The World Is Flat: A Brief History of the Twenty-First Century

Flattener #1: “11/9/89”

In this chapter, Friedman explains ten things that, in his opinion, flattened the world. The first was the fall of the Berlin Wall on November 9, 1989. In that moment, the world became more connected because there was no longer a division between communist and capitalist systems. A new uniformity took hold in everything from how to write an economics paper to how computers should be made. In short, he writes, it “enhanced the free movement of best practices” (55). This event had an effect around the world, not just in totalitarian countries such as the Soviet Union and its satellite countries. As an example, Friedman points to India, which had a free-market system that was buried under socialist regulations and restrictions. When these were removed, the country’s economy was free to flourish. While many factors played a role in the fall of the Berlin Wall, Friedman argues that the information revolution of the 1980s—fostered by the spread of personal computers—was the most important.

Flattener #2: “8/9/95”

The company Netscape went public on August 9, 1995. Friedman claims that this was important because Netscape was at the center of the Internet boom in the 1990s. He writes that “by the mid-1990s, the PC-Windows era had reached a plateau” (60). While people had the power of computers at their fingertips, they had no good way of interacting with other computers. Telephones and modems could connect computers via the Internet, but there was no easy way to navigate the connection. That’s where Netscape came in. A computer scientist named Tim Berners-Lee saw the need for a way to share digital content—documents and other information—and he developed the World Wide Web for this purpose. He used HTML to create the Web’s first browser for sharing information online. After this, Netscape created the first widely adopted commercial browser, which became extremely popular.

Friedman declares that since Netscape went public in 1995, “the world has not been the same” (62). In short, it showcased the power of the Internet and made it accessible to everyone. Before this, sharing files and information between computers was complicated and fragmented because networks were often proprietary (within a company, for example). Netscape eliminated all these barriers by using a common set of protocols that allowed computers to, as Friedman puts it, speak the same language. After that, the use of the Internet via the World Wide Web grew exponentially. Once Microsoft started bundling its free browser with Windows, however, people were less willing to pay for Netscape. It soon faded from the scene—but not before starting the dot-com bubble.

Friedman explains that digitization created the dot-com bubble. In the PC-Windows era, digitization became possible, but it was mostly limited to individual computers. Once Netscape opened the World Wide Web, the demand for exchanging everything in digitized form exploded. This, in turn, led to a boom in laying fiber-optic cables to accommodate increasing Internet use. As a result, the cost of transmitting data around the world fell sharply as the capacity for doing so rose. The Telecommunications Act of 1996 also helped the dot-com bubble to develop. This act opened the market to new companies and allowed local companies to move into long-distance markets, and vice versa, increasing competition. When this growth proved to be unsustainable, many of these companies went under, but the infrastructure that they built remained. Friedman compares the forging of this infrastructure to the national highway system, claiming that both brought diverse regions together.

Flattener #3: “Work Flow Software”

According to Friedman, the work flow revolution began sometime during the mid-1900s to late 1900s, and it allowed collaboration to evolve like never before. Standardized software enabled work to flow between computers located anywhere in the world. He explains that an early form of this kind of software was SMTP—a protocol that allowed e-mail to be swapped between and read from any software or computer hardware. What really enabled this new technology to take off, however, was the development of extensible markup language, or XML, which allowed machines to communicate independently. This development allowed information and data in all forms, from financial records to music, to be exchanged and understood. Everything was now interoperable.

Friedman notes that the advantage of the work flow revolution was that “[o]nce a standard takes hold, people start to focus on the quality of what they are doing as opposed to how they are doing it” (84). That is, people started innovating, improving the applications for adding value to projects, and fostering creativity in the process. An example of this is PayPal. Before eBay purchased PayPal, the main form of payment was still paper-based checks and money orders. PayPal, however, allowed individuals to accept credit cards for payment, providing easy online transactions.

Another application that contributed to the work flow revolution is the “Business Web.” Essentially, it consists of renting software via cloud-based applications. A company like Salesforce.com charges other companies a monthly subscription to access such applications. Salesforce customers can create their own customized solutions to business needs and then offer them to other Salesforce customers for a fee, creating synergy and innovation. The ability to rent software meant that companies no longer needed to own and install all necessary programs on their computers. This basic “plug and play” platform also helped to create six other flatteners—uploading, outsourcing, offshoring, supply-chaining, insourcing, and in-forming.

Flattener #4: “Uploading”

The subtitle of this section is “Harnessing the Power of Communities,” which hints at what Friedman means by uploading. According to him, uploading allows people who are connected through computers to contribute to something. This enables individuals and groups to bypass traditional hierarchies. As Friedman writes, “we can all now be producers, not just consumers” (95). His first example of uploading is community-developed (or “open-source”) software. This kind of software is available online for free so that anyone can download or improve it. Friedman explains the two philosophies surrounding community-developed software by tracing each philosophy to a different community: the “intellectual commons community” and the “free software community.” The “intellectual commons community” allows a person to use the source code of community-developed software in any way, including commercially, as long as the original source is credited. The “free software community” claims that anything derived from the original, free source must also be free for the entire community.

To learn more about the “intellectual commons community,” Friedman talks with Brian Behlendorf, one of the leaders of Apache—an open-source server application. Apache came to dominate the market, defeating formidable commercial entities such as IBM along the way. As a college student in the 1990s, Behlendorf was actively involved in online forums and mailing lists. A friend eventually got him involved in creating a website for Wired magazine, which wanted a system based on passwords. Because the open-source program that was usually used for this kind of system couldn’t process passwords, Behlendorf wrote some code to modify the software. Other people were doing the same thing to create features for their specific system needs. Eventually, Behlendorf found a group of people like this online, and the group decided to create a server that incorporated all their customizations. After they created the server, which became Apache, they released it to the public.

Behlendorf explains how people can collaborate all over the world: Changes to the server are tested by the community members, and those with the proper privileges can sign in and modify the source code, which other people can then work on. As one Internet pioneer tells Friedman, “Open-source is nothing more than peer-reviewed science” (97). As Apache became more and more proficient as a server, it gained market share. Eventually, IBM, which had been developing its own server, decided to join Apache. The company used the basic Apache program and added to it patented applications tailored to the company’s needs. In exchange, Apache required some of IBM’s best engineers to contribute to the program like everyone else in the community.

The best example of the “free software community” is the open-source operating system called Linux. It was created in 1991 by a Finnish student named Linus Torvalds, who developed it from an earlier operating system. Under this system, Linux and its derivatives must always be free. It has become a popular system for running servers, and it acts as a flattener because anyone can download it and make changes to it if desired. Free software has been developed to run on it, challenging commercial software giants like Microsoft.

Friedman talks to Microsoft officials about this challenge, but they don’t see it as a threat. They believe that both profit incentives and deep pockets for R&D are required for real innovation. Friedman, however, thinks that open-source software is here to stay. He points to the example of the Web browser Firefox, which was developed from Netscape. The primary developers of Firefox were two young people, an American and a New Zealander. It quickly became popular, stealing about 5 percent of the market from Microsoft’s Internet Explorer in only half a year. That, Friedman argues, illustrates the power of uploading in a flat world.

Friedman’s second example of uploading is blogging, which has become prominent in the field of journalism as well as for personal use. In 2004, when CBS News used documents that appeared to be forged for a story about George W. Bush, bloggers were at the forefront of challenging the legitimacy of the documents. As a story in the Washington Post put it, “previously obscure bloggers managed to put the network of Murrow and Cronkite firmly on the defensive” (117). When terrorists bombed the London Underground the following year, the BBC website relied on photos and eyewitness accounts from individuals to cover the story. Friedman speculates that future use of information from bloggers would require some kind of curation, a blend of the traditional and new methods.

The third example of uploading that Friedman discusses is the website Wikipedia, a free online encyclopedia to which anyone can contribute content. Founder Jimmy Wales took information from an abandoned project that was created by credentialed editors, and he posted it online, encouraging others to add to it. Wikipedia’s popularity took off, and by 2005 the site “was getting 2.5 billion page views a month” (122). The site uses a Wiki format that records all the changes made to content as well as the discussions surrounding those changes. Users essentially police themselves to make sure that each article is fair and balanced. Still, Wikipedia’s lack of traditional editors can lead to problems. Friedman recounts how a prominent member of the media was targeted with a false Wikipedia page that alleged he had played a role in both Kennedy assassinations in the 1960s. Despite its shortcomings, Friedman contends that Wikipedia is a useful website. He concludes that uploading is popular because people like to be active participants rather than passive consumers.

Flattener #5: “Outsourcing”

To illustrate the power of outsourcing, Friedman uses the example of India. In the 1950s, the country set up technology institutes, which benefitted the country in the long run by producing a generation of tech-savvy workers. Many graduates of the institutes made their way to the United States because India’s economy did not generate enough jobs for them, providing American companies with brainpower that, as Friedman writes, “was subsidized by Indian taxpayers” (127). Then, in the late 1990s, American companies started moving to India. Texas Instruments had a factory there, and General Electric set up a joint venture there with an Indian software firm called Wipro. The United States still benefitted from Indian high-tech workers, but India benefitted more as its citizens no longer had to travel to America for jobs.

Two things then improved India’s fortunes even more: the fiber-optic revolution and the feared Y2K bug. The first greatly expanded the world’s capabilities for communication because, as discussed in Chapter 1, digitized material could be sent anywhere to be worked on. The second was a glitch that threatened to disrupt computers in the year 2000 because computers would read the two-digit date “00” as the year 1900 instead of the year 2000. Thus, countless lines of code needed to be read and changed, and American firms turned to the Indian workforce for help. As MphasiS executive Jerry Rao put it, “The Indian IT industry got its footprint across the globe because of Y2K” (132).

After Y2K, Indian workers were hired to assist with the e-commerce market that was taking off in the United States. Even when the dot-com bubble burst, Indian workers still benefitted: They were hired as cheap labor when budgets were drastically reduced after the crash. Having done lower-level work during the 1990s, Indian high-tech workers were a known entity and were given more advanced work via outsourcing. American firms benefitted from this as well because activities such as maintaining computer systems and accounting could be outsourced for a fraction of the cost.

Flattener #6: “Offshoring”

China joined the World Trade Organization (WTO) at the end of 2001, exposing the country to a flood of offshoring from Western companies. Friedman explains that, while outsourcing sends just one company function overseas to be brought back and reintegrated into the work in the original country, offshoring entails moving entire factories overseas. After Chinese leader Deng Xiaoping opened his country to the West in the late 1970s, Western companies tried to move to China to manufacture goods for sale there, hoping to capitalize on China’s large workforce. But China’s bureaucracy as well as its manufacturing rules and regulations often created significant barriers. When China joined the WTO, however, the country had to follow international rules that created a safer environment in China for foreign investment.

More Western companies began using Chinese labor to make products that were sold to markets outside China. Friedman writes that this created “competitive flattening” as other developing countries involved in manufacturing, such as Mexico and Vietnam, needed to offer companies similarly beneficial deals to stay competitive (140). He argues that while this kind of manufacturing benefits China in the short term, its leaders want to move up in the manufacturing chain to benefit the country in the long term. They eventually want to design things in China, not just make them.

Friedman talks with Jack Perkowski of ASIMCO, an American auto-parts company with a long history of working in China. Perkowski explains that initially Chinese managers were either too conservative, behaving like holdovers from a state-run economy, or too wild, essentially drunk on capitalism, to the point of being reckless. Eventually, however, his company integrated a new generation of stable managers who knew how the systems worked in both China and foreign countries. As a result, “[t]oday ASIMCO has sales of about $350 million a year in auto parts from thirteen Chinese factories in nine provinces” (145). Friedman argues that such offshoring also benefits American companies and workers despite the common perception that it hurts them. He explains that many things are exported from America to support factories in China, and lower-cost products made in China help American factories save money. Moreover, offshoring to America takes place as well. For instance, German automaker Mercedes Benz operates a plant in Alabama. According to Friedman, for China to become truly competitive with the United States economically, it will need to reform politically.

Flattener #7: “Supply-Chaining”

To explain supply-chaining, Friedman uses the example of Walmart, the company that devised and perfected the practice. Supply-chaining “is a method of collaborating horizontally—among suppliers, retailers, and customers—to create value” (152). Walmart makes none of the products it sells; instead, what it does and does well, Friedman argues, is create an ultra-efficient supply chain. The key to supply-chaining is balancing customers’ desires with the right merchandise from the right suppliers at the right time. It’s more than just having a product in stock or not. Walmart also tries to stay on top of trends so that it can have a product that customers want when they want it. One challenge to supply-chaining is finding suppliers that are both cheap and reliable. Another challenge is having the right amount of a product available.

Walmart’s trick, Friedman writes, is “replacing inventory with information” (154). In 1983, it began using equipment at the point of sale that simultaneously rang up items and subtracted them from the store’s inventory. That information can be sent immediately to suppliers, helping them to quickly manufacture the correct number of replacements. Walmart also uses a satellite system to link all its stores to its headquarters, providing real-time inventory calculations. Again, this system is shared with suppliers so that they can see how their products are selling. Friedman explains that most companies keep this information from their suppliers, but Walmart believes that such close integration is necessary for their system to run smoothly.

Walmart got where it is today by cutting out the middleman: wholesalers. It set up its own distribution centers and bought directly from manufacturers, allowing the company to save money. These savings were passed on to customers in the form of lower prices, and Walmart relied on the quantity of sales to make money. It also coordinated services as much as possible. For instance, if a truck delivered goods from a distribution center to a store that was close to a supplier, it would then pick up inventory to bring back to the distribution center instead of returning empty. As Walmart’s sales—and the scale of its customers’ purchases—increased, it was able to ask for discounts from suppliers. Such frugal and even cut-throat strategies helped it become the world’s largest retailer.

Flattener #8: “Insourcing”

Insourcing is going a step further than supply-chaining. Because not every company can (or wants to) create its own supply chain, other companies do this for them. To illustrate insourcing, Friedman discusses the services of UPS, which has now branched out from merely delivering packages to providing a range of additional services to customers. Toshiba had trouble fixing its customers’ broken computers and returning them in a timely manner, so UPS offered to fix the computers at its hub in Louisville, Kentucky. Toshiba agreed and trained UPS employees as technicians. Now UPS not only picks up computers in need of repair, but it also services them instead of shipping them back to the manufacturer. UPS also provides logistics. Automaker Ford Motor Company used to be notoriously slow in delivering cars to its dealers; UPS stepped in and redesigned Ford’s distribution system, reducing delivery time “by 40 percent” (172). Insourcing requires a deep level of integration between UPS and the companies it works with, allowing small companies to leverage the scale of UPS to reach and develop new markets.

Flattener #9: “In-Forming”

The search engine Google epitomizes what Friedman calls in-forming: “the ability to build and deploy your own personal supply chain—a supply chain of information, knowledge, and entertainment” (178). Searching online requires only an Internet connection. Beyond that, online searches are equalizing and flattening because all the information online is available to everyone. One of Google’s founders, Sergey Brin, compares this equal access to information to libraries, which used to be the sole repositories of information and were very different in both quantity and quality depending on where you lived. When they created Google, Brin and co-founder Larry Page, developed a unique algorithm for searching Web pages that quickly outpaced rivals. Actively searching for information is empowering, one industry insider tells Friedman. The same goes for entertainment, which used to be broadcasted from one central source to many people. Now individuals can make their own choices about the content they consume.

Google has become a highly profitable company by using online searches to sell personalized advertising: “Google knows exactly what you are interested in—after all, you are searching for it—and can link you up with advertisers directly or indirectly connected to your searches” (183). Friedman ends this section on a cautionary note, however, because a lack of privacy can be an issue. Information about individuals that was once hard to find can now be called up with a few keystrokes, and individuals’ searches (i.e., interests) may be recorded in databases indefinitely.

Flattener #10: “The Steroids”

In this final section on flatteners, Friedman discusses what he calls “the steroids”—that is, the technologies that “are amplifying and turbocharging all the other flatteners” (187). He uses the words of former Hewlett-Packard CEO Carly Fiorina to describe how this will happen in “digital, mobile, virtual, and personal” ways (187). In short, everything will be digitized (digital), able to be worked on anywhere (mobile), processed rapidly and seamlessly through standard protocols (virtual), and directed by individual preferences (personal).

Friedman explains that the first steroid has to do with hardware features: Processing speed, storage capacity, and the ability to transfer information between devices are all improving. The second steroid is the increasing ability to share files, as illustrated by the wildly popular music-sharing site Napster. Third is the voice over Internet protocol (VoIP), which Friedman predicts will make phone calls virtually free worldwide, meaning that companies will make money from add-on services (such as caller ID and videoconferencing) rather than from the calls themselves. Videoconferencing is the fourth steroid, which “will make remote development, outsourcing, and offshoring that much easier and more efficient” (193). The fifth steroid involves advances in computer graphics, such as 3-dimensional images, which could have applications in healthcare. Finally, Friedman believes that the most important steroid is wireless technology because it allows people to access the Internet and perform computing work from any location. Standards still need to be worked out for full interoperability, he writes; “[t]he ‘mobile me’ revolution will be complete when you can move seamlessly around the town, the country, or the world with whatever device you want” (195).