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A Flat World, A Level Playing Field, a Small World After All, or None of the Above?
Review of Thomas L Friedman, The World is Flat.
Edward E. Leamer January 31, 2006 Preliminary Version
What Might that “Flat World” Metaphor Mean?
Stumbling onto a book titled “The World is Flat” by Thomas Friedman would leave a book browser puzzled about its likely content. My first guess would be epistemology and evolution. “The World is Flat” must be a reference to the pre-Columbian sailor’s worry about falling off the edge of the earth, and the tenacious clinging to that idea by members of the Flat- Earth Society in the face of “overwhelming” “scientific” evidence. Put that into the current context, the debate about the intellectual legitimacy of “intelligent design”, and you are led to my conclusion: “The World is Flat” is probably a book about faith-based decision- making and the teaching of intelligent design in the schools. This book is going to surprise. It will show that a flat earth is not a straw man at all, and that science is only another kind of religion, seeking to burn its heretics at the stake with all the vigor of traditional religion.
But as I obsess on this, I wonder why Friedman didn’t choose the title “The Earth is Flat.” That would be a better title for a book about epistemology and evolution. Remember it is the Flat-Earth Society, not the Flat-World Society. “World” has a meaning that is much broader than “earth.” Earth is the planet, the dirt at your feet, real physical stuff. Our world is heaven and earth; our world is mankind; your world is where you live; your world is your friends and your beliefs. So I gather that there most be some important meaning here. I wonder what it is?
Alas, the subtitle “A Brief History of the Twenty- first Century” unsettles this brief flight of fancy about the content of this book, but it leaves the browser utterly confused. How could “The World is Flat” and “A Brief History of the Twenty-first Century” have anything to do with each other? That bold subtitle reminds me of the New Yorker cartoon that hung outside a history professor’s office at UCLA for many years. It depicted a student receiving a final exam in a history course: “Explain World War II. Use both sides of the page if necessary.” Friedman’s boldness here goes beyond brevity, since this is a brief history of the Twenty- first Century written before the Twenty-first Century has occurred.
Enough with all these diverting thoughts. It’s time to look at the blurb. The blurb points in a wholly different direction: “ … the convergence of technology and events that allowed India, China, and so many other countries to become part of the global supply chain for services and manufacturing, creating an explosion of wealth in the middle classes of the world’s two biggest nations and giving them a huge new stake in the
success of globalization? And with this “flattening” of the globe, which requires us to run faster in order to stay in place, has the world gotten too small and too fast for human beings and their political systems to adjust in a stable manner?”
Huh? That last sentence packs in at least two too many metaphors for me to process: a flat earth, people running faster but staying in place, a small world and a fast world. And then there is the “explosion” in the previous sentence. What is Friedman getting at with this mélange of metaphors? I understand that China has increased it exports of manufactures to levels far above anyone’s expectations. I understand that call centers and some back-office functions and some software coding have moved to India. I understand that GDP growth in both China and India has been phenomenal and has lifted hundreds of millions out of poverty. But what is the meaning of that flattening metaphor? What is the alternative to a flat world? A smooth sphere? Bumps? That’s a puzzle worth solving.
Friedman’s “Aha” flat moment
Friedman’s “aha” flat moment came on a golfing outing during a Discovery Channel excursion to Bangalore, India where, surrounded by buildings emblazoned with US tech names, he was told to “Aim at either Microsoft or IBM.” (p3). Friedman recounts that Columbus, sailing in search of India apparently on the premise that the Earth is round, encountered exotic native Americans unlike the Europeans with which he was familiar and pronounced them Indians, allowing Columbus to carry the news back to King Ferdinand and Queen Isabella: the Earth is round. Likening his Discovery Channel crew to the sailors on the Nina and the Pinta and the Santa Maria , when Friedman found in Bangalore not Indians but Americans in name and speech and business practices, he “shared my discovery only with my wife, and only in a whisper. ‘Honey.’ I confided, ‘I think the world is flat.” (This made me wo nder: If Columbus had found Italians in the New World would he have concluded the Earth is flat??)
Once “flat” was in Friedman’s head, he couldn’t seem to get it out. When on that same trip to Bangalore, Friedman was told by Nandan Nilekani, CEO of Infosys Technologies Limited, “Tom, the playing field is being leveled.” Friedman concludes “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!” p.
Flattened? I still don’t get it. To digress briefly into the use of metaphors in economics I routinely ask my Ph.D. classes in international economics what they think I mean when I tell them “Joe’s elevator doesn’t stop on all floors.” The foreign students (of which there are many) whose native language is not English imagine literally an elevator in Joe’s building that isn’t working right. American students (of which there are only one or two) suspect that what I mean is “Joe isn’t playing with a full deck.” What I want these students to understand is that models in economics are highly metaphorical and if students cannot tell the difference between the literal mathematical properties of models and the subtle messages of the models, they are not understanding the language. Decoding metaphors is the hardest part of learning a new language. When we emphasize
customers and supply point is a circle with the supply point in the center. But circles cannot be a solution to Lösch’s problem because they cannot tile a plane. Of the three regular shapes that can tile a plane - equilateral triangles, squares and hexagons – it is hexagons that come closest to circles. Thus Lösch’s infinite featureless (flat) plane of demand is cut most efficiently into equal-sized hexagons with a supply point located at the center of each.
I actually wrote my first published paper (my Senior Thesis at Princeton)^1 on the Lösch problem but with demand limited geographically to squares and circles rather than infinite planes. How is a square of demand optimally cut into market areas if there are eight supply points? What about 16? With 16, do we want four rows of squares? The answers are in the figures at the right. For 16 supply points, the optimum is not four rows of squares; the optimum is a compromise between the ideal hexagons and the squares.
While Von Thünen describes an economic equilibrium, Weber and Lösch describe only a mathematical optimization problem that may or may not be approximated by firms seeking locations that maximize profits. Probably not, since these socially optimal solutions leave firms in advantaged positions relative to their closest customers. That market power is sure to be exploited with monopoly pricing, which in turn is sure to be contested by location and/or pricing decisions of other firms. Where might competitive firms locate in a flat world? An economic equilibrium model of competition on a flat line segment (call it a beach) has been offered by Harold Hotelling(1929) who argues that competition will induce both sellers (hot dog stands) to crowd together at the center, producing an inefficient outcome. The Hotelling model is routinely applied to competition between two political parties, each positioning itself close to the median voter.
The Message of Models of Competition in Flat Planes
From these references we should receive an important message that needs to be absorbed as we try to decode Friedman’s flat-world metaphor. Geography, whether physical or cultural or informational, limits competition since it creates cost-advantaged relationships between sellers and buyers who are located “close” to one another. The key word is relationships. Flatness doesn’t create a relationship- free equilibrium; it merely changes the geography of relationships. It turns irregular hard-to-define geographic regions of customers committed to the same supplier into regular hexagons with the supplier at the center.
Flat featureless planes of competition are the preferred spaces for the mathematical modeling of geographical competition, not because flatness closely resembles nature but only because modeling of competition in real geographies with rivers and oceans and hills and mountains is beyond the reach of algebra. The point of this modeling is not to
(^1) "Location Equilibria," Journal of Regional Science , Vol, 8 (No. 2, 1968), 229-
show what flatness implies. The point is to show what transportation costs imply. The what- if question that these economic geographers ask is not : “What if the world were flat instead of spherical or bumpy?” Their what- if question is: “What if transportation costs were low instead of high? What do declines in transportation costs do to the intensity of competition and the geography of prosperity?”
Some Real Questions for Economic Geography to Explore
There are count less real “globalization” questions for this kind of economic geography to answer. For example: What if Europe were to form an economic union that allowed the four freedoms among countries: free movement of goods, people, services and capital, all supported by a common currency? Which kinds of activities would concentrate and which would disperse? Do the peripheral countries, like Sweden, benefit or lose out? What happens to a central country, like Switzerland, that doesn’t join?
When looking for problems that can be studied by economic geography, it is wise to keep in mind that the distance effects need not come from simple transportation costs. Physical distance may create and reinforce linguistic and cultural barriers that make it hard to exchange thoughts between people located far from each other in the cultural landscape. In that kind of world, there would be specialized cultural services (e.g. plays and newspapers and legal services) made by locals for locals. These couldn’t be shipped very far because the messages would melt away to meaninglessness if the content were shipped over great distances to unreceptive cultures.
But suppose that, by an accident of history, a geographically large area with a large population adopted much the same language and much the same culture. Though large physically, this area is small culturally. Call it the United States of America. Within this country, how many “Hollywoods” do you suppose might emerge? If the agglomerative externalities (economies of scale) were moderate compared with the cultural shipping costs, hundreds of Hollywoods might be sprinkled around the US each producing specialized products suited to the local markets. But suppose the benefits from agglomeration are large and the competitive outcome allowed only one Hollywood to emerge producing one homogenous cultural product that is not customized for Southern tastes nor Eastern Tastes nor Midwestern tastes nor Western tastes. The same movies are displayed in theaters all over the country. Enter into this drama a new actor: globalization. Suppose that communications innovations drive down the “shipping costs” for cultural products to points outside the United States. Suppose English is the language of global commerce and children all over the world drink Coke and wear jeans. Then what happens? Would a Bollywood emerge and compete actively for the US market? Or would global competition allow only a single Hollywood? Does our Hollywood win or lose from this form of cultural globalization?
If your instincts are the same as mine, you are thinking that Hollywood wins big time from declining cultural “transportation” costs, and many of the rest of us living in Los Angeles benefit as well. It is the local cultural providers in France and Mexico and Canada and India and China that are probably hurt from an extension of the reach of US
A level playing field?
A “small world” is a clear metaphor, but a “flat world” is for me an elusive new metaphor. The most prevalent metaphor for discussing global competitio n is “a level playing field” which actually is not crystal clear either. A “level playing field” refers to rules of the game that “unfairly” favor one competitor over another. If the football field is level, the better team will emerge victorious, but a sloped field confers advantages to the team defending the higher goal.
“Fairness” requires a level playing field, but fairness and levelness are in the heart and eye of the beholder. If you are bigger and faster and smarter than I am, just because of your genetic draw, that doesn’t seem fair to me. That’s not a level playing field. Better offer a handicap or a point spread. That would make it fair. If you want to push this to the extreme, it is unfair for there to be a loser at all. Can’t we all be winners? (With grade inflation, we are doing this on campus.)
The literature on the theory of international trade has many models with sloped playing fields, including ones with technological differences and with policy differences across countries. Here is a model-building exercise that I offer my students. It is appealing because it has a geographic aspect to it and because it yields a surprising conclusion. Imagine that there are two countries – Japan and the United States. Japan sits on the top of a hill and the United States sits at the bottom. To get US goods to Japan, one has to hire porters to carry the goods up the hill. But the Japanese can put their products in a chute and let gravity do the work - costlessly transporting Japanese goods down the hill to the US market. Not a level playing field, you should be thinking. Japan is clearly in the advantageous position. Not so fast, I caution the students. Who pays for lugging the US products up the hill? Why do you presume it is the US and not the Japanese? This should get them thinking about elasticities of supply and demand. If US goods are in short supply and are desperately desired by the Japanese, while Japanese goods are abundant and not much desired by Americans, then it is the US at the bottom of the hill that is in the advantageous position and it is the Japanese who pay for the lugging of the goods up the hill. If the Japanese build their mountain artificially with trade barriers that make it difficult to ship Washington apples to Japanese consumers, and if the Japanese consumers would pay any price for those apples while Americans could care less about the latest Sony gadget, then it is the Japanese who pay for the barriers, not the Americans. So be careful when you put rocks in your harbor. And be sure to wear the right kind of glasses when you are viewing the playing field. What looks tilted one way with your regular glasses may be tilted the other way with econ-oculars.
Did David Ricardo Understand Outsourcing?
The public debate about the benefits and costs of “outsourcing” has been a heavyweight slugfest. Are there gains from trade or are there not? In the corner on the right, we have Professor Greg Mankiw, chairman of the Council of Economic Advisors, wearing the Crimson trunks and representing traditional thinking about the benefits of free trade. In the corner on the left, we have the newly- formed tag-team of Senator Charles Schumer and Dr. Paul Craig Roberts, loudly and publicly promising a first-round knock-out of Mankiw’s traditional way of thinking. (Yes, that is the same Paul Craig Roberts, who has always fought from the corner on the right.) In the front row, behind the Schumer/Roberts corner is the former Democratic Presidential nominee, Sena tor John Kerry, pointing a long finger at the “Benedict Arnold” businessmen whose company logos he imagines emblazon Chairman Makiw’s trunks. To the surprise, of many, sitting beside John Kerry is none other than Paul Samuelson. Thomas Friedman has chose to sit with Mankiw. 2
Commenting on outsourcing, Chairman Mankiw, in the Economic Report of the President, 2004 , advises: “When a good or service is produced more cheaply abroad, it makes more sense to import it than to make or provide it domestically.” But, based apparently on some serious late- night library work, Schumer and Roberts reply in the New York Times^3 “when Ricardo said that free trade would produce shared gains for all nations, he assumed that the resources used to produce goods -- what he called the ''factors of production'' -- would not be easily moved over international borders. Comparative advantage is undermined if the factors of production can relocate to wherever they are most productive: in today's case, to a relatively few countries with abundant cheap labor. In this situation, there are no longer shared gains -- some countries win and others lose.” “And one thing is certain: real and effective solutions will emerge only when economists and policymakers end the confusion between the free flow of goods and the free flow of factors of production.”
My first reaction to Schumer and Roberts was: You need to write on the blackboard 100 times: “There are gains from exchange.” Ricardo’s (1817) Principles of Political Economy and Taxation was a good start, but take a look at the book that got Ricardo thinking about the issues: Adam Smith’s (1776) An Inquiry into the Nature and Causes of the Wealth of Nations. It was Adam Smith who emphasized the gains from exchange
(^2) “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 … shoe work leaving Massachusetts or textile work leaving North Carolina. Work gets done where it can be done most effectively and most efficiently. …. 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.” Friedman, p. ** (^3) New York Times Op-ed Piece, January 6, 2004.
I am going to call it “immiserizeing outsourcing” in honor of Jagdish Bhagwati, who stands just above John and Jane Doe in Samuelson’s hierarchy. 4
Immizersizing Outsourcing: Adverse Terms of Trade Effect on US
Intellectual Property
The model of outsourcing presented here illustrates what might happen if the US loses geographical control over its knowledge assets. This puts US prosperity at risk. It’s a possibility, not very close to reality, I think.
Jagdish Bhagwati(1958) raised the possibility of “immiserizing growth” almost fifty years ago in a classic paper. Bhagwati warned that a country that grows more rapidly than its trading partners inevitably floods the markets with its export goods, which can lower the country’s terms of trade and make the growing country actually worse off. Factor mobility can also affect the terms-of-trade, a possibility explored by Kemp(1966) and Jones(1967) who raised the possibility of immiserizing capital flows in a two-sector model with technological differences. Reverse the labels K and L and you have a long list of theorems on the effect of labor mobility on welfare. For a survey of the articles on the effects of tariffs in this kind of model, see Ruffin(1984). This literature addresses the implicit policy question lying behind the comments by Schumer and Roberts: Should the US attempt to halt outsourcing with some form of tax policy?
We can capture this immiseration idea in a simple Ricardian model. Figure 1 illustrates the production possibilities of typical US and Indian workers^5. They are equally productive in making apparel, but the US has a technological superiority in writing software. This superiority may come only from geography and history: Designing and writing software code requires close communications among the participant s, and the Indian programmers are too far from the US to benefit from the agglomeration externalities that come from the need for clear communications. You cannot be a programmer unless you are “here”.
(^4) Leamer(2004) offers a Ricardian model of immizerising outsourcing discussed here and also a
Heckscher-Ohlin model of “trickle-up outsourcing” with two factors of production: masters who create the new products and helpers who build them. When the masters discover a new communications technology that allows them to hire helpers who live in low-wage foreign countries there are two immediate effects: the masters get a salary increase and the helpers lose their jobs. What comes next is not entirely clear. The helpers look for work in the local service sector, which increase in supply puts downward pressure on wages, but offsetting that force is the new demand for local services that comes from the increased earnings of the masters. It is possible that this “trickle down” effect is so strong that the helpers end up with higher- paying jobs in the local service sector, in which case masters and helpers share the efficiency gains that come from outsourcing. But it is also possible, that helpers end up with lower wages, in which case the masters get all the gains and then some. (^5) For expositional purposes, I am illustrating the production possibilities of a typical worker, not the
economy overall. For this reason, the diagram says nothing about the trade balance.
Figure 1 Production Possibilities: US and Indian Workers
Figure 2 illustrates the usual Ricardian equilibrium under these conditions: The US specializes in software and India specializes in apparel. Workers in both countries are made better off by this exchange. In this equilibrium US workers have higher living standards than the Indians because of the US absolute advantage in software.
Figure 2 Specialization and Consumption: US and Indian Workers
Apparel
Software
US
India
Apparel
Software
US
India
deterioration for our intellectual properties - movies, drugs, financial derivatives, equipment and software -provided that we have adequate intellectual property protection.
We do need to worry about the new competition for mundane coding tasks. In those same notes I have a Heckscher-Olhin model with production done by masters and helpers. The masters all live in the US. Helpers reside in the US and in India. It takes masters and helpers to make software. It takes only helpers to make apparel or nontraded services. Absent the outsourcing opportunity, US software masters hire helpers locally, and the US exchanges software for apparel with India. A change in the communications technology that allows US software masters to hire India helpers eliminates all the US helpers jobs in the software sector. These US helpers move to the US nontraded service sector. Who wins and who loses from this change? Keep in mind that there are global efficiency gains that might find its way to US helpers. I call that trickle-down outsourcing.
But all is not well for the creative innovative function either, at least as it applies to manufacturing. Cost-reducing process innovations can only be made by those who are actually producing the product, and as we move more manufacturing to China we are certainly also moving the process innovations there as well. It remains to be seen if product innovation can remain in the US when production is done elsewhere. ***
More Detective Work: How does Friedman use the “flat”
word?
Now that we have diverted to a brief review of flatness in economic thought, it is time to return to our first task: trying to decode Friedman’s flatness metaphor.
One way to uncover what Friedman means by “The World is Flat” is to see how he uses the f-word. Since it occurs on virtually every page of this 450-page book, there is plenty of grist for the mill.
“..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.” (p.8)
“from 1492 to around 1800.. it shrank to world from a size large to a size medium. From 1800 to 2000,.. shrank the world from a size medium to a size small. …around the year 2000 we entered a whole new era… shrinking the world from a size small to a size tiny and flattening the playing field at the same time .” (p. 9-10) (my italics)
“to flatten their accents in order to compete in a flatter world.” (p.27)
“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 structure into more horizontal and collaborative ones.” (p.45)
“common standards create a flatter, more level playing field.” (p. 52)
“Just as the national highway system that was built in the 1950s flattened the United States, broke down regional differences, and made it so much easier to relocate in lower-wage regions, like the South… the laying of global fiber highways flattened the developed world.” (p. 69)
“For the world to get flat, all your internal departments – sales, marketing, manufacturing, billing, and inventory – had to become inoperable, no matter what machines or software each of them was running.” (p. 74)
“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.” (p. 91)
“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 open borders and come-one-come-all approach – can challenge hierarchical structures with a horizontal model of innovation …” (p 102-3)
“China will never be truly flat until it gets over that huge speed bump called “political reform.”” (p. 126)
“Insourcing came about because once the world went flat, the small could act big
- small companies could suddenly see around the world. (p. 143) (My italics)
“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.” (p. 158) (My italics)
“ 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…. That is what I mean when I say the world has been flattened ,” (pp. 176-77) (authors italics and boldface).
From these examples one can infer that Friedman’s use of the flatness metaphor is virtually all encompassing. Usually, and certainly in the last quotation, he is really writing about a small world in which distance, measured physically, linguistically, and culturally, doesn’t isolate your job from competition from far-way workers. Even flatness as a visual metaphor, which is apt, is equivalent to a shrinking globe – in a spherical earth you cannot see around the world and cannot recognize the opportunities
for knowledge workers greatly increases the productivity of those with natural talent but that leaves the less talented with less to do and with lower pay. Today, Thomas Edison would be surprised to see the PC and the Internet doing most of the perspiring, and shocked to discover that genius is 99% inspiration and 1% perspiration. That doesn’t sound very “flat” to me.
It is the third of these revolutionary changes that may be a force for “flattening”, or more accurately, a smaller world. I can buy an electric drill from my local hardware store or I can use the Internet to buy the drill from a supplier in Dallas or Newark and have it shipped by next day air. That means that my local hardware store is competing over a much larger geographic area and the rents that come from location are reduced. This can occur in the labor markets as well, with far-away workers bidding to do my tasks.
Markets or Relationships?
The worry that your job is going to be taken away by a cheaper worker in India or China is based on the supposition that there is a “market” for the tasks that you perform. Though we economists talk as if most exchanges were meditated by markets to which our simple supply and demand model applies, in fact most exchanges require long-term relationships between buyer and seller. The “capital” invested in these long-term relationships creates a situation of bilateral bargaining that responds to competitive pressures in much softer ways than would a market. It’s the difference between contestable versus negotiable exchanges. A market has contestable exchanges that cannot be consummated if they deviate in the slightest from the “market.” If the global market offers to do your work for 1 cent less today, then you either accept a wage reduction tomorrow morning, or you lose your job. That isn’t your situation, is it, o ye of tenure status? Your university job is not contested, is it? Your job is negotiated. The supply and demand balance for economists can change sharply but it will take a very long time for you to feel that change. You negotiate with your employer (the University) and your employer negotiates with the paying customers (state legislators and voters and students and donors).
That isn’t like a market at all. At the economist’s hypothetical “market”, countless faceless buyers meet countless faceless sellers, and carry out exactly the same transaction
- exchanging at one “instant” of time x units of a good or service A whose value is transparent to both buyer and seller for y units of good or services B, also with a transparent value.^6 The market is thick with buyers and sellers, but there are no relationships. These market participants don’t even know each other.
Buyers and sellers in this hypothetical market are all brought together into the same “space” so that they can overhear the terms of the exchanges being offered by others, and from that information cut a better deal for themselves. With all that overhearing the participants haggle their way to a collective rate of exchange, the “market price” at which total sales exactly match total purchases. Having found this market rate, the exchanges
(^6) Often, one of the items exchanged is “money,” standing for a basket of goods or services.
take place, and the participants go on their merry separate ways, never to see each other again.
In this hypothetical market, the identities of buyer and seller are totally irrelevant. It doesn’t matter where the buyers or sellers reside, what their nationalities are, who they work for, who their parents are, where they went to school, how big are their bank accounts, how attractive they are, what are their beliefs, whether they are men or women, old or young, gay or strait, tall or short, convicts or ex-convicts, sinners or saints, con men or paragons. The exchange is completely impersonal.
A market is infinitesimally close geographically, but infinitely remote personally. “Arm’s length” is the way we describe it. Close enough to overhear, but too far to shake hands and way too far to hug. (Gestures of trust.)
In fact, there are very few exchanges that are mediated by “markets.” There are very few “commodities” whose value is transparent enough to allow the formation of a market. There are very few exchanges that take place at a frequency high enough and with full enough knowledge by other potential participants that market prices can emerge. Most exchanges take place within the context of long-term relationships that create the language needed for buyer and seller to communicate, that establish the trust needed to carry out the exchange, that allow ongoing servicing of implicit or explicit guarantees, that monitor the truthfulness of both parties, and that punish those who mislead. Many exchanges occur between colleagues who work for the same firm. Indeed, about 40% of US imports are carried out internal to multinational enterprises.
The fear that seems to underlie much of Friedman’s flat earth metaphor, is that work is becoming commoditized and sold in global markets. What got him to his “flat world” conclusion was his observation that software coding in Seattle seems contestable from Bangalore.
But: Is Friedman’s job commoditized? Is Friedman’s job contested?
I think I am getting close to understanding the Flat World Metaphor. It is mostly about the commoditization of work, and the extension geographically of the contest for mundane work in manufacturing and services like sewing apparel and reading manuals at call centers over the phone and also not- mundane research and development. The central issue is whether most Americans are going to sell their products and services in a global “market” that completely determines the wages and working conditions, or are they going to offer specialized negotiable “craftwork” in which the forces of the global market are greatly attenuated. Are the dramatic changes in communications technology, including the Internet and also essentially free telecommunications turning secure negotiable jobs into insecure contestable jobs? Or are most jobs like professors and plumbers, that seem completely resistant to the changes around them?
Which Activities are Contestable: Mundane Work or Creative Work?
The Luddites correctly perceived that mechanization and standardization of textile production was turning their jobs into tasks contestable by workers near and far. The key word here is “contestable.” Friedman’s flat world hypothesis seems to be that there are or will be many US jobs that are contested by Chinese and Indians. This strikes me as rather far from reality. It is only the mundane codifiable tasks in tradables for which there are global markets. You’d be surprised how few of those remain in the US. The proper response to the Chinese challenge is to make the educational and infrastructure investments that are needed to keep the high-paying non-contested creative jobs here at home and let the rest of the world knock themselves silly competing for the footloose mundane contestable jobs.
The words “mundane” and “codifiable” may not be altogether clear, and, to help out, here are some tasks, ordered by their mundanity:
- Type this page.
- Edit this page.
- Write an article for an Economics journal.
- Write a good joke.
I am told that Ph.D. students at Northwestern when faced with the task of transcribing printed pages of numbers into machine-readable files scan the documents and e- mail them to India for overnight typing. I wonder if very many students send their dissertations to India for editing? My experience with US-based editors ranges from annoyance to outright outrage. If you find an editor who makes you happy, you’d better cling to him for dear life. Create a relationship and for heaven’s sake don’t threaten to send the job to India if he doesn’t cut his fee. He will dump you in an instant, and you will have to do the editing yourself, or not.
In the case of typing a page, both parties to the transaction understand what it means to carry out the task and both can easily and accurately determine if the task was done well. But when I first ask you to edit my manuscript, neither you nor I know what that means. Once you have made an attempt, I can tell you if I like what you have done or not. If we pass manuscripts back and forth enough, you and I are going to learn what I mean when I ask, “Please edit this manuscript.” That’s an investment in language that is specific to you and me. That linguistic investment creates a strong bond between us – a relationship. That’s why there are no markets for editorial tasks – it takes a relationship.
Writing a publishable Economics article is a more difficult craft that can only be learned in a slow and sometimes painful trial-and error-process. Part of the learning process involves face-to-face conversations with the other members of the guild, especially the master craftsmen. Absent frequent attendance at seminars and conferences, it is virtually impossible to learn this craft. Neither the Internet nor free telecommunications
has had much impact on that geographical reality. For the creation of new ideas – it takes a neighborhood.
Friedman knows this. According to Jaithruth Rao, MphasiS, (“one of the first people I met in Bangalore”)
“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. … The accountant who wants to stay in business in America will be the one who focuses on designing creative complex strategies….” p.13,
And a few pages later, Tom Glocer, CEO of Reuters
“We think we can off- load commoditized reporting and get that done efficiently somewhere else in the world.” p.
Globalization and The Four Mobilities
This discussion has emphasized the globalization of markets for goods and some services, but the phenomenon of globalization is broader than that.
Globalization is the increased international mobility of goods, people, contracts (including financial claims) and thoughts (facts, ideas, and beliefs).
There is a difference between mobility and movement. Think about two reservoirs of water at different heights that are kept from seeking a common level by a separating barrier. Thus neither movement nor mobility. Next tear down the barrier and make the water completely mobile. One possibility is that that there is a movement of water from the high side to the low side. Thus mobility and movement. Another possibility is that in anticipation of the removal of the barriers, the folks on the high end drain their reservoir to exactly the same height as the low reservoir. Now tear down the barrier, and there is mobility but not movement. Don’t think “silly” when you read this. US wages can move down to foreign levels from the threat of competition, with no flows of goods or workers across the borders.
Of these four mobilities, it is the last that is probably the most important – the mobility of thoughts. Evidence for this comes from the two great tests of the power of globalization. The first test was created by Nature and the second by Man. Jared Diamond in his remarkable book Guns, Germs and Steel poses the question: why did Europe conquer the Americas, rather than the other way around? One of the answers is globalization. The north-south orientation of the Americas did not support the transfer of technology because innovative crops and livestock that would flourish in one latitude would not survive in another. In contrast, the middle latitudes stretched all the way from Europe to China, allowing grains discovered in the Middle East to be grown in Spain or in China, and gunpowder discovered in China to be deployed in European arms.
