Thelexusandtheolivetree Biz

WISDOM IN A NUTSHELL

The Lexus and the Olive Tree

By Thomas L. Friedman Anchor Books 2000 ISBN 0385499345 490 pages

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The Lexus and the Olive Tree Page 2 The Big Idea Pulitzer Prize winning journalist Thomas L. Friedman, writes in his book, The Lexus and the Olive Tree, about the phenomenon of globalization and how it has instituted an international system that has replaced the Cold War. It is a system that has united the fates of peoples all over the world from Brazilian Indians to Thai bankers to multinational company executives. Here, Friedman explains how the democratization of information, technology and finance has shrunk the world into an over connected community where billions of dollars are moved from one country to another with the click of a mouse. He offers not only an astonishingly all-encompassing perspective on this globalized, Fast World but also options for countries and companies who wish not only to survive in it but also to thrive in it. He also explains how in the globalized world a balance must be maintained between the Lexus (the aspiration towards material prosperity) and the olive tree (the ancient forces of culture, race, tradition and community). Thomas L. Friedman was for some years the foreign affairs columnist for The New York Times, firing off reports as Beirut correspondent and later winning a Pulitzer Prize for his book, From Beirut to Jerusalem. In this new bestseller, Friedman explores an arena much larger than geopolitics because it encompasses the globe itself. He ventures to declare that globalization has become the defining international system in the world today, replacing the system put in place by the Cold War. In fact, he contrasts the defining principles that distinguish the Cold War and globalization. During the Cold War, there were two superpowers, each excluding the other in its spheres of political and economic influence. In the globalized world, the defining principle is not exclusion but integration. The Internet is integrating the entire world. Friedman says, “That’s why I define globalization this way: it is the inevitable integration of markets, nation-states and technologies to a degree never witnessed before – in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper and cheaper than ever before and in a way that is enabling the world to reach into individuals, corporations and nation-states farther, faster, and deeper, cheaper than ever before.” Globalization is a spawn of a free market economy. Its defining measurement is speed. Friedman says the most frequently asked question in a globalized world is, “How fast is your modem?” In this system, the defining economists are Joseph Schumpeter, the Austrian Minister of Finance and Harvard Business School Professor and Intel Chairman, Andy Grove. Schumpeter wrote in his book, Capitalism, Socialism and Democracy that the essence of capitalism is the process of continuously destroying the old and less efficient product or service and replacing it with new, more efficient ones. Grove took this notion and popularized the idea that dramatic industrytransforming innovations are taking place so fast that only the paranoid, those who are constantly on the watch for these innovations, can survive. In such a world there are no friends or enemies, only competitors. Nothing is constant, not your job, your community or your workplace, which can be threatened almost overnight by new technological forces beyond your control. Friedman thinks globalization is built around three balances, which overlap and affect one another. There is the traditional balance between nation-states, between nation states and global markets and between individuals and nation-states. The balance between nation-states still exists. In explaining the second balance, between nation-states and global markets, Friedman describes the millions of investors as the Electronic Herd, who move money around the world with the click of a mouse and who center their activities in such financial centers as Wall Street, Hong Kong, London and Frankfurt, which he calls, “the Supermarkets”. Suharto's downfall in 1998 in Indonesia is example of the Supermarkets' clout. They withdrew their support for the Indonesian economy. In the third balance, the one between individuals and nation-states, the individual gains so much power that it can influence the decisions of nation-states. An example of this super-empowered individual is Osama bin Laden, who dared to declare war on the US, and who orchestrated the devastating September 11 air attacks. To understand globalization, we need to perceive the interaction between these balances and these players, the states, the supermarket and the super-empowered individuals.

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The Lexus and the Olive Tree Page 3 Information Arbitrage Friedman claims that in order to explain globalization, he uses “information arbitrage”. Arbitrage, a market term, refer to the buying and selling of the same securities, commodities or foreign exchange in different markets to profit from unequal prices and unequal information. Friedman says the effective journalist or foreign affairs analyst needs to attain a perspective from different points of view. He or she needs to practice information arbitrage in order to offer a comprehensive, balanced view to his readers. After his Middle East assignment, Friedman was asked to report on a peculiar conjunction of finance and foreign affairs. It was this sudden ability to see the financial aspect of events that affected politics, culture and national security that enabled Friedman to perceive that at the core of globalization is the wave of technological advances. So Friedman learned to “connect the dots”, to see the interplay of political, economic, cultural, environmental and technological forces that were affecting global events. He emphasizes that in order to understand world events and to explain them to readers and viewers, journalists need to be “globalists”, to break out of their narrow geopolitical boundaries and to see the complex interaction of political, economic and cultural forces that influence events. Yale historians Paul Kennedy and John Lewis Gaddis wrote that while there remains a need for particularists, experts in certain subjects, strategizing should not be left in the hands of particularists. They however deplored the trend among academes to stress ever-narrowing fields of specialization rather than broad encompassing perspectives of various fields.

The Lexus and the Olive Tree Friedman explains the title of his book in this chapter. He reflects that explaining world events involves studying what is as new as Internet websites and what is as old as olive trees in Jerusalem. He says that while in one part of the world the Japanese are building Lexus cars with the use of advanced robotics, in another part of the world, a whole gamut of issues hinged on who owned which olive trees in Jerusalem. While the Lexus represented modernization, the triumph of technology, the olive tree symbolized everything which identifies a people as unique. The tree signifies the core of values that make a people feel that they are part of a country or a family. The olive tree tells them who they are. Friedman’s view is that to understand our world today we need to grasp the interplay between the very human desire for material betterment as symbolized by the luxury Lexus car and the need to cling to one’s individual and communal roots, as symbolized by the olive tree. Friedman offers examples of this symbolic interplay between the two forces. He narrates a trip to the Kayapo Indian village in the Brazilian rain forest. The Kayapo have defended their share of the rain forest from exploiters by forming international alliances with scientists and environmentalists. Friedman observed that the Kayapo Indians were monitoring on television the price of gold on the international markets because they wanted to be sure they were charging competitive prices from the miners whom they allowed to dig on the edges of the rain forest. They then used the profits from the mining operations to fund their conservation efforts for the rainforest. Friedman also cites examples of the olive tree being sidelined in favor of the Lexus or the Lexus being dumped in favor of the olive tree. He insists that a healthy balance must always be sought between the two symbols. Societies need to aim for the Lexus but they should also recognize the need for the olive tree.

And the Walls Came Tumbling Down Friedman says the fall of the Berlin Wall reverberated all over the world. Events now impact not just the immediate geographical area of their occurrence but in countries halfway around the

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The Lexus and the Olive Tree Page 4 world. The interconnectivity of these events were caused by three fundamental changes, changes in how we communicate, in how we invest and how we learn about the world. It is important to understand that technological advancement is no longer the exclusive exercise of rich and powerful nations. Technology has been democratized through changes in computerization, telecommunications, and miniaturization, compression technology and digitization. Friedman quotes former NBC president Lawrence Grossman: “Printing made us all readers. Xeroxing made us all publishers. Television made us all viewers. Digitization makes us all broadcasters.” This democratization of technology also brought about the globalization of production. Friedman points to Thailand, which became the fourth largest maker of motorcycles and second largest producer of pick-ups trucks, using technology developed in other countries. With democratization comes a dispersal of opportunities to create wealth. Swissair moved its accounting division to India to take advantage of the lower labor costs for accountants, secretaries and programmers. America Online has 600 customer representatives in the Philippines who answer up to 12,000 inquiries on the telephone. The reps receive the same salary as unskilled workers in the USA would make but still above the minimum wage in the Philippines.

The Democratization of Finance Along with the change in how we communicate came a change in how we invest. The world of finance began its democratization in the 1960s when the big banks began selling bonds to the public to raise funds. This democratization was carried further along when Michael Milken began trading junk bonds, which were bonds from companies that were formerly blue chip or new companies that were asked to pay higher interest. Milken was able to see these junk bonds to private investors, mutual funds and other ordinary people and gave them higher returns with not much higher risks. A similar democratization took place in international markets as well. Loans extended to foreign governments were converted into government bonds, which were sold to the public, which made the market more liquid and yet added more pressure on foreign governments to improve their economic performance. Suddenly, foreign governments with loans were accountable to ordinary citizens around the world. The public bondholders simply sold their bonds if they felt that the particular country they had invested in was not performing well. They then invested in another country. This forced foreign governments to be serious in their economic improvement. Although this selling of government bonds to the public is nothing new, but the degree to which it is now widely dispersed all over the world is unprecedented.

The Democratization of Information The democratization of information came about through the globalization of television. Television was at first regulated by government and stations were limited. In the 1980s cable TV, and later the falling cost of satellite dish technology made it possible for more people to see more channels from other countries at less cost. The development of the digital videodisk also makes it possible now to make anyone a potential movie mogul as well as movie distributor through the Internet. But the crown jewel in the democratization of information is the Internet and the most remarkable aspect is that no one owns it and yet it reaches into nearly every home. The Internet was born as part of the US government’s response to Russia’s launching into space of the Sputnik satellite. President Dwight Eisenhower created the Advance Research Projects Agenda (ARPA), which later became Pentagon’s arm for promoting computer science research and information processing. The Internet prototype was unveiled in 1969 and called ARPAnet, a crude private computer network linking the US Defense department with key university researchers and government laboratories. The object of the network was to share computer time and equipment through the network system.

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The Lexus and the Olive Tree Page 5 In 1972, e-mail was born when Ray Tomlinson, who worked for the computer research firm, Bolt, Beranek and Newman, wrote a program, which made it possible to send a file from one computer’s mailbox system to another. Tomlinson also devised the use of the @ sign in e-mail to identify the e-mail user with his or her institution. But initially data could only be transferred between universities, the government, companies and research firms. It was Vint Cerf and Bob Kahn who created a network protocol that enabled data to leave one network and enter another network. This event in 1973 marked the true beginning of the Internet. An English software engineer, Tim Berners-Lee, designed software standards for addressing, linking and transferring multimedia documents over Internet, Berners-Lee invented the uniform resource locator (URL), the hypertext transfer protocol (HTTL), and the hypertext markup language (HTPL). Together, these innovations formed the hyperlinks that formed the basis for the World Wide Web. As a tool for research and communication, the Internet was helped along by the development of the Web browser, the search engine and the encryption technology that allowed credit card numbers to be typed on to a website order to do business. The development of the Netscape Navigator and the Congress as decision to approve Internet commerce produced a tremendous increase in Internet usage and accelerated the democratization of information. Never before in history have so many people had access to so much information right in their own homes or offices. Broadband access also means that the Internet connection is always on and that information will be available to you at high speed. The opening of the information highways to ordinary people means no one need be isolated anymore. Nico Lopez Valdez Vivo, Rector of the Cuban Communist Party’s school for advanced studies said, “Cuba is no longer an island. There are no islands anymore. There is only one world.” The Internet means police states can no longer control the amount of information they can feed to their people and yet they cannot afford not to make use of the Internet. The Chinese government was powerless to stop a computer entrepreneur who provided the e-mail addresses of some 30,000 computer users to a US-based dissident Chinese newsletter. The newsletter publishers in the US sent real uncensored news to these users. The more people learn about how other people live in other countries the more difficult it will be for governments to control them. The explosion in Internet information is already influencing world politics. It is also influencing financial markets, providing investors with the information to make their investments without calling a broker. With such information, investors now have more control over their investments than ever before.

Microchip Immune Deficiency Friedman admits that globalization is not yet global. Despite the addition of 300,000 new Internet users everyday, there are numerous remote areas in the world where whole communities have not so much as set eyes on a computer. But he insists that most of the world has been affected directly or indirectly by globalization and most of the world wants to join in this worldwide integration. He also attributes the simultaneous occurrence of the decline in Chinese communism, the Soviet Union, East Germany, Brazilian state-owned industries, General Motors and IBM to a phenomenon called MIDS (Microchip Immune Deficiency Syndrome). He describes these MIDSafflicted companies and countries as failing to adapt to the challenges of the Fast World and unable to bring about the democratization of decision-making and information. There is nothing new about economies and companies demolishing their competitors that are less efficient or adaptable to change. But the democratization of technology, finance and information merely accelerated that process.

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The Lexus and the Olive Tree Page 6 Friedman traces the evolution of MIDS to the much slower economy of the post war period until the late 1970s. In this environment, competition was constrained by tariff walls. The Soviet Union is a classic example of a centrally controlled economy, which prioritized political rather than economic power. But then in the 1980s, the Information Revolution took place. Friedman thinks its two principal effects were to lower the barriers to entry into almost any business and to increase competition and the speed at which a product could move from being an innovation to a commodity. This Revolution empowered the consumers, enabling them to move their business quickly from companies that won’t deliver what they want to those that will. The three democratizations enabled anyone to start a business at very low cost. This was how the humble Amazon.com managed to challenge the great publishing houses in the field of book marketing. The Internet, says Friedman, offers the closest approximation to a perfectly competitive market characterized by the absence of barriers to entry, absence of protection for unprofitable or inefficient companies and free and easy access by consumers to all information. The Internet is also changing the way a company runs its own business along more efficient lines and in ways that will serve the needs of its customers. Even stockbrokers services have been turned into a commodity as more people find that they can obtain market analyses and stock information from the Net, thus putting pressure on Merrill Lynch to charge less for its services an provide more personalized, tailor-made advice for navigating the global market place.

The Fourth Democratization Friedman refers here to the democratization of decision-making using as an example the Soviet Union, which began to lose the centralized, rigid control it had held for so long. He says that more and more companies are decentralizing certain functions to their regional branches because these are closer to their target markets. He says the motto “The buck starts here” no longer applies. At the speed with which events take place, it is no longer feasible to wait for the top management to act upon information when those in the frontline are in a much better position and are better informed to deal with it. While this seems to threaten a loss of control or even chaos, Friedman says this merely implies a need to redefine the center. He cites Robert Shapiro of Monsanto, who says he now makes sure he listens to his local managers and in turn makes sure his managers are trained in the culture, values and strategy of the company. Friedman also narrates how the democratization of decisionmaking has allowed a farmer not only to keep track of how much crops he is harvesting but also how to choose which crops thrive best in certain acres of his farm and which fertilizers are suitable for different parts of the land. This farmer is a practitioner of “precision-farming”, enabling him to survive in the competitive area of agribusiness. This is an example of an entrepreneur who managed to stave off MIDS by using technology to the advantage of his small enterprise.

E-Business An advertisement by the Computer Sciences Corporation says, “Inside every business, there is a huge e-business opportunity ticking away.” Alan Cohen, of Cisco Systems, says there are several rules for surviving in e-business. His first rule is a company must be an e-business, adopting the Internet for its communications, marketing and sales. Cisco sells a vast majority of its equipment over the Net, utilizing a system that enables its staff to take orders and feed them into the system, freeing them to concentrate on servicing customers. Customers can also find answers to their questions online. Employees can update themselves on their benefits and reimbursements online. Friedman says Cisco is so internally wired --- management, manufacturing, accounting and sales --- that it can close its books in one hour anytime it wants to. Cohan’s rule number two is to make the boss the Internet evangelist. Jack Welch, of General Electric, told his managers to have an Internet strategy in place. Cohen’s third rule is to give

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The Lexus and the Olive Tree Page 7 everyone access to all the information, even to the customer who can write the order himself, making the system more efficient. The fourth rule is to train and motivate customers and employees to always go to the Web. Customers can consult the Net to find out what they need to know about Cisco. Once a business has adopted the Internet strategy, it undergoes a test to find out if it has improved its efficiency or increased its productivity or market share. These are the strategies that will enable companies to survive the equivalent of the fall of the Berlin Wall.

The Golden Straitjacket Friedman says the failure of communism, socialism and fascism clearly shows that the only system today, which is the most effective at generating rising standards of living, is free market capitalism. When a company or a country realizes this, then, Friedman says, it begins to put on the Golden Straitjacket. He gives Margaret Thatcher the honor of being the seamstress of the Golden Straitjacket. To fit into the Golden Straitjacket, a country must decide to give the private sector the lead in its economic growth as well as institute a host of economic policies intended to open up its markets, encourage competition and balance the budget. But the Golden Straitjacket also reduces the ideological and other differences between the incumbent and opposition parties. Political parties will for the most part be anxious to maintain the same economic policies with very few variations. There was hardly any difference between Bill Clinton and Bob Dole or between Gerhard Schroeder and Helmut Kohl. Politics becomes a means of implementing those economic decisions that will enable a country to wear the Golden Straitjacket. In this sense, the Golden Straitjacket reduces a country’s political autonomy since has no choice but to implement those economic policies. Friedman says the three democratizations have given power to the Electronic Herd, the investors and traders who move their money around all over the world from their computers and the big multinational corporations who have factories all over the world. The Herd moves its capital to those countries that put on the Golden Straitjacket. The interaction between the Electronic Herd, nation-states and the Golden Straitjacket is at the heart of today’s globalization system.

The Electronic Herd Friedman says the Electronic Herd consists of two basic groups, the “short-horn cattle” and the “long-horn cattle”. The short-horn cattle are those involved in the buying and selling of stocks, bonds and currencies around the world who can and do move their money around on a very short-term basis. The long-horn cattle are the big multinationals who are involved in foreign direct investment, building factories in different countries and long-term production contracts with overseas factories. The democratization of finance, technology and information opened up a whole field for the Electronic Herd to play around. It has become in a sense, as US Treasury Secretary Larry Summers puts it, “the overwhelming source of capital for growth.” Friedman contends that the Electronic Herd has become so powerful that it can influence political events and even topple governments.

Short-Horn Cattle Friedman says that virtually anything can be made into a bond. In a detailed explanation, he says that any activity or product that can produce a cash flow that can be statistically predicted over a period of time ca be turned into a bond. This securitization of commodities has opened up credit markets all over the world. It has enabled poor countries to gain access to capital. But while short-horn cattle investors now have a huge array of bonds to choose from and invest in, they also need more and more information to see how these bonds perform. They also need much more money to invest. When the investment pays off, the profits are mind-boggling but then the losses can be cataclysmic as well. Global investing has become so popular through the Internet that ordinary people can be investors without ever calling a broker, investing their money in bonds

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The Lexus and the Olive Tree Page 8 in places they never heard of before. While this empowers the small investor it also makes it easy for the small investor to transfer money out. Friedman points out that it was local Mexican financiers, local Indonesian speculators and local Thai bankers who began the stampedes against their own currencies, stocks and bonds. The Electronic Herd merely followed. Transactions are taking place at a much larger scale at much faster rates than ever before. Investors carry their palm-held market monitors even to the bathroom and even on long haul flights to know how their stocks are performing. But there is an inherent volatility in such a market. The explosion of information on markets does not necessarily lead to wiser investment. Instead, it can lead to impulsive speculation. Friedman reveals that in 1998 five million Americans had accounts with Internet discount brokerages and around a million of them were “day traders”, amateurs who operated mostly from their homes using their computers to obtain the sharedealing services provided by on-line brokerages. NASDAQ market insiders say that it is the shorthorn day traders who push the Internet stocks up and down on the slightest information. Most buyers do not even know what they are buying into. As Alan Greenspan says it, “The very same financial globalization which has induced such dramatic increases in private capital flows has also exhibited significantly improved capacities to transmit ill-advised investments.”

The Long-Horn Cattle The long-horn cattle are the big multinational companies like Ford, Intel, Compaq, Enron and Toyota. In the era of globalization, they are forced to expand overseas by opening and building factories in cost-lowering countries where costs of production are cheapest. For them, this is one way to be a globally competitive market player. Through the Internet, for instance, Nike can design a shoe in Oregon; e-mail its latest design adjustments overnight to its factories all over Asia which will then start turning out the new track shoe the next day. These multinational companies are also not just building factories, they are building alliances with partners in many countries. They also provide the local factory with the very vital technology transfer. The Electronic Herd can hold political leaders and governments hostage as well. Friedman points out that the Electronic Herd helped to trigger Suharto’s downfall in 1998 by so undercutting the Indonesian currency and markets that the Indonesian public and army lost all confidence in Suharto’s leadership. Friedman goes so far as to say that heads of state are reduced now to the position of governors who must continuously entice the Electronic Herd and Supermarkets to invest in their countries and do everything to make them stay there.

DOS Capital 6.0 Friedman says how a country globalizes is more important than whether it globalize or not. Countries with an existing infrastructure to support this globalization are better able to make a success of it. It is not enough for a country to be an emerging market it must also be an emerging society.

Globalution Friedman talks about how the Electronic Herd has become an instrument or pressuring countries into putting into place democratic reforms that support a free market economy. These reforms may also be political. Indonesia’s yuppie generation felt helpless to bring about Suharto’s downfall through mass actions. Instead they worked to bring about Indonesia’s globalization to force upon their government reforms that they could not institute using their own limited capabilities. Friedman stresses that democratization in a country need not be a single blazing event like the People Power uprising in the Philippines. It is a process. Although the Electronic Herd may be influential, it is still necessary for political organizations to be vigilant and aggressive in bringing about democratic reforms in a country. Friedman says that in order to become sufficiently interested to invest in a country, the Electronic Herd holds up the following criteria: transparency, adherence to international financial reporting

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The Lexus and the Olive Tree Page 9 standards, reduction of corruption, a free press, the creation of bond and stock markets and democratization.

Shapers, Adaptors and Other New Ways of Thinking About Power Friedman draws a certain criteria for determining if countries are prepared for globalization. First a country must have a high rate of connection to the Internet. He also says companies or governments will either be shapers or adaptors. The shapers are those who define the rules that govern a certain activity while the adaptors are those who must adapt themselves to these rules. Microsoft is a shaper because it forced consumers and companies to utilize its technologies, standards and systems. The United States is a shaper. But it is not only the big companies and the countries that have the chance to be shapers. Friedman says groups or pressure groups can use the Internet to be shapers themselves. He cites activists who were able to mobilize consumers on the Internet to pressure tuna companies to use dolphin-safe nets. They accomplished this despite a World Trade Organization ruling that laws banning nets that catch dolphins along with tuna were a trade barrier. While holding little power themselves, these activists became shapers using the tools of globalization.

Buy Taiwan, Hold Italy, Sell France Friedman asks nine questions to determine a country’s economic power and potential. How Fast Is your Company? Change and innovation are taking place at such a fast pace in the globalized world that the fast will eat up the slow. Products will be obsolete almost immediately. Is Your Company Harvesting Its Knowledge? Besides being wired, a company or country needs to amass knowledge effectively and use it effectively. They must also use this information to their advantage, as information becomes a marketable commodity. How Much Does Your Country or Company Weigh? Technological advances have made products lighter, easier to carry and more efficient. With digitization and miniaturization, more information can be packed into smaller and smaller products. Does Your Company or Country Dare to be Open on the Outside? Friedman says that you cannot maintain a monopoly on information for long. Although companies will want to guard their secrets of success, it is important to be open with both the knowledge you acquire and the knowledge you share. Only then can you learn and move on with what you know. Singapore is an example of a country, which adopted a policy of openness and remained innovative and competitive. Does Your Company Dare to be Open on the Inside? Openness on the inside here refers to transparency, honesty and efficiency in one’s operations. Lyric Hughes, the founder of China Online, says, “In the world of global capital markets, investments will flow to the regions that are transparent to the international financial community.” Does Your Country’s Management Get it Done and You Change it? Friedman relates how Costa Rica’s ex-president Jose Maria Figueres told an audience of South Asians about how he was able to get Intel to set up a factory in his country. One of the South Asians stood up and asked him, “Would you run for president of my country?” One sad Sri Lankan even said, “I wouldn’t even mind paying his salary myself.” Friedman points out that for the Information Revolution to take off in a country the leadership of that country must seize the initiative to bring about globalization.

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The Lexus and the Olive Tree Page 10 Is Your Company Willing to Shoot Its Wounded and Suckle the Survivors? Companies and countries need to be willing to destroy the old to make way for the new in order to survive in the globalized world. Friedman points out that Taiwan was able to survive the Asian economic crisis of the late 1990s because it did not protect its small businesses from competition. So these companies became adept at adjusting to rapid economic changes and remaining competitive even at the cost of losing jobs. The Ministry of Economic Affairs of Taiwan publishes a report entitled “Births and Deaths of Companies in Taiwan 1986-98” which shows a balance between companies being created and old companies being closed. Friedman says it helps that Taiwan has a gambling mentality that cultivates the willingness to take risks in business. How good is your Country or Company at Making Friends? No company or country is an island anymore in the globalized world. The amount of knowledge required in developing and marketing products today necessitates the sharing of knowledge and resources. For this reason every company needs allies. An example of alliance that works is the airline alliance. No single airline can cover the world so six airlines agreed to book seats in each other’s flight. Compaq entered a partnership with Intel to make its microprocessors and with Microsoft to provide Windows operating systems and software. In this way, it was able to integrate the newest technological advances in computers and maintain its competitive edge. Friedman also cites the US government’s painstaking efforts to build a coalition of partners to fight and pay for the war on Saddam Hussein during the Gulf War. How Good is Your Country’s or Company’s Brand? There is a need to establish a strong brand identity, which is distinct from others. There may also be a need to re-brand oneself as Britain did in 1997 when it discarded the peaceful village image in favor of daring fashions, hi-tech factories, global business transactions and anything else that could be equated with being modern. Branding oneself also means doing whatever it takes to uplift that brand identity.

The Golden Arches Theory of Conflict Prevention Friedman presents here his theory that no two countries that both had McDonald’s have fought a war against each other since each got its McDonald’s. He says the big threat of war in the Middle East emanates from Syria, Iran and Iraq, none of which have McDonald’s, hence the title of this chapter. Friedman cites historical references to show that it is in the interest of nations to keep the peace and avoid war, which would only disrupt trade and business with each other. Friedman says though that this does not mean that there will be an end to war. People will still go to war for their olive trees. He says, “Globalization does not end geopolitics.” Friedman’s Golden Arches theory received much flak from gleeful critics when the civil war broke out in Kosovo between the Serbs and the Albanians in 1999. There are McDonalds in Yugoslavia and in all the NATO countries that bombed it. But Friedman points out that this war was ended in 78 days when the people of Belgrade themselves demanded that President Slobodan Milosevic end the conflict. They wanted to become part of the world again and to have their McDonald’s hamburgers once more. The desire for peace and prosperity won out over the desire to remain part of an isolated, backward Kosovo. Although wars can never be eliminated, Friedman states that the cost of war will be so high that countries will find it difficult to start and sustain it as well as demand that their people make the necessary sacrifices to fight it. Moreover, the Electronic Herd will not tolerate wars. Instead they will punish a country for going to war by withdrawing their money. There are a very few countries that are not plugged into the Herd like Iran, North Korea, Afghanistan and Sudan. But in countries where there is McDonald’s and are more plugged into the Herd, it is simply not in their interest to wage war. Friedman mentions as an example the long-running conflict between Taiwan and

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The Lexus and the Olive Tree Page 11 China. Despite the political axes they have to grind against each other, they both benefit from trade with each other. Another example Friedman draws is Israel, which, it seems, is waging a constant war against terrorists and Arab neighbors. Yet every major American hi-tech company has a branch in Israel. This is because Israel has built up industries that support the Internet such as encryption tools for Internet security. Investments in Israel are in people not in factories that can be easily destroyed. Regardless of its size, it has per capita income close to the UK’s. Countries like Iraq and Iran, which have walled themselves in with their oil reserve economies, will eventually come to the realization that they will one day have to don the Golden Straitjacket. Although the people will still heed the conflicting calls of the Lexus and the olive tree, more and more people are choosing the prosperity that the Lexus offers.

Demolition Man Friedman says globalization threatens to engulf a country if that country does not develop the surge protectors and filters to retain its own culture and environment. He stresses the need to preserve the environment against the greed and rapacity of the Electronic Herd. He mentions the environmentalists in Brazil were able to obtain the help of an American entrepreneur who built a computer factory in the Brazilian rainforest as well as committed his support to maintaining the environment. Friedman suggests that globalization can actually help in the preservation of the environment if corporations and shareholders are made to understand that their profits will increase if they utilize environmentally sound production methods. But globalization need not be a threat to the environment. It can empower environmentalists through their effective use of the Internet in monitoring the behavior of multinationals and to put pressure on them to respect the environment. Even large corporations have become wary of the vigilance of these lobby groups. Friedman says the threat that globalization will make McDonald’s eaters of us all can be contained if local people will make efforts to preserve as much of their culture as they can. He urges local cultures to adapt from globalization only what they need and to resist those elements that are truly alien to their culture.

Winners Take All Globalization’s major downside is the widening of the gap between the haves and the have-nots. Economists Robert M. Frank and Philip J. Cook write in their book, The Winner-Take-All Society, that globalization, “has played an important role in the expansion of inequality.” In this global village the top players can earn enormous profits. Those who are only marginally skilled will significantly earn far less, thereby exacerbating the inequality between them and the top earners. Friedman points out that Forbes Magazine estimated Michael Jordan’s non-basketball income from endorsements at $ 47 million in 1997 and his salary that year was $ 31.3 million. And yet another player on the same team, Joe Kleine, whose skills are only slightly less than Jordan’s was paid a salary of only $ 272,250. Friedman’s point is that globalization will dramatically heighten the differences between the rich and the poor in many countries. The distribution of wealth will not be equal. This will lead to a certain volatility in societies.

The Backlash Globalization is not popular all over the world. Friedman cites the anti-globalization demonstrations during the World Trade Organization summit in Seattle in 1999. There are many who resent the Golden Straitjacket’s constrictions and demands. There are also countless people

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The Lexus and the Olive Tree Page 12 all over the world who feel threatened by globalization because their jobs and their lifestyles have been downsized, transformed or made obsolete by globalization. There is an especially grave threat against people who have only limited educational opportunities as more and more companies rely on machines than on human labor. There will be whole populations who cannot meet the demands of the globalized world and will be marginalized for most of their lives. This will have profound social implications. Friedman points out that in every country that has put on the Golden Straitjacket there is at least one political party or candidate whose platform is antiglobalization and which feeds upon people’s fears that they are no longer in control of their lives. This fear of globalization will also be rooted in their culture. Friedman talks about the unease that many Egyptians feel about globalization. A Cairo professor asked him, “Does globalization mean we all have to become Americans?” For many Egyptians, globalization holds no inspirational redeeming power. This feeling of alienation from the globalization movement is apparently a prevailing one in many Arab countries. The backlash against globalization is also a protest against the way it homogenizes cultures and erases the uniqueness of each culture. However, Friedman says there is also a grassroots level of people who will demand a share in globalization and are ready to pay the price for it. He refers to a 1997 United Nations Human Development Report, which states that poverty has fallen more in the past 50 years than in the previous 500. An article in the Economist dated January 8, 2000 reports that foreign firms pay their workers more than the national average, create more jobs faster, spend heavily on research and development in the countries where they invest, export more than domestic ones. For most people in many countries, globalization tends to benefit people by providing jobs and salaries. These people will form the groundswell of those who welcome and do not reject globalization. There are others who want to jump on the bandwagon of globalization rather than get railroaded by it. There are still many countries that do not have the basic technological infrastructure to support globalization. However Friedman says communications industry estimates show that by the year 2005 one billion low-cost portable Internet connections will be deployed around the world. He says poor countries like Kenya and Zambia failed to build the political, economic and legal infrastructure to support globalization but other countries like Uganda, Poland and South Korea did and are now reaping the resulting benefits. Good government is a key factor in reaping the advantages of globalization. Friedman also points out that the disadvantaged or poor people can and do use the Internet to state their case and gain a groundswell of support for their causes. This is how the campaign to ban landmines was launched. Friedman also mentions how a group of Green Beret Vietnam veterans were successfully able to force CNN to apologize for a report on how they allegedly nerve-gassed Laotians in 1970. The veterans used the e-mail network to gather enough proof to show that CNN’s story was false. CNN’s president, Rick Kaplan, had to apologize to the veterans over and over again. Globalization, says Friedman, has the capacity to alienate those who are not connected to it but it also has an incredible capacity to empower the weakest individuals. He firmly believes that those who form the backlash against globalization cannot hold back those masses who dream of a better life for themselves. He says, “With all due respect to the revolutionary theorists, the ‘wretched of the earth’ want to go to Disney World, not to the barricades. They want the Magic Kingdom, not Les Miserables.”

America and the System In this chapter, Friedman seems to be singing hosannas to this own country, extolling all the features that made it the most powerful country in the world, citing its multicultural mix of the best brains in the world, its geographical advantages, its fiercely entrepreneurial culture and a host of other virtues. He believes that America must use its incredible power to rid itself of some real liabilities such as crime-ridden inner cities, the lack of gun control, the widening income gaps,

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The Lexus and the Olive Tree Page 13 underfunded public schools, an underfunded social security system, a consumer credit card culture that encourages people to spend far beyond their means and a lax campaign finance laws.

Revolution is US Friedman admits that globalization is largely a phenomenon originating from and powered by American institutions and technological advances. He says to most people, globalization is Americanization. This perception stokes the fires of the love-hate relationship between America and other countries. Many people are enthralled by America’s prosperity. Others seethe with resentment over the same prosperity and over the impression that America is in control on so many levels. But Friedman admits that this fear of America is actually based on the very real, aggressive, proselytizing attitude of Americans. Historian Ronald Steel says, “Unlike more traditional conquerors, we are not content merely to subdue others: we insist that they be like us.” Former superpower Russia has adopted a stance of perennially criticizing or taking a diametrically opposed view from the US. China refuses to accept the term globalization because they associate it with Americanization and because it recalls painful memories of gunboat diplomacy. Instead it uses the word “modernization”. Many countries feel threatened by globalization, not just because of the Americanization it comes with but because it is so relentless and unstoppable. Others see globalization as a force that threatens their traditional, cultural identity. There are fathers and mothers out there who are worried that their children will grow up as McDonald's-chomping little Americans in a globalized world. All this burgeoning resentment has the capability of exploding into anger, says Friedman. Ironically, it is globalization itself that can empower the very angry man or person into posing a security threat against America. Acts of hostility against America or against globalization can take high-tech forms provided by technological methods. Hacking is one particularly virulent form of attack. Friedman says hackers are the Internet fundaments who have an attitude but no ideology. They are raring to demonstrate that they have control of the system. The Internet can be used by terrorist organizations. The Tamil Tiger guerrillas flooded the Sri Lankan Embassy with so much spam and bomb threats that the Embassy could not use their addresses for official business. And then there are the violent Super-Empowered Angry Men who pose a far more serious security threat and not just to America. Friedman lists them as the Aum Shinrikyo group in Japan, the Osama bin Laden group in Afghanistan and the Ramzi Yousef group in New York. Osama bin Laden communicated regularly with his cell groups around the world with satellite phones and through his own Jihad Online (JOL). In an e-mail message, Bin Laden spoke about how he monitored events on CNN, used the Internet for communication in his network and referred to himself as “the media information officer of the East African cell.” Friedman says the interesting feature of these Super-Empowered Angry Men is that where they used to have to overthrow their own governments before they could take on America, they can now challenge America on their own as individuals. In their eyes, the enemy to challenge is not their own government but America. Friedman says, “The Super-Empowered Angry Men out there present the most immediate threat today to the United States and the stability of this new system. It’s not because Ramzi Yousef can ever be a superpower. No, no, no. It's because in today’s world so many people can be Ramzi Yousef.”

If You Want to Speak to a Human Being, Press 1 Friedman says that for certain countries, the price of globalization may still prove to be too high because the conditions for putting on the Golden Straitjacket are simply too hard for them. He assesses Japan, Russia and China and their chances of fitting into the globalized world. Walt Mossberg of the Wall Street Journal calls Japan “the world’s most successful Communist country”. With its bloated, top-heavy large corporations, its penchant for rigidity and protectionism, Japan’s economy has remained stagnant since 1992 and is finding globalization

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The Lexus and the Olive Tree Page 14 painful. But Friedman thinks Japan has remarkable adaptability and will eventually learn the ways of globalization. Friedman mentions China’s crony capitalism, its huge number of unproductive state-owned corporations and its deep need for massive foreign investment as obstacles to globalization and to progress in general. He warns that China could pose a real threat to the stability of the system once its 1.2 billion people are blocked from the economic progress they need so badly. Russia will face the same basic stumbling blocks as China. It is still hampered by economic and foreign policy makers who persist in seeing Russia in a Cold War context, making it potentially dangerous and isolated. Friedman believes the US needs Russia’s cooperation to halt or contain the dangerous trafficking in nuclear warheads and environmental degradation. But he believes the process is underway in both countries when what he calls the “millennium generation” begins to take over. He warns though of the consequences when large states like Russia and China fail at globalization but still have formidable military power at its command. It is important to integrate these two and other countries into the globalized world. Friedman also takes the time and opportunity to print a letter from a couple who, despite efforts to understand and engage in computer-related activities and businesses, still find themselves marginalized, unable to profit from globalization and computerization and now, frustrated and helpless against the adverse effects of globalization on their lives. Globalization is too hard and too fast for them.

Overconnectedness Interconnectivity can also bear within it the seeds of disaster. The market meltdown of 1998 showed investors that markets are much more interconnected than they realized and so when the market began to nosedive there was no escape for them. Globalization magnifies the power of small players to affect the entire system. He also warns of the effect on overconnected electronic systems when nuclear blasts take place. He warns too that overconnectedness is fast becoming a social problem as people disturb others with their need to keep their ringing cellphones handy at all times. This means that when you have a cellphone you cannot rest, you cannot get away from your office. The line between work and play disappears entirely. You also lose time that could and should be allotted to yourself away from work.

Disconnectedness The paradox of globalization is that it also encourages disconnection. There is no longer the need for physical office space now that employees can be linked with each other through modems and telephone lines. Ironically, this freeing of space can deprive people of the comfort of human contact, of the simple social interaction so vital to organizations. People may be electronically connected but emotionally isolated from each other. This can lead to a gnawing uncertainty about who we are and what we are worth. It also erodes the foundations of society, says Friedman. He adds, “In place of an ethical sense of ourselves as people with clear attachments, we are left with an ironic sense of ourselves as fabrications. We become unreal, virtual.”

The Little Brothers The Internet has made it possible for faceless organizations to amass an alarming amount of information on almost anybody but without any government controls. While globalization promotes transparency, it also makes it easy to violate the privacy of ordinary citizens. Instead of George Orwell’s Big Brother, we have a lot of Little Brothers watching us. There are companies now that buy public records for a price. This information can include criminal records, voter registration lists and driver’s license records. There is no way of controlling this exploitation of information at the present time. Friedman believes such massive intrusion into one’s private life will only become worse. He warns that the human factor must never be erased from globalization. He thinks a balance should be kept between globalization’s dehumanizing and humanizing aspects.

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The Lexus and the Olive Tree Page 15 The Way Forward Friedman thinks the US has the greatest responsibility in making sure that globalization is sustainable because it benefits the most from globalization. In a neat little diagram, he encourages readers to think of how they see themselves with regard to globalization. Are they integrationist social safety netters? Are they separatist let-them-eat-cakers? In this way countries and companies and of course ordinary people can determine what the new international system is going to be. Friedman warns that because globalization is technology-driven not many people appreciate the need to demystify it and to institute political policies that will promote its best aspects and protect people from its worst aspects. He believes there is a need for politics that will promote sustainable globalization and yet democratize it by making it work for more people. Globalization needs to be balanced. Its benefits have to filter down to the poorest by investing in them, by making them venture capitalists, by encouraging them to upgrade or learn new skills to keep up with rapidly changing technology and work demands and by maintaining social safety nets such as Medicare or Medicaid for those who lose their jobs or benefits to globalization’s relentless changes in the workplace.

Bad Lenders Friedman advocates a measure of control over the management of the Electronic Herd. He says it is futile to restrain it and shutting it out will only deprive a country of resources. However, bad lending countries will have to institute the necessary conditions for growth and attract the Electronic Herd. They will need not only to keep their economic house in order they also need to bring about political institutions to curb corruption, prevent tax cheating and create a democracy. They must be responsible in their balance of payments and debt payments. They also have to create the minimum social safety nets and provide jobs for the unemployed. Friedman argues that the real threat to a global system in bad-borrowing countries is political; it will come from the huge numbers of people who lose their jobs or their money when the bottom falls out of their economy. Friedman also recommends an approach to deal with the problem of bad lenders, and other entities that have led to the financial stampedes out of Thailand, Mexico and other countries. He advocates that lenders be more transparent in their dealings with investors, to show their overall balance sheets. This will prevent lenders going into excessively risky situations. William J. McDonough, president of the Federal Reserve Bank of New York, says, “The key is having and sharing information. If we have the information flow ---and sometimes it is just a case of asking a few more questions --- we can say to the banks that we regulate that this or that fund is getting too big and you are helping too big.” The aim of this is to bring about better financial governance without a global central bank. With its lightning speed market fluctuations, this is the best one can do for the international financial markets.

Geopolitics for Globalization Friedman sys sustainable globalization requires a stable power structure. Joseph Nye pf Harvard University says, “To ignore the role of military security in an era of economic and information growth is like forgetting the importance of oxygen to our breathing.” That military security is provided by the US. He says the US needs to be willing to bear the responsibility for its role and do what it can to maintain that international stability, even in the face of criticism of its actions as a world leader.

Olive Trees and God How does God fit into a globalized world? Is He in cyberspace? Friedman says God’s presence in the cyberworld can only take place if by our moral choices and actions we freely bring Him there. The Cyberspace is really a truly unified world of equals. In such a world there is a need for a code

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The Lexus and the Olive Tree Page 16 of values, values that people learn from their families, communities, churches, temples or mosques, in short from the world of their olive trees. Friedman is also asked often how parents can prepare their children for the Fast World. He encourages them to help their children develop the discernment, the values with which to deal with the power that the Internet can impart. Lastly, Friedman returns to the original theme that gave rise to the title of the book. He emphasizes that in this shrinking and accelerating world of the globalization, there is a need to balance in each of us the need for the Lexus and the need for the olive tree.

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