Friday, July 4, 2008

The World is Flat or Spiky - free trade analysis

Further on the analysis of "The World is Flat " By Friedman.

On the aspect of "free trade" Friedman explains how outsourcing or globalization might be good for all countries. He sites an example of "free trade" between US and China , these two being the only countries of the world. This will create additional resources in the market. If US had 100 people and China had 1000 people then the total number will be 1100 peoplewhich was described as win-win situation for both countries.
If this does happen then certain low level jobs in the US will go to China and these people will need to bump themselves up in the vertical markets which means higher education.

As globalization of flattening continues the population in the developed countries will need to prove themselves by competing with someone thousand miles away. Education will be an important criteria and we might see an increase in the number of applications for colleges.

At the same time the people in these developed countries will now be made to think to ensure they serve the higher 1100 vs. 100 people market. That is a stimulant or an incentive for business ideas.
I still think low skilled people will need to worry if education or intelligence is not their piece of cake and surviving in the flat world might require them to move to other low level skilled jobs which cannot move to China.

This movement of jobs creates a stiff competition in the developed countries. Pay rises increase in software tech industry in India is cited as an example in the book. Will it ever grow to the level equivalent to the US? If that becomes a reality will outsourcing really stop?

At this point the question that comes to our mind is outsourcing done to save money or improve quality or both?

The World is Flat can be interpreted in a few different ways. What is the true example of the ideal flat World? Is it that each person is self sufficient in their own country? Does that mean that less people will now migrate to US from Asia or Latin America since now there is a state of equilibrium established? Yes, there could be temporary assignments if this "free trade" continues.
For that to happen the first thing is that money across the world also becomes flat. Will that world be called "Money is Flat" and we just trade in one currency?

Will it happen that capitalistic minds in one country fierce in competition in the other ?

In this article on "The World is Spiky" found at the author talks about the spikes in geographical concentrations of economic activities and notices the spikes at many. He also notes that innovation is concentrated in just a few countries in the world and argues that the World is Spiky. An example cited in the article is that people in urban areas of China makes 3 times more money than the same in the rural areas.

The above example cites a different angle of view for the same or similar idea of the flattening world.


Anonymous said...

Speaking of globalization from a different angle, Joseph Stiglitz (Nobel winner for economics and was Chief Economist at World Bank) said while on a trip to India, that 600 million people from India (out of the one billion!) have been left out of the “development” fold of globalization. So, obviously, all India is not going to migrate into middle class, if anything the inequality is far, far worse now, after the advent of globalization.

Similarly newspaper reports have pointed out how Chinese workers are working in apalling conditions, to churn out the low cost products, with poor pay, cramped rooms, no accident or health insurance benefits, no job security, no overtime, long working hours - so who is actually benefiting from this sort of globalization? Corporates ofcourse, and the few privileged people of India and China who have been able to get educated in engineering and technology! Not the vast majority of population.

See the link below: Ted Koppel interviews Friedman and Joseph Stiglitz.

There is a small, but interesting book, by Aronica and Ramdoo, "The World is Flat? A Critical Analysis of Thomas Friedman's New York Times Bestseller," which offers a counterperspective to Friedman's theory. It is a small book compared to the 600 page tome by Friedman, and aimed at the common man and students alike.

As popular as the book may be, some reviewers assert that by what it leaves out, Friedman's book is dangerous. The authors point to the fact that there isn't a single table or data footnote in Friedman's entire book.

"Globalization is the greatest reorganization of the world since the Industrial Revolution," says Aronica.

You may want to see
and watch
for an interesting counterperspective on Friedman's
"The World is Flat".

Also a really interesting 6 min wake-up call: Shift Happens!

There is also a companion book listed: Extreme Competition: Innovation and the Great 21st Century Business Reformation

Tapan said...

Thanks for your comment. Yes the inequality in India for example is what Florida referred in his article "The World Is Spiky".
I will take a look at the other links you provided.

jGeee said...

New to the site. I am still learning as well.

However, I have some comments/questions based on anonymous' commnent.

Anonymous states that 600 million have been left out of globalization. Before globalization was there less in poverty? Has poverty been redefined? Have those 600 million conditions been worsened? Is it to early to say globalization has failed? We are really only talking about 20 years or so.

About inequality... What is unequal? Won't someone who takes risks and gets outsourced business make more then one who only markets themselves to the captive audience? Doesn't he also have to pay more for more people to accomplish the expanded business. Isn't that good?

You mention workplace conditions in China... There are many stories from the US back 100 years ago about how bad conditions were in some workplaces. I wouldn't blame that on globalization. A society at some point has to decide that workplace conditions are more important then earning money.

Tapan said...

Hi Jgee,
Thanks for dropping by. Globalization in my aspect did not add grief to the poverty line but at the same time increased the difference in annual income between those on the poverty line(without education) and those well educated.
Those spikes are inevitable but at the same time some of those on poverty can be benefited because of side-jobs that got created due to globalization