Fibonacci

It's a Flat World, After All
By THOMAS L. FRIEDMAN

n 1492 Christopher Columbus set sail for India, going 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 came home and reported to his king and queen: ''The world is round.'' I set off for India 512 years later. I knew just which direction I was going. I went east. I had Lufthansa business class, and I came home and reported only to my wife and only in a whisper: ''The world is flat.''

And therein lies a tale of technology and geoeconomics that is fundamentally reshaping our lives -- much, much more quickly than many people realize. It all happened while we were sleeping, or rather while we were focused on 9/11, the dot-com bust and Enron -- which even prompted some to wonder whether globalization was over. Actually, just the opposite was true, which is why it's time to wake up and prepare ourselves for this flat world, because others already are, and there is no time to waste.

I wish I could say I saw it all coming. Alas, I encountered the flattening of the world quite by accident. It was in late February of last year, and I was visiting the Indian high-tech capital, Bangalore,

working on a documentary for the Discovery Times channel about outsourcing. In short order, I interviewed Indian entrepreneurs who wanted to prepare my taxes from Bangalore, read my X-rays from Bangalore, trace my lost luggage from Bangalore and write my new software from Bangalore. The longer I was there, the more upset I became -- upset at the realization that while I had been off covering the 9/11 wars, globalization had entered a whole new phase, and I had missed it. I guess the eureka moment came on a visit to the campus of Infosys Technologies, one of the crown jewels of the Indian outsourcing and software industry. Nandan Nilekani, the Infosys C.E.O., was showing me his global video-conference room, pointing with pride to a wall-size flat-screen TV, which he said was the biggest in Asia. Infosys, he explained, could hold a virtual meeting of the key players from its entire global supply chain for any project at any time on that supersize screen. So its American designers could be on the screen speaking with their Indian software writers and their Asian manufacturers all at once. That's what globalization is all about today, Nilekani said. Above the screen there were eight clocks that pretty well summed up the Infosys workday: 24/7/365. The clocks were labeled U.S. West, U.S. East, G.M.T., India, Singapore, Hong Kong, Japan, Australia.

''Outsourcing is just one dimension of a much more fundamental thing happening today in the world,'' Nilekani explained. ''What happened over the last years is that there was a massive investment in technology, especially in the bubble era, when hundreds of millions of dollars were invested in putting broadband connectivity around the world, undersea cables, all those things.'' At the same time, he added, computers became cheaper and dispersed all over the world, and there was an explosion of e-mail software, search engines like Google and proprietary software that can chop up any piece of work and send one part to Boston, one part to Bangalore and one part to Beijing, making it easy for anyone to do remote development. When all of these things suddenly came together around 2000, Nilekani said, they ''created a platform where intellectual work, intellectual capital, could be delivered from anywhere. It could be disaggregated, delivered, distributed, produced and put back together again -- and this gave a whole new degree of freedom to the way we do work, especially work of an intellectual nature. And what you are seeing in Bangalore today is really the culmination of all these things coming together.''

At one point, summing up the implications of all this, Nilekani uttered a phrase that rang in my ear. He said to me, ''Tom, the playing field is being leveled.'' He meant that countries like India were now able to compete equally for global knowledge work as never before -- and that America had better get ready for this. As I left the Infosys campus that evening and bounced along the potholed road back to Bangalore, I kept chewing on that phrase: ''The playing field is being leveled.''

''What Nandan is saying,'' I thought, ''is that the playing field is being flattened. Flattened? Flattened? My God, he's telling me the world is flat!''

Here I was in Bangalore -- more than 500 years after Columbus sailed over the horizon, looking for a shorter route to India using the rudimentary navigational technologies of his day, and returned safely to prove definitively that the world was round -- and one of India's smartest engineers, trained at his country's top technical institute and backed by the most modern technologies of his day, was telling me that the world was flat, as flat as that screen on which he can host a meeting of his whole global supply chain. Even more interesting, he was citing this development as a new milestone in human progress and a great opportunity for India and the world -- the fact that we had made our world flat!

This has been building for a long time. Globalization 1.0 (1492 to 1800) shrank the world from a size large to a size medium, and the dynamic force in that era was countries globalizing for resources and imperial conquest. Globalization 2.0 (1800 to 2000) shrank the world from a size medium to a size small, and it was spearheaded by companies globalizing for markets and labor. Globalization 3.0 (which started around 2000) is shrinking the world from a size small to a size tiny and flattening the playing field at the same time. And while the dynamic force in Globalization 1.0 was countries globalizing and the dynamic force in Globalization 2.0 was companies globalizing, the dynamic force in Globalization 3.0 -- the thing that gives it its unique character -- is individuals and small groups globalizing. Individuals must, and can, now ask: where do I fit into the global competition and opportunities of the day, and how can I, on my own, collaborate with others globally? But Globalization 3.0 not only differs from the previous eras in how it is shrinking and flattening the world and in how it is empowering individuals. It is also different in that Globalization 1.0 and 2.0 were driven primarily by European and American companies and countries. But going forward, this will be less and less true. Globalization 3.0 is not only going to be driven more by individuals but also by a much more diverse -- non-Western, nonwhite -- group of individuals. In Globalization 3.0, you are going to see every color of the human rainbow take part.

''Today, the most profound thing to me is the fact that a 14-year-old in Romania or Bangalore or the Soviet Union or Vietnam has all the information, all the tools, all the software easily available to apply knowledge however they want,'' said Marc Andreessen, a co-founder of Netscape and creator of the first commercial Internet browser. ''That is why I am sure the next Napster is going to come out of left field. As bioscience becomes more computational and less about wet labs and as all the genomic data becomes easily available on the Internet, at some point you will be able to design vaccines on your laptop.''

Andreessen is touching on the most exciting part of Globalization 3.0 and the flattening of the world: the fact that we are now in the process of connecting all the knowledge pools in the world together. We've tasted some of the downsides of that in the way that Osama bin Laden has connected terrorist knowledge pools together through his Qaeda network, not to mention the work of teenage hackers spinning off more and more lethal computer viruses that affect us all. But the upside is that by connecting all these knowledge pools we are on the cusp of an incredible new era of innovation, an era that will be driven from left field and right field, from West and East and from North and South. Only 30 years ago, if you had a choice of being born a B student in Boston or a genius in Bangalore or Beijing, you probably would have chosen Boston, because a genius in Beijing or Bangalore could not really take advantage of his or her talent. They could not plug and play globally. Not anymore. Not when the world is flat, and anyone with smarts, access to Google and a cheap wireless laptop can join the innovation fray.

When the world is flat, you can innovate without having to emigrate. This is going to get interesting. We are about to see creative destruction on steroids.

ow did the world get flattened, and how did it happen so fast?

It was a result of 10 events and forces that all came together during the 1990's and converged right around the year 2000. Let me go through them briefly. The first event was 11/9. That's right -- not 9/11, but 11/9. Nov. 9, 1989, is the day the Berlin Wall came down, which was critically important because it allowed us to think of the world as a single space. ''The Berlin Wall was not only a symbol of keeping people inside Germany; it was a way of preventing a kind of global view of our future,'' the Nobel Prize-winning economist Amartya Sen said. And the wall went down just as the windows went up -- the breakthrough Microsoft Windows 3.0 operating system, which helped to flatten the playing field even more by creating a global computer interface, shipped six months after the wall fell.

The second key date was 8/9. Aug. 9, 1995, is the day Netscape went public, which did two important things. First, it brought the Internet alive by giving us the browser to display images and data stored on Web sites. Second, the Netscape stock offering triggered the dot-com boom, which triggered the dot-com bubble, which triggered the massive overinvestment of billions of dollars in fiber-optic telecommunications cable. That overinvestment, by companies like Global Crossing, resulted in the willy-nilly creation of a global undersea-underground fiber network, which in turn drove down the cost of transmitting voices, data and images to practically zero, which in turn accidentally made Boston, Bangalore and Beijing next-door neighbors overnight. In sum, what the Netscape revolution did was bring people-to-people connectivity to a whole new level. Suddenly more people could connect with more other people from more different places in more different ways than ever before.

No country accidentally benefited more from the Netscape moment than India. ''India had no resources and no infrastructure,'' said Dinakar Singh, one of the most respected hedge-fund managers on Wall Street, whose parents earned doctoral degrees in biochemistry from the University of Delhi before emigrating to America. ''It produced people with quality and by quantity. But many of them rotted on the docks of India like vegetables. Only a relative few could get on ships and get out. Not anymore, because we built this ocean crosser, called fiber-optic cable. For decades you had to leave India to be a professional. Now you can plug into the world from India. You don't have to go to Yale and go to work for Goldman Sachs.'' India could never have afforded to pay for the bandwidth to connect brainy India with high-tech America, so American shareholders paid for it. Yes, crazy overinvestment can be good. The overinvestment in railroads turned out to be a great boon for the American economy. ''But the railroad overinvestment was confined to your own country and so, too, were the benefits,'' Singh said. In the case of the digital railroads, ''it was the foreigners who benefited.'' India got a free ride.

The first time this became apparent was when thousands of Indian engineers were enlisted to fix the Y2K -- the year 2000 -- computer bugs for companies from all over the world. (Y2K should be a national holiday in India. Call it ''Indian Interdependence Day,'' says Michael Mandelbaum, a foreign-policy analyst at Johns Hopkins.) The fact that the Y2K work could be outsourced to Indians was made possible by the first two flatteners, along with a third, which I call ''workflow.'' Workflow is shorthand for all the software applications, standards and electronic transmission pipes, like middleware, that connected all those computers and fiber-optic cable. To put it another way, if the Netscape moment connected people to people like never before, what the workflow revolution did was connect applications to applications so that people all over the world could work together in manipulating and shaping words, data and images on computers like never before.

Indeed, this breakthrough in people-to-people and application-to-application connectivity produced, in short order, six more flatteners -- six new ways in which individuals and companies could collaborate on work and share knowledge. One was ''outsourcing.'' When my software applications could connect seamlessly with all of your applications, it meant that all kinds of work -- from accounting to software-writing -- could be digitized, disaggregated and shifted to any place in the world where it could be done better and cheaper. The second was ''offshoring.'' I send my whole factory from Canton, Ohio, to Canton, China. The third was ''open-sourcing.'' I write the next operating system, Linux, using engineers collaborating together online and working for free. The fourth was ''insourcing.'' I let a company like UPS come inside my company and take over my whole logistics operation -- everything from filling my orders online to delivering my goods to repairing them for customers when they break. (People have no idea what UPS really does today. You'd be amazed!). The fifth was ''supply-chaining.'' This is Wal-Mart's specialty. I create a global supply chain down to the last atom of efficiency so that if I sell an item in Arkansas, another is immediately made in China. (If Wal-Mart were a country, it would be China's eighth-largest trading partner.) The last new form of collaboration I call ''informing'' -- this is Google, Yahoo and MSN Search, which now allow anyone to collaborate with, and mine, unlimited data all by themselves.

So the first three flatteners created the new platform for collaboration, and the next six are the new forms of collaboration that flattened the world even more. The 10th flattener I call ''the steroids,'' and these are wireless access and voice over Internet protocol (VoIP). What the steroids do is turbocharge all these new forms of collaboration, so you can now do any one of them, from anywhere, with any device.

The world got flat when all 10 of these flatteners converged around the year 2000. This created a global, Web-enabled playing field that allows for multiple forms of collaboration on research and work in real time, without regard to geography, distance or, in the near future, even language. ''It is the creation of this platform, with these unique attributes, that is the truly important sustainable breakthrough that made what you call the flattening of the world possible,'' said Craig Mundie, the chief technical officer of Microsoft.

No, not everyone has access yet to this platform, but it is open now to more people in more places on more days in more ways than anything like it in history. Wherever you look today -- whether it is the world of journalism, with bloggers bringing down Dan Rather; the world of software, with the Linux code writers working in online forums for free to challenge Microsoft; or the world of business, where Indian and Chinese innovators are competing against and working with some of the most advanced Western multinationals -- hierarchies are being flattened and value is being created less and less within vertical silos and more and more through horizontal collaboration within companies, between companies and among individuals.

Do you recall ''the IT revolution'' that the business press has been pushing for the last 20 years? Sorry to tell you this, but that was just the prologue. The last 20 years were about forging, sharpening and distributing all the new tools to collaborate and connect. Now the real information revolution is about to begin as all the complementarities among these collaborative tools start to converge. One of those who first called this moment by its real name was Carly Fiorina, the former Hewlett-Packard C.E.O., who in 2004 began to declare in her public speeches that the dot-com boom and bust were just ''the end of the beginning.'' The last 25 years in technology, Fiorina said, have just been ''the warm-up act.'' Now we are going into the main event, she said, ''and by the main event, I mean an era in which technology will truly transform every aspect of business, of government, of society, of life.''

s if this flattening wasn't enough, another convergence coincidentally occurred during the 1990's that was equally important. Some three billion people who were out of the game walked, and often ran, onto the playing field. I am talking about the people of China, India, Russia, Eastern Europe, Latin America and Central Asia. Their economies and political systems all opened up during the course of the 1990's so that their people were increasingly free to join the free market. And when did these three billion people converge with the new playing field and the new business processes? Right when it was being flattened, right when millions of them could compete and collaborate more equally, more horizontally and with cheaper and more readily available tools. Indeed, thanks to the flattening of the world, many of these new entrants didn't even have to leave home to participate. Thanks to the 10 flatteners, the playing field came to them!

It is this convergence -- of new players, on a new playing field, developing new processes for horizontal collaboration -- that I believe is the most important force shaping global economics and politics in the early 21st century. Sure, not all three billion can collaborate and compete. In fact, for most people the world is not yet flat at all. But even if we're talking about only 10 percent, that's 300 million people -- about twice the size of the American work force. And be advised: the Indians and Chinese are not racing us to the bottom. They are racing us to the top. What China's leaders really want is that the next generation of underwear and airplane wings not just be ''made in China'' but also be ''designed in China.'' And that is where things are heading. So in 30 years we will have gone from ''sold in China'' to ''made in China'' to ''designed in China'' to ''dreamed up in China'' -- or from China as collaborator with the worldwide manufacturers on nothing to China as a low-cost, high-quality, hyperefficient collaborator with worldwide manufacturers on everything. Ditto India. Said Craig Barrett, the C.E.O. of Intel, ''You don't bring three billion people into the world economy overnight without huge consequences, especially from three societies'' -- like India, China and Russia -- ''with rich educational heritages.''

That is why there is nothing that guarantees that Americans or Western Europeans will continue leading the way. These new players are stepping onto the playing field legacy free, meaning that many of them were so far behind that they can leap right into the new technologies without having to worry about all the sunken costs of old systems. It means that they can move very fast to adopt new, state-of-the-art technologies, which is why there are already more cellphones in use in China today than there are people in America.

If you want to appreciate the sort of challenge we are facing, let me share with you two conversations. One was with some of the Microsoft officials who were involved in setting up Microsoft's research center in Beijing, Microsoft Research Asia, which opened in 1998 -- after Microsoft sent teams to Chinese universities to administer I.Q. tests in order to recruit the best brains from China's 1.3 billion people. Out of the 2,000 top Chinese engineering and science students tested, Microsoft hired 20. They have a saying at Microsoft about their Asia center, which captures the intensity of competition it takes to win a job there and explains why it is already the most productive research team at Microsoft: ''Remember, in China, when you are one in a million, there are 1,300 other people just like you.''

The other is a conversation I had with Rajesh Rao, a young Indian entrepreneur who started an electronic-game company from Bangalore, which today owns the rights to Charlie Chaplin's image for mobile computer games. ''We can't relax,'' Rao said. ''I think in the case of the United States that is what happened a bit. Please look at me: I am from India. We have been at a very different level before in terms of technology and business. But once we saw we had an infrastructure that made the world a small place, we promptly tried to make the best use of it. We saw there were so many things we could do. We went ahead, and today what we are seeing is a result of that. There is no time to rest. That is gone. There are dozens of people who are doing the same thing you are doing, and they are trying to do it better. It is like water in a tray: you shake it, and it will find the path of least resistance. That is what is going to happen to so many jobs -- they will go to that corner of the world where there is the least resistance and the most opportunity. If there is a skilled person in Timbuktu, he will get work if he knows how to access the rest of the world, which is quite easy today. You can make a Web site and have an e-mail address and you are up and running. And if you are able to demonstrate your work, using the same infrastructure, and if people are comfortable giving work to you and if you are diligent and clean in your transactions, then you are in business.''

Instead of complaining about outsourcing, Rao said, Americans and Western Europeans would ''be better off thinking about how you can raise your bar and raise yourselves into doing something better. Americans have consistently led in innovation over the last century. Americans whining -- we have never seen that before.''

ao is right. And it is time we got focused. As a person who grew up during the cold war, I'll always remember driving down the highway and listening to the radio, when suddenly the music would stop and a grim-voiced announcer would come on the air and say: ''This is a test. This station is conducting a test of the Emergency Broadcast System.'' And then there would be a 20-second high-pitched siren sound. Fortunately, we never had to live through a moment in the cold war when the announcer came on and said, ''This is a not a test.''

That, however, is exactly what I want to say here: ''This is not a test.''

The long-term opportunities and challenges that the flattening of the world puts before the United States are profound. Therefore, our ability to get by doing things the way we've been doing them -- which is to say not always enriching our secret sauce -- will not suffice any more. ''For a country as wealthy we are, it is amazing how little we are doing to enhance our natural competitiveness,'' says Dinakar Singh, the Indian-American hedge-fund manager. ''We are in a world that has a system that now allows convergence among many billions of people, and we had better step back and figure out what it means. It would be a nice coincidence if all the things that were true before were still true now, but there are quite a few things you actually need to do differently. You need to have a much more thoughtful national discussion.''

If this moment has any parallel in recent American history, it is the height of the cold war, around 1957, when the Soviet Union leapt ahead of America in the space race by putting up the Sputnik satellite. The main challenge then came from those who wanted to put up walls; the main challenge to America today comes from the fact that all the walls are being taken down and many other people can now compete and collaborate with us much more directly. The main challenge in that world was from those practicing extreme Communism, namely Russia, China and North Korea. The main challenge to America today is from those practicing extreme capitalism, namely China, India and South Korea. The main objective in that era was building a strong state, and the main objective in this era is building strong individuals.

Meeting the challenges of flatism requires as comprehensive, energetic and focused a response as did meeting the challenge of Communism. It requires a president who can summon the nation to work harder, get smarter, attract more young women and men to science and engineering and build the broadband infrastructure, portable pensions and health care that will help every American become more employable in an age in which no one can guarantee you lifetime employment.

We have been slow to rise to the challenge of flatism, in contrast to Communism, maybe because flatism doesn't involve ICBM missiles aimed at our cities. Indeed, the hot line, which used to connect the Kremlin with the White House, has been replaced by the help line, which connects everyone in America to call centers in Bangalore. While the other end of the hot line might have had Leonid Brezhnev threatening nuclear war, the other end of the help line just has a soft voice eager to help you sort out your AOL bill or collaborate with you on a new piece of software. No, that voice has none of the menace of Nikita Khrushchev pounding a shoe on the table at the United Nations, and it has none of the sinister snarl of the bad guys in ''From Russia With Love.'' No, that voice on the help line just has a friendly Indian lilt that masks any sense of threat or challenge. It simply says: ''Hello, my name is Rajiv. Can I help you?''

No, Rajiv, actually you can't. When it comes to responding to the challenges of the flat world, there is no help line we can call. We have to dig into ourselves. We in America have all the basic economic and educational tools to do that. But we have not been improving those tools as much as we should. That is why we are in what Shirley Ann Jackson, the 2004 president of the American Association for the Advancement of Science and president of Rensselaer Polytechnic Institute, calls a ''quiet crisis'' -- one that is slowly eating away at America's scientific and engineering base.

''If left unchecked,'' said Jackson, the first African-American woman to earn a Ph.D. in physics from M.I.T., ''this could challenge our pre-eminence and capacity to innovate.'' And it is our ability to constantly innovate new products, services and companies that has been the source of America's horn of plenty and steadily widening middle class for the last two centuries. This quiet crisis is a product of three gaps now plaguing American society. The first is an ''ambition gap.'' Compared with the young, energetic Indians and Chinese, too many Americans have gotten too lazy. As David Rothkopf, a former official in the Clinton Commerce Department, puts it, ''The real entitlement we need to get rid of is our sense of entitlement.'' Second, we have a serious numbers gap building. We are not producing enough engineers and scientists. We used to make up for that by importing them from India and China, but in a flat world, where people can now stay home and compete with us, and in a post-9/11 world, where we are insanely keeping out many of the first-round intellectual draft choices in the world for exaggerated security reasons, we can no longer cover the gap. That's a key reason companies are looking abroad. The numbers are not here. And finally we are developing an education gap. Here is the dirty little secret that no C.E.O. wants to tell you: they are not just outsourcing to save on salary. They are doing it because they can often get better-skilled and more productive people than their American workers.

These are some of the reasons that Bill Gates, the Microsoft chairman, warned the governors' conference in a Feb. 26 speech that American high-school education is ''obsolete.'' As Gates put it: ''When I compare our high schools to what I see when I'm traveling abroad, I am terrified for our work force of tomorrow. In math and science, our fourth graders are among the top students in the world. By eighth grade, they're in the middle of the pack. By 12th grade, U.S. students are scoring near the bottom of all industrialized nations. . . . The percentage of a population with a college degree is important, but so are sheer numbers. In 2001, India graduated almost a million more students from college than the United States did. China graduates twice as many students with bachelor's degrees as the U.S., and they have six times as many graduates majoring in engineering. In the international competition to have the biggest and best supply of knowledge workers, America is falling behind.''

We need to get going immediately. It takes 15 years to train a good engineer, because, ladies and gentlemen, this really is rocket science. So parents, throw away the Game Boy, turn off the television and get your kids to work. There is no sugar-coating this: in a flat world, every individual is going to have to run a little faster if he or she wants to advance his or her standard of living. When I was growing up, my parents used to say to me, ''Tom, finish your dinner -- people in China are starving.'' But after sailing to the edges of the flat world for a year, I am now telling my own daughters, ''Girls, finish your homework -- people in China and India are starving for your jobs.''

I repeat, this is not a test. This is the beginning of a crisis that won't remain quiet for long. And as the Stanford economist Paul Romer so rightly says, ''A crisis is a terrible thing to waste.''


http://www.nytimes.com/2005/04/03/ma...rint&position=

Thomas L. Friedman is the author of ''The World Is Flat: A Brief History of the Twenty-First Century,'' to be published this week by Farrar, Straus & Giroux and from which this article is adapted. His column appears on the Op-Ed page of The Times, and his television documentary ''Does Europe Hate Us?'' will be shown on the Discovery Channel on April 7 at 8 p.m.

ricecake

Friedman is always behind the curve, but he drops names to cover for the fact that his analysis is a step behind. I started reading The Lexus and The Olive Tree and got quickly bored with his name dropping. I don't care how many Pulitzer Prize winning authors you have lunch with on Tuesdays, just tell me something new.

Teh Jatt

cliff notes

CrockPot

cliff notes of cliff notes please.

ricecake

Don't bother. His theory is conceptually simplistic and arrogant (same as always): we've lost our edge, get used to it.

Fibonacci

I think to completely dismiss his exultation(s) would be a bit arrogant too. While he represents one side of the pundulem and folks like Silver lay on the other -- as usual, the truth lies somewhere in the middle.

cor

I think the most important thing in the above summary is the "Americans whining about out-sourcing"

Fibonacci

Riposte please...


An Asian `Economic 9/11' for U.S.? William Pesek Jr. (Correct)
2005-06-06 05:03 (New York)


By William Pesek Jr.
June 6 (Bloomberg) -- Brian Wesbury isn't a preacher, yet you
could've fooled the audience of investors and traders the U.S.
economist addressed in London recently.
One attendee was quick to note an ``evangelical quality'' to
Wesbury's bullish take on the U.S. outlook. And in a sense, it had
that. Highlights of his sermon: The U.S. economy is strong, its
deficits don't matter, its stocks are undervalued and the dollar
isn't about to crash.
``This view that the U.S. is living beyond its means, that
its profligate ways force us to go hat-in-hand to the market, is
just wrong,'' said Wesbury, chief investment strategist at Chicago-
based Claymore Securities. ``Over time, that will become evident
enough and people will have more faith in the U.S.''
Trouble is, the faith to which Wesbury refers is dwindling.
Yes, the dollar has stopped falling and the Dow Jones Industrial
Average has trimmed its losses this year. Yet Asians are deeply
concerned that U.S. imbalances like record current-account and
budget deficits are impelling global stability.

Ponzi Scheme?

For a preview of how it may play out, consult Richard
Duncan's recently revised book ``The Dollar Crisis: Causes,
Consequences, Cures.'' Just try to sleep after digesting its
thesis that the world's biggest economy is looking like a huge and
growing Ponzi scheme.
``Investors don't seem to appreciate how fragile the whole
U.S. system has become,'' Duncan, a strategist at ABN Amro Asset
Management in Hong Kong, tells me.
The trouble for the Bush administration is that Duncan's
views seem to have more supporters in Asia than Wesbury's. While
the truth may lie somewhere in between, the U.S.'s sales job is
becoming more challenging by the day.
Luckily for Washington, dire predictions of a plunging dollar
haven't proved accurate. Still, such concerns are gaining more
traction in this region than the deficits-don't-matter ones
pervading Wall Street.
The even bigger risk to the U.S. could come in the longer
term. It's spelled out in Clyde Prestowitz's new book ``Three
Billion New Capitalists.'' In it, the former Reagan administration
official warns of an ``economic 9/11'' as China and India step
more fully into the global financial system.

Risk of Complacency

While Prestowitz makes the point a bit too hyperbolically,
it's an important one. Some of his arguments fit with those made
in Thomas Friedman's latest book, ``The World is Flat.''
Essentially, it's that the U.S. has become complacent and risks
losing not only its position in the global pecking order but its
high standard of living.
U.S. politicians and business executives don't seem to
realize the extent to which many overseas investors (a) doubt that
the U.S. can avoid a dollar crisis and (b) think leadership of the
global system will soon shift elsewhere --to China and India.
These views are debatable, and economists like Wesbury make a
decent case that the U.S. can hold its own. Yet the fact such
ideas are out there and gaining momentum could have serious
repercussions for the U.S. economy in the short run.
The first place they may manifest themselves is the debt
market. Asian central banks hold well over $1 trillion of U.S.
Treasuries, and any further loss of confidence in the Washington
may prompt them to sell dollars.

Vulnerabilities Worsen

That risk has been forgotten in recent days as investors
worry about the euro's outlook. Euro-zone citizens are making
known their disenchantment with Europe's experiment with economic
integration in the form of referendums in France and the
Netherlands and in opinion polls elsewhere on the continent.
Yet the vulnerabilities that sent the dollar lower in 2004
are only worsening in the eyes of investors like Avinash Persaud,
chairman of Intelligence Capital Ltd. in London. ``I can't see how
the U.S. can go on like this with ever-growing deficits and
imbalances,'' he says.
One imbalance to which Persaud refers is low interest rates
that are enabling U.S. excesses. The lowest borrowing costs in
four decades mean the Federal Reserve is fueling housing and debt
bubbles both at home and abroad. The Fed even may have lost
control of the U.S. economy: its rate hikes aren't resulting in
significantly higher bond yields.

Short-Term, Long-Term

If Asians pull the plug on U.S. bonds, the results could be
devastating for the world's biggest economy. It would sharply
raise government and corporate borrowing costs and slam households
that took on debt in recent years. A sudden surge in mortgage
rates and payments owed to American Express and MasterCard could
overwhelm many U.S. consumers.
That's the short-term risk. Prestowitz and Friedman amply
spell out the longer-term ones in recent works. Sheer complacency
is dissuading the U.S. from stepping up education and training to
maintain its status as the globe's most innovative economy. And an
institutional belief that deficits don't matter is delaying badly
needed policy changes.
Even if you disagree that U.S. economy is losing its way, it
may not matter. China and India are giving rise to billions of new
capitalists who may soon be able to compete directly with American
entrepreneurs, engineers and financiers at a fraction of the cost.
All this should be a far bigger wake up for the U.S. than is has
been.
The rise of China and India may not be an ``economic 9/11''
for the U.S., but there's no getting around the fact that the
future is the U.S.'s to lose. And it may lose it to Asia.

Fibonacci

CHINA RISING
Will the U.S. Be Flattened by a Flatter World?
China shows off for CEOs at a Global Forum event at the Temple of Heaven in Beijing.
FORTUNE
Wednesday, June 15, 2005
By 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 Haass 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.) Haass'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, Haass 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."

M TYPE X

Detroit's no longer my 'dream machine.' I can't find any job leads in SE Michigan. I'm tired of the Ohio 'flat world.'

Fibonacci

CAN AMERICANS COMPETE?
Is America the World's 97-lb. Weakling?
In the relentless, global, tech-driven, cost-cutting struggle for business, America isn't ready—here's what to do about it.
FORTUNE
Monday, July 11, 2005
By Geoffrey Colvin


It's a crisis of confidence unlike anything America has felt in a generation. Residents of tiny Newton, Iowa, wake up to the distressing news that a Chinese firm—What뭩 it called? Haier? That뭩 Chinese?—wants to buy their biggest employer, the famed but foundering Maytag appliance company. Two days later, out of nowhere, a massive, government-owned Chinese oil company muscles into the bidding for America뭩 Unocal. The very next day a ship in Xinsha, China, loads the first Chinese-made cars bound for the West, where they뭠l compete with the products of Detroit뭩 struggling old giants.

All in one week. And only two months earlier a Chinese company most Americans had never heard of took over the personal computer business formerly owned—and mismanaged into billions of dollars of losses—by the great IBM.

"Can America compete?" is the nation뭩 new No. 1 anxiety, the topic of emotional debate in bars and boardrooms, the title of seminars and speeches offered by the liberal Progressive Policy Institute, the conservative economist Todd Buchholz, and countless schools and Rotary Clubs. The question is almost right, but not quite. We뭨e wringing our hands over the wrong thing. The problem isn뭪 Chinese companies threatening U.S. firms. It뭩 U.S. workers unable to compete with those in China—or India, or South Korea. The real question is, "Can Americans compete?"

The stakes are mammoth: Respectable analysts believe it뭩 possible—not certain, but possible—that the U.S. standard of living, after decades of steady ascent, could stall or even begin to decline. More worrisome is the chance that if the world뭩 most powerful nation finds itself getting poorer rather than richer, some kind of domestic or even global political crisis could follow.

As for the big question at the center of it all—Can we compete?—the answer isn뭪 obvious. The don뭪-worry-be-happy crowd points out that our last national fit of wailing and garment rending, when Japan was going to smite us in the 1980s, proved unfounded. We adapted and prospered, as we always had (and Japan didn뭪). But today뭩 situation is so starkly different that it뭩 tough to find comfort in our experience then.

We뭨e not building human capital the way we used to. Our primary and secondary schools are falling behind the rest of the world뭩. Our universities are still excellent, but the foreign students who come to them are increasingly taking their educations back home. As other nations multiply their science and engineering graduates—building the foundation for economic progress—ours are declining, in part because those fields are seen as nerdish and simply uncool. And our culture prizes cool.

No one is saying that Americans can뭪 adapt and win once more. But look at our preparedness today for the emerging global economy, and the conclusion seems unavoidable: We뭨e not ready.

To understand better whether Americans are destined to be the scrawny and pathetic dweebs on the world뭩 economic beach, it뭩 necessary to refine the question. Who is most threatened? How come? What will it take to make America stronger in a new economic world? What political forces could propel—or derail—progress?

Many iconic U.S. firms—Coca-Cola, Procter & Gamble, Texas Instruments—already do most of their business and employ most of their workers outside the U.S. Conversely, some of the most American brands you can think of—Hellmann뭩 mayonnaise, Jeeps, BV California wines—are owned by non-U.S. companies (Unilever, DaimlerChrysler, and Diageo, respectively). To complicate matters further, many products of U.S. companies are made outside the U.S.—Maytag refrigerators are no longer made in Galesburg, Ill., but in Mexico—while many non-U.S. companies make products here—your new Toyota may have come from Kentucky. Now add a few more twists: Your Dell laptop may have been assembled in Malaysia from parts made by American companies in Thailand.

The truth is that large companies transcended nationality long ago, and globalization gives them as many opportunities as problems. It increasingly lets them hire, source, and sell wherever they like, and that is basically good news no matter where the incorporation papers are filed.

For American workers, globalization is a radically dicier proposition—far more so than most of them realize. The fast-changing economy is exposing vast numbers of them to global labor competition, and it뭩 a contest millions of them can뭪 win right now.

Three main factors are changing the game. First, the world economy is based increasingly on information, bits and bytes that have to be analyzed, processed, and moved around. Examples: software, financial services, media. Second, the cost of handling those bits and bytes—that is, of computing and telecommunications—is in free fall. Wide swaths of economic activity can be performed almost anywhere, at least in theory.

Turning theory into reality is the third factor: Low-cost countries—not just China and India but also Mexico, Malaysia, Brazil, and others—are turning out large numbers of well-educated young people fully qualified to work in an information-based economy. China will produce about 3.3 million college graduates this year, India 3.1 million (all of them English-speaking), the U.S. just 1.3 million. In engineering, China뭩 graduates will number over 600,000, India뭩 350,000, America뭩 only about 70,000.

The result is that many Americans who thought outsourcing only threatened factory workers and call-center operators are about to learn otherwise. That is a giant development, because information-based services are the heart of the U.S. economy. With 76% of its jobs in services, America뭩 economy is the most service-intensive of any major country뭩. Of course many of those jobs can뭪 be shipped abroad: Chefs, barbers, utility and NFL linemen, and many others know they can뭪 be replaced by even the smartest person in Bangalore.

But growing numbers of other service jobs are not safe. Everyone has heard about the insurance-claims processors, accountants, and medical transcriptionists in India and elsewhere who뭭e taken away U.S. jobs by doing the same work for much less money. More alarming is that the value of outsourced jobs is steadily rising. Morgan Stanley is hiring Indian bond analysts, fearsome quants who can make or cost a company millions. Texas Instruments is conducting critical parts of its next-generation chip development—extraordinarily complex work on which the company is betting its future—in India. American computer programmers who made $100,000 a year or more are getting fired because Indians and Chinese do the same work for one-fifth the cost or less.

The big question is how far all this will go. A massive new study from the McKinsey Global Institute predicts that some industries could be changed beyond recognition. In packaged software worldwide, 49% of jobs could in theory be outsourced to low-wage countries; in infotech services, 44%. In other industries the potential job shifts are smaller but still so large they뭗 create major dislocations: Some 25% of worldwide banking jobs could be sent offshore, 19% of insurance jobs, 13% of pharmaceutical jobs.

Looking at occupations rather than industries, some fields will never be the same. McKinsey figures that 52% of engineering jobs are amenable to offshoring, as are 31% of accounting jobs.

Adding up all the numbers, McKinsey calculates that some 9.6 million U.S. service jobs could theoretically be sent offshore today. That is a staggering number. If all those jobs really did get outsourced, the U.S. unemployment rate would leap from 5% to 11.4%. For various reasons, not all those jobs will get sent abroad. Some companies aren뭪 big enough to make the effort worthwhile. Some have infotech systems so old or messed up that they can뭪 adapt to offshoring. Some managers just don뭪 like the idea.

McKinsey figures that about 4.1 million service jobs will actually get offshored from high-wage countries to low-wage countries by 2008. It doesn뭪 make a forecast for U.S. jobs, but others have done so. Forrester Research puts the number at 3.4 million white-collar jobs by 2015. Researchers at the University of California at Berkeley believe the number will be far larger, perhaps 14 million.

Even those numbers could be too low, because they뭨e based on surveys of company plans today and extrapolations of current trends—always iffy predictors. Professor Thomas H. Davenport of Babson College believes that outsourcing is about to become radically easier and more widespread for a seemingly mundane reason. Davenport sees industry groups and professional associations rapidly standardizing processes like purchasing and billing, making them easy to measure and assess. When that happens, he says, "the low costs and low risks of outsourcing will accelerate the flow of jobs offshore."

The downward pressure on U.S. wages could be more immediate and severe than you might imagine. It is tempting to suppose that the giant U.S. economy couldn뭪 have felt much strain yet; the total number of offshored white-collar jobs is probably fewer than a million so far. But it doesn뭪 take the shifting of many jobs to produce ripple effects through the whole economy.

Why? Most U.S. workers whose jobs are sent overseas will try to find new ones, perhaps in other industries or occupations. So the offshoring of any jobs will produce job seekers who will tend to push wages down even in industries in which outsourcing isn뭪 happening. Far more significantly, the mere threat of moving jobs offshore is enough to hold wages down—those growing armies of skilled workers around the world are increasing the labor supply in many occupations, and the immutable law of markets is that when supply goes up, prices come down. It has happened in all kinds of other markets—food, clothing, microchips, appliances. Why not in labor?

Some economists believe they see it happening already. They note that something extremely odd occurred in the U.S. economy last year: Average compensation, including pay and benefits, fell. That is a rare event; the last time it happened was 14 years ago. More important, it usually happens in or around recessions or when productivity is going nowhere. But last year wasn뭪 like that. Productivity rose. The economy grew. The unemployment rate was low and falling. Every indicator pointed to strong wage increases, but just the opposite happened. Now some of the nation뭩 most eminent economists, including professor Richard B. Freeman of Harvard and Stephen Roach of Morgan Stanley, believe the supply of overseas workers in newly globalizing labor markets is holding U.S. pay down and will do so for years.

All those university graduates in China and India threaten U.S. living standards in another way. Paradoxically, it뭩 not because they뭠l end up working for U.S. employers, but because some of them won뭪, finding jobs instead with domestic companies in their own countries. That뭩 a problem for America if many of those graduates are top students in science and engineering.

You might wonder why we뭨e constantly reading about Chinese graduates in engineering and not in law, medicine, literature, or philosophy. Why this veneration of the pocket-protector set? Engineering is fine, but there뭩 more to life than technology, isn뭪 there? Obviously there is. The question—and for America and the West it뭩 a huge question—is whether there can be economic dominance without technology leadership.

Many economists would say no. "There is no other fundamental mover of economic development than science and technology," Columbia University professor Jeffrey Sachs has said. He notes that until the scientific revolution began in the 17th century, virtually everyone lived on the verge of subsistence. Three centuries of technology breakthroughs are the root of today뭩 abundance in the developed world, and those with a technological edge—America, Japan, and Western Europe—still have the highest standard of living.

So in a world economy that threatens to pull down American wages, the key to fighting back is maintaining technological superiority—continually creating high-value new jobs that workers in the rest of the world can뭪 do yet. What are the chances? A worrisome sign is that the brightest students from many Asian countries are staying home to get their Ph.D.s rather than coming to America, as they did in rising numbers until the mid-1990s. Those foreign Ph.D.s have been the driving force in scores of America뭩 most successful and innovative tech firms, but now we뭨e getting fewer of them, and other countries are getting more.

Perhaps worse, those who still come to America for their Ph.D.s—arguably the best of the best—are returning home in increasing numbers. In economies like China뭩 or India뭩, growing two or three times faster than America뭩, elite students see huge opportunities. Even foreign nationals well established in the U.S. are heading home. "Many of my friends are going back," says professor Godwin Wong of Berkeley뭩 Haas School of Business. "They뭨e leaving big corporate jobs here because they can make more money in China."

For the U.S. the loss of technology leadership could be historic. Without that advantage, there would be little to prevent living standards in the world뭩 interconnected economies from equilibrating. The rest of the world뭩 living standards would rise, and—at least in the near term—America뭩 would decline.

Combine all those trends and the picture isn뭪 encouraging for America. Though the U.S. is still the world뭩 biggest and strongest economy by far, many Americans, from hourly workers to CEOs, feel as if they뭨e getting sand kicked in their faces. They know they need some serious muscle building to match the other guys on the beach. And they뭨e remarkably agreed on how to do it.

The No. 1 policy prescription, almost regardless of whom you ask, comes down to one word: education. In an economy where technology leadership determines the winners, education trumps everything. That뭩 a problem for America. Our fourth-graders are among the world뭩 best in math and science, but by ninth grade they뭭e fallen way behind. As Bill Gates says, "This isn뭪 an accident or a flaw in the system; it is the system."

The good news is that we뭭e overhauled the system before. A century ago, as America changed from an agricultural to an industrial economy, something called the high school movement swept the country. City and town leaders realized that an eighth-grade education, which was all that most people got, was no longer enough. They built and staffed high schools but rejected the European model, which prepared a small minority of young people for college, opting instead to prepare a majority of young people for life and work. This was a revolutionary concept, and many European authorities thought it foolish. But as research by Harvard뭩 Claudia Goldin and Lawrence F. Katz has shown, by 1940, America was far and away the world뭩 best-educated nation, a critical element of its post뻎orld War II economic dominance.

We responded to a changing world again in 1958, after the USSR orbited Sputnik while our rockets kept blowing up on the launch pad. Congress passed the National Defense Education Act, which appropriated federal money for education in math, science, and foreign languages. It worked, along with America뭩 grass-roots response to the threat. We went to the moon, science and engineering became cool, even glamorous, and we gained a wide technology lead.

Now we need to revolutionize our schools again. As the world뭩 richest country, we certainly have the resources, but we seemingly lack the will, while many of our competitors are obsessed with education. In China it뭩 common for middle-school students to attend school from 7:30 a.m. to noon, then from 2 p.m. until 5, and again from 7 to 8:30 p.m. Contrast that with a nation where millions of parents are happy to let their kids spend hours hanging out at the mall or playing Grand Theft Auto on their Xbox or watching Pimp My Ride on MTV. To be sure, many upper-middle-class parents live in wealthy school districts with excellent schools, and they뭨e making private tutoring firms like Sylvan Learning Centers and Kumon into fast-growing businesses. But for most in the broad middle class or below, a top-notch K?2 education is a world away.

Evidence is mounting that the way to begin reform is for legislators to establish high standards for public schools and make the schools more accountable to parents. But even if that notion becomes a movement, it뭩 not clear that better education will guarantee U.S. economic dominance. If we could somehow get our high school math and science scores up to South Korean standards, which would be a gargantuan achievement, then by that measure we뭗 be as good as they are—but they뭗 still be cheaper.

A prescription urged just as widely is immigration reform. A critical element of America뭩 economic dominance has been its attraction for the world뭩 brightest, most ambitious people, but today뭩 immigration laws favor family reunification far above talent, intelligence, or credentials. If Albert Einstein wanted to move in today but had no U.S. relatives, he뭗 have to get in line behind thousands of poorly educated manual laborers who did. In a global economic competition, that policy seems crazy. John Doerr, the legendary Silicon Valley venture capitalist, recommends that every foreign student who gets a Ph.D. at a U.S. university should also get a green card (granting permanent residency) stapled to his or her diploma. But U.S. policy is moving in the opposite direction. The number of available H1-B visas, which allow highly qualified foreign workers to remain in the U.S. for up to six years, has been cut from 195,000 to just 65,000 a year, based on security concerns following 9/11.

U.S. spending on R&D will also have to increase if the country wants to remain technologically dominant. The Task Force on the Future of American Innovation, a group of academic societies, high-tech companies, and industry associations, concludes in a recent report that "the United States still leads the world in research and discovery, but our advantage is rapidly eroding, and our global competitors may soon overtake us." Aggregate R&D spending by six fast-growing economies (China, Ireland, Israel, Singapore, South Korea, Taiwan) is on track to exceed U.S. spending in a few years. Industrial R&D continues to increase, but 71% of that spending is on development, not the kind of basic research that created the transistor and the laser. Federal funding of research in the physical sciences has been declining as a percentage of GDP for 30 years. The Council on Competitiveness, consisting of CEOs, university presidents, and labor leaders, wants federal research spending increased substantially, to 1% of GDP—about $110 billion a year.

Incredible as it seems, America뭩 infotech infrastructure is no longer world-class. We rank only 12th globally in the number of broadband connections per 100 inhabitants. Look closer and the situation is even worse. South Korea is not only more wired (No. 1 globally) but its connections are far faster than ours and are available not just through wires but also through virtually every cellphone. And speaking of our cellphone infrastructure—please don뭪. Anyone who travels globally knows it뭩 awful by world standards.

Fixing all these problems would be a project of overwhelming proportions, yet it still might not make American workers competitive in today뭩 global labor market. The reason, again, is cost. American workers are enormously more expensive than their peers almost anywhere but in Western Europe. So they must confront what may be the most important question of their working lives: How can they be worth what they cost?

As increasing numbers of them find that they can뭪 be, at least in the short run, the result could be political upheaval. A return to protectionism is looming. When the end of global textile quotas earlier this year caused the rapid loss of 17,000 U.S. jobs—a tiny number in a nation of 141 million workers—the administration found a loophole in the trade treaty and quickly reimposed restrictions. Senator Charles Schumer (D-New York) introduced a bill to impose a 27.5% tariff on Chinese imports, and five Republican Senators signed on as co-sponsors. The Central America Free Trade Agreement, the impact of which would be minuscule in the U.S., is struggling to pass Congress. (No one in Washington seems to think NAFTA would stand a chance of approval today.)

If it all sounds terribly gloomy, it뭩 important to remember that gloominess has a very poor record in predicting the U.S. economy. Many traits that have helped us meet previous challenges are still with us: flexible labor markets, the world뭩 most highly developed capital markets, and a culture that moves on from failure and embraces new ideas. Companies aren뭪 standing still. Trilogy, a business software company in Austin, realized almost three years ago that hiring programmers in the U.S. no longer made sense because it could get them in India for one-fifth the cost. So it offered to help its U.S. coders learn higher-level work, becoming business experts who could help Trilogy customers make more money—for example, by showing Goodyear how to price tires more intelligently. As a general principle, learning higher-level work is what American workers have to do.

And exactly what work would that be? No one is sure, though history says not to panic. Economic crises rarely reveal their solutions, but the solutions usually come along. When U.S. business went through the trauma of restructuring in the 1980s, millions of middle managers got cashiered and wondered what they뭗 do next. Undreamed-of new industries developed (cellphones, biotech, Internet services), and by the mid-?0s the unemployment rate was the lowest in decades.

That뭩 history. It offers hope but no assurances. History says the rise of China, India, and other developing economies could someday lead to a new equilibrium that뭩 better for everyone. With resources deployed globally to their best use, prices could come down and living standards could eventually increase everywhere. After all, America뭩 rise didn뭪 impoverish Europe. On the contrary, the success of each continent helped the other get richer.

What happens next in the U.S. depends on how workers respond. Trilogy CEO Joe Liemandt recalls what happened when he told programmers he wouldn뭪 need them as programmers anymore: "We told them they could react in one of three ways. They could get really pissed, they could be in denial, or they could work with us to retool their skills. And we had people in each group."

It뭩 time for a massive, urgent American response to the global challenge. As Cisco chief John Chambers says flatly, "We are not competitive." Where to start? Venture capitalist John Doerr, one of America뭩 most passionate competitiveness campaigners, calls education "the largest and most screwed-up part of the American economy." He뭗 start there. GE chief Jeff Immelt has attacked America뭩 newly restrictive student visa rules. Others focus first on R&D spending or the broadband infrastructure. But the greatest challenge will be changing a culture that neither values education nor sacrifices the present for the future as much as it used to—or as much as our competitors do. And you뭗 better believe that American business has a role to play—after years of dot-com-bust- and scandal-driven reticence, more corporate leaders need to summon the courage to lead.

While optimism has always been the best guide to predicting the U.S. economy, today뭩 situation is unprecedented. Global product markets have been with us forever and continue to expand. Global capital markets are still developing—watch out, Unocal and Maytag. But global labor markets on a broad scale are a new phenomenon that could, for better or worse, transform the country. How we respond—in our businesses, our government, and our culture—will shape America in the deepest way.


http://www.fortune.com/fortune/subs/...081269,00.html

Fibonacci

Cliff's Notes:

Silver™

The World Is Still Round:

Yes, some engineering jobs and data centers have moved to India and China. More will go. But the process isn't endless and can be exaggerated.

One of the unheralded contrasts of our time is this: everywhere we see the increasingly powerful effects of globalization; and yet, the single most important reality for the economic well-being of most people is their nationality. The idea that we're all being swept along by the impersonal forces of globalization seems intuitively logical and instinctively menacing. The older and less-noticed truth is that the nation usually remains, for better or worse, the decisive force in determining the economic condition of its citizens.

The United States, Europe and Japan offer an object lesson. All face, generally speaking, the same opportunities and threats from globalization. But results vary dramatically. Since 1995, American economic growth has averaged 3.3 percent; Europe's, 2 percent, and Japan's, 1.3 percent. (Europe refers to the 12 countries using the euro.) Even within Europe, stark contrasts emerge. Ireland's growth averaged 7.9 percent over the decade; Germany's, 1.3 percent. Somehow, national policies, culture and business overshadow globalization. Why? It's not because globalization is a myth. In his highly readable and informative book "The World Is Flat," New York Times columnist Thomas Friedman describes an economic system of transnational supply chains, foreign "outsourcing" of services and intensifying international competition. He asks Dell Computer to describe geographically how his laptop was made. Here's the abbreviated answer: engineers in Texas and Taiwan codesigned it; the microprocessor came from one of Intel's factories in the Philippines, Costa Rica, Malaysia or China; memory came from Korean, German, Taiwanese or Japanese firms with factories in their countries; other components (keyboard, hard-disk drive, batteries, etc.) came from U.S., Japanese, Taiwanese, Irish, Israeli and British firms with factories mainly in Asia; the laptop was assembled in Taiwan.

What Friedman means by "the world is flat'' is that everyone increasingly competes with everyone else on everything. Adam Smith famously wrote that "the division of labor is limited by the extent of the market''—meaning that larger markets spawn more specialization. Now markets seem universal; national borders seem to crumble. The Internet is a global auction block. Someone mistakes me for a business, so I receive occasional e-mails from Asian and U.S. Web sites to buy industrial goods. Last week it was forklifts.

But, of course, the world is not flat. Borders, though battered, survive and have economic meaning. National markets do exist. One big difference is their vigor in creating local demand and jobs. Europe's sluggishness may reflect more than high taxes and restrictive regulations. Some Europeans blame attitudes: because Europeans fear the future more than Americans, it's said, they spend less and save more. Even if the argument is wrong, the larger point is right: national markets are defined by psychology, as well as politics.

It's easy to exaggerate globalization. Yes, some computer, software and engineering jobs have already moved to India, China and other low-cost countries. More will follow. But the process is limited. The McKinsey Global Institute says that 750,000 American service jobs have been "offshored'' out of total U.S. jobs of about 140 million. Perhaps 9 percent of U.S. service jobs might theoretically migrate abroad, McKinsey says, but "it is unlikely that all these ... jobs will move offshore over the next 30 years.'' There are practical obstacles: language differences; management resistance; computer incompatibilities. Similarly, it's easy to overrate trade's impact on factory jobs. A study by economists Martin Baily of McKinsey and Robert Lawrence of Harvard attributes roughly 90 percent of manufacturing's recent job losses to domestic forces.

Localization usually trumps globalization, though countries seem to succeed more when they encourage globalization. In 1990, per capita incomes in Ireland were 28 percent lower than in Germany, reports the Organization for Economic Cooperation and Development; in 2004, the Irish were 26 percent higher. One reason that Ireland grew faster is that it eagerly welcomed foreign investment. Half of Ireland's manufacturing employment comes from foreign multinationals compared with Germany's 6 percent, says the OECD.

The real question about globalization is whether all these nations—each with its own psychology and each pursuing its self-interest—can fashion a system that works for everyone. If too many national economies are weak, then the global economy will be weak. If too many countries try to manipulate the system for their advantage, then the global economy may become unstable or succumb to mutual suspicions. These threats already exist. Europe and Japan are weak; many Asian countries (including China) strive for permanent trade surpluses through undervalued currencies.

Globalization is not preordained to advance inexorably, driven by constant improvements in communications and transportation. It's vulnerable to economic and political setbacks. The irony is that its fate rests heavily on the behavior of that old-fashioned creature—the nation state.

http://msnbc.msn.com/id/8597625/site/newsweek/

Silver™

The belief that a process of globalization is underway which is bringing about a fundamental change in human affairs is not new. Marx and Engels expressed it in 1848, when they wrote in a justly celebrated passage in The Communist Manifesto:
Marx and Engels had no doubt that they were witnessing the emergence of a global market—a worldwide system of production and consumption that disregarded national and cultural boundaries. They welcomed this development, not only for the increasing wealth it produced but also because they believed it enabled humanity to overcome the divisions of the past. In the global marketplace nationalism and religion were destined to be dwindling forces. There would be many convulsions—wars, revolutions, and counterrevolutions—before the Communist order was securely established; but when global capitalism had completed its work a new era in the life of humankind would begin.

The centrally planned economies that were constructed to embody Marx's vision of communism have nearly all been swept away, and the mass political movements that Marxism once inspired are no more. Yet Marx's view of globalization lives on, and nowhere more vigorously than in the writings of Thomas Friedman. Like Marx, Friedman believes that globalization is in the end compatible with only one economic system; and like Marx he believes that this sys-tem enables humanity to leave war, tyranny, and poverty behind. To his credit Friedman recognizes the parallels between his view and that of Marx. He cites an illuminating conversation at Harvard in which the communitarian political theorist Michael Sandel alerted him to the fact that the process of global "flattening" he examines in his new book was first identified by Marx, quoting at length from The Communist Manifesto—including the passage cited above—and praising Marx for his prescience. This acknowledgment of the parallels between his view of globalization and Marx's theory of history is welcome and useful.

Friedman has emerged as the most powerful contemporary publicist of neoliberal ideas. Neoliberals have a wide variety of views on political and social matters, ranging from the highly conservative standpoint of Friedrich Hayek to the more rigorously libertarian position of Milton Friedman; but they are at one in seeing the free market as the fountainhead of human freedom. Though in some of his writings he shows a concern for the casualties of deregulated markets, Thomas Friedman is a passionate missionary for this neoliberal faith. In his view the free market brings with it most of the ingredients that make for a free and humanly fulfilling society, and he has propagated this creed indefatigably in his books and in columns in The New York Times.

Friedman's views have been highly influential, shaping the thinking of presidents and informing American policy on a number of issues, and it may be instructive to note the matters in which he shares Marx's blind spots. Because they were on opposite sides of the cold war it is often assumed that neoliberalism and Marxism are fundamentally antagonistic systems of ideas. In fact they belong to the same style of thinking, and share many of the same disabling limitations. For Marxists and neoliberals alike it is technological advance that fuels economic development, and economic forces that shape society. Politics and culture are secondary phenomena, sometimes capable of retarding human progress; but in the last analysis they cannot prevail against advancing technology and growing productivity.

Friedman is unequivocal in endorsing this reductive philosophy. He writes that he is often asked if he is a technological determinist, and with the innocent enthusiasm that is a redeeming feature of his prose style he declares resoundingly: "This is a legitimate question, so let me try to answer it directly: I am a technological determinist! Guilty as charged." (The italics are Friedman's.)

Technological determinism may contain a kernel of truth but it suggests a misleadingly simple view of history. This is well illustrated in Friedman's account of the demise of the Soviet Union. Acknowledging that there "was no single cause," he goes on:
What is striking in this otherwise unexceptionable list is what it leaves out. There is no mention of the role of Solidarity and the Catholic Church in making Poland the first post-Communist country, or of the powerful independence movements that developed in the Baltic nations during the Eighties. Most strikingly, there is no mention of the war in Afghanistan. By any account strategic defeat at the hands of Western-armed Islamist forces in that country (including some that formed the organization which was later to become al-Qaeda) was a defining moment in the decline of Soviet power. If Friedman ignores these events, it may be because they attest to the persistent power of religion and nationalism— forces that in his simple, deterministic worldview should be withering away.

It is an irony of history that a view of the world falsified by the Communist collapse should have been adopted, in some of its most misleading aspects, by the victors in the cold war. Neoliberals, such as Friedman, have reproduced the weakest features of Marx's thought—its consistent underestimation of nationalist and religious movements and its unidirectional view of history. They have failed to absorb Marx's insights into the anarchic and self-destructive qualities of capitalism. Marx viewed the unfettered market as a revolutionary force, and understood that its expansion throughout the world was bound to be disruptive and violent. As capitalism spreads, it turns society upside down, destroying entire industries, ways of life, and regimes. This can hardly be expected to be a peaceful process, and in fact it has been accompanied by major conflicts and social upheavals. The expansion of European capitalism in the nineteenth century involved the Opium Wars, genocide in the Belgian Congo, the Great Game in Central Asia, and many other forms of imperial conquest and rivalry. The seeming triumph of global capitalism at the end of the twentieth century followed two world wars, the cold war, and savage neocolonial conflicts.

Over the past two hundred years, the spread of capitalism and industrialization has gone hand in hand with war and revolution. It is a fact that would not have surprised Marx. Why do Friedman and other neoliberals believe things will be any different in the twenty-first century? Part of the answer lies in an ambiguity in the idea of globalization. In current discussion two different notions are commonly conflated: the belief that we are living in a period of rapid and continuous technological innovation, which has the effect of linking up events and activities throughout the world more widely and quickly than before; and the belief that this process is leading to a single worldwide economic system. The first is an empirical proposition and plainly true, the second a groundless ideological assertion. Like Marx, Friedman elides the two.

In The World Is Flat, Friedman tells us that globalization has three phases: the first from 1492 to around 1800, in which countries and governments opened up trade with the New World and which was driven by military expansion and the amount of horse-power and wind power countries could employ; the second from 1800 to 2000, in which global integration was driven by multinational companies, steam engines, and railways; and the third, in which individuals are the driving force and the defining technology is a worldwide fiber-optic network. In each of these phases, he tells us, technology is the driving force: globalization is a byproduct of technologi-cal development. Here Friedman deviates from the standard view among contemporary economists, who see globalization largely as the result of policies of deregulation. Here he is closer to Marx—and to the realities of history.

In any longer perspective what we are witnessing today is only the most recent phase of worldwide industrialization. In the nineteenth century the world was shrunk by the advent of the telegraph; today it is shrinking again as a consequence of the Internet. Contrary to Friedman, however, the increasing facility of communication does not signify a quantum shift in human affairs. The uses of petroleum and electricity changed human life more deeply than any of the new information technologies have done. Even so, they did not end war and tyranny and usher in a new era of peace and plenty. Like other technological innovations, they were used for a variety of purposes, and became part of the normal conflicts of history.

It is necessary to distinguish between globalization—the ongoing process of worldwide industrialization—and the various economic systems in which this process has occurred. Globalization did not stop when Lenin came to power in Russia. It went on—actively accelerated by Stalin's policies of agricultural collectivization. Nor was globalization in any way slowed by the dirigiste regimes that developed in Asia —first in Japan in the Meiji era and later in the militarist period, then after World War II in Korea and Taiwan. All these regimes were vehicles through which globalization continued its advance. Worldwide industrialization continued when the liberal international economic order fell apart after World War I, and it will carry on if the global economic regime that was established after the fall of communism falls apart in its turn.

There is no systematic connection between globalization and the free market. It is no more essentially friendly to liberal capitalism than to central planning or East Asian dirigisme. Driven by technological changes that occur in many regimes, the process of globalization is more powerful than any of them. This is a truth that Friedman—as an avowed technological determinist—should accept readily enough. If he does not, it is because it shows how baseless are the utopian hopes he attaches to a process that abounds in conflicts and contradictions. Globalization makes the world smaller. It may also make it—or sections of it—richer. It does not make it more peaceful, or more liberal. Least of all does it make it flat.

Friedman's by now famous discovery of the world's flatness came to him when he was talking to Nandan Nilekani, CEO of one of India's leading new high-technology companies, Infosys Technologies, at its campus in Bangalore. The Indian entrepreneur remarked to Friedman: "Tom, the playing field is being leveled." The observation is commonplace, but it hit Friedman with the force of a revelation. "What Nandan is saying, I thought, is that the playing field is being flattened.... Flattened? Flattened? My God, he's telling me the world is flat!" Five hundred years ago, Columbus "returned safely to prove definitively that the world was round." As a matter of fact it was not Columbus who provided the proof but the Portuguese navigator Ferdinand Magellan, whose ship circled the globe in a three-year voyage from 1519 to 1522. Regardless, Friedman sees himself as a latter-day Columbus who has discovered that the world is no longer round: "I scribbled four words down in my notebook: 'The world is flat.'"

The metaphor of a flat world is worked relentlessly throughout this overlong book, but it is not its incessant repetition that is most troublesome. It is Friedman's failure to recognize that in many ways, some of them not difficult to observe, the world is becoming distinctly less flat. While he acknowledges the existence of an "unflat" world composed of people without access to the benefits of new technology, he never connects the growth of this netherworld of the relatively poor with the advance of globalization. At times his failure to connect is almost comic. Recalling his visit to the Infosys headquarters in Bangalore, Friedman writes:
Friedman notes in passing that the Infosys campus has its own power supply. He does not ask why this is necessary, or comment on the widening difference in standards of life in the region that it represents. Yet it is only by decoupling itself from its local environment that Infosys is able to compete effectively in global markets. Infosys demonstrates that globalization does have the effect of leveling some inequalities in world markets, but the success of the company has been achieved by using services and infrastructure that the society around it lacks.

As it levels some inequalities, globalization raises others. Friedman tells us that he is in favor of what he calls "compassionate flatism," which seems to mean a range of centrist or social-democratic policies designed to enhance job mobility while preserving economic security, such as portable personal pensions. In an American setting these may be useful proposals, and it is strange that in the countries that have been most exposed to the disruptive effects of globalization Friedman appears to favor neoliberal policies of the most conventional kind. He describes the fall of the Berlin Wall as a "world-flattening event," and cites Russia as one of the countries that has most benefited from the new flat world.

There can be no doubt that the Soviet collapse represented an advance for human freedom. Yet since then Russia has suffered rising levels of absolute poverty and large increases in inequality of wealth, and it seems clear that the economic "shock therapy" administered on Western advice just after the Communist collapse contributed to these developments. Price decontrol wiped out small family savings, and by limiting the benefits of privatizing government industries to a small number of insiders produced a marked concentration of wealth. As a result, large parts of the Russian population have been excluded from the benefits of the global market. Other policies could likely have avoided or mitigated this outcome.

In view of the Soviet inheritance, the process of transition was bound to be prolonged and difficult. Attempting it in the space of a few years was folly, and shock therapy resulted in the impoverishment of many millions of people. It also fueled a backlash against the West. Socioeconomic change on the scale that occurred in post-Communist Russia tends to produce a political aftershock, and the emergence of Vladimir Putin can be seen as an unintended consequence of Western-sponsored free market policies. In some contexts free market policies continue, but Putin has reasserted political control of the economy as a whole, reined in the political activities of the oligarchs, and demonstrated a degree of independence from Western influences. As a result his quasi-authoritarian regime seems to possess a popular legitimacy that Yeltsin's lacked, and there is no discernible prospect of Western-style "democratic capitalism."

Globalization has no inherent tendency to promote the free market or liberal democracy. Neither does it augur an end to nationalism or great-power rivalries. Describing a long conversation with the CEO of a small Indian game company in Bangalore, Friedman recounts the entrepreneur concluding: "India is going to be a superpower and we are going to rule." Friedman replies: "Rule whom?" Friedman's response suggests that the present phase of globalization is tending to make imbalances of power between states irrelevant. In fact what it is doing is creating new great powers, and this is one of the reasons it has been embraced in China and India.

Neoliberals interpret globalization as being driven by a search for greater productivity, and view nationalism as a kind of cultural backwardness that acts mainly to slow this process. Yet the economic takeoff in both England and the US occurred against the background of a strong sense of nationality, and nationalist resistance to Western power was a powerful stimulus of economic development in Meiji Japan.

Nationalism fueled the rapid growth of capitalism in the nineteenth and early twentieth centuries,[2] and is doing the same in China and India at the present time. In both countries globalization is being embraced not only because of the prosperity it makes possible, but also for the opportunity it creates to challenge Western hegemony. As China and India become great powers they will demand recognition of their distinctive cultures and values, and international institutions will have to be reshaped to reflect the legitimacy of a variety of economic and political models. At that point the universal claims of the United States and other Western nations will be fundamentally challenged, and the global balance of power will shift.

In The Lexus and the Olive Tree (1999), Friedman focused on the tension between the "Lexus" forces of global economic integration and the "Olive Tree" forces of cultural identity, and in The World Is Flat he tells us that after September 11 he spent much of his time traveling in the Arab and Muslim worlds and lost track of globalization. Actually it was not globalization he lost sight of but rather the forces of identity that shape it. Friedman writes that the nation-state is "the biggest source of friction" in global markets. In fact nationalist resistance to globalization is more prominent in advanced countries such as France, Holland, and the US than in emerging economies. Friedman himself expresses concern about the impact of outsourcing on American employment, and there has been a steady drift toward greater protectionism in the Bush administration's trade policies. American nationalism may already be acting as a brake on globalization. In the fast-industrializing countries of Asia, nationalism is one of globalization's driving forces.

Rising nationalism is part of the process of globalization, and so too are intensifying geopolitical rivalries. Just as it did when the Great Game was played out in the decades leading up to the First World War, ongoing industrialization is setting off a scramble for natural resources. The US, Russia, China, India, Japan, and the countries of the European Union are all of them involved in attempts to secure energy supplies, and their field of competition ranges from Central Asia through the Persian Gulf to Africa and parts of Latin America. The coming century could be marked by recurrent resource wars, as the great powers struggle for control of the planet's hydrocarbons.[3]

Moreover, worldwide industrialization appears to be coming up against serious environmental limits. An increasing number of expert observers believe global oil reserves may be peaking,[4] and there is a consensus among climate scientists that the worldwide shift to an energy-intensive industrial lifestyle is contributing to global warming. If these fears are well founded the next phase of globalization could encompass upheavals as large as any in the twentieth century.

It would be wrong to suggest that Friedman is oblivious of these risks. In an interesting aside, he writes:
Again, Friedman recognizes that many of the innovations of the current phase of globalization are reproduced in al-Qaeda. In the past two decades some of the most advanced global corporations have ceased to be top-heavy bureaucracies, and become streamlined networks of entrepreneurs and venture capitalists. Al-Qaeda has emulated this change, operating as a network of autonomous cells rather than the highly centralized organizations of revolutionary parties in the past. Perhaps most interestingly, Friedman acknowledges that America's dependency on imported oil exposes it to attack, and urges American energy independence:
Friedman's advocacy of American energy independence illustrates the error of a unidirectional view of history. Energy autarchy may be a sensible policy, but it signifies a retreat from globalization. The Lexus and the Olive Tree trumpeted the arrival of a harmoniously integrated world. Since then the US has suffered terrorist attack and become mired in an intractable insurgency in Iraq. Against this background the prospect of severing one of the crucial supply chains that link the US with the world is beginning to look extremely tempting. As he has done in previous books Friedman has expressed a powerful larger mood, and in this respect The World Is Flat may prove a prescient guide to future American policy.

Yet while greater energy independence may be an American national interest the notion that it would force recalcitrant countries onto a path of neoliberal reform is wishful thinking. A large drop in the oil price would surely destabilize the rentier economies of the Gulf and Central Asia, from Saudi Arabia to Turkmenistan, and in some countries could lead to the establishment of democratic rule. However, in a number of cases the chief beneficiary would likely be fundamentalism. Does Friedman really believe that democracy in Saudi Arabia would produce a liberal, pro-Western regime? In this and other countries, American energy independence could well further the advance of radical Islam.

As it has done in the past, globalization is throwing up dilemmas that have no satisfactory solution. That does not mean they cannot be more or less intelligently managed, but what is needed is the opposite of the utopian imagination. In a curious twist, the utopian mind has migrated from left to right, and from the academy to the airport bookshop. In the nineteenth century it was political activists and radical social theorists such as Marx who held out the promise that new technology was creating a new world. Today some business gurus have a similar message. There are many books announcing a global economic transformation and suggesting that governments can be reengineered to adapt to it in much the same way as corporations. The World Is Flat is an outstanding example of this genre.

Unfortunately the problems of globalization are more intractable than those of corporate life. States cannot be phased out like bankrupt firms, and large shifts in wealth and power tend to be fiercely contested. Globalization is a revolutionary change, but it is also a continuation of the conflicts of the past. In some important respects it is leveling the playing field, as Friedman's Indian interlocutor noted, and to that extent it is a force for human advance. At the same time it is inflaming nationalist and religious passions and triggering a struggle for natural resources. In Friedman's sub-Marxian, neoliberal worldview these conflicts are recognized only as forms of friction —grit in the workings of an unstoppable machine. In truth they are integral to the process itself, whose future course cannot be known. We would be better off accepting this fact, and doing what we can to cope with it.

http://www.nybooks.com/articles/18154

Fibonacci

Globalization (2005)
Ever Buoyant Roman Empire: Re-emerging Europe in Post-Globalization
James Leigh, FRGS
Intercollege (University College)
Cyprus

Abstract
History has taught us that the resilient European Empire suffers from continued bouts of necrophania (seeming or apparent death), only to be revitalized incessantly by both the civilization’s religion and politics, often working in tandem as church and state. In this paper, from the lessons of history, we take a broad cross-section of economic, political, population and military indicators to see where contemporary Europe (particularly as led by the top 4 countries of the continent) has come from, and how it shapes up today, to see where it may be heading in the new world context of post-globalization, with competing continental-sized civilizational superpowers.

Introduction
Throughout history empires and their civilizations have come and gone. However, Europe as a unique civilization (and reoccurring empire) which has stood the test of time, and with incredible death-defying resilience, survived all war and peril to this modern era. From this background, it may be that the European Union, as propelled progressively forward by its leading nations, will take up a role and position in the present emerging post-globalization world of superpowers in rivalry.

Therefore, in this paper, we ask the question: As the winds of change blow, from the bellows of fate, are we about to see the smiths of Europe, strike the anvil of history to forge the newly tempered Europe, all in the heat of intercontinental crises, of the newly forming multipolar world with competing superpowers?

Rise and Fall of Empires
A retrospective view of the world, delving into its history, reveals that major superpowers in various epochs have wielded international power and influence. In the western world we often hear of the vast and past world empires (Wallerstein, 1987) like Babylon, Persia, Greece and Rome acting as forerunners of more recent kingdoms, empires or nations like Europe and the Anglo Saxon world. In this recent western historical landscape, for example, we have seen Napoleon’s Empire, the British Empire, the Third Reich and the United States of America.

This rise and fall of various hegemonic political configurations develop a drama, often written in blood, of the ebb and flow in the sea of human history. These historical tidal waves have given rise to the successive life and death, of often conflicting world powers. We have even been stunned witnesses to the dramatic collapse of what was “the world’s only other superpower” towards the close of the 20th century - the Soviet Union. Conversely, in 1989 the world watched their TVs in awe as the Berlin Wall fell in a prelude to the reunification of Germany to become Europe’s population, economic and political heavyweight.

With the collapse of the Soviet Union leaving the world with one superpower, and the resurrection of the German Phoenix within the European Union (EU), do we now see an array of eager nations waiting as reserves ring-side (to take up the slack, or fill the geopolitical vacuum), for their time and chance, to join the fray of looming superpowers in the making - for example, The EU; Pan-Arabia; and China, Japan and India. Of course any jockeying for advantage would be further facilitated if the USA falls from what was once, and briefly, its unrivalled economic and military hegemonic apex.

The European Empire
However, in this successive life and death of world powers over thousands of years, a fascinating and absolutely unique political configuration continues to reappear. This major empire of history refuses to be consumed in rigor mortis to extinction, but only falls into the seeming or apparent death of necrophania waiting for revitalization, to incessantly reappear in its geographic homeland of Europe, over and over again for the last two millennia.

This empire has typically comprised of a set of regions locally ruled by governors, viceroys or client kings in the name of a political primate. Traditionally this European empire, as a multi-ethnic state, was ruled from a single center. Like other political entities, it maintanied its political structure at least partly by coercion (Empire, 2005).

Even though Edward Gibbon’s classic history book (2003) talks of the decline and fall of the Roman Empire, this Empire has had continual and successive revitalization, even after several bouts of necrophania. This life and (apparent) death cycle, repeated many times during the last two thousand years, reveals that the idea of a unified Europe, as presently promulgated in the European Union (EU), is a vintage reoccurring concept, not a new 20th century idea, but two thousand years old.

Additional highlights, in visual form, of two of the many successive historical waves of the European Empire’s expansion, are shown in the following maps, which depict the extent of the Roman Empire in two previous periods of history.




Further, the study of history shows that Europe in its successive rounds of the revived Roman Empire eventually led to the Vatican and Roman Empire coalition which has continued to give life to the Holy Roman Empire since the coming of the dark cloud of the Middle Ages. As H. G. Wells says, “The Roman Empire [throughout centuries of history] staggers, sprawls and is thrust off the stage, and reappears, and – if we may carry the image one step further – it is the Church of Rome which plays the part of the magician and keeps the corpse alive” (1924).

The European leaders know the basis of contemporary Europe can be found in the antiquities of history dating from the beginning of the Holy Roman Empire. In 1989, Dr. Otto von Habsburg, once heir to the Austro-Hungarian throne, claimed as a member of the European Parliament that, “Europe is living largely by the heritage of the Holy Roman Empire, though the great majority ... [don’t] know it.” He stressed how the “religious and Christian element” plays “an absolutely decisive role” in Europe’s heritage. Stephen Hasler, in like mind declared, that the “Franco-German ‘Core Europe’ - ‘Charlemagna’ [from Charlemagne of the Medieval Holy Roman Empire] - is back in business. ... Franco-Germany virtually amounts to a superpower ...” (Hasler, 2004).

The late and previous Pope, John Paul II, echoed similar sentiment when he made the following far-reaching comment:

[Concerning the] history of the formation of the European nations ... [and Europe’s] future destiny ... [plus] ... the European identity, [they are] not understandable without Christianity, and that precisely in Christianity are found those common roots by which the continent has seen its civilization mature: its culture, its dynamism, its activity, its capacity for constructive expansion in other continents as well; in a word, all that makes up its glory. .... Today still, the soul of Europe remains united, because, beyond its common origin, it has similar Christian and human values ... (Pope John Paul II, 1982, p. 6)
Pope Benedict XVI, the newly elected Christian primate, is not an unknown figure, but has a well established and rightfully earned reputation as a brilliant intellectual theologian who has justified the hard-line approach of the Holy See in rejection of the “tyranny of relativism” and liberalism which he finds deficient, as they have no universals or absolutes. Benedict XVI’s cues to where the (Roman) church (and Europe) should go, is basically to look at where it has been, and then to move from that as an anchor point.

Benedict’s comments in his latest book, just released, “Values in Times of Upheaval” (Ratzinger, 2005), are a telling declaration for the European Union and with what identity and orientation it is destined to line up with in the unfolding world. His book is built around the idea that it is only the (Roman) Christian civilization that can give birth to a new morally and spiritually healthy and vibrant Europe. In this book Benedict argues that Europe must reclaim its Christian heritage and he writes, “In order to survive, Europe needs a critical acceptance of its [Roman] Christian culture” (Wilkinson and Boudreaux, 2005). Indeed Benedict writes further,

Europe needs to accept itself anew ... if it is to survive .... In the hour of its greatest success, Europe seems to have become empty inside, paralyzed by a life-threatening crisis to its health [from a low birth rate] and dependant on transplants [of immigrant labor] ... Christians should see themselves as a creative minority ...” to revive the best of Europe’s Christian heritage (Ratzinger, 2005; Henegan, 2005).
Benedict’s views are unequivocal, and he is adamant that the revived spirit of Christianity must be far from liberalism or modernism with their liberation theology, women priests, rampant divorce, homosexuality, birth control, abortion, pluralism, multiculturalism, and research involving fetal cells and cloning (Gibbs, 2005, p. 22). For this Pope, reality lies in continuity - Christianity as it has already been “revealed” to Rome, and there may be a Vatican apparent emphasis on human rights, but at the theological and doctrinal levels, there would appear to be no room for apostates or infidels, be they individuals, and time will tell if this even applies to civilizations.

For example, Benedict has previously been unequivocal in outspoken “opposition to Turkey’s joining the European Union on the grounds that a country of 68 million Muslims would dilute Western Europe’s Christian heritage” (Gibbs, 2005, p. 21).

This Pope has said that “Muslim but secular Turkey should seek its future in an association of Islamic nations rather than the EU, which has Christian roots. In an interview last year for France’s Le Figaro Magazine, [before becoming the present Pope] Ratzinger, then doctrinal head of the Roman Catholic Church, said Turkey had always been ‘in permanent contrast to Europe’ and that linking it to Europe would be a mistake. .... The centrist Milliyet [Turkish newspaper] described Ratzinger as ‘one of the fathers of the concept for offering Turkey a privileged partnership’ instead of EU membership. German and French conservatives also favor ‘a privileged partnership’ for Turkey falling well short of full membership. [However,] Ankara, which is due to start entry talks with the EU on Oct. 3 [2005], says it is interested only in membership. .... [Commentator Selcuk Gultalsi has said] ‘At a time of rising opposition against Turkey’s EU membership in countries like France, Austria, Denmark and the Netherlands, the Vatican joining this opposition would send a wrong message not only to Turks but also to Muslims. .... Undoubtedly, the EU is a secular union ... but despite this secularity the Vatican’s influence should not be underestimated’” (Reuters, 2005).

Whatever route Pope Benedict XVI takes, religiously and politically, will have profound effects on Europe’s particular remix of classical (Roman) church and state, the European Union’s relations with the rest of the world, and particularly with the “infidel” PanArab Islamic and Asian civilizations.

Historically therefore, this European civilization has been dependent on, and buoyed up in its identity and actions - emboldened as a bulwark against other non-Catholic and non-Christian peoples, but namely the Islamic civilization. Thus, under the pall of the middle ages, swathes of the European continent, as defined by their civilization rooted in Western Christendom of the Holy Roman Empire, largely influenced or backed up by the Vatican, have developed their identity as an opposing “righteous” force against heretical peoples (other Christian and Judaic peoples) and the younger but vigorous civilization of Islam, and from there the civilization in Europe has remained anchored.

Specifically, this European identity was fanned by several successive medieval crusades. Interestingly, for these crusades - the Christian version of Islamic jihad or holy war (Lewis, 2004, p. 31), the most apparently significant and exotic threat to Christian Europe was potentially, or in reality, from the Islamic civilization of the Middle East and North Africa. Even though the typical focal and clash point of this conflict was Jerusalem in the Holy Land of the Palestine region, there have, at times, been significant incursions of Islam into Europe, across the South and East, and the Balkans, as far as Vienna (as with the Ottoman empire), and also well into the Iberian Peninsula. More specifically, Bernard Lewis (2002, pp. 4, 5) gives a panoramic view over the hundreds of years of Islamic incursions into Europe which spearheaded into Spain, Portugal, France, Italy, and the Balkans.




Post-Globalization
Not unexpectedly, we are now, some would argue, in a post-globalization era as the one potential world of globalization increasingly fragments into civilizational superpowers. If the sun is indeed setting over globalization, we will begin to see the competing centripetal forces, within the world’s major civilizations (with their corresponding ethnicity and religion), draw their peoples together into a multi-fronted intercontinental arena of competition and rivalry.

Such a world reveals that the proponents of globalization have not been able to successfully realize its objectives, to bring the world together under one economically infrastructured system, leading initially to international political and cultural acceptance, as the first phase of bringing the world together into an harmoniously interconnected poltical and cultural interactive web, all built upon economic integration from one universal free market.

Samuel Huntington (1996), of Harvard University, supports the idea of an emerging fragmented world, and argues that there is a great likelihood for intercultural and inter-religious conflict between future world powers, each united from within through culture and religion, in a multi-polar world. He rejects the idea that the world will easily succumb to Western globalizing forces which have been mounted to displace the interests of both Eastern and Islamic peoples. However, these non-Western peoples may aggressively pursue their interests through their newly emerging international power blocs.

Swartz (2001) comments in relation to Huntington’s book:

The great divisions among humankind and the dominating source of conflict will be cultural. [T]he principal conflicts of global politics will occur between nations and groups of different civilizations. The clash of civilizations will be the battle lines of the future.
A chilling comment, which highlights the rivalry of potential enemies, at least partly accruing from globalization, was made by German political theorist Carl Schmitt. He said that the Cold War was a world of obvious friends and enemies, but the globalized world, by contrast, tends to turn all friends into enemies or competitors. Elaborating further Friedman declares, "...[in] globalization politics...[you] still have to worry about the threats coming from nation-states you are divided from – Iraq, Iran, North Korea. [Moreover increasingly] you have to be concerned with threats coming from those to whom you are connected" in the globalization process (2000, pp. 12, 269).

If this is indeed a post-global world with the legacy of that brief and now waning era, are we entering into the relationships of enemies and competitors which, as Schmitt suggests, were fostered by globalization? In such an unfolding world arena where could we expect to see the newly revived Europe, in the guise of the EU, settle in the geopolitics of a newly emerging world? Will this be a world of intercontinental schisms with civilizational superpowers, in which the real prospect of Huntington’s clash of civilizations (1996), with ubiquitous mass-destruction weapons, becomes the greatest threat to mankind?

Factual Focus on Europe
In this prospective, uncertain and anxious fractured multipolar world context, presenting a potentially ominous epoch, let us take stock of what inherent vitality, and international clout would be expected of the European civilization.

The following tables show select and comparative economic, political, and population data for the EU. This broad-scale cross-sectional view shows that, by any standards, the EU has arisen to be a significant player on the world scene.

Across this data in the first table, it is obvious that economic strength, military expenditure and exports value, are firmly entrenched in the top 4: Germany, France, UK and Italy. However, these heavyweight positions must not blind us to the vulnerabilities of the top 4 nations specifically, and the EU generally. Particularly in the areas of public debt and energy resource deficiency, Europe along with the top 4 are not so well off.

The combined economies of these top 4 countries (with Germany assuming number one rank) account for a massive US$ 7.5 trillion or 63% of the EU economy. The total EU economy in turn has surmounted the output of the USA, which has been for decades, by far, the number one world economy. These figures upon casual observation may mask the considerable public debt in these top 4 which averaged in 2003 a high 72.5% of their GDP, substantially more than the already excessive corresponding percentage in the USA. So while the GDP of the EU is impressive, underlying weakness is built in with overexposed levels of public debt.

Another factor that should be considered when viewing the EU is that it is generally deficient in resources and very much so in energy resources like oil and gas. These are absolutely vital (at low prices) for any continued economic development (McDonald, 1997, pp. 17, 168-170). This deficiency among the top 4 (except the UK) shows that these 3 nations are at the mercy of the continued cheap supplies of energy resources from international sources. For example, in 2001, three of the top 4 countries amounted to 59% of the level of EU deficit in the oil exports/imports balance.

However, the 2003 current account balance of the top 4 was overall in the black, even though the UK and Italy were the two main detractors from a good show in Germany and France. From a broader perspective, it is interesting to note, although not unexpected, that the EU in 2003 also had a minimally negative current account balance, presenting only a tinge of warning to the Euro economy. This was a much better showing, and confidence builder, of only US$ 36.8 billion in the red, than that of the USA, which had a debilitating current account deficit of over US$ 541.8 billion dollars.

In the area of military expenditure for 2003, it appeared that the EU top 4, with 2.0% of GDP spent on the military, were lagging behind in the development of this sector, at least when compared to the USA, with 3.3% of GDP spent on the military. Overall military spending as a percentage of GDP, for the fifteen EU nations of 2003, managed to hover above half of the US figure (von Wogau, 2004). However, we should not lose sight of the fact that France, the UK and Germany, in absolute numbers of Euros, do spend impressively for military activities and acquisitions.

For example, the European Aeronautic Defence and Space Company (EADS) group is involved in various high status and strategically important aviation, space and military activities and projects. Under this umbrella EADS develops software, systems and machinery, some of which it makes available for sale in international markets. The following make up a representative list of what EADS is already involved in: Airbus aircraft, Eurofighter, Eurocopter, military transport aircraft, space technology and craft, satellites, missiles, and defence and security systems (EADS, 2005). This is beginning to be an impressive array of “civilian” and military technology befitting the emerging military infrastructure of a prospective superpower.

Further, it must be noted here that the giant’s share of additional high expenditure in the military arena for Europe has been taken up by the USA for decades in the post World War Two era. For example, in the Balkan wars of the 1990’s the brunt of the cost and action was borne by the United States, even though some would argue that these wars were mainly fought on behalf of Europe.

In support of the idea that the Americans have in actual fact been supporting and subsidizing European military action and development, we need to take note, that even though it has been quietly carried out, it is nonetheless significant, that fully functional European military bases, which had been built, equipped and maintained by the US, have been evacuated by the Americans in recent years to make way for operational occupancy of the European armed forces.

Further masking of whatever total military development may be occurring in Europe, is also the result of the industrial and technological development of European civilian projects which have the potential to be immediately available or quickly converted for military purposes. Take for example the European Aeronautic Defence and Space Company (EADS) success in aviation, as previously highlighted, with not only an increasingly large range of Airbus aircraft for military purposes, but also a growing range of civilian Airbus aircraft that could be converted for military use.

Alarmingly also for the US is that, Airbus (and therefore EADS) in its rapid rise to astounding success in international aviation markets, is now a formidable rival which seems set to overtake (American) Boeing as the world’s leader in aircraft design and manufacture. Actually European rival Airbus (which in 2003 surpassed Boeing as the world’s largest maker of commercial airliners) and Boeing are in a tenacious commercial battle, which will continue to a decisive climax for the victor (Pae, 2005) and it does not bode well for Boeing to prevail triumphantly.

There is also the European satellite navigation project Galileo (also an EADS project), promising the best satellite navigation service, which many realize is in direct rivalry to the now older and inferior United States’ Global Positioning Satellite System (GPS). Any satellite navigation system has obvious implications for offering vital services to high-tech warfare defence surveillance, and other offensive activities and incursive campaigns.

Although these European projects wound the supremacy of the USA, which has been an international vanguard in these vital areas for national security and international stability, there has been a general attitude in the West that encourages Europe to allocate even considerably more funds to the military.

Taking stock of the value of exports presents a fascinating impression. For 2003, the top 4 combined had exports amounting to more than twice the value of US exports. Germany alone exported 97% of the value of US exports. These figures are arresting considering the status of Europe in 1945 included largely destroyed industry and infrastructure, and particularly in Germany. These present levels of exports for the EU, and its close-to-balancing current account, predispose the European economy towards strength, everything else being equal.




Various political and population data, in the following table, also attest to the heavyweight potential of the EU as a major worldwide player.

The top 4 with 57% of the EU population, have 45% parliamentary representation in the Europarliament with 333 of the total 732 MEPs. Germany, by far, the most populous nation, with 82 million people, has 18% of the EU’s population, and has mustered 14% political representation with 99 MEPs in the Europarliament.

EU population trends have been of growing concern for some time. In 2004, the population increase was, on average for the top 4, only 0.19%, and for the EU in general only 0.17%. This means the EU has a rapidly aging population, which will not be able to meet labor demands for the economy, if it is to have desired levels of growth. In short, notwithstanding present levels of unemployment, there may eventually be a massive labor shortage if the eagerly anticipated prospective expansion of the European economies appears, as Europe matures to full superpower status, with a world-standard currency which replaces the dollar.

Actually the population growth rates, in various EU countries, are buoyed up greatly by immigration as the birth rates generally are very low (or even lagging the death rates) for European nations, some of which are actually negative population growth if immigration is excluded. In this vein, the top 4 except France, for 2004, had relatively strong net migration of over 2 per 1,000 population each.

Finally, the data on international political representation highlights excessive political presence, at the UN, if the EU is considered to be one integrated coalesced political entity, which it is working towards becoming. On the other hand, even though the EU is coming together as an integrated political conglomerate, if it continues to be viewed as a group of separate sovereign states, then the present political representation at the international level is typically what would be expected. However, the point of view taken in the paper is the former, that the EU can now be considered as a single political entity, at least in the making, and therefore enjoys over-representation at the UN.

We can see that the representation of the EU at the UN is considerable. As a political conglomerate and a burgeoning superpower, the EU has two permanent seats (out of 5 permanent and 10 other 2-year elected seats) on the Security Council, and a very substantial 25 out of 191 seats in the General Assembly. Obviously this is a powerful political lobby in the world forums of the UN. This is noteworthy when compared to the USA (or China or India) which has only one permanent seat on the Security Council and one seat in the General Assembly (Mateja, 2004).

Further representation may be held by Europe in the Security Council by way of elected membership which lasts for 2 years. For instance, for the years of 2005 and 2006 both Denmark and Greece are elected on the Security Council, resulting in a total of 4 EU countries represented on the Security Council out of a total membership of 15. Even though only the 5 permanent members of the Security Council have veto power, the EU representation is substantial with two European nations having veto power, namely the UK and France.

There is considerable disgruntlement over the membership of the Security Council, which some see as a political dinosaur, because its membership does not reflect the contemporary international realities of power and influence among nations. For example, Germany and Japan are the second and third largest contributors to the UN budget respectively; both nations are among the top 5 national GDPs in the world, with Japan as number three and Germany as number five and yet neither has a permanent seat in the Security Council (IMF Estimates for 2005; Mateja, 2004).

However, the strategy and bureaucracy for these two countries to become permanent members, with full veto power, is problematic and would not seem to be forthcoming (Mateja, 2004). If Germany though, were eventually to increase its representation to include the Security Council, this would further increase the clout of the EU in this international forum to three permanent members.




Kofi Annan has just yesterday as I write, made proposals to introduce “the most far reaching reforms in the history of the United Nations” (BBC News, 21st March, 2005). These reforms include one of either Recommendations A or B for the restructuring of the Security Council membership to “better reflect current geopolitical realities and involve more the countries that [significantly] contribute financially, militarily and diplomatically to the United Nations” (Fox News, 21st March, 2005).

In the following table, which summarizes the two sets of recommendations made, it can be seen that the representation of Germany, and therefore Europe, could increase in the Security Council if Germany is to be included as a member. In Recommendation A, European representation in the council would be expanded to 3 permanent members, although Germany (if it is to be included) as a new member would not have veto power (well at least not at first). This would expand European representation to over 12% of the new Council of 24.

Also in Recommendation B, European representation would be expanded by two new “permanent” members in the council even though they would be termed “renewable 4-year seats”. This would strengthen the European presence by two, one of which would surely be Germany. In this scenario Europe would have 4 members on the Security Council even though the two new members would not have veto power. This would lift European representation on the reconstituted Council to over 16% of 24 members.




The relatively modest military expenditures in the EU nations should not distract us from the present scale and importance of their military capacity which includes nuclear weapons and delivery systems. Two EU nations are nuclear powers - the UK and France. In the world nuclear club context it is interesting to see how this shapes up in a geopolitical view. The EU is surrounded on three fronts by nuclear weapons and these are in reasonable proximity. To the East is Russia, to the South East is Iran, soon to be nuclear (unless there is forceful international intervention), followed by the bristling Asian military arsenal. West of the EU is where the largest arsenal of nuclear weapons in the world await in store - The USA.

Considering that the EU now extends across Greece, beyond the Bosporus into the Middle East with Cyprus, the far eastern European flank is well within the range of missiles from Iran. Of course both Russia and the Ukraine (with its nuclear legacy from the USSR) are in proximity to Europe and this is considered potentially significant even in this post cold war era. Intercontinental ballistic missiles (ICBMs) would be needed for delivery of nuclear weapons from distant Asian nations. From the west, the USA certainly has ICBMs with a range to cross the Atlantic. Of course, we should not lose sight of the nuclear deterrent that the EU has with its own arsenal in the UK and France.




A collection of air and marine craft (for example, planes, submarines and battleships) also extends the range of delivery for some countries to deliver their nuclear weapons to just about anywhere in the world, assuming they can penetrate the sophisticated electronic surveillance, military shields, and anti-attack systems already deployed by many countries.

Germany, the EU political, industrial and economic heavyweight, is without nuclear weapons, and this will be addressed in the near future through various possibilities. Surely the premier European nation in terms of GDP and other economic indicators, political representation and population mass will work to have direct control over the arsenals of France and the U.K. as the EU’s integration deepens. Alternatively Germany could develop its own nuclear military muscle.

The obvious motivation for Germany to be a nuclear power by whatever means – to have the military strength and prestige to match the preeminence in the political and commercial arenas it enjoys as a nation, is borne out by five of the top seven nations around the world, in terms of GDP, that have nuclear arsenals. Also interestingly the only other nation, of the seven, that is not nuclear, is Japan, and there are already rumblings there for the development of a nuclear option.




What the EU Adds Up To
These figures show that the EU, albeit with some weaknesses, is beginning to stack up with the world’s superpower and other potential superpowers (like China, Japan or India) quite formidably. In this context, let us now take a summary inventory of the present store of the EU.

Throughout two thousand years the European Empire has resisted death as a political and military power, even though it continually lapses into a necrophanic coma. This empire has been a bulwark of Christianity and often fights to maintain that position.

Islam has often been the civilization which Europe has warred against, and although usually effectively kept at bay from Europe by the Mediterranean, Turkish Straits and Black Sea, this exotic and rival civilization surrounds Europe on the South East and completely on the South.

The following map shows the relative position and expanse of the present EU (colored in white) from Portugal in the west to Cyprus in the east, from Finland in the north to Malta in the south (http://wwp.greenwichmeantime.com/tim...-union/map.htm). Such expansive spacial spread would certainly support the contention that Europe is in the process of becoming a continent-wide empire.




Incredible European economic scale, dominated by the top 4, has overtaken the USA. Overall public debt detracts from the EU economy and generally resource deficiency makes Europe vulnerable to the vagaries of the international market. However, one area of considerable European strength is the overall close-to-balancing current account due to high levels of exports.

EU military expenditure may at first appear relatively unspectacular but when support, subsidy and the USA pullback gifts are considered, along with the apparent civilian projects, the real level of substantial EU military development and acquisition is higher than that which is immediately obvious. Of course the range of cutting-edge technology across a broad cross section of military hardware and systems should not escape scrutiny, or we are at the risk of being left naïve to the growing and impressive military prowess of the continent.

At the political level the top 4 enjoy 45% political representation in the Europarliament. If the U.K. was to be edged out or leave the EU, as mooted by some, and if these seats were to be redistributed, based on something like the present political representation of the remnant nations, the top 3 could enjoy more than 50% of the Europarliament representation. Further, abolition of the veto rights of Europarliament nations, aligned with this new representation of Post-U.K. remnant Euronations, could lead to the EU being completely held by a parliamentary majority of three nations out of 24 - a triumvirate of Germany, France and Italy.

Europe has a worrisome population problem. Generally low levels of population increase point to a need for higher levels of immigration if economic development is to be maintained or increased securely and structurally from within, that is without taking industries “off shore”.

At the international political level, the EU enjoys more than typical representation in the UN, giving the continent a greater share of influence on the world scene than would normally be expected, and this over-influence is not expected to be withdrawn.

Europe, a nuclear power itself twice over (with France and the U.K.), is surrounded by nuclear weapons on three fronts – from The USA, Russia, and Iran (which many believe is on the verge of being nuclear), and a string of other Asian nations beyond Iran. Even though Europe is nuclear, Germany is anomalous in being a world heavyweight in just about every way except an outsider in the world’s nuclear club. Obviously Germany will look to solve this anomaly.

For an appropriate summary comment here let us go to T. R. Reid. In his recent book (2004), The United States of Europe: The New Superpower and the End of American Supremacy, he shows that the EU, or as he declares it the “United States of Europe” has more people, more trade, more wealth, and more votes on every international body than the US. His book argues that Europe is stridently determined to be a superpower whether America likes it or not. And we should all take note that this is at a time when an upstart currency, called the euro, is trumping the once almighty dollar on global markets.

Europe in the International Arena
We have seen that the European combine, once again revived out of necrophania, is increasingly significant in the contemporary world, but we need to take stock to see how Europe may fit into the present international arena of nations and superpowers.

In a previous paper by the author (Leigh, 2004) the following assessment was made concerning the newly emerging European superpower:

In the centuries of recent history, we have seen the British worldwide Empire come and go, and then the United States loom large as a superpower, with a commercial and cultural empire, and now the pan-European, German led, supranational combine, as a Phoenix, may arise to assume superpower status, rivaling others.
In the same paper (Leigh, 2004), the author outlined the direction of the world into a post-globalization era. This procession into a post-AngloSaxon world, will tip the global distribution of power away from the West, into a new multi-polar world where fragmentation into civilizational superpowers appears. Bosworth (2004) records and comments in his paper:

James Leigh (2004) argues, the world is getting smaller [due to technology]. but it is not coming together [because human relations, between persons and nations, continue to be problematic or estranged]. Leigh considers what the near future may look like:
‘A newly formed pan-Islamic, largely Arab, supranational superpower, under Iranian hegemony, would add destabilizing ballast to any new global balance. Further, the potential Asian masses, forming a supranational superpower from China, Russia, Japan and India (making up a massive half the world’s population), would also rival the Western cultural and economic brand of influence and globalization, and therefore complicate the global state of affairs even more.’
If writing systems are a measure of balance or imbalance of world power ... then Leigh’s ‘tripartite’ composition is compelling.
The emerging configuration of new superpowers includes the EU as one of the main players which may take up the slack from the diminishing American status and role in the world. For example, America’s respected successful status, commercial and political influence, and others’ confidence in its hegemony have supported the dollar’s strength and high exchange rate in most of the post World War Two period. However, as American preeminence now wanes, and other nations lose confidence in America’s economic fundamentals, and political leadership, we see the dramatic fall of the dollar which must be of great concern to Washington and American business, not to mention the worry to the world which has relied on America as the world commercial epicenter to prop up the global economic system.

If the dollar continues to fall significantly, this could lead to freefall and foreign holders of the currency (for example, more than US$1 trillion held in China and Japan) may be prompted to salvage what little value there may be left before the greenback bottoms fully devalued into the basement. Imagine what this implosion would do to the American economy and New York Stock Exchange.

The following bleak comment supports the idea that the American dollar is vulnerable: “The dollar’s loss accelerated after Greenspan said on November 19 [2004] that overseas investors may tire of financing the U.S. current account deficit and diversify into other currencies” (Thomas, 2005).

A related problem is the US national debt at about US$7.5 trillion and over 12% of this is held in China and Japan as Treasury Bonds. Further, it seems clear, even though incredible, that a massive 49% of the US national debt is now held by foreign investors external to the US - by international governments, corporations and private individuals (Pesek, 2005; Sloan, 2004). Add the Euro:$ exchange rate of 1.36 (X-rates, 2005) in late 2004 and we begin to see an increasingly cheap dollar, and therefore potentially threatened by the Euro as an international currency.




All this poses incredible vulnerability for the USA, both economically and politically, and it should not come as a surprise that all foreign investment into the United States has fallen off dramatically. Moreover, John Williamson of The Institute for International Economics has said that foreclosing on Uncle Sam wouldn’t be in the interest of the world and its nations and international economic system. However, any one country might think, I’ll beat the crowd and diversify first (Thomas, 2004) thus setting off a stampede fleeing the dollar.

As the world is largely propped up by American consumer spending, this prospective American economic collapse’s immediate ripple effect would push the world financial system into convulsions, out of which a new currency could appear as the new world standard. That new world currency could be the European currency - the Euro. It is interesting to note the direction of the currency rates in recent months as the dollar has significantly weakened against the Euro. If this is an overall continuing trajectory of dollar decline, then the near future will be dramatic for America and the world.

Would such an emerging new world order be an opportunity for Europe to reestablish itself, and this time as a world superpower wielding incredible power and influence across the globe? In this vein let us take note of recent comments as reported by Eurowatchers and pundits of European politics.

This new multipolar world with three prospective world nuclear superpower conglomerates (EU, Asia and PanArabia) vying for supremacy, or at least advantage, will be a destabilizing development. The EU would be no exception as it vies for international supremacy and advantage.

For example, Romano Prodi, previous president of the European Commission, stated in 2001 that he wanted Brussels to take far-reaching new powers over European Union government spending, foreign policy, defence and police to try to transform the European Union into a global superpower (Evans-Pritchard, 2001).

The European ruling elite concur with Romano Prodi as they are now working for the ratification of the EU constitution which “creates an EU foreign minister and diplomatic service [and] equips Europe with superpower institutions ... to counter American domination” (The Left Coaster, 2004).

Ratification of the constitution, which is required in all 25 EU member states, is expected to be problematic in some of them (Friedman, 2005). However, it may be that this constitution, or whatever document or political process supersedes it (Leicester, 2005), will be the cohering capstone replacing vestigial political and military fragmentation, with comprehensive integration, thus giving rise to the birth of an economically coalesced and politically infrastructured, fully fledged (militarized) superpower. And obviously if the clout of the EU will be substantial enough to counter the present status of the US, then it will also be a counter to any other prospective superpower.

There is a consensus among many EU leaders that it is necessary for Europe to be able to plan and execute European military operations autonomously. Many European officials believe an autonomous European military capacity is necessary for Europe to have a meaningful foreign policy and give it a voice in world affairs (International Herald Tribune, 3rd September, 2003). It could also be added that such a voice in world affairs, to be taken seriously, needs a backing of economic, political and military might.

In unison with the above, on the status of the prospective Europe, Anthony Browne comments that the “European Union has outlined plans to become a military power [by transforming itself] from being a political power to a military one to enforce a foreign policy” worldwide (2005).

Pronouncements and accompanying developments coming out of Europe, for a place on the world stage, are not the meanderings of a timid wilting third rate power, but trumpet declarations of a newly confident, even strident, European Empire in the making again!

Charles Kupchan (2002) of Georgetown University goes even further, with the unsettling assertion, that a looming “clash of civilizations will ... [be] between the United States and Europe - and the Americans [and possibly much of the rest of the world] remain largely oblivious” to this momentous and dangerous state of affairs in the making. Kupchan further elaborates in the same paper with the foreboding comment that “Not only is American primacy far less durable than it appears, but it is already beginning to diminish. And the rising challenger is the European Union that is already in the process of marshalling its impressive resources”.

Churchill said something like: the further back you see, the further into the future your vision will be. In similar vein there is a famous saying that “there is nothing new under the sun”. For Eurowatchers, with their present view well based in the lessons of history, there is abundant evidence that we are witnessing another revitalization of the Euro political/military combine in a rapid rousing out of the latest bout of necrophania.

The lessons of history indicate that this will be a dramatic development on the international scene and introduce a turbulent period of massive shifts in the balance of power in the world. This time humanity will be subject to the competing campaigns of a multipolar world, with superpowers potentially on collision paths for a greater share in the earth’s bounty. An eventual tripolar clash between Europe, Asia and PanArabia, all utilizing the latest technology as highly equipped superpowers, will certainly change the world in a way we have never seen before.

America’s Unexpected Challenge
So Americans may ask (as other AngloSaxon-led nations could) what can be done for their country to maintain viability in this looming world state of affairs. While it may not be politically correct or “smooth talk”, it must be said that the AngloSaxon-led world, and particularly the US, would have to take drastic emergency measures to halt their decline in all facets of economy, politics and the moral high ground, to salvage confidence and respect in the world arena.

This remedial action would require hard and democratically unpopular decisions on the part of government, and therefore is not likely to eventuate promptly. For example, in the area of the US economy, the national debt of US$7.5 trillion (amounting to US$25,000 for every man, women and child in the US), about half of which is held by foreigners external to the US, would have to be reined in. Generally speaking, with massive levels of debt in just about every American economic and commercial nook and cranny, there can never be international confidence in the green back and all that is related to it.

At the political level America has lost or is fast losing favor and the confidence of even its traditional allies. Many countries around the world are increasingly turning elsewhere for their security found among the array of choices embedded in the realities of the present and future geopolitical world. It is this trend (of course also aided by economic factors) that makes the appearance of potential superpowers like the EU, China and India, with increasing political clout, even more likely.

Simply, America with its relativistic and pragmatic politics has not been able to keep its allies closely aligned in all the various levels of strong international relationships for economy and politics.

America needs a more absolute set of values that can be relied upon in the spheres of economy and politics, so that loyalties can be maintained. Unfortunately for the US, its tainted policies that are largely based on pragmatic advantage, even though hypocritically justified with laudable American absolute high ideals, ultimately fool only the few.

In the area of the moral high ground, America has plunged in altitude. Many in the world, and particularly those of distant civilizations, believe that American values and lifestyle are decadent. For example, “fundamentalist Islamists [and terrorists perpetrating heinous crimes] regard the decadent West [and particularly the US] as a source of the evil values and lifestyle that is corroding Muslim society (Lewis, 2004, p. 21), hence the name ‘Great Satan’ for the contemptible United States of America” (Leigh, 2004) that attests to the extreme anti-American hatred an increasing mass of people worldwide feel. Obviously there are those around the world that take issue with American relativistic morality and its lifestyle in areas of: liberalism, rampant divorce, homosexuality, abuse of birth control and abortion, pluralism, multiculturalism, and extremes in individuality and materialism.

These fundamental differences, and the acquisition of political and economic might, within continental-sized civilizations, may lay the foundations for symptomatic progression towards civilizational clash.

The perception of many is that America is a civilization on the decline in all three areas of economy, politics and morality. So after some brutally frank soul searching, Americans would have to decide how they want their future. Will it be with morally mutable and consumeristic debt ridden society, in economic and political decline, and with decreasing international respect and clout, or a more morally taunt and frugal civilization, based on absolute values that are applied, nationally and internationally, irrespective of any apparent pragmatic advantage or disadvantage?

A Concluding Viewpoint
The lessons of history reveal that the present reawakening of Europe, typically by church and state, out of its last bout of necrophania will this time lead to a continental-sized revival of the Holy Roman Empire. This portends a European superstate destined to take its place in the looming multipolar world of other civilizational continent-wide superpowers.

Within this view we have sharpened our focus on the European continent (and its top 4 nations) to see that it is already beginning to have the required critical mass in the areas of economy, politics and prospective military development to take its place on the world stage. Europe re-forged, in the present arousal, will be tempered to a hardened dynamic resolve to successfully see the contemporary European project through to stunning completion. In this crescendo, Europe may vie for preeminence and hegemonic superiority in the nuclear fray of superpowers.

There is no evidence to suggest the new European superpower will be any more benign than other superpowers have been throughout history. Indeed the lessons of history declare that a strong Europe, with international influence, typically throws the world into a turbulent period of readjustment, and this has invariably led to economic, political and eventually military conflict. As there is much to suggest the aroused European combine will be pursuing its “rightful” place in the world’s economic, political and military arenas, the Americans (and any allies they will then have left) may find themselves confronted with a titanic challenge or struggle very soon.

In our final European vantage point let us take an analogy from the apothecaries: If the European leaders, aided and abetted by the Holy See, pommel and stir with the Christian pestle, in the European mortar, to re-blend the new mix of (Roman) church and state, with its revitalized values of “universal absolutes”, there may eventually be no room for Islam or any other infidel or apostate civilization in their field of influence.

A new world (dis)order, with competing superpowers, may be in the making, and if so, there will be new challenges at a scale that mankind has never faced before. As humanity is confronted with inter-continental conflicts of interest, each protagonist power bloc will be supported with economic and military might of staggering magnitude. Will humanity have the wisdom, or at least the restraint, to handle these emerging critical contests in the world of post-globalization?

http://globalization.icaap.org/content/v5.1/leigh.html


I find this highly amusing on many levels, except for that which I've highlighed in bold.

Silver™

A nation's economic power could once be judged by tons of steel or megawatts of electricity. But we have moved beyond these simple indicators or even updated versions, such as computer chips. All advanced societies now depend so completely on technology that their economic might is often measured by their number of scientists and engineers. By that indicator, America's economic power is waning. We're producing a shrinking share of the world's technological talent. China and India are only the newest competitors to erode our position. We need to consider the implications, because they're more complicated than they seem.

As late as 1975, the United States graduated more engineering and scientific PhDs than Europe and more than three times as many as all of Asia, reports Harvard University economist Richard Freeman in a recent paper. No more. The European Union now graduates about 50 percent more, and Asia is slightly ahead of us. By Freeman's estimates, China has reached almost half the U.S. total and will easily overtake us by 2010. Among engineers with bachelor's degrees, the gaps are already huge. In 2001 China graduated 220,000 engineers, against about 60,000 for the United States, the National Science Foundation reports.

Freeman also documents a second worrisome reality: U.S. scientists and engineers aren't well paid, considering their skills and—especially for PhDs—the required time for a degree. This means, Freeman says, that "the job market . . . is too weak to attract increasing numbers of U.S. students." Consider some pay comparisons. From 1990 to 2000, average incomes for engineering PhDs increased from $65,000 to $91,000, up 41 percent; PhDs in natural sciences (physics, chemistry) rose from $56,000 to $73,000, up 30 percent. Meanwhile, average doctors' incomes increased from $99,000 to $156,000, up 58 percent; and lawyers went from $77,000 to $115,000, up 49 percent.

The true situation may be worse. Next to other elites, scientific and engineering PhDs fare poorly. Look at the 891 MBA recipients of the Harvard Business School's class of 2005. At an average age of 27, they command a median starting salary of $100,000. It's true that the two-year cost of a Harvard MBA is steep ($120,000 and up), and four-fifths of the students are left with debts averaging $81,000. But these new Harvard MBAs also got huge one-time bonuses; the median was $43,000. As for scientific and engineering PhDs, they typically require seven to eight years to finish their degrees, notes Freeman.

All in all, the outlook seems bleak. There's already a whiff of media hysteria. After examining these and other trends, Fortune magazine recently headlined a cover story: "AMERICA: THE 97-LB WEAKLING? . . . We're Losing Our Competitive Edge."

Not so fast. The grim prognosis wrongly presumes that another country's gain must be our loss. Hardly. If a Swedish or Japanese company cured cancer or invented a super-efficient car, Americans would benefit quickly—just as Swedes and Japanese have benefited from technologies first developed in the United States. If Microsoft's research center in Beijing (to take one oft-cited example) develops stunning new software, the advances will soon be incorporated in Microsoft products worldwide.

It's also forgotten that the United States still dominates global research and development. In 1981 American companies and laboratories accounted for 45 percent of research and development among the members of the Organization for Economic Cooperation and Development, which are generally the world's richest nations. In 2000 the U.S. share was still 44 percent—despite the increase in other countries' scientists and engineers and a decline in U.S. defense research and development.

We must be doing something right. Our decentralized research and development system (corporate, government and university laboratories, venture capitalists, and freelance inventors) excels at moving ideas to market and constantly reinvents itself. Here's an example: In 1980 Congress passed the Bayh-Dole Act to encourage universities to license discoveries to companies. It worked. In 2002 universities earned $915 million from licensing fees, almost four times the 1993 level, according to economists Richard Jensen and Celestine Chukumba of Notre Dame.

Not every new Chinese or Indian engineer and scientist threatens an American, through outsourcing or some other channel. Actually, most don't. As countries become richer, they need more scientists and engineers simply to make their societies work: to design bridges and buildings, to maintain communications systems, and to test products. This is a natural process. The U.S. share of the world's technology workforce has declined for decades and will continue to do so. By itself, this is not dangerous.

The dangers arise when other countries use new technologies to erode America's advantage in weaponry; that obviously is an issue with China. We are also threatened if other countries skew their economic policies to attract an unnatural share of strategic industries—electronics, biotechnology and aerospace, among others. That is an issue with China, some other Asian countries and Europe (Airbus).

What's crucial is sustaining our technological vitality. Despite the pay, America seems to have ample scientists and engineers. But half or more of new scientific and engineering PhDs are immigrants; we need to remain open to foreign-born talent. We need to maintain spectacular rewards for companies that succeed in commercializing new products and technologies. The prospect of a big payoff compensates for mediocre pay and fuels ambition. Finally, we must scour the world for good ideas. No country ever had a monopoly on new knowledge, and none ever will.

http://www.msnbc.msn.com/id/8896977/site/newsweek/

Fibonacci

What's Good for Dell and Cisco Is Bad for U.S., Book Suggests
2005-08-15 02:53 (New York)


(Review. James Pressley is an editor for Bloomberg News. The
opinions expressed are his own.)

By James Pressley
Aug. 15 (Bloomberg) -- In September 1999, a 60-second
earthquake rocked Taiwan, turning buildings to rubble, killing
about 2,400 people and cutting electricity. Most Americans didn't
pay attention until the aftershocks rattled across their economy.
Days after the quake, factories from California to Texas
began closing for lack of Taiwanese semiconductors. Shares in
computer makers like Dell Inc. and Hewlett-Packard Co. dropped
more than 20 percent over the next month. Christmas shoppers
faced shortages in laptops and Furby dolls.
The quake shows how interconnected our world has become, says
Barry C. Lynn in his engaging polemic, ``End of the Line: The
Rise and Coming Fall of the Global Corporation'' (Doubleday, 312
pages, $26). The multinational assembly lines of companies like
Dell are so finely tuned that ``a breakdown anywhere increasingly
means a breakdown everywhere,'' he says.
Lynn, a former journalist and now a fellow at the nonpartisan
New American Foundation in Washington, makes his case well,
showing how U.S. laissez-faire policies have mixed with advances
in technology and logistics to make the country dangerously
dependent on foreign goods. The U.S., which once exported
stability through programs such as the Marshall Plan, now risks
importing instability, notably from communist China.

Capitalist Strategy

``End of the Line'' traces the evolution of today's global
corporate outsourcing partly to the U.S.'s Cold War strategy of
transforming countries like Taiwan into capitalist showcases.
Taiwanese companies thrived on a diet of aid, trade, education
and technology transfer, then gained an extra edge in the 1980s
by farming out production to low-wage workers on the Chinese
mainland.
Amid the bellicose blustering between Taipei and Beijing,
Taiwanese companies subcontracted for companies like
International Business Machines Corp. and sneaker maker Nike Inc.
This ``tristate relationship,'' says Lynn, became the center of
today's global economy.
Lynn places blame for this state of affairs on U.S. President
Bill Clinton. Never mind that President Richard Nixon opened the
door to China, while the administration of Ronald Reagan promoted
Chinese trade as a way to intensify U.S. sanctions against the
Soviet Union and Warsaw Pact.
The crucial decision about China, Lynn argues, came after
Clinton backed a ``pragmatic policy of engagement'' that would
somehow undermine communism by building a Chinese middle class.
This represented ``a radical reversal'' of U.S. anticommunist
strategy stretching from the late 1940s through 1989, he says.

Executive Heroes

In chapter after readable chapter, the author shows how
Clinton's China policy coincided with technological and
logistical innovations that revolutionized U.S. manufacturing.
Lynn brings the lessons to life through crisp case studies of
1990s corporate heroes, from John Chambers, Cisco Systems Inc.'s
evangelist of outsourcing, to Michael Dell, the ``fizz kid'' who
created the world's largest personal-computer maker by turning
the industry on its head.
Dell, after early flops, became the master of cutting
inventory. Chambers pushed outsourcing to the max: By 2000, only
15 percent of the people who worked on Cisco-branded routers,
switches and other products were Cisco employees.
Fred Smith invented package delivery service FedEx Corp.,
allowing companies to ship components just in time to factories
around the globe. Sam Walton reinvented logistics, turning an
Arkansas five-and-dime into Wal-Mart Stores Inc., which draws
almost 140 million shoppers a week and dictates terms to consumer-
goods makers such as Procter & Gamble Co.

Post-Wall World

Adding intensity to these trends was the 1990s merger boom,
which bred behemoths such as DaimlerChrysler AG, Exxon Mobil
Corp. and Citigroup Inc. These combinations created ``immense
oligopolies that generate profits ever more through the exercise
of power,'' Lynn says.
Here and there, Lynn lapses into hyperbole and rants against
investors and the economist Milton Friedman. Yet the author also
offers realistic suggestions for how the U.S. government might
make the world a more stable place, beginning with a greater
willingness to use its antitrust clout.
If nothing else, Lynn forces us to think about the world that
the West has created since the crackdown in Tiananmen Square and
the fall of the Berlin Wall in 1989. He also reminds Americans of
how far they've wandered from the path Alexander Hamilton marked
out after the War of Independence, when shortages of shoes and
muskets nearly broke George Washington's army. Manufacturing,
Hamilton wrote, is crucial to ``the independence and security of
a country.'' More than Furby dolls may be at stake the next time an
earthquake hits.



A nation of consultants, CPA's and attorneys is not a replacement for "real" goods.

Fibonacci

A New World Economy
The balance of power will shift to the East as China and India evolve


Slide Show >>It may not top the must-see list of many tourists. But to appreciate Shanghai's ambitious view of its future, there is no better place than the Urban Planning Exhibition Hall, a glass-and-metal structure across from People's Square. The highlight is a scale model bigger than a basketball court of the entire metropolis -- every skyscraper, house, lane, factory, dock, and patch of green space -- in the year 2020. Advertisement

There are white plastic showpiece towers designed by architects such as I.M. Pei and Sir Norman Foster. There are immense new industrial parks for autos and petrochemicals, along with new subway lines, airport runways, ribbons of expressway, and an elaborate riverfront development, site of the 2010 World Expo. Nine futuristic planned communities for 800,000 residents each, with generous parks, retail districts, man-made lakes, and nearby college campuses, rise in the suburbs. The message is clear. Shanghai already is looking well past its industrial age to its expected emergence as a global mecca of knowledge workers. "In an information economy, it is very important to have urban space with a better natural and social environment," explains Architectural Society of Shanghai President Zheng Shiling, a key city adviser.

It is easy to dismiss such dreams as bubble-economy hubris -- until you take into account the audacious goals Shanghai already has achieved. Since 1990, when the city still seemed caught in a socialist time warp, Shanghai has erected enough high-rises to fill Manhattan. The once-rundown Pudong district boasts a space-age skyline, some of the world's biggest industrial zones, dozens of research centers, and a bullet train. This is the story of China, where an extraordinary ability to mobilize workers and capital has tripled per capita income in a generation, and has eased 300 million out of poverty. Leaders now are frenetically laying the groundwork for decades of new growth.

INVALUABLE ROLE
Now hop a plane to India. It is hard to tell this is the world's other emerging superpower. Jolting sights of extreme poverty abound even in the business capitals. A lack of subways and a dearth of expressways result in nightmarish traffic.

But visit the office towers and research and development centers sprouting everywhere, and you see the miracle. Here, Indians are playing invaluable roles in the global innovation chain. Motorola, (MOT ) Hewlett-Packard (HPQ ), Cisco Systems (CSCO ), and other tech giants now rely on their Indian teams to devise software platforms and dazzling multimedia features for next-generation devices. Google (GOOG ) principal scientist Krishna Bharat is setting up a Bangalore lab complete with colorful furniture, exercise balls, and a Yamaha organ -- like Google's Mountain View (Calif.) headquarters -- to work on core search-engine technology. Indian engineering houses use 3-D computer simulations to tweak designs of everything from car engines and forklifts to aircraft wings for such clients as General Motors Corp. (GM ) and Boeing Co (BA ). Financial and market-research experts at outfits like B2K, OfficeTiger, and Iris crunch the latest disclosures of blue-chip companies for Wall Street. By 2010 such outsourcing work is expected to quadruple, to $56 billion a year.

Even more exhilarating is the pace of innovation, as tech hubs like Bangalore spawn companies producing their own chip designs, software, and pharmaceuticals. "I find Bangalore to be one of the most exciting places in the world," says Dan Scheinman, Cisco Systems Inc.'s senior vice-president for corporate development. "It is Silicon Valley in 1999." Beyond Bangalore, Indian companies are showing a flair for producing high-quality goods and services at ridiculously low prices, from $50 air flights and crystal-clear 2 cents-a-minute cell-phone service to $2,200 cars and cardiac operations by top surgeons at a fraction of U.S. costs. Some analysts see the beginnings of hypercompetitive multinationals. "Once they learn to sell at Indian prices with world quality, they can compete anywhere," predicts University of Michigan management guru C.K. Prahalad. Adds A. T. Kearney high-tech consultant John Ciacchella: "I don't think U.S. companies realize India is building next-generation service companies."

SIMULTANEOUS TAKEOFFS
China and India. Rarely has the economic ascent of two still relatively poor nations been watched with such a mixture of awe, opportunism, and trepidation. The postwar era witnessed economic miracles in Japan and South Korea. But neither was populous enough to power worldwide growth or change the game in a complete spectrum of industries. China and India, by contrast, possess the weight and dynamism to transform the 21st-century global economy. The closest parallel to their emergence is the saga of 19th-century America, a huge continental economy with a young, driven workforce that grabbed the lead in agriculture, apparel, and the high technologies of the era, such as steam engines, the telegraph, and electric lights.

But in a way, even America's rise falls short in comparison to what's happening now. Never has the world seen the simultaneous, sustained takeoffs of two nations that together account for one-third of the planet's population. For the past two decades, China has been growing at an astounding 9.5% a year, and India by 6%. Given their young populations, high savings, and the sheer amount of catching up they still have to do, most economists figure China and India possess the fundamentals to keep growing in the 7%-to-8% range for decades.

Barring cataclysm, within three decades India should have vaulted over Germany as the world's third-biggest economy. By mid-century, China should have overtaken the U.S. as No. 1. By then, China and India could account for half of global output. Indeed, the troika of China, India, and the U.S. -- the only industrialized nation with significant population growth -- by most projections will dwarf every other economy.

What makes the two giants especially powerful is that they complement each other's strengths. An accelerating trend is that technical and managerial skills in both China and India are becoming more important than cheap assembly labor. China will stay dominant in mass manufacturing, and is one of the few nations building multibillion-dollar electronics and heavy industrial plants. India is a rising power in software, design, services, and precision industry. This raises a provocative question: What if the two nations merge into one giant "Chindia?" Rival political and economic ambitions make that unlikely. But if their industries truly collaborate, "they would take over the world tech industry," predicts Forrester Research Inc (FORR ). analyst Navi Radjou.

In a practical sense, the yin and yang of these immense workforces already are converging. True, annual trade between the two economies is just $14 billion. But thanks to the Internet and plunging telecom costs, multinationals are having their goods built in China with software and circuitry designed in India. As interactive design technology makes it easier to perfect virtual 3-D prototypes of everything from telecom routers to turbine generators on PCs, the distance between India's low-cost laboratories and China's low-cost factories shrinks by the month. Managers in the vanguard of globalization's new wave say the impact will be nothing less than explosive. "In a few years you'll see most companies unleashing this massive productivity surge," predicts Infosys Technologies (INFY ) CEO Nandan M. Nilekani.

To globalization's skeptics, however, what's good for Corporate America translates into layoffs and lower pay for workers. Little wonder the West is suffering from future shock. Each new Chinese corporate takeover bid or revelation of a major Indian outsourcing deal elicits howls of protest by U.S. politicians. Washington think tanks are publishing thick white papers charting China's rapid progress in microelectronics, nanotech, and aerospace -- and painting dark scenarios about what it means for America's global leadership.

Such alarmism is understandable. But the U.S. and other established powers will have to learn to make room for China and India. For in almost every dimension -- as consumer markets, investors, producers, and users of energy and commodities -- they will be 21st-century heavyweights. The growing economic might will carry into geopolitics as well. China and India are more assertively pressing their interests in the Middle East and Africa, and China's military will likely challenge U.S. dominance in the Pacific.

One implication is that the balance of power in many technologies will likely move from West to East. An obvious reason is that China and India graduate a combined half a million engineers and scientists a year, vs. 60,000 in the U.S. In life sciences, projects the McKinsey Global Institute, the total number of young researchers in both nations will rise by 35%, to 1.6 million by 2008. The U.S. supply will drop by 11%, to 760,000. As most Western scientists will tell you, China and India already are making important contributions in medicine and materials that will help everyone. Because these nations can throw more brains at technical problems at a fraction of the cost, their contributions to innovation will grow.

CONSUMERS RISING
American business isn't just shifting research work because Indian and Chinese brains are young, cheap, and plentiful. In many cases, these engineers combine skills -- mastery of the latest software tools, a knack for complex mathematical algorithms, and fluency in new multimedia technologies -- that often surpass those of their American counterparts. As Cisco's Scheinman puts it: "We came to India for the costs, we stayed for the quality, and we're now investing for the innovation."

A rising consumer class also will drive innovation. This year, China's passenger car market is expected to reach 3 million, No. 3 in the world. China already has the world's biggest base of cell-phone subscribers -- 350 million -- and that is expected to near 600 million by 2009. In two years, China should overtake the U.S. in homes connected to broadband. Less noticed is that India's consumer market is on the same explosive trajectory as China five years ago. Since 2000, the number of cellular subscribers has rocketed from 5.6 million to 55 million.

What's more, Chinese and Indian consumers and companies now demand the latest technologies and features. Studies show the attitudes and aspirations of today's young Chinese and Indians resemble those of Americans a few decades ago. Surveys of thousands of young adults in both nations by marketing firm Grey Global Group found they are overwhelmingly optimistic about the future, believe success is in their hands, and view products as status symbols. In China, it's fashionable for the upwardly mobile to switch high-end cell phones every three months, says Josh Li, managing director of Grey's Beijing office, because an old model suggests "you are not getting ahead and updated." That means these nations will be huge proving grounds for next-generation multimedia gizmos, networking equipment, and wireless Web services, and will play a greater role in setting global standards. In consumer electronics, "we will see China in a few years going from being a follower to a leader in defining consumer-electronics trends," predicts Philips Semiconductors (PHG ) Executive Vice-President Leon Husson.

For all the huge advantages they now enjoy, India and China cannot assume their role as new superpowers is assured. Today, China and India account for a mere 6% of global gross domestic product -- half that of Japan. They must keep growing rapidly just to provide jobs for tens of millions entering the workforce annually, and to keep many millions more from crashing back into poverty. Both nations must confront ecological degradation that's as obvious as the smog shrouding Shanghai and Bombay, and face real risks of social strife, war, and financial crisis.

Increasingly, such problems will be the world's problems. Also, with wages rising fast, especially in many skilled areas, the cheap labor edge won't last forever. Both nations will go through many boom and harrowing bust cycles. And neither country is yet producing companies like Samsung, Nokia (NOK ), or Toyota (TM ) that put it all together, developing, making, and marketing world-beating products.

Both countries, however, have survived earlier crises and possess immense untapped potential. In China, serious development only now is reaching the 800 million people in rural areas, where per capita annual income is just $354. In areas outside major cities, wages are as little as 45 cents an hour. "This is why China can have another 20 years of high-speed growth," contends Beijing University economist Hai Wen.

Very impressive. But India's long-term potential may be even higher. Due to its one-child policy, China's working-age population will peak at 1 billion in 2015 and then shrink steadily. China then will have to provide for a graying population that has limited retirement benefits. India has nearly 500 million people under age 19 and higher fertility rates. By mid-century, India is expected to have 1.6 billion people -- and 220 million more workers than China. That could be a source for instability, but a great advantage for growth if the government can provide education and opportunity for India's masses. New Delhi just now is pushing to open its power, telecom, commercial real estate and retail sectors to foreigners. These industries could lure big capital inflows. "The pace of institutional changes and industries being liberalized is phenomenal," says Chief Economist William T. Wilson of consultancy Keystone Business Intelligence India. "I believe India has a better model than China, and over time will surpass it in growth."

For its part, China has yet to prove it can go beyond forced-march industrialization. China directs massive investment into public works and factories, a wildly successful formula for rapid growth and job creation. But considering its massive manufacturing output, China is surprisingly weak in innovation. A full 57% of exports are from foreign-invested factories, and China underachieves in software, even with 35 software colleges and plans to graduate 200,000 software engineers a year. It's not for lack of genius. Microsoft Corp.'s (MSFT ) 180-engineer R&D lab in Beijing, for example, is one of the world's most productive sources of innovation in computer graphics and language simulation.

While China's big state-run R&D institutes are close to the cutting edge at the theoretical level, they have yet to yield many commercial breakthroughs. "China has a lot of capability," says Microsoft Chief Technology Officer Craig Mundie. "But when you look under the covers, there is not a lot of collaboration with industry." The lack of intellectual property protection, and Beijing's heavy role in building up its own tech companies, make many other multinationals leery of doing serious R&D in China.

China also is hugely wasteful. Its 9.5% growth rate in 2004 is less impressive when you consider that $850 billion -- half of GDP -- was plowed into already-glutted sectors like crude steel, vehicles, and office buildings. Its factories burn fuel five times less efficiently than in the West, and more than 20% of bank loans are bad. Two-thirds of China's 1,300 listed companies don't earn back their true cost of capital, estimates Beijing National Accounting Institute President Chen Xiaoyue. "We build the roads and industrial parks, but we sacrifice a lot," Chen says.

India, by contrast, has had to develop with scarcity. It gets scant foreign investment, and has no room to waste fuel and materials like China. India also has Western legal institutions, a modern stock market, and private banks and corporations. As a result, it is far more capital-efficient. A BusinessWeek analysis of Standard & Poor's (MHP ) Compustat data on 346 top listed companies in both nations shows Indian corporations have achieved higher returns on equity and invested capital in the past five years in industries from autos to food products. The average Indian company posted a 16.7% return on capital in 2004, vs. 12.8% in China.

SMALL-BATCH EXPERTISE
The burning question is whether India can replicate China's mass manufacturing achievement. India's info-tech services industry, successful as it is, employs fewer than 1 million people. But 200 million Indians subsist on $1 a day or less. Export manufacturing is one of India's best hopes of generating millions of new jobs.

India has sophisticated manufacturing knowhow. Tata Steel is among the world's most-efficient producers. The country boasts several top precision auto parts companies, such as Bharat Forge Ltd. The world's biggest supplier of chassis parts to major auto makers, it employs 1,200 engineers at its heavily automated Pune plant. India's forte is small-batch production of high-value goods requiring lots of engineering, such as power generators for Cummins Inc. (CMI ) and core components for General Electric Co. (GE ) CAT scanners.

What holds India back are bureaucratic red tape, rigid labor laws, and its inability to build infrastructure fast enough. There are hopeful signs. Nokia Corp. is building a major campus to make cell phones in Madras, and South Korea's Pohang Iron & Steel Co. plans a $12 billion complex by 2016 in Orissa state. But it will take India many years to build the highways, power plants, and airports needed to rival China in mass manufacturing. With Beijing now pushing software and pledging intellectual property rights protection, some Indians fret design work will shift to China to be closer to factories. "The question is whether China can move from manufacturing to services faster than we can solve our infrastructure bottlenecks," says President Aravind Melligeri of Bangalore-based QuEST, whose 700 engineers design gas turbines, aircraft engines, and medical gear for GE and other clients.

However the race plays out, Corporate America has little choice but to be engaged -- heavily. Motorola illustrates the value of leveraging both nations to lower costs and speed up development. Most of its hardware is assembled and partly designed in China. Its R&D center in Bangalore devises about 40% of the software in its new phones. The Bangalore team developed the multimedia software and user interfaces in the hot Razr cell phone. Now, they are working on phones that display and send live video, stream movies from the Web, or route incoming calls to voicemail when you are shifting gears in a car. "This is a very, very critical, state-of-the-art resource for Motorola," says Motorola South Asia President Amit Sharma.

Companies like Motorola realize they must succeed in China and India at many levels simultaneously to stay competitive. That requires strategies for winning consumers, recruiting and managing R&D and professional talent, and skillfully sourcing from factories. "Over the next few years, you will see a dramatic gap opening between companies," predicts Jim Hemerling, who runs Boston Consulting Group's Shanghai practice. "It will be between those who get it and are fully mobilized in China and India, and those that are still pondering."

In the coming decades, China and India will disrupt workforces, industries, companies, and markets in ways that we can barely begin to imagine. The upheaval will test America's commitment to the global trade system, and shake its confidence. In the 19th century, Europe went through a similar trauma when it realized a new giant -- the U.S. -- had arrived. "It is up to America to manage its own expectation of China and India as either a threat or opportunity," says corporate strategist Kenichi Ohmae. "America should be as open-minded as Europe was 100 years ago." How these Asian giants integrate with the rest of the world will largely shape the 21st-century global economy.


http://businessweek.com/magazine/con...4/b3948401.htm

Fibonacci

GM Tames Gas Guzzling With $11,486-a-Year Engineers in India
2005-09-19 14:32 (New York)


By Subramaniam Sharma and Jeff Green
Sept. 20 (Bloomberg) -- At 9 p.m. in General Motors Corp.'s
research and development laboratory in Warren, Michigan, Anil
Sachdev is watching an electron microscope being focused by remote
control. A metallurgist 8,420 miles away in Bangalore, India, is
working while Sachdev prepares to head home.
``We're trying to get more horsepower per liter, better fuel
economy from future engines,'' says Sachdev, 54, General Motors'
manager for light-metals research. The 50 employees in Bangalore
already have invented ways to make 2009-model cars more gas-
efficient, he says.
India is moving from call centers to innovation. GM, General
Electric Co., Texas Instruments Inc. and Hewlett-Packard Co. are
among companies setting up research institutes to utilize the
talents of engineers they can pay less than $12,000 a year. A
grasp of what works in the marketplace may give India an edge over
China, its main low-cost competitor for research, says Larry
Burns, a General Motors vice president.
``You couple a sense of entrepreneurship with an extremely
intelligent, technically capable people who understand markets,
and that's what you see happening in India,'' says Burns, 54, who
heads research, development and strategic planning at the world's
largest automaker. ``India has a leg up on China.''
Some of Detroit-based GM's Indian mathematicians are creating
virtual models that limit the need to build real auto prototypes,
he says. Others are honing supply-chain technology first developed
by Indian companies.
``There's a big difference between knowing math and
understanding why math models are important to a business,'' Burns
says.

184,347 Graduates

The 184,347 Indian engineers who graduated from the country's
15,437 colleges last year will lure more overseas companies, says
R. A. Mashelkar, 62, director general of the Council of Scientific
and Industrial Research in New Delhi.
That in turn will encourage more Indians to seek a science
education, increase investment in colleges and bolster economic
growth, he says. India's government says it plans to raise
education spending by 39 percent to $4.17 billion in the year
ending March 31, 2006, from the previous 12 months.
Demand has a price. India already is suffering from a
shortage of quality graduates, Mashelkar says. State and federal
governments need to upgrade colleges to ensure supply, he says.
At least 106 overseas companies have research and development
centers in India, according to the Tata Management Training Center
in Pune, near Mumbai. The country will be hosting more than 200
such campuses by 2008, says B. Bowonder, 57, the center's
director.

GE Patents

Fairfield, Connecticut-based General Electric, the world's
second-largest company, has centers in both India and China. The
difference: 2,200 scientists, researchers and engineers at GE's
Bangalore campus, compared with 1,000 in Shanghai. GE has 22,000
such employees worldwide.
``Any time we invested in the people in India we made a
tremendous amount of money,'' says Jeffrey Immelt, 49, GE's chief
executive.
GE has sunk $80 million into its five-year-old Bangalore
center. Its scientists have applied for 260 patents on products
such as synthetic materials and ceramics. The U.S. Patent and
Trademark Office has approved 37, according to Purnima Sahni
Mohanty, GE's spokeswoman in India.
For General Motors, the $21 million Bangalore lab set up in
September 2003 was the first campus outside its 85-year-old Warren
center. The company also employs 400 Indian engineers, who work on
enhancing and adapting existing models.

Israel, China

Five years ago, only 3 percent of GM's scientists were based
abroad, mostly to liaise with universities in Israel and China,
says Alan Taub, 50, the company's executive director of research
and development. This year, 32 percent work out of nine countries
-- half of them in Bangalore and 3 percent in Shanghai. GM doesn't
disclose the number of scientists it employs.
Research and development in Shanghai is done at the GM-
Shanghai Jiao Tong University Technology Institute, a joint
venture set up in 1998. General Motors also runs a second joint-
venture center in Shanghai, where 800 engineers tailor auto models
for the Chinese market, the automaker's largest outside the U.S.
``If GM is going to grow across the globe, it has to develop
its technology globally,'' says Sachdev, the scientist in Warren.
Sachdev was a driving force behind GM's India move, says
Taub, his boss. An Indian national, Sachdev and three U.S.-based
compatriots successfully lobbied Taub to visit Bangalore in 2001.

Stranded by Attacks

Taub recalls the trip as a personal disaster. He was stranded
by the Sept. 11 attacks in the U.S. and bedridden with food
poisoning.
``Despite all that, when I left I was convinced this was an
undiscovered talent pool for the company,'' says Taub, who credits
India's military aerospace industry for developing its scientific
flair. ``Until you get there and see it, you don't understand.''
GM's chief scientist in India, B.G. Prakash, is a 16-year
veteran of the Bangalore-based Aeronautical Development Agency.
India's government set up the center in 1984 to design light-
combat aircraft.
Prakash, 54, has a doctorate in mathematics from the Indian
Institute of Technology in Mumbai, one of seven elite science
campuses around the country.
The outsourcing of U.S. jobs to people like Prakash
discourages U.S. freshmen from pursuing science careers, says
Richard Heckel, a professor emeritus at Michigan Technological
University in Houghton, Michigan.

Quiet Dishwashers

About 71,000 engineers emerged from U.S. colleges in 2003,
says the American Society of Engineering Education in Washington.
Graduate numbers are likely to peak at 78,000 in the next few
years and then start falling, Heckel says.
``The Pacific Rim is the center of engineering education,''
says Heckel, 71, singling out India, Japan, China and South Korea.
``It's got to hurt this country. I'm not sure how we're going to
work our way out of it.''
Overseas companies also hire Indian scientists from 38
laboratories run by the government's Council of Scientific and
Industrial Research. They tap the government's 33-year-old Indian
Space Research Organization in Bangalore and neighboring Hindustan
Aeronautics Ltd., a state-owned company that has designed 12
aircraft during the past 41 years.
For General Motors, those scientists have developed composite
materials that make cars lighter, increasing performance. General
Electric's dishwashers are quieter because Indians used aerospace
technology to help cut vibrations.

Cost Advantages

``We are able to get people here who are experienced in
aeronautics, space research, electronics, applied engineering,
mathematics, physics and chemistry,'' says GM's Prakash.
``Bringing in this type of diversified talent to look at
automotive applications from a different perspective is a great
opportunity.''
Salary disparities also work in India's favor. An engineer
starting out with a master's degree earns $11,486 on average a
year, says Vikram Jayaram, chairman of the placement center at
Bangalore's Indian Institute of Science. That compares with a
median of $54,411 in the U.S., according to Salary.com Inc., which
runs a wage-information Web site in Needham, Massachusetts.
Companies don't save on salaries unless scientists avoid
making mistakes, says Biswadip Mitra, 40, managing director in
India for Texas Instruments, the second-largest U.S. semiconductor
maker.

`Eco System'

Dallas-based Texas Instruments was the first overseas company
to open an Indian research and development campus. It started with
15 engineers developing automated software for computer chips in
Bangalore in August 1985, and now has 1,200 employees designing
new computer chips used in phones. Texas Instruments (India) Ltd.
had filed for 272 patents as of early this year, Mitra says.
``The major companies, along with universities and customers,
form an eco system,'' he says. The pooling of expertise gives
India special advantages.
Even so, Indian researchers in advanced technologies are in
short supply, says Ajay Gupta, 43, the director at HP Labs,
Hewlett-Packard's research unit in Bangalore.
In addition, the growth of software and services industries
is drawing engineers away from graduate study and research, Gupta
says. As more companies set up in India, supply will be tested
further.
Governments need to upgrade at least 100 engineering and
technology colleges to meet the demand for engineers alone, says
Mashelkar, of the Council of Scientific and Industrial Research.
``To produce quality manpower in larger numbers is going to be a
challenge,'' he says.

`Winning Strategy'

At Texas Instruments' Bangalore lab, Mitra's team is busy
accessing extra computers at the company's Dallas headquarters to
speed up the design of new chips. Seven of Japan's eight mobile-
phone makers now use processors designed in India, Mitra says.
While GM's Michigan scientists are sleeping, Shashank Tiwari,
25, is manipulating their microscope to understand how a mix of
copper, iron and silicates changes an aluminum casting.
``If I have $1 and I have to decide today to get the maximum
research output of the best quality, then the place will be
India,'' Mashelkar says. ``How quickly a company assembles skills
from the very best intellect anywhere in the world and uses it to
create any product, that's going to be the winning strategy.''

Source: Bloomberg.com

z06girl

this is a very interesting read, thank you very much

M TYPE X

Wow, too much text to scroll through. I could print it out, but I'm sure I've read it before in whatever book or review thereof.

Charles Kupchan, the America-hater, should just be deported to Europe. His books suck, and so does he.

<= future political scientist who plans to denigrate opponents by saying "they suck"
Hey, it works for various public intellectuals (Chomsky, Krugman, Pinter, etc)

Fibonacci

More tasty morsels for you...


The World Is Tilted
The popular idea that America is one step smarter and more sophisticated than its rivals is a dangerous myth, and a threat to the global economy.

By Clyde Prestowitz
Newsweek

Issues 2006 - For most of the last 50 years, globalization has been a win-win proposition, making America richer while lifting hundreds of millions in the developing world out of poverty and despair. Recently, however, it has begun to operate differently, undermining U.S. welfare while creating imbalances likely to end in a global economic crisis.

In this new mode, globalization is tilting the world like a giant sliding board game on which the "flattening" of old barriers is accelerating the transfer of the supply side of the U.S. economy to the rest of the world, especially Asia. Take Boeing as an example. Long America's leading exporter, it symbolizes the kind of high-tech leadership on which the future of the U.S. economy is widely said to depend. After

losing market share to the European Airbus in recent years, Boeing responded by developing the new 787 Dreamliner, which is gathering record orders. Yet these sales may not add a lot to the U.S. economy because much of the work—including production of the critical carbon-fiber wings that Boeing always insisted would be kept at home—will be done in Japan.

Even more telling is the example of the semiconductor king, Intel. When economists and political leaders say American industry should concentrate on producing very-high-technology products where it has a clear comparative advantage, Intel's chips are what they have in mind. Yet company executives recently told a presidential advisory panel that under present circumstances they must consider building more of their new factories abroad. Over the next 10 years, they explained, the cost of running a semiconductor factory in the United States could be $1 billion more than that of running it abroad.

That there is something odd here is not yet widely acknowledged. Indeed, most business, academic, media and political leaders continue to insist that globalization is proceeding smoothly, making the world rich, more democratic and more peaceful. President Bill Clinton called globalization America's strategy, and President George W. Bush describes the American economy as the "envy of the world." Nor is this view entirely unjustified. U.S. GDP and productivity growth are the highest in the developed economies, while inflation, unemployment and interest rates are among the lowest.

Nevertheless, a closer look reveals a dark side. The U.S. trade deficit is now more than $800 billion, or 7 percent of GDP, and grows inexorably as Americans continue to consume more than they produce. The trade imbalance is of unprecedented size and breadth. Economists typically expect the United States to import commodities and cheap manufactured goods while exporting high-tech products, sophisticated services and agricultural goods, for which its land and climate are well suited. In reality, the U.S. high-tech trade surplus of $30 billion in 1998 has collapsed to a deficit of about $40 billion. Agricultural trade is now also in deficit for the first time in memory, and the modest surplus in services is declining as global deployment of the high-speed Internet has made it possible for services to move offshore as easily as manufacturing. In short, U.S. exports are declining versus imports across the board, while its growth depends on foreign lenders (primarily in Japan and China) to finance the excess consumption.

Two factors explain these unexpected trends. The first has been at work for a long time. It is the gradual construction of the global economy in an asymmetrical form. For the United States, globali-zation has meant building its economy into a giant consumption machine. Easy consumer credit, home-equity loans with tax-deductible interest payments, markets largely open to imports, policies that emphasize growth through demand management and accommodative monetary policy, and myriad other incentives have led Americans to save nothing while both households and government borrow at record rates. This is often justly criticized as excessive. But it is important to understand that American buying drives most of the world's growth because the United States is virtually the only net consuming country in the world.

Globalization for most others has meant export-led growth. Particularly in Asia, "catch-up" development policies have focused on creating production and export machines. There are many flavors, but most Asian economies are characterized by relatively low consumption, savings rates of 30 to 50 percent of GDP, government intervention in markets, managed exchange rates, promotion of investment in "strategic" industries, incentives for exports and accumulation of chronic trade surpluses along with large reserves of dollars.

Indeed, the dollar is the key to this whole lopsided global structure. The dollar, of course, is not only America's money, but also the world's primary reserve currency. As long as others will accept it in payment, America can buy and borrow without concern for saving, investment or production. Thus, deficits—whether trade or budgetary—really don't matter and America can get away with fiscal irresponsibility. Oddly, the rest of the world can be just as irresponsible. By managing exchange rates to keep the dollar overvalued and their export prices low, other countries can oversave and overinvest because the excess production can be exported to the U.S. market.

This structure has grown for so long because it has great benefits for both sides. America gets to live above its means, as cheap imports and foreign capital keep inflation and interest rates down and home values rising. The rest of the world, especially Asia, gets to climb the ladder of technology faster than it would otherwise. By accumulating dollars, Asia also gains strategic leverage over the lone superpower—which, by outsourcing management of the dollar, has ceded a degree of control over its own long-term interest rates.

There is a downside, however. By keeping the dollar chronically overvalued and providing investment subsidies to attract strategic industries out of the United States, the Asian export-led-growth approach has long tended to shrink U.S. productive capacity. For some time, this was true mostly of commodity manufacturing, and the significance of the trend was discounted with the rationale that the U.S. economy was moving to the "higher ground" of high-tech and sophisticated services.

This argument was never entirely satisfactory because of the exchange-rate management and the investment subsidies used by export-led-growth countries to attract high-tech production to their shores. For instance, Boeing is outsourcing much of the 787's construction to Japan in part because an overly strong dollar reduces yen-based costs, and in part because the Japanese government will provide production subsidies unavailable in the United States while "encouraging" Japanese airlines to buy the planes if the work is done in Japanese factories. For Boeing, this is all of critical importance as a way to offset the launch subsidies provided by the EU to archrival Airbus.

But if it was always flawed, the argument is now in tatters in the face of the second aforementioned factor: the entrance into the global economy of China and India. Not only do they offer low costs, which the strong dollar further reduces, but—contrary to common assumptions about developing countries—significant portions of their populations are highly skilled. They can thus be competitive across the entire range of manufactured goods and services. The negation of time and distance by the Internet and air-express services makes this all the more true.

Further, the potential size of these markets attracts investment in anticipation of growth, even if the initial production cost is not fully competitive. This is particularly true of China, where national pride and an authoritarian government willing to offer large investment incentives create an environment in which foreign companies are encouraged to engender "trust" by transferring factories and technology to China, regardless of the fact that the comparative cost advantage lies elsewhere.

This, combined with the asymmetric global economic structure, is why the U.S. trade balance is collapsing even in advanced-technology products and serv-ices. The growing trade imbalance, in turn, makes the current mode of globalization unsustainable. To finance the deficit, the United States is already absorbing about 80 percent of available world savings. The value of U.S. imports is now more than double that of exports. To merely stabilize the deficit at its current rate would require that exports grow more than twice as fast as imports.

But this cannot happen if the supply side continues to move offshore. If it doesn't happen and the deficit keeps growing, world savings will eventually be insufficient and a financial crash will be inevitable. Of course, U.S. consumption and imports could be cut, but if that were to occur without a commensurate increase in consumption elsewhere, the whole world economy would suffer recession, if not depression.

Some economists speak bravely of a "soft landing." In this scenario, the United States reduces its budget deficit and excess consumption, while a gradually falling dollar results in rising exports to foreign markets where governments are stimulating consumption. While desirable, this will not occur automatically. Interest groups in all the key nations will defend the status quo.

Thus, for the sake not only of the United States but of all nations with a stake in globalization, it is imperative that political leaders change its current mode. The game cannot continue with one participant playing consumer while nearly all the others play producer. For the long-term success of all, everyone must agree to play the same globalization game.

Prestowitz is president of the Economic Strategy Institute and author of "Three Billion New Capitalists: The Great Shift of Wealth and Power to the East."

© 2005 Newsweek, Inc.

http://www.msnbc.msn.com/id/10206250/site/newsweek/

Silver™

The US maintains a strong lead over India and China in numbers of qualified engineers, according to a new report that seeks to debunk the popular view that the US lags far behind in producing skilled technologists.

On a per capita basis, the US graduates more than 750 engineers per million of population, while India and China graduates only 200 and 500 engineers per million, respectively, according to a study released on Tuesday by Duke University’s engineering school.

Those figures run contrary to widely quoted numbers that say the US graduates 70,000 engineers a year versus 350,000 from India and 600,000 from China. The latter figures are based on reports issued by the Chinese ministry of education and the National Association of Software and Service Companies (Nasscom) in India.

http://news.ft.com/cms/s/09cdb91c-6c...0779e2340.html (full article)

Fibonacci

M TYPE X already knows this...

U.S. Students Need More Math, Not Mandarin: Andy Mukherjee
2006-01-22 17:08 (New York)


(Commentary. Andy Mukherjee is a Bloomberg News columnist.
The opinions expressed are his own.)

By Andy Mukherjee
Jan. 23 (Bloomberg) -- Fear of China is making Americans so
nervous that some of them have stopped thinking rationally.
At least that's the impression I draw from the whole craze
in the U.S. about learning Chinese.
The Associated Press this month reported that the U.S.
Senate Foreign Relations Committee is considering a proposal to
allocate $1.3 billion to public schools for teaching Chinese
language and culture.
The AP story cited a survey in which 2,400 U.S. high schools
said they would consider teaching Mandarin. Only 240 opted for
Italian and 175 chose Japanese.
``Chinese is a language we, as a nation, can no longer
afford to ignore,'' a delegation of U.S. business and education
leaders said this month in its report after touring China.
The group, noting that U.S. schools have fewer than 50,000
students learning Mandarin while more than 110 million Chinese
are learning English in China, recommended ramping up ``national
capacity'' so that 5 percent of U.S. high-school students are
studying Chinese by 2015.
It's no doubt valuable to learn Mandarin, or any other
language, for cultural enrichment. If, however, the language is
to be drilled into one in 20 high-school students, hard economic
costs and benefits must be considered alongside the intangibles.
Let's ask experts to put a value on the resources that will
be required to meet the goal of putting 5 percent of U.S. school
students in Chinese-language classes by 2015 both in terms of
teaching expenses and the opportunity cost of the pupils' time.
Let's also ask educators what could possibly be gained from
this investment when 110 million Chinese students, who will
comprise the bulk of China's urban middle-class earners and
consumers from 2015 onwards, are already learning English.

Brandt Rule

It's important to remember that even if the most-populous
nation fulfils Goldman Sachs Group Inc.'s prophecy and overtakes
the U.S. as the world's largest economy by 2050, the average
Chinese will still be earning less than half as much as the
average American, British, Japanese, French, German or Canadian
citizen.
The (mostly rural) Chinese students who are growing up
without any teaching of English at all would urbanize and become
the next generation of factory workers, making cars, electronics
and everything else that America will consume.
They won't be the world's buyer of last resort. No one will
make an extra effort to speak their tongue. This reality was
perhaps best captured in a maxim that author Donald DePalma
attributes to former German Chancellor Willy Brandt: ``If I am
selling to you, I speak your language. If I am buying, dann
muessen Sie Deutsch sprechen.''
Roughly translated, If I'm buying from you, you speak my
language.

`Give Him Face'

China will embrace English on its own terms.
Writing in the journal English Today in April 2004, Hu Xiao
Qiong makes a compelling case for native English speakers to
accept ``China English,'' a communication tool she says is as
good as standard English, into the fraternity.
Hu gives an example of China English: ``You must go to his
son's wedding dinner. You must give him face.'' In most Asian
societies, face is equated with honor, whereas standard English
insists that only ``to lose face'' is idiomatically correct. Hu's
point is that if the Irish can gain admittance into the inner
circle of English speakers in just 50 years with their own unique
idiom, the Chinese should also be made to feel welcome.

Language of Law

The English language is what economists call a ``network''
good, something that gains in value with more widespread usage.
Rule of law is its most beneficial ``network externality.''
As English becomes the norm for commerce -- and eventually
superior courts -- in China, the business-unfriendly Chinese
legal system will start converging toward English common law
practiced in Hong Kong. When that happens, U.S. companies and
banks in China will be rewarded handsomely.
``The common law system in which the law is continually
reinterpreted by judges ends up protecting property rights far
more than others and makes it easier to enforce restrictive
covenants,'' Columbia University economist Frederic Mishkin said
in a recent paper on financial globalization.
The U.S. can find many other uses for the $1.3 billion the
Senate committee wants to allocate for Mandarin education. One
priority may be to train math teachers to calculate the value of
1 3/4 divided by a half.
Researcher Ma Liping describes that particular problem in
her 1999 book ``Knowing and Teaching Elementary Mathematics.''
More than half of U.S. math teachers to whom Ma had given
the problem got the computation all wrong. Not only did all the
teachers in China get the answer right, 90 percent came up with a
valid ``story'' to explain the solution to children so they got
the correct figure of 3 1/2.

Math, Not Mandarin

In 2004, Alan Greenspan, talked about math education's being
a threat to U.S. competitiveness in a Senate Banking Committee
hearing. The Federal Reserve chairman's concerns were validated
in a Bloomberg News article last week about the Chartered
Financial Analyst exams.
Chinese students, the article said, had the highest pass
rate in the world in last month's CFA Level I test, followed by
Germany and India. The U.S. was fourth.
Kindergarten students in Portland, Oregon, are learning that
a triangle is ``San-Jiao' in Mandarin, according to the
Associated Press. They might learn something more useful by
playing with an abacus.

--Editor: Henry (jmg/pdv)

Story illustration: For the U.S. education delegation's report
on its visit to China, see
http://www.internationaled.org/educationinchina.htm
For the Web site of the CFA Institute, see
http://www.cfainstitute.org.

source: bloomberg.com

Fibonacci

Dubya "feels your pain..."


China, India Finally Appear on Bush's Radar
2006-02-02 14:03 (New York)


(Commentary. William Pesek Jr. is a columnist for Bloomberg
News. The opinions expressed are his own.)

By William Pesek Jr.
Feb. 3 (Bloomberg) -- Standing at a podium in New Delhi
recently, Microsoft Corp. Chairman Bill Gates was asked for a
sound check. Instead of the usual ``1, 2, 3, 4'' he counted ``1
billion, 2 billion.''
The joke referred both to India's billion-plus population
and the billions his company and others are investing in that
country. It delighted his audience, as did his announcement in
December that Microsoft would pump $1.7 billion into India.
Gates called it a ``fairly conservative'' amount considering
``the evidence of the role we see for India and the growth we
see.'' He said Microsoft's ``employment growth in India will be
far more rapid than in the U.S.''
Such realities have caught the White House's attention, if
President George W. Bush's State of the Union address this week
was any guide. So is the gold-rush mentality driving corporate
chieftains to move an ever-growing number of U.S. jobs to China?
``In a dynamic world economy, we are seeing new competitors
like China and India,'' Bush said Jan. 31. ``This creates
uncertainty, which makes it easier to feed people's fears.''
While it's an important admission that the U.S. can't be
complacent, the administration still seems in denial about Asia's
rise. Bush suggested as much when he said: ``Americans should not
fear our economic future because we intend to shape it.''
The statement is clearly ridiculous. And so is the
administration's belief that spending $380 million to improve
math and science education in elementary and high school will
boost U.S. competitiveness.

Future Is Asia's

It's not enough to acknowledge China and India are becoming
competitors when the future belongs to Asia's two nascent
superpowers, at least in the longer term. Rather than making
Bush's tax cuts permanent, the Congress should spend that money
-- and lots more -- retooling U.S. education programs to compete.
Pundits point out that Bush devoted less than 3 minutes of
his speech to energy dependence. It's even more disturbing that
he only mentioned the words ``China'' and ``India'' once and
didn't mention ``Asia'' at all. This region's seemingly
insatiable demand for commodities is part of what's driving the
former oilman to end the U.S. ``addiction'' to oil.
``Based upon the recent focus in Davos, I would have
expected him to devote a little more attention to China and
India,'' said David Cohen, Singapore-based economist at
consulting firm Action Economics, referring to last week's World
Economic Forum event.

U.S. Addictions

Bush ignored another U.S. addiction: Asia's money. What
makes unsustainable U.S. budget and current-account deficits
appear sustainable is Asian central banks' holding more than $1
trillion of U.S. Treasuries. It keeps bond yields low, the dollar
up and enables U.S. consumers to live beyond their means. At the
same time, Asian nations can't afford to sell off dollar-
denominated bonds and risk a surge in interest rates in their
most important export market.
The economic trajectory should be clear to Washington.
China's economy may well surpass that of the U.S. in the next few
decades. It passed the U.K. to become the world's No. 4 economy
last year. India won't be far behind.
Asia's vision of the future should worry the U.S., too. In
December, Malaysia hosted the first-ever East Asia Summit, to
which India was invited, but the U.S. pointedly wasn't. It was a
sign that economies in the region are looking inward, relying on
neighbors for growth and advice, not on the U.S.
If the Bush administration wonders why, it should start by
looking at its own policies. Aside from demanding that China
strengthen its currency, its only consistent focus has been
urging support for the U.S.-led war on terrorism. While fighting
terror is important, it's hardly the main issue on Asians' minds.
And the war in Iraq was never popular in Asia.

Losing Asia

Twenty years from now, Iraq may not stand out as Bush's
biggest foreign policy blunder. Rather, it may be how the U.S.
lost Asia, a region in which it once enjoyed vast influence and
commercial ties.
The U.S. economy, by far the world's largest, won't become
irrelevant. It's still the No. 1 trading partner for much of Asia,
and the dollar is still the benchmark used to assess the terms of
global trade.
Yet it's no mystery why a year ago this week, the U.K. shook
up the Group of Seven's clubby world and invited China and India
to a meeting in London. It was a clear admission that demand from
economies beyond the G-7's purview now plays a dominant role in
global growth and prices. The G-7 also knows that if Asians sold
their dollar holdings, the U.S. may be in trouble.
Asians are ``dead central'' to efforts to retain any
semblance of control over the global economy and energy prices,
said Kenneth Courtis, vice chairman for Asia at Goldman, Sachs &
Co. in Tokyo. ``Please tell D.C.'' he said.

Future Shock

It's unclear if the Bush administration realizes how much
China and India may affect the U.S.'s global standing. While much
is made of China versus India, what if these two fast-growth
economies strengthen ties to the exclusion of other countries,
including the U.S.? Talk about future shock.
Business groups, worried that students will fall further
behind in math and science, are increasingly calling for a U.S.
agenda akin to one that followed the Soviet Sputnik launch in
1957. Without those skills, U.S. innovation will suffer. Reviving
images of the Cold War space race, it's hoped, will shake the U.S.
out of its complacency.
Let's hope so. Otherwise, the U.S. may be more of an outside
observer than a participant in the Asian century.

source: bloomberg.com

M TYPE X

Bill Gates is so funny. Not.

So, I recently read Friedman's book.
So contradictory.
Pro-trade, but bleeding-heart liberal.
... yeah, very mainstream for an 'intellectual'

mamboking

The center wheel of my mouse has become overheated from all the fawking scrolling I had to do. I think posting other's articles in here while educating can be overdone and throws the thread into the "ignore" bin.

M TYPE X

My center mouse wheel was malfunctioning, so I rebooted my PC.

"The More You Know"

<= hates 'scrolling features' [i.e. National Review Online's poorly-posted blog]

Fibonacci

China, India Might Buy Rockefeller Center Next: William Pesek
2006-02-23 14:39 (New York)


(Commentary. William Pesek Jr. is a Bloomberg News
columnist. The opinions expressed are his own.)

By William Pesek Jr.
Feb. 24 (Bloomberg) -- For news junkies who love a bizarre
story, Mittal Steel Co.'s hostile takeover bid for Arcelor SA
still has plenty to offer.
The best part isn't the steady exchange of public barbs.
Nor is it the racism suggested by the European reaction to
Indian-born Lakshmi Mittal owning Luxembourg-based Arcelor. It's
how the West just doesn't seem to see the East coming.
The U.S.'s failure to notice Asia's rise was clear enough
from last year's Chinese bid for Unocal Corp. Shocked members of
Congress torpedoed Cnooc Ltd.'s attempt to buy the No. 8 U.S.
oil company, playing the national security card. It was a
disingenuous, though successful argument.
Now we have the world's biggest steel company fending off
Mittal's $23.7 billion bid for Arcelor. Chief Executive Officer
Guy Dolle said Arcelor doesn't share the ``values'' and
``culture'' of Mittal. He also dismissed the Rotterdam-based
Mittal as a ``company of Indians.''
Officials in New Delhi weren't amused. ``This is an era of
globalization, cross-border investment and liberalization, not
one in which investors are judged by the color of their skin,''
Indian Trade Minister Kamal Nath told the Financial Times.

Xenophobia?

Visiting India this week, French President Jacques Chirac
was greeted by some unflattering editorials. One, in the New
Delhi-based Hindustan Times, decried ``an astonishing amount of
xenophobia, pseudo-patriotism and perhaps simple, old-fashioned
racism.'' Chirac said concerns over Mittal's bid were ``entirely
legitimate.''
Never mind that Mittal isn't really an Indian company, or
that Mittal, 55, is arguably the biggest steel-industry success
story since Andrew Carnegie. Never mind that many investors say
the merger is exactly what that industry needs. Arcelor and
governments in France and Luxembourg are digging in for a fight.
Europe and the U.S. haven't seen anything yet from an
increasingly acquisitive Asia. Lining up behind Mittal is a
potentially huge stable of Indian and Chinese companies with as
much ambition as cash to spend.
It's one of the greatest ironies of the Bush
administration's campaign for a stronger yuan. Politicians
pressuring China to revalue even further forget how Japan
unnerved Americans in the 1980s when it bought California's
Pebble Beach golf course, New York's Rockefeller Center and
Universal Studios in Los Angeles. A stronger yuan won't save
many U.S. jobs, but it will make the U.S. more affordable and
spark a Chinese buying binge that dwarfs Japan's.

Acquisitive Asia

Those in Washington patting themselves on the back for
scuttling China's Unocal bid forget what happened in December
2004. That was when China's Lenovo Group Ltd. agreed to buy the
personal-computer business of International Business Machines
Corp. for $1.25 billion. It was the first sign China is becoming
more internationally acquisitive.
Western countries can try to hold off Asian overtures,
though it's a futile exercise. All the bellyaching, legislation
and corporate poison pills in the world won't stop this
unavoidable phase of globalization. Besides, the cultural values
of which Arcelor speaks won't resonate with shareholders. If a
transaction makes sense business-wise, investors will have the
final say.
Europe is worried Mittal will close factories and eliminate
jobs. No one is saying it won't be difficult for workers who are
shown the door. The process also will be disorienting for
nations used to viewing emerging economies as sources of cheap
labor -- not as homes to multinational companies gobbling up
theirs.

Action, Not Debate

Western executives and governments need to figure out how
to make the most of a trend that will only accelerate. Debating
the pros and cons just delays the bold actions needed to adapt.
Clearly, they won't easily relinquish control over the
global financial system. The Group of Seven industrialized
nations' failure to broach the issue of including China shows
how those holding power are often reluctant to give it up.
The G-7, it seems, would rather slide further toward
irrelevance than allow what's now the fourth-biggest economy
into the club. It's a microcosm of how many U.S. and European
executives are likely to respond to globally minded Asians.
Imagine what Washington will say when Chinese or Indian
executives bid for General Motors Corp. or Microsoft Corp. Just
wait until Chinese manufacturers buy what's left of the U.S.
textile industry. Or when a stronger yuan aids Chinese
electronics firms in acquiring key U.S. component makers, or
helps Chinese real-estate tycoons snap up trophy U.S. properties.

Asia Rising

Think of the possibilities. If China's Communist Party
really wants to police the Internet, it could just make bids for
Google Inc. and Yahoo! Inc. And why not just buy Wal-Mart Stores
Inc., given all the jobs the Bentonville, Arkansas-based company
is creating in China?
Change is always hard to swallow. Yet there's something
western countries need to realize: Corporate Asia is coming --
whether you like it or not.

source: bloomberg

BC2G

i vote :ban: pistonfan for the explosion of text in this thread.... it's totally unreadable

Fibonacci

Que es tu problemo? No comprende Ingles?

Silver™

Fibonacci

Silver, don't be sore just cuz I completely own you in every R&P thread where we have opposing viewpoints...

As for the explosion of text, some people actually enjoy reading entire articles in context to formulate an informed opinion.

:shortattentionspantheatre:

Fibonacci

Immigration is a primary reason why our economy is still so competititve relative to other Post-Industrial nations such as those in Western Europe. As long as we attract the best and brightest, the world is a lttle less flat - which is good for Americans

Silver™

Fibonacci

U.S. workers can't compete globally unless they work harder, writes Fortune's Geoff Colvin.

http://money.cnn.com/2007/08/22/news...ion=2007082306

gatrhumpy

iTrader: (1)

I have to read this book for my Master's Degree class on Information Systems. Seems interesting.

moeronn

Didn't part of the EU just recently increase their work week hours because they were falling behind?

As for this trend, it likely has a lot to do with the fact that employers treat their employees like a comodity. There are very few "company men" these days because corporate culture has changed severely over the last 30 years. Make an employee see direct benefits from working harder and you're more likely to see this reverse. Treat them like they are a dime a dozen and it will only continue to worsen. My guess it that a large portion of that 18% work as much as they do for financial reasons rather than because of work ethic or company loyalty/commitments.

Sly Raskal

iTrader: (1)

I'm reading his book "The world is flat" right now for one of my classes. At first I thought it was a pretty good read, but after really getting into it, like others have said, he drops names like no other and he repeats himself over and over again.

Fibonacci

It's true China is booming, Russia is growing more assertive, terrorism is a threat. But if America is losing the ability to dictate to this new world, it has not lost the ability to lead.

http://www.newsweek.com/id/135380