefficiencies are institutions, habits, cultures, and traditions that people cherish precisely because they reflect nonmarket values like social cohesion, religious faith, and national pride. If global markets and new communications technologies flatten those differences, we may lose something important. That is why the debate about capitalism has been, from the very beginning, about which frictions, barriers, and boundaries are mere sources of waste and inefficiency, and which are sources of identity and belonging that we should try to protect. From the telegraph to the Internet, every new communications technology has promised to shrink the distance between people, to increase access to information, and to bring us ever closer to the dream of a perfectly efficient, frictionless global market. And each time, the question for society arises with renewed urgency: To what extent should we stand aside, 'get with the program,' and do all we can to squeeze out yet more inefficiencies, and to what extent should we lean against the current for the sake of values that global markets can't supply? Some sources of friction are worth protecting, even in the face of a global economy that threatens to flatten them.”
The biggest source of friction, of course, has always been the nation-state, with its clearly defined boundaries and laws. Are national boundaries a source of friction we should want to preserve, or even can preserve, in a flat world? What about legal barriers to the free flow of information, intellectual property, and capital-such as copyrights, worker protections, and minimum wages? In the wake of the triple convergence, the more the flattening forces reduce friction and barriers, the sharper the challenge they will pose to the nation-state and to the particular cultures, values, national identities, democratic traditions, and bonds of restraint that have historically provided some protection and cushioning for workers and communities. Which do we keep and which do we let melt away into air so we can all collaborate more easily?
This will take some sorting out, which is why the point that Michael Sandel raises is critical and is sure to be at the forefront of political debate both within and between nation-states in the flat world. As Sandel argued, what I call collaboration could be seen by others as just a nice name for the ability to hire cheap labor in India. You cannot deny that when you look at it from an American perspective. But that is only if you look at it from one side. From the Indian worker's perspective, that same form of collaboration, outsourcing, could be seen as another name for empowering individuals in the developing world as never before, enabling them to nurture, exploit, and profit from their God-given intellectual talents-talents that before the flattening of the world often rotted on the docks of Bombay and Calcutta. Looking at it from the American corner of the flat world, you might conclude that the frictions, barriers, and values that restrain outsourcing should be maintained, maybe even strengthened. But from the point of view of Indians, fairness, justice, and their own aspirations demand that those same barriers and sources of friction be removed. In the flat world, one person's economic liberation could be another's unemployment.
India versus Indiana: Who Is Exploiting Whom?
Consider this case of multiple identity disorder. In 2003, the state of Indiana put out to bid a contract to upgrade the state's computer systems that process unemployment claims. Guess who won? Tata America International, which is the U.S.-based subsidiary of India's Tata Consultancy Services Ltd. Tata's bid of $15.2 million came in $8.1 million lower than that of its closest rivals, the New York-based companies Deloitte Consulting and Accenture Ltd. No Indiana firms bid on the contract, because it was too big for them to handle.
In other words, an Indian consulting firm won the contract to upgrade the unemployment department of the state of Indiana! You couldn't make this up. Indiana was outsourcing the very department that would cushion the people of Indiana from the effects of outsourcing. Tata was planning to send some sixty-five contract employees to work in the Indiana Government Center, alongside eighteen state workers. Tata also said it would hire local subcontractors and do some local recruiting, but most workers would come from India to do the computer overhauls, which, once completed, were “supposed to speed the processing of unemployment claims, as well as save postage and reduce hassles for businesses that pay unemployment taxes,” the Indianapolis Star reported on June 25, 2004. You can probably guess how the story ended. “Top aides to then-Gov. Frank O'Bannon had signed off on the politically sensitive, four-year contract before his death [on] September 13, [2003],” the Star reported. But when word of the contract was made public, Republicans made it a campaign issue. It became such a political hot potato that Governor Joe Kernan, a Democrat who had succeeded O'Bannon, ordered the state agency, which helps out-of-work Indiana residents, to cancel the contract-and also to put up some legal barriers and friction to prevent such a thing from happening again. He also ordered that the contract be broken up into smaller bites that Indiana firms could bid for-good for Indiana firms but very costly and inefficient for the state. The Indianapolis Star reported that a check for $993,587 was sent to pay off Tata for eight weeks of work, during which it had trained forty-five state programmers in the development and engineering of up-to-date software: “'The company was great to work with,' said Alan Degner, Indiana's commissioner of workforce development.”
So now I have just one simple question: Who is the exploiter and who is the exploited in this India-Indiana story? The American arm of an Indian consulting firm proposes to save the taxpayers of Indiana $8.1 million by revamping their computers—using both its Indian employees and local hires from Indiana. The deal would greatly benefit the American arm of the Indian consultancy; it would benefit some Indiana tech workers; and it would save Indiana state residents precious tax dollars that could be deployed to hire more state workers somewhere else, or build new schools that would permanently shrink its roles of unemployed. And yet the whole contract, which was signed by pro-labor Democrats, got torn up under pressure from free-trade Republicans.
Sort that out.
In the old world, where value was largely being created vertically, usually within a single company and from the top down, it was very easy to see who was on the top and who was on the bottom, who was exploiting and who was being exploited. But when the world starts to flatten out and value increasingly gets created horizontally (through multiple forms of collaboration, in which individuals and little guys have much more power), who is on the top and who is on the bottom, who is exploiter and who is exploited, gets very complicated. Some of our old political reflexes no longer apply. Were the Indian engineers not being “exploited” when their government educated them in some of the best technical institutes in the world inside India, but then that same Indian government pursued a socialist economic policy that could not provide those engineers with work in India, so that those who could not get out of India had to drive taxis to eat? Are those same engineers now being exploited when they join the biggest consulting company in India, are paid a very comfortable wage in Indian terms, and, thanks to the flat world, can now apply their skills globally? Or are those Indian engineers now exploiting the people of Indiana by offering to revamp their state unemployment system for much less money than an American consulting firm? Or were the people of Indiana exploiting those cheaper Indian engineers? Someone please tell me: Who is exploiting whom in this story? With whom does the traditional Left stand in this story? With the knowledge workers from the developing world, being paid a decent wage, who are trying to use their hard-won talents in the developed world? Or with the politicians of Indiana, who wanted to deprive these Indian engineers of work so that it could be done, more expensively, by their constituents?
And with whom does the traditional Right stand in this story? With those who want to hold down taxes and shrink the state budget of Indiana by outsourcing some work, or with those who say, “Let's raise taxes more in order to reserve the work here and reserve it just for people from Indiana”? With those who want to keep some friction in the system, even though that goes against every Republican instinct on free trade, just to help people from Indiana? If you are against globalization because you think it harms people in developing countries, whose side are you on in this story: India's or Indiana's?
The India versus Indiana dispute highlights the difficulties in drawing lines between the interests of two communities that never before imagined they were connected, much less collaborators. But suddenly they each woke up and discovered that in a flat world, where work increasingly becomes a horizontal collaboration, they were not only connected and collaborating but badly in need of a social contract to govern their relations.
I first began thinking about the great sorting out after a conversation with Harvard University's noted political theorist Michael J. Sandel. Sandel startled me slightly by remarking that the sort of flattening process that I was describing was actually first identified by Karl Marx and Friedrich Engels in the Communist Manifesto, published in 1848. While the shrinking and flattening of the world that we are seeing today constitute a difference of degree from what Marx saw happening in his day, said Sandel, it is nevertheless part of the same historical trend Marx highlighted in his writings on capitalism-the inexorable march of technology and capital to remove all barriers, boundaries, frictions, and restraints to global commerce.
“Marx was one of the first to glimpse the possibility of the world as a global market, uncomplicated by national boundaries,” Sandel explained. “Marx was capitalism's fiercest critic, and yet he stood in awe of its power to break down barriers and create a worldwide system of production and consumption. In the Communist Manifesto, he described capitalism as a force that would dissolve all feudal, national, and religious identities, giving rise to a universal civilization governed by market imperatives. Marx considered it inevitable that capital would have its way-inevitable and also desirable. Because once capitalism destroyed all national and religious allegiances, Marx thought, it would lay bare the stark struggle between capital and labor. Forced to compete in a global race to the bottom, the workers of the world would unite in a global revolution to end oppression. Deprived of consoling distractions such as patriotism and religion, they would see their exploitation clearly and rise up to end it.”
Indeed, reading the Communist Manifesto today, I am in awe at how incisively Marx detailed the forces that were flattening the world during the rise of the Industrial Revolution, and how much he foreshadowed the way these same forces would keep flattening the world right up to the present. In what is probably the key paragraph of the Communist Manifesto, Marx and Engels wrote:
All fixed, fast, frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life and his relations with his kind. The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere. The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. To the great chagrin of reactionaries, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilised nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrow-mindedness become more and more impossible, and from the numerous national and local literatures there arises a world literature.
The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian nations into civilisation. The cheap prices of commodities are the heavy artillery with which it barters down all Chinese walls, with which it forces the barbarians' intensely obstinate hatred of foreigners to capitulate. It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilisation into their midst, i.e., to become bourgeois themselves. In one word, it creates a world after its own image.
It is hard to believe that Marx published that in 1848. Referring to the Communist Manifesto, Sandel told me, “You are arguing something similar. What you are arguing is that developments in information technology are enabling companies to squeeze out all the inefficiencies and friction from their markets and business operations. That is what your notion of'flattening' really means. But a flat, frictionless world is a mixed blessing. It may, as you suggest, be good for global business. Or it may, as Marx believed, augur well for a proletarian revolution. But it may also pose a threat to the distinctive places and communities that give us our bearings, that locate us in the world. From the first stirrings of capitalism, people have imagined the possibility of the world as a perfect market— unimpeded by protectionist pressures, disparate legal systems, cultural and linguistic differences, or ideological disagreement. But this vision has always bumped up against the world as it actually is-full of sources of friction and inefficiency. Some obstacles to a frictionless global market are truly sources of waste and lost opportunities. But some of these inefficiencies are institutions, habits, cultures, and traditions that people cherish precisely because they reflect nonmarket values like social cohesion, religious faith, and national pride. If global markets and new communications technologies flatten those differences, we may lose something important. That is why the debate about capitalism has been, from the very beginning, about which frictions, barriers, and boundaries are mere sources of waste and inefficiency, and which are sources of identity and belonging that we should try to protect. From the telegraph to the Internet, every new communications technology has promised to shrink the distance between people, to increase access to information, and to bring us ever closer to the dream of a perfectly efficient, frictionless global market. And each time, the question for society arises with renewed urgency: To what extent should we stand aside, 'get with the program,' and do all we can to squeeze out yet more inefficiencies, and to what extent should we lean against the current for the sake of values that global markets can't supply? Some sources of friction are worth protecting, even in the face of a global economy that threatens to flatten them.”
The biggest source of friction, of course, has always been the nation-state, with its clearly defined boundaries and laws. Are national boundaries a source of friction we should want to preserve, or even can preserve, in a flat world? What about legal barriers to the free flow of information, intellectual property, and capital-such as copyrights, worker protections, and minimum wages? In the wake of the triple convergence, the more the flattening forces reduce friction and barriers, the sharper the challenge they will pose to the nation-state and to the particular cultures, values, national identities, democratic traditions, and bonds of restraint that have historically provided some protection and cushioning for workers and communities. Which do we keep and which do we let melt away into air so we can all collaborate more easily?
This will take some sorting out, which is why the point that Michael Sandel raises is critical and is sure to be at the forefront of political debate both within and between nation-states in the flat world. As Sandel argued, what I call collaboration could be seen by others as just a nice name for the ability to hire cheap labor in India. You cannot deny that when you look at it from an American perspective. But that is only if you look at it from one side. From the Indian worker's perspective, that same form of collaboration, outsourcing, could be seen as another name for empowering individuals in the developing world as never before, enabling them to nurture, exploit, and profit from their God-given intellectual talents-talents that before the flattening of the world often rotted on the docks of Bombay and Calcutta. Looking at it from the American corner of the flat world, you might conclude that the frictions, barriers, and values that restrain outsourcing should be maintained, maybe even strengthened. But from the point of view of Indians, fairness, justice, and their own aspirations demand that those same barriers and sources of friction be removed. In the flat world, one person's economic liberation could be another's unemployment.
India versus Indiana: Who Is Exploiting Whom?
Consider this case of multiple identity disorder. In 2003, the state of Indiana put out to bid a contract to upgrade the state's computer systems that process unemployment claims. Guess who won? Tata America International, which is the U.S.-based subsidiary of India's Tata Consultancy Services Ltd. Tata's bid of $15.2 million came in $8.1 million lower than that of its closest rivals, the New York-based companies Deloitte Consulting and Accenture Ltd. No Indiana firms bid on the contract, because it was too big for them to handle.
In other words, an Indian consulting firm won the contract to upgrade the unemployment department of the state of Indiana! You couldn't make this up. Indiana was outsourcing the very department that would cushion the people of Indiana from the effects of outsourcing. Tata was planning to send some sixty-five contract employees to work in the Indiana Government Center, alongside eighteen state workers. Tata also said it would hire local subcontractors and do some local recruiting, but most workers would come from India to do the computer overhauls, which, once completed, were “supposed to speed the processing of unemployment claims, as well as save postage and reduce hassles for businesses that pay unemployment taxes,” the Indianapolis Star reported on June 25, 2004. You can probably guess how the story ended. “Top aides to then-Gov. Frank O'Bannon had signed off on the politically sensitive, four-year contract before his death [on] September 13, [2003],” the Star reported. But when word of the contract was made public, Republicans made it a campaign issue. It became such a political hot potato that Governor Joe Kernan, a Democrat who had succeeded O'Bannon, ordered the state agency, which helps out-of-work Indiana residents, to cancel the contract-and also to put up some legal barriers and friction to prevent such a thing from happening again. He also ordered that the contract be broken up into smaller bites that Indiana firms could bid for-good for Indiana firms but very costly and inefficient for the state. The Indianapolis Star reported that a check for $993,587 was sent to pay off Tata for eight weeks of work, during which it had trained forty-five state programmers in the development and engineering of up-to-date software: “'The company was great to work with,' said Alan Degner, Indiana's commissioner of workforce development.”
So now I have just one simple question: Who is the exploiter and who is the exploited in this India-Indiana story? The American arm of an Indian consulting firm proposes to save the taxpayers of Indiana $8.1 million by revamping their computers—using both its Indian employees and local hires from Indiana. The deal would greatly benefit the American arm of the Indian consultancy; it would benefit some Indiana tech workers; and it would save Indiana state residents precious tax dollars that could be deployed to hire more state workers somewhere else, or build new schools that would permanently shrink its roles of unemployed. And yet the whole contract, which was signed by pro-labor Democrats, got torn up under pressure from free-trade Republicans.
Sort that out.
In the old world, where value was largely being created vertically, usually within a single company and from the top down, it was very easy to see who was on the top and who was on the bottom, who was exploiting and who was being exploited. But when the world starts to flatten out and value increasingly gets created horizontally (through multiple forms of collaboration, in which individuals and little guys have much more power), who is on the top and who is on the bottom, who is exploiter and who is exploited, gets very complicated. Some of our old political reflexes no longer apply. Were the Indian engineers not being “exploited” when their government educated them in some of the best technical institutes in the world inside India, but then that same Indian government pursued a socialist economic policy that could not provide those engineers with work in India, so that those who could not get out of India had to drive taxis to eat? Are those same engineers now being exploited when they join the biggest consulting company in India, are paid a very comfortable wage in Indian terms, and, thanks to the flat world, can now apply their skills globally? Or are those Indian engineers now exploiting the people of Indiana by offering to revamp their state unemployment system for much less money than an American consulting firm? Or were the people of Indiana exploiting those cheaper Indian engineers? Someone please tell me: Who is exploiting whom in this story? With whom does the traditional Left stand in this story? With the knowledge workers from the developing world, being paid a decent wage, who are trying to use their hard-won talents in the developed world? Or with the politicians of Indiana, who wanted to deprive these Indian engineers of work so that it could be done, more expensively, by their constituents?
And with whom does the traditional Right stand in this story? With those who want to hold down taxes and shrink the state budget of Indiana by outsourcing some work, or with those who say, “Let's raise taxes more in order to reserve the work here and reserve it just for people from Indiana”? With those who want to keep some friction in the system, even though that goes against every Republican instinct on free trade, just to help people from Indiana? If you are against globalization because you think it harms people in developing countries, whose side are you on in this story: India's or Indiana's?
The India versus Indiana dispute highlights the difficulties in drawing lines between the interests of two communities that never before imagined they were connected, much less collaborators. But suddenly they each woke up and discovered that in a flat world, where work increasingly becomes a horizontal collaboration, they were not only connected and collaborating but badly in need of a social contract to govern their relations.