The World is Flat

ONE: While I Was Sleeping

No one ever gave me directions like this on a golf course before: “Aim at either Microsoft or IBM.” I was standing on the first tee at the KGA Golf Club in downtown Bangalore, in southern India, when my playing partner pointed at two shiny glass-and-steel buildings off in the distance, just behind the first green. The Goldman Sachs building wasn't done yet; otherwise he could have pointed that out as well and made it a threesome. HP and Texas Instruments had their offices on the back nine, along the tenth hole. That wasn't all. The tee markers were from Epson, the printer company, and one of our caddies was wearing a hat from 3M. Outside, some of the traffic signs were also sponsored by Texas Instruments, and the Pizza Hut billboard on the way over showed a steaming pizza, under the headline “Gigabites of Taste!”

No, this definitely wasn't Kansas. It didn't even seem like India. Was this the New World, the Old World, or the Next World?

I had come to Bangalore, India's Silicon Valley, on my own Columbus-like journey of exploration. Columbus sailed with the Nina, the Pinta, and the Santa Maria in an effort to discover a shorter, more direct route to India by heading west, across the Atlantic, on what he presumed to be an open sea route to the East Indies-rather than going south and east around Africa, as Portuguese explorers of his day were trying to do. India and the magical Spice Islands of the East were famed at the time for their gold, pearls, gems, and silk-a source of untold riches. Finding this shortcut by sea to India, at a time when the Muslim powers of the day had blocked the overland routes from Europe, was a way for both Columbus and the Spanish monarchy to become wealthy and powerful. When Columbus set sail, he apparently assumed the Earth was round, which was why he was convinced that he could get to India by going west. He miscalculated the distance, though. He thought the Earth was a smaller sphere than it is. He also did not anticipate running into a landmass before he reached the East Indies. Nevertheless, he called the aboriginal peoples he encountered in the new world “Indians.” Returning home, though, Columbus was able to tell his patrons, King Ferdinand and Queen Isabella, that although he never did find India, he could confirm that the world was indeed round.

I set out for India by going due east, via Frankfurt. I had Lufthansa business class. I knew exactly which direction I was going thanks to the GPS map displayed on the screen that popped out of the armrest of my airline seat. I landed safely and on schedule. I too encountered people called Indians. I too was searching for the source of India's riches. Columbus was searching for hardware-precious metals, silk, and spices-the source of wealth in his day. I was searching for software, brainpower, complex algorithms, knowledge workers, call centers, transmission protocols, breakthroughs in optical engineering-the sources of wealth in our day. Columbus was happy to make the Indians he met his slaves, a pool of free manual labor.

I just wanted to understand why the Indians I met were taking our work, why they had become such an important pool for the outsourcing of service and information technology work from America and other industrialized countries. Columbus had more than one hundred men on his three ships; I had a small crew from the Discovery Times channel that fit comfortably into two banged-up vans, with Indian drivers who drove barefoot. When I set sail, so to speak, I too assumed that the world was round, but what I encountered in the real India profoundly shook my faith in that notion. Columbus accidentally ran into America but thought he had discovered part of India. I actually found India and thought many of the people I met there were Americans. Some had actually taken American names, and others were doing great imitations of American accents at call centers and American business techniques at software labs.

Columbus reported to his king and queen that the world was round, and he went down in history as the man who first made this discovery. I returned home and shared my discover)' only with my wife, and only in a whisper.

“Honey,” I confided, “I think the world is flat.”

How did I come to this conclusion? I guess you could say it all started in Nandan Nilekani's conference room at Infosys Technologies Limited. Infosys is one of the jewels of the Indian information technology world, and Nilekani, the company's CEO, is one of the most thoughtful and respected captains of Indian industry. I drove with the Discovery Times crew out to the Infosys campus, about forty minutes from the heart of Bangalore, to tour the facility and interview Nilekani. The Infosys campus is reached by a pockmarked road, with sacred cows, horse-drawn carts, and motorized rickshaws all jostling alongside our vans. Once you enter the gates of Infosys, though, you are in a different world. A massive resort-size swimming pool nestles amid boulders and manicured lawns, adjacent to a huge putting green. There are multiple restaurants and a fabulous health club. Glass-and-steel buildings seem to sprout up like weeds each week. In some of those buildings, Infosys employees are writing specific software programs for American or European companies; in others, they are running the back rooms of major American— and European-based multinationals—everything from computer maintenance to specific research projects to answering customer calls routed there from all over the world. Security is tight, cameras monitor the doors, and if you are working for American Express, you cannot get into the building that is managing services and research for General Electric. Young Indian engineers, men and women, walk briskly from building to building, dangling ID badges. One looked like he could do my taxes. Another looked like she could take my computer apart. And a third looked like she designed it!

After sitting for an interview, Nilekani gave our TV crew a tour of Info-sys's global conferencing center-ground zero of the Indian outsourcing industry. It was a cavernous wood-paneled room that looked like a tiered classroom from an Ivy League law school. On one end was a massive wall-size screen and overhead there were cameras in the ceiling for teleconferencing. “So this is our conference room, probably the largest screen in Asia-this is forty digital screens [put together],” Nilekani explained proudly, pointing to the biggest flat-screen TV I had ever seen. Infosys, he said, can hold a virtual meeting of the key players from its entire global supply chain for any project at any time on that supersize screen. So their American designers could be on the screen speaking with their Indian software writers and their Asian manufacturers all at once. “We could be sitting here, somebody from New York, London, Boston, San Francisco, all live. And maybe the implementation is in Singapore, so the Singapore person could also be live here... That's globalization,” said Nilekani. Above the screen there were eight clocks that pretty well summed up the Infosys workday: 24/7/365. The clocks were labeled US West, US East, GMT, India, Singapore, Hong Kong, Japan, Australia.

“Outsourcing is just one dimension of a much more fundamental thing happening today in the world,” Nilekani explained. “What happened over the last [few] years is that there was a massive investment in technology, especially in the bubble era, when hundreds of millions of dollars were invested in putting broadband connectivity around the world, undersea cables, all those things.” At the same time, he added, computers became cheaper and dispersed all over the world, and there was an explosion of software-e-mail, search engines like Google, and proprietary software that can chop up any piece of work and send one part to Boston, one part to Bangalore, and one part to Beijing, making it easy for anyone to do remote development. When all of these things suddenly came together around 2000, added Nilekani, they “created a platform where intellectual work, intellectual capital, could be delivered from anywhere. It could be disaggregated, delivered, distributed, produced, and put back together again-and this gave a whole new degree of freedom to the way we do work, especially work of an intellectual nature... And what you are seeing in Bangalore today is really the culmination of all these things coming together.”

We were sitting on the couch outside of Nilekani's office, waiting for the TV crew to set up its cameras. At one point, summing up the implications of all this, Nilekani uttered a phrase that rang in my ear. He said to me, “Tom, the playing field is being leveled.” He meant that countries like India are now able to compete for global knowledge work as never before-and that America had better get ready for this. America was going to be challenged, but, he insisted, the challenge would be good for America because we are always at our best when we are being challenged. As I left the Infosys campus that evening and bounced along the road back to Bangalore, I kept chewing on that phrase: “The playing field is being leveled.”

What Nandan is saying, I thought, is that the playing field is being flattened... Flattened? Flattened? My God, he's telling me the world is flat!

Here I was in Bangalore-more than five hundred years after Columbus sailed over the horizon, using the rudimentary navigational technologies of his day, and returned safely to prove definitively that the world was round-and one of India's smartest engineers, trained at his country's top technical institute and backed by the most modern technologies of his day, was essentially telling me that the world was flat-as flat as that screen on which he can host a meeting of his whole global supply chain. Even more interesting, he was citing this development as a good thing, as a new milestone in human progress and a great opportunity for India and the world-the fact that we had made our world flat!

In the back of that van, I scribbled down four words in my notebook: “The world is flat.” As soon as I wrote them, I realized that this was the underlying message of everything that I had seen and heard in Bangalore in two weeks of filming. The global competitive playing field was being leveled. The world was being flattened.

As I came to this realization, I was filled with both excitement and dread. The journalist in me was excited at having found a framework to better understand the morning headlines and to explain what was happening in the world today. Clearly, it is now possible for more people than ever to collaborate and compete in real time with more other people on more different kinds of work from more different corners of the planet and on a more equal footing than at any previous time in the history of the world-using computers, e-mail, networks, teleconferencing, and dynamic new software. That is what Nandan was telling me. That was what I discovered on my journey to India and beyond. And that is what this book is about. When you start to think of the world as flat, a lot of things make sense in ways they did not before. But I was also excited personally, because what the flattening of the world means is that we are now connecting all the knowledge centers on the planet together into a single global network, which-if politics and terrorism do not get in the way-could usher in an amazing era of prosperity and innovation.

But contemplating the flat world also left me filled with dread, professional and personal. My personal dread derived from the obvious fact that it's not only the software writers and computer geeks who get empowered to collaborate on work in a flat world. It's also al-Qaeda and other terrorist networks. The playing field is not being leveled only in ways that draw in and superempower a whole new group of innovators. It's being leveled in a way that draws in and superempowers a whole new group of angry, frustrated, and humiliated men and women.

Professionally, the recognition that the world was flat was unnerving because I realized that this flattening had been taking place while I was sleeping, and I had missed it. I wasn't really sleeping, but I was otherwise engaged. Before 9/11,1 was focused on tracking globalization and exploring the tension between the “Lexus” forces of economic integration and the “Olive Tree” forces of identity and nationalism-hence my 1999 book, The Lexus and the Olive Tree. But after 9/11, the olive tree wars became all-consuming for me. I spent almost all my time traveling in the Arab and Muslim worlds. During those years I lost the trail of globalization.

I found that trail again on my journey to Bangalore in February 2004. Once I did, I realized that something really important had happened while I was fixated on the olive groves of Kabul and Baghdad. Globalization had gone to a whole new level. If you put The Lexus and the Olive Tree and this book together, the broad historical argument you end up with is that that there have been three great eras of globalization. The first lasted from 1492-when Columbus set sail, opening trade between the Old World and the New World-until around 1800.1 would call this era Globalization 1.0. It shrank the world from a size large to a size medium. Globalization 1.0 was about countries and muscles. That is, in Globalization 1.0 the key agent of change, the dynamic force driving the process of global integration was how much brawn-how much muscle, how much horsepower, wind power, or, later, steam power-your country had and how creatively you could deploy it. In this era, countries and governments (often inspired by religion or imperialism or a combination of both) led the way in breaking down walls and knitting the world together, driving global integration. In Globalization 1.0, the primary questions were: Where does my country fit into global competition and opportunities? How can I go global and collaborate with others through my country?

The second great era, Globalization 2.0, lasted roughly from 1800 to 2000, interrupted by the Great Depression and World Wars I and II. This era shrank the world from a size medium to a size small. In Globalization 2.0, the key agent of change, the dynamic force driving global integration, was multinational companies. These multinationals went global for markets and labor, spearheaded first by the expansion of the Dutch and English joint-stock companies and the Industrial Revolution. In the first half of this era, global integration was powered by falling transportation costs, thanks to the steam engine and the railroad, and in the second half by falling telecommunication costs-thanks to the diffusion of the telegraph, telephones, the PC, satellites, fiber-optic cable, and the early version of the World Wide Web. It was during this era that we really saw the birth and maturation of a global economy, in the sense that there was enough movement of goods and information from continent to continent for there to be a global market, with global arbitrage in products and labor. The dynamic forces behind this era of globalization were breakthroughs in hardware-from steamships and railroads in the beginning to telephones and mainframe computers toward the end. And the big questions in this era were: Where does my company fit into the global economy? How does it take advantage of the opportunities? How can I go global and collaborate with others through my company? The Lexus and the Olive Tree was primarily about the climax of this era, an era when the walls started falling all around the world, and integration, and the backlash to it, went to a whole new level. But even as the walls fell, there were still a lot of barriers to seamless global integration. Remember, when Bill Clinton was elected president in 1992, virtually no one outside of government and the academy had e-mail, and when I was writing The Lexus and the Olive Tree in 1998, the Internet and e-commerce were just taking off.

Well, they took off-along with a lot of other things that came together while I was sleeping. And that is why I argue in this book that around the year 2000 we entered a whole new era: Globalization 3.0. Globalization 3.0 is shrinking the world from a size small to a size tiny and flattening the playing field at the same time. And while the dynamic force in Globalization 1.0 was countries globalizing and the dynamic force in Globalization 2.0 was companies globalizing, the dynamic force in Globalization 3.0-the thing that gives it its unique character-is the newfound power for individuals to collaborate and compete globally. And the lever that is enabling individuals and groups to go global so easily and so seamlessly is not horsepower, and not hardware, but software— all sorts of new applications-in conjunction with the creation of a global fiber-optic network that has made us all next-door neighbors. Individuals must, and can, now ask, Where do I fit into the global competition and opportunities of the day, and how can I, on my own, collaborate with others globally?

But Globalization 3.0 not only differs from the previous eras in how it is shrinking and flattening the world and in how it is empowering individuals. It is different in that Globalization 1.0 and 2.0 were driven primarily by European and American individuals and businesses. Even though China actually had the biggest economy in the world in the eighteenth century, it was Western countries, companies, and explorers who were doing most of the globalizing and shaping of the system. But going forward, this will be less and less true. Because it is flattening and shrinking the world, Globalization 3.0 is going to be more and more driven not only by individuals but also by a much more diverse—non-Western, non-white-group of individuals. Individuals from every corner of the flat world are being empowered. Globalization 3.0 makes it possible for so many more people to plug and play, and you are going to see every color of the human rainbow take part.

(While this empowerment of individuals to act globally is the most important new feature of Globalization 3.0, companies-large and small-have been newly empowered in this era as well. I discuss both in detail later in the book.)

Needless to say, I had only the vaguest appreciation of all this as I left Nandan's office that day in Bangalore. But as I sat contemplating these changes on the balcony of my hotel room that evening, I did know one thing: I wanted to drop everything and write a book that would enable me to understand how this flattening process happened and what its implications might be for countries, companies, and individuals. So I picked up the phone and called my wife, Ann, and told her, “I am going to write a book called The World Is Flat.” She was both amused and curious-well, maybe more amused than curious! Eventually, I was able to bring her around, and I hope I will be able to do the same with you, dear reader. Let me start by taking you back to the beginning of my journey to India, and other points east, and share with you some of the encounters that led me to conclude the world was no longer round-but flat.

Jaithirth “Jerry” Rao was one of the first people I met in Bangalore—and I hadn't been with him for more than a few minutes at the Leela Palace hotel before he told me that he could handle my tax returns and any other accounting needs I had-from Bangalore. No thanks, I demurred, I already have an accountant in Chicago. Jerry just smiled. He was too polite to say it-that he may already be my accountant, or rather my accountant's accountant, thanks to the explosion in the outsourcing of tax preparation.

“This is happening as we speak,” said Rao, a native of Mumbai, formerly Bombay, whose Indian firm, MphasiS, has a team of Indian accountants able to do outsourced accounting work from any state in America and the federal government. “We have tied up with several small and medium-sized CPA firms in America.”

“You mean like my accountant?” I asked. “Yes, like your accountant,” said Rao with a smile. Rao's company has pioneered a work flow software program with a standardized format that makes the outsourcing of tax returns cheap and easy. The whole process starts, Jerry explained, with an accountant in the United States scanning my last year's tax returns, plus my W-2, W-4, 1099, bonuses, and stock statements-everything-into a computer server, w

hich is physically located in California or Texas. “Now your accountant, if he is going to have your taxes done overseas, knows that you would prefer not to have your surname be known or your Social Security number known [to someone outside the country], so he can choose to suppress that information,” said Rao. “The accountants in India call up all the raw information directly from the server in America [using a password], and they complete your tax returns, with you remaining anonymous. All the data stays in the U.S. to comply with privacy regulations... We take data protection and privacy very seriously. The accountant in India can see the data on his screen, but he cannot take a download of it or print it out-our program does not allow it. The most he could do would be to try to memorize it, if he had some ill intention. The accountants are not allowed to even take a paper and pen into the room when they are working on the returns.”

I was intrigued at just how advanced this form of service outsourcing had become. “We are doing several thousand returns,” said Rao. What's more, “Your CPA in America need not even be in their office. They can be sitting on a beach in California and e-mail us and say, 'Jerrv> you are really good at doing New York State returns, so you do Tom's returns. And Sonia, you and your team in Delhi do the Washington and Florida returns.' Sonia, by the way, is working out of her house in India, with no overhead [for the company to pay]. 'And these others, they are really complicated, so I will do them myself.”

In 2003, some 25,000 U.S. tax returns were done in India. In 2004, the number was 100,000. In 2005, it is expected to be 400,000. In a decade, you will assume that your accountant has outsourced the basic preparation of your tax returns-if not more.

“How did you get into this?” I asked Rao.

“My friend Jeroen Tas, a Dutchman, and I were both working in California for Citigroup,” Rao explained. “I was his boss and we were coming back from New York one day together on a flight and I said that I was planning to quit and he said, 'So am I.' We both said, 'Why don't we start our own business?' So in 1997-98, we put together a business plan to provide high-end Internet solutions for big companies... Two years ago, though, I went to a technology convention in Las Vegas and was approached by some medium-size [American] accounting firms, and they said they could not afford to set up big tax outsourcing operations to India, but the big guys could, and [the medium guys] wanted to get ahead of them. So we developed a software product called VTR— Virtual Tax Room-to enable these medium-size accounting firms to easily outsource tax returns.”

These midsize firms “are getting a more level playing field, which they were denied before,” said Jerry. “Suddenly they can get access to the same advantages of scale that the bigger guys always had.”

Is the message to Americans, “Mama, don't let your kids grow up to be accountants”? I asked.

Not really, said Rao. “What we have done is taken the grunt work. You know what is needed to prepare a tax return? Very little creative work. This is what will move overseas.”

“What will stay in America?” I asked.

“The accountant who wants to stay in business in America will be the one who focuses on designing creative complex strategies, like tax avoidance or tax sheltering, managing customer relationships,” he said. “He or she will say to his clients, 'I am getting the grunt work done efficiently far away. Now let's talk about how we manage your estate and what you are going to do about your kids. Do you want to leave some money in your trusts?' It means having the quality-time discussions with clients rather than running around like chickens with their heads cut off from February to April, and often filing for extensions into August, because they have not had the quality time with clients.”

Judging from an essay in the journal Accounting Today (June 7, 2004), this does, indeed, seem to be the future. L. Gary Boomer, a CPA and CEO of Boomer Consulting in Manhattan, Kansas, wrote, “This past [tax] season produced over 100,000 [outsourced] returns and has now expanded beyond individual returns to trusts, partnerships and corporations... The primary reason that the industry has been able to scale up as rapidly as it has over the past three years is due to the investment that these [foreign-based] companies have made in systems, processes and training.” There are about seventy thousand accounting grads in India each year, he added, many of whom go to work for local Indian firms starting at $100 a month. With the help of high-speed communications, stringent training, and standardized forms, these young Indians can fairly rapidly be converted into basic Western accountants at a fraction of the cost. Some of the Indian accounting firms even go about marketing themselves to American firms through teleconferencing and skip the travel. Concluded Boomer, “The accounting profession is currently in transformation. Those who get caught in the past and resist change will be forced deeper into commoditization. Those who can create value through leadership, relationships and creativity will transform the industry, as well as strengthen relationships with their existing clients.”

What you're telling me, I said to Rao, is that no matter what your profession-doctor, lawyer, architect, accountant-if you are an American, you better be good at the touchy-feely service stuff, because anything that can be digitized can be outsourced to either the smartest or the cheapest producer, or both. Rao answered, “Everyone has to focus on what exactly is their value-add.”

But what if I am just an average accountant? I went to a state university. I had a B+ average. Eventually I got my CPA. I work in a big accounting firm, doing a lot of standard work. I rarely meet with clients.

They keep me in the back. But it is a decent living and the firm is basically happy with me. What is going to happen to me in this system?

“It is a good question,” said Rao. “We must be honest about it. We are in the middle of a big technological change, and when you live in a society that is at the cutting edge of that change [like America], it is hard to predict. It's easy to predict for someone living in India. In ten years we are going to be doing a lot of the stuff that is being done in America today. We can predict our future. But we are behind you. You are defining the future. America is always on the edge of the next creative wave... So it is difficult to look into the eyes of that accountant and say this is what is going to be. We should not trivialize that. We must deal with it and talk about it honestly... Any activity where we can digitize and decompose the value chain, and move the work around, will get moved around. Some people will say, Yes, but you can't serve me a steak.' True, but I can take the reservation for your table sitting anywhere in the world, if the restaurant does not have an operator. We can say, Yes, Mr. Friedman, we can give you a table by the window.' In other words, there are parts of the whole dining-out experience that we can decompose and outsource. If you go back and read the basic economics textbooks, they will tell you: Goods are traded, but services are consumed and produced in the same place. And you cannot export a haircut. But we are coming close to exporting a haircut, the appointment part. What kind of haircut do you want? Which barber do you want? All those things can and will be done by a call center far away.”

As we ended our conversation, I asked Rao what he is up to next. He was full of energy. He told me he'd been talking to an Israeli company that is making some big advances in compression technology to allow for easier, better transfers of CAT scans via the Internet so you can quickly get a second opinion from a doctor half a world away.

A few weeks after I spoke with Rao, the following e-mail arrived from Bill Brody, the president of Johns Hopkins University, whom I had just interviewed for this book:

Dear Tom, I am speaking at a Hopkins continuing education medical meeting for radiologists (I used to be a radiologist)... I came upon a very fascinating situation that I thought might interest you. I have just learned that in many small and some medium-size hospitals in the US, radiologists are outsourcing reading of CAT scans to doctors in India and Australia!!! Most of this evidently occurs at night (and maybe weekends) when the radiologists do not have sufficient staffing to provide in-hospital coverage. While some radiology groups will use teleradiology to ship images from the hospital to their home (or to Vail or Cape Cod, I suppose) so that they can interpret images and provide a diagnosis 24/7, apparently the smaller hospitals are shipping CAT scan images to radiologists abroad. The advantage is that it is daytime in Australia or India when it is nighttime here-so after-hours coverage becomes more readily done by shipping the images across the globe. Since CAT (and MRI) images are already in digital format and available on a network with a standardized protocol, it is no problem to view the images anywhere in the world... I assume that the radiologists on the other end... must have trained in [the] US and acquired the appropriate licenses and credentials... The groups abroad that provide these after-hours readings are called “Nighthawks” by the American radiologists that employ them. Best, Bill

Thank goodness I'm a journalist and not an accountant or a radiologist. There will be no outsourcing for me-even if some of my readers wish my column could be shipped off to North Korea. At least that's what I thought. Then I heard about the Reuters operation in India. I didn't have time to visit the Reuters office in Bangalore, but I was able to get hold of Tom Glocer, the CEO of Reuters, to hear what he was doing. Glocer is a pioneer in the outsourcing of elements of the news supply chain.

With 2,300 journalists around the world, in 197 bureaus, serving a market including investment bankers, derivatives traders, stockbrokers, newspapers, radio, television, and Internet outlets, Reuters has always had a very complex audience to satisfy. After the dot-com bust, though, when many of its customers became very cost-conscious, Reuters started asking itself, for reasons of both cost and efficiency: Where do we actually need our people to be located to feed our global news supply chain? And can we actually disaggregate the work of a journalist and keep part in London and New York and shift part to India?

Glocer started by looking at the most basic bread-and-butter function Reuters provides, which is breaking news about company earnings and related business developments, every second of every day. “Exxon comes out with its earnings and we need to get that as fast possible up on screens around the world: 'Exxon earned thirty-nine cents this quarter as opposed to thirty-six cents last quarter.' The core competency there is speed and accuracy,” explained Glocer. “You don't need a lot of analysis. We just need to get the basic news up as fast as possible. The flash should be out in seconds after the company releases, and the table [showing the recent history of quarterly earnings] a few seconds later.”

Those sorts of earnings flashes are to the news business what vanilla is to the ice cream business-a basic commodity that actually can be made anywhere in the flat world. The real value-added knowledge work happens in the next five minutes. That is when you need a real journalist who knows how to get a comment from the company, a comment from the top two analysts in the field, and even some word from competitors to put the earnings report in perspective. “That needs a higher journalistic skill set-someone in the market with contacts, who knows who the best industry analysts are and has taken the right people to lunch,” said Glocer.

The dot-com bust and the flattening of the world forced Glocer to rethink how Reuters delivered news-whether it could disaggregate the functions of a journalist and ship the low-value-added functions to India. His primary goal was to reduce the overlap Reuters payroll, while preserving as many good journalism jobs as possible. “So the first thing we did,” said Glocer, “was hire six reporters in Bangalore as an experiment.

We said, 'Let's let them just do the flash headlines and the tables and whatever else we can get them to do in Bangalore.'“

These new Indian hires had accounting backgrounds and were trained by Reuters, but they were paid standard local wages and vacation and health benefits. “India is an unbelievably rich place for recruiting people, not only with technical skills but also financial skills,” said Glocer. When a company puts out its earnings, one of the first things it does is hand it to the wires-Reuters, Dow Jones, and Bloomberg-for distribution. “We will get that raw data,” he said, “and then it's a race to see how fast we can turn it around. Bangalore is one of the most wired places in the world, and although there's a slight delay-one second or less-in getting the information over there, it turns out you can just as easily sit in Bangalore and get the electronic version of a press release and turn it into a story as you can in London or New York.”

The difference, however, is that wages and rents in Bangalore are less than one-fifth what they are in those Western capitals.

While economics and the flattening of the world have pushed Reuters down this path, Glocer has tried to make a virtue of necessity. “We think we can off-load commoditized reporting and get that done efficiently somewhere else in the world,” he said, and then give the conventional Reuters journalists, whom the company is able to retain, a chance to focus on doing much higher-value-added and personally fulfilling journalism and analysis. “Let's say you were a Reuters journalist in New York. Do you reach your life's fulfillment by turning press releases into boxes on the screen, or by doing the analysis?” asked Glocer. Obviously, it is the latter. Outsourcing news bulletins to India also allows Reuters to extend the breadth of its reporting to more small-cap companies, companies it was not cost-efficient for Reuters to follow before with higher-paid journalists in New York. But with lower-wage Indian reporters, who can be hired in large numbers for the cost of one reporter in New York, it can now do that from Bangalore. By the summer of 2004, Reuters had grown its Bangalore content operation to three hundred staff, aiming eventually for a total of fifteen hundred. Some of those are Reuters veterans sent out to train the Indian teams, some are reporters filing earnings flashes, but most are journalists doing slightly more specialized data analysis-number crunching-for securities offerings.

“A lot of our clients are doing the same thing,” said Glocer. “Investment research has had to have huge amounts of cost ripped out of it, so a lot of firms are using shift work in Bangalore to do bread-and-butter company analysis.” Until recently the big Wall Street firms had conducted investment research by spending millions of dollars on star analysts and then charging part of their salaries to their stockbrokerage departments, which shared the analysis with their best customers, and part to their investment banking business, which sometimes used glowing analyses of a company to lure its banking business. In the wake of New York State Attorney General Eliot Spitzer's investigations into Wall Street practices, following several scandals, investment banking and stockbrokerage have had to be distinctly separated-so that analysts will stop hyping companies in order to get their investment banking. But as a result, the big Wall Street investment firms have had to sharply reduce the cost of their market research, all of which has to be paid for now by their brokerage departments alone. And this created a great incentive for them to outsource some of this analytical work to places like Bangalore. In addition to being able to pay an analyst in Bangalore about $15,000 in total compensation, as opposed to $80,000 in New York or London, Reuters has found that its India employees tend to be financially literate and highly motivated as well. Reuters also recently opened a software development center in Bangkok because it turned out to be a good place to recruit developers who had been overlooked by all the Western companies vying for talent in Bangalore.

I find myself torn by this trend. Having started my career as a wire service reporter with United Press International, I have enormous sympathy with wire service reporters and the pressures, both professional and financial, under which they toil. But UPI might still be thriving today as a wire service, which it is not, if it had been able to outsource some of its lower-end business when I started as a reporter in London twenty-five years ago.

“It is delicate with the staff,” said Glocer, who has cut the entire Reuters staff by roughly a quarter, without deep cuts among the reporters. The Reuters staff, he said, understand that this is being done so that the company can survive and then thrive again. At the same time, said Glocer, “these are sophisticated people out reporting. They see that our clients are doing the exact same things. They get the plot of the story... What is vital is to be honest with people about what we are doing and why and not sugarcoat the message. I firmly believe in the lesson of classical economists about moving work to where it can be done best. However, we must not ignore that in some cases, individual workers will not easily find new work. For them, retraining and an adequate social safety net are needed.”

In an effort to deal straight with the Reuters staff, David Schlesinger, who heads Reuters America, sent all editorial employees a memo, which included the following excerpt:

Off-shoring with Obligation I grew up in New London, Connecticut, which in the 19th century was a major whaling center. In the 1960's and 70's the whales were long gone and the major employers in the region were connected with the military-not a surprise during the Vietnam era. My classmates' parents worked at Electric Boat, the Navy and the Coast Guard. The peace dividend changed the region once again, and now it is best known for the great gambling casinos of Mohegan Sun and Foxwoods and for the pharmaceutical researchers of Pfizer. Jobs went; jobs were created. Skills went out of use; new skills were required. The region changed; people changed. New London, of course, was not unique. How many mill towns saw their mills close; how many shoe towns saw the shoe industry move elsewhere; how many towns that were once textile powerhouses now buy all their linens from China? Change is hard. Change is hardest on those caught by surprise. Change is hardest on those who have difficulty changing too. But change is natural; change is not new; change is important. The current debate about off-shoring is dangerously hot. But the debate about work going to India, China and Mexico is actually no different from the debate once held about submarine work leaving New London or shoe work leaving Massachusetts or textile work leaving North Carolina. Work gets done where it can be done most effectively and efficiently. That ultimately helps the New Londons, New Bedfords and New Yorks of this world even more than it helps the Bangalores and Shenzhens. It helps because it frees up people and capital to do different, more sophisticated work, and it helps because it gives an opportunity to produce the end product more cheaply, benefiting customers even as it helps the corporation. It's certainly difficult for individuals to think about “their” work going away, being done thousands of miles away by someone earning thousands of dollars less per year. But it's time to think about the opportunity as well as the pain, just as it's time to think about the obligations of off-shoring as well as the opportunities... Every person, just as every corporation, must tend to his or her own economic destiny, just as our parents and grandparents in the mills, shoe shops and factories did.

“The Monitor Is Burning?”

Do you know what an Indian call center sounds like? While filming the documentary about outsourcing, the TV crew and I spent an evening at the Indian-owned “24/7 Customer” call center in Bangalore. The call center is a cross between a co-ed college frat house and a phone bank raising money for the local public TV station. There are several floors with rooms full of twenty-somethings— some twenty-five hundred in all-working the phones. Some are known as “outbound” operators, selling everything from credit cards to phone minutes. Others deal with “inbound” calls-everything from tracing lost luggage for U.S. and European airline passengers to solving computer problems for confused American consumers. The calls are transferred here by satellite and undersea fiber-optic cable. Each vast floor of a call center consists of clusters of cubicles. The young people work in little teams under the banner of the company whose phone support they are providing. So one corner might be the Dell group, another might be flying the flag of Microsoft. Their working conditions look like those at your average insurance company. Although I am sure that there are call centers that are operated like sweatshops, 24/7 is not one of them.

Most of the young people I interviewed give all or part of their salary to their parents. In fact, many of them have starting salaries that are higher than their parents' retiring salaries. For entry-level jobs into the global economy, these are about as good as it gets.

I was wandering around the Microsoft section around six p.m. Bangalore time, when most of these young people start their workday to coincide with the dawn in America, when I asked a young Indian computer expert there a simple question: What was the record on the floor for the longest phone call to help some American who got lost in the maze of his or her own software?

Without missing a beat he answered, “Eleven hours.”

“Eleven hours?” I exclaimed.

“Eleven hours,” he said.

I have no way of checking whether this is true, but you do hear snippets of some oddly familiar conversations as you walk the floor at 24/7 and just listen over the shoulders of different call center operators doing their things. Here is a small sample of what we heard that night while filming for Discovery Times. It should be read, if you can imagine this, in the voice of someone with an Indian accent trying to imitate an American or a Brit. Also imagine that no matter how rude, unhappy, irritated, or ornery the voices are on the other end of the line, these young Indians are incessantly and unfailingly polite.

Woman call center operator: “Good afternoon, may I speak with...?” (Someone on the other end just slammed down the phone.)

Male call center operator: “Merchant services, this is Jerry, may I help you?” (The Indian call center operators adopt Western names of their own choosing. The idea, of course, is to make their American or European customers feel more comfortable. Most of the young Indians I talked to about this were not offended but took it as an opportunity to have some fun. While a few just opt for Susan or Bob, some really get creative.)

Woman operator in Bangalore speaking to an American: “My name is Ivy Timberwoods and I am calling you...”

Woman operator in Bangalore getting an American's identity number: “May I have the last four digits of your Social Security?”

Woman operator in Bangalore giving directions as though she were in Manhattan and looking out her window: “Yes, we have a branch on Seventy-fourth and Second Avenue, a branch at Fifty-fourth and Lexington...”

Male operator in Bangalore selling a credit card he could never afford himself: “This card comes to you with one of the lowest APR...”

Woman operator in Bangalore explaining to an American how she screwed up her checking account: “Check number six-six-five for eighty-one dollars and fifty-five cents. You will still be hit by the thirty-dollar charge. Am I clear?”

Woman operator in Bangalore after walking an American through a computer glitch: “Not a problem, Mr. Jassup. Thank you for your time. Take care. Bye-bye.”

Woman operator in Bangalore after someone has just slammed down the phone on her: “Hello? Hello?”

Woman operator in Bangalore apologizing for calling someone in America too early: “This is just a courtesy call, I'll call back later in the evening...”

Male operator in Bangalore trying desperately to sell an airline credit card to someone in America who doesn't seem to want one: “Is that because you have too many credit cards, or you don't like flying, Mrs. Bell?”

Woman operator in Bangalore trying to talk an American out of her computer crash: “Start switching between memory okay and memory test...”

Male operator in Bangalore doing the same thing: “All right, then, let's just punch in three and press Enter...”

Woman operator in Bangalore trying to help an American who cannot stand being on the help line another second: “Yes, ma'am, I do understand that you are in a hurry right now. I am just trying to help you out...”

Woman operator in Bangalore getting another phone slammed down on her: “Yes, well, so what time would be goo...”

Same woman operator in Bangalore getting another phone slammed down on her: “Why, Mrs. Kent, it's not a...”

Same woman operator in Bangalore getting another phone slammed down on her: “As a safety back... Hello?”

Same woman operator in Bangalore looking up from her phone: “I definitely have a bad day!”

Woman operator in Bangalore trying to help an American woman with a computer problem that she has never heard before: “What is the problem with this machine, ma'am? The monitor is burning?”

There are currently about 245,000 Indians answering phones from all over the world or dialing out to solicit people for credit cards or cell phone bargains or overdue bills. These call center jobs are low-wage, low-prestige jobs in America, but when shifted to India they become high-wage, high-prestige jobs. The esprit de corps at 24/7 and other call centers I visited seemed quite high, and the young people were all eager to share some of the bizarre phone conversations they've had with Americans who dialed 1-800-HELP, thinking they would wind up talking to someone around the block, not around the world.

C. M. Meghna, a 24/7 call center female operator, told me, “I've had lots of customers who call in [with questions] not even connected to the product that we're dealing with. They would call in because they had lost their wallet or just to talk to somebody. I'm like, 'Okay, all right, maybe you should look under the bed [for your wallet] or where do you normally keep it,' and she's like, 'Okay, thank you so much for helping.'” Nitu Somaiah: “One of the customers asked me to marry him.” Sophie Sunder worked for Delta's lost-baggage department: “I remember this lady called from Texas,” she said, “and she was, like, weeping on the phone. She had traveled two connecting flights and she lost her bag and in the bag was her daughter's wedding gown and wedding ring and I felt so sad for her and there was nothing I could do. I had no information.

“Most of the customers were irate,” said Sunder. “The first thing they say is, 'Where's my bag? I want my bag now!' We were like supposed to say, 'Excuse me, can I have your first name and last name?' 'But where's my bag!' Some would ask which country am I from? We are supposed to tell the truth, [so] we tell them India. Some thought it was Indiana, not India! Some did not know where India is. I said it is the country next to Pakistan.”

Although the great majority of the calls are rather routine and dull, competition for these jobs is fierce-not only because they pay well, but because you can work at night and go to school during part of the day, so they are stepping-stones toward a higher standard of living. P. V. Kannan, CEO and cofounder of 24/7, explained to me how it all worked: “Today we have over four thousand associates spread out in Bangalore, Hyderabad, and Chennai. Our associates start out with a take-home pay of roughly $200 a month, which grows to $300 to $400 per month in six months. We also provide transportation, lunch, and dinner at no extra cost. We provide life insurance, medical insurance for the entire family— and other benefits.”

Therefore, the total cost of each call center operator is actually around $500 per month when they start out and closer to $600 to $700 per month after six months. Everyone is also entitled to performance bonuses that allow them to earn, in certain cases, the equivalent of 100 percent of their base salary. “Around 10 to 20 percent of our associates pursue a degree in business or computer science during the day hours,” said Kannan, adding that more than one-third are taking some kind of extra computer or business training, even if it is not toward a degree. “It is quite common in India for people to pursue education through their twenties-self-improvement is a big theme and actively encouraged by parents and companies. We sponsor an MBA program for consistent performers [with] full-day classes over the weekend. Everyone works eight hours a day, five days a week, with two fifteen-minute breaks and an hour off for lunch or dinner.”

Not surprisingly, the 24/7 customer call center gets about seven hundred applications a day, but only 6 percent of applicants are hired. Here is a snippet from a recruiting session for call center operators at a women's college in Bangalore:

Recruiter 1: “Good morning, girls.”

Class in unison: “Good morning, ma'am.”

Recruiter 1: “We have been retained by some of the multinationals here to do the recruitment for them. The primary clients that we are recruiting [for] today are Honeywell. And also for America Online.”

The young women-dozens of them-then all lined up with their application forms and waited to be interviewed by a recruiter at a wooden table. Here is what some of the interviews sounded like:

Recruiter 1: “What kind of job are you looking at?”

Applicant 1: “It should be based on accounts, then, where I can grow, I can grow in my career.”

Recruiter 1: “You have to be more confident about yourself when you're speaking. You're very nervous. I want you to work a little on that and then get in touch with us.”

Recruiter 2 to another applicant: “Tell me something about yourself.”

Applicant 2: “I have passed my SSC with distinction. Second P also with distinction. And I also hold a 70 percent aggregate in previous two years.” (This is Indian lingo for their equivalents of GPA and SAT scores.)

Recruiter 2: “Go a little slow. Don't be nervous. Be cool.”

The next step for those applicants who are hired at a call center is the training program, which they are paid to attend. It combines learning how to handle the specific processes for the company whose calls they will be taking or making, and attending something called “accent neutralization class.” These are daylong sessions with a language teacher who prepares the new Indian hires to disguise their pronounced Indian accents when speaking English and replace them with American, Canadian, or British ones-depending on which part of the world they will be speaking with. It's pretty bizarre to watch. The class I sat in on was being trained to speak in a neutral middle-American accent. The students were asked to read over and over a single phonetic paragraph designed to teach them how to soften their r's and to roll their r's.

Their teacher, a charming eight-months-pregnant young woman dressed in a traditional Indian sari, moved seamlessly among British, American, and Canadian accents as she demonstrated reading a paragraph designed to highlight phonetics. She said to the class, “Remember the first day I told you that the Americans flap the 'tuh' sound? You know, it sounds like an almost 'duh' sound-not crisp and clear like the British. So I would not say”—here she was crisp and sharp—'“Betty bought a bit of better butter' or 'Insert a quarter in the meter.' But I would say”—her voice very flat—“'Insert a quarter in the meter' or 'Betty bought a bit of better butter.' So I'm just going to read it out for you once, and then we'll read it together. All right? 'Thirty little turtles in a bottle of bottled water. A bottle of bottled water held thirty little turtles. It didn't matter that each turtle had to rattle a metal ladle in order to get a little bit of noodles.'

“All right, who's going to read first?” the instructor asked. Each member of the class then took a turn trying to say this tongue twister in an American accent. Some of them got it on the first try, and others, well, let's just say that you wouldn't think they were in Kansas City if they answered your call to Delta's lost-luggage number.

After listening to them stumble through this phonetics lesson for half an hour, I asked the teacher if she would like me to give them an authentic version-since I'm originally from Minnesota, smack in the Midwest, and still speak like someone out of the movie Fargo. Absolutely, she said. So I read the following paragraph: “A bottle of bottled water held thirty little turtles. It didn't matter that each turtle had to rattle a metal ladle in order to get a little bit of noodles, a total turtle delicacy... The problem was that there were many turtle battles for less than oodles of noodles. Every time they thought about grappling with the haggler turtles their little turtle minds boggled and they only caught a little bit of noodles.”

The class responded enthusiastically. It was the first time I ever got an ovation for speaking Minnesotan. On the surface, there is something unappealing about the idea of inducing other people to flatten their accents in order to compete in a flatter world. But before you disparage it, you have to taste just how hungry these kids are to escape the lower end of the middle class and move up. If a little accent modification is the price they have to pay to jump a rung of the ladder, then so be it-they say.

“This is a high-stress environment,” said Nilekani, the CEO of Infosys, which also runs a big call center. “It is twenty-four by seven. You work in the day, and then the night, and then the next morning.” But the working environment, he insisted, “is not the tension of alienation. It is the tension of success. They are dealing with the challenges of success, of high-pressure living. It is not the challenge of worrying about whether they would have a challenge.”

That was certainly the sense I got from talking to a lot of the call center operators on the floor. Like any explosion of modernity, outsourcing is challenging traditional norms and ways of life. But educated Indians have been held back so many years by both poverty and a socialist bureaucracy that many of them seem more than ready to put up with the hours. And needless to say, it is much easier and more satisfying for them to work hard in Bangalore than to pack up and try to make a new start in America. In the flat world they can stay in India, make a decent salary, and not have to be away from families, friends, food, and culture. At the end of the day, these new jobs actually allow them to be more Indian. Said Anney Unnikrishnan, a personnel manager

at 24/7, “I finished my MBA and I remember writing the GMAT and getting into Purdue University. But I couldn't go because I couldn't afford it. I didn't have the money for it. Now I can, [but] I see a whole lot of American industry has come into Bangalore and I don't really need to go there. I can work for a multinational sitting right here. So I still get my rice and sam-bar [a traditional Indian dish], which I eat. I don't need to, you know, learn to eat coleslaw and cold beef. I still continue with my Indian food and I still work for a multinational. Why should I go to America?”

The relatively high standard of living that she can now enjoy-enough for a small apartment and car in Bangalore-is good for America as well. When you look around at 24/7's call center, you see that all the computers are running Microsoft Windows. The chips are designed by Intel. The phones are from Lucent. The air-conditioning is by Carrier, and even the bottled water is by Coke. In addition, 90 percent of the shares in 24/7 are owned by U.S. investors. This explains why, although the United States has lost some service jobs to India in recent years, total exports from American-based companies-merchandise and services-to India have grown from $2.5 billion in 1990 to $5 billion in 2003. So even with the outsourcing of some service jobs from the United States to India, India's growing economy is creating a demand for many more American goods and services. What goes around, comes around.

Nine years ago, when Japan was beating America's brains out in the auto industry, I wrote a column about playing the computer geography game Where in the World is Carmen Sandiego? with my nine-year-old daughter, Orly. I was trying to help her by giving her a clue suggesting that Carmen had gone to Detroit, so I asked her, “Where are cars made?” And without missing a beat she answered, “Japan.”

Ouch!

Well, I was reminded of that story while visiting Global Edge, an Indian software design firm in Bangalore. The company's marketing manager, Rajesh Rao, told me that he had just made a cold call to the VP for engineering of a U.S. company, trying to drum up business. As soon as Mr. Rao introduced himself as calling from an Indian software firm, the U.S. executive said to him, “Namaste,” a common Hindi greeting. Said Mr. Rao, “A few years ago nobody in America wanted to talk to us. Now they are eager.” And a few even know how to say hello in proper Hindu fashion. So now I wonder: If I have a granddaughter one day, and I tell her I'm going to India, will she say, “Grandpa, is that where software comes from?”

No, not yet, honey. Every new product-from software to widgets-goes through a cycle that begins with basic research, then applied research, then incubation, then development, then testing, then manufacturing, then deployment, then support, then continuation engineering in order to add improvements. Each of these phases is specialized and unique, and neither India nor China nor Russia has a critical mass of talent that can handle the whole product cycle for a big American multinational. But these countries are steadily developing their reseach and development capabilities to handle more and more of these phases. As that continues, we really will see the beginning of what Satyam Cherukuri, of Sarnoff, an American research and development firm, has called “the globalization of innovation” and an end to the old model of a single American or European multinational handling all the elements of the development product cycle from its own resources. More and more American and European companies are outsourcing significant research and development tasks to India, Russia, and China.

According to the information technology office of the state government in Karnataka, where Bangalore is located, Indian units of Cisco Systems, Intel, IBM, Texas Instruments, and GE have already filed 1,000 patent applications with the U.S. Patent Office. Texas Instruments alone has had 225 U.S. patents awarded to its Indian operation. “The Intel team in Bangalore is developing microprocessor chips for high-speed broadband wireless technology, to be launched in 2006,” the Karnataka IT office said, in a statement issued at the end of 2004, and “at GE's John F. Welch Technology Centre in Bangalore, engineers are developing new ideas for aircraft engines, transport systems and plastics.” Indeed, GE over the years has frequently transferred Indian engineers who worked for it in the United States back to India to integrate its whole global research effort. GE now even sends non-Indians to Bangalore. Vivek Paul is the president of Wipro Technologies, another of the elite Indian technology companies, but he is based in Silicon Valley to be close to Wipro's American customers. Before coming to Wipro, Paul managed GE's CT scanner business out of Milwaukee. At the time he had a French colleague who managed GE's power generator business for the scanners out of France.

“I ran into him on an airplane recently,” said Paul, “and he told me he had moved to India to head up GE's high-energy research there.”

I told Vivek that I love hearing an Indian who used to head up GE's CT business in Milwaukee but now runs Wipro's consulting business in Silicon Valley tell me about his former French colleague who has moved to Bangalore to work for GE. That is a flat world.

Every time I think I have found the last, most obscure job that could be outsourced to Bangalore, I discover a new one. My friend Vivek Kulkarni used to head the government office in Bangalore responsible for attracting high technology global investment. After stepping down from that post in 2003, he started a company called B2K, with a division called Brickwork, which offers busy global executives their own personal assistant in India. Say you are running a company and you have been asked to give a speech and a PowerPoint presentation in two days. Your “remote executive assistant” in India, provided by Brickwork, will do all the research for you, create the PowerPoint presentation, and e-mail the whole thing to you overnight so that it is on your desk the day you have to deliver it.

“You can give your personal remote executive assistant their assignment when you are leaving work at the end of the day in New York City, and it will be ready for you the next morning,” explained Kulkarni. “Because of the time difference with India, they can work on it while you sleep and have it back in your morning.” Kulkarni suggested I hire a remote assistant in India to do all the research for this book. “He or she could also help you keep pace with what you want to read. When you wake up, you will find the completed summary in your in-box.” (I told him no one could be better than my longtime assistant, Maya Gorman, who sits ten feet away!)

Having your own personal remote executive assistant costs around $1,500 to $2,000 a month, and given the pool of Indian college grads from which Brickwork can recruit, the brainpower you can hire dollar-for-dollar is substantial. As Brickwork's promotional material says, “India's talent pool provides companies access to a broad spectrum of highly qualified people. In addition to fresh graduates, which are around 2.5 million per year, many qualified homemakers are entering the job market.” India's business schools, it adds, produce around eighty-nine thousand MBAs per year.

“We've had a wonderful response,” said Kulkarni, with clients coming from two main areas. One is American health-care consultants, who often need lots of numbers crunched and PowerPoint presentations drawn up. The other, he said, are American investment banks and financial services companies, which often need to prepare glossy pamphlets with graphs to illustrate the benefits of an IPO or a proposed merger. In the case of a merger, Brickwork will prepare those sections of the report dealing with general market conditions and trends, where most of the research can be gleaned off the Web and summarized in a standard format. “The judgment of how to price the deal will come from the investment bankers themselves,” said Kulkarni. “We will do the lower-end work, and they will do the things that require critical judgment and experience, close to the market.” The more projects his team of remote executive assistants engages in, the more knowledge they build up. They are full of ambition to do their higher problem solving as well, said Kulkarni. “The idea is to constantly learn. You are always taking an examination. There is no end to learning... There is no real end to what can be done by whom.”

Unlike Columbus, I didn't stop with India. After I got home, I decided to keep exploring the East for more signs that the world was flat. So after India, I was soon off to Tokyo, where I had a chance to interview Kenichi Ohmae, the legendary former McKinsey & Company consultant in Japan. Ohmae has left McKinsey and struck out on his own in business, Ohmae & Associates. And what do they do? Not consulting anymore, explained Ohmae. He is now spearheading a drive to outsource low-end Japanese jobs to Japanese-speaking call centers and service providers in China. “Say what?” I asked. “To China? Didn't the Japanese once colonize China, leaving a very bad taste in the mouths of the Chinese?”

Well, yes, said Ohmae, but he explained that the Japanese also left behind a large number of Japanese speakers who have maintained a slice of Japanese culture, from sushi to karaoke, in northeastern China, particularly around the northeastern port city of Dalian. Dalian has become for Japan what Bangalore has become for America and the other English-speaking countries: outsourcing central. The Chinese may never forgive Japan for what it did to China in the last century, but the Chinese are so focused on leading the world in the next century that they are ready to brush up on their Japanese and take all the work Japan can outsource.

“The recruiting is quite easy,” said Ohmae in early 2004. “About one-third of the people in this region [around Dalian] have taken Japanese as a second language in high school. So all of these Japanese companies are coming in.” Ohmae's company is doing primarily data-entry work in China, where Chinese workers take handwritten Japanese documents, which are scanned, faxed, or e-mailed over from Japan to Dalian, and then type them into a digital database in Japanese characters. Ohmae's company has developed a software program that takes the data to be entered and breaks it down into packets. These packets can then be sent around China or Japan for typing, depending on the specialty required, and then reassembled at the company's database in its Tokyo headquarters. “We have the ability to allocate the job to the person who knows the area best.” Ohmae's company even has contracts with more than seventy thousand housewives, some of them specialists in medical or legal terminologies, to do data-entry work at home. The firm has recently expanded into computer-aided designs for a Japanese housing company. “When you negotiate with the customer in Japan for building a house,” he explained, “you would sketch out a floor plan-most of these companies don't use computers.” So the hand-drawn plans are sent electronically to China, where they are converted into digital designs, which then are e-mailed back to the Japanese building firm, which turns them into manufacturing blueprints. “We took the best-performing Chinese data operators,” said Ohmae, “and now they are processing seventy houses a day.” Chinese doing computer drawings for Japanese homes, nearly seventy years after a rapacious Japanese army occupied China, razing many homes in the process. Maybe there is hope for this flat world...

I needed to see Dalian, this Bangalore of China, firsthand, so I kept moving around the East. Dalian is impressive not just for a Chinese city.

With its wide boulevards, beautiful green spaces, and nexus of universities, technical colleges, and massive software park, Dalian would stand out in Silicon Valley. I had been here in 1998, but there had been so much new building since then that I did not recognize the place. Dalian, which is located about an hour's flight northeast of Beijing, symbolizes how rapidly China's most modern cities-and there are still plenty of miserable, backward ones-are grabbing business as knowledge centers, not just as manufacturing hubs. The signs on the buildings tell the whole story: GE, Microsoft, Dell, SAP, HP, Sony, and Accenture— to name but a few-all are having backroom work done here to support their Asian operations, as well as new software research and development.

Because of its proximity to Japan and Korea, each only about an hour away by air, its large number of Japanese speakers, its abundance of Internet bandwidth, and many parks and a world-class golf course (all of which appeal to knowledge workers), Dalian has become an attractive locus for Japanese outsourcing. Japanese firms can hire three Chinese software engineers for the price of one in Japan and still have change to pay a roomful of call center operators ($90 a month starting salary). No wonder some twenty-eight hundred Japanese companies have set up operations here or teamed up with Chinese partners.

“I've taken a lot of American people to Dalian, and they are amazed at how fast the China economy is growing in this high-tech area,” said Win Liu, director of U.S./EU projects for DHC, one of Dalian's biggest homegrown software firms, which has expanded from thirty to twelve hundred employees in six years. “Americans don't realize the challenge to the extent that they should.”

Dalian's dynamic mayor, Xia Deren, forty-nine, is a former college president. (For a Communist authoritarian system, China does a pretty good job of promoting people on merit. The Mandarin meritocratic culture here still runs very deep.) Over a traditional ten-course Chinese dinner at a local hotel, the mayor told me how far Dalian has come and just where he intends to take it. “We have twenty-two universities and colleges with over two hundred thousand students in Dalian,” he explained. More than half those students graduate with engineering or science degrees, and even those who don't, those who study history or literature, are still being directed to spend a year studying Japanese or English, plus computer science, so that they will be employable. The mayor estimated that more than half the residents of Dalian had access to the Internet at the office, home, or school.

“The Japanese enterprises originally started some data processing industries here,” the mayor added, “and with this as a base they have now moved to R & D and software development... In the past one or two years, the software companies of the U.S. are also making some attempts to move outsourcing of software from the U.S. to our city... We are approaching and we are catching up with the Indians. Exports of software products [from Dalian] have been increasing by 50 percent annually. And China is now becoming the country that develops the largest number of university graduates. Though in general our English is not as competent as that of the Indian people, we have a bigger population, [so] we can pick out the most intelligent students who can speak the best English.”

Are Dalian residents bothered by working for the Japanese, whose government has still never formally apologized for what the wartime Japanese government did to China?

“We will never forget that a historical war occurred between the two nations,” he answered, “but when it comes to the field of economy, we only focus on the economic problems-especially if we talk about the software outsourcing business. If the U.S. and Japanese companies make their products in our city, we consider that to be a good thing. Our youngsters are trying to learn Japanese, to master this tool so they can compete with their Japanese counterparts to successfully land high-salary positions for themselves in the future.”

The mayor then added for good measure, “My personal feeling is that Chinese youngsters are more ambitious than Japanese or American youngsters in recent years, but I don't think they are ambitious enough, because they are not as ambitious as my generation. Because our generation, before they got into university and colleges, were sent to distant rural areas and factories and military teams, and went through a very hard time, so in terms of the spirit to overcome and face the hardships, [our generation had to have more ambition] than youngsters nowadays.”

Mayor Xia had a charmingly direct way of describing the world, and although some of what he had to say gets lost in translation, he gets it—and Americans should too: “The rule of the market economy,” this Communist official explained to me, “is that if somewhere has the richest human resources and the cheapest labor, of course the enterprises and the businesses will naturally go there.” In manufacturing, he pointed out, “Chinese people first were the employees and working for the big foreign manufacturers, and after several years, after we have learned all the processes and steps, we can start our own firms. Software will go down the same road... First we will have our young people employed by the foreigners, and then we will start our own companies. It is like building a building. Today, the U.S., you are the designers, the architects, and the developing countries are the bricklayers for the buildings. But one day I hope we will be the architects.”

I just kept exploring-east and west. By the summer of 2004,1 was in Colorado on vacation. I had heard about this new low-fare airline called JetBlue, which was launched in 1999. I had no idea where they operated, but I needed to fly between Washington and Atlanta, and couldn't quite get the times I wanted, so I decided to call JetBlue and see where exactly they flew. I confess I did have another motive. I had heard that JetBlue had outsourced its entire reservation system to housewives in Utah, and I wanted to check this out. So I dialed JetBlue reservations and had the following conversation with the agent:

“Hello, this is Dolly. Can I help you?” answered a grandmotherly voice.

“Yes, I would like to fly from Washington to Atlanta,” I said. “Do you fly that route?”

“No, I'm sorry we don't. We fly from Washington to Ft. Lauderdale,” said Dolly.

“How about Washington to New York City?” I asked.

“I'm sorry, we don't fly that route. We do fly from Washington to Oakland and Long Beach,” said Dolly.

“Say, can I ask you something? Are you really at home? I read that JetBlue agents just work at home.”

“Yes, I am,” said Dolly in the most cheerful voice. (I later confirmed with JetBlue that her full name is Dolly Baker.) “I am sitting in my office upstairs in my house, looking out the window at a beautiful sunny day. Just five minutes ago someone called and asked me that same question and I told them and they said, 'Good, I thought you were going to tell me you were in New Delhi.'”

“Where do you live?” I asked.

“Salt Lake City, Utah,” said Dolly. “We have a two-story home, and I love working here, especially in the winter when the snow is swirling and I am up here in the office at home.”

“How do you get such a job?” I asked.

“You know, they don't advertise,” said Dolly in the sweetest possible voice. “It's all by word of mouth. I worked for the state government and I retired, and [after a little while] I thought I have to do something else and I just love it.”

David Neeleman, the founder and CEO of JetBlue Airways Corp., has a name for all this. He calls it “homesourcing.” JetBlue now has four hundred reservation agents, like Dolly, working at home in the Salt Lake City area, taking reservations-in between babysitting, exercising, writing novels, and cooking dinner.

A few months later I visited Neeleman at JetBlue's headquarters in New York, and he explained to me the virtues of homesourcing, which he actually started at Morris Air, his first venture in the airline business. (It was bought by Southwest.) “We had 250 people in their homes doing reservations at Morris Air,” said Neeleman. “They were 30 percent more productive-they take 30 percent more bookings, by just being happier. They were more loyal and there was less attrition. So when I started JetBlue, I said, 'We are going to have 100 percent reservation at home.'”

Neeleman has a personal reason for wanting to do this. He is a Mormon and believes that society will be better off if more mothers are able to stay at home with their young children but are given a chance to be wage earners at the same time. So he based his home reservations system in Salt Lake City, where the vast majority of the women are Mormons and many are stay-at-home mothers. Home reservationists work twenty-five hours a week and have to come into the JetBlue regional office in Salt Lake City for four hours a month to learn new skills and be brought up to date on what is going on inside the company.

“We will never outsource to India/' said Neeleman. ”The quality we can get here is far superior... [Employers] are more willing to outsource to India than to their own homes, and I can't understand that. Somehow they think that people need to be sitting in front of them or some boss they have designated. The productivity we get here more than makes up for the India [wage] factor.“

A Los Angeles Times story about JetBlue (May 9, 2004) noted that “in 1997, 11.6 million employees of U.S. companies worked from home at least part of the time. Today, that number has soared to 23.5 million-16% of the American labor force. (Meanwhile, the ranks of the self-employed, who often work from home, have swelled during the same period-to 23.4 million from 18 million.) In some eyes, homesourcing and outsourcing aren't so much competing strategies as they are different manifestations of the same thing: a relentless push by corporate America to lower costs and increase efficiency, wherever that may lead.”

That is exactly what I was learning on my own travels: Homesourcing to Salt Lake City and outsourcing to Bangalore were just flip sides of the same coin-sourcing. And the new, new thing, I was also learning, is the degree to which it is now possible for companies and individuals to source work anywhere.

I just kept moving. In the fall of 2004,1 accompanied the chairman of the Joint Chiefs of Staff, General Richard Myers, on a tour of hot spots in Iraq. We visited Baghdad, the U.S. military headquarters in Fallujah, and the 24th Marine Expeditionary Unit encampment outside Babil, in the heart of Iraq's so-called Sunni Triangle. The makeshift 24th MEU base is a sort of Fort Apache, in the middle of a pretty hostile Iraqi Sunni Muslim population. While General Myers was meeting with officers and enlisted men there, I was free to walk around the base, and eventually I wandered into the command center, where my eye was immediately caught by a large flat-screen TV. On the screen was a live TV feed that looked to be coming from some kind of overhead camera. It showed some people moving around behind a house. Also on the screen, along the right side, was an active instant-messaging chat room, which seemed to be discussing the scene on the TV.

“What is that?” I asked the soldier who was carefully monitoring all the images from a laptop. He explained that a U.S. Predator drone-a small pilotless aircraft with a high-power television camera-was flying over an Iraqi village, in the 24th MEU's area of operation, and feeding real-time intelligence images back to his laptop and this flat screen. This drone was actually being “flown” and manipulated by an expert who was sitting back at Nellis Air Force Base in Las Vegas, Nevada. That's right, the drone over Iraq was actually being remotely directed from Las Vegas. Meanwhile, the video images it was beaming back were being watched simultaneously by the 24th MEU, United States Central Command headquarters in Tampa, CentCom regional headquarters in Qatar, in the Pentagon, and probably also at the CIA. The different analysts around the world were conducting an online chat about how to interpret what was going on and what to do about it. It was their conversation that was scrolling down the right side of the screen.

Before I could even express my amazement, another officer traveling with us took me aback by saying that this technology had “flattened” the military hierarchy-by giving so much information to the low-level officer, or even enlisted man, who was operating the computer, and empowering him to make decisions about the information he was gathering. While I'm sure that no first lieutenant is going to be allowed to start a firefight without consulting superiors, the days when only senior officers had the big picture are over. The military playing field is being leveled.

I told this story to my friend Nick Burns, the U.S. ambassador to NATO and a loyal member of the Red Sox Nation. Nick told me he was at CentCom headquarters in Qatar in April 2004, being briefed by General John Abizaid and his staff. Abizaid's team was seated across the table from Nick with four flat-screen TVs behind them. The first three had overhead images being relayed in real time from different sectors of Iraq by Predator drones. The last one, which Nick was focused on, was showing a Yankees-Red Sox game.

On one screen it was Pedro Martinez versus Derek Jeter, and on the other three it was Jihadists versus the First Cavalry.

Flatburgers and Fries

I kept moving-all the way back to my home in Bethesda, Maryland. By the time I settled back into my house from this journey to the edges of the earth, my head was spinning. But no sooner was I home than more signs of the flattening came knocking at my door. Some came in the form of headlines that would unnerve any parent concerned about where his college-age children are going to fit in. For instance, Forrester Research, Inc., was projecting that more than 3 million service and professional jobs would move out of the country by 2015. But my jaw really dropped when I read a July 19, 2004, article from the International Herald Tribune headlined: “Want Fries With Outsourcing?”

“Pull off U.S. Interstate Highway 55 near Cape Girardeau, Missouri, and into the drive-through lane of a McDonald's next to the highway and you'll get fast, friendly service, even though the person taking your order is not in the restaurant-or even in Missouri,” the article said. “The order taker is in a call center in Colorado Springs, more than 900 miles, or 1,450 kilometers, away, connected to the customer and to the workers preparing the food by high-speed data lines. Even some restaurant jobs, it seems, are not immune to outsourcing.

“The man who owns the Cape Girardeau restaurant, Shannon Davis, has linked it and three other of his 12 McDonald's franchises to the Colorado call center, which is run by another McDonald's franchisee, Steven Bigari. And he did it for the same reasons that other business owners have embraced call centers: lower costs, greater speed and fewer mistakes.

“Cheap, quick and reliable telecommunications lines let the order takers in Colorado Springs converse with customers in Missouri, take an electronic snapshot of them, display their order on a screen to make sure it is right, then forward the order and the photo to the restaurant kitchen. The photo is destroyed as soon as the order is completed, Bigari said. People picking up their burgers never know that their order traverses two states and bounces back before they can even start driving to the pickup window.

“Davis said that he had dreamed of doing something like this for more than a decade. 'We could not wait to go with it,' he added. Bigari, who created the call center for his own restaurants, was happy to oblige— for a small fee per transaction.”

The article noted that McDonald's Corp. said it found the call center idea interesting enough to start a test with three stores near its headquarters in Oak Brook, Illinois, with different software from that used by Bigari. “Jim Sappington, a McDonald's vice president for information technology, said that it was 'way, way too early' to tell if the call center idea would work across the thirteen thousand McDonald's restaurants in the United States... Still, franchisees of two other McDonald's restaurants, beyond Davis's, have outsourced their drive-through ordering to Bigari in Colorado Springs. (The other restaurants are in Brainerd, Minnesota, and Norwood, Massachusetts.) Central to the system's success, Bigari said, is the way it pairs customers' photos with their orders; by increasing accuracy, the system cuts down on the number of complaints and therefore makes the service faster. In the fast-food business, time is truly money: shaving even five seconds off the processing time of an order is significant,” the article noted. “Bigari said he had cut order time in his dual-lane drive-throughs by slightly more than 30 seconds, to about 1 minute, 5 seconds, on average. That's less than half the average of 2 minutes, 36 seconds, for all McDonald's, and among the fastest of any franchise in the country, according to QSRweb.com, which tracks such things. His drive-throughs now handle 260 cars an hour, Bigari said, 30 more than they did before he started the call center... Though his operators earn, on average, 40 cents an hour more than his line employees, he has cut his overall labor costs by a percentage point, even as drive-through sales have increased... Tests conducted by outside companies found that Bigari's drive-throughs now make mistakes on fewer than 2 percent of all orders, down from about 4 percent before he started using the call centers, Bigari said.”

Bigari “is so enthusiastic about the call center idea,” the article noted, “that he has expanded it beyond the drive-through window at his seven restaurants that use the system. While he still offers counter service at those restaurants, most customers now order through the call center, using phones with credit card readers on tables in the seating area.”

Some of the signs of flattening I encountered back home, though, had nothing to do with economics. On October 3, 2004,1 appeared on the CBS News Sunday morning show Face the Nation, hosted by veteran CBS correspondent Bob Schieffer. CBS had been in the news a lot in previous weeks because of Dan Rather's 60 Minutes report about President George W. Bush's Air National Guard service that turned out to be based on bogus documents. After the show that Sunday, Schieffer mentioned that the oddest thing had happened to him the week before. When he walked out of the CBS studio, a young reporter was waiting for him on the sidewalk. This isn't all that unusual, because as with all the Sunday-morning shows, the major networks-CBS, NBC, ABC, CNN, and Fox-always send crews to one another's studios to grab exit interviews with the guests. But this young man, Schieffer explained, was not from a major network. He politely introduced himself as a reporter for a Web site called InDC Journal and asked whether he could ask Schieffer a few questions. Schieffer, being a polite fellow, said sure. The young man interviewed him on a device Schieffer did not recognize and then asked if he could take his picture. A picture? Schieffer noticed that the young man had no camera. He didn't need one. He turned his cell phone around and snapped Schieffer's picture.

“So I came in the next morning and looked up this Web site and there was my picture and the interview and there were already three hundred comments about it,” said Schieffer, who, though keenly aware of online journalism, was nevertheless taken aback at the incredibly fast, low-cost, and solo manner in which this young man had put him up in lights.

I was intrigued by this story, so I tracked down the young man from InDC Journal. His name is Bill Ardolino, and he is a very thoughtful guy. I conducted my own interview with him online -how else? -and began by asking about what equipment he was using as a one-man network/newspaper.

“I used a minuscule MP3 player/digital recorder (three and a half inches by two inches) to get the recording, and a separate small digital camera phone to snap his picture,” said Ardolino. “Not quite as sexy as an all-in-one phone/camera/recorder (which does exist), but a statement on the ubiquity and miniaturization of technology nonetheless. I carry this equipment around D.C. at all times because, hey, you never know. What's perhaps more startling is how well Mr. Schieffer thought on his feet, after being jumped on by some stranger with interview questions. He blew me away.”

Ardolino said the MP3 player cost him about $125. It is “primarily designed to play music,” he explained, but it also “comes prepackaged as a digital recorder that creates a WAV sound file that can be uploaded back to a computer... Basically, I'd say that the barrier to entry to do journalism that requires portable, ad hoc recording equipment, is [now] about $100-$200 to $300 if you add a camera, $400 to $500 for a pretty nice recorder and a pretty nice camera. [But] $200 is all that you need to get the job done.”

What prompted him to become his own news network?

“Being an independent journalist is a hobby that sprang from my frustration about biased, incomplete, selective, and/or incompetent information gathering by the mainstream media,” explained Ardolino, who describes himself as a “center-right libertarian.” “Independent journalism and its relative, blogging, are expressions of market forces-a need is not being met by current information sources. I started taking pictures and doing interviews of the antiwar rallies in D.C, because the media was grossly misrepresenting the nature of the groups that were organizing the gatherings-unrepentant Marxists, explicit and implicit supporters of terror, etc. I originally chose to use humor as a device, but I've since branched out. Do I have more power, power to get my message out, yes. The Schieffer interview actually brought in about twenty-five thousand visits in twenty-four hours. My peak day since I've started was fifty-five thousand when I helped break 'Rathergate'... I interviewed the first forensics expert in the Dan Rather National Guard story, and he was then specifically picked up by The Washington Post, Chicago Sun-Times, Globe, NYT, etc., within forty-eight hours.

“The pace of information gathering and correction in the CBS fake memo story was astounding/' he continued. ”It wasn't just that CBS News 'stonewalled' after the fact, it was arguably that they couldn't keep up with an army of dedicated fact-checkers. The speed and openness of the medium is something that runs rings around the old process... I'm a twenty-nine-year-old marketing manager [who] always wanted to write for a living but hated the AP style book. As iiberblogger Glenn Reynolds likes to say, blogs have given the people a chance to stop yelling at their TV and have a say in the process. I think that they serve as sort of a 'fifth estate' that works in conjunction with the mainstream media (often by keeping an eye on them or feeding them raw info) and potentially function as a journalism and commentary farm system that provides a new means to establish success.

“Like many facets of the topic that you're talking about in your book, there are good and bad aspects of the development. The splintering of media makes for a lot of incoherence or selective cognition (look at our country's polarization), but it also decentralizes power and provides a better guarantee that the complete truth is out there... somewhere... in pieces.”

On any given day one can come across any number of stories, like the encounter between Bob Schieffer and Bill Ardolino, that tell you that old hierarchies are being flattened and the playing field is being leveled. As Micah L. Sifry nicely put it in The Nation magazine (November 22, 2004): “The era of top-down politics-where campaigns, institutions and journalism were cloistered communities powered by hard-to-amass capital—is over. Something wilder, more engaging and infinitely more satisfying to individual participants is arising alongside the old order.”

I offer the Schieffer-Ardolino encounter as just one example of how the flattening of the world has happened faster and changed rules, roles, and relationships more quickly than we could have imagined. And, though I know it is a cliche, I have to say it nevertheless: You ain't seen nothin yet. As I detail in the next chapter, we are entering a phase where we are going to see the digitization, virtualization, and automation of almost everything. The gains in productivity will be staggering for those countries, companies, and individuals who can absorb the new technological tools. And we are entering a phase where more people than ever before in the history of the world are going to have access to these tools— as innovators, as collaborators, and, alas, even as terrorists. You say you want a revolution? Well, the real information revolution is about to begin. I call this new phase Globalization 3.0 because it followed Globalization 2.0, but I think this new era of globalization will prove to be such a difference of degree that it will be seen, in time, as a difference in kind. That is why I introduced the idea that the world has gone from round to flat. Everywhere you turn, hierarchies are being challenged from below or transforming themselves from top-down structures into more horizontal and collaborative ones.

“Globalization is the word we came up with to describe the changing relationships between governments and big businesses,” said David Rothkopf, a former senior Department of Commerce official in the Clinton administration and now a private strategic consultant. “But what is going on today is a much broader, much more profound phenomenon.” It is not simply about how governments, business, and people communicate, not just about how organizations interact, but is about the emergence of completely new social, political, and business models. “It is about things that impact some of the deepest, most ingrained aspects of society right down to the nature of the social contract,” added Rothkopf. “What happens if the political entity in which you are located no longer corresponds to a job that takes place in cyberspace, or no longer really encompasses workers collaborating with other workers in different corners of the globe, or no longer really captures products produced in multiple places simultaneously? Who regulates the work? Who taxes it? Who should benefit from those taxes?”

If I am right about the flattening of the world, it will be remembered as one of those fundamental changes-like the rise of the nation-state or the Industrial Revolution-each of which, in its day, noted Rothkopf, produced changes in the role of individuals, the role and form of governments, the way we innovated, the way we conducted business, the role of women, the way we fought wars, the way we educated ourselves, the way religion responded, the way art was expressed, the way science and research were conducted, not to mention the political labels we assigned to ourselves and to our opponents. “There are certain pivot points or watersheds in history that are greater than others because the changes they produced were so sweeping, multifaceted, and hard to predict at the time,” Rothkopf said.

If the prospect of this flattening-and all of the pressures, dislocations, and opportunities accompanying it-causes you unease about the future, you are neither alone nor wrong. Whenever civilization has gone through one of these disruptive, dislocating technological revolutions— like Gutenberg's introduction of the printing press-the whole world has changed in profound ways. But there is something about the flattening of the world that is going to be qualitatively different from other such profound changes: the speed and breadth with which it is taking hold. The introduction of printing happened over a period of decades and for a long time affected only a relatively small part of the planet. Same with the Industrial Revolution. This flattening process is happening at warp speed and directly or indirectly touching a lot more people on the planet at once. The faster and broader this transition to a new era, the more likely is the potential for disruption, as opposed to an orderly transfer of power from the old winners to the new winners.

To put it another way, the experiences of the high-tech companies in the last few decades who failed to navigate the rapid changes brought about in their marketplace by these types of forces may be a warning to all the businesses, institutions, and nation-states that are now facing these inevitable, even predictable, changes but lack the leadership, flexibility, and imagination to adapt-not because they are not smart or aware, but because the speed of change is simply overwhelming them.

And that is why the great challenge for our time will be to absorb these changes in ways that do not overwhelm people but also do not leave them behind. None of this will be easy. But this is our task. It is inevitable and unavoidable. It is the ambition of this book to offer a framework for how to think about it and manage it to our maximum benefit.

I have shared with you in this chapter how I personally discovered that the world is flat. The next chapter details how it got that way.

TWO: The Ten Forces That Flattened the World

The Bible tells us that God created the world in six days and on the seventh day he rested. Flattening the world took a little longer. The world has been flattened by the convergence often major political events, innovations, and companies. None of us has rested since, or maybe ever will again. This chapter is about the forces that flattened the world and the multiple new forms and tools for collaboration that this flattening has created.

The first time I saw the Berlin Wall, it already had a hole in it. It was December 1990, and I was traveling to Berlin with the reporters covering Secretary of State James A. Baker III. The Berlin Wall had been breached a year earlier, on November 9, 1989. Yes, in a wonderful kabbalistic accident of dates, the Berlin Wall fell on 11/9. The wall, even in its punctured and broken state, was still an ugly scar across Berlin. Secretary Baker was making his first visit to see this crumbled monument to Soviet communism. I was standing next to him with a small group of reporters. “It was a foggy, overcast day,” Baker recalled in his memoir, The Politics of Diplomacy, “and in my raincoat, I felt like a character in a John le Carre novel. But as I peered through a crack in the Wall [near the Reichstag] and saw the high-resolution drabness that characterizes East Berlin, I realized that the ordinary men and women of East Germany, peacefully and persistently, had taken matters into their own hands. This was their revolution.” After Baker finished looking through the wall and moved along, we reporters took turns peering through the same jagged concrete hole. I brought a couple of chunks of the wall home for my daughters. I remember thinking how unnatural it looked-indeed, what a bizarre thing it was, this cement wall snaking across a modern city for the sole purpose of preventing the people on the other side from enjoying, even glimpsing, freedom.

The fall of the Berlin Wall on 11/9/89 unleashed forces that ultimately liberated all the captive peoples of the Soviet Empire. But it actually did so much more. It tipped the balance of power across the world toward those advocating democratic, consensual, free-market-oriented governance, and away from those advocating authoritarian rule with centrally planned economies. The Cold War had been a struggle between two economic systems-capitalism and communism-and with the fall of the wall, there was only one system left and everyone had to orient himself or herself to it one way or another. Henceforth, more and more economies would be governed from the ground up, by the interests, demands, and aspirations of the people, rather than from the top down, by the interests of some narrow ruling clique. Within two years, there was no Soviet Empire to hide behind anymore or to prop up autocratic regimes in Asia, the Middle East, Africa, or Latin America. If you were not a democracy or a democratizing society, if you continued to hold fast to highly regulated or centrally planned economics, you were seen as being on the wrong side of history.

For some, particularly among the older generations, this was an unwelcome transformation. Communism was a great system for making people equally poor. In fact, there was no better system in the world for that than communism. Capitalism made people unequally rich, and for some who were used to the plodding, limited, but secure Socialist lifestyle-where a job, a house, an education, and a pension were all guaranteed, even if they were meager-the fall of the Berlin Wall was deeply unsettling. But for many others, it was a get-out-of-jail-free card. That is why the fall of the Berlin Wall was felt in so many more places than just Berlin, and why its fall was such a world-flattening event.

Indeed, to appreciate the far-reaching flattening effects of the fall of the Berlin Wall, it's always best to talk to non-Germans or non-Russians. Tarun Das was heading the Confederation of Indian Industry when the wall fell in Berlin, and he saw its ripple effect felt all the way to India. “We had this huge mass of regulation and controls and bureaucracy,” he recalled. “Nehru had come to power [after the end of British colonial rule] and had a huge country to manage, and no experience of running a country. The U.S. was busy with Europe and Japan and the Marshall Plan. So Nehru looked north, across the Himalayas, and sent his team of economists to Moscow. They came back and said that this country [the Soviet Union] was amazing. They allocate resources, they give licenses, there is a planning commission that decides everything, and the country moves. So we took that model and forgot that we had a private sector... That private sector got put under this wall of regulation. By 1991, the private sector was there, but under wraps, and there was mistrust about business. They made profits! The entire infrastructure from 1947 to 1991 was government-owned... [The burden of state ownership] almost bankrupted the country. We were not able to pay our debts. As a people, we did not have self-confidence. Sure, we might have won a couple of wars with Pakistan, but that did not give the nation confidence.”

In 1991, with India running out of hard currency, Manmohan Singh, the finance minister at that time (and now the prime minister), decided that India had to open its economy. “Our Berlin Wall fell,” said Das, “and it was like unleashing a caged tiger. Trade controls were abolished. We were always at 3 percent growth, the so-called Hindu rate of growth-slow, cautious, and conservative. To make [better returns], you had to go to America. Well, three years later [after the 1991 reforms] we were at 7 percent rate of growth. To hell with poverty! Now to make it you could stay in India and become one of Forbes's richest people in the world... All the years of socialism and controls had taken us downhill to the point where we had only $1 billion in foreign currency. Today we have $ 118 billion... We went from quiet self-confidence to outrageous ambition in a decade.”

The fall of the Berlin Wall didn't just help flatten the alternatives to free-market capitalism and unlock enormous pent-up energies for hundreds of millions of people in places like India, Brazil, China, and the former Soviet Empire. It also allowed us to think about the world differently-to see it as more of a seamless whole. Because the Berlin Wall was not only blocking our way; it was blocking our sight-our ability to think about the world as a single market, a single ecosystem, and a single community. Before 1989, you could have an Eastern policy or a Western policy, but it was hard to think about having a “global” policy. Amartya Sen, the Nobel Prize-winning Indian economist now teaching at Harvard, once remarked to me that “the Berlin Wall was not only a symbol of keeping people inside East Germany-it was a way of preventing a kind of global view of our future. We could not think globally about the world when the Berlin Wall was there. We could not think about the world as a whole.” There is a lovely story in Sanskrit, Sen added, about a frog that is born in a well and stays in the well and lives its entire life in the well. “It has a worldview that consists of the well,” he said. “That was what the world was like for many people on the planet before the fall of the wall. When it fell, it was like the frog in the well was suddenly able to communicate with frogs in all the other wells... If I celebrate the fall of the wall, it is because I am convinced of how much we can learn from each other. Most knowledge is learning from the other across the border.”

Yes, the world became a better place to live in after 11/9, because each outbreak of freedom stimulated another outbreak, and that process in and of itself had a flattening effect across societies, strengthening those below and weakening those above. “Women's freedom,” noted Sen, citing just one example, “which promotes women's literacy, tends to reduce fertility and child mortality and increase the employment opportunities for women, which then affects the political dialogue and gives women the opportunity for a greater role in local self-government.”

Finally, the fall of the wall did not just open the way for more people to tap into one another's knowledge pools. It also paved the way for the adoption of common standards-standards on how economies should be run, on how accounting should be done, on how banking should be conducted, on how PCs should be made, and on how economics papers should be written. I discuss this more later, but suffice it to say here that common standards create a flatter, more level playing field. To put it another way, the fall of the wall enhanced the free movement of best practices. When an economic or technological standard emerged and proved itself on the world stage, it was much more quickly adopted after the wall was out of the way. In Europe alone, the fall of the wall opened the way for the formation of the European Union and its expansion from fifteen to twenty-five countries. That, in combination with the advent of the euro as a common currency, has created a single economic zone out of a region once divided by an Iron Curtain.

While the positive effects of the wall coming down were immediately apparent, the cause of the wall's fall was not so clear. There was no single cause. To some degree the termites just ate away at the foundations of the Soviet Union, which were already weakened by the system's own internal contradictions and inefficiencies; to some degree the Reagan administration's military buildup in Europe forced the Kremlin to bankrupt itself paying for warheads; and to some degree Mikhail Gorbachev's hapless efforts to reform something that was unreformable brought communism to an end. But if I had to point to one factor as first among equals, it was the information revolution that began in the early— to mid-1980s. Totalitarian systems depend on a monopoly of information and force, and too much information started to slip through the Iron Curtain, thanks to the spread of fax machines, telephones, and other modern tools of communication.

A critical mass of IBM PCs, and the Windows operating system that brought them to life, came together in roughly this same time period that the wall fell, and their diffusion put the nail in the coffin of communism, because they vastly improved horizontal communication-to the detriment of the exclusively top-down form that communism was based upon. They also greatly enhanced personal information gathering and personal empowerment. (Each component of this information revolution was brought about by separate evolutions: The phone network evolved from the desire of people to talk to each other over long distances. The fax machine evolved as a way to transmit written communication over the phone network. The PC was diffused by the original killer apps-spreadsheets and word processing. And Windows evolved out of the need to make all of this usable, and programmable, by the masses.)

The first IBM PC hit the markets in 1981. At the same time, many computer scientists around the world had started using these things called the Internet and e-mail. The first version of the Windows operating system shipped in 1985, and the real breakthrough version that made PCs truly user-friendly-Windows 3.0-shipped on May 22, 1990, only six months after the wall went down. In this same time period, some people other than scientists started to discover that if they bought a PC and a dial-up modem, they could connect their PCs to their telephones and send e-mails through private Internet service providers-like CompuServe and America Online.

“The diffusion of personal computers, fax machines, Windows, and dial-up modems connected to a global telephone network all came together in the late 1980s and early 1990s to create the basic platform that started the global information revolution,” argued Craig J. Mundie, the chief technology officer for Microsoft. The key was the melding of them all together into a single interoperable system. That happened, said Mundie, once we had in crude form a standardized computing platform-the IBM PC-along with a standardized graphical user interface for word processing and spreadsheets-Windows-along with a standardized tool for communication-dial-up modems and the global phone network. Once we had that basic interoperable platform, then the killer applications drove its diffusion far and wide.

“People found that they really liked doing all these things on a computer, and they really improved productivity,” said Mundie. “They all had broad individual appeal and made individual people get up and buy a Windows-enabled PC and put it on their desk, and that forced the diffusion of this new platform into the world of corporate computing even more. People said, 'Wow, there is an asset here, and we should take advantage of it.'”

The more established Windows became as the primary operating system, added Mundie, “the more programmers went out and wrote applications for rich-world businesses to put on their computers, so they could do lots of new and different business tasks, which started to enhance productivity even more. Tens of millions of people around the world became programmers to make the PC do whatever they wanted in their own languages. Windows was eventually translated into thirty-eight languages. People were able to become familiar with the PC in their own languages.”

This was all new and exciting, but we shouldn't forget how constricted this early PC-Windows-modem platform was. “This platform was constrained by too many architectural limits,” said Mundie. “There was missing infrastructure.” The Internet as we know it today-with seemingly magical transmission protocols that can connect everyone and everything-had not yet emerged. Back then, networks had only very basic protocols for exchanging files and e-mail messages. So people who were using computers with the same type of operating systems and software could exchange documents through e-mail or file transfers, but even doing this was tricky enough that only the computing elite took the trouble. You couldn't just sit down and zap an e-mail or a file to anyone anywhere-especially outside your own company or outside your own Internet service-the way you can today. Yes, AOL users could communicate with CompuServe users, but it was neither simple nor reliable. As a result, said Mundie, a huge amount of data and creativity was accumulating in all those computers, but there was no easy, interoperable way to share it and mold it. People could write new applications that allowed selected systems to work together, but in general this was limited to planned exchanges between PCs within the network of a single company.

This period from 11/9 to the mid-1990s still led to a huge advance in personal empowerment, even if networks were limited. It was the age of “Me and my machine can now talk to each other better and faster, so that I personally can do more tasks” and the age of “Me and my machine can now talk to a few friends and some other people in my company better and faster, so we can become more productive.” The walls had fallen and the Windows had opened, making the world much flatter than it had ever been-but the age of seamless global communication had not dawned.

Though we didn't notice it, there was a discordant note in this exciting new era. It wasn't only Americans and Europeans who joined the people of the Soviet Empire in celebrating the fall of the wall-and claming credit for it. Someone else was raising a glass-not of champagne but of thick Turkish coffee. His name was Osama bin Laden and he had a different narrative. His view was that it was the jihadi fighters in Afghanistan, of which he was one, who had brought down the Soviet Empire by forcing the Red Army to withdraw from Afghanistan (with some help from U.S. and Pakistani forces). And once that mission had been accomplished— the Soviets completed their pullout from Afghanistan on February 15, 1989, just nine months before the fall of the Berlin Wall-bin Laden looked around and found that the other superpower, the United States, had a huge presence in his own native land, Saudi Arabia, the home of the two holiest cities in Islam. And he did not like it.

So, while we were dancing on the wall and opening up our Windows and proclaiming that there was no ideological alternative left to free-market capitalism, bin Laden was turning his gun sights on America. Both bin Laden and Ronald Reagan saw the Soviet Union as the “evil empire,” but bin Laden came to see America as evil too. He did have an ideological alternative to free-market capitalism-political Islam. He did not feel defeated by the end of the Soviet Union; he felt emboldened by it. He did not feel attracted to the widened playing field; he felt repelled by it. And he was not alone. Some thought that Ronald Reagan brought down the wall by bankrupting the Soviet Union through an arms race; others thought IBM, Steve Jobs, and Bill Gates brought down the wall by empowering individuals to download the future. But a world away, in Muslim lands, many thought bin Laden and his comrades brought down the Soviet Empire and the wall with religious zeal, and millions of them were inspired to upload the past.

In short, while we were celebrating 11/9, the seeds of another memorable date—9/11—were being sown. But more about that later in the book. For now, let the flattening continue.

By the mid-1990s, the PC-Windows network revolution had reached its limits. If the world was going to become really interconnected, and really start to flatten out, the revolution needed to go to the next phase. And the next phase, notes Microsoft's Mundie, “was to go from a PC-based computing platform to an Internet-based platform.” The killer applications that drove this new phase were e-mail and Internet browsing. E-mail was being driven by the rapidly expanding consumer portals like AOL, CompuServe, and eventually MSN. But it was the new killer app, the Web browser-which could retrieve documents or Web pages stored on Internet Web sites and display them on any computer screen-that really captured the imagination. The actual concept of the World Wide Web-a system for creating, organizing, and linking documents so they could be easily browsed-was created by British computer scientist Tim Berners-Lee. He put up the first Web site in 1991, in an effort to foster a computer network that would enable scientists to easily share their research. Other scientists and academics had created a number of browsers to surf this early Web, but the first mainstream browser-and the whole culture of Web browsing for the general public-was created by a tiny start-up company in Mountain View, California, called Netscape. Netscape went public on August 9, 1995, and the world has not been the same since.

As John Doerr, the legendary venture capitalist whose firm Kleiner Perkins Caulfield & Byers had backed Netscape, put it, “The Netscape IPO was a clarion call to the world to wake up to the Internet. Until then, it had been the province of the early adopters and geeks.”

This Netscape-triggered phase drove the flattening process in several key ways: It gave us the first broadly popular commercial browser to surf the Internet. The Netscape browser not only brought the Internet alive but also made the Internet accessible to everyone from five-year-olds to eighty-five-year-olds. The more alive the Internet became, the more consumers wanted to do different things on the Web, so the more they demanded computers, software, and telecommunications networks that could easily digitize words, music, data, and photos and transport them on the Internet to anyone else's computer. This demand was satisfied by another catalytic event: the rollout of Windows 95, which shipped the week after Netscape took its stock public. Windows 95 would soon become the operating system used by most people worldwide, and unlike previous versions of Windows, it was equipped with built-in Internet support, so that not just browsers but all PC applications could “know about the Internet” and interact with it.

Looking back, what enabled Netscape to take off was the existence, from the earlier phase, of millions of PCs, many already equipped with modems. Those are the shoulders Netscape stood on. What Netscape did was bring a new killer app-the browser-to this installed base of PCs, making the computer and its connectivity inherently more useful for millions of people. This in turn set off an explosion in demand for all things digital and sparked the Internet boom, because every investor looked at the Internet and concluded that if everything was going to be digitized-data, inventories, commerce, books, music, photos, and entertainment-and transported and sold on the Internet, then the demand for Internet-based products and services would be infinite. This led to the dot-com stock bubble and a massive overinvestment in the fiber-optic cable needed to carry all the new digital information. This development, in turn, wired the whole world together, and, without anyone really planning it, made Bangalore a suburb of Boston.

Let's look at each one of these developments.

When I sat down with Jim Barksdale, the former Netscape CEO, to interview him for this book, I explained to him that one of the early chapters was about the ten innovations, events, and trends that had flattened the world. The first event, I told him, was 11/9, and I explained the significance of that date. Then I said, “Let me see if you can guess the significance of the second date, 8/9.” That was all I told him: 8/9. It took Barksdale only a second to ponder that before shooting back with the right answer: “The day Netscape went public!”

Few would argue that Barksdale is one of the great American entrepreneurs. He helped Federal Express develop its package tracking and tracing system, then moved over to McCaw Cellular, the mobile phone company, built that up, and oversaw its merger with AT&T in 1994. Just before the sale closed, he was approached by a headhunter to become the CEO of a new company called Mosaic Communications, forged by two now-legendary innovators-Jim Clark and Marc Andreessen. In mid-1994, Clark, the founder of Silicon Graphics, had joined forces with Andreessen to found Mosaic, which would quickly be renamed Netscape Communications. Andreessen, a brilliant young computer scientist, had just spearheaded a small software project at the National Center for Supercomputing Applications (NC SA), based at the University of Illinois, that developed the first really effective Web browser, also called Mosaic. Clark and Andreessen quickly understood the huge potential for Web-browsing software and decided to partner up to commercialize it. As Netscape began to grow, they reached out to Barksdale for guidance and insight into how best to go public.

Today we take this browser technology for granted, but it was actually one of the most important inventions in modern history. When Andreessen was back at the University of Illinois NCSA lab, he found that he had PCs, workstations, and the basic network connectivity to move files around the Internet, but it was still not very exciting-because there was nothing to browse with, no user interface to pull up and display the contents of other people's Web sites. So Andreessen and his team developed the Mosaic browser, making Web sites viewable for any idiot, scientist, student, or grandma. Marc Andreessen did not invent the Internet, but he did as much as any single person to bring it alive and popularize it.

“The Mosaic browser started out in 1993 with twelve users, and I knew all twelve,” said Andreessen. There were only about fifty Web sites at the time and they were mostly just single Web pages. “Mosaic,” he explained, “was funded by the National Science Foundation. The money wasn't actually allocated to build Mosaic. Our specific group was to build software that would enable scientists to use supercomputers that were in remote locations, and to connect to them by the NSF network. So we built [the first browsers as] software tools to enable researchers to 'browse' each other's research. I looked at it as a positive feedback loop: The more people had the browser, the more people would want to be interconnected, and the more incentive there would be to create content and applications and tools. Once that kind of thing gets started, it just takes off and virtually nothing can stop it. When you are developing it, you are not sure anyone is going to use it, but once it started we realized that if anyone is going to use it everyone is going to use it, and the only question then was how fast it would spread and what would be the barriers along the way.”

Indeed, everyone who tried the browser, including Barksdale, had the same initial reaction: Wow! “Every summer, Fortune magazine had an article about the twenty-five coolest companies around,” Barksdale recalled. “That year [1994] Mosaic was one of them. I not only had read about Clark and Andreessen but had turned to my wife and said, 'Honey, this a great idea.' And then just a few weeks later I get this call from the headhunter. So I went down and spoke to Doerr and Jim Clark, and I began using the beta version of the Mosaic browser. I became more and more intrigued the more I used it.” Since the late 1980s, people had been putting up databases with Internet access. Barksdale said that after speaking to Doerr and Clark, he went home, gathered his three children around his computer, and asked them each to suggest a topic he could browse the Internet for-and wowed them by coming up with something for each of them. “That convinced me,” said Barksdale. “So I called back the headhunter and said, Tm your man.'”

Netscape's first commercial browser-which could work on an IBM PC, an Apple Macintosh, or a Unix computer-was released in December 1994, and within a year it completely dominated the market. You could download Netscape for free if you were in education or a nonprofit. If you were an individual, you could evaluate the software for free to your heart's content and buy it on disk if you wanted it. If you were a company, you could evaluate the software for ninety days. “The underlying rationale,” said Andreessen, “was: If you can afford to pay for it, please do so. If not, use it anyway.” Why? Because all the free usage stimulated a massive growth in the network, which was valuable to all the paying customers. It worked.

We put up the Netscape browser, said barksdale, and people were downloading it for three-month trials. I've never seen volume like this. For big businesses and government it was allowing them to connect and unlock all their information, and the point-and-click system that Marc Andreessen invented allowed mere mortals to use it, not just scientists. And that made it a true revolution. And we said, 'This thing will just grow and grow and grow.'“

Nothing did stop it, and that is why Netscape played another hugely important flattening role: It helped make the Internet truly interoperable. You will recall that in the Berlin Wall-PC-Windows phase, individuals who had e-mail and companies that had internal e-mail could not connect very far. The first Cisco Internet router, in fact, was built by a husband and wife at Stanford who wanted to exchange e-mail; one was working off a mainframe and the other on a PC, and they couldn't connect. “The corporate networks at the time were proprietary and disconnected from each other,” said Andreessen. “Each one had its own formats, data protocols, and different ways of doing content. So there were all these islands of information out there that were disconnected. And as the Internet emerged as a public, commercial venture, there was a real danger that it would emerge in the same disconnected way.”

Joe in the accounting department would get on his office PC and try to get the latest sales numbers for 1995, but he couldn't do that because the sales department was on a different system from the one accounting was using. It was as if one was speaking German and the other French. And then Joe would say, “Get me the latest shipment information from Goodyear on what tires they have sent us,” and he would find that Goodyear was using a different system altogether, and the dealer in Topeka was running yet another system. Then Joe would go home and find his seventh-grader on the World Wide Web researching a term paper, using open protocols, and looking at the holdings of some art museum in France. And Joe would say, “This is crazy. There has to be one totally interconnected network.”

In the years before the Internet became commercial, explained Andreessen, scientists developed a series of “open protocols” meant to make everyone's e-mail system or university computer network connect seamlessly with everyone else's-to ensure that no one had some special advantage. These mathematical-based protocols, which enable digital devices to talk to each other, were like magical pipes that, once you adopted them for your network, made you compatible with everyone else, no matter what kind of computer they were running. These protocols were (and still are) known by their alphabet soup names: mainly FTP, HTTP, SSL, SMTP, POP, and TCP/IP. Together, they form a system for transporting data around the Internet in a relatively secure manner, no matter what network your company or household has or what computer or cell phone or handheld device you are using. Each protocol had a different function: TCP/IP was the basic plumbing of the Internet, or the basic railroad tracks, on which everything else above it was built and moved around. FTP moved files; SMTP and POP moved e-mail messages, which became standardized, so that they could be written and read on different e-mail systems. HTML was a language that allowed even ordinary people to author Web pages that anyone with a Web browser could display. But it was the introduction of HTTP to move HTML documents around that gave birth to the World Wide Web as we know it. Finally, as people began to use these Web pages for electronic commerce, SSL was created to provide security for Web-based transactions.

As browsing and the Internet in general grew, Netscape wanted to make sure that Microsoft, with its huge market dominance, would not be able to shift these Web protocols from open to proprietary standards that only Microsoft's servers would be able to handle. “Netscape helped to guarantee that these open protocols would not be proprietary by commercializing them for the public,” said Andreessen. “Netscape came along not only with the browser but with a family of software products that implemented all these open standards so that the scientists could communicate with each other no matter what system they were on-a Cray supercomputer, a Macintosh, or a PC. Netscape was able to provide a real reason for everyone to say, 'I want to be on open standards for everything I do and for all the systems I work on.' Once we created a way to browse the Internet, people wanted a universal way to access what was out there. So anyone who wanted to work on open standards went to Netscape, where we supported them, or they went to the open-source world and got the same standards for free but unsupported, or they went to their private vendors and said, 'I am not going to buy your proprietary stuff anymore... I am not going to sign up to your walled garden anymore. I am only going to stay with you if you interconnect to the Internet with these open protocols.'”

Netscape began pushing these open standards through the sale of its browsers, and the public responded enthusiastically. Sun started to do the same with its servers, and Microsoft started to do the same with Windows 95, considering browsing so critical that it famously built its own browser directly into Windows with the addition of Internet Explorer. Each realized that the public, which suddenly could not get enough of e-mail and browsing, wanted the Internet companies to work together and create one interoperable network. They wanted companies to compete with each other over different applications, that is, over what consumers could do once they were on the Internet-not over how they got on the Internet in the first place. As a result, after quite a few “format wars” among the big companies, by the late 1990s the Internet computing platform became seamlessly integrated. Soon anyone was able to connect with anyone else anywhere on any machine. It turned out that the value of compatibility was much higher for everyone than the value of trying to maintain your own little walled network. This integration was a huge flattener, because it enabled so many more people to get connected with so many more other people.

There was no shortage of skeptics at the time, who said that none of this would work because it was all too complicated, recalled Andreessen. 'Tou had to go out and get a PC and a dial-up modem. The skeptics all said, 'It takes people a long time to change their habits and learn a new technology.' [But] people did it very quickly, and ten years later there were eight hundred million people on the Internet.“ The reason? ”People will change their habits quickly when they have a strong reason to do so, and people have an innate urge to connect with other people,“ said Andreessen. ”And when you give people a new way to connect with other people, they will punch through any technical barrier, they will learn new languages-people are wired to want to connect with other people and they find it objectionable not to be able to. That is what Netscape unlocked.“ As Joel Cawley, IBM's vice president of corporate strategy, put it, ”Netscape created a standard around how data would be transported and rendered on the screen that was so simple and compelling that anyone and everyone could innovate on top of it. It quickly scaled around the world and to everyone from kids to corporations.“

In the summer of 1995, Barksdale and his Netscape colleagues went on an old-fashioned road show with their investment bankers from Morgan Stanley to try to entice investors around the country to buy Netscape stock once it went public. “When we went out on the road,” said Barksdale, “Morgan Stanley said the stock could sell for as high as $14. But after the road show got going, they were getting such demand for the stock, they decided to double the opening price to $28. The last afternoon before the offering, we were all in Maryland. It was our last stop. We had this caravan of black limousines. We looked like some kind of Mafia group. We needed to be in touch with Morgan Stanley [headquarters], but we were somewhere where our cell phones didn't work. So we pulled into these two filling stations across from each other, all these black limos, to use the phones. We called up Morgan Stanley, and they said, 'We're thinking of bringing it out at $31.' I said, 'No, let's keep it at $28,' because I wanted people to remember it as a $20 stock, not a $30 stock, just in case it didn't go so well. So then the next morning I get on the conference call and the thing opened at $71. It closed the day at $56, exactly twice the price I set.”

Netscape eventually fell victim to overwhelming (and, the courts decided, monopolistic) competitive pressure from Microsoft. Microsoft's decision to give away its browser, Internet Explorer, as part of its dominant Windows operating system, combined with its ability to throw more programmers at Web browsing than Netscape, led to the increasing slippage of Netscape's market share. In the end, Netscape was sold for $10 billion to AOL, which never did much with it. But though Netscape may have been only a shooting star in commercial terms, what a star it was, and what a trail it left.

“We were profitable almost from the start,” said Barksdale. “Netscape was not a dot-com. We did not participate in the dot-com bubble. We started the dot-com bubble.”

And what a bubble it was. “Netscape going public stimulated a lot of things,” said Barksdale. “The technologists loved the new technology things it could do, and the businesspeople and regular folks got excited about how much money they could make. People saw all those young kids making money out of this and said, 'If those young kids can do this and make all that money, I can too.' Greed can be a bad thing-folks thought they could make a lot of money without a lot of work. It certainly led to a degree of overinvestment, putting it mildly. Every sillier and sillier idea got funded.”

What was it that stimulated investors to believe that demand for Internet usage and Internet-related products would be infinite? The short answer is digitization. Once the PC-Windows revolution demonstrated to everyone the value of being able to digitize information and manipulate it on computers and word processors, and once the browser brought the Internet alive and made Web pages sing and dance and display, everyone wanted everything digitized as much as possible so they could send it to someone else down the Internet pipes. Thus began the digitization revolution. Digitization is that magic process by which words, music, data, films, files, and pictures are turned into bits and bytes-combinations of Is and Os-that can be manipulated on a computer screen, stored on a microprocessor, or transmitted over satellites and fiber-optic lines. It used to be the post office was where I went to send my mail, but once the Internet came alive, I wanted my mail digitized so I could e-mail it. Photography used to be a cumbersome process involving film coated with silver dug up from mines halfway across the world. I used to take some pictures with my camera, then bring the film to the drugstore to be sent off to a big plant somewhere for processing. But once the Internet made it possible to send pictures around the world, attached to or in e-mails, I didn't want to use silver film anymore. I wanted to take pictures in the digital format, which could be uploaded, not developed. (And by the way, I didn't want to be confined to using a camera to take them. I wanted to be able to use my cell phone to do it.) I used to have to go to Barnes & Noble to buy and browse books, but once the Internet came alive, I wanted to browse for books digitally on Amazon.com as well. I used to go to the library to do research, but now I wanted to do it digitally through Google or Yahoo!, not just by roaming the stacks. I used to buy a CD to listen to Simon and Garfunkel-CDs had already replaced albums as a form of digitized music-but once the Internet came alive, I wanted those music bits to be even more malleable and mobile. I wanted to be able to download them into an iPod. In recent years the digitization technology evolved so I could do just that.

Well, as investors watched this mad rush to digitize everything, they said to themselves, “Holy cow. If everyone wants all this stuff digitized and turned into bits and transmitted over the Internet, the demand for Web service companies and the demand for fiber-optic cables to handle all this digitized stuff around the world is going to be limitless! You cannot lose if you invest in this!”

And thus was the bubble born.

Overinvestment is not necessarily a bad thing-provided that it is eventually corrected. I'll always remember a news conference that Microsoft chairman Bill Gates held at the 1999 World Economic Forum in Davos, at the height of the tech bubble. Over and over again, Gates was bombarded by reporters with versions of the question, “Mr. Gates, these Internet stocks, they're a bubble, right? Surely they're a bubble. They must be a bubble?” Finally an exasperated Gates said to the reporters something to the effect of, “Look, you bozos, of course they're a bubble, but you're all missing the point. This bubble is attracting so much new capital to this Internet industry, it is going to drive innovation faster and faster.” Gates compared the Internet to the gold rush, the idea being that more money was made selling Levi's, picks, shovels, and hotel rooms to the gold diggers than from digging up gold from the earth. Gates was right: Booms and bubbles may be economically dangerous; they may end up with many people losing money and a lot of companies going bankrupt. But they also often do drive innovation faster and faster, and the sheer overcapacity that they spur-whether it is in railroad lines or automobiles-can create its own unintended positive consequences.

That is what happened with the Internet stock boom. It sparked a huge overinvestment in fiber-optic cable companies, which then laid massive amounts of fiber-optic cable on land and under the oceans, which dramatically drove down the cost of making a phone call or transmitting data anywhere in the world.

The first commercial installation of a fiber-optic system was in 1977, after which fiber slowly began to replace copper telephone wires, because it could carry data and digitized voices much farther and faster in larger quantities. According to Howstuffworks.com, fiber optics are made up of strands of optically pure glass each “as thin as a human hair,” which are arranged in bundles, called “optical cables,” to carry digitized packets of information over long distances. Because these optical fibers are so much thinner than copper wires, more fibers can be bundled into a given diameter of cable than can copper wires, which means that much more data or many more voices can be sent over the same cable at a lower cost. The most important benefit of fiber, though, derives from the dramatically higher bandwidth of the signals it can transport over long distances. Copper wires can carry very high frequencies too, but only for a few feet before the signal starts to degrade in strength due to certain parasitic effects. Optical fibers, by contrast, can carry very high-frequency optical pulses on the same individual fiber without substantial signal degradation for many, many miles.

The way fiber-optic cables work, explains one of the manufacturers, ARC Electronics, on its Web site, is by converting data or voices into light pulses and then transmitting them down fiber lines, instead of using electronic pulses to transmit information down copper lines. At one end of the fiber-optic system is a transmitter. The transmitter accepts coded electronic pulse information-words or data-coming from copper wire out of your home telephone or office computer. The transmitter then processes and translates those digitized, electronically coded words or data into equivalently coded light pulses. A light-emitting diode (LED) or an injection-laser diode (ILD) can be used to generate the light pulses, which are then funneled down the fiber-optic cable. The cable functions as a kind of light guide, guiding the light pulses introduced at one end of the cable through to the other end, where a light-sensitive receiver converts the pulses back into the electronic digital Is and Os of the original signal, so they can then show up on your computer screen as e-mail or in your cell phone as a voice. Fiber-optic cable is also ideal for secure communications, because it is very difficult to tap.

It was actually the coincidence of the dot-com boom and the Telecommunications Act of 1996 that launched the fiber-optic bubble. The act allowed local and long-distance companies to get into each other's businesses, and enabled all sorts of new local exchange carriers to compete head-to-head with the Baby Bells and AT&T in providing both phone services and infrastructure. As these new phone companies came online, offering their own local, long-distance, international, data, and Internet services, each sought to have its own infrastructure. And why not? The Internet boom led everyone to assume that the demand for bandwidth to carry all that Internet traffic would double every three months-indefinitely. For about two years that was true. But then the law of large numbers started to kick in, and the pace of doubling slowed. Unfortunately, the telecom companies weren't paying close attention to the developing mismatch between demand and reality. The market was in the grip of an Internet fever, and companies just kept building more and more capacity. And the stock market boom meant money was free! It was a party! So every one of these incredibly optimistic scenarios from every one of these new telecom companies got funded. In a period of about five or six years, these telecom companies invested about $ 1 trillion in wiring the world. And virtually no one questioned the demand projections.

Few companies got crazier than Global Crossing, one of the companies hired by all these new telecoms to lay fiber-optic cable for them around the world. Global Crossing was founded in 1997 by Gary Winnick and went public the next year. Robert Annunziata, who lasted only a year as CEO, had a contract that the Corporate Library's Nell Minow once picked as the worst (from the point of view of shareholders) in the United States. Among other things, it included Annunziata's mother's first-class airfare to visit him once a month. It also included a signing bonus of 2 million shares of stock at $10 a share below market.

Henry Schacht, a veteran industrialist now with E. M. Warburg, Pincus & Co., was brought in by Lucent, the successor of Western Electric, to help manage it through this crazy period. He recalled the atmosphere: “The telecom deregulation of 1996 was hugely important. It allowed competitive local exchange carriers to build their own capacities and sell in competition with each other and with the Baby Bells. These new telecoms went to companies like Global Crossing and had them install fiber networks for them so they could compete at the transport level with AT&T and MCI, particularly on overseas traffic... Everyone thought this was a new world, and it would never stop. [You had] competitive firms using free capital, and everyone thought the pie would expand infinitely. So [each company said,] 'I will put my fiber down before you do, and I will get a bigger share than you.' It was supposed to be just a vertical growth line, straight up, and we each thought we would get our share, so everybody built to the max projections and assumed that they would get their share.”

It turned out that while business-to-business and e-commerce developed as projected, and a lot of Web sites that no one anticipated exploded-like eBay, Amazon, and Google-they still devoured only a fraction of the capacity that was being made available. So when the dotcom bust came along, there was just way too much fiber-optic cable out there. Long-distance phone rates went from $2 a minute to 100. And the transmission of data was virtually free. “The telecom industry has invested itself right out of a business,” Mike McCue, chief operations officer of Tellme Networks, a voice-activated Internet service, told CNET News.com in June 2001. “They've laid so much fiber in the ground that they've basically commoditized themselves. They are going to get into massive price wars with everyone and it's going to be a disaster.”

It was a disaster for many of the companies and their investors (Global Crossing filed for bankruptcy in January 2002, with $12.4 billion in debt), but it turned out to be a great boon for consumers. Just as the national highway system that was built in the 1950s flattened the United States, broke down regional differences, and made it so much easier for companies to relocate in lower-wage regions, like the South, because it had become so much easier to move people and goods long distances, so the laying of global fiber highways flattened the developed world. It helped to break down global regionalism, create a more seamless global commercial network, and made it simple and almost free to move digitized labor-service jobs and knowledge work-to lower-cost countries.

(It should be noted, though, that those fiber highways in America tended to stop at the last mile-before connecting to households. While a huge amount of long-distance fiber cable was laid to connect India and America, virtually none of these new U.S. telecom companies laid any substantial new local loop infrastructure, due to a failure of the 1996 telecom deregulation act to permit real competition in the local loop between the cable companies and the telephone companies. Where the local broadband did get installed was in office buildings, which were already pretty well served by the old companies. So this pushed prices down for businesses-and for Indians who wanted to get online from Bangalore to do business with those businesses-but it didn't create the sort of competition that could bring cheap broadband capability to the American masses in their homes. That has started happening only more recently.)

The broad overinvestment in fiber cable is a gift that keeps on giving, thanks to the unique nature of fiber optics. Unlike other forms of Internet overinvestment, it was permanent: Once the fiber cables were laid, no one was going to dig them up and thereby eliminate the overcapacity. So when the telecom companies went bankrupt, the banks took them over and then sold their fiber cables for ten cents on the dollar to new companies, which continued to operate them, which they could do profitably, having bought them in a fire sale. But the way fiber cable works is that each cable has multiple strands of fiber in it with a potential capacity to transmit many terabits of data per second on each strand. When these fiber cables were originally laid, the optical switches-the transmitters and receivers-at each end of them could not take full advantage of the fiber's full capacity. But every year since then, the optical switches at each end of that fiber cable have gotten better and better, meaning that more and more voices and data can be transmitted down each fiber. So as the switches keep improving, the capacity of all the already installed fiber cables just keeps growing, making it cheaper and easier to transmit voices and data every year to any part of the world. It is as though we laid down a national highway system where people were first allowed to drive 50 mph, then 60 mph, then 70 mph, then 80 mph, then eventually 150 mph on the same highways without any fear of accidents. Only this highway wasn't just national. It was international.

“Every layer of innovation gets built on the next,” said Andreessen, who went on from Netscape to start another high-tech firm, Opsware Inc. “And today the most profound thing to me is the fact that a fourteen-year-old in Romania or Bangalore or the Soviet Union or Vietnam has all the information, all the tools, all the software easily available to apply knowledge however they want. That is why I am sure the next Napster is going to come out of left field. As bioscience becomes more computational and less about wet labs, and as all the genomic data becomes easily available on the Internet, at some point you will be able to design vaccines on your laptop.”

I think Andreessen touches on what is unique about the flat world and the era of Globalization 3.0. It is going to be driven by groups and individuals, but of a much more diverse background than those twelve scientists who made up Andreessen's world when he created Mosaic. Now we are going to see the real human mosaic emerge-from all over the world, from left field and right field, from West and East and North and South-to drive the next generation of innovation. Indeed, a few days after Andreessen and I talked, the following headline appeared on the front page of The New York Times (July 15, 2004): “U.S. Permits 3 Cancer Drugs from Cuba.” The story went on to say, “The federal government is permitting a California biotechnology company to license three experimental cancer drugs from Cuba-making an exception to the policy of tightly restricting trade with that country.” Executives of the company, CancerVex, said that “it was the first time an American biotechnology company had obtained permission to license a drug from Cuba, a country that some industry executives and scientists say is surprisingly strong in biotechnology for a developing nation... More than $1 billion was spent over the years to build and operate research institutes on the west side of Havana staffed by Cuban scientists, many of them educated in Europe.”

Just to summarize again: The PC-Windows flattening phase was about me interacting with my computer and me interacting with my own limited network inside my own company. Then came along this Internet-e-mail-browser phase, and it flattened the earth a little bit more. It was about me and my computer interacting with anyone anywhere on any machine, which is what e-mail is all about, and me and my computer interacting with anybody's Web site on the Internet, which is what browsing is all about. In short, the PC-Windows phase begat the Netscape browsing-e-mail phase and the two together enabled more people to communicate and interact with more other people anywhere on the planet than ever before.

But the fun was just beginning. This phase was just the foundation for the next step in flattening the flat world.

I met Scott Hyten, the CEO of Wild Brain, a cutting-edge animation studio in San Francisco that produces films and cartoons for Disney and other major studios, at a meeting in Silicon Valley in the winter of 2004.1 had been invited by John Doerr, the venture capitalist, to test out the ideas in this book to a few of the companies that he was backing. Hyten and I really hit it off, maybe because after hearing my arguments he wrote me an e-mail that said, “I am sure in Magellan's time there were plenty of theologians, geographers, and pundits who wanted to make the world flat again. I know the world is flat, and thank you for your support.” A man after my own heart.

When I asked him to elaborate, Hyten sketched out for me how animated films are produced today through a global supply chain. I understood immediately why he too had concluded that the world is flat. “At Wild Brain,” he said, “we make something out of nothing. We learn how to take advantage of the flat world. We are not fighting it. We are taking advantage of it.”

Hyten invited me to come and watch them produce a cartoon segment to really appreciate how flat the world is, which I did. The series they were working on when I showed up was for the Disney Channel and called Higglytown Heroes. It was inspired by all the ordinary people who rose to the challenge of 9/11. Higglytown “is the typical 1950s small town,” said Hyten. “It is Pleasantville. And we are exporting the production of this American small town around the world-literally and figuratively. The foundation of the story is that every person, all the ordinary people living their lives, are the heroes in this small town-from the schoolteacher to the pizza delivery man.”

This all-American show is being produced by an all-world supply chain. “The recording session,” explained Hyten, “is located near the artist, usually in New York or L.A., the design and direction is done in San Francisco, the writers network in from their homes (Florida, London, New York, Chicago, LA, and San Francisco), and the animation of the characters is done in Bangalore with edits from San Francisco. For this show we have eight teams in Bangalore working in parallel with eight different writers. This efficiency has allowed us to contract with fifty 'stars' for the twenty-six episodes. These interactive recording/writing/ animation sessions allow us to record an artist for an entire show in less than half a day, including unlimited takes and rewrites. We record two actors per week. For example, last week we recorded Anne Heche and Smokey Robinson. Technically, we do this over the Internet. We have a VPN [virtual private network] configured on computers in our offices and on what we call writers' 'footballs,' or special laptop computers that can connect over any cat-5 Ethernet connection or wireless broadband connection in the 'field.' This VPN allows us to share the feed from the microphone, images from the session, the real-time script, and all the animation designs amongst all the locations with a simple log-in. Therefore, one way for you to observe is for us to ship you a football. You connect at home, the office, most hotel rooms, or go down to your local Starbucks [which has wireless broadband Internet access], log on, put on a pair of Bose noise-reduction headphones, and listen, watch, read, and comment. 'Sharon, can you sell that line a little more?' Then, over the eleven-week production schedule for the show, you can log in twenty-four hours a day and check the progress of the production as it follows the sun around the world. Technically, you need the 'football' only for the session. You can use your regular laptop to follow the 'dailies' and 'edits' over the production cycle.”

I needed to see Wild Brain firsthand, because it is a graphic example of the next layer of innovation, and the next flattener, that broadly followed on the Berlin Wall-Windows and Netscape phases. I call this the “work flow phase.” When the walls went down, and the PC, Windows, and Netscape browser enabled people to connect with other people as never before, it did not take long before all these people who were connecting wanted to do more than just browse and send e-mail, instant messages, pictures, and music over this Internet platform. They wanted to shape things, design things, create things, sell things, buy things, keep track of inventories, do somebody else's taxes, and read somebody else's X-rays from half a world away. And they wanted to be able to do any of these things from anywhere to anywhere and from any computer to any computer-seamlessly. The wall-Windows-Netscape phases paved the way for that by standardizing the ways words, music, pictures, and data would be digitized and transported on the Internet-so e-mail and browsing became a very rich experience.

But for all of us to go to the next stage, to get more out of the Internet, the flattening process had to go another notch. We needed two things. We needed programmers to come along and write new applications— new software-that would enable us really to get the maximum from our computers as we worked with these digitized data, words, music, and pictures and shaped them into products. We also needed more magic pipes, more transmissions protocols, that would ensure that everyone's software applications could connect with everyone else's software applications. In short, we had to go from an Internet that just connected people to people, and people to their own applications, to an Internet that could connect any of my software programs to any of your software programs. Only then could we really work together.

Think of it this way: In the beginning, work flow consisted of your sales department taking an order on paper, walking it over to your shipping department, which shipped the product, and then someone from shipping walking over to billing with a piece of paper and instructing them to churn out an invoice to the customer. As a result of the Berlin Wall-Windows-Netscape phases, work flow took a huge leap forward. Now your sales department could electronically take that order, e-mail it to the shipping department within your own company, and then have the shipping department send out the product to the customer and automatically spit out a bill at the same time. The fact that all the departments within your company were seamlessly interoperable and that work could flow between them was a great boost to productivity-but this could happen only if all your company's departments were using the same software and hardware systems. More often than not, back in the 1980s and early 1990s, a company's sales department was running Microsoft and the inventory department was running Novell, and they could not communicate with each other. So work did not flow as easily as it should.

We often forget that the software industry started out like a bad fire department. Imagine a city where every neighborhood had a different interface for connecting the fire hose to the hydrant. Everything was fine as long as your neighborhood fire department could handle your fire. But when a fire became too big, and the fire engines from the next neighborhood had to be called in, they were useless because they could not connect their hoses to your hydrants.

For the world to get flat, all your internal departments-sales, marketing, manufacturing, billing, and inventory-had to become interoperable, no matter what machines or software each of them was running. And for the world to get really flat, all your systems had to be interoperable with all the systems of any other company. That is, your sales department had to be connected to your supplier's inventory department and your supplier's inventory department had to be seamlessly connected to its supplier's supplier, which was a factory in China. That way, when you made a sale, an item was automatically shipped from your supplier's warehouse, and another item was automatically manufactured by your supplier's supplier, and a bill was generated from your billing department. The disparate computer systems and software applications of three distinctly different companies had to be seamlessly interoperable so that work could flow between them.

In the late 1990s, the software industry began to respond to what its consumers wanted. Technology companies, through much backroom wrangling and trial and error, started to forge more common Web-based standards, more integrated digital plumbing and protocols, so that anyone could fit his hose-his software applications-onto anyone else's hydrant.

This was a quiet revolution. Technically, what made it possible was the development of a new data description language, called XML, and its related transport protocol, called SOAP. IBM, Microsoft, and a host of other companies contributed to the development of both XML and SOAP, and both were subsequently ratified and popularized as the Internet standards. XML and SOAP created the technical foundation for software program-to-software program interaction, which was the foundation for Web-enabled work flow. They enabled digitized data, words, music, and photos to be exchanged between diverse software programs so that they could be shaped, designed, manipulated, edited, reedited, stored, published, and transported-without any regard to where people are physically sitting or what computing devices they are connecting through.

Once this technical foundation was in place, more and more people started writing work flow software programs for more and more different tasks. Wild Brain wanted programs to make animated films with a production team spread out around the world. Boeing wanted them so that its airplane factories in America could constantly resupply different airline customers with parts, through its computer ordering systems, no matter what country those orders came from. Doctors wanted them so that an X-ray taken in Bangor could be read in a hospital in Bangalore, without the doctor in Maine ever having to think about what computers that Indian hospital had. And Mom and Dad wanted them because they wanted their e-banking software, e-brokerage software, office e-mail, and spreadsheet software to all work off their home laptop and be able to interface with their office desktop. And once everyone's applications started to connect to everyone else's applications-which took several years and lot of technology and brainpower to make happen-work could not only flow like never before, but it could be chopped up and disaggregated like never before and sent to the four corners of the world. This meant that work could flow anywhere. Indeed, it was the ability to enable applications to speak to applications, not just people to speak to people, that would soon make outsourcing possible. Thanks to different kinds of Web services-work flow, said Craig Mundie, Microsoft's chief technology officer, “the industry created a global platform for a global workforce of people and computers.”

The vast network of underground plumbing that made it possible for all this work to flow has become quite extensive. It includes all the Internet protocols of the previous era, like TCP/IP and others, which made browsing and e-mail and Web sites possible. It includes newer tools, like XML and SOAP, which enabled Web applications to communicate with each other more seamlessly, and it includes software agents known as middleware, which serves as an intermediary between wildly diverse applications. The nexus of these technologies has been a huge boon to innovation and a huge reducer of friction between companies and applications. Instead of everyone trying to control the fire hydrant nozzle, they made all the nozzles and hoses the same, creating a much bigger market that stretched across every neig

hborhood of the world. Then companies started to compete instead over the quality of the hose, the pump, and the fire truck. That is, they competed over who could make the most useful and nifty applications. Said Joel Cawley, the head of IBM's strategic planning unit, “Standards don't eliminate innovation, they just allow you to focus it. They allow you to focus on where the real value lies, which is usually everything you can add above and around the standard.”

I found this out writing my last book. Once Microsoft Word got established as the global standard, work could flow between people on different continents much more easily, because we were all writing off the same screen with the same basic toolbar. When I was working on my first book, From Beirut to Jerusalem, in 1988,1 spent part of my year's leave in the Middle East and had to take notes with pen and paper, as it was the pre-laptop and pre-Microsoft Word era. When I wrote my second book, The Lexus and the Olive Tree, in 1998, I had to do some of the last-minute editing from the computer behind the front desk at a Swiss hotel in Davos on a German version of Microsoft Word. I could not understand a single word, a single command function, on the toolbar of the German version of Word. But by 1998, I was so familiar with the Word for Windows writing program, and where the various on-screen icons were, that I was able to point and click my way through the editing on the German version and type my corrections with the English letters on the German keyboard. Shared standards are a huge flattener, because they both force and empower more people to communicate and innovate over much wider platforms.

Another of my favorite examples of this is PayPal, which enabled eBay's e-commerce bazaar to become what it is today. PayPal is a money transfer system founded in 1998 to facilitate C2C (customer-to-customer) transactions, like a buyer and seller brought together by eBay. According to the Web site ecommerce-guide.com, using PayPal, anyone with an e-mail address can send money to anyone else with an e-mail address, whether the recipient has a PayPal account or not. PayPal doesn't even care whether a commercial transaction is taking place. If someone in the office is organizing a party for someone else and everyone needs to chip in, they can all do it using PayPal. In fact, the organizer can send everyone PayPal reminders by e-mail with clear instructions as to how to pay up. PayPal can accept money from the purchaser in one of three ways, notes ecommerce-guide.com: charging the purchaser's credit card for any transactions (payments), debiting a checking account for any payments, or deducting payments from a PayPal account established with a personal check. Payment recipients can use the money in their account for online purchases or payments, can receive the payment from PayPal by check, or can have PayPal directly deposit the money into a checking account. Setting up a PayPal account is simple. As a payer, all you have to do is to provide your name, your e-mail address, your credit card information, and your billing address for your credit card.

All of these interoperable banking and e-commerce functions flattened the Internet marketplace so radically that even eBay was taken by surprise. Before PayPal, explained eBay CEO Meg Whitman, “If I did business on eBay in 1999, the only way I could pay you as a buyer was with a check or money order, a paper-based system. There was no electronic way to send money, and you were too small a merchant to qualify for a credit card account. What PayPal did was enable people, individuals, to accept credit cards. I could pay you as an individual seller on eBay with a credit card. This really leveled the playing field and made commerce more frictionless.” In fact, it was so good that eBay bought PayPal, but not on the recommendation of its Wall Street investment bankers— on the recommendation of its users.

“We woke up one day,” said Whitman, “and found out that 20 percent of the people on eBay were saying, 'I accept PayPal, please pay me that way.' And we said, 'Who are these people and what are they doing?' At first we tried to fight them and launched our own service, called Billpoint. Finally, in July 2002, we were at [an] eBay Live [convention] and the drumbeat through the hall was deafening. Our community was telling us, 'Would you guys stop fighting? We want a standard-and by the way, we have picked the standard and it's called PayPal, and we know you guys at eBay would like it to be your [standard], but it's theirs.' And that is when we knew we had to buy the company, because it was the standard and it was not ours... It is the best acquisition we ever made.”

Here's how I just wrote the above section: I transferred my notes from the Meg Whitman phone interview from my Dell laptop to my Dell desktop, then fired up my DSL connection and double-clicked on AOL, where I used Google to find a Web site that could explain PayPal, which directed me to ecommerce-guide.com. I downloaded the definition from the ecommerce-guide.com Web site, which was written in some Internet font as a text file, and then called it up on Microsoft Word, which automatically transformed it into a Word document, which I could then use to write this section on my desktop. That is also work flow! And what is most important about it is not that I have these work flow tools; it is how many people in India, Russia, China, Brazil, and Timbuktu now have them as well-along with all the transmission pipes and protocols so they too can plug and play from anywhere.

Where is all this going? More and more work flow will be automated. In the coming phase of Web services-work flow, here is how you will make a dentist appointment: You will instruct your computer by voice to make an appointment. Your computer will automatically translate your voice into a digital instruction. It will automatically check your calendar against the available dates on your dentist's calendar and offer you three choices. You will click on the preferred date and hour. The week before your appointment, your dentist's calendar will automatically send you an e-mail reminding you of the appointment. The night before, you will get a computer-generated voice message by phone, also reminding of your appointment.

For work flow to reach this next stage, and the productivity enhancements it will deliver, “we need more and more common standards,” said IBM's strategic planner Cawley. “The first round of standards to emerge with the Internet were around basic data-how do you represent a number, how do you organize files, how do you display and store content, and how do you share and exchange information. That was the Netscape phase. Now a whole new set of standards is emerging to enable work flow. These are standards about how we do business work together. For example, when you apply for a mortgage, go to your closing, or buy a house, there are literally dozens of processes and data flows among many different companies. One bank may handle securing your approval, checking your credit, establishing your interest rates, and handling the closing-after which the loan almost immediately is sold to a different bank.”

The next level of standards, added Cawley, will be about automating all these processes, so they flow even more seamlessly together and can stimulate even more standards. We are already seeing standards emerging around payroll, e-commerce payment, and risk profiling, around how music and photos are digitally edited, and, most important, around how supply chains are connected. All of these standards, on top of the work flow software, help enable work to be broken apart, reassembled, and made to flow, without friction, back and forth between the most efficient producers. The diversity of applications that will automatically be able to interact with each other will be limited only by our imaginations.

The gains in productivity from this could be bigger than anything we have ever seen before.

“Work flow platforms are enabling us to do for the service industry what Henry Ford did for manufacturing,” said Jerry Rao, the entrepreneur doing accounting work for Americans from India. “We are taking apart each task and sending it around to whomever can do it best, and because we are doing it in a virtual environment, people need not be physically adjacent to each other, and then we are reassembling all the pieces back together at headquarters [or some other remote site]. This is not a trivial revolution. This is a major one. It allows for a boss to be somewhere and his employees to be someplace else.” These work flow software platforms, Jerry added, “enable you to create virtual global offices-not limited by either the boundaries of your office or your country-and to access talent sitting in different parts of the world and have them complete tasks that you need completed in real time. And so 24/7/365 we are all working. And all this has happened in the twinkling of an eye-the span of the last two or three years.”

Genesis: The Flat World Platform Emerges

We need to stop here and take stock, because at this point-the mid-1990s-the platform for the flattening of the world has started to emerge. First, the falling walls, the opening of Windows, the digitization of content, and the spreading of the Internet browser seamlessly connected people with people as never before. Then work flow software seamlessly connected applications to applications, so that people could manipulate all their digitized content, using computers and the Internet, as never before. When you add this unprecedented new level of people-to-people communication to all these Web-based application-to-application work flow programs, you end up with a whole new global platform for multiple forms of collaboration. This is the Genesis moment for the flattening of the world. This is when it started to take shape. It would take more time to converge and really become flat, but this is the moment when people started to feel that something was changing. Suddenly more people from more different places found that they could collaborate with more other people on more different kinds of work and share more different kinds of knowledge than ever before. “It is the creation of this platform, with these unique attributes, that is the truly important sustainable breakthrough that made what you call the flattening of the world possible,” said Microsoft's Craig Mundie.

Indeed, thanks to this platform that emerged from the first three flat-teners, we were not just able to talk to each other more, we were able to do more things together. This is the key point, argued Joel Cawley, the IBM strategist. “We were not just communicating with each other more than ever, we were now able to collaborate-to build coalitions, projects, and products together-more than ever.”

The next six flatteners represent the new forms of collaboration which this new platform empowered. As J show, some people will use this platform for open-sourcing, some for outsourcing, some for offshoring, some for supply-chaining, some for insourcing, and some for in-forming. Each of these forms of collaboration was either made possible by the new platform or greatly enhanced by it. And as more and more of us learn how to collaborate in these different ways, we are flattening the world even more.

Alan Cohen still remembers the first time he heard the word “Apache” as an adult, and it wasn't while watching a cowboys-and-Indians movie. It was the 1990s, the dot-com market was booming, and he was a senior manager for IBM, helping to oversee its emerging e-commerce business. “I had a whole team with me and a budget of about $8 million,” Cohen recalled. “We were competing head-to-head with Microsoft, Netscape, Oracle, Sun-all the big boys. And we were playing this very big-stakes game for e-commerce. IBM had a huge sales force selling all this e-commerce software. One day I asked the development director who worked for me, 'Say, Jeff, walk me through the development process for these e-commerce systems. What is the underlying Web server?' And he says to me, It's built on top of Apache.' The first thing I think of is John Wayne. 'What is Apache?' I ask. And he says it is a shareware program for Web server technology. He said it was produced for free by a bunch of geeks just working online in some kind of open-source chat room. I was floored. I said, 'How do you buy it?' And he says, Tou download it off a Web site for free.' And I said, 'Well, who supports it if something goes wrong?' And he says, 'I don't know-it just works!' And that was my first exposure to Apache...

“Now you have to remember, back then Microsoft, IBM, Oracle, Netscape were all trying to build commercial Web servers. These were huge companies. And suddenly my development guy is telling me that he's getting ours off the Internet for free! It's like you had all these big corporate executives plotting strategies, and then suddenly the guys in the mail room are in charge. I kept asking, 'Who runs Apache? I mean, who are these guys?'”

Yes, the geeks in the mail room are deciding what software they will be using and what you will be using too. It's called the open-source movement, and it involves thousands of people around the world coming together online to collaborate in writing everything from their own software to their own operating systems to their own dictionary to their own recipe for cola-building always from the bottom up rather than accepting formats or content imposed by corporate hierarchies from the top down. The word “open-source” comes from the notion that companies or ad hoc groups would make available online the source code-the underlying programming instructions that make a piece of software work-and then let anyone who has something to contribute improve it and let millions of others just download it for their own use for free. While commercial software is copyrighted and sold, and companies guard the source code as they would their crown jewels so they can charge money to anyone who wants to use it and thereby generate income to develop new versions, open-source software is shared, constantly improved by its users, and made available for free to anyone. In return, every user who comes up with an improvement-a patch that makes this software sing or dance better-is encouraged to make that patch available to every other user for free.

Not being a computer geek, I had never focused much on the open-source movement, but when I did, I discovered it was an amazing universe of its own, with communities of online, come-as-you-are volunteers who share their insights with one another and then offer it to the public for nothing. They do it because they want something the market doesn't offer them; they do it for the psychic buzz that comes from creating a collective product that can beat something produced by giants like Microsoft or IBM, and-even more important-to earn the respect of their intellectual peers. Indeed, these guys and gals are one of the most interesting and controversial new forms of collaboration that have been facilitated by the flat world and are flattening it even more.

In order to explain how this form of collaboration works, why it is a flattener and why, by the way, it has stirred so many controversies and will be stirring even more in the future, I am going to focus on just two basic varieties of open-sourcing: the intellectual commons movement and the free software movement.

The intellectual commons form of open-sourcing has its roots in the academic and scientific communities, where for a long time self-organized collaborative communities of scientists have come together through private networks and later the Internet to pool their brainpower or share insights around a particular science or math problem. The Apache Web server had its roots in this form of open-sourcing. When I asked a friend of mine, Mike Arguello, an IT systems architect, to explain to me why people share knowledge or work in this way, he said, “IT people tend to be very bright people and they want everybody to know just how brilliant they are.” Marc Andreessen, who invented the first Web browser, agreed: “Open-source is nothing more than peer-reviewed science. Sometimes people contribute to these things because they make science, and they discover things, and the reward is reputation. Sometimes you can build a business out of it, sometimes they just want to increase the store of knowledge in the world. And the peer review part is critical-and open-source is peer review. Every bug or security hole or deviation from standards is reviewed.”

I found this intellectual commons form of open-sourcing fascinating, so I went exploring to find out who were those guys and girls in the mail room. Eventually, I found my way to one of their pioneers, Brian Behlendorf. If Apache-the open-source Web server community-were an Indian tribe, Behlendorf would be the tribal elder. I caught up with him one day in his glass-and-steel office near the San Francisco airport, where he is now founder and chief technology officer of CollabNet, a start-up focused on creating software for companies that want to use an open-source approach to innovation. I started with two simple questions: Where did you come from? and: How did you manage to pull together an open-source community of online geeks that could go toe-to-toe with IBM?

“My parents met at IBM in Southern California, and I grew up in a town just north of Pasadena, La Canada,” Behlendorf recalled. “The public school was very competitive academically, because a lot of the kids' parents worked at the Jet Propulsion Laboratory that was run by C Caltech there. So from a very early age I was around a lot of science in a place where it was okay to be kind of geeky. We always had computers around the house. We used to use punch cards from the original IBM mainframes for making shopping lists. In grade school, I started doing some basic programming, and by high school I was pretty into computers... I graduated in 1991, but in 1989, in the early days of the Internet, a friend gave me a copy of a program he had downloaded onto a floppy disk, called 'Fractint.' It was not pirated, but was freeware, produced by a group of programmers, and was a program for drawing fractals. [Fractals are beautiful images produced at the intersection of art and math.] When the program started up, the screen would show this scrolling list of e-mail addresses for all the scientists and mathematicians who contributed to it. I noticed that the source code was included with the program. This was my first exposure to the concept of open-source. Here was this program that you just downloaded for free, and they even gave you the source code with it, and it was done by a community of people. It started to paint a different picture of programming in my mind. I started to think that there were some interesting social dynamics to the way certain kinds of software were written or could be written-as opposed to the kind of image I had of the professional software developer in the back office tending to the mainframe, feeding info in and taking it out for the business. That seemed to me to be just one step above accounting and not very exciting.”

After graduating in 1991, Behlendorf went to Berkeley to study physics, but he quickly became frustrated by the disconnect between the abstractions he was learning in the classroom and the excitement that was starting to emerge on the Internet.

“When you entered college back then, every student was given an e-mail address, and I started using it to talk to students and explore discussion boards that were starting to appear around music,” said Behlendorf. “In 1992,1 started my own Internet mailing list focused on the local electronic music scene in the Bay Area. People could just post onto the discussion board, and it started to grow, and we started to discuss different music events and DJs. Then we said, 'Hey, why don't we invite our own DJs and throw our own events?' It became a collective thing. Someone would say, 'I have some records,' and someone else would say, 'I have a sound system,' and someone else would say, 'I know the beach and if we showed up at midnight we could have a party.' By 1993, the Internet was still just mailing lists and e-mail and FTP sites [file transfer protocol repositories where you could store things]. So I started collecting an archive of electronic music and was interested in how we could put this online and make it available to a larger audience. That was when I heard about Mosaic [the Web browser developed by Marc Andreessen.] So I got a job at the computer lab in the Berkeley business school, and I spent my spare time researching Mosaic and other Web technologies. That led me to a discussion board with a lot of the people who were writing the first generation of Web browsers and Web servers.”

(A Web server is a software program that enables anyone to use his or her home or office computer to host a Web site on the World Wide Web. Amazon.com, for instance, has long run its Web site on Apache software. When your Web browser goes to www.amazon.com, the very first piece of software it talks to is Apache. The browser asks Apache for the Amazon Web page and Apache sends back to the browser the content of the Amazon Web page. Surfing the Web is really your Web browser interacting with different Web servers.)

“I found myself sitting in on this forum watching Tim Berners-Lee and Marc Andreessen debating how all these things should work,” recalled Behlendorf. “It was pretty exciting, and it seemed radically inclusive. I didn't need a Ph.D. or any special credentials, and I started to see some parallels between my music group and these scientists, who had a common interest in building the first Web software. I followed that [discussion] for a while and then I told a friend of mine about it. He was one of the first employees at Wired magazine, and he said Wired would be interested in having me set up a Web site for them. So I joined there at $10 an hour, setting up their e-mail and their first Web site-HotWired... It was one of the first ad-supported online magazines.”

HotWired decided it wanted to start by having a registration system that required passwords-a controversial concept at that time. “In those days,” noted Andrew Leonard, who wrote a history of Apache for Salon.com in 1997, “most Webmasters depended on a Web server program developed at the University of Illinois's National Center for Super-computing Applications (also the birthplace of the groundbreaking Mosaic Web browser). But the NCSA Web server couldn't handle password authentication on the scale that HotWired needed. Luckily, the NCSA server was in the public domain, which meant that the source code was free to all comers. So Behlendorf exercised the hacker prerogative: He wrote some new code, a 'patch' to the NCSA Web server, that took care of the problem.” Leonard commented, “He wasn't the only clever programmer rummaging through the NCSA code that winter. All across the exploding Web, other Webmasters were finding it necessary to take matters into their own keyboards. The original code had been left to gather virtual dust when its primary programmer, University of Illinois student Rob McCool, had been scooped up (along with Marc Andreessen and Lynx author Eric Bina) by a little-known company in Silicon Valley named Netscape. Meanwhile, the Web refused to stop growing—and kept creating new problems for Web servers to cope with.” So patches of one kind or another proliferated like Band-Aids on bandwidth, plugging one hole here and breaching another gap there.

Meanwhile, all these patches were slowly, in an ad hoc open-source manner, building a new modern Web server. But everyone had his or her own version, trading patches here and there, because the NCSA lab couldn't keep up with it all.

“I was just this near-dropout,” explained Behlendorf. “I was having a lot of fun building this Web site for Wired and learning more than I was learning at Berkeley. So a discussion started in our little working group that the NCSA people were not answering our e-mails. We were sending in patches for the system and they weren't responding. And we said, 'If NCSA would not respond to our patches, what's going to happen in the future?' We were happy to continue improving this thing, yet we were worried when we were not getting any feedback and seeing our patches integrated. So I started to contact the other people I knew trading patches... Most of them were on the standards working groups [the Internet Engineering Task Force] that were setting the first standards for the interconnectivity between machines and applications on the Internet... And we said, 'Why don't we take our future into our own hands and release our own [Web server] version that incorporated all our patches?'

“We looked up the copyright for the NCSA code, and it basically just said give us credit at Illinois for what we invented if you improve it-and don't blame us if it breaks,” recalled Behlendorf. “So we started building our own version from all our patches. None of us had time to be a full-time Web server developer, but we thought if we could combine our time and do it in a public way, we could create something better than we could buy off the shelf-and nothing was available then, anyway. This was all before Netscape had shipped its first commercial Web server. That was the beginning of the Apache project.”

By February 1999, they had completely rewritten the original NCSA program and formalized their cooperation under the name “Apache.”

“I picked the name because I wanted it to have a positive connotation of being assertive,” said Behlendorf. “The Apache tribe was the last tribe to surrender to the oncoming U.S. government, and at the time we worried that the big companies would come in and 'civilize' the landscape that the early Internet engineers built. So 'Apache' made sense to me as a good code name, and others said it also would make a good pun”-as in the APAtCHy server, because they were patching all these fixes together.

So in many ways, Bellendorf and his open-source colleagues-most of whom he had never met but knew only by e-mail through their open-source chat room-had created a virtual, online, bottom-up software factory, which no one owned and no one supervised. “We had a software project, but the coordination and direction were an emergent behavior based on whoever showed up and wanted to write code,” he said.

But how does it actually work? I asked Behlendorf. You can't just have a bunch of people, unmonitored, throwing code together, can you?

“Most software development involves a source code repository and is managed by tools such as the Concurrent Versions System,” he explained. “So there is a CVS server out there, and I have a CVS program on my computer. It allows me to connect to the server and pull down a copy of the code, so I can start working with it and making modifications. If I think my patch is something I want to share with others, I run a program called Patch, which allows me to create a new file, a compact collection of all the changes. That is called a patch file, and I can give that file to someone else, and they can apply it to their copy of the code to see what impact that patch has. If I have the right privileges to the server [which is restricted to a tightly controlled oversight board], I can then take my patch and commit it to the repository and it will become part of the source code. The CVS server keeps track of everything and who sent in what... So you might have 'read access' to the repository but not 'commit access' to change things. When someone makes a commit to the repository, that patch file gets e-mailed out to all the other developers, and so you get this peer review system after the fact, and if there is something wrong, you fix the bug.”

So how does this community decide who are trusted members?

“For Apache,” said Behlendorf, “we started with eight people who really trusted each other, and as new people showed up at the discussion forum and offered patch files posted to the discussion form, we would gain trust in others, and that eight grew to over one thousand. We were the first open-source project to get attention from the business community and get the backing from IBM.”

Because of Apache's proficiency at allowing a single-server machine to host thousands of different virtual Web sites-music, data, text, pornography-it began to have “a commanding share of the Internet Service Provider market,” noted Salon's Leonard. IBM was trying to sell its own proprietary Web server, called GO, but it gained only a tiny sliver of the market. Apache proved to be both a better technology and free. So IBM eventually decided that if it could not beat Apache, it should join Apache. You have to stop here and imagine this. The world's biggest computer company decided that its engineers could not best the work of an ad hoc open-source collection of geeks, so they threw out their own technology and decided to go with the geeks!

IBM “initiated contact with me, as I had a somewhat public speaker role for Apache,” said Behlendorf. “IBM said, 'We would like to figure out how we can use [Apache] and not get flamed by the Internet community, [how we can] make it sustainable and not just be ripping people off but contributing to the process...' IBM was saying that this new model for software development was trustworthy and valuable, so let's invest in it and get rid of the one that we are trying to make on our own, which isn't as good.”

John Swainson was the senior IBM executive who led the team that approached Apache (he's now chairman of Computer Associates). He picked up the story: “There was a whole debate going on at the time about open-source, but it was all over the place. We decided we could deal with the Apache guys because they answered our questions. We could hold a meaningful conversation with these guys, and we were able to create the [nonprofit] Apache Software Foundation and work out all the issues.”

At IBM's expense, its lawyers worked with the Apache group to create a legal framework around it so that there would be no copyright or liability problems for companies, like IBM, that wanted to build applications on top of Apache and charge money for them. IBM saw the value in having a standard vanilla Web server architecture-which allowed heterogeneous computer systems and devices to talk to each other, displaying e-mail and Web pages in a standard format-that was constantly being improved for free by an open-source community. The Apache collaborators did not set out to make free software. They set out to solve a common problem-Web serving-and found that collaborating for free in this open-source manner was the best way to assemble the best brains for the job they needed done.

“When we started working with Apache, there was an apache.org Web site but no formal legal structure, and businesses and informal structures don't coexist well,” said Swainson. “You need to be able to vet the code, sign an agreement, and deal with liability issues. [Today] anybody can download the Apache code. The only obligation is that they acknowledge that it came from the site, and if they make any changes that they share them back.” There is an Apache development process that manages the traffic, and you earn your way into that process, added Swainson. It is something like a pure meritocracy. When IBM started using Apache, it became part of the community and started making contributions.

Indeed, the one thing the Apache people demanded in return for their collaboration with IBM was that IBM assign its best engineers to join the Apache open-source group and contribute, like everyone else, for free. “The Apache people were not interested in payment of cash,” said Swainson. “They wanted contribution to the base. Our engineers came to us and said, 'These guys who do Apache are good and they are insisting that we contribute good people.' At first they rejected some of what we contributed. They said it wasn't up to their standards! The compensation that the community expected was our best contribution.”

On June 22, 1998, IBM announced plans to incorporate Apache into its own new Web server product, named WebSphere. The way the Apache collaborative community organized itself, whatever you took out of Apache's code and improved on, you had to give back to the whole community. But you were also free to go out and build a patented commercial product on top of the Apache code, as IBM did, provided that you included a copyright citation to Apache in your own patent. In other words, this intellectual commons approach to open-sourcing encouraged people to build commercial products on top of it. While it wanted the foundation to be free and open to all, it recognized that it would remain strong and fresh if both commercial and noncommercial engineers had an incentive to participate.

Today Apache is one of the most successful open-source tools, powering about two-thirds of the Web sites in the world. And because Apache can be downloaded for free anywhere in the world, people from Russia to South Africa to Vietnam use it to create Web sites. Those individuals who need or want added capabilities for their Web servers can buy products like WebSphere, which attach right on top of Apache.

At the time, selling a product built on top of an open-source program was a risky move on IBM's part. To its credit, IBM was confident in its ability to keep producing differentiated software applications on top of the Apache vanilla. This model has since been widely adopted, after everyone saw how it propelled IBM's Web server business to commercial leadership in that category of software, generating huge amounts of revenue.

As I will repeat often in this book: There is no future in vanilla for most companies in a flat world. A lot of vanilla making in software and other areas is going to shift to open-source communities. For most companies, the commercial future belongs to those who know how to make the richest chocolate sauce, the sweetest, lightest whipped cream, and the juiciest cherries to sit on top, or how to put them all together into a sundae. Jack Messman, chairman of the Novell software company, which has now become a big distributor of Linux, the open-source operating system, atop which Novell attaches gizmos to make it sing and dance just for your company, put it best: “Commercial software companies have to start operating further up the [software] stack to differentiate themselves. The open source community is basically focusing on infrastructure” (Financial Times, June 14, 2004).

The IBM deal was a real watershed. Big Blue was saying that it believed in the open-source model and that with the Apache Web server, this open-source community of engineers had created something that was not just useful and valuable but “best in its class.” That's why the open-source movement has become a powerful flattener, the effects of which we are just beginning to see. “It is incredibly empowering of individuals,” Brian Behlendorf said. “It doesn't matter where you come from or where you are-someone in India and South America can be just as effective using this software or contributing to it as someone in Silicon Valley.” The old model is winner take all: I wrote it, I own it-the standard software license model. “The only way to compete against that,” concluded Behlendorf, “is to all become winners.”

Behlendorf, for his part, is betting his career that more and more people and companies will want to take advantage of the new flat-world platform to do open-source innovation. In 2004, he started a new company called CollabNet to promote the use of open-sourcing as a tool to drive software innovation within companies. “Our premise is that software is not gold, it is lettuce-it is a perishable good,” explained Behlendorf. “If the software is not in a place where it is getting improved over time, it will rot.” What the open-source community has been doing, said Behlendorf, is globally coordinated distributed software development, where it is constantly freshening the lettuce so that it never goes rotten. Behlendorfs premise is that the open-source community developed a better method for creating and constantly updating software. CollabNet is a company created to bring the best open-source techniques to a closed community, i.e., a commercial software company.

“CollabNet is an arms dealer to the forces flattening the world,” said Behlendorf. “Our role in this world is to build the tools and infrastructure so that an individual -in India, China, or wherever-as a consultant, an employee, or just someone sitting at home can collaborate. We are giving them the toolkit for decentralized collaborative development. We are enabling bottom-up development, and not just in cyberspace... We have large corporations who are now interested in creating a bottom-up environment for writing software. The old top-down, silo software model is broken. That system said, 'I develop something and then I throw it over the wall to you. You find the bugs and then throw it back. I patch it and then sell a new version.' There is constant frustration with getting software that is buggy-maybe it will get fixed or maybe not. So we said, 'Wouldn't it be interesting if we could take the open-source benefits of speed of innovation and higher-quality software, and that feeling of partnership with all these stakeholders, and turn that into a business model for corporations to be more collaborative both within and without?'”

I like the way Irving Wladawsky-Berger, IBM's Cuban-born vice president for technical strategy and innovation, summed open-sourcing up: “This emerging era is characterized by the collaborative innovation of many people working in gifted communities, just as innovation in the industrial era was characterized by individual genius.”

The striking thing about the intellectual commons form of open-sourcing is how quickly it has morphed into other spheres and spawned other self-organizing collaborative communities, which are flattening hierarchies in their areas. I see this most vividly in the news profession, where bloggers, one-person online commentators, who often link to one another depending on their ideology, have created a kind of open-source newsroom. I now read bloggers (the term comes from the word “Weblog”) as part of my daily information-gathering routine. In an article about how a tiny group of relatively obscure news bloggers were able to blow the whistle that exposed the bogus documents used by CBS News's Dan Rather in his infamous report about President George W. Bush's Air National Guard service, Howard Kurtz of The Washington Post wrote (September 20, 2004), “It was like throwing a match on kerosene-soaked wood. The ensuing blaze ripped through the media establishment as previously obscure bloggers managed to put the network of Murrow and Cronkite firmly on the defensive. The secret, says Charles Johnson, is 'open-source intelligence gathering.' Meaning: 'We've got a huge pool of highly motivated people who go out there and use tools to find stuff. We've got an army of citizen journalists out there.'” That army is often armed with nothing more than a tape recorder, a camera-enabled cell phone, and a Web site, but in a flat world it can collectively get its voice heard as far and wide as CBS or The New York Times. These bloggers have created their own online commons, with no barriers to entry. That open commons often has many rumors and wild allegations swirling in it. Because no one is in charge, standards of practice vary wildly, and some of it is downright irresponsible. But because no one is in charge, information flows with total freedom. And when this community is on to something real, like the Rather episode, it can create as much energy, buzz, and hard news as any network or major newspaper.

Another intellectual commons collaboration that I used regularly in writing this book is Wikipedia, the user-contributed online encyclopedia, also known as “the people's encyclopedia.” The word “wikis” is taken from the Hawaiian word for “quick.” Wikis are Web sites that allow users to directly edit any Web page on their own from their home computer. In a May 5, 2004, essay on YaleGlobal online, Andrew Lih, an assistant professor at the Journalism and Media Studies Centre at the University of Hong Kong, explained how Wikipedia works and why it is such a breakthrough.

“The Wikipedia project was started by Jimmy Wales, head of Internet startup Bomis.com, after his original project for a volunteer, but strictly controlled, free encyclopedia ran out of money and resources after two years,” wrote Lih. “Editors with PhD degrees were at the helm of the project then, but it produced only a few hundred articles. Not wanting the content to languish, Wales placed the pages on a wiki Website in January 2001 and invited any Internet visitors to edit or add to the collection. The site became a runaway success in the first year and gained a loyal following, generating over 20,000 articles and spawning over a dozen language translations. After two years, it had 100,000 articles, and in April 2004, it exceeded 250,000 articles in English and 600,000 articles in 50 other languages.

And according to Website rankings at Alexa.com, it has become more popular than traditional online encyclopedias such as Britannica.com.“

How, you might ask, does one produce a credible, balanced encyclopedia by way of an ad hoc open-source, open-editing movement? After all, every article in the Wikipedia has an “Edit this page” button, allowing anyone who surfs along to add or delete content on that page.

It starts with the fact, Lih explained, that “because wikis provide the ability to track the status of articles, review individual changes, and discuss issues, they function as social software. Wiki Websites also track and store every modification made to an article, so no operation is ever permanently destructive. Wikipedia works by consensus, with users adding and modifying content while trying to reach common ground along the way.

“However, the technology is not enough on its own,” wrote Lih. “Wales created an editorial policy of maintaining a neutral point of view (NPOV) as the guiding principle... According to Wikipedia's guidelines, The neutral point of view attempts to present ideas and facts in such a fashion that both supporters and opponents can agree...' As a result, articles on contentious issues such as globalization have benefited from the cooperative and global nature of Wikipedia. Over the last two years, the entry has had more than 90 edits by contributors from the Netherlands, Belgium, Sweden, United Kingdom, Australia, Brazil, United States, Malaysia, Japan and China. It provides a manifold view of issues from the World Trade Organization and multinational corporations to the anti-globalization movement and threats to cultural diversity. At the same time malicious contributors are kept in check because vandalism is easily undone. Users dedicated to fixing vandalism watch the list of recent changes, fixing problems within minutes, if not seconds. A defaced article can quickly be returned to an acceptable version with just one click of a button. This crucial asymmetry tips the balance in favor of productive and cooperative members of the wiki community, allowing quality content to prevail.” A Newsweek piece on Wikipedia (November 1, 2004) quoted Angela Beesley, a volunteer contributor from Essex, England, and self-confessed Wikipedia addict who monitors the accuracy of more than one thousand entries: “A collaborative encyclopedia sounds like a crazy idea, but it naturally controls itself.”

Meanwhile, Jimmy Wales is just getting started. He told Newsweek that he is expanding into Wiktionary, a dictionary and thesaurus; Wikibooks, textbooks and manuals; and Wikiquote, a book of quotations. He said he has one simple goal: to give “every single person free access to the sum of all human knowledge.”

Wales's ethic that everyone should have free access to all human knowledge is undoubtedly heartfelt, but it also brings us to the controversial side of open-source: If everyone contributes his or her intellectual capital for free, where will the resources for new innovation come from? And won't we end up in endless legal wrangles over which part of any innovation was made by the community for free, and meant to stay that way, and which part was added on by some company for profit and has to be paid for so that the company can make money to drive further innovation? These questions are all triggered by the other increasingly popular form of self-organized collaboration-the free software movement. According to the openknowledge.org Web site, “The free/open source software movement began in the 'hacker' culture of U.S. computer science laboratories (Stanford, Berkeley, Carnegie Mellon, and MIT) in the 1960's and 1970's. The community of programmers was small, and close-knit. Code passed back and forth between the members of the community-if you made an improvement you were expected to submit your code to the community of developers. To withhold code was considered gauche-after all, you benefited from the work of your friends, you should return the favor.”

The free software movement, however, was and remains inspired by the ethical ideal that software should be free and available to all, and it relies on open-source collaboration to help produce the best software possible to be distributed for free. This a bit different from the approach of the intellectual commons folks, like Apache. They saw open-sourcing as a technically superior means of creating software and other innovations, and while Apache was made available to all for free, it had no problem with commercial software being built on top of it. The Apache group allowed anyone who created a derivative work to own it himself, provided he acknowledge the Apache contribution.

The primary goal of the free software movement, however, is to get as many people as possible writing, improving, and distributing software for free, out of a conviction that this will empower everyone and free individuals from the grip of global corporations. Generally speaking, the free software movement structures its licenses so that if your commercial software draws directly from their free software copyright, they want your software to be free too.

In 1984, according to Wikipedia, an MIT researcher and one of these ex-hackers, Richard Stallman, launched the “free software movement” along with an effort to build a free operating system called GNU. To promote free software, and to ensure that its code would always be freely modifiable and available to all, Stallman founded the Free Software Foundation and something called the GNU General Public License (GPL). The GPL specified that users of the source code could copy, change, or upgrade the code, provided that they made their changes available under the same license as the original code. In 1991, a student at the University of Helsinki named Linus Torvalds, building off of Stallman's initiative, posted his Linux operating system to compete with the Microsoft Windows operating system and invited other engineers and geeks online to try to improve it-for free. Since Torvalds's initial post, programmers all over the world have manipulated, added to, expanded, patched, and improved the GNU/Linux operating system, whose license says anyone can download the source code and improve upon it but then must make the upgraded version freely available to everybody else. Torvalds insists that Linux must always be free. Companies that sell software improvements that enhance Linux or adapt it to certain functions have to be very careful not to touch its copyright in their commercial products.

Much like Microsoft Windows, Linux offers a family of operating systems that can be adapted to run on the smallest desktop computers, laptops, PalmPilots, and even wristwatches, all the way up to the largest supercomputers and mainframes. So a kid in India with a cheap PC can learn the inner workings of the same operating system that is running in some of the largest data centers of corporate America. Linux has an army of developers across the globe working to make it better. As I was working on this segment of the book, I went to a picnic one afternoon at the Virginia country home of Pamela and Malcolm Baldwin, whom my wife came to know through her membership on the board of World Learning, an educational NGO. I mentioned in the course of lunch that I was thinking of going to Mali to see just how flat the world looked from its outermost edge-the town of Timbuktu. The Baldwins' son Peter happened to be working in Mali as part of something called the GeekCorps, which helps to bring technology to developing countries. A few days after the lunch, I received an e-mail from Pamela telling me that she had consulted with Peter about accompanying me to Timbuktu, and then she added the following, which told me everything I needed to know and saved me the whole trip: “Peter says that his project is creating wireless networks via satellite, making antennas out of plastic soda bottles and mesh from window screens! Apparently everyone in Mali uses Linux...”

“Everyone in Mali uses Linux.” That is no doubt a bit of an exaggeration, but it's a phrase that you'd hear only in a flat world.

The free software movement has become a serious challenge to Microsoft and some other big global software players. As Fortune magazine reported on February 23, 2004, “The availability of this basic, powerful software, which works on Intel's ubiquitous microprocessors, coincided with the explosive growth of the Internet. Linux soon began to gain a global following among programmers and business users... The revolution goes far beyond little Linux... Just about any kind of software [now] can be found in open-source form. The SourceForge.net website, a meeting place for programmers, lists an astounding 86,000 programs in progress. Most are minor projects by and for geeks, but hundreds pack real value... If you hate shelling out $350 for Microsoft Office or $600 for Adobe Photoshop, OpenOffice.org and the Gimp are surprisingly high-quality free alternatives.” Big companies like Google, E*Trade, and Amazon, by combining Intel-based commodity server components and the Linux operating system, have been able dramatically to cut their technology spending-and get more control over their software.

Why would so many people be ready to write software that would be given away for free? Partly it is out of the pure scientific challenge, which should never be underestimated. Partly it is because they all hate Microsoft for the way it has so dominated the market and, in the view of many techies, bullied everyone else. Partly it is because they believe that open-source software can be kept more fresh and bugfree than any commercial software, because of the way it is constantly updated by an army of unpaid programmers. And partly it is because some big tech companies are paying engineers to work on Linux and other software, hoping it will cut into Microsoft's market share and make it a weaker competitor all around. There are a lot of motives at work here, and not all of them altruistic. When you put them all together, though, they make for a very powerful movement that will continue to present a major challenge to the whole commercial software model of buying a program and then downloading its fixes and buying its updates.

Until now, the Linux operating system was the best-known success among open-source free software projects challenging Microsoft. But Linux is largely used by big corporate data centers, not individuals. However, in November 2004, the Mozilla Foundation, a nonprofit group supporting open-source software, released Firefox, a free Web browser that New York Times technology writer Randall Stross (December 19, 2004) described as very fast and filled with features that Microsoft's Internet Explorer lacks. Firefox 1.0, which is easily installed, was released on November 9. “Just over a month later,” Stross reported, “the foundation celebrated a remarkable milestone: 10 million downloads.” Donations from Firefox's appreciative fans paid for a two-page advertisement in The New York Times. “With Firefox,” Stross added, “open-source software moves from back-office obscurity to your home, and to your parents', too. (Your children in college are already using it.) It is polished, as easy to use as Internet Explorer and, most compelling, much better defended against viruses, worms and snoops. Microsoft has always viewed Internet Explorer's tight integration with Windows to be an attractive feature. That, however, was before security became the unmet need of the day. Firefox sits lightly on top of Windows, in a separation from the underlying operating system that the Mozilla Foundation's president, Mitchell Baker, calls a 'natural defense.' For the first time, Internet Explorer has been losing market share. According to a worldwide survey conducted in late November by OneStat.com, a company in Amsterdam that analyzes the Web, Internet Explorer's share dropped to less than 89 percent, 5 percentage points less than in May. Firefox now has almost 5 percent of the market, and it is growing.”

It will come as no surprise that Microsoft officials are not believers in the viability or virtues of the free software form of open-source. Of all the issues I dealt with in this book, none evoked more passion from proponents and opponents than open-source. After spending time with the open-source community, I wanted to hear what Microsoft had to say, since this is going to be an important debate that will determine just how much of a flattener open-source becomes.

Microsoft's first point is, How do you push innovation forward if everyone is working for free and giving away their work? Yes, says Microsoft, it all sounds nice and chummy that we all just get together online and write free software by the people and for the people. But if innovators are not going to be rewarded for their innovations, the incentive for path-breaking innovation will dry up and so will the money for the really deep R & D that is required to drive progress in this increasingly complex field. The fact that Microsoft created the standard PC operating system that won out in the marketplace, it argues, produced the bankroll that allowed Microsoft to spend billions of dollars on R & D to develop Microsoft Office, a whole suite of applications that it can now sell for a little over $100.

“Microsoft would admit that there are number of aspects of the open-source movement that are intriguing, particularly around the scale, community collaboration, and communication aspects,” said Craig Mundie, the Microsoft chief technology officer. “But we fundamentally believe in a commercial software industry, and some variants of the open-source model attack the economic model that allows companies to build businesses in software. The virtuous cycle of innovation, reward, reinvestment, and more innovation is what has driven all big breakthroughs in our industry. The software business as we have known it is a scale economic business. You spend a ton of money up front to develop a software product, and then the marginal cost of producing each one is very small, but if you sell a lot of them, you make back your investment and then plow profits back into developing the next generation. But when you insist that you cannot charge for software, you can only give it away, you take the software business away from being a scale economic business.”

Added Bill Gates, “You need capitalism [to drive innovation.] To have [a movement] that says innovation does not deserve an economic reward is contrary to where the world is going. When I talk to the Chinese, they dream of starting a company. They are not thinking, 'I will be a barber during the day and do free software at night.'... When you have a security crisis in your [software] system, you don't want to say, 'Where is the guy at the barbershop?'”

As we move into this flat world, and you have this massive Web-enabled global workforce, with all these collaborative tools, there will be no project too small for some members of this workforce to take on, or copy, or modify-for free. Someone out there will be trying to produce the free versions of every kind of software or drug or music. “So how will products retain their value?” asked Mundie. “And if companies cannot derive fair value from their products, will innovation move forward in this area, or others, at the speed that it could or should?” Can we always count on a self-organizing open-source movement to come together to drive things forward for free?

It seems to me that we are too early in the history of the flattening of the world to answer these questions. But they will need answers, and not just for Microsoft. So far-and maybe this is part of the long-term answer-Microsoft has been able to count on the fact that the only thing more expensive than commercial software is free software. Few big companies can simply download Linux off the Web and expect it to work for all their tasks. A lot of design and systems engineering needs to go around it and on top of it to tailor it to a company's specific needs, especially for sophisticated, large-scale, mission-critical operations. So when you add up all the costs of adapting the Linux operating system to the needs of your company and its specific hardware platform and applications, Microsoft argues, it can end up costing as much as or more than Windows.

The second issue Microsoft raises about this whole open-source movement has to do with how we keep track of who owns which piece of any innovation in a flat world, where some is generated for free and others build on it for profit. Will Chinese programmers really respect the rules of the Free Software Foundation? Who will govern all this?

“Once you start to socialize the global population on the idea that software or any other innovation is supposed to be free, a lot of people will not distinguish between free software, free pharmaceuticals, free music, or free patents on car designs,” argued Mundie. There is some truth to this. I work for a newspaper, that is where my paycheck comes from. But I believe that all online newspapers should be free, and on principle I refuse to pay for an online subscription to The Wall Street Journal. I have not read the paper copy of The New York Times regularly for two years. I read it only online. But what if my daughters' generation, which is being raised to think that newspapers are something to be accessed online for free, grows up and refuses to pay for the paper editions? Hmmm. I loved Amazon.com until it started providing a global platform that wasn't selling only my new books but also used versions. And I am still not sure how I feel about Amazon offering sections of this book to be browsed online for free.

Mundie noted that a major American auto company recently discovered that some Chinese firms were using new digital-scanning technology to scan an entire car and churn out computer-aided design models of every part within a very short period of time. They can then feed those designs to industrial robots and in short order produce a perfect copy of a GM car-without having to spend any money on R & D. American automakers never thought they had anything to worry about from wholesale cloning of their cars, but in the flat world, given the technologies that are out there, that is no longer the case.

My bottom line is this: Open-source is an important flattener because it makes available for free many tools, from software to encyclopedias, that millions of people around the world would have had to buy in order to use, and because open-source network associations-with their open borders and come-one-come-all approach-can challenge hierarchical structures with a horizontal model of innovation that is clearly working in a growing number of areas. Apache and Linux have each helped to drive down costs of computing and Internet usage in ways that are profoundly flattening. This movement is not going away. Indeed, it may just be getting started-with a huge, growing appetite that could apply to many industries. As The Economist mused (June 10, 2004), “some zealots even argue that the open-source approach represents a new, post-capitalist model of production.”

That may prove true. But if it does, then we have some huge global governance issues to sort out over who owns what and how individuals and companies will profit from their creations.

India has had its ups and down since it achieved independence on August 15, 1947, but in some ways it might be remembered as the luckiest country in the history of the late twentieth century.

Until recently, India was what is known in the banking world as “the second buyer.” You always want to be the second buyer in business-the person who buys the hotel or the golf course or the shopping mall after the first owner has gone bankrupt and its assets are being sold by the bank at ten cents on the dollar. Well, the first buyers of all the cable laid by all those fiber-optic cable companies-which thought they were going to get endlessly rich in an endlessly expanding digital universe-were their American shareholders. When the bubble burst, they were left holding either worthless or much diminished stock. The Indians, in effect, got to be the second buyers of the fiber-optics companies.

They didn't actually purchase the shares, they just benefited from the overcapacity in fiber optics, which meant that they and their American clients got to use all that cable practically for free. This was a huge stroke of luck for India (and to a lesser degree for China, the former Soviet Union, and Eastern Europe), because what is the history of modern India? In short, India is a country with virtually no natural resources that got very good at doing one thing-mining the brains of its own people by educating a relatively large slice of its elites in the sciences, engineering, and medicine. In 1951, to his enduring credit, Jawaharlal Nehru, India's first prime minister, set up the first of India's seven Indian Institutes of Technology (IIT) in the eastern city of Kharagpur. In the fifty years since then, hundreds of thousands of Indians have competed to gain entry and then graduate from these IITs and their private-sector equivalents (as well as the six Indian Institutes of Management, which teach business administration). Given India's 1 billion-plus population, this competition produces a phenomenal knowledge meritocracy. It's like a factory, churning out and exporting some of the most gifted engineering, computer science, and software talent on the globe.

This, alas, was one of the few things India did right. Because its often dysfunctional political system, coupled with Nehru's preference for pro-Soviet, Socialist economics, ensured that up until the mid-1990s India could not provide good jobs for most of those talented engineers. So America got to be the second buyer of India's brainpower! If you were a smart, educated Indian, the only way you could fulfill your potential was by leaving the country and, ideally, going to America, where some twenty-five thousand graduates of India's top engineering schools have settled since 1953, greatly enriching America's knowledge pool thanks to their education, which was subsidized by Indian taxpayers.

“The IITs became islands of excellence by not allowing the general debasement of the Indian system to lower their exacting standards,” noted The Wall Street Journal (April 16, 2003). “You couldn't bribe your way to get into an IIT... Candidates are accepted only if they pass a grueling entrance exam. The government does not interfere with the curriculum, and the workload is demanding... Arguably, it is harder to get into an IIT than into Harvard or the Massachusetts Institute of Technology... IIT alumnus Vinod Khosla, who co-founded Sun Microsystems, said: 'When I finished IIT Delhi and went to Carnegie Mellon for my Masters, I thought I was cruising all the way because it was so easy relative to the education I got at IIT.'”

For most of their first fifty years, these IITs were one of the greatest bargains America ever had. It was as if someone installed a brain drain that filled up in New Delhi and emptied in Palo Alto.

And then along came Netscape, the 1996 telecom deregulation, and Global Crossing and its fiber-optic friends. The world got flattened and that whole deal got turned on its head. “India had no resources and no infrastructure,” said Dinakar Singh, one of the most respected young hedge fund managers on Wall Street, whose parents graduated from an IIT and then immigrated to America, where he was born. “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 fiberoptic 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 [as I did.]”

India could never have afforded to pay for the bandwidth to connect brainy India with high-tech America, so American shareholders paid for it. Sure, 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,” said Singh. In the case of the digital railroads, “it was the foreigners who benefited.” India got to ride for free.

It is fun to talk to Indians who were around at precisely the moment when American companies started to discover they could draw on India's brainpower in India. One of them is Vivek Paul, now the president of Wipro, the Indian software giant. “In many ways the Indian information technology [outsourcing] revolution began with General Electric coming over. We're talking the late 1980s and early '90s. At the time, Texas Instruments was doing some chip design in India. Some of their key designers [in America] were Indians, and they basically let them go back home and work from there [using the rather crude communications networks that existed then to stay in touch.] At that time, I was heading up the operations for GE Medical Systems in Bangalore. [GE's chairman] Jack Welch came to India in 1989 and was completely taken by India as a source of intellectual advantage for GE. Jack would say, 'India is a developing country with a developed intellectual capability.' He saw a talent pool that could be leveraged. So he said, 'We spend a lot of money doing software. Couldn't we do some work for our IT department here?'” Because India had closed its market to foreign technology companies, like IBM, Indian companies had started their own factories to make PCs and servers, and Welch felt that if they could do it for themselves, they could do it for GE.

To pursue the project, Welch sent a team headed by GE's chief information officer over to India to check out the possibilities. Paul was also filling in as GE's business development manager for India at the time. “So it was my job to escort the corporate CIO, in early 1990, on his first trip,” he recalled. “They had come with some pilot projects to get the ball rolling. I remember in the middle of the night going to pick them up at the Delhi airport with a caravan of Indian cars, Ambassadors, based on a very dated 1950s Morris Minor design. Everyone in the government drove one. So we had a five-car caravan and we were driving back from the airport to town. I was in the back car, and at one point we heard this loud bang, and I thought, What happened? I shot to the front, and the lead car's hood had flown off and smashed the windshield-with these GE people inside! So this whole caravan of GE execs pulls over to the side of the road, and I could just hear them saying to themselves, 'This is the place we're going to get software from?'”

Fortunately for India, the GE team was not discouraged by the poor quality of Indian cars. GE decided to sink roots, starting a joint development project with Wipro. Other companies were trying different models. But this was still pre-fiber-optic days. Simon & Schuster, the book publisher, for instance, would ship its books over to India and pay Indians $50 a month (compared to $1,000 a month in the United States) to type them by hand into computers, converting the books into digitized electronic files that could be edited or amended easily in the future—particularly dictionaries, which constantly need updating. In 1991, Manmohan Singh, then India's finance minister, began opening the Indian economy for foreign investment and introducing competition into the Indian telecom industry to bring down prices. To attract more foreign investment, Singh made it much easier for companies to set up satellite downlink stations in Bangalore, so they could skip over the Indian phone system and connect with their home bases in America, Europe, or Asia. Before then, only Texas Instruments had been willing to brave the Indian bureaucracy, becoming the first multinational to establish a circuit design and development center in India in 1985. TI's center in Bangalore had its own satellite downlink but had to suffer through having an Indian government official to oversee it-with the right to examine any piece of data going in or out. Singh loosened all those reins post-1991. A short time later, in 1994, HealthScribe India, a company originally funded in part by Indian-American doctors, was set up in Bangalore to do outsourced medical transcription for American doctors and hospitals. Those doctors at the time were taking handwritten notes and then dictating them into a Dictaphone for a secretary or someone else to transcribe, which would usually take days or weeks. HealthScribe set up a system that turned a doctor's touch-tone phone into a dictation machine. The doctor would punch in a number and simply dictate his notes to a PC with a voice card in it, which would digitize his voice. He could be sitting anywhere when he did it. Thanks to the satellite, a housewife or student in Bangalore could go into a computer and download that doctor's digitized voice and transcribe it-not in two weeks but in two hours. Then this person would zip it right back by satellite as a text file that could be put into the hospital's computer system and become part of the billing file. Because of the twelve-hour time difference with India, Indians could do the transcription while the American doctors were sleeping, and the file would be ready and waiting the next morning. This was an important breakthrough for companies, because if you could safely, legally, and securely transcribe from Bangalore medical records, lab reports, and doctors' diagnoses-in one of the most litigious industries in the world-a lot of other industries could think about sending some of their backroom work to be done in India as well. And they did. But it remained limited by what could be handled by satellite, where there was a voice delay. (Ironically, said Gurujot Singh Khalsa, one of the founders of HealthScribe, they initially explored having Indians in Maine-that is, American Indians-do this work, using some of the federal money earmarked for the tribes to get started, but they could never get them interested enough to put the deal together.) The cost of doing the transcription in India was about one-fifth the cost per line of doing it the United States, a difference that got a lot of people's attention.

By the late 1990s, though, Lady Luck was starting to shine on India from two directions: The fiber-optic bubble was starting to inflate, linking India with the United States, and the Y2K computer crisis-the so-called millennium bug-started gathering on the horizon. As you'll remember, the Y2K bug was a result of the fact that when computers were built, they came with internal clocks. In order to save memory space, these clocks rendered dates with just six digits-two for the day, two for the month, and, you guessed it, two for the year. That meant they could go up to only 12/31/99. So when the calendar hit January 1, 2000, many older computers were poised to register that not as 01/01/2000 but as 01/01/00, and they would think it was 1900 all over again. It meant that a huge number of existing computers (newer ones were being made with better clocks) needed to have their internal clocks and related systems adjusted; otherwise, it was feared, they would shut down, creating a global crisis, given how many different management systems-from water to air traffic control-were computerized.

This computer remediation work was a huge, tedious job. Who in the world had enough software engineers to do it all? Answer: India, with all the techies from all those IITs and private technical colleges and computer schools.

And so with Y2K bearing down on us, America and India started dating, and that relationship became a huge flattener, because it demonstrated to so many different businesses that the combination of the PC, the Internet, and fiber-optic cable had created the possibility of a whole new form of collaboration and horizontal value creation: outsourcing.

Any service, call center, business support operation, or knowledge work that could be digitized could be sourced globally to the cheapest, smartest, or most efficient provider. Using fiber-optic cable-connected workstations, Indian techies could get under the hood of your company's computers and do all the adjustments, even though they were located halfway around the world.

“[Y2K upgrading] was tedious work that was not going to give them an enormous competitive advantage,” said Vivek Paul, the Wipro executive whose company did some outsourced Y2K drudge work. “So all these Western companies were incredibly challenged to find someone else who would do it and do it for as little money as possible. They said, 'We just want to get past the damn year 2000!' So they started to work with Indian [technology] companies who they might not have worked with otherwise.”

To use my parlance, they were ready to go on a blind date with India. They were ready to get “fixed up.” Added Jerry Rao, 'Y2K means different things to different people. For Indian industry, it represented the biggest opportunity. India was considered as a place of backward people. Y2K suddenly required that every single computer in the world needed to be reviewed. And the sheer number of people needed to review line-by-line code existed in India. The Indian IT industry got its footprint across the globe because of Y2K. Y2K became our engine of growth, our engine of being known around the world. We never looked back after Y2K.“

By early 2000, the Y2K work started to wind down, but then a whole new driver of business emerged-e-commerce. The dot-com bubble had not yet burst, engineering talent was scarce, and demand from dotcoms was enormous. Said Paul, “People wanted what they felt were mission-critical applications, key to their very existence, to be done and they could go nowhere else. So they turned to the Indian companies, and as they turned to the Indian companies they found that they were getting delivery of complex systems, with great quality, sometimes better than what they were getting from others. That created an enormous respect for Indian IT providersf.] And if [Y2K work] was the acquaintanceship process, this was the falling-in-love process.”

Outsourcing from America to India, as a new form of collaboration, exploded. By just stringing a fiber-optic line from a workstation in Bangalore to my company's mainframe, I could have Indian IT firms like Wipro, Infosys, and Tata Consulting Services managing my e-commerce and mainframe applications.

“Once we're in the mainframe business and once we're in e-commerce—now we're married,” said Paul. But again, India was lucky that it could exploit all that undersea fiber-optic cable. “I had an office very close to the Leela Palace hotel in Bangalore,” Paul added. “I was working with a factory located in the information technology park in Whitefield, a suburb of Bangalore, and I could not get a local telephone line between our office and the factory. Unless you paid a bribe, you could not get a line, and we wouldn't pay. So my phone call to Whitefield would go from my office in Bangalore to Kentucky, where there was a GE mainframe computer we were working with, and then from Kentucky to Whitefield. We used our own fiber-optic lease line that ran across the ocean-but the one across town required a bribe.”

India didn't benefit only from the dot-com boom; it benefited even more from the dot-com bust! That is the real irony. The boom laid the cable that connected India to the world, and the bust made the cost of using it virtually free and also vastly increased the number of American companies that would want to use that fiber-optic cable to outsource knowledge work to India.

Y2K led to this mad rush for Indian brainpower to get the programming work done. The Indian companies were good and cheap, but price wasn't first on customers' minds-getting the work done was, and India was the only place with the volume of workers to do it. Then the dot-com boom comes along right in the wake of Y2K, and India is one of the few places where you can find surplus English-speaking engineers, at any price, because all of those in America have been scooped up by e-commerce companies. Then the dot-com bubble bursts, the stock market tanks, and the pool of investment capital dries up. American IT companies that survived the boom and venture capital firms that still wanted to fund start-ups had much less cash to spend. Now they needed those Indian engineers not just because there were a lot of them, but precisely because they were low-cost. So the relationship between India and the American business community intensified another notch.

One of the great mistakes made by many analysts in the early 2000s was conflating the dot-com boom with globalization, suggesting that both were just fads and hot air. When the dot-com bust came along, these same wrongheaded analysts assumed that globalization was over as well. Exactly the opposite was true. The dot-com bubble was only one aspect of globalization, and when it imploded, rather than imploding globalization, it actually turbocharged it.

Promod Haque, an Indian-American and one of the most prominent venture capitalists in Silicon Valley with his firm Norwest Venture Partners, was in the middle of this transition. “When the bust took place, a lot of these Indian engineers in the U.S. [on temporary work visas] got laid off, so they went back to India,” explained Haque. But as a result of the bust, the IT budgets of virtually every major U.S. firm got slashed. “Every IT manager was told to get the same amount of work or more done with less money. So guess what he does? He says, 'You remember Vijay from India who used to work here during the boom and then went back home? Let me call him over in Bangalore and see if he will do the work for us for less money than what we would pay an engineer here in the U.S.'” And thanks to all that fiber cable laid during the boom, it was easy to find Vijay and put him to work.

The Y2K computer readjustment work was done largely by low-skilled Indian programmers right out of tech schools, said Haque, “but the guys on visas who were coming to America were not trade school guys. They were guys with advanced engineering degrees. So a lot of our companies saw that these guys were good at Java and C++ and architectural design work for computers, and then they got laid off and went back home, and the IT manager back here who is told, I don't care how you get the job done, just get it done for less money,' calls Vijay.” Once America and India were dating, the burgeoning Indian IT companies in Bangalore started coming up with their own proposals. The Y2K work had allowed them to interact with some pretty large companies in the United States, and as a result they began to understand the pain points and how to do business-process implementation and improvement. So the Indians, who were doing a lot of very specific custom code maintenance to higher-value-add companies, started to develop their own products and transform themselves from maintenance to product companies, offering a range of software services and consulting. This took Indian companies much deeper inside American ones, and business-process outsourcing— letting Indians run your back room-went to a whole new level. “I have an accounts payable department and I could move this whole thing to India under Wipro or Infosys and cut my costs in half,” said Haque. All across America, CEOs were saying, “'Make it work for less,'” said Haque. “And the Indian companies were saying, 'I have taken a look under your hood and I will provide you with a total solution for the lowest price.'” In other words, the Indian outsourcing companies said, “Do you remember how I fixed your tires and your pistons during Y2K? Well, I could actually give you a whole lube job if you like. And now that you know me and trust me, you know I can do it.” To their credit, the Indians were not just cheap, they were also hungry and ready to learn anything.

The scarcity of capital after the dot-com bust made venture capital firms see to it that the companies they were investing in were finding the most efficient, high-quality, low-price way to innovate. In the boom times, said Haque, it was not uncommon for a $50 million investment in a start-up to return $500 million once the company went public. After the bust, that same company's public offering might bring in only $100 million. Therefore, venture firms wanted to risk only $20 million to get that company from start-up to IPO.

“For venture firms,” said Haque, “the big question became, How do I get my entrepreneurs and their new companies to a point where they were breaking even or profitable sooner, so they can stop being a draw on my capital and be sold so our firm can generate good liquidity and returns? The answer many firms came up with was: I better start outsourcing as many functions as I can from the beginning. I have to make money for my investors faster, so what can be outsourced must be outsourced.”

Henry Schacht, who, as noted, was heading Lucent during part of this period, saw the whole process from the side of corporate management.

The business economics, he told me, became “very ugly” for everyone. Everyone found prices flat to declining and markets stagnant, yet they were still spending huge amounts of money running the backroom operations of their companies, which they could no longer afford. “Cost pressures were enormous,” he recalled, “and the flat world was available, [so] economics were forcing people to do things they never thought they would do or could do... Globalization got supercharged”-for both knowledge work and manufacturing. Companies found that they could go to MIT and find four incredibly smart Chinese engineers who were ready to go back to China and work for them from there for the same amount that it would cost them to hire one engineer in America. Bell Labs had a research facility at Tsingdao that could connect to Lucent's computers in America. “They would use our computers overnight,” said Schacht. “Not only was the incremental computing cost close to zero, but so too was the transmission cost, and the computer was idle [at night].”

For all these reasons I believe that Y2K should be a national holiday in India, a second Indian Independence Day, in addition to August 15. As Johns Hopkins foreign policy expert Michael Mandelbaum, who spent part of his youth in India, put it, “Y2K should be called Indian Inter-depedence Day,” because it was India's ability to collaborate with Western companies, thanks to the interdependence created by fiber-optic networks, that really vaulted it forward and gave more Indians than ever some real freedom of choice in how, for whom, and where they worked.

To put it another way, August 15 commemorates freedom at midnight. Y2K made possible employment at midnight-but not any employment, employment for India's best knowledge workers. August 15 gave independence to India. But Y2K gave independence to Indians— not all, by any stretch of the imagination, but a lot more than fifty years ago, and many of them from the most productive segment of the population. In that sense, yes, India was lucky, but it also reaped what it had sowed through hard work and education and the wisdom of its elders who built all those IITs.

Louis Pasteur said it a long time ago: “Fortune favors the prepared mind.”

On December 11, 2001, China formally joined the World Trade Organization, which meant Beijing agreed to follow the same global rules governing imports, exports, and foreign investments that most countries in the world were following. It meant China was agreeing, in principle, to make its own competitive playing field as level as the rest of the world. A few days later, the American-trained Chinese manager of a fuel pump factory in Beijing, which was owned by a friend of mine, Jack Perkowski, the chairman and CEO of ASIMCO Technologies, an American auto parts manufacturer in China, posted the following African proverb, translated into Mandarin, on his factory floor:

Every morning in Africa, a gazelle wakes up.

It knows it must run faster than the fastest lion or it will be killed.

Every morning a lion wakes up.

It knows it must outrun the slowest gazelle or it will starve to death.

It doesn't matter whether you are a lion or a gazelle.

When the sun comes up, you better start running.

I don't know who is the lion and who is the gazelle, but I do know this: Ever since the Chinese joined the WTO, both they and the rest of the world have had to run faster and faster. This is because China's joining the WTO gave a huge boost to another form of collaboration— offshoring. Offshoring, which has been around for decades, is different from outsourcing. Outsourcing means taking some specific, but limited, function that your company was doing in-house-such as research, call centers, or accounts receivable-and having another company perform that exact same function for you and then reintegrating their work back into your overall operation. Offshoring, by contrast, is when a company takes one of its factories that it is operating in Canton, Ohio, and moves the whole factory offshore to Canton, China. There, it produces the very same product in the very same way, only with cheaper labor, lower taxes, subsidized energy, and lower health-care costs. Just as Y2K took India and the world to a whole new level of outsourcing, China's joining the WTO took Beijing and the world to a whole new level of offshoring-with more companies shifting production offshore and then integrating it into their global supply chains.

In 1977, Chinese leader Deng Xiaoping put China on the road to capitalism, declaring later that “to get rich is glorious.” When China first opened its tightly closed economy, companies in industrialized countries saw it as an incredible new market for exports. Every Western or Asian manufacturer dreamed of selling its equivalent of 1 billion pairs of underwear to a single market. Some foreign companies set up shop in China to do just that. But because China was not subject to world trade rules, it was able to restrict the penetration into its market by these Western companies through various trade and investment barriers. And when it was not doing that deliberately, the sheer bureaucratic and cultural difficulties of doing business in China had the same effect. Many of the pioneer investors in China lost their shirts and pants and underwear— and with China's Wild West legal system there was not much recourse.

Beginning in the 1980s, many investors, particularly overseas Chinese who knew how to operate in China, started to say, “Well, if we can't sell that many things to the Chinese right now, why don't we use China's disciplined labor pool to make things there and sell them abroad?” This dovetailed with the interests of China's leaders. China wanted to attract foreign manufacturers and their technologies-not simply to manufacture 1 billion pairs of underwear for sale in China but to use low-wage Chinese labor to also sell 6 billion pairs of underwear to everyone else in the world, and at prices that were a fraction of what the underwear companies in Europe or America or even Mexico were charging.

Once that offshoring process began in a range of industries-from textiles to consumer electronics to furniture to eyeglass frames to auto parts-the only way other companies could compete was by offshoring to China as well (taking advantage of its low-cost, high-quality platform), or by looking for alternative manufacturing centers in Eastern Europe, the Caribbean, or somewhere else in the developing world.

By joining the World Trade Organization in 2001, China assured foreign companies that if they shifted factories offshore to China, they would be protected by international law and standard business practices. This greatly enhanced China's attractiveness as a manufacturing platform. Under WTO rules, Beijing agreed-with some time for phase-in-to treat non-Chinese citizens or firms as if they were Chinese in terms of their economic rights and obligations under Chinese law. This meant that foreign companies could sell virtually anything anywhere in China. WTO membership status also meant that Beijing agreed to treat all WTO member nations equally, meaning that the same tariffs and the same regulations had to apply equally for everyone. And it agreed to submit itself to international arbitration in the event of a trade dispute with another country or a foreign company. At the same time, government bureaucrats became more customer-friendly, procedures for investments were streamlined, and Web sites proliferated in different ministries to help foreigners navigate China's business regulations. I don't know how many Chinese actually ever bought a copy of Mao's Little Red Book, but U.S. embassy officials in China told me that 2 million copies of the Chinese-language edition of the WTO rule book were sold in the weeks immediately after China signed on to the WTO. To put it another way, China under Mao was closed and isolated from the other flattening forces of his day, and as a result Mao was really a challenge only to his own people. Deng Xiaoping made China open to absorbing many of the ten flatteners, and, in so doing, made China a challenge to the whole world.

Before China signed on to the WTO, there was a sense that, while China had opened up to get the advantages of trade with the West, the government and the banks would protect Chinese businesses from any crushing foreign competition, said Jack Perkowski of ASIMCO. “China's entry into the WTO was a signal to the community outside of China that it was now on the capitalist track for good,” he added. “Before, you had the thought in the back of your mind that there could be a turning back to state communism. With WTO, China said, 'We are on one course.'”

Because China can amass so many low-wage workers at the unskilled, semiskilled, and skilled levels, because it has such a voracious appetite for factory, equipment, and knowledge jobs to keep its people employed, and because it has such a massive and burgeoning consumer market, it has become an unparalleled zone for offshoring. China has more than 160 cities with a population of 1 million or more. You can go to towns on the east coast of China today that you have never heard of and discover that this one town manufacturers most of the eyeglass frames in the world, while the town next door manufacturers most of the portable cigarette lighters in the world, and the one next to that is doing most of the computer screens for Dell, and another is specializing in mobile phones. Kenichi Ohmae, the Japanese business consultant, estimates in his book The United States of China that in the Zhu Jiang Delta area alone, north of Hong Kong, there are fifty thousand Chinese electronics component suppliers.

“China is a threat, China is a customer, and China is an opportunity,” Ohmae remarked to me one day in Tokyo. “You have to internalize China to succeed. You cannot ignore it.” Instead of competing with China as an enemy, argues Ohmae, you break down your business and think about which part of the business you would like to do in China, which part you would like to sell to China, and which part you want to buy from China.

Here we get to the real flattening aspect of China's opening to the world market. The more attractive China makes itself as a base for off-shoring, the more attractive other developed and developing countries competing with it, like Malaysia, Thailand, Ireland, Mexico, Brazil, and Vietnam, have to make themselves. They all look at what is going on in China and the jobs moving there and say to themselves, “Holy catfish, we had better start offering these same incentives.” This has created a process of competitive flattening, in which countries scramble to see who can give companies the best tax breaks, education incentives, and subsidies, on top of their cheap labor, to encourage offshoring to their shores.

Ohio State University business professor Oded Shenkar, author of the book The Chinese Century, told BusinessWeek (December 6, 2004) that he gives it to American companies straight: “If you still make anything labor intensive, get out now rather than bleed to death. Shaving 5% here and there won't work.” Chinese producers can make the same adjustments. “You need an entirely new business model to compete,” he said.

China's flattening power is also fueled by the fact that it is developing a huge domestic market of its own. The same BusinessWeek article noted that this brings economies of scale, intense local rivalries that keep prices low, an army of engineers that is growing by 350,000 annually, young workers and managers willing to put in twelve-hour days, an unparalleled component base in electronics and light industry, “and an entrepreneurial zeal to do whatever it takes to please big retailers such as Wal-Mart Stores, Target, Best Buy and J.C. Penney.”

Critics of China's business practices say that its size and economic power mean that it will soon be setting the global floor not only for low wages but also for lax labor laws and workplace standards. This is known in the business as “the China price.”

But what is really scary is that China is not attracting so much global investment by simply racing everyone to the bottom. That is just a short-term strategy. The biggest mistake any business can make when it comes to China is thinking that it is only winning on wages and not improving quality and productivity. In the private, non-state-owned sector of Chinese industry, productivity increased 17 percent annually-I repeat, 17 percent annually-between 1995 and 2002, according to a study by the U.S. Conference Board. This is due to China's absorption of both new technologies and modern business practices, starting from a very low base. Incidentally, the Conference Board study noted, China lost 15 million manufacturing jobs during this period, compared with 2 million in the United States. “As its manufacturing productivity accelerates, China is losing jobs in manufacturing-many more than the United States is-and gaining them in services, a pattern that has been playing out in the developed world for many years,” the study said.

China's real long-term strategy is to outrace America and the E.U. countries to the top, and the Chinese are off to a good start. China's leaders are much more focused than many of their Western counterparts on how to train their young people in the math, science, and computer skills required for success in the flat world, how to build a physical and telecom infrastructure that will allow Chinese people to plug and play faster and easier than others, and how to create incentives that will attract global investors. What China's leaders really want is the next generation of underwear or airplane wings to be designed in China as well. That is where things are heading in another decade. So in thirty 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. This should allow China to maintain its role as a major flattening force, provided that political instability does not disrupt the process. Indeed, while researching this chapter, I came across an online Silicon Valley newsletter called the Inquirer, which follows the semiconductor industry. What caught my eye was its November 5, 2001, article headlined, “China to Become Center of Everything.” It quoted a China People's Daily article that claimed that four hundred out of the Forbes 500 companies have invested in more than two thousand projects in mainland China. And that was four years ago.

Japan, being right next door to China, has taken a very aggressive approach to internalizing the China challenge. Osamu Watanabe, chairman of the Japan External Trade Organization (JETRO), Japan's official organ for promoting exports, told me in Tokyo, “China is developing very rapidly and making the shift from low-grade products to high-grade, high-tech ones.” As a result, added Watanabe, Japanese companies, to remain globally competitive, have had to shift some production and a lot of assembly of middle-range products to China, while shifting at home to making “even higher value-added products.” So China and Japan “are becoming part of the same supply chain.” After a prolonged recession, Japan's economy started to bounce back in 2003, due to the sale of thousands of tons of machinery, assembly robots, and other critical components in China. In 2003, China replaced the United States as the biggest importer of Japanese products. Still, the Japanese government is urging its companies to be careful not to overinvest in China. It encourages them to practice what Watanabe called a “China plus one” strategy: to keep one production leg in China but the other in a different Asian country-just in case political turmoil unflattens China one day.

This China flattener has been wrenching for certain manufacturing workers around the world, but a godsend for all consumers. Fortune magazine (October 4, 2004) quoted a study by Morgan Stanley estimating that since the mid-1990s alone, cheap imports from China have saved U.S. consumers roughly $600 billion and have saved U.S. manufacturers untold billions in cheaper parts for their products. This savings, in turn, Fortune noted, has helped the Federal Reserve to hold down interest rates longer, giving more Americans a chance to buy homes or refinance the ones they have, and giving businesses more capital to invest in new innovations.

In an effort to better understand how offshoring to China works, I sat down in Beijing with Jack Perkowski of ASIMCO, a pioneer in this form of collaboration. If they ever have a category in the Olympics called “extreme capitalism,” bet on Perkowski to win the gold. In 1988 he stepped down as a top investment banker at Paine Webber and went to a leverage buyout firm, but two years later, at age forty-two, decided it was time for a new challenge. With some partners, he raised $150 million to buy companies in China and headed off for the adventure of his life. Since then he has lost and remade millions of dollars, learned every lesson the hard way, but survived to become a powerful example of what offshoring to China is all about and what a powerful collaborative tool it can become.

“When I first started back in 1992-1993, everyone thought the hard part was to actually find and gain access to opportunities in China,” recalled Perkowski. It turned out that there were opportunities aplenty but a critical shortage of Chinese managers who understood how to run an auto parts factory along capitalist lines, with an emphasis on exports and making world-class products for the Chinese market. As Perkowski put it, the easy part was setting up shop in China. The hard part was getting the right local managers who could run the store. So when he initially started buying majority ownership in Chinese auto parts companies, Perkowski began by importing managers from abroad. Bad idea. It was too expensive, and operating in China was just too foreign for foreigners. Scratch plan A.

“So we sent all the expats home, which gave me problems with my investor base, and went to plan B,” he said. “We then tried to convert the 'Old China' managers who typically came along with the plants we bought, but that didn't work either. They were simply too used to working in a planned economy where they never had to deal with the marketplace, just deliver their quotas. Those managers who did have an entrepreneurial flair got drunk on their first sip of capitalism and were ready to try anything.

“The Chinese are very entrepreneurial,” said Perkowski, “but back then, before China joined the WTO, there was no rule of law and no bond or stock market to restrain this entrepreneurialism. Your only choices were managers from the state-owned sector, who were very bureaucratic, or managers from the first wave of private companies, who were practicing cowboy capitalism. Neither is where you want to be. If your managers are too bureaucratic, you can't get anything done-they just give excuses about how China is different-and if they are too entrepreneurial, you can't sleep at night, because you have no idea what they are going to do.” Perkowski had a lot of sleepless nights.

One of his first purchases in China was an interest in a company making rubber parts. When he subsequently reached an agreement with his Chinese partner to purchase his shares in the company, the Chinese partner signed a noncompete clause as part of the transaction. As soon as the deal closed, however, the Chinese partner went out and opened a new factory. “Noncompete” did not quite translate into Mandarin. Scratch plan B.

Meanwhile, Perkowski's partnership was hemorrhaging money— Perkowski's tuition for learning how to do business in China-and he found himself owning a string of Chinese auto parts factories. “Around 1997 was the low point,” he said. “Our company as a whole was shrinking and we were not profitable. While some of our companies were doing okay, we were generally in tough shape. Although we had majority ownership and could theoretically put anyone on the field that we wanted, I looked at my [managerial] bench and I had no one to put in the game.” Time for plan C.

“We essentially concluded that, while we liked China, we wanted no part of 'Old China,' and instead wanted to place our bets on 'New China' managers,” said Perkowski. “We began looking for a new breed of Chinese managers who were open-minded and had gotten some form of management training. We were looking for individuals who were experienced at operating in China and yet were familiar with how the rest of the world operated and knew where China had to go. So between 1997 and 1999, we recruited a whole team of'New China' managers, typically mainland Chinese who had worked for multinationals, and as these managers came on board, we began one by one to replace the 'Old China' managers at our companies.”

Once the new generation of Chinese managers, who understood global markets and customers and could be united around a shared company vision-and knew China-was in place, ASIMCO started making a profit. Today ASIMCO has sales of about $350 million a year in auto parts from thirteen Chinese factories in nine provinces. The company sells to customers in the United States, and it also has thirty-six sales offices throughout China servicing automakers in that country too.

From this base, Perkowski made his next big move-taking the profits from offshoring back onshore in America. “In April of 2003, we bought the North American camshaft operations of Federal-Mogul Corporation, an old-line components company that is now in bankruptcy,” said Perkowski. “We bought the business first to get access to its customers, which were primarily the Big Three automakers, plus Caterpillar and Cummins. While we have had long-standing relationships with Cat and Cummins—and this acquisition enhanced our position with them— the camshaft sales to the Big Three were our first. The second reason to make the acquisition was to obtain technology which we could bring back to China. Like most of the technology that goes into modern passenger cars and trucks, people take camshaft technology for granted. However, camshafts [the part of the engine that controls how the pistons go up and down] are highly engineered products which are critical to the performance of the engine. The acquisition of this business essentially gave us the know-how and technology that we could use to become the camshaft leader in China. As a result, we now have the best camshaft technology and a customer base both in China and the U.S.”

This is a very important point, because the general impression is that offshoring is a lose-lose proposition for American workers-something that was here went over there, and that is the end of the story. The reality is more complicated.

Most companies build offshore factories not simply to obtain cheaper labor for products they want to sell in America or Europe. Another motivation is to serve that foreign market without having to worry about trade barriers and to gain a dominant foothold there-particularly a giant market like China's. According to the U.S. Commerce Department, nearly 90 percent of the output from U.S.-owned offshore factories is sold to foreign consumers. But this actually stimulates American exports. There is a variety of studies indicating that every dollar a company invests overseas in an offshore factory yields additional exports for its home country, because roughly one-third of global trade today is within multinational companies. It works the other way as well. Even when production is moved offshore to save on wages, it is usually not all moved offshore. According to a January 26, 2004, study by the Heritage Foundation, Job Creation and the Taxation of Foreign-Source Income, American companies that produce at home and abroad, for both the American market and China's, generate more than 21 percent of U.S. economic output, produce 56 percent of U.S. exports, and employ three-fifths of all manufacturing employees, about 9 million workers. So if General Motors builds a factory offshore in Shanghai, it also ends up creating jobs in America by exporting a lot of goods and services to its own factory in China and benefiting from lower parts costs in China for its factories in America. Finally, America is a beneficiary of the same phenomenon. While much attention is paid to American companies going offshore to China, little attention is paid to the huge amount of offshore investment coming into America every year, because foreigners want access to American markets and labor just like we want access to theirs. On September 25, 2003, DaimlerChrysler celebrated the tenth anniversary of its decision to build the first Mercedes-Benz passenger car factory outside Germany, in Tuscaloosa, Alabama, by announcing a $600 million plant expansion. “In Tuscaloosa we have impressively shown that we can produce a new production series with a new workforce in a new factory, and we have also demonstrated that it is possible to have vehicles successfully 'Made by Mercedes' outside of Germany,” Professor Jiirgen Hub-bert, the DaimlerChrysler Board of Management member responsible for the Mercedes Car Group, announced on the anniversary.

Not surprisingly, ASIMCO will use its new camshaft operation in China to handle the raw material and rough machining operations, exporting semifinished products to its camshaft plant in America, where more skilled American workers can do the finished machining operations, which are most critical to quality. In this way, ASIMCO's American customers receive the benefit of a China supply chain and at the same time have the comfort of dealing with a known, American supplier.

The average wage of a high-skilled machinist in America is $3,000 to $4,000 a month. The average wage for a factory worker in China is about $150 a month. In addition, ASIMCO is required to participate in a Chinese government-sponsored pension plan covering heath care, housing, and retirement benefits. Between 35 and 45 percent of a Chinese worker's monthly wage goes directly to the local labor bureau to cover these benefits. The fact that health insurance in China is so much cheaper-because of lower wages, much more limited health service offerings, and no malpractice suits-“certainly makes China an attractive place to expand and add employees,” explained Perkowski. “Anything which can be done to reduce a U.S. company's liability for medical coverage would be a plus in keeping jobs in the U.S.”

By taking advantage of the flat world to collaborate this way— between onshore and offshore factories, and between high-wage, high-skilled American workers close to their market and low-wage Chinese workers close to theirs-said Perkowski, “we make our American company more competitive, so it is getting more orders and we are actually growing the business. And that is what many in the U.S. are missing when they talk about offshoring. Since the acquisition, for example, we have doubled our business with Cummins, and our business with Caterpillar has grown significantly. All of our customers are exposed to global competition and really need their supply base to the do the right thing as far as cost competitiveness. They want to work with suppliers who understand the flat world. When I went to visit our U.S. customers to explain our strategy for the camshaft business, they were very positive about what we were doing, because they could see that we were aligning our business in a way that was going to enable them to be more competitive.”

This degree of collaboration has been possible only in the last couple of years. “We could not have done what we have done in China in 1983 or 1993,” said Perkowski. “Since 1993, a number of things have come together. For example, people always talk about how much the Internet has benefited the U.S. The point I always make is that China has benefited even more. What has held China back in the past was the inability of people outside China to get information about the country, and the inability of people inside China to get information about the rest of the world. Prior to the Internet, the only way to close that information gap was travel. Now you can stay home and do it with the Internet. You could not operate our global supply chain without it. We now just e-mail blueprints over the Internet-we don't even need FedEx.”

The advantages for manufacturing in China, for certain industries, are becoming overwhelming, added Perkowski, and cannot be ignored. Either you get flat or you'll be flattened by China. “If you are sitting in the U.S. and don't figure out how to get into China,” he said, “in ten or fifteen years from now you will not be a global leader.”

Now that China is in the WTO, a lot of traditional, slow, inefficient, and protected sectors of the Chinese economy are being exposed to some withering global competition-something received as warmly in Canton, China, as in Canton, Ohio. Had the Chinese government put WTO membership to a popular vote, “it never would have passed,” said Pat Powers, who headed the U.S.-China Business Council office in Beijing during the WTO accession. A key reason why China's leadership sought WTO membership was to use it as a club to force China's bureaucracy to modernize and take down internal regulatory walls and pockets for arbitrary decision making. China's leadership “knew that China had to integrate globally and that many of their existing institutions would simply not change and reform, and so they used the WTO as leverage against their own bureaucracy. And for the last two and half years they've been slugging it out.”

Over time, adherence to WTO standards will make China's economy even flatter and more of a flattener globally. But this transition will not be easy, and the chances of a political or economic crackup that disrupts or slows this process are not insignificant. But even if China implements all the WTO reforms, it won't be able to rest. It will soon be reaching a point where its ambitions for economic growth will require more political reform. China will never root out corruption without a free press and active civil society institutions. It can never really become efficient without a more codified rule of law. It will never be able to deal with the inevitable downturns in its economy without a more open political system that allows people to vent their grievances. To put it another way, China will never be truly flat until it gets over that huge speed bump called “political reform.”

It seems to be heading in that direction, but it still has a long way to go. I like the way a U.S. diplomat in China put it to me in the spring of 2004: “China right now is doing titillation, not privatization. Reform here is translucent-and sometimes it is quite titillating, because you can see the shapes moving behind the screen-but it is not transparent. [The government still just gives] the information [about the economy] to a few companies and designated interest groups.” Why only translucent? I asked. He answered, “Because if you are fully transparent, what do you do with the feedback? They don't know how to deal with that question. They cannot deal [yet] with the results of transparency.”

If and when China gets over that political bump in the road, I think it could become not only a bigger platform for offshoring but another free-market version of the United States. While that may seem threatening to some, I think it would be an incredibly positive development for the world. Think about how many new products, ideas, jobs, and consumers arose from Western Europe's and Japan's efforts to become free-market democracies after World War II. The process unleashed an unprecedented period of global prosperity-and the world wasn't even flat then. It had a wall in the middle. If India and China move in that direction, the world will not only become flatter than ever but also, I am convinced, more prosperous than ever. Three United States are better than one, and five would be better than three.

But even as a free-trader, I am worried about the challenge this will pose to wages and benefits of certain workers in the United States, at least in the short run. It is too late for protectionism when it comes to China. Its economy is totally interlinked with those of the developed world, and trying to delink it would cause economic and geopolitical chaos that could devastate the global economy. Americans and Europeans will have to develop new business models that will enable them to get the best out of China and cushion themselves against some of the worst. As BusinessWeek, in its dramatic December 6, 2004, cover story on “The China Price,” put it, “Can China dominate everything? Of course not. America remains the world's biggest manufacturer, producing 75% of what it consumes, though that's down from 90% in the mid-'90s. Industries requiring huge R&D budgets and capital investment, such as aerospace, pharmaceuticals, and cars, still have strong bases in the U.S.... America will surely continue to benefit from China's expansion.” That said, unless America can deal with the long-term industrial challenge posed by the China price in so many areas, “it will suffer a loss of economic power and influence.”

Or, to put it another way, if Americans and Europeans want to benefit from the flattening of the world and the interconnecting of all the markets and knowledge centers, they will all have to run at least as fast as the fastest lion-and I suspect that lion will be China, and I suspect that will be pretty darn fast.

I had never seen what a supply chain looked like in action until I visited Wal-Mart headquarters in Bentonville, Arkansas. My Wal-Mart hosts took me over to the 1.2-million-square-foot distribution center, where we climbed up to a viewing perch and watched the show. On one side of the building, scores of white Wal-Mart trailer trucks were dropping off boxes of merchandise from thousands of different suppliers. Boxes large and small were fed up a conveyor belt at each loading dock. These little conveyor belts fed into a bigger belt, like streams feeding into a powerful river. Twenty-four hours a day, seven days a week, the suppliers' trucks feed the twelve miles of conveyor streams, and the conveyor streams feed into a huge Wal-Mart river of boxed products. But that is just half the show. As the Wal-Mart river flows along, an electric eye reads the bar codes on each box on its way to the other side of the building. There, the river parts again into a hundred streams. Electric arms from each stream reach out and guide the boxes-ordered by particular Wal-Mart stores— off the main river and down its stream, where another conveyor belt sweeps them into a waiting Wal-Mart truck, which will rush these particular products onto the shelves of a particular Wal-Mart store somewhere in the country. There, a consumer will lift one of these products off the shelf, and the cashier will scan it in, and the moment that happens, a signal will be generated. That signal will go out across the Wal-Mart network to the supplier of that product-whether that supplier's factory is in coastal China or coastal Maine. That signal will pop up on the supplier's computer screen and prompt him to make another of that item and ship it via the Wal-Mart supply chain, and the whole cycle will start anew. So no sooner does your arm lift a product off the local Wal-Mart's shelf and onto the checkout counter than another mechanical arm starts making another one somewhere in the world. Call it “the Wal-Mart Symphony” in multiple movements-with no finale. It just plays over and over 24/7/365: delivery, sorting, packing, distribution, buying, manufacturing, reordering, delivery, sorting, packing...

Just one company, Hewlett-Packard, will sell four hundred thousand computers through the four thousand Wal-Mart stores worldwide in one day during the Christmas season, which will require HP to adjust its supply chain, to make sure that all of its standards interface with Wal-Mart's, so that these computers flow smoothly into the Wal-Mart river, into the Wal-Mart streams, into the Wal-Mart stores.

Wal-Mart's ability to bring off this symphony on a global scale-moving 2.3 billion general merchandise cartons a year down its supply chain into its stores-has made it the most important example of the next great flat-tener I want to discuss, which I call supply-chaining. Supply-chaining is a method of collaborating horizontally-among suppliers, retailers, and customers-to create value. Supply-chaining is both enabled by the flattening of the world and a hugely important flattener itself, because the more these supply chains grow and proliferate, the more they force the adoption of common standards between companies (so that every link of every supply chain can interface with the next), the more they eliminate points of friction at borders, the more the efficiencies of one company get adopted by the others, and the more they encourage global collaboration.

As consumers, we love supply chains, because they deliver us all sorts of goods-from tennis shoes to laptop computers-at lower and lower prices. That is how Wal-Mart became the world's biggest retailer. But as workers, we are sometimes ambivalent or hostile to these supply chains, because they expose us to higher and higher pressures to compete, cut costs, and also, at times, cut wages and benefits. That is how Wal-Mart became one of the world's most controversial companies. No company has been more efficient at improving its supply chain (and thereby flattening the world) than Wal-Mart; and no company epitomizes the tension that supply chains evoke between the consumer in us and the worker in us than Wal-Mart. A September 30, 2002, article in Computer-world summed up Wal-Mart's pivotal role: “'Being a supplier to Wal-Mart is a two-edged sword,' says Joseph R. Eckroth Jr., CIO at Mattel Inc. 'They're a phenomenal channel but a tough customer. They demand excellence.' It's a lesson that the El Segundo, Calif.-based toy manufacturer and thousands of other suppliers learned as the world's largest retailer, Wal-Mart Stores Inc., built an inventory and supply chain man-agement system that changed the face of business. By investing early and heavily in cutting-edge technology to identify and track sales on the individual item level, the Bentonville, Ark.-based retail giant made its IT infrastructure a key competitive advantage that has been studied and copied by companies around the world. 'We view Wal-Mart as the best supply chain operator of all time/ says Pete Abell, retail research director at high-tech consultancy AMR Research Inc. in Boston.”

In pursuit of the world's most efficient supply chain, Wal-Mart has piled up a list of business offenses over the years that has given the company several deserved black eyes and that it is belatedly starting to address in a meaningful way. But its role as one of the ten forces that flattened the world is undeniable, and it was to get a handle on this that I decided to make my own pilgrimage to Bentonville. I don't know why, but on the flight in from La Guardia, I was thinking, Boy, I would really like some sushi tonight. But where am I going to find sushi in northwest Arkansas? And even if I found it, would I want to eat it? Could you really trust the eel in Arkansas?

When I arrived at the Hilton near Wal-Mart's headquarters, I was stunned to see, like a mirage, a huge Japanese steak house-sushi restaurant right next door. When I remarked to the desk clerk who was checking me in that I never expected to get my sushi fix in Bentonville, he told me, “We've got three more Japanese restaurants opening up soon.”

Multiple Japanese restaurants in Bentonville?

The demand for sushi in Arkansas is not an accident. It has to do with the fact that all around Wal-Mart's offices, vendors have set up their own operations to be close to the mother ship. Indeed, the area is known as “Vendorville.” The amazing thing about Wal-Mart's headquarters is that it is so, well, Wal-Mart. The corporate offices are crammed into a reconfigured warehouse. As we passed a large building made of corrugated metal, I figured it was the maintenance shed. “Those are our international offices,” said my host, spokesman William Wertz. The corporate suites are housed in offices that are one notch below those of the principal, vice principal, and head counselor at my daughter's public junior high school-before it was remodeled. When you pass through the lobby, you see these little cubicles where potential suppliers are pitching their products to Wal-Mart buyers. One has sewing machines all over the table, another has dolls, another has women's shirts. It feels like a cross between Sam's Club and the covered bazaar of Damascus. Attention Wal-Mart shareholders: The company is definitely not wasting your money on frills.

But how did so much innovative thinking-thinking that has reshaped the world's business landscape in many ways-come out of such a Li'l Abner backwater? It is actually a classic example of a phenomenon I point to often in this book: the coefficient of flatness. The fewer natural resources your country or company has, the more you will dig inside yourself for innovations in order to survive. Wal-Mart became the biggest retailer in the world because it drove a hard bargain with everyone it came in contact with. But make no mistake about one thing: Wal-Mart also became number one because this little hick company from northwest Arkansas was smarter and faster about adopting new technology than any of its competitors. And it still is.

David Glass, the company's CEO from 1988 to 2000, oversaw many of the innovations that made Wal-Mart the biggest and most profitable retailer on the planet. Fortune magazine once dubbed him “the most underrated CEO ever” for the quiet way he built on Sam Walton's vision. David Glass is to supply-chaining what Bill Gates is to word processing. When Wal-Mart was just getting started in northern Arkansas in the 1960s, explained Glass, it wanted to be a discounter. But in those days, every five-and-dime got its goods from the same wholesalers, so there was no way to get an edge on your competitors. The only way Wal-Mart could see to get an edge, he said, was for it to buy its goods in volume directly from the manufacturers. But it wasn't efficient for manufacturers to ship to multiple Wal-Mart stores spread all over, so Wal-Mart set up a distribution center to which all the manufacturers could ship their merchandise, and then Wal-Mart got its own trucks to distribute these goods itself to its stores. The math worked like this: It cost roughly 3 percent more on average for Wal-Mart to maintain its own distribution center. But it turned out, said Glass, that cutting out the wholesalers and buying direct from the manufacturers saved on average 5 percent, so that allowed Wal-Mart to cut costs on average 2 percent and then make it up on volume.

Once it established that basic method of buying directly from manufacturers to get the deepest discounts possible, Wal-Mart focused relentlessly on three things. The first was working with the manufacturers to get them to cut their costs as much as possible. The second was working on its supply chain from those manufacturers, wherever they were in the world, to Wal-Mart's distribution centers, to make it as low-cost and fric-tionless as possible. The third was constantly improving Wal-Mart's information systems, so it knew exactly what its customers were buying and could feed that information to all the manufacturers, so the shelves would always be stocked with the right items at the right time.

Wal-Mart quickly realized that if it could save money by buying directly from the manufacturers, by constantly innovating to cut the cost of running its supply chain, and by keeping its inventories low by learning more about its customers, it could beat its competitors on price every time. Sitting in Bentonville, Arkansas, it didn't have much choice.

“The reason we built all our own logistics and systems is because we are in the middle of nowhere,” said Jay Allen, Wal-Mart's senior vice president of corporate affairs. “It really was a small town. If you wanted to go to a third party for logistics, it was impossible. It was pure survival. Now with all the attention we are getting there is an assumption that our low prices derive from our size or because we're getting stuff from China or being able to dictate to suppliers. The fact is the low prices are derived from efficiencies Wal-Mart has invested in-the system and the culture. It is a very low-cost culture.” Added Glass, “I wish that I could say we were brilliant and visionary, [but] it was all born out of necessity.”

The more that supply chain grew, the more Walton and Glass understood that scale and efficiency were the keys to their whole business. Put simply, the more scale and scope their supply chain had, the more things they sold for less to more customers, the more leverage they had with suppliers to drive prices down even more, the more they sold to more customers, the more scale and scope their supply chain had, the more profit they reaped for their shareholders...

Sam Walton was the father of that culture, but necessity was its mother, and its offspring has turned out to be a lean, mean supply-chain machine. In 2004, Wal-Mart purchased roughly $260 billion worth of merchandise and ran it through a supply chain consisting of 108 distribution centers around the United States, serving the some 3,000 Wal-Mart stores in America.

In the early years, “we were small-we were 4 or 5 percent of Sears and Kmart,” said Glass. “If you are that small, you are vulnerable, so what we wanted to do more than anything else was grow market share. We had to undersell others. If I could reduce from 3 percent to 2 percent the cost of running my distribution centers, I could reduce retail prices and grow my market share and then not be vulnerable to anyone. So any efficiency we generated we passed on to the consumer.”

For instance, after the manufacturers dropped off their goods at the Wal-Mart distribution center, Wal-Mart needed to deliver those goods in small bunches to each of its stores. It meant that Wal-Mart had trucks going all over America. Walton quickly realized if he connected his drivers by radios and satellites, after they dropped off at a certain Wal-Mart store, they could go a few miles down the road and pick up goods from a manufacturer so they wouldn't come back empty and so Wal-Mart could save the delivery charges from that manufacturer. A few pennies here, a few pennies there, and the result is more volume, scope, and scale.

In improving its supply chain, Wal-Mart leaves no link untouched. While I was touring the Wal-Mart distribution center in Bentonville, I noticed that some boxes were too big to go on the conveyor belts and were being moved around on pallets by Wal-Mart employees driving special minilift trucks with headphones on. A computer tracks how many pallets each employee is plucking every hour to put onto trucks for different stores, and a computerized voice tells each of them whether he is ahead of schedule or behind schedule. “You can choose whether you want your computer voice to be a man or a woman, and you can choose English or Spanish,” explained Rollin Ford, Wal-Mart's executive vice president, who oversees the supply chain and was giving me my tour.

A few years ago, these pallet drivers would get written instructions for where to pluck a certain pallet and what truck to take it to, but Wal-Mart discovered that by giving them headphones with a soothing computer voice to instruct them, drivers could use both hands and not have to carry pieces of paper. And by having the voice constantly reminding them whether they were behind or ahead of expectations, “we got a boost in productivity,” said Ford. It is a million tiny operational innovations like this that differentiate Wal-Mart's supply chain.

But the real breakthrough, said Glass, was when Wal-Mart realized that while it had to be a tough bargainer with its manufacturers on price, at the same time the two had to collaborate to create value for each other horizontally if Wal-Mart was going to keep driving down costs. Wal-Mart was one of the first companies to introduce computers to track store sales and inventory and was the first to develop a computerized network in order to share this information with suppliers. Wal-Mart's theory was that the more information everyone had about what customers were pulling off the shelves, the more efficient Wal-Mart's buying would be, the quicker its suppliers could adapt to changing market demand.

In 1983, Wal-Mart invested in point-of-sale terminals, which simultaneously rang up sales and tracked inventory deductions for rapid resup-ply. Four years later, it installed a large-scale satellite system linking all of the stores to company headquarters, giving Wal-Mart's central computer system real-time inventory data and paving the way for a supply chain greased by information and humming down to the last atom of efficiency. A major supplier can now tap into Wal-Mart's Retail Link private extranet system to see exactly how its products are selling and when it might need to up its production.

“Opening its sales and inventory databases to suppliers is what made Wal-Mart the powerhouse it is today, says Rena Granofsky, a senior partner at J. C. Williams Group Ltd., a Toronto-based retail consulting firm,” in the 2002 Computerworld article on Wal-Mart. “While its competition guarded sales information, Wal-Mart approached its suppliers as if they were partners, not adversaries, says Granofsky. By implementing a collaborative planning, forecasting, and replenishment (CPFR) program, Wal-Mart began a just-in-time inventory program that reduced carrying costs for both the retailer and its suppliers. 'There's a lot less excess inventory in the supply chain because of it/ Granofsky says.” Thanks to the efficiency of its supply chain alone, Wal-Mart's cost of goods is estimated to be 5 to 10 percent less than that of most of its competitors.

Now Wal-Mart, in its latest supply-chain innovation, has introduced RFID-radio frequency identification microchips, attached to each pallet and merchandise box that comes into Wal-Mart, to replace bar codes, which have to be scanned individually and can get ripped or soiled. In June 2003, Wal-Mart informed its top one hundred suppliers that by January 1, 2005, all pallets and boxes that they ship to Wal-Mart distribution centers have to come equipped with RFID tags. (According to the RFID Journal, “RFID is a generic term for technologies that use radio waves to automatically identify people or objects. There are several methods of identification, but the most common is to store a serial number that identifies a person or object, and perhaps other information, on a microchip that is attached to an antenna-the chip and the antenna together are called an RFID transponder or an RFID tag. The antenna enables the chip to transmit the identification information to a reader. The reader converts the radio waves reflected back from the RFID tag into digital information that can then be passed on to computers that can make use of it.”) RFID will allow Wal-Mart to track any pallet or box at each stage in its supply chain and know exactly what product from which manufacturer is inside, with what expiration date. If a grocery item has to be stored at a certain temperature, the RFID tag will tell Wal-Mart when the temperature is too high or too low. Because each of these tags costs around 200, Wal-Mart is reserving them now for big boxes and pallets, not individual items. But this is clearly the wave of the future.

“When you have RFID,” said Rollin Ford, the Wal-Mart logistics vice president, “you have more insights.” You can tell even faster which stores sell more of which shampoo on Fridays and which ones on Sundays, and whether Hispanics prefer to shop more on Saturday nights rather than Mondays in the stores in their neighborhoods. “When all this information is fed into our demand models, we can become more efficient on when we produce [a product] and when we ship it and then put it on the trucks in exactly the right place inside the trucks so it can flow more efficiently,” added Ford. “We used to have to count each piece, and scanning it at [the receiving end] was a bottleneck. Now [with RFID], we just scan the whole pallet under a bubble, and it says you have all thirty items you ordered and each box tells you, 'This is what I am and this is how I am feeling, this is what color I am, and am I in good shape'-so it makes receiving hugely easier.” Procter & Gamble spokesperson Jeannie Tharrington talked to Salon.com (September 20, 2004) about Wal-Mart's move to RFID: “We see this as beneficial to the entire supply chain. Right now our out-of-stock levels are higher than we'd like and certainly higher than the consumer would like, and we think this technology can help us to keep the products on the shelf more often.” RFID will also allow for quicker remixing of the supply chain in response to events.

During hurricanes, Wal-Mart officials told me, Wal-Mart knows that people eat more things like Pop-Tarts-easy-to-store, nonperishable items-and that their stores also sell a lot of kids' games that don't require electricity and can substitute for TV. It also knows that when hurricanes are coming, people tend to drink more beer. So the minute Wal-Mart's meteorologists tell headquarters a hurricane is bearing down on Florida, its supply chain automatically adjusts to a hurricane mix in the Florida stores-more beer early, more Pop-Tarts later.

Wal-Mart is constantly looking for new ways to collaborate with its customers. Lately, it has gone into banking. It found that in areas with large Hispanic populations, many people had no affiliation with a bank and were getting ripped off by check-cashing outlets. So Wal-Mart offered them payroll check cashing, money orders, money transfers, and even bill payment services for standard items like electricity bills-all for very small fees. Wal-Mart had an internal capability to do that for its own employees and simply turned it into an external business.

Unfortunately for Wal-Mart, the same factors that drove its instinct for constant innovation-its isolation from the world, its need to dig inside itself, and its need to connect remote locations to a global supply chain— also got it in trouble. It is hard to exaggerate how isolated Bentonville, Arkansas, is from the currents of global debate on labor and human rights, and it is easy to see how this insular company, obsessed with lowering prices, could have gone over the edge in some of its practices.

Sam Walton bred not only a kind of ruthless quest for efficiency in improving Wal-Mart's supply chain but also a degree of ruthlessness period. I am talking about everything from Wal-Mart's recently exposed practice of locking overnight workers into its stores, to its allowing Wal-Mart's maintenance contractors to use illegal immigrants as janitors, to its role as defendant in the largest civil-rights class-action lawsuit in history, to its refusal to stock certain magazines-like Playboy-on its shelves, even in small towns where Wal-Mart is the only major store. This is all aside from the fact that some of Wal-Mart's biggest competitors complain that they have had to cut health-care benefits and create a lower wage tier to compete with Wal-Mart, which pays less and covers less than most big companies (more on this later). One can only hope that all the bad publicity Wal-Mart has received in the last few years will force it to understand that there is a fine line between a hyperefficient global supply chain that is helping people save money and improve their lives and one that has pursued cost cutting and profit margins to such a degree that whatever social benefits it is offering with one hand, it is taking away with the other.

Wal-Mart is the China of companies. It has so much leverage that it can grind down any supplier to the last halfpenny. And it is not at all hesitant about using its ability to play its foreign and domestic suppliers off against each other.

Some suppliers have found ways to flourish under the pressure and become better at what they do. If all of Wal-Mart's suppliers were being squeezed dry by Wal-Mart, Wal-Mart would have no suppliers. So obviously many of them are thriving as Wal-Mart's partners. But some no doubt have translated Wal-Mart's incessant price pressure into lower wages and benefits for their employees or watched as their business moved to China, whence Wal-Mart's supply chain pulled in $18 billion worth of goods in 2004 from five thousand Chinese suppliers. “If Wal-Mart were an individual economy, it would rank as China's eighth-biggest trading partner, ahead of Russia, Australia and Canada,” Xu Jun, the spokesman for Wal-Mart China, told the China Business Weekly (November 29, 2004).

The successor generation to Sam Walton's leadership seems to recognize that it has both an image and a reality to fix. How far Wal-Mart will adjust remains to be seen. But when I asked Wal-Mart's CEO, H. Lee Scott Jr., directly about all these issues, he did not duck. In fact, he wanted to talk about it. “What I think I have to do is institutionalize this sense of obligation to society to the same extent that we have institutionalized the commitment to the customer,” said Scott. “The world has changed and we have missed that. We believed that good intentions and good stores and good prices would cause people to forgive what we are not as good at, and we were wrong.” In certain areas, he added, “we are not as good as we should be. We just have to get better.”

One trend that Wal-Mart insists it is not responsible for is the off-shoring of manufacturing. “We are much better off if we can buy merchandise made in the United States,” said Glass. “I spent two years going around this country trying to talk people into manufacturing here. We would pay more to buy it here because the manufacturing facilities in those towns [would create jobs for] all those people who shopped in our stores. Sanyo had a plant here [in Arkansas] making television sets for Sears, and Sears cut them off, so they decided they were closing the plant and going to move part to Mexico and part to Asia. Our governor asked if we would help. We decided we would buy television sets from Sanyo [if they would keep the plant in Arkansas], and they didn't want to do it. They wanted to move it, and [the governor] even talked to the [Japanese owning] family to try to persuade them to stay. Between his efforts and ours, we persuaded them to do it. They are now the world's largest producer of televisions. We just bought our fifty millionth set from them. But for the most part people in this country have just abandoned the manufacturing process. They say, 'I want to sell to you, but I don't want the responsibility for the buildings and employees [and health care]. I want to source it somewhere else.' So we were forced to source merchandise in other places in the world.” He added, “One of my concerns is that, with the manufacturing out of this country, one day we'll all be selling hamburgers to each other.”

The best way to get a taste of Wal-Mart's power as a global flattener is to visit Japan.

Commodore Matthew Calbraith Perry opened a largely closed Japanese society to the Western world on July 8, 1853, when he arrived in Edo (Tokyo) Bay with four big black steamships bristling with guns. According to the Naval Historical Center Web site, the Japanese, not knowing that steamships even existed, were shocked by the sight of them and thought they were “giant dragons puffing smoke.” Commodore Perry returned a year later, and on March 31, 1854, concluded the Treaty of Kanagawa with the Japanese authorities, gaining U.S. vessels access to the ports of Shimoda and Hakodate and opening a U.S. consulate in Shimoda. This treaty led to an explosion of trade between Japan and the United States, helped open Japan to the Western world generally, and is widely credited with triggering the modernization of the Japanese state, as the Japanese realized how far behind they were and rushed to catch up. And catch up they did. In so many areas, from automobiles to consumer electronics to machine tools, from the Sony Walkman to the Lexus, the Japanese learned every lesson they could from Western nations and then proceeded to beat us at our own game-except one: retailing, especially discount retailing. Japan could make those Sonys like nobody else, but when it came to selling them at a discount, well, that was another matter.

So almost exactly 150 years after Commodore Perry signed that treaty, another lesser-known treaty was signed, actually a business partnership. Call itthe Seiyu-Wal-Mart Treaty of 2003. Unlike Commodore Perry, Wal-Mart did not have to muscle its way into Japan with warships. Its reputation preceded it, which is why it was invited in by Seiyu, a struggling Japanese retail chain desperate to adapt the Wal-Mart formula in Japan, a country notorious for resisting big-box discount stores. As I traveled on the bullet train from Tokyo to Numazu, Japan, site of the first Seiyu store that was using the Wal-Mart methods, the New York Times translator pointed out that this store was located about one hundred miles from Shimoda and that first U.S. consulate. Commodore Perry probably would have loved shopping in the new Seiyu store, where all the music piped in consists of Western tunes designed to lull shoppers into filling their carts, and where you can buy a man's suit-made in China-for $65 and a white shirt to go with it for $5. That's what they call around Wal-Mart EDLP-Every Day Low Prices-and it was one of the first phrases Wal-Mart folks learned to say in Japanese.

Wal-Mart's flattening effects are fully on display in the Seiyu store in Numazu-not just the everyday low prices, but the wide aisles, the big pallets of household goods, the huge signs displaying the lowest prices in each category, and the Wal-Mart supply-chain computer system so that store managers can quickly adjust stock.

I asked Seiyu's CEO, Masao Kiuchi, why he had turned to Wal-Mart. “The first time I knew about Wal-Mart was about fifteen years ago,” explained Kiuchi. “I went to Dallas to see the Wal-Mart stores, and I thought this was a very rational method. It was two things: One was the signage showing the prices. It was very easy for us to understand.” The second, he said, was that the Japanese thought a discount store meant that you sold cheap products at cheap prices. What he realized from shopping at Wal-Mart, and seeing everything from plasma TVs to top-brand pet products, was that Wal-Mart sold quality products at low prices.

“At the store in Dallas, I took pictures, and I brought those pictures to my colleagues in Seiyu and said, 'Look, we have to see what Wal-Mart is doing on the other side of the planet' But showing pictures was not good enough, because how can you understand by just looking at pictures?” recalled Kiuchi. Eventually, Kiuchi approached Wal-Mart, and they signed a partnership on December 31, 2003. Wal-Mart bought a piece of Seiyu; in return, Wal-Mart agreed to teach Seiyu its unique form of collaboration: global supply-chaining to bring consumers the best goods at the lowest prices.

There was one big thing, though, that Seiyu had to teach Wal-Mart, Kiuchi told me: how to sell raw fish. Japanese discounters and department stores all have grocery sections, and they all carry fish for very discriminating Japanese consumers. Seiyu will discount fish several times during each day, as the freshness declines.

“Wal-Mart doesn't understand raw fish,” said Kiuchi. “We are expecting their help with general merchandising.”

Give Wal-Mart time. I expect that in the not-too-distant future we will see Wal-Mart sushi.

Somebody had better warn the tuna.

One of the most enjoyable things about researching this book has been discovering all sorts of things happening in the world around me of which I had no clue. Nothing was more surprisingly interesting than pulling the curtain back on UPS, United Parcel Service. Yes, those folks, the ones who wear the homely brown shorts and drive those ugly brown trucks. Turns out that while I was sleeping, stodgy old UPS became a huge force flattening the world.

Once again, it was one of my Indian tutors, Nandan Nilekani, the Infosys CEO, who tipped me off to this. “FedEx and UPS should be one of your flatteners. They're not just delivering packages, they are doing logistics,” he told me on the phone from Bangalore one day. Naturally, I filed the thought away, making a note to check it out, without having any clue what he was getting at. A few months later I went to China, and while there I was afflicted with jet lag one night and was watching CNN International to pass the wee hours of the morning. At one point, a commercial came on for UPS, and its tag line was UPS's new slogan: “Your World Synchronized.”

The thought occurred to me: That must be what Nandan was talking about! UPS, I learned, was not just delivering packages anymore; it was synchronizing global supply chains for companies large and small. The next day I made an appointment to visit UPS headquarters in Atlanta. I later toured the UPS Worldport distribution hub adjacent to the Louisville International Airport, which at night is basically taken over by the UPS fleet of cargo jets, as packages are flown in from all over the world, sorted, and flown back out again a few hours later. (The UPS fleet of 270 aircraft is the eleventh largest airline in the world.) What I discovered on these visits was that this is not your father's UPS. Yes, UPS still pulls in most of its $36 billion in sales by shipping more than 13.5 million packages a day from point A to point B. But behind that innocuous facade, the company founded in Seattle in 1907 as a messenger service has reinvented itself as a dynamic supply-chain manager.

Consider this: If you own a Toshiba laptop computer that is under warranty and it breaks and you call Toshiba to have it repaired, Toshiba will tell you to drop it off at a UPS store and have it shipped it to Toshiba, and it will get repaired and then be shipped back to you. But here's what they don't tell you: UPS doesn't just pick up and deliver your Toshiba laptop. UPS actually repairs the computer in its own UPS-run workshop dedicated to computer and printer repairs at its Louisville hub. I went to tour that hub expecting to see only packages moving around, and instead I found myself dressed in a blue smock, in a special clean room, watching UPS employees replacing motherboards in broken Toshiba laptops. Toshiba had developed an image problem several years ago, with some customers concluding that its repair process for broken machines took too long. So Toshiba came to UPS and asked it to design a better system. UPS said, “Look, instead of us picking up the machine from your customers, bringing it to our hub, then flying it from our hub to your repair facility and then flying it back to our hub and then from our hub to your customer's house, let's cut out all the middle steps. We, UPS, will pick it up, repair it ourselves, and send it right back to your customer.” It is now possible to send your Toshiba laptop in one day, get it repaired the next, and have it back the third day. The UPS repairmen and -women were all certified by Toshiba, and its customer complaints went down dramatically. packages delivered or goods repaired quickly anywhere in the world, you can act really small.

In addition, by making the delivery of goods and services around the world superefficient and superfast-and in huge volumes-UPS is helping to level customs barriers and harmonize trade by getting more and more people to adopt the same rules and labels and tracking systems for transporting goods. UPS has a smart label on all its packages so that package can be tracked and traced anywhere in its network.

Working with the U.S. Customs Service, UPS designed a software program that allows customs to say to UPS, “I want to see any package moving through your Worldport hub that was sent from Cali, Colombia, to Miami by someone named Carlos.” Or, “I want to see any package sent from Germany to the United States by someone named Osama.” When the package arrives for sorting, the UPS computers will then automatically route that package to a customs officer in the UPS hub. A computerized arm will literally slide it off the conveyor belt and dump it into a bin for a closer look. It makes the inspection process more efficient and does not interrupt the general flow of packages. These efficiencies of time and scale save UPS's clients money, enabling them to recycle their capital and fund more innovation. But the level of collaboration it requires between UPS and its clients is unusual.

Plow & Hearth is a large national catalog and Internet retailer specializing in “Products for Country Living.” P&H came to UPS one day and said that too many of its furniture deliveries were coming to customers with a piece broken. Did UPS have any ideas? UPS sent its “package engineers” over and conducted a packaging seminar for the P&H procurement group. UPS also provided guidelines for them to use in the selection of their suppliers. The objective was to help P&H understand that its purchase decisions from its suppliers should be influenced not only by the quality of the products being offered but also by how those products were being packaged and delivered. UPS couldn't help its customer P&H without looking deep inside its business and then into its suppliers' businesses-what boxes and packing materials they were using. That is insourcing.

Consider the collaboration today among eBay sellers, UPS, PayPal, and eBay buyers. Say I offer to sell a golf club on eBay and you decide to buy it. I e-mail you a PayPal invoice, which has your name and mailing address on it. At the same time, eBay offers me an icon on its Web site to print out a UPS mailing label to you. When I print that mailing label on my own printer, it comes out with a UPS tracking bar code on it. At the same time, UPS, through its computer system, creates a tracking number that corresponds to that label, which automatically gets e-mailed to you-the person who bought my golf club-so you can track the package by yourself, online, on a regular basis and know exactly when it will reach you.

If UPS had not gone into this business, someone would have had to invent it. With so many more people working through horizontal global supply chains far from home, somebody had to fill in the inevitable holes and tighten the weak links. Said Kurt Kuehn, UPS's senior vice president for sales and marketing, “The Texas machine parts guy is worried that the customer in Malaysia is a credit risk. We step in as a trusted broker. If we have control of that package, we can collect funds subject to acceptance and eliminate letters of credit. Trust can be created through personal relations or through systems and controls. If you don't have trust, you can rely on a shipper who does not turn [your package] over until he is paid. We have more ability than a bank to manage this, because we have the package and the ongoing relationship with the customer as collateral, so we have two points of leverage.”

More than sixty companies have moved operations closer to the UPS hub in Louisville since 1997, so they can make things and ship them straight from the hub, without having to warehouse them. But it is not just the little guys who benefit from the better logistics and more efficient supply chains that insourcing can provide. In 2001, Ford Motor Co. turned over its snarled and slow distribution network to UPS, allowing UPS to come deep inside Ford to figure out what its problems were and smooth out its supply chain.

“For years, the bane of most Ford dealers was the auto maker's Rube Goldberg-like system for getting cars from factory to showroom,” BusinessWeek reported in its July 19, 2004, issue. “Cars could take as long as a month to arrive-that is, when they weren't lost along the way. And Ford Motor Co. was not always able to tell its dealers exactly what was coming, or even what was in inventory at the nearest rail yards. 'We'd lose track of whole trainloads of cars,' recalls Jerry Reynolds, owner of Prestige Ford in Garland, Tex. 'It was crazy.'” But after UPS got under Ford's hood, “UPS engineers... redesigned Ford's entire North American delivery network, streamlining everything from the route cars take from the factory to how they're processed at regional sorting hubs”— including pasting bar codes on the windshields of the 4 million cars coming out of Ford's U.S. plants so they could be tracked just like packages. As a result, UPS cut the time it takes autos to arrive at dealer lots by 40 percent, to ten days on average. BusinessWeek reported: “That saves Ford millions in working capital each year and makes it easy for its 6,500 dealers to track down the models most in demand... 'It was the most amazing transformation I had ever seen,' marvels Reynolds. 'My last comment to UPS was: 'Can you get us spare parts like this?'”

UPS maintains a think tank, the Operations Research Division, in Timonium, Maryland, which works on supply-chain algorithms. This “school” of mathematics is called “package flow technology,” and it is designed to constantly match the deployment of UPS trucks, ships, airplanes, and sorting capabilities with that day's flow of packages around the world. “Now we can make changes in our network in hours to adjust to changes in volume,” says UPS CEO Eskew. “How I optimize the total supply chain is the key to the math.” The sixty-person UPS team in Timonium is made up largely of people with engineering and math degrees, including several Ph.D.'s.

UPS also employs its own meteorologists and strategic threat analysts to track which atmospheric or geopolitical thunderstorms it will have to work around on any given day. To further grease its supply chains, UPS is the largest private user of wireless technology in the world, as its drivers alone make over 1 million phone calls a day in the process of picking up and delivering packages through its eighty-eight thousand package cars, vans, tractors, and motorcycles. On any given day, according to UPS, 2 percent of the world's GDP can be found in UPS delivery trucks or package cars. Oh, and did I mention that UPS also has a financing arm-UPS Capital-that will put up the money for the transformation of your supply chain, particularly if you are a small business and don't have the capital.

For example, notes Eskew, UPS was doing business with a small biotech company in Canada that sold blood adhesives, a highly perishable alternative to stitches. The company had a growing market among the major hospital chains, but it had a problem keeping up with demand and could not get financing. It had distribution centers on the East and West coasts. UPS redesigned the company's system based around a refrigerator hub in Dallas and extended it financing through UPS Capital. The result, said Eskew, was less inventory, better cash flow, better customer service-and an embedded customer for UPS. A maker of bridal headpieces and veils in Montreal wanted to improve its flow of business with the U.S. Eskew recalled, “We designed a system for consolidated [customs] clearances, so their veils and headpieces would not have to come over [the border] one by one. And then we put [the merchandise] in a warehouse in [upstate] New York. We took the orders by Internet, we put the labels on, we delivered the packages and collected the money, and we put that money through UPS Capital into their banks electronically so they had the cash back. That allows them to enter new markets and minimize their inventory.”

Eskew explained, “When our grandfathers owned shops, inventory was what was in the back room. Now it is a box two hours away on a package car, or it might be hundreds more crossing the country by rail or jet, and you have thousands more crossing the ocean. And because we all have visibility into that supply chain, we can coordinate all those modes of transportation.”

Indeed, as consumers have become more empowered to pull their own products via the Internet and customize them for themselves, UPS has found itself in the interesting position of being not only the company actually taking the orders but also, as the delivery service, the one handing the goods to the buyer at the front door. As a result, companies said, “Let's try to push as many differentiating things to the end of the supply chain, rather than the beginning.” And because UPS was the last link in the supply chain before these goods were loaded onto planes, trains, and trucks, it took over many of these functions, creating a whole new business called End of Runway Services. The day I visited Louisville, two young UPS women were putting together Nikon cameras, with special memory cards and leather cases, which some store had offered as a weekend special. They were even putting them in special boxes just for that store. By taking over this function, UPS gives companies more options to customize products at the last minute.

UPS has also taken full advantage of the Netscape and work flow flat-teners. Before 1995, all tracking and tracing of UPS packages for customers was done through a call center. You called a UPS 800 number and asked an operator where your package was. During the week before Christmas, UPS operators were fielding six hundred thousand calls on the peak days. Each one of those calls cost UPS $2.10 to handle. Then, through the 1990s, as more and more UPS customers became empowered and comfortable with the Internet, and as its own tracking and tracing system improved with advances in wireless technology, UPS invited its customers to track packages themselves over the Internet, at a cost to UPS of between 5(2 and 100 a query.

“So we dramatically reduced our service costs and increased service,” said UPS vice president Ken Sternad, especially since UPS now pulls in 7 million tracking requests on an average day and a staggering 12 million on peak days. At the same time, its drivers also became more empowered with their DIADs -driver delivery information acquisition devices. These are the brown electronic clipboards that you always see the UPS drivers carrying around. The latest generation of them tells each driver where in his truck to load each package-exactly what position on the shelf. It also tells him where his next stop is, and if he goes to the wrong address, the GPS system built into the DIAD won't allow him to deliver the package. It also allows Mom to go online and find out when the driver will be in her neighborhood dropping off her package.

Insourcing is distinct from supply-chaining because it goes well beyond supply-chain management. Because it is third-party-managed logistics, it requires a much more intimate and extensive kind of collaboration among UPS and its clients and its clients' clients. In many cases today, UPS and its employees are so deep inside their clients' infrastructure that it is almost impossible to determine where one stops and the other starts. The UPS people are not just synchronizing your packages— they are synchronizing your whole company and its interaction with both customers and suppliers.

“This is no longer a vendor-customer relationship,” said Eskew. “We answer your phones, we talk to your customers, we house your inventory, and we tell you what sells and doesn't sell. We have access to your information and you have to trust us. We manage competitors, and the only way for this to work, as our founders told Gimbel's and Macy's, is 'trust us.' I won't violate that. Because we are asking people to let go of part of their business, and that really requires trust.”

UPS is creating enabling platforms for anyone to take his or her business global or to vastly improve the efficiency of his or her global supply chain. It is a totally new business, but UPS is convinced it has an almost limitless upside. Time will tell. Though margins are still thin in this kind of work, in 2003 alone insourcing pulled in $2.4 billion in revenues for UPS. My gut tells me the folks in the funny brown shorts and funny brown trucks are on to something big-something made possible only by the flattening of the world and something that is going to flatten it a lot more.

My friend and I met a guy at a restaurant. My friend was very taken with him, but I was suspiciously curious about this guy. After a few minutes of Googling, I found out that he was arrested for felony assault. Although I was once again disappointed with the quality of the dating pool, I was at least able to warn my friend about this guy's violent past.

—Testimonial from Google user

I am completely delighted with the translation service. My partner arranged for two laborers to come and help with some demolition. There was a miscommunication: she asked for the workers to come at 11 am, and the labor service sent them at 8:30. They speak only Spanish, and I speak English and some French. Our Hispanic neighbors were out. With the help of the translation service, I was able to communicate with the workers, to apologize for the miscommunication, establish the expectation, and ask them to come back at 11. Thank you for providing this connection... Thank you Google.

—Testimonial from Google user

I just want to thank Google for teaching me how to find love. While looking for my estranged brother, I stumbled across a Mexican Web site for male strippers-and I was shocked. My brother was working as a male prostitute! The first chance I got, I flew to the city he was working in to liberate him from this degrading profession. I went to the club he was working at and found my brother. But more than that, I met one of his co-workers... We got married last weekend [in Mexico], and I am positive without Google's services, I never would have found my brother, my husband, or the surprisingly lucrative nature of the male stripping industry in Mexico!! Thank you, Google!

—Testimonial from Google user

Google headquarters in Mountain View, California, has a certain Epcot Center feel to it-so many fun space age toys to play with, so little time. In one corner is a spinning globe that emits light beams based on the volume of people searching on Google. As you would expect, most of the shafts of light are shooting up from North America, Europe, Korea, Japan, and coastal China. The Middle East and Africa remain pretty dark. In another corner is a screen that shows a sample of what things people are searching for at that moment, all over the world. When I was there in 2001, I asked my hosts what had been the most frequent searches lately. One, of course, was “sex,” a perennial favorite of Googlers.

Another was “God.” Lots of people searching for Him or Her. A third was “jobs”-you can't find enough of those. And the fourth most searched item around the time of my visit? I didn't know whether to laugh or cry: “professional wrestling.” The weirdest one, though, is the Google recipe book, where people just open their refrigerators, see what ingredients are inside, type three of them into Google, and see what recipes come up!

Fortunately, no single word or subject accounts for more than 1 or 2 percent of all Google searches at any given time, so no one should get too worried about the fate of humanity on the basis of Google's top search items on any particular day. Indeed, it is the remarkable diversity of searches going on via Google, in so many different tongues, that makes the Google search engine (and search engines in general) such huge flatteners. Never before in the history of the planet have so many people-on their own-had the ability to find so much information about so many things and about so many other people.

Said Google cofounder Russian-born Sergey Brin, “If someone has broadband, dial-up, or access to an Internet cafe, whether a kid in Cambodia, the university professor, or me who runs this search engine, all have the same basic access to overall research information that anyone has. It is a total equalizer. This is very different than how I grew up. My best access was some library, and it did not have all that much stuff, and you either had to hope for a miracle or search for something very simple or something very recent.” When Google came along, he added, suddenly that kid had “universal access” to the information in libraries all over the world.

That is certainly Google's goal-to make easily available all the world's knowledge in every language. And Google hopes that in time, with a PalmPilot or a cell phone, everyone everywhere will be able to carry around access to all the world's knowledge in their pockets. “Everything” and “everyone” are key words that you hear around Google all the time. Indeed, the official Google history carried on its home page notes that the name “Google” is a play on the word “'googol,' which is the number represented by the numeral I followed by 100 zeros. Google's use of the term reflects the company's mission to organize the immense, seemingly infinite amount of information available on the Web,” just for you. What Google's success reflects is how much people are interested in having just that-all the world's knowledge at their fingertips. There is no bigger flattener than the idea of making all the world's knowledge, or even just a big chunk of it, available to anyone and everyone, anytime, anywhere.

“We do discriminate only to the degree that if you can't use a computer or don't have access to one, you can't use Google, but other than that, if you can type, you can use Google,” said Google CEO Eric Schmidt. And surely if the flattening of the world means anything, he added, it means that “there is no discrimination in accessing knowledge. Google is now searchable in one hundred languages, and every time we find another we increase it. Let's imagine a group with a Google iPod one day and you can tell it to search by voice-that would take care of people who can't use a computer-and then [Google access] just becomes about the rate at which we can get cheap devices into people's hands.”

How does searching fit into the concept of collaboration? I call it “in-forming.” In-forming is the individual's personal analog to open-sourcing, outsourcing, insourcing, supply-chaining, and offshoring. Informing is the ability to build and deploy your own personal supply chain-a supply chain of information, knowledge, and entertainment. In-forming is about self-collaboration-becoming your own self-directed and self-empowered researcher, editor, and selector of entertainment, without having to go to the library or the movie theater or through network television. In-forming is searching for knowledge. It is about seeking like-minded people and communities. Google's phenomenal global popularity, which has spurred Yahoo! and Microsoft (through its new MSN Search) also to make power searching and in-forming prominent features of their Web sites, shows how hungry people are for this form of collaboration. Google is now processing roughly one billion searches per day, up from 150 million just three years ago.

The easier and more accurate searching becomes, added Larry Page, Google's other cofounder, the more global Google's user base becomes, and the more powerful a flattener it becomes. Every day more and more people are able to in-form themselves in their own language. Today, said Page, “only a third of our searches are U.S.-based, and less than half are in English.” Moreover, he added, “as people are searching for more obscure things, people are publishing more obscure things,” which drives the flattening effect of in-forming even more. All the major search engines have also recently added the capability for users to search not only the Web for information but also their own computer's hard drive for words or data or e-mail they know is in there somewhere but have forgotten where. When you can search your own memory more efficiently, that is really in-forming. In late 2004, Google announced plans to scan the entire contents of both the University of Michigan and Stanford University Libraries, making tens of thousands of books available and searchable online.

In the earliest days of search engines, people were amazed and delighted to stumble across the information they sought; eureka moments were unexpected surprises, said Yahool's cofounder Jerry Yang. “Today their attitudes are much more presumptive. They presume that the information they're looking for is certainly available and that it's just a matter of technologists making it easier to get to, and in fewer keystrokes,” he said. “The democratization of information is having a profound impact on society. Today's consumers are much more efficient-they can find information, products, services, faster [through search engines] than through traditional means. They are better informed about issues related to work, health, leisure, etc. Small towns are no longer disadvantaged relative to those with better access to information. And people have the ability to be better connected to things that interest them, to quickly and easily become experts in given subjects and to connect with others who share their interests.”

Google's founders understood that by the late 1990s hundreds of thousands of Web pages were being added to the Internet each day, and that existing search engines, which tended to search for keywords, could not keep pace. Brin and Page, who met as Stanford University graduate students in computer science in 1995, developed a mathematical formula that ranked a Web page by how many other Web pages were linked to it, on the assumption that the more people linked to a certain page, the more important the page. The key breakthrough that enabled Google to become first among search engines was its ability to combine its PageRank technology with an analysis of page content, which determines which pages are most relevant to the specific search being conducted. Even though Google entered the market after other major search players, its answers were seen by people as more accurate and relevant to what they were looking for. The fact that one search engine was just a little better than the others led a tidal wave of people to switch to it. (Google now employs scores of mathematicians working on its search algorithms, in an effort to always keep them one step more relevant than the competition.)

For some reason, said Brin, “people underestimated the importance of finding information, as opposed to other things you would do online. If you are searching for something like a health issue, you really want to know; in some cases it is a life-and-death matter. We have people who search Google for heart-attack symptoms and then call nine-one-one.” But sometimes you really want to in-form yourself about something much simpler.

When I was in Beijing in June 2004, I was riding the elevator down one morning with my wife, Ann, and sixteen-year-old daughter, Natalie, who was carrying a fistful of postcards written to her friends. Ann said to her, “Did you bring their addresses along?” Natalie looked at her as if she were positively nineteenth-century. “No,” she said, with that you-are-so-out-of-it-Mom tone of voice. “I just Googled their phone numbers, and their home addresses came up.”

Address book? You dummy, Mom.

All that Natalie was doing was in-forming, using Google in a way that I had no idea was even possible. Meanwhile, though, she also had her iPod with her, which empowered her to in-form herself in another way— with entertainment instead of knowledge. She had become her own music editor and downloaded all her favorite songs into her iPod and was carrying them all over China. Think about it: For decades the broadcast industry was built around the idea that you shoot out ads on network television or radio and hope that someone is watching or listening. But thanks to the flattening technologies in entertainment, that world is quickly fading away. Now with TiVo you can become your own TV editor. TiVo allows viewers to digitally record their favorite programs and skip the ads, except those they want to see. You watch what you want when you want. You don't have to make an appointment with a TV channel at the time and place someone else sets and watch the commercials foisted on you. With TiVo you can watch only your own shows and the commercials you want for only those products in which you might be interested.

But just as Google can track what you are searching for, so too can TiVo, which knows which shows and which ads you are freezing, storing, and rewinding on your own TV. So here's a news quiz: Guess what was the most rewound moment in TV history? Answer: Janet's Jackson breast exposure, or, as it was euphemistically called, her “wardrobe malfunction,” at the 2004 Super Bowl. Just ask TiVo. In a press release it issued on February 2,2004, TiVo said, “Justin Timberlake and Janet Jackson stole the show during Sunday's Super Bowl, attracting almost twice as many viewers as the most thrilling moments on the field, according to an annual measurement of second-by-second viewership in TiVo households. The Jackson-Timberlake moment drew the biggest spike in audience reaction TiVo has ever measured. TiVo said viewership spiked up to 180 percent as hundreds of thousands of households used TiVo's unique capabilities to pause and replay live television to view the incident again and again.”

So if everyone can increasingly watch what he wants however many times he wants when he wants, the whole notion of broadcast TV-which is that we throw shows out there one time, along with their commercials, and then try to survey who is watching-will increasingly make less and less sense. The companies you want to bet on are those that, like Google or Yahoo! or TiVo, learn to collaborate with their users and offer them shows and advertisements tailored just for them. I can imagine a day soon when advertisers won't pay for anything other than that.

Companies like Google, Yahoo!, Amazon.com, and TiVo have learned to thrive not by pushing products and services on their customers as much as by building collaborative systems that enable customers to pull on their own, and then responding with lightning quickness to what they pull. It is so much more efficient.

“Search is so highly personal that searching is empowering for humans like nothing else,” said Google CEO Eric Schmidt. “It is the antithesis of being told or taught. It is about self-empowerment; it is empowering individuals to do what they think best with the information they want. It is very different from anything else that preceded it. Radio was one-to-many. TV was one-to-many. The telephone was one-to-one. Search is the ultimate expression of the power of the individual, using a computer, looking at the world, and finding exactly what they want— and everyone is different when it comes to that.”

Of course what made Google not just a search engine but a hugely profitable business was its founders' realization that they could build a targeted advertising model that would show you ads that are relevant to you when you searched for a specific topic and then could charge advertisers for the number of times Google users clicked on their ads. Whereas CBS broadcasts a movie and has a less exact idea who is watching it or the advertisements, Google knows exactly what you are interested in— after all, you are searching for it-and can link you up with advertisers directly or indirectly connected to your searches. In late 2004, Google began a service whereby if you are walking around Bethesda, Maryland, and are in the mood for sushi, you just send Google an SMS message on your cell phone that says “Sushi 20817”-the Bethesda zip code-and it will send you back a text message of choices. Lord only knows where this will go.

In-forming, though, also involves searching for friends, allies, and collaborators. It is empowering the formation of global communities, across all international and cultural boundaries, which is another critically important flattening function. People can now search out fellow collaborators on any subject, project, or theme-particularly through portals like Yahoo! Groups. Yahoo! has about 300 million users and 4 million active groups. Those groups have 13 million unique individuals accessing them each month from all over the world.

“The Internet is growing in the self-services area, and Yahoo! Groups exemplifies this trend,” said Jerry Yang. “It provides a forum, a platform, a set of tools for people to have private, semiprivate, or public gatherings on the Internet regardless of geography or time. It enables consumers to gather around topics that are meaningful to them in ways that are either impractical or impossible offline. Groups can serve as support groups for complete strangers who are galvanized by a common issue (coping with rare diseases, first-time parents, spouses of active-duty personnel) or who seek others who share similar interests (hobbies as esoteric as dogsled-ding, blackjack, and indoor tanning have large memberships). Existing communities can migrate online and flourish in an interactive environment (local kids' soccer league, church youth group, alumni organizations), providing a virtual home for groups interested in sharing, organizing, and communicating information valuable to cultivating vibrant communities. Some groups exist only online and could never be as successful offline, while others mirror strong real-world communities. Groups can be created instantaneously and dissolved; topics can change or stay constant. This trend will only grow as consumers increasingly become publishers, and they can seek the affinity and community they choose-when, where, and how they choose it.”

There is another side to in-forming that people are going to have to get used to, and that is other people's ability to in-form themselves about you from a very early age. Search engines flatten the world by eliminating all the valleys and peaks, all the walls and rocks, that people used to hide inside of, atop, behind, or under in order to mask their reputations or parts of their past. In a flat world, you can't run, you can't hide, and smaller and smaller rocks are turned over. Live your life honestly, because whatever you do, whatever mistakes you make, will be searchable one day. The flatter the world becomes, the more ordinary people become transparent-and available. Before my daughter Orly went off to college in the fall of 2003, she was telling me about some of her roommates. When I asked her how she knew some of the things she knew— had she spoken to them or received an e-mail from them?-she told me she had done neither. She just Googled them. She came up with stuff from high school newspapers, local papers, etc., and fortunately no police records. These are high school kids!

“In this world you better do it right-you don't get to pick up and move to the next town so easily,” said Dov Seidman, who runs a legal compliance and business ethics consulting firm, LRN. “In the world of Google, your reputation will follow you and precede you on your next stop. It gets there before you do... Reputation starts early now. You don't get to spend four years getting drunk. Your reputation is getting set much earlier in life. 'Always tell the truth,' said Mark Twain, 'that way you won't have to remember what you said.'” So many more people can be private investigators into your life, and they can also share their findings with so many more people.

In the age of the superpower search, everyone is a celebrity. Google levels information-it has no class boundaries or education boundaries. “If I can operate Google, I can find anything,” said Alan Cohen, vice president of Airespace, which sells wireless technology. “Google is like God. God is wireless, God is everywhere, and God sees everything. Any questions in the world, you ask Google.”

Some months after Cohen made that observation to me, I came across the following brief business story on CNET News.com: “Search giant Google said on Wednesday that it has acquired Keyhole, a company specializing in Web-based software that allows people to view satellite images from around the globe... The software gives users the ability to zoom in from space level; in some cases, it can zoom in all the way to a street-level view. The company does not have high-resolution imagery for the entire globe, but its Website offers a list of cities that are available for more detailed viewing. The company has focused most on covering large metropolitan areas in the United States and is working to expand its coverage.”

I am on the bullet train speeding southwest from Tokyo to Mishima. The view is spectacular: fishing villages on my left and a snow-dusted Mt. Fuji on my right. My colleague Jim Brooke, the Tokyo bureau chief for The New York Times, is sitting across the aisle and paying no attention to the view. He is engrossed in his computer. So am I, actually, but he's online through a wireless connection, and I'm just typing away on a column on my unconnected laptop. Ever since we took a cab together the other day in downtown Tokyo and Jim whipped out his wireless-enabled laptop in the backseat and e-mailed me something through Yahoo!, I have been exclaiming at the amazing degree of wireless penetration and connectivity in Japan. Save for a few remote islands and mountain villages, if you have a wireless card in your computer, or any Japanese cell phone, you can get online anywhere-from deep inside the subway stations to the bullet trains speeding through the countryside. Jim knows I am slightly obsessed with the fact that Japan, not to mention most of the rest of the world, has so much better wireless connectivity than America. Anyway, Jim likes to rub it in.

“See, Tom, I am online right now,” he says, as the Japanese countryside whizzes by. “A friend of mine who's the Times's stringer in Alma Ata just had a baby and I am congratulating him. He had a baby girl last night.” Jim keeps giving me updates. “Now I'm reading the frontings!”—a summary of the day's New York Times headlines. Finally, I ask Jim, who is fluent in Japanese, to ask the train conductor to come over. He ambles by. I ask Jim to ask the conductor how fast we are going. They rattle back and forth in Japanese for a few seconds before Jim translates: “240 kilometers per hour.” I shake my head. We are on a bullet train going 240 km per hour-that's 150 mph-and my colleague is answering e-mail from Kazakhstan, and I can't drive from my home in suburban Washington to downtown DC without my cell phone service being interrupted at least twice. The day before, I was in Tokyo waiting for an appointment with Jim's colleague Todd Zaun, and he was preoccupied with his Japanese cell phone, which easily connects to the Internet from anywhere. “I am a surfer,” Todd explained, as he used his thumb to manipulate the keypad. “For $3 a month I subscribe to this [Japanese] site that tells me each morning how high the waves are at the beaches near my house. I check it out, and I decide where the best place to surf is that day.”

(The more I thought about this, the more I wanted to run for president on a one-issue ticket: “I promise, if elected, that within four years America will have as good a cell phone coverage as Ghana, and in eight years as good as Japan-provided that the Japanese sign a standstill agreement and won't innovate for eight years so we can catch up.” My campaign bumper sticker will be very simple: “Can You Hear Me Now?”)

I know that America will catch up sooner or later with the rest of the world in wireless technology. It's already happening. But this section about the tenth flattener is not just about wireless. It is about what I call “the steroids.” I call certain new technologies the steroids because they are amplifying and turbocharging all the other flatteners. They are taking all the forms of collaboration highlighted in this section— outsourcing, offshoring, open-sourcing, supply-chaining, insourcing, and in-forming-and making it possible to do each and every one of them in a way that is “digital, mobile, virtual, and personal,” as former HP CEO Carly Fiorina put it in her speeches, thereby enhancing each one and making the world flatter by the day.

By “digital,” Fiorina means that thanks to the PC-Windows-Netscape-work flow revolutions, all analog content and processes— everything from photography to entertainment to communication to word processing to architectural design to the management of my home lawn sprinkler system-are being digitized and therefore can be shaped, manipulated, and transmitted over computers, the Internet, satellites, or fiber-optic cable. By “virtual,” she means that the process of shaping, manipulating, and transmitting this digitized content can be done at very high speeds, with total ease, so that you never have to think about it-thanks to all the underlying digital pipes, protocols, and standards that have now been installed. By “mobile,” she means that thanks to wireless technology, all this can be done from anywhere, with anyone, through any device, and can be taken anywhere. And by “personal,” she means that it can be done by you, just for you, on your own device.

What does the flat world look like when you take all these new forms of collaboration and turbocharge them in this way? Let me give just one example. Bill Brody, the president of Johns Hopkins, told me this story in the summer of 2004: “I am sitting in a medical meeting in Vail and the [doctor] giving a lecture quotes a study from Johns Hopkins University. And the guy speaking is touting a new approach to treating prostate cancer that went against the grain of the current surgical method. It was a minimally invasive approach to prostate cancer. So he quotes a study by Dr. Patrick Walsh, who had developed the state-of-the-art standard of care for prostate surgery. This guy who is speaking proposes an alternate method-which was controversial-but he quotes from Walsh's Hopkins study in a way that supported his approach. When he said that, I said to myself, That doesn't sound like Dr. Walsh's study.' So I had a PDA [personal digital assistant], and I immediately went online [wirelessly] and got into the Johns Hopkins portal and into Medline and did a search right while I was sitting there. Up come all the Walsh abstracts. I toggled on one and read it, and it was not at all what the guy was saying it was. So I raised my hand during the Q and A and read two lines from the abstract, and the guy just turned beet red.”

The digitization and storage of all the Johns Hopkins faculty research in recent years made it possible for Brody to search it instantly and virtually without giving it a second thought. The advances in wireless technology made it possible for him to do that search from anywhere with any device. And his handheld personal computer enabled him to do that search personally-by himself, just for himself.

What are the steroids that made all this possible?

One simple way to think about computing, at any scale, is that it is comprised of three things: computational capability, storage capability, and input/output capability-the speed by which information is drawn in and out of the computer/storage complexes. And all of these have been steadily increasing since the days of the first bulky mainframes. This mutually reinforcing progress constitutes a significant steroid. As a result of it, year after year we have been able to digitize, shape, crunch, and transmit more words, music, data, and entertainment than ever before.

For instance, MIPS stands for “millions of instructions per second,” and it is one measure of the computational capability of a computer's microchips. In 1971, the Intel 4004 microprocessor produced.06 MIPS, or 60,000 instructions per second. Today's Intel Pentium 4 Extreme Edition has a theoretical maximum of 10.8 billion instructions per second. In 1971, the Intel 4004 microprocessor contained 2,300 transistors. Today's Itanium 2 packs 410 million transistors. Meanwhile, inputting and outputting data have leaped ahead at a staggering rate. At the speeds that disk drives operated back in the early days of 286 and 386 chips, it would have taken about a minute to download a single photo from my latest digital camera. Today I can do that in less than a second on a USB 2.0 disk drive and a Pentium processor. The amount of stuff you can now store to input and output “is off the charts, thanks to the steady advances in storage devices,” said Craig Mundie, Microsoft's chief technology officer. “Storage is growing exponentially, and this is really as much a factor in the revolution as anything else.” It's what is allowing all forms of content to become digital and to some extent portable. It is also becoming cheap enough that you can put massive amounts on even the personal devices people carry around with them. Five years ago, no one would have believed that you would be able to sell iPods with 40 gigabytes of storage, capable of holding thousands of songs, for prices that teenagers could afford. Now it's seen as ho-hum. And when it comes to moving all these bits around, the computing world has been turbocharged. Advances in fiber optics will soon allow a single fiber to carry 1 terabit per second. With 48 fibers in a cable, that's 48 terabits per second. Henry Schacht, the former CEO of Lucent, which specialized in this technology, pointed out that with that much capacity, you could “transmit all the printed material in the world in minutes in a single cable. This means unlimited transmitting capacity at zero incremental cost.” Even though the speeds that Schacht was talking about apply only to the backbone of the fiber network, and not that last mile into your house and into your computer, we are still talking about a quantum leap forward.

In The Lexus and the Olive Tree, I wrote about a 1999 Qwest commercial showing a businessman, tired and dusty, checking in to a roadside motel in the middle of nowhere. He asks the bored-looking desk clerk whether they have room service and other amenities. She says yes. Then he asks her whether entertainment is available on his room television, and the clerk answers in a what-do-you-think-you-idiot monotone, “All rooms have every movie ever made in every language, anytime, day or night.” I wrote about that back then as an example of what happens when you get connected to the Internet. Today it is an example of how much you can now get disconnected from the Internet, because in the next few years, as storage continues to advance and become more and more miniaturized, you will be able to buy enough storage to carry many of those movies around in your pocket.

Then add another hardware steroid to the mix: file sharing. It started with Napster paving the way for two of us to share songs stored on each other's computers. “At its peak,” according to Howstuffworks.com, “Napster was perhaps the most popular Website ever created. In less than a year, it went from zero to 60 million visitors per month. Then it was shut down by a court order because of copyright violations, and wouldn't re-launch until 2003 as a legal music-download site. The original Napster became so popular so quickly because it offered a unique product-free music that you could obtain nearly effortlessly from a gigantic database.” That database was actually a file-sharing architecture by which Napster facilitated a connection between my computer and yours so that we could swap music files. The original Napster is dead, but file-sharing technology is still around and is getting more sophisticated every day, greatly enhancing collaboration.

Finally, add one last hardware steroid that brings these technology breakthroughs together for consumers: the steady breakthrough in multipurpose devices-ever smaller and more powerful laptops, cell phones, you could practically feel the breath of the other parties to the videocon-ference, when in fact half of us were in Santa Barbara and half were five hundred miles away. Because DreamWorks is doing film and animation work all over the world, it felt that it had to have a videoconferencing solution where its creative people could really communicate all their thoughts, facial expressions, feelings, ire, enthusiasm, and raised eyebrows. HP's chief strategy and technology officer, Shane Robison, told me that HP plans to have these videoconferencing suites for sale by 2005 at a cost of roughly $250,000 each. That is nothing compared to the airline tickets and wear and tear on executives having to travel regularly to London or Tokyo for face-to-face meetings. Companies could easily make one of these suites pay for itself in a year. This level of videoconferencing, once it proliferates, will make remote development, outsourcing, and off-shoring that much easier and more efficient.

And now the icing on the cake, the iibersteroid that makes it all mobile: wireless. Wireless is what will allow you take everything that has been digitized, made virtual and personal, and do it from anywhere.

“The natural state of communications is wireless,” argued Alan Cohen, the senior vice president at Airespace. It started with voice, because people wanted to be able to make a phone call anytime, from anyplace, to anywhere. That is why for many people the cell phone is the most important phone they own. By the early twenty-first century, people began to develop that same expectation and with it the desire for data communication-the ability to access the Internet, e-mail, or any business files anytime, anywhere, using a cell phone, PalmPilot, or some other personal device. (And now a third element is entering the picture, creating more demand for wireless technology and enhancing the flattening of the earth: machines talking to machines wirelessly, such as Wal-Mart's RFID chips, little wireless devices that automatically transmit information to suppliers' computers, allowing them to track inventory.)

In the early days of computing (Globalization 2.0), you worked in the office. There was a big mainframe computer, and you literally had to walk over and get the people running the mainframe to extract or input information for you. It was like an oracle. Then, thanks to the PC and the Internet, e-mail, the laptop, the browser, and the client server, I could access from my own screen all sorts of data and information being stored on the network. In this era you were delinked from the office and could work at home, at the beach house, or in a hotel. Now we are in Globalization 3.0, where, thanks to digitization, miniaturization, virtualization, personalization, and wireless, I can be processing, collecting, or transmitting voice or data from anywhere to anywhere-as an individual or as a machine.

“Your desk goes with you everywhere you are now,” said Cohen. And the more people have the ability to push and pull information from anywhere to anywhere faster, the more barriers to competition and communication disappear. All of a sudden, my business has phenomenal distribution. I don't care whether you are in Bangalore or Bangor, I can get to you and you can get to me. More and more, people now want and expect wireless mobility to be there, just like electricity. We are rapidly moving into the age of the “mobile me,” said Padmasree Warrior, the chief technology officer of Motorola. If consumers are paying for any form of content, whether it is information, entertainment, data, games, or stock quotes, they increasingly want to be able to access it anytime, anywhere.

Right now consumers are caught in a maze of wireless technology offerings and standards that are still not totally interoperable. As we all know, some wireless technology works in one neighborhood, state, or country and not in another.

The “mobile me” revolution will be complete when you can move seamlessly around the town, the country, or the world with whatever device you want. The technology is getting there. When this is fully diffused, the “mobile me” will have its full flattening effect, by freeing people to truly be able to work and communicate from anywhere to anywhere with anything.

I got a taste of what is coming by spending a morning at the Tokyo headquarters of NTT DoCoMo, the Japanese cellular giant that is at the cutting edge of this process and far ahead of America in offering total interoperability inside Japan. DoCoMo is an abbreviation for Do Communications Over the Mobile Network; it also means “anywhere” in Japanese. My day at DoCoMo's headquarters started with a tour conducted by a robot, which bowed in perfect Japanese fashion and then gave me a spin around DoCoMo's showroom, which now features handheld video cell phones so you can see the person you are speaking with.

“Young people are using our mobile phones today as two-way videophones,” explained Tamon Mitsuishi, senior VP of the Ubiquitous Business Department at DoCoMo. “Everyone takes out their phones, they start dialing each other and have visual conversations. Of course there are some people who prefer not to see each other's faces.” Thanks to DoCoMo technology, if you don't want to show your face you can substitute a cartoon character for yourself and manipulate the keyboard so that it not only will speak for you but also will get angry for you and get happy for you. “So this is a mobile phone, and video camera, but it has also evolved to the extent that it has functions similar to a PC,” he added. “You need to move your buttons quickly [with your thumb]. We call ourselves 'the thumb people.' Young girls in high school can now move their thumbs faster than they can type on a PC.”

By the way, I asked, what does the “Ubiquitous Department” do?

“Now that we have seen the spread of the Internet around the world,” answered Mitsuishi, “what we believe we have to offer is the next step. Internet communication until today has been mostly between individuals-e-mail and other information. But what we are already starting to see is communication between individuals and machines and between machines. We are moving into that kind of phenomenon, because people want to lead a richer lifestyle, and businesses want more efficient practices... So young people in their business life use PCs in the offices, but in their private time they base their lifestyles on a mobile phone. There is now a growing movement to allow payment by mobile phone. [With] a smart card you will be able to make payments in virtual shops and smart shops. So next to the cash register there will be a reader of the card, and you just scan your phone and it becomes your credit card too...

“We believe that the mobile phone will become the essential contrailer of a person's life,” added Mitsuishi, oblivious of the double meaning of the English word “control.” “For example, in the medical field it will be your authentication system and you can examine your medical records, and to make payments you will have to hold a mobile phone. You will not be able to lead a life without a mobile phone, and it will control things at home too. We believe that we need to expand the range of machines that can be controlled by mobile phone.”

There is plenty to worry about in this future, from kids being lured by online sexual predators through their cell phones, to employees spending too much time playing mindless phone games, to people using their phone cameras for all sorts of illicit activities. Some Japanese were going into bookstores, pulling down cookbooks, and taking pictures of the recipes and then walking out. Fortunately, camera phones are now being enabled to make a noise when they shoot a picture, so that a store owner, or the person standing next to you in the locker room, will know if he is on Candid Camera. Because your Internet-enabled camera phone is not just a camera; it is also a copy machine, with worldwide distribution potential.

DoCoMo is now working with other Japanese companies on an arrangement by which you may be walking down the street and see a poster of a concert by Madonna in Tokyo. The poster will have a bar code and you can buy your tickets by just scanning the bar code. Another poster might be for a new Madonna CD. Just scan the bar code with your cell phone and it will give you a sample of the songs. If you like them, scan it again and you can buy the whole album and have it home-delivered. No wonder my New York Times colleague in Japan, Todd Zaun, who is married to a Japanese woman, remarked to me that there is so much information the Japanese can now access from their Internet-enabled wireless phones that “when I am with my Japanese relatives and someone has a question, the first thing they do is reach for the phone.”

I'm exhausted just writing about all this. But it is hard to exaggerate how much this tenth flattener-the steroids-is going to amplify and further empower all the other forms of collaboration. These steroids should make open-source innovation that much more open, because they will enable more individuals to collaborate with one another in more ways and from more places than ever before. They will enhance outsourcing, because they will make it so much easier for a single department of any company to collaborate with another company. They will enhance supply-chaining, because headquarters will be able to be connected in real time with every individual employee stocking the shelves, every individual package, and every Chinese factory manufacturing the stuff inside them. They will enhance insourcing-having a company like UPS come deep inside a retailer and manage its whole supply chain, using drivers who can interact with its warehouses, and with every customer, carrying his own PDA. And most obviously, they will enhance informing-the ability to manage your own knowledge supply chain.

Sir John Rose, the chief executive of Rolls-Royce, gave me a wonderful example of how wireless and other steroids are enhancing Rolls-Royce's ability to do work flow and other new forms of collaboration with its customers. Let's say you are British Airways and you are flying a Boeing 777 across the Atlantic. Somewhere over Greenland, one of your Rolls-Royce engines gets hit with lightning. The passengers and pilots might be worried, but there is no need. Rolls-Royce is on the case. That Rolls-Royce engine is connected by transponder to a satellite and is beaming data about its condition and performance, at all times, down into a computer in Rolls-Royce's operations room. That is true of many Rolls-Royce airplane engines in operation. Thanks to the artificial intelligence in the Rolls-Royce computer, based on complex algorithms, it can track anomalies in its engines while in operation. The artificial intelligence in the Rolls-Royce computer knows that this engine was probably hit by lightning, and feeds out a report to a Rolls-Royce engineer.

“With the real-time data we receive via satellites, we can identify an 'event' and our engineers can make remote diagnoses,” said Rose. “Under normal circumstances, after an engine gets hit by lightning you would have to land the plane, call in an engineer, do a visual inspection, and make a decision about how much damage might have been done and whether the plane has to be delayed in order to do a repair.

“But remember, these airlines do not have much turnaround time. If this plane is delayed, you throw off the crews, you drop out of your position to fly back home. It gets very costly. We can monitor and analyze engine performance automatically in real time, with our engineers making decisions about exactly what is needed by the time the plane has landed. And if we can determine by all the information we have about the engine that no intervention or even inspection is needed, the airplane can return on schedule, and that saves our customers time and money.”

Engines talking to computers, talking to people, talking back to the engines, followed by people talking to people-all done from anywhere to anywhere. That is what happens when all the flatteners start to get tur-bocharged by all the steroids.

Can you hear me now?

THREE: The Triple Convergence

What is the triple convergence? In order to explain what I mean, let me tell a personal story and share one of my favorite television commercials.

The story took place in March 2004. I had made plans to fly from Baltimore to Hartford on Southwest Airlines to visit my daughter Orly, who goes to school in New Haven, Connecticut. Being a tech-sawy guy, I didn't bother with a paper ticket but ordered an e-ticket through American Express. As anyone who flies regularly on Southwest knows, the cheapo airline has no reserved seats. When you check in, your ticket says simply A, B, or C, with the As boarding first, the Bs boarding second, and the Cs boarding last. As veterans of Southwest also know, you do not want to be a C. If you are, you will almost certainly end up in a middle seat with no space to put your carry-ons in the overhead bin. If you want to sit in a window or aisle seat and be able to store your stuff, you want to be an A. Since I was carrying some bags of clothing for my daughter, I definitely wanted to be an A. So I got up early to make sure I got to the Baltimore airport ninety-five minutes before my scheduled departure. I walked up to the Southwest Airlines e-ticket machine, stuck in my credit card, and used the touch screen to get my ticket-a thoroughly modern man, right? Well, out came the ticket and it said B.

I was fuming. “How in the world could I be a B?” I said to myself, looking at my watch. “There is no way that many people got here before me. This thing is rigged! This is fixed! This is nothing more than a slot machine!”

I stomped off, went through security, bought a Cinnabon, and glumly sat at the back of the B line, waiting to be herded on board so I could hunt for space in the overhead bins. Forty minutes later, the flight was called. From the B line, I enviously watched all the As file on board ahead of me, with a certain barely detectable air of superiority. And then I saw it.

Many of the people in the A line didn't have normal e-tickets like mine. They were just carrying what looked to me like crumpled pieces of white printer paper, but they weren't blank. They had boarding passes and bar codes printed on them, as if the As had downloaded their boarding passes off the Internet at home and printed them out on their home printers. Which, I quickly learned, was exactly what they had done. I didn't know it, but Southwest had recently announced that beginning at 12:01 a.m. the night before a flight, you could download your ticket at home, print it out, and then just have the bar code scanned by the gate agent before you boarded.

“Friedman,” I said to myself, looking at this scene, “you are so twentieth-century... You are so Globalization 2.0.” In Globalization 1.0 there was a ticket agent. In Globalization 2.0 the e-ticket machine replaced the ticket agent. In Globalization 3.0 you are your own ticket agent.

The television commercial is from Konica Minolta Business Technologies for a new multipurpose device it sells called bizhub, a piece of office machinery that allows you to do black-and-white or color printing, copy a document, fax it, scan it, scan it to e-mail, or Internet-fax it—all from the same machine. The commercial begins with a rapid cutting back and forth between two guys, one in his office and the other standing at the bizhub machine. They are close enough to talk by raising their voices. Dom is senior in authority but slow on the uptake-the kind of guy who hasn't kept up with changing technology (my kind of guy!). He can see Ted standing at the bizhub machine when he leans back in his chair and peers out his office doorway.

Dom: (At his desk) Hey, I need that chart. Ted: (At the bizhub) I'm e-mailing it now.

Dom: You're e-mailing from the copy machine?

Ted: No, I'm e-mailing from bizhub.

Dom: Bizhub? Wait, did you make my copies yet?

Ted: Right after I scan this.

Dom: You're scanning at an e-mail machine?

Ted: E-mail machine? I'm at the bizhub machine.

Dom: (Bewildered) Copying?

Ted: (Trying to be patient) E-mailing, then scanning, then copying.

Dom: (Long pause) Bizhub?

VO: (Over an animated graphic of bizhub illustrating its multiple functions) Amazing versatility and affordable color. That's bizhub, from Konica Minolta.

(Cut to Dom alone at the bizhub machine, trying to see if it will also dispense coffee into his mug.)

Southwest was able to offer its at-home ticketing, and Konica Minolta could offer bizhub, because of what I call the triple convergence. What are the components of this triple convergence? The short answer is this: First, right around the year 2000, all ten of the flatteners discussed in the previous chapter started to converge and work together in ways that created a new, flatter, global playing field. As this new playing field became established, both businesses and individuals began to adopt new habits, skills, and processes to get the most out of it. They moved from largely vertical means of creating value to more horizontal ones. The merger of this new playing field for doing business with the new ways of doing business was the second convergence, and it actually helped to flatten the world even further. Finally, just when all of this flattening was happening, a whole new group of people, several billion, in fact, walked out onto the playing field from China, India, and the former Soviet Empire. Thanks to the new flat world, and its new tools, some of them were quickly able to collaborate and compete directly with everyone else. This was the third convergence. Now let's look at each in detail.

Convergence I

All ten flatteners discussed in the previous chapter have been around, we know, since the 1990s, if not earlier. But they had to spread and take root and connect with one another to work their magic on the world. For instance, at some point around 2003, Southwest Airlines realized that there were enough PCs around, enough bandwidth, enough computer storage, enough Internet-comfortable customers, and enough software know-how for Southwest to create a work flow system that empowered its customers to download and print out their own boarding passes at home, as easily as downloading a piece of e-mail. Southwest could collaborate with its customers and they with Southwest in a new way. And somewhere around the same time, the work flow software and hardware converged in a way that enabled Konica Minolta to offer scanning, e-mailing, printing, faxing, and copying all from the same machine. This is the first convergence.

As Stanford University economist Paul Romer pointed out, economists have known for a long time that “there are goods that are complementary-whereby good A is a lot more valuable if you also have good B. It was good to have paper and then it was good to have pencils, and soon as you got more of one you got more of the other, and as you got a better quality of one and better quality of the other, your productivity improved. This is known as the simultaneous improvement of complementary goods.”

It is my contention that the opening of the Berlin Wall, Netscape, work flow, outsourcing, offshoring, open-sourcing, insourcing, supply-chaining, in-forming, and the steroids amplifying them all reinforced one another, like complementary goods. They just needed time to converge and start to work together in a complementary, mutually enhancing fashion. That tipping point arrived sometime around the year 2000.

The net result of this convergence was the creation of a global, Web-enabled playing field that allows for multiple forms of collaboration-the sharing of knowledge and work-in real time, without regard to geography, distance, or, in the near future, even language. No, not everyone has access yet to this platform, this playing field, but it is open today to more people in more places on more days in more ways than anything like it ever before in the history of the world. This is what I mean when I say the world has been flattened. It is the complementary convergence of the ten flatteners, creating this new global playing field for multiple forms of collaboration.

Convergence II

Great, you say, but why is it only in the past few years that we started to see in the United States the big surges in productivity that should be associated with such a technological leap? Answer: Because it always takes time for all the flanking technologies, and the business processes and habits needed to get the most out of them, to converge and create that next productivity breakthrough.

Introducing new technology alone is never enough. The big spurts in productivity come when a new technology is combined with new ways of doing business. Wal-Mart got big productivity boosts when it combined big box stores-where people could buy soap supplies for six months-with new, horizontal supply-chain management systems that allowed Wal-Mart instantly to connect what a consumer took off the shelf from a Wal-Mart in Kansas City with what a Wal-Mart supplier in coastal China would produce.

When computers were first introduced into offices, everyone expected a big boost in productivity. But that did not happen right away, and it sparked both disappointment and a little confusion. The noted economist Robert Solow quipped that computers are everywhere— except “in the productivity statistics.”

In a pathbreaking 1989 essay, “Computer and Dynamo: The Modern Productivity Paradox in a Not-Too Distant Mirror,” the economic historian Paul A. David explained such a lag by pointing to a historical precedent. He noted that while the lightbulb was invented in 1879, it took several decades for electrification to kick in and have a big economic and productivity impact. Why? Because it was not enough just to install electric motors and scrap the old technology-steam engines. The whole way of doing manufacturing had to be reconfigured. In the case of electricity, David pointed out, the key breakthrough was in how buildings, and assembly lines, were redesigned and managed. Factories in the steam age tended to be heavy, costly multistory buildings designed to brace the weighty belts and other big transmission devices needed to drive steam-powered systems. Once small, powerful electric motors were introduced, everyone hoped for a quick productivity boost. It took time, though. To get all the savings, you needed to redesign enough buildings. You needed to have long, low, cheaper-to-build single-story factories, with small electric motors powering machines of all sizes. Only when there was a critical mass of experienced factory architects and electrical engineers and managers, who understood the complementarities among the electric motor, the redesign of the factory, and the redesign of the production line, did electrification really deliver the productivity breakthrough in manufacturing, David wrote.

The same thing is happening today with the flattening of the world. Many of the ten flatteners have been around for years. But for the full flattening effects to be felt, we needed not only the ten flatteners to converge but also something else. We needed the emergence of a large cadre of managers, innovators, business consultants, business schools, designers, IT specialists, CEOs, and workers to get comfortable with, and develop, the sorts of horizontal collaboration and value-creation processes and habits that could take advantage of this new, flatter playing field. In short, the convergence of the ten flatteners begat the convergence of a set of business practices and skills that would get the most out of the flat world. And then the two began to mutually reinforce each other.

“When people asked, 'Why didn't the IT revolution lead to more productivity right away?' it was because you needed more than just new computers,” said Romer. “You needed new business processes and new types of skills to go with them. The new way of doing things makes the information technologies more valuable, and the new and better information technologies make the new ways of doing things more possible.”

Globalization 2.0 was really the era of mainframe computing, which was very vertical-command-and-control oriented, with companies and their individual departments tending to be organized in vertical silos. Globalization 3.0, which is built around the convergence of the ten flatteners, and particularly the combination of the PC, the microprocessor, the Internet, and fiber optics, flipped the playing field from largely top-down to more side to side. And this naturally fostered and demanded new business practices, which were less about command and control and more about connecting and collaborating horizontally.

“We have gone from a vertical chain of command for value creation to a much more horizontal chain of command for value creation,” explained Carly Fiorina. Innovations in companies like HP, she said, now come more and more often from horizontal collaboration among different departments and teams spread all across the globe. For instance, HP, Cisco, and Nokia recently collaborated on the development of a camera/ cell phone that beams its digitized pictures to an HP printer, which quickly prints them out. Each company had developed a very sophisticated technological specialty, but it could add value only when its specialty was horizontally combined with the specialties of the other two companies.

“How you collaborate horizontally and manage horizontally requires a totally different set of skills” from traditional top-down approaches, Fiorina added.

Let me offer just a few examples. In the past five years, HP has gone from a company that had eighty-seven different supply chains-each managed vertically and independently, with its own hierarchy of managers and back-office support-to a company with just five supply chains that manage $50 billion in business, and where functions like accounting, billing, and human resources are handled through a companywide system.

Southwest Airlines took advantage of the convergence of the ten flat-teners to create a system where its customers can download their boarding passes at home. But until I personally altered my ticket-buying habits and reengineered myself to collaborate horizontally with Southwest, this technological breakthrough didn't produce a productivity breakthrough for me or Southwest. What the bizhub commercial is about is the difference between the employee who understands the convergent technologies in the new bizhub machine (and how to get the most out of them) and the employee in the very same office who does not. Not until the latter changes his work habits will productivity in that fictional office go up, even though the office has this amazing new machine.

Finally, consider the example of WPP-the second-largest advertising-marketing-communications consortium in the world. WPP, which is based in England, did not exist as we now know it twenty years ago. It is a product of the consolidation of some of the biggest names in the business-from Young & Rubicam to Ogilvy & Mather to Hill & Knowlton. The alliance was put together to capture more and more of big clients' marketing needs, such as advertising, direct mail, media buying, and branding.

“For years the big challenge for WPP was how to get its own companies to collaborate,” said Allen Adamson, managing director of WPP's branding firm, Landor Associates. “Now, though, it is often no longer enough just to get the companies in WPP to work together per se. Increasingly, we find ourselves pulling together individuals from within each of these companies to form a customized collaborative team just for one client. The solution that will create value for that client did not exist in any one company or even in the traditional integration of the companies. It had to be much more specifically tailored. So we had to go down inside the whole group and pluck the individual who is the right ad person, to work with the right branding person, to work with the right media person for this particular client.”

When GE decided in 2003 to spin off its insurance businesses into a separate company, WPP assembled a customized team to handle everything from the naming of the new company-Genworth-all the way down to its first advertising campaign and direct-marketing program. “As a leader within this organization,” said Adamson, “what you have to do is figure out the value proposition that is needed for each client and then identify and assemble the individual talents within WPP's workforce that will in effect form a virtual company just for that client. In the case of GE, we even gave a name to the virtual collaborative team we formed: Klamath Communications.”

When the world went flat, WPP adapted itself to get the most out of itself. It changed its office architecture and practices, just like those companies that adjusted their steam-run factories to the electric motor. But WPP not only got rid of all its walls, it got rid of all its floors. It looked at all its employees from all its companies as a vast pool of individual specialists who could be assembled horizontally into collaborative teams, depending on the unique demands of any given project. And that team would then become a de facto new company with its own name.

It will take time for this new playing field and the new business practices to be fully aligned. It's a work in progress. But here's a little warning. It is happening much faster than you think, and it is happening globally.

Remember, this was a triple convergence!

Convergence III

How so? Just as we finished creating this new, more horizontal playing field, and companies and individuals primarily in the West started quickly adapting to it, 3 billion people who had been frozen out of the field suddenly found themselves liberated to plug and play with everybody else.

Save for a tiny minority, these 3 billion people had never been allowed to compete and collaborate before, because they lived in largely closed economies with very vertical, hierarchical political and economic structures. I am talking about the people of China, India, Russia, Eastern Europe, Latin America, and Central Asia. Their economies and political systems all opened up during the course of the 1990s, so that their people were increasingly free to join the free-market game. And when did these 3 billion people converge with the new playing field and the new processes? Right when the field was being flattened, right when millions of them could compete and collaborate more equally, more horizontally, and with cheaper and more readily available tools than ever before. Indeed, thanks to the flattening of the world, many of these new entrants didn't even have to leave home to participate. Thanks to the ten flatten-ers, the playing field came to them!

It is this triple convergence-of new players, on a new playing field, developing new processes and habits for horizontal collaboration—that I believe is the most important force shaping global economics and politics in the early twenty-first century. Giving so many people access to all these tools of collaboration, along with the ability through search engines and the Web to access billions of pages of raw information, ensures that the next generation of innovations will come from all over Planet Flat. The scale of the global community that is soon going to be able to participate in all sorts of discovery and innovation is something the world has simply never seen before.

Throughout the Cold War there were just three major trading blocs-North America, Western Europe, and Japan plus East Asia-and the competition among the three was relatively controlled, since they were all Cold War allies on the same side of the great global divide. There were also still a lot of walls around for labor and industries to hide behind. The wage rates in these three trading blocs were roughly the same, the workforces roughly the same size, and the education levels roughly equivalent. “You had a gentlemanly competition,” noted Intel's Chairman Craig Barrett.

Then along came the triple convergence. The Berlin Wall came down, the Berlin mall opened up, and suddenly some 3 billion people who had been behind walls walked onto the flattened global piazza.

Here's what happened in round numbers: According to a November 2004 study by Harvard University economist Richard B. Freeman, in 1985 “the global economic world” comprised North America, Western Europe, Japan, as well as chunks of Latin America, Africa, and the countries of East Asia. The total population of this global economic world, taking part in international trade and commerce, said Freeman, was about 2.5 billion people.

By 2000, as a result of the collapse of communism in the Soviet Empire, India's turn from autarky, China's shift to market capitalism, and population growth all over, the global economic world expanded to encompass 6 billion people.

As a result of this widening, another roughly 1.5 billion new workers entered the global economic labor force, Freeman said, which is almost exactly double the number we would have had in 2000 had China, India, and the Soviet Empire not joined.

True, maybe only 10 percent of this new 1.5 billion-strong workforce entering the global economy have the education and connectivity to collaborate and compete at a meaningful level. But that is still 150 million people, roughly the size of the entire U.S. workforce. Said Barrett, “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.”

That is exactly right. And a lot of those new workers are not just walking onto the playing field. No, this is no slow-motion triple convergence. They are jogging and even sprinting there. Because once the world has been flattened and the new forms of collaboration made available to more and more people, the winners will be those who learn the habits, processes, and skills most quickly-and there is simply nothing that guarantees it will be Americans or Western Europeans permanently leading the way. And be advised, these new players are stepping onto the playing field legacy free, meaning that many of them were so far behind they can leap right into the new technologies without having to worry about all the sunken costs of old systems. It means that they can move very fast to adopt new, state-of-the-art technologies, which is why there are already more cell phones in use in China today than there are people in the United States. Many Chinese just skipped over the landline phase. South Koreans put Americans to shame in terms of Internet usage and broadband penetration.

We tend to think of global trade and economics as something driven by the IMF, the G-8, the World Bank, the WTO, and the trade treaties forged by trade ministers. I don't want to suggest that these governmental agencies are irrelevant. They are not. But they are going to become less important. In the future globalization is going to be increasingly driven by the individuals who understand the flat world, adapt themselves quickly to its processes and technologies, and start to march forward-without any treaties or advice from the IMF. They will be every color of the rainbow and from every corner of the world.

The global economy from here forward will be shaped less by the ponderous deliberations of finance ministers and more by the spontaneous explosion of energy from the zippies. Yes, Americans grew up with the hippes in the 1960s. Thanks to the high-tech revolution, many of us became yuppies in the 1980s. Well, now let me introduce the zippies.

“The Zippies Are Here,” declared the Indian weekly magazine Outlook. Zippies are the huge cohort of Indian youth who are the first to come of age since India shifted away from socialism and dived headfirst into global trade and the information revolution by turning itself into the world's service center. Outlook called India's zippies “Liberalization's Children” and defined a zippie as a “young city or suburban resident, between 15 and 25 years of age, with a zip in the stride. Belongs to Generation Z. Can be male or female, studying or working. Oozes attitude, ambition and aspiration. Cool, confident and creative. Seeks challenges, loves risks and shuns fear.” Indian zippies feel no guilt about making money or spending it. They are, says one Indian analyst quoted by Outlook, “destination driven, not destiny driven, outward looking, not inward, upwardly mobile, not stuck-in-my-station-in-life.” With 54 percent of India under the age of twenty-five-that's 555 million people-six out of ten Indian households have at least one potential zippie. And the zippies don't just have a pent-up demand for good jobs; they want the good life.

It all happened so fast. P. V. Kannan, the CEO and cofounder of the Indian call-center company 24/7 Customer, told me that in the last decade, he went from sweating out whether he would ever get a chance to work in America to becoming one of the leading figures in the outsourcing of services from America to the rest of the world.

“I will never forget when I applied for a visa to come to the United States,” Kannan recalled. “It was March 1991.1 had gotten a B.A. in chartered accountancy from the [Indian] Institute of Chartered Accountants. I was twenty-three, and my girlfriend was twenty-five. She was also a chartered accountant. I had graduated at age twenty and had been working for the Tata Consultancy group. So was my girlfriend. And we both got job offers through a body shop [a recruiting firm specializing in importing Indian talent for companies in America] to work as programmers for IBM. So we went to the U.S. consulate in Bombay. The recruiting service was based in Bombay. In those days, there was always a very long line to get visas to the United States, and there were people who would actually sleep in the line and hold places and you could go buy their place for 20 rupees. But we went by ourselves and stood in line and we finally got in to see the man who did the interview. He was an American [consular official]. His job was to ask questions and try to figure out whether we were going to do the work and then come back to India or try to stay in America. They judge by some secret formula. We used to call it 'the lottery'-you went and stood in line and it was a life lottery, because everything was dependent on it.”

There were actually books and seminars in India devoted entirely to the subject of how to prepare for a work visa interview at the U.S. embassy. It was the only way for skilled Indian engineers really to exploit their talent. “I remember one tip was to always go professionally dressed,” said Kannan, “so [my girlfriend and I] were both in our best clothes. After the interview is over, the man doesn't tell you anything. You had to wait until the evening to know the results. But meanwhile, the whole day was hell. To distract our minds, we just walked the streets of Bombay and went shopping. We would go back and forth, 'What if I get in and you don't? What if you get in and I don't?' I can't tell you how anxious we were, because so much was riding on it. It was torture. So in the evening we go back and both of us got visas, but I got a five-year multiple entry and my girlfriend got a six-month visa. She was crying. She did not understand what it meant. 'I can only stay for six months?' I tried to explain to her that you just need to get in and then everything can be worked out.”

While many Indians still want to come to America to work and study, thanks to the triple convergence many of them can now compete at the highest levels, and be decently paid, by staying at home. In a flat world, you can innovate without having to emigrate. Said Kannan, “My daughter will never have to sweat that out.” In a flat world, he explained, “there is no one visa officer who can keep you out of the system... It's a plug-and-play world.”

One of the most dynamic pluggers and players I met in India was Rajesh Rao, founder and CEO of Dhruva Interactive, a small Indian game company based in Bangalore. If I could offer you one person who embodies the triple convergence, it is Rajesh. He and his firm show us what happens when an Indian zippie plugs into the ten flatteners.

Dhruva is located in a converted house on a quiet street in a residential neighborhood of Bangalore. When I stopped in for a visit, I found two floors of Indian game designers and artists, trained in computer graphics, working on PCs, drawing various games and animated characters for American and European clients. The artists and designers were listening to music on headphones as they worked. Occasionally, they took a break by playing a group computer game, in which all the designers could try to chase and kill one another at once on their computer screens. Dhruva has already produced some very innovative games— from a computer tennis game you can play on the screen of your cell phone to a computer pool game you can play on your PC or laptop. In 2004, it bought the rights to use Charlie Chaplin's image for mobile computer games. That's right-a start-up Indian game company today owns the Chaplin image for use in mobile computer games.

In Bangalore and in later e-mail conversations, I asked Rajesh, who is in his early thirties, to walk me through how he became a player in the global game business from Bangalore.

“The first defining moment for me dates back to the early nineties,” said Rajesh, a smallish, mustachioed figure with the ambition of a heavyweight boxer. “Having lived and worked in Europe, as a student, I was clear in my choice that I would not leave India. I wanted to do my thing from India, do something that would be globally respected and something that would make a difference in India. I started my company in Bangalore as a one-man operation on March 15, 1995. My father gave me the seed money for the bank loan that bought me a computer and a 14.4 kbp modem. I set out to do multimedia applications aimed at the education and industry sectors. By 1997, we were a five-man team. We had done some pathbreaking work in our chosen field, but we realized that this was not challenging us enough. End of Dhruva 1.0.

“In March 1997, we partnered with Intel and began the process of reinventing ourselves into a gaming company. By mid-1998, we were showing global players what we were capable of by way of both designing games and developing the outsourced portions of games designed by others. On November 26, 1998, we signed our first major game development project with Infogrames Entertainment, a French gaming company. In hindsight, I think the deal we landed was due to the pragmatism of one man in Infogrames more than anything else. We did a great job on the game, but it was never published. It was a big blow for us, but the quality of our work spoke for itself, so we survived. The most important lesson we learned: We could do it, but we had to get smart. Going for all or nothing-that is, signing up to make only a full game or nothing at all-was not sustainable. We had to look at positioning ourselves differently. End of Dhruva 2.0.”

This led to the start of Dhruva's 3.0 era-positioning Dhruva as a provider of game development services. The computer game business is already enormous, every year grossing more revenue than Hollywood, and it already had some tradition of outsourcing game characters to countries like Canada and Australia. “In March 2001, we sent out our new game demo, Saloon, to the world,” said Rajesh. “The theme was the American Wild Wild West, and the setting was a saloon in a small town after business hours, with the barman cleaning up... None of us had ever seen a real saloon before, but we researched the look and feel [of a saloon] using the Internet and Google. The choice of the theme was deliberate. We wanted potential clients in the U.S.A. and Europe to be convinced that Indians can 'get it.' The demo was a hit, it landed us a bunch of outsourced business, and we have been a successful company ever since.”

Could he have done this a decade earlier, before the world got so flat?

“Never,” said Rajesh. Several things had to come together. The first was to have enough installed bandwidth so he could e-mail game content and instructions back and forth between his own company and his American clients. The second factor, said Rajesh, was the spread of PCs for use in both business and at home, with people getting very comfortable using them in a variety of tasks. “PCs are everywhere,” he said. “The penetration is relatively decent even in India today.”

The third factor, though, was the emergence of the work flow software and Internet applications that made it possible for a Dhruva to go into business as a minimultinational from day one: Word, Outlook, NetMeeting, 3D Studio MAX. But Google is the key. “It's fantastic,” said Rajesh. “One of the things that's always an issue for our clients from the West is, 'Will you Indians be able to understand the subtle nuances of Western content?' Now, to a large extent, it was a very valid question. But the Internet has helped us to be able to aggregate different kinds of content at the touch of a button, and today if someone asks you to make something that looks like Tom and Jerry, you just say 'Google Tom & Jerry' and you've got tons and tons of pictures and information and reviews and write-ups about Tom and Jerry, which you can read and simulate.”

While people were focusing on the boom and bust of the dot-coms, Rajesh explained, the real revolution was taking place more quietly. It was the fact that all over the world, people, en masse, were starting to get comfortable with the new global infrastructure. “We are just at the beginning of being efficient in using it,” he said. “There is a lot more we can do with this infrastructure, as more and more people shift to becoming paperless in their offices and realize that distances really [do] not matter... It will supercharge all of this. It's really going to be a different world.”

Moreover, in the old days, these software programs would have been priced beyond the means of a little Indian game start-up, but not anymore, thanks in part to the open-source free software movement. Said Rajesh, “The cost of software tools would have remained where the interested parties wanted them to be if it was not for the deluge of rather efficient freeware and shareware products that sprung up in the early 2000s. Microsoft Windows, Office, 3D Studio MAX, Adobe Photoshop-each of these programs would have been priced higher than they are today if not for the many freeware/shareware programs that were comparable and compelling. The Internet brought to the table the element of choice and instant comparison that did not exist before for a little company like ours... Already we have in our gaming industry artists and designers working from home, something unimaginable a few years back, given the fact that developing games is a highly interactive process. They connect into the company's internal system over the Internet, using a secure feature called VPN [virtual private network], making their presence no different from the guy in the next cubicle.”

The Internet now makes this whole world “like one marketplace,” added Rajesh. “This infrastructure is not only going to facilitate sourcing of work to the best price, best quality, from the best place, it is also going to enable a great amount of sharing of practices and knowledge, and it's going to be 'I can learn from you and you can learn from me' like never before. It's very good for the world. The economy is going to drive integration and the integration is going to drive the economy.”

There is no reason the United States should not benefit from this trend, Rajesh insisted. What Dhruva is doing is pioneering computer gaming within Indian society. When the Indian market starts to embrace gaming as a mainstream social activity, Dhruva will already be positioned to take advantage. But by then, he argued, the market “will be so huge that there will be a lot of opportunity for content to come from outside. And, hey, the Americans are way ahead in terms of the ability to know what games can work and what won't work and in terms of being at the cutting edge of design-so this is a bilateral thing... Every perceived dollar or opportunity that is lost today [from an American point of view because of outsourcing] is actually going to come back to you times ten, once the market here is unleashed... Just remember, we are a 300-million middle class-larger than the size of your country or Europe.”

Yes, he noted, India right now has a great advantage in having a pool of educated, low-wage English speakers with a strong service etiquette in their DNA and an enterprising spirit. “So, sure, for the moment, we are leading the so-called wave of service outsourcing of various kinds of new things,” said Rajesh. “But I believe that there should be no doubt that this is just the beginning. If [Indians] think that they've got something going and there is something they can keep that's not going to go anywhere, that will be a big mistake, because we have got Eastern Europe, which is waking up, and we have got China, which is waiting to get on the services bandwagon to do various things. I mean, you can source the best product or service or capacity or competency from anywhere in the world today, because of this whole infrastructure that is being put into place. The only thing that inhibits you from doing that is your readiness to make use of this infrastructure. So as different businesses, and as different people, get more comfortable using this infrastructure, you are going to see a huge explosion. It is a matter of five to seven years and we will have a huge batch of excellent English-speaking Chinese graduates coming out of their universities. Poles and Hungarians are already very well connected, very close to Europe, and their cultures are very similar [to Western Europe's]. So today India is ahead, but it has to work very hard if it wants to keep this position. It has to never stop inventing and reinventing itself.”

The raw ambition that Rajesh and so many of his generation possess is worthy of note by Americans-a point I will elaborate on later.

“We can't relax,” said Rajesh. “I think in the case of the United States that is what happened a bit. Please look at me: I am from India. We have been at a very different level before in terms of technology and business. But once we saw we had an infrastructure which made the world a small place, we promptly tried to make the best use of it. We saw there were so many things we could do. We went ahead, and today what we are seeing is a result of that... There is no time to rest. That is gone. There are dozens of people who are doing the same thing you are doing, and they are trying to do it better. It is like water in a tray, you shake it and it will find the path of least resistance. That is what is going to happen to so many jobs-they will go to that corner of the world where there is the least resistance and the most opportunity. If there is a skilled person in Timbuktu, he will get work if he knows how to access the rest of the world, which is quite easy today. You can make a Web site and have an e-mail address and you are up and running. And if you are able to demonstrate your work, using the same infrastructure, and if people are comfortable giving work to you, and if you are diligent and clean in your transactions, then you are in business.”

Instead of complaining about outsourcing, said Rajesh, Americans and Western Europeans would “be better off thinking about how you can raise your bar and raise yourselves into doing something better. Americans have consistently led in innovation over the last century. Americans whining-we have never seen that before. People like me have learned a lot from Americans. We have learned to become a little more aggressive in the way we market ourselves, which is something we would not have done given our typical British background.”

So what is your overall message? I asked Rajesh, before leaving with my head spinning.

“My message is that what's happening now is just the tip of the iceberg... What is really necessary is for everybody to wake up to the fact that there is a fundamental shift that is happening in the way people are going to do business. And everyone is going to have to improve themselves and be able to compete. It is just going to be one global market. Look, we just made [baseball] caps for Dhruva to give away. They came from Sri Lanka.”

“Not from a factory in South Bangalore?” I asked.

“Not from South Bangalore,” said Rajesh, “even though Bangalore is one of the export hubs for garments. Among the three or four caps we got quotations for, this [Sri Lankan one] was the best in terms of quality and the right price, and we thought the finish was great.

“This is the situation you are going to see moving forward,” Rajesh concluded. “If you are seeing all this energy coming out of Indians, it's because we have been underdogs and we have that drive to kind of achieve and to get there... India is going to be a superpower and we are going to rule.”

“Rule whom?” I asked.

Rajesh laughed at his own choice of words. “It's not about ruling anybody. That's the point. There is nobody to rule anymore. It's about how you can create a great opportunity for yourself and hold on to that or keep creating new opportunities where you can thrive. I think today that rule is about efficiency, it's about collaboration and it is about competitiveness and it is about being a player. It is about staying sharp and being in the game... The world is a football field now and you've got to be sharp to be on the team which plays on that field. If you're not good enough, you're going to be sitting and watching the game. That's all.”

How Do You Say “Zippie” in Chinese?

As in Bangalore ten years ago, the best place to meet zippies in Beijing today is in the line at the consular section of the U.S. embassy. In Beijing in the summer of 2004, I discovered that the quest by Chinese students for visas to study or work in America was so intense that it had spawned dedicated Internet chat rooms, where Chinese students swapped stories about which arguments worked best with which U.S. embassy consular officials. They even gave the U.S. diplomats names like “Amazon Goddess,” “Too Tall Baldy,” and “Handsome Guy.” Just how intensely Chinese students strategize over the Internet was revealed, U.S. embassy officials told me, when one day a rookie U.S. consular official had student after student come before him with the same line that some chat room had suggested would work for getting a visa: “I want to go to America to become a famous professor.”

After hearing this all day, the U.S. official was suddenly surprised to get one student who came before him and pronounced, “My mother has an artificial limb and I want to go to America to learn how to build a better artificial limb for her.” The official was so relieved to hear a new line that he told the young man, “You know, this is the best story I've heard all day. I really salute you. I'm going to give you a visa.”

You guessed it.

The next day, a bunch of students showed up at the embassy saying they wanted a visa to go to America to learn how to build better artificial limbs for their mothers.

Talking to these U.S. embassy officials in Beijing, who are the gatekeepers for these visas, it quickly became apparent to me that they had mixed feelings about the process. On the one hand, they were pleased that so many Chinese wanted to come study and work in America. On the other hand, they wanted to warn American kids: Do you realize what is coming your way? As one U.S. embassy official in Beijing said to me, “What I see happening [in China] is what has been going on for the last several decades in the rest of Asia-the tech booms, the tremendous energy of the people. I saw it elsewhere, but now it is happening here.”

I was visiting Yale in the spring of 2004. As I was strolling through the central quad, near the statue of Elihu Yale, two Chinese-speaking tours came through, with Chinese tourists of all ages. Chinese have started to tour the world in large numbers, and as China continues to develop toward a more open society, it is quite likely that Chinese leisure tourists will alter the whole world-tourism industry.

But Chinese are not visiting Yale just to admire the ivy. Consider these statistics from Yale's admissions office. The fall 1985 class had 71 graduate and undergraduate students from China and 1 from the Soviet Union. The fall 2003 class had 297 Chinese graduate and undergraduate students and 23 Russians. Yale's total international student contingent went from 836 in the fall of 1985 to 1,775 in the fall of 2003. Applications from Chinese and Russian high school students to attend Yale as undergraduates have gone from a total of 40 Chinese for the class of 2001 to 276 for the class of 2008, and 18 Russians for the class of 2001 to 30 for the class of 2008. In 1999, Yiting Liu, a schoolgirl from Chengdu, China, got accepted to Harvard on a full scholarship. Her parents then wrote a build-your-own handbook about how they managed to prepare their daughter to get accepted to Harvard. The book, in Chinese, titled Harvard Girl Yiting Liu, offered “scientifically proven methods” to get your Chinese kid into Harvard. The book became a runaway best seller in China. By 2003 it had sold some 3 million copies and spawned more than a dozen copycat books about how to get your kid into Columbia, Oxford, or Cambridge.

While many Chinese aspire to go to Harvard and Yale, they aren't just waiting around to get into an American university. They are also trying to build their own at home. In 2004,1 was a speaker for the 150th anniversary of Washington University in St. Louis, a school noted for its strength in science and engineering. Mark Wrighton, the university's thoughtful chancellor, and I were chatting before the ceremony. He mentioned in passing that in the spring of 2001 he had been invited (along with many other foreign and American academic leaders) to Tsinghua University in Beijing, one of the finest in China, to participate in the celebration of its ninetieth anniversary. He said the invitation left him scratching his head at first: Why would any university celebrate its ninetieth anniversary-not its hundredth?

“Perhaps a Chinese tradition?” Wrighton asked himself. When he arrived at Tsinghua, though, he learned the answer. The Chinese had brought academics from all over the world to Tsinghua-more than ten thousand people attended the ceremony-in order to make the declaration “that at the one hundredth anniversary Tsinghua University would be among the world's premier universities,” Wrighton later explained to me in an e-mail. “The event involved all of the leaders of the Chinese government, from the Mayor of Beijing to the head of state. Each expressed the conviction that an investment in the university to support its development as one of the world's great universities within ten years would be a rewarding one. With Tsinghua University already regarded as one of the leading universities in China, focused on science and technology, it was evident that there is a seriousness of purpose in striving for a world leadership position in [all the areas involved] in spawning technological innovation.”

And as a result of China's drive to succeed, Microsoft chairman Bill Gates argued to me, the “ovarian lottery” has changed-as has the whole relationship between geography and talent. Thirty years ago, he said, if you had a choice between being born a genius on the outskirts of Bombay or Shanghai or being born an average person in Poughkeepsie, you would take Poughkeepsie, because your chances of thriving and living a decent life there, even with average talent, were much greater. But as the world has gone flat, Gates said, and so many people can now plug and play from anywhere, natural talent has started to trump geography.

“Now,” he said, “I would rather be a genius born in China than an average guy born in Poughkeepsie.”

That's what happens when the Berlin Wall turns into the Berlin mall and 3 billion people converge with all these new tools for collaboration. “We're going to tap into the energy and talent of five times as many people as we did before,” said Gates.

From Russia with Love

I didn't get a chance to visit Russia and interview Russian zippies for this book, but I did the next best thing. I asked my friend Thomas R. Pickering, the former U.S. ambassador to Moscow and now a top international relations executive with Boeing, to explain a new development I had heard about: that Boeing was using Russian engineers and scientists, who once worked on MiGs, to help design its next generation of passenger planes.

Pickering unraveled the story for me. Beginning in 1991, Boeing started assigning out work to Russian scientists to take advantage of their expertise in aerodynamic problems and new aviation alloys. In 1998, Boeing decided to take this a step further and open an aeronautical engineering design office in Moscow. Boeing located the office in the twelve-story Moscow tower that McDonald's built with all the rubles it made from selling Big Macs in Moscow before the end of communism— money that McDonald's had pledged not to take out of the country.

Seven years later, said Pickering, “we now have eight hundred Russian engineers and scientists working for us and we're going up to at least one thousand and maybe, over time, to fifteen hundred.” The way it works, he explained, is that Boeing contracts with different Russian aircraft companies-companies that were famous in the Cold War for making warplanes, companies with names like Ilyushin, Tupolev, and Sukhoi-and they provide the engineers-to-order for Boeing's different projects. Using French-made airplane design software, the Russian engineers collaborate with their colleagues at Boeing America -in both Seattle and Wichita, Kansas-in computer-aided airplane designs. Boeing has set up a twenty-four-hour workday. It consists of two shifts in Moscow and one shift in America. Using fiber-optic cables, advanced compression technologies, and aeronautical work flow software, “they just pass their designs back and forth from Moscow to America,” Pickering said. There are videoconferencing facilities on every floor of Boeing's Moscow office, so the engineers don't have to rely on e-mail when they have a problem to solve with their American counterparts. They can have a face-to-face conversation.

Boeing started outsourcing airplane design work to Moscow as an experiment, a sideline; but today, with a shortage of aeronautical engineers in America, it is a necessity. Boeing's ability to blend these lower-cost Russian engineers with higher-cost, more advanced American design teams is enabling Boeing to compete head-to-head with its archrival, Airbus Industries, which is subsidized by a consortium of European governments and is using Russian talent as well. A U.S. aeronautical engineer costs $120 per design hour; a Russian costs about one-third of that.

But the outsourcees are also outsourcers. The Russian engineers have outsourced elements of their work for Boeing to Hindustan Aeronautics in Bangalore, which specializes in digitizing airplane designs so as to make them easier to manufacture. But this isn't the half of it. In the old days, explained Pickering, Boeing would say to its Japanese subcontractors, “We will send you the plans for the wings of the 777. We will let you make some of them and then we will count on you buying the whole airplanes from us. It's a win-win.”

Today Boeing says to the giant Japanese industrial company Mitsubishi, “Here are the general parameters for the wings of the new 7E7. You design the finished product and build it.” But Japanese engineers are very expensive. So what happens? Mitsubishi outsources elements of the outsourced 7E7 wing to the same Russian engineers Boeing is using for other parts of the plane. Meanwhile, some of these Russian engineers and scientists are leaving the big Russian airplane companies, setting up their own firms, and Boeing is considering buying shares in some of these start-ups to have reserve engineering capacity.

All of this global sourcing is for the purpose of designing and building planes faster and cheaper, so that Boeing can use its cash to keep innovating for the next generation and survive the withering competition from Airbus. Thanks to the triple convergence, it now takes Boeing eleven days to build a 737, down from twenty-eight days just a few years ago. Boeing will build its next generation of planes in three days, because all the parts are being computer-designed for assembly, and Boeing's global supply chain will enable it to move parts from one facility to another just in time.

To make sure that it is getting the best deals on its parts and other supplies, Boeing now runs regular “reverse auctions,” in which companies bid down against each other rather than bid up against each other. They bid for contracts on everything from toilet paper for the Boeing factories to nuts and bolts-the off-the-shelf commodity parts-for Boeing's supply chain. Boeing will announce an auction for a stated time on a specially designed Internet site. It will begin the auction for each supply item at what it considers a fair price. Then it will just sit back and watch how far each supplier wants to undercut the others to win Boeing's business. Bidders are prequalified by Boeing, and everyone can see everyone else's bids as they are submitted.

“You can really see the pressures of the marketplace and how they work,” said Pickering. “It's like watching a horse race.”

The Other Triple Convergence

I once heard Bill Bradley tell a story about a high-society woman from Boston who goes to San Francisco for the first time. When she comes home and is asked by a friend how she liked it, she says, “Not very much-it's too far from the ocean.”

The perspective and predispositions that you carry around in your head are very important in shaping what you see and what you don't see. That helps to explain why a lot of people missed the triple convergence. Their heads were completely somewhere else-even though it was happening right before their eyes. Three other things-another convergence— came together to create this smoke screen.

The first was the dot-com bust, which began in March 2001. As I said earlier, many people wrongly equated the dot-com boom with globalization. So when the dot-com boom went bust, and so many dot-coms (and the firms that supported them) imploded, these same people assumed that globalization was imploding as well. The sudden flameout of dogfood.com and ten other Web sites offering to deliver ten pounds of puppy chow to your door in thirty minutes was supposed to be proof that globalization and the IT revolution were all sizzle and no beef.

This was pure foolishness. Those who thought that globalization was the same thing as the dot-com boom and that the dot-com bust marked the end of globalization could not have been more wrong. To say it again, the dot-com bust actually drove globalization into hypermode by forcing companies to outsource and offshore more and more functions in order to save on scarce capital. This was a key factor in laying the groundwork for Globalization 3.0. Between the dot-com bust and today, Google went from processing roughly 150 million searches per day to roughly one billion searches per day, with only a third coming from inside the United States. As its auction model caught on worldwide, eBay went from twelve hundred employees in early 2000 to sixty-three hundred by 2004, all in the period when globalization was supposed to be “over.” Between 2000 and 2004, total global Internet usage grew 125 percent, including 186 percent in Africa, 209 percent in Latin America, 124 percent in Europe, and 105 percent in North America, according to Nielsen/ NetRatings. Yes, globalization sure ended, all right.

It was not just the dot-com bust and all the hot air surrounding it that obscured all this from view. There were two other big clouds that moved in. The biggest, of course, was 9/11, which was a profound shock to the American body politic. Given 9/11, and the Afghanistan and Iraq invasions that followed, it's not surprising that the triple convergence was lost in the fog of war and the chatter of cable television. Finally, there was the Enron corporate governance scandal, quickly followed by blowups at Tyco and WorldCom-which all sent CEOs and the Bush administration running for cover. CEOs, with some justification, became guilty until proven innocent of boardroom shenanigans, and even the slavishly probusiness, pro-CEO Bush administration was wary of appearing-in public-to be overly solicitous of the concerns of big business. In the spring of 2004,1 met with the head of one of America's biggest technology companies, who had come to Washington to lobby for more federal funding for the National Science Foundation to help nurture a stronger industrial base for American industry. I asked him why the administration wasn't convening a summit of CEOs to highlight this issue, and he just shook his head and said one word: “Enron.”

The result: At the precise moment when the world was being flattened, and the triple convergence was reshaping the whole global business environment-requiring some very important adjustments in our own society and that of many other Western developed nations-American politicians not only were not educating the American public, they were actively working to make it stupid. During the 2004 election campaign we saw the Democrats debating whether NAFTA was a good idea and the Bush White House putting duct tape over the mouth of N. Gregory Mankiw, the chairman of the White House Council of Economic Advisers, and stashing him away in Dick Cheney's basement, because Mankiw, author of a popular college economics textbook, had dared to speak approvingly of oursourcing as just the “latest manifestation of the gains from trade that economists have talked about at least since Adam Smith.”

Mankiw's statement triggered a competition for who could say the most ridiculous thing in response. The winner was Speaker of the House Dennis Hastert, who said that Mankiw's “theory fails a basic test of real economics.” And what test was that, Dennis? Poor Mankiw was barely heard from again.

For all these reasons, most people missed the triple convergence. Something really big was happening, and it was simply not part of public discourse in America or Europe. Until I visited India in early 2004,1 too was largely ignorant of it, although I was picking up a few hints that something was brewing. One of the most thoughtful business leaders I have come to know over the years is Nobuyuki Idei, the chairman of Sony. Whenever he speaks, I pay close attention. We saw each other twice during 2004, and both times he said something through his heavy Japanese accent that stuck in my ear. Idei said that a change was under way in the business-technology world that would be remembered, in time, like “the meteor that hit the earth and killed all the dinosaurs.” Fortunately, the cutting-edge global companies knew what was going on out there, and the best companies were quietly adapting to it so that they would not be one of those dinosaurs.

As I started researching this book, I felt at times like I was in a Twilight Zone segment. I would interview CEOs and technologists from major companies, both American-based and foreign, and they would describe in their own ways what I came to call the triple convergence. But, for all the reasons I explained above, most of them weren't telling the public or the politicians. They were either too distracted, too focused on their own businesses, or too afraid. It was like they were all “pod people,” living in a parallel universe, who were in on a big secret. Yes, they all knew the secret-but nobody wanted to tell the kids.

Well, here's the truth that no one wanted to tell you: The world has been flattened. As a result of the triple convergence, global collaboration and competition-between individuals and individuals, companies and individuals, companies and companies, and companies and customers— have been made cheaper, easier, more friction-free, and more productive for more people from more corners of the earth than at any time in the history of the world.

You know “the IT revolution” that the business press has been touting for the last twenty years? Sorry, but that was only the prologue. The last twenty years were just about forging, sharpening, and distributing all the new tools with which to collaborate and connect. Now the real IT revolution is about to begin, as all the complementarities between these tools start to really work together to level the playing field. One of those who pulled back the curtain and called this moment by its real name was HP's Carly Fiorina, who in 2004 began to declare in her public speeches that the dot-com boom and bust were just “the end of the beginning.” The last twenty-five years in technology, said Fiorina, then the CEO of HP, have been just “the warm-up act.” Now we are going into the main event, she said, “and by the main event, I mean an era in which technology will literally transform every aspect of business, every aspect of life and every aspect of society.”

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.

Consider this vivid example: On December 7, 2004, IBM announced that it was selling its whole Personal Computing Division to the Chinese computer company Lenovo to create a new worldwide PC company— the globe's third largest-with approximately $12 billion in annual revenue. Simultaneously, though, IBM said that it would be taking an 18.9 percent equity stake in Lenovo, creating a strategic alliance between IBM and Lenovo in PC sales, financing, and service worldwide. The new combined company's worldwide headquarters, it was announced, would be in New York, but its principal manufacturing operations would be in Beijing and Raleigh, North Carolina; research centers would be in China, the United States, and Japan; and sales offices would be around the world. The new Lenovo will be the preferred supplier of PCs to IBM, and IBM will also be the new Lenovo's preferred supplier of services and financing.

Are you still with me? About ten thousand people will move from IBM to Lenovo, which was created in 1984 and was the first company to introduce the home computer concept in China. Since 1997, Lenovo has been the leading PC brand in China. My favorite part of the press release is the following, which identifies the new company's senior executives.

“Yang Yuanqing-Chairman of the Board. [He's currently CEO of Lenovo.] Steve Ward-Chief Executive Officer. [He's currently IBM's senior vice president and general manager of IBM's Personal Systems Group.] Fran O'Sullivan-Chief Operating Officer. [She's currently general manager of IBM's PC division.] Mary Ma-Chief Financial Officer. [She's currently CFO of Lenovo.]”

Talk about horizontal value creation: This new Chinese-owned computer company headquartered in New York with factories in Raleigh and Beijing will have a Chinese chairman, an American CEO, an American CPO, and a Chinese CFO, and it will be listed on the Hong Kong stock exchange. Would you call this an American company? A Chinese company? To which country will Lenovo feel most attached? Or will it just see itself sort of floating above a flat earth?

This question was anticipated in the press release announcing the new company: “Where will Lenovo be headquartered?” it asked.

Answer: “As a global business, the new Lenovo will be geographically dispersed, with people and physical assets located worldwide.”

Sort that out.

The cold, hard truth is that management, shareholders, and investors are largely indifferent to where their profits come from or even where the employment is created. But they do want sustainable companies. Politicians, though, are compelled to stimulate the creation of jobs in a certain place. And residents-whether they are Americans, Europeans, or Indians-want to know that the good jobs are going to stay close to home.

The CEO of a major European multinational remarked to me, “We are a global research company now.” That's great news for his shareholders and investors. He is accessing the best brains on the planet, wherever they are, and almost certainly saving money by not doing all the research in his backyard. “But ultimately,” he confided to me, “this is going to have implications down the road on jobs in my own country-maybe not this year but in five or fifteen years.” As a CEO and European Union citizen, “you might have a dialogue with your government about how we can retain capabilities in [our own country]-but day by day you have to make decisions with the shareholders in mind.”

Translation: If I can buy five brilliant researchers in China and/or India for the price of one in Europe or America, I will buy the five; and if, in the long run, that means my own society loses part of its skills base, so be it. The only way to converge the interests of the two-the company and its country of origin-is to have a really smart population that can not only claim its slice of the bigger global pie but invent its own new slices as well. “We have grown addicted to our high salaries, and now we are really going to have to earn them,” the CEO said.

But even identifying a company's country of origin today is getting harder and harder. Sir John Rose, the chief executive of Rolls-Royce, told me once, “We have a big business in Germany. We are the biggest high-tech employer in the state of Brandenburg. I was recently at a dinner with Chancellor [Gerhard] Schroeder. And he said to me, ”You are a German company, why don't you come along with me on my next visit to Russia“—to try to drum up business there for German companies.” The German chancellor, said Rose, “was recognizing that although my headquarters were in London, my business was involved in creating value in Germany, and that could be constructive in his relationship with Russia.”

Here you have the quintessential British company, Rolls-Royce, which, though still headquartered in England, now operates through a horizontal global supply chain, and its CEO, a British citizen knighted by the queen, is being courted by the chancellor of Germany to help him drum up business in Russia, because one link in the Rolls-Royce supply chain happens to run through Brandenburg.

Sort that out.

From Command and Control to Collaborate and Connect

Before Colin Powell stepped down as secretary of state, I went in for an interview, which was also attended by two of his press advisers, in his seventh-floor State Department suite. I could not resist asking him about where he was when he realized the world had gone flat. He answered with one word: “Google.” Powell said that when he took over as secretary of state in 2001, and he needed some bit of information-say, the text of a UN resolution -he would call an aide and have to wait for minutes or even hours for someone to dig it up for him.

“Now I just type into Google 'UNSC Resolution 242' and up comes the text,” he said. Powell explained that with each passing year, he found himself doing more and more of his own research, at which point one of his press advisers remarked, “Yes, now he no longer comes asking for information. He already has the information. He comes asking for action.”

Powell, a former member of the AOL board, also regularly used e-mail to contact other foreign ministers and, according to one of his aides, kept up a constant instant-messaging relationship with Britain's foreign secretary, Jack Straw, at summit meetings, as if they were a couple of college students. Thanks to the cell phone and wireless technology, said Powell, no foreign minister can run and hide from him. He said he had been looking for Russia's foreign minister the previous week. First he tracked him down on his cell phone in Moscow, then on his cell phone in Iceland, and then on his cell phone in Vientiane, Laos. “We have everyone's cell phone number,” said Powell of his fellow foreign ministers.

The point I take away from all this is that when the world goes flat, hierarchies are not being leveled just by little people being able to act big. They are also being leveled by big people being able to act really small—in the sense that they are enabled to do many more things on their own. It really hit me when Powell's junior media adviser, a young woman, walked me down from his office and remarked along the way that because of e-mail, Powell could get hold of her and her boss at any hour, via their BlackBerrys-and did.

“I can't get away from the guy,'' she said jokingly of his constant e-mail instructions. But in the next breath she added that on the previous weekend, she was shopping at the mall with some friends when she got an instant message from Powell asking her to do some public affairs task. ”My friends were all impressed,“ she said. ”Little me, and I'm talking to the secretary of state!“

This is what happens when you move from a vertical (command and control) world to a much more horizontal (connect and collaborate) flat world. Your boss can do his job and your job. He can be secretary of state and his own secretary. He can give you instructions day or night. So you are never out. You are always in. Therefore, you are always on. Bosses, if they are inclined, can collaborate more directly with more of their staff than ever before-no matter who they are or where they are in the hierarchy. But staffers will also have to work much harder to be better informed than their bosses. There are a lot more conversations between bosses and staffers today that start like this: “I know that already! I Googled it myself. Now what do I do about it?”

Sort that out.

Multiple Identity Disorder

It is not only communities and companies that have multiple identities that will need sorting out in a flat world. So too will individuals. In a flat world, the tensions among our identities as consumers, employees, citizens, taxpayers, and shareholders are going to come into sharper and sharper conflict.

“In the nineteenth century,” said business consultant Michael Hammer, “the great conflict was between labor and capital. Now it is between customer and worker, and the company is the guy in the middle. The consumer turns to the company and says, 'Give me more for less.' And then companies turn to employees and say, 'If we don't give them more for less, we are in trouble. I can't guarantee you a job and a union steward can't guarantee you a job, only a customer can.'”

The New York Times reported (November 1, 2004) that Wal-Mart spent about $1.3 billion of its $256 billion in revenue in 2003 on employee health care, to insure about 537,000 people, or about 45 percent of its workforce. Wal-Mart's biggest competitor, though, Costco Wholesale, insured 96 percent of its eligible full-time or part-time employees. Costco employees become eligible for health insurance after three months working full-time or six months working part-time. At Wal-Mart, most full-time employees have to wait six months to become eligible, while part-timers are not eligible for at least two years. According to the Times, full-time employees at Wal-Mart make about $1,200 per month, or $8 per hour. Wal-Mart requires employees to cover 33 percent of the cost of their benefits, and it plans to reduce that employee contribution to 30 percent. Wal-Mart-sponsored health plans have monthly premiums for family coverage ranging as high as $264 and out-of-pocket expenses as high as $13,000 in some cases, and such medical costs make health coverage unaffordable even for many Wal-Mart employees who are covered, the Times said.

But the same article went on to say this: “If there is any place where Wal-Mart's labor costs find support, it is Wall Street, where Costco has taken a drubbing from analysts who say its labor costs are too high.” Wal-Mart has taken more fat and friction out than Costco, which has kept more in, because it feels a different obligation to its workers. Costco's pretax profit margin is only 2.7 percent of revenue, less than half Wal-Mart's margin of 5.5 percent.

The Wal-Mart shopper in all of us wants the lowest price possible, with all the middlemen, fat, and friction removed. And the Wal-Mart shareholder in us wants Wal-Mart to be relentless about removing the fat and friction in its supply chain and in its employee benefits packages, in order to fatten the company's profits. But the Wal-Mart worker in us hates the benefits and pay packages that Wal-Mart offers its starting employees. And the Wal-Mart citizen in us knows that because Wal-Mart, the biggest company in America, doesn't cover all its employees with health care, some of them will just go to the emergency ward of the local hospital and the taxpayers will end up picking up the tab. The Times reported that a survey by Georgia officials found that “more than 10,000 children of Wal-Mart employees were in the state's health program for children at an annual cost of nearly $10 million to taxpayers.” Similarly, it said, a “North Carolina hospital found that 31 percent of 1,900 patients who described themselves as Wal-Mart employees were on Medicaid, while an additional 16 percent had no insurance at all.”

In her 2004 book, Selling Women Short: The Landmark Battle for Workers' Rights at Wal-Mart, journalist Liza Featherstone followed the huge women's discrimination suit against Wal-Mart. In an interview about the book with Salon.com (November 22, 2004), she made the following important point: “American taxpayers chip in to pay for many full-time Wal-Mart employees because they usually require incremental health insurance, public housing, food stamps -there are so many ways in which Wal-Mart employees are not able to be self-sufficient. This is very ironic, because Sam Walton is embraced as the American symbol of self-sufficiency. It is really troubling and dishonest that Wal-Mart supports Republican candidates in the way that they do: 80 percent of their corporate campaign contributions go to Republicans. But Republicans tend not to support the types of public assistance programs that Wal-Mart depends on. If anything, Wal-Mart should be crusading for national health insurance. They should at least be acknowledging that because they are unable to provide these things for their employees, we should have a more general welfare state.”

As you sort out and weigh your multiple identities-consumer, employee, citizen, taxpayer, shareholder-you have to decide: Do you prefer the Wal-Mart approach or the Costco approach? This is going to be an important political issue in a flat world: Just how flat do you want corporations to be when you factor in all your different identities? Because when you take the middleman out of business, when you totally flatten your supply chain, you also take a certain element of humanity out of life.

The same question applies to government. How flat do you want government to be? How much friction would you like to see government remove, through deregulation, to make it easier for companies to compete on Planet Flat?

Said Congressman Rahm Emanuel, an Illinois Democrat who was a senior adviser to President Clinton, “When I served in the White House, we streamlined the FDA's drug approval process in response to concerns about its cumbersome nature. We took those steps with one objective in mind: to move drugs to the marketplace more quickly. The result, however, has been an increasingly cozy relationship between the FDA and the pharmaceutical industry, which has put public health at risk. The Vioxx debacle [over an anti-inflammatory drug that was found to lead to an increased risk for heart attacks and strokes] shows the extent to which drug safety has taken a backseat to speedy approval. A recent Senate hearing on Vioxx's recall revealed major deficiencies in the FDA's ability to remove dangerous drugs from the market.”

As consumers we want the cheapest drugs that the global supply chains can offer, but as citizens we want and need government to oversee and regulate that supply chain, even if it means preserving or adding friction.

Sort that out.

Who Owns What?

Something else is absolutely going to have to be sorted out in a flat world: Who owns what? How do we build legal barriers to protect an innovator's intellectual property so he or she can reap its financial benefits and plow those profits into a new invention? And from the other side, how do we keep walls low enough so that we encourage the sharing of intellectual property, which is required more and more to do cutting-edge innovation?

“The world is decidedly not flat when it comes to uniform treatment of intellectual property,” said Craig Mundie, Microsoft's chief technology officer. It is wonderful, he noted, to have a world where a single innovator can summon so many resources by himself or herself, assemble a team of partners from around the flat world, and make a real breakthrough with some product or service. But what does that wonderful innovative engineer do, asked Mundie, “when someone else uses the same flat-world platform and tools to clone and distribute his wonderful new product?” This happens in the world of software, music, and pharma-ceuticals every day. And the technology is reaching a point now where “you should assume that there isn't anything that can't be counterfeited quickly”-from Microsoft Word to airplane parts, he added. The flatter the world gets, the more we are going to need a system of global governance that keeps up with all the new legal and illegal forms of collaboration.

We can also see this in the case of patent law as it has evolved inside the United States. Companies can do one of three things with an innovation. They can patent the widget they invent and sell it themselves; they can patent it and license it to someone else to manufacture; and they can patent it and cross-license with several other companies so that they all have freedom of action to make a product-like a PC-that comes from melding many different patents. American patent law is technically neutral on this. But the way established case law has evolved, experts tell me, it is decidedly biased against cross-licensing and other arrangements that encourage collaboration or freedom of action for as many players as possible; it is more focused on protecting the rights of individual firms to manufacture their own patents. In a flat world, companies need a patent system that encourages both. The more your legal structure fosters cross-licensing and standards, the more collaborative innovation you will get. The PC is the product of a lot of cross-licensing between the company that had the patent on the cursor and the company that had the patent on the mouse and the screen.

The free-software person in all of us wants no patent laws. But the innovator in all of us wants a global regime that protects against intellectual property piracy. The innovator in us also wants patent laws that encourage cross-licensing with companies that are ready to play by the rules. “Who owns what?” is sure to emerge as one of the most contentious political and geopolitical questions in a flat world-especially if more and more American companies start feeling ripped off by more and more Chinese companies. If you are in the business of selling words, music, or pharmaceuticals and you are not worried about protecting your intellectual property, you are not paying attention.

And while you are sorting that out, sort this out as well. On November 13, 2004, Lance Cpl. Justin M. Ellsworth, twenty, was killed by a roadside bomb during a foot patrol in Iraq. On December 21, 2004, the Associated Press reported that his family was demanding that Yahoo! give them the password for their deceased son's e-mail account so they could have access to all his e-mail, including notes to and from others. “I want to be able to remember him in his words. I know he thought he was doing what he needed to do. I want to have that for the future,” John Ellsworth, Justin's father, told the AP. “It's the last thing I have of my son.” We are moving into a world where more and more communication is in the form of bits traveling through cyberspace and stored on servers located all over the world. No government controls this cyber-realm. So the question is: Who owns your bits when you die? The AP reported that Yahoo! denied the Ellsworth family their son's password, citing the fact that Yahoo! policy calls for erasing all accounts that are inactive for ninety days and the fact that all Yahoo! users agree at sign-up that rights to a member's ID or account contents terminate upon death. “While we sympathize with any grieving family, Yahoo! accounts and any contents therein are nontransferable” even after death, Karen Mahon, a Yahoo! spokeswoman told the AP. As we get rid of more and more paper and communicate through more and more digitized formats, you better sort out before you die, and include in your will, to whom, if anyone, you want to leave your bits. This is very real. I stored many chapters of this book in my AOL account, feeling it would be safest in cyberspace. If something had happened to me during my writing, my family and publisher would have had to sue AOL to try to get this text. Somebody, please, sort all this out.

Death of the Salesmen

In the fall of 2004, I went out to Minneapolis to visit my mother and had three world-is-flat encounters right in a row. First, before I left home in Washington, I dialed 411 -directory assistance-to try to get a friend's phone number in Minneapolis. A computer answered and a computerized voice asked me to pronounce the name of the person whose number I was requesting. For whatever reason, I could not get the computer to hear me correctly, and it kept saying back to me in a computerized voice, “Did you say...?” I kept having to say the family name in a voice that masked my exasperation (otherwise the computer never would have understood me). “No, I didn't say that... I said...” Eventually, I was connected to an operator, but I did not enjoy this friction-free encounter with directory information. I craved the friction of another human being. It may be cheaper and more efficient to have a computer dispense phone numbers, but for me it brought only frustration.

When I arrived in Minneapolis, I had dinner with family friends, one of whom has spent his life working as a wholesaler in the Midwest, selling goods to the biggest retailers in the region. He is a natural salesman. When I asked him what was new, he sighed and said that business just wasn't what it used to be. Everything was now being sold at 1 percent margins, he explained. No problem. He was selling mostly commodity items so that, given his volumes, he could handle the slim profit margin. But what bothered him, he mentioned, was the fact that he no longer had human contact with some of his biggest accounts. Even commodities and low-cost goods have certain differentiating elements that need to be sold and highlighted. “Everything is by e-mail now,” he said. “I am dealing with a young kid at [one of the biggest retailers in the nation], and he says, 'Just e-mail me your bid.' I've never met him. Half the time he doesn't get back to me. I am not sure how to deal with him... In the old days, I used to stop by the office, give the buyers a few Vikings tickets. We were friends... Tommy, all anyone cares about today is price.”

Fortunately, my friend is a successful businessman and has a range of enterprises. But as I reflected later on what he was saying, I was drawn back to that scene in Death of a Salesman in which Willy Loman says that, unlike his colleague Charley, he intends to be “well liked.” He tells his sons that in business and in life, character, personality, and human connections are more important than smarts. Says Willy, “The man who makes an appearance in the business world, the man who creates personal interest, is the man who gets ahead. Be liked and you will never want.”

Not when the world goes flat. It's hard to create a human bond with e-mail and streaming Internet. The next day, I had dinner with my friend Ken Greer, who runs a media company that I discuss in greater detail later. Ken had a similar lament: So many contracts were going these days to the advertising firms that were selling just numbers, not creative instinct. Then Ken said something that really hit home with me: “It is like they have cut all the fat out of the business” and turned everything into a numbers game. “But fat is what gives meat its taste,” Ken added. “The leanest cuts of meat don't taste very good. You want it marbled with at least a little fat.”

The flattening process relentlessly trims the fat out of business and life, but, as Ken noted, fat is what gives life taste and texture. Fat is also what keeps us warm.

Yes, the consumer in us wants Wal-Mart prices, with all the fat gone. But the employee in us wants a little fat left on the bone, the way Costco does it, so that it can offer health care to almost all its employees, rather than just less than half of them, as Wal-Mart does. But the shareholder in us wants Wal-Mart's profit margins, not Costco's. Yet the citizen in us wants Costco's benefits, rather than Wal-Mart's, because the difference ultimately may have to be paid for by society. The consumer in me wants lower phone bills, but the human being in me also wants to speak to an operator when I call 411. Yes, the reader in me loves to surf the Net and read the bloggers, but the citizen in me also wishes that some of those bloggers had an editor, a middleman, to tell them to check some of their facts one more time before they pressed the Send button and told the whole world that something was wrong or unfair.

Given these conflicting emotions and pressures, there is potential here for American politics to get completely reshuffled-with workers and corporate interests realigning themselves into different parties. Think about it: Social conservatives from the right wing of the Republican party, who do not like globalization or closer integration with the world because it brings too many foreigners and foreign cultural mores into America, might align themselves with unions from the left wing of the Democratic Party, who don't like globalization for the way it facilitates the outsourcing and offshoring of jobs. They might be called the Wall Party and militate for more friction and fat everywhere. Let's face it: Republican cultural conservatives have much more in common with the steelworkers of Youngstown, Ohio, the farmers of rural China, and the mullahs of central Saudi Arabia, who would also like more walls, than they do with investment bankers on Wall Street or service workers linked to the global economy in Palo Alto, who have been enriched by the flattening of the world.

Meanwhile, the business wing of the Republican Party, which believes in free trade, deregulation, more integration, and lower taxes-everything that would flatten the world even more-may end up aligning itself with the social liberals of the Democratic Party, many of whom are East Coast or West Coast global service industry workers. They might also be joined by Hollywood and other entertainment workers. All of them are huge beneficiaries of the flat world. They might be called the Web Party, whose main platform would be to promote more global integration. Many residents of Manhattan and Palo Alto have more interests in common with the people of Shanghai and Bangalore than they do with the residents of Youngstown or Topeka. In short, in a flat world, we are likely to see many social liberals, white-collar global service industry workers, and Wall Street types driven together, and many social conservatives, white-collar local service industry workers, and labor unions driven together.

The Passion of the Christ audience will be in the same trench with the Teamsters and the AFL-CIO, while the Hollywood and Wall Street liberals and the You've Got Mail crowd will be in the same trench with the high-tech workers of Silicon Valley and the global service providers of Manhattan and San Francisco. It will be Mel Gibson and Jimmy Hoffa Jr. versus Bill Gates and Meg Ryan.

More and more, politics in the flat world will consist of asking which values, frictions, and fats are worth preserving-which should, in Marx's language, be kept solid-and which must be left to melt away into the air. Countries, companies, and individuals will be able to give intelligent answers to these questions only if they understand the real nature and texture of the global playing field and how different it is from the one that existed in the Cold War era and before. And countries, companies, and individuals will be able to make sound political choices only if they fully appreciate the flattened playing field and understand all the new tools now available to them for collaborating and competing on it. I hope this book will provide a nuanced framework for this hugely important political debate and the great sorting out that is just around the corner.

To that end, the next three sections look at how the flattening of the world and the triple convergence will affect Americans, developing countries, and companies.

Brace yourself: You are now about to enter the flat world.