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This Is Not a Test

We have the power to shape the civilization that we want. But we need your will, your labor, your hearts, if we are to build that kind of society. Those who came to this land sought to build more than just a new country. They sought a new world. So I have come here today to your campus to say that you can make their vision our reality.

So let us from this moment begin our work so that in the future men will look back and say: It was then, after a long and weary way, that man turned the exploits of his genius to the full enrichment of his life.

-"Great Society" speech, Lyndon B. Johnson, 1964 As a person who grew up during the Cold War, I'll always remember driving along down the highway and listening to the radio, when suddenly the music would stop and a grim-voiced announcer would come on the air and say, "This is a test of the emergency broadcast system," and then there would be a thirty-second high-pitched siren sound.

Fortunately, we never had to live through a moment in the Cold War where the announcer came on and said, "This is not a test." That, however, is exactly what I want to say here: This is not a test.

The long-term opportunities and challenges that the flattening of the world puts before the United States are profound. Therefore, our ability to get by doing things the way we've been doing them-which is to say, not always tending to our secret sauce and enriching it-will not suffice anymore. "For a country as wealthy as we are, it is amazing how little we are doing to enhance our natural competitiveness," said Dinakar Singh, the Indian-American hedge fund manager. "We are in a world that has a system that now allows convergence among many billions of people, and we had better step back and figure out what it means. It would be a nice coincidence if all the things that were true before are still true now-but there are quite a few things you actually need to do differently . . . You need to have a much more thoughtful national discussion." The flat world, Singh argued, is now the elephant in the room, and the question is, What is it going to do to us, and what are we going to do to it?

If this moment has any parallel in American history, it is the height of the Cold War, around 1957, when the Soviet Union leaped ahead of America in the space race by putting up the Sputnik satellite. Yes, there are many differences between that age and our own. The main challenge then came from those who wanted to put up walls; the main challenge to America today comes from the fact that all the walls are being taken down, and other countries can now compete with us much more directly. The main challenge in that world was from those practicing extreme communism, namely, Russia, China, and North Korea. The main challenge to America today is from those practicing extreme capitalism, namely, China, India, and South Korea. The main objective in that era was building a strong state; the main objective in this era is building strong individuals.

What this era has in common with the Cold War era, though, is that to meet the challenges of flatism requires as comprehensive, energetic, and focused a response as did meeting the challenge of communism. It requires our own version of the New Frontier and Great Society adapted to the age of flatness. It requires a president who can summon the nation to get smarter and study harder in science, math, and engineering in order to reach the new frontiers of knowledge that the flat world is rapidly opening up and pushing out. And it requires a Great Society that commits our government to building the infrastructure, safety nets, and institutions that will help every American become more employable in an age when no one can be guaranteed lifetime employment. I call my own version of this approach compassionate flatism.

Getting Americans to rally around compassionate flatism is much more difficult than getting them to rally around anticommunism. "National peril is a lot easier to convey than individual peril," noted Johns Hopkins University foreign policy expert Michael Mandelbaum. Economics, as noted, is not like war, because economics can always be a win-win game. But sometimes I wish economics were more like war. Inthe Cold War, we actually got to see the Soviets parade their missiles in Red Square. We all got to be scared together, from one end of the country to the other, and all our politicians had to be focused and serious about marshaling the resources and educational programs to make sure Americans could keep pace with the Soviet Union.

But today, alas, there is no missile threat coming from India. The "hot line," which used to connect the Kremlin with the White House, has been replaced by the "help line," which connects everyone in America to call centers in Bangalore. While the other end of the hotline might have had Leonid Brezhnev threatening nuclear war, the other end of the help line just has a soft voice eager to help you sort out your AOL bill or collaborate with you on a new piece of software. No, that voice has none of the menace of Nikita Khrushchev pounding a shoe on the table at the UN, and it has none of the sinister snarl of the bad guys in From Russia with Love. There is no Boris or Natasha saying "We will bury you" in a thick Russian accent. No, that voice on the help line just has a friendly Indian lilt that masks any sense of threat or challenge. It simply says: "Hello, my name is Rajiv. Can I help you?"

No, Rajiv, actually, you can't.

When it comes to responding to the challenges of the flat world, there is no help line we can call. We have to dig into ourselves. We in America have all the tools to do that, as I argued in Chapter 6. But, as I argued in Chapter 7, we have not been tending to those tools as we should. Hence, our quiet crisis. The assumption that because America's economy has dominated the world for more than a century, it will and must always be that way is as dangerous an illusion today as the illusion that America would always dominate in science and technology was back in 1950. But this is not going to be easy. Getting our society up to speed for a flat world is going to be extremely painstaking. We are going to have to start doing a lot of things differently. It is going to take the sort of focus and national will that President John F. Kennedy called for in his famous May 25, 1961, speech to Congress on "urgent national needs." At that time, America was recovering from the twin shocks of Sputnik and the Soviet space launch of a cosmonaut, Yuri Gagarin, less than two months before Kennedy's speech. Kennedy knew that while America had enormous human and institutional assets-far more than the Soviet Union-they were not being fully utilized.

"I believe we possess all the resources andtalents necessary," said President Kennedy.

"But the facts of the matter are that we have never made the national decisions or marshaled the national resources required for such leadership. We have never specified long-range goals on an urgent time schedule, or managed our resources and our time so as to ensure their fulfillment." After then laying out his whole program for putting a man on the moon within ten years, President Kennedy added, "Let it be clear that I am asking the Congress and the country to accept a firm commitment to a new course of action, a course which will last for many years and carry very heavy costs. . . This decision demands a major national commitment of scientific and technical manpower, materiel and facilities, and the possibility of their diversion from other important activities where they are already thinly spread. It means a degree of dedication, organization and discipline which have not always characterized our research and development efforts."

In that speech, Kennedy made a vow that has amazing resonance today: "I am therefore transmitting to the Congress a new Manpower Development and Training program, totrain or retrain several hundred thousand workers, particularly in those areas where we have seen chronic unemployment as a result of technological factors, in new occupational skills over a four-year period -in order to replace those skills made obsolete by automation and industrial change with the new skills which the new processes demand."

Amen. We too have to do things differently. We are going to have to sort out what to keep, what to discard, what to adapt, what to adopt, where to redouble our efforts, and where to intensify our focus. That is what this chapter is about. This is just an intuition, but the flattening of the world is going to be hugely disruptive to both traditional and developed societies. The weak will fall farther behind faster.

The traditional will feel the force of modernization much more profoundly. The new will get turned into old quicker. The developed will be challenged by the underdeveloped much more profoundly. I worry, because so much political stability is built on economic stability, and economic stability is not going to be a feature of the flat world.

Add it all up and you can see that the disruptions are going to come faster and harder.

Think about Microsoft trying to figure out how to deal with a global army of people writing software for free! We are entering an era of creative destruction on steroids.

Even if your country has a comprehensive strategy for dealing with flatism, it is going to be a challenge of a whole new dimension. But if you don't have a strategy at all... well, you've been warned. This is not a test.

Being an American, I am most focused on my own country. How do we go about maximizing the benefits and opportunities of the flat world, and providing protection for those who have difficulty with the transition, without resorting to protectionism or runaway capitalism? Some will offer traditional conservative responses; some will offer traditional liberal ones. I offer compassionate flatism, which is a policy blend built around five broad categories of action for the age of flat: leadership, muscle building, cushioning, social activism, and parenting.

Leadership

The job of the politician in America, whether at the local, state, or national level, should be, in good part, to help educate and explain to people what world they are living in and what they need to do if they want to thrive within it. One problem we have today, though, is that so many American politicians don't seem to have a clue about the flat world. As venture capitalist John Doerr once remarked to me, "You talk to the leadership in China, and they are all the engineers, and they get what is going on immediately. The Americans don't, because they're all lawyers." Added Bill Gates, "The Chinese have risk taking down, hard work down, education, and when you meet with Chinese politicians, they are all scientists and engineers. You can have a numeric discussion with them-you are never discussing 'give me a one-liner to embarrass [my political rivals] with.' You are meeting with an intelligent bureaucracy."

I am not saying we should require all politicians to hold engineering degrees, but it would be helpful if they had a basic understanding of the forces that are flattening the world, were able to educate constituents about them and galvanize a response.

We have way too many politicians in America today who seem to do the opposite. They seem to go out of their way actually to make their constituents stupid-encouraging them to believe that certain jobs are "American jobs" and can be protected from foreign competition, or that because America has always dominated economically in our lifetimes it always will, or that compassion should be equated with protectionism.

It is hard to have an American national strategy for dealing with flatism if people won't even acknowledge that there is an education gap emerging and that there is an ambition gap emerging and that we are in a quiet crisis. For instance, of all the policy choices that the Republican-led Congress could have made in forging the FY 2005 budget, how in the world could it have decided to cut the funding of the National Science Foundation by more than $100 million?

We need politicians who are able and willing to both explain and inspire. And what they most need to explain to Americans is pretty much what Lou Gerstner explained to the workforce of IBM when he took over as chairman in 1993, when the company was losing billions of dollars. At the time, IBM was facing a near-death experience owing to its failure to adapt to and capitalize on the business computing market that it invented. IBM got arrogant. It had built its whole franchise around helping customers solve problems. But after a while it stopped listening to its customers. It thought it didn't have to. And when IBM stopped listening toits customers, it stopped creating value that mattered for its customers, and that had been the whole strength of its business. A friend of mine who worked at IBM back then told me that when he was in his first year at the company and taking an internal course,his IBM instructor boasted to him that IBM was such a great company, it could do "extraordinary things with just average people." As the world started to flatten, though, IBM found that it could not continue thriving with an overabundance of average people working for a company that had stopped being a good listener.

But when a company is the pioneer, the vanguard, the top dog, the crown jewel, it is hard to look in the mirror and tell itself it is in a not-so-quiet crisis and better start to make a new history or become history. Gerstner decided that he would be that mirror. He told IBM it was ugly and that a strategy built largely around designing and selling computers-rather than the services and strategies to get the most out of those computers for each customer-didn't make sense. Needless to say, this was a shock for IBMers.

"Transformation of an enterprise begins with a sense of crisis or urgency," Gerstner told students at Harvard Business School, in a December 9, 2002, talk. "No institution will go through fundamental change unless it believes it is in deep trouble and needs to do something different to survive." It is impossible to ignore the parallel with America as a whole in the early twenty-first century.

When Lou Gerstner came in, one of the first things he did was replace the notion of lifetime employment with the notion of lifetime em-ployability. A friend of mine, Alex Attal, a French-born software engineer who was working for IBM at the time, described the shift this way: "Instead of IBM giving you a guarantee that you will be employed, you had to guarantee that you could stay employable. The company would give you the framework, but you had to build it yourself. It's all about adapting.

I was head of sales for IBM France at the time. It was the mid-nineties. I told my people that in the old days [the concept of] lifetime employment was only a company's responsibility, not a personal responsibility. But once we move to a model of employability, that becomes a shared responsibility. The company will give you access to knowledge, but you have to take advantage of it... You have to build the skills because it will be you against a lot of other people."

When Gerstner started to change the paradigm at IBM, he kept stressing the issue of individual empowerment. Said Attal, "He under stood that an extraordinary company could only be built on a critical mass of extraordinary people."

As at IBM, so in America. Average Joe has to become special, specialized, or adaptable Joe. The job of government andbusiness isnot toguarantee anyone a lifetime job-those days are over. That social contract has been ripped up with the flattening of the world. What government can and must guarantee people is the chance to make themselves more employable. We don't want America to be to the world what IBM was becoming to the computer industry in the 1980s: the people who opened the field and then became too timid, arrogant, and ordinary to play on it. We want America to be the born-again IBM.

Politicians not only need to explain to people the flat world, they need to inspire them to rise to the challenge of it. There is more to political leadership than a competition for who can offer the most lavish safety nets. Yes, we must address people's fears, but we must also nurse their imaginations. Politicians can make us more fearful and thereby be disablers, or they can inspire us and thereby be enablers.

To be sure, it is not easy to get people passionate about the flat world. It takes some imagination. President Kennedy understood that the competition with the Soviet Union was not a space race but a science race, which was really an education race.

Yet the way he chose to get Americans excited about sacrificing and buckling down to do what it took to win the Cold War-which required a large-scale push in science and engineering-was by laying out the vision of putting a man on the moon, not a missile into Moscow. If President Bush is looking for a similar legacy project, there is one just crying out-a national science initiative that would be our generation's moon shot: a crash program for alternative energy and conservation to make America energy-independent in ten years. If President Bush made energy independence his moon shot, in one fell swoop he would dry up revenue for terrorism, force Iran, Russia, Venezuela, and Saudi Arabia onto the path of reform-which they will never do with $50-a-barrel oil-strengthen the dollar, and improve his own standing in Europe by doing something huge to reduce global warming. He would also create a real magnet to inspire young people to contribute to both the war on terrorism and America's future by again becoming scientists, engineers, and mathematicians. "This is not just a win-win," said Michael Mandelbaum. "This is a win-win-win-win-win." I have consistently been struck that

my newspaper columns that have gotten far and away the most positive feedback over the years, especially from young people, have been those that urged the president to call the nation to this task. Summoning all our energies and skills to produce a twenty-first-century fuel is George W. Bush's opportunity to be both Nixon to China and JFK to the moon in one move. Unfortunately for America, it appears as though I will go to the moon before President Bush will go down this road.

Muscles

Since lifetime employment is a form of fat that a flat world simply cannot sustain any longer, compassionate flatism seeks to focus its energy on how government and business can enhance every worker's lifetime employability. Lifetime employment depends on preserving a lot of fat. Lifetime employability requires replacing that fat with muscle. The social contract that progressives should try to enforce between government and workers, and companies and workers, is one in which government and companies say, "We cannot guarantee you any lifetime employment. But we can guarantee you that government and companies will focus on giving you the tools to make you more lifetime employable." The whole mind-setof a flat world is one in which the individual worker is going to become more and more responsible for managing his or her own career, risks, and economic security, and the job of government and business is to help workers build the necessary muscles to do that.

The "muscles" workers need most are portable benefits and opportunities for lifelong learning. Why those two? Because they are the most important assets in making a worker mobile and adaptable. As Harvard University economist Robert Lawrence notes, the greatest single asset that the American economy has always had is the flexibility and mobility of its labor force and labor laws. That asset will become even more of an advantage in the flat world, as job creation and destruction both get speeded up.

Given that reality, argues Lawrence, it becomes increasingly important for society, to the extent possible, to make benefits and education-the two key ingredients of employability-as flexible as possible. You don't want people to feel that they have to stay with a company forever simply to keep their pension and health benefits. The more the workforce feels mobile -in terms of health care, pension benefits, and lifelong learning possibilities-the more it will be willing and able to jump into the new industries and new job niches spawned by the flat world and to move from dying companies to thriving companies.

Creating legal and institutional frameworks for universal portability of pensions and health care -in addition to Social Security, Medicare, and Medicaid-will help people build up such muscles. Today roughly 50 percent of Americans don't have a job-based pension plan, other than Social Security. Those who are fortunate enough to have one cannot easily take it with them from job to job. What is needed is one simple universal portable pension scheme, along the lines proposed by the Progressive Policy Institute, that would get rid of the confusing welter of sixteen different tax-deferred options now offered by the government and consolidate them all into a single vehicle. This universal plan, which you would open with your first job, would encourage workers to establish 401 (k) tax-deferred savings programs. Each worker and his or her employer could make contributions of cash, bonuses, profit sharing, or stock, depending on what sorts of benefits the specific employer offered. These assets would be allowed to build up tax-free in whatever savings or investment portfolio options the worker chose. But if and when it came time to change jobs, the worker could take the whole portfolio with him or her and not have to either cash it out or leave it under the umbrella of the previous employer. Rollover provisions do exist today, but they are complicated and many workers don't take advantage of them because of that.

The universal pension format would make rollover simple, easy, and expected, so pension lockup per se would never keep someone from moving from one job to another. Each employer could still offer his or her own specific 401 (k) benefit plan, as an incentive to attract employees. But once a worker moved to another job, the investments in that particular 401 (k) would just automatically dump into his or her universal pension account. With each new job, a new 401 (k) could be started, and with each move, the benefits deposited in that same universal pension account.

 In addition to this simple, portable, and universal pension program, Will Marshall, president of the Progressive Policy Institute, proposes legislation that would make it much easier and more likely for workers to obtain stock options in the companies for which they work. Such legislation would give tax incentives to companies to give more workers more options earlier and penalize companies that do not. Part of making workers more mobile is creating more ways to make more workers owners of financial assets, not just their own labor. "We want a public that sees itself as stakeholders, sharing in the capital-creating side of the flat world, not just competing in global labor markets/' argued Marshall. "We all have to be owners as well as wage earners.

That is where public policy has to be focused-to make sure that people have wealth-producing assets as they enter the twenty-first century, the way homeownership accomplished that in the twentieth century."

Why? Because there is an increasing body of literature that says people who are stakeholders, people who have a slice of the pie, "are more deeply invested in our system of democratic capitalism and the policies thatkeep itdynamic," said Marshall.

It is another way, besides home-ownership, to underpin the legitimacy of democratic capitalism. It is also another way to energize it, because workers who are also owners are more productive on the job. Moreover, in a flat world where every worker is going to face suffer competition, the more opportunities everyone has to build wealth through the power of markets and compounding interest, the more he or she will be able to be self-reliant. We need to give workers every stabilizer we can and make it as easy for them to get stock options as it is for the plutocrats. Instead of just being focused on protecting those with existing capital, as conservatives so often seem to be, let's focus instead on widening the circle of capital owners.

On the health-care side, which I won't delve into in great detail, since that would be a book unto itself, it is essential that we develop a scheme for portable health insurance that reduces some of the burden on employers for providing and managing coverage. Virtually every entrepreneur I talked to for this book cited soaring and uncontrolled healthcare costs in America as a reason to move factories abroad to countries where benefits were more limited, or nonexistent, or where there was national health insurance. Again, I favor the type of portable health-care program proposed by PPL The idea is to set up state-by-state collective purchasing pools, the way Congress and federal employees now cover themselves. These pools would set the rules and create the marketplace in which insurance companies could offer a menu of options. Each employer would then be responsible for offering this menu of options to each new employee. Workers could choose high, medium, or low coverage. Everyone, though, would have to be covered. Depending on the employer, he or she would cover part or all of the premiums and the employee the rest. But employers would not be responsible for negotiating plans with insurance companies, where they have little individual clout.

The state or federal pools would do that. This way employees would be totally mobile and could take their health-care coverage wherever they went. This type of plan has worked like a charm for members of Congress, so why not offer it to the wider public?

Needy and low-income workers who could not afford to join a plan would get some government subsidy to do so. But the main idea is to establish a government-supervised, -regulated, and -subsidized private insurance market in which government sets the broad rules so that there is no cherry-picking of healthy workers or arbitrary denial of treatment. The health care itself is administered privately, and the job of employers is to facilitate their workers' entry into one of these state pools and, ideally, help them pay for some or all of the premiums, but not be responsible for the health care themselves. In the transition, though, employers could continue to offer health-care plans as an incentive, and workers would have the option of going with either the plan offered by their employers or the menu of options available through the state purchasing pools. (For details, go to ppionline.org.)

One can quibble about the details of any of these proposals, but I think the basic inspiration behind them is exactly right: In a flattening world, where worker security can no longer be guaranteed by Fortune 500 corporations with top-down pension and health plans, we need more collaborative solutions-among government, labor, and business-that will promote self-reliant workers but not just leave them to fend for themselves.

When it comes to building muscles of employability, government has another critical role to play. Each century, as we push out the frontiers of human knowledge, work at every level becomes more complex, requiring more pattern recognition and problem solving. In the preindustrial age, human strength really mattered. Strength was a real service that lots of people could sell on the farm or in the workshop. With the invention of the electric motor and steam engine, though, physical strength became less important. Small women could drive big trucks. There is little premium for strength anymore. But there is an increasing premium for pattern recognition and complex problem solving, even down on the farm. Farming became a more knowledge-intensive activity, with GPS satellites guiding tractors to make sure all the rows being planted were straight. That modernization, plus fertilizer, put a lot of people out of work at the previous wage they were earning in agriculture.

Society as a whole looked at this transition from traditional agriculture to industrialization and said, "This is great! We will have more food and better food at lower costs, plus more people to work in factories." However, muscle-bound field hands and their families said, "This is a tragedy. How will I ever get a job in the industrial economy with only muscles and a sixth-grade education? I won't be able to eat any of that better, cheaper, plentiful food coming off the farms. We need to stop this move to industrialization."

Somehow we got through this transition from an agriculture-based society one hundred years ago to an industrial-based one-and still ended up with a higher standard of living for the vast majority of Americans. How did we do it?

"We said everyone is going to have to have a secondary education," said Stanford University economist Paul Romer. "That was what the high school movement in the early part of the twentieth century was all about." As economic historians have demonstrated in a variety of research (see particularly the work of Harvard economists Claudia Goldin and Larry Katz), both technology and trade are making the pie bigger, but they are also shifting the shares of that pie away from low-skilled labor to high-skilled labor. As American society produced more higher-skilled people by making high school mandatory, it empowered more people to get a bigger slice of the bigger, more complex economic pie. As that century progressed, weadded, on top ofthe high school movement, the GI Bill and the modern university system.

"These were big ideas," noted Romer, "and what is missing at the moment is a political imagination of how do we do something just as big and just as important for the transition into the twenty-first century as we did for the nineteenth and twentieth."

The obvious challenge, Romer added, is to make tertiary education, if not compulsory, then government-subsidized for at least two years, whether it is at a state university, a community college, or a technical school. Tertiary education is more critical the flatter the world gets, because technology will be churning old jobs, and spawning new, more complex ones, much faster than during the transition from the agricultural economy to the industrial one.

Educating more people at the tertiary level has two effects. One is that it produces more people with the skills to claim higher-value-added work in the new niches. And two, it shrinks the pool of people able to do lower-skilled work, from road maintenance to home repair to Starbucks. By shrinking the pool of lower-skilled workers, we help to stabilize their wages (provided we control immigration), because there are fewer people available to do those jobs. It is not an accident that plumbers can charge $75 an hour in major urban areas or that good housekeepers or cooks are hard to find. America's ability from the mid-nineteenth century on into the midtwentieth century to train people, limit immigration, and make low-skilled work scarce enough to win decent wages was how we created a middle class without too disparate an income gap. "Indeed," noted Romer, "from the end of the nineteenth century to the middle of the twentieth, we had a narrowing of the income gap. Now we have seen an increase of that gap over the last twenty or thirty years. That is telling us that you have to run faster in order to stay in the same place." With each advance in technology and increase in the complexity of services, you need an even higher level of skills to do the new jobs. Moving from being a farmhand to a phone operator who spoke proper English and could be polite was one thing. But moving from being a phone operator after the job got outsourced to India, to being able to install or repair phone-mail systems-or write their software - requires a whole new leap upward.

While expanding research universities on the high end of the spectrum is important, so is expanding the availability of technical schools and community colleges.