The World Is Flat: A Brief History of the Twenty-First Century by Thomas L. Friedman (Farrar, Straus and Giroux, 496 pages, $27.50)
I opened Thomas Friedman's The World Is Flat expecting another paean to globalization, and though it surely is that, this book is also a well-reported, original, and nuanced discussion that every liberal needs to read, as much for its instructive omissions as for it insights and caveats. (Note to Farrar, Straus and Giroux marketing department: Do not quote that sentence except in its entirety.)
Friedman compellingly demonstrates why several trends that American progressives generally deplore are here to stay, and why those trends are also sources of faster economic growth for the world as a whole. Any economist who contends, based on conventional employment statistics, that outsourcing is no big deal is simply missing an epochal change. The test isn't how many jobs are being lost but where and how new economic activity is being created. In a major shift from his earlier views, Friedman also concedes that, unless we drastically change our policies, current trends may be bad for a great many Americans.
This is mainly a book of business reporting, based on dozens of lively stories of globalized companies large and small, which use new technologies to link workers, suppliers, retailers, and customers in diverse countries. People irritated by Friedman's penchant for putting himself at the center of his anecdotes, and for sometimes drawing universal inferences from exceptional cases, will recognize the genre. Even so, he is well worth reading.
By a “ﬂat” world, Friedman means that multiple barriers to commerce, innovation, and entrepreneurship have fallen, while new technologies like the Internet have created unimagined opportunities for collaboration on a global scale. You have read much of this before, but Friedman's contribution is to unpack the new, ﬂattened world economy and examine its several driving elements.
These, Friedman explains, include the near-universal access to a broadband Internet; new interactive software like PayPal, whose automated transactions facilitate entire new kinds of businesses like eBay; the open-source movement; the offshoring of production and outsourcing of service-sector work such as call centers; super-efﬁcient “supply-chaining” of the sort pioneered by Wal-Mart; “insourcing,” in which companies like UPS and IBM run major portions of their clients' businesses; and empowerment of individuals through Internet comparative shopping, entrepreneurship opportunities, and search engines such as Google.
These technological breakthroughs started “to work together in a complementary, mutually enhancing fashion” by about 2000, Friedman writes. Economists such as Robert Solow, who initially debunked the premise that the computer was supercharging productivity, turned out to be wrong. Economic historians such as Paul David, who observed that new technologies -- from steam to electricity to computing -- always take time to be productively assimilated, were right. Coincidentally, all this occurred just as 3 billion people in China and India and the former Soviet empire joined the world economy, many of them with surprisingly good educations.
Thanks to this convergence, smart people in poor countries, with productivity comparable to Americans up and down the skill ladder but at a fraction of the labor costs, are suddenly in direct competition with us, one another, and the rest of the world. The global economy is now so thoroughly interpenetrated that protectionism is now not only ill-advised but also a practical impossibility.
Friedman contends, offering myriad examples, that the new economy offers so much new possibility that Americans should have nothing to fear. The Bank of India, he marvels, hired Hewlett-Packard to take over its back-ofﬁce operations, generating jobs and proﬁts for Silicon Valley and keeping HP at the forefront of inventing-by-doing. “Even as the world gets ﬂat,” Friedman writes, “America as a whole will beneﬁt more by sticking to the basic principles of free trade, as it always has, than by trying to erect walls.” (In fact, the United States has not “always” been a free trader. Like every other newly emerging nation -- including Japan, Korea, Germany, Brazil, India, and China -- America initially was heavily protectionist, right into the early 20th century. It only turned to freer trade, as India and China later did, when that course seemed to offer net advantage.)
Friedman then adds a warning. America is squandering its great advantage: its ability to innovate. “It was American innovators who started Google, Intel, HP, Dell, Microsoft, and Cisco,” he writes, “and it matters where innovation happens.” Our capacity to innovate, in turn, reﬂects several American strengths that Friedman astutely recounts: great universities (America has about 4,000; the entire rest of the world, about 7,800); government investment in research and technology; deep, broad, and clean capital markets; reliable intellectual-property protection; political stability; the world's biggest consumer market; a ﬂexible, well-educated labor force; and sheer openness -- to ideas and people. “The United States has become one of the great meeting points in the world,” Friedman writes, “a place where lots of different people bond and learn to trust one another.”
But every item on the list that generates competitive advantage is fraying. Government-ﬁnanced research and development has been cut in half. Our capital markets are sullied by opportunism and corruption, and are absorbing foreign money mainly to ﬁnance bad ﬁscal policy. The balance between intellectual-property protection for the innovator and diffusion to the economy is tilting in favor of proprietary capture. We are failing to educate and retrain workers. Our famed openness is being sacriﬁced to post–Septmber 11 paranoia. Even our mass-consumer market is declining as living standards stagnate except at the top. “Are we tending to the secrets of our sauce?” Friedman asks. “The answer is no.”
Friedman's proposed remedies are superb, as far as they go: crash programs to produce more scientists and engineers, redoubled public investment in research and development, plus immigration reform, and more social investment in education. He also embraces something much like the labor and environmental movements' proposed Apollo Project, “to make America energy-independent in ten years,” as well as job training; wage insurance; universal, portable pensions; and health insurance. In perhaps his single worst new coinage, Friedman terms this approach “compassionate ﬂatism.”
Here is the germ of a program that might unite the progressive and New Democrat wings of American liberalism. These social investments and cushions against dislocation (Friedman calls this “good fat”) could certainly help America to maintain the commanding heights of the new economy and redistribute opportunity to those with the most to lose. But while these social investments are necessary and overdue, they are far from sufﬁcient.
In an emblematic anecdote, Friedman recounts this domestic homily on his advice to his teenage daughters: “Girls, when I was growing up, my parents used to say to me, ‘Tom, ﬁnish your dinner -- people in China and India are starving.' My advice to you is: Girls, ﬁnish your homework -- people in China and India are starving for your jobs.”
This is charming, except as the rest of Friedman's book makes clear, diligent scientists and engineers in China and India are working for a pittance. No matter how hard his daughters work, their efforts won't solve the wage-equilibration problem unless they want Chinese wages.
On the political, regulatory, and civic implications of his tour of the new economy shift, Friedman is good at posing questions but not at supplying convincing answers. “What happens,” Friedman quotes a former Commerce Department ofﬁcial named David Rothkopf, “if the political entity in which you are located no longer corresponds to a job that takes place in cyberspace, or no longer really encompasses workers collaborating with other workers in different corners of the globe, or no longer really captures products produced in multiple places simultaneously? Who regulates the work? Who taxes it? Who should beneﬁt from those taxes?”
Who, indeed? But Friedman has no answer. Nor does he address the proper ground rules for the trading system, now plainly stacked in favor of corporations and investors and against ordinary workers worldwide. And is China's poverty a sufﬁcient reason to allow the Chinese to cheat?
Friedman's conception of politics is also underdeveloped. In order for his sensible program of social investment to win enactment, progressive voters who stand to gain from activist government would need to be mobilized. But Friedman is so phobic about anything that would regulate trade ﬂows that his conception of politics instead imagines a new two-party system of a foolish “Wall Party” and a smart “Web Party” -- conservative xenophobes and protectionist factory workers in the ﬁrst, and right-thinking internationalists from Wall Street, Silicon Valley, and the blogosphere in the second. The result of such a realignment, however, would not be the enlightened social investment that Friedman commends but ugly nationalism on one side and what Robert B. Reich calls the “secession of the successful” on the other.
Friedman has done a service in reminding us that the global egg cannot be unscrambled and in opening the door to social investment as part of the remedy to its dislocations. But he is so taken by the new global communities of the nimble that he is oblivious to the politics of what Jeff Faux, in a forthcoming book due next January, calls the global class war. In that war, Faux observes, all the rules of commerce -- from the Basel Accords on capital standards to the Codex Alimentarius on food to the rules of intellectual property to the World Trade Organization itself -- are written by and for industry. This, in turn, reﬂects the changed balance of power in the major trading nations, where corporate interests dominate the leading parties. It is a far cry from the more egalitarian system of the mid-20th century, in which the polity balanced worker and citizen rights against those of corporations.
It is no solution to imagine, with George W. Bush and Tom Friedman in most of his chapters, that the problem will be solved by literally everyone becoming an entrepreneur and by newly empowered consumers using the Internet to discipline corporations. We still need our civic and economic selves that rely on paychecks, social investments, and government regulations to keep the whole magniﬁcent machine from coming off the rails. For the corrective, read Faux's forthcoming book against Friedman's.
Robert Kuttner is co-editor of The American Prospect.