Archive for May 13, 2010

Fisher Investments Analyst’s Book Review: The World Is Flat

May 13, 2010 Leave a comment
It’s simply amazing to think The World Is Flat was first published in 2005, and already feels really old. These ideas just seem so self evident now. Penned by New York Times columnist Thomas Friedman, the book is in its third version. It certainly has its flaws, but ultimately is among the best tomes out there about modern globalization. In fact, the concept “the world is flat” (that is, technological advances and trade liberalization have evened the competitive global landscape) is near universal in today’s business lexicon. Yet in the five years since the book’s release, euphoria over the benefits of globalization and technology has been replaced by anxiety about competition and outsourcing. This book is a touchstone of that anxiety.Nonfiction books today often try to establish authority by saying, “This is the biggest change in the world!”, or “This book’s topic is the underlying reason for all things that are happening!” The World Is Flat is no exception. I’m not sure why folks so love the idea that this time is different. We’ve been outsourcing and reinventing our economy forever, and globalization has come and gone in waves for hundreds of years. So, rather than documenting some strange, new phenomenon, this book is an excellent analysis of a modern economic trend.

Mr. Friedman is more journalist than economist, which makes for entertaining reading, but the book is way too long. (I’ve long wondered whatever happened to editors over the last few decades—nonfiction titles are growing ever longer and more tedious.) Now the book has three editions, and Mr. Friedman has been goaded into stuffing it full of more stuff. It’s chock full of anecdotes and provocative but ultimately useless interview questions like, “What was the moment you realized the world was flat?” (Who cares?)

There’s a free market capitalist lurking in Friedman, and it’s great when he lets it run: He extols Ricardian trade (which says trade is ultimately a win/win), roots for globalization and competition, reminds us capitalism isn’t about how the economic pie is shared but about increasing the size of the pie (i.e., wealth creation), and cheers the entrepreneurial spirit.

He is right in all this, and those who fear outsourcing should visit the book’s first third. A chart of US unemployment over time shows it’s never—ever—been driven by how many jobs are going overseas, but rather by recession and expansion. The business cycle creates wealth by increasing productivity—allocating jobs and resources to the most efficient places (even if they’re in another country) actually adds to wealth creation. The US has reinvented itself—of its own volition—many times, and will do so again. Note that throughout much of the last decade (as the world was “flattening”), unemployment was quite low (under 5%). It wasn’t until a global recession that unemployment spiked. Short-term dislocation effects of unemployment are a legitimate concern, and certainly fuel populist support for protectionism. But since when has moving between industries been a bad thing for the US or global economy? Or would we still prefer to be an agrarian economy as we were 150 years ago to “save” jobs?

For all this, Friedman can’t help but often take a pessimistic tone about the US. A vast chunk of this book warns US citizens they must change to compete in the flat world. This is off track and more than a little offensive in parts. A true free marketer would never dictate what society must “learn”; instead, folks should be free to pursue their own self interest. But Friedman’s convinced the only real future job growth will be in software engineering, math, science, and such. Therefore, we need programs to create more scientists, engineers, and PhDs generally. He mixes this with an abundance of vague dictums like “we must be more versatile than ever before,” but we must also cultivate “greater depth” in our citizens.

Why is it that, suddenly, here on education, Friedman abandons his free market views for mercantilism? I don’t know. To dictate what a society must “learn” requires an omniscience and flexibility no single human can have. Which is one of countless reasons dynamic free market capitalism is so effective—it adapts without a central planner. It’s been precisely the freedom to choose that’s created such vast economic strength over time. I wish Friedman had the courage to go there. Instead, we get didactic gobbledygook about what we need to do as a society, which weakens his argument for free trade. Keep things free and fluid and opportunity should flourish. That will be, as it always has been, a stronger force for wealth creation than any command from on high.

Folks often don’t think in this way, but jobs and skills today considered ironclad may not always be. Decades ago we used to say learning certain skills or trades would provide a great career forever. But through time skills can become “commoditized”, that is, many workers become able do the work, and perhaps technology can largely replace those skills—like robotic assembly lines for cars. Today, we tend to believe trades like software engineering and the sciences will always provide job safety. Probably wrong. My guess is, as the world continues to develop, many parts of engineering and the sciences will become commoditized too. For instance, mechanical engineers are facing tremendous competition from software programs that can design products faster and better than ever before. Because of this effect, it’s imperative to allow the workforce to remain fluid rather than direct folks into this or that field of study.

The reason all this is offensive is it’s predicated on the myth the US is a nation of ignorant, indolent, lethargic, stupid folks more occupied with Britney Spears than Noam Chomsky. We’re Yankees. Yet, paradoxically, we’re also known as the most “Type A” workaholic nation ever. We take less vacation than anyone, have more stress, and more families working two jobs. We’re the biggest economy in the world and it’s in better shape than most after a nasty global recession. How can we be those things and simultaneously fat and lazy? They can’t both be right. If the education gap were truly so dire, then how can we explain that in the US grads are heading to college in record numbers?

This book attempts to be all-encompassing, and Friedman won’t stay away from politics. Our politicians must be “inspiring” and able to “explain” the situation, he says, to direct folks to get the needed skills to become competitive. We need an army of John Kennedys, according to Friedman, to lead all this new centrally planned competition. Wrong. Ronald Reagan (love him or hate him) is the best example of fostering competitiveness in a flattening world. Reagan indeed inspired the populace with his “Morning in America” concept. But instead of some bizarre and misguided centrally planned education expedition, he let Americans achieve their greatness by choosing their own paths.

Ultimately though, despite these weaknesses, Friedman delivers a book that asks us to embrace globalization, see the tremendous opportunities it can generate, and invites us to participate—a worthy message in an age of anxiety. *The content contained in this article represents only the opinions and viewpoints of theFisher Investments editorial staff.


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