Sunday, April 03, 2005

Friedman and flattening

Tom Friedman's new book, The World Is Flat: A Brief History of the Twenty-First Century, is out soon. The Sunday Times magazine has a nice article adapted from the book. I often find Friedman a bit too breathless and exaggerated, but this excerpt is better than what I recall from his previous book on globalization, The Lexus and the Olive Tree.

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

...Some three billion people who were out of the game walked, and often ran, onto the playing field. I am talking about the people of China, India, Russia, Eastern Europe, Latin America and Central Asia....Sure, not all three billion can collaborate and compete. In fact, for most people the world is not yet flat at all. But even if we're talking about only 10 percent, that's 300 million people -- about twice the size of the American work force. And be advised: the Indians and Chinese are not racing us to the bottom. They are racing us to the top. What China's leaders really want is that the next generation of underwear and airplane wings not just be ''made in China'' but also be ''designed in China.'' And that is where things are heading. So in 30 years we will have gone from ''sold in China'' to ''made in China'' to ''designed in China'' to ''dreamed up in China'' -- or from China as collaborator with the worldwide manufacturers on nothing to China as a low-cost, high-quality, hyperefficient collaborator with worldwide manufacturers on everything. Ditto India. Said Craig Barrett, the C.E.O. of Intel, ''You don't bring three billion people into the world economy overnight without huge consequences, especially from three societies'' -- like India, China and Russia -- ''with rich educational heritages.''

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

...Compared with the young, energetic Indians and Chinese, too many Americans have gotten too lazy. As David Rothkopf, a former official in the Clinton Commerce Department, puts it, ''The real entitlement we need to get rid of is our sense of entitlement.'' Second, we have a serious numbers gap building. We are not producing enough engineers and scientists. We used to make up for that by importing them from India and China, but in a flat world, where people can now stay home and compete with us, and in a post-9/11 world, where we are insanely keeping out many of the first-round intellectual draft choices in the world for exaggerated security reasons, we can no longer cover the gap. That's a key reason companies are looking abroad. The numbers are not here. And finally we are developing an education gap. Here is the dirty little secret that no C.E.O. wants to tell you: they are not just outsourcing to save on salary. They are doing it because they can often get better-skilled and more productive people than their American workers.

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


Anonymous said...

Help Wanted: China Finds Itself With a Labor Shortage

NINGXIANG, China - The pipeline that pours young, eager workers into China's manufacturing juggernaut begins in the country's interior at vocational schools like Hunan Top Software.

So it is here in Ningxiang, a 10-hour drive from the factories on the southern coast, that clues can be found to a problem once thought inconceivable: The world's most populous nation, which has powered its stunning economic rise with a cheap and supposedly bottomless pool of migrant labor, is experiencing shortages of about two million workers in Guangdong and Fujian, the two provinces at the heart of China's export-driven economy.

For Wu Dongshan, the job placement coordinator at Hunan Top, the most obvious sign of change is that factory recruiters now come to him, a reversal from three years ago, when he would make the long drive to Guangdong with busloads of students desperate for work.

'We were begging the factories to hire our students,' Mr. Wu said. 'We had too many students and not enough jobs.'

No one thinks China is running out of workers. But young migrant workers coveted by factories are gaining bargaining power and many are choosing to leave the low pay and often miserable conditions in Guangdong. In a nondemocratic China, it is the equivalent of 'voting with their feet.'

March is one of the most important hiring months for China's factories, yet some analysts believe that the current shortfalls are the beginning of a long-term trend that is already bringing wage pressures and could eventually erode China's position as the world's dominant low-cost producer.

'It's not the end of the great China manufacturing story,' said Jonathan Anderson, the chief Asia-Pacific economist for UBS. 'But you're no longer going to be talking about China having labor so radically cheap that it will capture all the investment flows. This is an opening for Vietnam, it's an opening for India and Cambodia.'

The shift, which experts say will happen gradually, began last year and is a result of two decades of strict family planning, which has made China one of the most rapidly aging countries in the world.

'The number of people in the labor force is going to be going down for the next 15 years,' said Dali Yang, a professor of political science at the University of Chicago. 'This is a shift in demographics that is really good, not just for salaries but for work conditions.'

China remains a country where migrant workers are routinely exploited. But after a decade of stagnant wages, these workers are showing more willingness to demand their rights. Last year, factory workers rioted and held strikes in Guangdong. Other workers just left.

They can do that because economic growth in other regions has created increasing competition for workers. Many are leaving Guangdong for the rival Yangtze River Delta region near Shanghai, where many factories offer higher salaries. Others are starting to find work in larger cities in interior provinces. Some are simply returning to the farm.

'If we go to work in Guangdong, we work hard all year round but we can't save much money,' said Tang Xiaoliang, a migrant worker who toiled in Guangdong factories but has returned to his village near Hunan Top. 'The pay is too low. Whoever pays higher, I will go there.' ...


Anonymous said...

Excellent parody of Friedman: "The Datsun and the Shoe Tree."

Carson C. Chow said...


You write this as if it were a bad thing. It's about time the rest of the world caught up and perhaps surpass the US. We've been maintaining an artificially high standard of living for a long time now but all good things must pass.

Steve Hsu said...


Development in China and India are definitely good things (assuming environmental impact can be mediated).

But, Americans should be aware of where the world is heading, and have a realistic understanding of what it means. Returns to labor that is in direct competition with developing countries (i.e., low-skill manufacturing, and academic science :-) will be very low, while the importance of finance will grow as a central organizing structure in global markets.

david bennett said...

Bill Gates stated, "the percentage with a colege degree is important," but I'm not sure if it is in the way he meant it.

I think we suffer from a severe case of "education inflation," a college degree has often replaced a high school degree as an assurance of reasonable literacy, so we have a situation where we spend four or more additional years for capacities that could be achieved with less.

I would argue for a serious examination system becoming availible at a fairly young age (perhpas 14.) Individuals who succeeded in the standardized questions could then be subjected to direct examination by interview and committee. A significant number could be moved outside the high school system increasing wealth for it.

I would argue that basic college degrees could be provided the same way. One strength of such a system is that the examiners could provide guidance.

I think we need to question the claim of a "general liberal eductaion," not that I oppose it, I value it. But I don't think it's delivered and the shoddy way it's presented tends to innoculate students against things like the classics.

Short courses of study preparing students to enter quickly into the work force with a system that supports additions later is to me a possible step.

This involves radical shifting in resources and rethinking organization, but we need an intense fervor around the idea of learning.

Carson C. Chow said...


I agree but I don't think any sector of the US economy including finance is safe. Everyone in the world will have to compete with everyone else. The question is what will be steeper, our fall our their rise.

Anonymous said...

I think the problem is the US education system, at school level, where grade inflation is the norm.
The science and math syllabi are more rigorous in Asia and students do not have time for extra-curricular (or social) activities.

From what I have seen among Indians, many Indians (those not from IIT, who are exceptional anyway by selection) do very well simply because the rigours of learning in India has taught them the importance of persistence, patience, etc in learning. Quite a few of them are not the brightest bulbs, but they do better than a lot of American compatriots (even many Americans who I think are actually smarter).


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