World Without Walls
CIO Intervew with Tom Friedman
March 25, 2005
By Ellen Pearlman and Dan Briody
A well-worn map of the world stretches the entire length of one wall in Thomas Friedman’s Washington, D.C., office. Friedman, a foreign-affairs columnist for the New York Times, has marked the map with star-shaped stickers of red, gold and blue to indicate the myriad places he’s traveled during his Pulitzer Prize-winning career, but, lately, he has fallen behind. “My daughter and I have to update that,” he says.
Friedman’s map needs updating because he has just spent the past ten months circling the globe—again—researching and writing his forthcoming book, The World Is Flat: A Brief History of the Twenty-First Century (Farrar, Straus and Giroux, April 2005). A follow-up to Friedman’s best-selling The Lexus and the Olive Tree (his first attempt to understand globalization), The World Is Flat delves even deeper into the phenomenon he believes is reshaping the economic, cultural and political landscapes of the world.
Friedman views globalization as a positive trend, but he admits to a healthy degree of ambivalence. “A lot of this stuff is very worrying to me,” he says, in between fielding calls from Pakistan and Lebanon. “But I’m also really excited about certain aspects of it.” Friedman believes that globalization is greatly misunderstood in this country—that it’s seen as something to be feared and legislated out of existence. “You’ve got Lou Dobbs out there really making people stupid,” he says. “But I’m not trying to convert anybody. I’m just trying to explain globalization to the world. You ignore it at your peril.” Editor-in-Chief Ellen Pearlman and Executive Editor Dan Briody caught up with Friedman in between trips to discuss his views on the flattening world and its consequences.
CIO INSIGHT: Globalization is a highly charged political issue. Is it fundamentally misunderstood in this country?
FRIEDMAN: Writing this book was a bit like being in a Twilight Zone episode, because I would go around and interview all these CEOs and CIOs, and they would tell me what they’re doing in terms of outsourcing. And they know just what’s going on, and they’re doing it like crazy. But nobody’s told the kids. They’re like pod people, they’re off doing their thing, but nobody’s told the kids.
And they haven’t told the kids because of all the political and economic sensitivities. As a result, we’re now entering what I think is a fundamental paradigm shift. A truly disruptive, Gutenberg-printing-press-like paradigm shift, and nobody’s told the kids.
And we just went through a campaign where the Democrats were debating whether NAFTA is a good idea. Eh, hello? And the Republicans put duct tape over [White House Chief Economist] Greg Mankiw’s mouth when he suggested outsourcing might be a good thing, and they stashed him in Dick Cheney’s basement. We just had an election that history will look back on and laugh at, because we had an election at a time when the world basically went from vertical to horizontal, and nobody talked about it.
What I am trying to do is say that something important really is happening. The value-creation model is moving away from a vertical silo model to an increasingly collaborative horizontal model, from command and control to collaborate and connect, and that’s going to change everything.
Not everyone is as optimistic about this flat world as you are. Why is that?
You can understand why businesses don’t want to [be openly optimistic about it], because we have all these people out there. No one wants to be a Benedict Arnold executive. And you’ve got a major cable-television news show that has twisted itself into a platform for the anti-outsourcing movement and made all its viewers stupid. And so you create an environment where, if you defend this thing, you’re Daddy Warbucks or some plutocrat.
CEOs are all worried about their brands. But companies that outsource, outsource to win. They’re not outsourcing to shrink. Show me a company that’s outsourcing just to save money, and that’s a company whose stock I want to short. They’re outsourcing to do their innovative turns faster, to grow their company larger, in order to hire more people everywhere, in Los Angeles and Bangalore. That’s why they outsource.
But if U.S. companies can’t talk about it, and if politicians can’t talk about it . . .
Then it’s a real problem, and that’s why this could all stop, and that’s why I wrote this book, because I think the new world is one that we can benefit from. And part of this new world is taking advantage of the ability to source any kind of product or any kind of service from anywhere in the world.
Next page: Who really benefits
Can we get specific about who benefits and who loses?
Imagine if America were the only country in the world, and there were only 100 people in America. We would have 80 knowledge workers and 20 manual laborers. And our manual laborers would be paid partly in relationship to the number of knowledge workers; that is, they’re a fairly small pool. So if you want a nurse or if you want a factory assembly-line worker, if you want a nanny or if you want someone to work at McDonald’s, there’s actually rather a scarcity of them. So the wages of those people aren’t going to be what the CEO makes, but they’re also not going to do what the CEO does. Still, their wages aren’t going to be flat, either, because they’re going to be paid relative to the number of knowledge workers in our 100-person economy.
Now this imaginary world expands and there are two countries—America and China. China has 1,000 people, and we have a free-trade agreement with them. So now we have two countries in the world, and they are totally integrated with free trade. We have 80 knowledge workers and 20 physical laborers. China, with its 1,000 people, also has 80 knowledge workers, but they have 920 physical laborers.
Now we’re in a two-country world with a total of 160 knowledge workers and 940 physical laborers. If you’re one of those knowledge workers, you’re going to do fine in this world. Why? Because the market for knowledge products has just expanded from 100 to 1,100. And, remember, knowledge people sell ideas and idea-based products, so they can be sold to everybody. When you make a copy of Microsoft Word, all 1,100 people can potentially buy it. If you’re working on a factory line, there’s only one factory that can buy your labor, and you’re now competing for that one factory job, not with 20 people anymore, but with 940 people.
So what does this mean? For knowledge workers, it means this is going to be a great world. You’re going to do fine. You will have to move horizontally at most. Ideally, you’re going to have a lot more companies that want to buy your product, and you won’t have to move at all.
The people in the pool of 940—physical laborers—they have a real problem, and there’s just no getting around it. They cannot move horizontally. They have to move vertically. They have to get into the pool of knowledge workers who sell their products to the 1,100, not just to the one.
What about the IT worker?
Oh, the IT worker, that’s all a bunch of nonsense. Show me a qualified software engineer today anywhere in America who is looking for a job and can’t find one. Some of them may have had to move a little horizontally. But show me one person who really has qualifications, is an IT knowledge worker, and just cannot find a job. I don’t believe that.
If you think you can just know HTML and you’re going to be fine in this world, well, that’s good work if you can get it, but the world is flat. If you’re going to sit back and say, “Wait a minute, I’m an IT worker and I’m entitled to a job,” well, you’re not. There is no such thing as an American job. There’s no job that’s got your name on it. And you’re going to have to get over that.
So basically people have to work harder.
Yeah. We all have to work harder, starting with me, because we’re competing against a wider pool. But if you do work harder, there are going to be some incredible niches out there. Don’t be surprised if your kid comes home from college and says, “Mom, dad, I want to be a search-engine optimizer when I grow up.” And the parents think, “What the hell are you talking about?”
So the nature of the entry-level position changes.
Exactly. So if you sit there and say, “I can’t be a software engineer”—well, yes, you can, but it may be that you’re going to get into it as a search-engine optimizer and not as a classic HTML developer.
All of this assumes that the U.S. continues to innovate at a rate that exceeds the rest of the world. Are we set up to do that?
I worry about that. We have all the necessary ingredients—we have the best university system, the best financial market system, and a real free market. But we’re not tending to the secrets of our sauce.
So what really needs to change?
Oh, a lot of things need to change. First of all, we need leaders who will dare to describe the world to us as it really is and make us smart, not make us stupid. Leaders who don’t make us believe that any CIO or CEO who does this is a Benedict Arnold. Jobs are produced by thriving companies that are growing, and they may be produced all over the world, that’s a good thing, but plenty will be produced here.
And look at companies that outsource and thrive. Let’s look at their makeup. Who’s here, which jobs stay here? The CEO, the CIO, the CTO, all the top sales people, usually all the top technology people, and all the people who’ve got to deal with the product in the market, because the first adopters are here. So the best jobs in the company are the ones that stay here, and the other jobs get sourced out around the world.
That means two things. One is that where the innovation happens matters. It matters that Google is in Mountain View, Calif. Look at all the jobs they’ve spun off, and then all the jobs for jobs, like the shopping centers and the gas stations and the restaurants and the housing market. So thank God Google’s in Mountain View and not in Mumbai.
Won’t other countries move up the food chain? Don’t they want to be where the U.S. is today?
That’s right. They want to race us to the top, not the bottom.
So will the U.S. continue to have an advantage?
Potentially, yes. I still believe that we are so far ahead in so many areas. Let’s just take capital markets. If we go through our Social Security reform, as the President has proposed, and you can invest your Social Security, how many people would like to be invested in the Shanghai stock market? I sure wouldn’t want my mother to be investing her savings in the Shanghai stock market.
People will say, “Oh, come on, Friedman, I mean, we have Enron.” But our capital markets are what they are not because we don’t have Enrons and others do. What distinguishes our capital markets is that we have Elliot Spitzer and others don’t. It’s not that we don’t have cowboy capitalists here who are criminals. But what distinguishes our markets is not Enron, it’s Sarbanes-Oxley. It’s that we actually address these kinds of problems. That’s still a big deal for a lot of the rest of the world.
Some people view Spitzer and Sarbanes-Oxley as hindrances to America’s global competitiveness.
I think that’s about as dumb as the day is long. Anyone who believes that is an idiot. The rule of law is one of our competitive advantages, and that’s not to say that at times regulation can’t go too far. But I’d rather err that way, and reel it back, than not have it at all.
Ask people in Indonesia what they’d give for one day of Elliot Spitzer. Ask people in the Russian stock market what they’d give for one day of Janet Reno or the Securities and Exchange Commission.
What is guiding globalization? Is it the corporations?
The dynamic element of globalization is neither countries nor companies, but the individual. The unique thing about this era is going to be the ability of the individual to globalize.
Now, I believe corporations have a huge responsibility. For example, when Hewlett-Packard is in negotiations with the government of Canton, China, about opening a factory, its leverage is enormous because the stakes are so high for the local government. So H-P could come in and say, “You know what, we’ll open this factory here, but you know those laws you have about dumping water in the river, we can’t live up to those. So you’re going to have to turn a blind eye to that. And we believe people should work 12 hours a day, not eight hours a day.”
So the fact that companies resist doing that for the most part is hugely important, because they can have just the opposite effect. They can be the ones who tell the government of Canton, “You know, knowledge workers like to live in places where the air is clean and where there are parks, and we’re a knowledge company. So we’d love to come to Canton, but we’re going to need a park here, and to attract Chinese knowledge workers, you have to clean up your water and clean up your air.”
Companies should think about using supply chains to transmit values, not just value. A lot of people just want to pass a rule. “What we need is global government. If only there were a global government that would tell these companies you ought to do this.” Well, guess what? If you don’t have people at the local level to implement that global rule, it’s not going to get implemented, and you can pass whatever rule you want.
I don’t want to rely on any company to implement these values, but they can be enormously supportive in reinforcing a rule that’s been made. And that’s why I think they have to understand that, and I would argue the best companies do understand it. H-P’s got a senior vice president for global governance now.
What role should government play in globalization?
Oh, yeah, a huge role for government. And I think the most important role for government is to strengthen its people to be untouchables. Untouchables are people whose jobs cannot be outsourced. So government needs to build the infrastructure, both human and physical, for people to take advantage of the flat world, and that means everything from the IT infrastructure to college education, which I think should be compulsory in the sense that government will make it possible for every American to have college education. Our motto should not be a man on the moon, but a man and woman on every college campus.
Are you optimistic that this can happen?
Or am I just naïve? It’s my nature. Yeah, well, let’s take corporate values, for example. You’re going to get everything and its opposite. You’re going to see companies doing outsourcing so the CEO can triple his wages and make off like a bandit. But I think that companies that want to survive are companies that will want to do well for their employees and their customers.
Look at Wal-Mart. One of the biggest companies in the world, grew by leaps and bounds, and just last night I saw this Wal-Mart ad about a guy going to the emergency ward, and only because of his Wal-Mart health plan could he do this. Forget the ad. Wal-Mart got the message that they were perceived by their customers as not being the best global citizen they could be, and in a flat world that really matters. They’ve been in denial for a long time. Then they admit the problem. The good news is [Wal-Mart CEO] H. Lee Scott, in an interview for this book says, “You know, I’ve got to come clean on this, we have a problem. We were not as good as we should have been.” He didn’t come out and say, “You don’t understand, Tom, locking people in Wal-Mart overnight is a good thing.”
What about the small company in the U.S. that is used to a different way of doing business. Do they have to think about being a global company now?
Yeah, otherwise they’re going to get hungry. And what’s interesting about this era is that we’re seeing the birth of what I call the micro multinational. In the old days, somebody starting a company would say, “We dream one day it’ll be a multinational.” Now, they’re a multinational from day one.
And that means a lot of things for CIOs, because now one of the skills of their job is managing a global knowledge supply chain across 24 time zones and different nationalities. Suddenly there’s a whole new job in companies—manager of the China supply chain. This is going to be a business school course: managing global supply chains. Another new business school course is going to be how to use Google, how to get the most out of search. And there’s going to be a CIO Insight honorary professor of Googling at the Wharton School, and you may hold the first chair.
How does a CIO manage through a time of change like this?
The smartest thing that I’ve seen companies do is trying to make their employees “versatilists,” which is another word for untouchable. Versatilists are people who don’t just know XML, they also know how to do distributed computing.
You take every employee, and you make this bargain with them: We cannot guarantee you a lifetime job, nobody can. But we can guarantee you that while you’re here, we’ll give you every opportunity to really become a versatilist. So if you stay here, you’re more valuable to us because we can move you from here to here to here to here. And if, God forbid, we have to lay you off because we’ve found other ways to do this job cheaper or more efficiently, then you’ll be that much more marketable somewhere else.
And the thing about learning today—about making people versatilists—is that with online systems it’s so cheap and so easy for people to really upgrade their skills. But you have to have your thinking cap on as a CIO and be constantly incentivizing people to take courses online, so you’re producing a smarter and smarter workforce all the time that will be more versatile, more adaptable.
That sounds great, but it also sounds expensive. Is it realistic to think that many companies will invest the time and money in their employees?
What’s expensive is not doing it, and having one employee that can only do this and another that only does that. I’d much rather be educating a versatilist. I don’t think expense is the problem. I think imagination is the problem. But I think that’s the bargain that’s going to replace lifetime employment.
So what do you tell a career-minded ten-year-old today?
What I tell my own girls. When I was growing up, my parents used to say to me, “Tom, finish your dinner. People in China and India are starving.” Today I tell my girls, “Finish your homework. People in China and India are starving for your jobs.”
And that’s the only thing to tell people. That’s the fact. I always say, “When the world goes flat, reach for a shovel, not a wall.” Dig inside yourself. Dig inside your company. Find the secret of the sauce inside. If you’re reaching for a wall, it’s a losing strategy because the technology is going to blow that wall down.