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.” Wal-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 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 risk for 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 he or 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 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 on servers located all over the world. No government controls this cyber-realm. So the question is: Who own
s 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! 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 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 on Wall Street or service 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 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 is from 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.
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