The Lexus and the Olive Tree: Understanding Globalization

As the foreign affairs correspondent for the New York Times and a frequent participant on PBS’s Washington Week in Review, I have gained a respect for the ability of Thomas Friedman to synthesize complex international phenomena into cogent insights. This is what he does in his latest book, in a direct and clear communication style. After all, it is a book for laymen that attempts to show that globalization has replaced the cold war as the defining force shaping the world as we know it. Furthermore, he attempts to simplify the dynamics of economic and geopolitical events/causes into an understandable scheme with relatively simple rules. In fact, he argues that nations that follow the rules will prosper, and those that do not will be relegated to the backwaters of development. In a sense, Friedman provides hope for the possible inclusion of developing nations in world prosperity. However, the graveyard of failed economies at the hands of human greed, inept leadership, and fickle financial markets is equally apparent. In a macromarketing sense, this is a book about economic development and the role of markets, albeit financial markets, in driving development. Friedman’s thesis is neither new nor supported with academic rigor. For decades, economists, political scientists, and business scholars have been studying globalization, especially over the past ten years. Both the weakness and the strength of this work are that it comes from the author’s experience and observation on assignment. The weakness is that the evidence is all anecdotal. Friedman is limited by his travels and interviews. The strength is that he makes his points with cases that come from a vast set of interviews and firsthand experiences. He weaves his argument with a compelling logic and flow, adding stories to lend credence and entertain. The book, at base, is a distillation of his understanding of the world in which he finds himself, one with a dynamic new order. It is worth reading this book for that distillation and for his insights as to the gyro at the core of this new order. Friedman argues that the fall of the iron curtain was a function of the “democratization of technology, finance, and information. ” By this he means the rapidly expanding number of people with access to technology, financial markets, and information through computers, modems, cellular phones, cable, Internet, and so on. Advances in digitization, compression, miniaturization, computation, and communication empowered an increasing number of players not only to participate in a growing array of financial instruments but also to do so with increased information and speed. He ignores the consequences of both cold war military costs and the flaws of communism in his zeal to lay the transformation at the hands of technology, but he is convincing in showing how top-down hierarchical organizational structure crumbled in the face of the “three democracies. ” This phenomenon hit hard not only the communist world but also the First and Third Worlds, causing deregulation. The author asserts that free-market capitalism remains the only viable alternative. He sees the “three democracies” not only as the cause of geopolitical changes ten years ago but also as the drivers of the new rules for economic development. Friedman calls his rules the “Golden Straitjacket,” by which he means that a country will develop (accrue gold) in proportion to the degree that it follows the rules (places its people and institutions within the straitjacket). As an aside, he points out that the tighter the jacket, the less sovereignty a country has. What is the straitjacket? It is what economists have called outward-looking development strategies. Friedman lists government policies of free markets, low inflation, balanced budgets, decreased import barriers, encouragement of trade and foreign investment, deregulation, privatization, currency convertibility, open communications and banking, rule of law, and freedom of the press. None of these rules are news. Some hearken back to Adam Smith, and all have been recognized as important to development, especially by macromarketers in assessing the conditions for marketing to aid the development/transition process. What is interesting is the way Friedman weaves together the elements of the straitjacket, the three democracies (technology, finance, and information), and human behavior to create not only an explanation of current trends but also a path from which deviation is automatically punished and to which adherence is automatically rewarded. His argument is as follows. Technology has opened communications in real time to most areas of the world and made possible a myriad of financial instruments. Corporations and traders alike can both obtain timely information on investment climate almost anywhere and execute financial investment and withdrawal with great speed. Of course, speed depends on the kind of investment, from foreign direct investment to speculative market instruments. The widening array of corporate and private players in the global market has shifted power from the sovereign state to market players. They invest where they believe they can best profit, which is a function of return and risk. Countries that put on the straitjacket tightly reduce risk and therefore attract investment. Those that refuse or loosen the straitjacket will lose investment or not attract it in the first