Why should we read this?

Tom Friedman is a well connected journalist. His columns appear on the op-ed pages of the New York Times and his previous works LONGITUDES AND ATTITUDES and THE LEXUS AND THE OLIVE TREE are part of the "conventional wisdom" of most American decision makers. This new book, THE WORLD IS FLAT will also find its way into the "conventional wisdom." Unfortunately, it is at best a misdiagnosis of the factors that have lead to the ability to substitute labor across geographical boundaries. However, although it is as wrong as could be, many of our power elites will read or hear of this, and will base their decisions on the assumption that this book contains the truth. The reason that you should read it is that it is conventional wisdom and you are perhaps better off understanding this and how it is wrong.

Friedman's explanation is a simple one - the world has transformed from a three dimensional phenomenon, a sphere, to a two dimensional flat plane where there are no entry barriers into the labor market. So, a radiologist in Boston can be easily substituted for a radiologist in Bangalore. Oh, how it would be nice if it were this simple. But alas it is not. Friedman, I believe, is well intentioned, but he mistakenly believes that he can find the truth through anecdotes. So, his empirical evidence comes from stories of things that he does not understand instead of the use of reliable demographic and economic databases.

He believes that 10 exogenous forces can explain how "the world became flat." While doing this, he solely looks at the labor market and ignores the effects of the consumer, monetary, raw material/energy, and fixed investment markets. He cannot distinguish between a symptom and a cause. These 10 forces that he claims changed the labor markets are not causes but merely symptoms.

Friedman is a name dropper par excellence, and rubs elbows with the elite. Unfortunately for him, he cannot detect competence or incompetence. One reason that this book will not age well is that when he wrote it in 2004 he was rubbing elbows with the incompetent elites such as Carly Fiorina who botched the merger between Compaq and Hewlett Packard and Nobuyuki Idei, the incompetent chairman of Sony. He praises these folks to win their favor, but reading this in 2005, demonstrates how little he knows.

A major problem that Friedman ignores is the inability of any government to impartially referee our global economy. No country has good corporate governance laws, and the US is becoming increasing unable to protect both intellectual and physical property rights. This problem creates new barriers and instead of flattening the world, it adds new walls and new traps. Poor corporate governance promotes crony capitalism and not the meritocracy capitalism that Friedman thinks it is supporting. Just look at the disconnect between executive pay and performance as evidence that many incompetent corporate chieftains are keeping their jobs and continuing to make poor decisions. American law is ineffective, the inability to sentence Health South's Scrushy shows that Sarbanes Oxley is not working, and the inability to put Ken Lay, Michael Eisner, and Michael Ovitz in prison shows how little protection the share holders have. Things are worse in China, India, and Japan where "transparency" is not even a part of the vocabulary.

The book is filled with inconsistency. It derides the inflexibility of the European welfare state, but calls for an American safety net to protect those from globalization. He calls for the enactment of "Hillary care" but cannot explain the reason that it failed passage in 1993. He praise the Asian "rote learning" systems, but later on calls on American youth to think unconventionally. He is calling on the federal government to do contradictory things such as keep minimum wages and promote market efficiency.

America's increasing indebtedness is not given one sentence in this book. Not only are jobs being exported to Southeast Asia, but claims and control on American assets are also being transferred. Increasingly, the important capital allocations in America will be directed by foreign executives who will be even less accountable than the Bernie Ebbers and the Ken Lays.

In short, Friedman is not qualified to write on this topic, but like the incompetent overpaid executive that he hangs with, he will be over paid and over read. At best, we might be able to profit if we understand how this "conventional wisdom" is wrong and then short sell the companies whose leaders make bad decisions based on this wrong analysis.

Competing in a shrinking world

I'd forgotten the pleasure reading good prose brings. Friedman not only writes well, but does so on an important subject- globalization. He states, "It is now possible for more people than ever to collaborate and compete in real time with more people on more different kinds of work from more different corners of the planet and on a more equal footing than at any previous time in the history of the world."

He claims, "When the world is flat, you can innovate without having to emigrate". But, how did the world `become flat'? Friedman suggest the trigger events were the collapse of communism, the dot-com bubble resulting in overinvestment in fiber-optic telecommunications, and the subsequent out-sourcing of engineers enlisted to fix the perceived Y2K problem.

Those events created an environment where products, services, and labor are cheaper. However, the West is now losing its strong-hold on economic dominance. Depending on if viewed from the eyes of a consumer or a producer - that's either good or bad, or a combination of both.

What is more sobering is Friedman's elaboration on Bill Gates' statement, "When I compare our high schools to what I see when I'm traveling abroad, I am terrified for our work force of tomorrow. In math and science, our fourth graders are among the top students in the world. academically, politically, and economically. He sees a dangerous complacency, from Washington down through the public school system. Students are no longer motivated. "In China today, Bill Gates is Britney Spears. In America today, Britney Spears is Britney Spears -- and that is our problem."

Questions I wish Friedman had explored in further detail are:

1. When should countries do what benefits the global economy, and when should they look out for their own interests? (protectionism, tariffs, quotas, etc.)
2. What will a `flat world' mean to the world's poor? (those living in Haiti, Angola, Kazakhstan, etc.)
3. What cultural values (or absence thereof) are contributing to the West's loss of productivity, education, and excellence? (morality, truth, religion, meaning, hope?)
4. How will further globalization effect cultural distinctions? (Are we heading towards a universal melting pot?)
5. What will a `flat world' mean environmentally - particularly for those countries on the verge of an economic explosion?