The World is Flat

“If you are a Web programmer and are still using only HTML and have not expanded your skill set to include newer and creative technologies, such as XML and multimedia, your value to the organization gets diminished every year,” added Vashistha. New technologies get introduced that increase complexity but improve results, and as long as a programmer embraces these and keeps abreast of what clients are looking for, his or her job gets hard to outsource. “While technology advances make last year's work a commodity,” said Vashistha, “reskilling, continual professional education and client intimacy to develop new relationships keeps him or her ahead of the commodity curve and away from a potential offshore.'”

My childhood friend Bill Greer is a good example of a person who faced this challenge and came up with a personal strategy to meet it. Greer is forty-eight years old and has made his living as a freelance artist and graphic designer for twenty-six years. From the late 1970s until right around 2000, the way Bill did his job and served his clients was pretty much the same.

“Clients, like The New York Times, would want a finished piece of artwork,” Bill explained to me. So if he was doing an illustration for a newspaper or a magazine, or proposing a new logo for a product, he would actually create a piece of art-sketch it, color it, mount it on an illustration board, cover it with tissue, put it in a package that was opened with two flaps, and have it delivered by messenger or FedEx. He called it “flap art.” In the industry it was known as “camera-ready art,” because it needed to be shot, printed on four different layers of color film, or “separations,” and prepared for publication. “It was a finished product, and it had a certain preciousness to it,” said Bill. “It was a real piece of art, and sometimes people would hang them on their walls. In fact, The New York Times would have shows of works that were created by illustrators for its publications.”

But in the last few years “that started to change,” Bill told me, as publications and ad agencies moved to digital preparation, relying on the new software-namely, Quark, Photoshop, and Illustrator, which graphic artists refer to as “the trinity”-which made digital computer design so much easier. Everyone who went through art school got trained on these programs. Indeed, Bill explained, graphic design got so much easier that it became a commodity. It got turned into vanilla ice cream. “In terms of design,” he said, “the technology gave everyone the same tools, so everyone could do straight lines and everyone could do work that was halfway decent. You used to need an eye to see if something was in balance and had the right typeface, but all of a sudden anyone could hammer out something that was acceptable.”

So Greer pushed himself up the knowledge ladder. As publications demanded that all final products be presented as digital files that could be uploaded, and there was no longer any more demand for that precious flap art, he transformed himself into an ideas consultant. “Ideation” was what his clients, including McDonald's and Unilever, wanted. He stopped using pens and ink and would just do pencil sketches, scan them into his computer, color them by using the computer's mouse, and then e-mail them to the client, which would have some less skilled artists finish them.

“It was unconscious,” said Greer. “I had to look for work that not everyone else could do, and that young artists couldn't do with technology for a fraction of what I was being paid. So I started getting offers where people would say to me, 'Can you do this and just give us the big idea?' They would give me a concept, and they would just want sketches, ideas, and not a finished piece of art. I still use the basic skill of drawing, but just to convey an idea-quick sketches, not finished artwork. And for these ideas they will still pay pretty good money. It has actually taken me to a different level. It is more like being a consultant rather than a JAFA (Just Another Fucking Artist). There are a lot of JAFAs out there. So now I am an idea man, and I have played off that. My clients just buy concepts.” The JAFAs then do the art in-house or it gets outsourced. “They can take my raw sketches and finish them and illustrate them using computer programs, and it is not like I would do it, but it is good enough,” Greer said.

But then another thing happened. While the evolving technology turned the lower end of Greer's business into a commodity, it opened up a whole new market at the upper end: Greer's magazine clients. One day, one of his regular clients approached him and asked if he could do morphs. Morphs are cartoon strips in which one character evolves into another. So Martha Stewart is in the opening frame and morphs into Courtney Love by the closing frame. Drew Barrymore morphs into Drew Carey. Mariah Carey morphs into Jim Carrey. Cher morphs into Britney Spears. When he was first approached to do these, Greer had no idea where to begin. So he went onto Amazon.com and located some specialized software, bought it, tried it out for a few days, and produced his first morph. Since then he has developed a specialty in the process, and the market for them has expanded to include Maxim magazine, More, and Nickelodeon-one a men's magazine, one a middle-aged women's magazine, and one a kids' magazine.

In other words, someone invented a whole new kind of sauce to go on the vanilla, and Greer jumped on it. This is exactly what happens in the global economy as a whole. “I was experienced enough to pick these [morphs] up pretty quickly,” said Greer. “Now I do them on my Mac laptop, anywhere I am, from Santa Barbara to Minneapolis to my apartment in New York. Sometimes clients give me a subject, and sometimes I just come up with them. Morphing used to be one of those really high-end things you saw on TV, and then they came out with this consumer [software] program and people could do it themselves, and I shaped them so magazines could use them. I just upload them as a series of JPEG files... Morphs have been a good business for different magazines. I even get fan mail from kids!”

Greer had never done morphs until the technology evolved and created a new, specialized niche, just when a changing market for his work made him eager to learn new skills. “I wish I could say it was all intentional,” he confessed. “I was just available for work and just lucky they gave me a chance to do these things. I know so many artists who got washed out. One guy who was an illustrator has become a package designer, some have gotten out of the field altogether; one of the best designers I know became a landscape architect. She is still a designer but changed her medium altogether. Visual people can adapt, but I am still nervous about the future.”

I told Greer his story fit well into some of the terms I was using in this book. He began as a chocolate sauce (a classic illustrator), was turned into a vanilla commodity (a classic illustrator in the computer age), upgraded his skills to become a special chocolate sauce again (a design consultant), then learned how to become a cherry on top (a morphs artist) by fulfilling a new demand created by an increasingly specialized market.

Greer contemplated my compliment for a moment and then said, “And here all I was trying to do was survive-and I still am.” As he got up to leave, though, he told me that he was going out to meet a friend “to juggle together.” They have been juggling partners for years, just a little side business they sometimes do on a street corner or for private parties. Greer has very good hand-eye coordination. “But even juggling is being commoditized,” he complained. “It used to be if you could juggle five balls, you were really special. Now juggling five balls is like just anteing up. My partner and I used to perform together, and he was the seven-ball champ when I met him. Now fourteen-year-old kids can juggle seven balls, no problem. Now they have these books, like Juggling for Dummies, and kits that will teach you how to juggle. So they've just upped the standard.”

As goes juggling, so goes the world.

These are our real choices: to try to put up walls of protection or to keep marching forward with the confidence that American society still has the right stuff, even in a flatter world. I say march forward. As long as we keep tending to the secrets of our sauce, we will do fine. There are so many things about the American system that are ideally suited for nurturing individuals who can compete and thrive in a flat world.

How so? It starts with America's research universities, which spin off a steady stream of competitive experiments, innovations, and scientific breakthroughs—from mathematics to biology to physics to chemistry. It is a truism, but the more educated you are, the more options you will have in a flat world. “Our university system is the best,” said Bill Gates. “We fund our universities to do a lot of research and that is an amazing thing. High-IQ people come here, and we allow them to innovate and turn [their innovations] into products. We reward risk taking. Our university system is competitive and experimental. They can try out different approaches. There are one hundred universities making contributions to robotics. And each one is saying that the other is doing it all wrong, or my piece actually fits together with theirs. It is a chaotic system, but it is a great engine of innovation in the world, and with federal tax money, with some philanthropy on top of that, [it will continue to flourish]... We will really haVe to screw things up for our absolute wealth not to increase. If we are smart, we can increase it faster by embracing this stuff.”

The Web browser, magnetic resonance imaging (MRI), superfast computers, global position technology, space exploration devices, and fiber optics are just a few of the many inventions that got started through basic university research projects. The BankBoston Economics Department did a study titled “MIT: The Impact of Innovation.” Among its conclusions was that MIT graduates have founded 4,000 companies, creating at least 1.1 million jobs worldwide and generating sales of $232 billion.

What makes America unique is not that it built MIT, or that its grads are generating economic growth and innovation, but that every state in the country has universities trying to do the same. “America has 4,000 colleges and universities,” said Allan E. Goodman, president of the Institute of International Education. “The rest of the world combined has 7,768 institutions of higher education. In the state of California alone, there are about 130 colleges and universities. There are only 14 countries in the world that have more than that number.”

Take a state you normally wouldn't think of in this regard: Oklahoma. It has its own Oklahoma Center for the Advancement of Science and Technology (OCAST), which, on its Web site, describes its mission as follows: “In order to compete effectively in the new economy, Oklahoma must continue to develop a well-educated population; a collaborative, focused university research and technology base; and a nurturing environment for cutting-edge businesses, from the smallest start-up to the largest international headquarters... [OCAST promotes] University-Business technology centers, which may span several schools and businesses, resulting in new businesses being spawned, new products being manufactured, and new manufacturing technologies employed.” No wonder that in 2003, American universities reaped $1.3 billion from patents, according to the Association of University Technology Managers.

Coupled with America's unique innovation-generating machines— universities, public and private research labs, and retailers-we have the best-regulated and most efficient capital markets in the world for taking new ideas and turning them into products and services. Dick Foster, director of McKinsey & Co. and the author of two books on innovation, remarked to me, “We have an 'industrial policy' in the U.S. -it is called the stock exchange, whether it is the NYSE or the Nasdaq.” That is where risk capital is collected and assigned to emerging ideas or growing companies, Foster said, and no capital market in the world does that better and more efficiently than the American one.

What makes capital provision work so well here is the security and regulation of our capital markets, where minority shareholders are protected. Lord knows, there are scams, excesses, and corruption in our capital markets. That always happens when a lot of money is at stake. What distinguishes our capital markets is not that Enrons don't happen in America-they sure do. It is that when they happen, they usually get exposed, either by the Securities and Exchange Commission or by the business press, and get corrected. What makes America unique is not Enron but Eliot Spitzer, the attorney general of New York State, who has doggedly sought to clean up the securities industry and corporate boardrooms. This sort of capital market has proved very, very difficult to duplicate outside of New York, London, Frankfurt, and Tokyo. Said Foster, “China and India and other Asian countries will not be successful at innovation until they have successful capital markets, and they will not have successful capital markets until they have rule of law which protects minority interests under conditions of risk... We in the U.S. are the lucky beneficiaries of centuries of economic experimentation, and we are the experiment that has worked.”

While these are the core secrets of America's sauce, there are others that need to be preserved and nurtured. Sometimes you have to talk to outsiders to appreciate them, such as Indian-born Vivek Paul of Wipro. “I would add three to your list,” he said to me. “One is the sheer openness of American society.” We Americans often forget what an incredibly open, say-anything-do-anything-start-anyming-go-bankrupt-and-start-anything-ag ain society the United States is. There is no place like it in the world, and our openness is a huge asset and attraction to foreigners, many of whom come from countries where the sky is not the limit.

Another, said Paul, is the “quality of American intellectual property protection,” which further enhances and encourages people to come up with new ideas. In a flat world, there is a great incentive to develop a new product or process, because it can achieve global scale in a flash. But if you are the person who comes up with that new idea, you want your intellectual property protected. “No country respects and protects intellectual property better than America,” said Paul, and as a result, a lot of innovators want to come here to work and lodge their intellectual property.

The United States also has among the most flexible labor laws in the world. The easier it is to fire someone in a dying industry, the easier it is to hire someone in a rising industry that no one knew would exist five years earlier. This is a great asset, especially when you compare the situation in the United States to inflexible, rigidly regulated labor markets like Germany's, full of government restrictions on hiring and firing. Flexibility to quickly deploy labor and capital where the greatest opportunity exists, and the ability to quickly redeploy it if the earlier deployment is no longer profitable, is essential in a flattening world.

Still another secret to America's sauce is the fact that it has the world's largest domestic consumer market, with the most first adopters, in the world, which means that if you are introducing a new product, technology, or service, you have to have a presence in America. All this means a steady flow of jobs for Americans.

There is also the little-discussed American attribute of political stability. Yes, China has had a good run for the past twenty-five years, and it may make the transition from communism to a more pluralistic system without the wheels coming off. But it may not. Who would want all his or her eggs in that basket?

Finally, the United States has become one of the great meeting points in the world, a place where lots of different people bond and learn to trust one another. An Indian student who is educated at the University of Oklahoma and then gets his first job with a software firm in Oklahoma City forges bonds of trust and understanding that are really important for future collaboration, even if he winds up returning to India. Nothing illustrates this point better than Yale University's outsourcing of research to China. Yale president Richard C. Levin explained to me that Yale has two big research operations running in China today, one at Peking University in Beijing and the other at Fudan University in Shanghai. “Most of these institutional collaborations arise not from top-down directives of university administrators, but rather from long-standing personal relationships among scholars and scientists,” said Levin.

How did the Yale-Fudan collaboration arise? To begin with, said Levin, Yale professor Tian Xu, its director, had a deep affiliation with both institutions. He did his undergraduate work at Fudan and received his Ph.D. from Yale. “Five of Professor Xu's collaborators, who are now professors at Fudan, were also trained at Yale,” explained Levin. One was Professor Xu's friend when both were Yale graduate students; another was a visiting scholar in the laboratory of a Yale colleague; one was an exchange student who came to Yale from Fudan and returned to earn his Ph.D. in China; and the other two were postdoctoral fellows in Professor Xu's Yale lab. A similar story underlies the formation of the Peking-Yale Joint Center for Plant Molecular Genetics and Agrobiotechnology.

Professor Xu is a leading expert on genetics and has won grants from the National Institutes of Health and the Howard Hughes Foundation to study the connection between genetics and cancer and certain neuro-degenerative diseases. This kind of research requires the study of large numbers of genetic mutations in lab animals. “When you want to test many genes and trace for a given gene that may be responsible for certain diseases, you need to run a lot of tests. Having a bigger staff is a huge advantage,” explained Levin. So what Yale did was essentially outsource the lab work to Fudan by creating the Fudan-Yale Biomedical Research Center. Each university pays for its own staff and research, so no money changes hands, but the Chinese side does the basic technical work using large numbers of technicians and lab animals, which cost so much less in China, and Yale does the high-end analysis of the data. The Fudan staff, students, and technicians get great exposure to high-end research, and Yale gets a large-scale testing facility that would have been prohibitively expensive if Yale had tried to duplicate it in New Haven. A support lab in America for a project like this one might have 30 technicians, but the one in Fudan has 150.

“The gains are very much two-way,” said Levin. “Our investigators get substantially enhanced productivity, and the Chinese get their graduate students trained, and their young faculty become collaborators with our professors, who are the leaders in their fields. It builds human capital for China and innovation for Yale.” Graduate students from both universities go back and forth, forging relationships that will no doubt produce more collaborations in the future. At the same time, he added, a lot of legal preparation went into this collaboration to make sure that Yale would be able to harvest the intellectual property that is created.

“There is one world of science out there,” said Levin, “and this kind of international division of labor makes a lot of sense.” Yale, he said, also insisted that the working conditions at the Chinese labs be world-class, and, as a result, it has also helped to lift the quality of the Chinese facilities. “The living conditions of the lab animals are right up to U.S. standards,” remarked Levin. “These are not mouse sweatshops.”

Every law of economics tells us that if we connect all the knowledge pools in the world, and promote greater and greater trade and integration, the global pie will grow wider and more complex. And if America, or any other country, nurtures a labor force that is increasingly made up of men and women who are special, specialized, or constantly adapting to higher-value-added jobs, it will grab its slice of that growing pie. But we will have to work at it. Because if current trends prevail, countries like India and China and whole regions like Eastern Europe are certain to narrow the gap with America, just as Korea and Japan and Taiwan did during the Cold War. They will keep upping their standards.

So are we still working at it? Are we tending to the secrets of our sauce? America still looks great on paper, especially if you look backward, or compare it only to India and China of today and not tomorrow. But have we really been investing in our future and preparing our children the way we need to for the race ahead? See the next chapter. But here's a quick hint:

The answer is no.

SEVEN: The Quiet Crisis

Close games for the Americans were rare in previous Olympics, but now it appears to be something the Americans should get used to.

—From an August 17, 2004, AP article from the Athens Olympics titled “U.S. Men's Basketball Team Narrowly Beats Greece”

You could find no better metaphor for the way the rest of the world can now compete head-to-head more effectively than ever with America than the struggles of the U.S. Olympic basketball team in 2004. The American team, made up of NBA stars, limped home to a bronze medal after losing to Puerto Rico, Lithuania, and Argentina. Previously, the United States Olympic basketball team had lost only one game in the history of the modern Olympics. Remember when America sent only NCAA stars to the Olympic basketball events? For a long time these teams totally dominated all comers. Then they started getting challenged. So we sent our pros. And they started getting challenged. Because the world keeps learning, the diffusion of knowledge happens faster; coaches in other countries now download American coaching methods off the Internet and watch NBA games in their own living rooms on satellite TV. Many of them can even get ESPN and watch the highlight reels. And thanks to the triple convergence, there is a lot of new raw talent walking onto the NBA courts from all over the world-including many new stars from China, Latin America, and Eastern Europe. They go back and play for their national teams in the Olympics, using the skills they honed in America. So the automatic American superiority of twenty years ago is now gone in Olympic basketball. The NBA standard is increasingly becoming a global commodity-pure vanilla. If the United States wants to continue to dominate in Olympic basketball, we must, in that great sports cliche, step it up a notch. The old standard won't do anymore. As Joel Cawley of IBM remarked to me, “Star for star, the basketball teams from places like Lithuania or Puerto Rico still don't rank well versus the Americans, but when they play as a team-when they collaborate better than we do-they are extremely competitive.”

Sports writer John Feinstein could have been referring to either American engineering skills or American basketball skills when he wrote in an August 26, 2004, AOL essay on Olympic basketball that the performance of the U.S. basketball team is a result of “the rise of the international player” and “the decline and fall of the U.S. game.” And the decline and fall of the U.S. game, argued Feinstein, is a result of two long-term trends. The first is a steady decline “in basketball skills,” with American kids just wanting to shoot either three-point shots or dunk— the sort of stuff that gets you on ESPN's SportsCenter highlight reel—instead of learning how to make precise passes, or go into the lane and shoot a pull-up jumper, or snake through big men to get to the basket. Those skills take a lot of hard work and coaching to learn. Today, said Feinstein, you have an American generation that relies almost completely on athleticism and almost not at all on basketball skills. And there is also that ugly little problem of ambition. While the rest of the world was getting better in basketball, “more and more NBA players were yawning at the notion of playing in the Olympics,” noted Feinstein. “We have come a long way from 1984, when Bob Knight told Charles Barkley to show up to the second Olympic training camp at 265 pounds or else. Barkley showed up weighing 280. Knight cut him that day. In today's world, the Olympic coach wouldn't even have checked Barkley's weight in the first place. He would have sent a limousine to the airport to get him and stopped at Dunkin' Donuts on the way to the hotel if the player requested it... The world changes. In the case of American basketball, it hasn't changed for the better.”

There is something about post-World War II America that reminds me of the classic wealthy family that by the third generation starts to squander its wealth. The members of the first generation are nose-to-the-grindstone innovators; the second generation holds it all together; then their kids come along and get fat, dumb, and lazy and slowly squander it all. I know that is both overly harsh and a gross generalization, but there is, nevertheless, some truth in it. American society started to coast in the 1990s, when our third postwar generation came of age. The dot-com boom left too many people with the impression that they could get rich without investing in hard work. All it took was an MBA and a quick IPO, or one NBA contract, and you were set for life. But while we were admiring the flat world we had created, a lot of people in India, China, and Eastern Europe were busy figuring out how to take advantage of it. Lucky for us, we were the only economy standing after World War II, and we had no serious competition for forty years. That gave us a huge head of steam but also a huge sense of entitlement and complacency-not to mention a certain tendency in recent years to extol consumption over hard work, investment, and long-term thinking. When we got hit with 9/11, it was a once-in-a-generation opportunity to summon the nation to sacrifice, to address some of its pressing fiscal, energy, science, and education shortfalls-all the things that we had let slide. But our president did not summon us to sacrifice. He summoned us to go shopping.

In the previous chapters, I showed why both classic economic theory and the inherent strengths of the American economy have convinced me that American individuals have nothing to worry about from a flat world-provided we roll up our sleeves, be ready to compete, get every individual to think about how he or she upgrades his or her educational skills, and keep investing in the secrets of the American sauce. Those chapters were all about what we must do and can do.

This chapter is about how we Americans, individually and collectively, have not been doing all these things that we should be doing and what will happen down the road if we don't change course.

The truth is, we are in a crisis now, but it is a crisis that is unfolding very slowly and very quietly. It is “a quiet crisis,” explained Shirley Ann Jackson, the 2004 president of the American Association for the Advancement of Science and president of Rensselaer Polytechnic Institute since 1999. (Rensselaer is America's oldest technological college, founded in 1824.) And this quiet crisis involves the steady erosion of America's scientific and engineering base, which has always been the source of American innovation and our rising standard of living.

“The sky is not falling, nothing horrible is going to happen today,” said Jackson, a physicist by training who chooses her words carefully. “The U.S. is still the leading engine for innovation in the world. It has the best graduate programs, the best scientific infrastructure, and the capital markets to exploit it. But there is a quiet crisis in U.S. science and technology that we have to wake up to. The U.S. today is in a truly global environment, and those competitor countries are not only wide awake, they are running a marathon while we are running sprints. If left unchecked, this could challenge our preeminence 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. It was American innovators who started Google, Intel, HP, Dell, Microsoft, and Cisco, and it matters where innovation happens. The fact that all these companies are headquartered in America means that most of the high-paying jobs are here, even if these companies outsource or offshore some functions. The executives, the department heads, the sales force, and the senior researchers are all located in the cities where the innovation happened. And their jobs create more jobs. The shrinking of the pool of young people with the knowledge skills to innovate won't shrink our standard of living overnight. It will be felt only in fifteen or twenty years, when we discover we have a critical shortage of scientists and engineers capable of doing innovation or even just high-value-added technology work. Then this won't be a quiet crisis anymore, said Jackson, “it will be the real McCoy.”

Shirley Ann Jackson knows of what she speaks, because her career exemplifies as well as anyone's both why America thrived so much in the past fifty years and why it won't automatically do the same in the next fifty. An African-American woman, Jackson was born in Washington, D.C., in 1946. She started kindergarten in a segregated public school but was one of the first public school students to benefit from desegregation, as a result of the Supreme Court ruling in Brown v.