essay question

14 Jun essay question

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China-United States Manhattan Project, a crash program to jointly develop clean

alternative energies, bringing together China’s best scientists and its political

ability to implement pilot projects, with America’s best brains, technology, and

money. It would be the ideal model and the ideal project for creating value

horizontally, with each side contributing its strength. Said Scott Roberts, the

Cambridge Energy Research Associates analyst in China, “When it comes to renewable

technology and sustainable energy, China could be the laboratory of the world-not

just the workshop of the world.” Why not?

::::: TWELVE

The Dell Theory of Conflict Prevention

Old-Time Versus Just-in-Time

Free Trade is God’s diplomacy. There is no other certain way of uniting people in

the bonds of peace. -British politician Richard Cobden, 1857

Before I share with you the subject of this chapter, I have to tell you a little bit

about the computer that I wrote this book on. It’s related to the theme I am about

to discuss. This book was largely written on a Dell Inspiron 600m notebook, service

tag number 9ZRJP41. As part of the research for this book71 visited with the management

team at Dell near Austin, Texas. I shared with them the ideas in this book and in

return I asked for one favor: I asked them to trace for me the entire global supply

chain that produced my Dell notebook. Here is their report: My computer was conceived

when I phoned Dell’s 800 number on April 2, 2004, and was connected to sales

representative Mujteba Naqvi, who immediately entered my order into Dell’s order

management system. He typed in both the type of notebook I ordered as well as the

special features I wanted, along with my personal information, shipping address,

billing address, and credit card information. My credit card was verified by Dell

through its work flow connection with Visa, and my order was then released to Dell’s

production system. Dell has six factories around the world-in Limerick, Ireland;

Xiamen, China; Eldorado do Sul, Brazil; Nashville, Tennesee; Austin, Texas; and

Penang, Malaysia. My order went out by e-mail to the Dell notebook factory in Malaysia,

where the parts for the computer were immediately ordered from the supplier logistics

centers (SLCs) next to the Penang factory. Surrounding every Dell factory in the world

are these supplier logistics centers, owned by the different suppliers of Dell parts.

These SLCs are like staging areas. If you are a Dell supplier anywhere in the world,

your job is to keep your SLC full of your specific parts so they can constantly be

trucked over to the Dell factory for just-in-time manufacturing.

“In an average day, we sell 140,000 to 150,000 computers,” explained Dick Hunter,

one of Dell’s three global production managers. “Those orders come in over Dell.com

or over the telephone. As soon these orders come in, our suppliers know about it.

They get a signal based on every component in the machine you ordered, so the supplier

knows just what he has to deliver. If you are supplying power cords for desktops,

you can see minute by minute how many power cords you are going to have to deliver.”

Every two hours, the Dell factory in Penang sends an e-mail to the various SLCs nearby,

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telling each one what parts and what quantities of those parts it wants delivered

within the next ninety minutes-and not one minute later. Within ninety minutes, trucks

from the various SLCs around Penang pull up to the Dell manufacturing plant and unload

the parts needed for all those notebooks ordered in the last two hours. This goes

on all day, every two hours. As soon as those parts arrive at the factory, it takes

thirty minutes for Dell employees to unload the parts, register their bar codes, and

put them into the bins for assembly. “We know where every part in every SLC is in

the Dell system at all times,” said Hunter.

So where did the parts for my notebook come from? I asked Hunter. To begin with, he

said, the notebook was codesigned in Austin, Texas, and in Taiwan by a team of Dell

engineers and a team of Taiwanese notebook designers. “The customer’s needs, required

technologies, and Dell’s design innovations were all determined by Dell through our

direct relationship with customers,” he explained. “The basic design of the

motherboard and case-the basic functionality of your machine-was designed to those

specifications by an ODM [original design manufacturer] in Taiwan. We put our

engineers in their facilities and they come to Austin and we actually codesign these

systems. This global teamwork

brings an added benefit-a globally distributed virtually twenty-four-hour-per-day

development cycle. Our partners do the basic electronics and we help them design

customer and reliability features that we know our customers want. We know the

customers better than our suppliers and our competition, because we are dealing

directly with them every day.” Dell notebooks are completely redesigned roughly every

twelve months, but new features are constantly added during the year- through the

supply chain-as the hardware and software components advance.

It happened that when my notebook order hit the Dell factory in Penang, one part was

not available-the wireless card-due to a quality control issue, so the assembly of

the notebook was delayed for a few days. Then the truck full of good wireless cards

arrived. On April 13, at 10:15 a.m., a Dell Malaysia worker pulled the order slip

that automatically popped up once all my parts had arrived from the SLCs to the Penang

factory. Another Dell Malaysia employee then took out a “traveler”-a special carrying

tote designed to hold and protect parts-and started plucking all the parts that went

into my notebook.

Where did those parts come from? Dell uses multiple suppliers for most of the thirty

key components that go into its notebooks. That way if one supplier breaks down or

cannot meet a surge in demand, Dell is not left in the lurch. So here are the key

suppliers for my Inspiron 600m notebook: The Intel microprocessor came from an Intel

factory either in the Philippines, Costa Rica, Malaysia, or China. The memory came

from a Korean-owned factory in Korea (Samsung), a Taiwanese-owned factory in Taiwan

(Nanya), a German-owned factory in Germany (Infineon), or a Japanese-owned factory

in Japan (Elpida). My graphics card was shipped from either a Taiwanese-owned factory

in China (MSI) or a Chinese-run factory in China (Foxconn). The cooling fan came from

a Taiwanese-owned factory in Taiwan (CCI or Auras). The motherboard came from either

a Korean-owned factory in Shanghai (Samsung), a Taiwanese-owned factory in Shanghai

(Quanta), or a Taiwanese-owned factory in Taiwan (Compal or Wistron). The keyboard

came from either a Japanese-owned company in Tianjin, China (Alps), a Taiwanese-owned

factory in Shenzen, China (Sunrex), or a Taiwanese-

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owned factory in Suzhou, China (Darfon). The LCD display was made in either South

Korea (Samsung or LG.Philips LCD), Japan (Toshiba or Sharp), or Taiwan (Chi Mei

Optoelectronics, Hannstar Display, or AU Optronics). The wireless card came from

either an American-owned factory in China (Agere) or Malaysia (Arrow), or a

Taiwanese-owned factory in Taiwan (Askey or Gemtek) or China (USI). The modem was

made by either a Taiwanese-owned company in China (Asustek or Liteon) or a Chinese-run

company in China (Foxconn). The battery came from an American-owned factory in

Malaysia (Motorola), a Japanese-owned factory in Mexico or Malaysia or China (Sanyo),

or a South Korean or Taiwanese factory in either of those two countries (SDI or Simplo).

The hard disk drive was made by an American-owned factory in Singapore (Seagate),

a Japanese-owned company in Thailand (Hitachi or Fujitsu), or a Japanese-owned

factory in the Philippines (Toshiba). The CD/DVD drive came from a South Korean-owned

company with factories in Indonesia and the Philippines (Samsung); a Japanese-owned

factory in China or Malaysia (NEC); a Japanese-owned factory in Indonesia, China,

or Malaysia (Teac); or a Japanese-owned factory in China (Sony). The notebook carrying

bag was made by either an Irish-owned company in China (Tenba) or an American-owned

company in China (Targus, Samsonite, or Pacific Design). The power adapter was made

by either a Thai-owned factory in Thailand (Delta) or a Taiwanese, Korean, or

American-owned factory in China (Liteon, Samsung, or Mobility). The power cord was

made by a British-owned company with factories in China, Malaysia, and India (Volex).

The removable memory stick was made by either an Israeli-owned company in Israel

(M-System) or an American-owned company with a factory in Malaysia (Smart Modular).

This supply chain symphony-from my order over the phone to production to delivery

to my house-is one of the wonders of the flat world.

“We have to do a lot of collaborating,” said Hunter. “Michael [Dell] personally knows

the CEOs of these companies, and we are constantly working with them on process

improvements and real-time demand/supply balancing.” Demand shaping goes on

constantly, said Hunter. What is “demand shaping”? It works like this: At 10 a.m.

Austin time, Dell discovers that so many customers have ordered notebooks with

40-gigabyte

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hard drives since the morning that its supply chain will run short in two hours. That

signal is automatically relayed to Dell’s marketing department and to Dell.com and

to all the Dell phone operators taking orders. If you happen to call to place your

Dell order at 10:30 a.m., the Dell representative will say to you, “Tom, it’s your

lucky day! For the next hour we are offering 60-gigabyte hard drives with the notebook

you want-for only $10 more than the 40-gig drive. And if you act now, Dell will throw

in a carrying case along with your purchase, because we so value you as a customer.”

In an hour or two, using such promotions, Dell can reshape the demand for any part

of any notebook or desktop to correspond with the projected supply in its global supply

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chain. Today memory might be on sale, tomorrow it might be CD-ROMs.

Picking up the story of my notebook, on April 13, at 11:29 a.m., all the parts had

been plucked from the just-in-time inventory bins in Penang, and the computer was

assembled there by A. Sathini, a team member “who manually screwed together all of

the parts from kitting as well as the labels needed for Tom’s system,” said Dell in

their production report to me. “The system was then sent down the conveyor to go to

burn, where Tom’s specified software was downloaded.” Dell has huge server banks

stocked with the latest in Microsoft, Norton Utilities, and other popular software

applications, which are downloaded into each new computer according to the specific

tastes of the customer.

“By 2:45 p.m., Tom’s software had been successfully downloaded, and [was] manually

moved to the boxing line. By 4:05 p.m., Tom’s system [was] placed in protective foam

and a shuttle box, with a label, which contains his order number, tracking code, system

type, and shipping code. By 6:04 p.m., Tom’s system had been loaded on a pallet with

a specified manifest, which gives the Merge facility visibility to when the system

will arrive, what pallet it will be on (out of 75+ pallets with 152 systems per pallet),

and to what address Tom’s system will ship. By 6:26 p.m., Tom’s system left [the Dell

factory] to head to the Penang, Malaysia, airport.”

Six days a week Dell charters a China Airlines 747 out of Taiwan and flies it from

Penang to Nashville via Taipei. Each 747 leaves with twenty-five thousand Dell

notebooks that weigh altogether 110,000 kilograms,

or 50,000 pounds. It is the only 747 that ever lands in Nashville, except Air Force

One, when the president visits. “By April 15, 2004, at 7:41 a.m., Tom’s system arrived

at [Nashville] with other Dell systems from Penang and Limerick. By 11:58 a.m., Tom’s

system [was] inserted into a larger box, which went down the boxing line to the

specific external parts that Tom had ordered.”

That was thirteen days after I’d ordered it. Had there not been a parts delay in

Malaysia when my order first arrived, the time between when I phoned in my purchase,

when the notebook was assembled in Penang, and its arrival in Nashville would have

been only four days. Hunter said the total supply chain for my computer, including

suppliers of suppliers, involved about four hundred companies in North America,

Europe, and primarily Asia, but with thirty key players. Somehow, though, it all came

together. As Dell reported: On April 15, 2004, at 12:59 p.m., “Tom’s system had been

shipped from [Nashville] and was tenured by UPS shipping LTL (3-5-day ground,

specified by Tom), with UPS tracking number 1Z13WA374253514697. By April 19, 2004,

at 6:41 p.m., Tom’s system arrived in Bethesda, MD, and was signed for.”

I am telling you the story of my notebook to tell a larger story of geopolitics in

the flat world. To all the forces mentioned in the previous chapter that are still

holding back the flattening of the world, or could actually reverse the process, one

has to add a more traditional threat, and that is an outbreak of a good, old-fashioned,

world-shaking, economy-destroying war. It could be China deciding once and for all

to eliminate Taiwan as an independent state; or North Korea, out of fear or insanity,

using one of its nuclear weapons against South Korea or Japan; or Israel and a

soon-to-be-nuclear Iran going at each other; or India and Pakistan finally nuking

it out. These and other classic geopolitical conflicts could erupt at any time and

either slow the flattening of the world or seriously unflatten it.

The real subject of this chapter is how these classic geopolitical threats might be

moderated or influenced by the new forms of collaboration fostered and demanded by

the flat world-particularly supply-

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chaining. The flattening of the world is too young for us to draw any definitive

conclusions. What is certain, though, is that as the world flattens, one of the most

interesting dramas to watch in international relations will be the interplay between

the traditional global threats and the newly emergent global supply chains. The

interaction between old-time threats (like China versus Taiwan) and just-in-time

supply chains (like China plus Taiwan) will be a rich source of study for the field

of international relations in the early twenty-first century.

In The Lexus and the Olive Tree I argued that to the extent that countries tied their

economies and futures to global integration and trade, it would act as a restraint

on going to war with their neighbors. I first started thinking about this in the late

1990s, when, during my travels, I noticed that no two countries that both had

McDonald’s had ever fought a war against each other since each got its McDonald’s.

(Border skirmishes and civil wars don’t count, because McDonald’s usually served both

sides.) After confirming this with McDonald’s, I offered what I called the Golden

Arches Theory of Conflict Prevention. The Golden Arches Theory stipulated that when

a country reached the level of economic development where it had a middle class big

enough to support a network of McDonald’s, it became a McDonald’s country. And people

in McDonald’s countries didn’t like to fight wars anymore. They preferred to wait

in line for burgers. While this was offered slightly tongue in cheek, the serious

point I was trying to make was that as countries got woven into the fabric of global

trade and rising living standards, which having a network of McDonald’s franchises

had come to symbolize, the cost of war for victor and vanquished became prohibitively

high.

This McDonald’s theory has held up pretty well, but now that almost every country

has acquired a McDonald’s, except the worst rogues like North Korea, Iran, and Iraq

under Saddam Hussein, it seemed to me that this theory needed updating for the flat

world. In that spirit, and again with tongue slightly in cheek, I offer the Dell Theory

of Conflict Prevention, the essence of which is that the advent and spread of

just-in-time global supply chains in the flat world are an even greater restraint

on geopolitical adventurism than the more general rising standard of living that

McDonald’s symbolized.

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The Dell Theory stipulates: No two countries that are both part of a major global

supply chain, like Dell’s, will ever fight a war against each other as long as they

are both part of the same global supply chain. Because people embedded in major global

supply chains don’t want to fight old-time wars anymore. They want to make

just-in-time deliveries of goods

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and services -and enjoy the rising standards of living that come with that. One of

the people with the best feel for the logic behind this theory is Michael Dell, the

founder and chairman of Dell.

“These countries understand the risk premium that they have,” said Dell of the

countries in his Asian supply chain. “They are pretty careful to protect the equity

that they have built up or tell us why we should not worry [about their doing anything

adventurous]. My belief after visiting China is that the change that has occurred

there is in the best interest of the world and China. Once people get a taste for

whatever you want to call it-economic independence, a better lifestyle, and a better

life for their child or children-they grab on to that and don’t want to give it up.”

Any sort of war or prolonged political upheaval in East Asia or China “would have

a massive chilling effect on the investment there and on all the progress that has

been made there,” said Dell, who added that he believes the governments in that part

of the world understand this very clearly. “We certainly make clear to them that

stability is important to us. [Right now] it is not a day-to-day worry for us …

I believe that as time and progress go on there, the chance for a really disruptive

event goes down exponentially. I don’t think our industry gets enough credit for the

good we are doing in these areas. If you are making money and being productive and

raising your standard of living, you’re not sitting around thinking, Who did this

to us? or Why is our life so bad?”

There is a lot of truth to this. Countries whose workers and industries are woven

into a major global supply chain know that they cannot take an hour, a week, or a

month off for war without disrupting industries and economies around the world and

thereby risking the loss of their place in that supply chain for a long time, which

could be extremely costly. For a country with no natural resources, being part of

a global supply chain is like striking oil-oil that never runs out. And therefore,

getting dropped from such a chain because you start a war is like having your oil

wells go

dry or having someone pour cement down them. They will not come back anytime soon.

“You are going to pay for it really dearly,” said Glenn E. Neland, senior vice

president for worldwide procurement at Dell, when I asked him what would happen to

a major supply-chain member in Asia that decided to start fighting with its neighbor

and disrupt the supply chain. “It will not only bring you to your knees [today], but

you will pay for a long time-because you just won’t have any credibility if you

demonstrate you are going to go [off] the political deep end. And China is just now

starting to develop a level of credibility in the business community that it is

creating a business environment you can prosper in-with transparent and consistent

rules.” Neland said that suppliers regularly ask him whether he is worried about China

and Taiwan, which have threatened to go to war at several points in the past half

century, but his standard response is that he cannot imagine them “doing anything

more than flexing muscles with each other.” Neland said he can tell in his

conversations and dealings with companies and governments in the Dell supply chain,

particularly the Chinese, that “they recognize the opportunity and are really hungry

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to participate in the same things they have seen other countries in Asia do. They

know there is a big economic pot at the end of the rainbow and they are really after

it. We will spend about $35 billion producing parts this year, and 30 percent of that

is [in] China.”

If you follow the evolution of supply chains, added Neland, you see the prosperity

and stability they promoted first in Japan, and then in Korea and Taiwan, and now

in Malaysia, Singapore, the Philippines, Thailand, and Indonesia. Once countries get

embedded in these global supply chains, “they feel part of something much bigger than

their own businesses,” he said. Osamu Watanabe, the CEO of the Japan External Trade

Organization (JETRO), was explaining to me one afternoon in Tokyo how Japanese

companies were moving vast amounts of low- and middle-range technical work and

manufacturing to China, doing the basic fabrication there, and then bringing it back

to Japan for final assembly. Japan was doing this despite a bitter legacy of mistrust

between the two countries, which was intensified by the Japanese invasion of China

in the last century. Historically, he noted, a strong Japan and a strong

China have had a hard time coexisting. But not today, at least not for the moment.

Why not? I asked. The reason you can have a strong Japan and a strong China at the

same time, he said, “is because of the supply chain.” It is a win-win for both.

Obviously, since Iraq, Syria, south Lebanon, North Korea, Pakistan, Afghanistan, and

Iran are not part of any major global supply chains, all of them remain hot spots

that could explode at any time and slow or reverse the flattening of the world. As

my own notebook story attests, the most important test case of the Dell Theory of

Conflict Prevention is the situation between China and Taiwan-since both are deeply

embedded in several of the world’s most important computer, consumer electronics,

and, increasingly, software supply chains. The vast majority of computer components

for every major company comes from coastal China, Taiwan, and East Asia. In addition,

Taiwan alone has more than $100 billion in investments in mainland China today, and

Taiwanese experts run many of the cutting-edge Chinese high-tech manufacturing

companies.

It is no wonder that Craig Addison, the former editor of Electronic Business Asia

magazine, wrote an essay for the International Herald Tribune (September 29, 2000),

headlined “A ‘Silicon Shield’ Protects Taiwan from China.” He argued that

“Silicon-based products, such as computers and networking systems, form the basis

of the digital economies in the United States, Japan and other developed nations.

In the past decade, Taiwan has become the third-largest information technology

hardware producer after the United States and Japan. Military aggression by China

against Taiwan would cut off a large portion of the world’s supply of these

products . . . Such a development would wipe trillions of dollars off the market value

of technology companies listed in the United States, Japan and Europe.” Even if

China’s leaders, like former president Jiang Zemin, who was once minister of

electronics, lose sight of how integrated China and Taiwan are in the world’s computer

supply chain, they need only ask their kids for an update. Jiang Zemin’s son, Jiang

Mianheng, wrote Addison, “is a partner in a wafer fabrication project in Shanghai

with Winston Wang of Taiwan’s Grace T.H.W. Group.” And it is not just Taiwanese.

Hundreds of big American tech companies now have R & D operations in China; a war

that disrupted them could

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lead not only to the companies moving their plants elsewhere but also to a significant

loss of R & D investment in China, which the Beijing government has been betting on

to advance its development. Such a war could also, depending on how it started, trigger

a widespread American boycott of Chinese goods-if China were to snuff out the

Taiwanese democracy-which would lead to serious economic turmoil inside China.

The Dell Theory had its first real test in December 2004, when Taiwan held

parliamentary elections. President Chen Shui-bian’s pro-independence Democratic

Progressive Party was expected to win the legislative runoff over the main opposition

Nationalist Party, which favored closer ties with Beijing. Chen framed the election

as a popular referendum on his proposal to write a new constitution that would formally

enshrine Taiwan’s independence, ending the purposely ambiguous status quo. Had Chen

won and moved ahead on his agenda to make Taiwan its own motherland, as opposed to

maintaining the status quo fiction that it is a province of the mainland, it could

have led to a Chinese military assault on Taiwan. Everyone in the region was holding

his or her breath. And what happened? Motherboards won over motherland. A majority

of Taiwanese voted against the pro-independence governing party legislative

candidates, ensuring that the DPP would not have a majority in parliament. I believe

the message Taiwanese voters were sending was not that they never want Taiwan to be

independent. It was that they do not want to upset the status quo right now, which

has been so beneficial to so many Taiwanese. The voters seemed to understand clearly

how interwoven they had become with the mainland, and they wisely opted to maintain

their de facto independence rather than force de jure independence, which might have

triggered a Chinese invasion and a very uncertain future.

Warning: What I said when I put forth the McDonald’s theory, I would repeat even more

strenuously with the Dell Theory: It does not make wars obsolete. And it does not

guarantee that governments will not engage in wars of choice, even governments that

are part of major supply chains. To suggest so would be naive. It guarantees only

that governments whose countries are enmeshed in global supply chains will have

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to think three times, not just twice, about engaging in anything but a war of

self-defense. And if they choose to go to war anyway, the price they will pay will

be ten times higher than it was a decade ago and probably ten times higher than whatever

the leaders of that country think. It is one thing to lose your McDonald’s. It’s quite

another to fight a war that costs you your place in a twenty-first-century supply

chain that may not come back around for a long time.

While the biggest test case of the Dell Theory is China versus Taiwan, the fact is

that the Dell Theory has already proved itself to some degree in the case of India

and Pakistan, the context in which I first started to think about it. I happened to

be in India in 2002, when its just-in-time services supply chains ran into some very

old-time geopolitics-and the supply chain won. In the case of India and Pakistan,

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the Dell Theory was working on only one party-India-but it still had a major impact.

India is to the world’s knowledge and service supply chain what China and Taiwan are

to the manufacturing ones. By now readers of this book know all the highlights: General

Electric’s biggest research center outside the United States is in Bangalore, with

seventeen hundred Indian engineers, designers, and scientists. The brain chips for

many brand-name cell phones are designed in Bangalore. Renting a car from Avis online?

It’s managed in Bangalore. Tracing your lost luggage on Delta or British Airways is

done from Bangalore, and the backroom accounting and computer maintenance for scores

of global firms are done from Bangalore, Mumbai, Chennai, and other major Indian

cities. Here’s what happened: On May 31, 2002, State Department spokesman Richard

Boucher issued a travel advisory saying, “We urge American citizens currently in India

to depart the country,” because the prospect of a nuclear exchange with Pakistan was

becoming very real. Both nations were massing troops on their borders, intelligence

reports were suggesting that they both might be dusting off their nuclear warheads,

and CNN was flashing images of people flooding out of India. The global American firms

that had moved their back rooms and R & D operations to Bangalore were deeply unnerved.

“I was actually surfing on the Web, and I saw a travel advisory come up on India on

a Friday evening/’ said Vivek Paul, president of Wipro, which manages backroom

operations from India of many American multinationals. “As soon as I saw that, I said,

‘Oh my gosh, every customer that we have is going to have a million questions on this.’

It was the Friday before a long weekend, so over the weekend we at Wipro developed

a fail-safe business continuity plan for all of our customers.” While Wipro’s

customers were pleased to see how on top of things the company was, many of them were

nevertheless rattled. This was not in the plan when they decided to outsource

mission-critical research and operations to India. Said Paul, “I had a CIO from one

of our big American clients send me an e-mail saying, 1 am now spending a lot of time

looking for alternative sources to India. I don’t think you want me doing that, and

I don’t want to be doing it.’ I immediately forwarded his message to the Indian

ambassador in Washington and told him to get it to the right person.” Paul would not

tell me what company it was, but I have confirmed through diplomatic sources that

it was United Technologies. And plenty of others, like American Express and General

Electric, with back rooms in Bangalore, had to have been equally worried.

For many global companies, “the main heart of their business is now supported here,”

said N. Krishnakumar, president of MindTree, another leading Indian knowledge

outsourcing firm based in Bangalore. “It can cause chaos if there is a disruption.”

While not trying to meddle in foreign affairs, he added, “What we explained to our

government, through the Confederation of Indian Industry, is that providing a stable,

predictable operating environment is now the key to India’s development.” This was

a real education for India’s elderly leaders in New Delhi, who had not fully absorbed

how critical India had become to the world’s knowledge supply chain. When you are

managing vital backroom operations for American Express or General Electric or Avis,

or are responsible for tracing all the lost luggage on British Airways or Delta, you

cannot take a month, a week, or even a day off for war without causing major disruptions

for those companies. Once those companies have made a commitment to outsource business

operations or research to India, they expect it to stay there. That is a major

commitment. And if geopolitics

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causes a serious disruption, they will leave, and they will not come back very easily.

When you lose this kind of service trade, you can lose it for good.

“What ends up happening in the flat world you described,” explained Paul, “is that

you have only one opportunity to make it right if something [goes] wrong. Because

the disadvantage of being in a flat world is that despite all the nice engagements

and stuff and the exit barriers that you have, every customer has multiple options,

and so the sense of responsibility you have is not just out of a desire to do good

by your customers, but also a desire for self-preservation.”

The Indian government got the message. Was India’s central place in the world’s

services supply chain the only factor in getting Prime Minister Vajpayee to tone down

his rhetoric and step back from the brink? Of course not. There were other factors,

to be sure-most notably the deterrent effect of Pakistan’s own nuclear arsenal. But

clearly, India’s role in global services was an important additional source of

restraint on its behavior, and it was taken into account by New Delhi. “I think it

sobered a lot of people,” said Jerry Rao, who, as noted earlier, heads the Indian

high-tech trade association. “We engaged very seriously, and we tried to make the

point that this was very bad for Indian business. It was very bad for the Indian

economy . . . [Many people] didn’t realize till then how suddenly we had become

integrated into the rest of the world. We are now partners in a twenty-four by seven

by three-sixty-five supply chain.”

Vivek Kulkami, then information technology secretary for Bangalore’s regional

government, told me back in 2002, “We don’t get involved in politics, but we did bring

to the government’s attention the problems the Indian IT industry might face if there

were a war.” And this was an altogether new factor for New Delhi to take into

consideration. “Ten years ago, [a lobby of IT ministers from different Indian states]

never existed,” said Kulkarni. Now it is one of the most important business lobbies

in India and a coalition that no Indian government can ignore.

“With all due respect, the McDonald’s [shutting] down doesn’t hurt anything,” said

Vivek Paul, “but if Wipro had to shut down we would af-

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feet the day-to-day operations of many, many companies.” No one would answer the

phones in call centers. Many e-commerce sites that are supported from Bangalore would

shut down. Many major companies that rely on India to maintain their key computer

applications or handle their human resources departments or billings would seize up.

And these companies did not want to find alternatives, said Paul. Switching is very

difficult, because taking over mission-critical day-to-day backroom operations of

a global company takes a great deal of training and experience. It’s not like opening

a fast-food restaurant. That was why, said Paul, Wipro’s clients were telling him,

“‘I have made an investment in you. I need you to be very responsible with the trust

I have reposed in you.’ And I think that created an enormous amount of back pressure

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on us that said we have to act in a responsible fashion … All of a sudden it became

even clearer that there’s more to gain by economic gains than by geopolitical gains.

[We had more to gain from building] a vibrant, richer middle class able to create

an export industry than we possibly could by having an ego-satisfying war with

Pakistan.” The Indian government also looked around and realized that the vast

majority of India’s billion people were saying, “I want a better future, not more

territory.” Over and over again, when I asked young Indians working at call centers

how they felt about Kashmir or a war with Pakistan, they waved me off with the same

answer: “We have better things to do.” And they do. America needs to keep this in

mind as it weighs its overall approach to outsourcing. I would never advocate shipping

some American’s job overseas just so it will keep Indians and Pakistanis at peace

with each other. But I would say that to the extent that this process happens, driven

by its own internal economic logic, it will have a net positive geopolitical effect.

It will absolutely make the world safer for American kids.

Each of the Indian business leaders I interviewed noted that in the event of some

outrageous act of terrorism or aggression from Pakistan, India would do whatever it

takes to defend itself, and they would be the first to support that-the Dell Theory

be damned. Sometimes war is unavoidable. It is imposed on you by the reckless behavior

of others, and you have to just pay the price. But the more India and, one hopes,

soon Pakistan get enmeshed in global service supply chains, the greater disin-

centive they have to fight anything but a border skirmish or a war of words.

The example of the 2002 India-Pakistan nuclear crisis at least gives us some hope.

That cease-fire was brought to us not by General Powell but by General Electric.

We bring good things to life.

Infosys Versus al-Qaeda

Unfortunately, even GE can do only so much. Because, alas, a new source for

geopolitical instability has emerged only in recent years, for which even the updated

Dell Theory can provide no restraint. It is the emergence of mutant global supply

chains -that is, nonstate actors, be they criminals or terrorists, who learn to use

all the elements of the flat world to advance a highly destabilizing, even nihilistic

agenda. I first started thinking about this when Nandan Nilekani, the Infosys CEO,

was giving me that tour I referred to in Chapter 1 of his company’s global

videoconferencing center at its Bangalore headquarters. As Nandan explained to me

how Infosys could get its global supply chain together at once for a virtual conference

in that room, a thought popped into my head: Who else uses open-sourcing and

supply-chaining so imaginatively? The answer, of course, is al-Qaeda.

Al-Qaeda has learned to use many of the same instruments for global collaboration

that Infosys uses, but instead of producing products and profits with them, it has

produced mayhem and murder. This is a particularly difficult problem. In fact, it

may be the most vexing geopolitical problem for flat-world countries that want to

focus on the future. The flat world-unfortunately-is a friend of both Infosys and

al-Qaeda. The Dell Theory will not work at all against these informal Islamo-Leninist

terror networks, because they are not a state with a population that will hold its

leaders accountable or with a domestic business lobby that might restrain them. These

mutant global supply chains are formed for the purpose of destruction, not profit.

They don’t need investors, only recruits,

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donors, and victims. Yet these mobile, self-financing mutant supply chains use all

the tools of collaboration offered by the flat world-open-sourcing to raise money,

to recruit followers, and to stimulate and disseminate ideas; outsourcing to train

recruits; and supply-chaining to distribute the tools and the suicide bombers to

undertake operations. The U.S. Central Command has a name for this whole underground

network: the Virtual Caliphate. And its leaders and innovators understand the flat

world almost as well as Wal-Mart, Dell, and Infosys do.

In the previous chapter, I tried to explain that you cannot understand the rise of

al-Qaeda emotionally and politically without reference to the flattening of the world.

What I am arguing here is that you cannot understand the rise of al-Qaeda technically

without reference to the flattening of the world, either. Globalization in general

has been al-Qaeda’s friend in that it has helped to solidify a revival of Muslim

identity and solidarity, with Muslims in one country much better able to see and

sympathize with the struggles of their brethren in another country-thanks to the

Internet and satellite television. At the same time, as pointed out in the previous

chapter, this flattening process has intensified the feelings of humiliation in some

quarters of the Muslim world over the fact that civilizations to which the Muslim

world once felt superior-Hindus, Jews, Christians, Chinese – are now all doing better

than many Muslim countries, and everyone can see it. The flattening of the world has

also led to more urbanization and large-scale immigration to the West of many of these

young, unemployed, frustrated Arab-Muslim males, while simultaneously making it much

easier for informal open-source networks of these young men to form, operate, and

interconnect. This certainly has been a boon for underground extremist Muslim

political groups. There has been a proliferation of these informal mutual supply

chains throughout the Arab-Muslim world today-small networks of people who move money

through hawalas (hand-to-hand financing networks), who recruit through alternative

education systems like the madrassas, and who communicate through the Internet and

other tools of the global information revolution. Think about it: A century ago,

anarchists were limited in their ability to communicate and collaborate with one

another, to find sympathizers, and to band together for an

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operation. Today, with the Internet, that is not a problem. Today even the Unabomber

could find friends to join a consortium where his “strengths” could be magnified and

reinforced by others who had just as warped a worldview as he did.

What we have witnessed in Iraq is an even more perverse mutation of this mutant supply

chain-the suicide supply chain. Since the start of the U.S. invasion in March 2002,

more than two hundred suicide bombers have been recruited from within Iraq and from

across the Muslim world, brought to the Iraqi front by some underground railroad,

connected with the bomb makers there, and then dispatched against U.S. and Iraqi

targets according to whatever suits the daily tactical needs of the insurgent Islamist

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forces in Iraq. I can understand, but not accept, the notion that more than

thirty-seven years of Israeli occupation of the West Bank might have driven some

Palestinians into a suicidal rage. But the American occupation of Iraq was only a

few months old before it started to get hit by this suicide supply chain. How do you

recruit so many young men “off the shelf” who are ready to commit suicide in the cause

of jihad, many of them apparently not even Iraqis? And they don’t even identify

themselves by name or want to get credit-at least in this world. The fact is that

Western intelligence agencies have no clue how this underground suicide supply chain,

which seems to have an infinite pool of recruits to draw on, works, and yet it has

basically stymied the U.S. armed forces in Iraq. From what we do know, though, this

Virtual Caliphate works just like the supply chains I described earlier. Just as you

take an item off the shelf in a discount store in Birmingham and another one is

immediately made in Beijing, so the retailers of suicide deploy a human bomber in

Baghdad and another one is immediately recruited and indoctrinated in Beirut. To the

extent that this tactic spreads, it will require a major rethinking of U.S. military

doctrine.

The flat world has also been such a huge boon for al-Qaeda and its ilk because of

the way it enables the small to act big, and the way it enables small acts-the killing

of just a few people-to have big effects. The horrific video of the beheading of Wall

Street Journal reporter Danny Pearl by Islamist militants in Pakistan was transmitted

by the Internet all over the world. There is not a journalist anywhere who saw or

even just read

about that who was not terrified. But those same beheading videos are also used as

tools of recruitment. The flat world makes it much easier for terrorists to transmit

their terror. With the Internet they don’t even have to go through Western or Arab

news organizations but can broadcast right into your computer. It takes much less

dynamite to transmit so much more anxiety. Just as the U.S. Army had embedded

journalists, so the suicide supply chain has embedded terrorists, in their own way,

to tell us their side of the story. How many times have I gotten up in the morning,

fired up the Internet, and been confronted by the video image of some masked gunman

threatening to behead an American-all brought to me courtesy of AOL’s home page? The

Internet is an enormously useful tool for the dissemination of propaganda, conspiracy

theories, and plain old untruths, because it combines a huge reach with a patina of

technology that makes anything on the Internet somehow more believable. How many times

have you heard someone say, “But I read it on the Internet,” as if that should end

the argument? In fact, the Internet can make things worse. It often leads to more

people being exposed to crazy conspiracy theories.

“The new system of diffusion-the Internet-is more likely to transmit irrationality

than rationality,” said political theorist Yaron Ezrahi, who specializes in the

interaction between media and politics. “Because irrationality is more emotionally

loaded, it requires less knowledge, it explains more to more people, it goes down

easier.” That is why conspiracy theories are so rife in the Arab-Muslim world

today-and unfortunately are becoming so in many quarters of the Western world, for

that matter. Conspiracy theories are like a drug that goes right into your bloodstream,

enabling you to see “the Light.” And the Internet is the needle. Young people used

to have to take LSD to escape. Now they just go online. Now you don’t shoot up, you

download. You download the precise point of view that speaks to all your own biases.

And the flat world makes it all so much easier.

Gabriel Weimann, a professor of communication at Haifa University, Israel, did an

incisive study of terrorists’ use of the Internet and of what I call the flat world,

which was published in March 2004 by the United States Institute of Peace and excerpted

on YaleGlobal Online on April 26, 2004. He made the following points:

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While the danger that cyber-terrorism poses to the Internet is frequently debated,

surprisingly little is known about the threat posed by terrorists’ use of the Internet.

A recent six-year-long study shows that terrorist organizations and their supporters

have been using all of the tools that the Internet offers to recruit supporters, raise

funds, and launch a worldwide campaign of fear. It is also clear that to combat

terrorism effectively, mere suppression of their Internet tools is not enough. Our

scan of the Internet in 2003-04 revealed the existence of hundreds of websites serving

terrorists in different, albeit sometimes overlapping, ways. . . There are countless

examples of how [terrorists] use this uncensored medium to spread disinformation,

to deliver threats intended to instill fear and helplessness, and to disseminate

horrific images of recent actions. Since September 11, 2001, al-Qaeda has festooned

its websites with a string of announcements of an impending “large attack” on US

targets. These warnings have received considerable media coverage, which has helped

to generate a widespread sense of dread and insecurity among audiences throughout

the world and especially within the United States . . .

The Internet has significantly expanded the opportunities for terrorists to secure

publicity. Until the advent of the Internet, terrorists’ hopes of winning publicity

for their causes and activities depended on attracting the attention of television,

radio, or the print media. The fact that terrorists themselves have direct control

over the content of their websites offers further opportunities to shape how they

are perceived by different target audiences and to manipulate their image and the

images of their enemies. Most terrorist sites do not celebrate their violent

activities. Instead- regardless of their nature, motives, or location-most terrorist

sites emphasize two issues: the restrictions placed on freedom of expression; and

the plight of their comrades who are now political prisoners. These issues resonate

powerfully with their own supporters and are also calculated to elicit sympathy from

Western audiences that cherish freedom of expression and frown on measures to silence

political opposition . . .

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Terrorists have proven not only skillful at online marketing but also adept at mining

the data offered by the billion-some pages of the World Wide Web. They can learn from

the Internet about the schedules and locations of targets such as transportation

facilities, nuclear power plants, public buildings, airports and ports, and even

counterterrorism measures. According to Secretary of Defense Donald Rumsfeld, an

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al-Qaeda training manual recovered in Afghanistan tells its readers, “Using public

sources openly and without resorting to illegal means, it is possible to gather at

least 80 percent of all information required about the enemy.” One captured al-Qaeda

computer contained engineering and structural architecture features of a dam, which

had been downloaded from the Internet and which would enable al-Qaeda engineers and

planners to simulate catastrophic failures. In other captured computers, U.S.

investigators found evidence that al-Qaeda operators spent time on sites that offer

software and programming instructions for the digital switches that run power, water,

transportation, and communications grids.

Like many other political organizations, terrorist groups use the Internet to raise

funds. Al-Qaeda, for instance, has always depended heavily on donations, and its

global fundraising network is built upon a foundation of charities, nongovernmental

organizations, and other financial institutions that use websites and Internet-based

chat rooms and forums. The fighters in the Russian breakaway republic of Chechnya

have likewise used the Internet to publicize the numbers of bank accounts to which

sympathizers can contribute. And in December 2001, the U.S. government seized the

assets of a Texas-based charity because of its ties to Hamas.

In addition to soliciting financial aid online, terrorists recruit converts by using

the full panoply of website technologies (audio, digital video, etc.) to enhance the

presentation of their message. And like commercial sites that track visitors to

develop consumer profiles, terrorist organizations capture information about the

users who browse their websites. Visitors who seem most inter-

ested in the organization’s cause or well suited to carrying out its work are then

contacted. Recruiters may also use more interactive Internet technology to roam

online chat rooms and cyber cafes, looking for receptive members of the public,

particularly young people. The SITE Institute, a Washington, D.C.-based terrorism

research group that monitors al-Qaeda’s Internet communications, has provided

chilling details of a high-tech recruitment drive launched in 2003 to recruit fighters

to travel to Iraq and attack U.S. and coalition forces there. The Internet also grants

terrorists a cheap and efficient means of networking. Many terrorist groups, among

them Hamas and al-Qaeda, have undergone a transformation from strictly hierarchical

organizations with designated leaders to affiliations of semi-independent cells that

have no single commanding hierarchy. Through the Internet, these loosely

interconnected groups are able to maintain contact with one another-and with members

of other terrorist groups. The Internet connects not only members of the same

terrorist organizations but also members of different groups. For instance, dozens

of sites supporting terrorism in the name of jihad permit terrorists in places as

far-removed from one another as Chechnya and Malaysia to exchange ideas and practical

information about how to build bombs, establish terror cells, and carry out

attacks . . . Al-Qaeda operatives relied heavily on the Internet in planning and

coordinating the September 11 attacks.

For all of these reasons we are just at the beginning of understanding the geopolitical

impact of the flattening of the world. On the one hand, failed states and failed

regions are places we have every incentive to avoid today. They offer no economic

opportunity and there is no Soviet Union out there competing with us for influence

over such countries. On the other hand, there may be nothing more dangerous today

than a failed state with broadband capability. That is, even failed states tend to

have telecommunications systems and satellite links, and therefore if a terrorist

group infiltrates a failed state, as al-Qaeda did with Afghanistan, it can amplify

its power enormously. As much as big powers want to stay away

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from such states, they may feel compelled to get even more deeply embroiled in them.

Think of America in Afghanistan and Iraq, Russia in Chechnya, Australia in East Timor.

In the flat world it is much more difficult to hide, but much easier to get connected.

“Think of Mao at the beginning of the Chinese communist revolution,” remarked Michael

Mandelbaum, the Johns Hopkins foreign policy specialist. “The Chinese Communists had

to hide in caves in northwest China, but they could move around in whatever territory

they were able to control. Bin Laden, by contrast, can’t show his face, but he can

reach every household in the world, thanks to the Internet.” Bin Laden cannot capture

any territory but he can capture the imagination of millions of people. And he has,

broadcasting right into American living rooms on the eve of the 2004 presidential

election.

Hell hath no fury like a terrorist with a satellite dish and an interactive Web site.

Too Personally Insecure

In the fall of 2004,1 was invited to speak at a synagogue in Woodstock, New York,

home of the famous Woodstock music festival. I asked my hosts how was it that they

were able to get a synagogue in Woodstock, of all places, big enough to support a

lecture series. Very simple, they said. Since 9/11, Jews, and others, have been moving

from New York City to places like Woodstock, to get away from what they fear will

be the next ground zero. Right now this trend is a trickle, but it would become a

torrent if a nuclear device were detonated in any European or American city.

Since this threat is the mother of all unflatteners, this book would not be complete

without a discussion of it. We can live with a lot. We lived through 9/11. But we

cannot live with nuclear terrorism. That would un-flatten the world permanently.

The only reason that Osama bin Laden did not use a nuclear device on 9/11 was not

that he did not have the intention but that he did not

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have the capability. And since the Dell Theory offers no hope of restraining the

suicide supply chains, the only strategy we have is to limit their worst capabilities.

That means a much more serious global effort to stanch nuclear proliferation by

limiting the supply-to buy up the fissile material that is already out there,

particularly in the former Soviet Union, and prevent more states from going nuclear.

Harvard University international affairs expert Graham Allison, in his book Nuclear

Terrorism: The Ultimate Preventable Catastrophe, outlines just such a strategy for

denying terrorists access to nuclear weapons and nuclear materials. It can be done,

he insists. It is a challenge to our will and convictions, but not to our capabilities.

Allison proposes a new American-led international security order to deal with this

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problem based on what he calls “a doctrine of the Three No’s: No loose nukes, No new

nascent nukes, and No new nuclear states.” No loose nukes, says Allison, means locking

down all nuclear weapons and all nuclear material from which bombs could be made-in

a much more serious way than we have done up till now. “We don’t lose gold from Fort

Knox,” says Allison. “Russia doesn’t lose treasures from the Kremlin armory. So we

both know how to prevent theft of those things that are super valuable to us if we

are determined to do it.” No new nascent nukes means recognizing that there is a group

of actors out there who can and do produce highly enriched uranium or plutonium, which

is nothing more than nuclear bombs just about to hatch. We need a much more credible,

multilateral nonprolif-eration regime that soaks up this fissile material. Finally,

no new nuclear states means “drawing a line under the current eight nuclear powers

and determining that, however unfair and unreasonable it may be, that club will have

no more members than those eight,” says Allison, adding that these three steps might

then buy us time to develop a more formal, sustainable, internationally approved

regime.

It would be nice also to be able to deny the Internet to al-Qaeda and its ilk, but

that, alas, is impossible-without undermining ourselves. That is why limiting their

capabilities is necessary but not sufficient. We also have to find a way to get at

their worst intentions. If we are not going to shut down the Internet and all the

other creative and collaborative tools that have flattened the world, and if we can’t

restrict access to them,

the only thing we can do is try to influence the imagination and intentions that people

bring to them and draw from them. When I raised this issue, and the broad themes of

this book, with my religious teacher, Rabbi Tzvi Marx from Holland, he surprised me

by saying that the flat world I was describing reminded him of the story of the Tower

of Babel.

How so? I asked. “The reason God banished all the people from the Tower of Babel and

made them all speak different languages was not because he did not want them to

collaborate per se,” answered Rabbi Marx. “It was because he was enraged at what they

were collaborating on-an effort to build a tower to the heavens so they could become

God.” This was a distortion of the human capacity, so God broke their union and their

ability to communicate with one another. Now, all these years later, humankind has

again created a new platform for more people from more places to communicate and

collaborate with less friction and more ease than ever: the Internet. Would God see

the Internet as heresy?

“Absolutely not,” said Marx. “The heresy is not that mankind works together-it is

to what ends. It is essential that we use this new ability to communicate and

collaborate for the right ends-for constructive human aims and not megalomaniacal

ends. Building a tower was megalo-maniacal. Bin Laden’s insistence that he has the

truth and can flatten anyone else’s tower who doesn’t heed him is megalomaniacal.

Collaborating so mankind can achieve its full potential is God’s hope.”

How we promote more of that kind of collaboration is what the final chapter is all

about.

::::: Conclusion: Imagination

::::: THIRTEEN

11/9 Versus 9/11

Imagination is more important than knowledge.

-Albert Einstein

On the Internet, nobody knows you’re a dog.

-Two dogs talking to each other, in a New Yorker cartoon by Peter Steiner, July 5,

1993

Reflecting on this past decade and a half, during which the world went flat, it strikes

me that our lives have been powerfully shaped by two dates: 11/9 and 9/11. These two

dates represent the two competing forms of imagination at work in the world today:

the creative imagination of 11/9 and the destructive imagination of 9/11. One brought

down a wall and opened the windows of the world-both the operating system and the

kind we look through. It unlocked half the planet and made the citizens there our

potential partners and competitors. Another brought down the World Trade Center,

closing its Windows on the World restaurant forever and putting up new invisible and

concrete walls among people at a time when we thought 11 The dismantling of the Berlin

Wall on 11/9 was brought about by people who dared to imagine a different, more open

world-one where every human being would be free to realize his or her full potential

– and who then summoned the courage to act on that imagination. Do

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you remember how it happened? It was so simple, really: In July 1989, hundreds of

East Germans sought refuge at the West German embassy in Hungary. In September 1989,

Hungary decided to remove its border restrictions with Austria. That meant that any

East German who got into Hungary could pass through to Austria and the free world.

Sure enough, more than thirteen thousand East Germans escaped through Hungary’s back

door. Pressure built up on the East German government. When in November it announced

plans to ease travel restrictions, tens of thousands of East Germans converged on

the Berlin Wall, where, on 11/9/89, border guards just opened the gates.

Someone there in Hungary, maybe it was the prime minister, maybe it was just a

bureaucrat, must have said to himself or herself, “Imagine- imagine what might happen

if we opened the border with Austria.” Imagine if the Soviet Union were frozen in

place. Imagine-imagine if East German citizens, young and old, men and women, were

so emboldened by seeing their neighbors flee to the West that one day they just swarmed

that Berlin Wall and started to tear it down? Some people must have had a conversation

just like that, and because they did, millions of Eastern Europeans were able to walk

out from behind the Iron Curtain and engage with a flattening world. It was a great

era in which to be an American. We were the only superpower, and the world was our

oyster. There were no walls. Young Americans could think about traveling, for a

semester or a summer, to more countries than any American generation before them.

Indeed, they could travel as far as their imagination and wallets could take them.

They could also look around at their classmates and see people from more different

countries and cultures than any other class before them.