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In addition to their own self-interest in making more of their own employees into human Swiss Army knives, companies should be encouraged, with government subsidies or tax incentives, to offer as wide an array as possible of in-house learning opportunities. The menu of Internet-based worker-training programs today is enormous-from online degree programs to in-house guided training for different specializations. Not only is the menu enormous, but the cost to the company for offering these educational options is very low. The more lifetime learning opportunities that companies provide, the more they are both widening the skill base of their own workforce and fulfilling a moral obligation to workers whose jobs are outsourced to see to it that they leave more employable than they came. If there is a new social contract implicit between employers and employees today, it should be this: You give me your labor, and I will guarantee that as long as you work here, I will give you every opportunity-through either career advancement or training— to become more employable, more versatile.
While we need to redouble our efforts to build the muscles of each individual
American, we have to continue to import muscles from abroad as well. Most of the Indian, Chinese, Russian, Japanese, Korean, Iranian, Arab, and Israeli engineers, physicists, and scientists who come to work or study in the United States make great citizens. They are family-oriented, educated, and hardworking, and most would jump at the chance to become an American. They are exactly the type of people this country needs, and we cannot let the FBI, CIA, and Homeland Security, in their zeal to keep out the next Mohammed Atta, also keep out the next Sergey Brin, one of the cofounders of Google, who was born in Russia. As a computer architect friend of mine says, “If a foreign-born person is one day going to take my job, I'd prefer they be American citizens helping pay for my retirement benefits.”
I would favor an immigration policy that gives a five-year work visa to any foreign student who completes a Ph.D. at an accredited American university in any subject. I don't care if it is Greek mythology or mathematics. If we can cream off the first-round intellectual draft choices from around the world, it will always end up a net plus for America. If the flat world is about connecting all the knowledge pools together, we want our knowledge pool to be the biggest. Said Bill Brody, the president of Johns Hopkins, “We are in a global talent search, so anything we can do in America to get those top draft choices we should do, because one of them is going to be Babe Ruth, and why should we let him or her go somewhere else?”
Good Fat Cushions Worth Keeping
While many of the old corporate and government safety nets will vanish under global competition in the flat world, some fat still needs to be maintained, and even added. As everyone who worries about his or her health knows, there is “good fat” and “bad fat”-but everybody needs some fat. That is also true of every country in the flat world. Social Security is good fat. We need to keep it. A welfare system that discourages people from working is bad fat. The sort of good fat that actually needs to be added for a flat world is wage insurance.
According to a study by Lori Kletzer, an economist at the University of California, Santa Cruz, in the 1980s and '90s, two-thirds of workers who lost jobs in manufacturing industries hit by overseas competition earned less on their next job. A quarter of workers who lost their jobs and were reemployed saw their income fall 30 percent or more. Losing a job for any reason is a trauma-for the worker and his or her family-but particularly for older workers who are less able to adapt to new production techniques or lack the education to move up into more skilled service jobs.
This idea of wage insurance was first proposed in 1986 by Harvard's Robert Lawrence and Robert E. Litan of the Brookings Institution, in a book called Saving Free Trade. The idea languished for a while until it started to catch fire again with an updated analysis by Kletzer and Litan in 2001. It got further political clout from the bipartisan U.S. Trade Deficit Commission in 2001. This commission couldn't agree on anything— including the causes of or what to do about the trade deficit— other than the wisdom of wage insurance.
“Trade creates winners and losers, and what we were thinking about were mechanisms by which the winners could compensate the losers, and particularly losers who were enjoying high wages in a particular job and suddenly found their new employment at much lower wages,” said Lawrence. The way to think about this, he explained, is that every worker has “general skills and specific skills” for which they are paid, and when you switch jobs you quickly discover which is which. So you might have a college and CPA degree, or you might have a high school degree and the ability to operate a lathe. Both skills were reflected in your wages. But suppose one day your lathe job gets moved to China or your basic accounting work is outsourced to India and you have to go out and find a new job. Your new employer will not likely compensate you much for your specific skills, because your knowledge as a machine tool operator or a general accountant is probably of less use to him or her. You will be paid largely for your general skills, your high school education or college degree. Wage insurance would compensate you for your old specific skills, for a set period of time, while you take a new job and learn new specific skills.
The standard state-run unemployment insurance program eases some of this pain for workers, but it does not address their bigger concerns of declining wages in a new job and the inability to pay for health insurance while they are unemployed and searching. To qualify for wage insurance, workers seeking compensation for job loss would have to meet three criteria. First, they would have to have lost their job through some form of displacement-offshoring, outsourcing, downsizing, or factory closure. Second, they would have to have held the job for at least two years. And third, the wage insurance would not be paid until the workers found new jobs, which would provide a strong incentive to look for work quickly and increase the chances that they would get on-the-job retraining. On-the-job training is always the best way to learn new skills-instead of having to sign up for some general government training program, with no promise of a job at the other end, and go through that while remaining unemployed.
Workers who met those three conditions would then receive payments for two years, covering half the drop in their income from their previous job (capped at $10,000 a year). Kletzer and Litan also proposed that the government pay half the health insurance premiums for all “displaced” workers for up to six months. Wage insurance seems to me a much better idea than relying only on the traditional unemployment insurance offered by states, which usually covers only about 50 percent of most workers' previous wages, is limited to six months, and does not help workers who suffer a loss of earnings after they take a new job.
Moreover, as Kletzer and Litan noted, although all laid-off workers now have the right to purchase unsubsidized health insurance from their former employer if health coverage was offered when they were employed, many jobless workers do not have the money to take advantage of this guarantee. Also, while unemployed workers can earn an additional fifty-two weeks of unemployment insurance if they enroll in an approved retraining program, workers have no guarantee that when they finish such a program they will have a job.
For all these reasons, the Kletzer-Litan proposal makes a lot of sense to me as the right benefit for cushioning workers in a flat world. Moreover, such a program would be eminently affordable. Litan estimated that at an unemployment rate of 5 percent, the wage insurance and health-care subsidy today would cost around $8 billion a year, which is peanuts compared to the positive impact it could have on workers. This program would not replace classic state-run unemployment insurance for workers who opt for that, but if it worked as projected, it could actually reduce the cost of such programs by moving people back to work quicker.
Some might ask, Why be compassionate at all? Why keep any fat, friction, or barriers? Let me put it as bluntly as I can: If you are not a compassionate flatist—if you are just a let 'er rip free-market flatist—you are not only cruel, you are a fool. You are courting a political backlash by those who can and will get churned up by this flattening process, and that backlash could become ferocious if we hit any kind of prolonged recession.
The transition to a flat world is going to stress many people. As Joshua S. Levine, E*Trade 's chief technology officer, put it to me, 'You know how sometimes you go through a harrowing experience and you need a respite, but the respite never seems to come. Look at the airline workers. They go through this [terrible] event like 9/11, and management and the airline unions all negotiate for four months and management says, 'If the unions don't cut $2 billion in salary and benefits they will have to shut the airline down.' And after these wrenching negotiations the unions agree. I just have to laugh, because you know that in a few months management is going to come right back... There is no end. No one has to ask me to cut my budget each year. We all just know that each year we will be expected to do more with less. If you are a revenue producer, you are expected to come up with more revenue every year, and if you are an expense saver, you are expected to come up with more savings every year. You never get a break from it.“
If societies are unable to manage the strains that are produced by this flattening, there will be a backlash, and political forces will attempt to reinsert some of the frictions and protectionist barriers that the flattening forces have eliminated, but they will do it in a crude way that will, in the name of protecting the weak, end up lowering everyone's standard of living. Former Mexican president Ernesto Zedillo is very sensitive to this problem, having had to manage Mexico's transition into NAFTA, with all of the strains that put on Mexican society. Speaking of the flattening process, he said to me, “It would be very hard to stop, but it can be stopped for a time. Maybe you can't stop it totally, but you can slow it down. And it makes a difference whether you get there in twenty-five years or fifty years. In between, two or three generations-who could have benefited a lot from more trade and globalization-will end up with crumbs.”
Always remember, said Zedillo, that behind all this technology is a political infrastructure that enables it to play out. “There have been a series of concrete political decisions, taken over the last fifty years, that put the world where it is right now,” he said. “Therefore, there are political decisions that could screw up the whole process too.”
As the saying goes: If you want to live like a Republican, vote like a Democrat-take good care of the losers and left-behinds. The only way to be a flatist is to be a compassionate flatist.
Social Activism
One new area that is going to need sorting out is the relationship between global corporations and their own moral consciences. Some may laugh at the notion that a global corporation even has a moral conscience, or should ever be expected to develop one. But some do and others are going to have to develop one, for one simple reason: In the flat world, with lengthy global supply chains, the balance of power between global companies and the individual communities in which they operate is tilting more and more in favor of the companies, many of them American-based. As such, these companies are going to command more power, not only to create value but also to transmit values, than any transnational institutions on the planet. Social and environmental activists and progressive companies can now collaborate in ways that can make both the companies more profitable and the flat earth more livable. Compassionate flatism very much seeks to promote this type of collaboration.
Let me illustrate this notion with a couple of examples. If you think about the forces that are gobbling up biodiversity around the planet, none are more powerful than farmers. It is not that they are intending to be harmful, it is just in the nature of what they do. So how and where people farm and fish really matter to whether we preserve natural habitats and species. Conservation International, one of the biggest environmental NGOs in the world, has as its main mission preserving biodiversity. It is also a big believer in trying, when possible, to collaborate with big business, because when you bring a major global player around, it can have a huge impact on the environment. In 2002, McDonald's and Conservation International forged a partnership to use the McDonald's global supply chain-a behemoth that sucks beef, fish, chicken, pork, bread, lettuce, pickles, tomatoes, and potatoes from all four corners of the flat world-to produce not just value but also different values about the environment. “We and McDonald's looked at a set of environmental issues and said, 'Here are the things the food suppliers could do to reduce the environmental impact at little or no cost,'” explained Glenn Prickett, senior vice president of Conservation International.
McDonald's then met with its key suppliers and worked out, with them and with CI, a set of guidelines for what McDonald's calls “socially responsible food supply.” “For conservationists the challenge is how do you get your arms around hundreds of millions of decisions and decision makers involved in agriculture and fisheries, who are not coordinated in any way except by the market,” said Prickett. “So what we look for are partners who can put their purchasing power behind a set of environmentally friendly practices in a way that is good for them, works for the producers, and is good for biodiversity. In that way, you can start to capture so many more decision makers... There is no global government authority to protect biodiversity. You have to collaborate with the players who can make a difference, and one of them is McDonald's.”
Conservation International is already seeing improvements in conservation of water, energy, and waste, as well as steps to encourage better management of fisheries, among McDonald's suppliers. But it is still early, and one will have to assess over a period of years, with comprehensive data collection, whether this is really having a positive impact on the environment. This form of collaboration cannot and should never be a substitute for government rules and oversight. But if it works, it can be a vehicle for actually getting government rules implemented. Environmentalists who prefer government regulation to these more collaborative efforts often ignore the fact that strong rules imposed against the will of farmers end up being weakly enforced-or not enforced at all.
What is in this for McDonald's? It is a huge opportunity to improve its global brand by acting as a good global citizen. Yes, this is, at root, a business opportunity for McDonald's. Sometimes the best way to change the world is by getting the big players to do the right things for the wrong reasons, because waiting for them to do the right things for the right reasons can mean waiting forever. Conservation International has struck similar supply-chain collaborations with Starbucks, setting rules for its supply chain of coffee farmers, and Office Depot, with its supply chain of paper-product providers.
What these collaborations do is start to “break down the walls between different interest groups,” said Prickett. Normally you would have the environmentalists on one side and the farmers on the other and each side trying to get the government to write the regulations in the way that would serve it. Government would end up writing the rules largely to benefit business. “Now, instead, we have a private entity saying, 'We want to use our global supply chain to do some good,' but we understand that to be effective it has to be a collaboration with the farmers and the environmentalists if it is going to have any impact,” Prickett said.
In this same vein, as a compassionate flatist, I would like to see a label on every electronics good state whether the supply chain that produced it is in compliance with the standards set down by the new HP-Dell-IBM alliance. In October 2004, these three giants joined forces in a collaborative effort with key members of their computer and printer supply chains to promote a unified code of socially responsible manufacturing practices across the world. The new Electronics Industry Code of Conduct includes bans on bribes, child labor, embezzlement and extortion, and violations of intellectual property, rules governing usage of wastewater, hazardous materials, pollutants, and regulations on the reporting of occupational injuries. Several major electronics manufacturers who serve the IBM, Dell, and HP supply chains collaborated on writing the code, including Celestica, Flextronics, Jabil, Sanmina-SCI, and Solectron.
All HP suppliers, for instance, will be required to follow the code, though there is flexibility in the timing of how they reach compliance. “We are completely prepared and have terminated relationships with suppliers we find to be repeatedly nonresponsive,” said HP spokeswoman Monica Sarkar. As of October 2004, HP had assessed more than 150 of its 350 suppliers, including factories in China, Mexico, Southeast Asia, and Eastern Europe. It has set up a steering committee with IBM and Dell in order to figure out exactly how they collectively can review compliance and punish consistent violators. Compliance is everything, and so, again, it remains to be seen just how vigilant the corporations will be with their suppliers. Nevertheless, this use of supply chains to create values-not just value-could be a wave of the future.
“As we have begun to look to other [offshore] suppliers to do most of our manufacturing, it has become clear to us that we have to assume some responsibility for how they do that work,” explained Debra Dunn, HP's senior vice president of corporate affairs and global citizenship. First and foremost, that is what many of HP's customers want. “Customers care,” said Dunn, “and European customers lead the way in caring. And human rights groups and NGOs, who are gaining increasing global influence as trust in corporations declines, are basically saying, 'You guys have the power here. You are global companies, you can set expectations that will influence environmental practices and human rights practices in emerging markets.'”
Those voices are right, and what is more, they can use the Internet to great effect, if they want, to embarrass global corporations into compliance.
“When you have the procurement dollars that HP and McDonald's have,” said Dunn, “people really want to do business with you, so you have leverage and are in a position to set standards and [therefore] you have a responsibility to set standards.” The role of global corporations in setting standards in emerging markets is doubly important, because oftentimes local governments actually want to improve their environmental standards. They know it is important in the long run, but the pressure to create jobs and live within budget constraints is overwhelming and therefore the pressure to look the other way is overwhelming. Countries like China, noted Dunn, often actually want an outside force, like a global business coalition, to exert pressure to drive new values and standards at home that they are too weak to impose on themselves and their own bureaucrats. In The Lexus and the Olive Tree I called this form of value creation “globalution,” or revolution from beyond.
Said Dunn: “We used to say that as long as we complied with the local law, that was all we could be expected to do. But now the imbalance of power is so huge it is not practical to say that Wal-Mart or HP can do whatever they want as long as a state government or country does not stop them. The leverage HP would leave on the table would be immoral given its superior power... We have the power to transmit global governance to our universe of suppliers and employees and consumers, which is a pretty broad universe.”
Dunn noted that in a country like China there is an intense competition by local companies to become part of the HP or Dell or Wal-Mart supply chain. Even though it is high pressure, it means a steady volume of considerable business-the kind that can make or break a company. As a result, HP has huge leverage over its Chinese suppliers, and they are actually very open to having their factory standards lifted, because they know that if they get up to the standards of HP they can leverage that to get business from Dell or Sony.
Advocates of compassionate flatism need to educate consumers to the fact that their buying decisions and buying power are political. Every time you as a consumer make a decision, you are supporting a whole set of values. You are voting about the barriers and friction you want to preserve or eliminate. Progressives need to make this information more easily available to consumers, so more of them can vote the right way and support the right kind of global corporate behavior.
Marc Gunther, a senior writer for Fortune magazine and the author of Faith and Fortune: The Quiet Revolution to Reform American Business, is one of the few business writers who have recognized how global corporations can be influenced by progressive politics. “To be sure,” wrote Gunther in an essay in The Washington Post (November 14, 2004), “there are plenty of scoundrels out there, indifferent to the rights and wrongs of corporate behavior. And some executives who talk of social issues may be only mouthing the words. But the bottom line is that a growing number of companies have come to believe that moral values, broadly and liberally defined, can help drive shareholder values. And that is a case study from which everyone could learn.”
This progressive tilt of big business has not generated much press attention, Gunther noted. “Partly that's because scandal stories are juicier. Mostly it's because changes in corporate practices have been incremental-and because reporters tend to dismiss talk of corporate social responsibility as mere public relations. But chief executives of closely-watched firms like General Electric do not promise to become better global citizens unless they intend to follow through. 'If you want to be a great company today,' Jeff Immelt, GE's CEO, likes to say, 'you have to be a good company.' When I asked him why GE has begun to talk more openly about corporate citizenship, he said: 'The reason why people come to work for GE is that they want to be about something that is bigger than themselves.' As Immelt suggests, the biggest driver of corporate reform is the desire of companies to attract people who seek meaning as well as money from their work. Few of us go to our jobs every day to enhance shareholder value. Younger people, especially, want to work for companies with a mission that goes beyond the bottom line.”
In sum, we are now in a huge transition as companies are coming to understand not only their power in a flat world but also their responsibilities. Compassionate flatists believe that this is no time to be sitting on one's hands, thinking exclusively in traditional left-right, consumer-versus-company terms. Instead we should be thinking about how collaboration between consumers and companies can provide an enormous amount of protection against the worst features of the flattening of the world, without opting for classic protectionism.
“Compassionate capitalism. Think it sounds like an oxymoron? Think again,” said Gunther. “Even as America is supposedly turning conservative on social issues, big business is moving in the other direction.”
Parenting
No discussion of compassionate flatism would be complete without also discussing the need for improved parenting. Helping individuals adapt to a flat world is not only the job of governments and companies. It is also the job of parents. They too need to know in what world their kids are growing up and what it will take for them to thrive. Put simply, we need a new generation of parents ready to administer tough love: There comes a time when you've got to put away the Game Boys, turn off the television set, put away the iPod, and get your kids down to work.
The sense of entitlement, the sense that because we once dominated global commerce and geopolitics-and Olympic basketball-we always will, the sense that delayed gratification is a punishment worse than a spanking, the sense that our kids have to be swaddled in cotton wool so that nothing bad or disappointing or stressful ever happens to them at school is, quite simply, a growing cancer on American society. And if we don't start to reverse it, our kids are going to be in for a huge and socially disruptive shock from the flat world. While a different approach by politicians is necessary, it is not sufficient.
David Baltimore, the Nobel Prize-winning president of Caltech, knows what it takes to get your child ready to compete against the cream of the global crop. He told me that he is struck by the fact that almost all the students who make it to Caltech, one of the best scientific universities in the world, come from public schools, not from private schools that sometimes nurture a sense that just because you are there, you are special and entitled. “I look at the kids who come to Caltech, and they grew up in families that encouraged them to work hard and to put off a little bit of gratification for the future and to understand that they need to hone their skills to play an important role in the world,” Baltimore said. “I give parents enormous credit for this, because these kids are all coming from public schools that people are calling failures. Public education is producing these remarkable students-so it can be done. Their parents have nurtured them to make sure that they realize their potential. I think we need a revolution in this country when it comes to parenting around education.”
Clearly, foreign-born parents seem to be doing this better. “About one-third of our students have an Asian background or are recent immigrants,” he said. A significant majority of the students coming to Caltech in the engineering disciplines are foreign-born, and a large fraction of its current faculty is foreign-born. “In biology, at the postdoc level, the dominance of Chinese students is overwhelming,” said Baltimore. No wonder that at the big scientific conferences today, a majority of the research papers dealing with cutting-edge bioscience have at least one Chinese name on them.
My friends Judy Estrin and Bill Carrico have started several networking companies in Silicon Valley. At one time, Judy was chief technology officer for Cisco. I sat with them one afternoon and talked about this problem. “When I was eleven years old,” said Bill, “I knew I was going to be an engineer. I dare you to find an eleven-year-old in America who wants to be an engineer today. We've turned down the ambition level.”
Added Judy, “More of the problem [can be solved by good] parenting than can be solved from a regulatory or funding move. Everyone wants to fund more of this and that, but where it starts is with the parents. Ambition comes from the parents. People have to get it. It will probably take a crisis [to get us refocused].”
In July 2004, comedian Bill Cosby used an appearance at Jesse Jackson's Rainbow/PUSH Coalition & Citizenship Education Fund's annual conference to upbraid African-Americans for not teaching their children proper grammar and for black kids not striving to learn more themselves. Cosby had already declared, “Everybody knows it's important to speak English except these knuckleheads. You can't be a doctor with that kind of crap coming out of your mouth.” Referring to African-Americans who squandered their chances for a better life, Cosby told the Rainbow Coalition, “You've got to stop beating up your women because you can't find a job, because you didn't want to get an education and now you're [earning] minimum wage. You should have thought more of yourself when you were in high school, when you had an opportunity.”
When Cosby's remarks attracted a lot of criticism, Reverend Jackson defended him, arguing, “Bill is saying, let's fight the right fight. Let's level the playing field. Drunk people can't do that. Illiterate people can't do that.”
That is right. Americans are the ones who increasingly need to level the playing field-not by pulling others down, not by feeling sorry for ourselves, but by lifting ourselves up. But when it comes to how to do that, Cosby was saying something that is important for black and white Americans, rich and poor. Education, whether it comes from parents or schools, has to be about more than just cognitive skills. It also has to include character building. The fact is, parents and schools and cultures can and do shape people. The most important influence in my life, outside of my family, was my high school journalism teacher, Hattie M. Steinberg. She pounded the fundamentals of journalism into her students-not simply how to write a lead or accurately transcribe a quote but, more important, how to comport yourself in a professional way. She was nearing sixty at the time I had her as my teacher and high school newspaper adviser in the late 1960s. She was the polar opposite of “cool,” but we hung around her classroom like it was the malt shop and she was Wolfman Jack. None of us could have articulated it then, but it was because we enjoyed being harangued by her, disciplined by her, and taught by her. She was a woman of clarity and principles in an age of uncertainty. I sit up straight just thinking about her! Our children will increasingly be competing head-to-head with Chinese, Indian, and Asian kids, whose parents have a lot more of Hattie's character-building approach than their own American parents. I am not suggesting that we militarize education, but I am suggesting that we do more to push our young people to go beyond their comfort zones, to do things right, and to be ready to suffer some short-run pain for longer gain.
I fear, though, that things will have to get worse before they get better. As Judy Estrin said, it will probably take a crisis. I would simply add: The crisis is already here. It is just playing out in slow motion. The flattening of the world is moving ahead apace, and barring war or some catastrophic terrorist event, nothing is going to stop it. But what can happen is a decline in our standard of living, if more Americans are not empowered and educated to participate in a world where all the knowledge centers are being connected. We have within our society all the ingredients for American individuals to thrive in this world, but if we squander those ingredients, we will stagnate.
I repeat: This is not a test. This is a crisis, and as Paul Romer has so perceptively warned, “A crisis is a terrible thing to waste.”
Developing Countries and the Flat World
NINE: The Virgin of Guadalupe
In the space of two weeks, I got two revealing answers, one from Mexico, one from Egypt. I was in Mexico City in the spring of 2004, and I put the question on the table during lunch with a few Mexican journalist colleagues. One of them said he realized that he was living in a new world when he started seeing reports appearing in the Mexican media and on the Internet that some statuettes of Mexico's patron saint, the Virgin of Guadalupe, were being imported into Mexico from China, probably via ports in California. When you are Mexico and your claim to fame is that you are a low-wage manufacturing country, and some of your people are importing statuettes of your own patron saint from China, because China can make them and ship them all the way across the Pacific more cheaply than you can produce them, you are living in a flat world.
You've also got a problem. Over at the Central Bank of Mexico, I asked its governor, Guillermo Ortiz, whether he was aware of this issue. He rolled his eyes and told me that for some time now he could feel the competitive playing field being leveled-and that Mexico was losing some of its natural geographic advantages with the U.S. market-by just staring at the numbers on his computer screen. “We started looking at the numbers in 2001 -it was the first year in two decades that [Mexico's] exports to the U.S. declined,” said Ortiz. “That was a real shock. We started reducing our gains in market share and then started losing them. We said that there is a real change here... And it was about China.”
China is such a powerhouse of low-cost manufacturing that even though the NAFTA accord has given Mexico a leg up with the United States, and even though Mexico is right next door to us, China in 2003 replaced Mexico as the number two exporter to the United States. (Canada remains number one.) Though Mexico still has a strong position in big-ticket exports that are costly to ship, such as cars, auto parts, and refrigerators, China is coming on strong and has already displaced Mexico in areas such as computer parts, electrical components, toys, textiles, sporting goods, and tennis shoes. But what's even worse for Mexico is that China is displacing some Mexican companies in Mexico, where Chinese-made clothing and toys are now showing up on store shelves everywhere. No wonder a Mexican journalist told me about the day he interviewed a Chinese central bank official, who told him something about China's relationship with America that really rattled him: “First we were afraid of the wolf, then we wanted to dance with the wolf, and now we want to be the wolf.”
A few days after returning from Mexico, I had breakfast in Washington with a friend from Egypt, Lamees El-Hadidy, a longtime business reporter in Cairo. Naturally I asked her where she was when she discovered the world was flat. She answered that it was a just few weeks earlier, during the Muslim holy month of Ramadan. She had done a story for CNBC Arabiya Television about the colorful lanterns called fawanis, each with a burning candle inside, that Egyptian schoolchildren traditionally carried around during Ramadan, a tradition dating back centuries to the Fatimid period in Egypt. Kids swing the lanterns and sing songs, and people give them candy or gifts, as in America on Halloween. For centuries, small, low-wage workshops in Cairo's older neighborhoods have manufactured these lanterns-until the last few years.
That was when plastic Chinese-made Ramadan lanterns, each with a battery-powered light instead of a candle, began flooding the market, crippling the traditional Egyptian workshops. Said Lamees, “They are invading our tradition -in an innovative way-and we are doing nothing about it... These lanterns come out of our tradition, our soul, but [the Chinese versions] are more creative and advanced than the Egyptian ones.” Lamees said that when she asked Egyptians, “Do you know where these are made?,” they would all answer no. Then they would turn the lamps over and see that they came from China.
Many mothers, like Lamees, though, appreciated the fact that the Chinese versions are safer than the traditional Egyptian ones, which are made with sharp metal edges and glass, and usually still use candles. The Chinese versions are made of plastic and feature flashing lights and have an embedded microchip that plays traditional Egyptian Ramadan tunes and even the theme song to the popular Ramadan TV cartoon series Bakkar. As Business Monthly, published by the American Chamber of Commerce in Egypt, reported in its December 2001 issue, Chinese importers “are pitted not only against each other, but also against the several-hundred-year-old Egyptian industry. But the Chinese models are destined to prevail, according to [a] famous importer, Taha Zayat. Imports have definitely cut down on sales of traditional fawanis,' he said. 'Of all fawanis on the market, I don't think that more than 5 percent are now made in Egypt.' People with ties to the Egyptian [fawanis] industry believe China has a clear advantage over Egypt. With its superior technology, they said, China can make mass quantities, which helps to keep prices relatively low. Egypt's traditional [fawanis] industry, by contrast, is characterized by a series of workshops specialized in different stages of the production process. Glassmakers, painters, welders and metal craftsmen all have their role to play. 'There will always be fawanis in Ramadan, but in the future I think Egyptian-made ones could become extinct/ Zayat said. 'There is no way they can ever compete with things made in China.'”
Think how crazy that statement is: Egypt has masses of low-wage workers, like China. It sits right next to Europe, on the Suez Canal. It could be and should be the Taiwan of the eastern Mediterranean, but instead it is throwing in the towel to atheistic China on the manufacture of one of Muslim Egypt's most cherished cultural artifacts. Ibrahim El Esway, one of the main importers from China of fawanis, gave The Business Monthly a tour of his warehouse in the Egyptian town of Muski: He had imported sixteen different models of Ramadan lanterns from China in 2004. “Amid the crowds at Muski, [El Esway] gestured to one of his employees, who promptly opened a dust-covered box and pulled out a plastic fawanis shaped like the head of Simba, from The Lion King. 'This is the first model we imported back in 1994,' he said. He switched it on. As the blue-colored lion's head lit up, the song 'It's a Small World' rang out.”
Introspection
The previous section of this book looked at how individuals, particularly Americans, should think about meeting the challenge posed by the flattening of the world. This chapter focuses on what sort of policies developing countries need to undertake in order to create the right environment for their companies and entrepreneurs to thrive in a flat world, although many of the things I am about to say apply to many developed countries as well.
When developing countries start thinking about the challenge of flatism, the first thing they need to do is engage in some brutally honest introspection. A country, its people and leaders alike, has to be honest with itself and look clearly at exactly where it stands in relation to other countries and in relation to the ten flatteners. It has to ask itself, “To what extent is my country advancing or being left behind by the flattening of the world, and to what extent is it adapting to and taking advantage of all the new platforms for collaboration and competition?” As that Chinese banking official boasted to my Mexican colleague, China is the wolf. Of all the ten flatteners, the entry of China into the world market is the most important for developing countries, and for many developed countries. China can do high-quality low-cost manufacturing better than any other country, and increasingly, it also can do high-quality higher-cost manufacturing. With China and the other nine flatteners coming on so strong, no country today can afford to be anything less than brutally honest with itself.
To that end, I believe that what the world needs today is a club that would be modeled after Alcoholics Anonymous (A.A.). It would be called Developing Countries Anonymous (D.C.A.). And just as at the first A.A. meeting you attend you have to stand up and say, “My name is Thomas Friedman and I'm an alcoholic,” so at Developing Countries Anonymous, countries would have to stand up at their first meeting and say, “My name is Syria and I'm underdeveloped.” Or “My name is Argentina and I'm underachieving. I have not lived up to my potential.”
Every country needs “the ability to make your own introspection,” since “no country develops without going through an X-ray of where you are and where your limits are,” said Luis de la Calle, one of Mexico's chief NAFTA negotiators. Countries that fall off the development wagon are a bit like drunks; to get back on they have to learn to see themselves as they really are. Development is a voluntary process. You need a positive decision to make the right steps, but it starts with introspection.
I Can Get It for You Wholesale
During the late 1970s, but particularly after the fall of the Berlin Wall, a lot of countries started to pursue development in a new way through a process that I call reform wholesale. The era of Globalization 2.0, when the world shrank from a size medium to a size small, was the era of reform wholesale, an era of broad macroeconomic reform. These wholesale reforms were initiated by a small handful of leaders in countries like China, Russia, Mexico, Brazil, and India. These small groups of reformers often relied on the leverage of authoritarian political systems to unleash the state-smothered market forces in their societies. They pushed their countries into more export-oriented, free-market strategies-based on privatization of state companies, deregulation of financial markets, currency adjustments, foreign direct investment, shrinking subsidies, lowering of protectionist tariff barriers, and introduction of more flexible labor laws-from the top down without ever really asking the people. Ernesto Zedillo, who served as president of Mexico from 1994 to 2000 and was finance minister before that, once remarked to me that all the decisions to open the Mexican economy were taken by three people. How many people do you suppose Deng Xiaoping consulted before he declared, “To get rich is glorious,” and opened the Chinese economy, or when he dismissed those who questioned China's move from communism to free markets by saying that what mattered was jobs and incomes, not ideology? Deng tossed over decades of Communist ideology with one sentence: “Black cat, white cat, all that matters is that it catches mice.” In 1991, when India's finance minister, Manmohan Singh, took the first tentative steps to open India's economy to more foreign trade, investment, and competition, it was a result not of some considered national debate and dialogue, but of the fact that India's economy at that moment was so sclerotic, so unappealing to foreign investors, that it had almost run out of foreign currency. When Mikhail Gorbachev started dabbling with perestroika, it was with his back up against the Kremlin wall and with few allies in the Soviet leadership. The same was true of Margaret Thatcher when she took on the striking coal miners' union in 1984 and forced reform wholesale onto the sagging British economy.
What all these leaders confronted was the irrefutable fact that more open and competitive markets are the only sustainable vehicle for growing a nation out of poverty, because they are the only guarantee that new ideas, technologies, and best practices are easily flowing into your country and that private enterprises, and even government, have the competitive incentive and flexibility to adopt those new ideas and turn them into jobs and products. This is why the nonglobalizing countries, those that refused to do any reform wholesale-North Korea, for instance— actually saw their per capita GDP growth shrink in the 1990s, while countries that moved from a more socialist model to a globalizing model saw their per capita GDP grow in the 1990s. As David Dollar and Art Kray conclude in their book Trade, Growth, and Poverty, economic growth and trade remain the best antipoverty program in the world.
The World Bank reported that in 1990 there were roughly 375 million people in China living in extreme poverty, on less than $ 1 per day. By 2001, there were 212 million Chinese living in extreme poverty, and by 2015, if current trends hold, there will be only 16 million living on less than $1 a day. In South Asia-primarily India, Pakistan, and Bangladesh-the numbers go from 462 million in 1990 living on less than $1 a day down to 431 million by 2001 and down to 216 million in 2015. In sub-Saharan Africa, by contrast, where globalization has been slow to take hold, there were 227 million people living on less than $1 a day in 1990, 313 million in 2001, and an expected 340 million by 2015.
While we need to redouble our efforts to build the muscles of each individual
American, we have to continue to import muscles from abroad as well. Most of the Indian, Chinese, Russian, Japanese, Korean, Iranian, Arab, and Israeli engineers, physicists, and scientists who come to work or study in the United States make great citizens. They are family-oriented, educated, and hardworking, and most would jump at the chance to become an American. They are exactly the type of people this country needs, and we cannot let the FBI, CIA, and Homeland Security, in their zeal to keep out the next Mohammed Atta, also keep out the next Sergey Brin, one of the cofounders of Google, who was born in Russia. As a computer architect friend of mine says, “If a foreign-born person is one day going to take my job, I'd prefer they be American citizens helping pay for my retirement benefits.”
I would favor an immigration policy that gives a five-year work visa to any foreign student who completes a Ph.D. at an accredited American university in any subject. I don't care if it is Greek mythology or mathematics. If we can cream off the first-round intellectual draft choices from around the world, it will always end up a net plus for America. If the flat world is about connecting all the knowledge pools together, we want our knowledge pool to be the biggest. Said Bill Brody, the president of Johns Hopkins, “We are in a global talent search, so anything we can do in America to get those top draft choices we should do, because one of them is going to be Babe Ruth, and why should we let him or her go somewhere else?”
Good Fat Cushions Worth Keeping
While many of the old corporate and government safety nets will vanish under global competition in the flat world, some fat still needs to be maintained, and even added. As everyone who worries about his or her health knows, there is “good fat” and “bad fat”-but everybody needs some fat. That is also true of every country in the flat world. Social Security is good fat. We need to keep it. A welfare system that discourages people from working is bad fat. The sort of good fat that actually needs to be added for a flat world is wage insurance.
According to a study by Lori Kletzer, an economist at the University of California, Santa Cruz, in the 1980s and '90s, two-thirds of workers who lost jobs in manufacturing industries hit by overseas competition earned less on their next job. A quarter of workers who lost their jobs and were reemployed saw their income fall 30 percent or more. Losing a job for any reason is a trauma-for the worker and his or her family-but particularly for older workers who are less able to adapt to new production techniques or lack the education to move up into more skilled service jobs.
This idea of wage insurance was first proposed in 1986 by Harvard's Robert Lawrence and Robert E. Litan of the Brookings Institution, in a book called Saving Free Trade. The idea languished for a while until it started to catch fire again with an updated analysis by Kletzer and Litan in 2001. It got further political clout from the bipartisan U.S. Trade Deficit Commission in 2001. This commission couldn't agree on anything— including the causes of or what to do about the trade deficit— other than the wisdom of wage insurance.
“Trade creates winners and losers, and what we were thinking about were mechanisms by which the winners could compensate the losers, and particularly losers who were enjoying high wages in a particular job and suddenly found their new employment at much lower wages,” said Lawrence. The way to think about this, he explained, is that every worker has “general skills and specific skills” for which they are paid, and when you switch jobs you quickly discover which is which. So you might have a college and CPA degree, or you might have a high school degree and the ability to operate a lathe. Both skills were reflected in your wages. But suppose one day your lathe job gets moved to China or your basic accounting work is outsourced to India and you have to go out and find a new job. Your new employer will not likely compensate you much for your specific skills, because your knowledge as a machine tool operator or a general accountant is probably of less use to him or her. You will be paid largely for your general skills, your high school education or college degree. Wage insurance would compensate you for your old specific skills, for a set period of time, while you take a new job and learn new specific skills.
The standard state-run unemployment insurance program eases some of this pain for workers, but it does not address their bigger concerns of declining wages in a new job and the inability to pay for health insurance while they are unemployed and searching. To qualify for wage insurance, workers seeking compensation for job loss would have to meet three criteria. First, they would have to have lost their job through some form of displacement-offshoring, outsourcing, downsizing, or factory closure. Second, they would have to have held the job for at least two years. And third, the wage insurance would not be paid until the workers found new jobs, which would provide a strong incentive to look for work quickly and increase the chances that they would get on-the-job retraining. On-the-job training is always the best way to learn new skills-instead of having to sign up for some general government training program, with no promise of a job at the other end, and go through that while remaining unemployed.
Workers who met those three conditions would then receive payments for two years, covering half the drop in their income from their previous job (capped at $10,000 a year). Kletzer and Litan also proposed that the government pay half the health insurance premiums for all “displaced” workers for up to six months. Wage insurance seems to me a much better idea than relying only on the traditional unemployment insurance offered by states, which usually covers only about 50 percent of most workers' previous wages, is limited to six months, and does not help workers who suffer a loss of earnings after they take a new job.
Moreover, as Kletzer and Litan noted, although all laid-off workers now have the right to purchase unsubsidized health insurance from their former employer if health coverage was offered when they were employed, many jobless workers do not have the money to take advantage of this guarantee. Also, while unemployed workers can earn an additional fifty-two weeks of unemployment insurance if they enroll in an approved retraining program, workers have no guarantee that when they finish such a program they will have a job.
For all these reasons, the Kletzer-Litan proposal makes a lot of sense to me as the right benefit for cushioning workers in a flat world. Moreover, such a program would be eminently affordable. Litan estimated that at an unemployment rate of 5 percent, the wage insurance and health-care subsidy today would cost around $8 billion a year, which is peanuts compared to the positive impact it could have on workers. This program would not replace classic state-run unemployment insurance for workers who opt for that, but if it worked as projected, it could actually reduce the cost of such programs by moving people back to work quicker.
Some might ask, Why be compassionate at all? Why keep any fat, friction, or barriers? Let me put it as bluntly as I can: If you are not a compassionate flatist—if you are just a let 'er rip free-market flatist—you are not only cruel, you are a fool. You are courting a political backlash by those who can and will get churned up by this flattening process, and that backlash could become ferocious if we hit any kind of prolonged recession.
The transition to a flat world is going to stress many people. As Joshua S. Levine, E*Trade 's chief technology officer, put it to me, 'You know how sometimes you go through a harrowing experience and you need a respite, but the respite never seems to come. Look at the airline workers. They go through this [terrible] event like 9/11, and management and the airline unions all negotiate for four months and management says, 'If the unions don't cut $2 billion in salary and benefits they will have to shut the airline down.' And after these wrenching negotiations the unions agree. I just have to laugh, because you know that in a few months management is going to come right back... There is no end. No one has to ask me to cut my budget each year. We all just know that each year we will be expected to do more with less. If you are a revenue producer, you are expected to come up with more revenue every year, and if you are an expense saver, you are expected to come up with more savings every year. You never get a break from it.“
If societies are unable to manage the strains that are produced by this flattening, there will be a backlash, and political forces will attempt to reinsert some of the frictions and protectionist barriers that the flattening forces have eliminated, but they will do it in a crude way that will, in the name of protecting the weak, end up lowering everyone's standard of living. Former Mexican president Ernesto Zedillo is very sensitive to this problem, having had to manage Mexico's transition into NAFTA, with all of the strains that put on Mexican society. Speaking of the flattening process, he said to me, “It would be very hard to stop, but it can be stopped for a time. Maybe you can't stop it totally, but you can slow it down. And it makes a difference whether you get there in twenty-five years or fifty years. In between, two or three generations-who could have benefited a lot from more trade and globalization-will end up with crumbs.”
Always remember, said Zedillo, that behind all this technology is a political infrastructure that enables it to play out. “There have been a series of concrete political decisions, taken over the last fifty years, that put the world where it is right now,” he said. “Therefore, there are political decisions that could screw up the whole process too.”
As the saying goes: If you want to live like a Republican, vote like a Democrat-take good care of the losers and left-behinds. The only way to be a flatist is to be a compassionate flatist.
Social Activism
One new area that is going to need sorting out is the relationship between global corporations and their own moral consciences. Some may laugh at the notion that a global corporation even has a moral conscience, or should ever be expected to develop one. But some do and others are going to have to develop one, for one simple reason: In the flat world, with lengthy global supply chains, the balance of power between global companies and the individual communities in which they operate is tilting more and more in favor of the companies, many of them American-based. As such, these companies are going to command more power, not only to create value but also to transmit values, than any transnational institutions on the planet. Social and environmental activists and progressive companies can now collaborate in ways that can make both the companies more profitable and the flat earth more livable. Compassionate flatism very much seeks to promote this type of collaboration.
Let me illustrate this notion with a couple of examples. If you think about the forces that are gobbling up biodiversity around the planet, none are more powerful than farmers. It is not that they are intending to be harmful, it is just in the nature of what they do. So how and where people farm and fish really matter to whether we preserve natural habitats and species. Conservation International, one of the biggest environmental NGOs in the world, has as its main mission preserving biodiversity. It is also a big believer in trying, when possible, to collaborate with big business, because when you bring a major global player around, it can have a huge impact on the environment. In 2002, McDonald's and Conservation International forged a partnership to use the McDonald's global supply chain-a behemoth that sucks beef, fish, chicken, pork, bread, lettuce, pickles, tomatoes, and potatoes from all four corners of the flat world-to produce not just value but also different values about the environment. “We and McDonald's looked at a set of environmental issues and said, 'Here are the things the food suppliers could do to reduce the environmental impact at little or no cost,'” explained Glenn Prickett, senior vice president of Conservation International.
McDonald's then met with its key suppliers and worked out, with them and with CI, a set of guidelines for what McDonald's calls “socially responsible food supply.” “For conservationists the challenge is how do you get your arms around hundreds of millions of decisions and decision makers involved in agriculture and fisheries, who are not coordinated in any way except by the market,” said Prickett. “So what we look for are partners who can put their purchasing power behind a set of environmentally friendly practices in a way that is good for them, works for the producers, and is good for biodiversity. In that way, you can start to capture so many more decision makers... There is no global government authority to protect biodiversity. You have to collaborate with the players who can make a difference, and one of them is McDonald's.”
Conservation International is already seeing improvements in conservation of water, energy, and waste, as well as steps to encourage better management of fisheries, among McDonald's suppliers. But it is still early, and one will have to assess over a period of years, with comprehensive data collection, whether this is really having a positive impact on the environment. This form of collaboration cannot and should never be a substitute for government rules and oversight. But if it works, it can be a vehicle for actually getting government rules implemented. Environmentalists who prefer government regulation to these more collaborative efforts often ignore the fact that strong rules imposed against the will of farmers end up being weakly enforced-or not enforced at all.
What is in this for McDonald's? It is a huge opportunity to improve its global brand by acting as a good global citizen. Yes, this is, at root, a business opportunity for McDonald's. Sometimes the best way to change the world is by getting the big players to do the right things for the wrong reasons, because waiting for them to do the right things for the right reasons can mean waiting forever. Conservation International has struck similar supply-chain collaborations with Starbucks, setting rules for its supply chain of coffee farmers, and Office Depot, with its supply chain of paper-product providers.
What these collaborations do is start to “break down the walls between different interest groups,” said Prickett. Normally you would have the environmentalists on one side and the farmers on the other and each side trying to get the government to write the regulations in the way that would serve it. Government would end up writing the rules largely to benefit business. “Now, instead, we have a private entity saying, 'We want to use our global supply chain to do some good,' but we understand that to be effective it has to be a collaboration with the farmers and the environmentalists if it is going to have any impact,” Prickett said.
In this same vein, as a compassionate flatist, I would like to see a label on every electronics good state whether the supply chain that produced it is in compliance with the standards set down by the new HP-Dell-IBM alliance. In October 2004, these three giants joined forces in a collaborative effort with key members of their computer and printer supply chains to promote a unified code of socially responsible manufacturing practices across the world. The new Electronics Industry Code of Conduct includes bans on bribes, child labor, embezzlement and extortion, and violations of intellectual property, rules governing usage of wastewater, hazardous materials, pollutants, and regulations on the reporting of occupational injuries. Several major electronics manufacturers who serve the IBM, Dell, and HP supply chains collaborated on writing the code, including Celestica, Flextronics, Jabil, Sanmina-SCI, and Solectron.
All HP suppliers, for instance, will be required to follow the code, though there is flexibility in the timing of how they reach compliance. “We are completely prepared and have terminated relationships with suppliers we find to be repeatedly nonresponsive,” said HP spokeswoman Monica Sarkar. As of October 2004, HP had assessed more than 150 of its 350 suppliers, including factories in China, Mexico, Southeast Asia, and Eastern Europe. It has set up a steering committee with IBM and Dell in order to figure out exactly how they collectively can review compliance and punish consistent violators. Compliance is everything, and so, again, it remains to be seen just how vigilant the corporations will be with their suppliers. Nevertheless, this use of supply chains to create values-not just value-could be a wave of the future.
“As we have begun to look to other [offshore] suppliers to do most of our manufacturing, it has become clear to us that we have to assume some responsibility for how they do that work,” explained Debra Dunn, HP's senior vice president of corporate affairs and global citizenship. First and foremost, that is what many of HP's customers want. “Customers care,” said Dunn, “and European customers lead the way in caring. And human rights groups and NGOs, who are gaining increasing global influence as trust in corporations declines, are basically saying, 'You guys have the power here. You are global companies, you can set expectations that will influence environmental practices and human rights practices in emerging markets.'”
Those voices are right, and what is more, they can use the Internet to great effect, if they want, to embarrass global corporations into compliance.
“When you have the procurement dollars that HP and McDonald's have,” said Dunn, “people really want to do business with you, so you have leverage and are in a position to set standards and [therefore] you have a responsibility to set standards.” The role of global corporations in setting standards in emerging markets is doubly important, because oftentimes local governments actually want to improve their environmental standards. They know it is important in the long run, but the pressure to create jobs and live within budget constraints is overwhelming and therefore the pressure to look the other way is overwhelming. Countries like China, noted Dunn, often actually want an outside force, like a global business coalition, to exert pressure to drive new values and standards at home that they are too weak to impose on themselves and their own bureaucrats. In The Lexus and the Olive Tree I called this form of value creation “globalution,” or revolution from beyond.
Said Dunn: “We used to say that as long as we complied with the local law, that was all we could be expected to do. But now the imbalance of power is so huge it is not practical to say that Wal-Mart or HP can do whatever they want as long as a state government or country does not stop them. The leverage HP would leave on the table would be immoral given its superior power... We have the power to transmit global governance to our universe of suppliers and employees and consumers, which is a pretty broad universe.”
Dunn noted that in a country like China there is an intense competition by local companies to become part of the HP or Dell or Wal-Mart supply chain. Even though it is high pressure, it means a steady volume of considerable business-the kind that can make or break a company. As a result, HP has huge leverage over its Chinese suppliers, and they are actually very open to having their factory standards lifted, because they know that if they get up to the standards of HP they can leverage that to get business from Dell or Sony.
Advocates of compassionate flatism need to educate consumers to the fact that their buying decisions and buying power are political. Every time you as a consumer make a decision, you are supporting a whole set of values. You are voting about the barriers and friction you want to preserve or eliminate. Progressives need to make this information more easily available to consumers, so more of them can vote the right way and support the right kind of global corporate behavior.
Marc Gunther, a senior writer for Fortune magazine and the author of Faith and Fortune: The Quiet Revolution to Reform American Business, is one of the few business writers who have recognized how global corporations can be influenced by progressive politics. “To be sure,” wrote Gunther in an essay in The Washington Post (November 14, 2004), “there are plenty of scoundrels out there, indifferent to the rights and wrongs of corporate behavior. And some executives who talk of social issues may be only mouthing the words. But the bottom line is that a growing number of companies have come to believe that moral values, broadly and liberally defined, can help drive shareholder values. And that is a case study from which everyone could learn.”
This progressive tilt of big business has not generated much press attention, Gunther noted. “Partly that's because scandal stories are juicier. Mostly it's because changes in corporate practices have been incremental-and because reporters tend to dismiss talk of corporate social responsibility as mere public relations. But chief executives of closely-watched firms like General Electric do not promise to become better global citizens unless they intend to follow through. 'If you want to be a great company today,' Jeff Immelt, GE's CEO, likes to say, 'you have to be a good company.' When I asked him why GE has begun to talk more openly about corporate citizenship, he said: 'The reason why people come to work for GE is that they want to be about something that is bigger than themselves.' As Immelt suggests, the biggest driver of corporate reform is the desire of companies to attract people who seek meaning as well as money from their work. Few of us go to our jobs every day to enhance shareholder value. Younger people, especially, want to work for companies with a mission that goes beyond the bottom line.”
In sum, we are now in a huge transition as companies are coming to understand not only their power in a flat world but also their responsibilities. Compassionate flatists believe that this is no time to be sitting on one's hands, thinking exclusively in traditional left-right, consumer-versus-company terms. Instead we should be thinking about how collaboration between consumers and companies can provide an enormous amount of protection against the worst features of the flattening of the world, without opting for classic protectionism.
“Compassionate capitalism. Think it sounds like an oxymoron? Think again,” said Gunther. “Even as America is supposedly turning conservative on social issues, big business is moving in the other direction.”
Parenting
No discussion of compassionate flatism would be complete without also discussing the need for improved parenting. Helping individuals adapt to a flat world is not only the job of governments and companies. It is also the job of parents. They too need to know in what world their kids are growing up and what it will take for them to thrive. Put simply, we need a new generation of parents ready to administer tough love: There comes a time when you've got to put away the Game Boys, turn off the television set, put away the iPod, and get your kids down to work.
The sense of entitlement, the sense that because we once dominated global commerce and geopolitics-and Olympic basketball-we always will, the sense that delayed gratification is a punishment worse than a spanking, the sense that our kids have to be swaddled in cotton wool so that nothing bad or disappointing or stressful ever happens to them at school is, quite simply, a growing cancer on American society. And if we don't start to reverse it, our kids are going to be in for a huge and socially disruptive shock from the flat world. While a different approach by politicians is necessary, it is not sufficient.
David Baltimore, the Nobel Prize-winning president of Caltech, knows what it takes to get your child ready to compete against the cream of the global crop. He told me that he is struck by the fact that almost all the students who make it to Caltech, one of the best scientific universities in the world, come from public schools, not from private schools that sometimes nurture a sense that just because you are there, you are special and entitled. “I look at the kids who come to Caltech, and they grew up in families that encouraged them to work hard and to put off a little bit of gratification for the future and to understand that they need to hone their skills to play an important role in the world,” Baltimore said. “I give parents enormous credit for this, because these kids are all coming from public schools that people are calling failures. Public education is producing these remarkable students-so it can be done. Their parents have nurtured them to make sure that they realize their potential. I think we need a revolution in this country when it comes to parenting around education.”
Clearly, foreign-born parents seem to be doing this better. “About one-third of our students have an Asian background or are recent immigrants,” he said. A significant majority of the students coming to Caltech in the engineering disciplines are foreign-born, and a large fraction of its current faculty is foreign-born. “In biology, at the postdoc level, the dominance of Chinese students is overwhelming,” said Baltimore. No wonder that at the big scientific conferences today, a majority of the research papers dealing with cutting-edge bioscience have at least one Chinese name on them.
My friends Judy Estrin and Bill Carrico have started several networking companies in Silicon Valley. At one time, Judy was chief technology officer for Cisco. I sat with them one afternoon and talked about this problem. “When I was eleven years old,” said Bill, “I knew I was going to be an engineer. I dare you to find an eleven-year-old in America who wants to be an engineer today. We've turned down the ambition level.”
Added Judy, “More of the problem [can be solved by good] parenting than can be solved from a regulatory or funding move. Everyone wants to fund more of this and that, but where it starts is with the parents. Ambition comes from the parents. People have to get it. It will probably take a crisis [to get us refocused].”
In July 2004, comedian Bill Cosby used an appearance at Jesse Jackson's Rainbow/PUSH Coalition & Citizenship Education Fund's annual conference to upbraid African-Americans for not teaching their children proper grammar and for black kids not striving to learn more themselves. Cosby had already declared, “Everybody knows it's important to speak English except these knuckleheads. You can't be a doctor with that kind of crap coming out of your mouth.” Referring to African-Americans who squandered their chances for a better life, Cosby told the Rainbow Coalition, “You've got to stop beating up your women because you can't find a job, because you didn't want to get an education and now you're [earning] minimum wage. You should have thought more of yourself when you were in high school, when you had an opportunity.”
When Cosby's remarks attracted a lot of criticism, Reverend Jackson defended him, arguing, “Bill is saying, let's fight the right fight. Let's level the playing field. Drunk people can't do that. Illiterate people can't do that.”
That is right. Americans are the ones who increasingly need to level the playing field-not by pulling others down, not by feeling sorry for ourselves, but by lifting ourselves up. But when it comes to how to do that, Cosby was saying something that is important for black and white Americans, rich and poor. Education, whether it comes from parents or schools, has to be about more than just cognitive skills. It also has to include character building. The fact is, parents and schools and cultures can and do shape people. The most important influence in my life, outside of my family, was my high school journalism teacher, Hattie M. Steinberg. She pounded the fundamentals of journalism into her students-not simply how to write a lead or accurately transcribe a quote but, more important, how to comport yourself in a professional way. She was nearing sixty at the time I had her as my teacher and high school newspaper adviser in the late 1960s. She was the polar opposite of “cool,” but we hung around her classroom like it was the malt shop and she was Wolfman Jack. None of us could have articulated it then, but it was because we enjoyed being harangued by her, disciplined by her, and taught by her. She was a woman of clarity and principles in an age of uncertainty. I sit up straight just thinking about her! Our children will increasingly be competing head-to-head with Chinese, Indian, and Asian kids, whose parents have a lot more of Hattie's character-building approach than their own American parents. I am not suggesting that we militarize education, but I am suggesting that we do more to push our young people to go beyond their comfort zones, to do things right, and to be ready to suffer some short-run pain for longer gain.
I fear, though, that things will have to get worse before they get better. As Judy Estrin said, it will probably take a crisis. I would simply add: The crisis is already here. It is just playing out in slow motion. The flattening of the world is moving ahead apace, and barring war or some catastrophic terrorist event, nothing is going to stop it. But what can happen is a decline in our standard of living, if more Americans are not empowered and educated to participate in a world where all the knowledge centers are being connected. We have within our society all the ingredients for American individuals to thrive in this world, but if we squander those ingredients, we will stagnate.
I repeat: This is not a test. This is a crisis, and as Paul Romer has so perceptively warned, “A crisis is a terrible thing to waste.”
Developing Countries and the Flat World
NINE: The Virgin of Guadalupe
It's not that we are becoming more Anglo-Saxon. It's that we are having an encounter with reality.The more I worked on this book, the more I found myself asking people I met around the world where they were when they first discovered that the world was flat.
—Frank Schirrmacher, publisher of the German newspaper Frankfurter Allgemeine Zeitung, commenting to The New York Times about the need for German workers to retool and work longer hours
Seek knowledge even unto China.
—saying of the Prophet Muhammad
In the space of two weeks, I got two revealing answers, one from Mexico, one from Egypt. I was in Mexico City in the spring of 2004, and I put the question on the table during lunch with a few Mexican journalist colleagues. One of them said he realized that he was living in a new world when he started seeing reports appearing in the Mexican media and on the Internet that some statuettes of Mexico's patron saint, the Virgin of Guadalupe, were being imported into Mexico from China, probably via ports in California. When you are Mexico and your claim to fame is that you are a low-wage manufacturing country, and some of your people are importing statuettes of your own patron saint from China, because China can make them and ship them all the way across the Pacific more cheaply than you can produce them, you are living in a flat world.
You've also got a problem. Over at the Central Bank of Mexico, I asked its governor, Guillermo Ortiz, whether he was aware of this issue. He rolled his eyes and told me that for some time now he could feel the competitive playing field being leveled-and that Mexico was losing some of its natural geographic advantages with the U.S. market-by just staring at the numbers on his computer screen. “We started looking at the numbers in 2001 -it was the first year in two decades that [Mexico's] exports to the U.S. declined,” said Ortiz. “That was a real shock. We started reducing our gains in market share and then started losing them. We said that there is a real change here... And it was about China.”
China is such a powerhouse of low-cost manufacturing that even though the NAFTA accord has given Mexico a leg up with the United States, and even though Mexico is right next door to us, China in 2003 replaced Mexico as the number two exporter to the United States. (Canada remains number one.) Though Mexico still has a strong position in big-ticket exports that are costly to ship, such as cars, auto parts, and refrigerators, China is coming on strong and has already displaced Mexico in areas such as computer parts, electrical components, toys, textiles, sporting goods, and tennis shoes. But what's even worse for Mexico is that China is displacing some Mexican companies in Mexico, where Chinese-made clothing and toys are now showing up on store shelves everywhere. No wonder a Mexican journalist told me about the day he interviewed a Chinese central bank official, who told him something about China's relationship with America that really rattled him: “First we were afraid of the wolf, then we wanted to dance with the wolf, and now we want to be the wolf.”
A few days after returning from Mexico, I had breakfast in Washington with a friend from Egypt, Lamees El-Hadidy, a longtime business reporter in Cairo. Naturally I asked her where she was when she discovered the world was flat. She answered that it was a just few weeks earlier, during the Muslim holy month of Ramadan. She had done a story for CNBC Arabiya Television about the colorful lanterns called fawanis, each with a burning candle inside, that Egyptian schoolchildren traditionally carried around during Ramadan, a tradition dating back centuries to the Fatimid period in Egypt. Kids swing the lanterns and sing songs, and people give them candy or gifts, as in America on Halloween. For centuries, small, low-wage workshops in Cairo's older neighborhoods have manufactured these lanterns-until the last few years.
That was when plastic Chinese-made Ramadan lanterns, each with a battery-powered light instead of a candle, began flooding the market, crippling the traditional Egyptian workshops. Said Lamees, “They are invading our tradition -in an innovative way-and we are doing nothing about it... These lanterns come out of our tradition, our soul, but [the Chinese versions] are more creative and advanced than the Egyptian ones.” Lamees said that when she asked Egyptians, “Do you know where these are made?,” they would all answer no. Then they would turn the lamps over and see that they came from China.
Many mothers, like Lamees, though, appreciated the fact that the Chinese versions are safer than the traditional Egyptian ones, which are made with sharp metal edges and glass, and usually still use candles. The Chinese versions are made of plastic and feature flashing lights and have an embedded microchip that plays traditional Egyptian Ramadan tunes and even the theme song to the popular Ramadan TV cartoon series Bakkar. As Business Monthly, published by the American Chamber of Commerce in Egypt, reported in its December 2001 issue, Chinese importers “are pitted not only against each other, but also against the several-hundred-year-old Egyptian industry. But the Chinese models are destined to prevail, according to [a] famous importer, Taha Zayat. Imports have definitely cut down on sales of traditional fawanis,' he said. 'Of all fawanis on the market, I don't think that more than 5 percent are now made in Egypt.' People with ties to the Egyptian [fawanis] industry believe China has a clear advantage over Egypt. With its superior technology, they said, China can make mass quantities, which helps to keep prices relatively low. Egypt's traditional [fawanis] industry, by contrast, is characterized by a series of workshops specialized in different stages of the production process. Glassmakers, painters, welders and metal craftsmen all have their role to play. 'There will always be fawanis in Ramadan, but in the future I think Egyptian-made ones could become extinct/ Zayat said. 'There is no way they can ever compete with things made in China.'”
Think how crazy that statement is: Egypt has masses of low-wage workers, like China. It sits right next to Europe, on the Suez Canal. It could be and should be the Taiwan of the eastern Mediterranean, but instead it is throwing in the towel to atheistic China on the manufacture of one of Muslim Egypt's most cherished cultural artifacts. Ibrahim El Esway, one of the main importers from China of fawanis, gave The Business Monthly a tour of his warehouse in the Egyptian town of Muski: He had imported sixteen different models of Ramadan lanterns from China in 2004. “Amid the crowds at Muski, [El Esway] gestured to one of his employees, who promptly opened a dust-covered box and pulled out a plastic fawanis shaped like the head of Simba, from The Lion King. 'This is the first model we imported back in 1994,' he said. He switched it on. As the blue-colored lion's head lit up, the song 'It's a Small World' rang out.”
Introspection
The previous section of this book looked at how individuals, particularly Americans, should think about meeting the challenge posed by the flattening of the world. This chapter focuses on what sort of policies developing countries need to undertake in order to create the right environment for their companies and entrepreneurs to thrive in a flat world, although many of the things I am about to say apply to many developed countries as well.
When developing countries start thinking about the challenge of flatism, the first thing they need to do is engage in some brutally honest introspection. A country, its people and leaders alike, has to be honest with itself and look clearly at exactly where it stands in relation to other countries and in relation to the ten flatteners. It has to ask itself, “To what extent is my country advancing or being left behind by the flattening of the world, and to what extent is it adapting to and taking advantage of all the new platforms for collaboration and competition?” As that Chinese banking official boasted to my Mexican colleague, China is the wolf. Of all the ten flatteners, the entry of China into the world market is the most important for developing countries, and for many developed countries. China can do high-quality low-cost manufacturing better than any other country, and increasingly, it also can do high-quality higher-cost manufacturing. With China and the other nine flatteners coming on so strong, no country today can afford to be anything less than brutally honest with itself.
To that end, I believe that what the world needs today is a club that would be modeled after Alcoholics Anonymous (A.A.). It would be called Developing Countries Anonymous (D.C.A.). And just as at the first A.A. meeting you attend you have to stand up and say, “My name is Thomas Friedman and I'm an alcoholic,” so at Developing Countries Anonymous, countries would have to stand up at their first meeting and say, “My name is Syria and I'm underdeveloped.” Or “My name is Argentina and I'm underachieving. I have not lived up to my potential.”
Every country needs “the ability to make your own introspection,” since “no country develops without going through an X-ray of where you are and where your limits are,” said Luis de la Calle, one of Mexico's chief NAFTA negotiators. Countries that fall off the development wagon are a bit like drunks; to get back on they have to learn to see themselves as they really are. Development is a voluntary process. You need a positive decision to make the right steps, but it starts with introspection.
I Can Get It for You Wholesale
During the late 1970s, but particularly after the fall of the Berlin Wall, a lot of countries started to pursue development in a new way through a process that I call reform wholesale. The era of Globalization 2.0, when the world shrank from a size medium to a size small, was the era of reform wholesale, an era of broad macroeconomic reform. These wholesale reforms were initiated by a small handful of leaders in countries like China, Russia, Mexico, Brazil, and India. These small groups of reformers often relied on the leverage of authoritarian political systems to unleash the state-smothered market forces in their societies. They pushed their countries into more export-oriented, free-market strategies-based on privatization of state companies, deregulation of financial markets, currency adjustments, foreign direct investment, shrinking subsidies, lowering of protectionist tariff barriers, and introduction of more flexible labor laws-from the top down without ever really asking the people. Ernesto Zedillo, who served as president of Mexico from 1994 to 2000 and was finance minister before that, once remarked to me that all the decisions to open the Mexican economy were taken by three people. How many people do you suppose Deng Xiaoping consulted before he declared, “To get rich is glorious,” and opened the Chinese economy, or when he dismissed those who questioned China's move from communism to free markets by saying that what mattered was jobs and incomes, not ideology? Deng tossed over decades of Communist ideology with one sentence: “Black cat, white cat, all that matters is that it catches mice.” In 1991, when India's finance minister, Manmohan Singh, took the first tentative steps to open India's economy to more foreign trade, investment, and competition, it was a result not of some considered national debate and dialogue, but of the fact that India's economy at that moment was so sclerotic, so unappealing to foreign investors, that it had almost run out of foreign currency. When Mikhail Gorbachev started dabbling with perestroika, it was with his back up against the Kremlin wall and with few allies in the Soviet leadership. The same was true of Margaret Thatcher when she took on the striking coal miners' union in 1984 and forced reform wholesale onto the sagging British economy.
What all these leaders confronted was the irrefutable fact that more open and competitive markets are the only sustainable vehicle for growing a nation out of poverty, because they are the only guarantee that new ideas, technologies, and best practices are easily flowing into your country and that private enterprises, and even government, have the competitive incentive and flexibility to adopt those new ideas and turn them into jobs and products. This is why the nonglobalizing countries, those that refused to do any reform wholesale-North Korea, for instance— actually saw their per capita GDP growth shrink in the 1990s, while countries that moved from a more socialist model to a globalizing model saw their per capita GDP grow in the 1990s. As David Dollar and Art Kray conclude in their book Trade, Growth, and Poverty, economic growth and trade remain the best antipoverty program in the world.
The World Bank reported that in 1990 there were roughly 375 million people in China living in extreme poverty, on less than $ 1 per day. By 2001, there were 212 million Chinese living in extreme poverty, and by 2015, if current trends hold, there will be only 16 million living on less than $1 a day. In South Asia-primarily India, Pakistan, and Bangladesh-the numbers go from 462 million in 1990 living on less than $1 a day down to 431 million by 2001 and down to 216 million in 2015. In sub-Saharan Africa, by contrast, where globalization has been slow to take hold, there were 227 million people living on less than $1 a day in 1990, 313 million in 2001, and an expected 340 million by 2015.