The central thesis is that the world has become ‘flat’—which is essentially jargon for the progressive but rapid removal of geographic, communication and even cultural barriers that historically divided the world into separate markets. Friedman traces the factors that led to this phenomenon (‘The Ten Forces’, ‘The Triple Convergence’, ‘The Great Sorting Out’). He then examines the impact on America, on developing countries, on companies and on geopolitics, with a conclusion entitled ‘11/9 vs 9/11’ (the fall of the Berlin Wall vs. the World Trade Center).
The key arguments and messages are set out in the indepth summary below. You may also like to look at John Ralston Saul’s The Collapse of Globalism, which takes a directly contrary view on some of the aspects of Friedman’s thesis, particularly those relating to the role of the nation state. Saul provides a useful balance to Friedman’s distinctly rose-colored spectacles on the issue of the benefits of globalization.
Friedman is an evangelist as much as a reporter. He hammers home the messages that globalization is inevitable, and globalization is a ‘good thing’ both for developing countries and for the developed USA. There is no room for ‘losers’ and no recognition that the ‘rules of the game’ as established by (mostly) the large business interests in the developed countries may be loaded.
He skates very lightly over the problems (for example the exclusion of Africa, the prospects for the poor and ill-educated members of rich societies, the vulnerabilities inherent in a global supply chain in which key components are no longer made in the consuming nation) and is determinedly optimistic about the energy crisis. He barely touches on the monopoly/oligopoly dangers inherent in the collaboration that he advocates, his single chapter on the Corporation relies solely on advocacy to deal with the critical issue of social responsibility and his treatment of sustainability is extremely thin.
Similarly, he takes little account of the variants of capitalism, assuming that US-style capitalism is and will remain ‘the only game in town’. He may be right in his predictions, but the alternatives—some of which are doing very well (see Saul)—deserve better consideration. At the same time, he does recognize that the speed of change is highly disruptive, which is the basis for his prescription that leadership, flexibility, imagination and a strong focus on effective education are essential for success, whether in the developed or the developing world.
In depth summary
The opening chapter sets the scene with a description of a call centre and similar work being undertaken for American companies in India and identifies three great eras of globalization, which Friedman (inevitably) calls Globalization 1.0, 2.0 and 3.0. The first (1500 to 1800) shrank the world through the application of energy (sail and later steam). The second, from 1800 to 2000 shrank it further, the great agent of change being multi-national companies (no mention at all of world-wide colonisation!) and the changes being powered by falling transportation and later telecommunication costs. The third era, which we have just entered is powered by software linked to a global telecommunication network and is unique in giving individuals the power to collaborate and compete globally and allowing anyone, anywhere to take part and drive development. The chapter gives examples of all sorts of products and services and parts of them being outsourced—for example, your local tax accountant in the USA or wherever can outsource the ‘grunt’ part of preparing tax returns to a firm in India, and even having a virtual personal assistant in India as part of your support staff.
He then describes ten ‘flatteners’ and their effects:
He argues that the fall of the Berlin wall had ripple effects far beyond its origin, including a reduction in regulation and freeing of trade, etc. round the world. He offers a rather facile argument that links the development of Windows technology to the decline of Russian communism. Essentially it reduces to an argument that a number of things happened around the end of the 1980s that made it easier for us to talk to each other;
The second ‘flattener’ was the growth of browser software (which Friedman links to 1995, when Netscape went public), which made the internet truly interoperable and was supported by the development of technologies such as the use of fibre optic cable;
The third is what Friedman calls work-flow software—essentially interconnection beween programs such that every stage of an operation such as a supply operation can be linked electronically, using common standards;
The fourth is open-sourcing, represented by Linux, Wikipedia, Open Office and similar software developed and maintained by self-organizing collaborative communities. This, among other things, makes sophisticated software available to those who cannot afford the cost of proprietary software and begins to seriously threaten the Microsoft near monopoly;
The development of strategic outsourcing, and;
The development of what Friedman calls ‘offshoring’ are two parallel developments that make the supply chain global, with huge implications for employment, investment and, ultimately, the development of markets;
While ‘supply chaining’—coordinated global supply chains spanning many organizations—is essentially another manifestation or corollary of the same strategies, and;
‘Insourcing’ is another, more recent, variant in which supply companies take on whole aspects of the main company’s operation (such as warranty repair) on their behalf on the basis of particular skills or primary functions in the supply chain (instead of receiving warranty claims and transporting them to a central facility, why not set up local or regional repair facilities and avoid the transport and the time);
‘In-forming’ basically refers to the research and information power of Google and the enormous power of this capacity to facilitate world-wide business and personal needs, and;
‘The steroids’—referring to the growth of wireless communication providing instant fast access to other people and the internet almost anywhere.
The description of the ‘ten forces’ takes up about 120 pages, most of it detailed illustration of the underlying principles through the extended use of anecdotes.
The third chapter of the first part “How the World Became Flat” is about the ‘triple convergence’. Friedman explains the concept in a paragraph, then expands:
“First, ... around ... 2000, all ten of the flatteners .... started to converge and work together in ways that created a new, flatter, global playing field. [Second] As this new playing field became established, both businesses and individuals began to adopt new habits, skills and processes to get the most out of it. They moved from largely vertical means of creating value to more horizontal ones. Finally, just when all this flattening was happening, a whole new group of people ... walked out onto the playing field from China, India, and the former Soviet Empire. Thanks to the new flat world, and its new tools, some of them were quickly able to collaborate and compete directly with everyone else.”
The rest of the chapter expands on this with examples and anecdotes.
The final chapter in part 1 is called “The Great Sorting Out”. This is an argument that the changes described, with their effect of moving from:
“a primarily vertical (command and control) value-creation model to an increasingly horizontal (connect and collaborate) creation model, it affects .... everything—how communities and companies define themselves, where companies and communities stop and start, how individuals balance their different identities as consumers, employees, shareholders and citizens, and what role government has to play.”
He quotes Marx and his insight that the march of technology and capital will remove all barriers, boundaries, frictions, and restraints to global commerce.
Friedman argues that the changes are challenging different aspects of our own self-interest (we have an interest in government regulation of drugs, but also in access to the cheapest drugs), and the ‘boundaries’ between business and business and between government and business. His essential message reflects Peter Vaill’s title of 10 years ago—we are in an era of ‘permanent white water’. Friedman would call it an era of global permanent white water.
The four Chapters in “America and the Flat World” argue:
that free trade from countries with lower wage costs does pose problems for American workers but also brings benefits for the economy. The appropriate response is not protection but continual upgrading of skills—and America had better be serious about this because countries like India and China are upgrading their skills at a formidable speed;
there are four categories of worker who can be sure that their jobs can not be outsourced:
that America (the same applies to Australia) is actually grossly under-investing in research, skills building, and all forms of education, while the Asians (in particular) whether on their own or adopted countries show a far greater drive to self-improvement than anglo-Americans;
that America—and again the same is true of Australia—needs leadership that directly addresses the issues of how to stay competitive, with a strong focus on providing portable benefits (social insurance of all kinds) and opportunities for life-long learning to compensate for loss of job security. This includes making tertiary education widely and cheaply available (exactly the opposite of the direction in which the current Australian government is going);
that it needs wage insurance to cover the probability that people will lose their jobs and will have to survive a period of transition at lower or no wages (again directly contrary to the current direction of the Australian government);
that corporations need to develop a social conscience (unfortunately Friedman does not say how, he merely cites a few corporations that appear to be recognizing their long term interests);
that parents need to exercise ‘tough love’ to make sure that their children don’t get the idea that life is easy and their place in the world assured.
Again, there is a wealth of anecdote and detail but the fundamental messages are simple—and relatively obvious.
“Developing Countries and the Flat World” get dismissed in a single chapter, the basic message of which is ‘get with it or you will be run over’. Friedman’s tendency to blame ‘losers’ is very evident here and his prescription, such as it is, is essentially a summary of his advice in “The Lexus and the Olive Tree”, plus a diatribe against bureaucratic regulation.
The Chapter in “Companies and the Flat World” offers seven ‘rules’, which can be paraphrased as:
Innovate, don’t build walls;
Small companies should use all the new tools for collaboration to reach farther, faster and deeper;
Big companies should build platforms to allow customers to benefit in their own way from the advantage of the company’s size and reach;
Collaborate, collaborate. Value creation increasingly depends on bringing together very diverse skills, materials and markets;
Constantly identify and strengthen your niches and outsource the stuff that is not very differentiating—these things will fit well into someone else’s niche and may form the basis for valuable collaboration;
Building on 5, Outsource for expansion, not to save money through firings;
Outsourcing can bring great benefits both to outsourcing companies and to developing countries.
So: innovate, outsource, collaborate.
Geopolitics and the Flat World is dealt with in two Chapters—“The Unflat World”, meaning the less developed countries (but not apparently the many depressed areas in the developed world), and “The Dell Theory of Conflict Prevention”. This is a rather simplistic analysis of the problems of poor health, disempowerment, frustration and jealousy, and unsustainability that beset the wider world (the many areas still outside the ‘flat’ world), leading to the conclusion that it is in the interests of the developed world to overcome the problems. The “Dell Theory” simply makes the point that global interdependency makes the global economy extremely vulnerable to disruption through conflict, but that countries that are linked in collaborative production have a strong incentive not to engage in conflict.
The concluding chapter makes the point that people who are connected to the world and exposed to different cultures and perspectives are likely to develop a collaborative mind-set; those who are disconnected, disempowered and frustrated are more likely to be destructive.