FOUR: The Great Sorting Out

The triple convergence is not only going to affect how individuals prepare themselves for work, how companies compete, and how countries organize their economies and geopolitics. Over time, it is going to reshape political identities, recast political parties, and redefine who is a political actor. In short, in the wake of this triple convergence that we have just gone through, we are going to witness what I call “the great sorting out.” Because when the world starts to move from a primarily vertical (command and control) value-creation model to an increasingly horizontal (connect and collaborate) creation model, it doesn't affect just how business gets done. It affects everything-how communities and companies define themselves, where companies and communities stop and start, how individuals balance their different identities as consumers, employees, shareholders, and citizens, and what role government has to play. All of this is going to have to be sorted out anew. The most common disease of the flat world is going to be multiple identity disorder, which is why, if nothing else, political scientists are going to have a field day with the flat world. Political science may turn out to be the biggest growth industry of all in this new era. Because as we go through this great sorting out over the next decade, we are going to see some very strange bedfellows making some very new politics.

I first began thinking about the great sorting out after a conversation with Harvard University's noted political theorist Michael J. Sandel. Sandel startled me slightly by remarking that the sort of flattening process that I was describing was actually first identified by Karl Marx and Friedrich Engels in the Communist Manifesto, published in 1848. While the shrinking and flattening of the world that we are seeing today constitute a difference of degree from what Marx saw happening in his day, said Sandel, it is nevertheless part of the same historical trend Marx highlighted in his writings on capitalism-the inexorable march of technology and capital to remove all barriers, boundaries, frictions, and restraints to global commerce.

“Marx was one of the first to glimpse the possibility of the world as a global market, uncomplicated by national boundaries,” Sandel explained. “Marx was capitalism's fiercest critic, and yet he stood in awe of its power to break down barriers and create a worldwide system of production and consumption. In the Communist Manifesto, he described capitalism as a force that would dissolve all feudal, national, and religious identities, giving rise to a universal civilization governed by market imperatives. Marx considered it inevitable that capital would have its way-inevitable and also desirable. Because once capitalism destroyed all national and religious allegiances, Marx thought, it would lay bare the stark struggle between capital and labor. Forced to compete in a global race to the bottom, the workers of the world would unite in a global revolution to end oppression. Deprived of consoling distractions such as patriotism and religion, they would see their exploitation clearly and rise up to end it.”

Indeed, reading the Communist Manifesto today, I am in awe at how incisively Marx detailed the forces that were flattening the world during the rise of the Industrial Revolution, and how much he foreshadowed the way these same forces would keep flattening the world right up to the present. In what is probably the key paragraph of the Communist Manifesto, Marx and Engels wrote:

All fixed, fast, frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses his real conditions of life and his relations with his kind. The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere. The bourgeoisie has through its exploitation of the world market given a cosmopolitan character to production and consumption in every country. To the great chagrin of reactionaries, it has drawn from under the feet of industry the national ground on which it stood. All old-established national industries have been destroyed or are daily being destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilised nations, by industries that no longer work up indigenous raw material, but raw material drawn from the remotest zones; industries whose products are consumed, not only at home, but in every quarter of the globe. In place of the old wants, satisfied by the production of the country, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations. And as in material, so also in intellectual production. The intellectual creations of individual nations become common property. National one-sidedness and narrow-mindedness become more and more impossible, and from the numerous national and local literatures there arises a world literature.

The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian nations into civilisation. The cheap prices of commodities are the heavy artillery with which it barters down all Chinese walls, with which it forces the barbarians' intensely obstinate hatred of foreigners to capitulate. It compels all nations, on pain of extinction, to adopt the bourgeois mode of production; it compels them to introduce what it calls civilisation into their midst, i.e., to become bourgeois themselves. In one word, it creates a world after its own image.

It is hard to believe that Marx published that in 1848. Referring to the Communist Manifesto, Sandel told me, “You are arguing something similar. What you are arguing is that developments in information technology are enabling companies to squeeze out all the inefficiencies and friction from their markets and business operations. That is what your notion of'flattening' really means. But a flat, frictionless world is a mixed blessing. It may, as you suggest, be good for global business. Or it may, as Marx believed, augur well for a proletarian revolution. But it may also pose a threat to the distinctive places and communities that give us our bearings, that locate us in the world. From the first stirrings of capitalism, people have imagined the possibility of the world as a perfect market— unimpeded by protectionist pressures, disparate legal systems, cultural and linguistic differences, or ideological disagreement. But this vision has always bumped up against the world as it actually is-full of sources of friction and inefficiency. Some obstacles to a frictionless global market are truly sources of waste and lost opportunities. But some of these inefficiencies are institutions, habits, cultures, and traditions that people cherish precisely because they reflect nonmarket values like social cohesion, religious faith, and national pride. If global markets and new communications technologies flatten those differences, we may lose something important. That is why the debate about capitalism has been, from the very beginning, about which frictions, barriers, and boundaries are mere sources of waste and inefficiency, and which are sources of identity and belonging that we should try to protect. From the telegraph to the Internet, every new communications technology has promised to shrink the distance between people, to increase access to information, and to bring us ever closer to the dream of a perfectly efficient, frictionless global market. And each time, the question for society arises with renewed urgency: To what extent should we stand aside, 'get with the program,' and do all we can to squeeze out yet more inefficiencies, and to what extent should we lean against the current for the sake of values that global markets can't supply? Some sources of friction are worth protecting, even in the face of a global economy that threatens to flatten them.”

The biggest source of friction, of course, has always been the nation-state, with its clearly defined boundaries and laws. Are national boundaries a source of friction we should want to preserve, or even can preserve, in a flat world? What about legal barriers to the free flow of information, intellectual property, and capital-such as copyrights, worker protections, and minimum wages? In the wake of the triple convergence, the more the flattening forces reduce friction and barriers, the sharper the challenge they will pose to the nation-state and to the particular cultures, values, national identities, democratic traditions, and bonds of restraint that have historically provided some protection and cushioning for workers and communities. Which do we keep and which do we let melt away into air so we can all collaborate more easily?

This will take some sorting out, which is why the point that Michael Sandel raises is critical and is sure to be at the forefront of political debate both within and between nation-states in the flat world. As Sandel argued, what I call collaboration could be seen by others as just a nice name for the ability to hire cheap labor in India. You cannot deny that when you look at it from an American perspective. But that is only if you look at it from one side. From the Indian worker's perspective, that same form of collaboration, outsourcing, could be seen as another name for empowering individuals in the developing world as never before, enabling them to nurture, exploit, and profit from their God-given intellectual talents-talents that before the flattening of the world often rotted on the docks of Bombay and Calcutta. Looking at it from the American corner of the flat world, you might conclude that the frictions, barriers, and values that restrain outsourcing should be maintained, maybe even strengthened. But from the point of view of Indians, fairness, justice, and their own aspirations demand that those same barriers and sources of friction be removed. In the flat world, one person's economic liberation could be another's unemployment.

India versus Indiana: Who Is Exploiting Whom?

Consider this case of multiple identity disorder. In 2003, the state of Indiana put out to bid a contract to upgrade the state's computer systems that process unemployment claims. Guess who won? Tata America International, which is the U.S.-based subsidiary of India's Tata Consultancy Services Ltd. Tata's bid of $15.2 million came in $8.1 million lower than that of its closest rivals, the New York-based companies Deloitte Consulting and Accenture Ltd. No Indiana firms bid on the contract, because it was too big for them to handle.

In other words, an Indian consulting firm won the contract to upgrade the unemployment department of the state of Indiana! You couldn't make this up. Indiana was outsourcing the very department that would cushion the people of Indiana from the effects of outsourcing. Tata was planning to send some sixty-five contract employees to work in the Indiana Government Center, alongside eighteen state workers. Tata also said it would hire local subcontractors and do some local recruiting, but most workers would come from India to do the computer overhauls, which, once completed, were “supposed to speed the processing of unemployment claims, as well as save postage and reduce hassles for businesses that pay unemployment taxes,” the Indianapolis Star reported on June 25, 2004. You can probably guess how the story ended. “Top aides to then-Gov. Frank O'Bannon had signed off on the politically sensitive, four-year contract before his death [on] September 13, [2003],” the Star reported. But when word of the contract was made public, Republicans made it a campaign issue. It became such a political hot potato that Governor Joe Kernan, a Democrat who had succeeded O'Bannon, ordered the state agency, which helps out-of-work Indiana residents, to cancel the contract-and also to put up some legal barriers and friction to prevent such a thing from happening again. He also ordered that the contract be broken up into smaller bites that Indiana firms could bid for-good for Indiana firms but very costly and inefficient for the state. The Indianapolis Star reported that a check for $993,587 was sent to pay off Tata for eight weeks of work, during which it had trained forty-five state programmers in the development and engineering of up-to-date software: “'The company was great to work with,' said Alan Degner, Indiana's commissioner of workforce development.”

So now I have just one simple question: Who is the exploiter and who is the exploited in this India-Indiana story? The American arm of an Indian consulting firm proposes to save the taxpayers of Indiana $8.1 million by revamping their computers—using both its Indian employees and local hires from Indiana. The deal would greatly benefit the American arm of the Indian consultancy; it would benefit some Indiana tech workers; and it would save Indiana state residents precious tax dollars that could be deployed to hire more state workers somewhere else, or build new schools that would permanently shrink its roles of unemployed. And yet the whole contract, which was signed by pro-labor Democrats, got torn up under pressure from free-trade Republicans.

Sort that out.

In the old world, where value was largely being created vertically, usually within a single company and from the top down, it was very easy to see who was on the top and who was on the bottom, who was exploiting and who was being exploited. But when the world starts to flatten out and value increasingly gets created horizontally (through multiple forms of collaboration, in which individuals and little guys have much more power), who is on the top and who is on the bottom, who is exploiter and who is exploited, gets very complicated. Some of our old political reflexes no longer apply. Were the Indian engineers not being “exploited” when their government educated them in some of the best technical institutes in the world inside India, but then that same Indian government pursued a socialist economic policy that could not provide those engineers with work in India, so that those who could not get out of India had to drive taxis to eat? Are those same engineers now being exploited when they join the biggest consulting company in India, are paid a very comfortable wage in Indian terms, and, thanks to the flat world, can now apply their skills globally? Or are those Indian engineers now exploiting the people of Indiana by offering to revamp their state unemployment system for much less money than an American consulting firm? Or were the people of Indiana exploiting those cheaper Indian engineers? Someone please tell me: Who is exploiting whom in this story? With whom does the traditional Left stand in this story? With the knowledge workers from the developing world, being paid a decent wage, who are trying to use their hard-won talents in the developed world? Or with the politicians of Indiana, who wanted to deprive these Indian engineers of work so that it could be done, more expensively, by their constituents?

And with whom does the traditional Right stand in this story? With those who want to hold down taxes and shrink the state budget of Indiana by outsourcing some work, or with those who say, “Let's raise taxes more in order to reserve the work here and reserve it just for people from Indiana”? With those who want to keep some friction in the system, even though that goes against every Republican instinct on free trade, just to help people from Indiana? If you are against globalization because you think it harms people in developing countries, whose side are you on in this story: India's or Indiana's?

The India versus Indiana dispute highlights the difficulties in drawing lines between the interests of two communities that never before imagined they were connected, much less collaborators. But suddenly they each woke up and discovered that in a flat world, where work increasingly becomes a horizontal collaboration, they were not only connected and collaborating but badly in need of a social contract to govern their relations.

The larger point here is this: Whether we are talking about management science or political science, manufacturing or research and development, many, many players and processes are going to have to come to grips with “horizontalization.” And it is going to take a lot of sorting out.

Where Do Companies Stop and Start?

Tust as the relationship between different groups of workers will have to I be sorted out in a flat world, so too will the relationship between companies and the communities in which they operate. Whose values will govern a particular company and whose interests will that company respect and promote? It used to be said that as General Motors goes, so goes America. But today it would be said, “As Dell goes, so goes Malaysia, Taiwan, China, Ireland, India...” HP today has 142,000 employees in 178 countries. It is not only the largest consumer technology company in the world; it is the largest IT company in Europe, the largest IT company in Russia, the largest IT company in the Middle East, and the largest IT company in South Africa. Is HP an American company if a majority of its employees and customers are outside of America, even though it is headquartered in Palo Alto? Corporations cannot survive today as entities bounded by any single nation-state, not even one as big as the United States. So the current keep-you-awake-at-night issue for nation-states and their citizens is how to deal with corporations that are no longer bounded by a thing called the nation-state. To whom are they loyal?

“Corporate America has done very well, and there is nothing wrong with that, but it has done well by aligning itself with the flat world,” said Dinakar Singh, the hedge fund manager. “It has done that by outsourcing as many components as possible to the cheapest, most efficient suppliers. If Dell can build every component of its computers in coastal China and sell them in coastal America, Dell benefits, and American consumers benefit, but it is hard to make the case that American labor benefits.” So Dell wants as flat a world as possible, with as little friction and as few barriers as possible. So do most other corporations today, because this allows them to build things in the most low-cost, efficient markets and sell in the most lucrative markets. There is almost nothing about Globalization 3.0 that is not good for capital. Capitalists can sit back, buy up any innovation, and then hire the best, cheapest labor input from anywhere into the world to research it, develop it, produce it, and distribute it. Dell stock does well, Dell shareholders do well, Dell customers do well, and the Nasdaq does well. All the things related to capital do fine. But only some American workers will benefit, and only some communities. Others will feel the pain that the flattening of the world brings about.

Since multinationals first started scouring the earth for labor and markets, their interests have always gone beyond those of the nation-state in which they were headquartered. But what is going on today, on the flat earth, is such a difference of degree that it amounts to a difference in kind. Companies have never had more freedom, and less friction, in the way of assigning research, low-end manufacturing, and high-end manufacturing anywhere in the world. What this will mean for the long-term relationship between companies and the country in which they are headquartered is simply unclear.