The Lexus and the Olive Tree

Because of globalization, the three democratizations, the electronic herd, and the golden straitjacket, the attributes of countries and companies have converged. When you link up your country with the global economy, it is the same as taking your country public, with citizens as your shareholders. As such, people are going to start demanding that their governments provide business-quality services at internet speeds; “To put it another way, the more people want government to become as quick and efficient as Amazon.com, the more the government has to operate like Amazon.com.” (196)

In the globalization system, a country’s wealth and prosperity are now of its choosing, just as it is for companies. In order to choose prosperity, both countries and companies need to ask themselves two questions: 1) How wired is your country or company? and 2) Is your country or company a shaper or an adaptor?

Knowing how wired you are is important because power is now measured by your degree of connectivity: how broadly and deeply computers are linked together in networks. Growth will go to the countries that are best connected because “connectivity is productivity.” (199) This connectivity is the only way for countries to survive and thrive. Similarly, there will be only two kinds of businesses in the future: internet businesses and anti-internet businesses. Anti-internet businesses are only those things that cannot possibly be done over the internet (i.e. a haircut) and every other business must be an internet business to survive.

It is important to know whether your country or company is a shaper or an adaptor, because this is the only way to determine what your niche is. Universal connectivity (i.e. how wired your country or company is) is necessary, but not sufficient, and the other component to success is how creatively you exploit the internet: “Power will flow not simply to those who are the most wired, but to those who are the most creative at bringing together firms, governments, capital, information, consumers, and talent in networked coalitions that create value.” (202) Shapers are those who define the rules that govern a certain activity, whereas adaptors are those who adapt themselves to these rules and carve out their own niches. Great power will accrue to the great shapers, but shapers need to attract a lot of adaptors by allowing them to create value. If shapers are too greedy, then adaptors will simply go to another shaper.

The principle of shapers and adaptors applies to everything from governments, to private enterprise, to human rights activism, to environmentalism. Solving global problems can’t rely on global government, but has to be based on a new system of mobilizing power. For instance, the key shapers of the golden straitjacket were the US and the UK, and they have been followed by other countries who see a benefit in adapting and coming up with their own variations. Similarly, activists mobilizing global consumers to pressure companies to improve labor conditions is an example of “the network solution for human rights,” (208) which is the future of advocacy. Activists need to harness economic self-interest by showing companies how they can be green and profitable at the same time or risk an internet campaign against them.

This chapter explores the “nine habits of highly effective countries” (212) which determine how good of a shaper or adaptor you will be. In the Cold War era, economic differentiation tended to be between regions (i.e. between Latin America and Africa), but now differentiation is within regions and even within countries. Success is now determined by if your country chooses prosperity by putting on the golden straitjacket and following these nine habits. Each habit is determined by asking a question of the country or company you’re considering.

The first question is: What is the speed of your country or company? Barriers to entry are very low, and speeds are high, so countries and companies need to be willing to let creative destruction happen. Those who can move the fastest will collect profits the fastest and become big. Even when you become big, you need to stay fast or you will fall behind and fail. Similarly, governments need to be able to move fast and facilitate their companies in moving fast.

Second, Is your country or company harvesting its knowledge? Businesses now compete for the best information instead of the best territory. The question is a measure of how well a country or company uses its networks to amass and deploy knowledge efficiently. Firms need to be “learning companies” that utilize their knowledge base effectively while protecting that information from competitors.

The third question is how much your country or company “weighs,” as Friedman suggests a light competitor will be “eaten,” or absorbed. In the globalization era, knowledge and ideas are favored over bulk weight because information-technology goods tend to be smaller and lighter, and creators of these goods are richer and more productive. Countries and companies that have heavy exports, like car parts, tend to be poor and less productive.

The fourth question is whether your country or company dares to make its practices outwardly known and open. The world has moved from one where the closed survive to one where the open do. This means consumers have a greater variety of choice while the commercial sector must become nimbler and more responsive. The only knowledge that should be kept secret are those techniques for being a better shaper or adaptor than others, and everything else should be open to facilitate competition. Those countries or companies that are open will adapt and thrive, and those that stay closed will struggle.

The fifth question is whether your country or company dares to be open on the inside. Countries and companies need to learn not just to compete without walls on the outside, but they also need to remove walls inside. In order to survive and thrive, decision making needs to be transparent and open, and governments need to be grounded in the rule of law.

The sixth question is whether your management “gets it” and if you can replace them if they don’t. Politicians and bosses need to be able to synthesize the six dimensions, understand the three democratizations, and have a strategy for choosing prosperity. If they don’t, then there needs to be a process to replace them with new leaders that understand the new globalization system.

The seventh is whether or not your country or company is willing to shoot its wounded and suckle the survivors. There needs to be a company culture that encourages the destruction of established business that seems to be successful, or someone else outside the company will destroy it. Countries also need a culture of constant reinvention and must be willing to break with the past and let entrepreneurs come into existence. Countries need to have safety nets for people who lose their jobs because of creative destruction, but not to protect firms that lose their edge.

The eighth is how good your company or country is at making friends. The world has changed from one where everyone wants to go it alone to one where you can’t survive unless you have lots of allies. Countries need to be alliance-makers, and companies need to be horizontally integrated. Those companies that survive are those that can forge and maintain strategic alliances with other companies. Similarly, countries need to be good at making friends because economic crises on the other side of the world can affect your economy, and the only way to combat new security threats is with new alliances.

The final question is how good your country or company’s brand is. In the globalized world, you need a strong brand that can attract and hold consumers and investors; to do this, countries and companies need to be able to demonstrate their strengths and uniqueness. Because the market is global, and competition is intense, having a strong brand with customers is essential for companies. Countries face the same challenges, but their customer is the electronic herd. 

The golden arches theory of conflict prevention stems from the observation that no countries with a McDonald’s had gone to war with each other since the McDonald’s moved in. More specifically, the theory states that when a country reaches the level of economic development where it has a large enough middle class to support McDonald’s, its people no longer like to fight in wars anymore because they prefer to wait in line for burgers. Similarly, the economic integration that has occurred because of globalization makes the costs of war much higher for both sides, although there will still be wars because of geopolitics; olive trees will always be important. Overall, today’s globalization, with the golden straitjacket and electronic herd, restricts foreign policy more than ever before, making the cost of war much higher than at any time in history.

The chessboard and the check book, played by the two superpowers, dominated the Cold War system. Neither side wanted to risk giving up a chess piece and would write big checks to buy pieces, leading to regional conflicts. Under globalization, there is no more chessboard and the electronic herd, not the superpowers, are writing the checks. Furthermore, the herd plays monopoly, not chess; they don’t want to buy allegiance, they want to make profit. Instead of supporting regional wars like the Cold War superpowers did, the herd instead punishes countries that go to war by cutting off their growth. In other words, the new mutually assured destruction is that the electronic herd, not nuclear weapons, would devastate both sides of a war.  

Globalization geopolitics is much more complex than Cold War geopolitics because there is a wider variety of threats, and states have agendas greater than the pull of their associated superpower. Some countries are grappling with their shape, some with size, some with quality, some with equality, some with liberty, and some with a mix of all five. To make policy, countries need to understand which of these challenges other states are grappling with. Similarly, globalization has tended to ghettoize regional conflicts, because great powers would rather avoid them. Finally, globalization has created new sources of power and these new pressures come from supermarkets and super-empowered individuals rather than classic military force.