In Lexus and the Olive Tree Thomas Friedman argued that economic interdependence equals prosperity and peace. In his new book he says the argument's over; globalization is here and it's good. But succeeding takes work, forethought, and resistance to "idio
Can we get specific about who benefits and who loses?
Imagine if America were the only country in the world, and there were only 100 people in America. We would have 80 knowledge workers and 20 manual laborers. And our manual laborers would be paid partly in relationship to the number of knowledge workers; that is, they're a fairly small pool. So if you want a nurse or if you want a factory assembly-line worker, if you want a nanny or if you want someone to work at McDonald's, there's actually rather a scarcity of them. So the wages of those people aren't going to be what the CEO makes, but they're also not going to do what the CEO does. Still, their wages aren't going to be flat, either, because they're going to be paid relative to the number of knowledge workers in our 100-person economy.
Now this imaginary world expands and there are two countries—America and China. China has 1,000 people, and we have a free-trade agreement with them. So now we have two countries in the world, and they are totally integrated with free trade. We have 80 knowledge workers and 20 physical laborers. China, with its 1,000 people, also has 80 knowledge workers, but they have 920 physical laborers.
Now we're in a two-country world with a total of 160 knowledge workers and 940 physical laborers. If you're one of those knowledge workers, you're going to do fine in this world. Why? Because the market for knowledge products has just expanded from 100 to 1,100. And, remember, knowledge people sell ideas and idea-based products, so they can be sold to everybody. When you make a copy of Microsoft Word, all 1,100 people can potentially buy it. If you're working on a factory line, there's only one factory that can buy your labor, and you're now competing for that one factory job, not with 20 people anymore, but with 940 people.
So what does this mean? For knowledge workers, it means this is going to be a great world. You're going to do fine. You will have to move horizontally at most. Ideally, you're going to have a lot more companies that want to buy your product, and you won't have to move at all.
The people in the pool of 940—physical laborers—they have a real problem, and there's just no getting around it. They cannot move horizontally. They have to move vertically. They have to get into the pool of knowledge workers who sell their products to the 1,100, not just to the one.
What about the IT worker?
Oh, the IT worker, that's all a bunch of nonsense. Show me a qualified software engineer today anywhere in America who is looking for a job and can't find one. Some of them may have had to move a little horizontally. But show me one person who really has qualifications, is an IT knowledge worker, and just cannot find a job. I don't believe that.
If you think you can just know HTML and you're going to be fine in this world, well, that's good work if you can get it, but the world is flat. If you're going to sit back and say, "Wait a minute, I'm an IT worker and I'm entitled to a job," well, you're not. There is no such thing as an American job. There's no job that's got your name on it. And you're going to have to get over that.
So basically people have to work harder.
Yeah. We all have to work harder, starting with me, because we're competing against a wider pool. But if you do work harder, there are going to be some incredible niches out there. Don't be surprised if your kid comes home from college and says, "Mom, dad, I want to be a search-engine optimizer when I grow up." And the parents think, "What the hell are you talking about?"
So the nature of the entry-level position changes.
Exactly. So if you sit there and say, "I can't be a software engineer"—well, yes, you can, but it may be that you're going to get into it as a search-engine optimizer and not as a classic HTML developer.
All of this assumes that the U.S. continues to innovate at a rate that exceeds the rest of the world. Are we set up to do that?
I worry about that. We have all the necessary ingredients—we have the best university system, the best financial market system, and a real free market. But we're not tending to the secrets of our sauce.