The Lexus and the Olive Tree

“Who controls the guns in a society is always critical. But who controls the phones and how they work also matters.” 

Here, Friedman emphasizes a crucial distinction between the globalization system and the Cold War system it replaced. Whereas military might and the struggle between the superpowers defined the Cold War, globalization is defined by global networks, particularly telecommunications networks such as the Internet. At the same time, Friedman is careful to remind the reader that globalization does not mean the end of geopolitics, because military will always play a role, and countries can always choose war. 

“It struck me then that the Lexus and the olive tree were actually pretty good symbols of this post-Cold War era: half the world seemed to be emerging from the Cold War intent on building a better Lexus, dedicated to modernizing, streamlining and privatizing their economies in order to thrive in the system of globalization. And half of the world-sometimes half the same country, sometimes half the same person-was still caught up in the fight over who owns which olive tree.”

This quote demonstrates the overarching thesis of the book. To Friedman, globalization is win-win and those who choose prosperity by joining the globalized, fast, open world are rewarded with a level of prosperity that is not possible to achieve in a walled-off, closed world. However, joining this globalized world is hard work because it requires the country or company put on the golden straitjacket and attract international investment. At the same time, the challenges and dislocations produced by this new system lead people to cling to the things that give them a stable sense of place, identity, and belonging. The ultra-modern Lexus factory and tribal conflict over olive trees symbolize these contradictory pressures produced by globalization.

“If that participation comes at the price of a country's identity, if individuals feel their olive tree roots crushed, or washed out, by this global system, those olive tree roots will rebel. They will rise up and strangle the process. Therefore the survival of globalization as a system will depend, in part, on how well all of us strike this balance. A country without healthy olive trees will never feel rooted or secure enough to open up fully to the world and reach out into it.” 

To Friedman, the primary challenge of the globalization system is locating the stable equilibrium point between Lexus desires and Olive Tree desires. The Lexus desires are for a more modern and prosperous mindset, while the Olive Tree desires are for those things which give us a stable sense of belonging and identity. Friedman notes here the paradox that pursuit of Lexuses has the potential to uproot olive trees, which in turn undermines globalization. 

“So when I say that the innovations in computerization, miniaturization, telecommunication and digitization have democratized technology, what I mean is that they have made it possible for hundreds of millions of people around the world to get connected and exchange information, news, knowledge, money, family photos, financial trades, music or television shows in ways, and to a degree, never witnessed before.” 

Advancements in technology, particularly in telecommunications technology, are the first catalysts of globalization in the book. While Friedman argues that we are actually in the second era of globalization (the first being the late 19th to early 20th century which was ended by World War I), it is advancements in telecommunications technology that are what qualitatively separates the first era of globalization from the second. In particular, the Internet has been an unprecedented development that has irrevocably affected the way business is conducted and how we communicate with each other. These advancements in telecommunications and technology are what allowed the electronic herd to flourish and become the force that makes globalization work.

“The Internet is the pinnacle of the democratization of information: no one owns the Internet, it is totally decentralized, no one can turn it off, it can potentially reach into every home in the world and many of its key advances were done by collaboration among individuals—many who have never met each other—who worked together over the network, contributing their ideas for free.” 

The Internet is the ultimate symbol for the new era of globalization. Like the electronic herd, the internet is completely decentralized and leaderless and cannot be stopped. Globalization and the Internet are both the products of countless individuals making individual decisions, but these add up to something greater than the sum of its parts. Both the internet and globalization offer great rewards to those who can take advantage, while also posing new threats. Both the internet and globalization represent the “fast world” that allows us to do more, faster, and more efficiently than ever before. At the same time, those who try to wall themselves off from either innovation will find themselves stagnating and paying an ever-increasing price. 

“The only known cure for countries and companies with MIDS is ‘the fourth democratization.’ This is the democratization of decision-making and information flows, and the de-concentration of power, in ways that allow more people in a country or company to share knowledge, experiment and innovate faster.” 

Friedman believes that countries and companies that have not chosen prosperity will fall prey to what he calls Microchip Immune Deficiency Syndrome (MIDS). MIDS is the defining disease of the globalization era and was responsible for the walls that fell all around the world at the same time, not only the Berlin Wall, but also the southeast Asian financial crisis, the collapse of the USSR, and the struggles of General Motors and IBM. MIDS is the result of the three democratizations produced by technological innovation in the 1980s, as those who failed to modernize and take advantage succumbed to crises. MIDS has subsequently led to the “fourth democratization” as Friedman calls it, which democratizes decision-making within both countries and companies to enable greater flexibility and transparency.

“Therefore, the sign on the desk of the successful CEO in the era of globalization will not be ‘The Buck Stops Here.’ It will be ‘The Buck Starts Here.’ I, the boss, set the broad strategies, I keep everyone connected on the same path, I get the balls rolling, but you, the employees, gather the information, share it and make as many of the decisions as you can, quickly and close to the market.” 

To Friedman, the ideal business and country should be much like the Internet and electronic herd—as decentralized and individualized as possible because none of us is as smart as all of us. This philosophy ties in with one of the major themes of the book: Countries and companies need to be able to choose prosperity by adapting to the new era of globalization. To Friedman, a strong centralized leader is a relic of the Cold War, and modern leaders need to accept a greater degree of flexibility from their employees so that countries and companies can be as agile and flexible as possible. This fourth democratization is the only ways that countries and companies can stave off MIDS. 

“Once the three democratizations came together in the late 1980s and blew away all the walls, they also blew away all the major ideological alternatives to free-market capitalism.” 

This quote emphasizes a central argument of the book: There is no alternative to free-market, liberal democratic capitalism. To Friedman, the events of the 20th century have definitively proven that no other system–socialism, communism, or fascism–is feasible over the long term. Similarly, while overly regulated forms of capitalism might be better at distributing income, only free-market capitalism is effective at actually generating this income in the first place. This is why Friedman characterizes globalized capitalism as a win-win system: while it widens relative inequality, absolute poverty is still reduced more than it would have been under alternative systems. This quote has its origins in a speech by UK Prime Minister Margaret Thatcher, who similarly argued that there is no alternative to free-market capitalism, and American President Ronald Reagan’s argument that the rising tide of free-market capitalism raised all ships.

“Today’s global market system, the Fast World and the Golden Straitjacket were produced by large historical force that have fundamentally reshaped how we communicate, how we invest and how we see the world. If you want to resist these changes, that is your business. And it should be your business. But if you think that you can resist these changes without paying an increasingly steep price, without building an increasingly high wall and without falling behind increasingly fast, then you are deluding yourself.” 

Here, Friedman demonstrates one of his fundamental arguments— namely, that countries can choose to resist globalization but that they will pay a steep price for doing so. The reason is that the forces produced by globalization and the electronic herd have so thoroughly reshaped the way the world works that one needs to either adapt to this new world or be left behind. Friedman makes this point to respond to his contemporaries, some of whom argued that globalization meant that the nation-state would be rendered irrelevant because of globalization. In contrast, Friedman argues throughout the book that globalization makes the nation-state matter more, not less, because the modern state is responsible for choosing prosperity.

“And the most basic truth about globalization is this: No one is in charge - not George Soros, not “Great Powers” and not I. I didn't start globalization. I can't stop it and neither can you - except at a huge cost to your society and its prospects for growth.” 

One of the fundamental truths of globalization is that it is leaderless, in contrast to the Cold War system which superpowers dominated. In contrast, the internet and the electronic herd are both fundamentally leaderless entities and so cannot be bargained with in the same way that one can bargain with a superpower. Friedman argues that this is part of the backlash against globalization; because it is impossible to single out leaders, people are incapable of assigning blame for the disruptions and dislocations produced by globalization. This leads them to choose random targets to focus their ire on, such as George Soros.

“What developing countries need most from America today is not aid. Rather, it is an understanding of what is the real source of American prosperity: the combination of the right operating system - free markets - with the right software, political institutions and political consensus that can protect property and innovation, maintain a level playing field, ensure that the most productive players usually win, and provide some minimum safety nets to catch the losers.” 

Another major theme of the novel is that America has been perfectly suited to “win” globalization. This is due to America’s “hardware” (free-market capitalism), its “operating system” (macroeconomic policies such as balanced budgets and stable inflation management, as well as a welfare state that is not overly generous), and its “software” (the legal and regulatory regime that prevents corruption and ensures people receive fair value for their work). In contrast to the Cold War system, where states could attempt to play the two superpowers against each other in order to receive aid, now countries must choose prosperity by implementing good economic governance. In other words, instead of begging wealthy countries such as America for aid, Friedman argues that poor countries should instead emulate America to become rich.

“At the same time, though, the Electronic Herd and the Supermarkets are fast becoming two of the most intimidating, coercive, intrusive forces in the world today. They leave many people feeling that whatever democracy they have at home, whatever choices they think they are exercising in their local or national elections, whoever they think they elected to run their societies, are all just illusions – because it is actually larger, distant, faceless markets and herds that are dictating their political lives.” 

This quote captures one of the key paradoxes of globalization. While globalization and the electronic herd has democratized countries and made them wealthier, it can also appear coercive by demanding that countries put on the golden straitjacket by adopting political-economic reforms. In other words, while the formal aspects of democracy are enhanced (by ensuring free, fair elections), people may feel that their choice no longer matters because both parties are forced to implement the same policies no matter which wins. However, Friedman ultimately argues that the golden straitjacket and electronic herd is only coercive in the short-term, because the growth that the golden straitjacket ultimately creates allows countries more flexibility in choosing the shape of their policies. 

“That’s how you change the world—by using globalization against itself, by becoming a shaper who doesn't just wait around for global government to alleviate poverty but instead uses the new system to mobilize the big, cold, selfish market players to do the right thing for the wrong reason—greed.” 

Friedman here offers his theory of activism under globalization. To him, activists need to take advantage of the new networks created by globalization rather than waiting for technological innovation or global government. The way to do this is by taking advantage of the electronic herd’s predictability, since it is driven by economic incentives such as profit. The future of social advocacy, Friedman argues, is by harnessing this economic self interest to show that companies can be ethical and profitable at the same time; they must be ethical or consumers will desert them for businesses that will take environmental concerns seriously. This is enabled by the internet, which allows globally-network activists to mount global campaigns against multinationals to force them to align their brands with the desires of consumers. 

“As more and more people start to realize that their country can actually choose prosperity, if it puts the right policies in place, and as more and more people come to understand fully how other people, particularly successful nations, live, they are going to start asking why their own political management hasn't chosen prosperity.” 

This passage exemplifies one of the major themes of the book, namely that countries can, and must, choose prosperity in the globalization system. The way they do this is by choosing to put on the golden straitjacket, which means opening up their country to the global marketplace, implementing free-market capitalism, privatizing, deregulating, and implementing austerity. To Friedman this is a win-win process; countries modernize and reform while achieving rapid prosperity and the electronic herd achieves a profitable return on their investment. Similarly, because globalization has increased the interconnectedness of the world, people are in the position to compare themselves not simply to the previous generation, but to those living in other countries, or even other parts of the country. And because globalization leads to increased democratization, these people will be able to pressure their elected representatives to stop building walls and choose prosperity.

“No two countries that both had McDonald’s had fought a war against each other since each got its McDonald’s.” 

This statement concisely expresses Friedman’s “Golden Arches Theory of Conflict Prevention,” one of the most enduring and controversial claims from this book. Friedman’s theory is actually a variant on the general capitalist peace theory and democratic peace theory which argues that capitalist states and democratic states, respectively, do not go to war with each other. Specifically, Friedman singles out the presence of McDonald’s franchises as an observable marker that a country has reached a sufficient level of development. McDonald’s hamburgers are based on a globally-integrated supply chain and are standardized across the entire globe, and so the presence of McDonald’s means that a country is sufficiently integrated into globalization. Similarly, McDonald’s consumers tend to be middle-class, and so for McDonald’s to be successful within a country, it must have at least a critical mass of its middle class. Taken together, this means that states with McDonald’s tend not to go to war with each other, because on the one hand, wars cut off the global supply chains which are responsible for prosperity, and on the other hand, middle-class citizens would rather eat hamburgers than fight in wars.

“For now, the only way to run as fast as the herd is by riding the herd itself and trying to redirect it. We need to demonstrate to the herd that being green, being global and being greedy can go hand in hand. If you want to save the Amazon, go to business school and learn how to do a deal.” 

This passage expands on Friedman’s theory of social activism under globalization. While he points out that activism and global markets seem to be opposed, the win-win nature of the globalization system actually means that environmentalism and profit can go hand-in-hand. Instead of engaging in futile protests, Friedman argues that activists should instead learn how the electronic herd works (i.e. by going to business school) so that they can achieve their desired outcomes. Once the herd and multinational companies learn that being environmentally sound and ethical not only can, but must, go together with profitability, they will be incentivized to solve the environmental dislocations caused by globalization. This is a model of consumer-driven activism, where people demand certain environmental outcomes through their purchase of certain environmentally friendly products, and businesses respond to the expressed preferences of consumers.

“Only a relentless, coherent politics of livability that enables a society to get all the necessary environmental and cultural filters operating in concert will have a chance of moderating the relentless, coherent, well-funded and efficient business plans of Nike, MTV, McDonald's, Pizza Hut, Enron and Taco Bell.” 

Here, Friedman acknowledges some of the negative externalities of globalization and how states should combat them. In particular, he argues that globalization has a homogenizing effect on culture while posing a risk to the environment. While Friedman stresses above the need for activists to work within globalization to show that businesses can (and must) be environmentally friendly and culturally sensitive while still making a profit, he also argues for countries to develop the filters necessary to protect their local culture from homogenizing American culture. In particular, he calls for countries to assign a value to cultural preservation so that it can be protected within the free-market system. This is not only desirable, but necessary, because the economy is tied to the broader society, and society is tied to the environment.

“This is the phenomenon of ‘winner take all’—which refers to the fact that the winners in any field today can really cash in because they can sell into this massive global marketplace, while those who are just a little less talented, or not skilled at all, are limited to selling in just their local market and therefore tend to make a lot, lot less.” 

This excerpt exemplifies another of the paradoxes Friedman notes within globalization. Because there is a now a global marketplace, the winner in any field is massively successful while those who come in second place (or worse) are much less successful than they would have been in a closed-off system like the Cold War. While this is positive for consumers, because they have access to the best product, no matter who produces it, it poses challenges because this winner-take-all system exacerbates income inequality, potentially fueling backlashes against globalization. At the same time, if society attempts to stick with a closed-off system, it will become impoverished, which is even more socially disruptive. Friedman argues that navigating this dilemma is a key concern for policy makers and discusses possible solutions in the final section of the book.

“They offer various protectionist, populist solutions that they claim will produce the same standards of living, without having to either run so fast, trade so far or open the borders wide. They all claim that by just putting up a few new walls here and here everything will be fine. They appeal to all the people who prefer their pasts to their future.” 

Friedman argues because globalization produces both capital and chaos, this opens the political space for demagogues to argue that societies can have the same (or greater) prosperity they have under globalization while simultaneously putting up walls to protect them from the outside world. To Friedman, nothing could be further from the truth; only by embracing globalization and choosing prosperity can societies achieve prosperity, and populist anti-globalization policies can only lead to impoverishment. Friedman acknowledges that support for populist anti-globalization candidates has a real basis, because many people feel threatened by the rapid transformations because they no longer have the skills or energy to compete in the global marketplace. He argues that those left behind should not be preyed on by opportunistic demagogues and that society ignores this backlash at its own peril.  

“These stories also help to explain why the backlash against globalization so far has not garnered enough critical mass anywhere to really disrupt this new system. Too many people still want into this system, and are finding ways to get there, even if it is painful at times. That is because too many people in developing countries understand that globalization is a tool to make them better off, faster, than anything they have ever had before.” 

Although Friedman acknowledges that the backlash against globalization is real and could undermine its stability, he concludes that the “groundswell” (i.e. the backlash against the backlash) is far stronger. He argues that, on the whole, there are more people that want the benefits of globalization than those who want to tear it down and return to the past. Similarly, he argues that globalization has not failed the poor but that the poor have not put in place the infrastructure to choose prosperity by taking advantage of globalization. To Friedman, this explains why the backlash against globalization has not been strong enough to actually challenge the system.

“If you look at globalization as the dominant international system today, and you look at the attributes that both companies and countries need to thrive in this system, you have to conclude that America has more assets, and fewer liabilities, in relation to this system than any other major country. This is what I call rational exuberance.” 

This quote presents the thesis of the final section of the book: that America was uniquely well-placed to take advantage of globalization and become the winner of this winner-take-all system. To Friedman, if you were to design a hypothetical country that was ideal for competing and winning under globalization, it would look exactly like America. This explains why America emerged from the Cold War as the only superpower and why it became the dominant political, economic, and military power. These reasons are listed in Chapter 17, but overall boil down to the argument that America was culturally, politically, and legally advantaged to succeed in a deregulated, free-market system. Friedman’s use of “rational exuberance” here is meant to contrast with then-Federal Reserve Chairman Alan Greenspan’s warnings about “irrational exuberance” in the US stock market. Greenspan was warning about potential economic bubbles forming in the economy, but Friedman dismisses this warning by arguing that the exuberance is rational, rather than irrational, because America’s economic fundamentals are strong.

“What bothers so many people about America today is not that we send our troops everywhere, but that we send our culture, values, economics, technologies and lifestyles everywhere—whether or not we want to or others want them.” 

To Friedman, the backlash against globalization has also entailed a backlash against America because America, as the winner of globalization, has become its public face. While it is clear to Americans what aspects of the new world are Americanization and which are Globalization, this is not clear to foreigners, leading to a love-hate relationship with America and a backlash against Americanization-Globalization. Unlike the Cold War backlashes against America, which were based on resentment of its superior military might, this new backlash is based on resentment on its cultural and economic might. 

“And how could that happen? It could happen because the biggest threat to globalization today is globalization. That is, the system contains within it the potential for its own destruction. It contains within it traits and tendencies that, if allowed to run riot, could become so oppressive that large majorities in a large number of countries would start to feel like losers, and therefore rebel against the system or try to erect new walls.” 

Friedman concludes the book by arguing that the greatest threat to globalization comes from globalization itself because the very things which make globalization great are those which cause the backlashes against globalization. Whether intentionally or unintentionally, Friedman is expressing very similar sentiments to Karl Marx and Friedrich Engels in the Communist Manifesto. Marx and Engels argued that capitalism as a whole was destined to fail eventually because it contained within it the seeds of its own destruction. To them, capitalism increasingly exploits the working class, which eventually pushes them into a revolution to overthrow the system. But while Marx and Engels believed that capitalism was eventually doomed to be overthrown, Friedman is much more optimistic. While Friedman acknowledges that globalization has the potential to undermine itself, he argues that, through the implementation of proper policy, society can enjoy globalization’s beneficial effects while cushioning its negative effects.