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

This chapter focusses on the flat world’s effect on developing countries. Friedman begins with two examples. The first is that Mexico, a strong low-wage manufacturer in its own right, started importing statues of its patron saint, the Virgin of Guadalupe, from China. This meant that China could produce and ship these statues across the Pacific Ocean more cheaply than Mexico could manufacture and sell them in its own country. Despite being a beneficiary of the North American Free Trade Agreement (NAFTA) and a neighbor of the United States, Mexico was displaced by China as America’s second largest trading partner in 2003. Friedman’s other example comes from Egypt where Chinese-made Ramadan lanterns flooded the market, overtaking traditional Egyptian-made lanterns. Friedman emphasizes that Egypt, like Mexico, has an ample supply of low-wage workers, yet it couldn’t compete.

Friedman goes on to explain the “sort of policies developing countries need to undertake in order to create the right environment for their companies and entrepreneurs to thrive in a flat world” (406). He states that after the fall of the Berlin Wall, countries strove to open their markets by adopting friendly macroeconomic policies. He calls this “reform wholesale,” which fostered Globalization 2.0 and benefitted their populations by reducing poverty. For example, the number of Chinese people living in extreme poverty (subsisting on less than one dollar per day) fell by 43 percent during the 1990s. Countries like China could do this efficiently via their authoritarian political systems.

However, progress cannot stop there. In a world that is getting flatter and flatter, countries also need to engage in what Friedman calls “reform retail,” which “involves looking at infrastructure, education, and governance and upgrading each one, so more of your people have the tools and legal framework to innovate and collaborate at the highest levels” (412). All three factors contribute to the environment of conducting business in a country. It matters, for instance, how long it takes to open a new business or shut down a failing one, enforce a contract, or gain access to credit. The less friction the better. Friedman presents a “five-step checklist for reform retail”: (1) simplify and deregulate competitive markets, (2) enhance property rights, (3) allow more regulation requirements to be done online (speeding up the process and reducing corruption), (4) reduce the use of courts for business matters, and (5) make reform continuous (416).

Friedman cites Ireland as a successful example of reform wholesale. The country went from “the sick man of Europe to the rich man in less than a generation” (417). It made secondary education free in the 1960s and made college virtually free in the 1990s. It also kept wages and prices low while cutting the corporate income tax rate to 12.5 percent, which was much lower than other European countries. This change attracted significant foreign capital. Reform retail also played a role in Ireland’s success. For example, the country has set a goal of doubling its number of PhDs in science and engineering by 2010 and attracting top researchers from around the world. The country’s education minister tells Friedman, “It is good for our own quality students to be mixing with quality students from abroad. Industry will go where the major research goes” (419).

Friedman investigates why some countries engage in reform retail while others do not. One factor, he writes, is culture. While he acknowledges that this idea is controversial, he believes that a culture’s outwardness—that is, how open it is to foreign things—determines whether it will participate in reform retail. Friedman argues that a successful culture can “glocalize,” which means it “absorbs foreign ideas and global best practices and melds those with its own traditions” (422). In addition to making countries more flexible, “glocalizing” fosters trust between individuals from different backgrounds, potentially expanding their views of humanity. Friedman claims that a lack of “glocalizing” is one factor that hinders Muslim countries today. He states that many Muslim societies enjoyed more success when they were more open.

Another important adaptability factor is how highly a culture values education. China and India are examples of countries that enjoy booming prosperity and have long traditions of prioritizing education.

Friedman ends the chapter by stressing the importance of reducing poverty through economic growth despite certain drawbacks and other considerations. He writes, “There are many speeds that a country can go at down this globalization path—and each country has to choose the right speed for its particular social and political circumstances. But there is only one right direction” (434).