Thomas Friedman Suggests Level Economic Playing Field in ‘The World is Flat’

“This news flash has just come in from New York Times columnist Thomas Friedman: the world is flat.” I repeat, “the world is flat.”

Stepping closer to the TV set, making sure we heard it right, we’re shaken to the core of our beliefs. For most Americans, our first core belief is that in 1492, Columbus sailed the ocean blue, and, during his journey around the globe to the New World, he discovered that the Earth is round.

How can Friedman, highly-regarded author and the most significant living proponent of what we know to be globalization, now tell us in his latest book that The World is Flat?

The short answer from Friedman is that the world is flat because the global playing field is level and barriers to entry into the world economy are almost nonexistent. According to Friedman, new worldwide opportunities in education and technology, especially through the interconnectivity the internet brings, when joined with market-neutralizing rules for international commerce and trade, make the world flat.

Before you stamp your feet and say it isn’t so, you should read Friedman’s book from cover to cover. Friedman is on to something with his moment of discovery. But, as you read along, you will also see some of his concept stands on shaky ground.

As most of us recall, in 1492, Christopher Columbus hoped to find India but found America instead, and his discoveries soon led to the conclusion that the Earth is round.

This is a bedrock-solid geological theory to this day.

Six centuries later, Friedman visits the real India, Banglore to be exact, and finds a thriving service-based company with MphasiS, an outsourcing innovator, handling not only basic customer service calls but also higher level skills for American multinationals. Friedman talks with Jaithirth “Jerry” Rao, founder of MphasiS, who plans to provide tax preparation services better and cheaper than those offered in America by H & R Block.

MphasiS is a globalization success story. India has educated its workers and obtained access to needed telecommunications and computer technology to open start-up firms like MphasiS that collaborate with US multinationals. In this instance, India is relying on a development path most see as sustainable and adding to the long-term health of the world economy.

Soon after learning about globalization success stories like MphasiS, Friedman had an important discussion with another Indian high-tech CEO, Nandan Nilekani, that motivated Friedman to put pen to paper about the theory of the flat earth.

Friedman details this meeting in the book, and has repeated it in book interviews, like this one with Wired magazine:

“I was in India interviewing Nandan Nilekani at Infosys. And he said to me, ‘Tom, the playing field is being leveled.’ Indians and Chinese were going to compete for work like never before, and Americans weren’t ready. I kept chewing over that phrase – the playing field is being leveled – and then it hit me: Holy mackerel, the world is becoming flat. Several technological and political forces have converged, and that has produced a global, Web-enabled playing field that allows for multiple forms of collaboration without regard to geography or distance – or soon, even language.”

In The World Is Flat, Friedman identifies “the ten forces that flattened the world,” starting with the fall of the Berlin Wall in November 1989. However, most of the ten forces did not eliminate ideological barriers to economic growth as the tearing down of the iron curtain did. Instead, these were forces that lifted technological barriers, such as the initial release of the Netscape web browser in 1995 (Force No. 2), which opened up electronic connectivity and communication via e-mail.

Outsourcing – the type that MphasiS is perfecting in India – is one of Friedman’s ten flattening forces that has led to the new era he calls Globalization, version 3.0. Globalization 3.0 started in the year 2000, and is based on “the newfound power for individuals to collaborate and compete globally.” It follows Globalization 2.0, a time from 1800 to 2000, when Friedman states that multinational corporations drove global integration, and Globalization 1.0, 1492 to 1800, when a nation’s ability to coexist and collaborate in the world economy was most important.

This is the point where the earth might be starting to quake under Friedman’s feet.

Friedman’s explanation of the paradigm shift into Globalization 3.0 misses the point that multinational corporations searching for profit advantages still drive the process of collaboration in Globalization 3.0.

Indian firms are striving to do the work of American multinationals with millions of dollars to pay them, though, fewer millions than it would take for these services to be “Made in America.” Without the demands of the American multinationals, would you have a market for these services in India itself? Probably not yet, and nowhere near the same financial scale.

Friedman is right to celebrate India’s success in the era of Globalization 3.0, and the growth in the size of its middle class, particularly the Indian yuppies called “zippies.” Like Columbus, who needed the financial support of the rulers of Spain to start on his quest for fortune, the zippies have taken a route to financial success that was opened and supported by the Indian government.

In a book Robert Reich wrote just after the fall of communism, The Wealth of Nations, Reich correctly predicted that we would move toward an information-based global economy, with rapid job growth in the information-service sector. India has positioned itself well for this economic change, relying on its strong educational system to create a labor force well positioned to compete and get the new information jobs Reich described.

What will the zippies and the new middle class bring to India? Friedman starts with their values. Friedman defines the middle class as people “who believe they have a pathway out of poverty or lower-income status to a higher standard of living and a better future for their kids. You can be in the middle class if you believe in social mobility – that your kids have a chance to have a better life than you do – and that hard work and playing by the rules of your society will get you where you want to go.”

That is the also American dream, and a dream that has motivated people to come to America or adopt American culture for generations. Class mobility is also an important European tradition – the French Revolution of 1789 created a society based more on merit than birthright, a system America’s founders also said was best.

However, Friedman misses an important point about social mobility here. We still live in a world where social class matters and tends to predict one’s ability to get a job.

We are addressing more carefully an issue Steven Leavitt treats in his current bestseller, Freakonomics, when Leavitt contemplates how the birth name given to a child – Molly or Roshanda – has some correlation with her future earning power.

In India today, there is a minority, significant in number, for whom the idea of social mobility is not possible – the untouchables. Three generations of Gandhis leading India could not get rid of this backward classification that persists in the era of Globalization 3.0, barring the untouchables to a way up to middle class life as zippies.

However, when Friedman discusses untouchables in The World Is Flat, he introduces a new type of untouchable, one he himself defines. Friedman praises “untouchables” like Michael Jordan, who is so good at what he does, that he is, in effect, untouchable – he cannot be replaced and thus his job is secure.

True, as the old ad slogan goes, we all want “to be like Mike.” But how does that help the 60 million untouchables living in India today, nearly 14 percent of India’s total population? Actual untouchables in India operate on a far from a level playing surface, their way out of poverty is anything but the steepest incline.

While Friedman’s concept of the economic strength provided by a middle class is largely sound, it needs a corrective. Outsourcing American service jobs to India does make India’s economy stronger through job diversity. However, a middle class job outsourced to India still takes away an American middle class job.

In The World Is Flat, Friedman quotes Jerry Rao, who tries to explain away the job dislocations in America by emphasizing America’s ability to create new jobs in the natural flow of the world’s economy. “In ten years we are going to be doing a lot of stuff that is being done in America today. We can predict our future. But we are behind you. You are defining the future. America is always on the edge of the next creative waveâÂ?¦.”

In theory, what MphasiS plans to do with a system created by H & R Block is no different from what Japanese firms like Nissan and Toyota did in the automobile production market starting in the late 1950s. Relying upon a better version of the assembly line concept created by Henry Ford, the Japanese made better, more fuel-efficient cars more cheaply than the Americans were in the second half of the 20th century. These autoworkers became part of a burgeoning middle class in Japan.

The ability to learn, relearn and adapt, which Alfred Toffler said was so vital to human future survival in his 1970 book Future Shock, does not guarantee sustainable prosperity or a middle class income to workers who lose their jobs to international competitors. What is more common is what documentary filmmaker Michael Moore chronicled in Roger and Me – laid off autoworkers from Flint, Michigan who were unemployed, underemployed or had to take the same job at another plant at a much lower salary.

However, Friedman is hopeful that a more interconnected global economy will have an overall beneficial effect and allow nationalism and protectionism to eventually recede. Friedman quotes people who acknowledge the power of nationalism and protectionism, like Japanese business consultant Keniche Ohmaye, who says, “China is a threat, China is a customer, and China is an opportunity.”

Friedman says that the problem of “China as a threat,” specifically the threat of rising Chinese nationalism, can be reduced when China is linked with another country in the same supply chain. The growth of supply chains is one of the ten flattening forces Friedman mentions in The World Is Flat, and, after a visit to a Dell computer plant, Friedman posits a theory of conflict prevention based upon the supply chain idea.

“The Dell theory (of conflict prevention) stipulates: No two countries that are both part of a major global supply chain, like Dell’s, will ever fight a war against each other as long as they are both part of the same global supply chain. Because people embedded in major global supply chains don’t want to fight old-time wars anymore. They want to make just-in-time deliveries of goods and services – and enjoy the rising standards of living that come with that.”

The Dell theory of conflict prevention is closely related to his “McDonald’s theory of war” which he presented in his first book on globalization, The Lexus and the Olive Tree. The McDonald’s theory of war stipulates that no two countries that have a McDonald’s franchise have ever gone to war against each other, suggesting the power of capitalism over nationalistic and protectionist motivated rivalry.

While the McDonald’s and Dell theories are worth studying, it remains true that nationalism and protectionism are strong forces that are often activated after job losses, forces that can pull people and countries apart at the seams, and remain two ornery barriers to world peace and economic integration in Globalization 3.0.

In June 2005, the French people voted against the new constitution for the European Union constitution, and, the reasons why seem obvious. Middle class workers in France have short work weeks and good worker rights protections and benefits that will change dramatically under the new EU constitution.

Indeed, French multinationals could still outsource French jobs to people in countries with lower standards of living who are willing to work more hours for less money and fewer benefits. When the Japanese gained primacy over the US in the automotive industry, the Japanese workers did the same thing – worked longer, harder and more efficiently for less pay. That was how managers at Nissan and Toyota were able to outsell America’s big three automakers, including Ford, founded by the man who created the assembly line process to make affordable cars his own employees could buy.

Yet, as the Japanese sun rose in the automotive industry, there was a strong backlash in America, a nationalistic zeal to protect America’s auto manufacturers and industrial workers, and the loss in America’s prestige made US-Japanese relations in the 1980s less secure. That same nationalism and protectionism could manifest in France as dangerous anti-Muslim backlash, especially if French jobs are outsourced to Turkey.

Toward the final pages of The World Is Flat, Friedman describes an epiphany he experienced while waiting at the airport for an upcoming flight to another part of the globe. Friedman says it reminded why the world is indeed flat: “In Globalization 1.0, there was a ticket agent. In Globalization 2.0, the e-ticket machine replaced the ticket agent. In Globalization 3.0, you are your own ticket agent.”

This is wrong, as wrong as Columbus was when he thought he landed in India when he was really on an island in the Caribbean. Even if you are your own ticket agent, as Friedman suggests, you still will need a human to verify your boarding pass is valid before you board a flight. And, if you have problems getting your ticket on line, you will at some point need to interact with a human in technical services. Granted, that human is less often a “Jerry” in New York City and more often Jaithirth, aka “Jerry,” in Banglore.

Moreover, with the changes occurring since 9-11, one’s ability to obtain a ticket will have to be specially monitored and regulated. We do not want a system whereby a terrorist can get a ticket too easily and hijack a plane. Ticket agents will have likely have to morph into ticket monitors or ticket security specialists, if they are to remain employed.

A level playing surface is an admirable ideal and Friedman does find evidence that the world is flat in places. However, the world is not yet completely flat – the unique qualities and resources and needs of each country have yet to be smoothed out.