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METROPOLITAN ECONOMIC STRATEGY
ECONOMIC DEVELOPMENT IN A FLAT WORLD: GLOBAL TRADE, TECHNOLOGY,
INVESTMENT, INCOMES, EMPLOYMENT, EDUCATION, AND ENTREPRENEURSHIP IN THE
21ST CENTURY
Thomas L. Friedman
The more I worked on this book, the more I found myself
asking people I met around the world where they were when they first
discovered that the world was flat. In the space of two weeks, I got
two revealing answers, one from Mexico, one from Egypt. I was in Mexico
City in the spring of 2004, and I put the question on the table during
lunch with a few Mexican journalist colleagues. One of them said he
realized that he was living in a new world when he started seeing
reports appearing in the Mexican media and on the Internet that some
statuettes of Mexico's patron saint, the Virgin of Guadalupe, were being
imported into Mexico from China, via ports in California. When you are
Mexico and your claim to fame is that you are a low-wage manufacturing
country, and some of your people are importing statuettes of your own
patron saint from China, because China can make them and ship them all
the way across the Pacific more cheaply than you can produce them, you
are living in a flat world.
You've also got a problem. Over at the Central Bank of
Mexico, I asked its governor, Guillermo Ortiz, whether he was aware of
this issue. He rolled his eyes and told me that for some time now he
could feel the competitive playing field being leveled and that Mexico
was losing some of its natural geographic advantages with the US market
by just staring at the numbers on his computer screen. "We started
looking at the numbers in 2001 it was the first year in two decades
that [Mexico's] exports to the US declined," said Ortiz. "That was a
real shock. We started reducing our gains in market share and then
started losing them. We said that there is a real change here
And it
was about China."
China is such a powerhouse of low-cost manufacturing that
even though the NAFTA accord has given Mexico a leg up with the United
States, and even though Mexico is right next door to us, China in 2003
replaced Mexico as the number two exporter to the United States.
(Canada remains number one.) Though Mexico still has a strong position
in big-ticket exports that are costly to ship, such as cars, auto parts,
and refrigerators, China is coming on strong and has already displaced
Mexico in areas such as computer parts, electrical components, toys,
textiles, sporting goods, and tennis shoes. But what's even worse for
Mexico is that China is displacing some Mexican companies in Mexico,
where Chinese-made clothing and toys are now showing up on store shelves
everywhere. No wonder a Mexican journalist told me about the day he
interviewed a Chinese central bank official, who told him something
about China's relationship with America that really rattled him: "First
we were afraid of the wolf, then we wanted to dance with the wolf, and
now we want to be the wolf."
A few days after returning from Mexico, I had breakfast
in Washington with a friend from Egypt, Lamees EI-Hadidy, a longtime
business reporter in Cairo. Naturally I asked her where she was when
she discovered the world was flat. She answered that it was just a few
weeks earlier, during the Muslim holy month of Ramadan. She had done a
story for CNBC Arabiya Television about the colorful lanterns called
fawanis, each with a burning candle inside, that Egyptian
schoolchildren traditionally carried around during Ramadan, a tradition
dating back centuries to the Fatimid period in Egypt. Kids swing the
lanterns and sing songs, and people give them candy or gifts, as in
America on Halloween. For centuries, small, low-wage workshops in
Cairo's older neighborhoods have manufactured these lanterns until the
last few years.
That was when plastic Chinese-made Ramadan lanterns, each
with a battery-powered light instead of a candle, began flooding the
market, crippling the traditional Egyptian workshops. Said Lamees,
"They are invading our tradition in an innovative way and we are
doing nothing about it
These lanterns come out of our tradition, our
soul, but [the Chinese versions] are more creative and advanced than the
Egyptian ones." Lamees said that when she asked Egyptians, "Do you know
where these are made?" they would all answer no. Then they would turn
the lamps over and see that they came from China.
Many mothers, like Lamees, though, appreciated the fact
that the Chinese versions are safer than the traditional Egyptian ones,
which are made with sharp metal edges and glass, and usually still use
candles. The Chinese versions are made of plastic and feature flashing
lights and have an embedded microchip that plays traditional Egyptian
Ramadan tunes and even the theme song to the popular Ramadan TV cartoon
series Bakkar. As Business Monthly, published by the
American Chamber of Commerce in Egypt, reported in its December 2001
issue, Chinese importers "are pitted not only against each other, but
also against the several-hundred-year-old Egyptian industry. But the
Chinese models are destined to prevail, according to [a] famous
importer, Taha Zayat. 'Imports have definitely cut down on sales of
traditional fawanis,' he said. 'Of all fawanis on the market, I don't
think that more than 5 percent are now made in Egypt.' People with ties
to the Egyptian [fawanis] industry believe China has a clear advantage
over Egypt. With its superior technology, they said, China can make mass
quantities, which helps to keep prices relatively low. Egypt's
traditional [fawanis] industry, by contrast, is characterized by a
series of workshops specialized in different stages of the production
process. Glassmakers, painters, welders and metal craftsmen all have
their role to play. 'There will always be fawanis in Ramadan, but in the
future I think Egyptian-made ones could become extinct,' Zayat said.
'There is no way they can ever compete with things made in China.' "
Think how crazy that statement is: Egypt has masses of
low-wage workers, like China. It sits right next to Europe, on the Suez
Canal. It could be and should be the Taiwan of the eastern
Mediterranean, but instead it is throwing in the towel to atheistic
China on the manufacture of one of Muslim Egypt's most cherished
cultural artifacts. Ibrahim El Esway, one of the main importers from
China of fawanis, gave The Business Monthly a tour of his
warehouse in the Egyptian town of Muski: He had imported 16 different
models of Ramadan lanterns from China in 2004. "Amid the crowds at
Muski, [El Esway] gestured to one of his employees, who promptly opened
a dust-covered box and pulled out a plastic fawanis shaped like the head
of Simba, from The Lion King. 'This is the first model we
imported back in 1994,' he said. He switched it on. As the blue-colored
lion's head lit up, the song 'It's a Small World' rang out."
Introspection
This article focuses on what sort of policies developing
countries need to undertake in order to create the right environment for
their companies and entrepreneurs to thrive in a flat world, although
many of the things I am about to say apply to many developed countries
as well.
When developing countries start thinking about the
challenge of flatism, the first thing they need to do is engage in some
brutally honest introspection. A country, its people and leaders alike,
has to be honest with itself and look clearly at exactly where it stands
in relation to other countries and in relation to the 10 flatteners. It
has to ask itself, "To what extent is my country advancing or being left
behind by the flattening of the world, and to what extent is it adapting
to and taking advantage of all the new platforms for collaboration and
competition?" As that Chinese banking official boasted to my Mexican
colleague, China is the wolf. Of all the 10 flatteners, the entry of
China into the world market is the most important for developing
countries, and for many developed countries. China can do high-quality
low-cost manufacturing better than any other country, and increasingly,
it also can do high-quality higher-cost manufacturing. With China and
the other nine flatteners coming on so strong, no country today can
afford to be anything less than brutally honest with itself.
To that end, I believe that what the world needs today is
a club that would be modeled after Alcoholics Anonymous (AA). It would
be called Developing Countries Anonymous (DCA). And just as at the
first AA meeting you attend you have to stand up and say, "My name is
Thomas Friedman and I'm an alcoholic," so at Developing Countries
Anonymous, countries would have to stand up at their first meeting and
say, "My name is Syria and I'm underdeveloped." Or "My name is Argentina
and I'm underachieving. I have not lived up to my potential."
Every country needs "the ability to make your own
introspection," since "no country develops without going through an
X-ray of where you are and where your limits are," said Luis de la Calle,
one of Mexico's chief NAFTA negotiators. Countries that fall off the
development wagon are a bit like drunks; to get back on they have to
learn to see themselves as they really are. Development is a voluntary
process. You need a positive decision to make the right steps, but it
starts with introspection.
I Can Get It for You Wholesale
During the late 1970s, but particularly after the fall of
the Berlin Wall, a lot of countries started to pursue development in a
new way through a process that I call reform wholesale. The era of
Globalization 2.0, when the world shrank from a size medium to a size
small, was the era of reform wholesale, an era of broad macroeconomic
reform. These wholesale reforms were initiated by a small handful of
leaders in countries like China, Russia, Mexico, Brazil, and India.
These small groups of reformers often relied on the leverage of
authoritarian political systems to unleash the state-smothered market
forces in their societies. They pushed their countries into more
export-oriented, free-market strategies based on privatization of
state companies, deregulation of financial markets, currency
adjustments, foreign direct investment, shrinking subsidies, lowering of
protectionist tariff barriers, and introduction of more flexible labor
laws from the top down without ever really asking the people. Ernesto
Zedillo, who served as president of Mexico from 1994 to 2000 and was
finance minister before that, once remarked to me that all the decisions
to open the Mexican economy were taken by three people. How many people
do you suppose Deng Xiaoping consulted before he declared, "To get rich
is glorious," and opened the Chinese economy, or when he dismissed those
who questioned China's move from communism to free markets by saying
that what mattered was jobs and incomes, not ideology? Deng tossed over
decades of Communist ideology with one sentence: "Black cat, white cat,
all that matters is that it catches mice." In 1991, when India's
finance minister, Manmohan Singh, took the first tentative steps to open
India's economy to more foreign trade, investment, and competition, it
was a result not of some considered national debate and dialogue, but of
the fact that India's economy at that moment was so sclerotic, so
unappealing to foreign investors, that it had almost run out of foreign
currency. When Mikhail Gorbachev started dabbling with perestroika, it
was with his back up against the Kremlin wall and with few allies in the
Soviet leadership. The same was true of Margaret Thatcher when she took
on the striking coal miners' union in 1984 and forced reform wholesale
onto the sagging British economy.
What all these leaders confronted was the irrefutable
fact that more open and competitive markets are the only sustainable
vehicle for growing a nation out of poverty, because they are the only
guarantee that new ideas, technologies, and best practices are easily
flowing into your country and that private enterprises, and even
government, have the competitive incentive and flexibility to adopt
those new ideas and turn them into jobs and products. This is why the
nonglobalizing countries, those that refused to do any reform wholesale
North Korea, for instance actually saw their per capita GDP growth
shrink in the 1990s, while countries that moved from a more socialist
model to a globalizing model saw their per capita GDP grow in the 1990s.
As David Dollar and Art Kray conclude in their book Trade, Growth,
and Poverty, economic growth and trade remain the best antipoverty
program in the world.
The World Bank reported that in 1990 there were roughly
375 million people in China living in extreme poverty, on less than US$1
per day. By 2001, there were 212 million Chinese living in extreme
poverty, and by 2015, if current trends hold, there will be only 16
million living on Iess than US$1 a day. In South Asia primarily
India, Pakistan, and Bangladesh the numbers go from 462 million in
1990 living on less than US$l a day down to 431 million by 2001 and down
to 216 million in 2015. In sub-Saharan Africa, by contrast, where
globalization has been slow to take hold, there were 227 million people
living on less than US$1 a day in 1990, 313 million in 2001, and an
expected 340 million by 2015.
The problem for any globalizing country lies in thinking
you can stop with reform wholesale. In the 1990s, some countries
thought that if you got your 10 commandments of reform wholesale right
thou shall privatize state-owned industries, thou shall deregulate
utilities, thou shall lower tariffs and encourage export industries,
etc. you had a successful development strategy. But as the world
started to get smaller and flatter enabling China to compete
everywhere with everyone on a broad range of manufactured products,
enabling India to export its brainpower everywhere, enabling
corporations to outsource any task anywhere, and enabling individuals to
compete globally as never before reform wholesale was no longer
sufficient to keep countries on a sustainable growth path.
A deeper process of reform was required a process I
would call reform retail.
I Can Only Get It for You Retail
What if regions of the world were like the neighborhoods
of a city? What would the world look like? I'd describe it like this:
Western Europe would be an assisted-living facility, with an aging
population lavishly attended to by Turkish nurses. The United States
would be a gated community, with a metal detector at the front gate and
a lot of people sitting in their front yards complaining about how lazy
everyone else was, even though out back there was a small opening in the
fence for Mexican labor and other energetic immigrants who helped to
make the gated community function. Latin America would be the fun part
of town, the club district, where the workday doesn't begin until 10 pm
and everyone sleeps until midmorning. It's definitely the place to hang
out, but in between the clubs, you don't see a lot of new businesses
opening up, except on the street where the Chileans live. The landlords
in this neighborhood almost never reinvest their profits here, but keep
them in a bank across town. The Arab street would be a dark alley where
outsiders fear to tread, except for a few side streets called Dubai,
Jordan, Bahrain, Qatar, and Morocco. The only new businesses are gas
stations, whose owners, like the elites in the Latin neighborhood,
rarely reinvest their funds in the neighborhood. Many people on the
Arab street have their curtains closed, their shutters drawn, and signs
on their front lawn that say, "No Trespassing. Beware of Dog." India,
China, and East Asia would be "the other side of the tracks." Their
neighborhood is a big teeming market, made up of small shops and
one-room factories, interspersed with Stanley Kaplan SAT prep schools
and engineering colleges. Nobody ever sleeps in this neighborhood,
everyone lives in extended families, and everyone is working and saving
to get to "the right side of the tracks." On the Chinese streets,
there's no rule of law, but the roads are all well paved; there are no
potholes, and the streetlights all work. On the Indian streets, by
contrast, no one ever repairs the streetlights, the roads are full of
ruts, but the police are sticklers for the rules. You need a license to
open a lemonade stand on the Indian streets. Luckily, the local cops
can be bribed, and the successful entrepreneurs all have their own
generators to run their factories and the latest cell phones to get
around the fact that the local telephone poles are all down. Africa,
sadly, is that part of town where the businesses are boarded up, life
expectancy is declining, and the only new buildings are health-care
clinics.
The point here is that every region of the world has its
strengths and weaknesses, and all are in need of reform retail to some
degree. What is reform retail? In the simplest terms, it is more than
just opening your country to foreign trade and investment and making a
few macroeconomic policy changes from the top. That is reform
wholesale. Reform retail presumes you have already done reform
wholesale. It involves looking at four key aspects of your society
infrastructure, regulatory institutions, education, and culture (the
general way your country and leaders relate to the world) and
upgrading each one to remove as many friction points as possible. The
idea of reform retail is to enable the greatest number of your people to
have the best legal and institutional framework within which to
innovate, start companies, and become attractive partners for those who
want to collaborate with them from elsewhere in the world.
Many of the key elements of reform retail were best
defined by the research done by the World Bank's International Finance
Corporation (IFC) and its economic analysis team led by its chief
economist, Michael Klein. What do we learn from their work? To begin
with, you dont grow your country out of poverty by guaranteeing
everyone a job. Egypt guarantees all college graduates a job each year,
and it has been mired in poverty with a slow-growing economy for 50
years.
"If it were just a matter of the number of jobs,
solutions would be easy," note Klein and Bita Hadjimichael in their
World Bank Study, The Private Sector in Development." For
example, state-owned enterprises could absorb all those in need of
employment. The real issue is not just employment, but increasingly
productive employment that allows living standards to rise."
State-owned enterprises and state-subsidized private firms usually have
not delivered sustainable productivity growth, and neither have a lot of
other approaches that people assume are elixirs of growth, they add.
Just attracting more foreign investment into a country also doesn't
automatically do it. And even massive investments in education won't
guarantee it.
"Productivity growth and, hence, the way out of poverty,
is not simply a matter of throwing resources at the problem," say Klein
and Hadjimichael. "More important, it is a matter of using resources
well." In other words, countries grow out of poverty not only when they
manage their fiscal and monetary policies responsibly from above, ie,
reform wholesale. They grow out of poverty when they also create an
environment below that makes it very easy for their people to start
businesses, raise capital, and become entrepreneurs, and when they
subject their people to at least some competition from beyond because
companies and countries with competitors always innovate more and
faster.
The IFC drove home this point with a comprehensive study
of more than 130 countries, called Doing Business in 2004. The
IFC asked five basic questions about doing business in each of these
countries, questions about how easy or difficult it is to 1) start a
business in terms of local rules, regulations, and license fees, 2) hire
and fire workers, 3) enforce a contract, 4) get credit, and 5) close a
business that goes bankrupt or is failing. To translate it into my own
lexicon, those countries that make all these things relatively simple
and friction-free have undertaken reform retail, and those that have not
are stalled in reform wholesale and are not likely to thrive in a flat
world. The lFC's criteria were inspired by the brilliant and innovative
work of Hernando de Soto, who has demonstrated in Peru and other
developing nations that if you change the regulatory and business
environment for the poor, and give them the tools to collaborate, they
will do the rest.
Doing Business in 2004
tries to explain each of its points with a few colorful examples:
"Teuku, an entrepreneur in Jakarta, wants to open a textile factory. He
has customers lined up, imported machinery, and a promising business
plan. Teuku's first encounter with the government is when registering
his business. He gets the standard forms from the Ministry of Justice,
and completes and notarizes them. Teuku proves that he is a local
resident and does not have a criminal record. He obtains a tax number,
applies for a business license, and deposits the minimum capital (three
times national income per capita) in the bank. He then publishes the
articles of association in the official gazette, pays a stamp fee,
registers at the Ministry of Justice, and waits 90 days before filing
for social security. One hundred sixty-eight days after he commences
the process, Teuku can legally start operations. In the meantime, his
customers have contracted with another business.
"In Panama, another entrepreneur, Ina, registers her
construction company in only 19 days. Business is booming and Ina wants
to hire someone for a two-year appointment. But the employment law only
allows fixed-term appointments for specific tasks, and even then
requires a maximum term of one year. At the same time, one of her
current workers often leaves early, with no excuse, and makes costly
mistakes. To replace him, Ina needs to notify and get approval from the
union, and pay five months' severance pay. Ina rejects the more
qualified applicant she would like to hire and keeps the underperforming
worker on staff.
"Ali, a trader in the United Arab Emirates, can hire and
fire with ease. But one of his customers refuses to pay for equipment
delivered three months earlier. It takes 27 procedures and more than
550 days to resolve the payment dispute in court. Almost all procedures
must be made in writing, and require extensive legal justification and
the use of lawyers. After this experience, Ali decides to deal only
with customers he knows well.
"Timnit, a young entrepreneur in Ethiopia, wants to
expand her successful consulting business by taking a loan. But she has
no proof of good credit history because there are no credit information
registries. Although her business has substantial assets in accounts
receivable, laws restrict her hank from using these as collateral. The
bank knows it cannot recover the debt if Timnit defaults, because courts
are inefficient and laws give creditors few powers. Credit is denied.
The business stays small.
"Having registered, hired workers, enforced contracts,
and obtained credit, Avik, a businessman in India, cannot make a profit
and goes out of business. Faced with a 10-year-long process of going
through bankruptcy, Avik absconds, leaving his workers, the bank, and
the tax agency with nothing."
If you want to know why two decades of macroeconomic
reform wholesale at the top have not slowed the spread of poverty and
produced enough new jobs in key countries of Latin America, Africa, the
Arab worId, and the former Soviet Empire, it is because there has been
too little reform retail. According to the IFC report, if you want to
create productive jobs (the kind that lead to rising standards of
living), and if you want to stimulate the growth of new businesses (the
kind that innovate, compete, and create wealth), you need a regulatory
environment that makes it easy to start a business, easy to adjust a
business to changing market circumstances and opportunities, and easy to
close a business that goes bankrupt, so that the capital can be freed up
for more productive uses.
"It takes two days to start a business in Australia, but
203 days in Haiti and 215 days in the Democratic Republic of Congo, the
IFC study found. There are no monetary costs to start a new business
in Denmark, but it costs more than five times income per capita in
Cambodia and over 13 times in Sierra Leone. Hong Kong, Singapore,
Thailand, and more than three dozen other economies require no minimum
capital from start-ups. In contrast, in Syria the capital requirement
is equivalent to 56 times income per capita
Businesses in the Czech
Republic and Denmark can hire workers on part-time or fixed-term
contracts for any job, without specifying maximum duration of the
contract. In contrast, employment laws in El Salvador allow fixed-term
contracts only for specific jobs, and set their duration to be at most
one year
A simple commercial contract is enforced in seven days in
Tunisia and 39 days in the Netherlands, but takes almost 1,500 days in
Guatemala. The cost of enforcement is less than 1 percent of the
disputed amount in Austria, Canada, and the United Kingdom, but more
than 100 percent in Burkina Faso, the Dominican Republic, Indonesia,
and the Philippines. Credit bureaus contain credit histories on almost
every adult in New Zealand, Norway, and the United States. But the
credit registries in Cameroon, Ghana, Pakistan, Nigeria, and Serbia and
Montenegro have credit histories for less than 1 percent of adults. In
the United Kingdom, laws on collateral and bankruptcy give creditors
strong powers to recover their money if a debtor defaults. In Colombia,
the Republic of Congo, Mexico, Oman, and Tunisia, a creditor has no such
rights. It takes less than six months to go through bankruptcy
proceedings in Ireland and Japan, but more than 10 years in Brazil and
India. It costs less than 1 percent of the value of the estate to
resolve insolvency in Finland, the Netherlands, Norway, and Singapore
and nearly half the estate value in Chad, Panama, Macedonia, Venezuela,
Serbia and Montenegro, and Sierra Leone.
As the IFC report notes, excessive regulation also tends
to hurt most the very people it is supposed to protect. The rich and
the well connected just buy or hustle their way around onerous
regulations. In countries that have very regulated labor markets where
it is difficult to hire and fire people, women, especially, have a hard
time finding employment.
"Good regulation does not mean zero regulation,"
concludes the IFC study. "The optimal level of regulation is not none,
but may be less than what is currently found in most countries, and
especially poor ones." It offers what I call a five-step checklist for
reform retail. One, simplify and deregulate wherever possible in
competitive markets, because competition for consumers and workers can
be the best source of pressure for best practices, and overregulation
just opens the door for corrupt bureaucrats to demand bribes. "There is
no reason for Angola to have one of the most rigid employment laws if
Portugal, whose laws Angola adapted, has already revised them twice to
make the labor market more flexible," says the IFC study. Two, focus on
enhancing property rights. Under de Soto's initiative, the Peruvian
government in the last decade has issued property titles to 1.2 million
urban squatter households. "Secure property rights have enabled parents
to leave their homes and find jobs instead of staying in to protect the
property," says the IFC study. "The main beneficiaries are their
children, who can now go to school." Three, expand the use of the
Internet for regulation fulfillment. It makes it faster, more
transparent, and far less open to bribery. Four, reduce court
involvement in business matters. And last but certainly not least,
advises the IFC study, "Make reform a continuous process
Countries
that consistently perform well across the Doing Business
indicators do so because of continuous reform."
In addition to the IFC's criteria, reform retail
obviously has to include expanding the opportunities for your population
to get an education at all levels and investing in the logistical
infrastructure roads, ports, telecommunications, and airports
without which no reform retail can take off and collaboration with
others is impossible. Many countries today still have
telecommunications systems dominated by state monopolies that make it
either too expensive or too slow to get high-speed Internet access and
wireless access, and to make cheap long-distance and overseas phone
calls. Without reform retail in your telecom sector, reform retail in
the other five areas, while necessary, will not be sufficient. What is
striking about the IFC's criteria is that a lot of people think they are
relevant only for Peru and Argentina, but in fact some of the countries
that score worst are places like Germany and Italy. (Indeed, the German
government protested some of the findings.)
"When you and I were born," said Luis de la Calle, "our
competition [was] our next-door neighbors. Today our competition is a
Japanese or a Frenchman or a Chinese. You know where you rank very
quickly in a flat world
You are now competing with everyone else."
The best talent in a flat world will earn more, he added, "and if you
don't measure up, someone will replace you and it will not be the guy
across the street."
If you don't agree, just ask some of the major players.
Craig Barrett, the chairman of Intel, said to me, "With very few
exceptions, when you would think about where to site a manufacturing
plant, you would think about the cost of labor, transportation, and
availability of utilities that sort of stuff. The discussion has been
expanded today, and so it is no longer where you put your plant but now
where do you put your engineering resources, your research and
development where are the most efficient intellectual and other
resources relative to cost? You now have the freedom to make that
choice
Today we can be anywhere. Anywhere could be part of my supply
chain now Brazil, Vietnam, the Czech Republic, Ukraine. Many of us
are limiting our scope today to a couple of countries for a very simple
reason: Some can combine the availability of talent and a market that
is, India, Russia, and China." But for every country Intel considers
going into, added Barrett, he asks himself the same question: "What
inherent strength does [the] country bring to the party? India, Russia
crummy infrastructure, good educational level, you have a bunch of
smart folks. China has a little bit of everything, China has good
infrastructure, better than Russia or India. So if you go to Egypt,
what unique capability [does that country have to offer]? Exceedingly
low labor rates, but what is [the] infrastructure and education base?
The Philippines or Malaysia have good literacy rates you get to
employ college grads in your manufacturing line. They did not have
infrastructure, but they had a pool of educated people. You have got to
have something to build on. When we go to India and are asked about
opening plants, we say, 'You don't have infrastructure. Your electricity
goes off four times a day.' "
Added John Chambers, the CEO of Cisco Systems, which uses
a global supply chain to build the routers that run the Internet and is
constantly being wooed to invest in one country or another, "The jobs
are going to go where the best-educated workforce is with the most
competitive infrastructure and environment for creativity and supportive
government. It is inevitable. And by definition those people will have
the best standard of living. This may or may not be the countries who
led the Industrial Revolution."
But while the stakes in reform retail today are higher
than ever, and countries know it, one need only look around the world to
notice that not every country can pull it off. Unlike reform wholesale,
which could be done by a handful of people using administrative orders
or just authoritarian dictates, reform retail requires a much wider base
of public and parliamentary buy-in if it is going to overcome vested
economic and political interests.
In Mexico, "we did the first stages of structural reform
from the top down," said Guillermo Ortiz. "The next stage is much more
difficult. You have to work from the bottom up. You have to create the
wider consensus to push the reforms in a democratic context." And once
that happens, noted Moises Naim, a former
Economy Minister of Venezuela and now editor of Foreign Policy
magazine, you have a much larger number of actors participating, making
the internal logic and technical consistency of the reform policies much
more vulnerable to the impact of political compromises, contradictions,
and institutional failures. "Bypassing or ignoring the entrenched and
defensive public bureaucracy a luxury frequently enjoyed by the
government teams that launch initial reform measures is more difficult
in this stage," Naim said.
So why does one country get over this reform retail hump,
with leaders able to mobilize the bureaucracy and the public behind
these more painful, more exacting micro-reforms, and another country get
tripped up?
Culture Matters: Glocalization
One answer is culture.
To reduce a country's economic performance to culture
alone is ridiculous, but to analyze a country's economic performance
without reference to culture is equally ridiculous, although that is
what many economists and political scientists want to do. This subject
is highly controversial and is viewed as politically incorrect to
introduce. So it is often the elephant in the room that no one wants to
speak about. But I am going to speak about it here, for a very simple
reason: As the world goes flat, and more and more of the tools of
collaboration get distributed and commoditized, the gap between cultures
that have the will, the way, and the focus to quickly adopt these new
tools and apply them and those that do not will matter more. The
differences between the two will become amplified.
One of the most important books on this subject is The
Wealth and Poverty of Nations by the economist David Landes. He
argues that although climate, natural resources, and geography all play
roles in explaining why some countries are able to make the leap to
industrialization and others are not, the key factor is actually a
country's cultural endowments, particularly the degree to which it has
internalized the values of hard work, thrift, honesty, patience, and
tenacity, as well as the degree to which it is open to change, new
technology, and equality for women. One can agree or disagree with the
balance Landes strikes between these cultural mores and other factors
shaping economic performance. But I find refreshing his insistence on
elevating the cultural question, and his refusal to buy into arguments
that the continued stagnation of some countries is simply about Western
colonialism, geography, or historical legacy.
In my own travels, two aspects of culture have struck me
as particularly relevant in the flat world. One is how outward your
culture is: To what degree is it open to foreign influences and ideas?
How well does it "glocalize"? The other, more intangible, is how
inward your culture is. By that I mean, to what degree is there a sense
of national solidarity and a focus on development, to what degree is
there trust within the society for strangers to collaborate together,
and to what degree are the elites in the country concerned with the
masses and ready to invest at home, or are they indifferent to their own
poor and more interested in investing abroad?
The more you have a culture that naturally glocalizes
that is, the more your culture easily absorbs foreign ideas and best
practices and melds those with its own traditions the greater
advantage you will have in a flat world. The natural ability to
glocalize has been one of the strengths of Indian culture, American
culture, Japanese culture, and, lately, Chinese culture. The Indians,
for instance, take the view that the Moguls come, the Moguls go, the
British come, the British go, we take the best and leave the rest but
we still eat curry, our women still wear saris, and we still live in
tightly bound extended family units. That's glocalizing at its best.
"Cultures that are open and willing to change have a huge
advantage in this world," said Jerry Rao, the MphasiS CEO who heads the
Indian high-tech trade association. "My great-grandmother was
illiterate. My grandmother went to grade two. My mother did not go to
college. My sister has a master's degree in economics, and my daughter
is at the University of Chicago. We have done all this in living
memory, but we have been willing to change
You have to have a strong
culture, but also the openness to adapt and adopt from others. The
cultural exclusivists have a real disadvantage. Think about it, think
about the time when the emperor in China threw out the British
ambassador. Who did it hurt? It hurt the Chinese. Exclusivity is a
dangerous thing. "
Openness is critical, added Rao, "because you start
tending to respect people for their talent and abilities. When you are
chatting with another developer in another part of the world, you don't
know what his or her color is. You are dealing with people on the basis
of talent not race or ethnicity and that changes, subtly, over time
your whole view of human beings, if you are in this talent-based and
performance-based world rather than the background-based world."
This helps explain why so many Muslim countries have been
struggling as the world goes flat. For complicated cultural and
historical reasons, many of them do not glocalize well, although there
are plenty of exceptions namely, Turkey, Lebanon, Bahrain, Dubai,
Indonesia, and Malaysia. All of these latter countries, though, tend to
be the more secular Muslim nations. In a world where the single
greatest advantage a culture can have is the ability to foster
adaptability and adoptability, the Muslim world today is dominated by a
religious clergy that literally bans ijtihad, reinterpretation of
the principles of Islam in light of current circumstances.
Think about the whole mind-set of bin Ladenism. It is to
"purge" Saudi Arabia of all foreigners and foreign influences. That is
exactly the opposite of glocalizing and collaborating. Tribal culture
and thinking still dominate in many Arab countries, and the tribal
mind-set is also anathema to collaboration. What is the motto of the
tribalist? "Me and my brother against my cousin; me, my brother, and my
cousin against the outsider." And what is the motto of the globalists,
those who build collaborative supply chains? "Me and my brother and my
cousin, three friends from childhood, four people in Australia, two in
Beijing, six in Bangalore, three from Germany, and four people we've met
only over the Internet all make up a single global supply chain." In
the flat world, the division of labor is steadily becoming more and more
complex, with a lot more people interacting with a lot of other people
they don't know and may never meet. If you want to have a modem complex
division of labor, you have to be able to put more trust in strangers.
In the Arab-Muslim world, argues David Landes, certain
cultural attitudes have in many ways become a barrier to development,
particularly the tendency to still treat women as a source of danger or
pollution to be cut off from the public space and denied entry into
economic activities. When a culture believes that, it loses a large
portion of potential productivity of the society. A system that
privileges the men from birth on, Landes also argues, simply because
they are male, and gives them power over their sisters and other female
members of society, is bad for the men. It builds in them a sense of
entitlement that discourages what it takes to improve, to advance, and
to achieve. This sort of discrimination, he notes, is not something
limited to the Arab Middle East, of course. Indeed, strains of it are
found in different degrees all around the world, even in so-called
advanced industrial societies.
The Arab-Muslim world's resistance to glocalization is
something that some liberal Arab commentators are now focusing on.
Consider a May 5, 2004, article in the Saudi English-language daily
Arab News by liberal Saudi journalist Raid Qusti, titled "How Long
Before the First Step?"
"Terrorist incidents in Saudi Arabia are more or less
becoming everyday news. Every time I hope and pray that it ends, it
only seems to get worse," Qusti wrote. "One explanation to why all of
this is happening was brought up by the editor in chief of Al-Riyadh
newspaper, Turki Al-Sudairi, on a program about determining the roots of
the terrorist acts. He said that the people carrying out these attacks
shared the ideology of the Juhaiman movement that seized the Grand
Mosque in the 1970s. They had an ideology of accusing others of being
infidels and giving themselves a free hand to kill them, be it
Westerners who, according to them, ought to be kicked out of the
Arabian Peninsula or the Muslim believer who does not follow their
path. They disappeared in the 1980s and 1990s from the public eye and
have again emerged with their destructive ideology. The question
Al-Sudairi forgot to bring up was: What are we Saudis going to do about
it? If we as a nation decline to look at the root causes, as we have
for the past two decades, it will only be a matter of time before
another group of people with the same ideology spring up. Have we
helped create these monsters? Our education system, which does not
stress tolerance of other faiths let alone tolerance of followers of
other Islamic schools of thought is one thing that needs to be
reevaluated from top to bottom. Saudi culture itself and the fact that
the majority of us do not accept other lifestyles and impose our own on
other people is another. And the fact that from fourth to 12th grade we
do not teach our children that there are other civilizations in the
world and that we are part of the global community and only stress the
Islamic empires over and over is also worth re-evaluating."
It is simply too easily forgotten that when it comes to
economic activities, one of the greatest virtues a country or community
can have is a culture of tolerance. When tolerance is the norm,
everyone flourishes because tolerance breeds trust, and trust is the
foundation of innovation and entrepreneurship. Increase the level of
trust in any group, company, or society, and only good things happen.
"China began its astounding commercial and industrial takeoff only when
Mao Zedong's odiously intolerant form of communism was scrapped in favor
of what might be called totalitarian laissez-faire," wrote British
historian Paul Johnson in a June 21, 2004, essay in Forbes.
"India is another example. It is the nature of the Hindu religion to
be tolerant and, in its own curious way, permissive
When left to
themselves, Indians (like the Chinese) always prosper as a community.
Take the case of Uganda's Indian population, which was expelled by the
horrific dictator Idi Amin and received into the tolerant society of
Britain. There are now more millionaires in this group than in any
other recent immigrant community in Britain. They are a striking
example of how far hard work, strong family bonds and devotion to
education can carry a people who have been stripped of all their worldly
assets." Islam, down through the years, has thrived when it fostered a
culture of tolerance, as in Moorish Spain. But in its modern form, in
too many cases Islam has been captured and interpreted by spiritual
leaders who do not embrace a culture of tolerance, change, or
innovation, and that, Johnson noted, surely has contributed to lagging
economic growth in many Muslim lands.
Here we come again to the coefficient of flatness.
Countries without natural resources are much more likely, through human
evolution, to develop the habits of openness to new ideas, because it is
the only way they can survive and advance.
The good news, though, is that not only does culture
matter, but culture can change. Cultures are not wired into our human
DNA. They are a product of the context geography, education level,
leadership, and historical experience of any society. As those
change, so too can culture. Japan and Germany went from highly
militarized societies to highly pacifist and staunchly democratic
societies in the last 50 years. Bahrain was one of the first Arab
countries to discover oil. It was the first Arab country to run out of
oil. And it was the first Arab country in the Arab Gulf to hold an
election for parliament where women could run and vote. China during
the Cultural Revolution seemed like a nation in the grip of a culture of
ideological madness. China today is a synonym for pragmatism. Muslim
Spain was one of the most tolerant societies in the history of the
world. Muslim Saudi Arabia today is one of the most intolerant. Muslim
Spain was a trading and merchant culture where people had to live by
their wits and therefore learned to live well with others; Saudi Arabia
today can get by just selling oil. Yet right next to Saudi Arabia sits
Dubai, an Arab city-state that has used its petrodollars to build the
trading, tourist, service, and computing center of the Arab Gulf. Dubai
is one of the most tolerant, cosmopolitan places in the world, with, it
often seems, more sushi bars and golf courses than mosques and
tourists don't even need a visa. So yes, culture matters, but culture
is nested in contexts, not genes, and as those contexts, and local
leaders, change and adapt, so too can culture.
The Intangible Things
You can tell a lot by just comparing skylines. Like many
Indian Americans, Dinakar Singh, the hedge fund manager, regularly goes
back to India to visit family. In the winter of 2004, he went back to
New Delhi for a visit. When I saw him a few months later, he told me
about the moment when he realized why India's economy, as a whole, still
had not taken off as much as it should have outside of the high-tech
sector.
"I was on the sixth floor of a hotel in New Delhi," he
recalled, "and when I looked out the window I could see for miles. How
come? Because you do not have assured power in Delhi for elevators, so
there are not many tall buildings." No sensible investor would want to
build a tall building in a city where the power could go out at any
moment and you might have to walk up 20 flights of stairs. The result
is more urban sprawl and an inefficient use of space. I told Singh that
his story reminded me of a trip I had just taken to Dalian, China. I
had been to Dalian in 1998, and when I went back in 2004, I did not
recognize the city. There were so many new buildings, including modern
glass-and-steel towers, that I began to question whether I had actually
visited there in 1998. Then I added another recollection. I went to
school in Cairo in the summer of 1974. The three most prominent
buildings in the city then were the Nile Hilton, the Cairo Tower, and
the Egyptian TV building. Thirty years later, in 2004, they are still
the most prominent buildings there; the Cairo skyline has barely
changed. Whenever I go back to Cairo, I know exactly where I am. I
visited Mexico City shortly before Dalian, where I had not visited in
five years. I found it much cleaner than I had remembered, thanks to a
citywide campaign by the mayor. There were also a few new buildings up,
but not as many as I expected after a decade of NAFTA. Inside the
buildings, though, I found my Mexican friends a little depressed. They
told me that Mexico had lost its groove it just wasn't growing like it
had been, and people's self-confidence was waning.
So in Delhi, you can see forever. In Cairo, the skyline
seems forever the same. In China, if you miss visiting a city for a
year, it's like you haven't been there in forever. And in Mexico City,
just when Mexicans thought they had turned the corner forever, they ran
smack into China, coming the other way and running much faster.
What explains these differences? We know the basic
formula for economic success reform wholesale, followed by reform
retail, plus good governance, education, infrastructure, and the ability
to glocalize. What we don't know, though, and what I would bottle and
sell if I did, is the answer to the question of why one country gets its
act together to do all these things in a sustained manner and why
another one doesn't. Why does one country's skyline change overnight
and another's doesn't change over half a century? The only answer I
have been able to find is something that cannot be defined: I call it
the intangible things. These are primarily two qualities: a
society's ability and willingness to pull together and sacrifice for the
sake of economic development and the presence in a society of leaders
with the vision to see what needs to be done in terms of development and
the willingness to use power to push for change rather than to enrich
themselves and preserve the status quo. Some countries (such as Korea
and Taiwan) seem to be able to focus their energies on the priority of
economic development, and others (such Egypt and Syria) get distracted
by ideology or local feuds. Some countries have leaders who use their
time in office to try to drive modernization rather than personally
enrich themselves. And some countries simply have venal elites, who use
their time in office to line their pockets and then invest those riches
in Swiss real estate. Why India had leaders who built institutes of
technology and Pakistan had leaders who did not is a product of history,
geography, and culture that I can only summarize as one of those
intangible things. But even though these intangibles are not easily
measured, they really do matter.
The best way I know to illustrate this is by comparing
Mexico and China. Mexico, on paper, seemed perfectly positioned to
thrive in a flat world. It was right next door to the biggest, most
powerful economy in the world. It signed a free-trade agreement with
the United States and Canada in the 1990s and was poised to be a
springboard to Latin America for both these huge economies. And it had
a valuable natural resource in oil, which accounted for more than a
third of government income. China, by contrast, was thousands of miles
away, burdened by overpopulation, with few natural resources, with its
best labor crowded onto a coastal plain, and with a burdensome debt
legacy from 50 years of Communist rule. Ten years ago, if you took the
names off these two countries and just gave someone their profiles, he
surely would have bet on Mexico. And yet China has replaced Mexico as
the second-largest exporter of goods into the United States. And there
is a general sense, even among Mexicans, that even though China is
thousands of miles away from America, it is growing closer to America
economically, while Mexico, right on America's border, is becoming
thousands of miles away.
I am by no means writing Mexico off. Mexico, in the
fullness of time, may turn out to be the slow-but-sure tortoise to
China's hare. China still has a huge political transition to get
through, which could derail it at any moment. Moreover, Mexico has many
entrepreneurs who are as Chinese as the most entrepreneurial Chinese.
Mexico would not have exported US $138 billion worth of goods to the
United States in 2003 if that were not the case. And you have many
rural Chinese who are no more advanced or productive than rural
Mexicans. But on balance, when you add it all up, the fact is that
China has become the hare and Mexico has not, even though Mexico seemed
to start with so many more natural advantages when the world went flat.
Why?
This is a question Mexicans themselves are asking. When
you go to Mexico City these days, Mexicans will tell you that they are
hearing that "giant sucking sound" in stereo. "We are caught between
India and China," Jorge Castaneda, Mexico's former foreign minister,
told me in 2004. "It is very difficult for us to compete with the
Chinese, except with high-value-added industries. Where we should be
competing, the services area, we are hit by the Indians with their back
offices and call centers."
No doubt China is benefiting to some degree from the fact
that it still has an authoritarian system that can steamroll vested
interests and archaic practices. Beijing's leadership can order many
reforms from the top down, whether it is a new road or accession to the
World Trade Organization. But China today also has better intangibles
an ability to summon and focus local energies on reform retail. China
may be an authoritarian state, but it nevertheless has strong state
institutions and a bureaucracy that manages to promote a lot of people
on merit to key decision-making positions, and it has a certain
public-spiritedness. The Mandarin tradition of promoting bureaucrats
who see their role as promoting and protecting the interests of the
state is still alive and well in China. "China has a tradition of
meritocracy a tradition that is also carried on in Korea and Japan,"
said Francis Fukuyama, author of the classic
The End of History and the Last Man.
"All of them also have a basic sense of 'stateness' where [public
servants] are expected to look to the long-term interests of the state"
and are rewarded by the system for doing so.
Mexico, by contrast, moved during the 1990s from a
basically one-party authoritarian state to a multiparty democracy. So
just when Mexico needs to summon all its will and energy for reform
retail on the micro level, it has to go through the much slower, albeit
more legitimate, democratic process of constituency building. In other
words, any Mexican president who wants to make changes has to aggregate
so many more interest groups like herding cats to implement a reform
than his autocratic predecessors, who could have done it by fiat. A lot
of these interest groups, whether unions or oligarchs, have powerful
vested interests in the status quo and the power to strangle reforms.
And Mexico's state system, like that of so many of its Latin American
neighbors, has a long history of simply being an instrument of patronage
for the ruling party or local interests, not the national interest.
Another of these intangible things is how much your
culture prizes education. India and China both have a long tradition of
parents telling their children that the greatest thing they can be in
life is an engineer or a doctor. But building the schools to make that
happen in Mexico simply has not been done. India and China each have
more than 50,000 students studying in the United States today. They
come from about 12 time zones away. Mexico, which is smaller but right
next door, has only about 10,000. Mexico is also right next door to the
world's biggest economy, which speaks English. But Mexico has not
launched any crash program in English education or invested in
scholarships to send large numbers of Mexican students to the United
States to study. There is a "disconnect," said President Zedillo, among
Mexico's political establishment, the challenges of globalization, and
the degree to which anyone is educating and harnessing the Mexican
public to this task. You would have to look a long time for a graduate
science or math program at an American university that is dominated by
Mexican students the way most are dominated by Chinese and Indian
students.
The government of President Vicente Fox had set out five
areas for reform retail to make the Mexican economy more productive and
flexible: labor market reform to make it easier to hire and fire
workers, judicial reform to make Mexico's courts less corrupt and
capricious, electoral and constitutional reform to rationalize politics,
tax collection reform to increase the country's dismal tax harvest, and
energy reform to open the energy and electricity markets to foreign
investors so that Mexico, a major oil producer, gets out of the crazy
bind of importing some natural gas and gasoline from America. But
almost all of these initiatives got stalled in the Mexican parliament.
It would be easy to conclude from just looking at Mexico
and China that democracy may be a hindrance to reform retail. I think
it is premature to conclude that. I think the real issue is leadership.
There are democracies that are blessed with leaders who are able to
make the sale and get their people focused on reform retail Margaret
Thatcher in England comes to mind and there are democracies that drift
for a long time without biting the bullet modern Germany, for example.
There are autocracies that really get focused modern China and
there are others that just drift aimlessly, unwilling really to summon
their people because the leaders are so illegitimate they are afraid of
inflicting any pain Zimbabwe.
Mexico and Latin America generally have "fantastic
potential," says President Zedillo. "Latin America was ahead of
everyone 30 years ago, but for 25 years we have been basically stagnant
and the others are moving closer and well ahead. Our political systems
are not capable of processing and adopting and executing those [reform
retail] ideas. We are still discussing prehistory. Things that are
taken for granted everywhere we are still discussing as if we are living
in the 1960s. To this day you cannot speak openly about a market
economy in Latin America." China is moving every month, added Zedillo,
"and we are taking years and years to decide on elementary reforms whose
needs should be strikingly urgent for any human being. We are not
competitive because we don't have infrastructure; you need people to pay
taxes. How many new highways have been built connecting Mexico with the
US since NAFTA? [Virtually none.] Many people who would benefit from
government expenditure don't pay taxes. The only way for government to
serve is get people to pay higher taxes, [but] then the populism comes
up and kills it."
A Mexican newspaper recently ran a story about how the
Converse shoe company was making tennis shoes in China using Mexican
glue. "The whole article was about why are we giving them our glue,"
said Zedillo, "when the right attitude would be how much more glue can
we sell them? We still need to break some mental barriers."
It is not that Mexico has failed to modernize its export
industries. It is losing ground to China primarily because China has
changed even faster and more broadly, particularly in educating
knowledge workers. As business consultant Daniel H. Rosen pointed out
in an essay in The International Economy journal (Spring 2003),
Mexico and China both saw their share of global exports grow in many of
the same areas during the booming 1990s from auto parts to electronics
to toys and sporting goods but China's share was growing faster. This
was not just because of what China was doing right but because of what
Mexico was doing wrong, which was not steadily honing its
competitiveness with microreforms. What Mexico succeeded in doing was
creating islands of competitiveness, like Monterrey, where it got things
right and could take advantage of proximity to the United States, but
the Mexican government never had a strategy for melting those islands
into the rest of the country. This helps explain why from 1996 to 2002,
Mexico's ranking in the Global Competitiveness Report actually fell
while China's rose. And this was not just about cheap wages, said
Rosen. It was about China's advantages in education, privatization,
infrastructure, quality control, mid-level management, and the
introduction of new technology.
"So China is eating Mexico's lunch," concluded Rosen,
"but more due to the Mexican inability to capitalize on successes and
induce broader reform than to China's lower wage workers per se." In
other words, it's reform retail, stupid. According to the Doing
Business in 2005 report, it takes an average of 58 days to start a
business in Mexico, compared with eight in Singapore and nine in Turkey.
It takes 74 days to register a property in Mexico, but only 12 in the
United States. Mexico's corporate income tax rate of 34 percent is
twice as high as China's.
The McKinsey Quarterly report "Beyond Cheap Labor"
noted that since 2000, as China joined the WTO and started to take
advantage of the flattening of the world, Mexico lost 270,000 assembly
jobs, and hundreds of factories closed. But the main advice the report
had for Mexico and other middle-income countries feeling squeezed by
China was this: "Rather than fixating on jobs lost to China, these
countries should remember a fact of economic life: no place can remain
the world's low-cost producer forever even China will lose that title
one day. Instead of trying to defend low-wage assembly jobs, Mexico and
other middle-income countries should focus on creating jobs that add
higher value. Only if more productive companies with higher-value-added
activities replace less productive ones can middle income economies
continue down the development path."
In short, the only way for Mexico to thrive is with a
strategy of reform retail that will enable it to beat China to the top,
not the bottom, because China is not focused on beating Mexico as much
as it is on beating America. But winning that kind of race to the top
takes intangible focus and will.
You cannot maintain rising standards of living in a
flattening world when you are up against competitors who are getting not
only their fundamentals right but also their intangibles. China does
not just want to get rich. It wants to get powerful. China doesn't
just want to learn how to make GM cars. It wants to be GM and put GM
out of business. Anyone who doubts that should spend time with young
Chinese.
Said Luis Rubio, president of Mexico's Center of Research
for Development, "The more self-confidence you have, the more it
diminishes your mythologies and complexes. One of the great things
about Mexico in the early 1990s was that Mexicans saw that they could do
it, they could make it." A lot of that self-confidence, though, has
been lost in Mexico in recent years, because the government stopped
reforming. "A lack of self-confidence leads a country to keep chewing
on the past," added Rubio. "A lack of self-confidence [in Mexico] means
that everyone in the country thinks the US is going to take Mexico to
the cleaners." That is why NAFTA was so important for Mexico's
sell-confidence. "What NAFTA accomplished was to get Mexicans to think
forward and outward instead of inward and backward. [But] NAFTA was
seen [by its architects] as an end more than a beginning. It was seen
as the conclusion of a process of political and economic reforms."
Unfortunately, he added, "Mexico did not have a strategy for going
forward."
Will Rogers said it a long time ago: "Even if you're on
the right track, you'll get run over if you just sit there." The
flatter the world gets, the faster that will happen. Mexico got itself
on the right track with reform wholesale, but then, for a lot of
tangible and intangible reasons, it just sat there and reform retail
stalled. The more Mexico just sits there, the more it is going to get
run over. And it won't be alone.
Thomas L.
Friedman
is a Foreign Affairs Columnist for the
New York Times.
He is the author of four best-selling books: From Beirut to
Jerusalem, The Lexus and the Olive Tree, Longitudes and Attitudes,
and The World is Flat, and he is the recipient of both the
Pulitzer Prize and the National Book Award. His article is adapted from
Chapter Nine of The World is Flat, and is reprinted by permission
of the author.
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