The World is Flat

FIVE: America and Free Trade

Is Ricardo Still Right?

As an American who has always believed in the merits of free trade, I had an important question to answer after my India trip: Should I still believe in free trade in a fiat world? Here was an issue that needed sorting out immediately-not only because it was becoming a hot issue in the presidential campaign of 2004 but also because my whole view of the flat world would depend on my view of free trade. I know that free trade won't necessarily benefit every American, and that our society will have to help those who are harmed by it. But for me the key question was: Will free trade benefit America as a whole when the world becomes so flat and so many more people can collaborate, and compete, with my kids? It seems that so many jobs are going to be up for grabs. Wouldn't individual Americans be better off if our government erected some walls and banned some outsourcing and offshoring?

I first wrestled with this issue while filming the Discovery Times documentary in Bangalore. One day we went to the Infosys campus around five p.m. -just when the Infosys call-center workers were flooding into the grounds for the overnight shift on foot, minibus, and motor scooter, while many of the more advanced engineers were leaving at the end of the day shift. The crew and I were standing at the gate observing this river of educated young people flowing in and out, many in animated conversation. They all looked as if they had scored 1,600 on their SATs, and I felt a real mind-eye split overtaking me.

My mind just kept telling me, “Ricardo is right, Ricardo is right, Ricardo is right.” David Ricardo (1772-1823) was the English economist who developed the free-trade theory of comparative advantage, which stipulates that if each nation specializes in the production of goods in which it has a comparative cost advantage and then trades with other nations for the goods in which they specialize, there will be an overall gain in trade, and overall income levels should rise in each trading country. So if all these Indian techies were doing what was their comparative advantage and then turning around and using their income to buy all the products from America that are our comparative advantage-from Corning Glass to Microsoft Windows-both our countries would benefit, even if some individual Indians or Americans might have to shift jobs in the transition. And one can see evidence of this mutual benefit in the sharp increase in exports and imports between the United States and India in recent years.

But my eye kept looking at all these Indian zippies and telling me something else: “Oh, my God, there are so many of them, and they all look so serious, so eager for work. And they just keep coming, wave after wave. How in the world can it possibly be good for my daughters and millions of other young Americans that these Indians can do the same jobs as they can for a fraction of the wages?”

When Ricardo was writing, goods were tradable, but for the most part knowledge work and services were not. There was no undersea fiberoptic cable to make knowledge jobs tradable between America and India back then. Just as I was getting worked up with worry, the Infosys spokeswoman accompanying me casually mentioned that last year Infosys India received “one million applications” from young Indians for nine thousand tech jobs.

Have a nice day.

I struggled over what to make of this scene. I don't want to see any American lose his or her job to foreign competition or to technological innovation. I sure wouldn't want to lose mine. When you lose your job, the unemployment rate is not 5.2 percent; it's 100 percent. No book about the flat world would be honest if it did not acknowledge such concerns, or acknowledge that there is some debate among economists about whether Ricardo is still right.

Having listened to the arguments on both sides, though, I come down where the great majority of economists come down-that Ricardo is still right and that more American individuals will be better off if we don't erect barriers to outsourcing, supply-chaining, and offshoring than if we do. The simple message of this chapter is that even as the world gets flat, America as a whole will benefit more by sticking to the basic principles of free trade, as it always has, than by trying to erect walls.

The main argument of the anti-outsourcing school is that in a flat world, not only are goods tradable, but many services have become trad-able as well. Because of this change, America and other developed countries could be headed for an absolute decline, not just a relative one, in their economic power and living standards unless they move to formally protect certain jobs from foreign competition. So many new players cannot enter the global economy-in service and knowledge fields now dominated by Americans, Europeans, and Japanese-without wages settling at a newer, lower equilibrium, this school argues.

The main counterargument from free-trade/outsourcing advocates is that while there may be a transition phase in certain fields, during which wages are dampened, there is no reason to believe that this dip will be permanent or across the board, as long as the global pie keeps growing. To suggest that it will be is to invoke the so-called lump of labor theory— the notion that there is a fixed lump of labor in the world and that once that lump is gobbled up, by either Americans or Indians or Japanese, there won't be any more jobs to go around. If we have the biggest lump of labor now, and then Indians offer to do this same work for less, they will get a bigger piece of the lump, and we will have less, or so this argument goes.

The main reason the lump of labor theory is wrong is that it is based on the assumption that everything that is going to be invented has been invented, and that therefore economic competition is a zero-sum game, a fight over a fixed lump. This assumption misses the fact that although jobs are often lost in bulk-to outsourcing or offshoring-by big individual companies, and this loss tends to make headlines, new jobs are also being created in fives, tens, and twenties by small companies that you can't see. It often takes a leap of faith to believe that it is happening. But it is happening. If it were not, America's unemployment rate would be much higher today than 5 percent. The reason it is happening is that as lower-end service and manufacturing jobs move out of Europe, America, and Japan to India, China, and the former Soviet Empire, the global pie not only grows larger-because more people have more income to spend-it also grows more complex, as more new jobs, and new specialties, are created.

Let me illustrate this with a simple example. Imagine that there are only two countries in the world-America and China. And imagine that the American economy has only 100 people. Of those 100 people, 80 are well-educated knowledge workers and 20 are less-educated low-skilled workers. Now imagine that the world goes flat and America enters into a free-trade agreement with China, which has 1,000 people but is a less developed country. So today China too has only 80 well-educated knowledge workers out of that 1,000, and it has 920 low-skilled workers. Before America entered into its free-trade agreement with China, there were only 80 knowledge workers in its world. Now there are 160 in our two-country world. The American knowledge workers feel like they have more competition, and they do. But if you look at the prize they are going after, it is now a much expanded and more complex market. It went from a market of 100 people to a market of 1,100 people, with many more needs and wants. So it should be win-win for both the American and Chinese knowledge workers.

Sure, some of the knowledge workers in America may have to move horizontally into new knowledge jobs, because of the competition from China. But with a market that big and complex, you can be sure that new knowledge jobs will open up at decent wages for anyone who keeps up his or her skills. So do not worry about our knowledge workers or the Chinese knowledge workers. They will both do fine with this bigger market.

“What do you mean, don't worry?” you ask. “How do we deal with the fact that those eighty knowledge workers from China will be willing to work for so much less than the eighty knowledge workers from America? How will this difference get resolved?”

It won't happen overnight, so some American knowledge workers may be affected in the transition, but the effects will not be permanent. Here, argues Stanford new economy specialist Paul Romer, is what you need to understand: The wages for the Chinese knowledge workers were so low because, although their skills were marketable globally like those of their American counterparts, they were trapped inside a stifled economy. Imagine how little a North Korean computer expert or brain surgeon is paid inside that huge prison of a nation! But as the Chinese economy opens up to the world and reforms, the wages of Chinese knowledge workers will rise up to American/world levels. Ours will not go down to the level of a stifled, walled-in economy. You can already see this happening in Bangalore, where competition for Indian software writers is rapidly pushing up their wages toward American/European levels-after decades of languishing while the Indian economy was closed. It is why Americans should be doing all they can to promote more and faster economic reform in India and China.

Do worry, though, about the 20 low-skilled Americans, who now have to compete more directly with the 920 low-skilled Chinese. One reason the 20 low-skilled Americans were paid a decent wage before was that, relative to the 80 skilled Americans, there were not that many of them. Every economy needs some low-skilled manual labor. But now that China and America have signed their free-trade pact, there are a total of 940 low-skilled workers and 160 knowledge workers in our two-country world. Those American low-skilled workers doing fungible jobs-jobs that can easily be moved to China-will have a problem. There is no denying this. Their wages are certain to be depressed. In order to maintain or improve their living standards, they will have to move vertically, not horizontally. They will have to upgrade their education and upgrade their knowledge skills so that they can occupy one of the new jobs sure to be created in the much expanded United States-China market. (In Chapter 8 I will talk about our society's obligation to ensure that everyone gets a chance to acquire those skills.)

As Romer notes, we know from the history of our own country that an increase in knowledge workers does not necessarily lead to a decrease in their pay the way it does with low-skilled workers. From the 1960s to the 1980s, the supply of college-educated workers grew dramatically, and yet their wages grew even faster. Because as the pie grew in size and complexity, so too did people's wants, and this increased the demand for people able to do complex work and specialized tasks.

Romer explains this in part by the fact that “there is a difference between idea-based goods and physical goods.” If you are a knowledge worker making and selling some kind of idea-based product-consulting or financial services or music or software or marketing or design or new drugs-the bigger the market is, the more people there are out there to whom you can sell your product. And the bigger the market, the more new specialties and niches it will create. If you come up with the next Windows or Viagra, you can potentially sell one to everyone in the world. So idea-based workers do well in globalization, and fortunately America as a whole has more idea-driven workers than any country in the world.

But if you are selling manual labor-or a piece of lumber or a slab of steel-the value of what you have to sell does not necessarily increase when the market expands, and it may decrease, argues Romer. There are only so many factories that will buy your manual labor, and there are many more people selling it. What the manual laborer has to sell can be bought by only one factory or one consumer at a time, explains Romer, while what the software writer or drug inventor has to sell—idea-based products-can be sold to everyone in the global market at once.

That is why America, as a whole, will do fine in a flat world with free trade-provided it continues to churn out knowledge workers who are able to produce idea-based goods that can be sold globally and who are able to fill the knowledge jobs that will be created as we not only expand the global economy but connect all the knowledge pools in the world. There may be a limit to the number of good factory jobs in the world, but there is no limit to the number of idea-generated jobs in the world.

If we go from a world in which there were fifteen drug companies and fifteen software companies in America (thirty in all) and two drug companies and two software companies in China (four in all) to a world in which there are thirty drug and software companies in America and thirty drug and software companies in China, it is going to mean more innovation, more cures, more new products, more niches to specialize in, and many more people with higher incomes to buy those products.

“The pie keeps growing because things that look like wants today are needs tomorrow,” argued Marc Andreessen, the Netscape cofounder, who helped to ignite a whole new industry, e-commerce, that now employs millions of specialists around the world, specialists whose jobs weren't even imagined when Bill Clinton became president. I like going to coffee shops occasionally, but now that Starbucks is here, I need my coffee, and that new need has spawned a whole new industry. I always wanted to be able to search for things, but once Google was created, I must have my search engine. So a whole new industry has been built up around search, and Google is hiring math Ph.D.'s by the bushel-before Yahoo! or Microsoft hires them. People are always assuming that everything that is going to be invented must have been invented already. But it hasn't

“If you believe human wants and needs are infinite,” said Andreeseen, “then there are infinite industries to be created, infinite businesses to be started, and infinite jobs to be done, and the only limiting factor is human imagination. The world is flattening and rising at the same time. And I think the evidence is overwhelmingly clear: If you look over the sweep of history, every time we had more trade, more communications, we had a big upswing in economic activity and standard of living.”

America integrated a broken Europe and Japan into the global economy after World War II, with both Europe and Japan every year upgrading their manufacturing, knowledge, and service skills, often importing and sometimes stealing ideas and equipment from the United States, just as America did from Britain in the late 1770s. Yet in the sixty years since World War II, our standard of living has increased every decade, and our unemployment rate-even with all the outcry about outsourcing— stands at only a little above 5 percent, roughly half that of the most developed countries in Western Europe.

“We just started a company that created 180 new jobs in the middle of a recession,” said Andreessen, whose company, Opsware, uses automation and software to replace human beings in the operation of huge server farms in remote locations. By automating these jobs, Opsware enables companies to save money and free up talented brainpower from relatively mundane tasks to start new businesses in other areas. You should be afraid of free markets, argued Andreessen, only if you believe that you will never need new medicines, new work flow software, new industries, new forms of entertainment, new coffeehouses.

“Yes,” he concluded, “it takes a leap of faith, based on economics, to say there will be new things to do.” But there always have been new jobs to do, and there is no fundamental reason to believe the future will be different. Some 150 years ago, 90 percent of Americans worked in agriculture and related fields. Today, it's only 3 or 4 percent. What if the government had decided to protect and subsidize all those agricultural jobs and not embrace industrialization and then computerization? Would America as a whole really be better off today? Hardly.

As noted, it is true that as Indians or Chinese move up the value chain and start producing more knowledge-intensive goods-the sorts of things Americans have been specializing in-our comparative advantage in some of these areas will diminish, explains Jagdish Bhagwati, the Columbia University expert on free trade. There will be a downward pressure on wages in certain fields, and some of the jobs in those fields may permanently migrate abroad. That is why some knowledge workers will have to move horizontally. But the growing pie will surely create new specialties for them to fill that are impossible to predict right now.

For instance, there was a time when America's semiconductor industry dominated the world, but then companies from other countries came along and gobbled up the low end of the market. Some even moved into the higher end. American companies were then forced to find newer, deeper specialties in the expanded market. If that weren't happening, Intel would be out of business today. Instead, it is thriving. Paul Otellini, Intel's president, told The Economist (May 8, 2003) that as chips become good enough for certain applications, new applications pop up that demand more powerful and more complex chips, which are Intel's specialty.

Once Google starts offering video searches, for instance, there will be demand for new machines and the chips that power them, of which no one was even dreaming five years ago. This process takes time to unfold. But it will, argued Bhagwati, because what is happening in services today is the same thing that happened in manufacturing as trade barriers were lowered. In manufacturing, said Bhagwati, as the global market expanded and more and more players came onto the field, you saw greater and greater “intraindustry trade, with more and more specialization,” and as we move into the knowledge economy, you are now seeing more and more intraservice trade, with more and more specialization.

Don't be surprised if your son or daughter graduates from college and calls you one day and says he or she is going to be a “search engine optimizer.”

A what?

A slew of firms has started up around Google, Yahoo!, and Microsoft to help retailers strategize on how to improve their rankings, and increase the number of click-throughs to their Web sites, on these major search engines. It can mean millions of dollars in extra profits if, when someone searches for “video camera,” your company's product comes up first, because the people who click through to your Web site are those most likely to buy from you. What these search engine optimizers (SEOs as they are called in the trade) do is constantly study the algorithms being used by the major search engines and then design marketing and Web strategies that will push you up the rankings. The business involves a combination of math and marketing-a whole new specialty created entirely by the flattening of the world.

And always remember: The Indians and Chinese are not racing us to the bottom. They are racing us to the top-and that is a good thing! They want higher standards of living, not sweatshops; they want brand names, not junk; they want to trade their motor scooters for cars and their pens and pencils for computers. And the more they do that, the higher they climb, the more room is created at the top-because the more they have, the more they spend, the more diverse product markets become, and the more niches for specialization are created as well.

Look at what is happening already: As American companies send knowledge work to India, Indian companies are turning around and using their earnings and insights to start inventing new products that poorer Indians can use to lift themselves out of poverty into the middle class, where they will surely become consumers of American products. BusinessWeek cited the Tata Motors factory, near Pune, south of Mumbai, “where a group of young designers, technicians, and marketers pore over drawings and examine samples of steel and composite plastics. By early next year, they plan to design a prototype for Tata Group's most ambitious project yet: a compact car that will sell for $2,200. The company hopes the car will beat out Suzuki's $5,000 Maruti compact to become India's cheapest car-and an export model for the rest of the developing world. 'This is the need of the day in India-a people's car,' says Ratan Tata, chairman of the $12.5 billion Tata Group. Indians are increasingly demanding better products and services at an affordable cost. Strong economic growth this year will only enlarge that demand. The phrase 'Made in India' may come to represent low-cost innovation in the new global economy” (October 11, 2004).

Raghuram Rajan, the director of research for the International Monetary Fund, sits on the board of a company that puts Indian students to work tutoring students in Singapore. The students, from the Indian Institute of Technology in Madras, go online to help students in Singapore, from grades six to twelve, on their math homework. They also help teachers in Singapore develop lesson plans and prepare PowerPoint presentations or other jazzy ways for them to teach math. The company, called Heymath.com, is paid for by the schools in Singapore. Cambridge University in England is also part of this equation, providing the overall quality controls and certifying the lesson plans and teaching methods.

“Everyone wins,” says Rajan. “The company is run by two Indians who worked for Citibank and CSFB in London and came back to India to start this business... Cambridge University is making money from a company that has created a whole new niche. The Indian students are making pocket money. And the Singapore students are learning better.” Meanwhile, the underlying software is probably being provided by Microsoft and the chips by Intel, and the enriched Indian students are probably buying cheap personal computers from Apple, Dell, or HP. But you can't really see any of this. “The pie grew, but no one saw it,” said Rajan.

An essay in the McKinsey Quarterly, “Beyond Cheap Labor: Lessons for Developing Economies” (January 2005), offers a nice example of this: “In northern Italy's textile and apparel industry... the majority of garment production has moved to lower-cost locations, but employment remains stable because companies have put more resources into tasks such as designing clothes and coordinating global production networks.”

It is so easy to demonize free markets-and the freedom to outsource and offshore-because it is so much easier to see people being laid off than being hired. But occasionally a newspaper tries to dig deep into the issue. My hometown paper, the Minneapolis Star Tribune, did just that. It looked at exactly how the Minnesota economy was being affected by the flattening of the world, actually daring to run an article on September 5, 2004, headlined, “Offshore Jobs Bring Gains at Home.” The article, date-lined Wuxi, China, began like this: “Outside the air is dank, dusty and hot as tropical fever. Inside, in an environment that's dry, spotless and cool, hundreds of former farm laborers covered head to toe in suits looking like something out of NASA are performing work for Bloomington-based Donaldson Co. Inc.... In Donaldson's case, the company has twice as many workers in China-2,500-as the 1,100 it has in Bloomington. The Chinese operation not only has allowed Donaldson to keep making a product it no longer could make at a profit in the United States, it also has helped boost the company's Minnesota employment, up by 400 people since 1990. Donaldson's highly paid engineers, chemists and designers in Minnesota spend their days designing updated filters that the Chinese plant will make for use in computers, MP3 players and digital video recorders. The falling disk-drive prices made possible by Chinese production are feeding demand for the gadgets. 'If we didn't follow [the trend], we'd be out of business,' said David Timm, general manager of Donaldson's disk-drive and microelectronics unit. In Minnesota, Global Insight estimates that 1,854 jobs were created as a result of foreign outsourcing in 2003. By 2008, the firm expects nearly 6,700 new jobs in Minnesota as a consequence of the trend.”

Economists often compare China's and India's entry into the global economy to the moment when the railroad lines crossing America finally connected New Mexico to California, with its much larger population. “When the railroad comes to town,” noted Vivek Paul, the Wipro president, “the first thing you see is extra capacity, and all the people in New Mexico say those people-Californians-will wipe out all our factories along the line. That will happen in some areas, and some companies along the line will go out of business. But then capital will get reallocated. In the end, everyone along the line will benefit. Sure, there is fear, and that fear is good because that stimulates a willingness to change and explore and find more things to do better.”

It happened when we connected New York, New Mexico, and California. It happened when we connected Western Europe, America, and Japan. And it will happen when we connect India and China with America, Europe, and Japan. The way to succeed is not by stopping the railroad line from connecting you, but by upgrading your skills and making the investment in those practices that will enable you and your society to claim your slice of the bigger but more complex pie.

SIX: The Untouchables

So if the flattening of the world is largely (but not entirely) unstoppable, and holds out the potential to be as beneficial to American society as a whole as past market evolutions have been, how does an individual get the best out of it? What do we tell our kids?

There is only one message: You have to constantly upgrade your skills. There will be plenty of good jobs out there in the flat world for people with the knowledge and ideas to seize them.

I am not suggesting this will be simple. It will not be. There will be a lot of other people out there also trying to get smarter. It was never good to be mediocre in your job, but in a world of walls, mediocrity could still earn you a decent wage. In a flatter world, you really do not want to be mediocre. You don't want to find yourself in the shoes of Willy Loman in Death of a Salesman, when his son Biff dispels his idea that the Loman family is special by declaring, “Pop! I'm a dime a dozen, and so are you!” An angry Willy retorts, “I am not a dime a dozen! I am Willy Loman, and you are Biff Loman!”

I don't care to have that conversation with my girls, so my advice to them in this flat world is very brief and very blunt: “Girls, when I was growing up, my parents used to say to me, ”Tom, finish your dinner—people in China and India are starving.“ My advice to you is: Girls, finish your homework-people in China and India are starving for your jobs.”

The way I like to think about this for our society as a whole is that every person should figure out how to make himself or herself into an untouchable. That's right. When the world goes flat, the caste system gets turned upside down. In India untouchables may be the lowest social class, but in a flat world everyone should want to be an untouchable. Untouchables, in my lexicon, are people whose jobs cannot be outsourced.

So who are the untouchables, and how do you or your kids get to be one? Untouchables come in four broad categories: workers who are “special,” workers who are “specialized,” workers who are “anchored,” and workers who are “really adaptable.”

Workers who are special are people like Michael Jordan, Bill Gates, and Barbra Streisand. They have a global market for their goods and services and can command global-sized pay packages. Their jobs can never be outsourced.

If you can't be special-and only a few people can be-you want to be specialized, so that your work cannot be outsourced. This applies to all sorts of knowledge workers-from specialized lawyers, accountants, and brain surgeons, to cutting-edge computer architects and software engineers, to advanced machine tool and robot operators. These are skills that are always in high demand and are not fungible. (“Fungible” is an important word to remember. As Infosys CEO Nandan Nilekani likes to say, in a flat world there is “fungible and nonfungible work.” Work that can be easily digitized and transferred to lower-wage locations is fungible. Work that cannot be digitized or easily substituted is nonfungible. Michael Jordan's jump shot is nonfungible. A bypass surgeon's technique is nonfungible. A television assembly-line worker's job is now fungible. Basic accounting and tax preparation are now fungible.)

If you cannot be special or specialized, you want to be anchored. That status applies to most Americans, everyone from my barber, to the waitress at lunch, to the chefs in the kitchen, to the plumber, to nurses, to many doctors, many lawyers, entertainers, electricians, and cleaning ladies. Their jobs are simply anchored and always will be, because they must be done in a specific location, involving face-to-face contact with a customer, client, patient, or audience. These jobs generally cannot be digitized and are not fungible, and the market wage is set according to the local market conditions. But be advised: There are fungible parts of even anchored jobs, and they can and will be outsourced-either to India or to the past-for greater efficiency. (Yes, as David Rothkopf notes, more jobs are actually “outsourced to the past,” thanks to new innovations, than are outsourced to India.) For instance, you are not going to go to Bangalore to find an internist or a divorce lawyer, but your divorce lawyer may one day use a legal aide in Bangalore for basic research or to write up vanilla legal documents, and your internist may use a nighthawk radiologist in Bangalore to read your CAT scan.

This is why if you cannot be special or specialized, you don't want to count on being anchored so you won't be outsourced. You actually want to become really adaptable. You want constantly to acquire new skills, knowledge, and expertise that enable you constantly to be able to create value-something more than vanilla ice cream. You want to learn how to make the latest chocolate sauce, the whipped cream, or the cherries on top, or to deliver it as a belly dancer-in whatever your field of endeavor. As parts of your work become commoditized and fungible, or turned into vanilla, adaptable people will always learn how to make some other part of the sundae. Being adaptable in a flat world, knowing how to “learn how to learn,” will be one of the most important assets any worker can have, because job churn will come faster, because innovation will happen faster.

Atul Vashistha, CEO of NeoIT, a California consulting firm that specializes in helping U.S. firms do outsourcing, has a good feel for this: “What you can do and how you can adapt and how you can leverage all the experience and knowledge you have when the world goes flat-that is the basic component [for survival]. When you are changing jobs a lot, and when your job environment is changing a lot, being adaptable is the number one thing. The people who are losing out are those with solid technical skills who have not grown those skills. You have to be skillfully adaptable and socially adaptable.”

The more we push out the boundaries of knowledge and technology, the more complex tasks that machines can do, the more those with specialized education, or the ability to learn how to learn, will be in demand, and for better pay. And the more those without that ability will be less generously compensated. What you don't want to be is a not very special, not very specialized, not very anchored, or not very adaptable person in a fungible job. If you are in the low-margin, fungible end of the work food chain, where businesses have an incentive to outsource to lower-cost, equally efficient producers, there is a much greater chance that your job will be outsourced or your wages depressed.

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

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

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

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

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

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

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

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

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

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

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

As goes juggling, so goes the world.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The answer is no.

SEVEN: The Quiet Crisis

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

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

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

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

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

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

“The sky is not falling, nothing horrible is going to happen today,” said Jackson, a physicist by training who chooses her words carefully. “The U.S. is still the leading engine for innovation in the world. It has the best graduate programs, the best scientific infrastructure, and the capital markets to exploit it. But there is a quiet crisis in U.S. science and technology that we have to wake up to. The U.S. today is in a truly global environment, and those competitor countries are not only wide awake, they are running a marathon while we are running sprints. If left unchecked, this could challenge our preeminence and capacity to innovate.”

And it is our ability to constantly innovate new products, services, and companies that has been the source of America's horn of plenty and steadily widening middle class for the last two centuries. It was American innovators who started Google, Intel, HP, Dell, Microsoft, and Cisco, and it matters where innovation happens. The fact that all these companies are headquartered in America means that most of the high-paying jobs are here, even if these companies outsource or offshore some functions. The executives, the department heads, the sales force, and the senior researchers are all located in the cities where the innovation happened. And their jobs create more jobs. The shrinking of the pool of young people with the knowledge skills to innovate won't shrink our standard of living overnight. It will be felt only in fifteen or twenty years, when we discover we have a critical shortage of scientists and engineers capable of doing innovation or even just high-value-added technology work. Then this won't be a quiet crisis anymore, said Jackson, “it will be the real McCoy.”

Shirley Ann Jackson knows of what she speaks, because her career exemplifies as well as anyone's both why America thrived so much in the past fifty years and why it won't automatically do the same in the next fifty. An African-American woman, Jackson was born in Washington, D.C., in 1946. She started kindergarten in a segregated public school but was one of the first public school students to benefit from desegregation, as a result of the Supreme Court ruling in Brown v. Board of Education. Just when she was getting a chance to go to a better school, the Russians launched Sputnik in 1957, and the U.S. government became obsessed with educating young people to become scientists and engineers, a trend that was intensified by John F. Kennedy's commitment to a manned space program. When Kennedy spoke about putting a man on the moon, Shirley Ann Jackson was one of the millions of American young people who were listening. His words, she recalled, “inspired, assisted, and launched many of my generation into science, engineering and mathematics,” and the breakthroughs and inventions they spawned went well beyond the space program. “The space race was really a science race,” she said.

Thanks in part to desegregation, both Jackson's inspiration and intellect were recognized early, and she ultimately became the first African-American woman to earn a Ph.D. in physics from MIT (her degree was in theoretical elementary particle physics). From there, she spent many years working for AT&T Bell Laboratories, and in 1995 was appointed by President Clinton to chair the U.S. Nuclear Regulatory Commission.

As the years went by, though, Jackson began to notice that fewer and fewer young Americans were captivated by national challenges like the race to the moon, or felt the allure of math, science, and engineering. In universities, she noted, graduate enrollment in science and engineering programs, having grown for decades, peaked in 1993, and despite some recent progress, it remains today below the level of a decade ago. So the science and engineering generations that followed Jackson's got smaller and smaller relative to our needs. By the time Jackson took the job as Rensselaer Polytechnic's president to put her heart and soul into reinvig-orating American science and engineering, she realized, she said, that a “perfect storm” was brewing-one that posed a real long-term danger to America's economic health-and she started speaking out about it whenever she could.

“The phrase 'the perfect storm' is associated with meteorological events in October 1991,” said Jackson in a speech in May 2004, when “a powerful weather system gathered force, ravaging the Atlantic Ocean over the course of several days, [and] caused the deaths of several Massachusetts-based fishermen and billions of dollars of damage. The event became a book, and, later, a movie. Meteorologists observing the event emphasized... the unlikely confluence of conditions... in which multiple factors converged to bring about an event of devastating magnitude. [A] similar worst-case scenario could arrest the progress of our national scientific and technological capacity. The forces at work are multiple and complex. They are demographic, political, economic, cultural, even social.” Individually, each of these forces would be problematic, added Jackson. In combination, they could be devastating. “For the first time in more than a century, the United States could well find itself falling behind other countries in the capacity for scientific discovery, innovation and economic development.”

The way to avoid being caught in such a storm is to identify the confluence of factors and to change course-even though right now the sky is blue, the winds are gentle, and the water seems calm. But that is not what has been going on in America in recent years. We are blithely sailing along, heading straight for the storm, with both politicians and parents insisting that no dramatic changes or sacrifices are required now. After all, look how calm and sunny it is outside, they tell us. In the fiscal year 2005 budget passed by the Republican-led Congress in November 2004, the budget for the National Science Foundation, which is the federal body most responsible for promoting research and funding more and better science education, was actually cut by 1.9 percent, or $105 million. History will show that when America should have been doubling the NSF funding, its Congress passed a pork-laden budget that actually cut assistance for science and engineering.

Don't be fooled by the calm. That's always the time to change course-not when you're just about to get hit by the typhoon. We don't have any time to waste in addressing the “dirty little secrets” of our education system.

Dirty Little Secret #1: The Numbers Gap

In the Cold War, one of the deepest causes of American worries was the so-called missile gap between us and the Soviet Union. The perfect storm Shirley Ann Jackson is warning about could best be described as the confluence of three new gaps that have been slowly emerging to sap America's prowess in science, math, and engineering. They are the numbers gap, the ambition gap, and the education gap. In the Age of Flatism, these gaps are what most threaten our standard of living.

Dirty little secret number one is that the generation of scientists and engineers who were motivated to go into science by the threat of Sputnik in 1957 and the inspiration of JFK are reaching their retirement years and are not being replaced in the numbers that they must be if an advanced economy like that of the United States is to remain at the head of the pack. According to the National Science Foundation, half of America's scientists and engineers are forty years or older, and the average age is steadily rising.

Just take one example-NASA. An analysis of NASA records conducted by the newspaper Florida Today (March 7, 2004), which covers the Kennedy Space Center, showed the following: Nearly 40 percent of the 18,146 people at NASA are age fifty or older. Those with twenty years of government service are eligible for early retirement. Twenty-two percent of NASA workers are fifty-five or older. NASA employees over sixty outnumber those under thirty by a ratio of about three to one. Only 4 percent of NASA workers are under thirty. A 2003 Government Accounting Office study concluded that NASA was having difficulty hiring people with the sufficient science, engineering, and information-technology skills that are critical to its operations. Many of these jobs are reserved for American citizens, because of national security concerns. Then-NASA administrator Sean O'Keefe testified before Congress in 2002: “Our mission of understanding and protecting our home planet and exploring the universe and searching for life will not be carried out if we don't have the people to do it.” The National Commission on Mathematics and Science Teaching for the Twenty-first Century, chaired by the former astronaut and senator John Glenn, found that two-thirds of the nation's mathematics and science teaching force will retire by 2010.

Traditionally we made up for any shortages of engineers and science faculty by educating more at home and importing more from abroad. But both of those remedies have been stalled of late.

Every two years the National Science Board supervises the collection of a very broad set of data trends in science and technology in the United States, which it publishes as Science and Engineering Indicators. In preparing Indicators 2004, the NSB said, “We have observed a troubling decline in the number of U.S. citizens who are training to become scientists and engineers, whereas the number of jobs requiring science and engineering (S&E) training continues to grow.” These trends threaten the economic welfare and security of our country, it said, adding that if the trends identified in Indicators 2004 continue undeterred, three things will happen: “The number of jobs in the U.S. economy that require science and engineering training will grow; the number of U.S. citizens prepared for those jobs will, at best, be level; and the availability of people from other countries who have science and engineering training will decline, either because of limits to entry imposed by U.S. national security restrictions or because of intense global competition for people with these skills.”

The NSB report found that the number of American eighteen-to-twenty-four-year-olds who receive science degrees has fallen to seventeenth in the world, whereas we ranked third three decades ago. It said that of the 2.8 million first university degrees (what we call bachelor's degrees) in science and engineering granted worldwide in 2003, 1.2 million were earned by Asian students in Asian universities, 830,000 were granted in Europe, and 400,000 in the United States. In engineering specifically, universities in Asian countries now produce eight times as many bachelor's degrees as the United States.

Moreover, “the proportional emphasis on science and engineering is greater in other nations,” noted Shirley Ann Jackson. Science and engineering degrees now represent 60 percent of all bachelor's degrees earned in China, 33 percent in South Korea, and 41 percent in Taiwan. By contrast, the percentage of those taking a bachelor's degree in science and engineering in the United States remains at roughly 31 percent. Factoring out science degrees, the number of Americans who graduate with just engineering degrees is 5 percent, as compared to 25 percent in Russia and 46 percent in China, according to a 2004 report by Trilogy Publications, which represents the national U.S. engineering professional association.

The United States has always depended on the inventiveness of its people in order to compete in the world marketplace, said the NSB. “Preparation of the S&E workforce is a vital arena for national competitiveness. [But] even if action is taken today to change these trends, the reversal is 10 to 20 years away.” The students entering the science and engineering workforce with advanced degrees in 2004 decided to take the necessary math courses to enable this career path when they were in middle school, up to fourteen years ago, the NSB noted. The students making that same decision in middle school today won't complete advanced training for science and engineering occupations until 2018 or 2020. “If action is not taken now to change these trends, we could reach 2020 and find that the ability of U.S. research and education institutions to regenerate has been damaged and that their preeminence has been lost to other areas of the world,” the science board said.

These shortages could not be happening at a worse time-just when the world is going flat. “The number of jobs requiring science and engineering skills in the U.S. labor force,” the NSB said, “is growing almost 5 percent per year. In comparison, the rest of the labor force is growing at just over 1 percent. Before September 11, 2001, the Bureau of Labor Statistics (BLS) projected that science and engineering occupations would increase at three times the rate of all occupations.” Unfortunately, the NSB reported, the average age of the science and engineering workforce is rising.

“Many of those who entered the expanding S&E workforce in the 1960s and 1970s (the baby boom generation) are expected to retire in the next twenty years, and their children are not choosing science and engineering careers in the same numbers as their parents,” the NSB report said. “The percentage of women, for example, choosing math and computer science careers fell 4 percentage points between 1993 and 1999.”

The 2002 NSB indicators showed that the number of science and engineering Ph.D.'s awarded in the United States dropped from 29,000 in 1998 to 27,000 in 1999. The total number of engineering undergraduates in America fell about 12 percent between the mid-1980s and 1998.

Nevertheless, America's science and engineering labor force grew at a rate well above that of America's production of science and engineering degrees, because a large number of foreign-born S&E graduates migrated to the United States. The proportion of foreign-born students in S&E fields and workers in S&E occupations continued to rise steadily in the 1990s. The NSB said that persons born outside the United States accounted for 14 percent of all S&E occupations in 1990. Between 1990 and 2000, the proportion of foreign-born people with bachelor's degrees in S&E occupations rose from 11 to 17 percent; the proportion of foreign-born with master's degrees rose from 19 to 29 percent; and the proportion of foreign-born with Ph.D.'s in the S&E labor force rose from 24 to 38 percent. By attracting scientists and engineers born and trained in other countries we have maintained the growth of the S&E labor force without a commensurate increase in support for the long-term costs of training and attracting native U.S citizens to these fields, the NSB said.

But now, the simultaneous flattening and wiring of the world have made it much easier for foreigners to innovate without having to emigrate. They can now do world-class work for world-class companies at very decent wages without ever having to leave home. As Allan E. Goodman, president of the Institute of International Education, put it, “When the world was round, they could not go back home, because there was no lab to go back to and no Internet to connect to. But now all those things are there, so they are going back. Now they are saying, 'I feel more comfortable back home. I can live more comfortably back home than in New York City and I can do good work, so why not go back?'” This trend started even before the visa hassles brought on by 9/11, said Goodman. “The brain gain started to go to brain drain around the year 2000.”

As the NSB study noted, “Since the 1980s other countries have increased investment in S&E education and the S&E workforce at higher rates than the United States has. Between 1993 and 1997, the OECD countries [Organization for Economic Co-operation and Development, a group of 40 nations with highly developed market economies] increased their number of S&E research jobs 23 percent, more than twice the 11 percent increase in S&E research jobs in the United States.”

In addition, it said, visas for students and S&E workers have been issued more slowly since the events of September 11, owing to both increased security restrictions and a drop in applications. The U.S. State Department issued 20 percent fewer visas for foreign students in 2001 than in 2000, and the rate fell farther in subsequent years. While university presidents told me in 2004 that the situation was getting better, and that the Department of Homeland Security was trying to both speed up and simplify its visa procedures for foreign students and scientists, a lot of damage has been done, and the situation for foreign students or scientists wanting to work in any areas deemed to have national security implications is becoming a real problem. No wonder New York Times education writer Sam Dillon reported on December 21, 2004, that “foreign applications to American graduate schools declined 28 percent this year. Actual foreign graduate student enrollments dropped 6 percent. Enrollments of all foreign students, in undergraduate, graduate and postdoctoral programs, fell for the first time in three decades in an annual census released this fall. Meanwhile, university enrollments have been surging in England, Germany and other countries... Chinese applications to American graduate schools fell 45 percent this year, while several European countries announced surges in Chinese enrollment.”

Dirty Little Secret #2: The Ambition Gap

The second dirty little secret, which several prominent American CEOs told me only in a whisper, goes like this: When they send jobs abroad, they not only save 75 percent on wages, they get a 100 percent increase in productivity. Part of that is understandable. When you take a low-wage, low-prestige job in America, like a call center operator, and bring it over to India, where it becomes a high-wage, high-prestige job, you end up with workers who are paid less but motivated more. “The dirty little secret is that not only is [outsourcing] cheaper and efficient,” the American CEO of a London-headquartered multinational told me, “but the quality and productivity [boost] is huge.” In addition to the wage compression, he said, one Bangalore Indian re-trained will do the work of two or three Europeans, and the Bangalore employees don't take six weeks of holidays. “When you think it's only about wages,” he added, “you can still hold your dignity, but the fact that they work better is awful.”

A short time after returning from India, I was approached in an airport by a young man who wanted to talk about some columns I had written from there. We had a nice chat, I asked him for his card, and we struck up an e-mail friendship. His name is Mike Arguello, and he is an IT systems architect living in San Antonio. He does high-end IT systems design and does not feel threatened by foreign competition. He also teaches computer science. When I asked him what we needed to do in America to get our edge back, he sent me this e-mail:

I taught at a local university. It was disheartening to see the poor work ethic of many of my students. Of the students I taught over six semesters, I'd only consider hiring two of them. The rest lacked the creativity, problem-solving abilities and passion for learning. As you well know, India's biggest advantage over the Chinese and Russians is that they speak English. But it would be wrong to assume the top Indian developers are better than their American counterparts. The advantage they have is the number of bodies they can throw at a problem. The Indians that I work with are the cream of the crop. They are educated by the equivalents of MIT back in India and there are plenty of them. If you were to follow me in my daily meetings it would become very obvious that a great deal of my time is spent working with Indians. Most managers are probably still under the impression that all Indians are doing is lower-end software development-“software assembly.” But technologies, such as Linux, are allowing them to start taking higher-paying system design jobs that had previously been the exclusive domain of American workers. It has provided them with the means to move up the technology food chain, putting them on par with domestic workers. It's brain power against brain power, and in this area they are formidable. From a technology perspective, the world is flat and getting flatter (if that is possible). The only two areas that I have not seen Indian labor in are networking architects and system architects, but it is only a matter of time. Indians are very bright and they are quickly learning from their interaction with system architects just how all of the pieces of the IT puzzle fit together... Were Congress to pass legislation to stop the flow of Indian labor, you would have major software systems that would have nobody who knew what was going on. It is unfortunate that many management positions in IT are filled with non-technical managers who may not be fully aware of their exposure... I'm an expert in information systems, not economics, but I know a high-paying job requires one be able to produce something of high value. The economy is producing the jobs both at the high end and low end, but increasingly the high-end jobs are out of reach of many. Low education means low-paying jobs, plain and simple, and this is where more and more Americans are finding themselves. Many Americans can't believe they aren't qualified for high-paying jobs. I call this the “American Idol problem.” If you've ever seen the reaction of contestants when Simon Cowell tells them they have no talent, they look at him in total disbelief. I'm just hoping someday I'm not given such a rude awakening.

In the winter of 2004 I had tea in Tokyo with Richard C. Koo, chief economist for the Nomura Research Institute. I tested out on Richard my “coefficient of flatness”: the notion that the flatter one's country is-that is, the fewer natural resources it has-the better off it will be in a flat world. The ideal country in a flat world is the one with no natural resources, because countries with no natural resources tend to dig inside themselves. They try to tap the energy, entrepreneurship, creativity, and intelligence of their own people-men and women-rather than drill an oil well. Taiwan is a barren rock in a typhoon-laden sea, with virtually no natural resources-nothing but the energy, ambition, and talent of its own people-and today it has the third-largest financial reserves in the world. The success of Hong Kong, Japan, South Korea, and coastal China can all be traced to a similar flatness.

“I am a Taiwanese-American with a father from Taiwan and with a Japanese mother,” Koo told me. “I was bom in Japan and went to Japanese elementary school and then moved to the States. There is a saying in China that whatever you put in your head and your stomach, no one can take away from you. In this whole region, that is in the DNA. You just have to study hard and move forward. I was told relatively early by my teachers, 'We can never live like Americans and Canadians. We have no resources. We have to study hard, work hard, and export hard.'”

A few weeks later I had breakfast in Washington with P. V. Kannan, CEO of 24/7 Customer. When it comes to the flat world, said P.V., he had just one question: “Is America prepared? It is not... You've gotten a little contented and slow, and the people who came into the field with [the triple convergence] are really hungry. Immigrants are always hungry-and they don't have a backup plan.”

A short time later I read a column by Steven Pearlstein, The Washington Post's business columnist/reporter, under the headline “Europe's Capitalism Curtain.” From Wroclaw, Poland (July 23, 2004), Pearlstein wrote: “A curtain has descended across Europe. On one side are hope, optimism, freedom and prospects for a better life. On the other side, fear, pessimism, suffocating government regulations and a sense that the best times are in the past.” This new curtain, Pearlstein argued, demarks Eastern Europe, which is embracing capitalism, and Western Europe, which is wishing desperately that it would go away.

“This time, however, it is the East that is likely to prevail,” he continued. “The energy and sense of possibility are almost palpable here... Money and companies are pouring in-not just the prestige nameplates like Bombardier, Siemens, Whirlpool, Toyota and Volvo, but also the network of suppliers that inevitably follows them. At first, most of the new jobs were of the semi-skilled variety. Now they have been followed by design and engineering work that aims to tap into the largest concentration of university students in Eastern Europe... The secret isn't just lower wages. It's also the attitude of workers who take pride and are willing to do what is necessary to succeed, even if it means outsourcing parts production or working on weekends or altering vacation schedules— things that would almost certainly trigger months of acrimony and negotiation in Western Europe. 'The people back home, they haven't got any idea how much they need to change if they want to preserve what they have,' said Jose Ugarte [a Basque who heads the appliance manufacturing operations of Mondragon, the giant Spanish industrial cooperative]. 'The danger to them is enormous. They don't realize how fast this is happening...' It's not the dream of riches that animates the people of Wroclaw so much as the determination to work hard, sacrifice what needs to be sacrificed and change what needs to be changed to close the gap with the West. It is that pride and determination, says Wroclaw's mayor, Rafal Dutkiewicz, that explain why they are such a threat to the 'leisure-time society' on the other side of the curtain.”

I heard a similar refrain in a discussion with consular officials who oversee the granting of visas at the U.S. embassy in Beijing. As one of them put it to me, “I do think Americans are oblivious to the huge changes. Every American who comes over to visit me [in China] is just blown away... Your average kid in the U.S. is growing up in a wealthy country with many opportunities, and many are the kids of advantaged educated people and have a sense of entitlement. Well, the hard reality for that kid is that fifteen years from now Wu is going to be his boss and Zhou is going to be the doctor in town. The competition is coming, and many of the kids are going to move into their twenties clueless about these rising forces.”

When I asked Bill Gates about the supposed American education advantage-an education that stresses creativity, not rote learning-he was utterly dismissive. In his view, those who think that the more rote learning systems of China and Japan can't turn out innovators who can compete with Americans are sadly mistaken. Said Gates, “I have never met the guy who doesn't know how to multiply who created software... Who has the most creative video games in the world? Japan! I never met these 'rote people'... Some of my best software developers are Japanese. You need to understand things in order to invent beyond them.”

One cannot stress enough: Young Chinese, Indians, and Poles are not racing us to the bottom. They are racing us to the top. They do not want to work for us; they don't even want to be us. They want to dominate us-in the sense that they want to be creating the companies of the future that people all over the world will admire and clamor to work for. They are in no way content with where they have come so far. I was talking to a Chinese-American who works for Microsoft and has accompanied Bill Gates on visits to China. He said Gates is recognized everywhere he goes in China. Young people there hang from the rafters and scalp tickets just to hear him speak. Same with Jerry Yang, the founder of Yahoo!

In China today, Bill Gates is Britney Spears. In America today, Britney Spears is Britney Spears-and that is our problem.

Dirty Little Secret #3: The Education Gap

All of this helps to explain the third dirty little secret: A lot of the jobs that are starting to go abroad today are very high-end research jobs, because not only is the talent abroad cheaper, but a lot of it is as educated as American workers—or even more so. In China, where there are 1.3 billion people and the universities are just starting to crack the top ranks, the competition for top spots is ferocious. The math/science salmon that swims upstream in China and gets itself admitted to a top Chinese university or hired by a foreign company is one smart fish. The folks at Microsoft have a saying about their research center in Beijing, which, for scientists and engineers, is one of the most sought-after places to work in all of China. “Remember, in China when you are one in a million— there are 1,300 other people just like you.”

The brainpower that rises to the Microsoft research center in Beijing is already one in a million.

Consider the annual worldwide Intel International Science and Engineering Fair. About forty countries participate by nominating talent through local affiliate affairs. In 2004, the Intel Fair attracted around sixty-five thousand American kids, according to Intel. How about in China? I asked Wee Theng Tan, the president of Intel China, during a visit to Beijing. In China, he told me, there is a national affiliate science fair, which acts as a feeder system to select kids for the global Intel fair. “Almost every single province has students going to one of these affiliate fairs,” said Tan. “We have as many as six million kids competing, although not all are competing for the top levels... [But] you know how seriously they take it. Those selected to go to the international [Intel] fair are immediately exempted from college entrance exams” and basically get their choice of any top university in China. In the 2004 Intel Science Fair, China came home with thirty-five awards, more than any other country in Asia, including one of the top three global awards.

Microsoft has three research centers in the world: in Cambridge, England; in Redmond, Washington, its headquarters; and in Beijing. Bill Gates told me that within just a couple of years of its opening in 1998, Microsoft Research Asia, as the center in Beijing is known, had become the most productive research arm in the Microsoft system “in terms of the quality of the ideas that they are turning out. It is mind-blowing.”

Kai-Fu Li is the Microsoft executive who was assigned by Gates to open the Microsoft research center in Beijing. My first question to him was, “How did you go about recruiting the staff?” Li said his team went to universities all over China and simply administered math, IQ, and programming tests to Ph.D.-level students or scientists.

“In the first year, we gave about 2,000 tests all around,” he said. From the 2,000, they winnowed the group down to 400 with more tests, then 150, “and then we hired 20.” They were given two-year contracts and told that at the end of two years, depending on the quality of their work, they would either be given a longer-term contract or granted a postdoctoral degree by Microsoft Research Asia. Yes, you read that right. The Chinese government gave Microsoft the right to grant postdocs. Of the original twenty who were hired, twelve survived the cut. The next year, nearly four thousand people were tested. After that, said Li, “we stopped doing the test. By that time we became known as the number one place to work, where all the smart computer and math people wanted to work... We got to know all the students and professors. The professors would send their best people there, knowing that if the people did not work out, it would be their credibility [on the line]. Now we have the top professors at the top schools recommending their top students. A lot of students want to go to Stanford or MIT, but they want to spend two years at Microsoft first, as interns, so they can get a nice recommendation letter that says these are MIT quality.” Today Microsoft has more than two hundred researchers in its China lab and some four hundred students who come in and out on projects and become recruiting material for Microsoft.

“They view this as a once-in-a-lifetime income opportunity/' said Li of the team at Microsoft Research Asia. ”They saw their parents going through the Cultural Revolution. The best they could do was become a professor, do a little project on the side because a professor's pay is horrible, and maybe get one paper published. Now they have this place where all they do is research, with great computers and lots of resources. They have administrators-we hire people to do the dirty work. They just could not believe it. They voluntarily work fifteen to eighteen hours a day and come in on weekends. They work through holidays, because their dream is to get to Microsoft.“ Li, who had worked for other American high-tech firms before coming to Microsoft, said that until starting Microsoft Research Asia, he had never seen a research lab with the enthusiasm of a start-up company.

“If you go in at two a.m. it is full, and at eight a.m. it is full,” he said.

Microsoft is a stronger American company for being able to attract all this talent, said Li. “Now we have two hundred more brilliant people building [intellectual property] and patents. These two hundred people are not replacing people in Redmond. They are doing new research in areas applicable worldwide.”

Microsoft Research Asia has already developed a worldwide reputation for producing cutting-edge papers for the most important scientific journals and conferences. “This is the culture that built the Great Wall,” he added, “because it is a dedicated and direction-following culture.”

Chinese people, explained Li, have both a superiority and an inferiority complex at the same time, which helps explain why they are racing America to the top, not the bottom. There is a deep and widely shared view that China was once great, that it succeeded in the past but now is far behind and must catch up again. “So there is a patriotic desire,” he said. “If our lab can do as well as the Redmond lab, that could be really exciting.”

That sort of inspired leadership in science and engineering education is now totally missing in the United States.

Said Intel chairman Craig Barrett, “U.S. technological leadership, innovation, and jobs of tomorrow require a commitment to basic research funding today.” According to a 2004 study by the Task Force on the Future of American Innovation, an industry-academic coalition, basic research performed at leading U.S. universities-research in chemistry, physics, nanotechnology, genomics, and semiconductor manufacturing-has created four thousand spin-off companies that hired 1.1 million employees and have annual world sales of $232 billion. But to keep moving ahead, the study said, there must be a 10 to 12 percent increase each year for the next five to seven years in the budgets of key research-funding agencies: the National Institute for Science and Technology, the National Science Foundation, the Department of Energy's Office of Science, and the Department of Defense research accounts.

Unfortunately, federal funding for research in physical and mathematical sciences and engineering, as a share of GDP, actually declined by 37 percent between 1970 and 2004, the task force found. At a time when we need to be doubling our investments in basic research to overcome the ambition and education gaps, we are actually cutting that funding.

In the wake of the Bush administration and the Republican Congress's decision to cut the National Science Foundation funding for 2005, Republican congressman Vern Ehlers of Missouri, a voice in the wilderness, made the following statement: “While I understand the need to make hard choices in the face of fiscal constraint, I do not see the wisdom in putting science funding behind other priorities. We have cut NSF despite the fact that this omnibus bill increases spending for the 2005 fiscal year, so clearly we could find room to grow basic research while maintaining fiscal constraint. But not only are we not keeping pace with inflationary growth, we are actually cutting the portion basic research receives in the overall budget. This decision shows dangerous disregard for our nation's future, and I am both concerned and astonished that we would make this decision at a time when other nations continue to surpass our students in math and science and consistently increase their funding of basic research. We cannot hope to fight jobs lost to international competition without a well-trained and educated workforce.”

No, we cannot, and the effects are starting to show. According to the National Science Board, the percentage of scientific papers written by Americans has fallen 10 percent since 1992. The percentage of American papers published in the top physics journal, Physical Review, has fallen from 61 percent to 29 percent since 1983. And now we are starting to see a surge in patents awarded to Asian countries. From 1980 to 2003, Japan's share of world industrial patents rose from 12 percent to 21 percent, and Taiwan's from 0 percent to 3 percent. By contrast, the U.S. share of patents has fallen from 60 percent to 52 percent since 1980.

Any honest analysis of this problem should note that there are some skeptics who believe that the sky is not falling and that scientists and the technology industry might be hyping some of this data, just to get more funding. A May 10, 2004, article in the San Francisco Chronicle quoted Daniel S. Greenberg, former news editor of the journal Science and author of the book Science, Money and Politics, who argues that “inside-the-Beltway science (lobbying) has always been insatiable. If you double the NIH (National Institutes of Health) budget in five years (as recently happened), they're (still) screaming their heads off: 'We need more money.'” Greenberg also questioned the science lobbyists' interpretation of a number of statistics.

Quoting Greenberg, the Chronicle said, “To put scientific publishing trends in context... it's important to look not only at overall percentiles but also at the actual numbers of published papers. At first, it may sound startling to hear that China quadrupled its scientific publication rate between 1986 and 1999. But it sounds somewhat less startling if one realizes that the actual number of Chinese papers published rose from 2,911 to 11,675. By comparison, close to a third of all the world's scientific papers were published by Americans-163,526 out of 528,643. In other words, China, a nation with almost four times the population of the United States, published (as of 1999) only one-fourteenth as many scientific papers as the United States.”

While I think a dose of skepticism is always in order, I also think the skeptics would be wise to pay more heed to the flattening of the world and how quickly some of these trends could change. It is why I favor Shirley Ann Jackson's approach: The sky is not falling today, but it might be in fifteen or twenty years if we don't change our ways, and all signs are that we are not changing, especially in our public schools. Help is not on the way. The American education system from kindergarten through twelfth grade just is not stimulating enough young people to want to go into science, math, and engineering. My wife teaches first-grade reading in a local public school, so she gets Education Week, which is read by educators all over America. One day she pointed out an article (July 28, 2004) headlined, “Immigrants' Children Inhabit the Top Ranks of Math, Science Meets.”

It went on to say, “Research conducted by the National Foundation for American Policy shows that 60 percent of the nation's top science students and 65 percent of the top mathematics students are children of recent immigrants, according to an analysis of award winners in three scholastic competitions... the Intel Science Talent Search, the U.S. team for the International Mathematical Olympiad, and the U.S. Physics Team.” The study's author attributed the immigrant students' success “partly to their parents' insistence that they manage study time wisely,” Education Week said. “Many immigrant parents also encouraged their children to pursue mathematics and science interests, believing those skills would lead to strong career opportunities and insulate them from bias and lack of connections in the workplace... A strong percentage of the students surveyed had parents who arrived in the United States on H-1B visas, reserved for professional workers. U.S. policymakers who back overly restrictive immigration policies do so at the risk of cutting off a steady infusion of technological and scientific skill,” said the study's author, Stuart Anderson, the executive director of the foundation. The article quoted Andrei Munteanu, eighteen, a finalist for the 2004 Intel competition, whose parents had moved from Romania to the United States five years earlier. Munteanu started American school in the seventh grade, which he found a breeze compared to his Romanian school. “The math and science classes [covered the same subject matter] I was taking in Romania... when I was in fourth grade,” he said.

For now, the United States still excels at teaching science and engineering at the graduate level, and also in university-based research. But as the Chinese get more feeder stock coming up through their improving high schools and universities, “they will get to the same level as us after a decade,” said Intel chairman Barrett. “We are not graduating the volume, we do not have a lock on the infrastructure, we do not have a lock on the new ideas, and we are either flatlining, or in real dollars cutting back, our investments in physical science.”

Every four years the United States takes part in the Trends in International Mathematics and Science Study, which assesses students after fourth grade and eighth grade. Altogether, the most recent study involved roughly a half million students from forty-one countries and the use of thirty languages, making it the largest and most comprehensive international study of education that has ever been undertaken.

The 2004 results (for tests taken in 2003) showed American students making only marginal improvements over the 2000 results, which showed the American labor force to be weaker in science than those of its peer countries. The Associated Press reported (December 4,2004) that American eighth-graders had improved their scores in science and math since 1995, when the test first was given, but their math improvement came mainly between 1995 and 1999, and not in recent years. The rising scores of American eighth-graders in science was an improvement over 1999, and it lifted the United States to a higher ranking relative to other countries. The worrying news, though, was that the scores of American fourth-graders were stagnant, neither improving nor declining in science or math since 1995. As a result, they slipped in the international rankings as other countries made gains. “Asian countries are setting the pace in advanced science and math,” Ina Mullis, codirector of the International Study Center at Boston College, which manages the study, told the AP. “As one example, 44 percent of eighth-graders in Singapore scored at the most advanced level in math, as did 38 percent in Taiwan. Only 7 percent in the United States did.” Results from another international education test also came out in December 2004, from the Program for International Student Assessment. It showed that American fifteen-year-olds are below the international average when it comes to applying math skills to real-life tasks.

No wonder Johns Hopkins University president Bill Brody remarked to me, “Over 60 percent of our graduate students in the sciences are foreign students, and mostly from Asia. At one point four years ago all of our graduate students in mathematics were from the PRC [Communist China]. I only found out about it because we use them as [teaching assistants] and some of them don't speak English all that well.” A Johns Hopkins parent wrote Brody to complain that his son could not understand his calculus professor because of his heavy Chinese accent and poor English.

No wonder there is not a major company that I interviewed for this book that is not investing significantly in research and development abroad. It is not “follow the money.” It is “follow the brains.”

“Science and math are the universal language of technology,” said Tracy Koon, Intel's director of corporate affairs, who oversees the company's efforts to improve science education. “They drive technology and our standards of living. Unless our kids grow up knowing that universal language, they will not be able to compete. We are not in the business of manufacturing somewhere else. This is a company that was founded here, but we have two raw materials-sand, which we have a ready supply of, and talent, which we don't.” (Silicon comes from sand.)

“We looked at two things,” she continued. “We looked at the fact that in disciplines that were relevant to our industry, the number of U.S. students graduating at the master's and Ph.D. levels was declining in absolute numbers and relative to other countries. In our K to twelve we were doing okay at the fourth-grade level, we were doing middle-of-the-road in the eighth grade, and by the twelfth grade we were hovering near the bottom in international tests related to math. So the longer kids were in school, the dumber they were getting... You have teachers turning off kids because they were not trained. You know the old saw about the football coach teaching science-people who do not have the ability to make this accessible and gripping for kids.”

One of the problems in remedying the situation, said Koon, is the fact that education in America is relatively decentralized and fragmented. If Intel goes to India or China or Jordan and introduces a teacher education program for making science more interesting, it can get into schools all over the country at once. In America, the public schools are overseen by fifty different state governments. While Intel does sponsor research at the university level that will benefit its own product development, it is growing increasingly concerned about the feeder system into those universities and the job market.

“Have we seen any change here? No, not really,” said Koon. So Intel has been lobbying the INS for an increase in the number of advanced foreign engineers allowed into the United States on temporary work visas. “When we look at the kinds of people that we are trying to hire here-the master's and Ph.D. levels in photonics and optics engineering and very large-scale computer architecture-what we are finding is that as you go up the food chain from bachelor's to master's to Ph.D.'s, the number of people graduating from top-tier universities in those fields are increasingly foreign-born. So what do you do? For years [America] could count on the fact that we still have the best higher-education system in the world. And we made up for our deficiencies in K through twelve by being able to get all these good students from abroad. But now fewer are coming and fewer are staying... We have no God-given right to be able to hire all these people, and little by little we won't have the first-round draft choices. People who graduate in these very technical fields that are critical to our industries should get a green card stapled to their diploma.”

It appears that young people wanting to be lawyers started to swamp those wanting to be engineers and scientists in the 1970s and early 1980s. Then, with the dot-com boom, those wanting to go to business school and earn MBAs swamped engineering students and lawyers in the 1990s.

One can also hope that the marketplace will address the shortage of engineers and scientists by changing the incentives.

“Intel has to go where the IQ is,” said Koon. Remember, she repeated, Intel's chips are made from just two things-sand and brains, “and right now the brains are the problem... We will need a stronger and more supportive immigration system if we want to hire the people who want to stay here. Otherwise, we will go where they are. What are the alternatives? I am not talking about data programmers or [people with] B.S. degrees in computer science. We are talking about high-end specialized engineering. We have just started a whole engineering function in Russia, where engineers have wonderful training-and talk about underemployed! We are beefing that up. Why wouldn't you?”

Wait a minute: Didn't we win the Cold War? If one of America's premier technology companies feels compelled to meet its engineering needs by going to the broken-down former Soviet Union, where the only thing that seems to work is old-school math and science education, then we've got a quiet little crisis on our hands. One cannot stress enough the fact that in the flat world the frontiers of knowledge get pushed out farther and farther, faster and faster. Therefore, companies need the brainpower that can not only reach the new frontiers but push them still farther. That is where the breakthrough drugs and software and hardware products are going to be found. And America either needs to be training that brainpower itself or importing it from somewhere else -or ideally both—if it wants to dominate the twenty-first century the way it dominated the twentieth-and that simply is not happening.

“There are two things that worry me right now,” said Richard A. Rashid, the director of research for Microsoft. “One is the fact that we have really dramatically shut down the pipeline of very smart people coming to the United States. If you believe that we have the greatest re-seach universities and opportunities, it all has to be driven by IQ. In trying to create processes that protect the country from undesirables, [the government] has done a much better job of keeping out desirables. A really significant fraction of the top people graduated from our universities [in science and engineering] were not born here, but stayed here and created the businesses, and became the professors, that were engines for our economic growth. We want these people. In a world where IQ is one of the most important commodities, you want to get as many smart people as you can.”

Second, said Rashid, “We have done a very poor job of conveying to kids the value of science and technology as a career choice that will make the world a better place. Engineering and science is what led to so many improvements in our lives. But you talk to K through twelve kids about changing the world and they don't look at computer science as a career that is going to be a great thing. The amazing thing is that it is hard to get women into computer science now, and getting worse. Young women in junior high are told this is a really wretched lifestyle. As a result, we are not getting enough students through our systems who want to be computer scientists and engineers, and if we cut off the flow from abroad, the confluence of those two will potentially put us in a very difficult position ten or fifteen years from now. It is a pipeline process. It won't come to roost right away, but fifteen or twenty years from now, you'll find you don't have the people and the energy in these areas where you need them.”

From Richard Rashid at Microsoft in the Northwest to Tracy Koon at Intel in Silicon Valley to Shirley Ann Jackson at Rensselaer on the East Coast, the people who understand these issues the best and are closest to them have the same message: Because it takes fifteen years to create a scientist or advanced engineer, starting from when that young man or woman first gets hooked on science and math in elementary school, we should be embarking on an all-hands-on-deck, no-holds-barred, no-budget-too-large crash program for science and engineering education immediately. The fact that we are not doing so is our quiet crisis. Scientists and engineers don't grow on trees. They have to be educated through a long process, because, ladies and gentlemen, this really is rocket science.

EIGHT: This Is Not a Test

As a person who grew up during the Cold War, I'll always remember driving along down the highway and listening to the radio, when suddenly the music would stop and a grim-voiced announcer would come on the air and say, “This is a test of the emergency broadcast system,” and then there would be a thirty-second high-pitched siren sound. Fortunately, we never had to live through a moment in the Cold War where the announcer came on and said, “This is not a test.” That, however, is exactly what I want to say here: This is not a test.

The long-term opportunities and challenges that the flattening of the world puts before the United States are profound. Therefore, our ability to get by doing things the way we've been doing them-which is to say, not always tending to our secret sauce and enriching it-will not suffice anymore. “For a country as wealthy as we are, it is amazing how little we are doing to enhance our natural competitiveness,” said Dinakar Singh, the Indian-American hedge fund manager. “We are in a world that has a system that now allows convergence among many billions of people, and we had better step back and figure out what it means. It would be a nice coincidence if all the things that were true before are still true now-but there are quite a few things you actually need to do differently... You need to have a much more thoughtful national discussion.” The flat world, Singh argued, is now the elephant in the room, and the question is, What is it going to do to us, and what are we going to do to it?

If this moment has any parallel in American history, it is the height of the Cold War, around 1957, when the Soviet Union leaped ahead of America in the space race by putting up the Sputnik satellite. Yes, there are many differences between that age and our own. The main challenge then came from those who wanted to put up walls; the main challenge to America today comes from the fact that all the walls are being taken down, and other countries can now compete with us much more directly. The main challenge in that world was from those practicing extreme communism, namely, Russia, China, and North Korea. The main challenge to America today is from those practicing extreme capitalism, namely, China, India, and South Korea. The main objective in that era was building a strong state; the main objective in this era is building strong individuals.

What this era has in common with the Cold War era, though, is that to meet the challenges of flatism requires as comprehensive, energetic, and focused a response as did meeting the challenge of communism. It requires our own version of the New Frontier and Great Society adapted to the age of flatness. It requires a president who can summon the nation to get smarter and study harder in science, math, and engineering in order to reach the new frontiers of knowledge that the flat world is rapidly opening up and pushing out. And it requires a Great Society that commits our government to building the infrastructure, safety nets, and institutions that will help every American become more employable in an age when no one can be guaranteed lifetime employment. I call my own version of this approach compassionate flatism.

Getting Americans to rally around compassionate flatism is much more difficult than getting them to rally around anticommunism. “National peril is a lot easier to convey than individual peril,” noted Johns Hopkins University foreign policy expert Michael Mandelbaum. Economics, as noted, is not like war, because economics can always be a win-win game. But sometimes I wish economics were more like war. In the Cold War, we actually got to see the Soviets parade their missiles in Red Square. We all got to be scared together, from one end of the country to the other, and all our politicians had to be focused and serious about marshaling the resources and educational programs to make sure Americans could keep pace with the Soviet Union.

But today, alas, there is no missile threat coming from India. The “hot line,” which used to connect the Kremlin with the White House, has been replaced by the “help line,” which connects everyone in America to call centers in Bangalore. While the other end of the hotline might have had Leonid Brezhnev threatening nuclear war, the other end of the help line just has a soft voice eager to help you sort out your AOL bill or collaborate with you on a new piece of software. No, that voice has none of the menace of Nikita Khrushchev pounding a shoe on the table at the UN, and it has none of the sinister snarl of the bad guys in From Russia with Love. There is no Boris or Natasha saying “We will bury you” in a thick Russian accent. No, that voice on the help line just has a friendly Indian lilt that masks any sense of threat or challenge. It simply says: “Hello, my name is Rajiv. Can I help you?”

No, Rajiv, actually, you can't.

When it comes to responding to the challenges of the flat world, there is no help line we can call. We have to dig into ourselves. We in America have all the tools to do that, as I argued in Chapter 6. But, as I argued in Chapter 7, we have not been tending to those tools as we should. Hence, our quiet crisis. The assumption that because America's economy has dominated the world for more than a century, it will and must always be that way is as dangerous an illusion today as the illusion that America would always dominate in science and technology was back in 1950. But this is not going to be easy. Getting our society up to speed for a flat world is going to be extremely painstaking. We are going to have to start doing a lot of things differently. It is going to take the sort of focus and national will that President John F. Kennedy called for in his famous May 25, 1961, speech to Congress on “urgent national needs.” At that time, America was recovering from the twin shocks of Sputnik and the Soviet space launch of a cosmonaut, Yuri Gagarin, less than two months before Kennedy's speech. Kennedy knew that while America had enormous human and institutional assets-far more than the Soviet Union-they were not being fully utilized.

“I believe we possess all the resources and talents necessary,” said President Kennedy. “But the facts of the matter are that we have never made the national decisions or marshaled the national resources required for such leadership. We have never specified long-range goals on an urgent time schedule, or managed our resources and our time so as to ensure their fulfillment.” After then laying out his whole program for putting a man on the moon within ten years, President Kennedy added, “Let it be clear that I am asking the Congress and the country to accept a firm commitment to a new course of action, a course which will last for many years and carry very heavy costs... This decision demands a major national commitment of scientific and technical manpower, materiel and facilities, and the possibility of their diversion from other important activities where they are already thinly spread. It means a degree of dedication, organization and discipline which have not always characterized our research and development efforts.”

In that speech, Kennedy made a vow that has amazing resonance today: “I am therefore transmitting to the Congress a new Manpower Development and Training program, to train or retrain several hundred thousand workers, particularly in those areas where we have seen chronic unemployment as a result of technological factors, in new occupational skills over a four-year period—in order to replace those skills made obsolete by automation and industrial change with the new skills which the new processes demand.”

Amen. We too have to do things differently. We are going to have to sort out what to keep, what to discard, what to adapt, what to adopt, where to redouble our efforts, and where to intensify our focus. That is what this chapter is about. This is just an intuition, but the flattening of the world is going to be hugely disruptive to both traditional and developed societies. The weak will fall farther behind faster. The traditional will feel the force of modernization much more profoundly. The new will get turned into old quicker. The developed will be challenged by the underdeveloped much more profoundly. I worry, because so much political stability is built on economic stability, and economic stability is not going to be a feature of the flat world. Add it all up and you can see that the disruptions are going to come faster and harder. Think about Microsoft trying to figure out how to deal with a global army of people writing software for free! We are entering an era of creative destruction on steroids. Even if your country has a comprehensive strategy for dealing with flatism, it is going to be a challenge of a whole new dimension. But if you don't have a strategy at all... well, you've been warned. This is not a test.

Being an American, I am most focused on my own country. How do we go about maximizing the benefits and opportunities of the flat world, and providing protection for those who have difficulty with the transition, without resorting to protectionism or runaway capitalism? Some will offer traditional conservative responses; some will offer traditional liberal ones. I offer compassionate flatism, which is a policy blend built around five broad categories of action for the age of flat: leadership, muscle building, cushioning, social activism, and parenting.

Leadership

The job of the politician in America, whether at the local, state, or national level, should be, in good part, to help educate and explain to people what world they are living in and what they need to do if they want to thrive within it. One problem we have today, though, is that so many American politicians don't seem to have a clue about the flat world. As venture capitalist John Doerr once remarked to me, “You talk to the leadership in China, and they are all the engineers, and they get what is going on immediately. The Americans don't, because they're all lawyers.” Added Bill Gates, “The Chinese have risk taking down, hard work down, education, and when you meet with Chinese politicians, they are all scientists and engineers. You can have a numeric discussion with them-you are never discussing 'give me a one-liner to embarrass [my political rivals] with.' You are meeting with an intelligent bureaucracy.”

I am not saying we should require all politicians to hold engineering degrees, but it would be helpful if they had a basic understanding of the forces that are flattening the world, were able to educate constituents about them and galvanize a response. We have way too many politicians in America today who seem to do the opposite. They seem to go out of their way actually to make their constituents stupid-encouraging them to believe that certain jobs are “American jobs” and can be protected from foreign competition, or that because America has always dominated economically in our lifetimes it always will, or that compassion should be equated with protectionism. It is hard to have an American national strategy for dealing with flatism if people won't even acknowledge that there is an education gap emerging and that there is an ambition gap emerging and that we are in a quiet crisis. For instance, of all the policy choices that the Republican-led Congress could have made in forging the FY 2005 budget, how in the world could it have decided to cut the funding of the National Science Foundation by more than $100 million?

We need politicians who are able and willing to both explain and inspire. And what they most need to explain to Americans is pretty much what Lou Gerstner explained to the workforce of IBM when he took over as chairman in 1993, when the company was losing billions of dollars. At the time, IBM was facing a near-death experience owing to its failure to adapt to and capitalize on the business computing market that it invented. IBM got arrogant. It had built its whole franchise around helping customers solve problems. But after a while it stopped listening to its customers. It thought it didn't have to. And when IBM stopped listening to its customers, it stopped creating value that mattered for its customers, and that had been the whole strength of its business. A friend of mine who worked at IBM back then told me that when he was in his first year at the company and taking an internal course, his IBM instructor boasted to him that IBM was such a great company, it could do “extraordinary things with just average people.” As the world started to flatten, though, IBM found that it could not continue thriving with an overabundance of average people working for a company that had stopped being a good listener.

But when a company is the pioneer, the vanguard, the top dog, the crown jewel, it is hard to look in the mirror and tell itself it is in a not-so-quiet crisis and better start to make a new history or become history. Gerstner decided that he would be that mirror. He told IBM it was ugly and that a strategy built largely around designing and selling computers-rather than the services and strategies to get the most out of those computers for each customer-didn't make sense. Needless to say, this was a shock for IBMers.

“Transformation of an enterprise begins with a sense of crisis or urgency,” Gerstner told students at Harvard Business School, in a December 9, 2002, talk. “No institution will go through fundamental change unless it believes it is in deep trouble and needs to do something different to survive.” It is impossible to ignore the parallel with America as a whole in the early twenty-first century.

When Lou Gerstner came in, one of the first things he did was replace the notion of lifetime employment with the notion of lifetime em-ployability. A friend of mine, Alex Attal, a French-born software engineer who was working for IBM at the time, described the shift this way: “Instead of IBM giving you a guarantee that you will be employed, you had to guarantee that you could stay employable. The company would give you the framework, but you had to build it yourself. It's all about adapting. I was head of sales for IBM France at the time. It was the mid-nineties. I told my people that in the old days [the concept of] lifetime employment was only a company's responsibility, not a personal responsibility. But once we move to a model of employability, that becomes a shared responsibility. The company will give you access to knowledge, but you have to take advantage of it... You have to build the skills because it will be you against a lot of other people.”

When Gerstner started to change the paradigm at IBM, he kept stressing the issue of individual empowerment. Said Attal, “He understood that an extraordinary company could only be built on a critical mass of extraordinary people.”

As at IBM, so in America. Average Joe has to become special, specialized, or adaptable Joe. The job of government and business is not to guarantee anyone a lifetime job-those days are over. That social contract has been ripped up with the flattening of the world. What government can and must guarantee people is the chance to make themselves more employable. We don't want America to be to the world what IBM was becoming to the computer industry in the 1980s: the people who opened the field and then became too timid, arrogant, and ordinary to play on it. We want America to be the born-again IBM.

Politicians not only need to explain to people the flat world, they need to inspire them to rise to the challenge of it. There is more to political leadership than a competition for who can offer the most lavish safety nets. Yes, we must address people's fears, but we must also nurse their imaginations. Politicians can make us more fearful and thereby be disablers, or they can inspire us and thereby be enablers.

To be sure, it is not easy to get people passionate about the flat world. It takes some imagination. President Kennedy understood that the competition with the Soviet Union was not a space race but a science race, which was really an education race. Yet the way he chose to get Americans excited about sacrificing and buckling down to do what it took to win the Cold War-which required a large-scale push in science and engineering-was by laying out the vision of putting a man on the moon, not a missile into Moscow. If President Bush is looking for a similar legacy project, there is one just crying out-a national science initiative that would be our generation's moon shot: a crash program for alternative energy and conservation to make America energy-independent in ten years. If President Bush made energy independence his moon shot, in one fell swoop he would dry up revenue for terrorism, force Iran, Russia, Venezuela, and Saudi Arabia onto the path of reform-which they will never do with $50-a-barrel oil-strengthen the dollar, and improve his own standing in Europe by doing something huge to reduce global warming. He would also create a real magnet to inspire young people to contribute to both the war on terrorism and America's future by again becoming scientists, engineers, and mathematicians. “This is not just a win-win,” said Michael Mandelbaum. “This is a win-win-win-win-win.” I have consistently been struck that my newspaper columns that have gotten far and away the most positive feedback over the years, especially from young people, have been those that urged the president to call the nation to this task. Summoning all our energies and skills to produce a twenty-first-century fuel is George W. Bush's opportunity to be both Nixon to China and JFK to the moon in one move. Unfortunately for America, it appears as though I will go to the moon before President Bush will go down this road.

Muscles

Since lifetime employment is a form of fat that a flat world simply cannot sustain any longer, compassionate flatism seeks to focus its energy on how government and business can enhance every worker's lifetime employability. Lifetime employment depends on preserving a lot of fat. Lifetime employability requires replacing that fat with muscle. The social contract that progressives should try to enforce between government and workers, and companies and workers, is one in which government and companies say, “We cannot guarantee you any lifetime employment. But we can guarantee you that government and companies will focus on giving you the tools to make you more lifetime employable.” The whole mind-set of a flat world is one in which the individual worker is going to become more and more responsible for managing his or her own career, risks, and economic security, and the job of government and business is to help workers build the necessary muscles to do that.

The “muscles” workers need most are portable benefits and opportunities for lifelong learning. Why those two? Because they are the most important assets in making a worker mobile and adaptable. As Harvard University economist Robert Lawrence notes, the greatest single asset that the American economy has always had is the flexibility and mobility of its labor force and labor laws. That asset will become even more of an advantage in the flat world, as job creation and destruction both get speeded up.

Given that reality, argues Lawrence, it becomes increasingly important for society, to the extent possible, to make benefits and education— the two key ingredients of employability-as flexible as possible. You don't want people to feel that they have to stay with a company forever simply to keep their pension and health benefits. The more the workforce feels mobile -in terms of health care, pension benefits, and lifelong learning possibilities-the more it will be willing and able to jump into the new industries and new job niches spawned by the flat world and to move from dying companies to thriving companies.

Creating legal and institutional frameworks for universal portability of pensions and health care -in addition to Social Security, Medicare, and Medicaid-will help people build up such muscles. Today roughly 50 percent of Americans don't have a job-based pension plan, other than Social Security. Those who are fortunate enough to have one cannot easily take it with them from job to job. What is needed is one simple universal portable pension scheme, along the lines proposed by the Progressive Policy Institute, that would get rid of the confusing welter of sixteen different tax-deferred options now offered by the government and consolidate them all into a single vehicle. This universal plan, which you would open with your first job, would encourage workers to establish 401 (k) tax-deferred savings programs. Each worker and his or her employer could make contributions of cash, bonuses, profit sharing, or stock, depending on what sorts of benefits the specific employer offered. These assets would be allowed to build up tax-free in whatever savings or investment portfolio options the worker chose. But if and when it came time to change jobs, the worker could take the whole portfolio with him or her and not have to either cash it out or leave it under the umbrella of the previous employer. Rollover provisions do exist today, but they are complicated and many workers don't take advantage of them because of that.

The universal pension format would make rollover simple, easy, and expected, so pension lockup per se would never keep someone from moving from one job to another. Each employer could still offer his or her own specific 401 (k) benefit plan, as an incentive to attract employees. But once a worker moved to another job, the investments in that particular 401 (k) would just automatically dump into his or her universal pension account. With each new job, a new 401 (k) could be started, and with each move, the benefits deposited in that same universal pension account.

In addition to this simple, portable, and universal pension program, Will Marshall, president of the Progressive Policy Institute, proposes legislation that would make it much easier and more likely for workers to obtain stock options in the companies for which they work. Such legislation would give tax incentives to companies to give more workers more options earlier and penalize companies that do not. Part of making workers more mobile is creating more ways to make more workers owners of financial assets, not just their own labor. “We want a public that sees itself as stakeholders, sharing in the capital-creating side of the flat world, not just competing in global labor markets/' argued Marshall. ”We all have to be owners as well as wage earners. That is where public policy has to be focused-to make sure that people have wealth-producing assets as they enter the twenty-first century, the way homeownership accomplished that in the twentieth century.“

Why? Because there is an increasing body of literature that says people who are stakeholders, people who have a slice of the pie, “are more deeply invested in our system of democratic capitalism and the policies that keep it dynamic,” said Marshall. It is another way, besides home-ownership, to underpin the legitimacy of democratic capitalism. It is also another way to energize it, because workers who are also owners are more productive on the job. Moreover, in a flat world where every worker is going to face suffer competition, the more opportunities everyone has to build wealth through the power of markets and compounding interest, the more he or she will be able to be self-reliant. We need to give workers every stabilizer we can and make it as easy for them to get stock options as it is for the plutocrats. Instead of just being focused on protecting those with existing capital, as conservatives so often seem to be, let's focus instead on widening the circle of capital owners.

On the health-care side, which I won't delve into in great detail, since that would be a book unto itself, it is essential that we develop a scheme for portable health insurance that reduces some of the burden on employers for providing and managing coverage. Virtually every entrepreneur I talked to for this book cited soaring and uncontrolled healthcare costs in America as a reason to move factories abroad to countries where benefits were more limited, or nonexistent, or where there was national health insurance. Again, I favor the type of portable health-care program proposed by PPL The idea is to set up state-by-state collective purchasing pools, the way Congress and federal employees now cover themselves. These pools would set the rules and create the marketplace in which insurance companies could offer a menu of options. Each employer would then be responsible for offering this menu of options to each new employee. Workers could choose high, medium, or low coverage. Everyone, though, would have to be covered. Depending on the employer, he or she would cover part or all of the premiums and the employee the rest. But employers would not be responsible for negotiating plans with insurance companies, where they have little individual clout.

The state or federal pools would do that. This way employees would be totally mobile and could take their health-care coverage wherever they went. This type of plan has worked like a charm for members of Congress, so why not offer it to the wider public? Needy and low-income workers who could not afford to join a plan would get some government subsidy to do so. But the main idea is to establish a government-supervised, -regulated, and -subsidized private insurance market in which government sets the broad rules so that there is no cherry-picking of healthy workers or arbitrary denial of treatment. The health care itself is administered privately, and the job of employers is to facilitate their workers' entry into one of these state pools and, ideally, help them pay for some or all of the premiums, but not be responsible for the health care themselves. In the transition, though, employers could continue to offer health-care plans as an incentive, and workers would have the option of going with either the plan offered by their employers or the menu of options available through the state purchasing pools. (For details, go to ppionline.org.)

One can quibble about the details of any of these proposals, but I think the basic inspiration behind them is exactly right: In a flattening world, where worker security can no longer be guaranteed by Fortune 500 corporations with top-down pension and health plans, we need more collaborative solutions-among government, labor, and business-that will promote self-reliant workers but not just leave them to fend for themselves.

When it comes to building muscles of employability, government has another critical role to play. Each century, as we push out the frontiers of human knowledge, work at every level becomes more complex, requiring more pattern recognition and problem solving. In the preindustrial age, human strength really mattered. Strength was a real service that lots of people could sell on the farm or in the workshop. With the invention of the electric motor and steam engine, though, physical strength became less important. Small women could drive big trucks. There is little premium for strength anymore. But there is an increasing premium for pattern recognition and complex problem solving, even down on the farm. Farming became a more knowledge-intensive activity, with GPS satellites guiding tractors to make sure all the rows being planted were straight. That modernization, plus fertilizer, put a lot of people out of work at the previous wage they were earning in agriculture.

Society as a whole looked at this transition from traditional agriculture to industrialization and said, “This is great! We will have more food and better food at lower costs, plus more people to work in factories.” However, muscle-bound field hands and their families said, “This is a tragedy. How will I ever get a job in the industrial economy with only muscles and a sixth-grade education? I won't be able to eat any of that better, cheaper, plentiful food coming off the farms. We need to stop this move to industrialization.”

Somehow we got through this transition from an agriculture-based society one hundred years ago to an industrial-based one-and still ended up with a higher standard of living for the vast majority of Americans. How did we do it?

“We said everyone is going to have to have a secondary education,” said Stanford University economist Paul Romer. “That was what the high school movement in the early part of the twentieth century was all about.” As economic historians have demonstrated in a variety of research (see particularly the work of Harvard economists Claudia Goldin and Larry Katz), both technology and trade are making the pie bigger, but they are also shifting the shares of that pie away from low-skilled labor to high-skilled labor. As American society produced more higher-skilled people by making high school mandatory, it empowered more people to get a bigger slice of the bigger, more complex economic pie. As that century progressed, we added, on top of the high school movement, the GI Bill and the modern university system.

“These were big ideas,” noted Romer, “and what is missing at the moment is a political imagination of how do we do something just as big and just as important for the transition into the twenty-first century as we did for the nineteenth and twentieth.” The obvious challenge, Romer added, is to make tertiary education, if not compulsory, then government-subsidized for at least two years, whether it is at a state university, a community college, or a technical school. Tertiary education is more critical the flatter the world gets, because technology will be churning old jobs, and spawning new, more complex ones, much faster than during the transition from the agricultural economy to the industrial one.

Educating more people at the tertiary level has two effects. One is that it produces more people with the skills to claim higher-value-added work in the new niches. And two, it shrinks the pool of people able to do lower-skilled work, from road maintenance to home repair to Starbucks. By shrinking the pool of lower-skilled workers, we help to stabilize their wages (provided we control immigration), because there are fewer people available to do those jobs. It is not an accident that plumbers can charge $75 an hour in major urban areas or that good housekeepers or cooks are hard to find.

America's ability from the mid-nineteenth century on into the midtwentieth century to train people, limit immigration, and make low-skilled work scarce enough to win decent wages was how we created a middle class without too disparate an income gap. “Indeed,” noted Romer, “from the end of the nineteenth century to the middle of the twentieth, we had a narrowing of the income gap. Now we have seen an increase of that gap over the last twenty or thirty years. That is telling us that you have to run faster in order to stay in the same place.” With each advance in technology and increase in the complexity of services, you need an even higher level of skills to do the new jobs. Moving from being a farmhand to a phone operator who spoke proper English and could be polite was one thing. But moving from being a phone operator after the job got outsourced to India, to being able to install or repair phone-mail systems-or write their software—requires a whole new leap upward.

While expanding research universities on the high end of the spectrum is important, so is expanding the availability of technical schools and community colleges. Everyone should have a chance to be educated beyond high school. Otherwise upper-income kids will get those skills and their slice, and the lower-income kids will never get a chance. We have to increase the government subsidies that make it possible for more and more kids to attend community colleges and more and more low-skilled workers to get retrained.

JFK wanted to put a man on the moon. My vision is to put every American man or woman on a campus.

Employers have a critical contribution to make to lifetime learning and fostering employability, as opposed to guaranteed employment. Take, for instance, CapitalOne, the global credit card company, which began outsourcing elements of its backroom operations to Wipro and Infosys in India over the past few years. Competing in the global financial services market, the company felt it had to take advantage of all the cost-saving opportunities that its competitors were. CapitalOne began, though, by trying to educate its workers through workshops about the company's competitive predicament. It made clear that there is no safe haven where lifetime employment is possible anymore -inside Capital-One or outside. Then it developed a whole program for cross-training of computer programmers, those most affected by outsourcing. The company would take a programmer who specialized in mainframes and teach him or her to be a distributed systems programmer as well. CapitalOne did similar cross-training on its business side, in everything from auto loans to risk management. As a result, the workers who were eventually let go in an outsourcing move were in a much better position to get new jobs, because they were cross-trained and therefore more employable. And those who were cross-trained but retained were more versatile and therefore more valuable to CapitalOne, because they could do multiple tasks.

What CapitalOne was doing, out of both its own self-interest and a feeling of obligation to workers it was letting go, was trying to make more and more of its workers into versatilists. The word “versatilist” was coined by Gartner Inc., the technology consultants, to describe the trend in the information technology world away from specialization and toward employees who are more adaptable and versatile. Building employee versatility and finding employees who already are or are willing to become versatilists “will be the new watchword for career planning,” according to a Gartner study quoted by TechRepublic.com. “Enterprises that focus on technical aptitude alone will fail to align workforce performance with business value,” the Gartner study said. “Instead, they need to build a team of versatilists who build a rich portfolio of knowledge and competencies to fuel [multiple] business objectives.” The Gartner study noted that “specialists generally have deep skills and narrow scope, giving them expertise that is recognized by peers but seldom valued outside their immediate domain. Generalists have broad scope and shallow skills, enabling them to respond or act reasonably quickly but often without gaining or demonstrating the confidence of their partners or customers. Versatilists, in contrast, apply depth of skill to a progressively widening scope of situations and experiences, gaining new competencies, building relationships, and assuming new roles.” TechRepublic quoted Joe Santana, director of training at Siemens Business Services: “With flat or even smaller budgets and fewer people, managers need to make the most of the people they have... They can no longer see people as specialty tools. And their people need to become less like specialty tools and more like Swiss Army knives. Those 'Swiss Army knives' are the versatilists.”

In addition to their own self-interest in making more of their own employees into human Swiss Army knives, companies should be encouraged, with government subsidies or tax incentives, to offer as wide an array as possible of in-house learning opportunities. The menu of Internet-based worker-training programs today is enormous-from online degree programs to in-house guided training for different specializations. Not only is the menu enormous, but the cost to the company for offering these educational options is very low. The more lifetime learning opportunities that companies provide, the more they are both widening the skill base of their own workforce and fulfilling a moral obligation to workers whose jobs are outsourced to see to it that they leave more employable than they came. If there is a new social contract implicit between employers and employees today, it should be this: You give me your labor, and I will guarantee that as long as you work here, I will give you every opportunity-through either career advancement or training— to become more employable, more versatile.

While we need to redouble our efforts to build the muscles of each individual

American, we have to continue to import muscles from abroad as well. Most of the Indian, Chinese, Russian, Japanese, Korean, Iranian, Arab, and Israeli engineers, physicists, and scientists who come to work or study in the United States make great citizens. They are family-oriented, educated, and hardworking, and most would jump at the chance to become an American. They are exactly the type of people this country needs, and we cannot let the FBI, CIA, and Homeland Security, in their zeal to keep out the next Mohammed Atta, also keep out the next Sergey Brin, one of the cofounders of Google, who was born in Russia. As a computer architect friend of mine says, “If a foreign-born person is one day going to take my job, I'd prefer they be American citizens helping pay for my retirement benefits.”

I would favor an immigration policy that gives a five-year work visa to any foreign student who completes a Ph.D. at an accredited American university in any subject. I don't care if it is Greek mythology or mathematics. If we can cream off the first-round intellectual draft choices from around the world, it will always end up a net plus for America. If the flat world is about connecting all the knowledge pools together, we want our knowledge pool to be the biggest. Said Bill Brody, the president of Johns Hopkins, “We are in a global talent search, so anything we can do in America to get those top draft choices we should do, because one of them is going to be Babe Ruth, and why should we let him or her go somewhere else?”

Good Fat Cushions Worth Keeping

While many of the old corporate and government safety nets will vanish under global competition in the flat world, some fat still needs to be maintained, and even added. As everyone who worries about his or her health knows, there is “good fat” and “bad fat”-but everybody needs some fat. That is also true of every country in the flat world. Social Security is good fat. We need to keep it. A welfare system that discourages people from working is bad fat. The sort of good fat that actually needs to be added for a flat world is wage insurance.

According to a study by Lori Kletzer, an economist at the University of California, Santa Cruz, in the 1980s and '90s, two-thirds of workers who lost jobs in manufacturing industries hit by overseas competition earned less on their next job. A quarter of workers who lost their jobs and were reemployed saw their income fall 30 percent or more. Losing a job for any reason is a trauma-for the worker and his or her family-but particularly for older workers who are less able to adapt to new production techniques or lack the education to move up into more skilled service jobs.

This idea of wage insurance was first proposed in 1986 by Harvard's Robert Lawrence and Robert E. Litan of the Brookings Institution, in a book called Saving Free Trade. The idea languished for a while until it started to catch fire again with an updated analysis by Kletzer and Litan in 2001. It got further political clout from the bipartisan U.S. Trade Deficit Commission in 2001. This commission couldn't agree on anything— including the causes of or what to do about the trade deficit— other than the wisdom of wage insurance.

“Trade creates winners and losers, and what we were thinking about were mechanisms by which the winners could compensate the losers, and particularly losers who were enjoying high wages in a particular job and suddenly found their new employment at much lower wages,” said Lawrence. The way to think about this, he explained, is that every worker has “general skills and specific skills” for which they are paid, and when you switch jobs you quickly discover which is which. So you might have a college and CPA degree, or you might have a high school degree and the ability to operate a lathe. Both skills were reflected in your wages. But suppose one day your lathe job gets moved to China or your basic accounting work is outsourced to India and you have to go out and find a new job. Your new employer will not likely compensate you much for your specific skills, because your knowledge as a machine tool operator or a general accountant is probably of less use to him or her. You will be paid largely for your general skills, your high school education or college degree. Wage insurance would compensate you for your old specific skills, for a set period of time, while you take a new job and learn new specific skills.

The standard state-run unemployment insurance program eases some of this pain for workers, but it does not address their bigger concerns of declining wages in a new job and the inability to pay for health insurance while they are unemployed and searching. To qualify for wage insurance, workers seeking compensation for job loss would have to meet three criteria. First, they would have to have lost their job through some form of displacement-offshoring, outsourcing, downsizing, or factory closure. Second, they would have to have held the job for at least two years. And third, the wage insurance would not be paid until the workers found new jobs, which would provide a strong incentive to look for work quickly and increase the chances that they would get on-the-job retraining. On-the-job training is always the best way to learn new skills-instead of having to sign up for some general government training program, with no promise of a job at the other end, and go through that while remaining unemployed.

Workers who met those three conditions would then receive payments for two years, covering half the drop in their income from their previous job (capped at $10,000 a year). Kletzer and Litan also proposed that the government pay half the health insurance premiums for all “displaced” workers for up to six months. Wage insurance seems to me a much better idea than relying only on the traditional unemployment insurance offered by states, which usually covers only about 50 percent of most workers' previous wages, is limited to six months, and does not help workers who suffer a loss of earnings after they take a new job.

Moreover, as Kletzer and Litan noted, although all laid-off workers now have the right to purchase unsubsidized health insurance from their former employer if health coverage was offered when they were employed, many jobless workers do not have the money to take advantage of this guarantee. Also, while unemployed workers can earn an additional fifty-two weeks of unemployment insurance if they enroll in an approved retraining program, workers have no guarantee that when they finish such a program they will have a job.

For all these reasons, the Kletzer-Litan proposal makes a lot of sense to me as the right benefit for cushioning workers in a flat world. Moreover, such a program would be eminently affordable. Litan estimated that at an unemployment rate of 5 percent, the wage insurance and health-care subsidy today would cost around $8 billion a year, which is peanuts compared to the positive impact it could have on workers. This program would not replace classic state-run unemployment insurance for workers who opt for that, but if it worked as projected, it could actually reduce the cost of such programs by moving people back to work quicker.

Some might ask, Why be compassionate at all? Why keep any fat, friction, or barriers? Let me put it as bluntly as I can: If you are not a compassionate flatist—if you are just a let 'er rip free-market flatist—you are not only cruel, you are a fool. You are courting a political backlash by those who can and will get churned up by this flattening process, and that backlash could become ferocious if we hit any kind of prolonged recession.

The transition to a flat world is going to stress many people. As Joshua S. Levine, E*Trade 's chief technology officer, put it to me, 'You know how sometimes you go through a harrowing experience and you need a respite, but the respite never seems to come. Look at the airline workers. They go through this [terrible] event like 9/11, and management and the airline unions all negotiate for four months and management says, 'If the unions don't cut $2 billion in salary and benefits they will have to shut the airline down.' And after these wrenching negotiations the unions agree. I just have to laugh, because you know that in a few months management is going to come right back... There is no end. No one has to ask me to cut my budget each year. We all just know that each year we will be expected to do more with less. If you are a revenue producer, you are expected to come up with more revenue every year, and if you are an expense saver, you are expected to come up with more savings every year. You never get a break from it.“

If societies are unable to manage the strains that are produced by this flattening, there will be a backlash, and political forces will attempt to reinsert some of the frictions and protectionist barriers that the flattening forces have eliminated, but they will do it in a crude way that will, in the name of protecting the weak, end up lowering everyone's standard of living. Former Mexican president Ernesto Zedillo is very sensitive to this problem, having had to manage Mexico's transition into NAFTA, with all of the strains that put on Mexican society. Speaking of the flattening process, he said to me, “It would be very hard to stop, but it can be stopped for a time. Maybe you can't stop it totally, but you can slow it down. And it makes a difference whether you get there in twenty-five years or fifty years. In between, two or three generations-who could have benefited a lot from more trade and globalization-will end up with crumbs.”

Always remember, said Zedillo, that behind all this technology is a political infrastructure that enables it to play out. “There have been a series of concrete political decisions, taken over the last fifty years, that put the world where it is right now,” he said. “Therefore, there are political decisions that could screw up the whole process too.”

As the saying goes: If you want to live like a Republican, vote like a Democrat-take good care of the losers and left-behinds. The only way to be a flatist is to be a compassionate flatist.

Social Activism

One new area that is going to need sorting out is the relationship between global corporations and their own moral consciences. Some may laugh at the notion that a global corporation even has a moral conscience, or should ever be expected to develop one. But some do and others are going to have to develop one, for one simple reason: In the flat world, with lengthy global supply chains, the balance of power between global companies and the individual communities in which they operate is tilting more and more in favor of the companies, many of them American-based. As such, these companies are going to command more power, not only to create value but also to transmit values, than any transnational institutions on the planet. Social and environmental activists and progressive companies can now collaborate in ways that can make both the companies more profitable and the flat earth more livable. Compassionate flatism very much seeks to promote this type of collaboration.

Let me illustrate this notion with a couple of examples. If you think about the forces that are gobbling up biodiversity around the planet, none are more powerful than farmers. It is not that they are intending to be harmful, it is just in the nature of what they do. So how and where people farm and fish really matter to whether we preserve natural habitats and species. Conservation International, one of the biggest environmental NGOs in the world, has as its main mission preserving biodiversity. It is also a big believer in trying, when possible, to collaborate with big business, because when you bring a major global player around, it can have a huge impact on the environment. In 2002, McDonald's and Conservation International forged a partnership to use the McDonald's global supply chain-a behemoth that sucks beef, fish, chicken, pork, bread, lettuce, pickles, tomatoes, and potatoes from all four corners of the flat world-to produce not just value but also different values about the environment. “We and McDonald's looked at a set of environmental issues and said, 'Here are the things the food suppliers could do to reduce the environmental impact at little or no cost,'” explained Glenn Prickett, senior vice president of Conservation International.

McDonald's then met with its key suppliers and worked out, with them and with CI, a set of guidelines for what McDonald's calls “socially responsible food supply.” “For conservationists the challenge is how do you get your arms around hundreds of millions of decisions and decision makers involved in agriculture and fisheries, who are not coordinated in any way except by the market,” said Prickett. “So what we look for are partners who can put their purchasing power behind a set of environmentally friendly practices in a way that is good for them, works for the producers, and is good for biodiversity. In that way, you can start to capture so many more decision makers... There is no global government authority to protect biodiversity. You have to collaborate with the players who can make a difference, and one of them is McDonald's.”

Conservation International is already seeing improvements in conservation of water, energy, and waste, as well as steps to encourage better management of fisheries, among McDonald's suppliers. But it is still early, and one will have to assess over a period of years, with comprehensive data collection, whether this is really having a positive impact on the environment. This form of collaboration cannot and should never be a substitute for government rules and oversight. But if it works, it can be a vehicle for actually getting government rules implemented. Environmentalists who prefer government regulation to these more collaborative efforts often ignore the fact that strong rules imposed against the will of farmers end up being weakly enforced-or not enforced at all.

What is in this for McDonald's? It is a huge opportunity to improve its global brand by acting as a good global citizen. Yes, this is, at root, a business opportunity for McDonald's. Sometimes the best way to change the world is by getting the big players to do the right things for the wrong reasons, because waiting for them to do the right things for the right reasons can mean waiting forever. Conservation International has struck similar supply-chain collaborations with Starbucks, setting rules for its supply chain of coffee farmers, and Office Depot, with its supply chain of paper-product providers.

What these collaborations do is start to “break down the walls between different interest groups,” said Prickett. Normally you would have the environmentalists on one side and the farmers on the other and each side trying to get the government to write the regulations in the way that would serve it. Government would end up writing the rules largely to benefit business. “Now, instead, we have a private entity saying, 'We want to use our global supply chain to do some good,' but we understand that to be effective it has to be a collaboration with the farmers and the environmentalists if it is going to have any impact,” Prickett said.

In this same vein, as a compassionate flatist, I would like to see a label on every electronics good state whether the supply chain that produced it is in compliance with the standards set down by the new HP-Dell-IBM alliance. In October 2004, these three giants joined forces in a collaborative effort with key members of their computer and printer supply chains to promote a unified code of socially responsible manufacturing practices across the world. The new Electronics Industry Code of Conduct includes bans on bribes, child labor, embezzlement and extortion, and violations of intellectual property, rules governing usage of wastewater, hazardous materials, pollutants, and regulations on the reporting of occupational injuries. Several major electronics manufacturers who serve the IBM, Dell, and HP supply chains collaborated on writing the code, including Celestica, Flextronics, Jabil, Sanmina-SCI, and Solectron.

All HP suppliers, for instance, will be required to follow the code, though there is flexibility in the timing of how they reach compliance. “We are completely prepared and have terminated relationships with suppliers we find to be repeatedly nonresponsive,” said HP spokeswoman Monica Sarkar. As of October 2004, HP had assessed more than 150 of its 350 suppliers, including factories in China, Mexico, Southeast Asia, and Eastern Europe. It has set up a steering committee with IBM and Dell in order to figure out exactly how they collectively can review compliance and punish consistent violators. Compliance is everything, and so, again, it remains to be seen just how vigilant the corporations will be with their suppliers. Nevertheless, this use of supply chains to create values-not just value-could be a wave of the future.

“As we have begun to look to other [offshore] suppliers to do most of our manufacturing, it has become clear to us that we have to assume some responsibility for how they do that work,” explained Debra Dunn, HP's senior vice president of corporate affairs and global citizenship. First and foremost, that is what many of HP's customers want. “Customers care,” said Dunn, “and European customers lead the way in caring. And human rights groups and NGOs, who are gaining increasing global influence as trust in corporations declines, are basically saying, 'You guys have the power here. You are global companies, you can set expectations that will influence environmental practices and human rights practices in emerging markets.'”

Those voices are right, and what is more, they can use the Internet to great effect, if they want, to embarrass global corporations into compliance.

“When you have the procurement dollars that HP and McDonald's have,” said Dunn, “people really want to do business with you, so you have leverage and are in a position to set standards and [therefore] you have a responsibility to set standards.” The role of global corporations in setting standards in emerging markets is doubly important, because oftentimes local governments actually want to improve their environmental standards. They know it is important in the long run, but the pressure to create jobs and live within budget constraints is overwhelming and therefore the pressure to look the other way is overwhelming. Countries like China, noted Dunn, often actually want an outside force, like a global business coalition, to exert pressure to drive new values and standards at home that they are too weak to impose on themselves and their own bureaucrats. In The Lexus and the Olive Tree I called this form of value creation “globalution,” or revolution from beyond.

Said Dunn: “We used to say that as long as we complied with the local law, that was all we could be expected to do. But now the imbalance of power is so huge it is not practical to say that Wal-Mart or HP can do whatever they want as long as a state government or country does not stop them. The leverage HP would leave on the table would be immoral given its superior power... We have the power to transmit global governance to our universe of suppliers and employees and consumers, which is a pretty broad universe.”

Dunn noted that in a country like China there is an intense competition by local companies to become part of the HP or Dell or Wal-Mart supply chain. Even though it is high pressure, it means a steady volume of considerable business-the kind that can make or break a company. As a result, HP has huge leverage over its Chinese suppliers, and they are actually very open to having their factory standards lifted, because they know that if they get up to the standards of HP they can leverage that to get business from Dell or Sony.

Advocates of compassionate flatism need to educate consumers to the fact that their buying decisions and buying power are political. Every time you as a consumer make a decision, you are supporting a whole set of values. You are voting about the barriers and friction you want to preserve or eliminate. Progressives need to make this information more easily available to consumers, so more of them can vote the right way and support the right kind of global corporate behavior.

Marc Gunther, a senior writer for Fortune magazine and the author of Faith and Fortune: The Quiet Revolution to Reform American Business, is one of the few business writers who have recognized how global corporations can be influenced by progressive politics. “To be sure,” wrote Gunther in an essay in The Washington Post (November 14, 2004), “there are plenty of scoundrels out there, indifferent to the rights and wrongs of corporate behavior. And some executives who talk of social issues may be only mouthing the words. But the bottom line is that a growing number of companies have come to believe that moral values, broadly and liberally defined, can help drive shareholder values. And that is a case study from which everyone could learn.”

This progressive tilt of big business has not generated much press attention, Gunther noted. “Partly that's because scandal stories are juicier. Mostly it's because changes in corporate practices have been incremental-and because reporters tend to dismiss talk of corporate social responsibility as mere public relations. But chief executives of closely-watched firms like General Electric do not promise to become better global citizens unless they intend to follow through. 'If you want to be a great company today,' Jeff Immelt, GE's CEO, likes to say, 'you have to be a good company.' When I asked him why GE has begun to talk more openly about corporate citizenship, he said: 'The reason why people come to work for GE is that they want to be about something that is bigger than themselves.' As Immelt suggests, the biggest driver of corporate reform is the desire of companies to attract people who seek meaning as well as money from their work. Few of us go to our jobs every day to enhance shareholder value. Younger people, especially, want to work for companies with a mission that goes beyond the bottom line.”

In sum, we are now in a huge transition as companies are coming to understand not only their power in a flat world but also their responsibilities. Compassionate flatists believe that this is no time to be sitting on one's hands, thinking exclusively in traditional left-right, consumer-versus-company terms. Instead we should be thinking about how collaboration between consumers and companies can provide an enormous amount of protection against the worst features of the flattening of the world, without opting for classic protectionism.

“Compassionate capitalism. Think it sounds like an oxymoron? Think again,” said Gunther. “Even as America is supposedly turning conservative on social issues, big business is moving in the other direction.”

Parenting

No discussion of compassionate flatism would be complete without also discussing the need for improved parenting. Helping individuals adapt to a flat world is not only the job of governments and companies. It is also the job of parents. They too need to know in what world their kids are growing up and what it will take for them to thrive. Put simply, we need a new generation of parents ready to administer tough love: There comes a time when you've got to put away the Game Boys, turn off the television set, put away the iPod, and get your kids down to work.

The sense of entitlement, the sense that because we once dominated global commerce and geopolitics-and Olympic basketball-we always will, the sense that delayed gratification is a punishment worse than a spanking, the sense that our kids have to be swaddled in cotton wool so that nothing bad or disappointing or stressful ever happens to them at school is, quite simply, a growing cancer on American society. And if we don't start to reverse it, our kids are going to be in for a huge and socially disruptive shock from the flat world. While a different approach by politicians is necessary, it is not sufficient.

David Baltimore, the Nobel Prize-winning president of Caltech, knows what it takes to get your child ready to compete against the cream of the global crop. He told me that he is struck by the fact that almost all the students who make it to Caltech, one of the best scientific universities in the world, come from public schools, not from private schools that sometimes nurture a sense that just because you are there, you are special and entitled. “I look at the kids who come to Caltech, and they grew up in families that encouraged them to work hard and to put off a little bit of gratification for the future and to understand that they need to hone their skills to play an important role in the world,” Baltimore said. “I give parents enormous credit for this, because these kids are all coming from public schools that people are calling failures. Public education is producing these remarkable students-so it can be done. Their parents have nurtured them to make sure that they realize their potential. I think we need a revolution in this country when it comes to parenting around education.”

Clearly, foreign-born parents seem to be doing this better. “About one-third of our students have an Asian background or are recent immigrants,” he said. A significant majority of the students coming to Caltech in the engineering disciplines are foreign-born, and a large fraction of its current faculty is foreign-born. “In biology, at the postdoc level, the dominance of Chinese students is overwhelming,” said Baltimore. No wonder that at the big scientific conferences today, a majority of the research papers dealing with cutting-edge bioscience have at least one Chinese name on them.

My friends Judy Estrin and Bill Carrico have started several networking companies in Silicon Valley. At one time, Judy was chief technology officer for Cisco. I sat with them one afternoon and talked about this problem. “When I was eleven years old,” said Bill, “I knew I was going to be an engineer. I dare you to find an eleven-year-old in America who wants to be an engineer today. We've turned down the ambition level.”

Added Judy, “More of the problem [can be solved by good] parenting than can be solved from a regulatory or funding move. Everyone wants to fund more of this and that, but where it starts is with the parents. Ambition comes from the parents. People have to get it. It will probably take a crisis [to get us refocused].”

In July 2004, comedian Bill Cosby used an appearance at Jesse Jackson's Rainbow/PUSH Coalition & Citizenship Education Fund's annual conference to upbraid African-Americans for not teaching their children proper grammar and for black kids not striving to learn more themselves. Cosby had already declared, “Everybody knows it's important to speak English except these knuckleheads. You can't be a doctor with that kind of crap coming out of your mouth.” Referring to African-Americans who squandered their chances for a better life, Cosby told the Rainbow Coalition, “You've got to stop beating up your women because you can't find a job, because you didn't want to get an education and now you're [earning] minimum wage. You should have thought more of yourself when you were in high school, when you had an opportunity.”

When Cosby's remarks attracted a lot of criticism, Reverend Jackson defended him, arguing, “Bill is saying, let's fight the right fight. Let's level the playing field. Drunk people can't do that. Illiterate people can't do that.”

That is right. Americans are the ones who increasingly need to level the playing field-not by pulling others down, not by feeling sorry for ourselves, but by lifting ourselves up. But when it comes to how to do that, Cosby was saying something that is important for black and white Americans, rich and poor. Education, whether it comes from parents or schools, has to be about more than just cognitive skills. It also has to include character building. The fact is, parents and schools and cultures can and do shape people. The most important influence in my life, outside of my family, was my high school journalism teacher, Hattie M. Steinberg. She pounded the fundamentals of journalism into her students-not simply how to write a lead or accurately transcribe a quote but, more important, how to comport yourself in a professional way. She was nearing sixty at the time I had her as my teacher and high school newspaper adviser in the late 1960s. She was the polar opposite of “cool,” but we hung around her classroom like it was the malt shop and she was Wolfman Jack. None of us could have articulated it then, but it was because we enjoyed being harangued by her, disciplined by her, and taught by her. She was a woman of clarity and principles in an age of uncertainty. I sit up straight just thinking about her! Our children will increasingly be competing head-to-head with Chinese, Indian, and Asian kids, whose parents have a lot more of Hattie's character-building approach than their own American parents. I am not suggesting that we militarize education, but I am suggesting that we do more to push our young people to go beyond their comfort zones, to do things right, and to be ready to suffer some short-run pain for longer gain.

I fear, though, that things will have to get worse before they get better. As Judy Estrin said, it will probably take a crisis. I would simply add: The crisis is already here. It is just playing out in slow motion. The flattening of the world is moving ahead apace, and barring war or some catastrophic terrorist event, nothing is going to stop it. But what can happen is a decline in our standard of living, if more Americans are not empowered and educated to participate in a world where all the knowledge centers are being connected. We have within our society all the ingredients for American individuals to thrive in this world, but if we squander those ingredients, we will stagnate.

I repeat: This is not a test. This is a crisis, and as Paul Romer has so perceptively warned, “A crisis is a terrible thing to waste.”