(06/27/05) Three Billion New Capitalist reviewed in FORTUNE magazine
Will the U.S. be flattened by a flatter world?
6/27/05 Fortune 47
2005 WLNR 9427249
Fortune
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June 27, 2005
Volume 151
Section: FORTUNE Global Forum 2005 No. 13 75th-Anniversary Special Issue
Will the U.S. be flattened by a flatter world?
Rik Kirkland

INSIDE BEIJING'S DIAOYUTAI STATE guesthouse on a fine May morning at the FORTUNE Global Forum--somewhere between a breakout session on regional power shifts and a panel on technological innovation--I had my eureka moment. "China," I scribbled on a notepad, "is what the U.S. economy might look like if it were run by a consortium of folks from McKinsey, Goldman Sachs, and the CIA." Sure, they'd get plenty wrong, but more often than not they'd get it right. The proof was all around us: in the capital's skyscrapers and software parks; in our discussions ("China needs to make enterprises, not universities, the center of innovation because they'll respond better to the market," said Minister of Science and Technology Xu Guanhua); and, of course, in the numbers. Of all the dazzling stats China has posted, the most impressive is this: In 20 years it has lifted some 400 million of its 1.3 billion people out of grinding $1-a-day poverty.

But it's not just China, as the several hundred CEOs gathered for the conference were reminded. One of the liveliest sessions featured Indian business leaders whose firms are thriving as low-cost sources of services and information technology. These corporate successes, plus government reforms, have spurred India's once lumbering economy onto a rapid growth path and given many of its one billion citizens a new swagger. "Today the average Indian feels, 'Man, we can take on the world,'" said Prannoy Roy, head of India's NDTV. Yes, these guys get it too.

Which raises a big, fat question for U.S. officials, business leaders, and citizens: Do we get it? Helpfully, there's a flotilla of new books in the stores claiming to answer the question. While they aim at different targets, all share a sense of urgency that major changes in attitudes and policies are essential if the U.S. is going to cope with the era of China, India, and the Internet.

The flagship, both in physical heft and intellectual throw weight, is New York Times columnist Thomas Friedman's The World Is Flat: A Brief History of the 21st Century. Regular readers of magazines like this one will find some of the territory Friedman "discovers"--they've got all-night call centers in Bangalore!--familiar. And there's an empty-your-notebooks quality to the long citations from his interviews. But in a world overrun with hyperventilating tree-spotters, Friedman's great gift is that he sees forests--and then makes that big picture come alive. No one has offered a richer, more coherent explanation of how the market- opening geopolitical changes set off by the end of the Cold War, reinforced by technologies like the Internet and digitized work-flow software and merged into radical new ways of doing business across borders, have flattened the commercial playing field and opened it up to "more people in more places on more days in more ways than anything like it ever before in the history of the world."

Part field guide, part policy analysis, part inspirational sermon, The World Is Flat directs its message to individuals--Americans, yes, but also the tens of millions of educated Indians and Chinese and East Europeans and Latin Americans who can plug into and play in this new world. Not that policymakers don't face huge challenges; Friedman compares this moment to the wake-up call America received in 1957 when the Soviet Union launched Sputnik. But while "the main objective in that era was building a strong state," he writes, "the main objective in this era is building strong individuals." To do that, Friedman advocates changes ranging from making pensions and health insurance portable (vs. tying them to an employer), to some form of wage insurance (to ease the job dislocations many will face), to new subsidies for tertiary education (upgrading human capital is critical in a flat world), to more good old-fashioned parenting (as in, Hey, kid, put down that video controller and crack a book!). We'll need even more than that, but given our political stalemate, any progress along these lines--while also getting our fiscal house in order--would be a good start.

In The Opportunity: America's Moment to Alter History's Course, Richard Haas aims his fire at the suits who still think they run things. (That's appropriate, since this former presidential advisor now heads the Council on Foreign Relations.) Haas's briskly argued treatise lays out "a foreign policy doctrine for both a post-11/9 [as in Nov. 9, 1989, when the Berlin Wall tumbled down] and a post-9/11 world." That doctrine can be summed up in one word: integration.

Like the containment policy devised by George Kennan, which guided the West in its 50-year struggle to counter the Soviet Union without going to war, integration, Haas maintains, is a decades-long, multilateral project. But he'd like to push well beyond merely avoiding protectionism or advancing a new trade round. This hard-headed idealist wants the U.S. to use its unrivaled clout to rally the other great powers into jointly tackling "the dangerous dimensions of globalization"--among them, nuclear proliferation, terrorism, infectious disease, and climate control. The alternative, he fears, is a gradual drift into "a world of great power competition or a world overwhelmed by disruptive forces, or both." Since the U.S. can no more prevent the rise of a China or an India than Europe could bar America's own climb in the 19th and 20th centuries--and to attempt to do so would only ensure their enmity--far better to give them "a substantial stake in the maintenance of order." Keep your friends close, in other words, and your future geopolitical rivals even closer.

Clyde Prestowitz, a former Reagan-era trade warrior, has no quarrel with either the necessity of integration or the inevitability of globalization. In Three Billion New Capitalists: The Great Shift of Wealth and Power to the East, he just wishes that America's politicians and business leaders would finally come together to devise a national economic strategy. "The first priority of American leadership--even more important than fighting terror or spreading liberty--should be to ensure long-term U.S. competitiveness," he writes.

Prestowitz covers much of the same ground as Friedman, and his book suffers by comparison. It's long on numbers and policy prescriptions and short on the kind of vivid scene-setting and fine rhetoric that make The World Is Flat so readable. I'm also skeptical of big chunks of his agenda: Prestowitz is way too impressed by the techno-savviness of the European Union and has an unwarranted faith in the power of blue-ribbon commissions or new government agencies to steer industrial strategy. Still, he's a smart, sophisticated advocate for a more interventionist policy (not for him the puerile outsourcing bashing of Lou Dobbs Tonight).

Plowing through these books after the Forum, I was struck by how much our discussions in Beijing tracked their themes. I recalled George Colony of Forrester Research insisting that "global innovation networks," not "research in large monolithic companies," are the only way corporations can move quickly enough to stay on top. Consultant C.K. Prahalad underlined the spread of knowledge work: "It used to be if you tell me what country you're from, I'd tell you if you were rich or poor. Now I say, Tell me what your profession is." The resistance to these forces wasn't ignored either. With wages under pressure, warned Morgan Stanley's Stephen Roach, "politicians in wealthy countries are losing faith in the hopes and dreams of globalization."

That brings us to the dirty little truth Tom Friedman admits to late in his book: "The world is not flat." It's merely flattening at a quickening pace. The trend could be slowed or stopped by any number of disasters--another 9/11-scale attack, an environmental or health crisis, or simply a new round of protectionism.

So do we in America get it? Not yet, but I'm sure hoping we will. The biggest challenge the U.S. faces in the 21st century is not winning the war on terror but learning how to thrive in this globalized world. If the U.S. fails, the consequences for the rest of the world are likely to be bad. That's not merely because America has the world's largest, richest economy, but because, based on its history, it should be the model for the kind of flexible, innovative, individualistic society this era demands. The world must learn to live without relying on the U.S. as its consumer of last resort. What it can't abide is an end to America's role, as Friedman puts it, as "the world's greatest dream machine."