Home .Change and innovation Is the world getting flatter thanks to the global financial crisis?
Is the world getting flatter thanks to the global financial crisis?
Monday, 19 October 2009 04:44

Thomas Friedman’s book, The World is Flat, provoked much discussion and debate about whether the world is really flat, spiky or uneven and unfair.  Part of the problem was that many nerds quibbled with the details of his argument without recognizing his almost poetic image.  His message is that information technology is changing the world in many fundamental ways, and that is true.

But if Friedman were writing his book today, would he add an additional eleventh force which is flattening the world, namely the global financial crisis?

Before we get into this, let’s go back to Friedman, who identifies the following ten forces flattening the world:

1. Collapse of Berlin Wall, which allowed the citizens of the former communist countries to join the world.

2. Netscape and the Web broadened the audience for the Internet, making it accessible to everyone from five-year-olds to eighty-five-year olds.

3. Work Flow Software, which allows people from around the world to collaborate and work together on projects using a shared medium.

4. Uploading: Communities uploading and collaborating on online projects like open source software, blogs, and Wikipedia.

5. Outsourcing allows companies to split service and manufacturing activities into components, with each component performed in most efficient, cost-effective way.

6. Offshoring, which means outsourcing to foreign countries.

7. Supply-Chaining, which allows companies to streamline item sales, distribution, and shipping.

8. Insourcing whereby company employees perform services for another company.

9. In-forming: Google and other search engines which give people the ability to find so much information about so many things and about so many other people.

10. "The Steroids": Personal digital devices like mobile phones, iPods, personal digital assistants, instant messaging, and voice over Internet Protocol.

Friedman goes further, by arguing that a "triple convergence" is acting on the flatteners to create a new, flatter global playing field.

1. Up until the year 2000, the ten flatteners were semi-independent from one another. An example of independence is the inability of one machine to perform multiple functions. When work-flow software and hardware converged, multiple functions such as e-mail, fax, printing, copying and communicating were able to be done from one machine. However, around the year 2000, all the flatteners converged with one another. This convergence could be compared to complementary goods, in that each flattener enhanced the other flatteners; the more one flattener developed, the more leveled the global playing field became.

2. After the emergence of the ten flatteners, a new business model was required to succeed. While the flatteners alone were significant, they would not enhance productivity without people being able to use them together. Instead of collaborating vertically (the top-down method of collaboration, where innovation comes from the top), businesses needed to begin collaborating horizontally. Horizontalization means companies and people collaborate with other departments or companies to add value creation or innovation. Friedman's Convergence II occurs when horizontalization and the ten flatteners begin to reinforce each other and people understand the capability of the technologies available.

3. After the fall of the Berlin Wall, countries that had followed the Soviet economic model—including India, China, Russia, and the nations of Eastern Europe, Latin America, and Central Asia—began to open up their economies to the world. When these new players converged with the rest of the globalized marketplace, they added new brain power to the whole playing field and enhanced horizontal collaboration across the globe. In turn, Convergence III is the most important force shaping politics and economics in the early 21st century.

Friedman writes that the world is now entering the era of "Globalization 3.0," following Globalization 1.0, which ran from 1492 until 1800 and was driven by countries' sheer brawn, and Globalization 2.0, in which "the key agent of change, the dynamic force driving global integration, was multinational companies" driven to look abroad for markets and labor, spurred by industrial-age "breakthroughs in hardware" such as steamships, trains, phones and computers. That epoch ended around 2000, replaced by one in which individuals are the main agents doing the globalizing, pushed by "not horsepower, and not hardware, but software" and a "global fiber-optic network that has made us all next-door neighbors." If the first two eras were driven mostly by Europeans and Americans, the third is open to "every color of the human rainbow."

Friedman raises questions about America’s capacity to stay ahead in this flat world.  Does America have the educational requirements needed to survive in the flattened world?  Is America becoming too complacent?  Witness the U.S Olympic Basketball Team’s unexpected loss at the 2004 Games.  Is America falling behind in innovation, science and technology?  Witness the lack of highly skilled scientists and engineers, disinterest in math and science by our younger population, lack of ambition as television and video games take over, an outdated basic education system, lack of funding for research, lack of infrastructure as we focus on war and other countries focus on developing sustainable and innovative business.

Joe Stiglitz, while commending Friedman’s book, has argued that the world is not flat at all, as so many of the world’s poor people do not have access to information technology or even electricity.  Friedman recognizes that the world is not really flat, even though it is flattening at an ever-increasing pace.  Many groups of people are disadvantaged for one reason or another – AIDS, poverty, lack of access to education -- and the way that this keeps them from moving forward into a flattened world.  So, while in many ways the world getting flatter, in other ways it is becoming less flat.  Friedman warns of the forces that could seriously harm or slow the flattening of the world, particularly the threat posed by terrorist networks such as Al-Qaeda.

Richard Florida also bought into the debate by arguing that the world is spiky!  According to Florida, the tectonic forces of economics are concentrating people and resources, and pushing up some places more than other.  Concentrations of creative and talented people are particularly important for innovation.  They cluster because of the productivity advantages, economies of scale and knowledge spillovers that density brings.  Thus, in terms of sheer economic horsepower and cutting-edge innovation, surprising few regions truly matter in today’s global economy.  And what’s more, the tallest peaks – the cities and regions that drive the world economy – are growing ever higher, while the valleys mostly languish.  For example, New York’s economy alone is about the size of Russia’s or Brazil’s, and Chicago’s is about the size of Sweden’s.  In 2002, 85 per cent of all patents went to the residents of just five countries – Japan, US, Korea, Germany and Russia.

So economic progress requires that the spikes in the world’s geography grow taller.  This exacerbates economic and social disparities, and forments political reactions that could threaten innovation and economic progress.  While this is true, the flatness of the world is evident in the fact that many emerging economies are now developing spikes like Bangalore and Hyderabad (India), Seoul (Korea), Taipei (Taiwan), Shanghai (China).

Before we conclude, let’s come back to our first question, is the crisis making the world flatter?  After all, the American juggernaut has been brought to its knees.  China is standing taller.  And there is an air of triumphalism among many world leaders of anti-American persuasion.  The answer lies in how the world’s leading countries come out of the crisis.  If the US comes out as a weakened country, and the BRICs end up stronger, then the crisis will have flattened the world.  But, it is not impossible that the US’s amazing adaptability and dynamism mean that it can bounce back better than Japan and Europe.

Another development is that the Western dominated G8 has now been replaced by the G20.  Leading emerging economies will now be ruling the world on the same footing as Western countries.  Thus, there has arguably been a flattening of global governance.  But we have to see how in reality that develops.  The G20 is a group of important countries, but with disparate economic and political situations, and very different value systems.  It could become ineffectual, leaving the US and China to rule the world as a G2.  This should be incentive enough for Europe to choose a President who can stand head-to-head with these countries.

 

References:

The World is Flat: A Brief History of the Twenty-First Century, by Thomas Friedman.

http://www.thomaslfriedman.com/bookshelf/the-world-is-flat

The World is Spiky, by Richard Florida.  The Atlantic Monthly.  October 2005.

http://www.creativeclass.com/rfcgdb/articles/other-2005-The%20World%20is%20Spiky.pdf

 

 


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