Friday, November 19, 2010

The World Is Flat: Book Review and Commentary

I’ve been chipping away at it for months, and finally finished Thomas Friedman’s The World Is Flat: A Brief History of the Twenty-first Century

By a flat world, he means that the playing field is being leveled and the gap between emerging and developed countries is closing faster and faster. For many people this means the fear of losing jobs to outsourcing, but it’s actually a lot more than that.
Flat means less friction. Yes, less friction for jobs to go back and forth across the world (usually away from the US). But the same holds true for people, money, ideas, and even cultures. He says this is caused by the “triple convergence — of new players, on a new playing field, developing new processes and habits for horizontal collaboration.” We can either look at this loss of friction as a bad thing and try to ignore it or keep it from happening, or we can realize that it is inevitable and work to take best advantage of it.

Up to now, many of the best jobs were here, and you had to live here to perform them. 

But thanks to new technology like the internet and computers, as long as someone is able to learn the same skills, they can do it from anywhere. This varies from the familiar cheap manufacturing of goods and telephone support, to highly skilled jobs like corporate accounting, computer chip design, even medical procedures.

Up to now, the best education was here. 

To me, this is critical, and I don’t think people realize it enough. Historically, we have had the most advanced and desirable graduate schools in the world. While in grad school, just in my building alone, I was surrounded by the top students from Germany, India, China, Taiwan, Brazil, and Russia. I’ve heard their stories about having to be the top 0.01% in their country just to get here. The vast majority of these people ended up getting jobs and settling down in the US. If you look around, first-generation immigrants anchor many of the research arms of all our major corporations. Microsoft, GE, Genentech, Google…
In other words, this country has been skimming off much of the smartest and most driven people in the world for ourselves. That’s a pretty sweet deal. 
But as I type many countries are working feverishly to make their own educational systems better.
      If another country has a similar or better educational system, and their workers can do it for less, you can bet the job will be moving there. Patriotism, protectionism, or whatever – it’s still going to happen. This means that we need to work to improve our own education systems and get rid of any sense of entitlement. Soon, simply being lucky enough to have been born in the US won’t be enough.
The book touches on many more topics than this, and I don’t even claim to understand all of it. I’m not an economist nor am I much of a historian. Although Friedman overall is a great storyteller and good at explaining complex ideas, there are also several slow and repetitive parts that literally made me fall asleep while reading it.


In the end, The World Is Flat reminds us that we are all in constant competition with each other. Before, it was your neighbors across the street. Now, it’s anyone with internet access. While it is not a zero-sum game (there is not a fixed number of jobs), there will be people who do better than others. As Americans, we are being chased. Our choices are either to run faster or risk getting left in the dust. Just making us consider such a possibility is a good result from this book.
How you think this competition will unfold can also alter your investment strategy. I still haven’t made any conclusions regarding this, but have been considering simply weighting my investments in proportion to the value of the world’s companies (i.e. using a world market cap-weighted index).

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