Saturday, June 25, 2005

The World is Flat

This article appears in slightly different form in the May/June 2005 issue of IEEE Micro © 2005 IEEE.

Friedman's Flat World

The World is Flat: A Brief History of the Twenty-First Century by Thomas L. Friedman (Farrar, Straus, and Giroux, New York NY, 2005, 496pp, ISBN 0-374-29288-4,, $27.50)

Tom Friedman is a New York Times columnist who has won the Pulitzer Prize three times. He often appears on in-depth interview programs like Charlie Rose or C-SPAN's Book TV. He has an optimistic and enthusiastic manner, which is built on the confidence that comes from doing the underlying journalistic work.

Friedman addressed globalization with his book The Lexus and the Olive Tree: Understanding Globalization (FSG, 1999). In that book he noted that half the world was trying to make excellent products that they could sell worldwide, while the other half was fighting over who owns which olive tree. After the terrible attacks of September 11, 2001, however, Friedman focused almost entirely on the Middle East (the olive tree side of that book) until early in 2004 when he looked around and noticed that a great deal had happened on the Lexus side. He set about to understand and explain the new developments, and this book is the result.

Friedman's melodramatic title is beautifully matched by a dust jacket featuring Ed Miracle's lithograph I Told You So. Friedman's title represents his discovery that the "playing field" is much larger and more level than he had realized. That playing field does not, however, encompass the whole world. Friedman acknowledges this late in the book and admits that his rosy picture of globalization has a dark side. He has suggestions for addressing the dark side, but they depend on an understanding of his flat world.

Friedman equates the flat world with a rising spiral of horizontal collaboration. This arises from a convergence of the following factors:
  • Synergistic interaction of what Friedman calls the ten flatteners.
  • Widespread adjustment of business practices to accommodate the flatteners.
  • Three billion new players on the field.
Friedman's flatteners are a little arbitrary, but I think they cover the ground pretty well. They are the following, roughly in chronological order.

The fall of the Berlin Wall on November 9, 1989 marked a big step toward worldwide unity. One of the world's two main economic systems had collapsed, leaving just one viable model. This was tremendously liberating for both India and China, as well as the 600,000,000 inhabitants of the former Soviet empire. By an odd coincidence, roughly the same date marked the emergence of Windows 3.0 -- not a very good operating system by today's standards, but good enough to become the worldwide standard.

The Netscape initial public offering on August 9, 1995, is the signpost for Friedman's second flattener. The browser made huge numbers of public sites available to anyone with a modem and a PC, practically anywhere in the world. Just as important, the Netscape offering kicked off the dotcom bubble, resulting in vast amounts of fiberoptic cable providing high-speed communication between the United States and much of the rest of the world, including India. When the bubble burst, companies were able to use this cable for very little money.

The third flattener is the development of what Friedman calls work flow software. By this he means the XML-based protocols that allow software packages to communicate. The loose coupling that this architecture provides has allowed many ad hoc collaborations between software packages that were never designed to collaborate.

The fourth flattener is the open source movement. Friedman tells the story of Apache, which has enabled companies to use a worldwide free standard as the basis for their application servers, then add (and charge for) their own bells and whistles. He distinguishes this from the Gnu/Linux model in which it is much harder for companies to charge for their add-ons. Both of these models make world class software available free to anyone in the world, and they also serve to keep the prices of competing commercial products low.

The next four flatteners describe business practices that exemplify horizontal collaboration. Flatteners five and six are outsourcing and offshoring, practices that many people confuse. Outsourcing describes the identification of discrete business modules that can be done elsewhere and the delegation of those modules to other companies. Offshoring entails moving an entire operation to another country, but keeping control of it. 

Outsourcing to Indian firms, according to Friedman got a big head start during the Y2K scare. Many United States companies outsourced their Y2K repairs to Indian firms because they simply couldn't find enough workers and enough money to do the work in the US. This built the reputations of many Indian firms for high quality work at low cost. Then, when the dotcom bubble burst and US firms had a lot less cash, they turned to India out of need, but with confidence, for many of their software development needs. And the abundance of fiber-optic cable made the collaboration much easier than it would have been otherwise.

Friedman's discussion of offshoring focuses on China. That country, with its authoritarian structure, was able to impose a change in its economic system from the top down. All it took was for Deng Xiaoping to say "Black cat, white cat, all that matters is that it catches mice. To get rich is glorious." As we all know, however, top down changes don't always percolate smoothly to the bottom. Many firms got burned before they learned the best strategies for offshoring to China, but many US firms now have highly successful and profitable operations in China.

The seventh flattener is supply chaining. Friedman describes the far-flung Dell supply chain that produced the notebook computer on which he wrote the book. He also describes the intimate relationship between WalMart and its suppliers. Not only does WalMart integrate its suppliers' workflows into its own, but it feeds information about sales back to its suppliers to help them improve their offerings. Of course, this relationship gives WalMart extraordinary leverage over its suppliers, and WalMart uses this leverage to full advantage.

Friedman calls the eighth flattener insourcing. You could call it outsourcing as seen from the vendor's point of view, but it is qualitatively different. If you call Toshiba to report a problem with your laptop, they tell you to take it to UPS. UPS, however, does not deliver the laptop to Toshiba. Instead, UPS repairs the laptop at its own hub and delivers it back to you. This is just one of many examples of how UPS encourages its package delivery customers to outsource functions that happen just before or after package delivery to UPS.

The ninth flattener is Google and related services. Anybody can find out practically anything from anywhere at any time. This automates and expands what assistants or librarians used to do. As Friedman points out, when Colin Powell wanted to look at UN Resolution 242, he didn’t need to call an aide. He just Googled it. Powell's aides had to find other ways to add value. 

The availability of powerful search capabilities has many implications for ordinary citizens. A great deal of personal history and information is readily available to potential employers, lenders, or even acquaintances. And your mistakes will follow you forever.

Friedman rounds off his ten flatteners with one he calls the steroids. By this he means that computers provide greater MIPS, more memory, and faster I/O. File sharing, multipurpose devices, voice over IP, and wireless communication all work to supercharge the other flatteners.

For Friedman's triple convergence, the ten flatteners reinforce and amplify each other. Businesses change their practices to accommodate the new reality. Business, technical, and even liberal arts schools start turning out graduates who are comfortable with the flat world. And the entire populations of China, India, and the former Soviet Union enter the worldwide job market. Of course, not all of these people are prepared to compete in the global marketplace, but Friedman estimates that at least 150,000,000 technically qualified workers who couldn't do so before are now competing directly with US workers. That number is about the size of the US workforce.

Having laid out a picture of the flat world in highly optimistic terms, Friedman tries to address the troublesome points. To do so, he begins with an amazingly prescient excerpt from a work written in 1848, more that 150 years ago. Karl Marx in Das Kapital predicts that capitalism will dissolve national and religious identities to produce a universal civilization governed by market imperatives. Fortunately, this has not happened, but the forces of globalization do provide just that sort of pressure. Friedman contends that we need to distinguish between different categories of obstacles to globalization. Some obstacles are sources of waste and inefficiency. Others are sources of identity and belonging.

The political discussion of a social contract that distinguishes between the bad obstacles and the good ones has to happen at the level of individual countries. Large companies, however, can provide transnational influence. Friedman cites the cases of companies like HP, Dell, and IBM, which have set standards of socially responsible manufacturing practices that all of their suppliers throughout the world must meet. This is one side of the transnational companies. The other side is that being in many countries gives a company the flexibility to avoid the troublesome regulations of any particular country. 

Friedman also sets up a contrast between WalMart and Costco, firms that provide approximately the same services. He notes that WalMart provides much less in the way of health care coverage than Costco. WalMart gives a better return to its shareholders, but states and communities in which WalMart does business may have to pick up the tab for WalMart's underinsured employees. This raises the question of where the boundaries between companies and their surrounding communities lie.

In the 1930s, in the midst of the Great Depression, the United States adopted many laws to protect workers and to provide a social safety net. In addition to laws, though, companies felt a civic responsibility to provide for their workers. Lifetime employment followed by a good pension was common. Local governments kept property taxes low to protect homes. This unwritten social contract pertained for many years, but in the 1970s it started to break down. People saw ways to squeeze the fat out of companies and real estate. Leveraged buyouts led to layoffs, reduced medical benefits, and evaporating pensions. High property taxes and other housing price pressures led to increased homelessness. Without a social contract these trends will continue into the flat world. 

Friedman draws upon his analysis of the flat world to make separate recommendations to the United States, developing countries, and individual companies. Friedman's rules for companies boil down to the following: introspect and collaborate. You should understand all the parts of your business, outsource the parts that you don't really specialize in, and develop the others. This requires you to develop the ability to collaborate as a core competency.

For the United States, Friedman paints a picture of an impending perfect storm. He calls this a quiet crisis, because the storm isn't imminent, but all the factors are in place to make it inevitable if nothing changes. The factors, in brief, are the shrinking numbers of available scientific and technical workers, the fact that other countries are producing higher quality technical and scientific work, and the fact that we are not investing in education and research to a sufficient degree.

Friedman sees similarities to the situation that existed after 1957 when the Soviet Union deployed Sputnik, the first artificial Earth satellite. When President Kennedy spoke to Congress on May 25, 1961, he said:
Let it be clear that I am asking the Congress and the country to accept a firm commitment to a new course of action, a course that will last for many years and carry very heavy costs. . . This decision demands a major national commitment of scientific and technical manpower, materiel, and facilities, and the possibility of their diversion from other important activities where they are already thinly spread. It means a degree of dedication, organization, and discipline which have not always characterized our research and development efforts.
Friedman's quiet crisis demands a similarly serious and honest call to action. In the absense of other leadership, Friedman offers his own doctrine of "compassionate flatism." The essential features of this program are portable pension and health care benefits, opportunities for lifelong learning, and more demanding parents.

Friedman has a lot to say about geopolitics. He talks about the parts of the world that are not flat and explores the reasons why some countries are globalizing while others are not. He presents some strategies for developing countries, and he looks at factors that can work against globalization and even set it back. He draws on his deep knowledge of the Middle East to explain why some countries in that area of the world, aside from oil, contribute more to Osama bin Laden's supply chain than than to those of global companies.

Finally, Friedman poses his Dell theory of conflict prevention. He elaborates it to some degree, but in essence it says that no country that belongs to a major supply chain wants to risk war. There are other suppliers out there, and the if the business goes away, it won't come back soon. He cites the pressure of the Indian IT industry on India's government to persuade it to back away from a conflict with Pakistan. 

Friedman writes colorfully, and there is much to quibble with, but on the whole, this is an incredibly useful book. It contains much more information than I can summarize here. I highly recommend it to everybody. 

Postscript - August 2005

I still recommend the book to everybody, and much of the reaction I've seen to this book is positive. The negative reactions I've seen tend to focus on Friedman's writing style and his rosy view of globalization. I heard one media critic describe Friedman's style as both tortured and goofy, and I have to agree. 

The cover illustration of the softcover version is more subtle and perhaps more appropriate than the melodramatic one on the dust jacket of the hardcover, but I like the melodramatic one better. It is truer to the style of the book. Unfortunately, the publisher could not reach a suitable agreement with the artist, Ed Miracle, so they had to change.

Friedman's rosy view is a bigger problem than his writing style. To be fair, Friedman does address the dark side of globalization, but my review glosses over this part of the book, because it is not Friedman's real focus. While Friedman draws attention to some of the darker consequences of globalization, he provides no insightful analysis. His great insight is into the mechanisms of globalization. He regards these mechanisms as inexorable technological forces that we must all learn to live with and use to our advantage.

The way to address the problems of globalization is to develop local and global social contracts. This entails widespread thought, discussion, and negotiation. Friedman's book can help by providing a common understanding of the facts and mechanisms of globalization. An interesting case in point is the reaction to the Chinese government's offer on June 22, 2005 to purchase the Unocal oil company for 18.5 billion dollars. Friedman addresses the problem of the coming oil shortage and strongly advocates steps to avert it. He suggests a joint US-Chinese program, with the urgency of the Manhattan project, to find and move to alternate energy sources. This is much more likely to be effective than the easier step of giving speeches about foreign ownership of US companies.