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Transcript of an IMF Book Forum—The World Is Flat: A Brief History of the Twenty-First Century
Friday, April 8, 2005
Washington, D.C.

Participants:

Thomas L. Friedman, Author of The World is Flat, Columnist for The New York Times
Raghuram Rajan (Moderator), Economic Counselor and Director of the IMF's Research Department

[TRANSCRIPT PREPARED FROM A TAPE RECORDING.]

P R O C E E D I N G S

MR. FRIEDMAN: [In progress] --issues and olive tree issues between issues about globalization and trade and technology and issues of the Middle East and more broadly, classical foreign affairs.

That was really the case up until September 1, 2001, at which point I completely dropped the globalization story like a stone and went off and covered the 9/11 wars.

I made one trip to Silicone Valley during those 3 years to visit a start-up company that my friends of mine were involved in, something called Google, and I wrote exactly one column about it and went back to Kabul, metaphorically at least. That was really where I was between September 11th and last February 2004.

I started doing documentary over the last few years for The Discovery Channel and we did one on the Wall in Israel, we did on the roots of 9/11, and we were planning the third in January 2004. The issue at the time was how the world perceived America and all that, the perception and misperception. I had the idea that Discovery liked that we would go around the world to call centers and we'd interview young people who spend their days imitating Americans on what they thought of America.

I thought that would be kind of fun and an interesting perspective. Right when we were literally budgeting the trip, where do we go, the Philippines, India, Poland, John Kerry came out with his blast against Benedict Arnold executives who outsourced from the United States. So I said let's stop everything. Why don't we just go to Bangalore, let's go to the capital of outsourcing, and let's do a document called The Other Side of Outsourcing where we look at this phenomena from the Indian perspective out rather than the classical way we've doing it here, from the American perspective in.

So off we went to Bangalore last February 15, 2004. I did about 60 hours of interviews in 10 days. Somewhere between the interview with the Indian entrepreneur who wanted to do my taxes from Bangalore, the one who wanted to write my new software from Bangalore, the one who wanted to read my X-rays from Bangalore, the one who wanted to trace my lost luggage on Delta Airlines from Bangalore, I got progressively sicker and sicker, and it was not the Indian food.

It was my growing awareness that while I had been sleeping, while I had been off covering the 9/11 wars, something really profound and fundamental had happened in this globalization drama and I had missed it.

I wish I could show you the outtakes of all the interviews we did. There would be me with Jerry Rao, the head of NASSCOM, the Indian high-tech association, and Jerry explaining why and how he could do my taxes very efficiently from Bangalore. And I would be saying to him, Jerry, what did I miss? I missed something. How did this happen? Basically, after doing that for 10 days, I really decided that I had missed something really important and profound and big.

It all kind of came together the last morning of the last interview with Nandan Nilekani, the CEO of Infosys, the Microsoft of India. Nandan is an old friend. We were sitting on a couch outside his office. He said to me, Tom, I simply got to tell you, the playing field is being leveled and you Americans are not ready. I wrote that down in my notebook, the playing field is being leveled and got back in my jeep after my interview with my Indian driving barefoot and went back to our hotel along the potholed streets of Bangalore and I just kept rolling over in my mind the playing field is being leveled.

What is Nandan telling me? He's telling me the playing field is being flattened. My God. He is telling me the world is flat, and he's citing this as a great achievement in human progress.

So basically I went back to my hotel and I called my wife and said, honey, I am going to go on book leave. I am going to write a book called The World is Flat. She thought I was a little nuts. But I did come home and called the publisher of The New York Times and asked to immediately go on leave because I realized that the paradigm through which I was writing about the world which was laid out in The Lexus and the Olive Tree was out of date and that if I didn't go on leave and answer that question for myself, how did this happen and what did I miss, I was in danger of writing something really stupid in the pages of The New York Times.

So basically that's what I did. I came home and immediately dived into this book last March 15, 2004, and I've been doing nothing else since it came out, nothing else besides writing a column twice a week, working on this book. Let me go through the core thesis with you and then we'll open it up for discussion.

The first chapter of the book is called, appropriately, While You Were Sleeping, and the book begins by me noting that Christopher Columbus set sail in 1492 looking for a shorter route in India. That's where Columbus was going because the Muslim powers of the day had blocked the overland routes from Europe.

Columbus went west. He had the Nina, the Pinta and the Santa Maria. He never did find India, but he called the people he met Indians, and we call them that to this day. He came home and told his wife, honey, I've accidentally discovered the world is round.

I set off for India 512 years later. I went east. I knew just which direction I was going. I had Lufthansa business class and a GPS satellite in my seat. I came home and told my wife, honey, I've accidentally discovered the world is flat.

What the first chapter is about is the encounters I had in India, and then I kept going east to Delhi and China which has become as many of you I'm sure know the outsourcing capital of Japan. Tens of thousand of Chinese-speaking Japanese, running now the back rooms of not only major Japanese multinationals, but major American multinationals for their Japanese operation.

Get your mind around that, thousands upon thousands of Japanese-speaking Chinese running the back rooms of GE, Microsoft, Toshiba, and Toyota.

But I kept going east until I got to Mexico. One of the things I started to do was ask people, tell me where you when you discovered the world was flat? So I asked some folks at the Central Bank of Mexico that question and they told me, it was a couple of years ago. As you know, the Patron Saint of Mexico is the Virgin of Guadalupe. About a year ago we discovered that statuettes of the Virgin of Guadalupe were being imported from China. When you're a low-wage manufacturing country and your patron saint is being imported from China, your world is flat.

I kept going east to Colorado where I called JetBlue to make a reservation. I knew what I was doing. I asked them if they flew from Denver to Atlanta, no. I got a very nice lady on the phone and asked her what her name was. Her name she said was Betty. I said, Betty, can I ask you a question? Where are you right now? She said, honey, I'm in my bedroom in my slippers, and I'm looking out at the most beautiful scene in Salt Lake City. As some of you may know, JetBlue, the most profitable airline in America today, has outsourced its entire reservation system to basically housewives in Salt Lake City, Utah. If you call JetBlue for a reservation, you will get Betty in her bedroom or her equivalent.

I kept going east right to McDonald's. As some of you may know, McDonald's also began a pilot project last year where you drive up to the drive-in window, ask to order three Big Macs, three milk shakes and 18 french fries for the kids, you are talking not to the person in that McDonald's, but to a call center in Colorado where your order is being taken, your picture is being taken, your order and picture are zapped to that McDonald's where when you drive up it'll all be ready. McDonald's discovered they could save 30 seconds on each order by doing it this way and drove down their error rate by a significant degree.

So I basically go through all the kind of flattening experiences I was encountering as I kept going east on my own Columbus-like journey.

The meta argument I make at the end of this first chapter is very simple, that we have been through 3 great years of globalization. The first I call globalization 1.0. It lasted from 1492 until about 1800 to 1820. That era shrunk the world from a size large to a size medium, and that ear of globalization I would argue was built around countries globalizing. The dynamic globalizing agent of globalization 1.0 was Spain exploring the New World, Britain colonizing India, the Portuguese, East Asia. You went global through your country.

The second great era of globalization beginning with global--early 1800s right up to the year 2000. That's globalization 2.0. It shrunk the world from size medium to size small. That era was spearheaded by companies globalizing, companies globalizing for markets and labor. You went global through your company.

While you were sleeping it is the argument of this book is that we entered globalization 3.0 right around the millennium by accident. This year is shrinking the world from size small to size tiny and flattening the playing field at the same time. Only the new-new thing about this ear is that the dynamic agent of globalization in this era is not countries and it's not companies, it's individuals and small groups.

So we've gone from a globalization built around companies to built around countries to one increasingly built around individuals and small groups, and please pay attention. It ain't going to be a bunch of white Western individuals who dominated globalization 1.0 and 2.0. Globalization 3.0 is going to be dominated by people of every color of the rainbow who can plug and play. That's the first chapter of the book.

The second chapter of the book which is really a third of the book and took me the longest to build is simply called The Ten Days that Flattened the World, and it was my attempt to explain, answer that question, how did this happen? And it's really about the 10 days forces in technologies have flattened the world. Let me go through them quickly.

The first date is 11/9. Not 9/11, 11/9. As some of you may know, in a wonderful Cabalistic accident of dates. The Berlin Wall came down on 11/9, November 9, 1989. The fall of the wall was a huge flattener. I call these the 10 flatteners because it allowed us to actually see and think of the world as a single flat space.

If you did a LexisNexis search of IMF documents before 1989, I'd suspect you'd rarely find the term globalization being used. You'd find a lot of north-south. You'd find a lot of east-west. But no one really could use the term globalization because there was a wall in the way. So the fall of the wall was a hugely important flattener.

What I actually called the first segment when the wall came down and the windows came up because Windows operating system shipped 5 months after the fall of the Berlin Wall. That's when Windows 3.0 which was the breakthrough system shipped, and that gave us a single global graphical user interface to actually look at this flat plane through. So the fall of the wall and the rise of the windows was the first flattener.

The second date is 8/9/95 which I consider to be one of the most important days in our lifetime. 8/9/95 is the day that a small company in Mountain View, California called Netscape went public, and Netscape going public did three hugely important things. First, it gave us the Internet. The Internet had been around, but of course Netscape thanks to Mark Andreessen gave us the Internet browser. It gave us the tool that brought the Internet alive for grandpa and grandma, for grandson and grandchild. It brought us the tool that allowed us the tool that allowed us to go into this websites and illustrate on a screen in images and words and music everything that was locked away in those websites. Netscape really brought the Internet alive.

The second thing Netscape did, of course, was commercialize a set of open transmission standards which was very important. You'll recall before Netscape your wife was on CompuServe, you were on AOL, you had a hard time talking to each other. What Netscape did was really make the Internet interoperable in a way it had never been before that.

The third and in some ways maybe most important thing Netscape did was trigger the dot-com boom which triggered the dot-com bubble which triggered the accidental overinvestment of $1 trillion in fiber optic cable in 5 years. That crazy, ridiculous, absurd overinvestment without any realizing it at the end of the 1990s made Bangalore, Beijing and Bethesda next door neighbors. It drove down the cost of transmitting words, music and data to basically zero.

Netscape went public on 8/9/95. The stock opened at $28. It was sort of priced at $28. It opened at $71, and then it closed the day at $56. Everyone looked at that and said whoa, there is gold over them thar hills, and that triggered the dot-com bubble.

Of course, we've seen bubbles before, bubbles in railroads. That was what really drove the massive overinvestment in the laying of the railroads in this country in the middle of the 19th century. But there was one big difference with this overinvestment. When we overinvested in railroads we got to ride. When we overinvested in fiber optic cable, India and China got to ride for free. India is the one country in the world that managed to benefit from the dot-com boom and the dot-com bust, which I'll talk about a little bit later.

The third date is really not a date, it's an event. I simply call it work flow, and work flow is simply my summary of all that software and standards that connected all that bandwidth with all those PCs. Again, go back to the mid-1990s or the early 1990s. I'll bet dollars to donuts that at the IMF your sales department was working off Microsoft Windows and your inventory was running Novell. Each one of those departments was more efficient because they were computerized. There was just one problem: your sales department couldn't talk to your inventory department because applications couldn't talk to applications.

There was a revolution in work flow during the late-1990s thanks to all kinds of digital pipes, things like middleware, that enabled everyone's application to talk to everyone else's application no matter what software you were running and no matter what computer you were on. That was a revolution.

When you take these first three flatteners together, what you get is the genesis moment for the flat world because what the Netscape revolution did was bring people to people, connectivity together like never before. People could connect with people thanks to that Netscape revolution like never before.

What the work flow revolution did was bring application to application connectivity together like never before. When you put the two together with the fall of the Berlin Wall what you got willy-nilly was a global platform for the sharing of work and knowledge that allowed more people to collaborate on more different kinds of things in more different kinds of ways on more different kinds of days from more different places than ever before in the history of the world.

It is this platform for multiple forms of collaboration that basically created the start of the flattening of the world.

The next six flatteners, those were just the first three, are the new forms of collaboration that sprung from this platform and flattened the world even more.

The first is outsourcing, a new form of collaboration. Now I can take the IMF inventory department and send it to North Dakota, north Bangalore or north Rio de Janeiro. It doesn't matter once this platform is in place. Outsourcing, new form of collaboration. I build that around Y2K which I called Indian interdependence day because Y2K basically I believe is a fundamentally important date in the modern history of India.

The second date, a new form of collaboration, I build around China joining the World Trade Organization. That's offshoring. A new kind of collaboration at the degree we can now do it today where I take my whole factory from Canton, Ohio, and move it to Canton, China. I'm not going to waste time talking to this group about offshoring, the second new form of collaboration.

The third new form of collaboration is opensourcing. Now I got a bunch of geeks sitting at home writing the next operating system called Linux working in chatrooms for free. We're talking a whole new industrial model of creation. How would you like to be Bill Gates, now that I mention it? But your whole business model is anytime you had a competitor you undercut them. We're Microsoft. We got deep pockets.

Now you have a competitor who's selling their product for free. Some are working on it because they hate Microsoft. Some are working on it for the pure science of it. Look at this patch I came up with. This is so cool.

But for whatever reason they are doing it, opensourcing is a hugely new and important form of collaboration. I don't know how many of you or your kids have downloaded Firefox, a brand new Web browser. In the first month, Firefox was downloaded 10 million times. It now is 5 percent of the global browser market after a month. It was designed by a 19-year-old at Stanford collaborating with a 24-year-old in New Zealand. I do not believe they have ever met. We're talking about a whole new form of creativity.

In the book I profile the Apache Web browser and I actually tell the whole story of the emergence of Apache, Web server, excuse me. All your computers run on Apache. It's an open-source project of a bunch of geeks from the University of Illinois and beyond. So opensourcing, a whole new form of collaboration.

The fourth new form of collaboration I simply call supply chaining. This is what Wal-Mart does. I can now design a global supply chain down to the last atom of efficiency so if I take an item off the shelf in Bentonville, Arkansas, another will be immediately made in Shenzhen, China, and sent right down the system.

As I'm sure you're aware, if Wal-Mart were a country, it would be China's eighth-largest trading partner today, ahead of both Canada and Australia. Supply chaining, whole new form of collaboration.

The fifth new form of collaboration I call insourcing. This is what UPS does. I had the most fun really with this. If you think that UPS is doing the funny brown trucks with the funny brown people inside in the funny brown shorts, you are not paying attention. What UPS does is a whole new form of collaboration called insourcing where they come right inside your company right up to your neck, right up to headquarters, and take over your entire internal logistics operation.

Say you have a Toshiba laptop that breaks. You go to the warranty and it says call 1-800-HELP. The Toshiba voice person says, just bring your Toshiba down to the UPS store and send to us and we'll fix it. What you don't know is your Toshiba laptop goes from that UPS store to a UPS hub at Louisville Airport in Kentucky where in an airline hangar, a clean room, a UPS employee repairs your Toshiba laptop. It never touches Toshiba's hands.

Go to nike.com and want to get a pair of sneakers for the kids. UPS answers your call or your Email, they pick and pack the shoes, they transport them to you, they bill you. See the Papa John's pizza truck go by? Don't look inside who's driving. It's someone in funny brown shorts. UPS is now inside insourcing. There are so many companies today, you would be shocked and amazed, who simply do not touch their products anymore. This is a huge flattener because of the standards that are required in order to make this work on a seamless basis. Insourcing, new form of collaboration.

So now we got five. We got outsourcing, offshoring, supply chaining, opensourcing and insourcing. There's one more. I simply call it informing.

Informing is what Google does. I can now collaborate with data all by myself. I can mine my own data. I can inform myself. Informing, whole new form of collaboration.

So now we got the first three that give us the platform. The next six are the six new forms of collaboration that spring off this platform. That's nine. It leaves number 10. Number 10 I simply call the steroids.

The steroids are the tenth flattener. This is wireless and voice over the Internet. What these steroids are doing is turbocharging all six of these new forms of collaboration and now allowing me to do anyone from anywhere with any device.

That is the second chapter of the book. That's actually a third of the book.

Let me close by simply sharing with you the last chapter. The last chapter or the third chapter, there are eight more chapters, but we won't get into that now.

The third chapter is really to me the sort of core piece of the book. It's called The Triple Convergence. The argument of this chapter is sometime right around the year 2000 three things converged. There were three convergences that are forming the brief history of the 21st century.

The first convergence was that all 10 of these flatteners started to converge, and in economic terms, the complementarities between them all started to work together. The informing helped the outsourcing. The outsourcing helped the insourcing. The insourcing drove the offshoring. All 10 of these flatteners converged right around the year 2000 into a tipping point which created a global Web-enabled platform for multiple forms of collaboration and the sharing of work and knowledge irrespective of distance, geography, time and increasingly even language. That is my definition of the flattening of the world. That was the first convergence.

The second convergence is that we are all, and we're just at the beginning of this, having to learn how to horizontalize ourselves. Paul David wrote a seminal economics article as many of you know about electrification; Why was it when electricity started, productivity didn't improve?

What he discovered was that for productivity to improve, people didn't just have to plug in an electronic motor, they had to redesign buildings, they had to redesign the whole shop floor, and people had to adapt all their business processes and habits from a steam-driven manufacturing process to one driven by a small electronic engine. In other words, to get the most productivity, to get the productivity gains out of the flattening of the world, we're going to have to go from command and control value creation models to increasingly connect and collaborate horizontal value creation models. We're just at the beginning of this, but we're all going to have to horizontalize ourselves.

The example I like to give in the book, it's something that happened to me where I really came to understand how I had to change my habits, my daughter is a sophomore and goes to college in New Haven. I live in Bethesda, Maryland. To get from Bethesda, Maryland to New Haven is a total pain in the behind. You have to drive to BWI Airport in Baltimore, take Southwest Airlines to Hartford, and drive for an hour from Hartford to New Haven.

No problem. I like Southwest Airlines. For those of you who haven't flown on Southwest, you don't get reserved seats on Southwest. All you get is a ticket that says A, B or C. A is board first, B is board second, C is board last, and you do not want to be a C on Southwest Airlines especially if you're going up last March carrying two bags of spring clothes for your daughter and you don't want to check your bags. So no problem. I'm a hip guy. I did the Eticket thing. I made my reservation and got to BWI Airport. You don't want to be a C because there is no room in the bin above the seat. Of course, you don't want to be a B because you'll be stuck in the middle seat.

No problem. I'm a hip guy. I did the Eticket thing and got to BWI Airport 95 minutes before my flight. I stuffed my credit card into the Southwest Eticket machine and out came my ticket and it said B and I said son of--this thing is rigged. This is fixed. This is worse than Las Vegas. There is no way I am a B. Went and got my Cinnabon and stewed in the back of the B line.

Forty-five minutes later they called the flight and then I saw it. All the A's were getting on carrying what looked to me like crumpled pieces of white printer paper as though they had downloaded and printed out their boarding passes at home, including the barcode. Of course, what I didn't know is thanks to that convergence, Southwest Airlines had been able to institute a system whereby they could make their customers their employees.

At 12:01 a.m. the night before you can now download your own boarding pass and barcode and print it out at home on your own printer paper and just show up at the airport with that and be an A on Southwest Airlines. I saw that, friends, and I said, Friedman, you are so 20th century. You are so globalization 2.0. In globalization 1.0 there was a ticket agent. When I moved to Washington in 1989, to get a ticket I had to go down to the United Airlines office, pull a number out of the machine and wait in line for a physical person to give me a ticket.

In globalization 2.0, we had the Eticket machine. That just happened. We thought that that was cool. And while you were sleeping, you became the ticket agent. And excuse me, if you value your time, you are paying Southwest Airlines to be their employee, to stay up at 12:01 a.m. the night before to download your own boarding pass. Friends, that just happened. That just happened. What I'm here to tell you is that convergence and the horizontal processes that I had not horizontalized myself to collaborate differently with Southwest Airlines, but some of the other people on that plane had figured it out. I hadn't. But that's happening across every industry.

The first convergence is the 10 flattners flattened the world, the second convergence we're just at the beginning of, how do we horizontalize ourselves.

The last convergence is that the world went flat right around the year 2000, and guess what that coincided with? Three billion people who were out of the game happened to walk onto the playing field, called India, China and the former Soviet Empire. When did they arrive on the playing field? Just when it's been flattened. Just when their kids can plug and play, collaborate and compete with yours and mine more directly than ever before in the history of the planet.

It's the simple argument of this book, in fact, they can compete and plug and play even more efficiently in many cases because they have no legacy systems to worry about. They can go right to the latest technology which is why there are more cell phones today in China than there are people in America. It's 3 billion people, but only 10 percent can plug and play. Yes, that's true. Let me do the math, 10 percent of 3-- carry the 1, that's 300 million people, that's twice the size of the American work force.

It is the simple thesis of this book that this triple convergence, the convergence of these technologies, with these new business processes, with these 3 billion new players, is going to shape the brief history of the 21st century.

Let me simply finish with the following. I argue in this book that this triple convergence was masked and disguised by a political perfect storm and that political perfect storm was 9/11, Enron and the dot-com bust. These three big political events both disguised what was going on and completely redirected our attention away from what I consider to be a fundamental transformative inflection point as big as Gutenberg and the printing press. That's what I think the flattening of the world is going to mean over time.

It was disguised by 9/11, Enron and the dot-com bust. So doing this book was a bit like being in a science fiction movie because I would go around and interview all these CEOs around the world and around America, and that's where I learned everything I'm here to tell you. They know what's going on and, friends, they're doing it like crazy.

But they're like pod people. They're in on the secret. They know what's going on and they're insourcing and outsourcing and offshoring and informing like crazy. That's the good news.

The bad news is that nobody has told the kids. Nobody has told the kids. So we just had an election campaign where the Democrats were debating whether NAFTA is a good idea and the Republicans put duct tape over the mouth of chief White House economist Greg Manciw when he said outsourcing made sense and stashed him in Dick Cheney's basement.

So right when have reached what I consider to be as I say a fundamental inflection point, nobody is talking about it. We have a president who is trying to unravel the New Deal at time when we need a New New Deal in this country to make Americans employable in a flat world. The political debate is about Teri Schiavo and privatizing social security at a time when the world as gone flat.

So I'm here to tell you that I'm with Carley Fiorina, the former CEO of HP who is one smart lady. Carley had been saying for the last 2 years everything we've called the IT revolution these last 20 years, I'm sorry to report to you that was just the warm-up act. That was just the sharpening and distribution of the tools of collaboration. We are not at the end of the beginning.

Now you're about the see the real IT revolution, and it's going to be the product of this triple collaboration. So fasten your seat belts, put your seat backs and tray tables into a fixed and upright position because the world is flat. Thank you very much.

MODERATOR: Thank you very much for that wonderful summing up of your book. Your book is about getting rid of intermediaries. The spirit of globalization 3.0, while you were speaking I decided not to moderate any further and let you come here and--

MR. FRIEDMAN: Wonderful. Perfect. Let me start and ask you the first question. I want to put this question to the floor. The next section is about what all this means for America, and global companies in the last section is what it means for geopolitics, and I'm happy to talk about all of that.

I happen to be teaching a course this semester at Harvard, an undergraduate course with Professor Larry Summers and Professor Michael Sandel, called globalization and its discontents. It's a knock-down, drag-them-out, all-star wrestling version of the debate about globalization. The other night I unveiled this book at the Asia Society and my commentator was Joe Stiglitz.

It's been very interesting to me because I'm here to lodge a complaint, and what really strikes me, and I'm not personalizing this now about anyone or anything anyone said, but I think the antiglobalization movement is really living off fumes, that they have been dining out on the IMF and the World Bank, IMF and World Bank conditionality and everything that kind of went on in the mid- to late-1990s.

It's become a nice career, basically. But what really strikes me, and this has been kind of my argument in general, is that I think there are a lot of debates we should and need to have about globalization. I wrote this book because you want to debate it. We're going to talk about the real platform that this is on because the whole debate about globalization, if you read The Nation magazine, depends on the following construct: it's the IMF, the World Bank, the Washington consensus being imposed on the Indias and the Chinas and the Bolivias and the Brazils against their will.

I'm saying that may have been the story in the mid- to late-1990s. I didn't really cover it very closely. If you tell me it is, I'm perfectly ready to agree. But what I'm telling you today, when the world is flat, this is as much about pull as it is about push and if you don't come to terms with that, you are not going to be able to explain what's going on in the world today.

To me the antiglobalization movement is looking for the keys under the lamplight because the light is better there because they know they can come to the IMF and get a hearing, they can come to the World Bank and they can jerk your chain left, right and center and you'll respond, but let's just talk about one issue, environmentalism.

Does anyone really think we can talk rationally and meaningfully about preserving the environment around the world without getting inside Chinese decision making today? We have a China that's going all over the world building roads, into resource areas where there is lumber or mining, basically trying to suck out oil from every country in the world. God bless them. I'm not critical of that. They're doing what they need to do as they see it to feed their economy.

But you guys are irrelevant to that. I wouldn't waste a day here at the IMF basically hocking you guys when if I want to affect the environment today, I'd better be able to get inside, influence and understand decision making by the people who are pulling this, not relying on some mid-1990s perception of you guys pushing this.

So that's really my complaint, and I'm waiting for someone--one of these people, I'm sure Mel McCline (ph) or one of these brain-dead people are going to review this book and I'll bet you dollars to donuts it'll be about all the old issues because the antiglobalization movement has simply not caught up with the world.

I'm going to make one last point as I throw this out. It's a point of utter narcissism but I'll make it because it's relevant. I had to drop everything to write this book. Everything I've told you I did not know a year ago. I am not an economist. I am not a technologist. I said, my God, something different is going on and I'm going to drop everything and retool myself to find out what's going on.

I would argue that the antiglobalization movement and that whole crew, there's an argument to be had that these people have gotten fat, dumb and lazy and they've been dining out on the carcass of the IMF and the World Bank since the mid- to late-1990s and it's time they grew up and got a life.

If you want to know what I really think, talk to me afterwards. So I'll simply toss that out. Any questions?

AUDIENCE: --Georgetown University. This may not be totally relevant to the remarks you made--the challenge to America after being the birth place, if you wish--innovation, all the things, and the fact that--Carley Fiorina and others--you articulated the lack of attention on the part of policy makers and others--about education.

MODERATOR: For one, and the lack of an energy police as another. Entitlement issues could be another point. If you could elaborate on these and the challenges that they represent.

MR. FRIEDMAN: From an American point of view.

MODERATOR: From an American point of view, but also if you care to, from a European point of view where it seems to me that the--

MR. FRIEDMAN: The only people more out of it than us are the Europeans.

MODERATOR: Exactly. So that the Europeans are still living in another dimension it seems to me as far as understanding the challenges. There is Europe, 25 states, the idea that we've got it all done. And where is China, where is India in all this?

MR. FRIEDMAN: As you know, Europe renders dates differently from us: 11/9 is rendered in Europe as 9/11. So we're both preoccupied with our 9/11s. Their 9/11 is the fall of the Berlin Wall, and our 9/11 is our 9/11.

When the world goes flat, two really exciting things happen especially for those individuals who aren't here, you can innovate without having to immigrate. So you can now be in Bangalore, be in Beijing or be in Brazil and the days when you had to immigrate in order really innovate at that very highest level, that's over.

In fact, it's very exciting because I think the next breakthrough in bioscience could come from a 15-year-old in Bucharest who downloads the human genome. Because when the world goes flat, you start connecting all the knowledge pools in the world together.

So to me that's the really exciting part, but the really challenging part is that we're pushing out the boundaries of knowledge farther and farther all the time and, therefore, to reach the next value breakthrough you really got to have more knowledge and more collaboration and that's why the two skills I think you're really going to need in the 21st century is you got to be a good collaboration. Your first job out of business school may be manager of a global supply chain for Widget Company XYZ, number one.

But number two, that we all know when the global economy grows like this and gets connected, two things are going to happen. One is it's going to get larger, and the other, it's going to get more complex. So this is what I've been trying to say to Americans, this idea of there's a lump of--and we've got it and now someone else is going to have it, that's not how it works. It only works that way if you think everything that's going to be invented has been invented.

So two things are going to happen. One is that the global economy is going to grow, so if you have the knowledge skills to work into that global economy, the worst thing that's going to happen to you is that you're going to have to move horizontally, or maybe China will specialize in search engines in 10 years and we'll specialize in what? Don't be surprised if your kids come home next week and say mom and dad, I'd like to be a search engine optimizer when I grow up. What you talking about? You couldn't be a doctor or lawyer? You've got to be a search engine optimizer?

Here's a career that was just invented 2 years ago thanks to another career that was just invented 5 years ago. Thanks to Sergey Brin and Larry Page we have Google and this whole notion of search. We know because when you're looking for a new suitcase and you type the word "suitcase" into Google and hit "I'm feeling lucky," whose suitcase company comes up first? It can mean millions of dollars in sales.

So people thought about that and then somebody invented a whole new industry, search engine optimizing. I will get you from number 20 to number 2. Google is all just an algorithm, so search engine optimizers, these companies are all springing up around Google, Yahoo and MSN, involves a synthesis of marketing and math. A whole new form of collaboration. It didn't exist 2 years ago, just as Google and all those math jobs didn't exist 5 years ago.

So this is going to get really cool as long as you have the knowledge skills to participate in it. Then you just have to move horizontally. If you don't have the knowledge skills, you have to move vertically. The job of our society, what we should be talking about now, is we're in a world where no one will have lifetime employment, but government's obligation is to make you lifetime employable. That should be the debate we're having now. We're having a kind of industrial debate in this country about privatizing social security on top of a preindustrial debate about creationism at a time when the world is in a postindustrial mode and going flat.

People say Karl Rove is a genius. He is a genius. Philip Morris is a genius, too. They get people to smoke cigarettes even though it causes cancer. So we're in a totally wrongheaded mode right now.

MR. ABRAMSON: Bruce Abramson (ph) --Solutions. Tom, you were just talking a bit about the need for government to face up to the policy changes and the policy challenges, but there is some more coming out. Clayton Christensen is best known for The Innovator's Dilemma which really builds on--work that essentially says in a nutshell that it's exactly the excellence of your existing systems that doom you to lose in the next generation.

Have you seen any indication anywhere in the American or for that matter the European policy spectrum of people who understand that we may not be able to get there from here, that we may actually need to undermine our excellent legacy systems that won the Industrial Age for us in order to make it in the Information Age?

MR. FRIEDMAN: This is not a glib answer. I spent so much time answering for myself how this happened and trying to put together these 10 flattners and look at the immediate implications that there are a lot of questions, good ones like that, that I haven't come across.

One thing I realized though when I got done with the book was that I hadn't talked to anyone in the U.S. government. I wrote a whole book kind of about the next phase and I'm sure I missed people of value to talk to, but I didn't talk to anyone in the administration. I talked to Colin Powell about something else. I didn't happen to ask him a question about this.

So I just wrote a whole book about this and it never even occurred to me, and this was not conscious, I only realized it afterwards, that I didn't talk to--

MR. FRIEDMAN: So my two primary tutors for this book were two Indian entrepreneurs, Nandan Nilekani, the head of Infosys, and Vivek Paul, the head of Wipro. They really broke the code for me and they really got involved and into it with me. They got really excited about what I was doing and so were enormously helpful. Bill Gates was enormously helpful. Michael Dell was enormously helpful. Joe--the head of IBM's strategic planning unit. These were people I spent hours with, because you really have to have a horizontal mind to think this one through. You got to be able to connect a lot of dots.

I'd be in China and I'd get an Email from Nanda and he's say, you have to add UPS as one of your flattners. So at the time I didn't know what he was talking about, but then I go back and do that homework. So I had a very different group of tutors to break the code for me, and they were all people who were sitting at the epicenter of this in different kinds of ways, but I didn't actually address that specific question.

MS. OFFENBACH: Dale Offenbach (ph) from the World Bank where I work in south Asia. Number one, do you feel younger now that you understand all this stuff? Seriously, did you think about the implications of the collaboration model in the collaboration-enabled world for conflict and for those outside collaboration and link to that if you could reflect a moment on Africa which I guess is a development question.

MR. FRIEDMAN: Absolutely. I'm glad you asked both of those questions. They relate to two chapters at the end of the book.

One chapter is called The Dell Theory of Conflict Prevention. Some of you may know, in The Lexus and the Olive Tree had a tongue-in-cheek theory which I called the golden arches theory of conflict prevention, that no two countries that each had a McDonald's have ever fought a war since they each got McDonald's. I was just using this as a tongue-in-cheek way of talking about global integration economically and the restraints it makes on warfare. I knew I had to take this ahead another level because everybody is going to McDonald's now and it couldn't really capture geopolitics.

So what I did was as I was thinking this through because I was India during the nuclear alert and I was actually in Bangalore which was fascinating and it was fascinating to watch the IT industry in Bangalore basically say to the political elite of the previous government in New Delhi, excuse me, but this just isn't on. Maybe you don't realize it, but we're managing the back rooms of the biggest global companies in the world today. We can't take a week off for war in Kashmir.

I have no allusion that had a terrorist attack on the Indian parliament succeeded, India may have well gone to war, Bangalore be damned. But what the Dell theory is about, what I argue with the Dell theory, is that no two countries that are both part of the same global supply chain will ever fight a way as long as they're each part of the supply chain. The test case is China-Taiwan.

The reason I call it the Dell theory is of course you know that every laptop is made in a supply chain that stretches from costal China through Taiwan into Malaysia and the Philippines and really across East Asia. So Michael Dell actually asked me to come speak to his management team about the book 6 months ago. I said to him, Michael, I'd be very happy to it, but I want to be paid. I'm not allowed as a New York Times columnist to take money from you, so here's how I want to be paid. I wrote this book on a Dell laptop--serial number 9PQZ84. You are going to pay me by tracing the entire global supply chain of the laptop that wrote the book including the names of the people who built my computer, and that's what they did.

So the chapter begins with me tracing the whole global supply chain that produced the laptop that produced the book. I have no allusions that if Taiwan declares independence tomorrow, China will invade Taiwan, Dell laptops be damned.

The point I'm making though is that if you want to understand international relations today, you have to understand that it's an interaction between old time geopolitics and just-in-time deliveries. That is, an interaction between what's new, these supply chains, and what's old, all these olive tree issues. China could well invade Taiwan tomorrow. As I say when I lay this out, the Dell theory doesn't that it all that it won't happen.

Here's one thing the Dell theory does guarantee. If China does invade Taiwan, whatever price they think they're going to pay, they'll pay 10 times more because when you uproot yourself from a global supply chain, that's like pouring cement down an oil well because the supply chain does not come back. They're not going to put themselves in a position where they're going to have to risk their whole production line because tomorrow you might want to do something else crazy. So I'm really just trying to identify what are the restraints now on the interactions.

On Africa I have a whole chapter called The Unflat World in which I simply say don't worry, I know the world isn't flat. I've written this book with this title because I believe this flattening process is the newest, most dynamic and important thing that will be shaping geoeconomics in the coming years. But I know not only is not the world flat, but most of the world is not even in the flat world.

So what I identify are the four categories of threats--or people simply outside the flat world, and I call them first the too sick, those communities in the grip of HIV/AIDS, malaria, tuberculosis, that simply can't plug and play into the flat world. Second are the too unabled. That to me is rural India and rural China particularly. People who are kind of half-flat. They've been to Bangalore. They've seen the riches and the opportunities and the pubs, they'd like to have a piece of it, but they need a step stool, and that section is all about how we build them a step stool into the flat world.

Third are the too frustrated, and that's the Arab world today. What happens when the world gets flat is you get your humiliation fiber optically. You get it dished up to you at 56K because you can see just where the caravan is and just how far behind you are. I think that's a lot of what's driving a lot of the terrorism in the Arab world today.

The last group is too many Toyotas. That happens when 3 billion people walk onto the flat world with the Indian dream, the Russian dream, the Brazilian dream and the Chinese and it's just like the America dream, a house, a car, a toaster and a microwave. If we don't find an alternative source of energy, we're going to heat up and burn up this planet faster than ever before in the history of the world. Or America and China are going to be at war over oil. One of those two things is going to happen.

MS. NARDIN: My name is Simonetta Nardin and I work here at the IMF in the external relations department so I guess we have to work a lot with the damages done by the antiglobal myths, if you want, about the IMF and the World Bank.

What seems to me is that what they are trying to do is just to give simple answers to very complex problems. So the use of the IMF and the Bank is simply to say visible--

MR. FRIEDMAN: A visible target.

MS. NARDIN: Visible targets, easy targets, et cetera.

The other thing is that as you have said, on the other hand we also have the political leaders who are just trying to add to--

MR. FRIEDMAN: They're trying to actively make us stupid, actually.

MS. NARDIN: Maybe the IMF is still looking at the world in very simple terms.

MR. FRIEDMAN: That's what I wanted to ask. I don't know. I want you to tell me.

MS. NARDIN: In very simple terms. My question to you was, is it really so bad? Is the political leadership here and in Europe--

MR. FRIEDMAN: In America?

MS. NARDIN: In America here, because then we have had a lot of discussions about changing also the international system, but how we can change the international system if we are still looking at the programs and not around the new.

MR. FRIEDMAN: I think we're in a pretty bad moment, if I could just jump into that. America just passed the fiscal 2005 budget last year. We cut the National Science Foundation budget by $100 million. Could you think of anything dumber? At this time with this world, we didn't keep it even, we didn't keep it in real terms, we but the NSF budget by $100 million.

You can only do that if you really have no clue of the kind of world you're living in because if you had a clue, you'd say whatever we do, we are not going to cut the budget for science and engineering education in America at a time when the world is flat.

So the fact that you could get away with that tells me that we've got a leadership that is really disconnected I think from the real challenge facing the United States today. I'm not quite as familiar with what's going on in terms of European decision making, but at least we have a flexible economy so we're still spinning off our Googles and our Firefoxes, but I see Europe not at all keeping ahead with that kind of creative destruction that I think you need in order to keep innovating to the degree that you want to. I'm not enough of an expert on that.

MS. NARDIN: I also wanted to say that I really admire all of your writing about the energy savings here in the United States. Do you get any response to that? Because I have lived here in this country for a few years and I don't see any changes. If anything, it's getting worse.

MR. FRIEDMAN: Yes, I get a huge response from readers, seriously, and from readers of every age, and then at the political level it goes nowhere, not among Republicans, not among Democrats. You'd think there would be one Democrat who just says what the hell. I'm going to make this my issue. I may go down in flames, but I'm going to make what I call geogreenism my issue. Just one out of how many?

John Kerry had a chance and he didn't do it. Al Gore didn't do such a great job when he was vice president. So we just kind of go along and so we have now $2.50 a gallon gasoline and no one says, wait a minute, we've had our gas tax. It just went to Venezuela to Hugo Chavez, to Saudi Arabia, to Putin, so we are paying a gas tax to the worst governments in the world and it's going for their projects and now ours. It's a tragedy.

But we in the media are also to blame. We are the ones who make Teri Schiavo a household name and get our chains jerked by all of this, too. That's why I wrote this book, to try to change the discussion, hopefully, and use my platform. The good news is it's number two on amazon.com. There is only one book ahead of it and I'm never going to knock it off. It's about a young man named Harry Potter. Thank you.

MODERATOR: Thank you very much. That was illuminating and inspiring. Tom will be out signing some more books. I'm also, just to end, glad that you brought up the point about U.S. universities because I think they have been a large part of this flattening. Some of the people you mentioned, Jerry Rao, for example, MBA from the University of Chicago, but they've been part of this process and I think the idea of starving them going forward and starving the research and development strikes me as cutting off your foot.

Thank you very much. Again as I said, Tom will be outside signing books.




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