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The.World.Is.Flat

TXT 全文
The World is Flat 


Thomas L Friedman 


To Matt and Kay and to Ron 



Contents 

How the World Became Flat 

One: While I Was Sleeping / 3 
Two: The Ten Forces That Flattened the World / 48 
Flattener#l. 11/9/89 
Flattener #2. 8/9/95 
Flattener #3. Work Flow Software 
Flattener #4. Open-Sourcing 
Flattener #5. Outsourcing 
Flattener #6. Offshoring 
Flattener #7. Supply-Chaining 
Flattener #8. Insourcing 
Flattener #9. In-forming 
Flattener #10. 
The Steroids Three: The Triple Convergence / 173 
Four: The Great Sorting Out / 201 

America and the Flat World 

Five: America and Free Trade / 225 
Six: The Untouchables / 237 
Seven: The Quiet Crisis / 250 
Eight: This Is Not a Test / 276 

Developing Countries and the Flat World 

Nine: The Virgin of Guadalupe / 309 
Companies and the Flat World 
Geopolitics and the Flat World 
Eleven: The Unflat World / 371 
Twelve: The Dell Theory of Conflict Prevention / 414 
Conclusion: Imagination 
Thirteen: 11/9 Versus 9/11 / 441 
Acknowledgments I 471 Index I 475 


:::::How the World Became Flat 

::::: ONE 
While I Was Sleeping 
Your Highnesses, as Catholic Christians, and princes who love and promote the holy 
Christian faith, and are enemies of the doctrine of Mahomet, and of all idolatry and 
heresy, determined to send me, Christopher Columbus, tothe above-mentioned countries 
of India, to see the said princes, people, and territories, and to learn their 
disposition and the proper method of converting them to our holy faith; and 
furthermore directed that I should not proceed by land to the East, as is customary, 
but by a Westerly route, in which direction we have hitherto no certain evidence that 
anyone has gone. 

- Entry from the journal of Christopher Columbus on his voyage of 1492 
No one ever gave me directions like this on a golf course before: "Aim at either 
Microsoft or IBM." I was standing on the first tee at the KGA Golf Club in downtown 
Bangalore, in southern India, when my playing partner pointed at two shiny 
glass-and-steel buildings off in the distance, just behind the first green. The 
Goldman Sachs building wasn't done yet; otherwise he could have pointed that out as 
well and made it a threesome. HP and Texas Instruments had their offices on the back 
nine, along the tenth hole. That wasn't all. The tee markers were from Epson, the 
printer company, and one of our caddies was wearing a hat from 3M. Outside, some of 
the traffic signs were also sponsored by Texas Instruments, and the Pizza Hut 
billboard on the way over showed a steaming pizza, under the headline "Gigabites of 
Taste!" 
No, this definitely wasn't Kansas. It didn't even seem like India. Was this the New 
World, the Old World, or the Next World? 
I had come to Bangalore, India's Silicon Valley, on my own Columbus-like journey of 
exploration. Columbus sailed with the Nina, the Pinta, and the Santa Maria in an effort 
to discover a shorter, more direct route toIndia by heading west, across the Atlantic, 
on what he presumed to be an open sea route to the East Indies-rather than going south 
and east around Africa, as Portuguese explorers of his day were trying to do. India 
and the magical Spice Islands of the East were famed at the time for their gold, pearls, 
gems, and silk-a source of untold riches. Finding this shortcut by sea to India, at 
a time when the Muslim powers of the day had blocked the overland routes from Europe, 
was a way for both Columbus and the Spanish monarchy to become wealthy and powerful. 
When Columbus set sail, he apparently assumed the Earth was round, which was why he 
was convinced that he could get to India by going west. He miscalculated the distance, 
though. He thought the Earth was a smaller sphere than it is. He also did not anticipate 
running into a landmass before he reached the East Indies. Nevertheless, he called 
the aboriginal peoples he encountered in the new world "Indians." Returning home, 
though, Columbus was able to tell his patrons, King Ferdinand and Queen Isabella, 


that although he never did find India, he could confirm that the world was indeed 
round. 
I set out for India by going due east, via Frankfurt. I had Lufthansa business class. 
I knew exactly which direction I was going thanks to the GPS map displayed on the 
screen that popped out of the armrest of my airline seat. I landed safely and on 
schedule. I too encountered people called Indians. I too was searching for the source 
of India's riches. Columbus was searching for hardware-precious metals, silk, and 
spices-the source of wealth in his day. I was searching for software, brainpower, 
complex algorithms, knowledge workers, call centers, transmission protocols, 
breakthroughs in optical engineering-the sources of wealth in our day. Columbus was 
happy to make the Indians he met his slaves, a pool of free manual labor. 
I just wanted to understand why the Indians I met were taking our work, why they had 
become such an important pool for the outsourcing 

of service and information technology work from America and other industrialized 
countries. Columbus had more than one hundred men on his three ships; I had a small 
crew from the Discovery Times channel that fit comfortably into two banged-up vans, 
with Indian drivers who drove barefoot. When I set sail, so to speak, I too assumed 
that the world was round, but what I encountered in the real India profoundly shook 
my faith in that notion. Columbus accidentally ran into America but thought he had 
discovered part of India. I actually found India and thought many of the people I 
met there were Americans. Some had actually taken American names, and others were 
doing great imitations of American accents at call centers and American business 
techniques at software labs. 
Columbus reported to his king and queen that the world was round, and he went down 
in history as the man who first made this discovery. I returned home and shared my 
discover)' only with my wife, and only in a whisper. 
"Honey," I confided, "I think the world is flat." 
How did I come to this conclusion? I guess you could say it all started in Nandan 
Nilekani's conference room at Infosys Technologies Limited. Infosys is one of the 
jewels of the Indian information technology world, and Nilekani, the company's CEO, 
is one of the most thoughtful and respected captains of Indian industry. I drove with 
the Discovery Times crew out to the Infosys campus, about forty minutes from the heart 
of Bangalore, to tour the facility and interview Nilekani. The Infosys campus is 
reached by a pockmarked road, with sacred cows, horse-drawn carts, and motorized 
rickshaws all jostling alongside our vans. Once you enter the gates of Infosys, though, 
you are in a different world. A massive resort-size swimming pool nestles amid 
boulders and manicured lawns, adjacent to a huge putting green. There are multiple 
restaurants and a fabulous health club. Glass-and-steel buildings seem to sprout up 
like weeds each week. In some of those buildings, Infosys employees are writing 
specific software programs for American or European companies; in others, they are 
running the back rooms of major 


American- and European-based multinationals-everything from computer maintenance to 
specific research projects to answering customer calls routed there from all over 
the world. Security is tight, cameras monitor the doors, and if you are working for 
American Express, you cannot get into the building that is managing services and 
research for General Electric. Young Indian engineers, men and women, walk briskly 
from building to building, dangling ID badges. One looked like he could do my taxes. 
Another looked like she could take my computer apart. And a third looked like she 
designed it! 
After sitting for an interview, Nilekani gave our TV crew a tour of Info-sys's global 
conferencing center-ground zero of the Indian outsourcing industry. It was a 
cavernous wood-paneled room that looked like a tiered classroom from an Ivy League 
law school. On one end was a massive wall-size screen and overhead there were cameras 
in the ceiling for teleconferencing. "So this is our conference room, probably the 
largest screen in Asia-this is forty digital screens [put together]," Nilekani 
explained proudly, pointing to the biggest flat-screen TV I had ever seen. Infosys, 
he said, can hold a virtual meeting of the key players from its entire global supply 
chain for any project at any time on that supersize screen. So their American designers 
could be on the screen speaking with their Indian software writers and their Asian 
manufacturers all at once. "We could be sitting here, somebody from New York, London, 
Boston, San Francisco, all live. And maybe the implementation is in Singapore, so 
the Singapore person could also be live here . . . That's globalization," said Nilekani. 
Above the screen there were eight clocks that pretty well summed upthe Infosys workday: 
24/7/365. The clocks were labeled US West, US East, GMT, India, Singapore, Hong Kong, 
Japan, Australia. 
"Outsourcing is just one dimension of a much more fundamental thing happening today 
in the world," Nilekani explained. "What happened over the last [few] years is that 
there was a massive investment in technology, especially in the bubble era, when 
hundreds of millions of dollars were invested in putting broadband connectivity 
around the world, undersea cables, all those things." At the same time, he added, 
computers became cheaper and dispersed all over the world, and there was an explosion 
of software-e-mail, search engines like Google, and 

proprietary software that can chop up any piece of work and send one part to Boston, 
one part to Bangalore, and one part to Beijing, making it easy for anyone to do remote 
development. When all of these things suddenly came together around 2000, added 
Nilekani, they "created a platform where intellectual work, intellectual capital, 
could be delivered from anywhere. It could be disaggregated, delivered, distributed, 
produced, and put back together again-and this gave a whole new degree of freedom 
to the way we do work, especially work of an intellectual nature . . . And what you 
are seeing in Bangalore today is really the culmination of all these things coming 
together." 
We were sitting on the couch outside of Nilekani's office, waiting for the TV crew 
to set up its cameras. At one point, summing up the implications of all this, Nilekani 
uttered a phrase that rang in my ear. He said to me, "Tom, the playing field is being 


leveled." He meant that countries like India are now able to compete for global 
knowledge work as never before-and that America had better get ready for this. America 
was going to be challenged, but, he insisted, the challenge would be good for America 
because we are always at our best when we are being challenged. As I left the Infosys 
campus that evening and bounced along the road back to Bangalore, I kept chewing on 
that phrase: "The playing field is being leveled." 
What Nandan is saying, I thought, is that the playing field is being flattened .. . 
Flattened? Flattened? My God, he's telling me the world is flat! 
Here I was in Bangalore-more than five hundred years after Columbus sailed over the 
horizon, using the rudimentary navigational technologies of his day, and returned 
safely to prove definitively that the world was round-and one of India's smartest 
engineers, trained at his country's top technical institute and backed by the most 
modern technologies of his day, was essentially telling me that the world was flat-as 
flat as that screen on which he can host a meeting of his whole global supply chain. 
Even more interesting, he was citing this development as a good thing, as a new 
milestone in human progress and a great opportunity for India and the world-the fact 
that we had made our world flat! 
In the back of that van, I scribbled down four words in my notebook: "The world is 
flat." As soon as I wrote them, I realized that this was the 

underlying message of everything that I had seen and heard in Bangalore in two weeks 
of filming. The global competitive playing field was being leveled. The world was 
being flattened. 
As I came to this realization, I was filled with both excitement and dread. The 
journalist in me was excited at having found a framework to better understand the 
morning headlines and to explain what was happening in the world today. Clearly, it 
is now possible for more people than ever to collaborate and compete in real time 
with more other people on more different kinds of work from more different corners 
of the planet and on a more equal footing than at any previous time in the history 
of the world-using computers, e-mail, networks, teleconferencing, and dynamic new 
software. That is what Nandan was telling me. That was what I discovered on my journey 
to India and beyond. And that is what this book is about. When you start to think 
of the world as flat, a lot of things make sense in ways they did not before. But 
I was also excited personally, because what the flattening of the world means is that 
we are now connecting all the knowledge centers on the planet together into a single 
global network, which-if politics and terrorism do not get in the way-could usher 
in an amazing era of prosperity and innovation. 
But contemplating the flat world also left me filled with dread, professional and 
personal. My personal dread derived from the obvious fact that it's not only the 
software writers and computer geeks who get empowered to collaborate on work in a 
flat world. It's also al-Qaeda and other terrorist networks. The playing field is 
not being leveled only in ways that draw in and superempower a whole new group of 
innovators. It's being leveled in a way that draws in and superempowers a whole new 
group of angry, frustrated, and humiliated men and women. 


Professionally, the recognition that the world was flat was unnerving because I 
realized that this flattening had been taking place while I was sleeping, and I had 
missed it. I wasn't really sleeping, but I was otherwise engaged. Before 9/11,1 was 
focused on tracking globalization and exploring the tension between the "Lexus" 
forces of economic integration and the "Olive Tree" forces of identity and 
nationalism-hence my 1999 book, The Lexus and the Olive Tree. But after 9/11, the 
olive tree wars became all9 
consuming for me. I spent almost all my time traveling in the Arab and Muslim worlds. 
During those years I lost the trail of globalization. 
I found that trail again on my journey to Bangalore in February 2004. Once I did, 
I realized that something really important had happened while I was fixated on the 
olive groves of Kabul and Baghdad. Globalization had gone to a whole new level. If 
you put The Lexus and the Olive Tree and this book together, the broad historical 
argument you end up with is that that there have been three great eras of globalization. 
The first lasted from 1492-when Columbus set sail, opening trade between the Old World 
and the New World-until around 1800.1 would call this era Globalization 1.0. It shrank 
the world from a size large to a size medium. Globalization 1.0 was about countries 
and muscles. That is, in Globalization 1.0 the key agent of change, the dynamic force 
driving the process of global integration was how much brawn-how much muscle, how 
much horsepower, wind power, or, later, steam power-your country had and how 
creatively you could deploy it. In this era, countries and governments (often inspired 
by religion or imperialism or a combination of both) led the way in breaking down 
walls and knitting the world together, driving global integration. In Globalization 
1.0, the primary questions were: Where does my country fit into global competition 
and opportunities? How can I go global and collaborate with others through my country? 
The second great era, Globalization 2.0, lasted roughly from 1800to 2000, interrupted 
by the Great Depression and World Wars I and II. This era shrank the world from a 
size medium to a size small. In Globalization 2.0, the key agent of change, the dynamic 
force driving global integration, was multinational companies. These multinationals 
went global for markets and labor, spearheaded first by the expansion of the Dutch 
and English joint-stock companies and the Industrial Revolution. In the first half 
of this era, global integration was powered by falling transportation costs, thanks 
to the steam engine and the railroad, and in the second half by falling 
telecommunication costs-thanks to the diffusion of the telegraph, telephones, the 
PC, satellites, fiber-optic cable, and the early version of the World Wide Web. It 
was during this era that we really saw the 
10 
birth and maturation of a global economy, in the sense that there was enough movement 
of goods and information from continent to continent for there to be a global market, 
with global arbitrage in products and labor. The dynamic forces behind this era of 
globalization were breakthroughs in hardware-from steamships and railroads in the 
beginning to telephones and mainframe computers toward the end. And the big questions 
in this era were: Where does my company fit into the global economy? How does it take 


advantage of the opportunities? How can I go global and collaborate with others 
through my company? The Lexus and the Olive Tree was primarily about the climax of 
this era, an era when the walls started falling all around the world, and integration, 
and the backlash to it, went to a whole new level. But even as the walls fell, there 
were still a lot of barriers to seamless global integration. Remember, when Bill 
Clinton was elected president in 1992, virtually no one outside of government and 
the academy had e-mail, and when I was writing The Lexus and the Olive Tree in 1998, 
the Internet and e-commerce were just taking off. 
Well, they took off-along with a lot of other things that came together while I was 
sleeping. And that is why I argue in this book that around the year 2000 we entered 
a whole new era: Globalization 3.0. Globalization 3.0 is shrinking the world from 
a size small to a size tiny and flattening the playing field at the same time. And 
while the dynamic force in Globalization 1.0 was countries globalizing and thedynamic 
force in Globalization 2.0 was companies globalizing, the dynamic force in 
Globalization 3.0-the thing that gives it its unique character-is the newfound power 
for individuals to collaborate and compete globally. And the lever that is enabling 
individuals and groups to go global so easily and so seamlessly is not horsepower, 
and not hardware, but software- all sorts of new applications-in conjunction with 
the creation of a global fiber-optic network that has made us all next-door neighbors. 
Individuals must, and can, now ask, Where do I fit into the global competition and 
opportunities of the day, and how can I, on my own, collaborate with others globally? 
But Globalization 3.0 not only differs from the previous eras in how it is shrinking 
and flattening the world and in how it is empowering indi

viduals. It is different in that Globalization 1.0 and 2.0 were driven primarily by 
European and American individuals and businesses. Even though China actually had the 
biggest economy in the world in the eighteenth century, it was Western countries, 
companies, and explorers who were doing most of the globalizing and shaping of the 
system. But going forward, this will be less and less true. Because it is flattening 
and shrinking the world, Globalization 3.0 is going to be more and more driven not 
only by individuals but also by a much more diverse -non-Western, non-white-group 
of individuals. Individuals from every corner of the flat world are being empowered. 
Globalization 3.0 makes it possible for so many more people to plug and play, and 
you are going to see every color of the human rainbow take part. 
(While this empowerment of individuals to act globally is the most important new 
feature of Globalization 3.0, companies-large and small-have been newly empowered 
in this era as well. I discuss both in detail later in the book.) 
Needless to say, I had only the vaguest appreciation of all this as I left Nandan's 
office that day in Bangalore. But as I sat contemplating these changes on the balcony 
of my hotel room that evening, I did know one thing: I wanted to drop everything and 
write a book that would enable me to understand how this flattening process happened 
and what its implications might be for countries, companies, and individuals. So I 
picked up the phone and called my wife, Ann, and told her, "I am going to write a 
book calledThe World Is Flat." She was both amused and curious-well, maybe more amused 


than curious! Eventually, I was able to bring her around, and I hope I will be able 
to do the same with you, dear reader. Let me start by taking you back to the beginning 
of myjourney to India, and other points east, and share with you some of the encounters 
that led me to conclude the world was no longer round-but flat. 
Jaithirth "Jerry" Rao was one of the first people I met in Bangalore-
and I hadn't been with him for more than a few minutes at the Leela 
Palace hotel before he told me that he could handle my tax returns and 
any other accounting needs I had-from Bangalore. No thanks, I de12 
murred, I already have an accountant in Chicago. Jerry just smiled. He was too polite 
to say it-that he may already be my accountant, or rather my accountant's accountant, 
thanks to the explosion in the outsourcing of tax preparation. 
"This is happening as we speak," said Rao, a native of Mumbai, formerly Bombay, whose 
Indian firm, MphasiS, has a team of Indian accountants able to do outsourced 
accounting work from any state in America and the federal government. "We have tied 
up with several small and medium-sized CPA firms in America." 
"You mean like my accountant?" I asked. "Yes, like your accountant," said Rao with 
a smile. Rao's company has pioneered a work flow software program with a standardized 
format that makes the outsourcing of tax returns cheap and easy. The whole process 
starts, Jerry explained, with an accountant in the United States scanning my last 
year's tax returns, plus my W-2, W-4, 1099, bonuses, and stock 
statements-everything-into a computer server, which is physically located in 
California or Texas. "Now your accountant, if he is going to have your taxes done 
overseas, knows that you would prefer not to have your surname be known or your Social 
Security number known [to someone outside the country], so he can choose to suppress 
that information," said Rao. "The accountants in India call up all the raw information 
directly from the server in America [using a password], and they complete your tax 
returns, with you remaining anonymous. All the data stays in the U.S. to comply with 
privacy regulations. . . We take data protection and privacy very seriously. The 
accountant in India can see the data on his screen, but he cannot take a download 
of it or print it out-our program does not allow it. The most he could do would be 
to try to memorize it, if he had some ill intention. The accountants are not allowed 
to even take a paper and pen into the room when they are working on the returns." 
I was intrigued at just how advanced this form of service outsourcing had become. 
"We are doing several thousand returns," said Rao. What's more, "Your CPA in America 
need not even be in their office. They can be sitting on a beach in California and 
e-mail us and say, 'Jerrv> you are really good at doing New York State returns, so 
you do Tom's returns. And Sonia, you and your team in Delhi do the Washington and 
Florida 
13 
returns.' Sonia, by the way, is working out of her house in India, with no overhead 
[for the company to pay]. 'And these others, they are really complicated, so I will 
do them myself." 
In 2003, some 25,000 U.S. tax returns were done in India. In 2004, the number was 


100,000. In 2005, it is expected to be 400,000. In a decade, you will assume that 
your accountant has outsourced the basic preparation of your tax returns-if not more. 
"How did you get into this?" I asked Rao. 
"My friend Jeroen Tas, a Dutchman, and I were both working in California for 
Citigroup," Rao explained. "I was his boss and we were coming back from New York one 
day together on a flight and I said that I was planning to quit and he said, 'So am 
I.' We both said, 'Why don't we start our own business?' So in 1997-98, we put together 
a business plan to provide high-end Internet solutions for big companies. . . Two 
years ago, though, I went to a technology convention in Las Vegas and was approached 
by some medium-size [American] accounting firms, and they said they could not afford 
to set up big tax outsourcing operations to India, but the big guys could, and [the 
medium guys] wanted to get ahead of them. So we developed a software product called 
VTR- Virtual Tax Room-to enable these medium-size accounting firms to easily 
outsource tax returns." 
These midsize firms "are getting a more level playing field, which they were denied 
before," said Jerry. "Suddenly they can get access to the same advantages of scale 
that the bigger guys always had." 
Is the message to Americans, "Mama, don't let your kids grow up to be accountants"? 
I asked. 
Not really, said Rao. "What we have done is taken the grunt work. You know what is 
needed to prepare a tax return? Very little creative work. This is what will move 
overseas." 
"What will stay in America?" I asked. 
"The accountant who wants to stay in business in America will be the one who focuses 
on designing creative complex strategies, like tax avoidance or tax sheltering, 
managing customer relationships," he said. "He or she will say to his clients, 'I 
am getting the grunt work done efficiently far away. Now let's talk about how we manage 
your estate and what you are 

going to do about your kids. Do you want to leave some money in your trusts?' It means 
having the quality-time discussions with clients rather than running around like 
chickens with their heads cut off from February to April, and often filing for 
extensions into August, because they have not had the quality time with clients." 
Judging from an essay inthe journal Accounting Today (June 7, 2004), this does, indeed, 
seem to be the future. L. Gary Boomer, a CPA and CEO of Boomer Consulting in Manhattan, 
Kansas, wrote, "This past [tax] season produced over 100,000 [outsourced] returns 
and has now expanded beyond individual returns to trusts, partnerships and 
corporations . . . The primary reason that the industry has been able to scale up 
as rapidly as it has over the past three years is due to the investment that these 
[foreign-based] companies have made in systems, processes and training." There are 
about seventy thousand accounting grads in India each year, he added, many of whom 
go to work for local Indian firms starting at $100 a month. With the help of high-speed 
communications, stringent training, and standardized forms, these young Indians can 
fairly rapidly be converted into basic Western accountants at a fraction of the cost. 


Some of the Indian accounting firms even go about marketing themselves to American 
firms through teleconferencing and skip the travel. Concluded Boomer, "The accounting 
profession is currently in transformation. Those who get caught in the past and resist 
change will be forced deeper into commoditization. Those who can create value through 
leadership, relationships and creativity will transform the industry, as well as 
strengthen relationships with their existing clients." 
What you're telling me, I said to Rao, is that no matter what your profession-doctor, 
lawyer, architect, accountant-if you are an American, you better be good at the 
touchy-feely service stuff, because anything that can be digitized can be outsourced 
to either the smartest or the cheapest producer, or both. Rao answered, "Everyone 
has to focus on what exactly is their value-add." 
But what if I am just an average accountant? I went to a state university. I had a 
B+ average. Eventually I got my CPA. I work in a big accounting firm, doing a lot 
of standard work. I rarely meet with clients. 

They keep me in the back. But it is a decent living and the firm is basically happy 
with me. What is going to happen to me in this system? 
"It is a good question," said Rao. "We must be honest about it. We are in the middle 
of a big technological change, and when you live in a society that is at the cutting 
edge of that change [like America], it is hard to predict. It's easy to predict for 
someone living in India. In ten years we are going to be doing a lot of the stuff 
that is being done in America today. We can predict our future. But we are behind 
you. You are defining the future. America is always on the edge of the next creative 
wave ... So it is difficult to look into the eyes of that accountant and say this 
is what is going to be. We should not trivialize that. We must deal with it and talk 
about it honestly ... Any activity where wecan digitize and decompose the value chain, 
and move the work around, will get moved around. Some people will say, Yes, but you 
can't serve me a steak.' True, but I can take the reservation for your table sitting 
anywhere in the world, if the restaurant does not have an operator. We can say, Yes, 
Mr. Friedman, we can give you a table by the window.' In other words, there are parts 
of the whole dining-out experience that we can decompose and outsource. If you go 
back and read the basic economics textbooks, they will tell you: Goods are traded, 
but services are consumed and produced in the same place. And you cannot export a 
haircut. But we are coming close to exporting a haircut, the appointment part. What 
kind of haircut do you want? Which barber do you want? All those things can and will 
be done by a call center far away." 
As we ended our conversation, I asked Rao what he is up to next. He was full of energy. 
He told me he'd been talking to an Israeli company that is making some big advances 
in compression technology to allow for easier, better transfers of CAT scans via the 
Internet so you can quickly get a second opinion from a doctor half a world away. 
A few weeks after I spoke with Rao, the following e-mail arrived from Bill Brody, 
the president of Johns Hopkins University, whom I had just interviewed for this book: 
Dear Tom, I am speaking at a Hopkins continuing education medical meeting for 
radiologists (I used to be a radiologist) ... I 


16 
came upon a very fascinating situation that I thought might interest you. I have just 
learned that in many small and some medium-size hospitals in the US, radiologists 
are outsourcing reading of CAT scans to doctors in India and Australia!!! Most of 
this evidently occurs at night (and maybe weekends) when the radiologists do not have 
sufficient staffing to provide in-hospital coverage. While some radiology groups will 
use teleradiology to ship images from the hospital to their home (or to Vail or Cape 
Cod, I suppose) so that they can interpret images and provide a diagnosis 24/7, 
apparently the smaller hospitals are shipping CAT scan images to radiologists abroad. 
The advantage is that it is daytime in Australia or India when it is nighttime here-so 
after-hours coverage becomes more readily done by shipping the images across the globe. 
Since CAT (and MRI) images are already in digital format and available on a network 
with a standardized protocol, it is no problem to view the images anywhere in the 
world ... I assume that the radiologists on the other end . . . must have trained 
in [the] US and acquired the appropriate licenses and credentials. . . The groups 
abroad that provide these after-hours readings are called "Nighthawks" by the 
American radiologists that employ them. Best, Bill 
Thank goodness I'm a journalist and not an accountant or a radiologist. There will 
be no outsourcing for me-even if some of my readers wish my column could be shipped 
off to North Korea. At least that's what I thought. Then I heard about the Reuters 
operation in India. I didn't have time to visit the Reuters office in Bangalore, but 
I was able to get hold of Tom Glocer, the CEO of Reuters, to hear what he was doing. 
Glocer is a pioneer in the outsourcing of elements of the news supply chain. 
With 2,300 journalists around the world, in 197 bureaus, serving a 
17 
market including investment bankers, derivatives traders, stockbrokers, newspapers, 
radio, television, and Internet outlets, Reuters has always had a very complex 
audience to satisfy. After the dot-com bust, though, when many of its customers became 
very cost-conscious, Reuters started asking itself, for reasons of both cost and 
efficiency: Where do we actually need our people to be located to feed our global 
news supply chain? And can we actually disaggregate the work of a journalist and keep 
part in London and New York and shift part to India? 
Glocer started by looking at the most basic bread-and-butter function Reuters 
provides, which is breaking news about company earnings and related business 
developments, every second of every day. "Exxon comes out with its earnings and we 
need to get that as fast possible up on screens around the world: 'Exxon earned 
thirty-nine cents this quarter as opposed to thirty-six cents last quarter.' The core 
competency there is speed and accuracy," explained Glocer. "You don't need a lot of 
analysis. We just need to get the basic news up as fast as possible. The flash should 
be out in seconds after the company releases, and the table [showing the recent history 
of quarterly earnings] a few seconds later." 
Those sorts of earnings flashes are to the news business what vanilla is to the ice 
cream business-a basic commodity that actually can be made anywhere in the flat world. 
The real value-added knowledge work happens in the next five minutes. That is when 


you need a real journalist who knows how to get a comment from the company, a comment 
from the top two analysts in the field, and even some word from competitors to put 
the earnings report in perspective. "That needs a higher journalistic skill 
set-someone in the market with contacts, who knows who the best industry analysts 
are and has taken the right people to lunch," said Glocer. 
The dot-com bust and the flattening of the world forced Glocer to rethink how Reuters 
delivered news-whether it could disaggregate the functions of a journalist and ship 
the low-value-added functions to India. His primary goal was to reduce the overlap 
Reuters payroll, while preserving as many good journalism jobs as possible. "So the 
first thing we did," said Glocer, "was hire six reporters in Bangalore as an 
experiment. 
18 
We said, 'Let's let them just do the flash headlines and the tables and whatever else 
we can get them to do in Bangalore.'" 
These new Indian hires had accounting backgrounds and were trained by Reuters, but 
they were paid standard local wages and vacation and health benefits. "India is an 
unbelievably rich place for recruiting people, not only with technical skills but 
also financial skills," said Glocer. When a company puts out its earnings, one of 
the first things it does is hand it to the wires-Reuters, Dow Jones, and Bloomberg-for 
distribution. "We will get that raw data," he said, "and then it's a race to see how 
fast we can turn it around. Bangalore is one of the most wired places in the world, 
and although there's a slight delay-one second or less-in getting the information 
over there, it turns out you can just as easily sit in Bangalore and get the electronic 
version of a press release and turn it into a story as you can in London or New York." 
The difference, however, is that wages and rents in Bangalore are less than one-fifth 
what they are in those Western capitals. 
While economics and the flattening of the world have pushed Reuters down this path, 
Glocer has tried to make a virtue of necessity. "We think we can off-load commoditized 
reporting and get that done efficiently somewhere else in the world," he said, and 
then give the conventional Reuters journalists, whom the company is able to retain, 
a chance to focus on doing much higher-value-added and personally fulfilling 
journalism and analysis. "Let's say you were a Reuters journalist in New York. Do 
you reach your life's fulfillment by turning press releases into boxes on the screen, 
or by doing the analysis?" asked Glocer. Obviously, it is the latter. Outsourcing 
news bulletins to India also allows Reuters to extend the breadth of its reporting 
to more small-cap companies, companies itwas not cost-efficient for Reuters to follow 
before with higher-paid journalists in New York. But with lower-wage Indian reporters, 
who can be hired in large numbers for the cost of one reporter in New York, it can 
now do that from Bangalore. By the summer of 2004, Reuters had grown its Bangalore 
content operation to three hundred staff, aiming eventually for a total of fifteen 
hundred. Some of those are Reuters veterans sent out to train the Indian teams, some 
are reporters filing earnings flashes, but most are journalists doing 
19 
slightly more specialized data analysis-number crunching-for securities offerings. 


"A lot of our clients are doing the same thing," said Glocer. "Investment research 
has had to have huge amounts of cost ripped out of it, so a lot of firms are using 
shift work in Bangalore to do bread-and-butter company analysis." Until recently the 
big Wall Street firms had conducted investment research by spending millions of 
dollars on star analysts and then charging part of their salaries to their 
stockbrokerage departments, which shared the analysis with their best customers, and 
part to their investment banking business, which sometimes used glowing analyses of 
a company to lure its banking business. In the wake of New York State Attorney General 
Eliot Spitzer's investigations into Wall Street practices, following several 
scandals, investment banking and stockbrokerage have had to be distinctly 
separated-so that analysts will stop hyping companies in order to get their investment 
banking. But as a result, the big Wall Street investment firms have had to sharply 
reduce the cost of their market research, all of which has to be paid for now by their 
brokerage departments alone. And this created a great incentive for them to outsource 
some of this analytical work to places like Bangalore. In addition to being able to 
pay an analyst in Bangalore about $15,000 in total compensation, as opposed to $80,000 
in New York or London, Reuters has found that its India employees tend to be 
financially literate and highly motivated as well. Reuters also recently opened a 
software development center in Bangkok because it turned out to be a good place to 
recruit developers who had been overlooked by all the Western companies vying for 
talent in Bangalore. 
I find myself torn by this trend. Having started my career as a wire service reporter 
with United Press International, I have enormous sympathy with wire service reporters 
and the pressures, both professional and financial, under which they toil. But UPI 
might still be thriving today as a wire service, which it is not, if it had been able 
to outsource some of its lower-end business when I started as a reporter in London 
twenty-five years ago. 
"It is delicate with the staff," said Glocer, who has cut the entire Reuters staff 
by roughly a quarter, without deep cuts among the reporters. The Reuters staff, he 
said, understand that this is being done so 

that the company can survive and then thrive again. At the same time, said Glocer, 
"these are sophisticated people out reporting. They see that our clients are doing 
the exact same things. They get the plot of the story . . . What is vital is to be 
honest with people about what we are doing and why and not sugarcoat the message. 
I firmly believe in the lesson of classical economists about moving work to where 
it can be done best. However, we must not ignore that in some cases, individual workers 
will not easily find new work. For them, retraining and an adequate social safety 
net are needed." 
In an effort to deal straight with the Reuters staff, David Schlesinger, who heads 
Reuters America, sent all editorial employees a memo, which included the following 
excerpt: 
Off-shoring with Obligation I grew up in New London, Connecticut, which in the 19th 
century was a major whaling center. In the 1960's and 70's the whales were long gone 


and the major employers in the region were connected with the military-not a surprise 
during the Vietnam era. My classmates' parents worked at Electric Boat, the Navy and 
the Coast Guard. The peace dividend changed the region once again, and now it is best 
known for the great gambling casinos of Mohegan Sun and Foxwoods and for the 
pharmaceutical researchers of Pfizer. Jobs went; jobs were created. Skills went out 
of use; new skills were required. The region changed; people changed. New London, 
of course, was not unique. How many mill towns saw their mills close; how many shoe 
towns saw the shoe industry move elsewhere; how many towns that were once textile 
powerhouses now buy all their linens from China? Change is hard. Change is hardest 
on those caught by surprise. Change is hardest on those who have difficulty changing 
too. But change is natural; change is not new; change is important. The current debate 
about off-shoring is dangerously hot. But the debate about work going to India, China 
and Mexico is actually no different from the debate once held about submarine work 
leaving New 
21 
London or shoe work leaving Massachusetts or textile work leaving North Carolina. 
Work gets done where it can be done most effectively and efficiently. That ultimately 
helps the New Londons, New Bedfords and New Yorks of this world even more than it 
helps the Bangalores and Shenzhens. It helps because it frees up people and capital 
to do different, more sophisticated work, and it helps because it gives an opportunity 
to produce the end product more cheaply, benefiting customers even as it helps the 
corporation. It's certainly difficult for individuals to think about "their" work 
going away, being done thousands of miles away by someone earning thousands of dollars 
less per year. But it's time to think about the opportunity as well as the pain, just 
as it's time to think about the obligations of off-shoring as well as the 
opportunities. . . Every person, just as every corporation, must tend to his or her 
own economic destiny, just as our parents and grandparents in the mills, shoe shops 
and factories did. 
"The Monitor Is Burning?" 
Do you know what an Indian call center sounds like? While filming the documentary 
about outsourcing, the TV crew and I spent an evening at the Indian-owned "24/7 
Customer" call center in Bangalore. The call center is a cross between a co-ed college 
frat house and a phone bank raising money for the local public TV station. There are 
several floors with rooms full of twenty-somethings- some twenty-five hundred in 
all-working the phones. Some are known as "outbound" operators, selling everything 
from credit cards to phone minutes. Others deal with "inbound" calls-everything from 
tracing lost luggage for U.S. and European airline passengers to solving computer 
problems for confused American consumers. The calls are transferred here by satellite 
and undersea fiber-optic cable. Each vast floor of a call center consists of clusters 
of cubicles. The young people work in little 
22 
teams under the banner of the company whose phone support they are providing. So one 
corner might be the Dell group, another might be flying the flag of Microsoft. Their 
working conditions look like those at your average insurance company. Although I am 


sure that there are call centers that are operated like sweatshops, 24/7 is not one
of them. 
Most of the young people I interviewed give all or part of their salary to their parents.
In fact, many of them have starting salaries that are higher than their parents'
retiring salaries. For entry-level jobs into the global economy, these are about as 
good as it gets. 
I was wandering around the Microsoft section around six p.m. Bangalore time, when 
most of these young people start their workday to coincide with the dawn in America, 
when I asked a young Indian computer expert there a simple question: What was the 
record on the floor for the longest phone call to help some American who got lost
in the maze of his or her own software?
Without missing a beat he answered, "Eleven hours."
"Eleven hours?" I exclaimed.
"Eleven hours," he said.
I have no way of checking whether this is true, but you do hear snippets of some oddly 
familiar conversations as you walk the floor at 24/7 and just listen over the shoulders 
of different call center operators doing their things. Here is a small sample of what
we heard that night while filming for Discovery Times. It should be read, if you can
imagine this, in the voice of someone with an Indian accent trying to imitate an
American ora Brit. Also imagine that nomatter how rude, unhappy, irritated, or ornery
the voices are on the other end of the line, these young Indians are incessantly and
unfailingly polite. 
Woman call center operator: "Good afternoon, may I speak with . . .?" (Someone on
the other end just slammed down the phone.) 
Male call center operator: "Merchant services, this is Jerry, may I help you?" (The 
Indian call center operators adopt Western names of their own choosing. The idea, 
of course, is to make their American or European customers feel more comfortable. 
Most of the young Indians I talked to about this were not offended but took it as
an opportunity to 


have some fun. While a few just opt for Susan or Bob, some really get creative.)
Woman operator in Bangalore speaking to an American: "My name is Ivy Timberwoods and 
I am calling you . . ."
Woman operator in Bangalore getting an American's identity number: "May I have the 
last four digits of your Social Security?"
Woman operator in Bangalore giving directions as though she were in Manhattan and 
looking out her window: "Yes, we have a branch on Seventy-fourth and Second Avenue, 
a branch at Fifty-fourth and Lexington . . ."
Male operator in Bangalore selling a credit card he could never afford himself: "This 
card comes to you with one of the lowest APR . . ."
Woman operator in Bangalore explaining to an American how she screwed up her checking
account: "Check number six-six-five for eighty-one dollars and fifty-five cents. You 
will still be hit by the thirty-dollar charge. Am I clear?"
Woman operator in Bangalore after walking an American through a computer glitch: "Not 



a problem, Mr. Jassup. Thank you for your time. Take care. Bye-bye." 
Woman operator in Bangalore after someone has just slammed down the phone on her:
"Hello? Hello?" 
Woman operator in Bangalore apologizing for calling someone in America too early:
"This is just a courtesy call, I'll call back later in the evening . . ."
Male operator in Bangalore trying desperately to sell an airline credit card to
someone in America who doesn't seem to want one: "Is that because you have too many
credit cards, or you don't like flying, Mrs. Bell?"
Woman operator in Bangalore trying to talk an American out of her computer crash:
"Start switching between memory okay and memory test. . ."
Male operator in Bangalore doing the same thing: "All right, then, let's just punch
in three and press Enter . . ."
Woman operator in Bangalore trying to help an American who cannot stand being on the
help line another second: "Yes, ma'am, I do 


understand that you are in a hurry right now. I am just trying to help you out. . ."
Woman operator in Bangalore getting another phone slammed down on her: "Yes, well,
so what time would be goo . . ." 
Same woman operator in Bangalore getting another phone slammed down on her: "Why,
Mrs. Kent, it's not a ..."
Same woman operator in Bangalore getting another phone slammed down on her: "As a 
safety back . . . Hello?"
Same woman operator in Bangalore looking up from her phone: "I definitely have a bad 
day!" 
Woman operator in Bangalore trying to help an American woman with a computer problem 
that she has never heard before: "What is the problem with this machine, ma'am? The 
monitor is burning?"
There are currently about 245,000 Indians answering phones from all over the world
or dialing out to solicit people for credit cards or cell phone bargains or overdue 
bills. These call center jobs are low-wage, low-prestige jobs in America, but when
shifted to India they become high-wage, high-prestige jobs. The esprit de corps at
24/7 and other call centers I visited seemed quite high, and the young people were
all eager to share some of the bizarre phone conversations they've had with Americans 
who dialed 1-800-HELP, thinking they would wind up talking to someone around the block,
not around the world. 


C. M. Meghna, a 24/7 call center female operator, told me, "I've had lots of customers 
who call in [with questions] not even connected to the product that we're dealing 
with. They would callin because theyhad lost their wallet or just totalk to somebody. 
I'm like, 'Okay, all right, maybe you should look under the bed [for your wallet] 
or where do you normally keep it,' and she's like, 'Okay, thank you so much for 
helping.'" Nitu Somaiah: "One of the customers asked me to marry him." Sophie Sunder 
worked for Delta's lost-baggage department: "I remember this lady called from Texas," 
she said, "and she was, like, weeping on the phone. She had traveled two connecting 
flights and she lost her bag and in the bag was her daughter's wedding gown and wedding 

25 
ring and I felt so sad for her and there was nothing I could do. I had no information. 
"Most of the customers were irate," said Sunder. "The first thing they say is, 'Where's 
my bag? I want my bag now!' We were like supposed to say, 'Excuse me, can I have your 
first name and last name?' 'But where's my bag!' Some would ask which country am I 
from? We are supposed to tell the truth, [so] we tell them India. Some thought it 
was Indiana, not India! Some did not know where India is. I said it is the country 
next to Pakistan." 
Although the great majority of the calls are rather routine and dull, competition 
for these jobs is fierce-not only because they pay well, but because you can work 
at night and go to school during part of the day, so they are stepping-stones toward 
a higher standard of living. P. V. Kannan, CEO and cofounder of 24/7, explained to 
me how it all worked: "Today we have over four thousand associates spread out in 
Bangalore, Hyderabad, and Chennai. Our associates start out with a take-home pay of 
roughly $200 a month, which grows to $300 to $400 per month in six months. We also 
provide transportation, lunch, and dinner at no extra cost. We providelife insurance, 
medical insurance for the entire family- and other benefits." 
Therefore, the total cost of each call center operator is actually around $500 per 
month when they start out and closer to $600 to $700 per month after six months. 
Everyone is also entitled to performance bonuses that allow them to earn, in certain 
cases, the equivalent of 100 percent of their base salary. "Around 10 to 20 percent 
of our associates pursue a degree in business or computer science during the day 
hours," said Kannan, adding that more than one-third are taking some kind of extra 
computer or business training, even if it is not toward a degree. "It is quite common 
in India for people to pursue education through their twenties-self-improvement is 
a big theme and actively encouraged by parents and companies. We sponsor an MBAprogram 
for consistent performers [with] full-day classes over the weekend. Everyone works 
eight hours a day, five days a week, with two fifteen-minute breaks and an hour off 
for lunch or dinner."Not surprisingly, the 24/7 customer call center gets about seven 
hun- 
26 
dred applications a day, but only 6 percent of applicants are hired. Here is a snippet 
from a recruiting session for call center operators at a women's college in Bangalore: 
Recruiter 1: "Good morning, girls." 
Class in unison: "Good morning, ma'am." 
Recruiter 1: "We have been retained by some of the multinationals here to do the 
recruitment for them. The primary clients that we are recruiting [for] today are 
Honeywell. And also for America Online." 
The young women-dozens of them-then all lined up with their application forms and 
waited to be interviewed by a recruiter at a wooden table. Here is what some of the 
interviews sounded like: 
Recruiter 1: "What kind of job are you looking at?" 
Applicant 1: "It should be based on accounts, then, where I can grow, I can grow in 
my career." 


Recruiter 1: "You have to be more confident about yourself when you're speaking. 
You're very nervous. I want you to work a little on that and then get in touch with 
us." 
Recruiter 2 to another applicant: "Tell me something about yourself." 
Applicant 2: "I have passed my SSC with distinction. Second P also with distinction. 
And I also hold a 70 percent aggregate in previous two years." (This is Indian lingo 
for their equivalents of GPA and SAT scores.) 
Recruiter 2: "Go a little slow. Don't be nervous. Be cool." 
The next step for those applicants who are hired at a call center is the training 
program, which they are paid to attend. It combines learning how to handle the specific 
processes for the company whose calls they will be taking or making, and attending 
something called "accent neutralization class." These are daylong sessions with a 
language teacher who prepares the new Indian hires todisguise their pronounced Indian 
accents when speaking English and replace them with American, Canadian, or British 
ones-depending on which part of the world they will be speaking with. It's pretty 
bizarre to watch. The class I sat in on was being trained to speak in a neutral 
middle-American accent. The students were asked to read over and over a single 
phonetic paragraph designed to teach them how to soften their r's and to roll their 
r's. 
Their teacher, a charming eight-months-pregnant young woman 

dressed in a traditional Indian sari, moved seamlessly among British, American, and 
Canadian accents as she demonstrated reading a paragraph designed to highlight 
phonetics. She said to the class, "Remember the first day I told you that the Americans 
flap the 'tuh' sound? You know, it sounds like an almost 'duh' sound-not crisp and 
clear like the British.So I would not say"-here she was crisp and sharp-'"Betty bought 
a bit of better butter' or 'Insert a quarter in the meter.' But I would say" -her 
voice very flat-"'Insert a quarter in the meter' or 'Betty bought a bit of better 
butter.' So I'm just going to read it out for you once, and then we'll read it together. 
All right? 'Thirty little turtles in a bottle of bottled water. A bottle of bottled 
water held thirty little turtles. It didn't matter that each turtle had to rattle 
a metal ladle in order to get a little bit of noodles.' 
"All right, who's going to read first?" the instructor asked. Each member of the class 
then took a turn trying to say this tongue twister in an American accent. Some of 
them got it on the first try, and others, well, let's just say that you wouldn't think 
they were in Kansas City if they answered your call to Delta's lost-luggage number. 
After listening to them stumble through this phonetics lesson for half an hour, I 
asked the teacher if she would like me to give them an authentic version-since I'm 
originally from Minnesota, smack in the Midwest, and still speak like someone out 
of the movie Fargo. Absolutely, she said. So I read the following paragraph: "A bottle 
of bottled water held thirty little turtles. It didn't matter that each turtle had 
to rattle a metal ladle in order to get a little bit of noodles, a total turtle 
delicacy . . . The problem was that there were many turtle battles for less than oodles 
of noodles. Every time they thought about grappling with the haggler turtles their 


little turtle minds boggled and they only caught a little bit of noodles." 
The class responded enthusiastically. It was the first time I ever got an ovation 
for speaking Minnesotan. On the surface, there is something unappealing about the 
idea of inducing other people to flatten their accents in order to compete in a flatter 
world. But before you disparage it, you have to taste just how hungry these kids are 
to escapethe lower end of the middle class and move up. If a little accent modification 
is the price they have to pay to jump a rung of the ladder, then so be it-they say. 
28 
"This is a high-stress environment," said Nilekani, the CEO of Infosys, which also 
runs a big call center. "It is twenty-four by seven. You work in the day, and then 
the night, and then the next morning." But the working environment, he insisted, "is 
not the tension of alienation. It is the tension of success. They are dealing with 
the challenges of success, of high-pressure living. It is not the challenge of 
worrying about whether they would have a challenge." 
That was certainly the sense I got from talking to a lot of the call center operators 
on the floor. Like any explosion of modernity, outsourcing is challenging traditional 
norms and ways of life. But educated Indians have been held back so many years by 
both poverty and a socialist bureaucracy that many of them seem more than ready to 
put up with the hours. And needless to say, it is much easier and more satisfying 
for them to work hard in Bangalore than to pack up and try to make a new start in 
America. In the flat world they can stay in India, make a decent salary, and not have 
to be away from families, friends, food, and culture. At the end of the day, these 
new jobs actually allow them to be more Indian. Said Anney Unnikrishnan, a personnel 
manager at 24/7, "I finished my MBA and I remember writing the GMAT and getting into 
Purdue University. But I couldn't go because I couldn't afford it. I didn't have the 
money for it. Now I can, [but] I see a whole lot of American industry has come into 
Bangalore and I don't really need to go there. I can work for a multinational sitting 
right here. So I still get my rice and sam-bar [a traditional Indian dish], which 
I eat. I don't need to, you know, learn to eat coleslaw and cold beef. I still continue 
with my Indian food and I still work for a multinational. Why should I go to America?" 
The relatively high standard of living that she can now enjoy-enough for a small 
apartment and car in Bangalore-is good for America as well. When you look around at 
24/7's call center, you see that all the computers are running Microsoft Windows. 
The chips are designed by Intel. The phones are from Lucent. The air-conditioning 
is by Carrier, and even the bottled water is by Coke. In addition, 90 percent of the 
shares in 24/7 are owned by U.S. investors. This explains why, although the United 
States has lost some service jobs to India in recent years, total exports from 
American-based companies-merchandise and services-to India have grown from 
29 
$2.5 billion in 1990 to $5 billion in 2003. So even with the outsourcing of some service 
jobs from the United States to India, India's growing economy is creating a demand 
for many more American goods and services. What goes around, comes around. 
Nine years ago, when Japan was beating America's brains out in the auto industry, 
I wrote a column about playing the computer geography game Where in the World is Carmen 


Sandiego? with my nine-year-old daughter, Orly. I was trying to help her by giving 
her a clue suggesting that Carmen had gone to Detroit, so I asked her, "Where are 
cars made?" And without missing a beat she answered, "Japan." 
Ouch! 
Well, I was reminded of that story while visiting Global Edge, an Indian software 
design firm in Bangalore. The company's marketing manager, Rajesh Rao, told me that 
he had just made a cold call to the VP for engineering of a U.S. company, trying to 
drum up business. As soon as Mr. Rao introduced himself as calling from an Indian 
software firm, the U.S. executive said to him, "Namaste," a common Hindi greeting. 
Said Mr. Rao, "A few years ago nobody in America wanted to talk to us. Now they are 
eager." And a few even know how to say hello in proper Hindu fashion. So now I wonder: 
If I have a granddaughter one day, and I tell her I'm going to India, will she say, 
"Grandpa, is that where software comes from?" 
No, not yet, honey. Every new product-from software to widgets-goes through a cycle 
that begins with basic research, then applied research, then incubation, then 
development, then testing, then manufacturing, then deployment, then support, then 
continuation engineering in order to add improvements. Each of these phases is 
specialized and unique, and neither India nor China nor Russia has a critical mass 
of talent that can handle the whole product cycle for a big American multinational. 
But these countries are steadily developing their reseach and development 
capabilities to handle more and more of these phases. As that continues, we really 
will see the beginning of what Satyam Cherukuri, of Sarnoff, an American research 
and development firm, has 

called "the globalization of innovation" and an end to the old model of a single 
American or European multinational handling all the elements of the development 
product cycle from its own resources. More and more American and European companies 
are outsourcing significant research and development tasks to India, Russia, and 
China. 
According to the information technology office of the state government in Karnataka, 
where Bangalore is located, Indian units of Cisco Systems, Intel, IBM, Texas 
Instruments, and GE have already filed 1,000 patent applications with the U.S. Patent 
Office. Texas Instruments alone has had 225 U.S. patents awarded to its Indian 
operation. "The Intel team in Bangalore is developing microprocessor chips for 
high-speed broadband wireless technology, to be launched in 2006," the Karnataka IT 
office said, in a statement issued at the end of 2004, and "at GE's John F. Welch 
Technology Centre in Bangalore, engineers are developing new ideas for aircraft 
engines, transport systems and plastics." Indeed, GE over the years has frequently 
transferred Indian engineers who worked for it in the United States back to India 
to integrate its whole global research effort. GE now even sends non-Indians to 
Bangalore. Vivek Paul is the president of Wipro Technologies, another of the elite 
Indian technology companies, but he is based in Silicon Valley to be close to Wipro's 
American customers. Before coming to Wipro, Paul managed GE's CT scanner business 
out of Milwaukee. At the time he had a French colleague who managed GE's power 


generator business for the scanners out of France. 
"I ran into him on an airplane recently," said Paul, "and he told me he had moved 
to India to head up GE's high-energy research there." 
I told Vivek that I love hearing an Indian who used to head up GE's CT business in 
Milwaukee but now runs Wipro's consulting business in Silicon Valley tell me about 
his former French colleague who has moved to Bangalore to work for GE. That is a flat 
world. 
Every time I think I have found the last, most obscure job that could be outsourced 
to Bangalore, I discover a new one. My friend Vivek Kulkarni used to head the 
government office in Bangalore responsible 
31 
for attracting high technology global investment. After stepping down from that post 
in 2003, he started a company called B2K, with a division called Brickwork, which 
offers busy global executives their own personal assistant in India. Say you are 
running a company and you have been asked to give a speech and a PowerPoint 
presentation in two days. Your "remote executive assistant" in India, provided by 
Brickwork, will do all the research for you, create the PowerPoint presentation, and 
e-mail the whole thing to you overnight so that it is on your desk the day you have 
to deliver it. 
"You can give your personal remote executive assistant their assignment when you are 
leaving work at the end of the day in New York City, and it will be ready for you 
the next morning," explained Kulkarni. "Because of the time difference with India, 
they can work on it while you sleep and have it back in your morning." Kulkarni 
suggested I hire a remote assistant in India to do all the research for this book. 
"He or she could also help you keep pace with what you want to read. When you wake 
up, you will find the completed summary in your in-box." (I told him no one could 
be better than my longtime assistant, Maya Gorman, who sits ten feet away!) 
Having your own personal remote executive assistant costs around $1,500 to $2,000 
a month, and given the pool of Indian college grads from which Brickwork can recruit, 
the brainpower you can hire dollar-for-dollar is substantial. As Brickwork's 
promotional material says, "India's talent pool provides companies access to a broad 
spectrum of highly qualified people. In addition to fresh graduates, which are around 

2.5 million per year, many qualified homemakers are entering the job market." India's 
business schools, it adds, produce around eighty-nine thousand MBAs per year. 
"We've had a wonderful response," said Kulkarni, with clients coming from two main 
areas. One is American health-care consultants, who often need lots of numbers 
crunched and PowerPoint presentations drawn up. The other, he said, are American 
investment banks and financial services companies, which often need to prepare glossy 
pamphlets with graphs to illustrate the benefits of an IPO or a proposed merger. In 
the case of a merger, Brickwork will prepare those sections of the report dealing 
with 
32 
general market conditions and trends, where most of the research can be gleaned off 
the Web and summarized in a standard format. "The judgment of how to price the deal 

will come from the investment bankers themselves," said Kulkarni. "We will do the 
lower-end work, and they will do the things that require critical judgment and 
experience, close to the market." The more projects his team of remote executive 
assistants engages in, the more knowledge they build up. They are full of ambition 
to do their higher problem solving as well, said Kulkarni. "The idea is to constantly 
learn. You are always taking an examination. There is no end to learning . . . There 
is no real end to what can be done by whom." 
Unlike Columbus, I didn't stop with India. After I got home, I decided to keep 
exploring the East for more signs that the world was flat. So after India, I was soon 
off to Tokyo, where I had a chance to interview Kenichi Ohmae, the legendary former 
McKinsey & Company consultant in Japan. Ohmae has left McKinsey and struck out on 
his own in business, Ohmae & Associates. And what do they do? Not consulting anymore, 
explained Ohmae. He is now spearheading a drive to outsource low-end Japanese jobs 
to Japanese-speaking call centers and service providers in China. "Say what?" I asked. 
"To China? Didn't the Japanese once colonize China, leaving a very bad taste in the 
mouths of the Chinese?" 
Well, yes, said Ohmae, but he explained that the Japanese also left behind a large 
number of Japanese speakers who have maintained a slice of Japanese culture, from 
sushi to karaoke, in northeastern China, particularly around the northeastern port 
city of Dalian. Dalian has become for Japan what Bangalore has become for America 
and the other English-speaking countries: outsourcing central. The Chinese may never 
forgive Japan for what it did to China in the last century, but the Chinese are so 
focused on leading the world in the next century that they are ready to brush up on 
their Japanese and take all the work Japan can outsource. 
"The recruiting is quite easy," said Ohmae in early 2004. "About one3? 
third of the people in this region [around Dalian] have taken Japanese as a second 
language in high school. So all of these Japanese companies are coming in." Ohmae's 
company is doing primarily data-entry work in China, where Chinese workers take 
handwritten Japanese documents, which are scanned, faxed, or e-mailed over from Japan 
to Dalian, and then type them into a digital database in Japanese characters. Ohmae's 
company has developed a software program that takes the data to be entered and breaks 
it down into packets. These packets can then be sent around China or Japan for typing, 
depending on the specialty required, and then reassembled at the company's database 
in its Tokyo headquarters. "We have the ability to allocate the job to the person 
who knows the area best." Ohmae's company even has contracts with more than seventy 
thousand housewives, some of them specialists in medical or legal terminologies, to 
do data-entry work at home. The firm has recently expanded into computer-aided designs 
for a Japanese housing company. "When you negotiate with the customer in Japan for 
building a house," he explained, "you would sketch out a floor plan-most of these 
companies don't use computers." So the hand-drawn plans are sent electronically to 
China, where they are converted into digital designs, which then are e-mailed back 
to the Japanese building firm, which turns them into manufacturing blueprints. "We 
took the best-performing Chinese data operators," said Ohmae, "and now they are 


processing seventy houses a day." Chinese doing computer drawings for Japanese homes, 
nearly seventy years after a rapacious Japanese army occupied China, razing many homes 
in the process. Maybe there is hope for this flat world . . . 
I needed to see Dalian, this Bangalore of China, firsthand, so I kept moving around 
the East. Dalian is impressive not just for a Chinese city. 
With its wide boulevards, beautiful green spaces, and nexus of universities, 
technical colleges, and massive software park, Dalian would stand out in Silicon 
Valley. I had been here in 1998, but there had been so much new building since then 
that I did not recognize the place. Dalian, which is located about an hour's flight 
northeast of Beijing, sym34 
bolizes how rapidly China's most modern cities-and there are still plentyof miserable, 
backward ones-are grabbing business as knowledge centers, not just as manufacturing 
hubs. The signs on the buildings tell the whole story: GE, Microsoft, Dell, SAP, HP, 
Sony, and Accenture- to name but a few-all are having backroom work done here to 
support their Asian operations, as well as new software research and development. 
Because of its proximity to Japan and Korea, each only about an hour away by air, 
its large number of Japanese speakers, its abundance of Internet bandwidth, and many 
parks and a world-class golf course (all of which appeal to knowledge workers), Dalian 
has become an attractive locus for Japanese outsourcing. Japanese firms can hire three 
Chinese software engineers for the price of one in Japan and still have change to 
pay a roomful of call center operators ($90 a month starting salary). No wonder some 
twenty-eight hundred Japanese companies have set up operations here or teamed up with 
Chinese partners. 
"I've taken a lot of American people to Dalian, and they are amazed at how fast the 
China economy is growing in this high-tech area," said Win Liu, director of U.S./EU 
projects for DHC, one ofDalian's biggest homegrown software firms, which has expanded 
from thirty to twelve hundred employees in six years. "Americans don't realize the 
challenge to the extent that they should." 
Dalian's dynamic mayor, Xia Deren, forty-nine, is a former college president. (For 
a Communist authoritarian system, China does a pretty good job of promoting people 
on merit. The Mandarin meritocratic culture here still runs very deep.) Over a 
traditional ten-course Chinese dinner at a local hotel, the mayor told me how far 
Dalian has come and just where he intends to take it. "We have twenty-two universities 
and colleges with over two hundred thousand students in Dalian," he explained. More 
than half those students graduate with engineering or science degrees, and even those 
who don't, those who study history or literature, are still being directed to spend 
a year studying Japanese or English, plus computer science, so that they will be 
employable. The mayor estimated that more than half the residents of Dalian had access 
to the Internet at the office, home, or school. 
35 
"The Japanese enterprises originally started some data processing industries here," 
the mayor added, "and with this as a base they have now moved to R & D and software 
development... In the past one or two years, the software companies of the U.S. are 


also making some attempts to move outsourcing of software from the U.S. to our city . . . 
We are approaching and we are catching up with the Indians. Exports of software 
products [from Dalian] have been increasing by 50 percent annually. And China is now 
becoming the country that develops the largest number of university graduates. Though 
in general our English is not as competent as that of the Indian people, we have a 
bigger population, [so] we can pick out the most intelligent students who can speak 
the best English." 
Are Dalian residents bothered by working for the Japanese, whose government has still 
never formally apologized for what the wartime Japanese government did to China? 
"We will never forget that a historical war occurred between the two nations," he 
answered, "but when it comes to the field of economy, we only focus on the economic 
problems-especially if we talk about the software outsourcing business. If the U.S. 
and Japanese companies make their products in our city, we consider that to be a good 
thing. Our youngsters are trying to learn Japanese, to master this tool so they can 
compete with their Japanese counterparts to successfully land high-salary positions 
for themselves in the future." 
The mayor then added for good measure, "My personal feeling is that Chinese youngsters 
are more ambitious than Japanese or American youngsters in recent years, but I don't 
think they are ambitious enough, because they are not as ambitious as my generation. 
Because our generation, before they got into university and colleges, were sent to 
distant rural areas and factories and military teams, and went through a very hard 
time, so in terms of the spirit to overcome and face the hardships, [our generation 
had to have more ambition] than youngsters nowadays." 
Mayor Xia had a charmingly direct way of describing the world, and although some of 
what he had to say gets lost in translation, he gets it-and Americans should too: 
"The rule of the market economy," this 

Communist official explained to me, "is that if somewhere has the richest human 
resources and the cheapest labor, of course the enterprises and the businesses will 
naturally go there." In manufacturing, he pointed out, "Chinese people first were 
the employees and working for the big foreign manufacturers, and after several years, 
after we have learned all the processes and steps, we can start our own firms. Software 
will go down the same road . . . First we will have our young people employed by the 
foreigners, and then we will start our own companies. It is like building a building. 
Today, the U.S., you are the designers, the architects, and the developing countries 
are the bricklayers for the buildings. But one day I hope we will be the architects." 
I just kept exploring-east and west. By the summer of 2004,1 was in Colorado on 
vacation. I had heard about this new low-fare airline called JetBlue, which was 
launched in 1999. I had no idea where they operated, but I needed to fly between 
Washington and Atlanta, and couldn't quite get the times I wanted, so I decided to 
call JetBlue and see where exactly they flew. I confess I did have another motive. 
I had heard that JetBlue had outsourced its entire reservation system to housewives 
in Utah, and I wanted to check this out. So I dialed JetBlue reservations and had 
the following conversation with the agent: 


"Hello, this is Dolly. Can I help you?" answered a grandmotherly voice. 
"Yes, I would like to fly from Washington to Atlanta," I said. "Do you fly that route?" 
"No, I'm sorry we don't. We fly from Washington to Ft. Lauderdale," said Dolly. 
"How about Washington to New York City?" I asked. 
"I'm sorry, we don't fly that route. We do fly from Washington to Oakland and Long 
Beach," said Dolly. 
"Say, can I ask you something? Are you really at home? I read that JetBlue agents 
just work at home." 
"Yes, I am," said Dolly in the most cheerful voice. (I later confirmed with JetBlue 
that her full name is Dolly Baker.) "I am sitting in my office 
37 
upstairs in my house, looking out the window at a beautiful sunny day. Just five 
minutes ago someone called and asked me that same question and I told them and they 
said, 'Good, I thought you were going to tell me you were in New Delhi.'" 
"Where do you live?" I asked. 
"Salt Lake City, Utah," said Dolly. "We have a two-story home, and I love working 
here, especially in the winter when the snow is swirling and I am up here in the office 
at home." 
"How do you get such a job?" I asked. 
"You know, they don't advertise," said Dolly in the sweetest possible voice. "It's 
all by word of mouth. I worked for the state government and I retired, and [after 
a little while] I thought I have to do something else and I just love it." 
David Neeleman, the founder and CEO of JetBlue Airways Corp., has a name for all this. 
He calls it "homesourcing." JetBlue now has four hundred reservation agents, like 
Dolly, working at home in the Salt Lake City area, taking reservations-in between 
babysitting, exercising, writing novels, and cooking dinner. 
A few months later I visited Neeleman at JetBlue's headquarters in New York, and he 
explained to me the virtues of homesourcing, which he actually started at Morris Air, 
his first venture in the airline business. (It was bought by Southwest.) "We had 250 
people in their homes doing reservations at Morris Air," said Neeleman. "They were 
30 percent more productive-they take 30 percent more bookings, by just being happier. 
They were more loyal and there was less attrition. So when I started JetBlue, I said, 
'We are going to have 100 percent reservation at home.'" 
Neeleman has a personal reason for wanting to do this. He is a Mormon and believes 
that society will be better off if more mothers are able to stay at home with their 
young children but are given a chance to be wage earners at the same time. So he based 
his home reservations system in Salt Lake City, where the vast majority of the women 
are Mormons and many are stay-at-home mothers. Home reservationists work twenty-five 
hours a week and have to come into the JetBlue regional office in Salt Lake City for 
four hours a month to learn new skills and be brought up to date on what is going 
on inside the company. 
38 
"We will never outsource to India/' said Neeleman. "The quality we can get here is 
far superior . . . [Employers] are more willing to outsource to India than to their 


own homes, and I can't understand that. Somehow they think that people need to be 
sitting in front of them or some boss they have designated. The productivity we get 
here more than makes up for the India [wage] factor." 
A Los Angeles Times story about JetBlue (May 9, 2004) noted that "in 1997, 11.6 million 
employees of U.S. companies worked from home at least part of the time. Today, that 
number has soared to 23.5 million-16% of the American labor force. (Meanwhile, the 
ranks of the self-employed, who often work from home, have swelled during the same 
period-to 23.4 million from 18 million.) In some eyes, homesourcing and outsourcing 
aren't so much competing strategies as they are different manifestations of the same 
thing: a relentless push by corporate America to lower costs and increase efficiency, 
wherever that may lead." 
That is exactly what I was learning on my own travels: Homesourcing to Salt Lake City 
and outsourcing to Bangalore were just flip sides of the same coin-sourcing. And the 
new, new thing, I was also learning, is the degree to which it is now possible for 
companies and individuals to source work anywhere. 
I just kept moving. In the fall of 2004,1 accompanied the chairman of the Joint Chiefs 
of Staff, General Richard Myers, on a tour of hot spots in Iraq. We visited Baghdad, 
the U.S. military headquarters in Fallujah, and the 24th Marine Expeditionary Unit 
encampment outside Babil, in the heart of Iraq's so-called Sunni Triangle. The 
makeshift 24th MEU base is a sort of Fort Apache, in the middle of a pretty hostile 
Iraqi Sunni Muslim population. While General Myers was meeting with officers and 
enlisted men there, I was free to walk around the base, and eventually I wandered 
into the command center, where my eye was immediately caught by a large flat-screen 
TV. On the screen was a live TV feed that looked to be coming from some kind of overhead 
camera. It showed some people moving around behind a house. Also on the screen, along 

the right side, was an active instant-messaging chat room, which seemed to be 
discussing the scene on the TV. 
"What is that?" I asked the soldier who was carefully monitoring all the images from 
a laptop. He explained that a U.S. Predator drone-a small pilotless aircraft with 
a high-power television camera-was flying over an Iraqi village, in the 24th MEU's 
area of operation, and feeding real-time intelligence images back to his laptop and 
this flat screen. This drone was actually being "flown" and manipulated by an expert 
who was sitting back at Nellis Air Force Base in Las Vegas, Nevada. That's right, 
the drone over Iraq was actually being remotely directed from Las Vegas. Meanwhile, 
the video images it was beaming back were being watched simultaneously by the 24th 
MEU, United States Central Command headquarters in Tampa, CentCom regional 
headquarters in Qatar, in the Pentagon, and probably also at the CIA. The different 
analysts around the world were conducting an online chat about how to interpret what 
was going on and what to do about it. It was their conversation that was scrolling 
down the right side of the screen. 
Before I could even express my amazement, another officer traveling with us took me 
aback by saying that this technology had "flattened" the military hierarchy-by giving 
so much information to the low-level officer, or even enlisted man, who was operating 


the computer, and empowering him to make decisions about the information he was 
gathering. While I'm sure that no first lieutenant is going to be allowed to start 
a firefight without consulting superiors, the days when only senior officers had the 
big picture are over. The military playing field is being leveled. 
I told this story to my friend Nick Burns, the U.S. ambassador to NATO and a loyal 
member of the Red Sox Nation. Nick told me he was at CentCom headquarters in Qatar 
in April 2004, being briefed by General John Abizaid and his staff. Abizaid's team 
was seated across the table from Nick with four flat-screen TVs behind them. The first 
three had overhead images being relayed in real time from different sectors of Iraq 
by Predator drones. The last one, which Nick was focused on, was showing a Yankees-Red 
Sox game. 
40 
On one screen it was Pedro Martinez versus Derek Jeter, and on the other three it 
was Jihadists versus the First Cavalry. 
Flatburgers and Fries 
I kept moving-all the way back to my home in Bethesda, Maryland. By the time I settled 
back into my house from this journey to the edges of the earth, my head was spinning. 
But no sooner was I home than more signs of the flattening came knocking at my door. 
Some came in the form of headlines that would unnerve any parent concerned about where 
his college-age children are going to fit in. For instance, Forrester Research, Inc., 
was projecting that more than 3 million service and professional jobs would move out 
of the country by 2015. But my jaw really dropped when I read a July 19, 2004, article 
from the International Herald Tribune headlined: "Want Fries With Outsourcing?" 
"Pull off U.S. Interstate Highway 55 near Cape Girardeau, Missouri, and into the 
drive-through lane of a McDonald's next to the highway and you'll get fast, friendly 
service, even though the person taking your order is not in the restaurant-or even 
in Missouri," the article said. "The order taker is in a call center in Colorado 
Springs, more than 900 miles, or 1,450 kilometers, away, connected to the customer 
and to the workers preparing the food by high-speed data lines. Even some restaurant 
jobs, it seems, are not immune to outsourcing. 
"The man who owns the Cape Girardeau restaurant, Shannon Davis, has linked it and 
three other of his 12 McDonald's franchises to the Colorado call center, which is 
run by another McDonald's franchisee, Steven Bigari. And he did it for the same reasons 
that other business owners have embraced call centers: lower costs, greater speed 
and fewer mistakes. 
"Cheap, quick and reliable telecommunications lines let the order takers in Colorado 
Springs converse with customers in Missouri, take an electronic snapshot of them, 
display their order on a screen to make sure 
41 
it is right, then forward the order and the photo to the restaurant kitchen. The photo 
is destroyed as soon as the order is completed, Bigari said. People picking up their 
burgers never know that their order traverses two states and bounces back before they 
can even start driving to the pickup window. 
"Davis said that he had dreamed of doing something like this for more than a decade. 


'We could not wait to go with it,' he added. Bigari, who created the call center for 
his own restaurants, was happy to oblige- for a small fee per transaction." 
The article noted that McDonald's Corp. said it found the call center idea interesting 
enough to start a test with three stores near its headquarters in Oak Brook, Illinois, 
with different software from that used by Bigari. "Jim Sappington, a McDonald's vice 
president for information technology, said that it was 'way, way too early' to tell 
if the call center idea would work across the thirteen thousand McDonald's restaurants 
in the United States. . . Still, franchisees of two other McDonald's restaurants, 
beyond Davis's, have outsourced their drive-through ordering to Bigari in Colorado 
Springs. (The other restaurants are in Brainerd, Minnesota, and Norwood, 
Massachusetts.) Central to the system's success, Bigari said, is the way it pairs 
customers' photos with their orders; by increasing accuracy, the system cuts down 
on the number of complaints and therefore makes the service faster. In the fast-food 
business, time is truly money: shaving even five seconds off the processing time of 
an order is significant," the article noted. "Bigari said he had cut order time in 
his dual-lane drive-throughs by slightly more than 30 seconds, to about 1 minute, 
5 seconds, on average. That's less than half the average of 2 minutes, 36 seconds, 
for all McDonald's, and among the fastest of any franchise in the country, according 
to QSRweb.com, which tracks such things. His drive-throughs now handle 260 cars an 
hour, Bigari said, 30 more than they did before he started the call center . . . Though 
his operators earn, on average, 40 cents an hour more than his line employees, he 
has cut his overall labor costs by a percentage point, even as drive-through sales 
have increased . . . Tests conducted by outside companies found that Bigari's 
drive-throughs now make mistakes on fewer than 2 percent of all orders, down from 
about 4 percent before he started using the call centers, Bigari said." 
Bigari "is so enthusiastic about the call center idea," the article noted, "that he 
has expanded it beyond the drive-through window at his seven restaurants that use 
the system. While he still offers counter service at those restaurants, most customers 
now order through the call center, using phones with credit card readers on tables 
in the seating area." 
Some of the signs of flattening I encountered back home, though, had nothing to do 
with economics. On October 3, 2004,1 appeared on the CBS News Sunday morning show 
Face the Nation, hosted by veteran CBS correspondent Bob Schieffer. CBS had been in 
the news a lot in previous weeks because of Dan Rather's 60 Minutes report about 
President George W. Bush's Air National Guard service that turned out to be based 
on bogus documents. After the show that Sunday, Schieffer mentioned that the oddest 
thing had happened to him the week before. When he walked out of the CBS studio, a 
young reporter was waiting for him on the sidewalk. This isn't all that unusual, 
because as with all the Sunday-morning shows, the major networks-CBS, NBC, ABC, CNN, 
and Fox-always send crews to one another's studios to grab exit interviews with the 
guests. But this young man, Schieffer explained, was not from a major network. He 
politely introduced himself as a reporter for a Web site called InDC Journal and asked 
whether he could ask Schieffer a few questions. Schieffer, being a polite fellow, 
said sure. The young man interviewed him on a device Schieffer did not recognize and 


then asked if he could take his picture. A picture? Schieffer noticed that the young 
man had no camera. He didn't need one. He turned his cell phone around and snapped 
Schieffer's picture. 
"So I came in the next morning and looked up this Web site and there was my picture 
and the interview and there were already three hundred comments about it," said 
Schieffer, who, though keenly aware of online journalism, was nevertheless taken 
aback at the incredibly fast, low-cost, and solo manner in which this young man had 
put him up in lights. 
43 
I was intrigued by this story, so I tracked down the young man from InDC Journal. 
His name is Bill Ardolino, andhe is a very thoughtful guy. I conducted my own interview 
with him online -how else? -and began by asking about what equipment he was using 
as a one-man network/newspaper. 
"I used a minuscule MP3 player/digital recorder (three and a half inches by two inches) 
to get the recording, and a separate small digital camera phone to snap his picture," 
said Ardolino. "Not quite as sexy as an all-in-one phone/camera/recorder (which does 
exist), but a statement on the ubiquity and miniaturization of technology nonetheless. 
I carry this equipment around D.C. at all times because, hey, you never know. What's 
perhaps more startling is how well Mr. Schieffer thought on his feet, after being 
jumped on by some stranger with interview questions. He blew me away." 
Ardolino said the MP3 player cost him about $125. It is "primarily designed to play 
music," he explained, but it also "comes prepackaged as a digital recorder that 
creates a WAV sound file that can be uploaded back to a computer . . . Basically, 
I'd say that the barrier to entry to do journalism that requires portable, ad hoc 
recording equipment, is [now] about $100-$200 to $300 if you add a camera, $400 to 
$500 for a pretty nice recorder and a pretty nice camera. [But] $200 is all that you 
need to get the job done." 
What prompted him to become his own news network? 
"Being an independent journalist is a hobby that sprang from my frustration about 
biased, incomplete, selective, and/or incompetent information gathering by the 
mainstream media," explained Ardolino, who describes himself as a "center-right 
libertarian." "Independent journalism and its relative, blogging, are expressions 
of market forces-a need is not being met by current information sources. I started 
taking pictures and doing interviews of the antiwar rallies in D.C, because the media 
was grossly misrepresenting the nature of the groups that were organizing the 
gatherings-unrepentant Marxists, explicit and implicit supporters of terror, etc. 
I originally chose to use humor as a device, but I've since branched out. Do I have 
more power, power to get my message out, yes. The Schieffer interview actually brought 
in about twenty-five 
44 
thousand visits in twenty-four hours. My peak day since I've started was fifty-five 
thousand when I helped break 'Rathergate'... I interviewed the first forensics expert 
in the Dan Rather National Guard story, and he was then specifically picked up by 
The Washington Post, Chicago Sun-Times, Globe, NYT, etc., within forty-eight hours. 


"The pace of information gathering and correction in the CBS fake memo story was 
astounding/' he continued. "It wasn't justthat CBS News 'stonewalled' after the fact, 
it was arguably that they couldn't keep up with an army of dedicated fact-checkers. 
The speed and openness of the medium is something that runs rings around the old 
process. . . I'm a twenty-nine-year-old marketing manager [who] always wanted to write 
for a living but hated the AP style book. As iiberblogger Glenn Reynolds likes to 
say, blogs have given the people a chance to stop yelling at their TV and have a say 
in the process. I think that they serve as sort of a 'fifth estate' that works in 
conjunction with the mainstream media (often by keeping an eye on them or feeding 
them raw info) and potentially function as a journalism and commentary farm system 
that provides a new means to establish success. 
"Like many facets of the topic that you're talking about in your book, there are good 
and bad aspects of the development. The splintering of media makes for a lot of 
incoherence or selective cognition (look at our country's polarization), but it also 
decentralizes power and provides a better guarantee that the complete truth is out 
there . . . somewhere . . . in pieces." 
On any given day one can come across any number of stories, like the encounter between 
Bob Schieffer and Bill Ardolino, that tell you that old hierarchies are being 
flattened and the playing field is being leveled. As Micah L. Sifry nicely put it 
in The Nation magazine (November 22, 2004): "The era of top-down politics-where 
campaigns, institutions and journalism were cloistered communities powered by 
hard-to-amass capital -is over. Something wilder, more engaging and infinitely more 
satisfying to individual participants is arising alongside the old order." 
I offer the Schieffer-Ardolino encounter as just one example of how the flattening 
of the world has happened faster and changed rules, roles, and relationships more 
quickly than we could have imagined. And, 

though I know it is a cliche, I have to say it nevertheless: You ain't seen nothin 
yet. As I detail in the next chapter, we are entering a phase where we are going to 
see the digitization, virtualization, and automation of almost everything. The gains 
in productivity will be staggering for those countries, companies, and individuals 
who can absorb the new technological tools. And we are entering a phase where more 
people than ever before in the history of the world are going to have access to these 
tools- as innovators, as collaborators, and, alas, even as terrorists. You say you 
want a revolution? Well, the real information revolution is about to begin. I call 
this new phase Globalization 3.0 because it followed Globalization 2.0, but I think 
this new era of globalization will prove to be such a difference of degree that it 
will be seen, in time, as a difference in kind. That is why I introduced the idea 
that the world has gone from round to flat. Everywhere you turn, hierarchies are being 
challenged from below or transforming themselves from top-down structures into more 
horizontal and collaborative ones. 
"Globalization is the word we came up with to describe the changing relationships 
between governments and big businesses," said David Rothkopf, a former senior 
Department of Commerce official in the Clinton administration and now a private 


strategic consultant. "But whatis going on today is a much broader, much more profound 
phenomenon." It is not simply about how governments, business, and people communicate, 
not just about how organizations interact, but is about the emergence of completely 
new social, political, and business models. "It is about things that impact some of 
the deepest, most ingrained aspects of society right down to the nature of the social 
contract," added Rothkopf. "What happens if the political entity in which you are 
located no longer corresponds to a job that takes place in cyberspace, or no longer 
really encompasses workers collaborating with other workers in different corners of 
the globe, or no longer really captures products produced in multiple places 
simultaneously? Who regulates the work? Who taxes it? Who should benefit from those 
taxes?" 
If I am right about the flattening of the world, it will be remembered as one of those 
fundamental changes-like the rise of the nation-state or the Industrial 
Revolution-each of which, in its day, noted Rothkopf, 

produced changes in the role of individuals, the role and form of governments, the 
way we innovated, the way we conducted business, the role of women, the way we fought 
wars, the way we educated ourselves, the way religion responded, the way art was 
expressed, the way science and research were conducted, not to mention the political 
labels we assigned to ourselves and to our opponents. "There are certain pivot points 
or watersheds in history that are greater than others because the changes they 
produced were so sweeping, multifaceted, and hard to predict at the time," Rothkopf 
said. 
If the prospect of this flattening-and all of the pressures, dislocations, and 
opportunities accompanying it-causes you unease about the future, you are neither 
alone nor wrong. Whenever civilization has gone through one of these disruptive, 
dislocating technological revolutions- like Gutenberg's introduction of the printing 
press-the whole world has changed in profound ways. But there is something about the 
flattening of the world that is going to be qualitatively different from other such 
profound changes: the speed and breadth with which it is taking hold. The introduction 
of printing happened over a period of decades and for a long time affected only a 
relatively small part of the planet. Same with the Industrial Revolution. This 
flattening process is happening at warp speed and directly or indirectly touching 
a lot more people on the planet at once. The faster and broader this transition to 
a new era, the more likely is the potential for disruption, as opposed to an orderly 
transfer of power from the old winners to the new winners. 
To put it another way, the experiences of the high-tech companies in the last few 
decades who failed to navigate the rapid changes brought about in their marketplace 
by these types of forces may be a warning to all the businesses, institutions, and 
nation-states that are now facing these inevitable, even predictable, changes but 
lack the leadership, flexibility, and imagination to adapt-not because they are not 
smart or aware, but because the speed of change is simply overwhelming them. 
And that is why the great challenge for our time will be to absorb these changes in 
ways that do not overwhelm people but also do not leave them behind. None of this 


will be easy. But this is our task. It 
47 
is inevitable and unavoidable. It is the ambition of this book to offer a framework 
for how to think about it and manage it to our maximum benefit. 
I have shared with you in this chapter how I personally discovered that the world 
is flat. The next chapter details how it got that way. 
::::: TWO 
The Ten Forces That Flattened the World 
The Bible tells us that God created the world in six days and on the seventh day he 
rested. Flattening the world took a little longer. The world has been flattened by 
the convergence often major political events, innovations, and companies. None of 
us has rested since, or maybe ever will again. This chapter is about the forces that 
flattened the world and the multiple new forms and tools for collaboration that this 
flattening has created. 
Flattener #1 
11/9/89 When the Walls Came Down and the Windows Went Up 
The first time I saw the Berlin Wall, it already had a hole in it. It was December 
1990, and I was traveling to Berlin with the reporters covering Secretary of State 
James A. Baker III. The Berlin Wall had been breached a year earlier, on November 
9, 1989. Yes, in a wonderful kabbalistic accident of dates, the Berlin Wall fell on 
11/9. The wall, even in its punctured and broken state, was still an ugly scar across 
Berlin. Secretary Baker was making his first visit to see this crumbled monument to 
Soviet communism. I was standing next to him with a small group of reporters. "It 
was a foggy, overcast day," Baker recalled in 
49 
his memoir, The Politics of Diplomacy, "and in my raincoat, I felt like a character 
in a John leCarre novel. But as I peered through a crack in the Wall [near the Reichstag] 
and saw the high-resolution drabness that characterizes East Berlin, I realized that 
the ordinary men and women of East Germany, peacefully and persistently, had taken 
matters into their own hands. This was their revolution." After Baker finished looking 
through the wall and moved along, we reporters took turns peering through the same 
jagged concrete hole. I brought a couple of chunks of the wall home for my daughters. 
I remember thinking how unnatural it looked-indeed, what a bizarre thing it was, this 
cement wall snaking across a modern city for the sole purpose of preventing the people 
on the other side from enjoying, even glimpsing, freedom. 
The fall of the Berlin Wall on 11/9/89 unleashed forces that ultimately liberated 
all the captive peoples of the Soviet Empire. But it actually did so much more. It 
tipped the balance of power across the world toward those advocating democratic, 
consensual, free-market-oriented governance, and away from those advocating 
authoritarian rule with centrally planned economies. The Cold War had been a struggle 
between two economic systems-capitalism and communism-and with the fall of the wall, 
there was only one system left and everyone had to orient himself or herself to it 
one way or another. Henceforth, more and more economies would be governed from the 
ground up, by the interests, demands, and aspirations of the people, rather than from 


the top down, by the interests of some narrow ruling clique. Within two years, there 
was no Soviet Empire to hide behind anymore or to prop up autocratic regimes in Asia, 
the Middle East, Africa, or Latin America. If you were not a democracy or a 
democratizing society, if you continued to hold fast to highly regulated or centrally 
planned economics, you were seen as being on the wrong side of history. 
For some, particularly among the older generations, this was an unwelcome 
transformation. Communism was a great system for making people equally poor. In fact, 
there was no better system in the world for that than communism. Capitalism madepeople 
unequally rich, and for some who were used to the plodding, limited, but secure 
Socialist 
50 
lifestyle-where a job, a house, an education, and a pension were all guaranteed, even 
if they were meager-the fall of the Berlin Wall was deeply unsettling. But for many 
others, it was a get-out-of-jail-free card. That is why the fall of the Berlin Wall 
was felt in so many more places than just Berlin, and why its fall was such a 
world-flattening event. 
Indeed, to appreciate the far-reaching flattening effects of the fall of the Berlin 
Wall, it's always best to talk to non-Germans or non-Russians. Tarun Das was heading 
the Confederation of Indian Industry when the wall fell in Berlin, and he saw its 
ripple effect felt all the way to India. "We had this huge mass of regulation and 
controls and bureaucracy," he recalled. "Nehru had come to power [after the end of 
British colonial rule] and had a huge country to manage, and no experience of running 
a country. The U.S. was busy with Europe and Japan and the Marshall Plan. So Nehru 
looked north, across the Himalayas, and sent his team of economists to Moscow. They 
came back and said that this country [the Soviet Union] was amazing. They allocate 
resources, they give licenses, there is a planning commission that decides everything, 
and the country moves. So we took that model and forgot that we had a private sector . . . 
That private sector got put under this wall of regulation. By 1991, the private sector 
was there, but under wraps, and there was mistrust about business. They made profits! 
The entire infrastructure from 1947 to 1991 was government-owned . . . [The burden 
of state ownership] almost bankrupted the country. We were not able to pay our debts. 
As a people, we did not have self-confidence. Sure, we might have won a couple of 
wars with Pakistan, but that did not give the nation confidence." 
In 1991, with India running out of hard currency, Manmohan Singh, the finance minister 
at that time (and now the prime minister), decided that India had to open its economy. 
"Our Berlin Wall fell," said Das, "and it was like unleashing a caged tiger. Trade 
controls were abolished. We were always at 3 percent growth, the so-called Hindu rate 
of growth-slow, cautious, and conservative. To make [better returns], you had to go 
to America. Well, three years later [after the 1991 reforms] we were at 7 percent 
rate of growth. To hell with poverty! Now to make it you could stay in India and become 
one of Forbes's richest people in the world ... All the years of socialism and controls 
had taken us downhill to 
51 
the point where we had only $ 1 billion in foreign currency. Today we have $ 118 


billion . . . We went from quiet self-confidence to outrageous ambition in a decade." 
The fall of the Berlin Wall didn't just help flatten the alternatives to free-market 
capitalism and unlock enormous pent-up energies for hundreds of millions of people 
in places like India, Brazil, China, and the former Soviet Empire. It also allowed 
us to think about the world differently-to see it as more of a seamless whole. Because 
the Berlin Wall was not only blocking our way; it was blocking our sight-our ability 
to think about the world as a single market, a single ecosystem, and a single community. 
Before 1989, you could have an Eastern policy or a Western policy, but it was hard 
to think about having a "global" policy. Amartya Sen, the Nobel Prize-winning Indian 
economist now teaching at Harvard, once remarked to me that "the Berlin Wall was not 
only a symbol of keeping people inside East Germany-it was a way of preventing a kind 
of global view of our future. We could not think globally about the world when the 
Berlin Wall was there. We could not think about the world as a whole." There is a 
lovely story in Sanskrit, Sen added, about a frog that is born in a well and stays 
in the well and lives its entire life in the well. "It has a worldview that consists 
of the well," he said. "That was what the world was like for many people on the planet 
before the fall of the wall. When it fell, it was like the frog in the well was suddenly 
able to communicate with frogs in all the other wells... If I celebrate the fall of 
the wall, it is because I am convinced of how much we can learn from each other. Most 
knowledge is learning from the other across the border." 
Yes, the world became a better place to live in after 11/9, because each outbreak 
of freedom stimulated another outbreak, and that process in and of itself had a 
flattening effect across societies, strengthening those below and weakening those 
above. "Women's freedom," noted Sen, citing just one example, "which promotes women's 
literacy, tends to reduce fertility and child mortality and increase the employment 
opportunities for women, which then affects the political dialogue and gives women 
the opportunity for a greater role in local self-government." 
Finally, the fall of the wall did not just open the way for more people 

to tap into one another's knowledge pools. It also paved the way for the adoption 
of common standards-standards onhow economies should be run, onhow accounting should 
be done, on how banking should be conducted, on how PCs should be made, and on how 
economics papers should be written. I discuss this more later, but suffice it to say 
here that common standards create a flatter, more level playing field. To put it 
another way, the fall of the wall enhanced the free movement of best practices. When 
an economic or technological standard emerged and proved itself on the world stage, 
it was much more quickly adopted after the wall was out of the way. In Europe alone, 
the fall of the wall opened the way for the formation of the European Union and its 
expansion from fifteen to twenty-five countries. That, in combination with the advent 
of the euro as a common currency, has created a single economic zone out of a region 
once divided by an Iron Curtain. 
While the positive effects of the wall coming down were immediately apparent, the 
cause of the wall's fall was not so clear. There was no single cause. To some degree 
the termites just ate away at the foundations of the Soviet Union, which were already 


weakened by the system's own internal contradictions and inefficiencies; to some 
degree the Reagan administration's military buildup in Europe forced the Kremlin to 
bankrupt itself paying for warheads; and to some degree Mikhail Gorbachev's hapless 
efforts to reform something that was unreformable brought communism to an end. But 
if I had to point to one factor as first among equals, itwas the information revolution 
that began in the early-to mid-1980s. Totalitarian systems depend on a monopoly of 
information and force, and too much information started to slip through the Iron 
Curtain, thanks to the spread of fax machines, telephones, and other modern tools 
of communication. 
A critical mass of IBM PCs, and the Windows operating system that brought them to 
life, came together in roughly this same time period that the wall fell, and their 
diffusion put the nail in the coffin of communism, because they vastly improved 
horizontal communication-to the detriment of the exclusively top-down form that 
communism was based upon. They also greatly enhanced personal information gathering 
and personal empowerment. (Each component of this information revolu

tion was brought about by separate evolutions: The phone network evolved from the 
desire of people to talk to each other over long distances. The fax machine evolved 
as a way to transmit written communication over the phone network. The PC was diffused 
by the original killer apps-spreadsheets and word processing. And Windows evolved 
out of the need to make all of this usable, and programmable, by the masses.) 
The first IBM PC hit the markets in 1981. At the same time, many computer scientists 
around the world had started using these things called the Internet and e-mail. The 
first version of the Windows operating system shipped in 1985, and the real 
breakthrough version that made PCs truly user-friendly-Windows 3.0-shipped on May 
22, 1990, only six months after the wall went down. In this same time period, some 
people other than scientists started to discover that if they bought a PC and a dial-up 
modem, they could connect their PCs to their telephones and send e-mails through 
private Internet service providers-like CompuServe and America Online. 
"The diffusion of personal computers, fax machines, Windows, and dial-up modems 
connected to a global telephone network all came together in the late 1980s and early 
1990s to create the basic platform that started the global information revolution," 
argued Craig J. Mundie, the chief technology officer for Microsoft. The key was the 
melding of them all together into a single interoperable system. That happened, said 
Mundie, once we had in crude form a standardized computing platform-the IBM PC-along 
with a standardized graphical user interface for word processing and 
spreadsheets-Windows-along with a standardized tool for communication-dial-up 
modems and the global phone network. Once we had that basic interoperable platform, 
then the killer applications drove its diffusion far and wide. 
"People found that they really liked doing all these things on a computer, and they 
really improved productivity," said Mundie. "They all had broad individual appeal 
and made individual people get up and buy a Windows-enabled PC and put it on their 
desk, and that forced the diffusion of this new platform into the world of corporate 
computing even more. People said, 'Wow, there is an asset here, and we should take 


advantage of it.'" 
54 
The more established Windows became as the primary operating system, added Mundie, 
"the more programmers went out and wrote applications for rich-world businesses to 
put on their computers, so they could do lots of new and different business tasks, 
which started to enhance productivity even more. Tens of millions of people around 
the world became programmers to make the PC do whatever they wanted in their own 
languages. Windows was eventually translated into thirty-eight languages. People 
were able to become familiar with the PC in their own languages." 
This was all new and exciting, but we shouldn't forget how constricted this early 
PC-Windows-modem platform was. "This platform was constrained by too many 
architectural limits," said Mundie. "There was missing infrastructure." The Internet 
as we know it today-with seemingly magical transmission protocols that can connect 
everyone and everything-had not yet emerged. Back then, networks had only very basic 
protocols for exchangingfiles and e-mail messages. Sopeople who were using computers 
with the same type of operating systems and software could exchange documents through 
e-mail orfile transfers, but even doing this was tricky enough that only the computing 
elite took the trouble. You couldn't just sit down and zap an e-mail or a file to 
anyone anywhere-especially outside your own company or outside your own Internet 
service-the way you can today. Yes, AOL users could communicate withCompuServe users, 
but it was neither simple nor reliable. As a result, said Mundie, a huge amount of 
data and creativity was accumulating in all those computers, but there was no easy, 
interoperable way to share it and mold it. People could write new applications that 
allowed selected systems to work together, but in general this was limited to planned 
exchanges between PCs within the network of a single company. 
This period from 11/9 to the mid-1990s still led to a huge advance in personal 
empowerment, even if networks were limited. It was the age of "Me and my machine can 
now talk to each other better and faster, so that I personally can do more tasks" 
and the age of "Me and my machine can now talk to a few friends and some other people 
in my company better and faster, so we can become more productive." The walls had 
fallen and the Windows had opened, making the world much flatter than it 
55 
had ever been-but the age of seamless global communication had not dawned. 
Though we didn't notice it, there was a discordant note in this exciting new era. 
It wasn't only Americans and Europeans who joined the people of the Soviet Empire 
in celebrating the fall of the wall-and claming credit for it. Someone else was raising 
a glass-not of champagne but of thick Turkish coffee. His name was Osama bin Laden 
and he had a different narrative. His view was that it was the jihadi fighters in 
Afghanistan, of which he was one, who had brought down the Soviet Empire by forcing 
the Red Army to withdraw from Afghanistan (with some help from U.S. and Pakistani 
forces). And once that mission had been accomplished- the Soviets completed their 
pullout from Afghanistan on February 15, 1989, just nine months before the fall of 
the Berlin Wall-bin Laden looked around and found that the other superpower, the 
United States, had a huge presence in his own native land, Saudi Arabia, the home 


of the two holiest cities in Islam. And he did not like it. 
So, while we were dancing on the wall and opening up our Windows and proclaiming that 
there was no ideological alternative left to free-market capitalism, bin Laden was 
turning his gun sights on America. Both bin Laden and Ronald Reagan saw the Soviet 
Union as the "evil empire," but bin Laden came to see America as evil too. He did 
have an ideological alternative to free-market capitalism-political Islam. He did 
not feel defeated by the end of the Soviet Union; he felt emboldened by it. He did 
not feel attracted to the widened playing field; he felt repelled by it. And he was 
not alone. Some thought that Ronald Reagan brought down the wall by bankrupting the 
Soviet Union through an arms race; others thought IBM, Steve Jobs, and Bill Gates 
brought down the wall by empowering individuals to download the future. But a world 
away, in Muslim lands, many thought bin Laden and his comrades brought down the Soviet 
Empire and the wall with religious zeal, and millions of them were inspired to upload 
the past. 
In short, while we were celebrating 11/9, the seeds of another memorable 
date-9/11-were being sown. But more about that later in the book. For now, let the 
flattening continue. 

Flattener #2 
8/9/95 When Netscape Went Public 
By the mid-1990s, the PC-Windows network revolution had reached its limits. If the 
world was going to become really interconnected, and really start to flatten out, 
the revolution needed to go to the next phase. And the next phase, notes Microsoft's 
Mundie, "was to go from a PC-based computing platform to an Internet-based platform." 
The killer applications that drove this new phase were e-mail and Internet browsing. 
E-mail was being driven by the rapidly expanding consumer portals like AOL, CompuServe, 
and eventually MSN.But it was the new killer app, the Webbrowser-which could retrieve 
documents or Web pages stored on Internet Web sites and display them on any computer 
screen-that really captured the imagination. The actual concept of the World Wide 
Web-a system for creating, organizing, and linking documents so they could be easily 
browsed-was created by British computer scientist TimBerners-Lee. He put up the first 
Web site in 1991, in an effort to foster a computer network that would enable 
scientists to easily share their research. Other scientists and academics had created 
a number of browsers to surf this early Web, but the first mainstream browser-and 
the whole culture of Web browsing for the general public-was created by a tiny start-up 
company in Mountain View, California, called Netscape. Netscape went public on August 
9, 1995, and the world has not been the same since. 
As John Doerr, the legendary venture capitalist whose firm Kleiner Perkins Caulfield 
& Byers had backed Netscape, put it, "The Netscape IPO was a clarion call to the world 
to wake up to the Internet. Until then, it had been the province of the early adopters 
and geeks." 
This Netscape-triggered phase drove the flattening process in several key ways: It 
gave us the first broadly popular commercial browser to surf the Internet. The 
Netscape browser not only brought the Internet alive but also made the Internet 


accessible to everyone from five-year-olds to eighty-five-year-olds. The more alive 
the Internet became, the more consumers wanted to do different things on the Web, 
so the more they de57 
manded computers, software, and telecommunications networks that could easily 
digitize words, music, data, and photos and transport them on the Internet to anyone 
else's computer. This demand was satisfied by another catalytic event: the rollout 
of Windows 95, which shipped the week after Netscape took its stock public. Windows 
95 would soon become the operating system used by most people worldwide, and unlike 
previous versions of Windows, it was equipped with built-in Internet support, so that 
not just browsers but all PC applications could "know about the Internet" and interact 
with it. 
Looking back, what enabled Netscape to take off was the existence, from the earlier 
phase, of millions of PCs, many already equipped with modems. Those are the shoulders 
Netscape stood on. What Netscape did was bring a new killer app-the browser-to this 
installed base ofPCs, making the computer andits connectivity inherently more useful 
for millions of people. This in turn set off an explosion in demand for all things 
digital and sparked the Internet boom, because every investor looked at the Internet 
and concluded that if everything was going to be digitized-data, inventories, 
commerce, books, music, photos, and entertainment-and transported and sold on the 
Internet, then the demand for Internet-based products and services would be infinite. 
This led to the dot-com stock bubble and a massive overinvestment in the fiber-optic 
cable needed to carry all the new digital information. This development, in turn, 
wired the whole world together, and, without anyone really planning it, made Bangalore 
a suburb of Boston. 
Let's look at each one of these developments. 
When I sat down with Jim Barksdale, the former Netscape CEO, to interview him for 
this book, I explained to him that one of the early chapters was about the ten 
innovations, events, and trends that had flattened the world. The first event, I told 
him, was 11/9, and I explained the significance of that date. Then I said, "Let me 
see if you can guess the significance of the second date, 8/9." That was all I told 
him: 8/9. It took Barksdale only a second to ponder that before shooting back with 
the right answer: "The day Netscape went public!" 
58 
Few would argue that Barksdale is one of the great American entrepreneurs. He helped 
Federal Express develop its package tracking and tracing system, then moved over to 
McCaw Cellular, the mobile phone company, built that up, and oversaw its merger with 
AT&T in 1994. Just before the sale closed, he was approached by a headhunter to become 
the CEO of a new company called Mosaic Communications, forged by two now-legendary 
innovators-Jim Clark and Marc Andreessen. In mid-1994, Clark, the founder of Silicon 
Graphics, had joined forces with Andreessen to found Mosaic, which would quickly be 
renamed Netscape Communications. Andreessen, a brilliant young computer scientist, 
had just spearheaded a small software project at the National Center for 
Supercomputing Applications (NC SA), based at the University of Illinois, that 


developed the first really effective Web browser, also called Mosaic. Clark and 
Andreessen quickly understood the huge potential for Web-browsing software and 
decided to partner up to commercialize it. As Netscape began to grow, they reached 
out to Barksdale for guidance and insight into how best to go public. 
Today we take this browser technology for granted, but it was actually one of the 
most important inventions in modern history. When Andreessen was back at the 
University of Illinois NCSA lab, he found that he had PCs, workstations, and the basic 
network connectivity to move files around the Internet, but it was still not very 
exciting-because there was nothing to browse with, no user interface to pull up and 
display the contents of other people's Web sites. So Andreessen and his team developed 
the Mosaic browser, making Web sites viewable for any idiot, scientist, student, or 
grandma. Marc Andreessen did not invent the Internet, but he did as much as any single 
person to bring it alive and popularize it. 
"The Mosaic browser started out in 1993 with twelve users, and I knew all twelve," 
said Andreessen. There were only about fifty Web sites at the time and they were mostly 
just single Web pages. "Mosaic," he explained, "was funded by the National Science 
Foundation. The money wasn't actually allocated to build Mosaic. Our specific group 
was to build software that would enable scientists to use supercomputers that were 
in remote locations, and to connect to them by the NSF network. So we built [the first 
browsers as] software tools to enable researchers to 

'browse' each other's research. I looked at it as a positive feedback loop: The more 
people had the browser, the more people would want to be interconnected, and the more 
incentive there would be to create content and applications and tools. Once that kind 
of thing gets started, it just takes off and virtually nothing can stop it. When you 
are developing it, you are not sure anyone is going to use it, but once it started 
we realized that if anyone is going to use it everyone is going to use it, and the 
only question then was how fast it would spread and what would be the barriers along 
the way." 
Indeed, everyone who tried the browser, including Barksdale, had the same initial 
reaction: Wow! "Every summer, Fortune magazine had an article about the twenty-five 
coolest companies around," Barksdale recalled. "That year [1994] Mosaic was one of 
them. I not only had read about Clark and Andreessen but had turned to my wife and 
said, 'Honey, this a great idea.' And then just a few weeks later I get this call 
from the headhunter. So I went down and spoke to Doerr and Jim Clark, and I began 
using the beta version of the Mosaic browser. I became more and more intrigued the 
more I used it." Since the late 1980s, people had been putting up databases with 
Internet access. Barksdale said that after speaking to Doerr and Clark, he went home, 
gathered his three children around his computer, and asked them each to suggest a 
topic he could browse the Internet for-and wowed them by coming up with something 
for each of them. "That convinced me," said Barksdale. "So I called back the headhunter 
and said, Tm your man.'" 
Netscape's first commercial browser-which could work onan IBM PC, an Apple Macintosh, 
or a Unix computer-was released in December 1994, and within a year it completely 


dominated the market. You could download Netscape for free if you were in education 
or a nonprofit. If you were an individual, you could evaluate the software for free 
to your heart's content and buy it on disk if you wanted it. If you were a company, 
you could evaluate the software for ninety days. "The underlying rationale," said 
Andreessen, "was: If you can afford to pay for it, please do so. If not, use it anyway." 
Why? Because all the free usage stimulated a massive growth in the network, which 
was valuable to all the paying customers. It worked. 
60 
We put up the Netscape browser, said barksdale, and people were downloading it for 
three-month trials. I've never seen volume like this. For big businesses and 
government it was allowing them to connect and unlock all their information, and the 
point-and-click system that Marc Andreessen invented allowed mere mortals to use it, 
not just scientists. And that made it a true revolution. And we said, 'This thing 
will just grow and grow and grow.'" 
Nothing did stop it, and that is why Netscape played another hugely important 
flattening role: It helped make the Internet truly interoperable. You will recall 
that in the Berlin Wall-PC-Windows phase, individuals who had e-mail and companies 
that had internal e-mail could not connect very far. The first Cisco Internet router, 
in fact, was built by a husband and wife at Stanford who wanted to exchange e-mail; 
one was working off a mainframe and the other on a PC, and they couldn't connect. 
"The corporate networks at the time were proprietary and disconnected from each 
other," said Andreessen. "Each one had its own formats, data protocols, and different 
ways of doing content. So there were all these islands of information out there that 
were disconnected. And as the Internet emerged as a public, commercial venture, there 
was a real danger that it would emerge in the same disconnected way." 
Joe in the accounting department would get on his office PC and try to get the latest 
sales numbers for 1995, but he couldn't do that because the sales department was on 
a different system from the one accounting was using. It was as if one was speaking 
German and the other French. And then Joe would say, "Get me the latest shipment 
information from Goodyear on what tires they have sent us," and he would find that 
Goodyear was using a different system altogether, and the dealer in Topeka was running 
yet another system. Then Joe would go home and find his seventh-grader on the World 
Wide Web researching a term paper, using open protocols, and looking at the holdings 
of some art museum in France. And Joe would say, "This is crazy. There has to be one 
totally interconnected network." 
61 
In the years before the Internet became commercial, explained Andreessen, scientists 
developed a series of "open protocols" meant to make everyone's e-mail system or 
university computer network connect seamlessly with everyone else's-to ensure that 
no one had some special advantage. These mathematical-based protocols, which enable 
digital devices to talk to each other, were like magical pipes that, once you adopted 
them for your network, made you compatible with everyone else, no matter what kind 
of computer they were running. These protocols were (and still are) known by their 
alphabet soup names: mainly FTP, HTTP, SSL, SMTP, POP, and TCP/IP. Together, they 


form a system for transporting data around the Internet in a relatively secure manner, 
no matter what network your company or household has or what computer or cell phone 
or handheld device you are using. Each protocol had a different function: TCP/IP was 
the basic plumbing of the Internet, or the basic railroad tracks, on which everything 
else above it was built and moved around. FTP moved files; SMTP and POP moved e-mail 
messages, which became standardized, so that they could be written and read on 
different e-mail systems. HTML was a language that allowed even ordinary people to 
author Web pages that anyone with a Web browser could display. But it was the 
introduction of HTTP to move HTML documents around that gave birth to the World Wide 
Web as we know it. Finally, as people began to use these Web pages for electronic 
commerce, SSL was created to provide security for Web-based transactions. 
As browsing and the Internet in general grew, Netscape wanted to make sure that 
Microsoft, with its huge market dominance, would not be able to shift these Web 
protocols from open to proprietary standards that only Microsoft's servers would be 
able to handle. "Netscape helped to guarantee that these open protocols would not 
be proprietary by commercializing them for the public," said Andreessen. "Netscape 
came along not only with the browser but with a family of software products that 
implemented all these open standards so that the scientists could communicate with 
each other no matter what system they were on-a Cray supercomputer, a Macintosh, or 
a PC. Netscape was able to provide a real reason for everyone to say, 'I want to be 
on open standards for everything I do and for 

all the systems I work on.' Once we created a way to browse the Internet, people wanted 
a universal way to access what was out there. So anyone who wanted to work on open 
standards went to Netscape, where we supported them, or they went to the open-source 
world and got the same standards for free but unsupported, or they went to their 
private vendors and said, 'I am not going to buy your proprietary stuff anymore ... 
I am not going to sign up to your walled garden anymore. I am only going to stay with 
you if you interconnect to the Internet with these open protocols.'" 
Netscape began pushing these open standards through the sale of its browsers, and 
the public responded enthusiastically. Sun started to do the same with its servers, 
and Microsoft started to do the same with Windows 95, considering browsing so critical 
that it famously built its own browser directly into Windows with the addition of 
Internet Explorer. Each realized that the public, which suddenly could not get enough 
of e-mail and browsing, wanted the Internet companies to work together and create 
one interoperable network. They wanted companies to compete with each other over 
different applications, that is, over what consumers could do once they were on the 
Internet-not over how they got on the Internet in the first place. As a result, after 
quite a few "format wars" among the big companies, by the late 1990s the Internet 
computing platform became seamlessly integrated. Soon anyone was able to connect with 
anyone else anywhere on any machine. It turned out that the value of compatibility 
was much higher for everyone than the value of trying to maintain your own little 
walled network. This integration was a huge flattener, because it enabled so many 
more people to get connected with so many more other people. 


There was no shortage of skeptics at the time, who said that none of this would work 
because it was all too complicated, recalled Andreessen. 'Tou had to go out and get 
a PC and a dial-up modem. The skeptics all said, 'It takes people a long time to change 
their habits and learn a new technology.' [But] people did it very quickly, and ten 
years later there were eight hundred million people on the Internet." The reason? 
"People will change their habits quickly when they have a strong reason to do so, 
and people have an innate urge to connect with other people," 
63 
said Andreessen. "And when you give people a new way to connect with other people, 
they will punch through any technical barrier, they will learn new languages-people 
are wired to want to connect with other people and they find it objectionable not 
to be able to. That is what Netscape unlocked." As Joel Cawley, IBM's vice president 
of corporate strategy, put it, "Netscape created a standard around how data would 
be transported and rendered on the screen that was so simple and compelling that anyone 
and everyone could innovate on top of it. It quickly scaled around the world and to 
everyone from kids to corporations." 
In the summer of 1995, Barksdale and his Netscape colleagues went on an old-fashioned 
road show with their investment bankers from Morgan Stanley to try to entice investors 
around the country to buy Netscape stock once it went public. "When we went out on 
the road," said Barksdale, "Morgan Stanley said the stock could sell for as high as 
$14. But after the road show got going, they were getting such demand for the stock, 
they decidedto double the openingprice to $28. The last afternoon before the offering, 
we were all in Maryland. It was our last stop. We had this caravan of black limousines. 
We looked like some kind of Mafia group. We needed to be in touch with Morgan Stanley 
[headquarters], but we were somewhere where our cell phones didn't work. So we pulled 
into these two filling stations across from each other, all these black limos, to 
use the phones. We called up Morgan Stanley, and they said, 'We're thinking ofbringing 
it out at $31.' I said, 'No, let's keep it at $28,' because I wanted people to remember 
it as a $20 stock, not a $30 stock, just in case it didn't go so well. So then the 
next morning I get on the conference call and the thing opened at $71. It closed the 
day at $56, exactly twice the price I set." 
Netscape eventually fell victim to overwhelming (and, the courts decided, 
monopolistic) competitive pressure from Microsoft. Microsoft's decision to give away 
its browser, Internet Explorer, as part of its dominant Windows operating system, 
combined with its ability to throw more programmers at Web browsing than Netscape, 
led to the increasing slippage of Netscape's market share. In the end, Netscape was 
sold for $10 billion to AOL, which never did much with it. But though Netscape may 
64 
have been only a shooting star in commercial terms, what a star it was, and what a 
trail it left. 
"We were profitable almost from the start," said Barksdale. "Netscape was not a 
dot-com. We did not participate in the dot-com bubble. We started the dot-com bubble." 
And what a bubble it was. "Netscape going public stimulated a lot of things," said 
Barksdale. "The technologists loved the new technology things it could do, and the 


businesspeople and regular folks got excited about how much money they could make. 
People saw all those young kids making money out of this and said, 'If those young 
kids can do this and make all that money, I can too.' Greed can be a bad thing-folks 
thought they could make a lot of money without a lot of work. It certainly led to 
a degree of overinvestment, putting it mildly. Every sillier and sillier idea got 
funded." 
What was it that stimulated investors to believe that demand for Internet usage and 
Internet-related products would be infinite? The short answer is digitization. Once 
the PC-Windows revolution demonstrated to everyone the value of being able to digitize 
information and manipulate it on computers and word processors, and once the browser 
brought the Internet alive and made Web pages sing and dance and display, everyone 
wanted everything digitized as much as possible so they could send it to someone else 
down the Internet pipes. Thus began the digitization revolution. Digitization is that 
magic process by which words, music, data, films, files, and pictures are turned into 
bits and bytes-combinations of Is and Os-that can be manipulated on a computer screen, 
stored on a microprocessor, or transmitted over satellites and fiber-optic lines. 
It used to be the post office was where I went to send my mail, but once the Internet 
came alive, I wanted my mail digitized so I could e-mail it. Photography used to be 
a cumbersome process involving film coated with silver dug up from mines halfway 
across the world. I used to take some pictures with my camera, then bring the film 
to the drugstore to be sent off to a big plant somewhere for processing. But once 
the Internet made it possible to send pictures around the world, 

attached to or in e-mails, I didn't want to use silver film anymore. I wanted to take 
pictures in the digital format, which could be uploaded, not developed. (And by the 
way, I didn't want to be confined to using a camera to take them. I wanted to be able 
to use my cell phone to do it.) I used to have to go to Barnes & Noble to buy and 
browse books, but once the Internet came alive, I wanted to browse for books digitally 
on Amazon.com as well. I used to go to the library to do research, but now I wanted 
to do it digitally through Google or Yahoo!, not just by roaming the stacks. I used 
to buy a CD to listen to Simon and Garfunkel-CDs had already replaced albums as a 
form of digitized music-but once the Internet came alive, I wanted those music bits 
to be even more malleable and mobile. I wanted to be able to download them into an 
iPod. In recent years the digitization technology evolved so I could do just that. 
Well, as investors watched this mad rush to digitize everything, they said to 
themselves, "Holy cow. If everyone wants all this stuff digitized and turned into 
bits and transmitted over the Internet, the demand for Web service companies and the 
demand for fiber-optic cables to handle all this digitized stuff around the world 
is going to be limitless! You cannot lose if you invest in this!" 
And thus was the bubble born. 
Overinvestment is not necessarily a bad thing-provided that it is eventually 
corrected. I'll always remember a news conference that Microsoft chairman Bill Gates 
held at the 1999 World Economic Forum in Davos, at the height of the tech bubble. 
Over and over again, Gates was bombarded by reporters with versions of the question, 


"Mr. Gates, these Internet stocks, they're a bubble, right? Surely they're a bubble. 
They must be a bubble?" Finally an exasperated Gates said to the reporters something 
to the effect of, "Look, you bozos, of course they're a bubble, but you're all missing 
the point. This bubble is attracting so much new capital to this Internet industry, 
it is going to drive innovation faster and faster." Gates compared the Internet to 
the gold rush, the idea being that more money was made selling Levi's, picks, shovels, 
and hotel rooms to the gold diggers than from digging up gold from the earth. Gates 
was right: Booms and bubbles may be economically dangerous; they may end up with many 
people losing money and a lot of companies 
66 
going bankrupt. But they also often do drive innovation faster and faster, and the 
sheer overcapacity that they spur-whether it is in railroad lines or automobiles-can 
create its own unintended positive consequences. 
That is what happened with the Internet stock boom. It sparked a huge overinvestment 
in fiber-optic cable companies, which then laid massive amounts of fiber-optic cable 
on land and under the oceans, which dramatically drove down the cost of making a phone 
call or transmitting data anywhere in the world. 
The first commercial installation of a fiber-optic system was in 1977, after which 
fiber slowly began to replace copper telephone wires, because it could carry data 
and digitized voices much farther and faster in larger quantities. According to 
Howstuffworks.com, fiber optics are made up of strands of optically pure glass each 
"as thin as a human hair," which are arranged in bundles, called "optical cables," 
to carry digitized packets of information over long distances. Because these optical 
fibers are so much thinner than copper wires, more fibers can be bundled into a given 
diameter of cable than can copper wires, which means that much more data or many more 
voices can be sent over the same cable at a lower cost. The most important benefit 
of fiber, though, derives from the dramatically higher bandwidth of the signals it 
can transport over long distances. Copper wires can carry very high frequencies too, 
but only for a few feet before the signal starts to degrade in strength due to certain 
parasitic effects. Optical fibers, by contrast, can carry very high-frequency optical 
pulses on the same individual fiber without substantial signal degradation for many, 
many miles. 
The way fiber-optic cables work, explains one of the manufacturers, ARC Electronics, 
on its Web site, is by converting data or voices into light pulses and then 
transmitting them down fiber lines, instead of using electronic pulses to transmit 
information down copper lines. At one end of the fiber-optic system is a transmitter. 
The transmitter accepts coded electronic pulse information-words or data-coming from 
copper wire out of your home telephone or office computer. The transmitter then 
processes and translates those digitized, electronically coded words or data into 
equivalently coded light pulses. A light-emitting diode (LED) 
67 
or an injection-laser diode (ILD) can be used to generate the light pulses, which 
are then funneled down the fiber-optic cable. The cable functions as a kind of light 
guide, guiding the light pulses introduced at one end of the cable through to the 


other end, where a light-sensitive receiver converts the pulses back into the 
electronic digital Is and Os of the original signal, so they can then show up on your 
computer screen as e-mail or in your cell phone as a voice. Fiber-optic cable is also 
ideal for secure communications, because it is very difficult to tap. 
It was actually the coincidence of the dot-com boom and the Telecommunications Act 
of 1996 that launched the fiber-optic bubble. The act allowed local and long-distance 
companies to get into each other's businesses, and enabled all sorts of new local 
exchange carriers to compete head-to-head with the Baby Bells and AT&T in providing 
both phone services and infrastructure. As these new phone companies came online, 
offering their own local, long-distance, international, data, and Internet services, 
each soughtto have its own infrastructure. And why not?The Internet boom led everyone 
to assume that the demand for bandwidth to carry all that Internet traffic would double 
every three months-indefinitely. For about two years that was true. But then the law 
of large numbers started to kick in, and the pace of doubling slowed. Unfortunately, 
the telecom companies weren't paying close attention to the developing mismatch 
between demand and reality. The market was in the grip of an Internet fever, and 
companies just kept building more and more capacity. And the stock market boom meant 
money was free! It was a party! So every one of these incredibly optimistic scenarios 
from every one of these new telecom companies got funded. In a period of about five 
or six years, these telecom companies invested about $ 1 trillion in wiring the world. 
And virtually no one questioned the demand projections. 
Few companies got crazier than Global Crossing, one of the companies hired by all 
these new telecoms to lay fiber-optic cable for them around the world. Global Crossing 
was founded in 1997 by Gary Winnick and went public the next year. Robert Annunziata, 
who lasted only a year as CEO, had a contract that the Corporate Library's Nell Minow 
once 

picked as the worst (from the point of view of shareholders) in the United States. 
Among other things, it included Annunziata's mother's first-class airfare to visit 
him once a month. It also included a signing bonus of 2 million shares of stock at 
$10 a share below market. 
Henry Schacht, a veteran industrialist now with E. M. Warburg, Pincus & Co., was 
brought in by Lucent, the successor of Western Electric, to help manage it through 
this crazy period. He recalled the atmosphere: "The telecom deregulation of 1996 was 
hugely important. It allowed competitive local exchange carriers to build their own 
capacities and sell in competition with each other and with the Baby Bells. These 
new telecoms went to companies like Global Crossing and had them install fiber 
networks for them so they could compete at the transport level with AT&T and MCI, 
particularly on overseas traffic . . . Everyone thought this was a new world, and 
it would never stop. [You had] competitive firms using free capital, and everyone 
thought the pie would expand infinitely. So [each company said,] 'I will put my fiber 
down before you do, and I will get a bigger share than you.' It was supposed to be 
just a vertical growth line, straight up, and we each thought we would get our share, 
so everybodybuilt to the max projections and assumed that they would get their share." 


It turned out that while business-to-business and e-commerce developed as projected, 
and a lot of Web sites that no one anticipated exploded-like eBay, Amazon, and 
Google-they still devoured only a fraction of the capacity that was being made 
available. So when the dotcom bust came along, there was just way too much fiber-optic 
cable out there. Long-distance phone rates went from $2 a minute to 100. And the 
transmission of data was virtually free. "The telecom industry has invested itself 
right out of a business," Mike McCue, chief operations officer of Tellme Networks, 
a voice-activated Internet service, told CNET News.com in June 2001. "They've laid 
so much fiber in the ground that they've basically commoditized themselves. They are 
going to get into massive price wars with everyone and it's going to be a disaster." 
It was a disaster for many of the companies and their investors (Global Crossing filed 
for bankruptcy in January 2002, with $12.4 billion in debt), but it turned out to 
be a great boon for consumers. Just as the na

tional highway system that was built in the 1950s flattened the United States, broke 
down regional differences, and made it so much easier for companies to relocate in 
lower-wage regions, like the South, because ithad become so much easier to move people 
and goods long distances, so the laying of global fiber highways flattened the 
developed world. It helped to break down global regionalism, create a more seamless 
global commercial network, and made it simple and almost free to move digitized 
labor-service jobs and knowledge work-to lower-cost countries. 
(It should be noted, though, that those fiber highways in America tended to stop at 
the last mile-before connecting to households. While a huge amount of long-distance 
fiber cable was laid to connect India and America, virtually none of these new U.S. 
telecom companies laid any substantial new local loop infrastructure, due to a failure 
of the 1996 telecom deregulation act to permit real competition in the local loop 
between the cable companies and the telephone companies. Where the local broadband 
did get installed was in office buildings, which were already pretty well served by 
the old companies. So this pushed prices down for businesses-and for Indians who 
wanted to get online from Bangalore to do business with those businesses-but it didn't 
create the sort of competition that could bring cheap broadband capability to the 
American masses in their homes. That has started happening only more recently.) 
The broad overinvestment in fiber cable is a gift that keeps on giving, thanks to 
the unique nature of fiber optics. Unlike other forms of Internet overinvestment, 
it was permanent: Once the fiber cables were laid, no one was going to dig them up 
and thereby eliminate the overcapacity. So when the telecom companies went bankrupt, 
the banks took them over and then sold their fiber cables for ten cents on the dollar 
to new companies, which continued to operate them, which they could do profitably, 
having bought them in a fire sale. But the way fiber cable works is that each cable 
has multiple strands of fiber init with a potential capacityto transmit many terabits 
of data per second on each strand. When these fiber cables were originally laid, the 
optical switches-the transmitters and receivers-at each end of them could not take 
full advantage of the fiber's full capacity. But every year since then, the optical 
switches 


70 
at each end of that fiber cable have gotten better and better, meaning that more and 
more voices and data can be transmitted down each fiber. So as the switches keep 
improving, the capacity of all the already installed fiber cables just keeps growing, 
making it cheaper and easier to transmit voices and data every year to any part of 
the world. It is as though we laid down a national highway system where people were 
first allowed to drive 50 mph, then 60 mph, then 70 mph, then 80 mph, then eventually 
150 mph on the same highways without any fear of accidents. Only this highway wasn't 
just national. It was international. 
"Every layer of innovation gets built on the next," said Andreessen, who went on from 
Netscape to start another high-tech firm, Opsware Inc. "And today the most profound 
thing to me is the fact that a fourteen-year-old in Romania or Bangalore or the Soviet 
Union or Vietnam has all the information, all the tools, all the software easily 
available to apply knowledge however they want. That is why I am sure the next Napster 
is going to come out of left field. As bioscience becomes more computational and less 
about wet labs, and as all the genomic data becomes easily available on the Internet, 
at some point you will be able to design vaccines on your laptop." 
I think Andreessen touches on what is unique about the flat world and the era of 
Globalization 3.0. It is going to be driven by groups and individuals, but of a much 
more diverse background than those twelve scientists who made up Andreessen's world 
when he created Mosaic. Now we are going to see the real human mosaic emerge-from 
all over the world, from left field and right field, from West and East and North 
and South-to drive the next generation of innovation. Indeed, a few days after 
Andreessen and I talked, the following headline appeared on the front page of The 
New York Times (July 15, 2004): "U.S. Permits 3 Cancer Drugs from Cuba." The story 
went on to say, "The federal government is permitting a California biotechnology 
company to license three experimental cancer drugs from Cuba-making an exception to 
the policy of tightly restricting trade with that country."Executives of the company, 
CancerVex, said that "it was the first time an American biotechnology company had 
obtained permission to license a drug from Cuba, a country that some industry 
executives and scientists say is surprisingly strong in 
71 
biotechnology for a developing nation . . . More than $1 billion was spent over the 
years to build and operate research institutes on the west side of Havana staffed 
by Cuban scientists, many of them educated in Europe." 
Just to summarize again: The PC-Windows flattening phase was about me interacting 
with my computer and me interacting with my own limited network inside my own company. 
Then came along this Internet-e-mail-browser phase, and it flattened the earth a 
little bit more. It was about me and my computer interacting with anyone anywhere 
on any machine, which is what e-mail is all about, and me and my computer interacting 
with anybody's Web site on the Internet, which is what browsing is all about. In short, 
the PC-Windows phase begat the Netscape browsing-e-mail phase and the two together 
enabled more people to communicate and interact with more other people anywhere on 
the planet than ever before. 


But the fun was just beginning. This phase was just the foundation for the next step 
in flattening the flat world. 

Flatten 

Work Flow Software 
Let's Do Lunch: Have Your Application 
Talk to My Application 
I met Scott Hyten, the CEO of Wild Brain, a cutting-edge animation studio in San 
Francisco that produces films and cartoons for Disney and other major studios, at 
a meeting in Silicon Valley in the winter of 2004.1 had been invited by John Doerr, 
the venture capitalist, to test out the ideas in this book to a few of the companies 
that he was backing. Hyten and I really hit it off, maybe because after hearing my 
arguments he wrote me an e-mail that said, "I am sure in Magellan's time there were 
plenty of theologians, geographers, and pundits who wanted to make the world flat 
again. I know the world is flat, and thank you for your support." A man after my own 
heart. 

When I asked him to elaborate, Hyten sketched out for me how animated films are 
produced today through a global supply chain. I understood immediately why he too 
had concluded that the world is flat. "At Wild Brain," he said, "we make something 
out of nothing. We learn how to take advantage of the flat world. We are not fighting 
it. We are taking advantage of it." 
Hyten invited me to come and watch them produce a cartoon segment to really appreciate 
how flat the world is, which I did. The series they were working on when I showed 
up was for the Disney Channel and called Higglytown Heroes. It was inspired by all 
the ordinary people who rose to the challenge of 9/11. Higglytown "is the typical 
1950s small town," said Hyten. "It is Pleasantville. And we are exporting the 
production of this American small town around the world-literally and figuratively. 
The foundation of the story is that every person, all the ordinary people living their 
lives, are the heroes in this small town-from the schoolteacher to the pizza delivery 
man." 
This all-American show is being produced by an all-world supply chain. "The recording 
session," explained Hyten, "is located near the artist, usually in New York or L.A., 
the design and direction is done in San Francisco, the writers network in from their 
homes (Florida, London, New York, Chicago, LA, and San Francisco), and the animation 
of the characters is done in Bangalore with edits from San Francisco. For this show 
we have eight teams in Bangalore working in parallel with eight different writers. 
This efficiency has allowed us to contract with fifty 'stars' for the twenty-six 
episodes. These interactive recording/writing/ animation sessions allow us to record 
an artist for an entire show in less than half a day, including unlimited takes and 
rewrites. We record two actors per week. For example, last week we recorded Anne Heche 
and Smokey Robinson. Technically, we do this over the Internet. We have a VPN [virtual 
private network] configured on computers in our offices and on what we call writers' 


'footballs,' or special laptop computers that can connect over any cat-5 Ethernet 
connection or wireless broadband connection in the 'field.' This VPN allows us to 
share the feed from the microphone, images from the session, the real-time script, 
and all the animation designs amongst all the locations with a simple log-in. There- 
73 
fore, one way for you to observe is for us to ship you a football. You connect at 
home, the office, most hotel rooms, or go down to your local Starbucks [which has 
wireless broadband Internet access], log on, put on a pair of Bose noise-reduction 
headphones, and listen, watch, read, and comment. 'Sharon, can you sell that line 
a little more?' Then, over the eleven-week production schedule for the show, you can 
log in twenty-four hours a day and check the progress of the production as it follows 
the sun around the world. Technically, you need the 'football' only for the session. 
You can use your regular laptop tofollow the 'dailies' and 'edits' over the production 
cycle." 
I needed to see Wild Brain firsthand, because it is a graphic example of the next 
layer of innovation, and the next flattener, that broadly followed on the Berlin 
Wall-Windows and Netscape phases. I call this the "work flow phase." When the walls 
went down, and the PC, Windows, and Netscape browser enabled people to connect with 
other people as never before, it did not take long before all these people who were 
connecting wanted to do more than just browse and send e-mail, instant messages, 
pictures, and music over this Internet platform. They wanted to shape things, design 
things, create things, sell things, buy things, keep track of inventories, do somebody 
else's taxes, and read somebody else's X-rays from half a world away. And they wanted 
to be able to do any of these things from anywhere to anywhere and from any computer 
to any computer-seamlessly. The wall-Windows-Netscape phases paved the way for that 
by standardizing the ways words, music, pictures, and data would be digitized and 
transported on the Internet-so e-mail and browsing became a very rich experience. 
But for all of us to go to the next stage, to get more out of the Internet, the 
flattening process had to go another notch. We needed two things. We needed 
programmers to come along and write new applications- new software-that would enable 
us really to get the maximum from our computers as we worked with these digitized 
data, words, music, and pictures and shaped them into products. We also needed more 
magic pipes, more transmissions protocols, that would ensure that everyone's software 
applications could connect with everyone else's software applications. In short, we 
had to go from an Internet that just connected peo74 
pie to people, and people to their own applications, to an Internet that could connect 
any of my software programs to any of your software programs. Only then could we really 
work together. 
Think of it this way: In the beginning, work flow consisted of your sales department 
taking an order on paper, walking it over to your shipping department, which shipped 
the product, and then someone from shipping walking over to billing with a piece of 
paper and instructing them to churn out an invoice to the customer. As a result of 
the Berlin Wall-Windows-Netscape phases, work flow took a huge leap forward. Now your 


sales department could electronically take that order, e-mail it to the shipping 
department within your own company, and then have the shipping department send out 
the product to the customer and automatically spit out a bill at the same time. The 
fact that all the departments within your company were seamlessly interoperable and 
that work could flow between them was a great boost to productivity-but this could 
happen only if all your company's departments were using the same software and 
hardware systems. More often than not, back in the 1980s and early 1990s, a company's 
sales department was running Microsoft and the inventory department was running 
Novell, and they could not communicate with each other. So work did not flow as easily 
as it should. 
We often forget that the software industry started out like a bad fire department. 
Imagine a city where every neighborhood had a different interface for connecting the 
fire hose to the hydrant. Everything was fine as long as your neighborhood fire 
department could handle your fire. But when a fire became too big, and the fire engines 
from the next neighborhood had to be called in, they were useless because they could 
not connect their hoses to your hydrants. 
For the world to get flat, all your internal departments-sales, marketing, 
manufacturing, billing, and inventory-had to become interoperable, no matter what 
machines or software each of them was running. And for the world to get really flat, 
all your systems had to be interoperable with all the systems of any other company. 
That is, your sales department had to be connected to your supplier's inventory 
department and your supplier's inventory department had to be seamlessly connected 
to its supplier's supplier, which was a factory in China. That way, when you 

made a sale, an item was automatically shipped from your supplier's warehouse, and 
another item was automatically manufactured by your supplier's supplier, and a bill 
was generated from your billing department. The disparate computer systems and 
software applications of three distinctly different companies had to be seamlessly 
interoperable so that work could flow between them. 
In the late 1990s, the software industry began to respond to what its consumers wanted. 
Technology companies, through much backroom wrangling and trial and error, started 
to forge more common Web-based standards, more integrated digital plumbing and 
protocols, so that anyone could fit his hose-his software applications-onto anyone 
else's hydrant. 
This was a quiet revolution. Technically, what made it possible was the development 
of a new data description language, called XML, and its related transport protocol, 
called SOAP. IBM, Microsoft, and a host of other companies contributed to the 
development of both XML and SOAP, and both were subsequently ratified and popularized 
as the Internet standards. XML and SOAP created the technical foundation for software 
program-to-software program interaction, which was the foundation for Web-enabled 
work flow. They enabled digitized data, words, music, and photos to be exchanged 
between diverse software programs so that they could be shaped, designed, manipulated, 
edited, reedited, stored, published, and transported-without any regard to where 
people are physically sitting or what computing devices they are connecting through. 


Once this technical foundation was in place, more and more people started writing 
work flow software programs for more and more different tasks. Wild Brain wanted 
programs to make animated films with a production team spread out around the world. 
Boeing wanted them so that its airplane factories in America could constantly resupply 
different airline customers with parts, through its computer ordering systems, no 
matter what country those orders came from. Doctors wanted them so that an X-ray taken 
in Bangor could be read in a hospital in Bangalore, without the doctor in Maine ever 
having to think about what computers that Indian hospital had. And Mom and Dad wanted 
them because they wanted their e-banking software, e-brokerage software, office 
e-mail, and 
76 
spreadsheet software to all work off their home laptop and be able to interface with 
their office desktop. And once everyone's applications started to connect to everyone 
else's applications-which took several years and lot of technology and brainpower 
to make happen-work could not only flow like never before, but it could be chopped 
up and disaggregated like never before and sent to the four corners of the world. 
This meant that work could flow anywhere. Indeed, it was the ability to enable 
applications to speak to applications, not just people to speak to people, that would 
soon make outsourcing possible. Thanks to different kinds of Web services-work flow, 
said Craig Mundie, Microsoft's chief technology officer, "the industry created a 
global platform for a global workforce of people and computers." 
The vast network of underground plumbing that made it possible for all this work to 
flow has become quite extensive. It includes all the Internet protocols of the 
previous era, like TCP/IP and others, which made browsing and e-mail and Web sites 
possible. It includes newer tools, like XML and SOAP, which enabled Web applications 
to communicate with each other more seamlessly, and it includes software agents known 
as middleware, which serves as an intermediary between wildly diverse applications. 
The nexus of these technologies has been a huge boon to innovation and a huge reducer 
of friction between companies and applications. Instead of everyone trying to control 
the fire hydrant nozzle, they made all the nozzles and hoses the same, creating a 
much bigger market that stretched across every neighborhood of the world. Then 
companies started to compete instead over the quality of the hose, the pump, and the 
fire truck. That is, they competed over who could make the most useful and nifty 
applications. Said Joel Cawley, the head of IBM's strategic planning unit, "Standards 
don't eliminate innovation, they just allow you to focus it. They allow you to focus 
on where the real value lies, which is usually everything you can add above and around 
the standard." 
I found this out writing my last book. Once Microsoft Word got established as the 
global standard, work could flow between people on different continents much more 
easily, because we were all writing off the same screen with the same basic toolbar. 
When I was working on my first book, From Beirut to Jerusalem, in 1988,1 spent part 
of my year's leave in 
77 
the Middle East and had to take notes with pen and paper, as it was the pre-laptop 


and pre-Microsoft Word era. When I wrote my second book, The Lexus and the Olive Tree, 
in 1998, I had to do some of the last-minute editing from the computer behind the 
front desk at a Swiss hotel in Davos on a German version of Microsoft Word. I could 
not understand a single word, a single command function, on the toolbar of the German 
version of Word. But by 1998, I was so familiar with the Word for Windows writing 
program, and where the various on-screen icons were, that I was able to point and 
click my way through the editing on the German version and type my corrections with 
the English letters on the German keyboard. Shared standards are a huge flattener, 
because they both force and empower more people to communicate and innovate over much 
wider platforms. 
Another of my favorite examples of this is PayPal, which enabled eBay's e-commerce 
bazaar to become what it is today. PayPal is a money transfer system founded in 1998 
to facilitate C2C (customer-to-customer) transactions, like a buyer and seller 
brought together by eBay. According to the Web site ecommerce-guide.com, using PayPal, 
anyone with an e-mail address can send money to anyone else with an e-mail address, 
whether the recipient has a PayPal account or not. PayPal doesn't even care whether 
a commercial transaction is taking place. If someone in the office is organizing a 
party for someone else and everyone needs to chip in, they can all do it using PayPal. 
In fact, the organizer can send everyone PayPal reminders by e-mail with clear 
instructions as to how to pay up. PayPal can accept money from the purchaser in one 
of three ways, notes ecommerce-guide.com: charging the purchaser's credit card for 
any transactions (payments), debiting a checking account for any payments, or 
deducting payments from a PayPal account established with a personal check. Payment 
recipients can use the money in their account for online purchases or payments, can 
receive the payment from PayPal by check, or can have PayPal directly deposit the 
money into a checking account. Setting up a PayPal account is simple. As a payer, 
all you have to do is to provide your name, your e-mail address, your credit card 
information, and your billing address for your credit card. 
All of these interoperable banking and e-commerce functions flat

tened the Internet marketplace so radically that even eBay was taken by surprise. 
Before PayPal, explained eBay CEO Meg Whitman, "If I did business on eBay in 1999, 
the only way I could pay you as a buyer was with a check or money order, a paper-based 
system. There was no electronic way to send money, and you were too small a merchant 
to qualify for a credit card account. What PayPal did was enable people, individuals, 
to accept credit cards. I could pay you as an individual seller on eBay with a credit 
card. This really leveled the playing field and made commerce more frictionless." 
In fact, it was so good that eBay bought PayPal, but not on the recommendation of 
its Wall Street investment bankers- on the recommendation of its users. 
"We woke up one day," said Whitman, "and found out that 20 percent of the people on 
eBay were saying, 'I accept PayPal, please pay me that way.' And we said, 'Who are 
these people and what are they doing?' At first we tried to fight them and launched 
our own service, called Billpoint. Finally, in July 2002, we were at [an] eBay Live 
[convention] and the drumbeat through the hall was deafening. Our community was 


telling us, 'Would you guys stop fighting? We want a standard-and by the way, we have 
picked the standard and it's called PayPal, and we know you guys at eBay would like 
it to be your [standard], but it's theirs.' And that is when we knew we had to buy 
the company, because it was the standard and it was not ours... It is the best 
acquisition we ever made." 
Here's how I just wrote the above section: I transferred my notes from the Meg Whitman 
phone interview from my Dell laptop to my Dell desktop, then fired up my DSL connection 
and double-clicked on AOL, where I used Google to find a Web site that could explain 
PayPal, which directed me to ecommerce-guide.com. I downloaded the definition from 
the ecommerce-guide.com Web site, which was written in some Internet font as a text 
file, and then called it up on Microsoft Word, which automatically transformed it 
into a Word document, which I could then use to write this section on my desktop. 
That is also work flow! And what is most important about it is not that I have these 
work flow tools; it is how many people in India, Russia, China, Brazil, and Timbuktu 
now have them as well-along with all the transmission pipes and protocols so they 
too can plug and play from anywhere. 

Where is all this going? More and more work flow will be automated. In the coming 
phase of Web services-work flow, here is how you will make a dentist appointment: 
You will instruct your computer by voice to make an appointment. Your computer will 
automatically translate your voice into a digital instruction. It will automatically 
check your calendar against the available dates on your dentist's calendar and offer 
you three choices. You will click on the preferred date and hour. The week before 
your appointment, your dentist's calendar will automatically send you an e-mail 
reminding you of the appointment. The night before, you will get a computer-generated 
voice message by phone, also reminding of your appointment. 
For work flow to reach this next stage, and the productivity enhancements it will 
deliver, "we need more and more common standards," said IBM's strategic planner Cawley. 
"The first round of standards to emerge with the Internet were around basic data-how 
do you represent a number, how do you organize files, how do you display and store 
content, and how do you share and exchange information. That was the Netscape phase. 
Now a whole new set of standards is emerging to enable work flow. These are standards 
about how we do business work together. For example, when you apply for a mortgage, 
go to your closing, or buy a house, there are literally dozens of processes and data 
flows among many different companies. One bank may handle securing your approval, 
checking your credit, establishing your interest rates, and handling the 
closing-after which the loan almost immediately is sold to a different bank." 
The next level of standards, added Cawley, will be about automating all these 
processes, so they flow even more seamlessly together and can stimulate even more 
standards. We are already seeing standards emerging around payroll, e-commerce 
payment, and risk profiling, around how music and photos are digitally edited, and, 
most important, around how supply chains are connected. All of these standards, on 
top of the work flow software, help enable work to be broken apart, reassembled, and 
made to flow, without friction, back and forth between the most efficient producers. 


The diversity of applications that will automatically be able to interact with each 
other will be limited only by our imaginations. 
80 
The gains in productivity from this could be bigger than anything we have ever seen 
before. 
"Work flow platforms are enabling us to do for the service industry what Henry Ford 
did for manufacturing," said Jerry Rao, the entrepreneur doing accounting work for 
Americans from India. "We are taking apart each task and sending it around to whomever 
can do it best, and because we are doing it in a virtual environment, people need 
not be physically adjacent to each other, and then we are reassembling all the pieces 
back together at headquarters [or some other remote site]. This is not a trivial 
revolution. This is a major one. It allows for a boss to be somewhere and his employees 
to be someplace else." These work flow software platforms, Jerry added, "enable you 
to create virtual global offices-not limited by either the boundaries of your office 
or your country-and to access talent sitting in different parts of the world and have 
them complete tasks that you need completed in real time. And so 24/7/365 we are all 
working. And all this has happened in the twinkling of an eye-the span of the last 
two or three years." 
Genesis: The Flat World Platform Emerges 
We need to stop here and take stock, because at this point-the mid-1990s-the platform 
for the flattening of the world has started to emerge. First, the falling walls, the 
opening of Windows, the digitization of content, and the spreading of the Internet 
browser seamlessly connected people with people as never before. Then work flow 
software seamlessly connected applications to applications, so that people could 
manipulate all their digitized content, using computers and the Internet, as never 
before. When you add this unprecedented new level of people-to-people communication 
to all these Web-based application-to-application work flow programs, you end up with 
a whole new global platform for multiple forms of collaboration. This is the Genesis 
moment for the flattening of the world. This is when it started to take shape. It 
would take more time to converge and really become flat, but this is the moment when 
people started to feel that something was changing. Suddenly more people from 
81 
more different places found that they could collaborate with more other people on 
more different kinds of work and share more different kinds of knowledge than ever 
before. "It is the creation of this platform, with these unique attributes, that is 
the truly important sustainable breakthrough that made what you call the flattening 
of the world possible," said Microsoft's Craig Mundie. 
Indeed, thanks to this platform that emerged from the first three flat-teners, we 
were not just able to talk to each other more, we were able to do more things together. 
This is the key point, argued Joel Cawley, the IBM strategist. "We were not just 
communicating with each other more than ever, we were now able to collaborate-to build 
coalitions, projects, and products together-more than ever." 
The next six flatteners represent the new forms of collaboration which this new 
platform empowered. As J show, some people will use this platform for open-sourcing, 


some for outsourcing, some for offshoring, some for supply-chaining, some for 
insourcing, and some for in-forming. Each of these forms of collaboration was either 
made possible by the new platform or greatly enhanced by it. And as more and more 
of us learn how to collaborate in these different ways, we are flattening the world 
even more. 
Flattener #4 
Open-Sourcing 
Self-Organizing Collaborative Communities 
Alan Cohen still remembers the first time he heard the word "Apache" as an adult, 
and it wasn't while watching a cowboys-and-Indians movie. It was the 1990s, the 
dot-com market was booming, and he was a senior manager for IBM, helping to oversee 
its emerging e-commerce business. "I had a whole team with me and a budget of about 
$8 million," Cohen recalled. "We were competinghead-to-head with Microsoft, Netscape, 
Oracle, Sun-all the big boys. And we were 

playing this very big-stakes game for e-commerce. IBM had a huge sales force selling 
all this e-commerce software. One day I asked the development director who worked 
for me, 'Say, Jeff, walk me through the development process for these e-commerce 
systems. What is the underlying Web server?' And he says to me, It's built on top 
of Apache.' The first thing I think of is John Wayne. 'What is Apache?' I ask. And 
he says it is a shareware program for Web server technology. He said it was produced 
for free by a bunch of geeks just working online in some kind of open-source chat 
room. I was floored. I said, 'How do you buy it?' And he says, Tou download it off 
a Web site for free.' And I said, 'Well, who supports it if something goes wrong?' 
And he says, 'I don't know-it just works!' And that was my first exposure to Apache . . . 
"Now you have to remember, back then Microsoft, IBM, Oracle, Netscape were all trying 
to build commercial Web servers. These were huge companies. And suddenly my 
development guy is telling me that he's getting ours off the Internet for free! It's 
like you had all these big corporate executives plotting strategies, and then suddenly 
the guys in the mail room are in charge. I kept asking, 'Who runs Apache? I mean, 
who are these guys?'" 
Yes, the geeks in the mail room are deciding what software they will be using and 
what you will be using too. It's called the open-source movement, and it involves 
thousands of people around the world coming together online to collaborate in writing 
everything from their own software to their own operating systems to their own 
dictionary to their own recipe for cola-building always from the bottom up rather 
than accepting formats or content imposed by corporate hierarchies from the top down. 
The word "open-source" comes from the notion that companies or ad hoc groups would 
make available online the source code-the underlying programming instructions that 
make a piece of software work-and then let anyone who has something to contribute 
improve it and let millions of others just download it for their own use for free. 
While commercial software is copyrighted and sold, and companies guard the source 
code as they would their crown jewels so they can charge money to anyone who wants 
to use it and thereby generate income to develop new versions, open- 


85 
source software is shared, constantly improved by its users, and made available for 
free to anyone. In return, every user who comes up with an improvement-a patch that 
makes this software sing or dance better-is encouraged to make that patch available 
to every other user for free. 
Not being a computer geek, I had never focused much on the open-source movement, but 
when I did, I discovered it was an amazing universe of its own, with communities of 
online, come-as-you-are volunteers who share their insights with one another and then 
offer it to the public for nothing. They do it because they want something the market 
doesn't offer them; they do it for the psychic buzz that comes from creating a 
collective product that can beat something produced by giants like Microsoft or IBM, 
and-even more important-to earn the respect of their intellectual peers. Indeed, 
these guys and gals are one of the most interesting and controversial new forms of 
collaboration that have been facilitated by the flat world and are flattening it even 
more. 
In order to explain how this form of collaboration works, why it is a flattener and 
why, by the way, it has stirred so many controversies and will be stirring even more 
in the future, I am going to focus on just two basic varieties of open-sourcing: the 
intellectual commons movement and the free software movement. 
The intellectual commons form of open-sourcing has its roots in the academic and 
scientific communities, where for a long time self-organized collaborative 
communities of scientists have come together through private networks and later the 
Internet to pool their brainpower or share insights around a particular science or 
math problem. The Apache Web server had its roots in this form of open-sourcing. When 
I asked a friend of mine, Mike Arguello, an IT systems architect, to explain to me 
why people share knowledge or work in this way, he said, "IT people tend to be very 
bright people and they want everybody to know just how brilliant they are." Marc 
Andreessen, who invented the first Web browser, agreed: "Open-source is nothing more 
than peer-reviewed science. Sometimes people contribute to these things because they 
make science, and they discover things, and the reward is reputation. Sometimes you 
can build a business out of it, sometimes they just want to increase the store 
84 
of knowledge in the world. And the peer review part is critical-and open-source is 
peer review. Every bug or security hole or deviation from standards is reviewed." 
I found this intellectual commons form of open-sourcing fascinating, so I went 
exploring to find out who were those guys and girls in the mail room. Eventually, 
I found my way to one of their pioneers, Brian Behlendorf. If Apache-the open-source 
Web server community-were an Indian tribe, Behlendorf would be the tribal elder. I 
caught up with him one day in his glass-and-steel office near the San Francisco airport, 
where he is now founder and chief technology officer of CollabNet, a start-up focused 
on creating software for companies that want to use an open-source approach to 
innovation. I started with two simple questions: Where did you come from? and: How 
did you manage to pull together an open-source community of online geeks that could 
go toe-to-toe with IBM? 


"My parents met at IBM in Southern California, and I grew up in a town just north 
of Pasadena, La Canada," Behlendorf recalled. "The public school was very competitive 
academically, because a lot of the kids' parents worked at the Jet Propulsion 
Laboratory that was run by Caltech there. So from a very early age I was around a 
lot of science in a place where it was okay to be kind of geeky. We always had computers 
around the house. We used to use punch cards from the original IBM mainframes for 
making shopping lists. In grade school, I started doing some basic programming, and 
by high school I was pretty into computers... I graduated in 1991, but in 1989, in 
the early days of the Internet, a friend gave me a copy of a program he had downloaded 
onto a floppy disk, called 'Fractint.' It was not pirated, but was freeware, produced 
by a group of programmers, and was a program for drawing fractals. [Fractals are 
beautiful images produced at the intersection of art and math.] When the program 
started up, the screen would show this scrolling list of e-mail addresses for all 
the scientists and mathematicians who contributed to it. I noticed that the source 
code was included with the program. This was my first exposure to the concept of 
open-source. Here was this program that you just downloaded for free, and they even 
gave you the source code with it, and it was done by a community of people. It 

started to paint a different picture of programming in my mind. I started to think 
that there were some interesting social dynamics to the way certain kinds of software 
were written or could be written-as opposed to the kind of image I had of the 
professional software developer in the back office tending to the mainframe, feeding 
info in and taking it out for the business. That seemed to me to be just one step 
above accounting and not very exciting." 
After graduating in 1991, Behlendorf went to Berkeley to study physics, but he quickly 
became frustrated by the disconnect between the abstractions he was learning in the 
classroom and the excitement that was starting to emerge on the Internet. 
"When you entered college back then, every student was given an e-mail address, and 
I started using it to talk to students and explore discussion boardsthat were starting 
to appear around music," said Behlendorf. "In 1992,1 started my own Internet mailing 
list focused on the local electronic music scene in the Bay Area. People could just 
post onto the discussion board, and it started to grow, and we started to discuss 
different music events and DJs. Then we said, 'Hey, why don't we invite our own DJs 
and throw our own events?' It became a collective thing. Someone would say, 'I have 
some records,' and someone else would say, 'I have a sound system,' and someone else 
would say, 'I know the beach and if we showed up at midnight we could have a party.' 
By 1993, the Internet was still just mailing lists and e-mail and FTP sites [file 
transfer protocol repositories where you could store things]. So I started collecting 
an archive of electronic music and was interested in how we could put this online 
and make it available to a larger audience. That was when I heard about Mosaic [the 
Web browser developed by Marc Andreessen.] So I got a job at the computer lab in the 
Berkeley business school, and I spent my spare time researching Mosaic and other Web 
technologies. That led me to a discussion board with a lot of the people who were 
writing the first generation of Web browsers and Web servers." 


(A Web server is a software program that enables anyone to use his or her home or 
office computer to host a Web site on the World Wide Web. Amazon.com, for instance, 
has long run its Web site on Apache software. 
86 
When your Web browser goes to www.amazon.com, the very first piece of software it 
talks to is Apache. The browser asks Apache for the Amazon Web page and Apache sends 
back to the browser the content of the Amazon Web page. Surfing the Web is really 
your Web browser interacting with different Web servers.) 
"I found myself sitting in on this forum watching Tim Berners-Lee and Marc Andreessen 
debating how all these things should work," recalled Behlendorf. "It was pretty 
exciting, and it seemed radically inclusive. I didn't need a Ph.D. or any special 
credentials, and I started to see some parallels between my music group and these 
scientists, who had a common interest in building the first Web software. I followed 
that [discussion] for a while and then I told a friend of mine about it. He was one 
of the first employees at Wired magazine, and he said Wired would be interested in 
having me set up a Web site for them. So I joined there at $10 an hour, setting up 
their e-mail and their first Web site-HotWired ... It was one of the first ad-supported 
online magazines." 
HotWired decided it wanted to start by having a registration system that required 
passwords-a controversial concept at that time. "In those days," noted Andrew Leonard, 
who wrote a history of Apache for Salon.com in 1997, "most Webmasters depended on 
a Web server program developed at the University of Illinois's National Center for 
Super-computing Applications (also the birthplace of the groundbreaking Mosaic Web 
browser). But theNCSA Web server couldn't handle password authentication onthe scale 
that HotWired needed. Luckily, the NCSA server was in the public domain, which meant 
that the source code was free to all comers. So Behlendorf exercised the hacker 
prerogative: He wrote some new code, a 'patch' to the NCSA Web server, that took care 
of the problem." Leonard commented, "He wasn't the only clever programmer rummaging 
through the NCSA code that winter. All across the exploding Web, other Webmasters 
were finding it necessary to take matters into their own keyboards. The original code 
had been left to gather virtual dust when its primary programmer, University of 
Illinois student Rob McCool, had been scooped up (along with Marc Andreessen and Lynx 
author Eric Bina) by a little-known company in Silicon Valley named Netscape. 
Meanwhile, the Web refused to stop growing-and 
87 
kept creating new problems for Web servers to cope with." So patches of one kind or 
another proliferated like Band-Aids on bandwidth, plugging one hole here and 
breaching another gap there. 
Meanwhile, all these patches were slowly, in an ad hoc open-source manner, building 
a new modern Web server. But everyone had his or her own version, trading patches 
here and there, because the NCSA lab couldn't keep up with it all. 
"I was just this near-dropout," explained Behlendorf. "I was having a lot of fun 
building this Web site for Wired and learning more than I was learning at Berkeley. 
So a discussion started in our little working group that the NCSA people were not 


answering our e-mails. We were sending in patches for the system and they weren't 
responding. And we said, 'If NCSA would not respond to our patches, what's going to 
happen in the future?' We were happy to continue improving this thing, yet we were 
worried when we were not getting any feedback and seeing our patches integrated. So 
I started to contact the other people I knew trading patches. . . Most of them were 
on the standards working groups [the Internet Engineering Task Force] that were 
setting the first standards for the interconnectivity between machines and 
applications on the Internet... And we said, 'Why don't we take our future into our 
own hands and release our own [Web server] version that incorporated all our patches?' 
"We looked up the copyright for the NCSA code, and it basically just said give us 
credit at Illinois for what we invented if you improve it-and don't blame us if it 
breaks," recalled Behlendorf. "So we started building our own version from all our 
patches. None of us had time to be a full-time Web server developer, but we thought 
if we could combine our time and do it in a public way, we could create something 
better than we could buy off the shelf-and nothing was available then, anyway. This 
was all before Netscape had shipped its first commercial Web server. That was the 
beginning of the Apache project." 
By February 1999, they had completely rewritten the original NCSA program and 
formalized their cooperation under the name "Apache." 
"I picked the name because I wanted it to have a positive connotation of being 
assertive," said Behlendorf. "The Apache tribe was the last tribe 

to surrender to the oncoming U.S. government, and at the time we worried that the 
big companies would come in and 'civilize' the landscape that the early Internet 
engineers built. So 'Apache' made sense to me as a good code name, and others said 
it also would make a good pun"-as in the APAtCHy server, because they were patching 
all these fixes together. 
So in many ways, Bellendorf and his open-source colleagues-most of whom he had never 
met but knew only by e-mail through their open-source chat room-had created a virtual, 
online, bottom-up software factory, which no one owned and no one supervised. "We 
had a software project, but the coordination and direction were an emergent behavior 
based on whoever showed up and wanted to write code," he said. 
But how does it actually work? I asked Behlendorf. You can't just have a bunch of 
people, unmonitored, throwing code together, can you? 
"Most software development involves a source code repository and is managed by tools 
such as the Concurrent Versions System," he explained. "So there is a CVS server out 
there, and I have a CVS program on my computer. It allows me to connect to the server 
and pull down a copy of the code, so I can start working with it and making 
modifications. If I think my patch is something I want to share with others, I run 
a program called Patch, which allows me to create a new file, a compact collection 
of all the changes. That is called a patch file, and I can give that file to someone 
else, and they can apply it to their copy of the code to see what impact that patch 
has. If I have the right privileges to the server [which is restricted to a tightly 
controlled oversight board], I can then take my patch and commit it to the repository 


and it will become part of the source code. The CVS server keeps track of everything 
and who sent in what... So you might have 'read access' to the repository but not 
'commit access' to change things. When someone makes a commit to the repository, that 
patch file gets e-mailed out to all the other developers, and so you get this peer 
review system after the fact, and if there is something wrong, you fix the bug." 
So how does this community decide who are trusted members? 
"For Apache," said Behlendorf, "we started with eight people who really trusted each 
other, and as new people showed up at the discussion forum and offered patch files 
posted to the discussion form, we would 
89 
gain trust in others, and that eight grew to over one thousand. We were the first 
open-source project to get attention from the business community and get the backing 
from IBM." 
Because of Apache's proficiency at allowing a single-server machine to host thousands 
of different virtual Web sites-music, data, text, pornography-it began to have "a 
commanding share of the Internet Service Provider market," noted Salon's Leonard. 
IBM was trying to sell its own proprietary Web server, called GO, but it gained only 
a tiny sliver of the market. Apache proved to be both a better technology and free. 
So IBM eventually decided that if it could not beat Apache, it should join Apache. 
You have to stop here and imagine this. The world's biggest computer company decided 
that its engineers could not best the work of an ad hoc open-source collection of 
geeks, so they threw out their own technology and decided to go with the geeks! 
IBM "initiated contact with me, as I had a somewhat public speaker role for Apache," 
said Behlendorf. "IBM said, 'We would like to figure out how we can use [Apache] and 
not get flamed by the Internet community, [how we can] make it sustainable and not 
just be ripping people off but contributing to the process. . .' IBM was saying that 
this new model for software development was trustworthy and valuable, so let's invest 
in it and get rid of the one that we are trying to make on our own, which isn't as 
good." 
John Swainson was the senior IBM executive who led the team that approached Apache 
(he's now chairman of Computer Associates). He picked up the story: "There was a whole 
debate going on at thetime about open-source, but it was all over the place. We decided 
we could deal with the Apache guys because they answered our questions. We could hold 
a meaningful conversation with these guys, and we were able to create the [nonprofit] 
Apache Software Foundation and work out all the issues." 
At IBM's expense, its lawyers worked with the Apache group to create a legal framework 
around it so that there would be no copyright or liability problems for companies, 
like IBM, that wanted to build applications on top of Apache and charge money for 
them. IBM saw the value in having a standard vanilla Web server architecture-which 
allowed 
90 
heterogeneous computer systems and devices to talk to each other, displaying e-mail 
and Web pages in a standard format-that was constantly being improved for free by 
an open-source community. The Apache collaborators did not set out to make free 


software. They set out to solve a common problem-Web serving-and found that 
collaborating for free in this open-source manner was the best way to assemble the 
best brains for the job they needed done. 
"When we started working with Apache, there was an apache.org Web site but no formal 
legal structure, and businesses and informal structures don't coexist well," said 
Swainson. "You need to be able to vet the code, sign an agreement, and deal with 
liability issues. [Today] anybody can download the Apache code. The only obligation 
is that they acknowledge that it came from the site, and if they make any changes 
that they share them back." There is an Apache development process that manages the 
traffic, and you earn your way into that process, added Swainson. It is something 
like a pure meritocracy.When IBM started using Apache, it became part of the community 
and started making contributions. 
Indeed, the one thing the Apache people demanded in return for their collaboration 
with IBM was that IBM assign its best engineers to join the Apache open-source group 
and contribute, like everyone else, for free. "The Apache people were not interested 
in payment of cash," said Swainson. "They wanted contribution to the base. Our 
engineers came to us and said, 'These guys who doApache are good andthey are insisting 
that we contribute good people.' At first they rejected some of what we contributed. 
They said it wasn't up to their standards! The compensation that the community 
expected was our best contribution." 
On June 22, 1998, IBM announced plans to incorporate Apache into its own new Web server 
product, named WebSphere. The way the Apache collaborative community organized itself, 
whatever you took out of Apache's code and improved on, you had to give back to the 
whole community. But you were also free to go out and build a patented commercial 
product on top of the Apache code, as IBM did, provided that you included a copyright 
citation to Apache in your own patent. In other words, this intellectual commons 
approach to open-sourcing encour- 

aged people to build commercial products on top of it. While it wanted the foundation 
to be free and open to all, it recognized that it would remain strong and fresh if 
both commercial and noncommercial engineers had an incentive to participate. 
Today Apache is one of the most successful open-source tools, powering about 
two-thirds of the Web sites in the world. And because Apache can be downloaded for 
free anywhere in the world, people from Russia to South Africa to Vietnam use it to 
create Web sites. Those individuals who need or want added capabilities for their 
Web servers can buy products like WebSphere, which attach right on top of Apache. 
At the time, selling a product built on top of an open-source program was a risky 
move on IBM's part. To its credit, IBM was confident in its ability to keep producing 
differentiated software applications on top of the Apache vanilla. This model has 
since been widely adopted, after everyone saw how it propelled IBM's Web server 
business to commercial leadership in that category of software, generating huge 
amounts of revenue. 
As I will repeat often in this book: There is no future in vanilla for most companies 
in a flat world. A lot of vanilla making in software and other areas is going to shift 


to open-source communities. For most companies, the commercial future belongs to 
those who know how to make the richest chocolate sauce, the sweetest, lightest whipped 
cream, and the juiciest cherries to sit on top, or how to put them all together into 
a sundae. Jack Messman, chairman of the Novell software company, which has now become 
a big distributor of Linux, the open-source operating system, atop which Novell 
attaches gizmos to make it sing and dance just for your company, put it best: 
"Commercial software companies have to start operating further up the [software] 
stack to differentiate themselves. The open source community is basically focusing 
on infrastructure" (Financial Times, June 14, 2004). 
The IBM deal was a real watershed. Big Blue was saying that it believed in the 
open-source model and that with the Apache Web server, this open-source community 
of engineers had created something that was not just useful and valuable but "best 
in its class." That's why the open-source movement has become a powerful flattener, 
the effects of which we are just beginning to see. "It is incredibly empowering of 
indi- 

viduals," Brian Behlendorf said. "It doesn't matter where you come from or where you 
are-someone in India and South America can be just as effective using this software 
or contributing to it as someone in Silicon Valley." The old model is winner take 
all: I wrote it, I own it-the standard software license model. "The only way to compete 
against that," concluded Behlendorf, "is to all become winners." 
Behlendorf, for his part, is betting his career that more and more people and companies 
will want to take advantage of the new flat-world platform to do open-source 
innovation. In 2004, he started a new company called CollabNet to promote the use 
of open-sourcing asa tool to drive software innovation within companies. "Our premise 
is that software is not gold, it is lettuce-it is a perishable good," explained 
Behlendorf. "If the software is not in a place where it is getting improved over time, 
it will rot." What the open-source community has been doing, said Behlendorf, is 
globally coordinated distributed software development, where it is constantly 
freshening the lettuce so that it never goes rotten. Behlendorfs premise is that the 
open-source community developed a better method for creating and constantly updating 
software. CollabNet is a company created to bring the best open-source techniques 
to a closed community, i.e., a commercial software company. 
"CollabNet is an arms dealer to the forces flattening the world," said Behlendorf. 
"Our role in this world is to build the tools and infrastructure so that an individual 
-in India, China, or wherever-as a consultant, an employee, or just someone sitting 
at home can collaborate. We are giving them the toolkit for decentralized 
collaborative development. We are enabling bottom-up development, and not just in 
cyberspace . . . We have large corporations who are now interested in creating a 
bottom-up environment for writing software. The old top-down, silo software model 
is broken. That system said, 'I develop something and then I throw it over the wall 
to you. You find the bugs and then throw it back. I patch it and then sell a new 
version.' There is constant frustration with getting software that is buggy-maybe 
it will get fixed or maybe not. So we said, 'Wouldn't it be interesting if we could 


take the open-source benefits of speed of innovation and higher-quality software, 
and that feel- 
93 
ing of partnership with all these stakeholders, and turn that into a business model 
for corporations to be more collaborative both within and without?'" 
I like the way Irving Wladawsky-Berger, IBM's Cuban-born vice president for technical 
strategy andinnovation, summed open-sourcing up: "This emerging era is characterized 
by the collaborative innovation of many people working in gifted communities, just 
as innovation in the industrial era was characterized by individual genius." 
The strikingthing about the intellectual commons form of open-sourcing is how quickly 
it has morphed into other spheres and spawned other self-organizing collaborative 
communities, which are flattening hierarchies in their areas. I see this most vividly 
in the news profession, where bloggers, one-person online commentators, who often 
link to one another depending on their ideology, have created a kind of open-source 
newsroom. I now read bloggers (the term comes from the word "Weblog") as part of my 
daily information-gathering routine. In an article about how a tiny group of 
relatively obscure news bloggers were able to blow the whistle that exposed the bogus 
documents used by CBS News's Dan Rather in his infamous report about President George 

W. Bush's Air National Guard service, Howard Kurtz of The Washington Post wrote 
(September 20, 2004), "It was like throwing a match on kerosene-soaked wood. The 
ensuing blaze ripped through the media establishment as previously obscure bloggers 
managed to put the network of Murrow and Cronkite firmly on the defensive. The secret, 
says Charles Johnson, is 'open-source intelligence gathering.' Meaning: 'We've got 
a huge pool of highly motivated people who go out there and use tools to find stuff. 
We've got an army of citizen journalists out there.'" That army is often armed with 
nothing more than a tape recorder, a camera-enabled cell phone, and a Web site, but 
in a flat world it can collectively get its voice heard as far and wide as CBS or 
The New York Times. These bloggers have created their own online commons, with no 
barriers to entry. That open commons often has many rumors and wild 
94 
allegations swirling in it. Because no one is in charge, standards of practice vary 
wildly, and some of it is downright irresponsible. But because no one is in charge, 
information flows with total freedom. And when this community is on to something real, 
like the Rather episode, it can create as much energy, buzz, and hard news as any 
network or major newspaper. 
Another intellectual commons collaboration that I used regularly in writing this book 
is Wikipedia, the user-contributed online encyclopedia, also known as "the people's 
encyclopedia." The word "wikis" is taken from the Hawaiian word for "quick." Wikis 
are Web sites that allow users to directly edit any Web page on their own from their 
home computer. In a May 5, 2004, essay on YaleGlobal online, Andrew Lih, an assistant 
professor at the Journalism and Media Studies Centre at the University of Hong Kong, 
explained how Wikipedia works and why it is such a breakthrough. 
"The Wikipedia project was started by JimmyWales, head of Internet startup Bomis.com, 
after his original project for a volunteer, but strictly controlled, free 

encyclopedia ran out of money and resources after two years," wrote Lih. "Editors 
with PhD degrees were at the helm of the project then, but it produced only a few 
hundred articles. Not wanting the content to languish, Wales placed the pages on a 
wiki Website in January 2001 and invited any Internet visitors to edit or add to the 
collection. The site became a runaway success in the first year and gained a loyal 
following, generating over 20,000 articles and spawning over a dozen language 
translations. After two years, it had 100,000 articles, and in April 2004, it exceeded 
250,000 articles in English and 600,000 articles in 50 other languages.And according 
to Website rankings at Alexa.com, it has become more popular than traditional online 
encyclopedias such as Britannica.com." 
How, you might ask, does one produce a credible, balanced encyclopedia by way of an 
ad hoc open-source, open-editing movement? After all, every article in the Wikipedia 
has an "Edit this page" button, allowing anyone who surfs along to add or delete 
content on that page. 
It starts with the fact, Lih explained, that "because wikis provide the 

ability to track the status of articles, review individual changes, and discuss issues, 
they function as social software. Wiki Websites also track and store every 
modification made to an article, so no operation is ever permanently destructive. 
Wikipedia works by consensus, with users adding and modifying content while trying 
to reach common ground along the way. 
"However, the technology is not enough on its own," wrote Lih. "Wales created an 
editorial policy of maintaining a neutral point of view (NPOV) as the guiding 
principle . . . According to Wikipedia's guidelines, The neutral point of view 
attempts to present ideas and facts in such a fashion that both supporters and 
opponents can agree . . .' As a result, articles on contentious issues such as 
globalization have benefited from the cooperative and global nature of Wikipedia. 
Over the last two years, the entry has had more than 90 edits by contributors from 
the Netherlands, Belgium, Sweden, United Kingdom, Australia, Brazil, United States, 
Malaysia, Japan and China. It provides a manifold view of issues from the World Trade 
Organization and multinational corporations to the anti-globalization movement and 
threats to cultural diversity. At the same time malicious contributors are kept in 
check because vandalism is easily undone. Users dedicated to fixing vandalism watch 
the list of recent changes, fixing problems within minutes, if not seconds. A defaced 
article can quickly be returned to an acceptable version with just one click of a 
button. This crucial asymmetry tipsthe balance in favor of productive and cooperative 
members of the wiki community, allowing quality content to prevail." A Newsweek piece 
on Wikipedia (November 1, 2004) quoted Angela Beesley, a volunteer contributor from 
Essex, England, and self-confessed Wikipedia addict who monitors the accuracy of more 
than one thousand entries: "A collaborative encyclopedia sounds like a crazy idea, 
but it naturally controls itself." 
Meanwhile, Jimmy Wales is just getting started. He told Newsweek that he is expanding 
into Wiktionary, a dictionary and thesaurus; Wikibooks, textbooks and manuals; and 
Wikiquote, a book of quotations. He said he has one simple goal: to give "every single 


person free access to the sum of all human knowledge." 
96 
Wales's ethic that everyone should have free access to all human knowledge is 
undoubtedly heartfelt, but it also brings usto the controversial side of open-source: 
If everyone contributes his or her intellectual capital for free, where will the 
resources for new innovation come from? And won't we end up in endless legal wrangles 
over which part of any innovation was made by the community for free, and meant to 
stay that way, and which part was added on by some company for profit and has to be 
paid for so that the company can make money to drive further innovation? These 
questions are all triggered by the other increasingly popular form of self-organized 
collaboration-the free software movement. According to the openknowledge.org Web 
site, "The free/open source software movement began in the 'hacker' culture of U.S. 
computer science laboratories (Stanford, Berkeley, Carnegie Mellon, and MIT) in the 
1960's and 1970's. The community ofprogrammers was small, and close-knit. Codepassed 
back and forth between the members of the community-if you made an improvement you 
were expected to submit your code to the community of developers. To withhold code 
was considered gauche-after all, you benefited from the work of your friends, you 
should return the favor." 
The free software movement, however, was and remains inspired by the ethical ideal 
that software should be free and available to all, and it relies on open-source 
collaboration to help produce the best software possible to be distributed for free. 
This a bit different from the approach of the intellectual commons folks, like Apache. 
They saw open-sourcing as a technically superior means of creating software and other 
innovations, and while Apache was made available to all for free, it had no problem 
with commercial software being built on top of it. The Apache group allowed anyone 
who created a derivative work to own it himself, provided he acknowledge the Apache 
contribution. 
The primary goal of the free software movement, however, is to get as many people 
as possible writing, improving, and distributing software for free, out of a 
conviction that this will empower everyone and free individuals from the grip of 
global corporations. Generally speaking, the free 
97 
software movement structures its licenses so that if your commercial software draws 
directly from their free software copyright, they want your software to be free too. 
In 1984, according to Wikipedia, an MIT researcher and one of these ex-hackers, 
Richard Stallman, launched the "free software movement" along with an effort to build 
a free operating system called GNU. To promote free software, and to ensure that its 
code would always be freely modifiable and available to all, Stallman founded the 
Free Software Foundation and something called the GNU General Public License (GPL). 
The GPL specified that users of the source code could copy, change, or upgrade the 
code, provided that they made their changes available under the same license as the 
original code. In 1991, a student at the University of Helsinki named Linus Torvalds, 
building off of Stallman's initiative, posted his Linux operating system to compete 
with the Microsoft Windows operating system and invited other engineers and geeks 


online to try to improve it-for free. Since Torvalds's initial post, programmers all 
over the world have manipulated, added to, expanded, patched, and improved the 
GNU/Linux operating system, whose license says anyone can download the source code 
and improve upon it but then must make the upgraded version freely available to 
everybody else. Torvalds insists that Linux must always be free. Companies that sell 
software improvements that enhance Linux or adapt it to certain functions have to 
be very careful not to touch its copyright in their commercial products. 
Much like Microsoft Windows, Linux offers a family of operating systems that can be 
adapted to run on the smallest desktop computers, laptops, PalmPilots, and even 
wristwatches, all the way up to the largest supercomputers and mainframes. So a kid 
in India with a cheap PC can learn the inner workings of the same operating system 
that is running in some of the largest data centers of corporate America. Linux has 
an army of developers across the globe working to make it better. As I was working 
on this segment of the book, I went to a picnic one afternoon at the Virginia country 
home of Pamela and Malcolm Baldwin, whom my wife came to know through her membership 
on the board of World Learning, an educational NGO. I mentioned in the course of lunch 
that I was 

thinking of going to Mali to see just how flat the world looked from its outermost 
edge-the town of Timbuktu. The Baldwins' son Peter happened to be working in Mali 
as part of something called the GeekCorps, which helps to bring technology to 
developing countries. A few days after the lunch, I received an e-mail from Pamela 
telling me that she had consulted with Peter about accompanying me to Timbuktu, and 
then she added the following, which told me everything I needed to know and saved 
me the whole trip: "Peter says that his project is creating wireless networks via 
satellite, making antennas out of plastic soda bottles and mesh from window screens! 
Apparently everyone in Mali uses Linux. . ." 
"Everyone in Mali uses Linux." That is no doubt a bit of an exaggeration, but it's 
a phrase that you'd hear only in a flat world. 
The free software movement has become a serious challenge to Microsoft and some other 
big global software players. As Fortune magazine reported on February 23, 2004, "The 
availability of this basic, powerful software, which works on Intel's ubiquitous 
microprocessors, coincided with the explosive growth of the Internet. Linux soon 
began to gain a global following among programmers and business users . . . The 
revolution goes far beyond little Linux . . . Just about any kind of software [now] 
can be found in open-source form. The SourceForge.net website, a meeting place for 
programmers, lists an astounding 86,000 programs in progress. Most are minor projects 
by and for geeks, but hundreds pack real value . . . If you hate shelling out $350 
for Microsoft Office or $600 for Adobe Photoshop, OpenOffice.org and the Gimp are 
surprisingly high-quality free alternatives." Big companies like Google, E*Trade, 
and Amazon, by combining Intel-based commodity server components and the Linux 
operating system, have been able dramatically to cut their technology spending-and 
get more control over their software. 
Why would so many people be ready to write software that would be given away for free? 


Partly it is out of the pure scientific challenge, which should never be 
underestimated. Partly it is because they all hate Micro-

soft for the way it has so dominated the market and, in the view of many techies, 
bullied everyone else. Partly it is because they believe that open-source software 
can be kept more fresh and bugfree than any commercial software, because of the way 
it is constantly updated by an army of unpaid programmers. And partly it is because 
some big tech companies are paying engineers to work on Linux and other software, 
hoping it will cut into Microsoft's market share and make it a weaker competitor all 
around. There are a lot of motives at work here, and not all of them altruistic. When 
you put them all together, though, they make for a very powerful movement that will 
continue to present a major challenge to the whole commercial software model of buying 
a program and then downloading its fixes and buying its updates. 
Until now, the Linux operating system was the best-known success among open-source 
free software projects challenging Microsoft. But Linux is largely used by big 
corporate data centers, not individuals. However, in November 2004, the Mozilla 
Foundation, a nonprofit group supporting open-source software, released Firefox, a 
free Web browser that New York Times technology writer Randall Stross (December 19, 
2004) described as very fast and filled with features that Microsoft's Internet 
Explorer lacks. Firefox 1.0, which is easily installed, was released on November 9. 
"Just over a month later," Stross reported, "the foundation celebrated a remarkable 
milestone: 10 million downloads." Donations from Firefox's appreciative fans paid 
for a two-page advertisement in The New York Times. "With Firefox," Stross added, 
"open-source software moves from back-office obscurity to your home, and to your 
parents', too. (Your children in college are already using it.) It is polished, as 
easy to use as Internet Explorer and, most compelling, much better defended against 
viruses, worms and snoops. Microsoft has always viewed Internet Explorer's tight 
integration with Windows to be an attractive feature. That, however, was before 
security became the unmet need of the day. Firefox sits lightly on top of Windows, 
in a separation from the underlying operating system that the Mozilla Foundation's 
president, Mitchell Baker, calls a 'natural defense.' For the first time, Internet 
Explorer has been losing market share. According to a worldwide survey conducted in 
late November by OneStat.com, a company in Amsterdam that analyzes the Web, Internet 
Explorer's share dropped to less than 89 percent, 5 percentage points less than in 
May. Firefox now has almost 5 percent of the market, and it is growing." 
It will come as nosurprise that Microsoft officials are not believers inthe viability 
or virtues of the free software form of open-source. Of all the issues I dealt with 
in this book, none evoked more passion from proponents and opponents than open-source. 
After spending time with the open-source community, I wanted to hear what Microsoft 
had to say, since this is going to be an important debate that will determine just 
how much of a flattener open-source becomes. 
Microsoft's first point is, How do you push innovation forward if everyone is working 
for free and giving away their work? Yes, says Microsoft, it all sounds nice and chummy 
that we all just get together online and write free software by the people and for 


the people. But if innovators are not going to be rewarded for their innovations, 
the incentive for path-breaking innovation will dry up and so will the money for the 
really deep R & D that is required to drive progress in this increasingly complex 
field. The fact that Microsoft created the standard PC operating system that won out 
in the marketplace, it argues, produced the bankroll that allowed Microsoft to spend 
billions of dollars on R & D to develop Microsoft Office, a whole suite of applications 
that it can now sell for a little over $100. 
"Microsoft would admit that there are number of aspects of the open-source movement 
that are intriguing, particularly around the scale, community collaboration, and 
communication aspects," said Craig Mundie, the Microsoft chief technology officer. 
"But we fundamentally believe in a commercial software industry, and some variants 
of the open-source model attack the economic model that allows companies to build 
businesses in software. The virtuous cycle of innovation, reward, reinvestment, and 
more innovation is what has driven all big breakthroughs in our industry. The software 
business as we have known it is a scale economic busi- 

ness. You spend a ton of money up front to develop a software product, and then the 
marginal cost of producing each one is very small, but if you sell a lot of them, 
you make back your investment and then plow profits back into developing the next 
generation. But when you insist that you cannot charge for software, you can only 
give it away, you take the software business away from being a scale economic 
business." 
Added Bill Gates, "You need capitalism [to drive innovation.] To have [a movement] 
that says innovation does not deserve an economic reward is contrary to where the 
world is going. When I talk to the Chinese, they dream of starting a company. They 
are not thinking, 'I will be a barber during the day and do free software at night.'. . . 
When you have a security crisis in your [software] system, you don't want to say, 
'Where is the guy at the barbershop?'" 
As wemove into this flat world, and you have this massive Web-enabled global workforce, 
with all these collaborative tools,there will be no project too small for some members 
of this workforce to take on, or copy, or modify-for free. Someone out there will 
be trying to produce the free versions of every kind of software or drug or music. 
"So how will products retain their value?" asked Mundie. "And if companies cannot 
derive fair value from their products, will innovation move forward in this area, 
or others, at the speed that it could or should?" Can we always count on a 
self-organizing open-source movement to come together to drive things forward for 
free? 
It seems to me that we are too early in the history of the flattening of the world 
to answer these questions. But they will need answers, and not just for Microsoft. 
So far-and maybe this is part of the long-term answer-Microsoft has been able to count 
on the fact that the only thing more expensive than commercial software is free 
software. Few big companies can simply download Linux off the Web and expect it to 
work for all their tasks. A lot of design and systems engineering needs to go around 
it and on top of it to tailor it to a company's specific needs, especially for 


sophisticated, large-scale, mission-critical operations. So when you add up all the 
costs of adapting the Linux operating system to the needs of your company and its 
specific hardware platform and applica102 
tions, Microsoft argues, it can end up costing as much as or more than Windows. 
The second issue Microsoft raises about this whole open-source movement has to do 
with how we keep track of who owns which piece of any innovation in a flat world, 
where some is generated for free and others build on it for profit. Will Chinese 
programmers really respect the rules of the Free Software Foundation? Who will govern 
all this? 
"Once you start to socialize the global population on the idea that software or any 
other innovation is supposed to be free, a lot of people will not distinguish between 
free software, free pharmaceuticals, free music, or free patents on car designs," 
argued Mundie. There is some truth to this. I work for a newspaper, that is where 
my paycheck comes from. But I believe that all online newspapers should be free, and 
on principle I refuse to pay for an online subscription to The Wall Street Journal. 
I have not read the paper copy of The New York Times regularly for two years. I read 
it only online. But what if my daughters' generation, which is being raised to think 
that newspapers are something to be accessed online for free, grows up and refuses 
to pay for the paper editions? Hmmm. I loved Amazon.com until it started providing 
a global platform that wasn't selling only my new books but also used versions. And 
I am still not sure how I feel about Amazon offering sections of this book to be browsed 
online for free Mundie noted that a major American auto company recently discovered 
that some Chinese firms were using new digital-scanning technology to scan an entire 
car and churn out computer-aided design models of every part within a very short period 
of time. They can then feed those designs to industrial robots and in short order 
produce a perfect copy of a GM car-without having to spend any money on R & D. American 
automakers never thought they had anything to worry about from wholesale cloning of 
their cars, but in the flat world, given the technologies that are out there, that 
is no longer the case. 
My bottom line is this: Open-source is an important flattener because it makes 
available for free many tools, from software to encyclopedias, that millions of people 
around the world would have had to buy in order to use, and because open-source network 
associations-with their 
103 
open borders and come-one-come-all approach-can challenge hierarchical structures 
with a horizontal model of innovation that is clearly working in a growing number 
of areas. Apache and Linux have each helped to drive down costs of computing and 
Internet usage in ways that are profoundly flattening. This movement is not going 
away. Indeed, it may just be getting started-with a huge, growing appetite that could 
apply to many industries. As The Economist mused (June 10, 2004), "some zealots even 
argue that the open-source approach represents a new, post-capitalist model of 
production." 
That may prove true. But if it does, then we have some huge global governance issues 


to sort out over who owns what and how individuals and companies will profit from 
their creations. 

Flattener #5 
Outsourcing 
Y2K 
India has had its ups and down since it achieved independence on August 15, 1947, 
but in some ways it might be remembered as the luckiest country in the history of 
the late twentieth century. 
Until recently, India was what is known in the banking world as "the second buyer." 
You always want to be the second buyer in business-the person who buys the hotel or 
the golf course or the shopping mall after the first owner has gone bankrupt and its 
assets are being sold by the bank at ten cents on the dollar. Well, the first buyers 
of all the cable laid by all those fiber-optic cable companies-which thought they 
were going to get endlessly rich in an endlessly expanding digital universe-were their 
American shareholders. When the bubble burst, they were left holding either worthless 
or much diminished stock. The Indians, in effect, got to be the second buyers of the 
fiber-optics companies. 
They didn't actually purchase the shares, they just benefited from the 

overcapacity in fiber optics, which meant that they and their American clients got 
to use all that cable practically for free. This was a huge stroke of luck for India 
(and to a lesser degree for China, the former Soviet Union, and Eastern Europe), 
because what is the history of modern India? In short, India is a country with 
virtually no natural resources that got very good at doing one thing-mining the brains 
of its own people by educating a relatively large slice of its elites in the sciences, 
engineering, and medicine. In 1951, to his enduring credit, Jawaharlal Nehru, India's 
first prime minister, set up the first of India's seven Indian Institutes of 
Technology (IIT) in the eastern city of Kharagpur. In the fifty years since then, 
hundreds of thousands of Indians have competed to gain entry and then graduate from 
these IITs and their private-sector equivalents (as well as the six Indian Institutes 
of Management, which teach business administration). Given India's 1 billion-plus 
population, this competition produces a phenomenal knowledge meritocracy. It's like 
a factory, churning out and exporting some of the most gifted engineering, computer 
science, and software talent on the globe. 
This, alas, was one of the few things India did right. Because its often dysfunctional 
political system, coupled with Nehru's preference for pro-Soviet, Socialist 
economics, ensured that up until the mid-1990s India could not provide good jobs for 
most of those talented engineers. So America got to be the second buyer of India's 
brainpower! If you were a smart, educated Indian, the only way you could fulfill your 
potential was by leaving the country and, ideally, going to America, where some 
twenty-five thousand graduates of India's top engineering schools have settled since 
1953, greatly enriching America's knowledge pool thanks to their education, which 
was subsidized by Indian taxpayers. 


"The IITs became islands of excellence by not allowing the general debasement of the 
Indian system to lower their exactingstandards," noted The Wall StreetJournal (April 
16, 2003). "You couldn't bribe your way to get into an IIT . . . Candidates are accepted 
only if they pass a grueling entrance exam. The government does not interfere with 
the curriculum, and the workload is demanding. . . Arguably, it is harder to get into 
an IIT than into Harvard or the Massachusetts Institute of Technology. . . IIT alumnus 
Vinod Khosla, who co-founded Sun 
105 
Microsystems, said: 'When I finished IIT Delhi and went to Carnegie Mellon for my 
Masters, I thought I was cruising all the way because it was so easy relative to the 
education I got at IIT.'" 
For most of their first fifty years, these IITs were one of the greatest bargains 
America ever had. It was as if someone installed a brain drain that filled up in New 
Delhi and emptied in Palo Alto. 
And then along came Netscape, the 1996 telecom deregulation, and Global Crossing and 
its fiber-optic friends. The world got flattened and that whole deal got turned on 
its head. "India had no resources and no infrastructure," said Dinakar Singh, one 
of the most respected young hedge fund managers on Wall Street, whose parents 
graduated from an IIT and then immigrated to America, where he was born. "It produced 
people with quality and by quantity. But many of them rotted on the docks of India 
like vegetables. Only a relative few could get on ships and get out. Not anymore, 
because we built this ocean crosser, called fiberoptic cable . . . For decades you 
had to leave India to be a professional. . . Now you can plug into the world from 
India. You don't have to go to Yale and go to work for Goldman Sachs [as I did.]" 
India could never have afforded to pay for the bandwidth to connect brainy India with 
high-tech America, so American shareholders paid for it. Sure, overinvestment can 
be good. The overinvestment in railroads turned out to be a great boon for the American 
economy. "But the railroad overinvestment was confined to your own country and so 
too were the benefits," said Singh. In the case of the digital railroads, "it was 
the foreigners who benefited." India got to ride for free. 
It is fun to talk to Indians who were around at precisely the moment when American 
companies started to discover they could draw on India's brainpower in India. One 
of them is Vivek Paul, now the president of Wipro, the Indian software giant. "In 
many ways the Indian information technology [outsourcing] revolution began with 
General Electric coming over. We're talking the late 1980s and early '90s. At the 
time, Texas Instruments was doing some chip design in India. Some of their key 
designers [in America] were Indians, and they basically let them go back home and 
work from there [using the rather crude communications networks that existed then 
to stay in touch.] At that time, I was heading up 
106 
the operations for GE Medical Systems in Bangalore. [GE's chairman] Jack Welch came 
to India in 1989 and was completely taken by India as a source of intellectual 
advantage for GE. Jack would say, 'India is a developing country with a developed 
intellectual capability.' He saw a talent pool that could be leveraged. So he said, 


'We spend a lot of money doing software. Couldn't we do some work for our IT department 
here?'" Because India had closed its market to foreign technology companies, like 
IBM, Indian companies had started their own factories to make PCs and servers, and 
Welch felt that if they could do it for themselves, they could do it for GE. 
To pursue the project, Welch sent a team headed by GE's chief information officer 
over to India to check out the possibilities. Paul was also filling in as GE's business 
development manager for India at the time. "So it was my job to escort the corporate 
CIO, in early 1990, on his first trip," he recalled. "They had come with some pilot 
projects to get the ball rolling. I remember in the middle of the night going to pick 
them up at the Delhi airport with a caravan of Indian cars, Ambassadors, based on 
a very dated 1950s Morris Minor design. Everyone in the government drove one. So we 
had a five-car caravan and we were driving back from the airport to town. I was in 
the back car, and at one point we heard this loud bang, and I thought, What happened? 
I shot to the front, and the lead car's hood had flown off and smashed the 
windshield-with these GE people inside! So this whole caravan of GE execs pulls over 
to the side of the road, and I could just hear them saying to themselves, 'This is 
the place we're going to get software from?'" 
Fortunately for India, the GE team was not discouraged by the poor quality of Indian 
cars. GE decided to sink roots, starting a joint development project with Wipro. Other 
companies were trying different models. But this was still pre-fiber-optic days. 
Simon & Schuster, the book publisher, for instance, would ship its books over to India 
and pay Indians $50 a month (compared to $1,000 a month in the United States) to type 
them by hand into computers, converting the books into digitized 

electronic files that could be edited or amended easily in the future -particularly 
dictionaries, which constantly need updating. In 1991, Manmohan Singh, then India's 
finance minister, began opening the Indian economy for foreign investment and 
introducing competition into the Indian telecom industry to bring down prices. To 
attract more foreign investment, Singh made it much easier for companies to set up 
satellite downlink stations in Bangalore, so they could skip over the Indian phone 
system and connect with their home bases in America, Europe, or Asia. Before then, 
only Texas Instruments had been willing to brave the Indian bureaucracy, becoming 
the first multinational to establish a circuit design and development center in India 
in 1985. TI's center in Bangalore had its own satellite downlink but had to suffer 
through having an Indian government official to oversee it-with the right to examine 
any piece of data going in or out. Singh loosened all those reins post-1991. A short 
time later, in 1994, HealthScribe India, a company originally funded in part by 
Indian-American doctors, was set up in Bangalore to do outsourced medical 
transcription for American doctors and hospitals. Those doctors at the time were 
taking handwritten notes and then dictating them into a Dictaphone for a secretary 
or someone else to transcribe, which would usually take days or weeks. HealthScribe 
set up a system that turned a doctor's touch-tone phone into a dictation machine. 
The doctor would punch in a number and simply dictate his notes to a PC with a voice 
card in it, which would digitize his voice. He could be sitting anywhere when he did 


it. Thanks to the satellite, a housewife or student in Bangalore could go into a 
computer anddownloadthat doctor's digitized voice and transcribe it-not in two weeks 
but in two hours. Then this person would zip it right back by satellite as a text 
file that could be put into the hospital's computer system and become part of the 
billing file. Because of the twelve-hour time difference with India, Indians could 
do the transcription while the American doctors were sleeping, and the file would 
be ready and waiting the next morning. This was an important breakthrough for 
companies, because if you could safely, legally, and securely transcribe from 
Bangalore medical records, lab reports, and doctors' diagnoses-in one of the most 
litigious 
108 
industries in the world-a lot of other industries could think about sending some of 
their backroom work to be done in India as well. And they did. But it remained limited 
by what could be handled by satellite, where there was a voice delay. (Ironically, 
said Gurujot Singh Khalsa, one of the founders of HealthScribe, they initially 
explored having Indians in Maine-that is, American Indians-do this work, using some 
of the federal money earmarked for the tribes to get started, but they could never 
get them interested enough to put the deal together.) The cost of doing the 
transcription in India was about one-fifth the cost per line of doing it the United 
States, a difference that got a lot of people's attention. 
By the late 1990s, though, Lady Luck was starting to shine on India from two directions: 
The fiber-optic bubble was starting to inflate, linking India with the United States, 
and the Y2K computer crisis-the so-called millennium bug-started gathering on the 
horizon. As you'll remember, the Y2K bug was a result of the fact that when computers 
were built,they came with internalclocks. In order tosave memory space, these clocks 
rendered dates with just six digits-two for the day, two for the month, and, you 
guessed it, two for the year. That meant they could go up to only 12/31/99. So when 
the calendar hit January 1, 2000, many older computers were poised to register that 
not as 01/01/2000 but as 01/01/00, and they would think it was 1900 all over again. 
It meant that a huge number of existing computers (newer ones were being made with 
better clocks) needed to have their internal clocks and related systems adjusted; 
otherwise, it was feared, they would shut down, creating a global crisis, given how 
many different management systems-from water to air traffic control-were 
computerized. 
This computer remediation work was a huge, tedious job. Who in the world had enough 
software engineers to do it all? Answer: India, with all the techies from all those 
IITs and private technical colleges and computer schools. 
And so with Y2K bearing down on us, America and India started dating, and that 
relationship became a huge flattener, because it demonstrated to so many different 
businesses that the combination of the PC, the Internet, and fiber-optic cable had 
created the possibility of a whole new form of collaboration and horizontal value 
creation: outsourcing. 
109 
Any service, call center, business support operation, or knowledge work that could 


be digitized could be sourced globally to the cheapest, smartest, or most efficient 
provider. Using fiber-optic cable-connected workstations, Indian techies could get 
under the hood of your company's computers and do all the adjustments, even though 
they were located halfway around the world. 
"[Y2K upgrading] was tedious work that was not going to give them an enormous 
competitive advantage," said Vivek Paul, the Wipro executive whose company did some 
outsourced Y2K drudge work. "So all these Western companies were incredibly 
challenged to find someone else who would do it and do it for as little money as 
possible. They said, 'We just want to get past the damn year 2000!' So they started 
to work with Indian [technology] companies who they might not have worked with 
otherwise." 
To use my parlance, they were ready to go on a blind date with India. They were ready 
to get "fixed up." Added Jerry Rao, 'Y2K means different things to different people. 
For Indian industry, it represented the biggest opportunity. India was considered 
as a place of backward people. Y2K suddenly required that every single computer in 
the world needed to be reviewed. And the sheer number of people needed to review 
line-by-line code existed in India. The Indian IT industry got its footprint across 
the globe because of Y2K. Y2K became our engine of growth, our engine of being known 
around the world. We never looked back after Y2K." 
By early 2000, the Y2K work started to wind down, but then a whole new driver of 
business emerged-e-commerce. The dot-com bubble had not yetburst, engineering talent 
was scarce, and demand from dotcoms was enormous. Said Paul, "People wanted what they 
felt were mission-critical applications, key to their very existence, to be done and 
they could go nowhere else. So they turned to the Indian companies, and as they turned 
to the Indian companies they found that they were getting delivery of complex systems, 
with great quality, sometimes better than what they were getting from others. That 
created an enormous respect for Indian IT providersf.] And if [Y2K work] was the 
acquaintanceship process, this was the falling-in-love process." 
Outsourcing from America to India, as a new form of collaboration, 

exploded. By just stringing a fiber-optic line from a workstation in Bangalore to 
my company's mainframe, I could have Indian IT firms like Wipro, Infosys, and Tata 
Consulting Services managing my e-commerce and mainframe applications. 
"Once we're in the mainframe business and once we're in e-commerce-now we're married," 
said Paul. But again, India was lucky that it could exploit all that undersea 
fiber-optic cable. "Ihad an office very close to the Leela Palace hotel in Bangalore," 
Paul added. "I was working with a factory located in the information technology park 
in Whitefield, a suburb of Bangalore, and I could not get a local telephone line 
between our office and the factory. Unless you paid a bribe, you could not get a line, 
and we wouldn't pay. So my phone call to Whitefield would go from myoffice in Bangalore 
to Kentucky, where there was a GE mainframe computer we were working with, and then 
from Kentucky to Whitefield. We used our own fiber-optic lease line that ran across 
the ocean-but 


the one across town required a bribe." 
India didn't benefit only from the dot-com boom; it benefited even more from the 
dot-com bust! That is the real irony. The boom laid the cable that connected India 
to the world, and the bust made the cost of using it virtually free and also vastly 
increased the number of American companies that would want to use that fiber-optic 
cable to outsource knowledge work to India. 
Y2K led to this mad rush for Indian brainpower to get the programming work done. The 
Indian companies were good and cheap, but price wasn't first on customers' 
minds-getting the work done was, and India was the only place with the volume of 
workers to do it. Then the dot-com boom comes along right in the wake of Y2K, and 
India is one of the few places where you can find surplus English-speaking engineers, 
at any price, because all of those in America have been scooped up by e-commerce 
companies. Then the dot-com bubble bursts, the stock market tanks, and the pool of 
investment capital dries up. American IT companies that survived the boom and venture 
capital firms that still wanted to fund start-ups had much less cash to spend. Now 
they needed those Indian 
Ill 
engineers not just because there were a lot of them, but precisely because they were 
low-cost. So the relationship between India and the American business community 
intensified another notch. 
One of the great mistakes made by many analysts in the early 2000s was conflating 
the dot-com boom with globalization, suggesting that both were just fads and hot air. 
When the dot-com bust came along, these same wrongheaded analysts assumed that 
globalization was over as well. Exactly the opposite was true. The dot-com bubble 
was only one aspect of globalization, and when it imploded, rather than imploding 
globalization, it actually turbocharged it. 
Promod Haque, an Indian-American and one of the most prominent venture capitalists 
in Silicon Valley with his firm Norwest Venture Partners, was in the middle of this 
transition. "When the bust took place, a lot of these Indian engineers in the U.S. 
[on temporary work visas] got laid off, so they went back to India," explained Haque. 
But as a result of the bust, the IT budgets of virtually every major U.S. firm got 
slashed. "Every IT manager was told to get the same amount of work or more done with 
less money. So guess what he does? He says, 'You remember Vijay from India who used 
to work here during the boom and then went back home? Let me call him over in Bangalore 
and see if he will do the work for us for less money than what we would pay an engineer 
here in the U.S.'" And thanks to all that fiber cable laid during the boom, it was 
easy to find Vijay and put him to work. 
The Y2K computer readjustment work was done largely by low-skilled Indian programmers 
right out of tech schools, said Haque, "but the guys onvisas who were coming toAmerica 
were not trade school guys. They were guys with advanced engineering degrees. So a 
lot of our companies saw that these guys were good at Java and C++ and architectural 
design work for computers, and then they got laid off and went back home, and the 
IT manager back here who is told, 1 don't care how you get the job done, just get 
it done for less money,' calls Vijay." Once America and India were dating, the 


burgeoning Indian IT companies in Bangalore started coming up with their own proposals. 
The Y2K work had allowed them to interact with some pretty large companies in the 
United States, and as a result they began to understand the pain points and how to 
do 
112 
business-process implementation and improvement. So the Indians, who were doing a 
lot of very specific custom code maintenance to higher-value-add companies, started 
to develop their own products and transform themselves from maintenance to product 
companies, offering a range of software services and consulting. This took Indian 
companies much deeper inside American ones, and business-process outsourcing- 
letting Indians run your back room-went to a whole new level. "I have an accounts 
payable department and I could move this whole thing to India under Wipro or Infosys 
and cut my costs in half," said Haque. All across America, CEOs were saying, "'Make 
it work for less,'" said Haque. "And the Indian companies were saying, 'I have taken 
a look under your hood and I will provide you with a total solution for the lowest 
price.'" In other words, the Indian outsourcing companies said, "Do you remember how 
I fixed your tires and your pistons during Y2K? Well, I could actually give you a 
whole lube job if you like. And now that you know me and trust me, you know I can 
do it." To their credit, the Indians were not just cheap, they were also hungry and 
ready to learn anything. 
The scarcity of capital after the dot-com bust made venture capital firms see to it 
that the companies they were investing in were finding the most efficient, 
high-quality, low-price way to innovate. In the boom times, said Haque, it was not 
uncommon for a $50 million investment in a start-up to return $500 million once the 
company went public. After the bust, that same company's public offering might bring 
in only $100 million. Therefore, venture firms wanted to risk only $20 million to 
get that company from start-up to IPO. 
"For venture firms," said Haque, "the big question became, How do I get my 
entrepreneurs and their new companies to a point where they were breaking even or 
profitable sooner, so they can stop being a draw on my capital and be sold so our 
firm can generate good liquidity and returns? The answer many firms came up with was: 
I better start outsourcing as many functions as I can from the beginning. I have to 
make money for my investors faster, so what can be outsourced must be outsourced." 
Henry Schacht, who, as noted, was heading Lucent during part of this period, saw the 
whole process from the side of corporate management. 
113 
The business economics, he told me,became "very ugly" for everyone. Everyone found 
prices flat to declining and markets stagnant, yet they were still spending huge 
amounts of money running the backroom operations of their companies, which they could 
no longer afford. "Cost pressures were enormous," he recalled, "and the flat world 
was available, [so] economics were forcing people to do things they never thought 
they would do or could do ... Globalization got supercharged"-for both knowledge work 
and manufacturing. Companies found that they could go to MIT and find four incredibly 
smart Chinese engineers who were ready to go back to China and work for them from 


there for the same amount that it would cost them to hire one engineer in America. 
Bell Labs had a research facility at Tsingdao that could connect to Lucent's computers 
in America. "They would use our computers overnight," said Schacht. "Not only was 
the incremental computing cost close to zero, but so too was the transmission cost, 
and the computer was idle [at night]." 
For all these reasons I believe that Y2K should be a national holiday in India, a 
second Indian Independence Day, in addition to August 15. As Johns Hopkins foreign 
policy expert Michael Mandelbaum, who spent part of his youth in India, put it, "Y2K 
should be called Indian Inter-depedence Day," because it was India's ability to 
collaborate with Western companies, thanks to the interdependence created by 
fiber-optic networks, that really vaulted it forward and gave more Indians than ever 
some real freedom of choice in how, for whom, and where they worked. 
To put it another way, August 15 commemorates freedom at midnight. Y2K made possible 
employment at midnight-but not any employment, employment for India's best knowledge 
workers. August 15 gave independence to India. But Y2K gave independence to Indians- 
not all, by any stretch of the imagination, but a lot more than fifty years ago, and 
many of them from the most productive segment of the population. In that sense, yes, 
India was lucky, but it also reaped what it had sowed through hard work and education 
and the wisdom of its elders who built all those IITs. 
Louis Pasteur said it a long time ago: "Fortune favors the prepared mind." 

Flattener #6 
Offshoring 
Running with Gazelles, Eating with Lions 
On December 11, 2001, China formally joined the World Trade Organization, which meant 
Beijing agreed tofollow the same global rules governing imports, exports, andforeign 
investments that most countries in the world were following. It meant China was 
agreeing, in principle, to make its own competitive playing field as level as the 
rest of the world. A few days later, the American-trained Chinese manager of a fuel 
pump factory in Beijing, which was owned by a friend of mine, Jack Perkowski, the 
chairman andCEO of ASIMCO Technologies, an American auto parts manufacturer in China, 
posted the following African proverb, translated into Mandarin, on his factory floor: 
Every morning in Africa, a gazelle wakes up. 
It knows it must run faster than the fastest lion or it will be killed. 
Every morning a lion wakes up. 
It knows it must outrun the slowest gazelle or it will starve to death. 
It doesn't matter whether you are a lion or a gazelle. 
When the sun comes up, you better start running. 
I don't know who is the lion and who is the gazelle, but I do know this: Ever since 
the Chinese joined the WTO, both they and the rest of the world have had to run faster 
and faster. This is because China's joining the WTO gave a huge boost to another form 
of collaboration- offshoring. Offshoring, which has been around for decades, is 
different from outsourcing. Outsourcing means taking some specific, but limited, 
function that your company was doing in-house-such as research, call centers, or 


accounts receivable-and having another company perform that exact same function for 
you and then reintegrating their work back into your overall operation. Offshoring, 
by contrast, is when a company takes one of its factories that it is operating in 
Canton, Ohio, and moves the whole factory offshore to Canton, China. There, it 
produces the very same product in the very same way, only with cheaper labor, lower 
taxes, 
115 
subsidized energy, and lower health-care costs. Just as Y2K took India and the world 
to a whole new level of outsourcing, China's joining the WTO took Beijing and the 
world to a whole new level of offshoring-with more companies shifting production 
offshore and then integrating it into their global supply chains. 
In 1977, Chinese leader Deng Xiaoping put China on the road to capitalism, declaring 
later that "to get rich is glorious." When China first opened its tightly closed 
economy, companies in industrialized countries saw it as an incredible new market 
for exports. Every Western or Asian manufacturer dreamed of selling its equivalent 
of 1 billion pairs of underwear to a single market. Some foreign companies set up 
shop in China to do just that. But because China was not subject to world trade rules, 
it was able to restrict the penetration into its market by these Western companies 
through various trade and investment barriers. And when it was not doing that 
deliberately, the sheer bureaucratic and cultural difficulties of doing business in 
China had the same effect. Many of the pioneer investors in China lost their shirts 
and pants and underwear- and with China's Wild West legal system there was not much 
recourse. 
Beginning in the 1980s, many investors, particularly overseas Chinese who knew how 
to operate in China, started to say, "Well, if we can't sell that many things to the 
Chinese right now, why don't we use China's disciplined labor pool to make things 
there and sell them abroad?" This dovetailed with the interests of China's leaders. 
China wanted to attract foreign manufacturers and their technologies-not simply to 
manufacture 1 billion pairs of underwear for sale in China but to use low-wage Chinese 
labor to also sell 6 billion pairs of underwear to everyone else in the world, and 
at prices that were a fraction of what the underwear companies in Europe or America 
or even Mexico were charging. 
Once that offshoring process began in a range of industries-from textiles to consumer 
electronics to furniture to eyeglass frames toauto parts-the only way other companies 
could compete was by offshoring to China as well (taking advantage of its low-cost, 
high-quality platform), or by looking for alternative manufacturing centers in 
Eastern Europe, the Caribbean, or somewhere else in the developing world. 
116 
By joining the World Trade Organization in 2001, China assured foreign companies that 
if they shifted factories offshore to China, they would be protected by international 
law and standard business practices. This greatly enhanced China's attractiveness 
as a manufacturing platform. Under WTO rules, Beijing agreed-with some time for 
phase-in-to treat non-Chinese citizens or firms as if they were Chinese in terms of 
their economic rights and obligations under Chinese law. This meant that foreign 


companies could sell virtually anything anywhere in China. WTO membership status also 
meant that Beijing agreed to treat all WTO member nations equally, meaning that the 
same tariffs and the same regulations had to apply equally for everyone. And it agreed 
to submit itself to international arbitration in the event of a trade dispute with 
another country or a foreign company. At the same time, government bureaucrats became 
more customer-friendly, procedures for investments were streamlined, and Web sites 
proliferated in different ministries to help foreigners navigate China's business 
regulations. I don't know how many Chinese actually ever bought a copy of Mao's Little 
Red Book, but U.S. embassy officials in China told me that 2 million copies of the 
Chinese-language edition of the WTO rule book were sold in the weeks immediately after 
China signed on to the WTO. To put it another way, China under Mao was closed and 
isolated from the other flattening forces of his day, and as a result Mao was really 
a challenge only to his own people. Deng Xiaoping made China open to absorbing many 
of the ten flatteners, and, in so doing, made China a challenge to the whole world. 
Before China signed on to the WTO, there was a sense that, while China had opened 
up to get the advantages of trade with the West, the government and the banks would 
protect Chinese businesses from any crushing foreign competition, saidJack Perkowski 
of ASIMCO. "China's entry into the WTO was a signal to the community outside of China 
that it was now on the capitalist track for good," he added. "Before, you had the 
thought in the back of your mind that there could be a turning back to state communism. 
With WTO, China said, 'We are on one course.'" 
Because China can amass so many low-wage workers at the unskilled, semiskilled, and 
skilled levels, because it has such a voracious appetite for factory, equipment, and 
knowledge jobs to keep its people 

employed, and because it has such a massive and burgeoning consumer market, it has 
become an unparalleled zone for offshoring. China has more than 160 cities with a 
population of 1 million or more. You can go to towns on the east coast of China today 
that you have never heard of and discover that this one town manufacturers most of 
the eyeglass frames in the world, while the town next door manufacturers most of the 
portable cigarette lighters in the world, and the one next to that is doing most of 
the computer screens for Dell, and another is specializing in mobile phones. Kenichi 
Ohmae, the Japanese business consultant, estimates in his book The United States of 
China that in the Zhu Jiang Delta area alone, north of Hong Kong, there are fifty 
thousand Chinese electronics component suppliers. 
"China is a threat, China is a customer, and China is an opportunity," Ohmae remarked 
to me one day in Tokyo. "You have to internalize China to succeed. You cannot ignore 
it." Instead of competing with China as an enemy, argues Ohmae, you break down your 
business and think about which part of the business you would like to do in China, 
which part you would like to sell to China, and which part you want to buy from China. 
Here we get to the real flattening aspect of China's opening to the world market. 
The more attractive China makes itself as a base for off-shoring, the more attractive 
other developed and developing countries competing with it, like Malaysia, Thailand, 
Ireland, Mexico, Brazil, and Vietnam, have to make themselves. They all look at what 


is going on in China and the jobs moving there and say to themselves, "Holy catfish, 
we had better start offering these same incentives." This has created a process of 
competitive flattening, in which countries scramble to see who can give companies 
the best tax breaks, education incentives, and subsidies, on top of their cheap labor, 
to encourage offshoring to their shores. 
Ohio State University business professor Oded Shenkar, author of the book The Chinese 
Century, told BusinessWeek (December 6, 2004) that he gives it to American companies 
straight: "If you still make anything labor intensive, get out now rather than bleed 
to death. Shaving 5% here and there won't work." Chinese producers can make the same 
adjustments. "You need an entirely new business model to compete," he said. 
118 
China's flattening power is also fueled by the fact that it is developing a huge 
domestic market of its own. The same BusinessWeek article noted that this brings 
economies of scale, intense local rivalries that keep prices low, an army of engineers 
that is growing by 350,000 annually, young workers and managers willing to put in 
twelve-hour days, an unparalleled component base in electronics and light industry, 
"and an entrepreneurial zeal to do whatever it takes to please big retailers such 
as Wal-Mart Stores, Target, Best Buy and J.C. Penney." 
Critics of China's business practices say that its size and economic power mean that 
it will soon be setting the global floor not only for low wages but also for lax labor 
laws and workplace standards. This is known in the business as "the China price." 
But what is really scary is that China is not attracting so much global investment 
by simply racing everyone to the bottom. That is just a short-term strategy. The 
biggest mistake any business can make when it comes to China is thinking that it is 
only winning on wages and not improving quality and productivity. In the private, 
non-state-owned sector of Chinese industry, productivity increased 17 percent 
annually-I repeat, 17 percent annually-between 1995 and 2002, according to a study 
by the U.S. Conference Board. This is due to China's absorption of both new 
technologies and modern business practices, starting from a very low base. 
Incidentally, the Conference Board study noted, China lost 15 million manufacturing 
jobs during this period, compared with 2 million in the United States. "As its 
manufacturing productivity accelerates, China is losing jobs in manufacturing-many 
more than the United States is-and gaining them in services, a pattern that has been 
playing out in the developed world for many years," the study said. 
China's real long-term strategy is to outrace America and the E.U. countries to the 
top, and the Chinese are off to a good start. China's leaders are much more focused 
than many of their Western counterparts on how to train their young people in the 
math, science, and computer skills required for success in the flat world, how to 
build a physical and telecom infrastructure that will allow Chinese people to plug 
and play faster 
119 
and easier than others, and how to create incentives that will attract global 
investors. What China's leaders really want is the next generation of underwear or 
airplane wings to be designed in China as well. That is where things are heading in 


another decade. So in thirty years we will have gone from "sold in China" to "made 
in China"to "designed in China" to "dreamed upin China"-or from China as collaborator 
with the worldwide manufacturers on nothing to China as a low-cost, high-quality, 
hyperefficient collaborator with worldwide manufacturers on everything. This should 
allow China to maintain its role as a major flattening force, provided that political 
instability does not disrupt the process. Indeed, while researching this chapter, 
I came across an online Silicon Valley newsletter called the Inquirer, which follows 
the semiconductor industry. What caught my eye was its November 5, 2001, article 
headlined, "China to Become Center of Everything." It quoted a China People's Daily 
article that claimed that four hundred out of the Forbes 500 companies have invested 
in more than two thousand projects in mainland China. And that was four years ago. 
Japan, being right next door to China, has taken a very aggressive approach to 
internalizing the China challenge. Osamu Watanabe, chairman of the Japan External 
Trade Organization (JETRO), Japan's official organ for promoting exports, told me 
in Tokyo, "China is developing very rapidly and making the shift from low-grade 
products to high-grade, high-tech ones." As a result, added Watanabe, Japanese 
companies, to remain globally competitive, have had to shift some production and a 
lot of assembly of middle-range products to China, while shifting at home to making 
"even higher value-added products." So China and Japan "are becoming part of the same 
supply chain." After a prolonged recession, Japan's economy started to bounce back 
in 2003, due to the sale of thousands of tons of machinery, assembly robots, and other 
critical components in China. In 2003, China replaced the United States as the biggest 
importer of Japanese products. Still, the Japanese government is urging its companies 
to be careful not to overinvest in China. It encourages them to practice what Watanabe 
called a "China plus one" strategy: to keep one production leg in China but the other 
in 

a different Asian country-just in case political turmoil unflattens China one day. 
This China flattener has been wrenching for certain manufacturing workers around the 
world, but a godsend for all consumers. Fortune magazine (October 4, 2004) quoted 
a study by Morgan Stanley estimating that since the mid-1990s alone, cheap imports 
from China have saved U.S. consumers roughly $600 billion and have saved U.S. 
manufacturers untold billions in cheaper parts for their products. This savings, in 
turn, Fortune noted, has helped the Federal Reserve to hold down interest rates longer, 
giving more Americans a chance to buy homes or refinance the ones they have, and giving 
businesses more capital to invest in new innovations. 
In an effort to better understand how offshoring to China works, I sat down in Beijing 
with Jack Perkowski of ASIMCO, a pioneer in this form of collaboration. If they ever 
have a category in the Olympics called "extreme capitalism," bet on Perkowski to win 
the gold. In 1988 he stepped down as a top investment banker at Paine Webber and went 
to a leverage buyout firm, but two years later, at age forty-two, decided it was time 
for a new challenge. With some partners, he raised $150 million to buy companies in 
China and headed off for the adventure of his life. Since then he has lost and remade 
millions of dollars, learned every lesson the hard way, but survived to become a 


powerful example of what offshoring to China is all about and what a powerful 
collaborative tool it can become. 
"When I first startedback in1992-1993, everyone thoughtthe hard part was toactually 
find and gain access to opportunities in China," recalled Perkowski. It turned out 
that there were opportunities aplenty but a critical shortage of Chinese managers 
who understood how to run an auto parts factory along capitalist lines, with an 
emphasis on exports and making world-class products for the Chinese market. As 
Perkowski put it, the easy part was setting up shop in China. The hard part was getting 
the right local managers who could run the store. So when he initially started buying 
majority ownership in Chinese auto parts companies, Perkowski began by importing 
managers from abroad. Bad idea. It was too expensive, and operating in China was just 
too foreign for foreigners. Scratch plan A. 
121 
"So we sent all the expats home, which gave me problems with my investor base, and 
went to plan B," he said. "We then tried to convert the 'Old China' managers who 
typically came along with the plants we bought, but that didn't work either. They 
were simply too used to working in a planned economy where they never had to deal 
with the marketplace, just deliver their quotas. Those managers who did have an 
entrepreneurial flair got drunk on their first sip of capitalism and were ready to 
try anything. 
"The Chinese are very entrepreneurial," said Perkowski, "but back then, before China 
joined the WTO, there was no rule of law and no bond or stock market to restrain this 
entrepreneurialism. Your only choices were managers from the state-owned sector, who 
were very bureaucratic, or managers from the first wave of private companies, who 
were practicing cowboy capitalism. Neither is where you want to be. If your managers 
are too bureaucratic, you can't get anything done-they just give excuses about how 
China is different-and if they are too entrepreneurial, you can't sleep at night, 
because you have no idea what they are going to do." Perkowski had a lot of sleepless 
nights. 
One of his first purchases in China was an interest in a company making rubber parts. 
When he subsequently reached an agreement with his Chinese partner to purchase his 
shares in the company, the Chinese partner signed a noncompete clause as part of the 
transaction. As soon as the deal closed, however, the Chinese partner went out and 
opened a new factory. "Noncompete" did not quite translate into Mandarin. Scratch 
plan B. 
Meanwhile, Perkowski's partnership was hemorrhaging money- Perkowski's tuition for 
learning how to do business in China-and he found himself owning a string of Chinese 
auto parts factories. "Around 1997 was the low point," he said. "Our company as a 
whole was shrinking and we were not profitable. While some of our companies were doing 
okay, we were generally in tough shape. Although we had majority ownership and could 
theoretically put anyone on the field that we wanted, I looked at my [managerial] 
bench and I had no one to put in the game." Time for plan C. 
"We essentially concluded that, while we liked China, we wanted no 
122 


part of'Old China,' and instead wanted to place our bets on 'New China' managers," 
said Perkowski. "We began looking for a new breed of Chinese managers who were 
open-minded and had gotten some form of management training. We were looking for 
individuals who were experienced at operating in China and yet were familiar with 
how the rest of the world operated and knew where China had to go. So between 1997 
and 1999, we recruited a whole team of'New China' managers, typically mainland Chinese 
who had worked for multinationals, and as these managers came on board, we began one 
by one to replace the 'Old China' managers at our companies." 
Once the new generation of Chinese managers, who understood global markets and 
customers and could be united around a shared company vision-and knew China-was in 
place, ASIMCO started making a profit. Today ASIMCO has sales of about $350 million 
a year in auto parts from thirteen Chinese factories in nine provinces. The company 
sells to customers in the United States, and it also has thirty-six sales offices 
throughout China servicing automakers in that country too. 
From this base, Perkowski made his next big move-taking the profits from offshoring 
back onshore in America. "In April of 2003, we bought the North American camshaft 
operations of Federal-Mogul Corporation, an old-line components company that is now 
in bankruptcy," said Perkowski. "We bought the business first to get access to its 
customers, which were primarily the Big Three automakers, plus Caterpillar and 
Cummins. While we have had long-standing relationships with Cat and Cummins - and 
this acquisition enhanced our position with them- the camshaft sales to the Big Three 
were our first. The second reason to make the acquisition was to obtain technology 
which we could bring back to China. Like most of the technology that goes into modern 
passenger cars and trucks, people take camshaft technology for granted. However, 
camshafts [the part of the engine that controls how the pistons go up and down] are 
highly engineered products which are critical to the performance of the engine. The 
acquisition of this business essentially gave us the know-how and technology that 
we could use to become the camshaft leader in China. As a result, we now have the 
best camshaft technology and a customer base both in China and the U.S." 

This is a very important point, because the general impression is that offshoring 
is a lose-lose proposition for American workers-something that was here went over 
there, and that is the end of the story. The reality is more complicated. 
Most companies build offshore factories not simply to obtain cheaper labor for 
products they want to sell in America or Europe. Another motivation is to serve that 
foreign market without having to worry about trade barriers and to gain a dominant 
foothold there-particularly a giant market like China's. According to the U.S. 
Commerce Department, nearly 90 percent of the output from U.S.-owned offshore 
factories is sold to foreign consumers. But this actually stimulates American exports. 
There is a variety of studies indicating that every dollar a company invests overseas 
in anoffshore factory yields additional exports for its home country,because roughly 


one-third of global trade today is within multinational companies. It works the other 
way as well. Even when production is moved offshore to save on wages, it is usually 
not all moved offshore. According to a January 26, 2004, study by the Heritage 
Foundation, Job Creation and the Taxation of Foreign-Source Income, American 
companies that produce at home and abroad, for both the American market and China's, 
generate more than 21 percent of U.S. economic output, produce 56 percent of U.S. 
exports, and employ three-fifths of all manufacturing employees, about 9 million 
workers. So if General Motors builds a factory offshore in Shanghai, it also ends 
up creating jobs in America by exporting a lot of goods and services to its own factory 
in China and benefiting from lower parts costs in China for its factories in America. 
Finally, America is a beneficiary of the same phenomenon. While much attention is 
paid to American companies going offshore to China, little attention is paid to the 
huge amount of offshore investment coming into America every year, because foreigners 
want access to American markets and labor just like we want access to theirs. On 
September 25, 2003, DaimlerChrysler celebrated the tenth anniversary of its decision 
to build the first Mercedes-Benz passenger car factory outside Germany, in Tuscaloosa, 
Alabama, by announcing a $600 million plant expansion. "In Tuscaloosa we have 
impressively shown that we can produce a new production series with a new workforce 
in a new factory, 

and we have also demonstrated that it is possible to have vehicles successfully 'Made 
by Mercedes' outside of Germany," Professor Jiirgen Hub-bert, the DaimlerChrysler 
Board of Management member responsible for the Mercedes Car Group, announced on the 
anniversary. 
Not surprisingly, ASIMCO will use its new camshaft operation in China to handle the 
raw material and rough machining operations, exporting semifinished products to its 
camshaft plant in America, where more skilled American workers can do the finished 
machining operations, which are most critical to quality. In this way, ASIMCO's 
American customers receive the benefit of a China supply chain and at the same time 
have the comfort of dealing with a known, American supplier. 
The average wage of a high-skilled machinist in America is $3,000 to $4,000 a month. 
The average wage for a factory worker in China is about $150 a month. In addition, 
ASIMCO is required to participate in a Chinese government-sponsored pension plan 
covering heath care, housing, and retirement benefits. Between 35 and 45 percent of 
a Chinese worker's monthly wage goes directly to the local labor bureau to cover these 
benefits. The fact that health insurance in China is so much cheaper-because of lower 
wages, much more limited health service offerings, and no malpractice 
suits-"certainly makes China an attractive place to expand and add employees," 
explained Perkowski. "Anything which can be done to reduce a U.S. company's liability 
for medical coverage would be a plus in keeping jobs in the U.S." 
By taking advantage of the flat world to collaborate this way- between onshore and 
offshore factories, and between high-wage, high-skilled American workers close to 
their market and low-wage Chinese workers close to theirs-said Perkowski, "we make 
our American company more competitive, soit is getting more orders and we are actually 


growing the business. And that is what many in the U.S. are missing when they talk 
about offshoring. Since the acquisition, for example, we have doubled our business 
with Cummins, and our business with Caterpillar has grown significantly. All of our 
customers are exposed to global competition and really need their supply base to the 
do the right thing as far as cost competitiveness. They want to work with suppliers 
who un- 
125 
derstand the flat world. When I went to visit our U.S. customers to explain our 
strategy for the camshaft business, they were very positive about what we were doing, 
because they could see that we were aligning our business in a way that was going 
to enable them to be more competitive." 
This degree of collaboration has been possible only in the last couple of years. "We 
could not have done what we have done in China in 1983 or 1993," said Perkowski. "Since 
1993, a number of things have come together. For example, people always talk about 
how much the Internet has benefited the U.S. The point I always make is that China 
has benefited even more. What has held China back in the past was the inability of 
people outside China to get information about the country, and the inability of people 
inside China to get information about the rest of the world. Prior to the Internet, 
the only way to close that information gap was travel. Now you can stay home and do 
it with the Internet. You could not operate our global supply chain without it. We 
now just e-mail blueprints over the Internet-we don't even need FedEx." 
The advantages for manufacturing in China, for certain industries, are becoming 
overwhelming, added Perkowski, and cannot be ignored. Either you get flat or you'll 
be flattened by China. "If you are sitting in the U.S. and don't figure out how to 
get into China," he said, "in ten or fifteen years from now you will not be a global 
leader." 
Now that China is in the WTO, a lot of traditional, slow, inefficient, and protected 
sectors of the Chinese economy are being exposed to some withering global 
competition-something received as warmly in Canton, China, as in Canton, Ohio. Had 
the Chinese government put WTO membership to a popular vote, "it never would have 
passed," said PatPowers, whoheaded the U.S.-China Business Council office inBeijing 
during the WTO accession. A key reason why China's leadership sought WTO membership 
was to use it as a clubto force China's bureaucracy to modernize and take down internal 
regulatory walls and pockets for arbitrary decision making. China's leadership "knew 
that 
126 
China had to integrate globally and that many of their existing institutions would 
simply not change and reform, and so they used the WTO as leverage against their own 
bureaucracy. And for the last two and half years they've been slugging it out." 
Over time, adherence to WTO standards will make China's economy even flatter and more 
of a flattener globally. But this transition will not be easy, and the chances of 
a political or economic crackup that disrupts or slows this process are not 
insignificant. But even if China implements all the WTO reforms, it won't be able 
to rest. It will soon be reaching a point where its ambitions for economic growth 


will require more political reform. China will never root out corruption without a 
free press and active civil society institutions. It can never really become efficient 
without a more codified rule of law. It will never be able to deal with the inevitable 
downturns in its economy without a more open political system that allows people to 
vent their grievances. To put it another way, China will never be truly flat until 
it gets over that huge speed bump called "political reform." 
It seems to be heading in that direction, but it still has a long way to go. I like 
the way a U.S. diplomat in China put it to me in the spring of 2004: "China right 
now is doing titillation, notprivatization. Reform here is translucent-and sometimes 
it is quite titillating, because you can see the shapes moving behind the screen-but 
it is not transparent. [The government still just gives] the information [about the 
economy] to a few companies and designated interest groups." Why only translucent? 
I asked. He answered, "Because if you are fully transparent, what do you do with the 
feedback? They don't know how to deal with that question. They cannot deal [yet] with 
the results of transparency." 
If and when China gets over that political bump in the road, I think it could become 
not only a bigger platform for offshoring but another free-market version of the 
United States. While that may seem threatening to some, I think it would be an 
incredibly positive development for the world. Think about how many new products, 
ideas, jobs, and consumers arose from Western Europe's and Japan's efforts to become 
free-market democracies after World War II. The process unleashed an 

unprecedented period of global prosperity-and the world wasn't even flat then. It 
had a wall in the middle. If India and China move in that direction, the world will 
not only become flatter than ever but also, I am convinced, more prosperous than ever. 
Three United States are better than one, and five would be better than three. 
But even as a free-trader, I am worried about the challenge this will pose to wages 
and benefits of certain workers in the United States, at least in the short run. It 
is too late for protectionism when it comes to China. Its economy is totally 
interlinked with those of the developed world, and trying to delink it would cause 
economic and geopolitical chaos that could devastate the global economy. Americans 
and Europeans will have to develop new business models that will enable them to get 
the best out of China and cushion themselves against some of the worst. As BusinessWeek, 
in its dramatic December 6, 2004, cover story on "The China Price," put it, "Can China 
dominate everything? Of course not.America remains the world's biggest manufacturer, 
producing 75% of what it consumes, though that's down from 90% in the mid-'90s. 
Industries requiring huge R&D budgets and capital investment, such as aerospace, 
pharmaceuticals, and cars, still have strong bases in the U.S. . . . America will 
surely continue to benefit from China's expansion." That said, unless America can 
deal with the long-term industrial challenge posed bythe China price in so many areas, 
"it will suffer a loss of economic power and influence." 
Or, to put it another way, if Americans and Europeans want to benefit from the 
flattening of the world and the interconnecting of all the markets and knowledge 
centers, they will all have to run at least as fast as the fastest lion-and I suspect 


that lion will be China, and I suspect that will be pretty darn fast. 
128 
Flattener #7 
Sup ply-Chain ing 
Eating Sushi in Arkansas 
I had never seen what a supply chain looked like in action until I visited Wal-Mart 
headquarters in Bentonville, Arkansas. My Wal-Mart hosts took me over to the 
1.2-million-square-foot distribution center, where we climbed up to a viewing perch 
and watched the show. On one side of the building, scores of white Wal-Mart trailer 
trucks were dropping off boxes of merchandise from thousands of different suppliers. 
Boxes large and small were fed up a conveyor belt at each loading dock. These little 
conveyor belts fed into a bigger belt, like streams feeding into a powerful river. 
Twenty-four hours a day, seven days a week, the suppliers' trucks feed the twelve 
miles of conveyor streams, and the conveyor streams feed into a huge Wal-Mart river 
of boxed products. But that is just half the show. As the Wal-Mart river flows along, 
an electric eye reads the bar codes on each box on its way to the other side of the 
building. There, the river parts again into a hundred streams. Electric arms from 
each stream reach out and guide the boxes-ordered by particular Wal-Mart stores- off 
the main river and down its stream, where another conveyor belt sweeps them into a 
waiting Wal-Mart truck, which will rush these particular products onto the shelves 
of a particular Wal-Mart store somewhere in the country. There, a consumer will lift 
one of these products off the shelf, and the cashier will scan it in, and the moment 
that happens, a signal will be generated. That signal will go out across the Wal-Mart 
network to the supplier of that product-whether that supplier's factory is in coastal 
China or coastal Maine. That signal will pop up on the supplier's computer screen 
and prompt him to make another of that item and ship it via the Wal-Mart supply chain, 
and the whole cycle will start anew. So no sooner does your arm lift a product off 
the local Wal-Mart's shelf and onto the checkout counter than another mechanical arm 
starts making another one somewhere in the world. Call it "the Wal-Mart Symphony" 
in multiple movements-with no finale. It just plays over and over 24/7/365: delivery, 
sorting, packing, distribution, buying, manufacturing, reordering, delivery, 
sorting, packing . . . 
129 
Just one company, Hewlett-Packard, will sell four hundred thousand computers through 
the four thousand Wal-Mart stores worldwide in one day during the Christmas season, 
which will require HPto adjust its supply chain, to make sure that all ofits standards 
interface with Wal-Mart's, so that these computers flow smoothly into the Wal-Mart 
river, into the Wal-Mart streams, into the Wal-Mart stores. 
Wal-Mart's ability to bring off this symphony on a global scale-moving 2.3 billion 
general merchandise cartons a year down its supply chain into its stores-has made 
it the most important example of the next great flat-tener I want to discuss, which 
I call supply-chaining. Supply-chaining is a method of collaborating 
horizontally-among suppliers, retailers, and customers-to create value. 
Supply-chaining is both enabled by the flattening of the world and a hugely important 


flattener itself, because the more these supply chains grow and proliferate, the more 
they force the adoption of common standards between companies (so that every link 
of every supply chain can interface with the next), the more they eliminate points 
of friction at borders, the more the efficiencies of one company get adopted by the 
others, and the more they encourage global collaboration. 
As consumers, we love supply chains, because they deliver us all sorts of goods-from 
tennis shoes to laptop computers-at lower and lower prices. That is how Wal-Mart 
became the world's biggest retailer. But as workers, we are sometimes ambivalent or 
hostile to these supply chains, because they expose us to higher and higher pressures 
to compete, cut costs, and also, at times, cut wages and benefits. That is how Wal-Mart 
became one of the world's most controversial companies. No company has been more 
efficient at improving its supply chain (and thereby flattening the world) than 
Wal-Mart; and no company epitomizes the tension that supply chains evoke between the 
consumer in us and the worker in us than Wal-Mart. A September 30, 2002, article in 
Computer-world summed up Wal-Mart's pivotal role: "'Being a supplier to Wal-Mart is 
a two-edged sword,' says Joseph R. Eckroth Jr., CIO at Mattel Inc. 'They're a 
phenomenal channel but a tough customer. They demand excellence.' It's a lesson that 
the El Segundo, Calif.-based toy manufacturer and thousands of other suppliers 
learned as the world's largest retailer, Wal-Mart Stores Inc., built an inventory 
and supply chain man- 

agement system that changed the face of business. By investing early and heavily in 
cutting-edge technology to identify and track sales on the individual item level, 
the Bentonville, Ark.-based retail giant made its IT infrastructure a key competitive 
advantage that has been studied and copied by companies around the world. 'We view 
Wal-Mart as the best supply chain operator of all time/ says Pete Abell, retail 
research director at high-tech consultancy AMR Research Inc. in Boston." 
In pursuit of the world's most efficient supply chain, Wal-Mart has piled up a list 
of business offenses over the years that has given the company several deserved black 
eyes and that it is belatedly starting to address in a meaningful way. But its role 
as one of the ten forces that flattened the world is undeniable, and it was to get 
a handle on this that I decided to make my own pilgrimage to Bentonville. I don't 
know why, but on the flight in from La Guardia, I was thinking, Boy, I would really 
like some sushi tonight. But where am I going to find sushi in northwest Arkansas? 
And even if I found it, would I want to eat it? Could you really trust the eel in 
Arkansas? 
When I arrived at the Hilton near Wal-Mart's headquarters, I was stunned to see, like 
a mirage, a huge Japanese steak house-sushi restaurant right next door. When I 
remarked to the desk clerk who was checking me in that I never expected to get my 
sushi fix in Bentonville, he told me, "We've got three more Japanese restaurants 
opening up soon." 
Multiple Japanese restaurants in Bentonville? 
The demand for sushi in Arkansas is not an accident. It has to do with the fact that 
all around Wal-Mart's offices, vendors have set up their own operations to be close 


to the mother ship. Indeed, the area is known as "Vendorville." The amazing thing 
about Wal-Mart's headquarters is that it is so, well, Wal-Mart. The corporate offices 
are crammed into a reconfigured warehouse. As we passed a large building made of 
corrugated metal, I figured it was the maintenance shed. "Those are our international 
offices," said my host, spokesman William Wertz. The corporate suites are housed in 
offices that are one notch below those of the principal, vice principal, and head 
counselor at my daughter's public junior high school-before it was remodeled. When 
you pass through the lobby, 
131 
you see these little cubicles where potential suppliers are pitching their products 
to Wal-Mart buyers. One has sewing machines all over the table, another has dolls, 
another has women's shirts. It feels like a cross between Sam's Club and the covered 
bazaar of Damascus. Attention Wal-Mart shareholders: The company is definitely not 
wasting your money on frills. 
But how did so much innovative thinking-thinking that has reshaped the world's 
business landscape inmany ways-come out of such a Li'l Abner backwater? It is actually 
a classic example of a phenomenon I point to often in this book: the coefficient of 
flatness. The fewer natural resources your country or company has, the more you will 
dig inside yourself for innovations in order to survive. Wal-Mart became the biggest 
retailer in the world because it drove a hard bargain with everyone it came in contact 
with. But make no mistake about one thing: Wal-Mart also became number one because 
this littlehick companyfrom northwest Arkansas was smarter and faster about adopting 
new technology than any of its competitors. And it still is. 
David Glass, the company's CEO from 1988 to 2000, oversaw many of the innovations 
that made Wal-Mart the biggest and most profitable retailer on the planet. Fortune 
magazine once dubbed him "the most underrated CEO ever" for the quiet way he built 
on Sam Walton's vision. David Glass is to supply-chaining what Bill Gates is to word 
processing. When Wal-Mart was just getting started in northern Arkansas in the 1960s, 
explained Glass, it wanted to be a discounter. But in those days, every five-and-dime 
got its goods from the same wholesalers, so there was no way to get an edge on your 
competitors. The only way Wal-Mart could see to get an edge, he said, was for it to 
buy its goods in volume directly from the manufacturers. But it wasn't efficient for 
manufacturers to ship to multiple Wal-Mart stores spread all over, so Wal-Mart set 
up a distribution center to which all the manufacturers could ship their merchandise, 
and then Wal-Mart got its own trucks to distribute these goods itself to its stores. 
The math worked like this: It cost 
132 
roughly 3 percent more on average for Wal-Mart to maintain its own distribution center. 
But it turned out, said Glass, that cutting out the wholesalers and buying direct 
from the manufacturers saved on average 5 percent, so that allowed Wal-Mart to cut 
costs on average 2 percent and then make it up on volume. 
Once it established that basic method of buying directly from manufacturers to get 
the deepest discounts possible, Wal-Mart focused relentlessly on three things. The 
first was working with the manufacturers to get them to cut their costs as much as 


possible. The second was working on its supply chain from those manufacturers, 
wherever they were in the world, to Wal-Mart's distribution centers, to make it as 
low-cost andfric-tionless aspossible. The third was constantly improving Wal-Mart's 
information systems, so it knew exactly what its customers were buying and could feed 
that information to all the manufacturers, so the shelves would always be stocked 
with the right items at the right time. 
Wal-Mart quickly realized that if it could save money by buying directly from the 
manufacturers, by constantly innovating to cut the cost of running its supply chain, 
and by keeping its inventories low by learning more about its customers, it could 
beat its competitors on price every time. Sitting in Bentonville, Arkansas, it didn't 
have much choice. 
"The reason we built all our own logistics and systems is because we are in the middle 
of nowhere," said Jay Allen, Wal-Mart's senior vice president of corporate affairs. 
"It really was a small town. If you wanted to go to a third party for logistics, it 
was impossible. It was pure survival. Now with all the attention we are getting there 
is an assumption that our low prices derive from our size or because we're getting 
stuff from China or being able to dictate to suppliers. The fact is the low prices 
are derived from efficiencies Wal-Mart has invested in-the system and the culture. 
It is a very low-cost culture." Added Glass, "I wish that I could say we were brilliant 
and visionary, [but] it was all born out of necessity." 
The more that supply chain grew, the more Walton and Glass understood that scale and 
efficiency were the keys to their whole business. Put simply, the more scale and scope 
their supply chain had, the more things they sold for less to more customers, the 
more leverage they had 

with suppliers to drive prices down even more, the more they sold to more customers, 
the more scale and scope their supply chain had, the more profit they reaped for their 
shareholders. . . 
Sam Walton was the father of that culture, but necessity was its mother, and its 
offspring has turned out to be a lean, mean supply-chain machine. In 2004, Wal-Mart 
purchased roughly $260 billion worth of merchandise and ran it through a supply chain 
consisting of 108 distribution centers around the United States, serving the some 
3,000 Wal-Mart stores in America. 
In the early years, "we were small-we were 4 or 5 percent of Sears and Kmart," said 
Glass. "If you are that small, you are vulnerable, so what we wanted to do more than 
anything else was grow market share. We had to undersell others. If I could reduce 
from 3 percent to 2 percent the cost of running my distribution centers, I could reduce 
retail prices and grow my market share and then not be vulnerable to anyone. So any 
efficiency we generated we passed on to the consumer." 
For instance, after the manufacturers dropped off their goods at the Wal-Mart 
distribution center, Wal-Mart needed to deliver those goods in small bunches to each 
of its stores. Itmeant that Wal-Marthad trucks going all over America. Walton quickly 
realized if he connected his drivers by radios and satellites, after they dropped 
off at a certain Wal-Mart store, they could go a few miles down the road and pick 


up goods from a manufacturer so they wouldn't come back empty and so Wal-Mart could 
save the delivery charges from that manufacturer. A few pennies here, a few pennies 
there, and the result is more volume, scope, and scale. 
In improving its supply chain, Wal-Mart leaves no link untouched. While I was touring 
the Wal-Mart distribution center in Bentonville, I noticed that some boxes were too 
big to go on the conveyor belts and were being moved around on pallets by Wal-Mart 
employees driving special minilift trucks with headphones on. A computer tracks how 
many pallets each employee is plucking every hour to put onto trucks for different 
stores, and a computerized voice tells each of them whether he is ahead of schedule 
or behind schedule. "You can choose whether you want your computer voice to be a man 
or a woman, and you can choose 

English or Spanish," explained Rollin Ford, Wal-Mart's executive vice president, who 
oversees the supply chain and was giving me my tour. 
A few years ago, these pallet drivers would get written instructions for where to 
pluck a certain pallet and what truck to take it to, but Wal-Mart discovered that 
by giving them headphones with a soothing computer voice to instruct them, drivers 
could use both hands and not have to carry pieces of paper. And by having the voice 
constantly reminding them whether they were behind or ahead of expectations, "we got 
a boost in productivity," said Ford. It is a million tiny operational innovations 
like this that differentiate Wal-Mart's supply chain. 
But the real breakthrough, said Glass, was when Wal-Mart realized that while it had 
to be a tough bargainer with its manufacturers on price, at the same time the two 
had to collaborate to create value for each other horizontally if Wal-Mart was going 
to keep driving down costs. Wal-Mart was one of the first companies to introduce 
computers to track store sales and inventory and was the first to develop a 
computerized network in order to share this information with suppliers. Wal-Mart's 
theory was that the more information everyone had about what customers were pulling 
off the shelves, the more efficient Wal-Mart's buying would be, the quicker its 
suppliers could adapt to changing market demand. 
In 1983, Wal-Mart invested in point-of-sale terminals, which simultaneously rang up 
sales and tracked inventory deductions for rapid resup-ply. Four years later, it 
installed a large-scale satellite system linking all of the stores to company 
headquarters, giving Wal-Mart's central computer system real-time inventory data and 
paving the way for a supply chain greased by information and humming down to the last 
atom of efficiency. A major supplier can now tap into Wal-Mart's Retail Link private 
extranet system to see exactly how its products are selling and when it might need 
to up its production. 
"Opening its sales and inventory databases to suppliers is what made Wal-Mart the 
powerhouse it is today, says Rena Granofsky, a senior partner at J. C. Williams Group 
Ltd., a Toronto-based retail consulting firm," in the 2002 Computerworld article on 
Wal-Mart. "While its competition guarded sales information, Wal-Mart approached its 
suppliers as if they were partners, not adversaries, says Granofsky. By implementing 
a col- 


135 
laborative planning, forecasting, and replenishment (CPFR) program, Wal-Mart began 
a just-in-time inventory program that reduced carrying costs for both the retailer 
and its suppliers. 'There's a lot less excess inventory in the supply chain because 
of it/ Granofsky says." Thanks to the efficiency of its supply chain alone, Wal-Mart's 
cost of goods is estimated to be 5 to 10 percent less than that of most of its 
competitors. 
Now Wal-Mart, in its latest supply-chain innovation, has introduced RFID-radio 
frequency identification microchips, attached to each pallet and merchandise box that 
comes into Wal-Mart, to replace bar codes, which have to be scanned individually and 
can get ripped orsoiled. In June 2003, Wal-Martinformed its top one hundred suppliers 
that by January 1, 2005, all pallets and boxes that they ship to Wal-Mart distribution 
centers have to come equipped with RFID tags. (According to the RFID Journal, "RFID 
is a generic term for technologies that use radio waves to automatically identify 
people or objects. There are several methods of identification, but the most common 
is to store a serial number that identifies a person or object, and perhaps other 
information, on a microchip that is attached to an antenna-the chip and the antenna 
together are called an RFID transponder or an RFID tag. The antenna enables the chip 
to transmit the identification information to a reader. The reader converts the radio 
waves reflected back from theRFID tag into digital information that can then be passed 
on to computers that can make use of it.") RFID will allow Wal-Mart to track any pallet 
or box at each stage in its supply chain and know exactly what product from which 
manufacturer is inside, with what expiration date. If a grocery item has to be stored 
at a certain temperature, the RFID tag will tell Wal-Mart when the temperature is 
too high or too low. Because each of these tags costs around 200, Wal-Mart is reserving 
them now for big boxes and pallets, not individual items. But this is clearly the 
wave of the future. 
"When you have RFID," said Rollin Ford, the Wal-Mart logistics vice president, "you 
have more insights." You can tell even faster which stores sell more of which shampoo 
on Fridays and which ones on Sundays, and whether Hispanics prefer to shop more on 
Saturday nights rather than Mondays in the stores in their neighborhoods. "When all 
this information is fed into our demand models, we can become more efficient on 
136 
when we produce [a product] and when we ship it and then put it on the trucks in exactly 
the right place inside the trucks so it can flow more efficiently," added Ford. "We 
used to have to count each piece, and scanning it at [the receiving end] was a 
bottleneck. Now [with RFID], we just scan the whole pallet under a bubble, and it 
says you have all thirty items you ordered and each box tells you, 'This is what I 
am and this is how I am feeling, this is what color I am, and am I in good shape'-so 
it makes receiving hugely easier." Procter & Gamble spokesperson Jeannie Tharrington 
talked to Salon.com (September 20, 2004) about Wal-Mart's move to RFID: "We see this 
as beneficial to the entire supply chain. Right now our out-of-stock levels are higher 
than we'd like and certainly higher than t 


he consumer would like, and we think this technology can help us to keep the products 
on the shelf more often." RFID will also allow for quicker remixing of the supply 
chain in response to events. 
During hurricanes, Wal-Mart officials told me, Wal-Mart knows that people eat more 
things like Pop-Tarts-easy-to-store, nonperishable items-and that their stores also 
sell a lot of kids' games that don't require electricity and can substitute for TV. 
It also knows that when hurricanes are coming, people tend to drink more beer. So 
the minute Wal-Mart's meteorologists tell headquarters a hurricane is bearing down 
on Florida, its supply chain automatically adjusts to a hurricane mix in the Florida 
stores-more beer early, more Pop-Tarts later. 
Wal-Mart is constantly looking for new ways to collaborate with its customers. Lately, 
it has gone into banking. It found that in areas with large Hispanic populations, 
many peoplehad no affiliation with a bank and were getting ripped off by check-cashing 
outlets. So Wal-Mart offered them payroll check cashing, money orders, money 
transfers, and even bill payment services for standard items like electricity 
bills-all for very small fees. Wal-Mart had an internal capability to do that for 
its own employees and simply turned it into an external business. 
TOO MUCH OF A GOOD THING 
Unfortunately for Wal-Mart, the same factors that drove its instinct for constant 
innovation-its isolation from the world, its need to dig inside 

itself, and its need to connect remote locations to a global supply chain- also got 
it in trouble. It is hard to exaggerate how isolated Bentonville, Arkansas, is from 
the currents of global debate on labor and human rights, and it is easy to see how 
this insular company, obsessed with lowering prices, could have gone over the edge 
in some of its practices. 
Sam Walton bred not only a kind of ruthless quest for efficiency in improving 
Wal-Mart's supply chain but also a degree of ruthlessness period. I am talking about 
everything from Wal-Mart's recently exposed practice of locking overnight workers 
into its stores, to its allowing Wal-Mart's maintenance contractors to use illegal 
immigrants as janitors, to its role as defendant in the largest civil-rights 
class-action lawsuit in history, to its refusal to stock certain magazines-like 
Playboy-on its shelves, even in small towns where Wal-Mart is the only major store. 
This is all aside from the fact that some of Wal-Mart's biggest competitors complain 
that they have had to cut health-care benefits and create a lower wage tier to compete 
with Wal-Mart, which pays less and covers less than most big companies (more on this 
later). One can only hope that all the bad publicity Wal-Mart has received in the 
last few years will force it to understand that there is a fine line between a 
hyperefficient global supply chain that ishelping people save money and improve their 
lives and one that has pursued cost cutting and profit margins to such a degree that 
whatever social benefits it is offering with one hand, it is taking away with the 
other. 
Wal-Mart is the China of companies. It has so much leverage that it can grind down 
any supplier to the last halfpenny. And it is not at all hesitant about using its 


ability to play its foreign and domestic suppliers off against each other. 
Some suppliers have found ways to flourish under the pressure and become better at 
what they do. If all of Wal-Mart's suppliers were being squeezed dry by Wal-Mart, 
Wal-Mart would have no suppliers. So obviously many of them are thriving as Wal-Mart's 
partners. But some no doubt have translated Wal-Mart's incessant price pressure into 
lower wages and benefits for their employees or watched as their business moved to 
China, whence Wal-Mart's supply chain pulled in $18 billion worth of goods in 2004 
from five thousand Chinese suppliers. "If Wal-Mart were an individual economy, it 
would rank as China's eighth138 
biggest trading partner, ahead of Russia, Australia and Canada," Xu Jun, the spokesman 
for Wal-Mart China, told the China Business Weekly (November 29, 2004). 
The successor generation to Sam Walton's leadership seems to recognize that it has 
both an image and a reality to fix. How far Wal-Mart will adjust remains to be seen. 
But when I asked Wal-Mart's CEO, H. Lee Scott Jr., directly about all these issues, 
he did not duck. In fact, he wanted to talk about it. "What I think I have to do is 
institutionalize this sense of obligation to society to the same extent that we have 
institutionalized the commitment to the customer," said Scott. "The world has changed 
and we have missed that. We believed that good intentions and good stores and good 
prices would cause people to forgive what we are not as good at, and we were wrong." 
In certain areas, he added, "we are not as good as we should be. We just have to get 
better." 
One trend that Wal-Mart insists it is not responsible for is the off-shoring of 
manufacturing. "We are much better off if we can buy merchandise made in the United 
States," said Glass. "I spent two years going around this country tryingto talkpeople 
into manufacturing here. We would pay more to buy it here because the manufacturing 
facilities in those towns [would create jobs for] all those people who shopped in 
our stores. Sanyo had a plant here [in Arkansas] making television sets for Sears, 
and Sears cut them off, so they decided they were closing the plant and going to move 
part to Mexico and part to Asia. Our governor asked if we would help. We decided we 
would buy television sets from Sanyo [if they would keep the plant in Arkansas], and 
they didn't want to do it. They wanted to move it, and [the governor] even talked 
to the [Japanese owning] family to try to persuade them to stay. Between his efforts 
and ours, we persuaded them to do it. They are now the world's largest producer of 
televisions. We just bought our fifty millionth set from them. But for the most part 
people in this country have just abandoned the manufacturing process. They say, 'I 
want to sell to you, but I don't want the responsibility for the buildings and 
employees [and health care]. I want to source it somewhere else.' So we were forced 
to source merchandise in other places in the world." He added, "One of my concerns 
139 
is that, with the manufacturing out of this country, one day we'll all be selling 
hamburgers to each other." 
The best way to get a taste of Wal-Mart's power as a global flattener is to visit 
Japan. 


Commodore Matthew Calbraith Perry opened a largely closed Japanese society to the 
Western world on July 8, 1853, when he arrived in Edo (Tokyo) Bay with four big black 
steamships bristling with guns. According to the Naval Historical Center Web site, 
the Japanese, not knowing that steamships even existed, were shocked by the sight 
of them and thought they were "giant dragons puffing smoke." Commodore Perry returned 
a year later, and on March 31, 1854, concluded the Treaty of Kanagawa with the Japanese 
authorities, gaining U.S. vessels access to the ports of Shimoda and Hakodate and 
opening a U.S. consulate in Shimoda. This treaty led to an explosion of trade between 
Japan and the United States, helped open Japan to the Western world generally, and 
is widely credited with triggering the modernization of the Japanese state, as the 
Japanese realized how far behind they were and rushed to catch up. And catch up they 
did. In so many areas, from automobiles to consumer electronics to machine tools, 
from the Sony Walkman to the Lexus, the Japanese learned every lesson they could from 
Western nations and then proceeded to beat us at our own game-except one: retailing, 
especially discount retailing. Japan could make those Sonys like nobody else, but 
when it came to selling them at a discount, well, that was another matter. 
So almost exactly 150 years after Commodore Perry signed that treaty, another 
lesser-known treaty was signed, actually a business partnership. Call itthe 
Seiyu-Wal-Mart Treaty of 2003. Unlike Commodore Perry, Wal-Mart did not have tomuscle 
its way into Japan with warships. Its reputation preceded it, which is why it was 
invited in by Seiyu, a struggling Japanese retail chain desperate to adapt the 
Wal-Mart formula in Japan, a country notorious for resisting big-box discount stores. 
As I traveled on the bullet train from Tokyo to Numazu, Japan, site of the first 

Seiyu store that was using the Wal-Mart methods, the New York Times translator pointed 
out that this store was located about one hundred miles from Shimoda and that first 

U.S. consulate. Commodore Perry probably would have loved shopping in the new Seiyu 
store, where all the music piped in consists of Western tunes designed tolull shoppers 
into filling their carts, and where you can buy a man's suit-made in China-for $65 
and awhite shirt togo with itfor $5. That's what they call around Wal-Mart EDLP-Every 
Day Low Prices-and it was one of the first phrases Wal-Mart folks learned to say in 
Japanese. 
Wal-Mart's flattening effects are fully on display in the Seiyu store in Numazu-not 
just the everyday low prices, but the wide aisles, the big pallets of household goods, 
the huge signs displaying the lowest prices in each category, and the Wal-Mart 
supply-chain computer system so that store managers can quickly adjust stock. 
I asked Seiyu's CEO, Masao Kiuchi, why he had turned to Wal-Mart. "The first time 
I knew about Wal-Mart was about fifteen years ago," explainedKiuchi. "I went to Dallas 
to see the Wal-Mart stores, and I thought this was a very rational method. It was 
two things: One was the signage showing the prices. It was very easy for us to 
understand." The second, he said, was that the Japanese thought a discount store meant 
that you sold cheap products at cheap prices. What he realized from shopping at 
Wal-Mart, and seeing everything from plasma TVs to top-brand pet products, was that 
Wal-Mart sold quality products at low prices. 

"At the store in Dallas, I took pictures, and I brought those pictures to my colleagues 
in Seiyu and said, 'Look, we have to see what Wal-Mart is doing on the other side 
of the planet' But showing pictures was not good enough, because how can you understand 
by justlooking at pictures?" recalled Kiuchi. Eventually, Kiuchi approached Wal-Mart, 
and they signed a partnership on December 31, 2003. Wal-Mart bought a piece of Seiyu; 
in return, Wal-Mart agreed to teach Seiyu its unique form of collaboration: global 
supply-chaining to bring consumers the best goods at the lowest prices. 
There was one big thing, though, that Seiyu had to teach Wal-Mart, Kiuchi told me: 
how to sell raw fish. Japanese discounters and department stores all have grocery 
sections, and they all carry fish for very dis141 
criminating Japanese consumers. Seiyu will discount fish several times during each 
day, as the freshness declines. 
"Wal-Mart doesn't understand raw fish," said Kiuchi. "We are expecting their help 
with general merchandising." 
Give Wal-Mart time. I expect that in the not-too-distant future we will see Wal-Mart 
sushi. 
Somebody had better warn the tuna. 
Flattener #8 
Insourcing 
What the Guys in Funny Brown Shorts Are Really Doing 
One of the most enjoyable things about researching this book has been discovering 
all sorts of things happening in the world around me of which I had no clue. Nothing 
was more surprisingly interesting than pulling the curtain back on UPS, United Parcel 
Service. Yes, those folks, the ones who wear the homely brown shorts and drive those 
ugly brown trucks. Turns out that while I was sleeping, stodgy old UPS became a huge 
force flattening the world. 
Once again, it was one of my Indian tutors, Nandan Nilekani, the Infosys CEO, who 
tipped me off to this. "FedEx and UPS should be one of your flatteners. They're not 
just delivering packages, they are doing logistics," he told me on the phone from 
Bangalore one day. Naturally, I filed the thought away, making a note to check it 
out, without having any clue what he was getting at. A few months later I went to 
China, and while there I was afflicted with jet lag one night and was watching CNN 
International to pass the wee hours of the morning. At one point, a commercial came 
on for UPS, and its tag line was UPS's new slogan: "Your World Synchronized." 
The thought occurred to me: That must be what Nandan was talking 
142 
about! UPS, I learned, was not just delivering packages anymore; it was synchronizing 
global supply chains for companies large and small. The next day I made an appointment 
to visit UPS headquarters in Atlanta. I later toured the UPS Worldport distribution 
hub adjacent to the Louisville International Airport, which at night is basically 
taken over by the UPS fleet of cargo jets, as packages are flown in from all over 
the world, sorted, and flown back out again a few hours later. (The UPS fleet of 270 
aircraft is the eleventh largest airline in the world.) What I discovered on these 


visits was that this is not your father's UPS. Yes, UPS still pulls in most of its 
$36 billion in sales by shipping more than 13.5 million packages a day from point 
A to point B. But behind that innocuous facade, the company founded in Seattle in 
1907 as a messenger service has reinvented itself as a dynamic supply-chain manager. 
Consider this: If you own a Toshiba laptop computer that is under warranty and it 
breaks and you call Toshiba to have it repaired, Toshiba will tell you to drop it 
off at a UPS store and have it shipped it to Toshiba, and it will get repaired and 
then be shipped back to you. But here's what they don't tell you: UPS doesn't just 
pick up and deliver your Toshiba laptop. UPS actually repairs the computer in its 
own UPS-run workshop dedicated to computer and printer repairs at its Louisville hub. 
I went to tour that hub expecting to see only packages moving around, and instead 
I found myself dressed in a blue smock, in a special clean room, watching UPS employees 
replacing motherboards in broken Toshiba laptops. Toshiba had developed an image 
problem several years ago, with some customers concluding that its repair process 
for broken machines took too long. So Toshiba came to UPS and asked it to design a 
better system. UPS said, "Look, instead of us picking up the machine from your 
customers, bringing it to our hub, then flying it from our hub to your repair facility 
and then flying it back to our hub and then from our hub to your customer's house, 
let's cut out all the middle steps. We, UPS, will pick it up, repair it ourselves, 
and send it right back to your customer." It is now possible to send your Toshiba 
laptop in one day, get it repaired the next, and have it back the third day. The UPS 
repairmen and -women were all certified by Toshiba, and its customer complaints went 
down dramatically. 

packages delivered or goods repaired quickly anywhere in the world, you can act really 
small. 
In addition, by making the delivery of goods and services around the world 
superefficient and superfast-and in huge volumes-UPS is helping to level customs 
barriers and harmonize trade by getting more and more people to adopt the same rules 
and labels and tracking systems for transporting goods. UPS has a smart label on all 
its packages so that package can be tracked and traced anywhere in its network. 
Working with the U.S. Customs Service, UPS designed a software program that allows 
customs to say to UPS, "I want to see any package moving through your Worldport hub 
that was sent from Cali, Colombia, to Miami by someone named Carlos." Or, "I want 
to see any package sent from Germany to the United States by someone named Osama." 
When the package arrives for sorting, the UPS computers will then automatically route 
that package to a customs officer in the UPS hub. A computerized arm will literally 
slide it off the conveyor belt and dump it into a bin for a closer look. It makes 
the inspection process more efficient and does not interrupt the general flow of 
packages. These efficiencies of time and scale save UPS's clients money, enabling 
them to recycle their capital and fund more innovation. But the level of collaboration 
it requires between UPS and its clients is unusual. 
Plow & Hearth is a large national catalog and Internet retailer specializing in 
"Products for Country Living." P&H came to UPS one day and said that too many of its 


furniture deliveries were coming to customers with a piece broken. Did UPS have any 
ideas? UPS sent its "package engineers" over and conducted a packaging seminar for 
the P&H procurement group. UPS also provided guidelines for them to use in the 
selection of their suppliers. The objective was to help P&H understand that its 
purchase decisions from its suppliers should be influenced not only by the quality 
of the products being offered but also by how those products were being packaged and 
delivered. UPS couldn't help its customer P&H without looking deep inside itsbusiness 
and then into its suppliers' businesses-what boxes and packing materials they were 
using. That is insourcing. 
146 
Consider the collaboration today among eBay sellers, UPS, PayPal, and eBay buyers. 
Say I offer to sell a golf club on eBay and you decide to buy it. I e-mail you a PayPal 
invoice, which has your name and mailing address on it. At the same time, eBay offers 
me an icon on its Web site to print out a UPS mailing label to you. When I print that 
mailing label on my own printer, it comes out with a UPS tracking bar code on it. 
At the same time, UPS, through its computer system, creates a tracking number that 
corresponds to that label, which automatically gets e-mailed to you-the person who 
bought my golf club-so you can track the package by yourself, online, on a regular 
basis and know exactly when it will reach you. 
If UPS had not gone into this business, someone would have had to invent it. With 
so many more people working through horizontal global supply chains far from home, 
somebody had to fill in the inevitable holes and tighten the weak links. Said Kurt 
Kuehn, UPS's senior vice president for sales and marketing, "The Texas machine parts 
guy is worried that the customer in Malaysia is a credit risk. We step in as a trusted 
broker. If we have control of that package, we can collect funds subject to acceptance 
and eliminate letters of credit. Trust can be created through personal relations or 
through systems and controls. If you don't have trust, you can rely on a shipper who 
does not turn [your package] over until he is paid. We have more ability than a bank 
to manage this, because we have the package and the ongoing relationship with the 
customer as collateral, so we have two points of leverage." 
More than sixty companies have moved operations closer to the UPS hub in Louisville 
since 1997, so they can make things and ship them straight from the hub, without having 
to warehouse them. But it is not just the little guys who benefit from the better 
logistics and more efficient supply chains that insourcing can provide. In 2001, Ford 
Motor Co. turned over its snarled and slow distribution network to UPS, allowing UPS 
to come deep inside Ford to figure out what its problems were and smooth out its supply 
chain. 
"For years, the bane of most Ford dealers was the auto maker's Rube Goldberg-like 
system for getting cars from factory to showroom," BusinessWeek reported in its July 
19, 2004, issue. "Cars could take as 
147 
long as a month to arrive-that is, when they weren't lost along the way. And Ford 
Motor Co. was not always able to tell its dealers exactly what was coming, or even 
what was in inventory at the nearest rail yards. 'We'd lose track of whole trainloads 


of cars,' recalls Jerry Reynolds, owner of Prestige Ford in Garland, Tex. 'It was 
crazy.'" But after UPS got under Ford's hood, "UPS engineers. . . redesigned Ford's 
entire North American delivery network, streamlining everything from the route cars 
take from the factory to how they're processed at regional sorting hubs"- including 
pasting bar codes on the windshields of the 4 million cars coming out of Ford's U.S. 
plants so they could be tracked just like packages. As a result, UPS cut the time 
it takes autos to arrive at dealer lots by 40 percent, to ten days on average. 
BusinessWeek reported: "That saves Ford millions in working capital each year and 
makes it easy for its 6,500 dealers to track down the models most in demand ... 'It 
was the most amazing transformation I had ever seen,' marvels Reynolds. 'My last 
comment to UPS was: 'Can you get us spare parts like this?'" 
UPS maintains a think tank, the Operations Research Division, in Timonium, Maryland, 
which works on supply-chain algorithms. This "school" of mathematics is called 
"package flow technology," and it is designed to constantly match the deployment of 
UPS trucks, ships, airplanes, and sorting capabilities with that day's flow of 
packages around the world. "Now we can make changes in our network in hours to adjust 
to changes in volume," says UPS CEO Eskew. "How I optimize the total supply chain 
is the key to the math." The sixty-person UPS team in Timonium is made up largely 
of people with engineering and math degrees, including several Ph.D.'s. 
UPS also employs its own meteorologists and strategic threat analysts to track which 
atmospheric or geopolitical thunderstorms it will have to work around on any given 
day. To further grease its supply chains, UPS is the largest private user of wireless 
technology in the world, as its drivers alone make over 1 million phone calls a day 
in the process ofpicking up and delivering packages through its eighty-eight thousand 
package cars, vans, tractors, and motorcycles. On any given day, according to UPS, 
2 percent of the world's GDP can be found in UPS delivery trucks or package cars. 
Oh, and did I mention that UPS also has a financing 

arm-UPS Capital-that will put up the money for the transformation of your supply chain, 
particularly if you are a small business and don't have the capital. 
For example, notes Eskew, UPS was doing business with a small biotech company in Canada 
that sold blood adhesives, a highly perishable alternative to stitches. The company 
had a growing market among the major hospital chains, but it had a problem keeping 
up with demand and could not get financing. It had distribution centers on the East 
and West coasts. UPS redesigned the company's system based around a refrigerator hub 
in Dallas and extended it financing through UPS Capital. The result, said Eskew, was 
less inventory, better cash flow, better customer service-and an embedded customer 
for UPS. A maker of bridal headpieces and veils in Montreal wanted to improve its 
flow of business with the U.S. Eskew recalled, "We designed a system for consolidated 
[customs] clearances, so their veils and headpieces would not have to come over [the 
border] one by one. And then we put [the merchandise] in a warehouse in [upstate] 
New York. We took the orders by Internet, we put the labels on, we delivered the 
packages and collected the money, and we put that money through UPS Capital into their 
banks electronically so they had the cash back. That allows them to enter new markets 


and minimize their inventory." 
Eskew explained, "When our grandfathers owned shops, inventory was what was in the 
back room. Now it is a box two hours away on a package car, or it might be hundreds 
more crossing the country by rail or jet, and you have thousands more crossing the 
ocean. And because we all have visibility into that supply chain, we can coordinate 
all those modes of transportation." 
Indeed, as consumers have become more empowered to pull their own products via the 
Internet and customize them for themselves, UPS has found itself in the interesting 
position of being not only the company actually taking the orders but also, as the 
delivery service, the one handingthe goodsto the buyer at the front door. As a result, 
companies said, "Let's try to push as many differentiating things to the end of the 
supply chain, rather than the beginning." And because UPS was the last link in the 
supply chain before these goods were loaded onto planes, trains, and 

trucks, it took over many of these functions, creating a whole new business called 
End of Runway Services. The day I visited Louisville, two young UPS women were putting 
together Nikon cameras, with special memory cards and leather cases, which some store 
had offered as a weekend special. They were even putting them in special boxes just 
for that store. By taking over this function, UPS gives companies more options to 
customize products at the last minute. 
UPS has also taken full advantage of the Netscape and work flow flat-teners. Before 
1995, all tracking and tracing of UPS packages for customers was done through a call 
center. You called a UPS 800 number and asked an operator where your package was. 
During the week before Christmas, UPS operators were fielding six hundred thousand 
calls on the peak days. Each one of those calls cost UPS $2.10 to handle. Then, through 
the 1990s, as more and more UPS customers became empowered and comfortable with the 
Internet, and as its own tracking and tracing system improved with advances in 
wireless technology, UPS invited its customers to track packages themselves over the 
Internet, at a cost to UPS of between 5(2 and 100 a query. 
"So we dramatically reduced our service costs and increased service," said UPS vice 
president Ken Sternad, especially since UPS now pulls in 7 million tracking requests 
on an average day and a staggering 12 million on peak days. At the same time, its 
drivers also became more empowered with their DIADs -driver delivery information 
acquisition devices. These are the brown electronic clipboards that you always see 
the UPS drivers carrying around. The latest generation of them tells each driver where 
in his truck to load each package-exactly what position on the shelf. It also tells 
him where his next stop is, and if he goes to the wrong address, the GPS system built 
into the DIAD won't allow him to deliver the package. It also allows Mom to go online 
and find out when the driver will be in her neighborhood dropping off her package. 
Insourcing is distinct from supply-chaining because it goes well beyond supply-chain 
management. Because it is third-party-managed logistics, it requires a much more 
intimate and extensive kind of collaboration among UPS and its clients and its 
clients' clients. In many cases today, UPS and its employees are so deep inside their 
clients' infrastruc


150 
ture that it is almost impossible to determine where one stops and the other starts. 
The UPS people are not just synchronizing your packages-they are synchronizing your 
whole company and its interaction with both customers and suppliers. 
"This is no longer a vendor-customer relationship," said Eskew. "We answer your phones, 
we talk to your customers, we house your inventory, and we tell you what sells and 
doesn't sell. We have access to your information and you have to trust us. We manage 
competitors, and the only way for this to work, as our founders told Gimbel's and 
Macy's, is 'trust us.' I won't violate that. Because we are asking people to let go 
of part of their business, and that really requires trust." 
UPS is creating enabling platforms for anyone to take his or her business global or 
to vastly improve the efficiency of his or her global supply chain. It is a totally 
new business, but UPS is convinced it has an almost limitless upside. Time will tell. 
Though margins are still thin in this kind of work, in 2003 alone insourcing pulled 
in $2.4 billion in revenues for UPS. My gut tells me the folks in the funny brown 
shorts and funny brown trucks are on to something big-something made possible only 
by the flattening of the world and something that is going to flatten it a lot more. 
Flattener #9 In-forming 
Google, Yahoo!, MSN Web Search 
My friend and I met a guy at a restaurant. My friend was very taken with him, but 
I was suspiciously curious about this guy. After a few minutes of Googling, I found 
out that he was arrested for felony assault. Although I was once again disappointed 
with the quality of the dating pool, I was at least able to warn my friend about this 
guy's violent past. -Testimonial from Google user 
151 
I am completely delighted with the translation service. My partner arranged for two 
laborers to come and help with some demolition. There was a miscommunication: she 
asked for the workers to come at 11 am, and the labor service sent them at 8:30. They 
speak only Spanish, and I speak English and some French. Our Hispanic neighbors were 
out. With the help of the translation service, I was able to communicate with the 
workers, to apologize for the miscommunication, establish the expectation, and ask 
them to come back at 11. Thank you for providing this connection . . . Thank you Google. 
-Testimonial from Google user 
I just want to thank Google for teaching me how to find love. While looking for my 
estranged brother, I stumbled across a Mexican Web site for male strippers-and I was 
shocked. My brother was working as a male prostitute! The first chance I got, I flew 
to the city he was working in to liberate him from this degrading profession. I went 
to the club he was working at and found my brother. But more than that, I met one 
of his co-workers . . . We got married last weekend [in Mexico], and I am positive 
without Google's services, I never would have found my brother, my husband, or the 
surprisingly lucrative nature of the male stripping industry in Mexico!! Thank you, 
Google! 
-Testimonial from Google user 
Google headquarters in Mountain View, California, has a certain Epcot Cen 


ter feel to it-so many fun space age toys to play with, so little time. In one corner 
is a spinning globe that emits light beams based on the volume of people searching 
on Google. As you would expect, most of the shafts of light are shooting up from North 
America, Europe, Korea, Japan, and coastal China. The Middle East and Africa remain 
pretty dark. In another corner is a screen that shows a sample of what things people 
are searching for at that moment, all over the world. When I was there in 2001, I 
asked my hosts what had been the most frequent searches lately. One, of course, was 
"sex," a perennial favorite of Googlers. 
152 
Another was "God." Lots of people searching for Him or Her. A third was "jobs"-you 
can't find enough of those. And the fourth most searched item around the time of my 
visit? I didn't know whether to laugh or cry: "professional wrestling." The weirdest 
one, though, is the Google recipe book, where people just open their refrigerators, 
see what ingredients are inside, type three of them into Google, and see what recipes 
come up! 
Fortunately, no single word or subject accounts for more than 1 or 2 percent of all 
Google searches at any given time, so no one should get too worried about the fate 
of humanity on the basis of Google's top search items on any particular day. Indeed, 
it is the remarkable diversity of searches going on via Google, in so many different 
tongues, that makes the Google search engine (and search engines in general) such 
huge flatteners. Never before in the history of the planet have so many people-on 
their own-had the ability to find so much information about so many things and about 
so many other people. 
Said Google cofounder Russian-born Sergey Brin, "If someone has broadband, dial-up, 
or access to an Internet cafe, whether a kid in Cambodia, the university professor, 
or me who runs this search engine, all have the same basic access to overall research 
information that anyone has. It is a total equalizer. This is very different than 
how I grew up. My best access was some library, and it did not have all that much 
stuff, and you either had to hope for a miracle or search for something very simple 
or something very recent." When Google came along, he added, suddenly that kid had 
"universal access" to the information in libraries all over the world. 
That is certainly Google's goal-to make easily available all the world's knowledge 
in every language. And Google hopes that in time, with a PalmPilot or a cell phone, 
everyone everywhere will be able to carry around access to all the world's knowledge 
in their pockets. "Everything" and "everyone" are key words that you hear around 
Google all the time. Indeed, the official Google history carried on its home page 
notes that the name "Google" is a play on the word "'googol,' which is the number 
represented by the numeral 1 followed by 100 zeros. Google's use of the term reflects 
the company's mission to organize the immense, seemingly infinite amount of 
information available on the 
153 
Web," just for you. What Google's success reflects is how much people are interested 
in having just that-all the world's knowledge at their fingertips. There is no bigger 
flattener than the idea of making all the world's knowledge, or even just a big chunk 


of it, available to anyone and everyone, anytime, anywhere. 
"We do discriminate only to the degree that if you can't use a computer or don't have 
access to one, you can't use Google, but other than that, if you can type, you can 
use Google," said Google CEO Eric Schmidt. And surely if the flattening of the world 
means anything, he added, it means that "there is no discrimination in accessing 
knowledge. Google is now searchable in one hundred languages, and every time we find 
another we increase it. Let's imagine a group with a Google iPod one day and you can 
tell it to search by voice-that would take care of people who can't use a computer-and 
then [Google access] just becomes about the rate at which we can get cheap devices 
into people's hands." 
How does searching fit into the concept of collaboration? I call it "in-forming." 
In-forming is the individual's personal analog to open-sourcing, outsourcing, 
insourcing, supply-chaining, and offshoring. Informing is the ability to build and 
deploy your own personal supply chain-a supply chain of information, knowledge, and 
entertainment. In-forming is about self-collaboration-becoming your own 
self-directed and self-empowered researcher, editor, and selector of entertainment, 
without having togo to the library or the movie theater or through network television. 
In-forming is searching for knowledge. It is about seeking like-minded people and 
communities. Google's phenomenal global popularity, which has spurred Yahoo! and 
Microsoft (through its new MSN Search) also to make power searching and in-forming 
prominent features of their Web sites, shows how hungry people are for this form of 
collaboration. Google is now processing roughly one billion searches per day, up from 
150 million just three years ago. 
The easier and more accurate searching becomes, added Larry Page, Google's other 
cofounder, the more global Google's user base becomes, and the more powerful a 
flattener it becomes. Every day more and more people are able to in-form themselves 
in their own language. Today, said 

Page, "only a third of our searches are U.S.-based, and less than half are in English." 
Moreover, he added, "as people are searching for more obscure things, people are 
publishing more obscure things," which drives the flattening effect of in-forming 
even more. All the major search engines have also recently added the capability for 
users to search not only the Web for information but also their own computer's hard 
drive for words or data or e-mail they know is in there somewhere but have forgotten 
where. When you can search your own memory more efficiently, that is really in-forming. 
In late2004, Google announced plans toscan the entire contents of both the University 
of Michigan and Stanford University Libraries, making tens of thousands of books 
available and searchable online. 
In the earliest days of search engines, people were amazed and delighted to stumble 
across the information they sought; eureka moments were unexpected surprises, said 
Yahool's cofounder Jerry Yang. "Today their attitudes are much more presumptive. They 
presume that the information they're looking for is certainly available and that it's 
just a matter of technologists making it easier to get to, and in fewer keystrokes," 
he said. "The democratization of information is having a profound impact on society. 


Today's consumers are much more efficient-they can find information, products, 
services, faster [through search engines] than through traditional means. They are 
better informed about issues related to work, health, leisure, etc. Small towns are 
no longer disadvantaged relative to those with better access to information. And 
people have the ability to bebetter connected to things that interest them, toquickly 
and easily become experts in given subjects and to connect with others who share their 
interests." 
Google's founders understood that by the late 1990s hundreds of thousands of Web pages 
were being added to the Internet each day, and that existing search engines, which 
tended to search for keywords, could not keep pace. Brin and Page, who met as Stanford 
University graduate students in computer science in 1995, developed a mathematical 
formula that ranked a Web page by how many other Web pages were linked to it, on the 
assumption that the more people linked to a certain page, the more important the page. 
The key breakthrough that enabled 

Google to become first among search engines was its ability to combine its PageRank 
technology with an analysis of page content, which determines which pages are most 
relevant tothe specific search being conducted. Even though Google entered the market 
after other major search players, its answers were seen by people as more accurate 
and relevant to what they were looking for. The fact that one search engine was just 
a little better than the others led a tidal wave of people to switch to it. (Google 
now employs scores of mathematicians working on its search algorithms, in an effort 
to always keep them one step more relevant than the competition.) 
For some reason, said Brin, "people underestimated the importance of finding 
information, as opposed to other things you would do online. If you are searching 
for something like a health issue, you really want to know; in some cases it is a 
life-and-death matter. We have people who search Google for heart-attack symptoms 
and then call nine-one-one." But sometimes you really want to in-form yourself about 
something much simpler. 
When I was in Beijing in June 2004, I was riding the elevator down one morning with 
my wife, Ann, and sixteen-year-old daughter, Natalie, who was carrying a fistful of 
postcards written to her friends. Ann said to her, "Did you bring their addresses 
along?" Natalie looked at her as if she were positively nineteenth-century. "No," 
she said, with that you-are-so-out-of-it-Mom tone of voice. "I just Googled their 
phone numbers, and their home addresses came up." 
Address book? You dummy, Mom. 
All that Natalie was doing was in-forming, using Google in a way that I had no idea 
was even possible. Meanwhile, though, she also had her iPod with her, which empowered 
her to in-form herself in another way- with entertainment instead of knowledge. She 
had become her own music editor and downloaded all her favorite songs into her iPod 
and was carrying them all over China. Think about it: For decades the broadcast 
industry was built around the idea that you shoot out ads on network television or 
radio and hope that someone is watching or listening. But thanks to the flattening 
technologies in entertainment, that world is quickly fading away. Now with TiVo you 


can become your own TV edi156 
tor. TiVo allows viewers to digitally record their favorite programs and skip the 
ads, except those they want to see. You watch what you want when you want. You don't 
have to make an appointment with a TV channel at the time and place someone else sets 
and watch the commercials foisted on you. With TiVo you can watch only your own shows 
and the commercials you want for only those products in which you might be interested. 
But just as Google can track what you are searching for, so too can TiVo, which knows 
which shows and which ads you are freezing, storing, and rewinding on your own TV. 
So here's a news quiz: Guess what was the most rewound moment in TV history? Answer: 
Janet's Jackson breast exposure, or, as it was euphemistically called, her "wardrobe 
malfunction," at the 2004 Super Bowl. Just ask TiVo. In a press release it issued 
on February 2,2004, TiVo said, "Justin Timberlake and Janet Jackson stole the show 
during Sunday's Super Bowl, attracting almost twice as many viewers as the most 
thrilling moments on the field, according to an annual measurement of 
second-by-second viewership in TiVo households. The Jackson-Timberlake moment drew 
the biggest spike in audience reaction TiVo has ever measured. TiVo said viewership 
spiked up to 180 percent as hundreds of thousands of households used TiVo's unique 
capabilities to pause and replay live television to view the incident again and 
again." 
So if everyone can increasingly watch what he wants however many times he wants when 
he wants, the whole notion of broadcast TV-which is that we throw shows out there 
one time, along with their commercials, and then try to survey who is watching-will 
increasingly make less and less sense. The companies you want to bet on are those 
that, like Google or Yahoo! or TiVo, learn to collaborate with their users and offer 
them shows and advertisements tailored just for them. I can imagine a day soon when 
advertisers won't pay for anything other than that. 
Companies like Google, Yahoo!, Amazon.com, and TiVo have learned to thrive not by 
pushing products and services on their customers as much as by building collaborative 
systems that enable customers to pull on their own, and then responding with lightning 
quickness to what they pull. It is so much more efficient. 
"Search is so highly personal that searching is empowering for hu- 
157 
mans like nothing else," said Google CEO Eric Schmidt. "It is the antithesis of being 
told or taught. It is about self-empowerment; it is empowering individuals to do what 
they think best with the information they want. It is very different from anything 
else that preceded it. Radio was one-to-many. TV was one-to-many. The telephone was 
one-to-one. Search is the ultimate expression of the power of the individual, using 
a computer, looking at the world, and finding exactly what they want- and everyone 
is different when it comes to that." 
Of course what made Google not just a search engine but a hugely profitable business 
was its founders' realization that they could build a targeted advertising model that 
would show you ads that are relevant to you when you searched for a specific topic 
and then could charge advertisers for the number of times Google users clicked on 


their ads. Whereas CBS broadcasts a movie and has a less exact idea who is watching 
it or the advertisements, Google knows exactly what you are interested in- after all, 
you are searching for it-and can link you up with advertisers directly or indirectly 
connected to your searches. In late 2004, Google began a service whereby if you are 
walking around Bethesda, Maryland, and are in the mood for sushi, you just send Google 
an SMS message on your cell phone that says "Sushi 20817"-the Bethesda zip code-and 
it will send you back a text message of choices. Lord only knows where this will go. 
In-forming, though, also involves searching for friends, allies, and collaborators. 
It is empowering the formation of global communities, across all international and 
cultural boundaries, which is another critically important flattening function. 
People can now search out fellow collaborators on any subject, project, or 
theme-particularly through portals like Yahoo! Groups. Yahoo! has about 300 million 
users and 4 million active groups. Those groups have 13 million unique individuals 
accessing them each month from all over the world. 
"The Internet is growing in the self-services area, and Yahoo! Groups exemplifies 
this trend," said Jerry Yang. "It provides a forum, a platform, a set of tools for 
people to have private, semiprivate, or public gatherings on the Internet regardless 
of geography or time. It enables consumers to gather around topics that are meaningful 
to them in ways that are either 

impractical or impossible offline. Groups can serve as support groups for complete 
strangers who are galvanized by a common issue (coping with rare diseases, first-time 
parents, spouses of active-duty personnel) or who seek others who share similar 
interests (hobbies as esoteric as dogsled-ding, blackjack, and indoor tanning have 
large memberships). Existing communities can migrate online and flourish in an 
interactive environment (local kids' soccer league, church youth group, alumni 
organizations), providing a virtual home for groups interested in sharing, organizing, 
and communicating information valuable to cultivating vibrant communities. Some 
groups exist only online and could never be as successful offline, while others mirror 
strong real-world communities. Groups can be created instantaneously and dissolved; 
topics can change or stay constant. This trend will only grow as consumers 
increasingly become publishers, and they can seek the affinity and community they 
choose-when, where, and how they choose it." 
There is another side to in-forming that people are going to have to get used to, 
and that is other people's ability to in-form themselves about you from a very early 
age. Search engines flatten the world by eliminating all the valleys and peaks, all 
the walls and rocks, that people used to hide inside of, atop, behind, or under in 
order to mask their reputations or parts of their past. In a flat world, you can't 
run, you can't hide, and smaller and smaller rocks are turned over. Live your life 
honestly, because whatever you do, whatever mistakes you make, will be searchable 
one day. The flatter the world becomes, the more ordinary people become 
transparent-and available. Before my daughter Orly went off to college in the fall 
of 2003, she was telling me about some of her roommates. When I asked her how she 
knew some of the things she knew- had she spoken to them or received an e-mail from 


them?-she told me she had done neither. She just Googled them. She came up with stuff 
from high school newspapers, local papers, etc., and fortunately no police records. 
These are high school kids! 
"In this world you better do it right-you don't get to pick up and move to the next 
town so easily," said Dov Seidman, who runs a legal compliance and business ethics 
consulting firm, LRN. "In the world of Google, your reputation will follow you and 
precede you on your next 
159 
stop. It gets there before you do ... Reputation starts early now. You don't get to 
spend four years getting drunk. Your reputation is getting set much earlier in life. 
'Always tell the truth,' said Mark Twain, 'that way you won't have to remember what 
you said.'" So many more people can be private investigators into your life, and they 
can also share their findings with so many more people. 
In the age of the superpower search, everyone is a celebrity. Google levels 
information-it has no class boundaries or education boundaries. "If I can operate 
Google, I can find anything," said Alan Cohen, vice president of Airespace, which 
sells wireless technology. "Google is like God. God is wireless, God is everywhere, 
and God sees everything. Any questions in the world, you ask Google." 
Some months after Cohen made that observation to me, I came across the following brief 
business story on CNET News.com: "Search giant Google said on Wednesday that it has 
acquired Keyhole, a company specializing in Web-based software that allows people 
to view satellite images from around the globe . . . The software gives users the 
ability to zoom in from space level; in some cases, it can zoom in all the way to 
a street-level view. The company does not have high-resolution imagery for the entire 
globe, but its Website offers a list of cities that are available for more detailed 
viewing. The company has focused most on covering large metropolitan areas in the 
United States and is working to expand its coverage." 
Flattener #10 
The Steroids 
Digital, Mobile, Personal, and Virtual 
But this iPaq's real distinction is its wirelessness. It's the first palmtop that 
can connect to the Internet and other gadgets in four wireless ways. For distances 
up to 30 inches, the iPaq can beam 
160 
information, like your electronic business card, to another palmtop using an infrared 
transmitter. For distances up to 30 feet, it has built-in Bluetooth circuitry . . . 
For distances up to 150 feet, it has a Wi-Fi antenna. And for transmissions around 
the entire planet, the iPaq has one other trick up its sleeve: it's also a cell phone. 
If your office can't reach you on this, then you must be on the International Space 
Station. 
-From a New York Times article about HP's new PocketPC, 
July 29, 2004 
I am on the bullet train speeding southwest from Tokyo to Mishima. The view is 
spectacular: fishing villages on my left and a snow-dusted Mt. Fuji on my right. My 


colleague Jim Brooke, the Tokyo bureau chief for The New York Times, is sitting across 
the aisle and paying no attention to the view. He is engrossed in his computer. So 
am I, actually, but he's online through a wireless connection, and I'm just typing 
away on a column on my unconnected laptop. Ever since we took a cab together the other 
day in downtown Tokyo and Jim whipped out his wireless-enabled laptop in the backseat 
and e-mailed me something through Yahoo!, I have been exclaiming at the amazing degree 
of wireless penetration and connectivity in Japan. Save for a few remote islands and 
mountain villages, if you have a wireless card in your computer, or any Japanese cell 
phone, you can get online anywhere-from deep inside the subway stations to the bullet 
trains speeding through the countryside. Jim knows I am slightly obsessed with the 
fact that Japan, not to mention most of the rest of the world, has so much better 
wireless connectivity than America. Anyway, Jim likes to rub it in. 
"See, Tom, I am online right now," he says, as the Japanese countryside whizzes by. 
"A friend of mine who's the Times's stringer in Alma Ata just had a baby and I am 
congratulating him. He had a baby girl last night." Jim keeps giving me updates. "Now 
I'm reading the frontings!" -a summary ofthe day's New York Times headlines. Finally, 
I ask Jim, who is fluent in Japanese, to ask the train conductor to come over. He 
ambles by. I ask Jim to ask the conductor how fast we are going. They rattle back 
and forth in Japanese for a few seconds before Jim translates: "240 kilo

meters per hour." I shake my head. We are on a bullet train going 240 km per hour-that's 
150 mph-and my colleague is answering e-mail from Kazakhstan, and I can't drive from 
my home in suburban Washington to downtown DC without my cell phone service being 
interrupted at least twice. The day before, I was in Tokyo waiting for an appointment 
with Jim's colleague Todd Zaun, and he was preoccupied with his Japanese cell phone, 
which easily connects to the Internet from anywhere. "I am a surfer," Todd explained, 
as he used his thumb to manipulate the keypad. "For $3 a month I subscribe to this 
[Japanese] site that tells me each morning how high the waves are at the beaches near 
my house. I check it out, and I decide where the best place to surf is that day." 
(The more I thought about this, the more I wanted to run for president on a one-issue 
ticket: "I promise, if elected, that within four years America will have as good a 
cell phone coverage as Ghana, and in eight years as good as Japan-provided that the 
Japanese sign a standstill agreement and won't innovate for eight years so we can 
catch up." My campaign bumper sticker will be very simple: "Can You Hear Me Now?") 
I know that America will catch up sooner or later with the rest of the world in wireless 
technology. It's already happening. But this section about the tenth flattener is 
not just about wireless. It is about what I call "the steroids." I call certain new 
technologies the steroids because they are amplifying and turbocharging all the other 
flatteners. They are taking all the forms of collaboration highlighted in this 
section- outsourcing, offshoring, open-sourcing, supply-chaining, insourcing, and 
in-forming-and making it possible to do each and every one of them in a way that is 
"digital, mobile, virtual, and personal," as former HP CEO Carly Fiorina put it in 
her speeches, thereby enhancing each one and making the world flatter by the day. 
By "digital," Fiorina means that thanks to the PC-Windows-Netscape-work flow 


revolutions, all analog content and processes- everything from photography to 
entertainment to communication to word processing to architectural design to the 
management of my home lawn sprinkler system-are being digitized and therefore can 
be shaped, manipulated, and transmitted over computers, the Internet, satellites, 
or fiber-optic cable. By "virtual," she means that the process of shaping, ma162 
nipulating, and transmitting this digitized content can be done at very high speeds, 
with total ease, so that you never have to think about it-thanks to all the underlying 
digital pipes, protocols, and standards that have now been installed. By "mobile," 
she means that thanks to wireless technology, all this can be done from anywhere, 
with anyone, through any device, and can be taken anywhere. And by "personal," she 
means that it can be done by you, just for you, on your own device. 
What does the flat world look like when you take all these new forms of collaboration 
and turbocharge them in this way? Let me give just one example. Bill Brody, the 
president of Johns Hopkins, told me this story in the summer of 2004: "I am sitting 
in a medical meeting in Vail and the [doctor] giving a lecture quotes a study from 
Johns Hopkins University. And the guy speaking is touting a new approach to treating 
prostate cancer that went against the grain of the current surgical method. It was 
a minimally invasive approach to prostate cancer. So he quotes a study by Dr. Patrick 
Walsh, who had developed the state-of-the-art standard of care for prostate surgery. 
This guy who is speaking proposes an alternate method-which was controversial-but 
he quotes from Walsh's Hopkins study in a way that supported his approach. When he 
said that, I said to myself, That doesn't sound like Dr. Walsh's study.' So I had 
a PDA [personal digital assistant], and I immediately went online [wirelessly] and 
got into the Johns Hopkins portal and into Medline and did a search right while I 
was sitting there. Up come all the Walsh abstracts. I toggled on one and read it, 
and it was not at all what the guy was saying it was. So I raised my hand during the 
Q and A and read two lines from the abstract, and the guy just turned beet red." 
The digitization and storage of all the Johns Hopkins faculty research in recent years 
made it possible for Brody to search it instantly and virtually without giving it 
a second thought. The advances in wireless technology made it possible for him to 
do that search from anywhere with any device. And his handheld personal computer 
enabled him to do that search personally-by himself, just for himself. 
What are the steroids that made all this possible? 
163 
One simple way to think about computing, at any scale, is that it is comprised of 
three things: computational capability, storage capability, and input/output 
capability-the speed by which information is drawn in and out of the computer/storage 
complexes. And all of these have been steadily increasing since the days of the first 
bulky mainframes. This mutually reinforcing progress constitutes a significant 
steroid. As a result of it, year after year we have been able to digitize, shape, 
crunch, and transmit more words, music, data, and entertainment than ever before. 
For instance, MIPS stands for "millions of instructions per second," and it is one 
measure of the computational capability of a computer's microchips. In 1971, the Intel 


4004 microprocessor produced .06 MIPS, or 60,000 instructions per second. Today's 
Intel Pentium 4 Extreme Edition has a theoretical maximum of 10.8 billion instructions 
per second. In 1971, the Intel 4004 microprocessor contained 2,300 transistors. 
Today's Itanium 2 packs 410 million transistors. Meanwhile, inputting and outputting 
data have leaped ahead at a staggering rate. At the speeds that disk drives operated 
back in the early days of 286 and 386 chips, it would have taken about a minute to 
download a single photo from my latest digital camera. Today I can do that in less 
than a second on a USB 2.0 disk drive and a Pentium processor. The amount of stuff 
you can now store to input and output "is off the charts, thanks to the steady advances 
in storage devices," said Craig Mundie, Microsoft's chief technology officer. 
"Storage is growing exponentially, and this is really as much a factor in the 
revolution as anything else." It's what is allowing all forms of content to become 
digital and to some extent portable. It is also becoming cheap enough that you can 
put massive amounts on even the personal devices people carry around with them. Five 
years ago, no one would have believed that you would be able to sell iPods with 40 
gigabytes ofstorage, capable of holding thousands of songs, for prices that teenagers 
could afford. Now it's seen as ho-hum. And when it comes to moving all these bits 
around, the computing world has been turbocharged. Advances in fiber optics will soon 
allow a single fiber to carry 1 terabit per second. With 48 fibers in a cable, that's 
48 terabits per second. Henry Schacht, the former CEO of Lucent, which specialized 
in this technology, pointed out that with that much capacity, you could "transmit 
all the 

printed material in the world in minutes in a single cable. This means unlimited 
transmitting capacity at zero incremental cost." Even though the speeds that Schacht 
was talking about apply only to the backbone of the fiber network, and not that last 
mile into your house and into your computer, we are still talking about a quantum 
leap forward. 
In The Lexus and the Olive Tree, I wrote about a 1999 Qwest commercial showing a 
businessman, tired and dusty, checking in to a roadside motel inthe middle of nowhere. 
He asks the bored-looking desk clerk whether they have room service and other 
amenities. She says yes. Then he asks her whether entertainment is available on his 
room television, and the clerk answers in a what-do-you-think-you-idiot monotone, 
"All rooms have every movie ever made in every language, anytime, day or night." I 
wrote about that back then as an example of what happens when you get connected to 
the Internet. Today it is an example of how much you can now get disconnected from 
the Internet, because in the next few years, as storage continues to advance and become 
more and more miniaturized, you will be able to buy enough storage to carry many of 
those movies around in your pocket. 
Then add another hardware steroid to the mix: file sharing. It started with Napster 
paving the way for two of us to share songs stored on each other's computers. "At 
its peak," according to Howstuffworks.com, "Napster was perhaps the most popular 
Website ever created. In less than a year, it went from zero to 60 million visitors 
per month. Then it was shut down by a court order because of copyright violations, 


and wouldn't re-launch until 2003 as a legal music-download site. The original Napster 
became so popular so quickly because it offered a unique product-free music that you 
could obtain nearly effortlessly from a gigantic database." That database was 
actually a file-sharing architecture by which Napster facilitated a connection 
between my computer and yours so that we could swap music files. The original Napster 
is dead, but file-sharing technologyis still around and is getting more sophisticated 
every day, greatly enhancing collaboration. 
Finally, add one last hardware steroid that brings these technology breakthroughs 
together for consumers: the steady breakthrough in multipurpose devices-ever smaller 
and more powerful laptops, cell phones, 
167 
you could practically feel the breath of the other parties to the videocon-ference, 
when in fact half of us were in Santa Barbara and half were five hundred miles away. 
Because DreamWorks is doing film and animation work all over the world, it felt that 
it had to have a videoconferencing solution where its creative people could really 
communicate all their thoughts, facial expressions, feelings, ire, enthusiasm, and 
raised eyebrows. HP's chief strategy and technology officer, Shane Robison, told me 
that HP plans to have these videoconferencing suites for sale by 2005 at a cost of 
roughly $250,000 each. That is nothing compared to the airline tickets and wear and 
tear on executives having to travel regularly to London or Tokyo for face-to-face 
meetings. Companies could easily make one of these suites pay for itself in a year. 
This level of videoconferencing, once it proliferates, will make remote development, 
outsourcing, and off-shoring that much easier and more efficient. 
And now the icing on the cake, the iibersteroid that makes it all mobile: wireless. 
Wireless is what will allow you take everything that has been digitized, made virtual 
and personal, and do it from anywhere. 
"The natural state of communications is wireless," argued Alan Cohen, the senior vice 
president at Airespace. It started with voice, because people wanted to be able to 
make a phone call anytime, from anyplace, to anywhere. That is why for many people 
the cell phone is the most importantphone they own. By the early twenty-first century, 
people began to develop that same expectation and with it the desire for data 
communication-the ability to access the Internet, e-mail, or any business files 
anytime, anywhere, using a cell phone, PalmPilot, or some other personal device. (And 
now a third element is entering the picture, creating more demand for wireless 
technology and enhancing the flattening of the earth: machines talking to machines 
wirelessly, such as Wal-Mart's RFIDchips, little wireless devices that automatically 
transmit information to suppliers' computers, allowing them to track inventory.) 
In the early days of computing (Globalization 2.0), you worked in the office. There 
was a big mainframe computer, and you literally had to walk over and get the people 
running the mainframe to extract or input 
168 
information for you. It was like an oracle. Then, thanks to the PC and the Internet, 
e-mail, the laptop, the browser, and the client server, I could access from my own 
screen all sorts of data and information being stored on the network. In this era 


you were delinked from the office and could work at home, at the beach house, or in 
a hotel. Now we are in Globalization 3.0, where, thanks to digitization, 
miniaturization, virtualization, personalization, and wireless, I can be processing, 
collecting, or transmitting voice or data from anywhere to anywhere-as an individual 
or as a machine. 
"Your desk goes with you everywhere you are now," said Cohen. And the more people 
have the ability to push and pull information from anywhere to anywhere faster, the 
more barriers to competition and communication disappear. All of a sudden, my business 
has phenomenal distribution. I don't care whether you are in Bangalore or Bangor, 
I can get to you and you can get to me. More and more, people now want and expect 
wireless mobility to be there, just like electricity. We are rapidly moving into the 
age of the "mobile me," said Padmasree Warrior, the chief technology officer of 
Motorola. If consumers are paying for any form of content, whether it is information, 
entertainment, data, games, or stock quotes, they increasingly want to be able to 
access it anytime, anywhere. 
Right now consumers are caught in a maze of wireless technology offerings and 
standards that are still not totally interoperable. As we all know, some wireless 
technology works in one neighborhood, state, or country and not in another. 
The "mobile me" revolution will be complete when you can move seamlessly around the 
town, the country, or the world with whatever device you want. The technology is 
getting there. When this is fully diffused, the "mobile me" will have its full 
flattening effect, by freeing people to truly be able to work and communicate from 
anywhere to anywhere with anything. 
I got a taste of what is coming by spending a morning at the Tokyo headquarters of 
NTT DoCoMo, the Japanese cellular giant that is at the cutting edge of this process 
and far ahead of America in offering total interoperability inside Japan. DoCoMo is 
an abbreviation for Do 

Communications Over the Mobile Network; it also means "anywhere" in Japanese. My day 
at DoCoMo's headquarters started with a tour conducted by a robot, which bowed in 
perfect Japanese fashion and then gave me a spin around DoCoMo's showroom, which now 
features handheld video cell phones so you can see the person you are speaking with. 
"Young people are using our mobile phones today as two-way videophones," explained 
Tamon Mitsuishi, senior VP of the Ubiquitous Business Department at DoCoMo. "Everyone 
takes out their phones, they start dialing each other and have visual conversations. 
Of course there are some people who prefer not to see each other's faces." Thanks 
to DoCoMo technology, if you don't want to show your face you can substitute a cartoon 
character for yourself and manipulate the keyboard so that it not only will speak 
for you but also will get angry for you and get happy for you. "So this is a mobile 
phone, and video camera, but it has also evolved to the extent that it has functions 
similar to a PC," he added. "You need to move your buttons quickly [with your thumb]. 
We call ourselves 'the thumb people.' Young girls in high school can now move their 
thumbs faster than they can type on a PC." 
By the way, I asked, what does the "Ubiquitous Department" do? 


"Now that we have seen the spread of the Internet around the world," answered Mitsuishi, 
"what we believe we have to offer is the next step. Internet communication until today 
has been mostly between individuals-e-mail and other information. But what we are 
already starting to see is communication between individuals and machines and between 
machines. We are moving into that kind of phenomenon, because people want to lead 
a richer lifestyle, and businesses want more efficient practices ... So young people 
in their business life use PCs in the offices, but in their private time they base 
their lifestyles on a mobile phone. There is now a growing movement to allow payment 
by mobile phone. [With] a smart card you will be able to make payments in virtual 
shops and smart shops. So next to the cash register there will be a reader of the 
card, and you just scan your phone and it becomes your credit card too . . . 
"We believe that the mobile phone will become the essential con- 
170 
trailer of a person's life," added Mitsuishi, oblivious of the double meaning of the 
English word "control." "For example, in the medical field it will be your 
authentication system and you can examine your medical records, and to make payments 
you will have to hold a mobile phone. You will not be able to lead a life without 
a mobile phone, and it will control things at home too. We believe that we need to 
expand the range of machines that can be controlled by mobile phone." 
There is plenty to worry about in this future, from kids being lured by online sexual 
predators through their cell phones, to employees spending too much time playing 
mindless phone games, to people using their phone cameras for all sorts of illicit 
activities. Some Japanese were going into bookstores, pulling down cookbooks, and 
taking pictures of the recipes and then walking out. Fortunately, camera phones are 
now being enabled to make a noise when they shoot a picture, so that a store owner, 
or the person standing next to you in the locker room, will know if he is on Candid 
Camera. Because your Internet-enabled camera phone is not just a camera; it is also 
a copy machine, with worldwide distribution potential. 
DoCoMo is now working with other Japanese companies on an arrangement by which you 
may be walking down the street and see a poster of a concert by Madonna in Tokyo. 
The poster will have a bar code and you can buy your tickets by just scanning the 
bar code. Another poster might be for a new Madonna CD. Just scan the bar code with 
your cell phone and it will give you a sample of the songs. If you like them, scan 
it again and you can buy the whole album and have it home-delivered. No wonder my 
New York Times colleague in Japan, Todd Zaun, who is married to a Japanese woman, 
remarked to me that there is so much information the Japanese can now access from 
their Internet-enabled wireless phones that "when I am with my Japanese relatives 
and someone has a question, the first thing they do is reach for the phone." 
I'm exhausted just writing about all this. But it is hard to exaggerate how much this 
tenth flattener-the steroids-is going to amplify and further empower all the other 
forms of collaboration. These steroids should 
171 
make open-source innovation that much more open, because they will enable more 
individuals to collaborate with one another in more ways and from more places than 


ever before. They will enhance outsourcing, because they will make it so much easier 
for a single department of any company to collaborate with another company. They will 
enhance supply-chaining, because headquarters will be able to be connected in real 
time with every individual employee stocking the shelves, every individual package, 
and every Chinese factory manufacturing the stuff inside them. They will enhance 
insourcing-having a company like UPS come deep inside a retailer and manage its whole 
supply chain, using drivers who can interact with its warehouses, and with every 
customer, carrying his own PDA. And most obviously, they will enhance informing-the 
ability to manage your own knowledge supply chain. 
Sir John Rose, the chief executive of Rolls-Royce, gave me a wonderful example of 
how wireless and other steroids are enhancing Rolls-Royce's ability to do work flow 
and other new forms of collaboration with its customers. Let's say you are British 
Airways and you are flying a Boeing 777 across the Atlantic. Somewhere over Greenland, 
one of your Rolls-Royce engines gets hit with lightning. The passengers and pilots 
might be worried, but there is no need. Rolls-Royce is on the case. That Rolls-Royce 
engine is connected by transponder to a satellite and is beaming data about its 
condition and performance, at all times, down into a computer in Rolls-Royce's 
operations room. That is true of many Rolls-Royce airplane engines in operation. 
Thanks to the artificial intelligence in the Rolls-Royce computer, based on complex 
algorithms, it can track anomalies in its engines while in operation. The artificial 
intelligence in the Rolls-Royce computer knows that this engine was probably hit by 
lightning, and feeds out a report to a Rolls-Royce engineer. 
"With the real-time data we receive via satellites, we can identify an 'event' and 
our engineers can make remote diagnoses," said Rose. "Under normal circumstances, 
after an engine gets hit by lightning you would have to land the plane, call in an 
engineer, do a visual inspection, and make a decision about how much damage might 
have been done and whether the plane has to be delayed in order to do a repair. 
"But remember, these airlines do not have much turnaround time. If 

this plane is delayed, you throw off the crews, you drop out of your position to fly 
back home. It gets very costly. We can monitor and analyze engine performance 
automatically in real time, with our engineers making decisions about exactly what 
is needed by the time the plane has landed. And if we can determine by all the 
information we have about the engine that no intervention or even inspection is needed, 
the airplane can return on schedule, and that saves our customers time and money." 
Engines talking to computers, talking to people, talking backto the engines, followed 
by people talking to people-all done from anywhere to anywhere. That is what happens 
when all the flatteners start to get tur-bocharged by all the steroids. 
Can you hear me now? 

::::: THREE 
The Triple Convergence 
What is the triple convergence? In order to explain what I mean, let me tell a personal 
story and share one of my favorite television commercials. 


The story took place in March 2004. I had made plans to fly from Baltimore to Hartford 
on Southwest Airlines to visit my daughter Orly, who goes to school in New Haven, 
Connecticut. Being a tech-sawy guy, I didn't bother with a paper ticket but ordered 
an e-ticketthrough American Express. As anyone who flies regularly on Southwest knows, 
the cheapo airline has no reserved seats. When you check in, your ticket says simply 
A, B, or C, with the As boarding first, the Bs boarding second, and the Cs boarding 
last. As veterans of Southwest also know, you do not want to be a C. If you are, you 
will almost certainly end up in a middle seat with no space to put your carry-ons 
in the overhead bin. If you want to sit in a window or aisle seat and be able to store 
your stuff, you want to be an A. Since I was carrying some bags of clothing for my 
daughter, I definitely wanted to be an A. So I got up early to make sure I got to 
the Baltimore airport ninety-five minutes before my scheduled departure. I walked 
up to the Southwest Airlines e-ticket machine, stuck in my credit card, and used the 
touch screen to get my ticket-a thoroughly modern man, right? Well, out came the ticket 
and it said B. 
I was fuming. "How in the world could I be a B?" I said to myself, looking at my watch. 
"There is no way that many people got here before me. This thing is rigged! This is 
fixed! This is nothing more than a slot machine!" 

I stomped off, went through security, bought a Cinnabon, and glumly sat at the back 
of the B line, waiting to be herded on board so I could hunt for space in the overhead 
bins. Forty minutes later, the flight was called. From the B line, I enviously watched 
all the As file on board ahead of me, with a certain barely detectable air of 
superiority. And then I saw it. 
Many of the people in the A line didn't have normal e-tickets like mine. They were 
just carrying what looked to me like crumpled pieces of white printer paper, but they 
weren't blank. They had boarding passes and bar codes printed on them, as if the As 
had downloaded their boarding passes off the Internet at home and printed them out 
on their home printers. Which, I quickly learned, was exactly what they had done. 
I didn't know it, but Southwest had recently announced that beginning at 12:01 a.m. 
the night before a flight, you could download your ticket at home, print it out, and 
then just have the bar code scanned by the gate agent before you boarded. 
"Friedman," I said to myself, looking at this scene, "you are so twentieth-century . . . 
You are so Globalization 2.0." In Globalization 1.0 there was a ticket agent. In 
Globalization 2.0 the e-ticket machine replaced the ticket agent. In Globalization 

3.0 you are your own ticket agent. 
The television commercial is from Konica Minolta Business Technologies for a new 
multipurpose device it sells called bizhub, a piece of office machinery that allows 
you to do black-and-white or color printing, copy a document, fax it, scan it, scan 
it to e-mail, or Internet-fax it-all from the same machine. The commercial begins 
with a rapid cutting back and forth between two guys, one in his office and the other 
standing at the bizhub machine. They are close enough to talk by raising their voices. 
Dom is senior in authority but slow on the uptake-the kind of guy who hasn't kept 
up with changing technology (my kind of guy!). He can see Ted standing at the bizhub 

machine when he leans back in his chair and peers out his office doorway. 
Dom: (At his desk) Hey, I need that chart. Ted: (At the bizhub) I'm e-mailing it now. 
175 
Dom: You're e-mailing from the copy machine? 
Ted: No, I'm e-mailing from bizhub. 
Dom: Bizhub? Wait, did you make my copies yet? 
Ted: Right after I scan this. 
Dom: You're scanning at an e-mail machine? 
Ted: E-mail machine? I'm at the bizhub machine. 
Dom: (Bewildered) Copying? 
Ted: (Trying to be patient) E-mailing, then scanning, then copying. 
Dom: (Long pause) Bizhub? 
VO: (Over an animated graphic of bizhub illustrating its multiple functions) Amazing 
versatility and affordable color. That's bizhub, from Konica Minolta. 
(Cut to Dom alone at the bizhub machine, trying to see if it will also dispense coffee 
into his mug.) 
Southwest was able to offer its at-home ticketing, and Konica Minolta could offer 
bizhub, because of what I call the triple convergence. What are the components of 
this triple convergence? The short answer is this: First, right around the year 2000, 
all ten of the flatteners discussed in the previous chapter started to converge and 
work together in ways that created a new, flatter, global playing field. 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. The merger of this new 
playing field for doing business with the new ways of doing business was the second 
convergence, and it actually helped to flatten the world even further. Finally, just 
when all of this flattening was happening, a whole new group of people, several billion, 
in fact, 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. This was the third 
convergence. Now let's look at each in detail. 
176 
Convergence I 
All ten flatteners discussed in the previous chapter have been around, we know, since 
the 1990s, if not earlier. But they had to spread and take root and connect with one 
another to work their magic on the world. For instance, at some point around 2003, 
Southwest Airlines realized that there were enough PCs around, enough bandwidth, 
enough computer storage, enough Internet-comfortable customers, and enough software 
know-how for Southwest to create a work flow system that empowered its customers to 
download and print out their own boarding passes at home, as easily as downloading 
a piece of e-mail. Southwest could collaborate with its customers and they with 
Southwest in a new way. And somewhere around the same time, the work flow software 
and hardware converged in a way that enabled Konica Minolta to offer scanning, 
e-mailing, printing, faxing, and copying all from the same machine. This is the first 


convergence. 
As Stanford University economist Paul Romer pointed out, economists have known for 
a long time that "there are goods that are complementary-whereby good A is a lot more 
valuable if you also have good B. It was good to have paper and then it was good to 
have pencils, and soon as you got more of one you got more of the other, and as you 
got a better quality of one and better quality of the other, your productivity improved. 
This is known as the simultaneous improvement of complementary goods."
It is my contention that the opening of the Berlin Wall, Netscape, work flow,
outsourcing, offshoring, open-sourcing, insourcing, supply-chaining, in-forming,
and the steroids amplifying them all reinforced one another, like complementary goods.
They just needed time to converge and start to work together in a complementary,
mutually enhancing fashion. That tipping point arrived sometime around the year 2000.
The net result of this convergence was the creation of a global, Web-enabled playing 
field that allows for multiple forms of collaboration-the sharing of knowledge and 
work-in real time, without regard to geography, distance, or, in the near future, 
even language. No, not everyone has access yet to this platform, this playing field, 
but it is open today to more people in more places on more days in more ways than
anything like it ever before


in the history of the world. This is what I mean when I say the world has been flattened.
It is the complementary convergence of the ten flatteners, creating this new global
playing field for multiple forms of collaboration.
Convergence II 
Great, you say, but why is it only in the past few years that we started to see in 
the United States the big surges in productivity that should be associated with such
a technological leap? Answer: Because it always takes time for all the flanking 
technologies, and the business processes and habits needed to get the most out of 
them, to converge and create that next productivity breakthrough.
Introducing new technology alone is never enough. The big spurts in productivity come 
when a new technology is combined with new ways of doing business. Wal-Mart got big
productivity boosts when it combined big box stores-where people could buy soap
supplies for six months-with new, horizontal supply-chain management systems that
allowed Wal-Mart instantly to connect what a consumer took off the shelf from a 
Wal-Mart in Kansas City with what a Wal-Mart supplier in coastal China would produce. 
When computers were first introduced into offices, everyone expected a big boost in 
productivity. But that did not happen right away, and it sparked both disappointment 
and a little confusion. The noted economist Robert Solow quipped that computers are 
everywhere- except "in the productivity statistics."
In a pathbreaking 1989 essay, "Computer and Dynamo: The Modern Productivity Paradox 
in a Not-Too Distant Mirror," the economic historian Paul A. David explained such 
a lag by pointing to a historical precedent. He noted that while the lightbulb was
invented in 1879, it took several decades for electrification to kick in and have 
a big economic and productivity impact. Why? Because it was not enough just to install
electric motors and scrap the old technology-steam engines. The whole way of doing



manufacturing had to be reconfigured. In the 
178 
case of electricity, David pointed out, the key breakthrough was in how buildings, 
and assembly lines, were redesigned and managed. Factories in the steam age tended 
to be heavy, costly multistory buildings designed to brace the weighty belts and other 
big transmission devices needed to drive steam-powered systems. Once small, powerful 
electric motors were introduced, everyone hoped for a quick productivity boost. It 
took time, though. To get all the savings, you needed to redesign enough buildings. 
You needed to have long, low, cheaper-to-build single-story factories, with small 
electric motors powering machines of all sizes. Only when there was a critical mass 
of experienced factory architects and electrical engineers and managers, who 
understood the complementarities among the electric motor, the redesign of the 
factory, and the redesign of the production line, did electrification really deliver 
the productivity breakthrough in manufacturing, David wrote. 
The same thing is happening today with the flattening of the world. Many of the ten 
flatteners have been around for years. But for the full flattening effects to be felt, 
we needed not only the ten flatteners to converge but also something else. We needed 
the emergence of a large cadre of managers, innovators, business consultants, 
business schools, designers, IT specialists, CEOs, and workers to get comfortable 
with, and develop, the sorts of horizontal collaboration and value-creation processes 
and habits that could take advantage of this new, flatter playing field. In short, 
the convergence of the ten flatteners begat the convergence of a set of business 
practices and skills that would get the most out of the flat world. And then the two 
began to mutually reinforce each other. 
"When people asked, 'Why didn't the IT revolution lead to more productivity right 
away?' it was because you needed more than just new computers," saidRomer. "You needed 
new business processes and new types of skills to go with them. The new way of doing 
things makes the information technologies more valuable, and the new and better 
information technologies make the new ways of doing things more possible." 
Globalization 2.0 was really the era of mainframe computing, which was very 
vertical-command-and-control oriented, with companies and their individual 
departments tending to be organized in vertical silos. Globalization 3.0, which is 
built around the convergence of the ten flat179 
teners, and particularly the combination of the PC, the microprocessor, the Internet, 
and fiber optics, flipped the playing field from largely top-down to more side to 
side. And this naturally fostered and demanded new business practices, which were 
less about command and control and more about connecting and collaborating 
horizontally. 
"We have gone from a vertical chain of command for value creation to a much more 
horizontal chain ofcommand for value creation," explained Carly Fiorina. Innovations 
in companies like HP, she said, now come more and more often from horizontal 
collaboration among different departments and teams spread all across the globe. For 
instance, HP, Cisco, and Nokia recently collaborated on the development of a camera/ 


cell phone that beams its digitized pictures to an HP printer, which quickly prints 
them out. Each company had developed a very sophisticated technological specialty, 
but it could add value only when its specialty was horizontally combined with the 
specialties of the other two companies. 
"How you collaborate horizontally and manage horizontally requires a totally 
different set of skills" from traditional top-down approaches, Fiorina added. 
Let me offer just a few examples. In the past five years, HP has gone from a company 
that had eighty-seven different supply chains-each managed vertically and 
independently, with its own hierarchy of managers and back-office support-to a 
company with just five supply chains that manage $50 billion in business, and where 
functions like accounting, billing, and human resources are handled through a 
companywide system. 
Southwest Airlines took advantage of the convergence of the ten flat-teners to create 
a system where its customers can download their boarding passes at home. But until 
I personally altered my ticket-buying habits and reengineered myself to collaborate 
horizontally with Southwest, this technological breakthrough didn't produce a 
productivity breakthrough for me or Southwest. What the bizhub commercial is about 
is the difference between the employee who understands the convergent technologies 
in the new bizhub machine (and how to get the most out of them) and the employee in 
the very same office who does not. Not until the latter 

changes his work habits will productivity in that fictional office go up, even though 
the office has this amazing new machine. 
Finally, consider the example of WPP-the second-largest 
advertising-marketing-communications consortium in the world. WPP, which is based 
in England, did not exist as we now know it twenty years ago. It is a product of the 
consolidation of some of the biggest names in the business-from Young & Rubicam to 
Ogilvy & Mather to Hill & Knowlton. The alliance was put together to capture more 
and more of big clients' marketing needs, such as advertising, direct mail, media 
buying, and branding. 
"For years the big challenge for WPP was how to get its own companies to collaborate," 
said Allen Adamson, managing director of WPP's branding firm, Landor Associates. "Now, 
though, it is often no longer enough just to get the companies in WPP to work together 
per se. Increasingly, we find ourselves pulling together individuals from within each 
of these companies to form a customized collaborative team just for one client. The 
solution that will create value for that client did not exist in any one company or 
even in the traditional integration of the companies. It had to be much more 
specifically tailored. So we had to go down inside the whole group and pluck the 
individual who is the right ad person, to work with the right branding person, to 
work with the right media person for this particular client." 
When GE decided in 2003 to spin off its insurance businesses into a separate company, 
WPP assembled a customized team to handle everything from the naming of the new 
company-Genworth-all the way down to its first advertising campaign and 
direct-marketing program. "As a leader withinthis organization," said Adamson, "what 


you have to do is figure out the value proposition that is needed for each client 
and then identify and assemble the individual talents within WPP's workforce that 
will in effect form a virtual company just for that client. In the case of GE, we 
even gave a name to the virtual collaborative team we formed: Klamath Communications." 
When the world went flat, WPP adapted itself to get the most out of itself. It changed 
its office architecture and practices, just like those companies that adjusted their 
steam-run factories to the electric motor. But 
181 
WPP not only got rid of all its walls, it got rid of all its floors. It looked at 
all its employees from all its companies as a vast pool of individual specialists 
who could be assembled horizontally into collaborative teams, depending on the unique 
demands of any given project. And that team would then become a de facto new company 
with its own name. 
It will take time for this new playing field and the new business practices to be 
fully aligned. It's a work in progress. But here's a little warning. It is happening 
much faster than you think, and it is happening globally. 
Remember, this was a triple convergence! 
Convergence III 
How so? Just as we finished creating this new, more horizontal playing field, and 
companies and individuals primarily in the West started quickly adapting to it, 3 
billion people who had been frozen out of the field suddenly found themselves 
liberated to plug and play with everybody else. 
Save for a tiny minority, these 3 billion people had never been allowed to compete 
and collaborate before, because they lived in largely closed economies with very 
vertical, hierarchical political and economic structures. I am talking about the 
people ofChina, India,Russia, Eastern Europe,Latin America, and Central Asia. Their 
economies and political systems all opened up during the course of the 1990s, so that 
their people were increasingly free to join the free-market game. And when did these 
3 billion people converge with the new playing field and the new processes? Right 
when the field was being flattened, right when millions of them could compete and 
collaborate more equally, more horizontally, and with cheaper and more readily 
available tools than ever before. Indeed, thanks to the flattening of the world, many 
of these new entrants didn't even have to leave home to participate. Thanks to the 
ten flatten-ers, the playing field came to them! 
It is this triple convergence-of new players, on a new playing field, developing new 
processes and habits for horizontal collaboration - that I be182 
lieve is the most important force shaping global economics and politics in the early 
twenty-first century. Giving so many people access to all these tools of collaboration, 
along with the ability through search engines and the Web to access billions of pages 
of raw information, ensures that the next generation of innovations will come from 
all over Planet Flat. The scale of the global community that is soon going to be able 
to participate in all sorts of discovery and innovation is something the world has 
simply never seen before. 


Throughout the Cold War there were just three major trading blocs-North America, 
Western Europe, and Japan plus East Asia-and the competition among the three was 
relatively controlled, since they were all Cold War allies on the same side of the 
great global divide. There were also still a lot of walls around for labor and 
industries to hide behind. The wage rates in these three trading blocs were roughly 
the same, the workforces roughly the same size, and the education levels roughly 
equivalent. "You had a gentlemanly competition," noted Intel's Chairman Craig 
Barrett. 
Then along came the triple convergence. The Berlin Wall came down, the Berlin mall 
opened up, and suddenly some 3 billion people who had been behind walls walked onto 
the flattened global piazza. 
Here's what happened in round numbers: According to a November 2004 study by Harvard 
University economist Richard B. Freeman, in 1985 "the global economic world" 
comprised North America, Western Europe, Japan, as well as chunks of Latin America, 
Africa, and the countries of East Asia. The total population of this global economic 
world, taking part in international trade and commerce, said Freeman, was about 2.5 
billion people. 
By 2000, as a result of the collapse of communism in the Soviet Empire, India's turn 
from autarky, China's shift to market capitalism, and population growth all over, 
the global economic world expanded to encompass 6 billion people. 
As a result of this widening, another roughly 1.5 billion new workers entered the 
global economic labor force, Freeman said, which is almost exactly double the number 
we would have had in 2000 had China, India, and the Soviet Empire not joined. 

True, maybe only 10 percent of this new 1.5 billion-strong workforce entering the 
global economy have the education and connectivity to collaborate and compete at a 
meaningful level. But that is still 150 million people, roughly the size of the entire 

U.S. workforce. Said Barrett, "You don't bring three billion people into the world 
economy overnight without huge consequences, especially from three societies [like 
India, China, and Russia] with rich educational heritages." 
That is exactly right. And a lot of those new workers are not just walking onto the 
playing field. No, this is no slow-motion triple convergence. They are jogging and 
even sprinting there. Because once the world has been flattened and the new forms 
of collaboration made available to more and more people, the winners will be those 
who learn the habits, processes, and skills most quickly-and there is simply nothing 
that guarantees it will be Americans or Western Europeans permanently leading the 
way. And be advised, these new players are stepping onto the playing field legacy 
free, meaning that many of them were so far behind they can leap right into the new 
technologies without having to worry about all the sunken costs of old systems. It 
means that they can move very fast to adopt new, state-of-the-art technologies, which 
is why there are already more cell phones in use in China today than there are people 
in the United States. Many Chinese just skipped over the landline phase. South Koreans 
put Americans to shame in terms of Internet usage and broadband penetration. 
We tend to think of global trade and economics as something driven by the IMF, the 

G-8, the World Bank, the WTO, and the trade treaties forged by trade ministers. I 
don't want to suggest that these governmental agencies are irrelevant. They are not. 
But they are going to become less important. In the future globalization is going 
to be increasingly driven by the individuals who understand the flat world, adapt 
themselves quickly to its processes and technologies, and start to march 
forward-without any treaties or advice from the IMF. They will be every color of the 
rainbow and from every corner of the world. 
The global economy from here forward will be shaped less by the ponderous 
deliberations of finance ministers and more by the spontaneous explosion of energy 
from the zippies. Yes, Americans grew up with 
184 
the hippes in the 1960s. Thanks to the high-tech revolution, many of us became yuppies 
in the 1980s. Well, now let me introduce the zippies. 
"The Zippies Are Here," declared the Indian weekly magazine Outlook. Zippies are the 
huge cohort of Indian youth who are the first to come of age since India shifted away 
from socialism and dived headfirst into global trade and the information revolution 
by turning itself into the world's service center. Outlook called India's zippies 
"Liberalization's Children" and defined a zippie as a "young city or suburban resident, 
between 15 and 25 years of age, with a zip in the stride. Belongs to Generation Z. 
Can be male or female, studying or working. Oozes attitude, ambition and aspiration. 
Cool, confident and creative. Seeks challenges, loves risks and shuns fear." Indian 
zippies feel no guilt about making money or spending it. They are, says one Indian 
analyst quoted by Outlook, "destination driven, not destiny driven, outward looking, 
not inward, upwardly mobile, not stuck-in-my-station-in-life." With 54 percent of 
India under the age of twenty-five-that's 555 million people-six out of ten Indian 
households have at least one potential zippie. And the zippies don't just have a 
pent-up demand for good jobs; they want the good life. 
It all happened so fast. P. V. Kannan, the CEO and cofounder of the Indian call-center 
company 24/7 Customer, told me that in the last decade, he went from sweating out 
whether he would ever get a chance to work in America to becoming one of the leading 
figures in the outsourcing of services from America to the rest of the world. 
"I will never forget when I applied for a visa to come to the United States," Kannan 
recalled. "It was March 1991.1 had gotten a B.A. in chartered accountancy from the 
[Indian] Institute of Chartered Accountants. I was twenty-three, and my girlfriend 
was twenty-five. She was also a chartered accountant. I had graduated at age twenty 
and had been working for the Tata Consultancy group. So was my girlfriend. And we 
both got job offers through a body shop [a recruiting firm specializing in importing 
Indian talent for companies in America] to work as programmers for IBM. So we went 
to the U.S. consulate in Bombay. The recruiting service was based in Bombay. In those 
days, there was always a very long line to get visas to the United States, and there 
were people who would 
185 
actually sleep in the line and hold places and you could go buy their place for 20 
rupees. But we went by ourselves and stood in line and we finally got in to see the 


man who did the interview. He was an American [consular official]. His job was to 
ask questions and try to figure out whether we were going to do the work and then 
come back to India or try to stay in America. They judge by some secret formula. We 
used to call it 'the lottery'-you went and stood in line and it was a life lottery, 
because everything was dependent on it." 
There were actually books and seminars in India devoted entirely to the subject of 
how to prepare for a work visa interview at the U.S. embassy. It was the only way 
for skilled Indian engineers really to exploit their talent. "I remember one tip was 
to always go professionally dressed," said Kannan, "so [my girlfriend and I] were 
both in our best clothes. After the interview is over, the man doesn't tell you 
anything. You had to wait until the evening to know the results. But meanwhile, the 
whole day was hell. To distract our minds, we just walked the streets of Bombay and 
went shopping. We would go back and forth, 'What if I get in and you don't? What if 
you get in and I don't?' I can't tell you how anxious we were, because so much was 
riding on it. It was torture. So in the evening we go back and both of us got visas, 
but I got a five-year multiple entry and my girlfriend got a six-month visa. She was 
crying. She did not understand what it meant. 'I can only stay for six months?' I 
tried to explain to her that you just need to get in and then everything can be worked 
out." 
While many Indians still want to come to America to work and study, thanks to the 
triple convergence many of them can now compete at the highest levels, and be decently 
paid, by staying at home. In a flat world, you can innovate without having to emigrate. 
Said Kannan, "My daughter will never have to sweat that out." In a flat world, he 
explained, "there is no one visa officer who can keep you out of the system . . . 
It's a plug-and-play world." 
One of the most dynamic pluggers and players I met in India was Rajesh Rao, founder 
and CEO of Dhruva Interactive, a small Indian game company based in Bangalore. If 
I could offer you one person who embodies the triple convergence, it is Rajesh. He 
and his firm show us what happens when an Indian zippie plugs into the ten flatteners. 

Dhruva is located in a converted house on a quiet street in a residential neighborhood 
of Bangalore. When I stopped in for avisit, I found two floors of Indian game designers 
and artists, trained in computer graphics, working on PCs, drawing various games and 
animated characters for American and European clients. The artists and designers were 
listening to music on headphones as they worked. Occasionally, they took a break by 
playing a group computer game, in which all the designers could try to chase and kill 
one another at once on their computer screens. Dhruva has already produced some very 
innovative games- from a computer tennis game you can play on the screen of your cell 
phone to a computer pool game you can play on your PC or laptop. In 2004, it bought 
the rights to use Charlie Chaplin's image for mobile computer games. That's right-a 
start-up Indian game company today owns the Chaplin image for use in mobile computer 
games. 
In Bangalore and in later e-mail conversations, I asked Rajesh, who is in his early 
thirties, to walk me through how he became a player in the global game business from 


Bangalore. 
"The first defining moment for me dates back to the early nineties," said Rajesh, 
a smallish, mustachioed figure with the ambition of a heavyweight boxer. "Having lived 
and worked in Europe, as a student, I was clear in my choice that I would not leave 
India. I wanted to do my thing from India, do something that would be globally 
respected and something that would make a difference in India. I started my company 
in Bangalore as a one-man operation on March 15, 1995. My father gave me the seed 
money for the bank loan that bought me a computer and a 14.4 kbp modem. I set out 
to do multimedia applications aimed at the education and industry sectors. By 1997, 
we were a five-man team. We had done some pathbreaking work in our chosen field, but 
we realized that this was not challenging us enough. End of Dhruva 1.0. 
"In March 1997, we partnered with Intel and began the process of reinventing ourselves 
into a gaming company. By mid-1998, we were showing global players what we were capable 
of by way of both designing games and developing the outsourced portions of games 
designed by others. On November 26, 1998, we signed our first major game development 
project with Infogrames Entertainment, a French gaming 

company. In hindsight, I think the deal we landed was due to the pragmatism of one 
man in Infogrames more than anything else. We did a great job on the game, but it 
was never published. It was a big blow for us, but the quality of our work spoke for 
itself, so we survived. The most important lesson we learned: We could do it, but 
we had to get smart. Going for all or nothing-that is, signing up to make only a full 
game or nothing at all-was not sustainable. We had to look at positioning ourselves 
differently. End of Dhruva 2.0." 
This led to the start of Dhruva's 3.0 era-positioning Dhruva as a provider of game 
development services. The computer game business is already enormous, every year 
grossing more revenue than Hollywood, andit already had some tradition of outsourcing 
game characters to countries like Canada and Australia. "In March 2001, we sent out 
our new game demo, Saloon, to the world," said Rajesh. "The theme was the American 
Wild Wild West, and the setting was a saloon in a small town after business hours, 
with the barman cleaning up ... None of us had ever seen a real saloon before, but 
we researched the look and feel [of a saloon] using the Internet and Google. The choice 
of the theme was deliberate. We wanted potential clients in the U.S.A. and Europe 
to be convinced that Indians can 'get it.' The demo was a hit, it landed us a bunch 
of outsourced business, and we have been a successful company ever since." 
Could he have done this a decade earlier, before the world got so flat? 
"Never," said Rajesh.Several things had to come together. The first was to have enough 
installed bandwidth so he could e-mail game content and instructions back and forth 
between his own company and his American clients. The second factor, said Rajesh, 
was the spread of PCs for use in both business and at home, with people getting very 
comfortable using them in a variety of tasks. "PCs are everywhere," he said. "The 
penetration is relatively decent even in India today." 
The third factor, though, was the emergence of the work flow software and Internet 
applications that made it possible for a Dhruva to go into business as a 


minimultinational from day one: Word, Outlook, NetMeeting, 3D Studio MAX. But Google 
is the key. "It's fantastic," said Rajesh. "One of the things that's always an issue 
for our clients from the West is, 'Will 
188 
you Indians be able to understand the subtle nuances of Western content?' Now, to 
a large extent, it was a very valid question. But the Internet has helped us to be 
able to aggregate different kinds of content at the touch of a button, and today if 
someone asks you to make something that looks like Tom and Jerry, you just say 'Google 
Tom & Jerry' and you've got tons and tons of pictures and information and reviews 
and write-ups about Tom and Jerry, which you can read and simulate." 
While people were focusing on the boom and bust of the dot-coms, Rajesh explained, 
the real revolution was taking place more quietly. It was the fact that all over the 
world, people, en masse, were starting to get comfortable with the new global 
infrastructure. "We are just at the beginning of being efficient in using it," he 
said. "There is a lot more we can do with this infrastructure, as more and more people 
shift to becoming paperless in their offices and realize that distances really [do] 
not matter ... It will supercharge all of this. It's really going to be a different 
world." 
Moreover, in the old days, these software programs would have been priced beyond the 
means of a little Indian game start-up, but not anymore, thanks in part to the 
open-source free software movement. Said Rajesh, "The cost of software tools would 
have remained where the interested parties wanted them to be if it was not for the 
deluge of rather efficient freeware and shareware products that sprung up in the early 
2000s. Microsoft Windows, Office, 3D Studio MAX, Adobe Photoshop-each of these 
programs would have been priced higher than they are today if not for the many 
freeware/shareware programs that were comparable and compelling. The Internet 
brought to the table the element of choice and instant comparison that did not exist 
before for a little company like ours . . . Already we have in our gaming industry 
artists and designers working from home, something unimaginable a few years back, 
given the fact that developing games is a highly interactive process. They connect 
into the company's internal system over the Internet, using a secure feature called 
VPN [virtual private network], making their presence no different from the guy in 
the next cubicle." 
The Internet now makes this whole world "like one marketplace," added Rajesh. "This 
infrastructure is not only going to facilitate sourcing 
189 
of work to the best price, best quality, from the best place, it is also going to 
enable a great amount of sharing of practices and knowledge, and it's going to be 
'I can learn from you and you can learn from me' like never before. It's very good 
for the world. The economy is going to drive integration and the integration is going 
to drive the economy." 
There is no reason the United States should not benefit from this trend, Rajesh 
insisted. What Dhruva is doing is pioneering computer gaming within Indian society. 
When the Indian market starts to embrace gaming as a mainstream social activity, 


Dhruva willalready be positioned to take advantage. But by then, heargued, the market 
"will be so huge that there will be a lot of opportunity for content to come from 
outside. And, hey, the Americans are way ahead in terms of the ability to know what 
games can work and what won't work and in terms of being at the cutting edge of 
design-so this is a bilateral thing . . . Every perceived dollar or opportunity that 
is lost today [from an American point of view because of outsourcing] is actually 
going to come back to you times ten, once the market here is unleashed . . . Just 
remember, we are a 300-million middle class-larger than the size of your country or 
Europe." 
Yes, he noted, India right now has a great advantage in having a pool of educated, 
low-wage English speakers with a strong service etiquette in their DNA and an 
enterprising spirit. "So, sure, for the moment, we are leading the so-called wave 
of service outsourcing of various kinds of new things," said Rajesh. "But I believe 
that there should be no doubt that this is just the beginning. If [Indians] think 
that they've got something going and there is something they can keep that's not going 
to go anywhere, that will be a big mistake, because we have got Eastern Europe, which 
is waking up, and we have got China, which is waiting to get on the services bandwagon 
to do various things. I mean, you can source the best product or service or capacity 
or competency from anywhere in the world today, because of this whole infrastructure 
that is being put into place. The only thing that inhibits you from doing that is 
your readiness to make use of this infrastructure. So as different businesses, and 
as different people, get more comfortable using this infrastructure, you are going 
to see a huge explosion. It is a matter of five to seven years and we will have a 
huge batch of excellent English-speaking Chinese graduates 

coming out of their universities. Poles and Hungarians are already very well connected, 
very close to Europe, and their cultures are very similar [to Western Europe's]. So 
today India is ahead, but it has to work very hard if it wants to keep this position. 
It has to never stop inventing and reinventing itself." 
The raw ambition that Rajesh and so many of his generation possess is worthy of note 
by Americans-a point I will elaborate on later. 
"We can't relax," said Rajesh. "I think in the case of the United States that is what 
happened a bit. Please look at me: I am from India. We have been at a very different 
level before in terms of technology and business. But once we saw we had an 
infrastructure which made the world a small place, we promptly tried to make the best 
use of it. We saw there were so many things we could do. We went ahead, and today 
what we are seeing is a result of that. . . There is no time to rest. That is gone. 
There are dozens of people who are doing the same thing you are doing, and they are 
trying to do it better. It is like water in a tray, you shake it and it will find 
the path of least resistance. That is what is going to happen to so many jobs-they 
will go to that corner of the world where there is the least resistance and the most 
opportunity. If there is a skilled person in Timbuktu, he will get work if he knows 
how to access the rest of the world, which is quite easy today. You can make a Web 
site and have an e-mail address and you are up and running. And if you are able to 


demonstrate your work, using the same infrastructure, and if people are comfortable 
giving work to you, and if you are diligent and clean in your transactions, then you 
are in business." 
Instead of complaining about outsourcing, said Rajesh, Americans and Western 
Europeans would "be better off thinking about how you can raise your bar and raise 
yourselves into doing something better. Americans have consistently led in innovation 
over the last century. Americans whining-we have never seen that before. People like 
me have learned a lot from Americans. We have learned to become a little more 
aggressive in the way we market ourselves, which is something we would not have done 
given our typical British background." 
So what is your overall message? I asked Rajesh, before leaving with my head spinning. 
191 
"My message is that what's happening now is just the tip of the iceberg . . . What 
is really necessary is for everybody to wake up to the fact that there is a fundamental 
shift that is happening in the way people are going to do business. And everyone is 
going to have to improve themselves and be able to compete. It is just going to be 
one global market. Look, we just made [baseball] caps for Dhruva to give away. They 
came from Sri Lanka." 
Not from a factory in South Bangalore? I asked. 
"Not from South Bangalore," said Rajesh, "even though Bangalore is one of the export 
hubs for garments. Among the three or four caps we got quotations for, this [Sri Lankan 
one] was the best in terms of quality and the right price, and we thought the finish 
was great. 
"This is the situation you are going to see moving forward," Rajesh concluded. "If 
you are seeing all this energy coming out of Indians, it's because we have been 
underdogs and we have that drive to kind of achieve and to get there . . . India is 
going to be a superpower and we are going to rule." 
Rule whom? I asked. 
Rajesh laughed at his own choice of words. "It's not about ruling anybody. That's 
the point. There is nobody to rule anymore. It's about how you can create a great 
opportunity for yourself and hold on to that or keep creating new opportunities where 
you can thrive. I think today that rule is about efficiency, it's about collaboration 
and it is about competitiveness and it is about being a player. It is about staying 
sharp and being in the game . . . The world is a football field now and you've got 
to be sharp to be on the team which plays on that field. If you're not good enough, 
you're going to be sitting and watching the game. That's all." 
How Do You Say "Zippie" in Chinese? 
As in Bangalore ten years ago, the best place to meet zippies in Beijing today is 
in the line at the consular section of the U.S. embassy. In Beijing in the summer 
of 2004, I discovered that the quest by Chinese 
192 
students for visas to study or work in America was so intense that it had spawned 
dedicated Internet chat rooms, where Chinese students swapped stories about which 
arguments worked best with which U.S. embassy consular officials. They even gave the 


U.S. diplomats names like "Amazon Goddess," "Too Tall Baldy," and "Handsome Guy." 
Just how intensely Chinese students strategize over the Internet was revealed, U.S. 
embassy officials told me, when one day a rookie U.S. consular official had student 
after student come before him with the same line that some chat room had suggested 
would work for getting a visa: "I want to go to America to become a famous professor." 
After hearing this all day, the U.S. official was suddenly surprised toget one student 
who came before him and pronounced, "My mother has an artificial limb and I want to 
go to America to learn how to build a better artificial limb for her." The official 
was so relieved to hear a new line that he told the young man, "You know, this is 
the best story I've heard all day. I really salute you. I'm going to give you a visa." 
You guessed it. 
The next day, a bunch of students showed up at the embassy saying they wanted a visa 
to go to America to learn how to build better artificial limbs for their mothers. 
Talking to these U.S. embassy officials in Beijing, who are the gatekeepers for these 
visas, itquickly became apparentto me that they had mixed feelings aboutthe process. 
On the one hand, they were pleased that so many Chinese wanted to come study and work 
in America. On the other hand, they wanted to warn American kids: Do you realize what 
is coming your way? As one U.S. embassy official in Beijing said to me, "What I see 
happening [in China] is what has been going on for the last several decades in the 
rest of Asia-the tech booms, the tremendous energy of the people. I saw it elsewhere, 
but now it is happening here." 
I was visiting Yale in the spring of 2004. As I was strolling through the central 
quad, near the statue of Elihu Yale, two Chinese-speaking tours came through, with 
Chinese tourists of all ages. Chinese have started to tour the world in large numbers, 
and as China continues to develop toward a more open society, it is quite likely that 
Chinese leisure tourists will alter the whole world-tourism industry. 
But Chinese are not visiting Yale just to admire the ivy. Consider these statistics 
from Yale's admissions office. The fall 1985 class had 71 graduate and undergraduate 
students from China and 1 from the Soviet Union. The fall 2003 class had 297 Chinese 
graduate and undergraduate students and 23 Russians. Yale's total international 
student contingent went from 836 in the fall of 1985 to 1,775 in the fall of 2003. 
Applications from Chinese and Russian high school students to attend Yale as 
undergraduates have gone from a total of 40 Chinese for the class of 2001 to 276 for 
the class of 2008, and 18 Russians for the class of 2001 to 30 for the class of 2008. 
In 1999, Yiting Liu, a schoolgirl from Chengdu, China, got accepted to Harvard on 
a full scholarship. Her parents then wrote a build-your-own handbook about how they 
managed to prepare their daughter to get accepted to Harvard. The book, in Chinese, 
titled Harvard Girl Yiting Liu, offered "scientifically proven methods" to get your 
Chinese kid into Harvard. The book became a runaway best seller in China. By 2003 
it had sold some 3 million copies and spawned more than a dozen copycat books about 
how to get your kid into Columbia, Oxford, or Cambridge. 
While many Chinese aspire to go to Harvard and Yale, they aren't just waiting around 
to get into an American university. They are also trying to build their own at home. 


In 2004,1 was a speaker for the 150th anniversary of Washington University in St. 
Louis, a school noted for its strength in science and engineering. Mark Wrighton, 
the university's thoughtful chancellor, and I were chatting before the ceremony. He 
mentioned in passing that in the spring of 2001 he had been invited (along with many 
other foreign and American academic leaders) to Tsinghua University in Beijing, one 
of the finest in China, to participate in the celebration of its ninetieth anniversary. 
He said the invitation left him scratching his head at first: Why would any university 
celebrate its ninetieth anniversary-not its hundredth? 
"Perhaps a Chinese tradition?" Wrighton asked himself. When he arrived at Tsinghua, 
though, he learned the answer. The Chinese had brought academics from all over the 
world to Tsinghua-more than ten thousand people attended the ceremony-in order to 
make the declaration "that at the one hundredth anniversary Tsinghua University would 
194 
be among the world's premier universities," Wrighton later explained to me in an 
e-mail. "The event involved all of the leaders of the Chinese government, from the 
Mayor of Beijing tothe head of state. Each expressed the conviction that an investment 
in the university to support its development as one of the world's great universities 
within ten years would be a rewarding one. With Tsinghua University already regarded 
as one of the leading universities in China, focused on science and technology, it 
was evident that there is a seriousness of purpose in striving for a world leadership 
position in [all the areas involved] in spawning technological innovation." 
And as a result of China's drive to succeed, Microsoft chairman Bill Gates argued 
to me, the "ovarian lottery" has changed-as has the whole relationship between 
geography and talent. Thirty years ago, he said, if you had a choice between being 
born a genius on the outskirts of Bombay or Shanghai or being born an average person 
in Poughkeepsie, you would take Poughkeepsie, because your chances of thriving and 
living a decent life there, even with average talent, were much greater. But as the 
world has gone flat, Gates said, and so manypeople can now plug and play from anywhere, 
natural talent has started to trump geography. 
"Now," he said, "I would rather be a genius born in China than an average guy born 
in Poughkeepsie." 
That's what happens when the Berlin Wall turns into the Berlin mall and 3 billion 
people converge with all these new tools for collaboration. "We're going to tap into 
the energy and talent of five times as many people as we did before," said Gates. 
From Russia with Love 
I didn't get a chance to visit Russia and interview Russian zippies for this book, 
but I did the next best thing. I asked my friend Thomas R. Pickering, the former U.S. 
ambassador to Moscow and now a top international relations executive with Boeing, 
to explain a new development 
195 
I had heard about: that Boeing was using Russian engineers and scientists, who once 
worked on MiGs, to help design its next generation of passenger planes. 
Pickering unraveled the story for me. Beginning in 1991, Boeing started assigning 
out work to Russian scientists to take advantage of their expertise in aerodynamic 


problems and new aviation alloys. In 1998, Boeing decided to take this a step further 
and open an aeronautical engineering design office in Moscow. Boeing located the 
office in the twelve-story Moscow tower that McDonald's built with all the rubles 
it made from selling Big Macs in Moscow before the end of communism- money that 
McDonald's had pledged not to take out of the country. 
Seven years later, said Pickering, "we now have eight hundred Russian engineers and 
scientists working for us and we're going up to at least one thousand and maybe, over 
time, to fifteen hundred." The way it works, he explained, is that Boeing contracts 
with different Russian aircraft companies-companies that were famous in the Cold War 
for making warplanes, companies with names like Ilyushin, Tupolev, and Sukhoi-and 
they provide the engineers-to-order for Boeing's different projects. Using 
French-made airplane design software, the Russian engineers collaborate with their 
colleagues at Boeing America -in both Seattle and Wichita, Kansas-in computer-aided 
airplane designs. Boeing has set up a twenty-four-hour workday. It consists of two 
shifts in Moscow and one shift in America. Using fiber-optic cables, advanced 
compression technologies, and aeronautical work flow software, "they just pass their 
designs back and forth from Moscow to America," Pickering said. There are 
videoconferencing facilities on every floor of Boeing's Moscow office, so the 
engineers don't have to rely on e-mail when they have a problem to solve with their 
American counterparts. They can have a face-to-face conversation. 
Boeing started outsourcing airplane design workto Moscow as an experiment, a sideline; 
but today, with a shortage of aeronautical engineers in America, it is a necessity. 
Boeing's ability to blend these lower-cost Russian engineers with higher-cost, more 
advanced American design teams is enabling Boeing to compete head-to-head with its 
archrival, 

Airbus Industries, which is subsidized by a consortium of European governments and 
is using Russian talent as well. A U.S. aeronautical engineer costs $120 per design 
hour; a Russian costs about one-third of that. 
But the outsourcees are also outsourcers. The Russian engineers have outsourced 
elements of their work for Boeing to Hindustan Aeronautics in Bangalore, which 
specializes in digitizing airplane designs so as to make them easier to manufacture. 
But this isn't the half of it. In the old days, explained Pickering, Boeing would 
say to its Japanese subcontractors, "We will send you the plans for the wings of the 

777. We will let you make some of them and then we will count on you buying the whole 
airplanes from us. It's a win-win." 
Today Boeing says to the giant Japanese industrial company Mitsubishi, "Here are the 
general parameters for the wings of the new 7E7. You design the finished product and 
build it." But Japanese engineers are very expensive. So what happens? Mitsubishi 
outsources elements of the outsourced 7E7 wing to the same Russian engineers Boeing 
is using for other parts of the plane. Meanwhile, some of these Russian engineers 
and scientists are leaving the big Russian airplane companies, setting up their own 
firms, and Boeing is considering buying shares in some of these start-ups to have 
reserve engineering capacity. 

All of this global sourcing is for the purpose of designing and building planes faster 
and cheaper, so that Boeing can use its cash to keep innovating for the next generation 
and survive the withering competition from Airbus. Thanks to the triple convergence, 
it now takes Boeing eleven days to build a 737, down from twenty-eight days just a 
few years ago. Boeing will build its next generation of planes in three days, because 
all the parts are being computer-designed for assembly, and Boeing's global supply 
chain will enable it to move parts from one facility to another just in time. 
To make sure that it is getting the best deals on its parts and other supplies, Boeing 
now runs regular "reverse auctions," in which companies bid down against each other 
rather than bid up against each other. Theybid for contracts on everything from toilet 
paper for the Boeing factories to nuts and bolts-the off-the-shelf commodity 
parts-for Boeing's supply chain. Boeing will announce an auction for a stated time 
on a specially designed Internet site. It will begin the auction for each supply 
197 
item at what it considers a fair price. Then it will just sit back and watch how far 
each supplier wants to undercut the others to win Boeing's business. Bidders are 
prequalified by Boeing, and everyone can see everyone else's bids as they are 
submitted. 
"You can really see the pressures ofthe marketplace and how they work," said Pickering. 
"It's like watching a horse race." 
The Other Triple Convergence 
I once heard Bill Bradley tell a story about a high-society woman from Boston who 
goes to San Francisco for the first time. When she comes home and is asked by a friend 
how she liked it, she says, "Not very much-it's too far from the ocean." 
The perspective and predispositions that you carry around in your head are very 
important in shaping what you see and what you don't see. That helps to explain why 
a lot of people missed the triple convergence. Their heads were completely somewhere 
else-even though it was happening right before their eyes. Three other things-another 
convergence- came together to create this smoke screen. 
The first was the dot-com bust, which began in March 2001. As I said earlier, many 
people wrongly equated the dot-com boom with globalization. So when the dot-com boom 
went bust, and so many dot-coms (and the firms that supported them) imploded, these 
same people assumed that globalization was imploding as well. The sudden flameout 
of dogfood.com and ten other Web sites offering to deliver ten pounds of puppy chow 
to your door in thirty minutes was supposed to be proof that globalization and the 
IT revolution were all sizzle and no beef. 
This was pure foolishness. Those who thought that globalization was the same thing 
as the dot-com boom and that the dot-com bust marked the end of globalization could 
not have been more wrong. To say it again, the dot-com bust actually drove 
globalization into hypermode by forcing companies to outsource and offshore more and 
more functions in order to save on scarce capital. This was a key factor in laying 
the groundwork for 
198 
Globalization 3.0. Between the dot-com bust and today, Google went from processing 


roughly 150 million searches per day to roughly one billion searches per day, with 
only a third coming from inside the United States. As its auction model caught on 
worldwide, eBay went from twelve hundred employees in early 2000 to sixty-three 
hundred by 2004, all in the period when globalization was supposed to be "over." 
Between 2000 and 2004, total global Internet usage grew 125 percent, including 186 
percent in Africa, 209 percent in Latin America, 124 percent in Europe, and 105 percent 
in North America, according to Nielsen/ NetRatings. Yes, globalization sure ended, 
all right. 
It was not just the dot-com bust and all the hot air surrounding it that obscured 
all this from view. There were two other big clouds that moved in. The biggest, of 
course, was 9/11, which was a profound shock to the American body politic. Given 9/11, 
and the Afghanistan and Iraq invasions that followed, it's not surprising that the 
triple convergence was lost in the fog of war and the chatter of cable television. 
Finally, there was the Enron corporate governance scandal, quickly followed by 
blowups at Tyco and WorldCom-which all sent CEOs and the Bush administration running 
for cover. CEOs, with some justification, became guilty until proven innocent of 
boardroom shenanigans, and even the slavishly probusiness, pro-CEO Bush 
administration was wary of appearing-in public-to be overly solicitous of the 
concerns of big business. In the spring of 2004,1 met with the head of one of America's 
biggest technology companies, who had come to Washington to lobby for more federal 
funding for the National Science Foundation to help nurture a stronger industrial 
base for American industry. I asked him why the administration wasn't convening a 
summit of CEOs to highlight this issue, and he just shook his head and said one word: 
"Enron." 
The result: At the precise moment when the world was being flattened, and the triple 
convergence was reshaping the whole global business environment-requiring some very 
important adjustments in our own society and that of many other Western developed 
nations-American politicians not only were not educating the American public, they 
were actively working to make it stupid. During the 2004 election campaign 

we saw the Democrats debating whether NAFTA was a good idea and the Bush White House 
putting duct tape over the mouth of N. Gregory Mankiw, the chairman of the White House 
Council of Economic Advisers, and stashing him away in Dick Cheney's basement, because 
Mankiw, author of a popular college economics textbook, had dared to speak approvingly 
of oursourcing as just the "latest manifestation of the gains from trade that 
economists have talked about at least since Adam Smith." 
Mankiw's statement triggered a competition for who could say the most ridiculous thing 
in response. The winner was Speaker of theHouse Dennis Hastert, who said that Mankiw's 
"theory fails a basic test of real economics." And what test was that, Dennis? Poor 
Mankiw was barely heard from again. 
For all these reasons, most people missed the triple convergence. Something really 
big was happening, and it was simply not part of public discourse in America or Europe. 
Until I visited India in early 2004,1 too was largely ignorant of it, although I was 
picking up a few hints that something was brewing. One of the most thoughtful business 


leaders I have come to know over the years is Nobuyuki Idei, the chairman of Sony. 
Whenever he speaks, I pay close attention. We saw each other twice during 2004, and 
both times he said something through his heavy Japanese accent that stuck in my ear. 
Idei said that a change was under way in the business-technology world that would 
be remembered, in time, like "the meteor that hit the earth and killed all the 
dinosaurs." Fortunately, the cutting-edge global companies knew what was going on 
out there, and the best companies were quietly adapting to it so that they would not 
be one of those dinosaurs. 
As I started researching this book, I felt at times like I was in a Twilight Zone 
segment. I would interview CEOs and technologists from major companies, both 
American-based and foreign, and they would describe in their own ways what I came 
to call the triple convergence. But, for all the reasons I explained above, most of 
them weren't telling the public or the politicians. They were either too distracted, 
too focused on their own businesses, or too afraid. It was like they were all "pod 
people," living in 

a parallel universe, who were in on a big secret. Yes, they all knew the secret-but 
nobody wanted to tell the kids. 
Well, here's the truth that no one wanted to tell you: The world has been flattened. 
As a result of the triple convergence, global collaboration and competition-between 
individuals and individuals, companies and individuals, companies and companies, and 
companies and customers-have been made cheaper, easier, more friction-free, and more 
productive for more people from more corners of the earth than at any time in the 
history of the world. 
You know "the IT revolution" that the business press has been touting for the last 
twenty years? Sorry, but that was only the prologue. The last twenty years were just 
about forging, sharpening, and distributing all the new tools with which to 
collaborate and connect. Now the real IT revolution is about to begin, as all the 
complementarities between these tools start to really work together to level the 
playing field. One of those who pulled back the curtain and called this moment by 
its real name was HP's Carly Fiorina, who in 2004 began to declare in her public 
speeches that the dot-com boom and bust were just "the end of the beginning." The 
last twenty-five years in technology, said Fiorina, then the CEO of HP, have been 
just "the warm-up act." Now we are going into the main event, she said, "and by the 
main event, I mean an era in which technology will literally transform every aspect 
of business, every aspect of life and every aspect of society." 
::::: FOUR 
The Great Sorting Out 
The triple convergence is not only going to affect how individuals prepare themselves 
for work, how companies compete, and how countries organize their economies and 
geopolitics. Over time, it is going to reshape political identities, recast political 
parties, and redefine who is a political actor. In short, in the wake of this triple 
convergence that we have just gone through, we are going to witness what I call "the 
great sorting out." Because when the world starts to move from a primarily vertical 


(command and control) value-creation model to an increasingly horizontal (connect 
and collaborate) creation model, it doesn't affect just how business gets done. 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. All of this is going to have to be sorted out anew. The most common disease 
of the flat world is going to be multiple identity disorder, which is why, if nothing 
else, political scientists are going to have a field day with the flat world. Political 
science may turn out to be the biggest growth industry of all in this new era. Because 
as we go through this great sorting out over the next decade, we are going to see 
some very strange bedfellows making some very new politics. 
I first began thinking about the great sorting out after a conversation with Harvard 
University's noted political theorist Michael J. Sandel. Sandel startled me slightly 
by remarking that the sort of flattening process that I was describing was actually 
first identified by Karl Marx 

and Friedrich Engels in the Communist Manifesto, published in 1848. While the 
shrinking and flattening of the world that we are seeing today constitute a difference 
of degree from what Marx saw happening in his day, said Sandel, it is nevertheless 
part of the same historical trend Marx highlighted in his writings on capitalism-the 
inexorable march of technology and capital to remove all barriers, boundaries, 
frictions, and restraints to global commerce. 
"Marx was one of the first to glimpse the possibility of the world as a global market, 
uncomplicated by national boundaries," Sandel explained. "Marx was capitalism's 
fiercest critic, and yet he stood in awe of its power to break down barriers and create 
a worldwide system of production and consumption. In the Communist Manifesto, he 
described capitalism as a force that would dissolve all feudal, national, and 
religious identities, giving rise to a universal civilization governed by market 
imperatives. Marx considered it inevitable that capital would have its way-inevitable 
and also desirable. Because once capitalism destroyed all national and religious 
allegiances, Marx thought, it would lay bare the stark struggle between capital and 
labor. Forced to compete in a global race to the bottom, the workers of the world 
would unite in a global revolution to end oppression. Deprived of consoling 
distractions such as patriotism and religion, they would see their exploitation 
clearly and rise up to end it." 
Indeed, reading the Communist Manifesto today, I am in awe at how incisively Marx 
detailed the forces that were flattening the world during the rise of the Industrial 
Revolution, and how much he foreshadowed the way these same forces would keep 
flattening the world right up to the present. In what is probably the key paragraph 
of the Communist Manifesto, Marx and Engels wrote: 
All fixed, fast, frozen relations, with their train of ancient and venerable 
prejudices and opinions, are swept away, all new-formed ones become antiquated before 
they can ossify. All that is solid melts into air, all that is holy is profaned, and 
man is at last compelled to face with sober senses his real conditions of life and 


his relations with his kind. The need of a constantly expanding market for its products 
chases the bourgeoisie over the whole surface 
203 
of the globe. It must nestle everywhere, settle everywhere, establish connections 
everywhere. The bourgeoisie has through its exploitation of the world market given 
a cosmopolitan character to production and consumption in every country. To the great 
chagrin of reactionaries, it has drawn from under the feet of industry the national 
ground on which it stood. All old-established national industries have been destroyed 
or are daily being destroyed. They are dislodged by new industries, whose introduction 
becomes a life and death question for all civilised nations, by industries that no 
longer work up indigenous raw material, but raw material drawn from the remotest zones; 
industries whose products are consumed, not only at home, but in every quarter of 
the globe. In place of the old wants, satisfied by the production of the country, 
we find new wants, requiring for their satisfaction the products of distant lands 
and climes. In place of the old local and national seclusion and self-sufficiency, 
we have intercourse in every direction, universal inter-dependence of nations. And 
as in material, so also in intellectual production. The intellectual creations of 
individual nations become common property. National one-sidedness and 
narrow-mindedness become more and more impossible, and from the numerous national 
and local literatures there arises a world literature. 
The bourgeoisie, by the rapid improvement of all instruments of production, by the 
immensely facilitated means of communication, draws all, even the most barbarian 
nations into civilisation. The cheap prices of commodities are the heavy artillery 
with which it barters down all Chinese walls, with which it forces the barbarians' 
intensely obstinate hatred of foreigners to capitulate. It compels all nations, on 
pain of extinction, to adopt the bourgeois mode of production; it compels them to 
introduce what it calls civilisation into their midst, i.e., to become bourgeois 
themselves. In one word, it creates a world after its own image. 
It is hard to believe that Marx published that in 1848. Referring to the Communist 
Manifesto, Sandel told me, "You are arguing something sim204 
ilar. What you are arguing is that developments in information technology are enabling 
companies to squeeze out all the inefficiencies and friction from their markets and 
business operations. That is what your notion of'flattening' really means. But a flat, 
frictionless world is a mixed blessing. It may, as you suggest, be good for global 
business. Or it may, as Marx believed, augur well for a proletarian revolution. But 
it may also pose a threat to the distinctive places and communities that give us our 
bearings, that locate us in the world. From the first stirrings of capitalism, people 
have imagined the possibility of the world as a perfect market-unimpeded by 
protectionist pressures, disparate legal systems, cultural and linguistic 
differences, or ideological disagreement. But this vision has always bumped up 
against the world as it actually is-full of sources of friction and inefficiency. 
Some obstacles to a frictionless global market are truly sources of waste and lost 
opportunities. But some of these inefficiencies are institutions, habits, cultures, 


and traditions that people cherish precisely because they reflect nonmarket values 
like social cohesion, religious faith, and national pride. If global markets and new 
communications technologies flatten those differences, we may lose something 
important. That is why the debate about capitalism has been, from the very beginning, 
about which frictions, barriers, and boundaries are mere sources of waste and 
inefficiency, and which are sources of identity and belonging that we should try to 
protect. From the telegraph to the Internet, every new communications technology has 
promised to shrink the distance between people, to increase access to information, 
and to bring us ever closer to the dream of a perfectly efficient, frictionless global 
market. And each time, the question for society arises with renewed urgency: To what 
extent should we stand aside, 'get with the program,' and do all we can to squeeze 
out yet more inefficiencies, and to what extent should we lean against the current 
for the sake of values that global markets can't supply? Some sources of friction 
are worth protecting, even in the face of a global economy that threatens to flatten 
them." 
The biggest source of friction, of course, has always been the nation-state, with 
its clearly defined boundaries and laws. Are national boundaries a source of friction 
we should want to preserve, or even can preserve, in a flat world? What about legal 
barriers to the free flow of in- 

formation, intellectualproperty, and capital-such ascopyrights, worker protections, 
and minimum wages? In the wake of the triple convergence, the more the flattening 
forces reduce friction and barriers, the sharper the challenge they will pose to the 
nation-state and to the particular cultures, values, national identities, democratic 
traditions, and bonds of restraint that have historically provided some protection 
and cushioning for workers and communities. Which do we keep and which do we let melt 
away into air so we can all collaborate more easily? 
This will take some sorting out, which is why the point that Michael Sandel raises 
is critical and is sure to be at the forefront of political debate both within and 
between nation-states in the flat world. As Sandel argued, what I call collaboration 
could be seen by others as just a nice name for the ability to hire cheap labor in 
India. You cannot deny that when you look at it from an American perspective. But 
that is only if you look at it from one side. From the Indian worker's perspective, 
that same form of collaboration, outsourcing, could be seen as another name for 
empowering individuals in the developing world as never before, enabling them to 
nurture, exploit, and profit from their God-given intellectual talents-talents that 
before the flattening of the world often rotted on the docks of Bombay and Calcutta. 
Looking at it from the American corner of the flat world, you might conclude that 
the frictions, barriers, and values that restrain outsourcing should be maintained, 
maybe even strengthened. But from the point of view of Indians, fairness, justice, 
and their own aspirations demand that those same barriers and sources of friction 
be removed. In the flat world, one person's economic liberation could be another's 
unemployment. 
India versus Indiana: Who Is Exploiting Whom? 


Consider this case of multiple identity disorder. In 2003, the state of Indiana put 
out to bid a contract to upgrade the state's computer systems that process 
unemployment claims. Guess who won? Tata 
206 
America International, which isthe U.S.-based subsidiary ofIndia's Tata Consultancy 
Services Ltd. Tata's bid of $15.2 million came in $8.1 million lower than that of 
its closest rivals, the New York-based companies Deloitte Consulting and Accenture 
Ltd. No Indiana firms bid on the contract, because it was too big for them to handle. 
In other words, an Indian consulting firm won the contract to upgrade the unemployment 
department of the state of Indiana! You couldn't make this up. Indiana was outsourcing 
the very department that would cushion the people of Indiana from the effects of 
outsourcing. Tata was planning to send some sixty-five contract employees to work 
in the Indiana Government Center, alongside eighteen state workers. Tata also said 
it would hire local subcontractors and do some local recruiting, but most workers 
would come from India to do the computer overhauls, which, once completed, were 
"supposed to speed the processing of unemployment claims, as well as save postage 
and reduce hassles for businesses that pay unemployment taxes," the Indianapolis Star 
reported on June 25, 2004. You can probably guess how the story ended. "Top aides 
to then-Gov. Frank O'Bannon had signed off on the politically sensitive, four-year 
contract before his death [on] September 13, [2003]," the Star reported. But when 
word of the contract was made public, Republicans made it a campaign issue. It became 
such a political hot potato that Governor Joe Kernan, a Democrat who had succeeded 
O'Bannon, ordered the state agency, which helps out-of-work Indiana residents, to 
cancel the contract-and also to put up some legal barriers and friction to prevent 
such a thing from happening again. He also ordered that the contract be broken up 
into smaller bites that Indiana firms could bid for-good for Indiana firms but very 
costly and inefficient for the state. The Indianapolis Star reported that a check 
for $993,587 was sent to pay off Tata for eight weeks of work, during which it had 
trained forty-five state programmers in the development and engineering of up-to-date 
software: "'The company was great to work with,' said Alan Degner, Indiana's 
commissioner of workforce development." 
So now I have just one simple question: Who is the exploiter and who is the exploited 
in this India-Indiana story? The American arm of an Indian consulting firm proposes 
to save the taxpayers of Indiana $8.1 mil207 
lion by revamping their computers -using both its Indian employees and local hires 
from Indiana. The deal would greatly benefit the American arm of the Indian 
consultancy; it would benefit some Indiana tech workers; and it would save Indiana 
state residents precious tax dollars that could be deployed to hire more state workers 
somewhere else, or build new schools that would permanently shrink its roles of 
unemployed. And yet the whole contract, which was signed by pro-labor Democrats, got 
torn up under pressure from free-trade Republicans. 
Sort that out. 
In the old world, where value was largely being created vertically, usually within 


a single company and from the top down, it was very easy to see who was on the top 
and who was on the bottom, who was exploiting and who was being exploited. But when 
the world starts to flatten out and value increasingly gets created horizontally 
(through multiple forms of collaboration, in which individuals and little guys have 
much more power), who is on the top and who is on the bottom, who is exploiter and 
who is exploited, gets very complicated. Some of our old political reflexes no longer 
apply. Were the Indian engineers not being "exploited" when their government educated 
them in some of the best technical institutes in the world inside India, but then 
that same Indian government pursued a socialist economic policy that could not provide 
those engineers with work in India, so that those who could not get out of India had 
to drive taxis to eat? Are those same engineers now being exploited when they join 
the biggest consulting company in India, are paid a very comfortable wage in Indian 
terms, and, thanks to the flat world, can now apply their skills globally? Or are 
those Indian engineers now exploiting the people of Indiana by offering to revamp 
their state unemployment system for much less money than an American consulting firm? 
Or were the people of Indiana exploiting those cheaper Indian engineers? Someone 
please tell me: Who is exploiting whom in this story? With whom does the traditional 
Left stand in this story? With the knowledge workers from the developing world, being 
paid a decent wage, who are trying to use their hard-won talents in the developed 
world? Or with the politicians of Indiana, who wanted to deprive these Indian 
engineers of work so that it could be done, more expensively, by their constituents? 

And with whom does the traditional Right stand in this story? With those who want 
to hold down taxes and shrink the state budget of Indiana by outsourcing some work, 
or with those who say, "Let's raise taxes more in order to reserve the work here and 
reserve it just for people from Indiana"? With those who want to keep some friction 
in the system, even though that goes against every Republican instinct on free trade, 
just to help people from Indiana? If you are against globalization because you think 
it harms people in developing countries, whose side are you on in this story: India's 
or Indiana's? 
The India versus Indiana dispute highlights the difficulties in drawing lines between 
the interests of two communities that never before imagined they were connected, much 
less collaborators. But suddenly they each woke up anddiscovered thatin a flat world, 
where work increasingly becomes a horizontal collaboration, they were not only 
connected and collaborating but badly in need of a social contract to govern their 
relations. 
The larger point here is this: Whether we are talking about management science or 
political science, manufacturing or research and development, many, many players and 
processes are going to have to come to grips with "horizontalization." And it is going 
to take a lot of sorting out. 
Where Do Companies Stop and Start? 
Tust as the relationship between different groups of workers will have to I be sorted 
out in a flat world, so too will the relationship between companies and the communities 
in which they operate. Whose values will govern a particular company and whose 


interests will that company respect and promote? It used to be said that as General 
Motors goes, so goes America. But today it would be said, "As Dell goes, so goes 
Malaysia, Taiwan, China, Ireland, India . . ." HP today has 142,000 employees in 178 
countries. It is not only the largest consumer technology company in the world; it 
is the largest IT company in Europe, the largest 
209 
IT company in Russia, the largest IT company in the Middle East, and the largest IT 
company in South Africa. Is HP an American company if a majority of its employees 
and customers are outside of America, even though it is headquartered in Palo Alto? 
Corporations cannot survive today as entities bounded by any single nation-state, 
not even one as big as the United States. So the current keep-you-awake-at-night issue 
for nation-states and their citizens is how to deal with corporations that are no 
longer bounded by a thing called the nation-state. To whom are they loyal? 
"Corporate America has done very well, and there is nothing wrong with that, but it 
has done well by aligning itself with the flat world," said Dinakar Singh, the hedge 
fund manager. "It has done that by outsourcing as many components as possible to the 
cheapest, most efficient suppliers. If Dell can build every component ofits computers 
in coastal China and sell them in coastal America, Dell benefits, and American 
consumers benefit, but it is hard to make the case that American labor benefits." 
So Dell wants as flat a world as possible, with as little friction and as few barriers 
as possible. So do most other corporations today, because this allows them to build 
things in the most low-cost, efficient markets and sell in the most lucrative markets. 
There is almost nothing about Globalization 3.0 that is not good for capital. 
Capitalists can sit back, buy up any innovation, and then hire the best, cheapest 
labor input from anywhere into the world to research it, develop it, produce it, and 
distribute it. Dell stock does well, Dell shareholders do well, Dell customers do 
well, and the Nasdaq does well. All the things related to capital do fine. But only 
some American workers will benefit, and only some communities. Others will feel the 
pain that the flattening of the world brings about. 
Since multinationals first started scouring the earth for labor and markets, their 
interests have always gone beyond those of the nation-state in which they were 
headquartered. But what is going on today, on the flat earth, is such a difference 
of degree that it amounts to a difference in kind. Companies have never had more 
freedom, and less friction, in the way of assigning research, low-end manufacturing, 
and high-end manufacturing anywhere in the world. What this will mean for the 
long-term 
210 
relationship between companies and the country in which they are headquartered is 
simply unclear. 
Consider this vivid example: On December 7, 2004, IBM announced that it was selling 
its whole Personal Computing Division to the Chinese computer company Lenovo to create 
a new worldwide PC company-the globe's third largest-with approximately $12 billion 
in annual revenue. Simultaneously, though, IBM said that it would be taking an 18.9 
percent equity stake in Lenovo, creating a strategic alliance between IBM and Lenovo 


in PC sales, financing, and service worldwide. The new combined company's worldwide 
headquarters, it was announced, would be in New York, but its principal manufacturing 
operations would be in Beijing and Raleigh, North Carolina; research centers would 
be in China, the United States, and Japan; and sales offices would be around the world. 
The new Lenovo will be the preferred supplier of PCs to IBM, and IBM will also be 
the new Lenovo's preferred supplier of services and financing. 
Are you still with me? About ten thousand people will move from IBM to Lenovo, which 
was created in 1984 and was the first company to introduce the home computer concept 
in China. Since 1997, Lenovo has been the leading PC brand in China. My favorite part 
of the press release is the following, which identifies the new company's senior 
executives. 
"Yang Yuanqing-Chairman of the Board. [He's currently CEO of Lenovo.] Steve 
Ward-Chief Executive Officer. [He's currently IBM's senior vice president andgeneral 
manager of IBM's Personal Systems Group.] Fran O'Sullivan-Chief Operating Officer. 
[She's currently general manager of IBM's PC division.] Mary Ma-Chief Financial 
Officer. [She's currently CFO of Lenovo.]" 
Talk about horizontal value creation: This new Chinese-owned computer company 
headquartered in New York with factories in Raleigh and Beijing will have a Chinese 
chairman, an American CEO, an American CPO, and a Chinese CFO, and it will be listed 
on the Hong Kong stock exchange. Would you call this an American company? A Chinese 
company? To which country will Lenovo feel most attached? Or will it just see itself 
sort of floating above a flat earth? 

This question was anticipated in the press release announcing the new company: "Where 
will Lenovo be headquartered?" it asked. 
Answer: "As a global business, the new Lenovo will be geographically dispersed, with 
people and physical assets located worldwide." 
Sort that out. 
The cold, hard truth is that management, shareholders, and investors are largely 
indifferent to where their profits come from or even where the employment is created. 
But they do want sustainable companies. Politicians, though, are compelled to 
stimulate the creation of jobs in a certain place. And residents-whether they are 
Americans, Europeans, or Indians-want to know that the good jobs are going to stay 
close to home. 
The CEO of a major European multinational remarked to me, "We are a global research 
company now." That's great news for his shareholders and investors. He is accessing 
the best brains on the planet, wherever they are, and almost certainly saving money 
by not doing all the research in his backyard. "But ultimately," he confided to me, 
"this is going to have implications down the road on jobs in my own country-maybe 
not this year but in five or fifteen years." As a CEO and European Union citizen, 
"you might have a dialogue with your government about how we can retain capabilities 
in [our own country]-but day by day you have to make decisions with the shareholders 
in mind." 
Translation: If I can buy five brilliant researchers in China and/or India for the 


price of one in Europe or America, I will buy the five; and if, in the long run, that 
means my own society loses part of its skills base, so be it. The only way to converge 
the interests of the two-the company and its country of origin-is to have a really 
smart population that can not only claim its slice of the bigger global pie but invent 
its own new slices as well. "We have grown addicted to our high salaries, and now 
we are really going to have to earn them," the CEO said. 
But even identifying a company's country of origin today is getting harder and harder. 
Sir John Rose, the chief executive of Rolls-Royce, told me once, "We have a big 
business in Germany. We are the biggest high-tech employer in the state of Brandenburg. 
I was recently at a dinner with Chancellor [Gerhard] Schroeder. And he said to me, 
'You are a 
212 
German company, why don't you come along with me on my next visit to Russia'-to try 
to drum up business there for German companies." The German chancellor, said Rose, 
"was recognizing that although my headquarters were in London, my business was 
involved in creating value in Germany, and that could be constructive in his 
relationship with Russia." 
Here you have the quintessential British company, Rolls-Royce, which, though still 
headquartered in England, now operates through a horizontal global supply chain, and 
its CEO, a British citizen knighted by the queen, is being courted by the chancellor 
of Germany to help him drum up business in Russia, because one link in the Rolls-Royce 
supply chain happens to run through Brandenburg. 
Sort that out. 
From Command and Control to Collaborate and Connect 
Before Colin Powell stepped down as secretary of state, I went in for an interview, 
which was also attended by two of his press advisers, in his seventh-floor State 
Department suite. I could not resist asking him about where he was when he realized 
the world had gone flat. He answered with one word: "Google." Powell said that when 
he took over as secretary of state in 2001, and he needed some bit of information-say, 
the text of a UN resolution -he would call an aide and have to wait for minutes or 
even hours for someone to dig it up for him. 
"Now I just type into Google 'UNSC Resolution 242' and up comes the text," he said. 
Powell explained that with each passing year, he found himself doing more and more 
of his own research, at which point one of his press advisers remarked, "Yes, now 
he no longer comes asking for information. He already has the information. He comes 
asking for action." 
Powell, a former member of the AOL board, also regularly used e-mail to contact other 
foreign ministers and, according to one of his aides, kept 
213 
up a constant instant-messaging relationship with Britain's foreign secretary, Jack 
Straw, at summit meetings, as if they were a couple of college students. Thanks to 
the cell phone and wireless technology, said Powell, no foreign minister can run and 
hide from him. He said he had been looking for Russia's foreign minister the previous 
week. First he tracked him down on his cell phone in Moscow, then on his cell phone 


in Iceland, and then on his cell phone in Vientiane, Laos. "We have everyone's cell 
phone number," said Powell of his fellow foreign ministers. 
The point I take away from all this is that when the world goes flat, hierarchies 
are not being leveled just by little people being able to act big. They are also being 
leveled by big people being able to act really small - in the sense that they are 
enabled to do many more things on their own. It really hit me when Powell's junior 
media adviser, a young woman, walked me down from his office and remarked along the 
way that because of e-mail, Powell could get hold of her and her boss at any hour, 
via their BlackBerrys-and did. 
"I can't get away from the guy,'' she said jokingly of his constant e-mail instructions. 
But in the next breath she added that on the previous weekend, she was shopping at 
the mall with some friends when she got an instant message from Powell asking her 
to do some public affairs task. "My friends were all impressed," she said. "Little 
me, and I'm talking to the secretary of state!" 
This is what happens when you move from a vertical (command and control) world to 
a much more horizontal (connect and collaborate) flat world. Your boss can do his 
job and your job. He can be secretary of state and his own secretary. He can give 
you instructions day or night. So you are never out. You are always in. Therefore, 
you are always on. Bosses, if they are inclined, can collaborate more directly with 
more of their staff than ever before-no matter who they are or where they are in the 
hierarchy. But staffers will also have to work much harder to be better informed than 
their bosses. There are a lot more conversations between bosses and staffers today 
that start like this: "I know that already! I Googled it myself. Now what do I do 
about it?" 
Sort that out. 

Multiple Identity Disorder 
It is not only communities and companies that have multiple identities that will need 
sorting out in a flat world. So too will individuals. In a flat world, the tensions 
among our identities as consumers, employees, citizens, taxpayers, and shareholders 
are going to come into sharper and sharper conflict. 
"In the nineteenth century," said business consultant Michael Hammer, "the great 
conflict was between labor and capital. Now it is between customer and worker, and 
the company is the guy in the middle. The consumer turns to the company and says, 
'Give me more for less.' And then companies turn to employees and say, 'If we don't 
give them more for less, we are in trouble. I can't guarantee you a job and a union 
steward can't guarantee you a job, only a customer can.'" 
The New York Times reported (November 1, 2004) that Wal-Mart spent about $1.3 billion 
of its $256 billion in revenue in 2003 on employee health care, to insure about 537,000 
people, or about 45 percent of its workforce. Wal-Mart's biggest competitor, though, 
Costco Wholesale, insured 96 percent of its eligible full-time or part-time employees. 
Costco employees become eligible for health insurance after three months working 
full-time or six months working part-time. At Wal-Mart, most full-time employees have 
to wait six months to become eligible, while part-timers are not eligible for at least 


two years. According to the Times, full-time employees at Wal-Mart make about $1,200 
per month, or $8 per hour. Wal-Mart requires employees to cover 33 percent of the 
cost of their benefits, and it plans to reduce that employee contribution to 30 percent. 
Wal-Mart-sponsored health plans have monthly premiums for family coverage ranging 
as high as $264 and out-of-pocket expenses as high as $13,000 in some cases, and such 
medical costs make health coverage unaffordable even for many Wal-Mart employees who 
are covered, the Times said. 
But the same article went on to say this: "If there is any place where Wal-Mart's 
labor costs find support, it is Wall Street, where Costco has taken a drubbing from 
analysts who say its labor costs are too high." Wai215 
Mart has taken more fat and friction out than Costco, which has kept more in, because 
it feels a different obligation to its workers. Costco's pretax profit margin is only 

2.7 percent of revenue, less than half Wal-Mart's margin of 5.5 percent. 
The Wal-Mart shopper in all of us wants the lowest price possible, with all the 
middlemen, fat, and friction removed. And the Wal-Mart shareholder in us wants 
Wal-Mart to be relentless about removing the fat and friction in its supply chain 
and in its employee benefits packages, in order to fatten the company's profits. But 
the Wal-Mart worker in us hates the benefits and pay packages that Wal-Mart offers 
its starting employees. And the Wal-Mart citizen in us knows that because Wal-Mart, 
the biggest company in America, doesn't cover all its employees with health care, 
some of them will just go to the emergency ward of the local hospital and the taxpayers 
will end up picking up the tab. The Times reported that a survey by Georgia officials 
found that "more than 10,000 children of Wal-Mart employees were in the state's health 
program for children at an annual cost of nearly $10 million to taxpayers." Similarly, 
it said, a "North Carolina hospital found that 31 percent of 1,900 patients who 
described themselves as Wal-Mart employees were on Medicaid, while an additional 16 
percent had no insurance at all." 
In her 2004 book, Selling Women Short: The Landmark Battle for Workers' Rights at 
Wal-Mart, journalist Liza Featherstone followed the huge women's discrimination suit 
against Wal-Mart. In an interview about the book with Salon.com (November 22, 2004), 
she made the following important point: "American taxpayers chip in to pay for many 
full-time Wal-Mart employees because they usually require incremental health 
insurance, public housing, food stamps -there are so many ways in which Wal-Mart 
employees are not able to be self-sufficient. This is very ironic, because Sam Walton 
is embraced as the American symbol of self-sufficiency. It is really troubling and 
dishonest that Wal-Mart supports Republican candidates in the way that they do: 80 
percent of their corporate campaign contributions go to Republicans. But Republicans 
tend not to support the types of public assistance programs that Wal-Mart depends 
on. If anything, Wal-Mart should be crusading for national 
216 
health insurance. They should at least be acknowledging that because they are unable 
to provide these things for their employees, we should have a more general welfare 
state." 

As you sort out and weigh your multiple identities-consumer, employee, citizen, 
taxpayer, shareholder-you have to decide: Do you prefer the Wal-Mart approach or the 
Costco approach? This is going to be an important political issue in a flat world: 
Just how flat do you want corporations to be when you factor in all your different 
identities? Because when you take the middleman out of business, when you totally 
flatten your supply chain, you also take a certain element of humanity out of life. 
The same question applies to government. How flat do you want government to be? How 
much friction would you like to see government remove, through deregulation, to make 
it easier for companies to compete on Planet Flat? 
Said Congressman Rahm Emanuel, an Illinois Democrat who was a senior adviser to 
President Clinton, "When I served in the White House, we streamlined the FDA's drug 
approval process in response to concerns about its cumbersome nature. We took those 
steps with one objective in mind: to move drugs to the marketplace more quickly. The 
result, however, has been an increasingly cozy relationship between the FDA and the 
pharmaceutical industry, which has put public health at risk. The Vioxx debacle [over 
an anti-inflammatory drug that was found to lead to an increased riskfor heart attacks 
and strokes] shows the extent to which drug safety has taken a backseat to speedy 
approval. A recent Senate hearing on Vioxx's recall revealed major deficiencies in 
the FDA's ability to remove dangerous drugs from the market." 
As consumers we want the cheapest drugs that the global supply chains can offer, but 
as citizens we want and need government to oversee and regulate that supply chain, 
even if it means preserving or adding friction. 
Sort that out. 

Who Owns What? 
Something else is absolutely going to have to be sorted out in a flat world: Who owns 
what? How do we build legal barriers to protect an innovator's intellectual property 
so heor she can reap its financial benefits and plow those profits into a new invention? 
And from the other side, how do we keep walls low enough so that we encourage the 
sharing of intellectual property, which is required more and more to do cutting-edge 
innovation? 
"The world is decidedly not flat when it comes to uniform treatment of intellectual 
property," said Craig Mundie, Microsoft's chief technology officer. It is wonderful, 
he noted, to have a world where a single innovator can summon so many resources by 
himself or herself, assemble a team of partners from around the flat world, and make 
a real breakthrough with some product or service. But what does that wonderful 
innovative engineer do, asked Mundie, "when someone else uses the same flat-world 
platform and tools to clone and distribute his wonderful new product?" This happens 
in the world of software, music, and pharma-ceuticals every day. And the technology 
is reaching a point now where "you should assume that there isn't anything that can't 
be counterfeited quickly"-from Microsoft Word to airplane parts, he added. The 
flatter the world gets, the more we are going to need a system of global governance 
that keeps up with all the new legal and illegal forms of collaboration. 
We can also see this in the case of patent law as it has evolved inside the United 


States. Companies can do one of three things with an innovation. They can patent the 
widget they invent and sell it themselves; they can patent it and license it to someone 
else to manufacture; and they can patent it and cross-license with several other 
companies so that they all have freedom of action to make a product-like a PC-that 
comes from melding many different patents. American patent law is technically neutral 
on this. But the way established case law has evolved, experts tell me, it is decidedly 
biased against cross-licensing and other arrangements that encourage collaboration 
or freedom of action for as many players as possible; it is more focused on protecting 
the rights of individual firms to 
218 
manufacture their own patents. In a flat world, companies need a patent system that 
encourages both. The more your legal structure fosters cross-licensing and standards, 
the more collaborative innovation you will get. The PC is the product of a lot of 
cross-licensing between the company that had the patent on the cursor and the company 
that had the patent on the mouse and the screen. 
The free-software person in all of us wants no patent laws. But the innovator in all 
of us wants a global regime that protects against intellectual property piracy. The 
innovator in us also wants patent laws that encourage cross-licensing with companies 
that are ready to play by the rules. "Who owns what?" is sure to emerge as one of 
the most contentious political and geopolitical questions in a flat world-especially 
if more and more American companies start feeling ripped off by more and more Chinese 
companies. If you are in the business of selling words, music, or pharmaceuticals 
and you are not worried about protecting your intellectual property, you are not 
paying attention. 
And while you are sorting that out, sort this out as well. On November 13, 2004, Lance 
Cpl. Justin M. Ellsworth, twenty, was killed by a roadside bomb during a foot patrol 
in Iraq. On December 21, 2004, the Associated Press reported that his family was 
demanding that Yahoo! give them the password for their deceased son's e-mail account 
so they could have access to all his e-mail, including notes to and from others. "I 
want to be able to remember him in his words. I know he thought he was doing what 
he needed to do. I want to have that for the future," John Ellsworth, Justin's father, 
told the AP. "It's the last thing I have of my son." We are moving into a world where 
more and more communication is in the form of bits traveling through cyberspace and 
stored onservers located all over the world. No government controls this cyber-realm. 
So the question is: Who owns your bits when you die? The AP reported that Yahoo! denied 
the Ellsworth family their son's password, citing the fact that Yahoo! policy calls 
for erasing all accounts that are inactive for ninety days and the fact that all Yahoo! 
users agree at sign-up that rights to a member's ID or account contents terminate 
upon death. "While we sympathize with any grieving family, Yahoo! accounts and any 
contents therein are nontransferable" even after death, Karen Mahon, a Yahoo! 
219 
spokeswoman told the AP. As we get rid of more and more paper and communicate through 
more and more digitized formats, you better sort out before you die, and include in 
your will, to whom, if anyone, you want to leave your bits. This is very real. I stored 


many chapters of this book in my AOL account, feeling it would be safest in cyberspace. 
If something had happened to me during my writing, my family and publisher would have 
had to sue AOL to try to get this text. Somebody, please, sort all this out. 
Death of the Salesmen 
In the fall of 2004, I went out to Minneapolis to visit my mother and had three 
world-is-flat encounters right in a row. First, before I left home in Washington, 
I dialed 411 -directory assistance-to try to get a friend's phone number in 
Minneapolis. A computer answered and a computerized voice asked me to pronounce the 
name of the person whose number I was requesting. For whatever reason, I could not 
get the computer to hear me correctly, and it kept saying back to me in a computerized 
voice, "Did you say ... ?" I kept having to say the family name in a voice that masked 
my exasperation (otherwise the computer never would have understood me). "No, I didn't 
say that... I said..." Eventually, I was connected to an operator, but I did not enjoy 
this friction-free encounter with directory information. I craved the friction of 
another human being. It may be cheaper and more efficient to have a computer dispense 
phone numbers, but for me it brought only frustration. 
When I arrived in Minneapolis, I had dinner with family friends, one of whom has spent 
his life working as a wholesaler in the Midwest, selling goods to the biggest retailers 
in the region. He is a natural salesman. When I asked him what was new, he sighed 
and said that business just wasn't what it used to be. Everything was now being sold 
at 1 percent margins, he explained. No problem. He was selling mostly commodity items 
so that, given his volumes, he could handle the slim profit margin. But what bothered 
him, he mentioned, was the fact that he no longer 

had human contact with some of his biggest accounts. Even commodities and low-cost 
goods have certain differentiating elements that need to be sold and highlighted. 
"Everything is by e-mail now," he said. "I am dealing with a young kid at [one of 
the biggest retailers in the nation], and he says, 'Just e-mail me your bid.' I've 
never met him. Half the time he doesn't get back to me. I am not sure how to deal 
with him ... In the old days, I used to stop by the office, give the buyers a few 
Vikings tickets. We were friends. . . Tommy, all anyone cares about today is price." 
Fortunately, my friend is a successful businessman and has a range of enterprises. 
But as I reflected later on what he was saying, I was drawn back to that scene in 
Death of a Salesman in which Willy Loman says that, unlike his colleague Charley, 
he intends to be "well liked." He tells his sons that in business and in life, character, 
personality, and human connections are more important than smarts. Says Willy, "The 
man who makes an appearance in the business world, the man who creates personal 
interest, is the man who gets ahead. Be liked and you will never want." 
Not when the world goes flat. It's hard to create a human bond with e-mail and streaming 
Internet. The next day, I had dinner with my friend Ken Greer, who runs a media company 
that I discuss in greater detail later. Ken had a similar lament: So many contracts 
were going these days to the advertising firms that were selling just numbers, not 
creative instinct. Then Ken said something that really hit home with me: "It is like 
they have cut all the fat out of the business" and turned everything into a numbers 


game. "But fat is what gives meat its taste," Ken added. "The leanest cuts of meat 
don't taste very good. You want it marbled with at least a little fat." 
The flattening process relentlessly trims the fat out of business and life, but, as 
Ken noted, fat is what gives life taste and texture. Fat is also what keeps us warm. 
Yes, the consumer in us wants Wal-Mart prices, with all the fat gone. But the employee 
in us wants a little fat left on the bone, the way Costco does it, so that it can 
offer health care to almost all its employees, rather than just less than half of 
them, as Wal-Mart does. But the shareholder in us wants Wal-Mart's profit margins, 
not Costco's. Yet the citizen in us 
221 
wants Costco's benefits, rather than Wal-Mart's, because the difference ultimately 
may have to be paid for by society. The consumer in me wants lower phone bills, but 
the human being in me also wants to speak to an operator when I call 411. Yes, the 
reader in me loves to surf the Net and read the bloggers, but the citizen in me also 
wishes that some of those bloggers had an editor, a middleman, to tell them to check 
some of their facts one more time before they pressed the Send button and told the 
whole world that something was wrong or unfair. 
Given these conflicting emotions and pressures, there is potential here for American 
politics to get completely reshuffled-with workers and corporate interests 
realigning themselves into different parties. Think about it: Social conservatives 
from the right wing of the Republican party, who do not like globalization or closer 
integration with the world because it brings too many foreigners and foreign cultural 
mores into America, might align themselves with unions from the left wing of the 
Democratic Party, who don't like globalization for the way it facilitates the 
outsourcing and offshoring of jobs. They might be called the Wall Party and militate 
for more friction and fat everywhere. Let's face it: Republican cultural 
conservatives have much more in common with the steelworkers of Youngstown, Ohio, 
the farmers of rural China, and the mullahs of central Saudi Arabia, who would also 
like more walls, than they do with investment bankers onWall Street orservice workers 
linked to the global economy in Palo Alto, who have been enriched by the flattening 
of the world. 
Meanwhile, the business wing of the Republican Party, which believes in free trade, 
deregulation, more integration, and lower taxes-everything that would flatten the 
world even more-may end up aligning itself with the social liberals of the Democratic 
Party, many of whom are East Coast or West Coast global service industry workers. 
They might also be joined by Hollywood and other entertainment workers. All of them 
are huge beneficiaries of the flat world. They might be called the Web Party, whose 
main platform would be to promote more global integration. Many residents of Manhattan 
and Palo Alto have more interests in common with the people of Shanghai and Bangalore 
than they do 
222 
with the residents of Youngstown or Topeka. In short, in a flat world, we are likely 
to see many social liberals, white-collar global service industry workers, and Wall 
Street types driven together, and many social conservatives, white-collar local 


service industry workers, and labor unions driven together. 
The Passion of the Christ audience will be in the same trench with the Teamsters and 
the AFL-CIO, while the Hollywood and Wall Street liberals and the You've Got Mail 
crowd will be in the same trench with the high-tech workers of Silicon Valley and 
the global service providers of Manhattan and San Francisco. It will be Mel Gibson 
and Jimmy Hoffa Jr. versus Bill Gates and Meg Ryan. 
More and more, politics in the flat world will consist of asking which values, 
frictions, and fats are worth preserving-which should, in Marx's language, be kept 
solid-and which must be left to melt away into the air. Countries, companies, and 
individuals will be able to give intelligent answers to these questions only if they 
understand the real nature and texture of the global playing field and how different 
it isfrom the one that existed in the Cold War era and before. And countries, companies, 
and individuals will be able to make sound political choices only if they fully 
appreciate the flattened playing field and understand all the new tools now available 
to them for collaborating and competing on it. I hope this book will provide a nuanced 
framework for this hugely important political debate and the great sorting out that 
is just around the corner. 
To that end, the next three sections look at how the flattening of the world and the 
triple convergence will affect Americans, developing countries, and companies. 
Brace yourself: You are now about to enter the flat world. 

America and the Flat World 

::::: FIVE 

America and Free Trade 
Is Ricardo Still Right? 
As an American who has always believed in the merits of free trade, I had an important 
question to answer after my India trip: Should I still believe in free trade in a 
fiat world? Here was an issue that needed sorting out immediately-not only because 
it was becoming a hot issue in the presidential campaign of 2004 but also because 
my whole view of the flat world would depend on my view of free trade. I know that 
free trade won't necessarily benefit every American, and that our society will have 
to help those who are harmed by it. But for me the key question was: Will free trade 
benefit America as a whole when the world becomes so flat and so many more people 
can collaborate, and compete, with my kids? It seems that so many jobs are going to 
be up for grabs. Wouldn't individual Americans be better off if our government erected 
some walls and banned some outsourcing and offshoring? 
I first wrestled with this issue while filming the Discovery Times documentary in 
Bangalore. One day we went to the Infosys campus around five p.m. -just when the 
Infosys call-center workers were flooding into the grounds for the overnight shift 
on foot, minibus, and motor scooter, while many of the more advanced engineers were 
leaving at the end of the day shift. The crew and I were standing at the gate observing 
this river of educated young people flowing in and out, many in animated conversation. 


They all looked as if they had scored 1,600 on their SATs, and I felt a real mind-eye 
split overtaking me. 
My mind just kept telling me, "Ricardo is right, Ricardo is right, Ricardo is right." 
David Ricardo (1772-1823) was the English economist 
226 
who developed the free-trade theory of comparative advantage, which stipulates that 
if each nation specializes in the production of goods in which it has a comparative 
cost advantage and then trades with other nations for the goods in which they 
specialize, there will be an overall gain in trade, and overall income levels should 
rise in each trading country. So if all these Indian techies were doing what was their 
comparative advantage and then turning around and using their income to buy all the 
products from America that are our comparative advantage-from Corning Glass to 
Microsoft Windows-both our countries would benefit, even if some individual Indians 
or Americans might have to shift jobs in the transition. And one can see evidence 
of this mutual benefit in the sharp increase in exports and imports between the United 
States and India in recent years. 
But my eye kept looking at all these Indian zippies and telling me something else: 
"Oh, my God, there are so many of them, and they all look so serious, so eager for 
work. And they just keep coming, wave after wave. How in the world can it possibly 
be good for my daughters and millions of other young Americans that these Indians 
can do the same jobs as they can for a fraction of the wages?" 
When Ricardo was writing, goods were tradable, but for the most part knowledge work 
and services were not. There was no undersea fiberoptic cable to make knowledge jobs 
tradable between America and India back then. Just as I was getting worked up with 
worry, the Infosys spokeswoman accompanying me casually mentioned that last year 
Infosys India received "one million applications" from young Indians for nine 
thousand tech jobs. 
Have a nice day. 
I struggled over what to make of this scene. I don't want to see any American lose 
his or her job to foreign competition or to technological innovation. I sure wouldn't 
want to lose mine. When you lose your job, the unemployment rate is not 5.2 percent; 
it's 100 percent. Nobook about the flat world would be honest if it did not acknowledge 
such con- 
227 
cerns, or acknowledge that there is some debate among economists about whether Ricardo 
is still right. 
Having listened to the arguments on both sides, though, I come down where the great 
majority of economists come down-that Ricardo is still right and that more American 
individuals will be better off if we don't erect barriers to outsourcing, 
supply-chaining, and offshoring than if we do. The simple message of this chapter 
is that even as the world gets flat, America as a whole will benefit more by sticking 
to the basic principles of free trade, as it always has, than by trying to erect walls. 
The main argument of the anti-outsourcing school is that in a flat world, not only 
are goods tradable, but many services have become trad-able as well. Because of this 


change, America and other developed countries could be headed for an absolute decline, 
not just a relative one, in their economic power and living standards unless they 
move to formally protect certain jobs from foreign competition. So many new players 
cannot enter the global economy-in service and knowledge fields now dominated by 
Americans, Europeans, and Japanese-without wages settling at a newer, lower 
equilibrium, this school argues. 
The main counterargument from free-trade/outsourcing advocates is that while there 
may be a transition phase in certain fields, during which wages are dampened, there 
is no reason to believe that this dip will be permanent or across the board, as long 
as the global pie keeps growing. To suggest that it will be is to invoke the so-called 
lump of labor theory-the notion that there is a fixed lump of labor in the world 
and that once that lump is gobbled up, by either Americans or Indians or Japanese, 
there won't be any more jobs to go around. If we have the biggest lump of labor now, 
and then Indians offer to do this same work for less, they will get a bigger piece 
of the lump, and we will have less, or so this argument goes. 
The main reason the lump of labor theory is wrong is that it is based on the assumption 
that everything that is going to be invented has been invented, and that therefore 
economic competition is a zero-sum game, a fight over a fixed lump. This assumption 
misses the fact that although jobs are often lost in bulk-to outsourcing or 
offshoring-by big individ

ual companies, and this loss tends to make headlines, new jobs are also being created 
in fives, tens, and twenties by small companies that you can't see. It often takes 
a leap of faith to believe that it is happening. But it is happening. If it were not, 
America's unemployment rate would be much higher today than 5 percent. The reason 
it ishappening is that as lower-end service and manufacturing jobs move out of Europe, 
America, and Japan to India, China, and the former Soviet Empire, the global pie not 
only grows larger-because more people have more income to spend-it also grows more 
complex, as more new jobs, and new specialties, are created. 
Let me illustrate this with asimple example. Imagine thatthere are only two countries 
in the world-America and China. And imagine that the American economy has only 100 
people. Of those 100 people, 80 are well-educated knowledge workers and 20 are 
less-educated low-skilled workers. Now imagine that the world goes flat and America 
enters into a free-trade agreement with China, which has 1,000 people but is a less 
developed country. So today China too has only 80 well-educated knowledge workers 
out of that 1,000, and it has 920 low-skilled workers. Before America entered into 
its free-trade agreement with China, there were only 80 knowledge workers in its world. 
Now there are 160 in our two-country world. The American knowledge workers feel like 
they have more competition, and they do. But if you look at the prize they are going 
after, it is now a much expanded and more complex market. It went from a market of 
100 people to a market of 1,100 people, with many more needs and wants. So it should 
be win-win for both the American and Chinese knowledge workers. 
Sure, some of the knowledge workers in America may have to move horizontally into 
new knowledge jobs, because of the competition from China. But with a market that 


big and complex, you can be sure that new knowledge jobs will open up at decent wages 
for anyone who keeps up his or her skills. So do not worry about our knowledge workers 
or the Chinese knowledge workers. They will both do fine with this bigger market. 
"What do you mean, don't worry?" you ask. "How do we deal with the fact that those 
eighty knowledge workers from China will be willing 
229 
to work for so much less than the eighty knowledge workers from America? How will 
this difference get resolved?" 
It won't happen overnight, so some American knowledge workers may be affected in the 
transition, but the effects will not be permanent. Here, argues Stanford new economy 
specialist Paul Romer, is what you need to understand: The wages for the Chinese 
knowledge workers were so low because, although their skills were marketable globally 
like those of their American counterparts, they were trappedinside a stifled economy. 
Imagine how little a North Korean computer expert or brain surgeon is paid inside 
that huge prison of a nation! But as the Chinese economy opens up to the world and 
reforms, the wages of Chinese knowledge workers will rise up to American/world levels. 
Ours will not go down to the level of a stifled, walled-in economy. You can already 
see this happening in Bangalore, where competition for Indian software writers is 
rapidly pushing up their wages toward American/European levels-after decades of 
languishing while the Indian economy was closed. It is why Americans should be doing 
all they can to promote more and faster economic reform in India and China. 
Do worry, though, about the 20 low-skilled Americans, who now have to compete more 
directly with the 920 low-skilled Chinese. One reason the 20 low-skilled Americans 
were paid a decent wage before was that, relative to the 80 skilled Americans, there 
were not that many of them. Every economy needs some low-skilled manual labor. But 
now that China and America have signed their free-trade pact, there are a total of 
940 low-skilled workers and 160 knowledge workers in our two-country world. Those 
American low-skilled workers doing fungible jobs-jobs that can easily be moved to 
China-will have a problem. There is no denying this. Their wages are certain to be 
depressed. In order to maintain or improve their living standards, they will have 
to move vertically, not horizontally. They will have to upgrade their education and 
upgrade their knowledge skills so that they can occupy one of the new jobs sure to 
be created in the much expanded United States-China market. (In Chapter 8 I will talk 
about our society's obligation to ensure that everyone gets a chance to acquire those 
skills.) 
230 
As Romer notes, we know from the history of our own country that an increase in 
knowledge workers does not necessarily lead to a decrease in their pay the way it 
does with low-skilled workers. From the 1960s to the 1980s, the supply of 
college-educated workers grew dramatically, and yet their wages grew even faster. 
Because as the pie grew in size and complexity, so too did people's wants, and this 
increased the demand for people able to do complex work and specialized tasks. 
Romer explains this in part by the fact that "there is a difference between idea-based 
goods and physical goods." If you are a knowledge worker making and selling some kind 


of idea-based product-consulting or financial services or music or software or 
marketing or design or new drugs-the bigger the market is, the more people there are 
out there to whom you can sell your product. And the bigger the market, the more new 
specialties and niches it will create. If you come up with the next Windows or Viagra, 
you can potentially sell one to everyone in the world. So idea-based workers do well 
in globalization, and fortunately America as a whole has more idea-driven workers 
than any country in the world. 
But if you are selling manual labor-or a piece of lumber or a slab of steel-the value 
of what you have to sell does not necessarily increase when the market expands, and 
it may decrease, argues Romer. There are only so many factories that will buy your 
manual labor, and there are many more people selling it. What the manual laborer has 
to sell can be bought by only one factory or one consumer at a time, explains Romer, 
while what the software writer or drug inventor has to sell -idea-based products-can 
be sold to everyone in the global market at once. 
That is why America, as a whole, will do fine in a flat world with free trade-provided 
it continues to churn out knowledge workers who are able to produce idea-based goods 
that can be sold globally and who are able to fill the knowledge jobs that will be 
created as we not only expand the global economy but connect all the knowledge pools 
in the world. 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. 
If we go from a world in which there were fifteen drug companies and fifteen software 
companies in America (thirty in all) and two drug companies and two software companies 
in China (four in all) to a world 

in which there are thirty drug and software companies in America and thirty drug and 
software companies in China, it is going to mean more innovation, more cures, more 
new products, more niches to specialize in, and many more people with higher incomes 
to buy those products. 
"The pie keeps growing because things that look like wants today are needs tomorrow," 
argued Marc Andreessen, the Netscape cofounder, who helped to ignite a whole new 
industry, e-commerce, that now employs millions of specialists around the world, 
specialists whose jobs weren't even imagined when Bill Clinton became president. I 
like going to coffee shops occasionally, but now that Starbucks is here, I need my 
coffee, and that new need has spawned a whole new industry. I always wanted to be 
able to search for things, but once Google was created, I must have my search engine. 
So a whole new industry has been built up around search, and Google is hiring math 
Ph.D.'s by the bushel-before Yahoo! or Microsoft hires them. People are always 
assuming that everything that is going to be invented must have been invented already. 
But it hasn't 
"If you believe human wants and needs are infinite," said Andreeseen, "then there 
are infinite industries to be created, infinitebusinesses to be started, andinfinite 
jobs to be done, and the only limiting factor is human imagination. The world is 
flattening and rising at the same time. And I think the evidence is overwhelmingly 
clear: If you look over the sweep of history, every time we had more trade, more 


communications, we had a big upswing in economic activity and standard of living." 
America integrated a broken Europe and Japan into the global economy after World War 
II, with both Europe and Japan every year upgrading their manufacturing, knowledge, 
and service skills, often importing and sometimes stealing ideas and equipment from 
the United States, just as America did from Britain in the late 1770s. Yet in the 
sixty years since World War II, our standard of living has increased every decade, 
and our unemployment rate-even with all the outcry about outsourcing-stands at only 
a little above 5 percent, roughly half that of the most developed countries in Western 
Europe. 
"We just started a company that created 180 new jobs in the middle of a recession," 
said Andreessen, whose company, Opsware, uses au232 
tomation and software to replace human beings in the operation of huge server farms 
in remotelocations. Byautomating these jobs, Opsware enables companies to save money 
and free up talented brainpower from relatively mundane tasks to start new businesses 
in other areas. You should be afraid of free markets, argued Andreessen, only if you 
believe that you will never need new medicines, new work flow software, new industries, 
new forms of entertainment, new coffeehouses. 
"Yes," he concluded, "it takes a leap of faith, based on economics, to say there will 
be new things to do." But there always have been new jobs to do, and there is no 
fundamental reason to believe the future will be different. Some 150 years ago, 90 
percent of Americans worked in agriculture and related fields. Today, it's only 3 
or 4 percent. What if the government had decided to protect and subsidize all those 
agricultural jobs and not embrace industrialization and then computerization? Would 
America as a whole really be better off today? Hardly. 
As noted, it is true that as Indians or Chinese move up the value chain and start 
producing more knowledge-intensive goods-the sorts of things Americans have been 
specializing in-our comparative advantage in some of these areas will diminish, 
explains Jagdish Bhagwati, the Columbia University expert on free trade. There will 
be a downward pressure on wages in certain fields, and some of the jobs in those fields 
may permanently migrate abroad. That is why some knowledge workers will have to move 
horizontally. But the growing pie will surely create new specialties for them to fill 
that are impossible to predict right now. 
For instance, there was a time when America's semiconductor industry dominated the 
world, but then companies from other countries came along and gobbled up the low end 
of the market. Some even moved into the higher end. American companies were then forced 
to find newer, deeper specialties in the expanded market. If that weren't happening, 
Intel would be out of business today. Instead, it is thriving. Paul Otellini, Intel's 
president, told The Economist (May 8, 2003) that as chips become good enough for 
certain applications, new applications pop up that demand more powerful and more 
complex chips, which are Intel's specialty. 
233 
Once Google starts offering video searches, for instance, there will be demand for 
new machines and the chips that power them, of which no one was even dreaming five 


years ago. This process takes time to unfold. But it will, argued Bhagwati, because 
what is happening in services today is the same thing that happened in manufacturing 
as trade barriers were lowered. In manufacturing, said Bhagwati, as the global market 
expanded and more and more players came onto the field, you saw greater and greater 
"intraindustry trade, with more and more specialization," and as we move into the 
knowledge economy, you are now seeing more and more intraservice trade, with more 
and more specialization. 
Don't be surprised if your son or daughter graduates from college and calls you one 
day and says he or she is going to be a "search engine optimizer." 
A what? 
A slew of firms has started up around Google, Yahoo!, and Microsoft to help retailers 
strategize on how to improve their rankings, and increase the number of click-throughs 
to their Web sites, on these major search engines. It can mean millions of dollars 
in extra profits if, when someone searches for "video camera," your company's product 
comes up first, because the people who click through to your Web site are those most 
likely to buy from you. What these search engine optimizers (SEOs as they are called 
in the trade) do is constantly study the algorithms being used by the major search 
engines andthen design marketing and Web strategies that will push you up the rankings. 
The business involves a combination of math and marketing-a whole new specialty 
created entirely by the flattening of the world. 
And always remember: The Indians and Chinese are not racing us to the bottom. They 
are racing us to the top-and that is agoodthing! They wanthigher standards ofliving, 
not sweatshops; they want brand names, not junk; they want to trade their motor 
scooters for cars and their pens and pencils for computers. And the more they do that, 
the higher they climb, the more room is created at the top-because the more they have, 
the more they spend, the more diverse product markets become, and the more niches 
for specialization are created as well. 

Look at what is happening already: As American companies send knowledge work to India, 
Indian companies are turning around and using their earnings and insights to start 
inventing new products that poorer Indians can use to lift themselves out of poverty 
into the middle class, where they will surely become consumers of American products. 
BusinessWeek cited the Tata Motors factory, near Pune, south of Mumbai, "where a group 
of young designers, technicians, and marketers pore over drawings and examine samples 
of steel and composite plastics. By early next year, they plan to design a prototype 
for Tata Group's most ambitious project yet: a compact car that will sell for $2,200. 
The company hopes the car will beat out Suzuki's $5,000 Maruti compact to become 
India's cheapest car-and an export model for the rest of the developing world. 'This 
is the need of the day in India-a people's car,' says Ratan Tata, chairman of the 
$12.5 billion Tata Group. Indians are increasingly demanding better products and 
services at an affordable cost. Strong economic growth this year will only enlarge 
that demand. The phrase 'Made in India' may come to represent low-cost innovation 
in the new global economy" (October 11, 2004). 
Raghuram Rajan, the director of research for the International Monetary Fund, sits 


on the board of a company that puts Indian students to work tutoring students in 
Singapore. The students, from the Indian Institute of Technology in Madras, go online 
to help students in Singapore, from grades six to twelve, on their math homework. 
They also help teachers in Singapore develop lesson plans and prepare PowerPoint 
presentations or other jazzy ways for them to teach math. The company, called 
Heymath.com, is paid for by the schools in Singapore. Cambridge University in England 
is also part of this equation, providing the overall quality controls and certifying 
the lesson plans and teaching methods. 
"Everyone wins," saysRajan. "The company is run by two Indians who worked for Citibank 
and CSFB in London and came back to India to start this business. . . Cambridge 
University is making money from a company that has created a whole new niche. The 
Indian students are making pocket money. And the Singapore students are learning 
better." Meanwhile, the underlying software is probably being provided by Microsoft 
and the chips by Intel, and the enriched Indian students are 

probably buying cheap personal computers from Apple, Dell, or HP. But you can't really 
see any of this. "The pie grew, but no one saw it," said Rajan. 
An essay in the McKinsey Quarterly, "Beyond Cheap Labor: Lessons for Developing 
Economies" (January 2005), offers a nice example of this: "In northern Italy's textile 
and apparel industry . . . the majority of garment production has moved to lower-cost 
locations, but employment remains stable because companies have put more resources 
into tasks such as designing clothes and coordinating global production networks." 
It is so easy to demonize free markets-and the freedom to outsource and 
offshore-because it is so much easier to see people being laid off than being hired. 
But occasionally a newspaper tries to dig deep into the issue. My hometown paper, 
the Minneapolis Star Tribune, did just that. It looked at exactly how the Minnesota 
economy was being affected by the flattening of the world, actually daring to run 
an article on September 5, 2004, headlined, "Offshore Jobs Bring Gains at Home." The 
article, date-lined Wuxi, China, began like this: "Outside the air is dank, dusty 
and hot as tropical fever. Inside, in an environment that's dry, spotless and cool, 
hundreds of former farm laborers covered head to toe in suits looking like something 
out of NASA are performing work for Bloomington-based Donaldson Co. Inc.... In 
Donaldson's case, the company has twice as many workers in China-2,500-as the 1,100 
it has in Bloomington. The Chinese operation not only has allowed Donaldson to keep 
making a product it no longer could make at a profit in the United States, it also 
has helped boost the company's Minnesota employment, up by 400 people since 1990. 
Donaldson's highly paid engineers, chemists and designers in Minnesota spend their 
days designing updated filters that the Chinese plant will make for use in computers, 
MP3 players and digital video recorders. The falling disk-drive prices made possible 
by Chinese production are feeding demand for the gadgets. 'If we didn't follow [the 
trend], we'd be out of business,' said David Timm, general manager of Donaldson's 
disk-drive and microelectronics unit. In Minnesota, Global Insight estimates that 
1,854 jobs were created as a result of foreign outsourcing in 2003. By 2008, the firm 
expects nearly 6,700 new jobs in Minnesota as a consequence of the trend." 


Economists often compare China's and India's entry into the global economy to the 
moment when the railroad lines crossing America finally connected New Mexico to 
California, with its much larger population. "When the railroad comes to town," noted 
Vivek Paul, the Wipro president, "the first thing you see is extra capacity, and all 
the people in New Mexico say those people-Californians-will wipe out all our factories 
along the line. That will happen in some areas, and some companies along the line 
will go out of business. But then capital will get reallocated. In the end, everyone 
along the line will benefit. Sure, there is fear, and that fear is good because that 
stimulates a willingness to change and explore and find more things to do better." 
It happened when we connected New York, New Mexico, and California. It happened when 
we connected Western Europe, America, and Japan. And it will happen when we connect 
India and China with America, Europe, and Japan. The way to succeed is not by stopping 
the railroad line from connecting you, but by upgrading your skills and making the 
investment in those practices that will enable you and your society to claim your 
slice of the bigger but more complex pie. 
::::: SIX 
The Untouchables 
So if the flattening of the world is largely (but not entirely) unstoppable, and holds 
out the potential to be as beneficial to American society as a whole as past market 
evolutions have been, how does an individual get the best out of it? What do we tell 
our kids? 
There is only one message: You have to constantly upgrade your skills. There will 
be plenty of good jobs out there in the flat world for people with the knowledge and 
ideas to seize them. 
I am not suggesting this will be simple. It will not be. There will be a lot of other 
people out there also trying to get smarter. It was never good to be mediocre in your 
job, but in a world of walls, mediocrity could still earn you a decent wage. In a 
flatter world, you really do not want to be mediocre. You don't want to find yourself 
in the shoes of Willy Loman in Death of a Salesman, when his son Biff dispels his 
idea that the Loman family is special by declaring, "Pop! I'm a dime a dozen, and 
so are you!" An angry Willy retorts, "I am not a dime a dozen! I am Willy Loman, and 
you are Biff Loman!" 
I don't care to have that conversation with my girls, so my advice to them in this 
flat world is very brief and very blunt: "Girls, when I was growing up, my parents 
used to say to me, 'Tom, finish your dinner-people in China and India are starving.' 
My advice to you is: Girls, finishyour homework-people in China and India are starving 
for your jobs." 
The way I like to think about this for our society as a whole is that every person 
should figure out how to make himself or herself into an untouchable. That's right. 
When the world goes flat, the caste system 
2?8 
gets turned upside down. In India untouchables may be the lowest social class, but 
in a flat world everyone should wantto be an untouchable. Untouchables, in my lexicon, 


are people whose jobs cannot be outsourced. 
So who are the untouchables, and how do you or your kids get to be one? Untouchables 
come in four broad categories: workers who are "special," workers who are 
"specialized," workers who are "anchored," and workers who are "really adaptable." 
Workers who are special are people like Michael Jordan, Bill Gates, and Barbra 
Streisand. They have a global market for their goods and services and can command 
global-sized pay packages. Their jobs can never be outsourced. 
If you can't be special-and only a few people can be-you want to be specialized, so 
that your work cannot be outsourced. This applies to all sorts of knowledge 
workers-from specialized lawyers, accountants, and brain surgeons, to cutting-edge 
computer architects and software engineers, to advanced machine tool and robot 
operators. These are skills that are always in high demand and are not fungible. 
("Fungible" is an important word to remember. As Infosys CEO Nandan Nilekani likes 
to say, in a flat world there is "fungible and nonfungible work." Work that can be 
easily digitized and transferred to lower-wage locations is fungible. Work that 
cannot be digitized or easily substituted is nonfungible. Michael Jordan's jump shot 
is nonfungible. A bypass surgeon's technique is nonfungible. A television 
assembly-line worker's job is now fungible. Basic accounting and tax preparation are 
now fungible.) 
If you cannot be special or specialized, you want to be anchored. That status applies 
to most Americans, everyone from my barber, to the waitress at lunch, to the chefs 
in the kitchen, to the plumber, to nurses, to many doctors, many lawyers, entertainers, 
electricians, and cleaning ladies. Their jobs are simply anchored and always will 
be, because they must be done in a specific location, involving face-to-face contact 
with a customer, client, patient, or audience. These jobs generally cannot be 
digitized and are not fungible, and the market wage is set according to the local 
market conditions. But be advised: There are fungible parts of even anchored jobs, 
and they can and will be outsourced-either to 

India or to the past-for greater efficiency. (Yes, as David Rothkopf notes, more jobs 
are actually "outsourced to the past," thanks to new innovations, than are outsourced 
to India.) For instance, you are not going to go to Bangalore to find an internist 
or a divorce lawyer, but your divorce lawyer may one day use a legal aide in Bangalore 
for basic research or to write up vanilla legal documents, and your internist may 
use a nighthawk radiologist in Bangalore to read your CAT scan. 
This is why if you cannot be special or specialized, you don't want to count on being 
anchored so you won't be outsourced. You actually want to become really adaptable. 
You want constantly to acquire new skills, knowledge, and expertise that enable you 
constantly to be able to create value-something more than vanilla ice cream. You want 
to learn how to make the latest chocolate sauce, the whipped cream, or the cherries 
on top, or to deliver it as a belly dancer-in whatever your field of endeavor. As 
parts of your work become commoditized and fungible, orturned into vanilla, adaptable 
people will always learn how to make some other part of the sundae. Being adaptable 
in a flat world, knowing how to "learn how to learn," will be one of the most important 


assets any worker can have, because job churn will come faster, because innovation 
will happen faster. 
Atul Vashistha, CEO of NeoIT, a California consultingfirm that specializes inhelping 

U.S. firms do outsourcing, has a good feel for this: "What you can do and how you 
can adapt and how you can leverage all the experience and knowledge you have when 
the world goes flat-that is the basic component [for survival]. When you are changing 
jobs a lot, and when your job environment is changing a lot, being adaptable is the 
number one thing. The people who are losing out are those with solid technical skills 
who have not grown those skills. You have to be skillfully adaptable and socially 
adaptable." 
The more we push out the boundaries of knowledge and technology, the more complex 
tasks that machines can do, the more those with specialized education, or the ability 
to learn how to learn, will be in demand, and for better pay. And the more those without 
that ability will be less generously compensated. What you don't want to be is a not 
very special, not very specialized, not very anchored, or not very adaptable 
person in a fungible job. If you are in the low-margin, fungible end of the work food 
chain, where businesses have an incentive to outsource to lower-cost, equally 
efficient producers, there is a much greater chance that your job will be outsourced 
or your wages depressed. 
"If you are a Web programmer and are still using only HTML and have not expanded your 
skill set to include newer and creative technologies, such as XML and multimedia, 
your value to the organization gets diminished every year," added Vashistha. New 
technologies get introduced that increase complexity but improve results, and as long 
as a programmer embraces these and keeps abreast of what clients are looking for, 
his or her job gets hard to outsource. "While technology advances make last year's 
work a commodity," said Vashistha, "reskilling, continual professional education and 
client intimacy to develop new relationships keeps him or her ahead of the commodity 
curve and away from a potential offshore.'" 
My childhood friend Bill Greer is a good example of a person who faced this challenge 
and came up with a personal strategy to meet it. Greer is forty-eight years old and 
has made his living as a freelance artist and graphic designer for twenty-six years. 
From the late 1970s until right around 2000, the way Bill did his job and served his 
clients was pretty much the same. 
"Clients, like The New York Times, would want a finished piece of artwork," Bill 
explained to me. So if he was doing an illustration for a newspaper or a magazine, 
or proposing a new logo for a product, he would actually create a piece of art-sketch 
it, color it, mount it on an illustration board, cover it with tissue, put it in a 
package that was opened with two flaps, and have it delivered by messenger or FedEx. 
He called it "flap art." In the industry it was known as "camera-ready art," because 
it neededto be shot, printed on four different layers of color film, or "separations," 
and prepared for publication. "It was a finished product, and it had a certain 
preciousness to it," said Bill. "It was a real piece of art, and sometimes people 
would hang them on their walls. In fact, The New York Times would have shows of works 


that were created by illustrators for its publications." 
241 
But in the last few years "that started to change," Bill told me, as publications 
and ad agencies moved to digital preparation, relying on the new software-namely, 
Quark, Photoshop, and Illustrator, which graphic artists refer to as "the 
trinity"-which made digital computer design so much easier. Everyone who went through 
art school got trained on these programs. Indeed, Bill explained, graphic design got 
so much easier that it became a commodity. It got turned into vanilla ice cream. "In 
terms of design," he said, "the technology gave everyone the same tools, so everyone 
could do straight lines and everyone could do work that was halfway decent. You used 
to need an eye to see if something was in balance and had the right typeface, but 
all of a sudden anyone could hammer out something that was acceptable." 
So Greer pushed himself up the knowledge ladder. As publications demanded that all 
final products be presented as digital files that could be uploaded, and there was 
no longer any more demand for that precious flap art, he transformed himself into 
an ideas consultant. "Ideation" was what his clients, including McDonald's and 
Unilever, wanted. He stopped using pens and ink and would just do pencil sketches, 
scan them into his computer, color them by using the computer's mouse, and then e-mail 
them to the client, which would have some less skilled artists finish them. 
"It was unconscious," said Greer. "I had to look for work that not everyone else could 
do, and that young artists couldn't do with technology for a fraction of what I was 
being paid. So I started getting offers where people would say to me, 'Can you do 
this and just give us the big idea?' They would give me a concept, and they would 
just want sketches, ideas, and not a finished piece of art. I still use the basic 
skill of drawing, but just to convey an idea-quick sketches, not finished artwork. 
And for these ideas they will still pay pretty good money. It has actually taken me 
to a different level. It is more like being a consultant rather than a JAFA (Just 
Another Fucking Artist). There are a lot of JAFAs out there. So now I am an idea man, 
and I have played off that. My clients just buy concepts." The JAFAs then do the art 
in-house or it gets outsourced. "They can take my raw sketches and finish them and 
illustrate them using com242 
puter programs, and it is not like I would do it, but it is good enough," Greer said. 
But then another thing happened. While the evolving technology turned the lower end 
of Greer's business into a commodity, it opened up a whole new market at the upper 
end: Greer's magazine clients. One day, one of his regular clients approached him 
and asked if he could do morphs. Morphs are cartoon strips in which one character 
evolves into another. So Martha Stewart is in the opening frame and morphs into 
Courtney Love by the closing frame. Drew Barrymore morphs into Drew Carey. Mariah 
Carey morphs into Jim Carrey. Cher morphs into Britney Spears. When he was first 
approached to do these, Greer had no idea where to begin. So he went onto Amazon.com 
and located some specialized software, bought it, tried it out for a few days, and 
produced his first morph. Since then he has developed a specialty in the process, 
and the market for them has expanded to include Maxim magazine, More, and 


Nickelodeon-one a men's magazine, one a middle-aged women's magazine, and one a kids' 
magazine. 
In other words, someone invented a whole new kind of sauce to go on the vanilla, and 
Greer jumped on it. This is exactly what happens in the global economy as a whole. 
"I was experienced enough to pick these [morphs] up pretty quickly," said Greer. "Now 
I do them on my Mac laptop, anywhere I am, from Santa Barbara to Minneapolis to my 
apartment in New York. Sometimes clients give me a subject, and sometimes I just come 
up with them. Morphing used to be one of those really high-end things you saw on TV, 
and then they came out with this consumer [software] program and people could do it 
themselves, and I shaped them so magazines could use them. I just upload them as a 
series of JPEG files. . . Morphs have been a good business for different magazines. 
I even get fan mail from kids!" 
Greer had never done morphs until the technology evolved and created a new, 
specialized niche, just when a changing market for his work made him eager to learn 
new skills. "I wish I could say it was all intentional," he confessed. "I was just 
available for work and just lucky they gave me a chance to do these things. I know 
so many artists who got 

washed out. One guy who was an illustrator has become a package designer, some have 
gotten out of the field altogether; one of the best designers I know became a landscape 
architect. She is still a designer but changed her medium altogether. Visual people 
can adapt, but I am still nervous about the future." 
I told Greer his story fit well into some of the terms I was using in this book. He 
began as a chocolate sauce (a classic illustrator), was turned into a vanilla 
commodity (a classic illustrator in the computer age), upgraded his skills to become 
a special chocolate sauce again (a design consultant), then learned how to become 
a cherry on top (a morphs artist) by fulfilling a new demand created by an increasingly 
specialized market. 
Greer contemplated my compliment for a moment and then said, "And here all I was trying 
to do was survive-and I still am." As he got up to leave, though, he told me that 
he was going out to meet a friend "to juggle together." They have been juggling 
partners for years, just a little side business they sometimes do on a street corner 
or for private parties. Greer has very good hand-eye coordination. "But even juggling 
is being commoditized," he complained. "It used to be if you could juggle five balls, 
you were really special. Now juggling five balls is like just anteing up. My partner 
and I used to perform together, and he was the seven-ball champ when I met him. Now 
fourteen-year-old kids can juggle seven balls, no problem. Now they have these books, 
like Juggling for Dummies, and kits that will teach you how to juggle. So they've 
just upped the standard." 
As goes juggling, so goes the world. 
These are our real choices: to try to put up walls of protection or to keep marching 
forward with the confidence that American society still has the right stuff, even 
in a flatter world. I say march forward. As long as we keep tending to the secrets 
of our sauce, we will do fine. There are so many things about the American system 


that are ideally suited for nurturing individuals who can compete and thrive in a 
flat world. 
How so? It starts with America's research universities, which spin off 
244 
a steady stream of competitive experiments, innovations, and scientific 
breakthroughs -from mathematics to biology to physics to chemistry. It is a truism, 
but the more educated you are, the more options you will have in a flat world. "Our 
university system is the best," said Bill Gates. "We fund our universities to do a 
lot of research and that is an amazing thing. High-IQ people come here, and we allow 
them to innovate and turn [their innovations] into products. We reward risk taking. 
Our university system is competitive and experimental. They can try out different 
approaches. There are one hundred universities making contributions to robotics. And 
each one is saying that the other is doing it all wrong, or my piece actually fits 
together with theirs. It is a chaotic system, but it is a great engine of innovation 
in the world, and with federal tax money, with some philanthropy on top of that, [it 
will continue to flourish] . . . We will really haVe to screw things up for our absolute 
wealth not to increase. If we are smart, we can increase it faster by embracing this 
stuff." 
The Web browser, magnetic resonance imaging (MRI), superfast computers, global 
position technology, space exploration devices, and fiber optics are just a few of 
the many inventions that got started through basic university research projects. The 
BankBoston Economics Department did a study titled "MIT: The Impact of Innovation." 
Among its conclusions was that MIT graduates have founded 4,000 companies, creating 
at least 1.1 million jobs worldwide and generating sales of $232 billion. 
What makes America unique is not that it built MIT, or that its grads are generating 
economic growth and innovation, but that every state in the country has universities 
trying to do the same. "America has 4,000 colleges and universities," said Allan E. 
Goodman, president ofthe Institute of International Education. "The rest of the world 
combined has 7,768 institutions of higher education. In the state of California alone, 
there are about 130 colleges and universities. There are only 14 countries in the 
world that have more than that number." 
Take a state you normally wouldn't think of in this regard: Oklahoma. It has its own 
Oklahoma Center for the Advancement of Science and Technology (OCAST), which, on its 
Web site, describes its mission as follows: "In order to compete effectively in the 
new economy, Oklahoma 
245 
must continue to develop a well-educated population; a collaborative, focused 
university research and technology base; and a nurturing environment for cutting-edge 
businesses, from the smallest start-up to the largest international headquarters. . . 
[OCAST promotes] University-Business technology centers, which may span several 
schools and businesses, resulting in new businesses being spawned, new products being 
manufactured, and new manufacturing technologies employed." No wonder that in 2003, 
American universities reaped $1.3 billion from patents, according to the Association 
of University Technology Managers. 


Coupled with America's unique innovation-generating machines-universities, public 
and private research labs, and retailers-we have the best-regulated and most 
efficient capital markets in the world for taking new ideas and turning them into 
products and services. Dick Foster, director of McKinsey & Co. and the author of two 
books on innovation, remarked to me, "We have an 'industrial policy' in the U.S. -it 
is called the stock exchange, whether it is the NYSE or the Nasdaq." That is where 
risk capital is collected and assigned to emerging ideas or growing companies, Foster 
said, and no capital market in the world does that better and more efficiently than 
the American one. 
What makes capital provision work so well here is the security and regulation of our 
capital markets, where minority shareholders are protected. Lord knows, there are 
scams, excesses, and corruption in our capital markets. That always happens when a 
lot of money is at stake. What distinguishes our capital markets is not that Enrons 
don't happen in America-they sure do. It is that when they happen, they usually get 
exposed, either by the Securities and Exchange Commission or by the business press, 
and get corrected. What makes America unique is not Enron but Eliot Spitzer, the 
attorney general of New York State, who has doggedly sought to clean up the securities 
industry and corporate boardrooms. This sort of capital market has proved very, very 
difficult to duplicate outside of New York, London, Frankfurt, and Tokyo. Said Foster, 
"China and India and other Asian countries will not be successful at innovation until 
they have successful capital markets, and they will not have successful capital 
markets until they have rule of law which protects 

minority interests under conditions of risk . . . We in the U.S. are the lucky 
beneficiaries of centuries of economic experimentation, and we are the experiment 
that has worked." 
While these are the core secrets of America's sauce, there are others that need to 
be preserved and nurtured. Sometimes you have to talk to outsiders to appreciate them, 
such as Indian-born Vivek Paul of Wipro. "I would add three to your list," he said 
to me. "One is the sheer openness of American society." We Americans often forget 
what an incredibly open, 
say-anything-do-anything-start-anyming-go-bankrupt-and-start-anything-ag ain 
society the United States is. There is no place like it in the world, and our openness 
is a huge asset and attraction to foreigners, many of whom come from countries where 
the sky is not the limit. 
Another, said Paul, is the "quality of American intellectual property protection," 
which further enhances and encourages people to come up with new ideas. In a flat 
world, there is a great incentive to develop a new product or process, because it 
can achieve global scale in a flash. But if you are the person who comes up with that 
new idea, you want your intellectual property protected. "No country respects and 
protects intellectual property better than America," said Paul, and as a result, a 
lot of innovators want to come here to work and lodge their intellectual property. 
The United States also has among the most flexible labor laws in the world. The easier 
it is to fire someone in a dying industry, the easier it is to hire someone in a rising 


industry that no one knew would exist five years earlier. This is a great asset, 
especially when you compare the situation in the United States to inflexible, rigidly 
regulated labor markets like Germany's, full of government restrictions on hiring 
and firing. Flexibility to quickly deploy labor and capital where the greatest 
opportunity exists, and the ability to quickly redeploy it if the earlier deployment 
is no longer profitable, is essential in a flattening world. 
Still another secret to America's sauce is the fact that it has the world's largest 
domestic consumer market, with the most first adopters, in the world, which means 
that if you are introducing a new product, technology, or service, you have to have 
a presence in America. All this means a steady flow of jobs for Americans. 
247 
There is also the little-discussed American attribute of political stability. Yes, 
China has had a good run for the past twenty-five years, and it may make the transition 
from communism to a more pluralistic system without the wheels coming off. But it 
may not. Who would want all his or her eggs in that basket? 
Finally, the United States has become one of the great meeting points in the world, 
a place where lots of different people bond and learn to trust one another. An Indian 
student who is educated at the University of Oklahoma and then gets his first job 
with a software firm in Oklahoma City forges bonds of trust and understanding that 
are really important for future collaboration, even if he winds up returning to India. 
Nothing illustrates this point better than Yale University's outsourcing of research 
to China. Yale president Richard C. Levin explained to me that Yale has two big 
research operations running in China today, one at Peking University in Beijing and 
the other at Fudan University in Shanghai. "Most of these institutional 
collaborations arise not from top-down directives of university administrators, but 
rather from long-standing personal relationships among scholars and scientists," 
said Levin. 
How did the Yale-Fudan collaboration arise? To begin with, said Levin, Yale professor 
Tian Xu, its director, had a deep affiliation with both institutions. He did his 
undergraduate work at Fudan and received his Ph.D. from Yale. "Five of Professor Xu's 
collaborators, who are now professors at Fudan, were also trained at Yale," explained 
Levin. One was Professor Xu's friend when both were Yale graduate students; another 
was a visiting scholar in the laboratory of a Yale colleague; one was an exchange 
student who came to Yale from Fudan and returned to earn his Ph.D. in China; and the 
other two were postdoctoral fellows in Professor Xu's Yale lab. A similar story 
underlies the formation of the Peking-Yale Joint Center for Plant Molecular Genetics 
and Agrobiotechnology. 
Professor Xu is a leading expert on genetics and has won grants from the National 
Institutes of Health and the Howard Hughes Foundation to study the connection between 
genetics and cancer and certain neuro-degenerative diseases. This kind of research 
requires the study of large numbers of genetic mutations in lab animals. "When you 
want to test many genes and trace for a given gene that may be responsible for cer- 
248 
tain diseases, you need to run a lot of tests. Having a bigger staff is a huge 


advantage," explained Levin. So what Yale did was essentially outsource the lab work 
to Fudan by creating the Fudan-Yale Biomedical Research Center. Each university pays 
for its own staff and research, so no money changes hands, but the Chinese side does 
the basic technical work using large numbers of technicians and lab animals, which 
cost so much less in China, and Yale does the high-end analysis of the data. The Fudan 
staff, students, and technicians get great exposure to high-end research, and Yale 
gets a large-scale testing facility that would have been prohibitively expensive if 
Yale had tried to duplicate it in New Haven. A support lab in America for a project 
like this one might have 30 technicians, but the one in Fudan has 150. 
"The gains are very much two-way," said Levin. "Our investigators get substantially 
enhanced productivity, and the Chinese get their graduate students trained, and their 
young faculty become collaborators with our professors, who are the leaders in their 
fields. It builds human capital for China and innovation for Yale." Graduate students 
from both universities go back and forth, forging relationships that will no doubt 
produce more collaborations in the future. At the same time, he added, a lot of legal 
preparation went into this collaboration to make sure that Yale would be able to 
harvest the intellectual property that is created. 
"There is one world of science out there," said Levin, "and this kind of international 
division of labor makes a lot of sense." Yale, he said, also insisted that the working 
conditions at the Chinese labs be world-class, and, as a result, it has also helped 
to lift the quality of the Chinese facilities. "The living conditions of the lab 
animals are right up to U.S. standards," remarked Levin. "These are not mouse 
sweatshops." 
Every law of economics tells us that if we connect all the knowledge pools in the 
world, and promote greater and greater trade and integration, the global pie will 
grow wider and more complex. And if America, or any other country, nurtures a labor 
force that is increasingly made up of men and women who are special, specialized, 
or constantly adapting to higher-value-added jobs, it will grab its slice of that 
growing pie. But 

we will have to work at it. Because if current trends prevail, countries like India 
and China and whole regions like Eastern Europe are certain to narrow the gap with 
America, just as Korea and Japan and Taiwan did during the Cold War. They will keep 
upping their standards. 
So are we still working at it? Are we tending to the secrets of our sauce? America 
still looks great on paper, especially if you look backward, or compare it only to 
India and China of today and not tomorrow. But have we really been investing in our 
future and preparing our children the way we need to for the race ahead? See the next 
chapter. But here's a quick hint: 
The answer is no. 
::::: SEVEN 
The Quiet Crisis 
Close games for the Americans were rare in previous Olympics, but now it appears to 
be something the Americans should get used to. 


-From an August 17, 2004, AP article from the Athens Olympics titled "U.S. Men's 
Basketball Team Narrowly Beats Greece" 
You could find no better metaphor for the way the rest of the world can now compete 
head-to-head more effectively than ever with America than the struggles of the U.S. 
Olympic basketball team in 2004. The American team, made up of NBA stars, limped home 
to a bronze medal after losing to Puerto Rico, Lithuania, and Argentina. Previously, 
the United States Olympic basketball team had lost only one game in the history of 
the modern Olympics. Remember when America sent only NCAA stars to the Olympic 
basketball events? For a long time these teams totally dominated all comers. Then 
they started getting challenged. So we sent our pros. And they started getting 
challenged. Because the world keeps learning, the diffusion of knowledge happens 
faster; coaches in other countries now download American coaching methods off the 
Internet and watch NBA games in their own living rooms on satellite TV. Many of them 
can even get ESPN and watch the highlight reels. And thanks to the triple convergence, 
there is a lot of new raw talent walking onto the NBA courts from all over the 
world-including many new stars from China, Latin America, and Eastern Europe. They 
go back and play for their national teams in the Olympics, using the skills they honed 

in America. So the automatic American superiority of twenty years ago is now gone 
in Olympic basketball. The NBA standard is increasingly becoming a global 
commodity-pure vanilla. If the United States wants to continue to dominate in Olympic 
basketball, we must, in that great sports cliche, step it up a notch. The old standard 
won't do anymore. As Joel Cawley of IBM remarked to me, "Star for star, the basketball 
teams from places like Lithuania or Puerto Rico still don't rank well versus the 
Americans, but when they play as a team-when they collaborate better than we do-they 
are extremely competitive." 
Sports writer John Feinstein could have been referring to either American engineering 
skills or American basketball skills when he wrote in an August 26, 2004, AOL essay 
on Olympic basketball that the performance of the U.S. basketball team is a result 
of "the rise of the international player" and "the decline and fall of the U.S. game." 
And the decline and fall of the U.S. game, argued Feinstein, is a result of two 
long-term trends. The first is a steady decline "in basketball skills," with American 
kids just wanting to shoot either three-point shots or dunk- the sort of stuff that 
gets you on ESPN's SportsCenter highlight reel - instead of learning how to make 
precise passes, or go into the lane and shoot a pull-up jumper, or snake through big 
men to get to the basket. Those skills take a lot of hard work and coaching to learn. 
Today, said Feinstein, you have an American generation that relies almost completely 
on athleticism and almost not at all on basketball skills. And there is also that 
ugly little problem of ambition. While the rest of the world was getting better in 
basketball, "more and more NBA players were yawning at the notion of playing in the 
Olympics," noted Feinstein. "We have come a long way from 1984, when Bob Knight told 
Charles Barkley to show up to the second Olympic training camp at 265 pounds or else. 
Barkley showed up weighing 280. Knight cut him that day. In today's world, the Olympic 
coach wouldn't even have checked Barkley's weight in the first place. He would have 


sent a limousine to the airport to get him and stopped at Dunkin' Donuts on the way 
to the hotel if the player requested it... The world changes. In the case of American 
basketball, it hasn't changed for the better." 
There is something about post-World War II America that reminds 
252 
me of the classic wealthy family that by the third generation starts to squander its 
wealth. The members of the first generation are nose-to-the-grindstone innovators; 
the second generation holds it all together; then their kids come along and get fat, 
dumb, and lazy and slowly squander it all. I know that is both overly harsh and a 
gross generalization, but there is, nevertheless, some truth in it. American society 
started to coast in the 1990s, when our third postwar generation came of age. The 
dot-com boom left too many people with the impression that they could get rich without 
investing in hard work. All it took was an MBA and a quick IPO, or one NBA contract, 
and you were set for life. But while we were admiring the flat world we had created, 
a lot of people in India, China, and Eastern Europe were busy figuring out how to 
take advantage of it. Lucky for us, we were the only economy standing after World 
War II, and we had no serious competition for forty years. That gave us a huge head 
of steam but also a huge sense of entitlement and complacency-not to mention a certain 
tendency in recent years to extol consumption over hard work, investment, and 
long-term thinking. When we got hit with 9/11, it was a once-in-a-generation 
opportunity to summon the nation to sacrifice, to address some of its pressing fiscal, 
energy, science, and education shortfalls-all the things that we had let slide. But 
our president did not summon us to sacrifice. He summoned us to go shopping. 
In the previous chapters, I showed why both classic economic theory and the inherent 
strengths of the American economy have convinced me that American individuals have 
nothing to worry about from a flat world-provided we roll up our sleeves, be ready 
to compete, get every individual to think about how he or she upgrades his or her 
educational skills, and keep investing in the secrets of the American sauce. Those 
chapters were all about what we must do and can do. 
This chapter is about how we Americans, individually and collectively, have not been 
doing all these things that we should be doing and what will happen down the road 
if we don't change course. 
The truth is, we are in a crisis now, but it is a crisis that is unfolding very slowly 
and very quietly. It is "a quiet crisis," explained Shirley 
253 
Ann Jackson, the 2004 president of the American Association for the Advancement of 
Science and president of Rensselaer Polytechnic Institute since 1999. (Rensselaer 
is America's oldest technological college, founded in 1824.) And this quiet crisis 
involves the steady erosion of America's scientific and engineering base, which has 
always been the source of American innovation and our rising standard of living. 
"The sky is not falling, nothing horrible is going to happen today," said Jackson, 
a physicist by training who chooses her words carefully. "The U.S. is still the leading 
engine for innovation in the world. It has the best graduate programs, the best 
scientific infrastructure, and the capital markets to exploit it. But there is a quiet 


crisis in U.S. science and technology that we have to wake up to. The U.S. today is 
in a truly global environment, and those competitor countries are not only wide awake, 
they are running a marathon while we are running sprints. If left unchecked, this 
could challenge our preeminence and capacity to innovate." 
And it is our ability to constantly innovate new products, services, and companies 
that has been the source of America's horn of plenty and steadily widening middle 
class for the last two centuries. It was American innovators who started Google, Intel, 
HP, Dell, Microsoft, and Cisco, and it matters where innovation happens. The fact 
that all these companies are headquartered in America means that most of the 
high-paying jobs are here, even if these companies outsource or offshore some 
functions. The executives, the department heads, the sales force, and the senior 
researchers are all located in the cities where the innovation happened. And their 
jobs create more jobs. The shrinking of the pool of young people with the knowledge 
skills to innovate won't shrink our standard of living overnight. It will be felt 
only in fifteen or twenty years, when we discover we have a critical shortage of 
scientists and engineers capable of doing innovation or even just high-value-added 
technology work. Then this won't be a quiet crisis anymore, said Jackson, "it will 
be the real McCoy." 
Shirley Ann Jackson knows of what she speaks, because her career exemplifies as well 
as anyone's both why America thrived so much in the past fifty years and why it won't 
automatically do the same in the next 

fifty. An African-American woman, Jackson was born in Washington, D.C., in 1946. She 
started kindergarten in a segregated public school but was one of the first public 
school students to benefit from desegregation, as a result of the Supreme Court ruling 
in Brown v. Board of Education. Just when she was getting a chance to go to a better 
school, theRussians launched Sputnik in1957, and theU.S. government became obsessed 
with educating young people to become scientists and engineers, a trend that was 
intensified by John F. Kennedy's commitment to a manned space program. When Kennedy 
spoke about putting a man on the moon, Shirley Ann Jackson was one of the millions 
of American young people who were listening. His words, she recalled, "inspired, 
assisted, and launched many of my generation into science, engineering and 
mathematics," and the breakthroughs and inventions they spawned went well beyond the 
space program. "The space race was really a science race," she said. 
Thanks in part to desegregation, both Jackson's inspiration and intellect were 
recognized early, and she ultimately became the first African-American woman to earn 
a Ph.D. in physics from MIT (her degree was in theoretical elementary particle 
physics). From there, she spent many years working for AT&T Bell Laboratories, and 
in 1995 was appointed by President Clinton to chair the U.S. Nuclear Regulatory 
Commission. 
As the years went by, though, Jackson began to notice that fewer and fewer young 
Americans were captivated by national challenges like the race to the moon, or felt 
the allure of math, science, and engineering. In universities, she noted, graduate 
enrollment in science and engineering programs, having grown for decades, peaked in 


1993, and despite some recent progress, it remains today below the level of a decade 
ago. So the science and engineering generations that followed Jackson's got smaller 
and smaller relative to our needs. By the time Jackson took the job as Rensselaer 
Polytechnic's president to put her heart and soul into reinvig-orating American 
science and engineering, she realized, she said, that a "perfect storm" was 
brewing-one that posed a real long-term danger to America's economic health-and she 
started speaking out about it whenever she could. 
255 
"The phrase 'the perfect storm' is associated with meteorological events in October 
1991," said Jackson in a speech in May 2004, when "a powerful weather system gathered 
force, ravaging the Atlantic Ocean over the course of several days, [and] caused the 
deaths of several Massachusetts-based fishermen and billions of dollars of damage. 
The event became a book, and, later, a movie. Meteorologists observing the event 
emphasized . . . the unlikely confluence of conditions... in which multiple factors 
converged to bring about an event of devastating magnitude. [A] similar worst-case 
scenario could arrest the progress of our national scientific and technological 
capacity. The forces at work are multiple and complex. They are demographic, political, 
economic, cultural, even social." Individually, each of these forces would be 
problematic, added Jackson. In combination, they could be devastating. "For the first 
time in more than a century, the United States could well find itself falling behind 
other countries in the capacity for scientific discovery, innovation and economic 
development." 
The way to avoid being caught in such a storm is to identify the confluence of factors 
and to change course-even though right now the sky is blue, the winds are gentle, 
and the water seems calm. But that is not what has been going on in America in recent 
years. We are blithely sailing along, heading straight for the storm, with both 
politicians and parents insisting that no dramatic changes or sacrifices are required 
now. After all, look how calm and sunny it is outside, they tell us. In the fiscal 
year 2005 budget passed by the Republican-led Congress in November 2004, the budget 
for the National Science Foundation, which is the federal body most responsible for 
promoting research and funding more and better science education, was actually cut 
by 1.9 percent, or $105 million. History will show that when America should have been 
doubling the NSF funding, its Congress passed a pork-laden budget that actually cut 
assistance for science and engineering. 
Don't be fooled by the calm. That's always the time to change course-not when you're 
just about to get hit by the typhoon. We don't have any time to waste in addressing 
the "dirty little secrets" of our education system. 
256 
Dirty Little Secret #1: The Numbers Gap 
In the Cold War, one of the deepest causes of American worries was the so-called 
missile gap between us and the Soviet Union. The perfect storm Shirley Ann Jackson 
is warning about could best be described as the confluence of three new gaps that 
have been slowly emerging to sap America's prowess in science, math, and engineering. 
They are the numbers gap, the ambition gap, and the education gap. Inthe Age of Flatism, 


these gaps are what most threaten our standard of living. 
Dirty little secret number one is that the generation of scientists and engineers 
who were motivated to go into science by the threat of Sputnik in 1957 and the 
inspiration of JFK are reaching their retirement years and are not being replaced 
in the numbers that they must be if an advanced economy like that of the United States 
is to remain at the head of the pack. According to the National Science Foundation, 
half of America's scientists and engineers are forty years or older, and the average 
age is steadily rising. 
Just take one example-NASA. An analysis of NASA records conducted by the newspaper 
Florida Today (March 7, 2004), which covers the Kennedy Space Center, showed the 
following: Nearly 40 percent of the 18,146 people at NASA are age fifty or older. 
Those with twenty years of government service are eligible for early retirement. 
Twenty-two percent of NASA workers are fifty-five or older. NASA employees over sixty 
outnumber those under thirty by a ratio of about three to one. Only 4 percent of NASA 
workers are under thirty. A 2003 Government Accounting Office study concluded that 
NASA was having difficulty hiring people with the sufficient science, engineering, 
and information-technology skills that are critical to its operations. Many of these 
jobs are reserved for American citizens, because of national security concerns. 
Then-NASA administrator Sean O'Keefe testified before Congress in 2002: "Our mission 
of understanding and protecting our home planet and exploring the universe and 
searching for life will not be carried out if we don't have the people to do it." 
The National Commission on Mathematics and Science Teaching for the Twenty-first 
Century, chaired by the former astronaut and senator John Glenn, found that two-

thirds of the nation's mathematics and science teaching force will retire by 2010. 
Traditionally we made up for any shortages of engineers and science faculty by 
educating more at home and importing more from abroad. But both of those remedies 
have been stalled of late. 
Every two years the National Science Board supervises the collection of a very broad 
set of data trends in science and technology in the United States, which it publishes 
as Science and Engineering Indicators. In preparing Indicators 2004, the NSB said, 
"We have observed a troubling decline in the number of U.S. citizens who are training 
to become scientists and engineers, whereas the number of jobs requiring science and 
engineering (S&E) training continues to grow." These trends threaten the economic 
welfare and security of our country, it said, adding that if the trends identified 
in Indicators 2004 continue undeterred, three things will happen: "The number of jobs 
in the U.S. economy that require science and engineering training will grow; the 
number of U.S. citizens prepared for those jobs will, at best, be level; and the 
availability of people from other countries who have science and engineering training 
will decline, either because of limits to entry imposed by U.S. national security 
restrictions or because of intense global competition for people with these skills." 
The NSB report found that the number of American eighteen-to-twenty-four-year-olds 
who receive science degrees has fallen to seventeenth in the world, whereas we ranked 
third three decades ago. It said that of the 2.8 million first university degrees 


(what we call bachelor's degrees) in science and engineering granted worldwide in 
2003, 1.2 million were earned by Asian students in Asian universities, 830,000 were 
granted in Europe, and 400,000 in the United States. In engineering specifically, 
universities in Asian countries now produce eight times as many bachelor's degrees 
as the United States. 
Moreover, "the proportional emphasis on science and engineering is greater in other 
nations," noted Shirley Ann Jackson. Science and engineering degrees now represent 
60 percent of all bachelor's degrees earned in China, 33 percent in South Korea, and 
41 percent in Taiwan. By contrast, the percentage of those taking a bachelor's degree 
in science 
258 
and engineering in the United States remains at roughly 31 percent. Factoring out 
science degrees, the number of Americans who graduate with just engineering degrees 
is 5 percent, as compared to 25 percent in Russia and 46 percent in China, according 
to a 2004 report by Trilogy Publications, which represents the national U.S. 
engineering professional association. 
The United States has always depended on the inventiveness of its people in order 
to compete in the world marketplace, said the NSB. "Preparation of the S&E workforce 
is a vital arena for national competitiveness. [But] even if action is taken today 
to change these trends, the reversal is 10 to 20 years away." The students entering 
the science and engineering workforce with advanced degrees in 2004 decided to take 
the necessary math courses to enable this career path when they were in middle school, 
up to fourteen years ago, the NSB noted. The students making that same decision in 
middle school today won't complete advanced training for science and engineering 
occupations until 2018 or 2020. "If action is not taken now to change these trends, 
we could reach 2020 and find that the ability of U.S. research and education 
institutions to regenerate has been damaged and that their preeminence has been lost 
to other areas of the world," the science board said. 
These shortages could not be happening at a worse time-just when the world is going 
flat. "The number of jobs requiring science and engineering skills in the U.S. labor 
force," the NSB said, "is growing almost 5 percent per year. In comparison, the rest 
of the labor force is growing at just over 1 percent. Before September 11, 2001, the 
Bureau of Labor Statistics (BLS) projected that science and engineering occupations 
would increase at three times the rate of all occupations." Unfortunately, the NSB 
reported, the average age of the science and engineering workforce is rising. 
"Many of those who entered the expanding S&E workforce in the 1960s and 1970s (the 
baby boom generation) are expected to retire in the next twenty years, and their 
children are not choosing science and engineering careers in the same numbers as their 
parents," the NSB report said. "The percentage of women, for example, choosing math 
and computer science careers fell 4 percentage points between 1993 and 1999." 
259 
The 2002 NSB indicators showed that the number of science and engineering Ph.D.'s 
awarded in the United States dropped from 29,000 in 1998 to 27,000 in 1999. The total 
number of engineering undergraduates in America fell about 12 percent between the 


mid-1980s and 1998. 
Nevertheless, America's science and engineering labor force grew at a rate well above 
that of America's production of science and engineering degrees, because a large 
number of foreign-born S&E graduates migrated to the United States. The proportion 
of foreign-born students in S&E fields and workers in S&E occupations continued to 
rise steadily in the 1990s. The NSB said that persons born outside the United States 
accounted for 14 percent of all S&E occupations in 1990. Between 1990 and 2000, the 
proportion of foreign-born people with bachelor's degrees in S&E occupations rose 
from 11 to 17 percent; the proportion of foreign-born with master's degrees rose from 
19 to 29 percent; and the proportion of foreign-born with Ph.D.'s in the S&E labor 
force rose from 24 to 38 percent. By attracting scientists and engineers born and 
trained in other countries we have maintained the growth of the S&Elabor force without 
a commensurate increase in support for the long-term costs of training and attracting 
native U.S citizens to these fields, the NSB said. 
But now, the simultaneous flattening and wiring of the world have made it much easier 
for foreigners to innovate without having to emigrate. They can now do world-class 
work for world-class companies at very decent wages without ever having to leave home. 
As Allan E. Goodman, president of the Institute of International Education, put it, 
"When the world was round, they could not go back home, because there was no lab to 
go back to and no Internet to connect to. But now all those things are there, so they 
are going back. Now they are saying, 'I feel more comfortable back home. I can live 
more comfortably back home than in New York City and I can do good work, so why not 
go back?'" This trend started even before the visa hassles brought on by 9/11, said 
Goodman. "The brain gain started to go to brain drain around the year 2000." 
As the NSB study noted, "Since the 1980s other countries have increased investment 
in S&E education and the S&E workforce at higher rates than the United States has. 
Between 1993 and 1997, the OECD countries [Organization for Economic Co-operation 
and Development, 

a group of 40 nations with highly developed market economies] increased their number 
of S&E research jobs 23 percent, more than twice the 11 percent increase in S&E 
research jobs in the United States." 
In addition, it said, visas for students and S&E workers have been issued more slowly 
since the events of September 11, owing to both increased security restrictions and 
a drop in applications. The U.S. State Department issued 20 percent fewer visas for 
foreign students in 2001 than in 2000, and the rate fell farther in subsequent years. 
While university presidents told me in 2004 that the situation was getting better, 
and that the Department of Homeland Security was trying to both speed up and simplify 
its visa procedures for foreign students and scientists, a lot of damage has been 
done, and the situation for foreign students or scientists wanting to work in any 
areas deemed to have national security implications is becoming a real problem. No 
wonder New York Times education writer Sam Dillon reported on December 21, 2004, that 
"foreign applications to American graduate schools declined 28 percent this year. 
Actual foreign graduate student enrollments dropped 6 percent. Enrollments of all 


foreign students, in undergraduate, graduate and postdoctoral programs, fell for the 
first time in three decades in an annual census released this fall. Meanwhile, 
university enrollments have been surging in England, Germany and other countries. . . 
Chinese applications to American graduate schools fell 45 percent this year, while 
several European countries announced surges in Chinese enrollment." 
Dirty Little Secret #2: The Ambition Gap 
The second dirty little secret, which several prominent American CEOs told me only 
in a whisper, goes like this: When they send jobs abroad, they not only save 75 percent 
on wages, they get a 100 percent increase in productivity. Part of that is 
understandable. When you take a low-wage, low-prestige job in America, like a call 
center operator, and bring it over to India, where it becomes a high-wage, 
high-prestige job, 
261 
you end up with workers who are paid less but motivated more. "The dirty little secret 
is that not only is [outsourcing] cheaper and efficient," the American CEO of a 
London-headquartered multinational told me, "but the quality and productivity [boost] 
is huge." In addition to the wage compression, he said, one Bangalore Indian retrained 
will do the work of two or three Europeans, and the Bangalore employees don't take 
six weeks of holidays. "When you think it's only about wages," he added, "you can 
still hold your dignity, but the fact that they work better is awful." 
A short time after returning from India, I was approached in an airport by a young 
man who wanted to talk about some columns I had written from there. We had a nice 
chat, I asked him for his card, and we struck up an e-mail friendship. His name is 
Mike Arguello, and he is an IT systems architect living in San Antonio. He does 
high-end IT systems design and does not feel threatened by foreign competition. He 
also teaches computer science. When I asked him what we needed to do in America to 
get our edge back, he sent me this e-mail: 
I taught at a local university. It was disheartening to see the poor work ethic of 
many of my students. Of the students I taught over six semesters, I'd only consider 
hiring two of them. The rest lacked the creativity, problem-solving abilities and 
passion for learning. As you well know, India's biggest advantage over the Chinese 
and Russians is that they speak English. But it would be wrong to assume the top Indian 
developers are better than their American counterparts. The advantage they have is 
the number of bodies they can throw at a problem. The Indians that I work with are 
the cream of the crop. They are educated by the equivalents of MIT back in India and 
there are plenty of them. If you were to follow me in my daily meetings it would become 
very obvious that a great deal of my time is spent working with Indians. Most managers 
are probably still under the impression that all Indians are doing is lower-end 
software development-"software assembly." But technologies, such as Linux, are 
allowing them to start taking higher-paying system design jobs that had previously 
262 
been the exclusive domain of American workers. It has provided them with the means 
to move up the technology food chain, putting them on par with domestic workers. It's 
brain power against brain power, and in this area they are formidable. From a 


technology perspective, the world is flat and getting flatter (if that is possible). 
The only two areas that I have not seen Indian labor in are networking architects 
and system architects, but it is only a matter of time. Indians are very bright and
they are quickly learning from their interaction with system architects just how all
of the pieces of the IT puzzle fit together . . . Were Congress to pass legislation
to stop the flow of Indian labor, you would have major software systems that would 
have nobody who knew what was going on. It is unfortunate that many management 
positions in IT are filled with non-technical managers who may not be fully aware 
of their exposure . . . I'm an expert in information systems, not economics, but I 
know a high-paying job requires one be able to produce something of high value. The 
economy is producing the jobs both at the high end and low end, but increasingly the
high-end jobs are out of reach of many. Low education means low-paying jobs, plain 
and simple, and this is where more and more Americans are finding themselves. Many 
Americans can't believe they aren't qualified for high-paying jobs. I call this the 
"American Idol problem." If you've ever seen the reaction of contestants when Simon
Cowell tells them they have no talent, they look at him in total disbelief. I'm just
hoping someday I'm not given such a rude awakening.
In the winter of 2004 I had tea in Tokyo with Richard C. Koo, chief economist for
the Nomura Research Institute. I tested out on Richard my "coefficient of flatness":
the notion that the flatter one's country is-that is, the fewer natural resources 
it has-the better off it will be in a flat world. The ideal country in a flat world 
is the one with no natural resources, because countries with no natural resources 
tend to dig inside themselves. They try to tap the energy, entrepreneurship,
creativity, and intelligence of their own people-men and women-rather than drill


an oil well. Taiwan is a barren rock in a typhoon-laden sea, with virtually no natural 
resources-nothing but the energy, ambition, and talent of its own people-and today 
it has the third-largest financial reserves in the world. The success of Hong Kong,
Japan, South Korea, and coastal China can all be traced to a similar flatness.
"I am a Taiwanese-American with a father from Taiwan and with a Japanese mother," 
Koo told me. "I was bom in Japan and went to Japanese elementary school and then moved
to the States. There is a saying in China that whatever you put in your head and your
stomach, no one can take away from you. In this whole region, that is in the DNA.
You just have to study hard and move forward. I was told relatively early by myteachers,
'We can never live like Americans and Canadians. We have no resources. We have to 
study hard, work hard, and export hard.'"
A few weeks later I had breakfast in Washington with P.V. Kannan, CEO of 24/7 Customer. 
When it comes to the flat world, said P.V., he had just one question: "Is America
prepared? It is not. . . You've gotten a little contented and slow, and the people
who came into the field with [the triple convergence] are really hungry. Immigrants
are always hungry-and they don't have a backup plan."
A short time later I read a column by Steven Pearlstein, The Washington Post's business 
columnist/reporter, under the headline "Europe's Capitalism Curtain." From Wroclaw, 
Poland (July 23, 2004), Pearlstein wrote: "A curtain has descended across Europe.



On one side are hope, optimism, freedom and prospects for a better life. On the other 
side, fear, pessimism, suffocating government regulations and a sense that the best 
times are in the past." This new curtain, Pearlstein argued, demarks Eastern Europe, 
which is embracing capitalism, and Western Europe, which is wishing desperately that 
it would go away. 
"This time, however, it is the East that is likely to prevail," he continued. "The 
energy and sense of possibility are almost palpable here . . . Money and companies 
are pouring in-not just the prestige nameplates like Bombardier, Siemens, Whirlpool, 
Toyota and Volvo, but also the network of suppliers that inevitably follows them. 
At first, most of the new jobs were of the semi-skilled variety. Now they have been 
followed by design and engineering work that aims to tap into the largest concen264 
tration of university students in Eastern Europe . . . The secret isn't just lower 
wages. It's also the attitude of workers who take pride and are willing to do what 
is necessary to succeed, even if it means outsourcing parts production or working 
on weekends or altering vacation schedules- things that would almost certainly 
trigger months of acrimony and negotiation in Western Europe. 'The people back home, 
they haven't got any idea how much they need to change if they want to preserve what 
they have,' said Jose Ugarte [a Basque who heads the appliance manufacturing 
operations of Mondragon, the giant Spanish industrial cooperative]. 'The danger to 
them is enormous. They don't realize how fast this is happening . . .' It's not the 
dream of riches that animates the people of Wroclaw so much as the determination to 
work hard, sacrifice what needs to be sacrificed and change what needs to be changed 
to close the gap with the West. It is that pride and determination, says Wroclaw's 
mayor, Rafal Dutkiewicz, that explain why they are such a threat to the 'leisure-time 
society' on the other side of the curtain." 
I heard a similar refrain in a discussion with consular officials who oversee the 
granting of visas at the U.S. embassy in Beijing. As one of them put it to me, "I 
do think Americans are oblivious to the huge changes. Every American who comes over 
to visit me [in China] is just blown away . . . Your average kid in the U.S. is growing 
up in a wealthy country with many opportunities, and many are the kids of advantaged 
educated people and have a sense of entitlement. Well, the hard reality for that kid 
is that fifteen years from now Wu is going to be his boss and Zhou is going to be 
the doctor in town. The competition is coming, and many of the kids are going to move 
into their twenties clueless about these rising forces." 
When I asked Bill Gates about the supposed American education advantage-an education 
that stresses creativity, not rote learning-he was utterly dismissive. In his view, 
those who think that the more rote learning systems of China and Japan can't turn 
out innovators who can compete with Americans are sadly mistaken. Said Gates, "I have 
never met the guy who doesn't know how to multiply who created software . . . Who 
has the most creative video games in the world? Japan! I never met 
265 
these 'rote people'. . . Some of my best software developers are Japanese. You need 
to understand things in order to invent beyond them." 


One cannot stress enough: Young Chinese, Indians, and Poles are not racing us to the 
bottom. They are racing us to the top. They do not want to work for us; they don't 
even want to be us. They want to dominate us-in the sense that they want to be creating 
the companies of the future that people all over the world will admire and clamor 
to work for. They are in no way content with where they have come so far. I was talking 
to a Chinese-American who works for Microsoft and has accompanied Bill Gates on visits 
to China. He said Gates is recognized everywhere he goes in China. Young people there 
hang from the rafters and scalp tickets just to hear him speak. Same with Jerry Yang, 
the founder of Yahoo! 
In China today, Bill Gates is Britney Spears. In America today, Britney Spears is 
Britney Spears-and that is our problem. 
Dirty Little Secret #3: The Education Gap 
All of this helps to explain the third dirty little secret: A lot of the jobs that 
are starting to go abroad today are very high-end research jobs, because not only 
is the talent abroad cheaper, but a lot of it is as educated as American workers 
or even more so. In China, where there are 1.3 billion people and the universities 
are just starting to crack the top ranks, the competition for top spots is ferocious. 
The math/science salmon that swims upstream in China and gets itself admitted to a 
top Chinese university or hired by a foreign company is one smart fish. The folks 
at Microsoft have a saying about their research center in Beijing, which, for 
scientists and engineers, is one of the most sought-after places to work in all of 
China. "Remember, in China when you are one in a million-there are 1,300 other people 
just like you." 
The brainpower that rises to the Microsoft research center in Beijing is already one 
in a million. 

Consider the annual worldwide IntelInternational Science and Engineering Fair. About 
forty countries participate by nominating talent through local affiliate affairs. 
In 2004, the Intel Fair attracted around sixty-five thousand American kids, according 
to Intel. How about in China? I asked Wee Theng Tan, the president of Intel China, 
during a visit to Beijing. In China, he told me, there is a national affiliate science 
fair, which acts as a feeder system to select kids for the global Intel fair. "Almost 
every single province has students going to one of these affiliate fairs," said Tan. 
"We have as many as six million kids competing, although not all are competing for 
the top levels . . . [But] you know how seriously they take it. Those selected to 
go to the international [Intel] fair are immediately exempted from college entrance 
exams" and basically get their choice of any top university in China. In the 2004 
Intel Science Fair, China came home with thirty-five awards, more than any other 
country in Asia, including one of the top three global awards. 
Microsoft has three research centers in the world: in Cambridge, England; in Redmond, 
Washington, its headquarters; and in Beijing. Bill Gates told me that within just 
a couple of years of its opening in 1998, Microsoft Research Asia, as the center in 
Beijing is known, had become the most productive research arm in the Microsoft system 
"in terms of the quality of the ideas that they are turning out. It is mind-blowing." 


Kai-Fu Li is the Microsoft executive who was assigned by Gates to open the Microsoft 
research center in Beijing. My first question to him was, "How did you go about 
recruiting the staff?" Li said his team went to universities all over China and simply 
administered math, IQ, and programming tests to Ph.D.-level students or scientists. 
"In the first year, we gave about 2,000 tests all around," he said. From the 2,000, 
they winnowed the group down to 400 with more tests, then 150, "and then we hired 
20." They were given two-year contracts and told that at the end of two years, 
depending on the quality of their work, they would either be given a longer-term 
contract or granted a postdoctoral degree by Microsoft Research Asia. Yes, you read 
that right. The Chinese government gave Microsoft the right to grant postdocs. Of 
the original twenty who were hired, twelve survived the cut. The next year, nearly 
four thousand people were tested. After that, said Li, "we stopped 
267 
doing the test. By that time we became known as the number one place to work, where 
all the smart computer and math people wanted to work . . . We got to know all the 
students and professors. The professors would send their best people there, knowing 
that if the people did not work out, it would be their credibility [on the line]. 
Now we have the top professors at the top schools recommending their top students. 
A lot of students want to go to Stanford or MIT, but they want to spend two years 
at Microsoft first, as interns, so they can get a nice recommendation letter that 
says these are MIT quality." Today Microsoft has more than two hundred researchers 
in its China lab and some four hundred students who come in and out on projects and 
become recruiting material for Microsoft. 
"They view this as a once-in-a-lifetime income opportunity/' said Li of the team at 
Microsoft Research Asia. "They saw their parents going through the Cultural 
Revolution. The best they could do was become a professor, do a little project on 
the side because a professor's pay is horrible, and maybe get one paper published. 
Now they have this place where all they do is research, with great computers and lots 
of resources. They have administrators-we hire people to do the dirty work. They just 
could not believe it. They voluntarily work fifteen to eighteen hours a day and come 
in on weekends. They work through holidays, because their dream is to get to 
Microsoft." Li, who had worked for other American high-tech firms before coming to 
Microsoft, said that until starting Microsoft Research Asia, he had never seen a 
research lab with the enthusiasm of a start-up company. 
"If you go in at two a.m. it is full, and at eight a.m. it is full," he said. 
Microsoft is a stronger American company for being able to attract all this talent, 
said Li. "Now we have two hundred more brilliant people building [intellectual 
property] and patents. These two hundred people are not replacing people in Redmond. 
They are doing new research in areas applicable worldwide." 
Microsoft Research Asia has already developed a worldwide reputation for producing 
cutting-edge papers for the most important scientific journals and conferences. "This 
is the culture that built the Great Wall," he added, "because it is a dedicated and 
direction-following culture." 
268 


Chinese people, explained Li, have both a superiority and an inferiority complex at 
the same time, which helps explain why they are racing America to the top, not the 
bottom. There is a deep and widely shared view that China was once great, that it 
succeeded in the past but now is far behind and must catch up again. "So there is 
a patriotic desire," he said. "If our lab can do as well as the Redmond lab, that 
could be really exciting." 
That sort of inspired leadership in science and engineering education is now totally 
missing in the United States. 
Said Intel chairman Craig Barrett, "U.S. technological leadership, innovation, and 
jobs of tomorrow require a commitment to basic research funding today." According 
to a 2004 study by the Task Force on the Future of American Innovation, an 
industry-academic coalition, basic research performed at leading U.S. 
universities-research in chemistry, physics, nanotechnology, genomics, and 
semiconductor manufacturing-has created four thousand spin-off companies that hired 

1.1 million employees and have annual world sales of $232 billion. But to keep moving 
ahead, the study said, there must be a 10 to 12 percent increase each year for the 
next five to seven years in the budgets of key research-funding agencies: the National 
Institute for Science and Technology, the National Science Foundation, the Department 
of Energy's Office of Science, and the Department of Defense research accounts. 
Unfortunately, federal funding for research in physical and mathematical sciences 
and engineering, as a share of GDP, actually declined by 37 percent between 1970 and 
2004, the task force found. At a time when we need to be doubling our investments 
in basic research to overcome the ambition and education gaps, we are actually cutting 
that funding. 
In the wake of the Bush administration and the Republican Congress's decision to cut 
the National Science Foundation funding for 2005, Republican congressman Vern Ehlers 
of Missouri, a voice in the wilderness, made the following statement: "While I 
understand the need to make hard choices in the face of fiscal constraint, I do not 
see the wisdom in putting science funding behind other priorities. We have cut NSF 
despite the fact that this omnibus bill increases spending for the 
2005 fiscal year, so clearly we could find room to grow basic research while 
maintaining fiscal constraint. But not only are we not keeping pace with inflationary 
growth, we are actually cutting the portion basic research receives in the overall 
budget. This decision shows dangerous disregard for our nation's future, and I am 
both concerned and astonished that we would make this decision at a time when other 
nations continue to surpass our students inmath and science and consistently increase 
their funding of basic research. We cannot hope to fight jobs lost to international 
competition without a well-trained and educated workforce." 
No, we cannot, and the effects are starting to show. According to the National Science 
Board, the percentage of scientific papers written by Americans has fallen 10 percent 
since 1992. The percentage of American papers published in the top physics journal, 
Physical Review, has fallen from 61 percent to 29 percent since 1983. And now we are 
starting to see a surge in patents awarded to Asian countries. From 1980 to 2003, 


Japan's share of world industrial patents rose from 12 percent to 21 percent, and 
Taiwan's from 0 percent to 3 percent. By contrast, the U.S. share of patents has fallen 
from 60 percent to 52 percent since 1980. 
Any honest analysis of this problem should note that there are some skeptics who 
believe that the sky is not falling and that scientists and the technology industry 
might be hyping some of this data, just to get more funding. A May 10, 2004, article 
in the San Francisco Chronicle quoted Daniel S. Greenberg, former news editor of the 
journal Science and author of the book Science, Money and Politics, who argues that 
"inside-the-Beltway science (lobbying) has always been insatiable. If you double the 
NIH (National Institutes of Health) budget in five years (as recently happened), 
they're (still) screaming their heads off: 'We need more money.'" Greenberg also 
questioned the science lobbyists' interpretation of a number of statistics. 
Quoting Greenberg, the Chronicle said, "To put scientific publishing trends in 
context. . . it's important to look not only at overall percentiles but also at the 
actual numbers of published papers. At first, it may sound startling to hear that 
China quadrupled its scientific publication rate between 1986 and 1999. But it sounds 
somewhat less startling if one real

izes that the actual number of Chinese papers published rose from 2,911 to 11,675. 
By comparison, close to a third of all the world's scientific papers were published 
by Americans-163,526 out of 528,643. In other words, China, a nation with almost four 
times the population of the United States, published (as of 1999) only one-fourteenth 
as many scientific papers as the United States." 
While I think a dose of skepticism is always in order, I also think the skeptics would 
be wise to pay more heed to the flattening of the world and how quickly some of these 
trends could change. It is why I favor Shirley Ann Jackson's approach: The sky is 
not falling today, but it might be in fifteen or twenty years if we don't change our 
ways, and all signs are that we are not changing, especially in our public schools. 
Help is not on the way. The American education system from kindergarten through 
twelfth grade just is not stimulating enough young people to want to go into science, 
math, and engineering. My wife teaches first-grade reading in a local public school, 
so she gets Education Week, which is read by educators all over America. One day she 
pointed out an article (July 28, 2004) headlined, "Immigrants' Children Inhabit the 
Top Ranks of Math, Science Meets." 
It went on to say, "Research conducted by the National Foundation for American Policy 
shows that 60 percent of the nation's top science students and 65 percent of the top 
mathematics students are children of recent immigrants, according to an analysis of 
award winners in three scholastic competitions. . . the Intel Science Talent Search, 
the U.S. team for the International Mathematical Olympiad, and theU.S. Physics Team." 
The study's author attributed the immigrant students' success "partly to their 
parents' insistence that they manage study time wisely," Education Week said. "Many 
immigrant parents also encouraged their children to pursue mathematics and science 
interests, believing those skills would lead to strong career opportunities and 
insulate them from bias and lack of connections in the workplace ... A strong 


percentage of the students surveyed had parents who arrived in the United States on 
H-1B visas, reserved for professional workers. U.S. policymakers who back overly 
restrictive immigration policies do so at the risk of cutting off a steady infusion 
of technological and scientific skill," said the study's au271 
thor, Stuart Anderson, the executive director of the foundation. The article quoted 
Andrei Munteanu, eighteen, a finalist for the 2004 Intel competition, whose parents 
had moved from Romania to the United States five years earlier. Munteanu started 
American school in the seventh grade, which he found a breeze compared to his Romanian 
school. "The math and science classes [covered the same subject matter] I was taking 
in Romania . . . when I was in fourth grade," he said. 
For now, the United States still excels at teaching science and engineering at the 
graduate level, and also in university-based research. But as the Chinese get more 
feeder stock coming up through their improving high schools and universities, "they 
will get to the same level as us after a decade," said Intel chairman Barrett. "We 
are not graduating the volume, we do not have a lock on the infrastructure, we do 
not have a lock on the new ideas, and we are either flatlining, or in real dollars 
cutting back, our investments in physical science." 
Every four years the United States takes part in the Trends in International 
Mathematics and Science Study, which assesses students after fourth grade and eighth 
grade. Altogether, the most recent study involved roughly a half million students 
from forty-one countries and the use of thirty languages, making it the largest and 
most comprehensive international study of education that has ever been undertaken. 
The 2004 results (for tests taken in 2003) showed American students making only 
marginal improvements over the 2000 results, which showed the American labor force 
to be weaker in science than those of its peer countries. The Associated Press reported 
(December 4,2004) that American eighth-graders had improved their scores in science 
and math since 1995, when the test first was given, but their math improvement came 
mainly between 1995 and 1999, and not in recent years. The rising scores of American 
eighth-graders in science was an improvement over 1999, and it lifted the United 
States to a higher ranking relative to other countries. The worrying news, though, 
was that the scores of American fourth-graders were stagnant, neither improving nor 
declining in science or math since 1995. As a result, they slipped in the international 
rankings as other countries made gains. "Asian countries are setting the pace in 
advanced science and math," Ina Mullis, codirector of the International 
272 
Study Center at Boston College, which manages the study, told the AP. "As one example, 
44 percent of eighth-graders in Singapore scored at the most advanced level in math, 
as did 38 percent in Taiwan. Only 7 percent in the United States did." Results from 
another international education test also came out in December 2004, from the Program 
for International Student Assessment. It showed that American fifteen-year-olds are 
below the international average when it comes to applying math skills to real-life 
tasks. 
No wonder Johns Hopkins University president Bill Brody remarked to me, "Over 60 


percent of our graduate students in the sciences are foreign students, and mostly 
from Asia. At one point four years ago all of our graduate students in mathematics 
were from the PRC [Communist China]. I only found out about it because we use them 
as [teaching assistants] and some of them don't speak English all that well." A Johns 
Hopkins parent wrote Brody to complain that his son could not understand his calculus 
professor because of his heavy Chinese accent and poor English. 
No wonder there is not a major company that I interviewed for this book that is not 
investing significantly in research and development abroad. It is not "follow the 
money." It is "follow the brains." 
"Science and math are the universal language of technology," said Tracy Koon, Intel's 
director of corporate affairs, who oversees the company's efforts to improve science 
education. "They drive technology and our standards of living. Unless our kids grow 
up knowing that universal language, they will not be able to compete. We are not in 
the business of manufacturing somewhere else. This is a company that was founded here, 
but we have two raw materials-sand, which we have a ready supply of, and talent, which 
we don't." (Silicon comes from sand.) 
"We looked at two things," she continued. "We looked at the fact that in disciplines 
that were relevant to our industry, the number of U.S. students graduating at the 
master's and Ph.D. levels was declining in absolute numbers and relative to other 
countries. In our K to twelve we were doing okay at the fourth-grade level, we were 
doing middle-of-the-road in the eighth grade, and by the twelfth grade we were 
hovering near the bot- 

torn in international tests related to math. So the longer kids were in school, the 
dumber they were getting . . . You have teachers turning off kids because they were 
not trained. You know the old saw about the football coach teaching science-people 
who do not have the ability to make this accessible and gripping for kids." 
One of the problems in remedying the situation, said Koon, is the fact that education 
in America is relatively decentralized and fragmented. If Intel goes to India or China 
or Jordan and introduces a teacher education program for making science more 
interesting, it can get into schools all over the country at once. In America, the 
public schools are overseen by fifty different state governments. While Intel does 
sponsor research atthe university level that will benefitits own product development, 
it is growing increasingly concerned about the feeder system into those universities 
and the job market. 
"Have we seen any change here? No, not really," said Koon. So Intel has been lobbying 
the INS for an increase in the number of advanced foreign engineers allowed into the 
United States on temporary work visas. "When we look at the kinds of people that we 
are trying to hire here-the master's and Ph.D. levels in photonics and optics 
engineering and very large-scale computer architecture-what we are finding is that 
as you go up the food chain from bachelor's to master's to Ph.D.'s, the number of 
people graduating from top-tier universities in those fields are increasingly 
foreign-born. So what do you do? For years [America] could count on the fact that 
we still have the best higher-education system in the world. And we made up for our 


deficiencies in K through twelve by being able to get all these good students from 
abroad. But now fewer are coming and fewer are staying . . . We have no God-given 
right to be able to hire all these people, and little by little we won't have the 
first-round draft choices. People who graduate in these very technical fields that 
are critical to our industries should get a green card stapled to their diploma." 
It appears that young people wanting to be lawyers started to swamp those wanting 
to be engineers and scientists in the 1970s and early 1980s. Then, with the dot-com 
boom, those wanting to go to business school and earn MBAs swamped engineering 
students and lawyers in the 1990s. 
274 
One can also hope that the marketplace will address the shortage of engineers and 
scientists by changing the incentives. 
"Intel has to go where the IQ is," said Koon. Remember, she repeated, Intel's chips 
are made from just two things-sand and brains, "and right now the brains are the 
problem . . . We will need a stronger and more supportive immigration system if we 
want to hire the people who want to stay here. Otherwise, we will go where they are. 
What are the alternatives? I am not talking about data programmers or [people with] 

B.S. degrees in computer science. We are talking about high-end specialized 
engineering. We have just started a whole engineering function in Russia, where 
engineers have wonderful training-and talk about underemployed! We are beefing that 
up. Why wouldn't you?" 
Wait a minute: Didn't we win the Cold War? If one of America's premier technology 
companies feels compelled to meet its engineering needs by going to the broken-down 
former Soviet Union, where the only thing that seems to work is old-school math and 
science education, then we've got a quiet little crisis onour hands. One cannot stress 
enough the fact that in the flat world the frontiers of knowledge get pushed out 
farther and farther, faster and faster. Therefore, companies need the brainpower that 
can not only reach the new frontiers but push them still farther. That is where the 
breakthrough drugs and software and hardware products are going to be found. And 
America either needs to be training that brainpower itself or importing it from 
somewhere else -or ideally both -if it wants to dominate the twenty-first century 
the way it dominated the twentieth-and that simply is not happening. 
"There are two things that worry me right now," said Richard A. Rashid, the director 
of research for Microsoft. "One is the fact that we have really dramatically shut 
down the pipeline of very smart people coming to the United States. If you believe 
that we have the greatest re-seach universities and opportunities, it all has to be 
driven by IQ. In trying to create processes that protect the country from undesirables, 
[the government] has done a much better job of keeping out desirables. A really 
significant fraction of the top people graduated from our universities [in science 
and engineering] were not born here, but stayed here and created the businesses, and 
became the professors, that were engines for 
275 
our economic growth. We want these people. In a world where IQ is one of the most 
important commodities, you want to get as many smart people as you can." 

Second, said Rashid, "We have done a very poor job of conveying to kids the value 
of science and technology as a career choice that will make the world a better place. 
Engineering and science is what led to so many improvements in our lives. But you 
talk to K through twelve kids about changing the world and they don't look at computer 
science as a career that is going to be a great thing. The amazing thing is that it 
is hard to get women into computer science now, and getting worse. Young women in 
junior high are told this is a really wretched lifestyle. As a result, we are not 
getting enough students through our systems who want to be computer scientists and 
engineers, and if we cut off the flow from abroad, the confluence of those two will 
potentially put us in a very difficult position ten or fifteen years from now. It 
is a pipeline process. It won't come to roost right away, but fifteen or twenty years 
from now, you'll find you don't have the people and the energy in these areas where 
you need them." 
From Richard Rashid at Microsoft in the Northwest to Tracy Koon at Intel in Silicon 
Valley to Shirley Ann Jackson at Rensselaer on the East Coast, the people who 
understand these issues the best and are closest to them have the same message: Because 
it takes fifteen years to create a scientist or advanced engineer, starting from when 
that young man or woman first gets hooked on science and math in elementary school, 
we shouldbe embarking on an all-hands-on-deck, no-holds-barred, no-budget-too-large 
crash program for science and engineering education immediately. The fact that we 
are not doing so is our quiet crisis. Scientists and engineers don't grow on trees. 
They have to be educated through a long process, because, ladies and gentlemen, this 
really is rocket science. 
::::: EIGHT 
This Is Not a Test 
We have the power to shape the civilization that we want. But we need your will, your 
labor, your hearts, if we are to build that kind of society. Those who came to this 
land sought to build more than just a new country. They sought a new world. So I have 
come here today to your campus to say that you can make their vision our reality. 
So let us from this moment begin our work so that in the future men will look back 
and say: It was then, after a long and weary way, that man turned the exploits of 
his genius to the full enrichment of his life. 
-"Great Society" speech, Lyndon B. Johnson, 1964 
As a person who grew up during the Cold War, I'll always remember driving along down 
the highway and listening to the radio, when suddenly the music would stop and a 
grim-voiced announcer would come on the air and say, "This is a test of the emergency 
broadcast system," and then there would be a thirty-second high-pitched siren sound. 
Fortunately, we never had to live through a moment in the Cold War where the announcer 
came on and said, "This is not a test." That, however, is exactly what I want to say 
here: This is not a test. 
The long-term opportunities and challenges that the flattening of the world puts 
before the United States are profound. Therefore, our ability to get by doing things 
the way we've been doing them-which is to say, not always tending to our secret sauce 
and enriching it-will not suffice anymore. "For a country as wealthy as we are, it 


is amazing how little we are doing to enhance our natural competitiveness," said 
Dinakar Singh, 

the Indian-American hedge fund manager. "We are in a world that has a system that 
now allows convergence among many billions of people, and we had better step back 
and figure out what it means. It would be a nice coincidence if all the things that 
were true before are still true now-but there are quite a few things you actually 
need to do differently . . . You need to have a much more thoughtful national 
discussion." The flat world, Singh argued, is now the elephant in the room, and the 
question is, What is it going to do to us, and what are we going to do to it? 
If this moment has any parallel in American history, it is the height of the Cold 
War, around 1957, when the Soviet Union leaped ahead of America in the space race 
by putting up the Sputnik satellite. Yes, there are many differences between that 
age and our own. The main challenge then came from those who wanted to put up walls; 
the main challenge to America today comes from the fact that all the walls are being 
taken down, and other countries can now compete with us much more directly. The main 
challenge in that world was from those practicing extreme communism, namely, Russia, 
China, and North Korea. The main challenge to America today is from those practicing 
extreme capitalism, namely, China, India, and South Korea. The main objective in that 
era was building a strong state; the main objective in this era is building strong 
individuals. 
What this era has in common with the Cold War era, though, is that to meet the 
challenges 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. I call my own version of this approach compassionate flatism. 
Getting Americans to rally around compassionate flatism is much more difficult than 
getting them to rally around anticommunism. "National 
l278 
peril is a lot easier to convey than individual peril," noted Johns Hopkins University 
foreign policy expert Michael Mandelbaum. Economics, as noted, is not like war, 
because economics can always be a win-win game. But sometimes I wish economics were 
more like war. Inthe Cold War, we actually got to see the Soviets parade their missiles 
in Red Square. We all got to be scared together, from one end of the country to the 
other, and all our politicians had to be focused and serious about marshaling the 
resources and educational programs to make sure Americans could keep pace with the 
Soviet Union. 
But today, alas, there is no missile threat coming from India. The "hot line," which 
used to connect the Kremlin with the White House, has been replaced by the "help line," 


which connects everyone in America to call centers in Bangalore. While the other end 
of the hotline might have had Leonid Brezhnev threatening nuclear war, the other end 
of the help line just has a soft voice eager to help you sort out your AOL bill or 
collaborate with you on a new piece of software. No, that voice has none of the menace 
of Nikita Khrushchev pounding a shoe on the table at the UN, and it has none of the 
sinister snarl of the bad guys in From Russia with Love. There is no Boris or Natasha 
saying "We will bury you" in a thick Russian accent. No, that voice on the help line 
just has a friendly Indian lilt that masks any sense of threat or challenge. It simply 
says: "Hello, my name is Rajiv. Can I help you?" 
No, Rajiv, actually, you can't. 
When it comes to responding to the challenges of the flat world, there is no help 
line we can call. We have to dig into ourselves. We in America have all the tools 
to do that, as I argued in Chapter 6. But, as I argued in Chapter 7, we have not been 
tending to those tools as we should. Hence, our quiet crisis. The assumption that 
because America's economy has dominated the world for more than a century, it will 
and must always be that way is as dangerous an illusion today as the illusion that 
America would always dominate in science and technology was back in 1950. But this 
is not going to be easy. Getting our society up to speed for a flat world is going 
to be extremely painstaking. We are going to have to start doing a lot of things 
differently. It is going to take the sort of focus and national will that President 
John F. Kennedy called for in 

his famous May 25, 1961, speech to Congress on "urgent national needs." At that time, 
America was recovering from the twin shocks of Sputnik and the Soviet space launch 
of a cosmonaut, Yuri Gagarin, less than two months before Kennedy's speech. Kennedy 
knew that while America had enormous human and institutional assets-far more than 
the Soviet Union-they were not being fully utilized. 
"I believe we possess all the resources andtalents necessary," said President Kennedy. 
"But the facts of the matter are that we have never made the national decisions or 
marshaled the national resources required for such leadership. We have never 
specified long-range goals on an urgent time schedule, or managed our resources and 
our time so as to ensure their fulfillment." After then laying out his whole program 
for putting a man on the moon within ten years, President Kennedy added, "Let it be 
clear that I am asking the Congress and the country to accept a firm commitment to 
a new course of action, a course which will last for many years and carry very heavy 
costs. . . This decision demands a major national commitment of scientific and 
technical manpower, materiel and facilities, and the possibility of their diversion 
from other important activities where they are already thinly spread. It means a 
degree of dedication, organization and discipline which have not always characterized 
our research and development efforts." 
In that speech, Kennedy made a vow that has amazing resonance today: "I am therefore 
transmitting to the Congress a new Manpower Development and Training program, totrain 
or retrain several hundred thousand workers, particularly in those areas where we 
have seen chronic unemployment as a result of technological factors, in new 


occupational skills over a four-year period -in order to replace those skills made 
obsolete by automation and industrial change with the new skills which the new 
processes demand." 
Amen. We too have to do things differently. We are going to have to sort out what 
to keep, what to discard, what to adapt, what to adopt, where to redouble our efforts, 
and where to intensify our focus. That is what this chapter is about. This is just 
an intuition, but the flattening of the world is going to be hugely disruptive to 
both traditional and developed societies. The weak will fall farther behind faster. 
The traditional 
280 
will feel the force of modernization much more profoundly. The new will get turned 
into old quicker. The developed will be challenged by the underdeveloped much more 
profoundly. I worry, because so much political stability is built on economic 
stability, and economic stability is not going to be a feature of the flat world. 
Add it all up and you can see that the disruptions are going to come faster and harder. 
Think about Microsoft trying to figure out how to deal with a global army of people 
writing software for free! We are entering an era of creative destruction on steroids. 
Even if your country has a comprehensive strategy for dealing with flatism, it is 
going to be a challenge of a whole new dimension. But if you don't have a strategy 
at all... well, you've been warned. This is not a test. 
Being an American, I am most focused on my own country. How do we go about maximizing 
the benefits and opportunities of the flat world, and providing protection for those 
who have difficulty with the transition, without resorting to protectionism or 
runaway capitalism? Some will offer traditional conservative responses; some will 
offer traditional liberal ones. I offer compassionate flatism, which is a policy blend 
built around five broad categories of action for the age of flat: leadership, muscle 
building, cushioning, social activism, and parenting. 
Leadership 
The job of the politician in America, whether at the local, state, or national level, 
should be, in good part, to help educate and explain to people what world they are 
living in and what they need to do if they want to thrive within it. One problem we 
have today, though, is that so many American politicians don't seem to have a clue 
about the flat world. As venture capitalist John Doerr once remarked to me, "You talk 
to the leadership in China, and they are all the engineers, and they get what is going 
on immediately. The Americans don't, because they're all 
281 
lawyers." Added Bill Gates, "The Chinese have risk taking down, hard work down, 
education, and when you meet with Chinese politicians, they are all scientists and 
engineers. You can have a numeric discussion with them-you are never discussing 'give 
me a one-liner to embarrass [my political rivals] with.' You are meeting with an 
intelligent bureaucracy." 
I am not saying we should require all politicians to hold engineering degrees, but 
it would be helpful if they had a basic understanding of the forces that are flattening 
the world, were able to educate constituents about them and galvanize a response. 


We have way too many politicians in America today who seem to do the opposite. They 
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, or that compassion should be equated with protectionism. 
It is hard to have an American national strategy for dealing with flatism if people 
won't even acknowledge that there is an education gap emerging and that there is an 
ambition gap emerging and that we are in a quiet crisis. For instance, of all the 
policy choices that the Republican-led Congress could have made in forging the FY 
2005 budget, how in the world could it have decided to cut the funding of the National 
Science Foundation by more than $100 million? 
We need politicians who are able and willing to both explain and inspire. And what 
they most need to explain to Americans is pretty much what Lou Gerstner explained 
to the workforce of IBM when he took over as chairman in 1993, when the company was 
losing billions of dollars. At the time, IBM was facing a near-death experience owing 
to its failure to adapt to and capitalize on the business computing market that it 
invented. IBM got arrogant. It had built its whole franchise around helping customers 
solve problems. But after a while it stopped listening to its customers. It thought 
it didn'thave to. And when IBM stopped listening toits customers, it stopped creating 
value that mattered for its customers, and that had been the whole strength of its 
business. A friend of mine who worked at IBM back then told me that when he was in 
his first year at the company and taking an internal course,his IBM instructor boasted 
to him that IBM was such a great company, it could do "extraor

dinary things with just average people." As the world started to flatten, though, 
IBM found that it could not continue thriving with an overabundance of average people 
working for a company that had stopped being a good listener. 
But when a company is the pioneer, the vanguard, the top dog, the crown jewel, it 
is hard to look in the mirror and tell itself it is in a not-so-quiet crisis and better 
start to make a new history or become history. Gerstner decided that he would be that 
mirror. He told IBM it was ugly and that a strategy built largely around designing 
and selling computers-rather than the services and strategies to get the most out 
of those computers for each customer-didn't make sense. Needless to say, this was 
a shock for IBMers. 
"Transformation of an enterprise begins with a sense of crisis or urgency," Gerstner 
told students at Harvard Business School, in a December 9, 2002, talk. "No institution 
will go through fundamental change unless it believes it is in deep trouble and needs 
to do something different to survive." It is impossible to ignore the parallel with 
America as a whole in the early twenty-first century. 
When Lou Gerstner came in, one of the first things he did was replace the notion of 
lifetime employment with the notion of lifetime em-ployability. A friend of mine, 
Alex Attal, a French-born software engineer who was working for IBM at the time, 
described the shift this way: "Instead of IBM giving you a guarantee that you will 
be employed, you had to guarantee that you could stay employable. The company would 


give you the framework, but you had to build it yourself. It's all about adapting. 
I was head of sales for IBM France at the time. It was the mid-nineties. I told my 
people that in the old days [the concept of] lifetime employment was only a company's 
responsibility, not a personal responsibility. But once we move to a model of 
employability, that becomes a shared responsibility. The company will give you access 
to knowledge, but you have to take advantage of it... You have to build the skills 
because it will be you against a lot of other people." 
When Gerstner started to change the paradigm at IBM, he kept stressing the issue of 
individual empowerment. Said Attal, "He under283 
stood that an extraordinary company could only be built on a critical mass of 
extraordinary people." 
As at IBM, so in America. Average Joe has to become special, specialized, or adaptable 
Joe. The job of government andbusiness isnot toguarantee anyone a lifetime job-those 
days are over. That social contract has been ripped up with the flattening of the 
world. What government can and must guarantee people is the chance to make themselves 
more employable. We don't want America to be to the world what IBM was becoming to 
the computer industry in the 1980s: the people who opened the field and then became 
too timid, arrogant, and ordinary to play on it. We want America to be the born-again 
IBM. 
Politicians not only need to explain to people the flat world, they need to inspire 
them to rise to the challenge of it. There is more to political leadership than a 
competition for who can offer the most lavish safety nets. Yes, we must address 
people's fears, but we must also nurse their imaginations. Politicians can make us 
more fearful and thereby be disablers, or they can inspire us and thereby be enablers. 
To be sure, it is not easy to get people passionate about the flat world. It takes 
some imagination. President Kennedy understood that the competition with the Soviet 
Union was not a space race but a science race, which was really an education race. 
Yet the way he chose to get Americans excited about sacrificing and buckling down 
to do what it took to win the Cold War-which required a large-scale push in science 
and engineering-was by laying out the vision of putting a man on the moon, not a missile 
into Moscow. If President Bush is looking for a similar legacy project, there is one 
just crying out-a national science initiative that would be our generation's moon 
shot: a crash program for alternative energy and conservation to make America 
energy-independent in ten years. If President Bush made energy independence his moon 
shot, in one fell swoop he would dry up revenue for terrorism, force Iran, Russia, 
Venezuela, and Saudi Arabia onto the path of reform-which they will never do with 
$50-a-barrel oil-strengthen the dollar, and improve his own standing in Europe by 
doing something huge to reduce global warming. He would also create a real magnet 
to inspire young people to 
284 
contribute to both the war on terrorism and America's future by again becoming 
scientists, engineers, and mathematicians. "This is not just a win-win," said Michael 
Mandelbaum. "This is a win-win-win-win-win." I have consistently been struck that 


my newspaper columns that have gotten far and away the most positive feedback over 
the years, especially from young people, have been those that urged the president 
to call the nation to this task. 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. 
Muscles 
Since lifetime employment is a form of fat that a flat world simply cannot sustain 
any longer, compassionate flatism seeks to focus its energy on how government and 
business can enhance every worker's lifetime employability. Lifetime employment 
depends on preserving a lot of fat. Lifetime employability requires replacing that 
fat with muscle. The social contract that progressives should try to enforce between 
government and workers, and companies and workers, is one in which government and 
companies say, "We cannot guarantee you any lifetime employment. But we can guarantee 
you that government and companies will focus on giving you the tools to make you more 
lifetime employable." The whole mind-setof a flat world is one in which the individual 
worker is going to become more and more responsible for managing his or her own career, 
risks, and economic security, and the job of government and business is to help workers 
build the necessary muscles to do that. 
The "muscles" workers need most are portable benefits and opportunities for lifelong 
learning. Why those two? Because they are the most important assets in making a worker 
mobile and adaptable. As Harvard University economist Robert Lawrence notes, the 
greatest single asset 

that the American economy has always had is the flexibility and mobility of its labor 
force and labor laws. That asset will become even more of an advantage in the flat 
world, as job creation and destruction both get speeded up. 
Given that reality, argues Lawrence, it becomes increasingly important for society, 
to the extent possible, to make benefits and education-the two key ingredients of 
employability-as flexible as possible. You don't want people to feel that they have 
to stay with a company forever simply to keep their pension and health benefits. The 
more the workforce feels mobile -in terms of health care, pension benefits, and 
lifelong learning possibilities-the more it will be willing and able to jump into 
the new industries and new job niches spawned by the flat world and to move from dying 
companies to thriving companies. 
Creating legal and institutional frameworks for universal portability of pensions 
and health care -in addition to Social Security, Medicare, and Medicaid-will help 
people build up such muscles. Today roughly 50 percent of Americans don't have a 
job-based pension plan, other than Social Security. Those who are fortunate enough 
to have one cannot easily take it with them from job to job. What is needed is one 
simple universal portable pension scheme, along the lines proposed by the Progressive 
Policy Institute, that would get rid of the confusing welter of sixteen different 
tax-deferred options now offered by the government and consolidate them all into a 
single vehicle. This universal plan, which you would open with your first job, would 


encourage workers to establish 401 (k) tax-deferred savings programs. Each worker 
and his or her employer could make contributions of cash, bonuses, profit sharing, 
or stock, depending on what sorts of benefits the specific employer offered. These 
assets would be allowed to build up tax-free in whatever savings or investment 
portfolio options the worker chose. But if and when it came time to change jobs, the 
worker could take the whole portfolio with him or her and not have to either cash 
it out or leave it under the umbrella of the previous employer. Rollover provisions 
do exist today, but they are complicated and many workers don't take advantage of 
them because of that. 
The universal pension format would make rollover simple, easy, and 
286 
expected, so pension lockup per se would never keep someone from moving from one job 
to another. Each employer could still offer his or her own specific 401 (k) benefit 
plan, as an incentive to attract employees. But once a worker moved to another job, 
the investments in that particular 401 (k) would just automatically dump into his 
or her universal pension account. With each new job, a new 401 (k) could be started, 
and with each move, the benefits deposited in that same universal pension account. 
In addition to this simple, portable, and universal pension program, Will Marshall, 
president of the Progressive Policy Institute, proposes legislation that would make 
it much easier and more likely for workers to obtain stock options in the companies 
for which they work. Such legislation would give tax incentives to companies to give 
more workers more options earlier and penalize companies that do not. Part of making 
workers more mobile is creating more ways to make more workers owners of financial 
assets, not just their own labor. "We want a public that sees itself as stakeholders, 
sharing in the capital-creating side of the flat world, not just competing in global 
labor markets/' argued Marshall. "We all have to be owners as well as wage earners. 
That is where public policy has to be focused-to make sure that people have 
wealth-producing assets as they enter the twenty-first century, the way homeownership 
accomplished that in the twentieth century." 
Why? Because there is an increasing body of literature that says people who are 
stakeholders, people who have a slice of the pie, "are more deeply invested in our 
system of democratic capitalism and the policies thatkeep itdynamic," said Marshall. 
It is another way, besides home-ownership, to underpin the legitimacy of democratic 
capitalism. It is also another way to energize it, because workers who are also owners 
are more productive on the job. Moreover, in a flat world where every worker is going 
to face suffer competition, the more opportunities everyone has to build wealth 
through the power of markets and compounding interest, the more he or she will be 
able to be self-reliant. We need to give workers every stabilizer we can and make 
it as easy for them to get stock options as it is for the plutocrats. Instead of just 
being focused on protecting 
287 
those with existing capital, as conservatives so often seem to be, let's focus instead 
on widening the circle of capital owners. 
On the health-care side, which I won't delve into in great detail, since that would 


be a book unto itself, it is essential that we develop a scheme for portable health 
insurance that reduces some of the burden on employers for providing and managing 
coverage. Virtually every entrepreneur I talked to for this book cited soaring and 
uncontrolled healthcare costs in America as a reason to move factories abroad to 
countries where benefits were more limited, or nonexistent, or where there was 
national health insurance. Again, I favor the type of portable health-care program 
proposed by PPL The idea is to set up state-by-state collective purchasing pools, 
the way Congress and federal employees now cover themselves. These pools would set 
the rules and create the marketplace in which insurance companies could offer a menu 
of options. Each employer would then be responsible for offering this menu of options 
to each new employee. Workers could choose high, medium, or low coverage. Everyone, 
though, would have to be covered. Depending on the employer, he or she would cover 
part or all of the premiums and the employee the rest. But employers would not be 
responsible for negotiating plans with insurance companies, where they have little 
individual clout. 
The state or federal pools would do that. This way employees would be totally mobile 
and could take their health-care coverage wherever they went. This type of plan has 
worked like a charm for members of Congress, so why not offer it to the wider public? 
Needy and low-income workers who could not afford to join a plan would get some 
government subsidy to do so. But the main idea is to establish a government-supervised, 
-regulated, and -subsidized private insurance market in which government sets the 
broad rules so that there is no cherry-picking of healthy workers or arbitrary denial 
of treatment. The health care itself is administered privately, and the job of 
employers is to facilitate their workers' entry into one of these state pools and, 
ideally, help them pay for some or all of the premiums, but not be responsible for 
the health care themselves. In the transition, though, employers could continue to 
offer health-care plans as an incentive, and workers would have the option of 

going with either the plan offered by their employers or the menu of options available 
through the state purchasing pools. (For details, go to ppionline.org.) 
One can quibble about the details of any of these proposals, but I think the basic 
inspiration behind them is exactly right: In a flattening world, where worker security 
can no longer be guaranteed by Fortune 500 corporations with top-down pension and 
health plans, we need more collaborative solutions-among government, labor, and 
business-that will promote self-reliant workers but not just leave them to fend for 
themselves. 
When it comes to building muscles of employability, government has another critical 
role to play. Each century, as we push out the frontiers of human knowledge, work 
at every level becomes more complex, requiring more pattern recognition and problem 
solving. In the preindustrial age, human strength really mattered. Strength was a 
real service that lots of people could sell on the farm or in the workshop. With the 
invention of the electric motor and steam engine, though, physical strength became 
less important. Small women could drive big trucks. There is little premium for 
strength anymore. But there is an increasing premium for pattern recognition and 


complex problem solving, even down on the farm. Farming became a more 
knowledge-intensive activity, with GPS satellites guiding tractors to make sure all 
the rows being planted were straight. That modernization, plus fertilizer, put a lot 
of people out of work at the previous wage they were earning in agriculture. 
Society as a whole looked at this transition from traditional agriculture to 
industrialization and said, "This is great! We will have more food and better food 
at lower costs, plus more people to work in factories." However, muscle-bound field 
hands and their families said, "This is a tragedy. How will I ever get a job in the 
industrial economy with only muscles and a sixth-grade education? I won't be able 
to eat any of that better, cheaper, plentiful food coming off the farms. We need to 
stop this move to industrialization." 
Somehow we got through this transition from an agriculture-based so- 
289 
ciety one hundred years ago to an industrial-based one-and still ended up with a higher 
standard of living for the vast majority of Americans. How did we do it? 
"We said everyone is going to have to have a secondary education," said Stanford 
University economist Paul Romer. "That was what the high school movement in the early 
part ofthe twentieth century was all about." As economic historians have demonstrated 
in a variety of research (see particularly the work of Harvard economists Claudia 
Goldin and Larry Katz), both technology and trade are making the pie bigger, but they 
are also shifting the shares of that pie away from low-skilled labor to high-skilled 
labor. As American society produced more higher-skilled people by making high school 
mandatory, it empowered more people to get a bigger slice of the bigger, more complex 
economic pie. As that century progressed, weadded, on top ofthe high school movement, 
the GI Bill and the modern university system. 
"These were big ideas," noted Romer, "and what is missing at the moment is a political 
imagination of how do we do something just as big and just as important for the 
transition into the twenty-first century as we did for the nineteenth and twentieth." 
The obvious challenge, Romer added, is to make tertiary education, if not compulsory, 
then government-subsidized for at least two years, whether it is at a state university, 
a community college, or a technical school. Tertiary education is more critical the 
flatter the world gets, because technology will be churning old jobs, and spawning 
new, more complex ones, much faster than during the transition from the agricultural 
economy to the industrial one. 
Educating more people at the tertiary level has two effects. One is that it produces 
more people with the skills to claim higher-value-added work in the new niches. And 
two, it shrinks the pool of people able to do lower-skilled work, from road maintenance 
to home repair to Starbucks. By shrinking the pool of lower-skilled workers, we help 
to stabilize their wages (provided we control immigration), because there are fewer 
people available to do those jobs. It is not an accident that plumbers can charge 
$75 an hour in major urban areas or that good housekeepers or cooks are hard to find. 
America's ability from the mid-nineteenth century on into the mid- 
290 
twentieth century to train people, limit immigration, and make low-skilled work 


scarce enough to win decent wages was how we created a middle class without too 
disparate an income gap. "Indeed," noted Romer, "from the end of the nineteenth 
century to the middle of the twentieth, we had a narrowing of the income gap. Now 
we have seen an increase of that gap over the last twenty or thirty years. That is 
telling us that you have to run faster in order to stay in the same place." With each 
advance in technology and increase in the complexity of services, you need an even 
higher level of skills to do the new jobs. Moving from being a farmhand to a phone 
operator who spoke proper English and could be polite was one thing. But moving from 
being a phone operator after the job got outsourced to India, to being able to install 
or repair phone-mail systems-or write their software - requires a whole new leap 
upward. 
While expanding research universities on the high end of the spectrum is important, 
so is expanding the availability of technical schools and community colleges. 
Everyone should have a chance to be educated beyond high school. Otherwise 
upper-income kids will get those skills and their slice, and the lower-income kids 
will never get a chance. We have to increase the government subsidies that make it 
possible for more and more kids to attend community colleges and more and more 
low-skilled workers to get retrained. 
JFK wanted to put a man on the moon. My vision is to put every American man or woman 
on a campus. 
Employers have a critical contribution to make to lifetime learning and fostering 
employability, as opposed to guaranteed employment. Take, for instance, CapitalOne, 
the global credit card company, which began outsourcing elements of its backroom 
operations to Wipro and Infosys in India over the past few years. Competing in the 
global financial services market, the company felt it had to take advantage of all 
the cost-saving opportunities that its competitors were. CapitalOne began, though, 
by trying to educate its workers through workshops about the 

company's competitive predicament. It made clear that there is no safe haven where 
lifetime employment is possible anymore -inside Capital-One or outside. Then it 
developed a whole program for cross-training of computer programmers, those most 
affected by outsourcing. The company would take a programmer who specialized in 
mainframes and teach him or her to be a distributed systems programmer as well. 
CapitalOne did similar cross-training on its business side, in everything from auto 
loans to risk management. As a result, the workers who were eventually let go in an 
outsourcing move were in a much better position to get new jobs, because they were 
cross-trained and therefore more employable. And those who were cross-trained but 
retained were more versatile and therefore more valuable to CapitalOne, because they 
could do multiple tasks. 
What CapitalOne was doing, out of both its own self-interest and a feeling of 
obligation to workers it was letting go, was trying to make more and more of its workers 
into versatilists. The word "versatilist" was coined by Gartner Inc., the technology 
consultants, to describe the trend in the information technology world away from 
specialization and toward employees who are more adaptable and versatile. Building 


employee versatility and finding employees who already are or are willing to become 
versatilists "will be the new watchword for career planning," according to a Gartner 
study quoted by TechRepublic.com. "Enterprises that focus on technical aptitude alone 
will failto align workforce performance with business value," theGartner study said. 
"Instead, they need to build a team of versatilists who build a rich portfolio of 
knowledge and competencies tofuel [multiple] business objectives." The Gartner study 
noted that "specialists generally have deep skills and narrow scope, giving them 
expertise that is recognized bypeers but seldom valued outside their immediate domain. 
Generalists have broad scope and shallow skills, enabling them to respond or act 
reasonably quickly but often without gaining or demonstrating the confidence of their 
partners or customers. Versatilists, in contrast, apply depth of skill to a 
progressively widening scope of situations and experiences, gaining new competencies, 
building relationships, and assuming new roles." TechRepublic quoted Joe Santana, 

director of training at Siemens Business Services: "With flat or even smaller budgets 
and fewer people, managers need to make the most of the people they have . . . They 
can no longer see people as specialty tools. And their people need to become less 
like specialty tools and more like Swiss Army knives. Those 'Swiss Army knives' are 
the versatilists." 
In addition to their own self-interest in making more of their own employees into 
human Swiss Army knives, companies should be encouraged, with government subsidies 
or tax incentives, to offer as wide an array as possible of in-house learning 
opportunities. The menu of Internet-based worker-training programs today is 
enormous-from online degree programs to in-house guided training for different 
specializations. Not only is the menu enormous, but the cost to the company for 
offering these educational options is very low. The more lifetime learning 
opportunities that companies provide, the more they are both widening the skill base 
of their own workforce and fulfilling a moral obligation to workers whose jobs are 
outsourced to see to it that they leave more employable than they came. If there is 
a new social contract implicit between employers and employees today, it should be 
this: You give me your labor, and I will guarantee that as long as you work here, 
I will give you every opportunity-through either career advancement or training- to 
become more employable, more versatile. 
While we need to redouble our efforts to build the muscles of each individual 
American, we have to continue to import muscles from abroad as well. Most of the Indian, 
Chinese, Russian, Japanese, Korean, Iranian, Arab, and Israeli engineers, physicists, 
and scientists who come to work or study in the United States make great citizens. 
They are family-oriented, educated, and hardworking, and most would jump at the chance 
to become an American. They are exactly the type of people this country needs, and 
we cannot let the FBI, CIA, and Homeland Security, in their zeal to keep out the next 
Mohammed Atta, also keep out the next Sergey Brin, one of the cofounders of Google, 
who was born in Russia. As a computer architect friend of mine says, "If a foreign-born 
person is one day going to take my job, I'd prefer they be American citizens helping 
pay for my retirement benefits." 


I would favor an immigration policy that gives a five-year work visa to 
293 
any foreign student who completes a Ph.D. at an accredited American university in 
any subject. I don't care if it is Greek mythology or mathematics. If we can cream 
off the first-round intellectual draft choices from around the world, it will always 
end up a net plus for America. If the flat world is about connecting all the knowledge 
pools together, we want our knowledge pool to be the biggest. Said Bill Brody, the 
president of Johns Hopkins, "We are in a global talent search, so anything we can 
do in America to get those top draft choices we should do, because one of them is 
going to be Babe Ruth, and why should we let him or her go somewhere else?" 
Good Fat Cushions Worth Keeping 
While many of the old corporate and government safety nets will vanish under global 
competition in the flat world, some fat still needs to be maintained, and even added. 
As everyone who worries about his or her health knows, there is "good fat" and "bad 
fat"-but everybody needs some fat. That is also true of every country in the flat 
world. Social Security is good fat. We need to keep it. A welfare system that 
discourages people from working is bad fat. The sort of good fat that actually needs 
to be added for a flat world is wage insurance. 
According to a study by Lori Kletzer, an economist at the University of California, 
Santa Cruz,in the 1980s and '90s, two-thirds ofworkers who lost jobsin manufacturing 
industries hit by overseas competition earned less on their next job. A quarter of 
workers who lost their jobs and were reemployed saw their income fall 30 percent or 
more. Losing a job for any reason is a trauma-for the worker and his or her family-but 
particularly for older workers who are less able to adapt to new production techniques 
or lack the education to move up into more skilled service jobs. 
This idea of wage insurance was first proposed in 1986 by Harvard's Robert Lawrence 
and Robert E. Litan of the Brookings Institution, in a 
294 
book called Saving Free Trade. The idea languished for a while until it started to 
catch fire again with an updated analysis by Kletzer and Litan in 2001. It got further 
political clout from the bipartisan U.S. Trade Deficit Commission in 2001. This 
commission couldn't agree on anything- including the causes of or what to do about 
the trade deficit- other than the wisdom of wage insurance. 
"Trade creates winners and losers, and what we were thinking about were mechanisms 
by which the winners could compensate the losers, and particularly losers who were 
enjoying high wages in a particular job and suddenly found their new employment at 
much lower wages," said Lawrence. The way to think about this, he explained, is that 
every worker has "general skills and specific skills" for which they are paid, and 
when you switch jobs you quickly discover which is which. So you might have a college 
and CPA degree, or you might have a high school degree and the ability to operate 
a lathe. Both skills were reflected in your wages. But suppose one day your lathe 
job gets moved to China or your basic accounting work is outsourced to India and you 
have to go out and find a new job. Your new employer will not likely compensate you 
much for your specific skills, because your knowledge as a machine tool operator or 


a general accountant is probably of less use to him or her. You will be paid largely 
for your general skills, your high school education or college degree. Wage insurance 
would compensate you for your old specific skills, for a set period of time, while 
you take a new job and learn new specific skills. 
The standard state-run unemployment insurance program eases some of this pain for 
workers, but it does not address their bigger concerns of declining wages in a new 
job and the inability to pay for health insurance while they are unemployed and 
searching. To qualify for wage insurance, workers seeking compensation for job loss 
would have to meet three criteria. First, they would have to have lost their job 
through some form of displacement-offshoring, outsourcing, downsizing, or factory 
closure. Second, they would have to have held the job for at least two years. And 
third, the wage insurance would not be paid until the workers found new jobs, which 
would provide a strong incentive to look 
295 
for work quickly and increase the chances that they would get on-the-job retraining. 
On-the-job training is always the best way to learn new skills-instead of having to 
sign up for some general government training program, with no promise of a job at 
the other end, and go through that while remaining unemployed. 
Workers who met those three conditions would then receive payments for two years, 
covering half the drop in their income from their previous job (capped at $10,000 
a year). Kletzer and Litan also proposed that the government pay half the health 
insurance premiums for all "displaced" workers for up to six months. Wage insurance 
seems to me a much better idea than relying only on the traditional unemployment 
insurance offered by states, which usually covers only about 50 percent of most 
workers' previous wages, is limited to six months, anddoes not help workers who suffer 
a loss of earnings after they take a new job. 
Moreover, as Kletzer and Litan noted, although all laid-off workers now have the right 
to purchase unsubsidized health insurance from their former employer if health 
coverage was offered when they were employed, many jobless workers do not have the 
money to take advantage of this guarantee. Also, while unemployed workers can earn 
an additional fifty-two weeks of unemployment insurance if they enroll in an approved 
retraining program, workers have no guarantee that when they finish such a program 
they will have a job. 
For all these reasons, the Kletzer-Litan proposal makes a lot of sense to me as the 
right benefit for cushioning workers in a flat world. Moreover, such a program would 
be eminently affordable. Litan estimated that at an unemployment rate of 5 percent, 
the wage insurance and health-care subsidy today would cost around $8 billion a year, 
which is peanuts compared to the positive impact it could have on workers. This program 
would not replace classic state-run unemployment insurance for workers who opt for 
that, but if it worked as projected, it could actually reduce the cost of such programs 
by moving people back to work quicker. 
Some might ask, Why be compassionate at all? Why keep any fat, friction, or barriers? 
Let me put it as bluntly as I can: If you are not a com296 


passionate flatist-if you are just a let 'er rip free-market flatist-you are not only 
cruel, you are a fool. You are courting a political backlash by those who can and 
will get churned up by this flattening process, and that backlash could become 
ferocious if we hit any kind of prolonged recession. 
The transition to a flat world is going to stress many people. As Joshua S. Levine, 
E*Trade 's chief technology officer, put it to me, 'You know how sometimes you go 
through a harrowing experience and you need a respite, but the respite never seems 
to come. Look at the airline workers. They go through this [terrible] event like 9/11, 
and management and the airline unions all negotiate for four months and management 
says, 'If the unions don't cut $2 billion in salary and benefits they will have to 
shut the airline down.' And after these wrenching negotiations the unions agree. I 
just have to laugh, because you know that in a few months management is going to come 
right back . . . There is no end. No one has to ask me to cut my budget each year. 
We all just know that each year we will be expected to do more with less. If you are 
a revenue producer, you are expected to come up with more revenue every year, and 
if you are an expense saver, you are expected to come up with more savings every year. 
You never get a break from it." 
If societies are unable to manage the strains that are produced by this flattening, 
there will be a backlash, and political forces will attempt to reinsert some of the 
frictions and protectionist barriers that the flattening forces have eliminated, but 
they will do it in a crude way that will, in the name of protecting the weak, end 
up lowering everyone's standard of living. Former Mexican president Ernesto Zedillo 
is very sensitive to this problem, having had to manage Mexico's transition into NAFTA, 
with all of the strains that put on Mexican society. Speakingof the flattening process, 
he said to me, "It would be very hard to stop, but it can be stopped for a time. Maybe 
you can't stop it totally, but you can slow it down. And it makes a difference whether 
you get there in twenty-five years or fifty years. In between, two or three 
generations-who could have benefited a lot from more trade and globalization-will 
end up with crumbs." 

Always remember, said Zedillo, that behind all this technology is a political 
infrastructure that enables it to play out. "There have been a series of concrete 
political decisions, taken over the last fifty years, that put the world where it 
is right now," he said. "Therefore, there are political decisions that could screw 
up the whole process too." 
As the saying goes: If you want to live like a Republican, vote like a Democrat-take 
good care of the losers and left-behinds. The only way to be a flatist is to be a 
compassionate flatist. 
Social Activism 
One new area that is going to need sorting out is the relationship between global 
corporations and their own moral consciences. Some may laugh at the notion that a 
global corporation even has a moral conscience, or should ever be expected to develop 
one. But some do and others are going to have to develop one, for one simple reason: 
In the flat world, with lengthy global supply chains, the balance of power between 


global companies and the individual communities in which they operate is tilting more 
and more in favor of the companies, many of them American-based. As such, these 
companies are going to command more power, not only to create value but also to 
transmit values, than any transnational institutions on the planet. Social and 
environmental activists and progressive companies can now collaborate in ways that 
can make both the companies more profitable and the flat earth more livable. 
Compassionate flatism very much seeks to promote this type of collaboration. 
Let me illustrate this notion with a couple of examples. If you think about the forces 
that are gobbling up biodiversity around the planet, none are more powerful than 
farmers. It is not that they are intending to be harmful, it is just in the nature 
of what they do. So how and where people farm and fish really matter to whether we 
preserve naturalhabitats and species. Conservation International, one of thebiggest 
environmental NGOs in the world, has as its main mission preserving 

biodiversity. It is also a big believer in trying, when possible, to collaborate with 
big business, because when you bring a major global player around, it can have a huge 
impact on the environment. In 2002, McDonald's and Conservation International forged 
a partnership to use the McDonald's global supply chain-a behemoth that sucks beef, 
fish, chicken, pork, bread, lettuce, pickles, tomatoes, and potatoes from all four 
corners of the flat world-to produce not just value but also different values about 
the environment. "We and McDonald's looked at a set of environmental issues and said, 
'Here are the things the food suppliers could do to reduce the environmental impact 
at little or no cost,'" explained Glenn Prickett, senior vice president of 
Conservation International. 
McDonald's then met with its key suppliers and worked out, with them and with CI, 
a set of guidelines for what McDonald's calls "socially responsible food supply." 
"For conservationists the challenge is how do you get your arms around hundreds of 
millions of decisions and decision makers involved in agriculture and fisheries, who 
are not coordinated in any way except by the market," said Prickett. "So what we look 
for are partners who can put their purchasing power behind a set of environmentally 
friendly practices in a way that is good for them, works for the producers, and is 
good for biodiversity. In that way, you can start to capture so many more decision 
makers. . . There is no global government authority to protect biodiversity. You have 
to collaborate with the players who can make a difference, and one of them is 
McDonald's." 
Conservation International is already seeing improvements in conservation of water, 
energy, and waste, as well as steps to encourage better management of fisheries, among 
McDonald's suppliers. But it is still early, and one will have to assess over a period 
of years, with comprehensive data collection, whether this is really having apositive 
impact on the environment. This form of collaboration cannot and should never be a 
substitute for government rules and oversight. But if it works, it can be a vehicle 
for actually getting government rules implemented. Environmentalists who prefer 
government regulation to these more collaborative efforts often ignore the fact that 
strong rules imposed against the will of farmers end up being weakly enforced-or not 


enforced at all. 
299 
What is in this for McDonald's? It is a huge opportunity to improve its global brand 
by acting as a good global citizen. Yes, this is, at root, a business opportunity 
for McDonald's. Sometimes the best way to change the world is by getting the big 
players to do the right things for the wrong reasons, because waiting for them to 
do the right things for the right reasons can mean waiting forever. Conservation 
International has struck similar supply-chain collaborations withStarbucks, setting 
rules for its supply chain of coffee farmers, and Office Depot, with its supply chain 
of paper-product providers. 
What these collaborations do is start to "break down the walls between different 
interest groups," said Prickett. Normally you would have the environmentalists on 
one side and the farmers on the other and each side trying to get the government to 
write the regulations in the way that would serve it. Government would end up writing 
the rules largely to benefit business. "Now, instead, we have a private entity saying, 
'We want to use our global supply chain to do some good,' but we understand that to 
be effective it has to be a collaboration with the farmers and the environmentalists 
if it is going to have any impact," Prickett said. 
In this same vein, as a compassionate flatist, I would like to see a label on every 
electronics good state whether the supply chain that produced it is in compliance 
with the standards set down by the new HP-Dell-IBM alliance. In October 2004, these 
three giants joined forces in a collaborative effort with key members of their 
computer and printer supply chains to promote a unified code of socially responsible 
manufacturing practices across the world. The new Electronics Industry Code of 
Conduct includes bans on bribes, child labor, embezzlement and extortion, and 
violations of intellectual property, rules governing usage of wastewater, hazardous 
materials, pollutants, and regulations on the reporting of occupational injuries. 
Several major electronics manufacturers who serve the IBM, Dell, and HP supply chains 
collaborated on writing the code, including Celestica, Flextronics, Jabil, 
Sanmina-SCI, and Solectron. 
All HP suppliers, for instance, will be required to follow the code, though there 
is flexibility in the timing of how they reach compliance. "We are completely prepared 
and have terminated relationships with 
300 
suppliers we find to be repeatedly nonresponsive," said HP spokeswoman Monica Sarkar. 
As of October 2004, HP had assessed more than 150 of its 350 suppliers, including 
factories in China, Mexico, Southeast Asia, and Eastern Europe. It has set up a 
steering committee with IBM and Dell in order to figure out exactly how they 
collectively can review compliance and punish consistent violators. Compliance is 
everything, and so, again, it remains to be seen just how vigilant the corporations 
will be with their suppliers. Nevertheless, this use of supply chains to create 
values-not just value-could be a wave of the future. 
"As we have begun to look to other [offshore] suppliers to do most of our manufacturing, 
it has become clear to us that we have to assume some responsibility for how they 


do that work," explained Debra Dunn, HP's senior vice president of corporate affairs 
and global citizenship. First and foremost, that is what many of HP's customers want. 
"Customers care," said Dunn, "and European customers lead the way in caring. And human 
rights groups and NGOs, who are gaining increasing global influence as trust in 
corporations declines, are basically saying, 'You guys have the power here. You are 
global companies, you can set expectations that will influence environmental 
practices and human rights practices in emerging markets.'" 
Those voices are right, and what is more, they can use the Internet to great effect, 
if they want, to embarrass global corporations into compliance. 
"When you have the procurement dollars that HP and McDonald's have," said Dunn, 
"people really want to do business with you, so you have leverage and are in a position 
to set standards and [therefore] you have a responsibility to set standards." The 
role of global corporations in setting standards in emerging markets is doubly 
important, because oftentimes local governments actually want to improve their 
environmental standards. They know it is important in the long run, but the pressure 
to create jobs and live within budget constraints is overwhelming and therefore the 
pressure to look the other way is overwhelming. Countries like China, noted Dunn, 
often actually want an outside force, like a global business coalition, to exert 
pressure to drive 

new values and standards at home that they are too weak to impose on themselves and 
their own bureaucrats. In The Lexus and the Olive Tree I called this form of value 
creation "globalution," or revolution from beyond. 
Said Dunn: "We used to say that as long as we complied with the local law, that was 
all we could be expected to do. But now the imbalance of power is so huge it is not 
practical to say that Wal-Mart or HP can do whatever they want as long as a state 
government or country does not stop them. The leverage HP would leave on the table 
would be immoral given its superior power . . . We have the power to transmit global 
governance to our universe of suppliers and employees and consumers, which is a pretty 
broad universe." 
Dunn noted that in a country like China there is an intense competition by local 
companies to become part of the HP or Dell or Wal-Mart supply chain. Even though it 
is high pressure, it means a steady volume of considerable business-the kind that 
can make or break a company. As a result, HP has huge leverage over its Chinese 
suppliers, and they are actually very open to having their factory standards lifted, 
because they know that if they get up to the standards of HP they can leverage that 
to get business from Dell or Sony. 
Advocates of compassionate flatism need to educate consumers to the fact that their 
buying decisions and buying power are political. Every time you as a consumer make 
a decision, you are supporting a whole set of values. You are voting about the barriers 
and friction you want to preserve or eliminate. Progressives need to make this 
information more easily available to consumers, so more of them can vote the right 
way and support the right kind of global corporate behavior. 
Marc Gunther, a senior writer for Fortune magazine andthe author of Faith and Fortune: 


The Quiet Revolution to Reform American Business, is one of the few business writers 
who have recognized how global corporations can be influenced by progressive politics. 
"To be sure," wrote Gunther in an essay in The Washington Post (November 14, 2004), 
"there are plenty of scoundrels out there, indifferent to the rights and wrongs of 
corporate behavior. And some executives who talk of social is302 
sues may be only mouthing the words. But the bottom line is that a growing number 
of companies have come to believe that moral values, broadly and liberally defined, 
can help drive shareholder values. And that is a case study from which everyone could 
learn." 
This progressive tilt of big business has not generated much press attention, Gunther 
noted. "Partly that's because scandal stories are juicier. Mostly it's because 
changes in corporate practices have been incremental-and because reporters tend to 
dismiss talk of corporate social responsibility as mere public relations. But chief 
executives of closely-watched firms like General Electric do not promise to become 
better global citizens unless they intend to follow through. 'If you want to be a 
great company today,' Jeff Immelt, GE's CEO, likes to say, 'you have to be a good 
company.' When I asked him why GE has begun to talk more openly about corporate 
citizenship, he said: 'The reason why people come to work for GE is that they want 
to be about something that is bigger than themselves.' As Immelt suggests, the biggest 
driver of corporate reform is the desire of companies to attract people who seek 
meaning as well as money from their work. Few of us go to our jobs every day to enhance 
shareholder value. Younger people, especially, want to work for companies with a 
mission that goes beyond the bottom line." 
In sum, we are now in a huge transition as companies are coming to understand not 
only their power in a flat world but also their responsibilities. Compassionate 
flatists believe that this is no time to be sitting on one's hands, thinking 
exclusively in traditional left-right, consumer-versus-company terms. Instead we 
should be thinking about how collaboration between consumers and companies can 
provide an enormous amount of protection against the worst features of the flattening 
of the world, without opting for classic protectionism. 
"Compassionate capitalism. Think it sounds like an oxymoron? Think again," said 
Gunther. "Even as America is supposedly turning conservative on social issues, big 
business is moving in the other direction." 
303 
Parenting 
No discussion of compassionate flatism would be complete without also discussing the 
need for improved parenting. Helping individuals adapt to a flat world is not only 
the job of governments and companies. It is also the job of parents. They too need 
to know in what world their kids are growing up and what it will take for them to 
thrive. Put simply, we need a new generation of parents ready to administer tough 
love: There comes a time when you've got to put away the Game Boys, turn off the 
television set, put away the iPod, and get your kids down to work. 
The sense of entitlement, the sense that because we once dominated global commerce 


and geopolitics-and Olympic basketball-we always will, the sense that delayed 
gratification is a punishment worse than a spanking, the sense that our kids have 
to be swaddled in cotton wool so that nothing bad or disappointing or stressful ever 
happens to them at school is, quite simply, a growing cancer on American society. 
And if we don't start to reverse it, our kids are going to be in for a huge and socially 
disruptive shock from the flat world. While a different approach by politicians is 
necessary, it is not sufficient. 
David Baltimore, the Nobel Prize-winning president of Caltech, knows what it takes 
to get your child ready to compete against the cream of the global crop. He told me 
that he is struck by the fact that almost all the students who make it to Caltech, 
one of the best scientific universities in the world, come from public schools, not 
from private schools that sometimes nurture a sense that just because you are there, 
you are special and entitled. "I look at the kids who come to Caltech, and they grew 
up in families that encouraged them to work hard and to put off a little bit of 
gratification for the future and to understand that they need to hone their skills 
to play an important role in the world," Baltimore said. "I give parents enormous 
credit for this, because these kids are all coming from public schools that people 
are calling failures. Public education is producing these remarkable students-so it 
can be done. Their parents have nurtured them to make sure that they realize their 
potential. I think 

we need a revolution in this country when it comes to parenting around education." 
Clearly, foreign-born parents seem to be doing this better. "About one-third of our 
students have an Asian background or are recent immigrants," he said. A significant 
majority of the students coming to Caltech in the engineering disciplines are 
foreign-born, and a large fraction of its current facultyis foreign-born. "In biology, 
at the postdoc level, the dominance of Chinese students is overwhelming," said 
Baltimore. No wonder that at the big scientific conferences today, a majority of the 
research papers dealing with cutting-edge bioscience have at least one Chinese name 
on them. 
My friends Judy Estrin and Bill Carrico have started several networking companies 
in Silicon Valley. At one time, Judy was chief technology officer for Cisco. I sat 
with them one afternoon and talked about this problem. "When I was eleven years old," 
said Bill, "I knew I was going to be an engineer. I dare you to find an eleven-year-old 
in America who wants to be an engineer today. We've turned down the ambition level." 
Added Judy, "More of the problem [can be solved by good] parenting than can be solved 
from a regulatory or funding move. Everyone wants to fund more of this and that, but 
where it starts is with the parents. Ambition comes from the parents. People have 
to get it. It will probably take a crisis [to get us refocused]." 
In July 2004, comedian Bill Cosby used an appearance at Jesse Jackson's Rainbow/PUSH 
Coalition & Citizenship Education Fund's annual conference to upbraid 
African-Americans for not teaching their children proper grammar and for black kids 
not striving to learn more themselves. Cosby had already declared, "Everybody knows 
it's important to speak English except these knuckleheads. You can't be a doctor with 


that kind of crap coming out of your mouth." Referring to African-Americans who 
squandered their chances for a better life, Cosby told the Rainbow Coalition, "You've 
got to stop beating up your women because you can't find a job, because you didn't 
want to get an education and now you're [earning]minimum wage. You should have thought 
more of yourself when you were in high school, when you had an opportunity." 
305 
When Cosby's remarks attracted a lot of criticism, Reverend Jackson defended him, 
arguing, "Bill is saying, let's fight the right fight. Let's level the playing field. 
Drunk people can't do that. Illiterate people can't do that." 
That is right. Americans are the ones who increasingly need to level the playing 
field-not by pulling others down, not by feeling sorry for ourselves, but by lifting 
ourselves up. But when it comes to how to do that, Cosby was saying something that 
is important for black and white Americans, rich and poor. Education, whether it comes 
from parents or schools, has to be about more than just cognitive skills. It also 
has to include character building. The fact is, parents and schools and cultures can 
and do shape people. The most important influence in my life, outside of my family, 
was my high school journalism teacher, Hattie M. Steinberg. She pounded the 
fundamentals of journalism into her students-not simply how to write a lead or 
accurately transcribe a quote but, more important, how to comport yourself in a 
professional way. She was nearing sixty at the time I had her as my teacher and high 
school newspaper adviser in the late 1960s. She was the polar opposite of "cool," 
but we hung around her classroom like it was the malt shop and she was Wolfman Jack. 
None of us could have articulated it then, but it was because we enjoyed being 
harangued by her, disciplined by her, and taught by her. She was a woman of clarity 
and principles in an age of uncertainty. I sit up straight just thinking about her! 
Our children will increasingly be competing head-to-head with Chinese, Indian, and 
Asian kids, whose parents have a lot more of Hattie's character-building approach 
than their own American parents. I am not suggesting that we militarize education, 
but I am suggesting that we do more to push our young people to go beyond their comfort 
zones, to do things right, and to be ready to suffer some short-run pain for longer 
gain. 
I fear, though, that things will have to get worse before they get better. As Judy 
Estrin said, it will probably take a crisis. I would simply add: The crisis is already 
here. It is just playing out in slow motion. The flattening of the world is moving 
ahead apace, and barring war or some catastrophic terrorist event, nothing is going 
to stop it. But what can happen is a decline in our standard of living, if more 
Americans are not empow306 
ered and educated to participate in a world where all the knowledge centers are being 
connected. We have within our society all the ingredients for American individuals 
to thrive in this world, but if we squander those ingredients, we will stagnate. 
I repeat: This is not a test. This is a crisis, and as Paul Romer has so perceptively 
warned, "A crisis is a terrible thing to waste." 
Developing Countries and the Flat World 


::::: NINE 
The Virgin of Guadalupe 
It's not that we are becoming more Anglo-Saxon. It's that we are having an encounter 
with reality. 

- Frank Schirrmacher, publisher of the German newspaper 
Frankfurter Allgemeine Zeitung, commenting to 
The New York Times about the need for German 
workers to retool and work longer hours 
Seek knowledge even unto China. 
- saying of the Prophet Muhammad 
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, probably 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 U.S. 
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 U.S. 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 El-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 
a just 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, 
311 
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 thelast 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 
crafts- 
312 
men 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 sixteen 
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 
The previous section of this book looked at how individuals, particularly Americans, 
should think about meeting the challenge posed by the flattening of the world. This 
chapter 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 ten 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 ten 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 (A.A.). It would be called Developing Countries Anonymous 
(D.C.A.). And just as at the first A.A. 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 
314 
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 politicalsystems 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 coun- 
315 
try 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 $ 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 less than $1 a day. In South Asia-primarily India, 
Pakistan, and Bangladesh-the numbers go from 462 million in 1990 living on less than 
$1 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 $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 ten 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 ten p.m. 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. Onthe 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 
317 
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 macroeco-nomic 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 don't 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 fifty 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 usuallyhave 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. 
318 
"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, 
i.e., 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 IFC'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 entreprenuer 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 bank 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 world, 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 pro- 

ductive 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 thirteen 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 fifty-six 
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 ofthe contract. In contrast, employment laws in ElSalvador 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 thirty-nine 
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 ten 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 
321 
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 
322 
monopolies that make it either too expensive or too slow to get highspeed Internet 
access and wireless access, and to make cheap longdistance 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 ofliving. 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 Nairn, 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," Nairn 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? 
324 
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 com-moditized, 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 culture 
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 
325 
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 glo-calizing 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 exclu-sivists 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 modern 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. 
327 
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 seventies. 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 eighties and nineties 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 re-evaluated 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 
328 


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, surelyhas 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 highlypacifist and staunchly democratic societies in the last fifty 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 in

tolerant. 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 twenty 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 2004,1 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 build

ing. 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 as 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 


331 
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 accountedfor more than a third ofgovernment 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 fifty years of Communist rule. Ten years ago, if you took the names off these 
two countries andjust 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 $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 
332 
"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 fifty thousand students studying in the United States 
today. They come from about twelve time zones away. Mexico, which is smaller but right 
next door, has only about ten thousand. 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 
334 
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 thirty years ago, but for twenty-five 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 U.S. 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 abouthow theConverse 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 micro-reforms. What Mexico succeeded in doing was creating 
islands of competitiveness, like Monterrey, where it got things right and could take 
335 
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 200S report, it takes an average of fifty-eight days to start a 
business in Mexico, compared with eight in Singapore and nine in Turkey. It takes 
seventy-four days to register a property in Mexico, but only twelve 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 U.S. 
is going to take Mexico to the cleaners." That is why NAFTA was so important for 
Mexico's self-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. 

Companies and the Flat World 

::::: TEN 

How Companies Cope 
Out of clutter, find simplicity. From discord, find harmony. In the middle of 
difficulty, lies opportunity. -Albert Einstein 
As I conducted interviews for this book, I kept hearing the same phrase from different 
business executives. It was strange; they all used it, as if they had all been talking 
to each other. The phrase was, "Just in the last couple of years. . ." Time and again, 
entrepreneurs and innovators from all different types of businesses, large and small, 
told me that "just in the last couple of years" they had been able to do things they 
had never dreamed possible before, or that they were being forced to do things they 
had never dreamed necessary before. 
I am convinced that these entrepreneurs and CEOs were responding to the triple 
convergence. Each was figuring out a strategy for his or her company to thrive or 
at least survive in this new environment. Just as individuals need a strategy for 
coping with the flattening of the world, so too do companies. My economics tutor Paul 
Romer is fond of saying, "Everyone wants economic growth, but nobody wants change." 
Unfortunately, you cannot have one without the other, especially when the playing 
field shifts as dramatically as it has since the year 2000. If you want to grow and 
flourish in a flat world, you better learn how to change and align yourself with it. 

I am not a business writer and this is not a how-to-succeed-in-business book. What 
I have learned in researching this book, though, is that the companies that have 
managed to flourish today are the ones that best understand the triple convergence 
and have developed their own strategies for coping with it-as opposed to trying to 
resist it. 
This chapter is an effort to highlight a few of their rules and strategies: 
Rule #1: When the world goes flat-and you are feeling flattened- reach for a shovel 
and dig inside yourself. Don't try to build walls. 
I learned this valuable lesson from my bestfriends from Minnesota, Jill and Ken Greer. 
Going to India gave me an inkling that the world was flat, but only when I went back 
to my roots and spoke to my friends from Minnesota did I realize just how flat. Some 
twenty-five years ago Jill and Ken (whose brother Bill I profiled earlier) started 
their own multimedia company, Greer & Associates, which specialized in developing 
commercials for TV and doing commercial photography for retail catalogs. They have 
built up a nice business in Minneapolis, with more than forty employees, including 


graphic artists and Web designers, their own studio, and a small stable of local and 
national clients. As a midsize firm, Greer always had to hustle for work, but over 
the years Ken always found a way to make a good living. 
In early April 2004, Ken and Jill came to Washington to spend a weekend for my wife's 
fiftieth birthday. I could tell that Ken had a lot on his mind regarding his business. 
We took a long walk one morning in rural Virginia. I told him about the book I was 
writing, and he told me about how his business was doing. After a while, we realized 
that we were both talking about the same thing: The world had grown flat, and it had 
happened so fast, and had affected his business so profoundly, that he was still 
wrestling with how to adjust. It was clear to him that he was facing competition and 
pricing pressure of a type and degree that he had never faced before. 
"Freelancers," said Greer, speaking about these independent contractors as if they 
were a plague of locusts that suddenly had descended on his business, eating 
everything in sight. "We are now competing 

against freelancers! We never really competed against freelancers before. Our 
competition used to be firms of similar size and capability. We used to do similar 
things in somewhat different ways, and each firm was able to find a niche and make 
a living." Today the dynamic is totally different, he said. "Our competition is not 
only those firms we always used to compete against. Now we have to deal with giant 
firms, who have the capability to handle small, medium, and large jobs, and also with 
the solo practitioners working out of theirhome offices, who [by making use of today's 
technology and software] can theoretically do the same thing that a person sitting 
in our office can do. What's the difference in output, from our clients' point of 
view, between the giant company who hires a kid designer and puts him in front of 
a computer, and our company that hires a kid designer and puts him in front of a 
computer, and thekid designer with a computer inhis own basement? . . . The technology 
and software are so empowering that it makes us all look the same. In the last month 
we have lost three jobs to freelance solo practitioners who used to work for good 
companies and have experience and then just went out on their own. Our clients all 
said the same thing to us: 'Your firm was really qualified. John was very qualified. 
John was cheaper.' We used to feel bad losing to another firm, but now we are losing 
to another person!" 
How did this change happen so fast? I asked. 
A big part of their business is photography-shooting both products and models for 
catalogs, Greer explained. For twenty-five years, the way the business worked was 
that Greer & Associates would get an assignment. The client would tell Greer exactly 
what sort of shot he was looking for and would "trust" the Greer team to come up with 
the right image. Like all commercial photographers, Greer would use a Polaroid camera 
to take a picture of the model or product he was shooting, to see if his creative 
instinct was right, and then shoot with real film. Once the pictures were taken, Greer 
would send the film out to aphoto lab to be developed and color-separated. If a picture 
needed to be touched up, it would be sent to another lab that specialized in 
retouching."Twenty years ago, we decided we would not process the film we shot," Greer 


explained. "We would leave that technical aspect to other professionals who had the 
exact technology, training, and expertise-and 
342 
a desire to make money that way. We wanted to make money by taking the pictures. It 
was a good plan then, and may be a good plan today, but it is no longer possible." 
Why? The world went flat, and every analog process went digital, virtual, mobile, 
and personal. In the last three years, digital cameras for professional photographers 
achieved a whole new technical level that made them equal to, if not superior to, 
traditional film cameras. 
"So we experimented with several different cameras and chose the current 
state-of-the-art camera that was most like our [analog] film cameras," Greer said. 
"It's called a Canon Dl, and it's the same exact camera as our film camera, except 
there's a computer inside with a little TV-screen display on the back that shows us 
what picture we're taking. But it uses all the same lenses, you set things the same 
way, shutter speed and aperture, it has the same ergonomics. It was the first 
professional digital camera that worked exactly like a film camera. This was a 
defining moment. 
"After we got this digital camera, it was incredibly liberating at first," said Greer. 
"All of the thrill and excitement of photography were there- except that the film 
was free. Because it was digital, we didn't have to buy film and we didn't have to 
go to the lab to have it processed and wait to get it back. If we were on location 
and shooting something, we could see if we got the shot right away. There was instant 
gratification. We referred to it as an 'electronic Polaroid.' We used to have an art 
director who would oversee everything to make sure that we were capturing the image 
we were trying to create, but we would never really know until we got it developed. 
Everyone had to go on faith, on trust. Our clients paid us a professional fee because 
they felt they needed an expert who could not only click a button, but knew exactly 
how to shape and frame the image. And they trusted us to do that." 
For a year or so there was this new sense of empowerment, freedom, creativity, and 
control. But then Ken and his team discovered that this new liberating technology 
could also be enslaving. "We discovered that not only did we now have the 
responsibility of shooting the picture and defining the desired artistic expression, 
we had to get involved in the 
343 
technology of the photograph. We had to become the lab. We woke up one morning and 
said, 'We are the lab.'" 
How so? Because digital cameras gave Greer the ability to download those digital 
images into a PC or laptop and, with a little magic software and hardware, perform 
all sorts of new functions. "So in addition to being the photographer, we had to become 
the processing lab and the color separator," said Greer. Once the technology made 
that possible, Greer's customers demanded it. Because Greer could control the image 
farther down the supply chain, they said he should control it, he must control it. 
And then they also said because it was all digital now, and all under his control, 
it should be included among the services his team provided as the photographic 


creators of the image. "The clients said, 'We will not pay you extra for it,'" said 
Greer. "We used to go to an outside service to touch up the pictures-to remove red-eye 
or blemishes-but now we have to be the retouchers ourselves also. They expect [red-eye] 
to be removed by us, digitally, even before they see it. For twenty years we only 
practiced the art of photography-color and composition and texture and how to make 
people comfortable in front of a camera. This is what we were good at. Now we had 
to learn to be good at all these other things. It is not what we signed up for, but 
the competitive marketplace and the technology forced us into it." 
Greer said every aspect of his company went through a similar flattening. Film 
production went digital, so the marketplace and the technology forced them to become 
their own film editors, graphics studio, sound production facility, and everything 
else, including producers of their own DVDs. Each of those functions used to be farmed 
out to a separate company. The whole supply chain got flattened and shrunk into one 
box that sat on someone's desktop. The same thing happened in the graphics part of 
their business: Greer & Associates became their own typesetters, illustrators, and 
sometimes even printers, because they owned digital color printers. "Things were 
supposed to get easier," he said. "Now I feel like I'm going to McDonald's, but instead 
of getting fast food, I'm being asked to bus my own table and wash the dishes too." 
He continued: "It is as if the manufacturers of technology got together 

with our clients and outsourced all of these different tasks to us. If we put our 
foot down and say you have to pay for each of these services, there is someone right 
behind us saying, 'I will do it all' So the services required go up significantly 
and the fees you can charge stay the same or go down." 
It's called commoditization, and in the wake of the triple convergence, it is 
happening faster and faster across a whole range of industries. Asmore and more analog 
processes become digital, virtual, mobile, and personal, more and more jobs and 
functions are being standardized, digitized, and made both easy to manipulate and 
available to more players. 
When everything is the same and supply is plentiful, said Greer, clients have too 
many choices and no basis on which to make the right choice. And when that happens, 
you're a commodity. You are vanilla. 
Fortunately, Greer responded to commoditization by opting for the only survival 
strategy that works: a shovel, not a wall. He and his associates dug inside themselves 
to locate the company's real core competency, and this has become the primary energy 
source propelling their business forward in the flat world. "What we sell now," said 
Greer, "is strategic insight, creative instinct, and artistic flair. We sell inspired, 
creative solutions, we sell personality. Our core competence and focus is now on all 
those things that cannot be digitized. I know our clients today and our clients in 
the future will only come to us and stick with us for those things... So we hired 
more thinkers and outsourced more technology pieces." 
In the old days, said Greer, many companies "hid behind technology. You could be very 
good, but you didn't have to be the world's best, because you never thought you were 
competing with the world. There was a horizon out there and no one could see beyond 


that horizon. But just in the space of a few years we went from competing with firms 
down the street to competing with firms across the globe. Three years ago it was 
inconceivable that Greer & Associates would lose a contract to a company in England, 
and now we have. Everyone can see what everyone else is doing now, and everyone has 
the same tools, so you have to be the very best, the most creative thinker." 
Vanilla just won't put food on the table anymore. "You have to offer something totally 
unique," said Greer. 'You need be able to make 
345 
Chocolate Chip Cookie Dough, or Cherry (Jerry) Garcia, or Chunky Monkey"-three of 
the more exotic brands of Ben & Jerry's ice cream that are very nonvanilla. "It used 
to be about what you were able to do," said Greer. "Clients would say, 'Can you do 
this? Can you do that?' Now it's much more about the creative flair and personality 
you can bring to [the assignment] . . . It's all about imagination." 
Rule #2: And the small shall act big. . . One way small companies flourish in the 
flat world is by learning to act really big. And the key to being small and acting 
big is being quick to take advantage of all the new tools for collaboration to reach 
farther, faster, wider, and deeper. 
I can think of no better way to illustrate this rule than to tell the story of another 
friend, Fadi Ghandour, the cofounder and CEO of Aramex, the first home-grown package 
delivery service in the Arab world and the first and only Arab company to be listed 
on the Nasdaq. Originally from Lebanon, Ghandour's family moved to Jordan in the 1960s, 
where his father, AH, founded Royal Jordanian Airlines. So Ghandour always had the 
airline business in his genes. Shortly after graduating from George Washington 
University in Washington, D.C., Ghandour returned home and saw a niche business he 
thought he could develop: He and a friend raised some money and in 1982 started a 
mini-Federal Express for the Middle East to do parcel delivery. At the time, there 
was only one global parcel delivery service operating in the Arab world: DHL, today 
owned by the German postal service. Ghandour's idea was to approach American companies, 
like Federal Express and Airborne Express, that did not have a Middle East presence 
and offer to become their local delivery service, playing on the fact that an Arab 
company would know the region and how to get around unpleasantries like the Israeli 
invasion of Lebanon, the Iran-Iraq war, and the American invasion of Iraq. 
"We said to them, 'Look, we don't compete with you locally in your home market, but 
we understand the Middle East market, so why not give your packages to us to deliver 
out here?" said Ghandour. "We will be your Middle East delivery arm. Why give them 
to your global competitor, like DHL?" Airborne responded positively, and Ghandour 
used 
346 
that to build his own business and then buy up or partner with small delivery firms 
from Egypt to Turkey to Saudi Arabia and later all the way over to India, Pakistan, 
and Iran-creating his own regional network. Airborne did not have the money that 
Federal Express was investing in setting up its own operations in every region of 
the globe, so it created an alliance, bringing together some forty regional delivery 
companies, like Aramex, into a virtual global network. What Airborne's partners got 


was something none of them could individually afford to build at the time- a global 
geographic presence and a computerized package tracking and tracing system to compete 
with that of a FedEx or DHL. 
Airborne "made their online computerized tracking and tracing system available to 
all its partners, so there was a unified language and set of quality standards for 
how everyone in the Airborne alliance would deliver and track and trace packages," 
explained Ghandour. With his company headquartered in Amman, Jordan, Ghandour tapped 
into the Airborne system by leasing a data line that was connected from Amman all 
the way to Airborne's big mainframe computer in its headquarters in Seattle. Through 
dumb terminals back in the Middle East, Aramex tracked and traced its packages using 
Airborne's back room. Aramex, in fact, was the earliest adopter of the Airborne system. 
Once Ghandour's Jordanian employees got up to speed on it, Airborne hired them to 
go around the world to install systems and train the other alliance partners. So these 
Jordanians, all of whom spoke English, went off to places like Sweden and the Far 
East and taught the Airborne methods of tracking and tracing. Eventually, Airborne 
bought 9 percent of Aramex to cement the relationship. 
The arrangement worked well for everyone, and Aramex came to dominate the parcel 
delivery market in the Arab world, so well that in 1997, Ghandour decided to take 
the company public on Broadway, also known as the Nasdaq. Aramex continued to grow 
into a nearly $200-million-a-year company, with thirty-two hundred employees-and 
without any big government contracts. Its business was built for and with the private 
sector, highly unusual in the Arab world. Because of the dotcom boom, which deflected 
interest from brick-and-mortar companies like Aramex, and then the dot-com bust, 
which knocked out the Nasdaq, 

Aramex's stock price never really took off. Thinking that the market simply did not 
appreciate its value, Ghandour, along with a private equity firm from Dubai, bought 
the company back from its shareholders in early 2002. 
Unbeknownst to Ghandour, this move coincided with the flattening of the world. He 
suddenly discovered that he not only could do new things, but he had to do new things 
he had never imagined doing before. He first felt the world going flat in 2003, when 
Airborne got bought out by DHL. Airborne announced that as of January 1, 2004, its 
tracking and tracing system would no longer be available to its former alliance 
partners. See you later. Good luck on your own. 
While the flattening of the world enabled Airborne, the big guy, to get flatter, it 
allowed Ghandour, the little guy, to step up and replace it. "The minute Airborne 
announced that it was being bought and dissolving the alliance," said Ghandour, "I 
called a meeting in London of all the major partners in the group, and the first thing 
we did was found a new alliance." But Ghandour also came with a proposal: "I told 
them that Aramex was developing the software in Jordan to replace the Airborne 
tracking and tracing system, and I promised everyone there that our system would be 
up and running before Airborne switched theirs off." 
Ghandour in effect told them that the mouse would replace the elephant. Not only would 
his relatively small company provide the same backroom support out of Amman that 


Airborne had provided out of Seattle with its big mainframe, but he would also find 
more globalpartners tofill in the holes in the alliance left by Airborne's departure. 
To do this, he told the prospective partners that he would hire Jordanian 
professionals to manage all the alliance's back-office needs at a fraction of the 
cost they were paying to have it all done from Europe or America. "I am not the largest 
company in the group," said Ghandour, who is now in his mid-forties and still full 
of energy, "but I took leadership. My German partners were a $1.2 billion company, 
but they could not react as fast." 
How could he move so quickly? The triple convergence. 
First of all, a young generation of Jordanian software and industrial engineers had 
just come of age and walked out onto the level playing field. They found that all 
the collaborative tools they needed to act big 
348 
were as available to them as to Airbome's employees in Seattle. It was just a question 
of having the energy and imagination to adopt these tools and put them to good use. 
"The key for us/' said Ghandour, "was to come up with the technology and immediately 
replace the Airborne technology, because without online, real-time tracking and 
tracing, you can't compete with the big boys. With our own software engineers, we 
produced a Web-based tracking and tracing and shipment management system." 
Managing the back room for all the alliance partners through the Internet was actually 
much more efficient than plugging everyone into Airbome's mainframe back in Seattle, 
which was very centralized and had already been struggling to adapt to the new Web 
architecture. With the Web, said Ghandour, every employee in every alliance company 
could access the Aramex tracking and tracing system through smart PC terminals or 
handheld devices, using the Internet and wireless. A couple of months after making 
his proposal in London, Ghandour brought all the would-be partners together in Amman 
to show them the proprietary system that Aramex was developing and to meet some of 
his Jordanian software professionals and industrial engineers. (Some of the 
programming was being done in-house at Aramex and some was outsourced. Outsourcing 
meant Aramex too could tap the best brains.) The partners liked it, and thus the Global 
Distribution Alliance was born-with Aramex providing the back room from the backwater 
of Amman, where Lawrence ofArabia once prowled, replacing Airborne, which was located 
just down the highway from Microsoft and Bill Gates. 
Another reason Ghandour could replace Airborne so quickly, he explained, was that 
he was not stuck with any "legacy" system that he had to adapt. "I could go right 
to the Internet and use the latest technologies," he said. "The Web enabled me to 
act big and replicate a massive technology that the big guys had invested millions 
in, at a fraction of the cost. . . From a cost perspective, for me as a small guy, 
it was ideal... I knew the world was flat. All my preaching to our employees as the 
CEO was that we can compete, we can have a niche, the rules of the game are changing, 
you don't need to be a giant, you can find a niche, and technology will enable us 
to compete with the big boys." 
349 
When January 2004 rolled around and Airborne began switching off its system, Aramex 


was up and running for a seamless handoff. And because Aramex was able to run its 
new system off an Internet platform, with software designed primarily by lower-cost 
Jordanian programmers, installation of the new system took place virtually, without 
Aramex having to send its engineers to train any of the alliance partners. Eachpartner 
company could build its own client base over the Internet through the Aramex system, 
do its own tracking and tracing, and be part of the new virtual global air freight 
network. 
"So now we are managing this global network, with forty alliance partners, and we 
cover every geographic area in the world," said Ghandour. "We saved so much money. . . 
With our Web-based system all you needed was a browser and a password to get into 
the Aramex network, and suddenly you're inside a global shipment management system." 
Aramex trained many of the employees of the other alliance companies how to use its 
system by using various online channels, including voice over the Internet, online 
chatting, and other virtual training tools available on Aramex's intranet-making the 
training incredibly cheap. 
Like UPS, Aramex has quickly moved into insourcing. Arab and foreign banks in the 
Middle East have outsourced the delivery of their credit cards to Aramex; mobile phone 
companies are using Aramex delivery men to collect bills on their behalf, with the 
delivery men just scanning the customer's credit card and then issuing a receipt. 
(Aramex may be high-tech, but it has not shrunk from using donkeys to cross military 
roadblocks to deliver packages in the West Bank when Israeli-Palestinian clashes have 
closed roads.) 
"We are a very flat organization," Ghandour explained. "This is not traditional, 
because Arabinstitutions in the private sector tend to look like the governments-very 
hierarchal and patriarchal. That is not how Aramex works. There are no more than two 
to three layers between me and anyone in the company. Every single knowledge worker 
in this organization has a computer with e-mail and Internet access. Right here from 
your computer I can access my intranet and see exactly what is happening in the 
organization without my senior people having to report to me." 

In sum, Fadi Ghandour took advantage of several new forms of 
collaboration-supply-chaining, outsourcing, insourcing, and all the steroids- to 
make his little $200-million-a-year company very big. Or, as he put it with a smile, 
"I was big locally and small internationally-and I reversed that." 
Rule #3: And the big shall act small... One way that big companies learn to flourish 
in the flat world is by learning how to act really small by enabling their customers 
to act really big. 
Howard Schultz, the founder and chairman of Starbucks, says that Starbucks estimates 
that it is possible to make nineteen thousand variations of coffee on the basis of 
the menus posted at any Starbucks outlet. What Starbucks did, in other words, was 
make its customers its drink designers and allow them to customize their drinks to 
their exact specifications. Starbucks never thought of offering soy milk, Schultz 
told me, until store managers started to get bombarded with demands for it from 
customers, to the point where they were going to the grocery store across the street 


in the middle of the day to buy cartons of soy milk. Starbucks learned from its 
customers, and today some 8 percent of all the drinks that Starbucks sells include 
soy milk. "We didn't dream up the different concoctions with soy milk," said Schultz, 
"the customers did." Starbucks just collaborated with them. The smartest big 
companies clearly understand that the triple convergence allows them to collaborate 
with their customers in a totally new fashion-and, by doing so, to act really small. 
The way that big companies act small is not by targeting each individual consumer 
and trying to serve that customer individually. That would be impossible and 
impossibly expensive. They do it by making their business, as much as possible, into 
a buffet. These companies create a platform that allows individual customers to serve 
themselves in their own way, at their own pace, in their own time, according to their 
own tastes. They are actually making their customers their employees and having them 
pay the company for that pleasure at the same time! 
One of those big companies that have learned to act small in this way is E*Trade, 
the online bank and brokerage house. It did so, explained 

Mitchell H. Caplan, the CEO of E*Trade as well as a friend and neighbor, by recognizing 
that behind all the hoopla around the dot-com boom and bust, something very important 
was happening. "Some people thought the Internet was going to revolutionize 
everything in the world with no limits-it was going to cure the common cold/' said 
Caplan. Sure, it was hype, and it led to crazy valuations and expectations, which 
eventually came crashing down. But meanwhile, with much less fanfare, the Internet 
was creating "a whole new distribution platform for companies to reach consumers in 
a whole new way and for consumers to reach your company in a whole new way," Caplan 
said. "While we were sleeping, my mom figured out how to use e-mail and connect with 
the kids. My kids were instant-messaging all their friends. My mom figured out how 
to go online and check her E*Trade balances." 
Companies that were paying attention understood they were witnessing the birth of 
the "self-directed consumer," because the Internet and all the other tools of the 
flat world had created a means for every consumer to customize exactly the price, 
experience, and service he or she wanted. Big companies that could adapt their 
technology and business processes to empower this self-directed consumer could act 
very small by enabling their customers to act very big. They could make the consumer 
feel that every product or service was being tailored for his or her specific needs 
and desires, when in fact all that the company was doing was creating a digital buffet 
for them to serve themselves. 
In the financial services industry, this constituted a profound change in approach. 
Historically, financial services was dominatedby large banks, large brokerage houses, 
and large insurance companies that told you what you were getting, how you were getting 
it, when and where you were getting it, and the price you had to pay for it. Customers 
reacted to these big companies with emotions ranging from apathy to distaste. But 
if I didn't like the way my bank was treating me, I didn't have any real choice. Then 
the world was flattened and the Internet came along. Consumers started to feel that 
they could have more control, and the more they adapted their buying habits to the 


Internet, the more companies-from booksellers to financial services-had to adapt and 
offer them the tools to be in control. 
352 
"Sure, the Internet stocks blew up when the bubble burst," said Caplan, whose own 
company's stock price took a big dip in that market storm, "but underneath, consumers 
were getting a taste of power, and once they tasted it, things went from companies 
being in control of consumers' behavior to consumers being in control of companies' 
behavior. The rules of engagement changed, and if you did not respond and offer 
customers what they wanted, someone else would, and you would be dead." Where once 
the financial services companies acted big, now they strove to act small and to enable 
the consumer to act big. "Companies who prosper today," argued Caplan, "are the ones 
who understand the self-directed consumer." For E*Trade, that meant thinking of the 
company not as a collection of individual financial services-a bank, a brokerage, 
and a lending business-but as an integrated financial experience that could serve 
the most self-directed financial consumers. "The self-directed consumer wanted 
one-stop financial shopping," said Caplan. "When they came to our site they wanted 
everything integrated, with them in control. Only recently, though, did we have the 
technology to really integrate all our three businesses-banking, lending, and 
brokerage-and pull them together in a way that didn't just deliver the price, not 
just the service, but the total experience they wanted." 
If you came to the E*Trade site just three or four years ago, you would see your 
brokerage account on one screen page and your lending on another. Today, said Caplan, 
"On one page you can now see exactly where you stand in terms of your brokerage in 
real time, including your buying power, and you see your bank account and the scheduled 
payments for your loans-what is pending, what is the balance on your home mortgage, 
and [what is your] line of credit-and you have the ability to move seamlessly between 
all three to maximize the benefit of your cash." 
While Fadi Ghandour coped with the triple convergence by taking a small company and 
devising a strategy to make it act very big, Mitchell Caplan survived by taking a 
big company and making it act very small so that his customers could act very big. 
Rule #4: The best companies are the best collaborators. In the flat world, more and 
more business will be done through collaborations 
353 
within and between companies, for a very simple reason: The next layers of value 
creation-whether in technology, marketing, biomedicine, or manufacturing-are 
becoming so complex that no single firm or department is going to be able to master 
them alone. 
"What we are seeing in so many different fields," said Joel Cawley, the head of IBM's 
strategic planning unit, "is that the next layers of innovation involve the 
intersection of very advanced specialties. The cutting edge of technical innovation 
in every field is increasingly specialized." In most cases, your own company's or 
your own department's specialization is going to be applicable to only a very small 
piece of any meaningful business or social challenge. "Therefore, to come up with 
any valuable new breakthrough, you have to be able to combine more and more of these 


increasingly granular specialties. That is why collaboration is so important," Cawley 
said. So you might find that a pharmaceutical company has invented a new stent that 
allows it to dispense a whole new class of drugs that a biomedical company has been 
working on, and the real breakthrough-where the real profit is created for both-is 
in their collaboration in getting the breakthrough drugs from one firm together with 
the breakthrough delivery system from another. 
Or take a more colorful example: video games. Game makers have long been commissioning 
special music to go with games. They eventually discovered that when they combined 
the right music with the right game they not only sold many, many more copies of that 
game, but they could spin off the music for sale on CD or download as well. So some 
big game companies have recently started their own music divisions, and some artists 
have decided that they have a better chance of getting their music heard by launching 
it with a new digital game than on the radio. The more the flattening of the world 
connects all the knowledge pools together, the more specializations and specialists 
there will be out there, the more innovation will come from putting them together 
in different combinations, and the more management will be about the ability to do 
just that. 
Perhaps the best way to illustrate this paradigm shift and how some companies have 
adapted to it is by looking at a very traditional manu- 

facturer: Rolls-Royce. When you hear the word "Rolls-Royce," what immediately comes 
to mind is a shiny handmade car, with a uniformed chauffeur sitting in the driver's 
seat and a perfectly tailored couple in the back on their way to Ascot or Wimbledon. 
Rolls-Royce, the quintessential stodgy British company, right? What if I told you, 
though, that Rolls-Royce doesn't even make cars anymore (that business was sold in 
1972 and the brand was licensed to BMW in 1998), that 50 percent of its income comes 
from services, and that in 1990 all of its employees were in Great Britain and today 
40 percent are based outside of the United Kingdom, integrated into a global operation 
that stretches from China to Singapore to India to Italy to Spain to Germany to Japan 
and up to Scandinavia? 
No, this is not your father's Rolls-Royce. 
"Quite a long time ago we said, 'We cannot be just a U.K. company,'" Sir John Rose, 
chief executive of Rolls-Royce PLC, told me in an interview while wewere both visiting 
China. "The U.K. is a tiny market. In the late 1980s, 60 percent of our business was 
defense [particularly jet engines] and our primary customer was Her Majesty's 
government. But we needed to become a world player, and if we were going to do that 
we had to recognize that the biggest customer in everything we could do was the U.S., 
and we had to be successful in nondefense markets. So we became a technology company 
[specializing in] power systems." Today Rolls-Royce's core competency is making gas 
turbines for civilian and military airplanes, for helicopters, for ships, and for 
the oil and gas and power-generation industries. Rolls-Royce has customers now in 
120 countries and employs around thirty-five thousand people, but only twenty-one 
thousand are located in the United Kingdom, with the rest part of a global network 
of research, service, and manufacturing workers. Half of Rolls-Royce's revenue is 


now generated by businesses outside the United Kingdom. "In the U.K. we are thought 
of asa British company," saidRose, "but in Germany weare a German company. In America 
we are an American company, in Singapore we are a Singaporean company-you have to 
be in order to be close to the customer but also to the suppliers, employees, and 
communities in which we operate." Today Rolls-Royce employs people of about fifty 
nationalities in fifty countries speaking 
355 
about fifty languages. It outsources and offshores about 75 percent of its components 
to its global supply chain. "The 25 percent that we make are the differentiating 
elements/' said Rose. "These are the hot end of the engine, the turbines, the 
compressors and fans and the alloys, and the aerodynamics of how they are made. A 
turbine blade is grown from a single crystal in a vacuum furnace from a proprietary 
alloy, with a very complex cooling system. This very high-value-added manufacturing 
is one of our core competencies." In short, said Rose, "We still own the key 
technologies, we own the ability to identify and define what product is required by 
our customers, we own the ability to integrate the latest science into making these 
products, we own the route to the market for these products, and we own the ability 
to collect and understand the data generated by those customers using our products, 
enabling us to support that product while in service and constantly add value." 
But outside of these core areas, Rolls-Royce has adopted a much more horizontal 
approach to outsourcing noncore components to suppliers anywhere in the world, and 
to seeking out IQ far beyond the British Isles. The sun may have set on the British 
Empire, and it used to set on the old Rolls-Royce. But it never sets on the new 
Rolls-Royce. To produce breakthroughs in the power-generation business today, the 
company has to meld together the insights of many more specialists from around the 
world, explained Rose. And to be able to commercialize the next energy frontier-fuel 
cell technology-will require that even more. 
"One of the core competencies of the business today is partnering," said Rose. "We 
partner on products and on service provisions, we partner with universities and with 
other participants in our industry. You have to be disciplined about what they can 
provide and what we can sensibly undertake . . . There is a market in R & D and a 
market in suppliers and a market in products, and you need to have a structure that 
responds to all of them." 
A decade ago, he added, "We did 98 percent of our research and technology in the U.K. 
and now we do less than 40 percent in the U.K. Now we do it as well in the U.S., Germany, 
India, Scandinavia, Japan, Singapore, Spain, and Italy. We now recruit from a much 
more interna- 
356 
tional group of universities to anticipate the mix of skills and nationalities we 
will want in ten or fifteen years." 
When Rolls-Royce was a U.K.-centric company, he added, it was very vertically 
organized. "But we had to flatten ourselves," said Rose, as more and more markets 
opened worldwide that Rolls-Royce could sell into and from which it could extract 
knowledge. 


And what does the future hold? 
This approach to change that Rolls-Royce has perfected in response to the flattening 
of the world is going to become the standard for more and more new start-up companies. 
If you were to approach venture capital firms in Silicon Valley today and tell them 
that you wanted to start a new company but refused to outsource or offshore anything, 
they would show you the door immediately. Venture capitalists today want to know from 
day one that your start-up is going to take advantage of the triple convergence to 
collaborate with the smartest, most efficient people you can find anywhere in the 
world. Which is why in the flat world, more and more companies are now being born 
global. 
"In the old days," said Vivek Paul, the Wipro president, "when you started a company, 
you might say to yourself, 'Boy, in twenty years, I hope we will be a multinational 
company.' Today, you say to yourself that on day two I will be a multinational. Today, 
there are thirty-person companies starting out with twenty employees in Silicon 
Valley and ten in India . . . And if you are a multiproduct company, you are probably 
going to have some manufacturing relationships in Malaysia and China, some design 
in Taiwan, some customer support in India and the Philippines, and possibly some 
engineering in Russia and the U.S." These are the so-called micromultinationals, and 
they are the wave of the future. 
Today, your first management job out of business school could be melding the 
specialties of a knowledge team that is one-third in India, one-third in China, and 
a sixth each in Palo Alto and Boston. That takes a very special kind of skill, and 
it is going to be much in demand in the flat world. 
Rule #5: In a flat world, the best companies stay healthy by getting regular chest 
X-rays and then selling the results to their clients. 

Because niche businesses can get turned into vanilla commodity businesses faster than 
ever in a flat world, the best companies today really do get chest X-rays regularly-to 
constantly identify and strengthen their niches and outsource the stuff that is not 
very differentiating. What do I mean by chest X-rays? Let me introduce Laurie Tropiano, 
IBM's vice president for business consulting services, who is what I would call a 
corporate radiologist. What Tropiano and her team at IBM do is basically X-ray your 
company and break down every component of your business and then put it up on a 
wall-size screen so you can study your corporate skeleton. Every department, every 
function, is broken out and put in a box and identified as to whether it is a cost 
for the company or a source of income, or a little of both, and whether it is a unique 
core competency of the company or some vanilla function that anyone else could do- 
possibly cheaper and better. 
"A typical company has forty to fifty components," Tropiano explained to me one day 
at IBM, as she displayed a corporate skeleton up on her screen, "so what we do is 
identify and isolate these forty to fifty components and then sit down and ask [the 
company], 'How much money are you spending in each component? Where are you best in 
class? Where are you differentiated? What are the totally nondifferenti-ated 
components of your business? Where do you think you have capabilities but are not 


sure you are ever going to be great there because you'd have to put more money in 
than you want?'" 
When you are done, said Tropiano, you basically have an X-ray of the company, 
identifying four or five "hot spots." One or two might be core competencies; others 
might be skills that the company wasn't fully aware that it even had and that should 
be built up. Other hot spots on the X-ray, though, might be components where five 
different departments are duplicating the same functions or services that others 
outside the company could do better and more cheaply and so should be 
outsourced-provided there is still a savings to be made once all the costs and 
disruptions of outsourcing are taken into account. 
"So you go look at this [X-ray] and say, 'I have these areas here that are going to 
be really hot and core,'" says Tropiano, "and then let go of the things that you can 
outsource, and free up those funds and focus on the 

projects that could one day be part of your core competency. For the average company, 
you are doing well if 25 percent is core competency and strategic and really 
differentiating, and the rest you may continue to do and try to improve or you may 
outsource." 
I first got interested in this phenomenon when an Internet business news headline 
caught my eye: "HP bags $150 million India bank contract." The story on 
Computerworld.com (February 25, 2004) quoted a statement by HP saying that it had 
inked a ten-year outsourcing contract with the Bank of India in Mumbai. The $150 
million contract was the largest ever won by HP Services in the Asia-Pacific region, 
according to Natarajan Sundaram, head of marketing for HP Services India. The deal 
called for HP to implement and manage a core banking system across 750 Bank of India 
branches. "This is the first time we at HP are looking at the outsourcing of the core 
banking function in the Asia-Pacific region," said Sundaram. Several multinational 
companies competed for the contract, including IBM. Under the contract, HP would take 
charge of data warehousing and document-imaging technology, telebanking, Internet 
banking, and automated teller machines for the whole bank chain. 
Other stories explained that the Bank of India had been facing increasing competition 
from both public- and private-sector banks and multinational corporations. It 
realized that it needed to adopt Web-based banking, standardize and upgrade its 
computer systems, lower its transaction costs, and generally become more 
customer-friendly. So it did what any other multinational would do-it gave itself 
a chest X-ray and decided to outsource all the funtions it did not believe were part 
of its core competency or that it simply did not have the internal skills to do at 
the highest level. 
Still, when the Bank of India decides to outsource its back room to an American-owned 
computer company, well, that just seemed too weird for words. "Run that by me again," 
I said, rubbing my eyes. "HP, the folks I call when my printer breaks, won the 
outsourcing contract for managing the back room of India's 750-branch state-owned 
bank? What in the world does Hewlett-Packard know about running the backroom systems 
of an Indian bank?" 


359 
Out of curiosity, I decided to visit the HP headquarters in Palo Alto to find out. 
There, I met Maureen Conway, HP's vice president for emerging market solutions, and 
put the above question directly to her. 
"How did we think we could take our internal capabilities and make them good for other 
people?" she answered rhetorically. In brief, she explained, HP is constantly hosting 
customer visits, where its corporate clients come to its headquarters and see the 
innovations that HP has brought to managing its own information systems. Many of those 
customers go away intrigued at how this big company has adapted itself to the flat 
world. How,they ask,did HP, which once had eighty-seven different supply chains-each 
managed vertically and independently, with its own hierarchy of managers and 
back-office support-compress them into just five supply chains that manage $50 
billion in business, and in which functions like accounting, billing, and human 
resources are handled through a companywide system? What computers and business 
processes did HP install to consolidate all this efficiently? HP, which does business 
in 178 countries, used to handle all its accounts payable and receivable for each 
individual country in that country. It was totally chopped up. Just in the last couple 
of years, HP created three transaction-processing hubs-in Bangalore, Barcelona, and 
Guadalajara-with uniform standards and special work flow software that allowed HP 
offices in all 178 countries to process all billing functions through these three 
hubs. 
Seeing the reaction of its customers to its own internal operations, HP said one day, 
"Hey, why don't we commercialize this?" Said Conway, "That became the nucleus of our 
business process outsourcing service . . . We were doing our own chest X-rays and 
discovered we had assets that other people cared about, and that is a business." 
In other words, the flattening of the world was both the disease and the cure for 
the Bank of India. It clearly could not keep up with its competitors in the flattening 
banking environment of India, and, at the same time, it was able to get a chest X-ray 
and then outsource to HP all those things that it no longer made sense to do itself. 
And HP, having done its own chest X-ray, discovered that it was carrying a whole new 
consulting business inside its breast. Sure, most of the work for the Bank of India 
will 
360 
be done by HP employees in India or Bank of India employees who will actually join 
HP. But some of the profits will find their way back to the mother ship in Palo Alto, 
which will be supporting the whole operation through its global knowledge supply 
chain. 
Most of HP's revenues today come from outside the United States. But the core HP 
knowledge and infrastructure teams who can put together the processes that win those 
contracts-like running the back room of the Bank of India-are still in the United 
States. 
"The ability to dream is here, more than in other parts of the world," said Conway. 
"The nucleus of creativity is here, not because people are smarter-it is the 
environment, the freedom of thought. The dream machine is still here." 


Rule #6: The best companies outsource to win, not to shrink. They outsource to innovate 
faster and more cheaply in order to grow larger, gain market share, and hire more 
and different specialists-not to save money by firing more people. 
Dov Seidman runs LRN, a business that provides online legal, compliance, and ethics 
education to employees of global companies and helps executives and board members 
manage corporate governance responsibilities. We were having lunch in the fall of 
2004 when Seidman casually mentioned that he had recently signed an outsourcing 
contract with the Indian consulting firm MindTree. 
"Why are you cutting costs?" I asked him. 
"I am outsourcing to win, not to save money," Seidman answered. "Go to our Web site. 
I currently have over thirty job openings, and these are knowledge jobs. We're 
expanding. We're hiring. I am adding people and creating new processes." 
Seidman's experience is what most outsourcing is actually about-companies 
outsourcing to acquire knowledge talent to grow their business faster, not simply 
to cut costs and cut back. Seidman's company is a leader in one of those completely 
new industries that just appeared in the flat world-helping multinationals foster 
an ethical corporate culture around an employee base spread all over the world. 
Although LRN 

is a BE company-founded ten years before Enron exploded-demand for its services surged 
in the PE era-post-Enron. In the wake of the collapse of Enron and other corporate 
governance scandals, a lot more companies became interested in what LRN was 
offering-online programs for companies to forge common expectations and 
understandings of their legal and ethical responsibilities, from the boardroom to 
the factory floor. When companies sign up with LRN, their employees are given anonline 
education, including tests that cover everything from your company's code of conduct 
to when you are allowed to accept a gift to what you need to think about before hitting 
Send on an e-mail to what constitutes a bribe of a foreign official. 
As the whole issue of corporate governance began to mushroom in the early 2000s, 
Seidman realized that his customers, much like E*Trade, would need a more integrated 
platform. While it was great that he was educating their employees with one online 
curriculum and advising boards on ethics issues with another, he knew that company 
executives would want a one-stop Web-based interface where they could get a handle 
on all the governance and ethics issues facing their organizations- whether it was 
employee education, the reporting of any anomalous behavior, stewardship of a 
hard-earned corporate reputation, or government compliance-and where they could get 
immediate visibility into where their company stood. 
So Seidman faced a double challenge. He needed to do two things at once: keep growing 
his market share in the online compliance education industry, and design a whole new 
integrated platform for the companies he was already working with, one that would 
require a real technological leap. It was when faced with this challenge that he 
decided to enlist MindTree, the Indian consulting firm, in an outsourced relationship 
that offered him about five well-qualified software engineers for the price of one 
in America. 


"Look," said Seidman, "when things are on sale, you tend to buy more. MindTree offered 
a sale not on last season's closeout, but on top-notch software engineering talent 
that I would have been hard-pressed to find elsewhere. I needed to spend a lot of 
money defending and extending my core business and continue to take care of my 
customers, who 
562 
were working off my current programs. And at the same time, I had to make a giant 
leap to offer my customers what they were asking for next, which was a much more robust 
and total online solution to all their ethics, governance, and compliance questions. 
If I don't meet their needs, someone else will. Partnering with MindTree allows me 
to basically have two teams-one team [mostly Americans] that is focused on defending 
and extending our core business, and the other team, including our Indian consultants, 
focused on making our next strategic leap to grow our business." 
Since ethics is at the core of Seidman's Los Angeles-headquartered business, how he 
went about outsourcing was as important as the ultimate results of the relationship. 
Rather than announcing the MindTree partnership as a done deal, Seidman conducted 
an all-hands town hall meeting of his 170 or so employees to discuss the outsourcing 
he had in mind. He laid out all the economic arguments, let his staff weigh in, and 
gave everyone a picture of which jobs would be needed in the future and how people 
could prepare themselves to fit in. "I needed to show my company that this is what 
it would take to win," he said. 
Have no doubt, there are firms that do and will outsource good jobs just to save money 
and disperse it to shareholders or management. To think that is not happening or will 
not happen is beyond naive. But firms that are using outsourcing primarily as a tool 
to cut costs, not enhance innovation and speed growth, are the minority, not the 
majority-and I would not want to own stock in any of them. The best companies are 
finding ways to leverage the best of what is in India with the best of what is in 
North Dakota with the best of what is in Los Angeles. In that sense, the word 
"outsourcing" should really be retired. The applicable word is really "sourcing." 
That is what the flat world both enables and demands, and the companies that do 
sourcing right end up with bigger market shares and more employees everywhere-not 
smaller and fewer. 
"This is about trying to get bigger faster, about how we make our next leap in less 
time with greater assurance of success," said Seidman of his decision to source 
critical areas of development of his new platform to MindTree. "It is not about cutting 
corners. We have over two hundred clients all over the world now. If I can grow this 
company the way that I 
363 
want to, I will be able to hire even more people in all our current offices, promote 
even more people, and give our current employees even more opportunities and more 
rewarding career paths-because LRN's agenda is going to be broader, more complex and 
more global. . . We are in a very competitive space. This [decision to use outsourcing] 
is all about playing offense, not defense. I am trying to run up the score before 
it's run up on me." 


Rule #7: Outsourcing isn't just for Benedict Arnolds. It's also for idealists. 
One of the newest figures to emerge on the world stage in recent years is the social 
entrepreneur. This is usually someone who burns with desire to make a positive social 
impact on the world, but believes that the best way of doing it is, as the saying 
goes, not by giving poor people a fish and feeding them for a day, but by teaching 
them to fish, in hopes of feeding them for a lifetime. I have come to know several 
social entrepreneurs in recent years, and most combine a business school brain with 
a social worker's heart. The triple convergence and the flattening of the world have 
been a godsend for them. Those who get it and are adapting to it have begun launching 
some very innovative projects. 
One of my favorites is Jeremy Hockenstein, a young man who first followed a 
time-honored path of studying at Harvard and going to work for the McKinsey consulting 
firm, but then, with a colleague from McKinsey, veered totally off course and decided 
to start a not-for-profit data-entryfirm that does outsourced data entry for American 
companies in one of the least hospitable business environments in the world, post-Pol 
Pot Cambodia. 
Only in a flat world! 
In February 2001, Hockenstein and some colleagues from McKinsey decided to go to Phnom 
Penh, half on vacation and half on a scouting mission for some social entrepreneurship. 
They were surprised to find a city salted with Internet cafes and schools for learning 
English-but with no jobs, or at best limited jobs, for those who graduated. 
"We decided we would leverage our connections in North America to try to bridge the 
gap and create some income-generating opportunities 

for people," Hockenstein said. That summer, after another trip funded by themselves, 
Hockenstein and his colleagues opened Digital Divide Data, with a plan to start a 
small operation in Phnom Penh that would do data entry-hiring locals to type into 
computers printed materials that companies in the United States wanted in digitized 
form, so that it could be stored on databases and retrieved and searched on computers. 
The material would be scanned in the United States and the files transmitted over 
the Internet. Their first move was to hire two local Cambodian managers. Hockenstein's 
partner from McKinsey, Jaeson Rosenfeld, went to New Delhi and knocked on the doors 
of Indian data-entry companies to see if he could find one -just one-that would take 
on his two Cambodian managers as trainees. Nine of the Indian companies slammed their 
doors. The last thingthey wanted was even lower-cost competition emerging in Cambodia. 
But a generous Hindu soul agreed, and Hockenstein got his managers trained. They then 
hired their first twenty data-entry operators, many of whom were Cambodian war 
refugees, and bought twenty computers and an Internet line that costthem $100 a month. 
The project was financed with $25,000 of their own money and a $25,000 grant from 
a Silicon Valley foundation. They opened for business in July 2001, and their first 
work assignment was for the Harvard Crimson, Harvard's undergraduate daily newspaper. 
"The Crimson was digitizing their archives to make them available online, and because 
we were Harvard grads they threw some business our way," said Hockenstein. "So our 
first project was having Cambodians typing news articles from the Harvard Crimson 


from 1873 to 1899, which reported on Harvard-Yale crew races. Later, actually, when 
we got to the years 1969 to 1971, when the turmoil in Cambodia was all happening, 
they were typing [Crimson stories] about their own story . . . We would convert the 
old Crimsons, which were on microfilm, to digital images in the United States through 
a company in Oklahoma that specialized in that sort of thing, and then we would just 
transfer the digital images to Cambodia by FTP [file transfer protocol]. Now you can 
go to thecrimson.com and download these stories." The Cambodian typists did not have 
to know English, only how to type English charac365 
ters; they worked inpairs, eachtyping the same article, andthen the computer program 
compared their work to make sure that there were no errors. 
Hockenstein said that each of the typists works six hours a day, six days a week, 
and is paid $75 a month, twice the minimum wage in Cambodia, where the average annual 
income is less than $400. In addition, each typist receives a matching scholarship 
for the rest of the workday to go to school, which for most means completing high 
school but for some has meant going to college. "Our goal was to break the vicious 
cycle there of [young people] having to drop out of school to support families," said 
Hockenstein. "We have tried to pioneer socially responsible outsourcing. The U.S. 
companies working with us are not just saving money they can invest somewhere else. 
They are actually creating better lives for some of the poor citizens of the world." 
Four years after starting up, Digital Divide Data now has 170 employees in three 
offices: Phnom Penh; Battambang, the second-largest city in Cambodia; and a new office 
in Vientiane, Laos. "We recruited our first two managers in Phnom Penh and sent them 
to India to get trained in data entry, and then, when we opened the Laos office, we 
recruited two managers who were trained by our staff in the Phnom Penh office," 
Hockenstein said. 
This tree has scattered all kinds of seeds. Besides the Harvard Crimson, one of the 
biggest sources of data-entry work was NGOs, which wanted the results of their surveys 
about health or families or labor conditions digitized. So some of the first wave 
of Digital Divide Data's Cambodian workers left the company and spun off their own 
firm to design databases for NGOs that want to do surveys! Why? Because while they 
were working for Digital Divide Data, said Hockenstein, they kept getting survey work 
from NGOs that needed to be digitized, but because the NGOs had not done enough work 
in advance to standardize all the data they were collecting, it was very hard to 
digitize in any efficient manner. So these Cambodian workers realized that there was 
value earlier in the supply chain and that they could get paid more for it-not for 
typing but for designing standardized formats for NGOs to collect survey 
366 
data, which would make the surveys easier and cheaper to digitize, collate, and 
manipulate. So they started their own company to do just that-out of Cambodia. 
Hockenstein argued that none of the jobs being done in Cambodia came from the United 
States. This sort of basic data-entry work got outsourced to India and the Caribbean 
a long time ago, and, if anywhere, that is where the jobs were taken from. But none 
of this would have been possible to set up in Cambodia a decade ago. It all came 


together in just the last few years. 
"My partner is a Cambodian," said Hockenstein. "His name is Sophary, and until 1992 
he was living in a refugee camp on the Cambodia-Thai border while I was living in 
Harvard Square as an un-dergrad. We were worlds apart. After the UN peace treaty [in 
Cambodia], he walked home ten days to his village, and now today he lives in Phnom 
Penh running Digital Divide Data's office." They now instant-message each other each 
night to collaborate in the delivery of services to people and companies around the 
world. The type of collaboration that is possible today "allows us to be partners 
and equals," said Hockenstein. "It is not one of us dominating the other; it is real 
collaboration that is creating better futures for the people at the bottom and the 
top. It is making my life more meaningful and creating concrete opportunities for 
people living on a dollar or two a day . . . We see the self-respect and confidence 
that blossoms in people who never before would have had an on-ramp into the global 
economy." 
So Hockenstein and his partners are getting calls now from Mongolia, Pakistan, Iran, 
and Jordan from people who want to provide IT services to the world and are wondering 
how they can get started. In mid-2004, a client approached Digital Divide Data to 
digitize an English-Arabic dictionary. Around the same time, Hockenstein's office 
received an unsolicited e-mail from a company in Iran that was running a data-entry 
firm there. "They found us through a Google search in trying to find ways of expanding 
their local data-entry business beyond the borders of Iran," said Hockenstein. So 
Hockenstein asked the Iranians whether they could do an English-Arabic dictionary, 
even though the language of Iran is Farsi, which uses some but not all of the same 
letters as Arabic. "He said 

they could," said Hockenstein, "so we partnered on a joint project for this client 
to digitize an Arabic dictionary." What I like most about the story, and why it is 
so telling of the flat world, is Hockenstein's kicker: "I still have never met the 
guy [in Iran]. We did the whole deal over Yahoo! instant messenger and e-mail. We 
wired him the money through Cambodia ... I invited him to my wedding, but he wasn't 
able to come." 

:::::Geopolitics and the Flat World 

::::: ELEVEN 
The Vnflat World 
No Guns or Cell Phones Allowed 
To build may have to be the slow and laborious task of years. To destroy can be the 
thoughtless act of a single day. -Sir Winston Churchill 
On a trip back home to Minnesota in the winter of 2004, I was having lunch with my 
friends Ken and Jill Greer at Perkins pancake house when Jill mentioned that the state 
had recently passed a new gun law. The conceal and carry law, passed on May 28, 2003, 
established that local sheriffs had to issue permits for anyone-other than those with 
felony records or declared mentally ill-who requested to carry concealed firearms 


to work (unless the person's employer explicitly restricted that right). This law 
is supposed to deter criminals, because if they try to hold you up, they can't be 
sure that you too are not packing a weapon. The law, though, contained a provision 
to allow business owners to prevent nonemployees from bringing concealed weapons into 
a place of business, like a restaurant or health club. It said that any business could 
ban concealed handguns on its premises if it posted a sign at each entrance indicating 
that guns were not allowed there. (This reportedly led to some very creative signage, 
with one church suingthe state for the right to use a biblical quote as its gun-banning 
sign and a restaurant using a picture of a woman in a cooking apron toting a machine 
gun.) The reason this all came up at our lunch was that Jill mentioned that at health 
clubs around the city, where she 
372 
played tennis, she noticed two signs now popping up regularly, one right after the 
other. At their tennis club in Bloomington, for example, there is a sign right by 
the front door that says, "NoGuns Allowed." And then nearby, outside the locker rooms, 
is another sign: "No Cell Phones Allowed." 
Hmrara. No guns or cell phones allowed? Guns I understand, I said, but why cell phones? 
Silly me. It was because some people were bringing cell phones with cameras intolocker 
rooms, covertly taking pictures of naked men and women and then e-mailing them around 
the world. What will they think of next? Whatever the innovation, people will find 
a way to use it and abuse it. 
While interviewing Promod Haque at Norwest Venture Partners in Palo Alto, I was helped 
by the firm's public relations director, Katie Belding, who later sent me this e-mail: 
"I was chatting with my husband about your meeting with Promod the other day... He 
is a history teacher at a high school in San Mateo. I asked him, 'Where were you when 
the world went flat?' He said it just happened the other day at school when he was 
in a faculty meeting. A student was suspended for helping another student cheat on 
a test-we're not talking the traditional writing answers on the bottom of your shoe 
or passing a note, though . . ." Intrigued, I called her husband, Brian, and he picked 
up the story: "At the end of the period, when all of the tests were being passed up 
to the front of the classroom, this student very quickly and slyly pulled out his 
cell phone and somehow snapped a picture of some test questions, and instantly 
e-mailed it to his friend who was taking the same test the next period. His friend 
also had a cell phone with a digital camera and e-mail capabilities and was apparently 
able to view the questions before the next period. The student was caught by another 
teacher when he pulled out the cell phone between periods. It is against the rules 
to have a cell phone on campus-even though we know that all the kids do-so the teacher 
confiscated it and saw that the kid had a test on it. So the dean of discipline, at 
our regular faculty meeting, opened by saying, 'We have something new to worry about.' 
Essentially he said, 'Beware, keep your 
373 
eyes open, because the kids are so far ahead of us in terms of the technology.'" 
But things aren't all bad with this new technology, noted Brian: "I went to a Jimmy 
Buffett concert earlier this year. Cameras were not allowed, but cell phones were. 


So then the concert starts and everyone suddenly starts holding up their cell phones 
and taking pictures of Jimmy Buffett. I've got one right on my wall. We were sitting 
in the second row and the guy next to us held up his cell phone, and I said, 'Hey, 
would you mind e-mailing me some of those? No one will believe we sat this close.' 
He said 'Sure,' and we gave him a card with our e-mail [address]. We didn't really 
expect to see any, but the next day he e-mailed us a bunch." 
My trip to Beijing described earlier fell right after the fifteenth anniversary of 
the Tiananmen Square massacre, which happened on June 4, 1989, that is, 6/4/89. My 
colleagues at the Times bureau informed me that on that day the Chinese government 
censors were blocking SMS messages on cell phones that contained any reference to 
Tiananmen Square or even the numbers 6 and 4. So if you happened to be dialing the 
phone number 664-6464, or sending a message in which you told someone you would meet 
at 6 p.m. on the 4th floor, the Chinese censors blocked it using their jamming 
technology. 
Mark Steyn, writing in the National Review (October 25, 2004), related a story from 
the London Arabic newspaper paper Al-Quds al-Arabi about a panic that broke out in 
Khartoum, Sudan, after a crazy rumor swept the city, claiming that if an infidel shook 
a man's hand, that man could lose his manhood. "What struck me about the story," wrote 
Steyn, "was a detail: The hysteria was spread by cell phones and text messaging. Think 
about that: You can own a cell phone yet still believe a foreigner's handshake can 
melt away your penis. What happens when that kind of technologically advanced 
primitivism advances beyond text messaging?" 
This is not a chapter about cell phones, so why do I raise these stories? Because 
ever since I began writing about globalization, I've been challenged by critics along 
one particular line: "Isn't there a certain technological determinism to your 
argument? To listen to you, Friedman, there 

are these ten flatteners, they are converging and flattening the earth, and there 
is nothing that people can do but bow to them and join the parade. And after a 
transition, everyone will get richer and smarter and it will all be fine. But you're 
wrong, because the history of the world suggests that ideological alternatives, and 
power alternatives, have always arisen to any system, and globalization will be no 
different." 
This is a legitimate question, solet me try to answer it directly: I am a technological 
determinist! Guilty as charged. 
I believe that capabilities create intentions. If we create an Internet where people 
can open an online store and have global suppliers, global customers, and global 
competitors, they will open that online store or bank or bookshop. If we create work 
flow platforms that allow companies to disaggregate any job and source it to the 
knowledge center anywhere in the world that can perform that task most efficiently 
at the lowest cost, companies will do that sort of outsourcing. If we create cell 
phones with cameras in them, people will use them for all sorts of tasks, from cheating 
on tests to calling Grandma in her nursing home on her ninetieth birthday from the 
top of a mountain in New Zealand. The history of economic development teaches this 


over and over: If you can do it, you must do it, otherwise your competitors will-and 
as this book has tried to demonstrate, there is a whole new universe of things that 
companies, countries, and individuals can and must do to thrive in a flat world. 
But while I am a technological determinist, I am not a historical determinist. There 
is absolutely no guarantee that everyone will use these new technologies, or the 
triple convergence, for the benefit of themselves, their countries, or humanity. 
These are just technologies. Using them does not make you modern, smart, moral, wise, 
fair, or decent. It just makes you able to communicate, compete, and collaborate 
farther and faster. In the absence of a world-destabilizing war, every one of these 
technologies will become cheaper, lighter, smaller and more personal, mobile, digital, 
and virtual. Therefore, more and more people will find more and more ways to use them. 
We can only hope that more people in more places will use them to create, collaborate, 
and grow their living standards, not the opposite. But it doesn't have to happen. 
To put it another way, I don't know how the flattening of the world will come out. 
375 
Indeed, this is the point in the book where I have to make a confession: I know that 
the world is not flat. 
Yes, you read me right: I know that the world is not flat. Don't worry. I know. 
I am certain, though, that the world has been shrinking and flattening for some time 
now, and that process has quickened dramatically in recent years. Half the world today 
is directly or indirectly participating in the flattening process or feeling its 
effects. I have engaged in literary license in titling this book The World Is Flat 
to draw attention to this flattening and its quickening pace because I think it is 
the single most important trend in the world today. 
But I am equally certain that it is not historically inevitable that the rest of the 
world will become flat or that the already flat parts of the world won't get 
unflattened by war, economic disruption, or politics. There are hundreds of millions 
of people on this planet who have been left behind by the flattening process or feel 
overwhelmed by it, and some of them have enough access to the flattening tools to 
use them against the system, not on its behalf. How the flattening could go wrong 
is the subject of this chapter, and I approach it by trying to answer the following 
questions: What are the biggest constituencies, forces, or problems impeding this 
flattening process, and how might we collaborate better to overcome them? 
Too Sick 
I once heard Jerry Yang, the cofounder of Yahoo!, quote a senior Chinese government 
official as saying, "Where people have hope, you have a middle class." I think this 
is a very useful insight. The existence of large, stable middle classes around the 
world is crucial to geopolitical stability, but middle class is a state of mind, not 
a state of income. That's why a majority of Americans always describe themselves as 
"middle class," even though by income statistics some of them wouldn't be considered 
as such. "Middle class" is another way of describing people 
376 
who believe that they have a pathway out of poverty or lower-income status toward 
a higher standard of living and a better future for their kids. You can be in the 


middle class in your head whether you make $2 a day or $200, if you believe in social 
mobility-that your kids have a chance to live better than you do-and that hard work 
and playing by the rules of your society will get you where you want to go. 
In many ways, the line between those who are in the flat world and those who are not 
is this line of hope. The good news in India and China and the countries of the former 
Soviet Empire today is that, with all their flaws and internal contradictions, these 
countries are now home to hundreds of millions of people who are hopeful enough to 
be middle class. The bad news in Africa today, as well as rural India, China, Latin 
America, and plenty of dark corners of the developed world, is that there are hundreds 
of millions of people who have no hope and therefore no chance of making it into the 
middle class. They have no hope for two reasons: Either they are too sick, or their 
local governments are too broken for them to believe they have a pathway forward. 
The first group, those who are too sick, are those whose lives are stalked every day 
by HIV-AIDS, malaria, TB, and polio, and who do not even enjoy steady electricity 
or potable water. Many of these people live in shockingly close proximity with the 
flat world. While in Bangalore I visited an experimental school, Shanti Bhavan, or 
"Haven of Peace." It is located near the village of Baliganapalli, in Tamil Nadu 
Province, about an hour's drive from downtown Bangalore's glass-and-steel high-tech 
centers-one of which is aptly called "The Golden Enclave." On the drive there, the 
school's principal, Lalita Law, an intense, razor-sharp Indian Christian, explained 
to me, with barely controlled rage in her voice, that the school has 160 children, 
whose parents are all untouchables from the nearby village. 
"These kids, their parents are ragpickers, coolies, and quarry laborers," she said 
as we bounced along in a jeep on the potholed roads to the school. "They come from 
homes below the poverty line, and from the lowest caste, the untouchables, who are 
supposed to be fulfilling their destiny and left where they are. We get these children 
at ages four and five. They don't know what it is to have a drink of clean water. 
They are 

used to drinking filthy gutter water, if they are lucky enough to have a gutter near 
where they live. They have never seen a toilet, they don't have baths. . . They don't 
even have proper scraps of clothing. We have to start by socializing them. When we 
first get them they run out and urinate and defecate wherever they want. [At first] 
we don't make them sleep on beds, because it is a culture shock." 
I was typing frantically in the back of the jeep on my laptop to keep up with her 
scalding monologue about village life. 
"This 'India Shining' thing [the slogan of the ruling Bharatiya Janata Party, BJP, 
in the 2004 election] irritates people like us," she added. 'You have to come to the 
rural villages and see whether India is shining, and you look into a child's face 
and see whether India is shining. India is shining okay for the glossy magazines, 
but if you just go outside Bangalore you will see that everything about India shining 
is refuted ... [In the villages] alcoholism is rife and female infanticide and crime 
are rising. You have to bribe to get electricity, water; you have to bribe the tax 
assessor to assess your home correctly. Yes, the middle and upper classes are taking 


off, but the 700 million who are left behind, all they see is gloom and darkness and 
despair. They are born to fulfill their destiny and have to live this way and die 
this way. The only thing that shines for them is the sun, and it is hot and unbearable 
and too many of them die of heatstroke." The only "mouse" these kids have ever 
encountered, she added, is not one that rests next to a computer but the real thing. 
There are thousands of such villages in rural India, China, Africa, and Latin America. 
And that is why it is no wonder that children in the developing world-the unflat 
world-are ten times more likely to die of vaccine-preventable diseases than are 
children in the developed flat world. In the worst-affected regions of rural southern 
Africa, a full one-third of pregnant women are reportedly HIV-positive. The AIDS 
epidemic alone is enough to put a whole society into a tailspin: Many teachers in 
these African countries are now afflicted with AIDS, so they cannot teach, and young 
children, especially girls, have to drop out either because they must tend to sick 
and dying parents or because they have been orphaned by AIDS and cannot afford the 
school fees. And without education, young people cannot learn how to protect 
themselves 

from HIV-AIDS or other diseases, let alone acquire the life-advancing skills that 
enable women to gain greater control over their own bodies and sexual partners. The 
prospect of a full-blown AIDS epidemic in India and China, of the sort that has already 
debilitated southern Africa, remains very real, largely because only one-fifth of 
the people at risk for HIV worldwide have access to prevention services. Tens of 
millions of women who want and would benefit from family-planning resources don't 
have them for lack of local funding. You cannot drive economic growth in a place where 
50 percent of the people are infected with malaria or half of the kids are malnourished 
or a third of the mothers are dying of AIDS. 
There is no question that China and India are better off for having at least part 
of their population in the flat world. When societies begin to prosper, you get a 
virtuous cycle going: They begin to produce enough food for people to leave the land, 
the excess labor gets trained and educated, it begins working in services and industry; 
that leads to innovation and better education and universities, freer markets, 
economic growth and development, better infrastructure, fewer diseases, and slower 
population growth. It is that dynamic that is going on in parts of urban India and 
urban China today, enabling people to compete on a level playing field and attracting 
investment dollars by the billions. 
But there are many, many others living outside this cycle. They live in villages or 
rural areas that only criminals would want to invest in, regions where violence, civil 
war, and disease compete with one another to see which can ravage the civilian 
population most. The world willbe entirely flat only when all these people are brought 
into it. One of the few people with enough dollars to make a difference who has stepped 
up to this challenge is Microsoft chairman Bill Gates, whose $27 billion Bill and 
Melinda Gates Foundation has focused on this huge, disease-ravaged, 
opportunity-deprived population. I have been a critic of some of Microsoft's business 
practices over the years, and I do not regret one word I have written about some of 


its anticompetitive tactics. But I have been impressed by Gates's personal commitment 
of money and energy to address the unflat world. Both times I spoke to Gates, this 
is the subject he wanted to talk about most and addressed with the most passion. 
379 
"No one funds things for that other 3 billion," said Gates. "Someone estimated that 
the cost of saving a life in the U.S. is $5 or $6 million- that is how much our society 
is willing to spend. You can save a life outside of the U.S. for less than $100. But 
how many people want to make that investment? 
"If it was just a matter of time," Gates continued, "you know, give it twenty or thirty 
years and the others will be there, then it would be great to declare that the whole 
world is flat. But the fact is, there is a trap that these 3 billion are caught in, 
and they may never get into the virtuous cycle of more education, more health, more 
capitalism, more rule of law, more wealth ... I am worried that it could just be half 
the world that is flat and it stays that way." 
Take malaria, a disease caused by a parasite carried by mosquitoes. It is the greatest 
killer of mothers on the planet right now. While virtually no one dies of malaria 
today in the flat world, more than 1 million people die from this disease each year 
in the unflat world, about seven hundred thousand of them children, most of them in 
Africa. Deaths from malaria have actually doubled in the last twenty years because 
mosquitoes have become resistant to many antimalarial drugs, and commercial drug 
companies have not invested much in new antimalarial vaccines because they believe 
there is no profitable market for them. If this crisis were happening in a flat country, 
noted Gates, the system would work: Government would do what it needed to do to contain 
the disease, pharmaceutical companies would do what they needed to do to get the drugs 
to market, schools would educate young people about preventive measures, and the 
problem would be licked. "But this nice response works only when the people who have 
the problem also have some money," said Gates. When the Gates Foundation issued a 
$50 million grant to combat malaria, he added, "people said we just doubled the amount 
of money [worldwide] going to fight malaria . . . When the people who have the need 
don't have the money, it takes outside groups and charities to get them to the point 
where the system can kick in for them." 
Up to now, though, argued Gates, "we have not given these people a chance [to be in 
the flat world]. The kid who is connected tothe Internet today, if he has the curiosity 
and an Internet connection, is as [empow380 
ered] as me. But if he does not get the right nutrition, he will never play that game. 
Yes, the world is smaller, but do we really see the conditions that people live in? 
Isn't the world still really big enough that we don't see the real conditions that 
people live in, the kid whose life can be saved for $80?" 
Let's stop here for a moment and imagine how beneficial it would be for the world, 
and for America, if rural China, India, and Africa were to grow into little Americas 
or European Unions in economic and opportunity terms. But the chances of their getting 
into such a virtuous cycle is tiny without a real humanitarian push by flat-world 
businesses, philanthropies, and governments to devote more resources to their 


problems. The only way out is through new ways of collaboration between the flat and 
unflat parts of the world. 
In 2003, the Gates Foundation launched a project called Grand Challenges in Global 
Health. What I like about it is the way the Gates Foundation approached solving this 
problem. They didn't say, "We, the rich Western foundation, will now deliver you the 
solution," and then issue instructions and write some checks. They said, "Let's 
collaborate horizontally on defining both the problem and the solutions-let's create 
value that way-and then [the foundation] will invest our money in the solutions we 
both define." So the Gates Foundation placed ads on the Web and in more conventional 
channels across both the developed and the developing worlds, asking scientists to 
respond to one big question: What are the biggest problems that, if science attended 
to them and solved them, could most dramaticallychange the fate of the several billion 
people trapped in the vicious cycle of infant mortality, low life expectancy, and 
disease? The foundation got about eight thousand pages of ideas from hundreds of 
scientists from around the world, including Nobel laureates. It then culled through 
them and distilled them down to a list of fourteen Grand Challenges-challenges where 
a technological innovation could remove a critical barrier to the solving of an 
important health problem in the developing world. In the fall of 2003, it announced 
these fourteen Grand Challenges worldwide. They include the following: How to create 
effective single-dose vaccines that can be used soon after birth, how to prepare 
vaccines that do not require refrigera

tion, how to develop needle-free delivery systems for vaccines, how to better 
understand which immunological responses provide protective immunity, how to better 
control insects that transmit agents of disease, how to develop a genetic or chemical 
strategy to incapacitate a disease-transmitting insect population, how to create a 
full range of optimal bioavailable nutrients in a single staple plant species, and 
how to create immunological methods that can cure chronic infections. Within a year, 
the foundation received sixteen hundred proposals for ways to meet these challenges 
from scientists in seventy-five countries, and the foundation is now in the process 
of funding the best proposals with $250 million in cash. 
"We're trying to accomplish two things with this program," explained Rick Klausner, 
a former head of the National Cancer Institute who now runs the global health programs 
for the Gates Foundation. "The first is [to make] a moral appeal to the scientific 
imagination, [pointing out] that there are great problems to be solved that we, the 
scientific community, have ignored, even though we pride ourselves in how 
international weare. We have not taken our responsibilities as globalproblem solvers 
as seriously as our self-identity as an international community. We wanted the Grand 
Challenges to say these are the most exciting, sexy, scientific things that anyone 
in the world could work on right now . . . The idea was to fire the imagination. The 
second thing is to actually direct some of the foundation's resources to see if we 
could do it." 
Given the phenomenal advances in technology in the last twenty years, it is easy to 
assume that we already have all the tools to address some of these challenges and 


that the only thing lacking is money. I wish that were the case. But it is not. In 
the instance of malaria, for example, it isn't just the drugs that are missing. As 
anyone who has visited Africa or rural India knows, the health-care systems in these 
areas are often broken or functioning at a very low level. So the Gates Foundation 
is trying to stimulate the development of drugs and delivery systems that presume 
a broken health-care system and therefore can be safely self-administered by ordinary 
people in the field. That may be the grandest challenge of all: to use the tools of 
the flat world to design tools that work in an unflat world. "The most important 
health-care system in the world is a mother," 
382 
said Klausner. "How do you get things in her hands that she understands and can afford 
and can use?" 
The tragedy of all these people is really a dual tragedy, added Klausner. There is 
the individual tragedy of facing a death sentence from disease or a life sentence 
of broken families and limited expectations. And there is the tragedy for the world 
because of the incredible lost contribution that all these people still outside the 
flat world could be making. In a flat world, where we are connecting all the knowledge 
pools together, imagine what knowledge those people could bring to science or 
education. In a flat world, where innovation can come from anywhere, we are letting 
a huge pool of potential contributors and collaborators slip under the waves. There 
is no question that poverty causes ill health, but ill health also traps people in 
poverty, which in turn weakens them and keeps them from grasping the first rung of 
the ladder to middle-class hope. Until and unless we can meet some of these grand 
challenges, much of that 50 percent of the world that is still not flat will stay 
that way-no matter how flat the other 50 percent gets. 
TOO DlSEMPOWERED 
There's not just the flat world and the unflat world. Many people live in the twilight 
zone between the two. Among these are the people I call the too disempowered. They 
are a large group of people who have not been fully encompassed by the flattening 
of the world. Unlike the too sick, who have yet even to get a chance to step onto 
the flat world, the too disempowered are people who you might say are half flat. They 
are healthy people who live in countries with significant areas that have been 
flattened but who don't have the tools or the skills or the infrastructure to 
participate in any meaningful or sustained way. They have just enough information 
to know that the world is flattening around them and that they aren't really getting 
any of the benefits. Being flat is good but full of pressure, being unflat is awful 
and full of pain, but being half flat has its own special anxiety. As exciting and 
as visible as the flat 
383 
Indian high-tech sector is, have no illusions: It accounts for 0.2 percent of 
employment in India. Add those Indians involved in manufacturing for export, and you 
get a total of 2 percent of employment in India. 
The half flat are all those other hundreds of millions of people, particularly in 
rural India, rural China, and rural Eastern Europe, who are close enough to see, touch, 


and occasionally benefit from the flat world but who are not really living inside 
it themselves. We saw how big and how angry this group can be in the spring of 2004 
Indian national elections, in which the ruling BJP was surprisingly tossed out of 
office-despite having overseen a surge in India's growth rate-largely because of the 
discontent of rural Indian voters with the slow pace of globalization outside the 
giant cities. These voters were not saying, "Stop the globalization train, we want 
to get off." They were saying, "Stop the globalization train, we want to get on, but 
someone needs to help us by building a better stepstool." 
These rural voters-peasants and farmers, who form the bulk of India's population 
just had to spend a day in any nearby big city to see the benefits of the flat world: 
the cars, the houses, the educational opportunities. "Every time a villager watches 
the community TV and sees an ad for soap or shampoo, what they notice are not the 
soap and shampoo but the lifestyle of the people using them-the kind of motorbikes 
they ride, their dress, and their homes," explained Indian-born Nayan Chanda, editor 
of YaleGlobal Online. "They see a world they want access to. This election was about 
envy and anger. It was a classic case of revolutions happening when things are getting 
better but not fast enough for many people." 
At the same time, these rural Indians understood, at gut level, exactly why it was 
not happening for them: because local governments in India have become so eaten away 
by corruption and mismanagement that they cannot deliver to the poor the schools and 
infrastructure they need to get a fair share of the pie. As some of these millions 
of Indians on the outside of the gated communities looking in lose hope, "they become 
more religious, more tied to their caste/subcaste, more radical in their thinking, 
more willing to snatch than create, [and] view dirty politics as being the only way 
to get mobility, since economic mobility is stalled," said Vivek 

Paul of Wipro. India can have the smartest high-tech vanguard in the world, but if 
it does not find a way to bring along more of those who are unable, disabled, 
undereducated, and underserved, it will be like a rocket that takes off but quickly 
falls back to earth for lack of sustained thrust. 
The Congress Party got the message, which was why as soon as it took office it chose 
as its prime minister not some antiglobalizer but Manmohan Singh, the former Indian 
finance minister, who in 1991 first opened the Indian economy to globalization, 
placing an emphasis on exports and trade and reform wholesale. And Singh, in turn, 
pledged himself to vastly increase government investments in rural infrastructure 
and to bring more reform retail to rural government. 
How can outsiders collaborate in this process? I think, first and foremost, they can 
redefine the meaning of global populism. If populists really want to help the rural 
poor, the way to do it is not by burning down McDonald's and shutting down the IMF 
and trying to put up protectionist barriers that will unflatten the world. That will 
help the rural poor not one iota. It has to be by refocusing the energies of the global 
populist movement on how to improve local government, infrastructure, and education 
in places like rural India and China, so the populations there can acquire the tools 
to collaborate and participate in the flat world. Theglobal populist movement, better 


known as the antiglobalization movement, has a great deal of energy, but up to now 
it has been too divided and confused to effectively help the poor in any meaningful 
or sustained manner. It needs a policy lobotomy. The world's poor do not resent the 
rich anywhere nearly as much as the left-wing parties in the developed world imagine. 
What they resent is not having any pathway to get rich and to join the flat world 
and cross that line into the middle class that Jerry Yang spoke about. 
Let's pause for a minute here and trace how the antiglobalization movement lost touch 
with the true aspirations of the world's poor. The antiglobalization movement emerged 
at the World Trade Organization conference in Seattle in 1999 and then spread around 
the world in subsequent years, usually gathering to attack meetings of the World Bank, 
the IMF, and the G-8 industrialized nations. From its origins, the movement that 
emerged in Seattle was a primarily Western-driven phenome385 
non, which was why you saw so few people of color in the crowds. It was driven by 
five disparate forces. One was upper-middle-class American liberal guilt at the 
incredible wealth and power that America had amassed in the wake of the fall of the 
Berlin Wall and the dot-com boom. At the peak of the stock market boom,lots of pampered 
American college kids, wearing their branded clothing, began to get interested in 
sweatshops as a way of expiating their guilt. The second force driving it was a 
rear-guard push by the Old Left-socialists, anarchists, and Trotskyites-in alliance 
with protectionist trade unions. Their strategy was to piggyback on rising concerns 
about globalization to bring back some form of socialism, even though these ideas 
had been rejected as bankrupt by the very people in the former Soviet Empire and China 
who had lived under them longest. (Now you know why there was no antiglobalization 
movement tospeak of in Russia, China, or Eastern Europe.) These Old Left forces wanted 
to spark a debate about whether we globalize. They claimed to speak in the name of 
the Third World poor, but the bankrupt economic policies they advocated made them, 
in my view, the Coalition to Keep Poor People Poor. The third force was a more amorphous 
group. It was made up of many people who gave passive support to the antiglobalization 
movement from many countries, because they saw in it some kind of protest against 
the speed at which the old world was disappearing and becoming flat. 
The fourth force driving the movement, which was particularly strong in Europe and 
in the Islamic world, was anti-Americanism. The disparity between American economic 
and political power and everybody else's had grown so wide after the fall of the Soviet 
Empire that America began to-or was perceived to-touch people's lives around the 
planet, directly or indirectly, more than their own governments did. As people around 
the world began to intuit this, a movement emerged, which Seattle both reflected and 
helped to catalyze, whereby people said, in effect, "If America is now touching my 
life directly or indirectly more than my own government, then I want to have a vote 
in America's power." At the time of Seattle, the "touching" that people were most 
concerned with was from American economic and cultural power, and therefore the demand 
for a vote tended to focus around economic rule-making in386 
stitutions like the World Trade Organization. America in the 1990s, under President 


Clinton, was perceived as a big dumb dragon, pushing people around in the economic 
and cultural spheres, knowingly and unknowingly. We were Puff the Magic Dragon, and 
people wanted a vote in what we were puffing. 
Then came 9/11. And America transformed itself from Puff the Magic Dragon, touching 
people around the world economically and culturally, into Godzilla with an arrow in 
his shoulder, spitting fire and tossing around his tail wildly, touching people's 
lives in military and security terms, not just economic and cultural ones. As that 
happened, people in the world began to say, "Now we really want a vote in how America 
wields its power"-and in many ways the whole Iraq war debate was a surrogate debate 
about that. 
Finally, the fifth force in this movement was a coalition of very serious, 
well-meaning, and constructive groups-from environmentalists to trade activists to 
NGOs concerned with governance-who became part of the populist antiglobalization 
movement in the 1990s in the hopes that they could catalyze a global discussion about 
how we globalize. I had a lot of respect and sympathy for this latter group. But in 
the end they got drowned out by the whether-we-globalize crowd, which began to turn 
the movement more violent at the July 2001 Genoa G-8 summit, when an antiglobalization 
protester was killed while attacking an Italian police jeep with a fire extinguisher. 
The combination of the triple convergence, the violence at Genoa, 9/11, and tighter 
security measures fractured the antiglobalization movement. The more serious 
how-we-globalize groups did not want to be in the same trench with anarchists out 
to provoke a public clash with police, and after 9/11, many American labor groups 
did not want to be associated with a movement that appeared to be taken over by 
anti-American elements. This became even more pronounced when in late September 2001, 
three weeks after 9/11, antiglobalization leaders attempted a rerun of Genoa in the 
streets of Washington, to protest the IMF and World Bank meetings there. After 9/11, 
though, the IMF and World Bank canceled their meetings, and many American protesters 
shied away. Those who did turn up in the streets of Washington turned the event into 
a march against 

the imminent American invasion of Afghanistan to remove Osama bin Laden and al-Qaeda. 
At the same time, with the triple convergence making the Chinese, Indians, and Eastern 
Europeans some of the biggest beneficiaries of globalization, it was no longer 
possible to claim that this phenomenon was devastating the world's poor. Just the 
opposite: Millions of Chinese and Indians were entering the world's middle class 
thanks to the flattening of the world and globalization. 
So asthe how-we-globalize forces drifted away, and as the number ofThird World people 
benefiting from globalization began to grow, and as America under the Bush 
administration began to exercise more unilateral military power, the anti-American 
element in the antiglobalization movement began to assume a much louder voice and 
role. As a result, the movement itself became both more anti-American and more unable 
and unwilling to play any constructive role in shaping the global debate on how we 
globalize, precisely when such a role has become even more important as the world 
has gotten flatter. As Hebrew University political theorist Yaron Ezrahi so aptly 


noted, "The important task of enlisting the people's power to influence 
globalism-making it more compassionate, fair, and compatible with human dignity-is 
way too important to be wasted on crass anti-Americanism or left in the hands of only 
anti-Americans." 
There is a huge political vacuum now waiting to be filled. There is a real role today 
for a movement that could advance the agenda of how we globalize-not whether we 
globalize. The best place such a movement could start is rural India. 
"Both the Congress [Party] and its left allies would be risking India's future if 
they draw the wrong conclusion from this [2004] election," Pratap Bhanu Mehta, who 
heads the Center for Policy Research in Delhi, wrote in The Hindu newspaper. "This 
is not a revolt against the market, it is a protest against the state; this is not 
resentment against the gains of liberalization, but a call for the state to put its 
house in order through even more reform . . . The revolt against holders of power 
is not a revolt of the poor against the rich: ordinary people are far less prone to 
resent other people's success than intellectuals suppose. It is rather an expression 
of the fact that the reform of the state has not gone far enough." 

This is why the most important forces righting poverty in India today, in my view, 
are those NGOs righting for better local governance, using the Internet and other 
modern tools of the flat world to put a spotlight on corruption, mismanagement, and 
tax avoidance. The most important, effective, and meaningful populists in the world 
today are not those handing out money. They are those with an agenda to drive reform 
retail at the local level in their countries-to make it easier for the little man 
or woman to register his or her land, even if they are squatters; to start a business, 
no matter how small; and to get minimal justice from thelegal system. Modern populism, 
to be effective and meaningful, should be about reform retail -making globalization 
workable, sustainable, and fair for more people by improving their local governance, 
so that the money that has already been earmarked for the poor actually gets to them 
and so that their natural entrepreneurship can get unlocked. It is through local 
government that people plug into the system and get to enjoy the benefits of the 
flattening world rather than just observe them. The average Indian villagers cannot 
be likethe Indian high-tech companies and just circumvent the governmentby supplying 
their own electricity, their own water resources, their own security, their own bus 
system, andtheir own satellite dishes. They need the state for that. The market cannot 
be counted on to make up for the failure of the state to deliver decent governance. 
The state has to get better. Precisely because the Indian state opted for a 
globalization strategy in 1991 and abandoned fifty years of socialism-which had 
brought its foreign reserves to near zero-New Delhi had reserves in 2004 of $100 
billion, giving it the resources to help more of its people into the flat arena. 
Ramesh Ramanathan, an Indian-born former Citibank executive who returned to India 
to lead an NGO called Janaagraha, dedicated to improving local governance, is 
precisely the kind of new populist I have in mind. "In India," he said, "clients of 
public education are sending a signal about the quality of service delivery: Whoever 
can afford to opt out does so. The same goes for health care. Given the escalating 


costs of health care, if we had a solid public health-care system, most citizens would 
opt to use it, not just the poor. Ditto for roads, highways, water supply, sanitation, 
registration of births and deaths, crematoria, driver's li389 
censes, and so on. Wherever the government provides these services, it [should be] 
for the benefit of all citizens. [But] in fact, in some of these, like water supply 
and sanitation, the poor are actually not even getting the same basic services as 
the middle class and the rich. The challenge here is therefore universal access." 
Getting NGOs that can collaborate on the local level to ensure that the poor get the 
infrastructure and budgets to which they are entitled could have a major impact on 
poverty alleviation. 
So although this may sound odd coming from me, it is totally consistent with this 
whole book: What the world doesn't need now is for the antiglobalization movement 
to go away. We just need it to grow up. This movement had a lot of energy and a lot 
of mobilizing capacity. What it lacked was a coherent agenda for assisting the poor 
by collaborating with them in a way that could actually help them. The activist groups 
that are helping alleviate poverty the most are those working at the local village 
level in places like rural India, Africa, and China to spotlight and fight corruption 
and to promote accountability, transparency, education, and property rights. You 
don't help the world's poor by dressing up in a turtle outfit and throwing a stone 
through McDonald's window. You help them by getting them the tools and institutions 
to help themselves. It may not be as sexy as protesting against world leaders in the 
streets of Washington and Genoa, and getting lots of attention on CNN, but it is a 
lot more important. Just ask any Indian villager. 
Collaboration in poverty alleviation is not just for NGOs. It is also for 
multinational corporations. The rural poor in India, Africa, and China represent a 
huge market, and it is possible to make money there and serve them -if companies are 
ready to collaborate horizontally with the poor. One of the most interesting examples 
I have come across of this form of collaboration is a program run by Hewlett-Packard. 
HP is not an NGO. HP began with a simple question: What do poor people need most that 
we could sell to them? You cannot design this stuff in Palo Alto; you have to cocreate 
with the user-customer beneficiary. In order to answer that question, HP created a 
public-private partnership with the national government in India and the local 
government in Andhra Pradesh. Then a group of HP technologists convened a series of 
dialogues in the 
390 
farming village of Kuppam. It asked residents two things: What are your hopes for 
the next three to five years? and What changes would really make your lives better? 
To help the villagers (many of them illiterate) express themselves, HP used a concept 
called graphic facilitation, wherebywhen people voiced their dreams and aspirations, 
a visual artist whom HP brought over from the United States drew images of those 
aspirations on craft paper put up on the walls around the room. 
"When people, particularly people who are illiterate, say something and it gets 
immediately represented on the wall, they feel really validated, and therefore they 


get more animated and more engaged," said Maureen Conway, HP's vice president for 
emerging market solutions, who headed the project. "It raises self-esteem." Once 
these poor farmers living in a remote village got loose, they really started aspiring. 
"One of them said, 'What we really need here is an airport,'" said Conway. 
After the visioning sessions were complete, HP employees spent more time in the 
village just observing how people lived. One technological thing missing in their 
lives was photography. Conway explained: "We noticed that there was a big demand for 
having pictures taken for identification purposes, for licenses, for applications 
and government permits, and we said to ourselves, 'Maybe there is an entrepreneurial 
opportunity here if we can turn people into village photographers.' There was one 
photo studio in downtown Kuppam. Everyone around [is] farmers. We noticed that people 
would come back in from villages on a bus, spend two hours, get their pictures taken, 
come back a week later for the pictures, and find out that they were not done or done 
wrong. Time is as important for them as for us. So we said, 'Wait a minute, we make 
digital cameras and portable printers. So what is the problem?' Why doesn't HP sell 
them a bunch of digital cameras and printers? The villagers came back with a very 
short answer: 'Electricity.' They had no assured supply of electricity and little 
money to pay for it. 
"So we said, 'We are technologists. Let's get a solar panel and put it on a backpack 
on wheels and see if there is a business for people here, and for HP, if we make a 
mobile photo studio.' That is the approach we took. The solar panel can charge both 
the camera and the printer. Then we went to a self-help women's group. We picked five 
women and said, 

'We will train you how to use this equipment.' We gave them two weeks of training. 
And we said, 'We will provide you with the camera and supplies, and we will share 
revenue with you on every picture.'" This was not charity. Even after buying all their 
supplies from HP and sharing some of the revenue with HP, the women in the photography 
group doubled their family incomes. "And to be honest, what we found out was that 
less than 50 percent of the pictures they took were for identification pictures and 
the rest were people just wanting pictures of their kids, weddings, and themselves," 
said Conway. The poor like family photo albums as much as the rich and are ready to 
pay for them. The local government also made this women's group its official 
photographers for public works projects, which added to their income. 
End of story? Not quite. As I said, HP is not an NGO. "After four months we said, 
'Okay, the experiment is over, we're taking the camera back,'" said Conway. "And they 
said, 'You're crazy.'" So HP told the women that if they wanted to keep the camera, 
printer, and solar panel, they had to come up with a plan to pay for them. They 
eventually proposed renting them for $9 a month, and HP agreed. And now they are 
branching out into other villages. HP, meanwhile, has started working with an NGO 
to train multiple women's groups with the same mobile photography studio, and there 
is a potential here for HP to sell the studios to NGOs all over India, with all of 
them using HP ink and other supplies. And from India, who knows where? 
"They are giving us feedback on the cameras and ease of use," said Conway. "What it 


has done to change the confidence of the women is absolutely amazing." 
Too Frustrated 
One of the unintended consequences of the flat world is that it puts different 
societies and cultures in much greater direct contact with one another. It connects 
people to people much faster than people and cultures can often prepare themselves. 
Some cultures thrive on the sud- 
392 
den opportunities for collaboration that this global intimacy makes possible. Others 
are threatened, frustrated, and even humiliated by this close contact, which, among 
other things, makes it very easy for people to see where they stand in the world 
vis-a-vis everyone else. All of this helps to explain the emergence of one of the 
most dangerous unflattening forces today-the suicide bombers of al-Qaeda and the 
other Islamist terror organizations, who are coming out of the Muslim world and Muslim 
communities in Europe. 
The Arab-Muslim world is a vast, diverse civilization, encompassing over one billion 
people and stretching from Morocco to Indonesia and from Nigeria all the way to the 
suburbs of London. It is very dangerous to generalize about such a complex religious 
community, made up of so many different ethnicities and nationalities. But one need 
only look at the headlines in any day's newspaper to appreciate that a lot of anger 
and frustration seems to be bubbling over from the Muslim world in general and from 
the Arab-Muslim world in particular, where many young people seem to be agitated by 
a combination of issues. One of the most obvious is the festering Arab-Israeli 
conflict, and the Israeli occupation of Palestinian land and East Jerusalem-a 
grievance which has a powerful emotional hold on the Arab-Muslim imagination and has 
long soured relations with America and the West. 
But this is not the only reason for the brewing anger in these communities. This anger 
also has to do with the frustration of Arabs and Muslims at having to live, in many, 
many cases, under authoritarian governments, which not only deprive their people of 
a voice in their own future, but have deprived tens of millions of young people in 
particular of opportunities to achieve their full potential through good jobs and 
modern schools. The fact that the flat world enables people to so easily compare their 
circumstances with others only sharpens their frustrations. 
Some of these Arab-Muslim young men and women have chosen to emigrate in order to 
find opportunities inthe West; others have chosen tosuffer in silence at home, hoping 
for some kind of change. The most powerful journalistic experiences I have had since 
9/11 have been my encounters in the Arab world with some of these young people. Because 
my column with my picture runs in Arabic in the leading pan-Arab 
393 
newspaper, the London-based Al-Sharq Al-Awsat, and because I often appear on Arab 
satellite-television news programs, many people in that part of the world know what 
I look like. I have been amazed by the number of young Arabs and Muslims-men and 
women-who have come up to me on the streets of Cairo or in the Arabian Gulf since 
9/11, and said to me what one young man in Al-Azhar mosque did one Friday, after noon 
prayer: "You're Friedman, aren't you?" 


I nodded yes. 
"Keep writing what you're writing," he said. And what he meant was writing about the 
importance of bringing more freedom of thought, expression, and opportunity to the 
Arab-Muslim world, so its young people can realize their potential. 
Unfortunately, though, these progressive young people are not the ones defining the 
relationship betweeen the Arab-Muslim community and the world at large today. 
Increasingly, that relationship is being dominated by, and defined by, religious 
militants and extremists, who give vent to the frustrations in that part of the world 
by simply lashing out. The question that I want to explore in this section is: What 
produced this violent Islamist fringe, and why has it found so much passive support 
in the Arab-Muslim world today-even though, I am convinced, the vast majority there 
do not share the violent agenda of these groups or their apocalyptic visions? 
The question is relevant to a book about the flat world for a very simple reason: 
Should there be another attack on the United States of the magnitude of 9/11, or worse, 
walls would go up everywhere and the flattening of the world would be set back for 
a long, long time. 
That, of course, is precisely what the Islamists want. 
When Muslim radicals and fundamentalists look at the West, they see only the openness 
that makes us, in their eyes, decadent and promiscuous. They see only the openness 
that has produced Britney Spears and Janet Jackson. They do not see, and do not want 
to see, the openness-the freedom of thought and inquiry-that has made us powerful, 
the openness that has produced Bill Gates and Sally Ride. They deliberately define 
it all as decadence. Because if openness, women's empowerment, and freedom of thought 
and inquiry are the real sources of the West's 

economic strength, then the Arab-Muslim world would have to change. And the 
fundamentalists and extremists do not want to change. 
To beat back the threat of openness, the Muslim extremists have, quite deliberately, 
chosen to attack the very thing that keeps open societies open, innovating, and 
flattening, and that is trust. When terrorists take instruments from our daily 
lives-the car, the airplane, the tennis shoe, the cell phone-and turn them into 
weapons of indiscriminate violence, they reduce trust. We trust when we park our car 
downtown in the morning that the car next to it is not going to blow up; we trust 
when we go to Disney World that the man in the Mickey Mouse outfit is not wearing 
a bomb-laden vest underneath; we trust when we get on the shuttle flight from Boston 
to New York that the foreign student seated next to us isn't going to blow up his 
tennis shoes. Without trust, there is no open society, because there are not enough 
police to patrol every opening in an open society. Without trust, there can also be 
no flat world, because it is trust that allows us to take down walls, remove barriers, 
and eliminate friction at borders. Trust is essential for a flat world, where you 
have supply chains involving ten, a hundred, or a thousand people, most of whom have 
never met face-to-face. The more open societies are exposed to indiscriminate 
terrorism, the more trust is removed, and the more open societies will erect walls 
and dig moats instead. 


The founders of al-Qaeda are not religious fundamentalists per se. That is, they are 
not focused simply on the relationship between themselves and God, and on the values 
and cultural norms of the religious community. They are a political phenomenon more 
than a religious one. I like to call them Islamo-Leninists. I use the term "Leninists" 
to convey the utopian-totalitarian vision of al-Qaeda as well its self-image. As 
al-Qaeda's chief ideologist, Ayman al-Zawahiri, has put it, al-Qaeda is the 
ideological vanguard, whose attacks on the United States and other Western targets 
are designed to mobilize and energize the Muslim masses to rise up against their own 
corrupt rulers, who are propped up by America. Like all good Leninists, the 
Islamo-Leninists are certain that the Muslim masses are deeply dissatisfied with 
their lot and that one or two spectacular acts of jihad against the "pillars of 
tyranny" in the West will spark them to overthrow the secularizing, immoral, and 
unjust Arab- 
395 
Muslim regimes that have defiled Islam. In their place, the Islamo-Leninists, however, 
do not want to establish a workers' paradise but rather a religious paradise. They 
vow to establish an Islamic state across the same territory that Islam ruled over 
at its height, led by a caliph, a supreme religious-political leader, who would unite 
all the Muslim peoples into a single community. 
Islamo-Leninism, in many ways, emerged from the same historical context as the radical 
European ideologies of the nineteenth and twentieth centuries. Fascism and 
Marxist-Leninism grew out ofthe rapid industrialization and modernization ofGermany 
and Central Europe, where communities living in tightly bonded villages and extended 
families suddenly got shattered and the sons and fathers went off to the urban areas 
to work for big industrial companies. In this age of transitions, young men in 
particular lost a sense of identity, rootedness, and personal dignity that had been 
provided by traditional social structures. In that vacuum, along came Hitler, Lenin, 
and Mussolini, who told these young men that they had an answer for their feelings 
of dislocation and humiliation: You may not be in the village or small town anymore, 
but you are still proud, dignified members of a larger community-the working class, 
or the Aryan nation. 
Bin Laden offered the same sort of ideological response for young Arabs and Muslims. 
The first person to recognize the Islamo-Leninist character of these 9/11 
hijackers-that they were not fundamentalists but adherents of an extreme, violent 
political cult-was Adrian Karatnycky, the president of Freedom House. In a November 
5, 2001, article in the National Review, titled "Under Our Very Noses," Karatnycky 
makes the following argument: "The key hijackers... were well-educated children of 
privilege. None of them suffered first-hand economic privation or political 
oppression." And none of them seem to have been raised in a particularly 
fundamentalist household. Indeed, the top 9/11 operatives and pilots, like Mohammed 
Atta and Marwan al-Shehhi, who shared an apartment in Hamburg, where they both 
attended the Technical University of Hamburg-Harburg, all seem to have been recruited 
to al-Qaeda through cells and prayer groups-after they moved to Europe. 
396 


None of these plotters was recruited in the Middle East and then planted in Europe 
years in advance by bin Laden, notes Karatnycky. To the contrary, virtually all of 
them seem to have lived in Europe on their own, grown alienated from the European 
society around them, gravitated to a local prayer group or mosque to find warmth and 
solidarity, undergone a "born-again" conversion, gotten radicalized by Islamist 
elements, gone off for training in Afghanistan, and presto, a terrorist was born. 
Their discovery of religion was not just part of a personal search for meaning. It 
went far beyond fundamentalism. They converted Islam into a political ideology, a 
religious totalitarianism. Had the 9/11 hijackers been students at Berkeley in the 
early 1970's, they would have been Trotskyite radicals. "To understand the September 
11 terrorists, we should have in mind the profile of the classic revolutionary: 
deracinated, middle class, shaped in part by exile. In other words, the image of Lenin 
in Zurich; or of Pol Pot or Ho Chi Minh in Paris . . . For them Islamism is the new 
universal revolutionary creed, and bin Laden is Sheikh Guevara," writes Karatnycky. 
"Like the leaders of America's Weather Underground, Germany's Baader-Meinhof Gang, 
Italy's Red Brigades, and Japan's Red Army Faction, the Islamic terrorists were 
university-educated converts to an all-encompassing neo-totalitarian ideology." 
My friend Abdallah Schleifer, a journalism professor in Cairo, actually knew Ayman 
al-Zawahiri, bin Laden's number two and chief ideologue, when al-Zawahiri was a young 
doctor on his way to becoming a young neo-Leninist Muslim revolutionary. "Ayman was 
attracted from the time he was a teenager into a Utopian vision of an Islamic state," 
Schleifer told me on a visit to Cairo. But instead of being drawn to the traditional 
concern of religion-the relationship between oneself and God-al-Zawahiri became 
drawn to religion as a political ideology. Like a good Marxist or Leninist, 
al-Zawahiri was interested in "building the Kingdom of God on earth," said Schleifer, 
and Islamism became his Marxism-his "utopian ideology." And where Mohammed Atta meets 
al-Zawahiri is the intersection where rage and humiliation meet the ideology that 
is going to make it all right. "Ayman is saying to someone like Mohammed Atta, 'You 
see injustice? We have a system-a system, mind 

you, a system-that will give you [justice], not a religion, because religion gives 
you inner peace.' It doesn't necessarily solve any social problem. But [al-Zawahiri] 
is saying we have a system that will give you justice. You feel frustration? We have 
a system that will enable you to flower. The system is what we call Islamism-an 
ideological, highly politicized Islam, in which the spiritual content-the personal 
relationship [with God] - is taken out of Islam and instead it is transformed into 
a religious ideology like fascism or communism." But unlike the Leninists, who wanted 
to install the reign of the perfect class, the working class, and unlike Nazis, who 
wanted to install the reign of the perfect race, the Aryan race, bin Laden and 
al-Zawahiri wanted to install the reign of the perfect religion. 
Unfortunately, bin Laden and his colleagues have found it all too easy to enlist 
recruits in the Arab-Muslim world. I think this has to do, in part, with the state 
of half-flatness that many Arab-Muslim young people are living in, particularly those 
in Europe. They have been raised to believe that Islam is the most perfect and complete 


expression of God's monotheistic message and that the Prophet Muhammed is God's last 
and most perfect messenger. This is not a criticism. This is Islam's self-identity. 
Yet, in a flat world, these youth, particularly those living in Europe, can and do 
look around and see that the Arab-Muslim world, in too many cases, has fallen behind 
the rest of the planet. It is not living as prosperously or democratically as other 
civilizations. How can that be? these young Arabs and Muslims must ask themselves. 
If we have the superior faith, and if our faith is all encompassing of religion, 
politics, and economics, why are others living so much better? 
This is a source of real cognitive dissonance for many Arab-Muslim youth-the sort 
of dissonance, and loss of self-esteem, that sparks rage, and leads some of them to 
join violent groups and lash out at the world. It is also the sort of dissonance that 
leads many others, average folks,to give radicalgroups like al-Qaeda passive support. 
Again, the flattening of the world only sharpens that dissonance by making the 
backwardness of the Arab-Muslim region, compared to others, impossible to ignore. 
It has become so impossible to ignore that some Arab-Muslim intellectuals have started 
to point out this backwardness with brutal honesty and to demand 

solutions. They do this in defiance of their authoritarian governments, who prefer 
to use their media not to encourage honest debate, but rather to blame all their 
problems on others-on America, on Israel, or on a legacy of Western colonialism-on 
anything and anyone but the dead hand of these authoritarian regimes. 
According to the second Arab Human Development Report, which was written in 2003 for 
the United Nations Development Program by a group of courageous Arab social scientists, 
between 1980 and 1999, Arab countries produced 171 international patents. South Korea 
alone during that same period registered 16,328 patents. Hewlett-Packard registers, 
on average, 11 new patents a day. The average number of scientists and engineers 
working in research and development in the Arab countries is 371 per million people, 
while the world average, including countries in Africa, Asia, and Latin America, is 
979, the report said. This helps to explain why although massive amounts of foreign 
technology are imported to the Arab regions, very little of it is internalized or 
supplanted by Arab innovations. Between 1995 and 1996, as many as 25 percent of the 
university graduates produced in the Arab world immigrated to some Western country. 
There are just 18 computers per 1,000 people in the Arab region today, compared with 
the global average of 78.3 per 1,000, and only 1.6 percent of the Arab population 
has Internet access. While Arabs represent almost 5 percent of the world population, 
the report said, they produce only 1 percent of the books published, and an unusually 
high percentage of those are religious books-over triple the world average. Of the 
88 million unemployed males between fifteen and twenty-four worldwide, almost 26 
percent are in the Middle East and North Africa, according to an International Labor 
Organization study (Associated Press, December 26, 2004). 
The same study said the total population of Arab countries quadrupled in the past 
fifty years, to almost 300 million, with 37.5 percent under fifteen, and 3 million 
coming onto the job market every year. But the good jobs are not being produced at 
home, because the environment of openness required to attract international 


investment and stimulate local innovation is all too rare in the Arab-Muslim world 
today. That virtuous cycle of universities spinning off people and ideas, and then 
those people 
399 
and ideas getting funded and creating new jobs, simply does not exist there. Theodore 
Dalrymple is a physician and psychiatrist who practices in England and writes a column 
for the London Spectator. He wrote an essay in City journal, the urban policy magazine 
(Spring 2004), about what he learned from his contacts with Muslim youth in British 
prisons. Dalrymple noted that most schools of Islam today treat the Qu'ran as a 
divinely inspired text that is not open to any literary criticism or creative 
reinterpretation. It is a sacred book to be memorized, not adapted to the demands 
and opportunities of modern life. But without a culture that encourages, and creates 
space for, such creative reinterpretation, critical thought and original thinking 
tend to whither. This may explain why so few world-class scientific papers cited by 
other scholars come out of the Arab-Muslim universities. 
If the West had made Shakespeare "the sole object of our study and the sole guide 
of our lives," said Dalrymple, "we would soon enough fall into backwardness and 
stagnation. And the problem is that so many Muslims want both stagnation and power: 
they want a return to the perfection of the seventh century and to dominate the 
twenty-first, as they believe is the birthright of their doctrine, the last testament 
of God to man. If they were content to exist in a seventh-century backwater, secure 
in a quietist philosophy, there would be no problem for them or us; their problem, 
and ours, is that they want the power that free inquiry confers, without either the 
free inquiry or the philosophy and institutions that guarantee that free inquiry. 
They are faced with a dilemma: either they abandon their cherished religion, or they 
remain forever in the rear of human technical advance. Neither alternative is very 
appealing, and the tension between their desire for power and success in the modern 
world on the one hand, and their desire not to abandon their religion on the other, 
is resolvable for some only by exploding themselves as bombs. People grow angry when 
faced with an intractable dilemma; they lash out." 
Indeed, talk to young Arabs and Muslims anywhere, and this cognitive dissonance and 
the word "humiliation" always come up very quickly in conversation. It was revealing 
that when Mahathir Mohammed made his October 16, 2003, farewell speech as prime 
minister of Malaysia at an Islamic summit he was hosting in his own country, he built 
his remarks 
400 
to his fellow Muslim leaders around the question of why their civilization had become 
so humiliated-a term he used five times. "I will not enumerate the instances of our 
humiliation," said Mahathir. "Our only reaction is to become more and more angry. 
Angry people cannot think properly. There is a feeling of hopelessness among the 
Muslim countries and their people. They feel they can do nothing right. . ." 
This humiliation is the key. It has always been my view that terrorism is not spawned 
by the poverty of money. It is spawned by the poverty of dignity. Humiliation is the 
most underestimated force in international relations and in human relations. It is 


when people or nations are humiliated that they really lash out and engage in extreme 
violence. When you take the economic and political backwardness of much of the 
Arab-Muslim world today, add its past grandeur and self-image of religious 
superiority, and combine it with the discrimination and alienation these Arab-Muslim 
males face when they leave home and move to Europe, or when they grow up in Europe, 
you have one powerful cocktail of rage. As my friend the Egyptian playwright Ali Salem 
said of the 9/11 hijackers, they "are walking the streets of life, searching for tall 
buildings-for towers to bring down, because they are not able to be tall like them." 
I fear that this sense of frustration that feeds recruits to bin Laden may get worse 
before it gets better. In the old days, leaders could count on walls and mountains 
and valleys to obstruct their people's view and keep them ignorant and passive about 
where they stood in comparison to others. You could see only to the next village. 
But as the world gets flatter, people can see for miles and miles. 
In the flat world you get your humiliation dishedup toyou fiber-optically. I stumbled 
across a fascinating example of this involving bin Laden himself. On January 4, 2004, 
bin Laden issued one of his taped messages through al-Jazeera, the satellite 
television network based in Qatar. On March 7, the Web site of the Islamic Studies 
and Research Center published the entire text. One paragraph jumped out at me. It 
is in the middle of a section in which bin Laden is discussing the various evils of 
Arab rulers, particularly the Saudi ruling family. 
"Thus, the situation of all Arab countries suffers from great deterioration in all 
walks of life, in religious and worldly matters," says bin Laden. 

"It is enough to know that the economy of all Arab countries is weaker than the economy 
of one country that had once been part of our [Islamic] world when we used to truly 
adhere to Islam. That country is the lost Andalusia. Spain is an infidel country, 
but its economy is stronger than our economy because the ruler there is accountable. 
In our countries, there is no accountability or punishment, but there is only 
obedience to the rulers and prayers of long life for them." 
The hair on my arms stood up when I read that. Why? Because what bin Laden was referring 
to was the first Arab Human Development Report, which came out in July 2002, well 
after he had been evicted from Afghanistan and was probably hiding out in a cave 
somewhere. The Arab authors of the report wanted to grab the attention of the Arab 
world as to how far behind it had fallen. So they looked for a country that had a 
GDP slightly more than that of all twenty-two Arab states combined. When they ran 
down the tables, the country that fit that bill perfectly was Spain. It could have 
been Norway or Italy, but Spain happened to have a GDP just slightly larger than all 
the Arab states together. Somehow, bin Laden heard or read about this first Arab Human 
Development Report from his cave. For all I know, he may have read my own column about 
it, which was thefirst to highlight the report and stressedthe comparison withSpain. 
Or maybe he got it off the Internet. The report was downloaded from the Internet some 
1 million times. So even though he was off in a cave somewhere, he could still get 
this report, and its humiliating conclusion, shoved right in his face-negatively 
comparing the Arab states to Spain, no less! And when he heard that comparison, 


wherever he was hiding, bin Laden took it as an insult, as a humiliation-the notion 
that Christian Spain, a country that was once controlled by Muslims, had a greater 
GDP today than all the Arab states combined. The authors of this report were themselves 
Arabs and Muslims; they were not trying to humiliate anyone-but that was how bin Laden 
interpreted it. And I am certain he got this dose of humiliation over a modem at 56K. 
They may even have broadband now in Tora Bora. 
And having gotten his dose of humiliation this way, bin Laden and his emulators have 
learned to give it right back in the same coin. Want to understand why the 
Islamo-Leninists behead Americans in Iraq and 
402 
Saudi Arabia and then distribute pictures on the Internet with the bloody head of 
the body resting on the headless corpse? It is because there is no more humiliating 
form of execution than chopping off someone's head. It is a way of showing utter 
contempt for that person and his or her physical being. It is no accident that the 
groups in Iraq who beheaded Americans dressed them first in the same orange jumpsuits 
that al-Qaeda prisoners in Guantanamo Bay are forced to wear. They had to learn about 
those jumpsuits either over the Internet or satellite TV. But it amazes me that in 
the middle of the Iraq war they were able to have the exact same jumpsuits made in 
Iraq to dress their prisoners in. You humiliate me, I humiliate you. And what do you 
suppose terrorist leader Abu Musab al-Zarqawi said in his audiotape released on 
September 11, 2004, the third anniversary of 9/11? He said, "The holy warriors made 
the international coalition taste humiliation . . . lessons from which they are still 
burning." The tape was titled "Where Is the Honor?" 
As I said, however, this frustration and humiliation is not confined to the Islamist 
fringes. The reason why the Islamo-Leninists have become the most energized and 
pronounced opponents of globalization/ Americanization and the biggest threat to the 
flattening of the world today is not simply their extraordinary violence, but also 
because they enjoy some passive support around the Arab-Muslim world. 
In part, this is because most governments in the Arab-Muslim world have refused to 
take on these radicals in a war of ideas. While Arab regimes have been very active 
in jailing their Islamo-Leninists when they can find and arrest them, they have been 
very passive in countering them with a modern, progressive interpretation of Islam. 
This is because almost all of these Arab-Muslim leaders are illegitimate themselves. 
Having come to power by force, they have no credibility as carriers of a moderate, 
progressive Islam, and they always feel vulnerable to hard-line Muslim preachers, 
who denounce them for not being good Muslims. So instead of taking on the Muslim 
radicals, the Arab regimes either throw them in jail or try to buy them off. This 
leaves a terrible spiritual and political void. 
But the other reason for the passive support that the Islamo-Leninists enjoy-and the 
fact that they are able to raise so much money through 
403 
charities and mosques in the Arab-Muslim world-is that too many good decent people 
there feel the same frustration and tinge of humiliation that many of their most 
enraged youth do. And there is a certain respect for the way these violent youth have 


been ready to stand up to the world and to their own leaders and defend the honor 
of their civilization. When I visited Qatar a few months after 9/11, a friend of mine 
there-a sweet, thoughtful, liberal person who works for the Qatari government-
confided to me something in a whisper that was deeply troubling to him: "My 
eleven-year-old son thinks bin Laden is a good man." 
Most middle-class Arabs and Muslims, I am convinced, were not celebrating the death 
of three thousand innocent Americans on 9/11. I know my Arab and Muslim friends were 
not. But many Arabs and Muslims were celebrating the idea of putting a fist in 
America's face- and they were quietly applauding the men who did it. They were happy 
to see someone humiliating the people and the country that they felt was humiliating 
them and supporting what they saw as injustice in their world-whether it is America's 
backing of Arab kings and dictators who export oil to it or America's backing of Israel 
whether it does the right things or the wrong things. 
Most American blacks, I am sure, had little doubt that O. J. Simpson murdered his 
ex-wife, but they applauded his acquittal as a stick in the eye of the Los Angeles 
Police Department and a justice system that they saw as consistently humiliating and 
unfair to them. Humiliation does that to people. Bin Laden is to the Arab masses what 

O.J. was to many American blacks-the stick they poke in the eye of an "unfair" America 
and their own leaders. I once interviewed Dyab Abou Jahjah, often called the Malcolm 
X of Belgium's alienated Moroccan youth. I asked him what he and his friends thought 
when they saw the World Trade Center being smashed. He said, "I think if we are honest 
with ourselves, most of the Muslims all over the world felt that. . . America got 
hit in the face and that cannot be bad. I don't want to make an intellectual answer 
for that. I'll give it very simply. America was kicking our butts for fifty years. 
And really badly. Supporting the bullies in the region, whether it is Israel or our 
own regimes, [America] is giving us not only a bleeding nose, but breaking a lot of 
our necks." 
Just as America's economic depression in the 1920s and 1930s made many normal, 
intelligent, thinking Americans passive or active supporters of communism, so the 
humiliating economic, military, and emotional depression of the Arab-Muslim world 
has made too many normal, intelligent, and thinking Arabs and Muslims passive 
supporters of bin Ladenism. 
Former Kuwaiti minister of information Dr. Sa'd Bin Tefla, a journalist, wrote an 
essay in the London Arabic daily Al-Sharq Al-Awsat on the third anniversary of 
September 11 titled "We Are All Bin Laden," which went right to this point. He asked 
why it is that Muslim scholars and clerics eagerly supported fatwas condemning Salman 
Rushdie to death for writing an allegedly blasphemous novel, The Satanic Verses, that 
wove in themes about the Prophet Muhammad, but to this day no Muslim cleric has issued 
a fatwa condemning Osama bin Laden for murdering three thousand innocent civilians. 
After the fatwa was declared against Salman Rushdie, Muslims staged protests against 
the book at British embassies all over the Islamic world and burned Salman Rushdie 
dolls alongwith copies of his book. Nine people were killedin ananti-Rushdie protest 
in Pakistan. 


"Religious legal rulings were disseminated one after another banning Salman Rushdie's 
book and calling for him to be killed," Bin Tefla wrote. "Iran earmarked a reward 
of $ 1 million for whoever would implement Imam Khomeini's fatwa and kill Salman 
Rushdie." And bin Laden? Nothing-no condemnation. "Despite the fact that bin Laden 
murdered thousands of innocents in the name of our religion and despite the damage 
that he has caused to Muslims everywhere, and especially to innocent Muslims in the 
West, whose life is much better than the life of Muslims in Islamic lands, to this 
date not a single fatwa has been issued calling for the killing of bin Laden, on the 
pretext that bin Laden still proclaims 'there is no God other than Allah,'" Tefla 
wrote. Worse, he added, Arab and Muslim satellite television channels have "competed 
amongst themselves in broadcasting [bin Laden's] sermons and fatwas, instead of 
preventing their dissemination as they did in the case of Rushdie's book . . . With 
our equivocal stance on bin Laden, we from the very start left the world with the 
impression that we are all bin Laden." 

Germany was humiliated after World War I, but it had the modern economic foundations 
to produce a state response to that humiliation -in the form of the Third Reich. 
The Arab world, by contrast, could not produce a state response to its humiliation. 
Instead, it has rattled the world stage in the last fifty years with two 
larger-than-life figures, rather than states, noted political theorist Yaron Ezrahi: 
One was the Saudi oil minister Ahmed Zaki Yamani, and the other was Osama bin Laden. 
Each achieved global notoriety, each briefly held the world in his palm-one by using 
oil as a weapon and the other by using the most unconventional suicide violence 
imaginable. Each gave a temporary "high" to the Arab-Muslim world, a feeling that 
it was exercising power on the world stage. But bin Laden and Yamani were only the 
illusions of power, noted Ezrahi: The Saudi oil weapon is economic power without 
productivity, and bin Laden's terrorism weapon is military force without a real army, 
state, economy, and engine of innovation to support it. 
What makes Yamanism and bin Ladenism so unfortunate as strategies for Arab influence 
in the world is that they ignore the examples within Arab culture and 
civilization-when it was at its height-of discipline, hard work, knowledge, 
achievement, scientific inquiry, and pluralism. As Nayan Chanda, the editor of 
YaleGlobal Online, pointed out to me, it was the Arab-Muslim world that gave birth 
to algebra and algorithms, terms both derived from Arabic words. In other words, noted 
Chanda, "The entire modern information revolution, which is built to a large degree 
on algorithms, can trace its roots all the way back to Arab-Muslim civilization and 
the great learning centers of Baghdad and Alexandria," which first introduced these 
concepts, then transferred them to Europe through Muslim Spain. The Arab-Muslim 
peoples have an incredibly rich cultural tradition and civilization, with long 
periods of success and innovation to draw on for inspiration and example for their 
young people. They have all the resources necessary for modernization in their own 
cultural terms, if they want to summon them. 
Unfortunately, there is huge resistance to such modernization from the authoritarian 
and religiously obscurantist forces within the Arab-Muslim world. That is why this 


part of the world will be liberated, and 
406 
feel truly empowered, only if it goes through its own war of ideas -and the moderates 
there win. We had a civil war in America some 150 years ago over ideas-the ideas of 
tolerance, pluralism, human dignity, and equality. The best thing outsiders can do 
for the Arab-Muslim world today is try to collaborate with its progressive forces 
in every way possible- from trying to solve the Arab-Israeli conflict, to stabilizing 
Iraq, to signing free-trade agreements with as many Arab countries as possible-so 
as to foster a similar war of ideas within their civilization. There is no other way. 
Otherwise this part of the world has the potential to be a huge un-flattening force. 
We have to wish the good people there well. But the battle will be one for them to 
fight and to win. No one can do it for them. 
No one has expressed what is needed better than Abdel Rahman al-Rashed, the general 
manager of the London-based al-Arabiya news channel. One of the best-known and most 
respected Arab journalists working today, he wrote the following, in Al-Sharq 
Al-Awsat (September 6, 2004), after a series of violent incidents involving Muslim 
extremist groups from Chechnya to Saudi Arabia to Iraq: "Self-cure starts with 
self-realization and confession. We should then run after our terrorist sons, in the 
full knowledge that they are the sour grapes of a deformed culture . . . The mosque 
used to be a haven, and the voice of religion used to be that of peace and 
reconciliation. Religious sermons were warm behests for a moral order and an ethical 
life. Then came the neo-Muslims. An innocent and benevolent religion, whose verses 
prohibit the felling of trees in the absence of urgent necessity, that calls murder 
the most heinous of crimes, that says explicitly that if you kill one person you have 
killed humanity as a whole, has been turned into a global message of hate and a 
universal war cry . . . We cannot clear our names unless we own up to the shameful 
fact that terrorism has become an Islamic enterprise; an almost exclusive monopoly, 
implemented by Muslim men and women. We cannot redeem our extremist youth, who commit 
all these heinous crimes, without confronting the Sheikhs who thought it ennobling 
to reinvent themselves as revolutionary ideologues, sending other people's sons and 
daughters to certain death, while sending their own children to European and American 
schools and colleges." 
407 
Too Many Toyotas 
The problems of the too sick, the too disempowered, and the too humiliated are all 
in their own ways keeping the world from becoming entirely flat. They may do so even 
more in the future, if they are not properly addressed. But another barrier to the 
flattening of the world is emerging, one that is not a human constraint but a natural 
resource constraint. If millions of people from India, China, Latin America, and the 
former Soviet Empire who were living largely outside the flat world all start to walk 
onto the flat world playing field at once-and all come with their own dream of owning 
a car, a house, a refrigerator, a microwave, and a toaster-we are going to experience 
either a serious energy shortage or, worse, wars over energy that would have a 
profoundly unflattening effect on the world. 


As I mentioned earlier, I visited Beijing in the summer of2004 with my wife and teenage 
daughter, Natalie. Before we left, I said to Natalie, "You're really going to like 
this city. They have these big bicycle lanes on all the main roads. Maybe when we 
get there we can rent bikes and just ride around Beijing. I did that last time I was 
there, and it was a lot of fun." 
Silly Tom. I hadn't been to Beijing in three years, and just in that brief period 
of time the explosive growth there had wiped out many of those charming bicycle lanes. 
They had been either shrunken or eliminated to add another lane for automobiles and 
buses. The only biking I did there was on the stationary exercise bike in our hotel, 
which was a good antidote for having to spend so much time sitting in cars stuck in 
Beijing traffic jams. I was in Beijing to attend an international business conference, 
and while there I discovered why all the bikes had disappeared. According to one 
speaker at the conference, some thirty thousand new cars were being added to the roads 
in Beijing every month-one thousand new cars a day! I found that statistic so 
unbelievable that I asked Michael Zhao, a young researcher in the Times's Beijing 
bureau, to double-check it, and he wrote me back the following e-mail: 
Hi Tom, Hope this email finds you well. On your question about how many cars are added 
each day in Beijing, I did some research 

on the Internet and found that. . . car sales in [Beijing] for April 2004 were 43,000 
-24.1% more than same period lastyear. So that is 1,433 cars added [daily] to Beijing, 
but including secondhand car sales. New car sales this month were 30,000, or 1,000 
cars each day added to the city. The total car sales from Jan. to April 2004 were 
165,000, that is about 1,375 cars added each day to Beijing over this period. This 
data is from the Beijing Municipal Bureau of Commerce. The city's bureau of statistics 
has it that the total car sales in 2003 were 407,649, or 1,117 cars each day added. 
The new car sales last year were 292,858, or 802 new cars each day . .. The total 
number of cars in Beijing is 2.1 million . . . But the recent months seem to have 
witnessed surging sales. Also noteworthy is last year's SARS outbreak, during which 
period a lot of families bought cars, due to panic about public contact and a sort 
of doomsday-stimulated enjoy-life mentality. And many new car owners did enjoy their 
time driving, as the traffic in the city so much improved with a lot of people 
voluntarily caged at home, without daring to go out. Since then, coupled with dropping 
car prices due to China's commitment to reduce tariffs after joining the WTO, a large 
number of families have advanced their timetable of buying a car, although some others 
decided to wait for further drops of prices. All the best, Michael. 
As Michael's note indicated, you can see China's middle class rising right before 
your eyes, and it is going to have enormous energy and environmental spillover. The 
Great Chinese Dream, like the Great Indian Dream, the Great Russian Dream, and the 
Great American Dream, is built around a high-energy, high-electricity, 
high-bent-metal lifestyle. To put it another way, the thirty thousand new cars a month 
in Beijing, and the cloud of haze that envelops the city on so many days, and the 
fact that the city's official Web site actually keeps track of "blue sky" days all 
testify to the environmental destruction that could arise from the triple 


convergence-if clean alternative renewable energies are not developed soon. Already, 
according to the World Bank, sixteen of the twenty most polluted cities in the world 
are in China, and that pollution and environ409 
mental degradation together cost China $170 billion a year (The Economist, August 
21, 2004). 
And we have not seen anything yet. China, with its own oil and gas reserves, was once 
a net exporter. Not anymore. In 2003 China surged ahead of Japan as the second largest 
importer of oil in the world, after the United States. Right now about 700 to 800 
million of China's 1.3 billion people live in the countryside, but they are heading 
for the flat world, and roughly half are expected to try to migrate to the cities 
over the next two decades, if they can find work. This will spur a huge surge in demand 
for cars, houses, steel beams, power plants, school buildings, sewage plants, 
electricity grids-the energy implications of which are unprecedented in the history 
of Planet Earth, round or flat. 
At the business conference I was attending in Beijing, I kept hearing references to 
the Strait of Malacca-the narrow passage between Malaysia and Indonesia that is 
patrolled by the U.S. Navy and controls all the oil tanker traffic from the Middle 
East to China and Japan. I hadn't heard anyone talking about the Strait of Malacca 
since the 1970s oil crises. But evidently Chinese strategic planners have begun to 
grow increasingly concerned that the United States could choke off China's economy 
at any time by just closing the Strait of Malacca, and this threat is now being 
increasingly and openly discussed in Chinese military circles. It is just a small 
hint of the potential struggle for power-energy power-that could ensue if the Great 
American Dream and the Great Chinese Dream and the Great Indian Dream and the Great 
Russian Dream come to be seen as mutually exclusive in energy terms. 
China's foreign policy today consists of two things: preventing Taiwan from becoming 
independent and searching for oil. China is now obsessed with acquiring secure oil 
supplies from countries that would not retaliate against China if it invaded Taiwan, 
and this is driving China to get cozy with some of the worst regimes in the world. 
The Islamic fundamentalist government in Sudan now supplies China with 7 percent of 
its oil supplies and China has invested $3 billion in oil drilling infrastructure 
there. 
In September 2004, China threatened to veto a move by the United Nations to impose 
sanctions on Sudan for the genocide that it is perpetrat410 
ing in its Darfur province. China followed by opposing any move to refer Iran's obvious 
attempts todevelop nuclear-weapons-grade fuelto the United Nations Security Council. 
Iran supplies 13 percent of China's oil supplies. Meanwhile, as the Daily Telegraph 
reported (November 19, 2004), China has begun drilling for gas in the East China Sea, 
just west of the line that Japan regards as its border: "Japan protested, to no avail, 
that the project should be a joint one. The two are also set to clash over Russia's 
oil wealth. China is furious that Japan has outbid it in their battle to determine 
the route of the pipeline that Russia intends to build to the Far East." At the same 


time it was reported that a Chinese nuclear submarine had accidentally strayed into 
Japanese territorial waters. The Chinese government apologized for the "technical 
error." If you believe that, I have an oil well in Hawaii I would like to sell you ... 
In 2004, China began competing with the United States for oil exploration 
opportunities in Canada and Venezuela. If China has its way, it will stick a straw 
into Canada and Venezuela and suck out every drop of oil, which will have the side 
effect of making America more dependent on Saudi Arabia. 
I interviewed the Japanese manager of a major U.S. multinational that was 
headquartered in Dalian, in northeastern China. "China is following the path of Japan 
and Korea," said the executive, on the condition that he and his company not be quoted 
by name, "and the big question is, Can the world afford to have 1.3 billion people 
following that path and driving the same cars and using the same amount of energy? 
So I see the flattening, but the challenge of the twenty-first century is, Are we 
going to hit another oil crisis? The oil crisis in the 1970s coincided with Japan 
and Europe rising. [There was a time] when the U.S. was the only big consumer of oil, 
but when Japan and Europe came in, OPEC got the power. But when China and India come 
into being the consumers, it will be a huge challenge that is an order of magnitude 
different. It is megapolitics. The limits of growth in the 1970s were overcome with 
technology. We got smarter than before, equipment became more efficient, and energy 
consumption per head was lower. But now [with China, India, and Russia all coming 
on strong] it is multiplied by a factor of ten. There is something 

we really need to be serious about. We cannot restrict China, [Russia,] and India. 
They will grow and they must grow." 
One thing we will not be able to do is tell young Indians, Russians, Poles, or Chinese 
that just when they are arriving on the leveled playing field, they have to hold back 
and consume less for the greater global good. While giving a talk to students at the 
Beijing College of Foreign Affairs, I spoke about the most important issues that could 
threaten global stability, including the competition for oil and other energy 
resources that would naturally occur as China, India, and the former Soviet Union 
began to consume more oil. No sooner did I finish than a young Chinese woman student 
shot up her hand and asked basically the following question: "Why should China have 
to restrain its energy consumption and worry about the environment, when America and 
Europe got to consume all they energy they wanted when they were developing?" I did 
not have a good answer. China isa high-pride country. TellingChina, India, and Russia 
to consume less could have the same geopolitical impact that the world's inability 
to accommodate a rising Japan and Germany had after World War I. 
If current trends hold, China will go from importing 7 million barrels of oil today 
to 14 million a day by 2012. For the world to accommodate that increase it would have 
to find another SaudiArabia. That is notlikely, which doesn't leave many good options. 
"For geopolitical reasons, we cannot tell them no, we cannot tell China and India, 
it is not your turn," said Philip K. Verleger Jr., a leading oil economist. "And for 
moral reasons, we have lost the ability to lecture anyone." But if we do nothing, 
several things will likely result. First, gasoline prices will continue to trend 


higher and higher. Second, we will be strengthening the very worst political systems 
in the world-like Sudan, Iran, and Saudi Arabia. And third, the environment will be 
damaged more and more. Already, the newspaper headlines in China every day are about 
energy shortages, blackouts, and brownouts. U.S. officials estimate that twenty-four 
out of China's thirty-one provinces are now experiencing power shortages. 
We are all stewards of the planet, and the test for our generation is whether we will 
pass on a planet in as good or better shape than we found 
412 
it. The flattening process is going to challenge that responsibility. "Aldo Leopold, 
the father of wildlife ecology, once said: 'The first rule of intelligent tinkering 
is save all the pieces,'" remarked Glenn Prickett, senior vice president of 
Conservation International. "What if we don't? What if the 3 billion new entrants 
start gobbling up all the resources? Species and ecosystems can't adapt that fast, 
and we will lose a major portion of the earth's remaining biological diversity." 
Already, noted Prickett, if you look at what is happening in the Congo Basin, the 
Amazon, the rain forest of Indonesia-the last great wilderness areas-you find that 
they are being devoured by China's rising appetite. More and more palm oil is being 
extracted from Indonesia and Malaysia, soybeans out of Brazil, timber out of central 
Africa, and natural gas out of all of the above to serve China-and, as a result, 
threatening all sorts of natural habitats. If these trends go on unchecked, with all 
the natural habitats being converted to farmland and urban areas, and the globe 
getting warmer, many of the currently threatened species will be condemned to 
extinction. 
The move to sharply reduce energy consumption has to come from within China, as the 
Chinese confront what the need for fuel is doing to their own environment and growth 
aspirations. The only thing-and the best thing-we in the United States and Western 
Europe can do to nudge China toward that understanding is set an example by changing 
our own consumption patterns. That would give us some credibility to lecture others. 
"Restoring our moral standing on energy is now a vital national security and 
environmental issue," said Verleger. That requires doing everything more 
seriously-more serious government funding for alternatives, a real push by the 
federal government to promote conservation, a gasoline tax that will drive more 
consumers to buy hybrid vehicles and smaller cars, legislation to force Detroit to 
make more fuel-efficient vehicles, and yes, more domestic exploration. Together, 
added Verleger, that could help stabilize the price at around $25 a barrel, "which 
seems to be the ideal range for sustainable global growth." 
In sum, we in the West have a fundamental interest in keeping the American dream alive 
in Beijing and Boise and Bangalore. But we have to stop fooling ourselves that it 
can be done in a flat world with 3 billion potential new consumers-if we don't find 
a radical new approach to en413 
ergy usage and conservation. If we fail to do so, we will be courting both an 
environmental and geopolitical whirlwind. If there was ever a time for some big 
collaboration, it is now, and the subject is energy. I would love to see a grand 


China-United States Manhattan Project, a crash program to jointly develop clean 
alternative energies, bringing together China's best scientists and its political 
ability to implement pilot projects, with America's best brains, technology, and 
money. It would be the ideal model and the ideal project for creating value 
horizontally, with each side contributing its strength. Said Scott Roberts, the 
Cambridge Energy Research Associates analyst in China, "When it comes to renewable 
technology and sustainable energy, China could be the laboratory of the world-not 
just the workshop of the world." Why not? 

::::: TWELVE 
The Dell Theory of Conflict Prevention 
Old-Time Versus Just-in-Time 
Free Trade is God's diplomacy. There is no other certain way of uniting people in 
the bonds of peace. -British politician Richard Cobden, 1857 
Before I share with you the subject of this chapter, I have to tell you a little bit 
about the computer that I wrote this book on. It's related to the theme I am about 
to discuss. This book was largely written on a Dell Inspiron 600m notebook, service 
tag number 9ZRJP41. As part of the research for this book71 visited withthe management 
team at Dell near Austin, Texas. I shared with them the ideas in this book and in 
return I asked for one favor: I asked them to trace for me the entire global supply 
chain that produced my Dell notebook. Here is their report: My computer was conceived 
when I phoned Dell's 800 number on April 2, 2004, and was connected to sales 
representative Mujteba Naqvi, who immediately entered my order into Dell's order 
management system. He typed in both the type of notebook I ordered as well as the 
special features I wanted, along with my personal information, shipping address, 
billing address, and credit card information. My credit card was verified by Dell 
through its work flow connection with Visa, and my order was then released to Dell's 
production system. Dell has six factories around the world-in Limerick, Ireland; 
Xiamen, China; Eldorado do Sul, Brazil; Nashville, Tennesee; Austin, Texas; and 
Penang, Malaysia. My order went out by e-mail to the Dell notebook factory inMalaysia, 

where the parts for the computer were immediately ordered from the supplier logistics 
centers (SLCs) next to the Penang factory. Surrounding every Dell factory in the world 
are these supplier logistics centers, owned by the different suppliers of Dell parts. 
These SLCs are like staging areas. If you are a Dell supplier anywhere in the world, 
your job is to keep your SLC full of your specific parts so they can constantly be 
trucked over to the Dell factory for just-in-time manufacturing. 
"In an average day, we sell 140,000 to 150,000 computers," explained Dick Hunter, 
one of Dell's three global production managers. "Those orders come in over Dell.com 
or over the telephone. As soon these orders come in, our suppliers know about it. 
They get a signal based on every component in the machine you ordered, so the supplier 
knows just what he has to deliver. If you are supplying power cords for desktops, 
you can see minute by minute how many power cords you are going to have to deliver." 
Every two hours, the Dell factory in Penang sends an e-mail to the various SLCs nearby, 


telling each one what parts and what quantities of those parts it wants delivered 
within the next ninety minutes-and not one minute later. Within ninety minutes, trucks 
from the various SLCs around Penang pull up to the Dell manufacturing plant and unload 
the parts needed for all those notebooks ordered in the last two hours. This goes 
on all day, every two hours. As soon as those parts arrive at the factory, it takes 
thirty minutes for Dell employees to unload the parts, register their bar codes, and 
put them into the bins for assembly. "We know where every part in every SLC is in 
the Dell system at all times," said Hunter. 
So where did the parts for my notebook come from? I asked Hunter. To begin with, he 
said, the notebook was codesigned in Austin, Texas, and in Taiwan by a team of Dell 
engineers and a team of Taiwanese notebook designers. "The customer's needs, required 
technologies, and Dell's design innovations were all determined by Dell through our 
direct relationship with customers," he explained. "The basic design of the 
motherboard and case-the basic functionality of your machine-was designed to those 
specifications by an ODM [original design manufacturer] in Taiwan. We put our 
engineers in their facilities and they come to Austin and we actually codesign these 
systems. This global teamwork 

brings an added benefit-a globally distributed virtually twenty-four-hour-per-day 
development cycle. Our partners do the basic electronics and we help them design 
customer and reliability features that we know our customers want. We know the 
customers better than our suppliers and our competition, because we are dealing 
directly with them every day." Dell notebooks are completely redesigned roughly every 
twelve months, but new features are constantly added during the year-through the 
supply chain-as the hardware and software components advance. 
It happened that when my notebook order hit the Dell factory in Penang, one part was 
not available-the wireless card-due to a quality control issue, so the assembly of 
the notebook was delayed for a few days. Then the truck full of good wireless cards 
arrived. On April 13, at 10:15 a.m., a Dell Malaysia worker pulled the order slip 
that automatically popped up once all my parts had arrived from the SLCs to the Penang 
factory. Another Dell Malaysia employee then took out a "traveler"-a special carrying 
tote designed to hold and protect parts-and started plucking all the parts that went 
into my notebook. 
Where did those parts come from? Dell uses multiple suppliers for most of the thirty 
key components that go into its notebooks. That way if one supplier breaks down or 
cannot meet a surge in demand, Dell is not left in the lurch. So here are the key 
suppliers for my Inspiron 600m notebook: The Intel microprocessor came from an Intel 
factory either in the Philippines, Costa Rica, Malaysia, or China. The memory came 
from a Korean-owned factory in Korea (Samsung), a Taiwanese-owned factory in Taiwan 
(Nanya), a German-owned factory in Germany (Infineon), or a Japanese-owned factory 
in Japan (Elpida). My graphics card was shipped from either a Taiwanese-owned factory 
in China (MSI) or a Chinese-run factory in China (Foxconn). The cooling fan came from 
a Taiwanese-owned factory in Taiwan (CCI or Auras). The motherboard came from either 
a Korean-owned factory in Shanghai (Samsung), a Taiwanese-owned factory in Shanghai 


(Quanta), or a Taiwanese-owned factory in Taiwan (Compal or Wistron). The keyboard 
came from either a Japanese-owned company in Tianjin, China (Alps), a Taiwanese-owned 
factory in Shenzen, China (Sunrex), or a Taiwanese417 
owned factory in Suzhou, China (Darfon). The LCD display was made in either South 
Korea (Samsung or LG.Philips LCD), Japan (Toshiba or Sharp), or Taiwan (Chi Mei 
Optoelectronics, Hannstar Display, or AU Optronics). The wireless card came from 
either an American-owned factory in China (Agere) or Malaysia (Arrow), or a 
Taiwanese-owned factory in Taiwan (Askey or Gemtek) or China (USI). The modem was 
made by either a Taiwanese-owned company in China (Asustek or Liteon) or a Chinese-run 
company in China (Foxconn). The battery came from an American-owned factory in 
Malaysia (Motorola), a Japanese-owned factory in Mexico or Malaysia or China (Sanyo), 
or a South Korean or Taiwanese factory in either of those two countries (SDI or Simplo). 
The hard disk drive was made by an American-owned factory in Singapore (Seagate), 
a Japanese-owned company in Thailand (Hitachi or Fujitsu), or a Japanese-owned 
factory in the Philippines (Toshiba). The CD/DVD drive came from a South Korean-owned 
company with factories in Indonesia and the Philippines (Samsung); a Japanese-owned 
factory in China or Malaysia (NEC); a Japanese-owned factory in Indonesia, China, 
or Malaysia(Teac); or a Japanese-owned factoryin China (Sony). The notebook carrying 
bag was made by either an Irish-owned company in China (Tenba) or an American-owned 
company in China (Targus, Samsonite, or Pacific Design). The power adapter was made 
by either a Thai-owned factory in Thailand (Delta) or a Taiwanese, Korean, or 
American-owned factory in China (Liteon, Samsung, or Mobility). The power cord was 
made by a British-owned company with factories in China, Malaysia, and India (Volex). 
The removable memory stick was made by either an Israeli-owned company in Israel 
(M-System) or an American-owned company with a factory in Malaysia (Smart Modular). 
This supply chain symphony-from my order over the phone to production to delivery 
to my house-is one of the wonders of the flat world. 
"We have to do a lot of collaborating," said Hunter. "Michael [Dell] personally knows 
the CEOs of these companies, and we are constantly working with them on process 
improvements and real-time demand/supply balancing." Demand shaping goes on 
constantly, said Hunter. What is "demand shaping"? It works like this: At 10 a.m. 
Austin time, Dell discovers that so many customers have ordered notebooks with 
40-gigabyte 
418 
hard drives since the morning that its supply chain will run short in two hours. That 
signal is automatically relayed to Dell's marketing department and to Dell.com and 
to all the Dell phone operators taking orders. If you happen to call to place your 
Dell order at 10:30 a.m., the Dell representative will say to you, "Tom, it's your 
lucky day! For the next hour we are offering 60-gigabyte hard drives with the notebook 
you want-for only $10 more than the 40-gig drive. And if you act now, Dell will throw 
in a carrying case along with your purchase, because we so value you as a customer." 
In an hour or two, using such promotions, Dell can reshape the demand for any part 
of any notebook or desktop to correspond with the projected supply in its global supply 


chain. Today memory might be on sale, tomorrow it might be CD-ROMs. 
Picking up the story of my notebook, on April 13, at 11:29 a.m., all the parts had 
been plucked from the just-in-time inventory bins in Penang, and the computer was 
assembled there by A. Sathini, a team member "who manually screwed together all of 
the parts from kitting as well as the labels needed for Tom's system," said Dell in 
their production report to me. "The system was then sent down the conveyor to go to 
burn, where Tom's specified software was downloaded." Dell has huge server banks 
stocked with the latest in Microsoft, Norton Utilities, and other popular software 
applications, which are downloaded into each new computer according to the specific 
tastes of the customer. 
"By 2:45 p.m., Tom's software had been successfully downloaded, and [was] manually 
moved to the boxing line. By 4:05 p.m., Tom's system [was] placed in protective foam 
and a shuttle box, with alabel, which contains his order number, tracking code, system 
type, and shipping code. By 6:04 p.m., Tom's system had been loaded on a pallet with 
a specified manifest, which gives the Merge facility visibility to when the system 
will arrive, whatpallet it will be on (out of 75+pallets with152 systems per pallet), 
and to what address Tom's system will ship. By 6:26 p.m., Tom's system left [the Dell 
factory] to head to the Penang, Malaysia, airport." 
Six days a week Dell charters a China Airlines 747 out of Taiwan and flies it from 
Penang to Nashville via Taipei. Each 747 leaves with twenty-five thousand Dell 
notebooks that weigh altogether 110,000 kilograms, 

or 50,000 pounds. It is the only 747 that ever lands in Nashville, except Air Force 
One, when the president visits. "By April 15, 2004, at 7:41 a.m., Tom's system arrived 
at [Nashville] with other Dell systems from Penang and Limerick. By 11:58 a.m., Tom's 
system [was] inserted into a larger box, which went down the boxing line to the 
specific external parts that Tom had ordered." 
That was thirteen days after I'd ordered it. Had there not been a parts delay in 
Malaysia when my order first arrived, the time between when I phoned in my purchase, 
when the notebook was assembled in Penang, and its arrival in Nashville would have 
been only four days. Hunter said the total supply chain for my computer, including 
suppliers of suppliers, involved about four hundred companies in North America, 
Europe, and primarily Asia, but with thirty key players. Somehow, though, it all came 
together. As Dell reported: On April 15, 2004, at 12:59 p.m., "Tom's system had been 
shipped from [Nashville] and was tenured by UPS shipping LTL (3-5-day ground, 
specified by Tom), with UPS tracking number 1Z13WA374253514697. By April 19, 2004, 
at 6:41 p.m., Tom's system arrived in Bethesda, MD, and was signed for." 
I am telling you the story of my notebook to tell a larger story of geopolitics in 
the flat world. To all the forces mentioned in the previous chapter that are still 
holding back the flattening of the world, or could actually reverse the process, one 
has to add a more traditional threat, and that is an outbreak of a good, old-fashioned, 
world-shaking, economy-destroying war. It could be China deciding once and for all 
to eliminate Taiwan as an independent state; or North Korea, out of fear or insanity, 
using one of its nuclear weapons against South Korea or Japan; or Israel and a 


soon-to-be-nuclear Iran going at each other; or India and Pakistan finally nuking 
it out. These and other classic geopolitical conflicts could erupt at any time and 
either slow the flattening of the world or seriously unflatten it. 
The real subject of this chapter is how these classic geopolitical threats might be 
moderated or influenced by the new forms of collaboration fostered and demanded by 
the flat world-particularly supply420 
chaining. The flattening of the world is too young for us to draw any definitive 
conclusions. What is certain, though, is that as the world flattens, one of the most 
interesting dramas to watch in international relations will be the interplay between 
the traditional global threats and the newly emergent global supply chains. The 
interaction between old-time threats (like China versus Taiwan) and just-in-time 
supply chains (like China plus Taiwan) will be a rich source of study for the field 
of international relations in the early twenty-first century. 
In The Lexus and the Olive Tree I argued that to the extent that countries tied their 
economies and futures to global integration and trade, it would act as a restraint 
on going to war with their neighbors. I first started thinking about this in the late 
1990s, when, during my travels, I noticed that no two countries that both had 
McDonald's had ever fought a war against each other since each got its McDonald's. 
(Border skirmishes and civil wars don't count, because McDonald's usually served both 
sides.) After confirming this with McDonald's, I offered what I called the Golden 
Arches Theory of Conflict Prevention. The Golden Arches Theory stipulated that when 
a country reached the level of economic development where it had a middle class big 
enough to support a network of McDonald's, it became a McDonald's country. And people 
in McDonald's countries didn't like to fight wars anymore. They preferred to wait 
in line for burgers. While this was offered slightly tongue in cheek, the serious 
point I was trying to make was that as countries got woven into the fabric of global 
trade and rising living standards, which having a network of McDonald's franchises 
had come to symbolize, the cost of war for victor and vanquished became prohibitively 
high. 
This McDonald's theory has held up pretty well, but now that almost every country 
has acquired a McDonald's, except the worst rogues like North Korea, Iran, and Iraq 
under Saddam Hussein, it seemed to me that this theory needed updating for the flat 
world. In that spirit, and again with tongue slightly in cheek, I offer the Dell Theory 
of Conflict Prevention, the essence of which is that the advent and spread of 
just-in-time global supply chains in the flat world are an even greater restraint 
on geopolitical adventurism than the more general rising standard of living that 
McDonald's symbolized. 
421 
The Dell Theory stipulates: No two countries that are both part of a major global 
supply chain, like Dell's, will ever fight a war against each other as long as they 
are both part of the same global supply chain. Because people embedded in major global 
supply chains don't want to fight old-time wars anymore. They want to make 
just-in-time deliveries of goods 


and services -and enjoy the rising standards of living that come with that. One of 
the people with the best feel for the logic behind this theory is Michael Dell, the 
founder and chairman of Dell. 
"These countries understand the risk premium that they have," said Dell of the 
countries in his Asian supply chain. "They are pretty careful to protect the equity 
that they have built up or tell us why we should not worry [about their doing anything 
adventurous]. My belief after visiting China is that the change that has occurred 
there is in the best interest of the world and China. Once people get a taste for 
whatever you want to call it-economic independence, a better lifestyle, and a better 
life for their child or children-they grab on to that and don't want to give it up." 
Any sort of war or prolonged political upheaval in East Asia or China "would have 
a massive chilling effect on the investment there and on all the progress that has 
been made there," said Dell, who added that he believes the governments in that part 
of the world understand this very clearly. "We certainly make clear to them that 
stability is important to us. [Right now] it is not a day-to-day worry for us ... 
I believe that as time and progress go on there, the chance for a really disruptive 
event goes down exponentially. I don't think our industry gets enough credit for the 
good we are doing in these areas. If you are making money and being productive and 
raising your standard of living, you're not sitting around thinking, Who did this 
to us? or Why is our life so bad?" 
There is a lot of truth to this. Countries whose workers and industries are woven 
into a major global supply chain know that they cannot take an hour, a week, or a 
month off for war without disrupting industries and economies around the world and 
thereby risking the loss of their place in that supply chain for a long time, which 
could be extremely costly. For a country with no natural resources, being part of 
a global supply chain is like striking oil-oil that never runs out. And therefore, 
getting dropped from such a chain because you start a war is like having your oil 
wells go 

dry or having someone pour cement down them. They will not come back anytime soon. 
"You are going to pay for it really dearly," said Glenn E. Neland, senior vice 
president for worldwide procurement at Dell, when I asked him what would happen to 
a major supply-chain member in Asia that decided to start fighting with its neighbor 
and disrupt the supply chain. "It will not only bring you to your knees [today], but 
you will pay for a long time-because you just won't have any credibility if you 
demonstrate you are going to go [off] the political deep end. And China is just now 
starting to develop a level of credibility in the business community that it is 
creating a business environment you can prosper in-with transparent and consistent 
rules." Neland said that suppliers regularly ask him whether he is worried about China 
and Taiwan, which have threatened to go to war at several points in the past half 
century, but his standard response is that he cannot imagine them "doing anything 
more than flexing muscles with each other." Neland said he can tell in his 
conversations and dealings with companies and governments in the Dell supply chain, 
particularly the Chinese, that "they recognize the opportunity and are really hungry 


to participate in the same things they have seen other countries in Asia do. They 
know there is a big economic pot at the end of the rainbow and they are really after 
it. We will spend about $35 billion producing parts this year, and 30 percent of that 
is [in] China." 
If you follow the evolution of supply chains, added Neland, you see the prosperity 
and stability they promoted first in Japan, and then in Korea and Taiwan, and now 
in Malaysia, Singapore, the Philippines, Thailand, and Indonesia. Once countries get 
embedded in these global supply chains, "they feel part of something much bigger than 
their own businesses," he said. Osamu Watanabe, the CEO of the Japan External Trade 
Organization (JETRO), was explaining to me one afternoon in Tokyo how Japanese 
companies were moving vast amounts of low-and middle-range technical work and 
manufacturing to China, doing the basic fabrication there, and then bringing it back 
to Japan for final assembly. Japan was doing this despite a bitter legacy of mistrust 
between the two countries, which was intensified by the Japanese invasion of China 
in the last century. Historically, he noted, a strong Japan and a strong 

China have had a hard time coexisting. But not today, at least not for the moment. 
Why not? I asked. The reason you can have a strong Japan and a strong China at the 
same time, he said, "is because of the supply chain." It is a win-win for both. 
Obviously, since Iraq, Syria, south Lebanon, North Korea, Pakistan, Afghanistan, and 
Iran are not part of any major global supply chains, all of them remain hot spots 
that could explode at any time and slow or reverse the flattening of the world. As 
my own notebook story attests, the most important test case of the Dell Theory of 
Conflict Prevention is the situation between China and Taiwan-since both are deeply 
embedded in several of the world's most important computer, consumer electronics, 
and, increasingly, software supply chains. The vast majority of computer components 
for every major company comes from coastal China, Taiwan, and East Asia. In addition, 
Taiwan alone has more than $100 billion in investments in mainland China today, and 
Taiwanese experts run many of the cutting-edge Chinese high-tech manufacturing 
companies. 
It is no wonder that Craig Addison, the former editor of Electronic Business Asia 
magazine, wrote an essay for the International Herald Tribune (September 29, 2000), 
headlined "A 'Silicon Shield' Protects Taiwan from China." He argued that 
"Silicon-based products, such as computers and networking systems, form the basis 
of the digital economies in the United States, Japan and other developed nations. 
In the past decade, Taiwan has become the third-largest information technology 
hardware producer after the United States and Japan. Military aggression by China 
against Taiwan would cut off a large portion of the world's supply of these 
products . . . Such a development would wipe trillions of dollars off the market value 
of technology companies listed in the United States, Japan and Europe." Even if 
China's leaders, like former president Jiang Zemin, who was once minister of 
electronics, lose sight of how integrated China and Taiwan are in the world's computer 
supply chain, they need only ask their kids for an update. Jiang Zemin's son, Jiang 
Mianheng, wrote Addison, "is a partner in a wafer fabrication project in Shanghai 


with Winston Wang of Taiwan's Grace T.H.W. Group." And it is not just Taiwanese. 
Hundreds of big American tech companies now have R & D operations in China; a war 
that disrupted them could 
424 
lead not only to the companies moving their plants elsewhere but also to a significant 
loss of R & D investment in China, which the Beijing government has been betting on 
to advance its development. Such a war could also, depending on how it started, trigger 
a widespread American boycott of Chinese goods-if China were to snuff out the 
Taiwanese democracy-which would lead to serious economic turmoil inside China. 
The Dell Theory had its first real test in December 2004, when Taiwan held 
parliamentary elections. President Chen Shui-bian's pro-independence Democratic 
Progressive Party was expected to win the legislative runoff over the main opposition 
Nationalist Party, which favored closer ties with Beijing. Chen framed the election 
as a popular referendum on hisproposal to write anew constitution that would formally 
enshrine Taiwan's independence, ending the purposely ambiguous status quo. Had Chen 
won and moved ahead on his agenda to make Taiwan its own motherland, as opposed to 
maintaining the status quo fiction that it is a province of the mainland, it could 
have led to a Chinese military assault on Taiwan. Everyone in the region was holding 
his or her breath. And what happened? Motherboards won over motherland. A majority 
of Taiwanese voted against the pro-independence governing party legislative 
candidates, ensuring that the DPP would not have a majority in parliament. I believe 
the message Taiwanese voters were sending was not that they never want Taiwan to be 
independent. It was that they do not want to upset the status quo right now, which 
has been so beneficial to so many Taiwanese. The voters seemed to understand clearly 
how interwoven they had become with the mainland, and they wisely opted to maintain 
their de facto independence rather than force de jure independence, which might have 
triggered a Chinese invasion and a very uncertain future. 
Warning: What I said when I put forth the McDonald's theory, I would repeat even more 
strenuously with the Dell Theory: It does not make wars obsolete. And it does not 
guarantee that governments will not engage in wars of choice, even governments that 
are part of major supply chains. To suggest so would be naive. It guarantees only 
that governments whose countries are enmeshed in global supply chains will have 
425 
to think three times, not just twice, about engaging in anything but a war of 
self-defense. And if they choose to go to war anyway, the price they will pay will 
be ten times higher than it was a decade ago and probably ten times higher than whatever 
the leaders of that country think. It is one thing to lose your McDonald's. It's quite 
another to fight a war that costs you your place in a twenty-first-century supply 
chain that may not come back around for a long time. 
While the biggest test case of the Dell Theory is China versus Taiwan, the fact is 
that the Dell Theory has already proved itself to some degree in the case of India 
and Pakistan, the context in which I first started to think about it. I happened to 
be in India in 2002, when its just-in-time services supply chains ran into some very 
old-time geopolitics-and the supply chain won. In the case of India and Pakistan, 


the Dell Theory was working on only one party-India-but it still had a major impact. 
India is to the world's knowledge and service supply chain what China and Taiwan are 
to the manufacturing ones. By now readers ofthis book know all thehighlights: General 
Electric's biggest research center outside the United States is in Bangalore, with 
seventeen hundred Indian engineers, designers, and scientists. The brain chips for 
many brand-name cell phones are designed in Bangalore. Renting a car from Avis online? 
It's managed in Bangalore. Tracing your lost luggage on Delta or British Airways is 
done from Bangalore, and the backroom accounting and computer maintenance for scores 
of global firms are done from Bangalore, Mumbai, Chennai, and other major Indian 
cities. Here's what happened: On May 31, 2002, State Department spokesman Richard 
Boucher issued a travel advisory saying, "We urge American citizens currently in India 
to depart the country," because the prospect of a nuclear exchange with Pakistan was 
becoming very real. Both nations were massing troops on their borders, intelligence 
reports were suggesting that they both might be dusting off their nuclear warheads, 
and CNN was flashing images of people flooding out of India. The global American firms 
that had moved their back rooms and R & D operations to Bangalore were deeply unnerved. 

"I was actually surfing on the Web, and I saw a travel advisory come up on India on 
a Friday evening/' said Vivek Paul, president of Wipro, which manages backroom 
operations from India of many American multinationals. "As soon as I saw that, I said, 
'Oh my gosh, every customer that we have is going to have a million questions on this.' 
It was the Friday before a long weekend, so over the weekend we at Wipro developed 
a fail-safe business continuity plan for all of our customers." While Wipro's 
customers were pleased to see how on top of things the company was, many of them were 
nevertheless rattled. This was not in the plan when they decided to outsource 
mission-critical research and operations to India. Said Paul, "I had a CIO from one 
of our big American clients send me an e-mail saying, 1 am now spending a lot of time 
looking for alternative sources to India. I don't think you want me doing that, and 
I don't want to be doing it.' I immediately forwarded his message to the Indian 
ambassador in Washington and told him to get it to the right person." Paul would not 
tell me what company it was, but I have confirmed through diplomatic sources that 
it was United Technologies. And plenty of others, like American Express and General 
Electric, with back rooms in Bangalore, had to have been equally worried. 
For many global companies, "the main heart of their business is now supported here," 
said N. Krishnakumar, president of MindTree, another leading Indian knowledge 
outsourcing firm based in Bangalore. "It can cause chaos if there is a disruption." 
While not trying to meddle in foreign affairs, he added, "What we explained to our 
government, through the Confederation of Indian Industry, is that providing a stable, 
predictable operating environment is now the key to India's development." This was 
a real education for India's elderly leaders in New Delhi, who had not fully absorbed 
how critical India had become to the world's knowledge supply chain. When you are 
managing vital backroom operations for American Express or General Electric or Avis, 
or are responsible for tracing all the lost luggage on British Airways or Delta, you 
cannot take a month, a week, or even aday off for war without causing major disruptions 


for those companies. Once those companies have made a commitment to outsource business 
operations or research to India, they expect it to stay there. That is a major 
commitment. And if geopolitics 
427 
causes a serious disruption, they will leave, and they will not come back very easily. 
When you lose this kind of service trade, you can lose it for good. 
"What ends up happening in the flat world you described," explained Paul, "is that 
you have only one opportunity to make it right if something [goes] wrong. Because 
the disadvantage of being in a flat world is that despite all the nice engagements 
and stuff and the exit barriers that you have, every customer has multiple options, 
and so the sense of responsibility you have is not just out of a desire to do good 
by your customers, but also a desire for self-preservation." 
The Indian government got the message. Was India's central place in the world's 
services supply chain the only factor in getting Prime Minister Vajpayee to tone down 
his rhetoric and step back from the brink? Of course not. There were other factors, 
to be sure-most notably the deterrent effect of Pakistan's own nuclear arsenal. But 
clearly, India's role in global services was an important additional source of 
restraint on its behavior, and it was taken into account by New Delhi. "I think it 
sobered a lot of people," said Jerry Rao, who, as noted earlier, heads the Indian 
high-tech trade association. "We engaged very seriously, and we tried to make the 
point that this was very bad for Indian business. It was very bad for the Indian 
economy . . . [Many people] didn't realize till then how suddenly we had become 
integrated into the rest of the world. We are now partners in a twenty-four by seven 
by three-sixty-five supply chain." 
Vivek Kulkami, then information technology secretary for Bangalore's regional 
government, told me back in 2002, "We don't get involved in politics, but we did bring 
to the government's attention the problems the Indian IT industry might face if there 
were a war." And this was an altogether new factor for New Delhi to take into 
consideration. "Ten years ago, [a lobby of IT ministers from different Indian states] 
never existed," said Kulkarni. Now it is one of the most important business lobbies 
in India and a coalition that no Indian government can ignore. 
"With all due respect, the McDonald's [shutting] down doesn't hurt anything," said 
Vivek Paul, "but if Wipro had to shut down we would af- 
428 
feet the day-to-day operations of many, many companies." No one would answer the 
phones in call centers. Many e-commerce sites that are supported from Bangalore would 
shut down. Many major companies that rely on India to maintain their key computer 
applications or handle their human resources departments or billings would seize up. 
And these companies did not want to find alternatives, said Paul. Switching is very 
difficult, because taking over mission-critical day-to-day backroom operations of 
a global company takes a great deal of training and experience. It's not like opening 
a fast-food restaurant. That was why, said Paul, Wipro's clients were telling him, 
"'I have made an investment in you. I need you to be very responsible with the trust 
I have reposed in you.' And I think that created an enormous amount of back pressure 


on us that said we have to act in a responsible fashion ... All of a sudden it became 
even clearer that there's more to gain by economic gains than by geopolitical gains. 
[We had more to gain from building] a vibrant, richer middle class able to create 
an export industry than we possibly could by having an ego-satisfying war with 
Pakistan." The Indian government also looked around and realized that the vast 
majority of India's billion people were saying, "I want a better future, not more 
territory." Over and over again, when I asked young Indians working at call centers 
how they felt about Kashmir or a war with Pakistan, they waved me off with the same 
answer: "We have better things to do." And they do. America needs to keep this in 
mind as it weighs its overall approach to outsourcing. I would never advocate shipping 
some American's job overseas just so it will keep Indians and Pakistanis at peace 
with each other. But I would say that to the extent that this process happens, driven 
by its own internal economic logic, it will have a net positive geopolitical effect. 
It will absolutely make the world safer for American kids. 
Each of the Indian business leaders I interviewed noted that in the event of some 
outrageous act of terrorism or aggression from Pakistan, India would do whatever it 
takes to defend itself, and they would be the first to support that-the Dell Theory 
be damned. Sometimes war is unavoidable. It is imposed on you by the reckless behavior 
of others, and you have to just pay the price. But the more India and, one hopes, 
soon Pakistan get enmeshed in global service supply chains, the greater disin

centive they have to fight anything but a border skirmish or a war of words. 
The example of the 2002 India-Pakistan nuclear crisis at least gives us some hope. 
That cease-fire was brought to us not by General Powell but by General Electric. 
We bring good things to life. 
Infosys Versus al-Qaeda 
Unfortunately, even GE can do only so much. Because, alas, a new source for 
geopolitical instability has emerged only in recent years, for which even the updated 
Dell Theory can provide no restraint. It is the emergence of mutant global supply 
chains -that is, nonstate actors, be they criminals or terrorists, who learn to use 
all the elements of the flat world to advance a highly destabilizing, even nihilistic 
agenda. I first started thinking about this when Nandan Nilekani, the Infosys CEO, 
was giving me that tour I referred to in Chapter 1 of his company's global 
videoconferencing center at its Bangalore headquarters. As Nandan explained to me 
how Infosys could getits global supply chain together atonce for a virtual conference 
in that room, a thought popped into my head: Who else uses open-sourcing and 
supply-chaining so imaginatively? The answer, of course, is al-Qaeda. 
Al-Qaeda has learned to use many of the same instruments for global collaboration 
that Infosys uses, but instead of producing products and profits with them, it has 
produced mayhem and murder. This is a particularly difficult problem. In fact, it 
may be the most vexing geopolitical problem for flat-world countries that want to 
focus on the future. The flat world-unfortunately-is a friend of both Infosys and 
al-Qaeda. The Dell Theory will not work at all against these informal Islamo-Leninist 
terror networks, because they are not a state with a population that will hold its 


leaders accountable or with a domestic business lobby that might restrain them. These 
mutant global supply chains are formed for the purpose of destruction, not profit. 
They don't need investors, only recruits, 
430 
donors, and victims. Yet these mobile, self-financing mutant supply chains use all 
the tools of collaboration offered by the flat world-open-sourcing to raise money, 
to recruit followers, and to stimulate and disseminate ideas; outsourcing to train 
recruits; and supply-chaining to distribute the tools and the suicide bombers to 
undertake operations. The U.S. Central Command has a name for this whole underground 
network: the Virtual Caliphate. And its leaders and innovators understand the flat 
world almost as well as Wal-Mart, Dell, and Infosys do. 
In the previous chapter, I tried to explain that you cannot understand the rise of 
al-Qaeda emotionally and politically without reference to the flattening of the world. 
What I am arguing here is that you cannot understand the rise of al-Qaeda technically 
without reference to the flattening of the world, either. Globalization in general 
has been al-Qaeda's friend in that it has helped to solidify a revival of Muslim 
identity and solidarity, with Muslims in one country much better able to see and 
sympathize with the struggles of their brethren in another country-thanks to the 
Internet and satellite television. At the same time, as pointed out in the previous 
chapter, this flattening process has intensified the feelings of humiliation in some 
quarters of the Muslim world over the fact that civilizations to which the Muslim 
world once felt superior-Hindus, Jews, Christians, Chinese -are now all doing better 
than many Muslim countries, and everyone can see it. The flattening of the world has 
also led to more urbanization and large-scale immigration to the West of many of these 
young, unemployed, frustrated Arab-Muslim males, while simultaneously making it much 
easier for informal open-source networks of these young men to form, operate, and 
interconnect. This certainly has been a boon for underground extremist Muslim 
political groups. There has been a proliferation of these informal mutual supply 
chains throughout the Arab-Muslim world today-small networks of people who move money 
through hawalas (hand-to-hand financing networks), who recruit through alternative 
education systems like the madrassas, and who communicate through the Internet and 
other tools of the global information revolution. Think about it: A century ago, 
anarchists were limited in their ability to communicate and collaborate with one 
another, to find sympathizers, and to band together for an 
431 
operation. Today, with the Internet, that is not a problem. Today even the Unabomber 
could find friends to join a consortium where his "strengths" could be magnified and 
reinforced by others who had just as warped a worldview as he did. 
What we have witnessed in Iraq is an even more perverse mutation of this mutant supply 
chain-the suicide supply chain. Since the start of the U.S. invasion in March 2002, 
more than two hundred suicide bombers have been recruited from within Iraq and from 
across the Muslim world, brought to the Iraqi front by some underground railroad, 
connected with the bomb makers there, and then dispatched against U.S. and Iraqi 
targets according to whatever suits the daily tactical needs of the insurgent Islamist 


forces in Iraq. I can understand, but not accept, the notion that more than 
thirty-seven years of Israeli occupation of the West Bank might have driven some 
Palestinians into a suicidal rage. But the American occupation of Iraq was only a 
few months old before it started to get hit by this suicide supply chain. How do you 
recruit so many young men "off the shelf" who are ready to commit suicide in the cause 
of jihad, many of them apparently not even Iraqis? And they don't even identify 
themselves by name or want to get credit-at least in this world. The fact is that 
Western intelligence agencies have no clue how this underground suicide supply chain, 
which seems to have an infinite pool of recruits to draw on, works, and yet it has 
basically stymied the U.S. armed forces in Iraq. From what we do know, though, this 
Virtual Caliphate works just like the supply chains I described earlier. Just as you 
take an item off the shelf in a discount store in Birmingham and another one is 
immediately made in Beijing, so the retailers of suicide deploy a human bomber in 
Baghdad and another one is immediately recruited and indoctrinated in Beirut. To the 
extent that this tactic spreads, it will require a major rethinking of U.S. military 
doctrine. 
The flat world has also been such a huge boon for al-Qaeda and its ilk because of 
the way it enables the small to act big, and the way it enables small acts-the killing 
of just a few people-to have big effects. The horrific video of the beheading of Wall 
Street Journal reporter Danny Pearl by Islamist militants in Pakistan was transmitted 
by the Internet all over the world. There is not a journalist anywhere who saw or 
even just read 

about that who was not terrified. But those same beheading videos are also used as 
tools of recruitment. The flat world makes it much easier for terrorists to transmit 
their terror. With the Internet they don't even have to go through Western or Arab 
news organizations but can broadcast right into your computer. It takes much less 
dynamite to transmit so much more anxiety. Just as the U.S. Army had embedded 
journalists, so the suicide supply chain has embedded terrorists, in their own way, 
to tell us their side of the story. How many times have I gotten up in the morning, 
fired up the Internet, and been confronted by the video image of some masked gunman 
threatening to behead an American-all brought to me courtesy of AOL's home page? The 
Internet is an enormously useful tool for the dissemination of propaganda, conspiracy 
theories, and plain old untruths, because it combines a huge reach with a patina of 
technology that makes anything onthe Internet somehow more believable. How many times 
have you heard someone say, "But I read it on the Internet," as if that should end 
the argument? In fact, the Internet can make things worse. It often leads to more 
people being exposed to crazy conspiracy theories. 
"The new system of diffusion-the Internet-is more likely to transmit irrationality 
than rationality," said political theorist Yaron Ezrahi, who specializes in the 
interaction between media and politics. "Because irrationality is more emotionally 
loaded, it requires less knowledge, it explains more to more people, it goes down 
easier." That is why conspiracy theories are so rife in the Arab-Muslim world 
today-and unfortunately are becoming so in many quarters of the Western world, for 


that matter. Conspiracy theories are like a drug that goes right into your bloodstream, 
enabling you to see "the Light." And the Internet is the needle. Young people used 
to have to take LSD to escape. Now they just go online. Now you don't shoot up, you 
download. You download the precise point of view that speaks to all your own biases. 
And the flat world makes it all so much easier. 
Gabriel Weimann, a professor of communication at Haifa University, Israel, did an 
incisive study of terrorists' use of the Internet and of what I call the flat world, 
which was published in March 2004by the United States Institute of Peace and excerpted 
on YaleGlobal Online on April 26, 2004. He made the following points: 
433 
While the danger that cyber-terrorism poses to the Internet is frequently debated, 
surprisingly little is known about the threat posed by terrorists' use of the Internet. 
A recent six-year-long study shows that terrorist organizations and their supporters 
have been using all of the tools that the Internet offers to recruit supporters, raise 
funds, and launch a worldwide campaign of fear. It is also clear that to combat 
terrorism effectively, mere suppression of their Internet tools is not enough. Our 
scan of the Internet in 2003-04 revealed the existence of hundreds of websites serving 
terrorists in different, albeit sometimes overlapping, ways. . . There are countless 
examples of how [terrorists] use this uncensored medium to spread disinformation, 
to deliver threats intended to instill fear and helplessness, and to disseminate 
horrific images of recent actions. Since September 11, 2001, al-Qaeda has festooned 
its websites with a string of announcements of an impending "large attack" on US 
targets. These warnings have received considerable media coverage, which has helped 
to generate a widespread sense of dread and insecurity among audiences throughout 
the world and especially within the United States . . . 
The Internet has significantly expanded the opportunities for terrorists to secure 
publicity. Until the advent of the Internet, terrorists' hopes of winning publicity 
for their causes and activities depended on attracting the attention of television, 
radio, or the print media. The fact that terrorists themselves have direct control 
over the content of their websites offers further opportunities to shape how they 
are perceived by different target audiences and to manipulate their image and the 
images of their enemies. Most terrorist sites do not celebrate their violent 
activities. Instead- regardless of their nature, motives, or location-most terrorist 
sites emphasize two issues: the restrictions placed on freedom of expression; and 
the plight of their comrades who are now political prisoners. These issues resonate 
powerfully with their own supporters and are also calculated to elicit sympathy from 
Western audiences that cherish freedom of expression and frown on measures to silence 
political opposition . . . 
434 
Terrorists have proven not only skillful at online marketing but also adept at mining 
the data offered by the billion-some pages of the World Wide Web. They can learn from 
the Internet about the schedules and locations of targets such as transportation 
facilities, nuclear power plants, public buildings, airports and ports, and even 
counterterrorism measures. According to Secretary of Defense Donald Rumsfeld, an 


al-Qaeda training manual recovered in Afghanistan tells its readers, "Using public 
sources openly and without resorting to illegal means, it is possible to gather at 
least 80 percent of all information required about the enemy." One captured al-Qaeda 
computer contained engineering and structural architecture features of a dam, which 
had been downloaded from the Internet and which would enable al-Qaeda engineers and 
planners to simulate catastrophic failures. In other captured computers, U.S. 
investigators found evidence that al-Qaeda operators spent time on sites that offer 
software and programming instructions for the digital switches that run power, water, 
transportation, and communications grids. 
Like many other political organizations, terrorist groups use the Internet to raise 
funds. Al-Qaeda, for instance, has always depended heavily on donations, and its 
global fundraising network is built upon a foundation of charities, nongovernmental 
organizations, and other financial institutions that use websites and Internet-based 
chat rooms and forums. The fighters in the Russian breakaway republic of Chechnya 
have likewise used the Internet to publicize the numbers of bank accounts to which 
sympathizers can contribute. And in December 2001, the U.S. government seized the 
assets of a Texas-based charity because of its ties to Hamas. 
In addition to soliciting financial aid online, terrorists recruit converts by using 
the full panoply of website technologies (audio, digital video, etc.) to enhance the 
presentation of their message. And like commercial sites that track visitors to 
develop consumer profiles, terrorist organizations capture information about the 
users who browse their websites. Visitors who seem most inter

ested in the organization's cause or well suited to carrying out its work are then 
contacted. Recruiters may also use more interactive Internet technology to roam 
online chat rooms and cyber cafes, looking for receptive members of the public, 
particularly young people. The SITE Institute, a Washington, D.C.-based terrorism 
research group that monitors al-Qaeda's Internet communications, has provided 
chilling details ofa high-tech recruitment drive launchedin 2003 to recruit fighters 
to travel to Iraq and attack U.S. and coalition forces there. The Internet also grants 
terrorists a cheap and efficient means of networking. Many terrorist groups, among 
them Hamas and al-Qaeda, have undergone a transformation from strictly hierarchical 
organizations with designated leaders to affiliations of semi-independent cells that 
have no single commanding hierarchy. Through the Internet, these loosely 
interconnected groups are able to maintain contact with one another-and with members 
of other terrorist groups. The Internet connects not only members of the same 
terrorist organizations but also members of different groups. For instance, dozens 
of sites supporting terrorism in the name of jihad permit terrorists in places as 
far-removed from one another as Chechnya and Malaysia to exchange ideas and practical 
information about how to build bombs, establish terror cells, and carry out 
attacks . . . Al-Qaeda operatives relied heavily on the Internet in planning and 
coordinating the September 11 attacks. 
For all of these reasons we are just at the beginning of understanding the geopolitical 
impact of the flattening of the world. On the one hand, failed states and failed 


regions are places we have every incentive to avoid today. They offer no economic 
opportunity and there is no Soviet Union out there competing with us for influence 
over such countries. On the other hand, there may be nothing more dangerous today 
than a failed state with broadband capability. That is, even failed states tend to 
have telecommunications systems and satellite links, and therefore if a terrorist 
group infiltrates a failed state, as al-Qaeda did with Afghanistan, it can amplify 
its power enormously. As much as big powers want to stay away 
456 
from such states, they may feel compelled to get even more deeply embroiled in them. 
Think of America in Afghanistan and Iraq, Russia in Chechnya, Australia in East Timor. 
In the flat world it is much more difficult to hide, but much easier to get connected. 
"Think of Mao at the beginning of the Chinese communist revolution," remarked Michael 
Mandelbaum, the Johns Hopkins foreign policy specialist. "The Chinese Communists had 
to hide in caves in northwest China, but they could move around in whatever territory 
they were able to control. Bin Laden, by contrast, can't show his face, but he can 
reach every household in the world, thanks to the Internet." Bin Laden cannot capture 
any territory but he can capture the imagination of millions of people. And he has, 
broadcasting right into American living rooms on the eve of the 2004 presidential 
election. 
Hell hath no fury like a terrorist with a satellite dish and an interactive Web site. 
Too Personally Insecure 
In the fall of 2004,1 was invited to speak at a synagogue in Woodstock, New York, 
home of the famous Woodstock music festival. I asked my hosts how was it that they 
were able to get a synagogue in Woodstock, of all places, big enough to support a 
lecture series. Very simple, they said. Since 9/11, Jews, and others, have been moving 
from New York City to places like Woodstock, to get away from what they fear will 
be the next ground zero. Right now this trend is a trickle, but it would become a 
torrent if a nuclear device were detonated in any European or American city. 
Since this threat is the mother of all unflatteners, this book would not be complete 
without a discussion of it. We can live with a lot. We lived through 9/11. But we 
cannot live with nuclear terrorism. That would un-flatten the world permanently. 
The only reason that Osama bin Laden did not use a nuclear device on 9/11 was not 
that he did not have the intention but that he did not 
437 
have the capability. And since the Dell Theory offers no hope of restraining the 
suicide supply chains, the only strategy we have is to limit their worst capabilities. 
That means a much more serious global effort to stanch nuclear proliferation by 
limiting the supply-to buy up the fissile material that is already out there, 
particularly in the former Soviet Union, and prevent more states from going nuclear. 
Harvard University international affairs expert Graham Allison, in his book Nuclear 
Terrorism: The Ultimate Preventable Catastrophe, outlines just such a strategy for 
denying terrorists access to nuclear weapons and nuclear materials. It can be done, 
he insists. It is a challenge to our will and convictions, but not to our capabilities. 
Allison proposes a new American-led international security order to deal with this 


problem based on what he calls "a doctrine of the Three No's: No loose nukes, No new 
nascent nukes, and No new nuclear states." No loose nukes, says Allison, means locking 
down all nuclear weapons and all nuclear material from which bombs could be made-in 
a much more serious way than we have done up till now. "We don't lose gold from Fort 
Knox," says Allison. "Russia doesn't lose treasures from the Kremlin armory. So we 
both know how to prevent theft of those things that are super valuable to us if we 
are determined to do it." No new nascent nukes means recognizing that there is a group 
of actors out there who can and do produce highly enriched uranium or plutonium, which 
is nothing more than nuclear bombs just about to hatch. We need a much more credible, 
multilateral nonprolif-eration regime that soaks up this fissile material. Finally, 
no new nuclear states means "drawing a line under the current eight nuclear powers 
and determining that, however unfair and unreasonable it may be, that club will have 
no more members than those eight," says Allison, adding that these three steps might 
then buy us time to develop a more formal, sustainable, internationally approved 
regime. 
It would be nice also to be able to deny the Internet to al-Qaeda and its ilk, but 
that, alas, is impossible-without undermining ourselves. That is why limiting their 
capabilities is necessary but not sufficient. We also have to find a way to get at 
their worst intentions. If we are not going to shut down the Internet and all the 
other creative and collaborative tools that have flattened the world, and if we can't 
restrict access to them, 

the only thing we can do is try to influence the imagination and intentions that people 
bring to them and draw from them. When I raised this issue, and the broad themes of 
this book, with my religious teacher, Rabbi Tzvi Marx from Holland, he surprised me 
by saying that the flat world I was describing reminded him of the story of the Tower 
of Babel. 
How so? I asked. "The reason God banished all the people from the Tower of Babel and 
made them all speak different languages was not because he did not want them to 
collaborate per se," answered Rabbi Marx. "It was because he was enraged at what they 
were collaborating on-an effort to build a tower to the heavens so they could become 
God." This was a distortion of the human capacity, so God broke their union and their 
ability to communicate with one another. Now, all these years later, humankind has 
again created a new platform for more people from more places to communicate and 
collaborate with less friction and more ease than ever: the Internet. Would God see 
the Internet as heresy? 
"Absolutely not," said Marx. "The heresy is not that mankind works together-it is 
to what ends. It is essential that we use this new ability to communicate and 
collaborate for the right ends-for constructive human aims and not megalomaniacal 
ends. Building a tower was megalo-maniacal. Bin Laden's insistence that he has the 
truth and can flatten anyone else's tower who doesn't heed him is megalomaniacal. 
Collaborating so mankind can achieve its full potential is God's hope." 
How we promote more of that kind of collaboration is what the final chapter is all 
about. 


::::: Conclusion: Imagination 

::::: THIRTEEN 
11/9 Versus 9/11 
Imagination is more important than knowledge. 
-Albert Einstein 
On the Internet, nobody knows you're a dog. 
-Two dogs talking to each other, in a New Yorker cartoon by Peter Steiner, July 5, 
1993 
Reflecting on this past decade and a half, during which the world went flat, it strikes 
me that our lives have been powerfully shaped by two dates: 11/9 and 9/11. These two 
dates represent the two competing forms of imagination at work in the world today: 
the creative imagination of 11/9 and the destructive imagination of 9/11. One brought 
down a wall and opened the windows of the world-both the operating system and the 
kind we look through. It unlocked half the planet and made the citizens there our 
potential partners and competitors. Another brought down the World Trade Center, 
closing its Windows on the World restaurant forever and putting up new invisible and 
concrete walls among people at a time when we thought 11 The dismantling of the Berlin 
Wall on 11/9 was brought about by people who dared to imagine a different, more open 
world-one where every human being would be free to realize his or her full potential 

- and who then summoned the courage to act on that imagination. Do 
442 
you remember how it happened? It was so simple, really: In July 1989, hundreds of 
East Germans sought refuge at the West German embassy in Hungary. In September 1989, 
Hungary decided to remove its border restrictions with Austria. That meant that any 
East German who got into Hungary could pass through to Austria and the free world. 
Sure enough, more than thirteen thousand East Germans escaped through Hungary's back 
door. Pressure built up on the East German government. When in November it announced 
plans to ease travel restrictions, tens of thousands of East Germans converged on 
the Berlin Wall, where, on 11/9/89, border guards just opened the gates. 
Someone there in Hungary, maybe it was the prime minister, maybe it was just a 
bureaucrat, must have said to himself or herself, "Imagine- imagine what might happen 
if we opened the border with Austria." Imagine if the Soviet Union were frozen in 
place. Imagine-imagine if East German citizens, young and old, men and women, were 
so emboldened by seeing their neighbors flee to the West that one day they just swarmed 
that Berlin Wall and started to tear it down? Some people must have had a conversation 
just like that, and because they did, millions of Eastern Europeans were able to walk 
out from behind the Iron Curtain and engage with a flattening world. It was a great 
era in which to be an American. We were the only superpower, and the world was our 
oyster. There were no walls. Young Americans could think about traveling, for a 
semester or a summer, to more countries than any American generation before them. 
Indeed, they could travel as far as their imagination and wallets could take them. 
They could also look around at their classmates and see people from more different 
countries and cultures than any other class before them. 

Nine-eleven, of course, changed all that. It showed us the power of a very different 
kind of imagination. It showed us the power of a group of hateful men who spent several 
years imagining how to kill as many innocent people as they could. At some point bin 
Laden and his gang literally must have looked at one another and said, "Imagine if 
we actually could hit both towers of the World Trade Center at the exact right spot, 
between the ninety-fourth and ninety-eighth floors. And imagine if each tower were 
to come crashing down like a house of cards." Yes, I am sorry 
443 
to say, some people had that conversation, too. And, as a result, the world that was 
our oyster seemed to close up like a shell. 
There has never been a time in history when the character of human imagination wasn't 
important, but writing this book tells me that it has never been more important than 
now, because in a flat world so many of the inputs and tools of collaboration are 
becoming commodities available to everyone. They are all out there for anyone to grasp. 
There is one thing, though, that has not and can never be commoditized - and that 
is imagination. 
When we lived in a more centralized, and more vertically organized, world -where 
states had a near total monopoly of power-individual imagination was a big problem 
when the leader of a superpower state -a Stalin, a Mao, or a Hitler-became warped. 
But today, when individuals can easily access all the tools of collaboration and 
superempower themselves, or their small cells, individuals do not need to control 
a country to threaten large numbers of other people. The small can act very big today 
and pose a serious danger to world order-without the instruments of a state. 
Therefore, thinking about how we stimulate positive imaginations is of the utmost 
importance. As Irving Wladawsky-Berger, the IBM computer scientist, put it to me: 
We need to think more seriously than ever about how we encourage people to focus on 
productive outcomes that advance and unite civilization-peaceful imaginations that 
seek to "minimize alienation and celebrate interdependence rather than 
self-sufficiency, inclusion rather than exclusion," openness, opportunity, and hope 
rather than limits, suspicion, and grievance. 
Let me try to illustrate this by example. In early 1999, two men started airlines 
from scratch, just a few weeks apart. Both men had a dream involving airplanes and 
the savvy to do something about it. One was named David Neeleman. In February 1999, 
he started JetBlue. He assembled $130 million in venture capital, bought a fleet of 
Airbus A-320 passenger jets, recruited pilots and signed them to seven-year contracts, 
and outsourced his reservation system to stay-at-home moms and retirees living around 
Salt Lake City, Utah, who booked passengers on their home computers. 
444 
The other person who started an airline was, as we now know from the 9/11 Commission 
Report, Osama bin Laden. At a meeting in Kandahar, Afghanistan, in March or April 
1999, he accepted a proposal initially drawn up by Khalid Sheikh Mohammed, the 
Pakistan-born mechanical engineer who was the architect of the 9/11 plot. JetBlue's 
motto was "Same Altitude. Different Attitude." Al-Qaeda's motto was "Allahu Akbar," 
God is great. Both airlines were designed to fly into New York City-Neeleman's into 


JFK and bin Laden's into lower Manhattan. 
Maybe it was because I read the 9/11 report while on a trip to Silicon Valley that 
I could not help but notice how much Khalid Sheikh Mohammed spoke and presented himself 
as just another eager engineer-entrepreneur, with his degree from North Carolina 
Agricultural and Technical State University, pitching his ideas to Osama bin Laden, 
who comes off as just another wealthy venture capitalist. But Mohammed, alas, was 
looking for adventure capital. As the 9/11 Commission Report put it, "No one 
exemplifies the model of the terrorist entrepreneur more clearly than Khalid Sheikh 
Mohammed (KSM), the principal architect of the 9/11 attacks. . . Highly educated and 
equally comfortable in a government office or a terrorist safe house, KSM applied 
his imagination, technical aptitude and managerial skills to hatching and planning 
an extraordinary array of terrorist schemes. These ideas included conventional car 
bombing, political assassination, aircraft bombing, hijacking, reservoir poisoning, 
and, ultimately, the use of aircraft as missiles guided by suicide operatives . . . 
KSM presents himself as an entrepreneur seeking venture capital and people . . . Bin 
Laden summoned KSM to Kandahar in March or April 1999 to tell him that al-Qaeda would 
support his proposal. The plot was now referred to within al-Qaeda as the 'planes 
operation.'" 
From his corporate headquarters in Afghanistan, bin Laden proved to be a very deft 
supply chain manager. He assembled a virtual company just for this project-exactly 
like any global conglomerate would do in the flat world-finding just the right 
specialist for each task. He outsourced the overall design and blueprint for 9/11 
to KSM and overall financial management to KSM's nephew, Ali Abdul Aziz Ali, who 
coordinated the dispersal of funds to the hijackers through wire transfers, 

cash, traveler's checks, and credit and debit cards from overseas bank accounts. Bin 
Laden recruited from the al-Qaeda roster just the right muscle guys from Asir Province, 
in Saudi Arabia, just the right pilots from Europe, just the right team leader from 
Hamburg, and just the right support staff from Pakistan. He outsourced the pilot 
training to flight schools in America. Bin Laden, who knew he needed only to "lease" 
the Boeing 757s, 767s, A32Os, and possibly 747s for his operation, raised the 
necessary capital for training pilots on all these differentaircraft from a syndicate 
of pro-al-Qaeda Islamic charities and other Muslim adventure capitalists ready to 
fund anti-American operations. In the case of 9/11, the total budget was around 
$400,000. Once the team was assembled, bin Laden focused on his own core 
competency-overall leadership and ideological inspiration of his suicide supply 
chain, with assistance from his deputies Mohammed Atef and Ayman Zawahiri. 
You can get the full flavor of the bin Laden supply chain, and what an aggressive 
adopter of new technology al-Qaeda was, by reading just one entry from the December 
2001 U.S. District Court for the Eastern District of Virginia's official indictment 
of Zacarias Moussaoui, the so-called nineteenth hijacker from 9/11. It reported the 
following: "In or about June 1999, in an interview with an Arabic-language television 
station, Osama bin Laden issued a ... threat indicating that all American males should 
be killed." It then points out that throughout the year 2000, all of the hijackers, 


including Moussaoui, began either attending or inquiring about flight school courses 
in America: "On or about September 29, 2000, Zacarias Moussaoui contacted Airman 
Flight School in Norman, Oklahoma, using an e-mail account he set up on September 
6 with an Internet service provider in Malaysia. In or about October 2000, Zacarias 
Moussaoui received letters from Infocus Tech, a Malaysian company, stating that 
Moussaoui was appointed Infocus Tech's marketing consultant in the United States, 
the United Kingdom and Europe, and that he would receive, among other things, an 
allowance of $2,500 per month . . . On or about December 11, 2000, Mohammed Atta 
purchased flight deck videos for the Boeing 767 Model 300ER and the Airbus A320 Model 
200 from the Ohio Pilot Store ... In or about June 2001, in Norman, Oklahoma, Zacarias 
Moussaoui made inquiries 
446 
about starting a cropdusting company . . . On or about August 16, 2001, Zacarias 
Moussaoui, possessed, among other things: two knives; a pair of binoculars; flight 
manuals for the Boeing 747 Model 400; a flight simulator computer program; fighting 
gloves and shin guards; a piece of paper referring to a handheld Global Positioning 
System receiver and a camcorder; software that could be used to review pilot 
procedures for the Boeing 747 Model 400; letters indicating that Moussaoui is a 
marketing consultant inthe United States for Infocus Tech; a computer disk containing 
information related to the aerial application of pesticides; and a hand-held aviation 
radio." 
A devout Mormon, who grew up in Latin America where his father was a UPI correspondent, 
David Neeleman, by contrast, is one of those classic American entrepreneurs and a 
man of enormous integrity. He never went to college, but he has started two successful 
airlines, Morris Air and JetBlue, and played an important role in shaping a third, 
Southwest. He is the godfather of ticketless air travel, now known as e-ticketing. 
"I am a total optimist. I think my father is an optimist," he said to me, trying to 
explain where his innovative genes came from. "I grew up in a very happy home . . . 
JetBlue was created in my own mind before it was created on paper." Using his 
optimistic imagination and his ability also to quickly adopt all the latest technology 
because he had no legacy system to worry about, Neeleman started a highly profitable 
airline, creating jobs, low-cost travel, a unique onboard, satellite-supported 
entertainment system, and one of the most people-friendly places to work you can 
imagine. He also started a catastrophe relief fund in his company to help employee 
families who are faced with a sudden death or catastrophic illness of a loved one. 
Neeleman donates $1 of his salary for every $1 any employee puts in the fund. "I think 
it is important that people give a little," said Neeleman. "I believe that there are 
irrevocable laws of heaven that when you serve others you get this little buzz." In 
2003, Neeleman, already a wealthy man from his JetBlue stock, donated about $120,000 
of his $200,000 salary to the JetBlue employee catastrophe fund. 
In the waiting room outside his New York City office, there is a color photo of a 
JetBlue Airbus flying over the World Trade Center. Neeleman 
447 
was in his office on 9/11 and watched the Twin Towers burn, while his own JetBlue 


airliners were circling JFK in a holding pattern. When I explained to him the 
comparison/contrast I was going to make between him and bin Laden, he was both 
uncomfortable and curious. As I closed up my computer and prepared to leave following 
our interview, he said he had one question for me: "Do you think Osama actually 
believes there is a God up there who is happy with what he is doing?" 
I told him I just didn't know. What I do know is this: There are two ways to flatten 
the world. One is to use your imagination to bring everyone up to the same level, 
and the other is to use your imagination to bring everyone down to the same level. 
David Neeleman used his optimistic imagination and the easily available technologies 
of the flat world to lift people up. He launched a surprising and successful new 
airline, some profits of which he turns over to a catastrophe relief fund for his 
employees. Osama bin Laden and his disciples used their twisted imagination, and many 
of the same tools, to launch a surprise attack, which brought two enormous symbols 
of American power down to their level. Worse, they raised their money and created 
this massive human catastrophe under the guise of religion. 
"From the primordial swamps of globalization have emerged two genetic variants," 
observed Infosys CEO Nandan Nilekani-one is al-Qaeda and the other are companies like 
Infosys or JetBlue. "Our focus therefore has to be how we can encourage more of the 
good mutations and keep out the bad." 
I could not agree more. Indeed, that effort may be the most important thing we learn 
to do in order to keep this planet in one piece. 
I have no doubt that advances in technology-from iris scans to X-ray machines-will 
help us to identify, expose, and capture those who are trying to use the easily 
available tools of the flat world to destroy it. But in the end, technology alone 
cannot keep us safe. We really do have to find ways to affect the imagination of those 
who would use the tools of collaboration to destroy the world that has invented those 
tools. But how does one go about nurturing a more hopeful, life-affirming, and 
tolerant 

imagination in others? Everyone has to ask himself or herself this question. I ask 
it as an American. I stress this last point because I think itstarts first and foremost 
by America setting an example. Those of us who are fortunate to live in free and 
progressive societies have to set an example. We have to be the best global citizens 
we can be. We cannot retreat from the world. We have to make sure that we get the 
best of our own imaginations-and never let our imaginations get the best of us. 
It is always hard to know when we have crossed the line between justified safety 
measures and letting our imaginations get the best of us and thereby paralyzing 
ourselves with precautions. Iargued right after 9/11 thatthe reason our intelligence 
did not pick up the 9/11 plotters was "a failure of imagination." We just did not 
have enough people within our intelligence community with a sick enough imagination 
to match that of bin Laden and Khalid Sheikh Mohammed. We do need some people like 
that within our intelligence services. But we all don't need to go down that route. 
We all don't need to become so gripped by imagining the worst in everyone around us 
that we shrink into ourselves. 


In 2003, my older daughter, Orly, was in her high school's symphonic orchestra. They 
spent all year practicing to take part in the national high school orchestra 
competition in New Orleans that March. When March rolled around, it appeared that 
we were heading for war in Iraq, so the Montgomery County School Board canceled all 
out-of-town trips by school groups-including the orchestra's attendance at New 
Orleans- fearing an outbreak of terrorism. I thought this was absolutely nuts. Even 
the evil imagination of 9/11 has its limits. At some point you do have to ask yourself 
whether Osama bin Laden and Ayman al-Zawahiri were really sitting around a cave in 
Afghanistan, with Ayman saying to Osama, "Say, Osama, d'you remember that annual high 
school orchestra competition in New Orleans? Well, it's coming up again next week. 
Let's really make a splash and go after it." 
No, I don't think so. Let's leave the cave dwelling to bin Laden. We have to be the 
masters of our imaginations, not the prisoners. I had a friend in Beirut who used 
to joke that every time she flew on an airplane she packed a bomb in her suitcase, 
because the odds of two people car

rying a bomb on the same plane were so much higher. Do whatever it takes, but get 
out the door. 
Apropos of that, let me share the 9/11 story that touched me most from the New York 
Times series "Portraits of Grief," the little biographies of those who were killed. 
It was the story of Candace Lee Williams, the twenty-year-old business student at 
Northeastern University, who had worked from January to June of 2001 as a work-study 
intern at the Merrill Lynch office on the fourteenth floor of 1 World Trade Center. 
Both Candace's mother and colleagues described her to The New York Times as a young 
woman full of energy and ambition, who loved her internship. Indeed, Candace's 
colleagues at Merrill Lynch liked her so much they took her to dinner on her last 
day of work, sent her home in a limousine, and later wrote Northeastern to say, "Send 
us five more like Candace." A few weeks after finishing midterm exams-she was on a 
June-December academic schedule-Candace Lee Williams decided to meet her roommate 
at her home in California. Candace had recently made the dean's list. "They'd rented 
a convertible preparing for the occasion, and Candace wanted her picture taken with 
that Hollywood sign," her mother, Sherri, told the Times. 
Unfortunately, Candace took the American Airlines Flight 11 that departed from 
Boston's Logan Airport on the morning of September 11, 2001, at 8:02 a.m. The plane 
was hijacked at 8:14 a.m. by five men, including Mohammed Atta, who was in seat 8D. 
With Atta at the controls, the Boeing 767-223ER was diverted to Manhattan and slammed 
Candace Lee Williams right back into the very same World Trade Center tower-between 
floors 94 and 98-where she had worked as an intern. 
Airline records show that she was seated next to an eighty-year-old grandmother-two 
people at opposites ends of life: one full of memories, one full of dreams. 
What does this story say to me? It says this: When Candace Lee Williams boarded Flight 
11 she could not have imagined how it would end. But in the wake of 9/11, none of 
us can now board an airplane without imagining how it could end-that what happened 
to Candace Lee 


450 
Williams could also happen to us. We all are now so much more conscious that a person's 
life can be wiped out by the arbitrary will of a madman in a cave in Afghanistan. 
But the fact is, the chances of our plane being hijacked by terrorists today are still 
infinitesimal. We are more likely to be killed hitting a deer with our car or being 
struck by lightning. So even though we can now imagine what could happen when we get 
on an airplane, we have to get on the plane anyway. Because the alternative to not 
getting on that plane is putting ourselves in our own cave. Imagination can't just 
be about reruns. It also has to be about writing our own new script. From what I read 
about Candace Lee Williams, she was an optimist. I'd bet anything she'd still be 
getting on planes today if she had the chance. And so must we all. 
America's role in the world, from its inception, has been to be the country that looks 
forward, not back. 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. We have gone from trying to coax the best out of the world to snarling 
at it way too often. And when you export fear, you end up importing everyone else's 
fears. Yes, we need people who can imagine the worst, because the worst did happen 
on 9/11 and it could happen again. But, as I said, there is a fine line between 
precaution and paranoia, and at times we have crossed it. Europeans and others often 
love to make fun of American optimism and naivete-our crazy notion that every problem 
has a solution, that tomorrow can be better than yesterday, that the future can always 
bury the past. But I have always believed that deep down the rest of the world envies 
that American optimism and naivete, it needs it. It is one of the things that help 
keep the world spinning on its axis. If we go dark as a society, if we stop being 
the world's "dream factory," we will make the world not only a darker place but also 
a poorer place. 
Analysts have always tended to measure a society by classical economic and social 
statistics: its deficit-to-GDP ratio, or its unemployment rate, or the rate of 
literacy among its adult women. Suchstatistics are important and revealing. But there 
is another statistic, much harder 
451 
to measure, that I think is even more important and revealing: Does your society have 
more memories than dreams or more dreams than memories? 
By dreams I mean the positive, life-affirming variety. The business organization 
consultant Michael Hammer once remarked, "One thing that tells me a company is in 
trouble is when they tell me how good they were in the past. Same with countries. 
You don't want to forget your identity. I am glad you were great in the fourteenth 
century, but that was then and this is now. When memories exceed dreams, the end is 
near. The hallmark of a truly successful organization is the willingness to abandon 
what made it successful and start fresh." 
In societies that have more memories than dreams, too many people are spending too 
many days looking backward. They see dignity, affirmation, and self-worth not by 
mining the present but by chewing on the past. And even that is usually not a real 
past but an imagined and adorned past. Indeed, such societies focus all their 


imagination on making that imagined past even more beautiful than it ever was, and 
then they cling to it like a rosary or a strand of worry beads, rather than imagining 
a better future and acting on that. It is dangerous enough when other countries go 
down that route; it would be disastrous for America to lose its bearings and move 
in that direction. I think my friend David Rothkopf, the former Commerce Department 
official and now a fellow at the Carnegie Endowment for International Peace, said 
it best: "The answer for us lies not in what has changed, but in recognizing what 
has not changed. Because only through this recognition will we begin to focus on the 
truly critical issues-an effective multilateral response to weapons of mass 
destruction proliferation, the creation of real stakeholders in globalization among 
the world's poor, the need for reform in the Arab world and a style of U.S. leadership 
that seeks to build our base of support worldwide by getting more people to voluntarily 
sign onto our values. We need to remember that those values are the real foundation 
for our security and the real source of our strength. And we need to recognize that 
our enemies can never defeat us. Only we can defeat ourselves, by throwing out the 
rule book that has worked for us for a long, long time." 
I believe that history will make very clear that President Bush shame

lessly exploited the emotions around 9/11 for political purposes. He used those 9/11 
emotions to take a far-right Republican domestic agenda on taxes, the environment, 
and social issues from 9/10-an agenda for which he had no popular mandate-and drive 
it into a 9/12 world. In doing so, Mr.Bush not only drove a wedge between Americans, 
and between Americans and the world, he drove a wedge between America and its own 
history and identity. His administration transformed the United States into "the 
United States of Fighting Terrorism." This is the real reason, in my view, that so 
many people in the world dislike President Bush so intensely. They feel that he has 
taken away something very dear to them-an America that exports hope, not fear. 
We need our president to restore September 11 to its rightful place on the calendar-as 
the day after September 10 and before September 12. We must never let it become a 
day that defines us. Because ultimately September 11 is about them-the bad guys-not 
about us. 
We're about the Fourth of July. We're about 11/9. 
Beyond trying to retain the best of our own imaginations, what else can we do as 
Americans and as a global society to try to nurture the same in others? One has to 
approach this question with great humility. What leads one person to the joy of 
destruction and what leads another to the joy of creation, what leads one to imagine 
11/9 and another to imagine 9/11, is surely one of the great mysteries of contemporary 
life. Moreover, while most of us might have some clue about how to nurture a more 
positive imagination for our own kids, and maybe-maybe-for our fellow citizens, it 
is presumptuous to think that we can do it for others, particularly those of a 
different culture, speaking different languages, and living half a world away. Yet 
9/11, the flattening of the world, and the continuing threat of world-disrupting 
terrorism suggest that not thinking about this is its own kind of dangerous naivete. 
So I insist on trying to do so, but I approach this issue with a keen awareness of 


the limits of what any outsider can know or do. 
Generally speaking, imagination is the product of two shaping forces. One is the 
narratives that people are nurtured on-the stories and myths 
453 
they and their religious and national leaders tell themselves-and how those 
narratives feed their imaginations one way or another. The other is the context in 
which people grow up, which has a huge impact on shaping how they see the world and 
others. Outsiders cannot get inside and adjust the Mexican or Arab or Chinese 
narrative any more than they can get inside the American one. Only they can reinterpret 
their narrative, make it more tolerant or forward looking, and adapt it to modernity. 
No one can do thatfor them or even with them. But one can think about how to collaborate 
with others to change their context-the context within which people grow up and live 
their daily lives-to help nurture more people with the imagination of 11/9 than 9/11. 
Let me offer a few examples. 
eBay 
Meg Whitman, the CEO of eBay, once told me a wonderful story that went like this: 
"We took eBay public in September 1998, in the middle of the dot-com boom. And in 
September and October our stock would go up eighty points and down fifty in a single 
day. I thought, 'This is insane.' Anyway, one day I am minding my own business, sitting 
in my own cubicle, and my secretary runs over and says to me, 'Meg, it's Arthur Levitt 
[chairman] of the SEC on the phone.'" The Securities and Exchange Commission oversees 
the stock market and is always concerned about issues of volatility in a stock and 
whether there is manipulation behind it. In those days, for a CEO to hear that "Arthur 
Levitt is on the line" was not a good way to start the day. 
"So I called my general counsel," said Whitman, "who came over from his cubicle, and 
he was white like a sheet. We called Levitt back together and we put him on the 
speakerphone, and I said, 'Hi, it's Meg Whitman of eBay.' And he said, 'Hi, it's Arthur 
Levitt of the SEC. I don't know you and have never met you but I know that you just 
went public and I want to know: How did it go? Were we [the SEC] customer-friendly?' 
And so we breathed a sigh of relief, and we talked about that a 
454 
little bit. And then [Levitt] said, 'Well, actually, another reason that I am calling 
is that I just got my tenth positive feedback on eBay and have earned my yellow star. 
And I am so proud.' And then he said, 'I am actually a collector of Depression-era 
glass, post-1929, and so I have bought and sold on eBay and you get feedback as a 
buyer and seller. And I thought you would just like to know.'" 
Every eBay user has a feedback profile made up of comments from other eBay users who 
have done transactions with him or her, relating to whether the goods bought or sold 
were asexpected and the transaction went off smoothly. This constitutes your official 
"eBay reputation." You get +1 point for each positive comment, 0 points for each 
neutral comment, and -1 for each negative comment. A colored star icon is attached 
to your user ID on eBay for ten or more feedback points. My user ID on eBay might 
be TOMF (50) and a blue star, which means that I have received positive feedback 
comments from fifty other eBay users. Next to that is a box that will tell you whether 


the seller has had 100 percent positive feedback comments or less, and also give you 
the chance to click and read all the buyers' comments about that seller. 
The point, said Whitman, is that "I think every human being, Arthur Levitt or the 
janitor or the waitress or the doctor or the professor, needs and craves validation 
and positive feedback." And the big misconception is to think that it has to be money. 
"It can be really small things," said Whitman, "telling someone, 'You did a really 
great job, you were recognized as doing a great history paper.' Our users say to us 
[about eBay's star system], 'Where else can you wake up in the morning and see how 
much people like you?'" 
But what is so striking, said Whitman, is that the overwhelming majority of feedback 
on eBay is positive. That's interesting. People don't usually write Wal-Mart managers 
to compliment them on a fabulous purchase. But when you are part of a community that 
you feel ownership in, it is different. You have a stake. "The highest number of 
feedback we have is well over 250,000 positive comments, and you can see each one," 
said Whitman. "You can see the entire history of each buyer and seller, and we have 
introduced the ability to rebut. . . You cannot be anony

mous on eBay. If you are not willing to say who you are, you should not be saying 
it. And it became the norm of the community really fast. . . We are not running an 
exchange-we are running a community." Indeed, with 105 million registered users from 
190 countries trading more than $35 billion in products annually, eBay is actually 
a self-governing nation-state-the V.R.e., the Virtual Republic of eBay. 
And how is itgoverned? EBay's philosophy, said Whitman, is, "Let's make a small number 
of rules, really enforce them, and then create an environment in which people can 
fulfill their own potential. There is something going on here besides buying and 
selling goods." Even allow-
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