The World is Flat’ – Implications for Government”

Originally published Sept/Oct 2005

In the last column, we discussed examples from Tom Friedman’s extraordinary new book, The World is Flat. Friedman argues that, since the fall of the Berlin Wall in 1989, a series of political, economic, technological and organizational barriers have fallen around the world. Today, companies (like McDonald’s) that have been at odds with environmental nonprofits for decades work together to reduce the impact of their operations on the environment. Advanced technology and extraordinary levels of trust allow Wal–Mart to share unprecedented corporate information with its suppliers, allowing those suppliers to replenish their products in Wal–Mart stores without Wal–Mart managers even placing an order. United Parcel Service (UPS) has such close relationships with Toshiba that it not only ships Toshiba laptops to purchasers, it also repairs those laptops when they’re broken, reducing the amount of time customers go without their computers, and allowing Toshiba to focus on its core competencies. These and other changes are transforming the way our economy is working. Are these changes good for everyone? No, it turns out there are winners and losers. Wal–Mart’s customers are delighted at the low prices, but the communities and states in which Wal–Mart operates end up paying millions of dollars in taxes for the opportunity to shop at Wal–Mart. Why? Because Wal–Mart pays relatively low wages and few benefits; some of its full time employees live in public housing, rely on food stamps, and use the emergency room for health care, the most expensive kind of medical treatment. One study by Georgia officials showed that the state pays almost $10 million on health care for children of Wal–Mart employees.

SOME CHALLENGES

Given that these enormous changes are mixed blessings, what challenges do they pose, and how can the US thrive in this environment? The hurdles include the following.

• Workers in the emerging economies are more productive than those in the US. As one American CEO remarked to Friedman, “the dirty little secret is that not only is [outsourcing] cheaper and efficient, but the quality and productivity [boost] is huge” (p.261). Employees in China and India are so hungry for better jobs that they willingly work 12 and 14 hour days, and don’t insist on four weeks of vacation. Bill Gates notes that Microsoft’s most productive research facility is in China, “in terms of the quality of the ideas they are turning out. It is mind blowing” (p. 266)
• We have an education gap in the US. We face a “quiet crisis” in engineering and the sciences. For example, 60% of the science graduate students at Johns Hopkins are from foreign countries. Asian countries are producing an increasing number of patents, while the share of patents produced by the US has been falling since 1980. We are producing fewer masters and PhD students in these areas than in the past, and our students are falling behind some other countries in their knowledge of math. Science and engineering are keys to succeeding in the emerging economy, they will create the products that lead to higher job creation, and we’re falling behind in this competition.
• The trend among many leading US companies is to pay employees fewer benefits than they did in the past. This pattern, of course, can improve a company’s stock price, as Wall Street analysis love companies that find ways to reduce costs. But the millions of families that are losing health insurance aren’t cheering; nor are the governors and state legislators whose budgets are being overwhelmed by Medicaid’s exploding costs, driven in part by corporate America’s reduction in benefits paid to employees.

AND WHAT SHOULD GOVERNMENT DO?

Friedman argues that we must all learn to truly “think globally and act locally.” He writes that government at all levels must be actively involved in dealing with our flatter world. For instance, our public leaders should do the following.

1. Educate us about the challenges we face. State, federal and local leaders must help people understand that we face enormous challenges, and give us the confidence that we can deal with these challenges if we take certain actions.
2. Show us why it is now necessary to continually upgrade our skills. This is the best strategy for remaining employable in a flat world. Yes, many jobs that can be digitized are heading for India, China, and other developing countries. But other jobs are being created here, and they are going to the people with the knowledge and skills to seize them. Friedman’s advice to his own girls is this: “When I was growing up my parents used to say to me, ŒTom, finish your dinner‹people in China and India are starving.’ My advice to you is: girls, finish your homework‹people in China and India are starving for your jobs” (p. 237). More specifically, Friedman believes that employees can avoid seeing their jobs outsourced by
   1. Being specialized at skills that aren’t fungible (can’t be easily digitized and given to low wage workers elsewhere);
   2. Being anchored‹having a job that must be done at a specific location (e.g., nurses, craftsmen); and
   3. Being adaptable‹this involves not only upgrading skills, but more importantly, learning how to learn.
3. Create portable benefits and wage insurance, to help unemployed workers. One way to support workers whose jobs are threatened by the new economy is through the creation of a universal portable pension program, consolidating a confusing set of tax deferred options now offered. Another is to create a “wage insurance” program that would compensate workers for two years who were laid off because of outsourcing or offshoring, while they learn new skills needed for the global economy.
4. Become much smarter about finding alternative sources of energy, and taking steps to increase energy conservation. Friedman urges current and future US Presidents to develop a crash program for alternative energy and conservation, to make us energy independent in ten years. Consider this: In April, 2004, 1,433 cars were added daily to the streets of Beijing. China’s thirst for oil will be very difficult to meet, as it adds millions of new cars each year. And it is acting very aggressively to ensure continuing sources of oil. Similar trends are being seen in several other Asian countries. The days of cheap oil in the US are over; they aren’t coming back. We must make an Apollo Project like effort to eliminate our reliance on other countries’ energy sources, and that will take leadership at all levels, starting in the White House.

The corporate and nonprofit sectors should also play an important role in dealing with our increasingly “flat world,” Friedman argues. He cites the trend toward a new collaborative social activism, uniting companies and watchdog nonprofits in a search for environmentally friendly production methods. An intriguing example is the partnership between McDonald’s and Conservation International, a huge environmental organization. Their partnership began in 2002. Leaders of both organizations looked at the activities of the contractors involved in supplying McDonald’s with the burgers, fries and other foods it uses, and came up with changes in how they grow potatoes, harvest fish, etc., that would reduce the environmental impact of their work with little or no impact on cost.

Conservation International has noted increased conservation of water and energy since these changes went into effect. That’s not surprising; when a huge multinational like McDonald’s agrees to require its suppliers to make certain changes, the ripples are seen in hundreds of companies around the world. A similar concept being tried in the high tech arena, where Dell, HP and IBM formed an alliance in 2004. They are pushing for a code of socially responsible manufacturing practices around the world, aimed at their huge networks of suppliers. Called the electronics industry code of conduct, it bans child labor and embezzlement, includes rules on using wastewater and hazardous materials, and promotes regulations on occupational safety.

This flat world described by Friedman is exciting and unsettling. Most Americans don’t understand yet the nature of the new economic and political environment, but they do know that things are changing. And they know that these changes are wrenching for those directly affected. Government and business leaders must help us deal with the transformations going on around us, and they can start that process by educating people on the nature of the challenge, and the ways in which we can meet it.