Racing to the top

The United States is in a race to the top of a flat world. Will it win in this competition for the highest global standard of living? According to Thomas Friedman in The World is Flat, “It depends.”

The world is becoming flat through the convergence of three factors. First, new information technologies, networks, software, and standards are reducing costs that heretofore kept research, design, production, and jobs more or less rooted in a single place. Second, economic transformations in the face of these technological possibilities are uncoupling business processes and enabling remote collaboration along a spectrum of activities, from production to logistics to finance to research. Individually and together, these factors are radically changing what businesses do, how they do it, where they can do it, and whom they employ.

The third factor is more political. As technologies have created the possibility of separating tasks and engaging in remote collaborations, political change actually enables many additional people and firms in China, India, and the former Soviet Union to join in. The prospect of competing with many more people, particularly educated people who earn lower wages, is what is most frightening to business and labor in the United States.

Friedman provides numerous examples of this triple convergence from his extensive travels and contacts. For example, Rolls-Royce has wrapped the company’s core product—turbine blades from proprietary materials and processes—with R&D, products, and services from 50 countries to meet the demands of customers in 120 countries. Hewlett-Packard has linked its own 178 billing software systems (one for each country of operation) to create a new commercial product.

But Friedman’s view of the triple convergence understates some important features. If the world is flat for producers so that they can slice and dice production processes and outsource to the most advantageous location, then it also is flat for buyers. That is, the lower cost of producing customized products and services expands demand for them and thereby generates more buyers and leads to more jobs at all production locations.

This process of customization also quells Friedman’s concern that the flat world will lead to the homogenization of products and services. The “inefficiencies …of institutions, habits, cultures, and traditions that people cherish precisely because they reflect nonmarket values like social cohesion, religious faith, and national pride” will not have to disappear but will be perceived as market niches that now can be served by innovative companies in the flat world. Friedman sees a bright future for the “idea-based” workers who will create these products, but he might be overstating when he says that there “may be a limit to the number of good factory jobs in the world, but there is no limit to the number of idea-generated jobs in the world.”

Will the United States be able to maintain its rising standard of living by meeting the challenge and outpacing the newcomers in the race to the top of this newly flat world? Friedman’s prize is continued rising U.S. living standards, second to none. On the plus side, the United States enjoys the biggest and most daring marketplace, peerless and innovative university research complexes, an efficient and resilient financial system, and flexible labor markets. But Friedman soberly weaves anecdotes with data to illustrate three gaps—a numbers gap, an ambition gap, and an education gap—that hamper the United States in the living-standards race.

First, the numbers gap. The 21st-century production process for goods and services demands literacy, numeracy, and analytical skills throughout research, design, production, marketing, and sales. The U.S. educational system, however, is graduating fewer and fewer students with these abilities. Although U.S. universities continue to attract the world’s best students (albeit with some question as to whether this attractiveness will survive Homeland Security strictures), the triple convergence implies that foreign students can “work from home” in their native land when they graduate, and U.S. firms will find them there if they cannot find U.S. graduates with the right mix of skills.

Second, the ambition gap. Friedman musters fewer data here, but he uses a series of comments from interviews to paint a vivid picture of a generation of U.S. workers who feel entitled to good jobs and are thus very different from the scrambling, ambitious generation of workers in the countries opened up by the third convergence. Two quotes are especially telling. One is from an architect of information technology systems and teacher of computer science, who says, “Many Americans can’t believe they aren’t qualified for high-paying jobs; I call this the American Idol problem.” The second is from the chief executive officer (a U.S. citizen) of a London-headquartered multinational company, who says in discussing the (misguided) claim that lower costs are behind most outsourcing efforts, “When you think it’s only about wages, you can still hold your dignity, but the fact that they [in India] work better is awful.”

Friedman’s discussion of the third gap—education—amalgamates the lack of research funding in the United States for science, engineering, and technology; the poor performance of the nation’s K-12 students on international science and mathematics tests; and the deeper motivation among students and workers in countries opened up by the triple convergence. Although more data are brought to bear here, they reveal few new insights. A stricter focus on comparing national research funding and strategies for supporting science, engineering, and technology across countries would have made the description of this gap more distinct and compelling.

On balance, however, Friedman’s observations appear to be borne out by data on wages and incomes in the United States. Recently released data from the U.S. Census Bureau confirm that median household income has not increased in the past five years, the longest such stagnation ever. Whether this situation is because of numbers, ambition, or education, a greater share of the U.S. labor force appears to be experiencing the whirlwind of the triple convergence with stagnating living standards.

Although Friedman does not include it in his list, there is a fourth, and potentially more pernicious, gap: the political leadership gap. This gap is glaring because government has much to do with funding research in science and engineering, supporting graduate students, and demanding rigorous science and math standards for K-12 programs. More generally, political leaders need to explain to the public what is going on, craft a strategy to ensure U.S. success in the flat world, and then inspire the nation to action.

What is happening instead? Politicians actively deny that there is a problem, or worse, they blame others. According to Friedman, “Politicians in America today …seem to go out of their way actually to make their constituents stupid—encouraging them to believe that certain jobs are ‘American Jobs’ and can be protected from foreign competition, or that because America has always dominated economically in our lifetimes it always will. …It is hard to have an American national strategy for dealing with flatism if people won’t even acknowledge . . . the quiet crisis.” Moreover, he says, politicians fail to aid U.S. citizens as they seek to meet the triple convergence on their own.

The current political leadership receives particular opprobrium. “One of the most dangerous things that has happened to America since 9/11, under the Bush administration, is that we have gone from exporting hope to exporting fear. [He has driven] a wedge between America and its own history and identity [as the country that] looks forward not back [and that has] more dreams than memories.” Friedman also can be concrete: “Summoning all our energies and skills to produce a twenty-first-century fuel is George W. Bush’s opportunity to be both Nixon to China and JFK to the moon in one move. Unfortunately for America, it appears as though I will go to the moon before President Bush will go down this road.”

As to what is needed, Friedman offers this vision: “[T]o meet the challenge of flatism requires as comprehensive, energetic, and focused a response as did meeting the challenge of communism. It requires our own version of the New Frontier and Great Society adapted to the age of flatness. It requires a president who can summon the nation to get smarter and study harder in science, math, and engineering in order to reach the new frontiers of knowledge that the flat world is rapidly opening up and pushing out. And it requires a Great Society that commits our government to building the infrastructure, safety nets, and institutions that will help every American become more employable in an age when no one can be guaranteed lifetime employment.”

Friedman calls this “compassionate flatism.” Beyond requiring stronger political leadership, his vision involves muscle-building (increasing lifetime employability through such things as portable pensions and health care, and fostering lifelong learning through a funded and compulsory two years of tertiary or trade school); cushioning (employment-oriented programs, such as wage insurance); social prompting (consumer-led pressure on corporations to improve their global actions); and parenting (imparting values of education, hard work, and fair play).

Friedman is not a policy wonk and does not spend much time elaborating his policy program. One area, in particular, could use more attention: the fact that the triple convergence weighs on an increasingly large fraction of the white-collar workforce. Even workers who “have done everything right” (for example, by earning college degrees) will be laid off as their skills depreciate because of the triple convergence. Given the nation’s demographic situation, it is imperative that these workers remain gainfully employed through retirement. How might workers, corporations, and government collaborate to intervene? As one example, investment tax credits channeled through corporations to fund more training of the incumbent workforce could keep skills matched to corporate needs, with the training itself offered by accredited institutions.

Other topics also receive short shrift in the book. The chapter on developing countries points to poor governance and infrastructure as reasons why the triple convergence has yet to produce products and services customized to their domestic needs. Although the decision by local companies in some developing countries to focus on customized production for rich countries is mostly about profit, it is also likely that repatriated Indians know more about doing business with companies in Indiana than about doing business with companies in their native land. In addition, the chapter on companies accords them relatively little role in solving the “quiet crisis.”What about a more active pairing of companies with schools to tout the importance of science and math studies and the interesting jobs that these skills open up? Or retraining U.S. workers, perhaps with the money saved by paying more realistic chief executive officer salaries?

To pick other nits, the breezy, anecdote-packed style of The World is Flat will irritate some readers. Also annoying, Friedman has a habit of repeatedly interjecting pat phrases such as,“That’s a flat world for you!” or “Wow, the triple convergence at work here.” It also bothered me that a small number of interviewees appeared numerous times throughout the book. The world might be flat, but it has plenty of people to interview.

Yet this book is important. It provides a convincing argument that for the nation to achieve the highest living standards in the flat world, “it depends” on businesses, workers, educators, parents, and politicians all taking decisive, concerted action—starting now.