One Economy, Ready or Not: Thomas Friedman's Jaunt Through Globalization

But what assurance is there that governments and societies will see the light? However distressed the French are by the Burger King on the Champs Elysees, the Taco Bell in the casbah must be even more disturbing to the average Qatari. Governments believing that the shock is too great may choose to slam their doors closed, regardless of the cost. Friedman warns that the Internet will defeat them by giving individuals other ways of reaching the outside world. (One might say that what is not allowed in through doors will come in through Windows.) Moreover, modern information technology will intensify the pressure to conform to global market standards by making it essentially costless for producers to shift activities to competing locations. For Friedman, the Internet is the agent that renders inevitable a transparent, democratic, decentralized, and market-based society.

THE OPEN SOCIETY

Friedman calls this brave new world "the dominant international system at the end of the twentieth century." His terminology is revealing; he sees globalization as a system rather than a trend or a set of policies superseding the entire Cold War system. The constituents of that old system were the rival ideologies of communism and capitalism, the technology of nuclear deterrence, and the allocation mechanisms of plan and market. So long as both plan and market were viable and developing countries could count on assistance from Moscow or Washington, they could put off modernizing their economies. But with the collapse of the Soviet Union those subsidies were withdrawn, clearing the last obstacle to the emergence of a post-Cold War international system based on the ideology of laissez faire, the culture of consumerism, and the power of finance.

The stability of that system -- its equilibrium, as an economist would have it -- rests precariously on a fragile balance of power. Most obvious is the balance between states and markets. Mahathir can rail all he wants against an international conspiracy of currency speculators, but at the end of the day he will be forced to acknowledge that Malaysia cannot keep pace unless it adopts the policies that international financial markets demand as the price of admission. India can test nuclear weapons, but doing so will disrupt its trade relations, lead Moody's to downgrade its bonds, and discourage other countries from following suit. States can adopt whatever policies they choose, but they remain captive to the discipline of the markets.

At the geopolitical level, meanwhile, lies the balance between the United States, which derives its singular strength from an economic structure uniquely suited to the information revolution, and other countries, which are less agile technologically but still able to form a collective counterweight. And at the domestic level is the increasingly even balance between the state and the individual newly empowered by information technology.

Why did the old system give way to the new? Friedman stops short of an answer. He alludes to the decline of pegged exchange rates and strict capital controls as facilitating the emergence of the global financial markets so integral to the post-Cold War system. Although he does not say why governments abandoned capital controls, he would surely answer "technology" if pressed. New information and communications technologies made it that much more difficult to stop capital flows at the border -- hence the decline of controls and the rise of capital mobility. They made it that much more costly for the Soviet Union, bent on suppressing personal freedoms, to keep pace with its American rival. Once this problem was acknowledged, Mikhail S. Gorbachev had to opt for perestroika rather than suppress the personal computer -- and a political and economic system based on compulsion was doomed. However much it smacks of technological determinism, the implication of Friedman's argument is that everything we need to know about recent history flows from the microchip.

THE RAZOR'S EDGE

Readers convinced that local culture remains a powerful antidote to global markets will object to Friedman's vision of the latter's infectious influence. As the metaphor of the Golden Straitjacket implies, he sees every country as having to conform to the same model, with little room for national variation. This may reflect his time spent in less-developed countries, which still have a long way to go in putting in place the institutional prerequisites for a market economy. But does globalization really mean that each developing country must embrace an identical set of Internet-driven institutions?

The experience of today's advanced economies suggests not. Different institutional constellations can coexist if their elements complement one another. In the United States, economic activity is shaped by a set of institutions all designed to encourage radical innovation: a university system that churns out scientists, a market-based financial system that provides venture capital to unproven technologies, generous compensation for CEOs, and a fluid labor market. These institutions work well because the operation of each is complemented by the operation of the others. In Europe, the emphasis on product quality and continuous, incremental improvement in existing technology means that efficiency is served by technical education, apprenticeship training, cohesive employers' associations that discourage competitors from poaching workers, and banks that monitor companies whose investments in innovation are hard for outsiders to assess. Again, each of these institutions works well because its operation is strengthened by the operation of the others.