The Lexus and the Olive Tree

Thomas L. Friedman
Farrar, Straus, and Giroux, New York, 1999, $27.50 US

Friedman's ambitious book seeks to describe the future of the world as new systems and institutions fill the vacuum left by the Cold War. It is a very thought-provoking analysis, as well as an entertaining read due in no small part to its pervasive use of anecdotes. Most of these stories are personal experiences gleaned from Friedman's many trips abroad; others are experiences of friends. He has an extensive background in international affairs, starting as a reporter in the Middle East, and then progressing to several jobs with the New York Times including diplomatic correspondent, a post integrating foreign affairs with economics, and then his present position of foreign affairs columnist.

Friedman's thesis is that globalization is replacing the bipolar Cold War internationally. Globalization includes the diffusion of Western values and culture worldwide, but its main component is the global financial community (The Electronic Herd). Friedman convincingly argues that real power rests with the Herd, which imposes its values upon countries which are the recipients of investment.

This scenario had its historical roots in innovations in both financial instruments and technology. Michael Milken invented junk bonds in the 80's, bundling multiple speculative bonds to reduce the impact of any single company failure. Similar financial instruments now enable investors to buy the debt of countries; instead of a few bankers or the IMF, this debt is now owned by many individual and institutional investors.

The technological ingredient is the innovation in computers and communication exemplified by the world wide web. This technology enables the Herd to be in constant communication; the feedback caused by global connection can cause an instant panic in which the Herd stampedes, selling the bonds of a particular country en masse. Indeed, sometimes unrelated events can result in large fluctuations in markets when losses in one area necessitate selling another area to raise the money to cover losses.

The success of any country depends on their ability to play the game with the new rules of globalization. The country perhaps best equipped to thrive under these rules is the USA, and certainly recent economic developments there support this argument. Countries without a long tradition of capitalism, personal freedom, a free press, etc., find much more difficulty; the recent difficulties of S. Korea, Indonesia, and Russia are examples.

To this reviewer, the most interesting consequences of globalization concern morality and religion. The demands of the Electronic Herd have staggering implications, both for societal values and behavior, and for the domestic and international future of certain religions such as Islam. We will say more about this below.

Friedman argues that the Electronic Herd can make or break an economy in one day by buying or selling stocks, bonds, and currency. If they get nervous, your country can be in a lot of trouble, as we recently saw in the case of numerous Asian countries. To keep them happy, the Herd makes multiple demands, among which are capitalism, transparency and the rule of law.

The implications of these demands are profound. If your country comes up seriously short in one or more of these departments, the Herd will choose to invest elsewhere, to your detriment.

Considering these properties one at a time, it is clear that capitalism is pervasive worldwide, and only a few countries lack it. Such is not the case for the other demands of the Herd.

Transparency is codified in the USA in the SEC regulations which force companies to reveal information which could affect their stock prices. Globalization is forcing other countries to align their policies in this area more closely with the US position. With inadequate information, investment is too risky. Surprises are bad for both the Herd and the country; when bad news emerges, events like a currency meltdown can ensue, a consequence which could be avoided with greater transparency.

A good legal system is also necessary for greater Herd investment. Corruption adds significantly to the cost of doing business in countries where that is a problem. The result is lower investment, since the Herd prefers to invest where overall business costs are lower.

So far things sound pretty rosy; everyone plays along with the Western values of the Herd, and the world economy booms. That brings us to the title of the book. The Lexus is the symbol of world economic production and globalization. The Olive Tree represents community, land, and tradition, the opposing force. Tremendous tensions arise as countries try to transform themselves from their previous incarnations into Herd-approved recipients of international investment.

Friedman does not sugar-coat the problem, but he is generally optimistic that most countries and their populations can make this transition. A couple of problems are addressed in detail in the book. He pretty convincingly casts the terrorist problem as a reaction to globalization. His analysis of distributional inequities is less convincing to me.

As many residents of the US know, the gap between the richest and poorest segments of our society has been widening in recent decades. What most of us probably did not know is that the same thing is true in many foreign countries. It is essential that the lower economic classes see improvement, hope, and a future or they may revolt against their political leadership and set back globalization.

Friedman argues that the globalization of world markets means we are in a winner-take-all economy. He uses the example of Michael Jordan, whose basketball exploits and especially international marketing enabled him to make more from endorsements than from playing basketball. Contrasting him with his teammates making the NBA minimum wave of about a quarter million dollars does illustrate a range of incomes, but not necessarily the root of the problem, in my opinion. It seems to me that winners selling to the global economy really don't explain the majority of this phenomena. It is true that kids the world over who might be buying jerseys for their local sports teams instead buy Michael Jordan shirts or Chicago Bulls shirts, so the effect does exist.

Friedman does address the inequities resulting when countries are forced to cut their level of spending to maintain responsible budgeting and satisfy the Herd. Countries may make their cuts in the area of social spending, with disproportionate impact on the lowest-income citizens. Of course people who are not equipped by either aptitude or education for work in the information economy will not benefit directly from globalization, and in fact may suffer.

He gives a cogent political analysis based on two axes: the separatist/integrationist axis, and the social safety net/let-them-eat-cake axis. His prescriptions are pretty much on target, in my opinion.

With this summary of the book in mind, let us turn to the impact of these events on personal and corporate morality and religion. I believe we can draw some very interesting and even encouraging conclusions from the thesis of book.

From the perspective of moral philosophy, the attributes of the Herd, while based on pure capitalism, represent a step up. While transparency isn't always considered a moral issue, a lack of transparency greatly facilitates deception and then may encourage lying to support the deception. Lying is one of this reviewer's favorite subjects, and is in my opinion best analyzed in the best-selling book of the same title by Sissela Bok (1978, reprinted 1989). From a purely secular philosophical viewpoint, Bok argues convincingly that virtually no lying is justified. Consult Bok for voluminous consequences of lying; great transparency is pretty much incompatible with lying.

The Herd requires the rule of law to exist in a country to sufficient level to support doing business with minimal corruption. Clearly, great benefits can ensue to the populace as a whole when efforts are made to reform an inadequate legal system. The moral benefits of increased justice are obvious.

One attribute of the Herd is forgiveness, something the world needs a lot of in this era of ethnic cleansing. No, the Herd doesn't forgive in the ordinary sense, but it is perfectly willing to jump right back into a country in which it was seriously burned quite recently if certain steps are taken (and the price is right). That was demonstrated in the Asian economic problems of 1997; at this writing in 1999, these Asian economies are recovering, and investment is flowing in (including some of my own).

There are other miscellaneous benefits of the global economy. Friedman relates a story in which an executive of Teledyne was approached by a Russian entrepreneur about a joint venture. The American asked if the Russian had paid his taxes (not a common practice in Russia). Upon finding that he had not, he informed him that as a public company, his auditors would not permit any subsidiary to be in arrears. This put pressure on the Russian to either pay taxes or forego a possible advantageous laison with a global economic power.

Obviously, forcing the legal system and the business community to improve their ethics doesn't automatically filter down to the personal behavior of an entire country, but it certainly can't hurt. When certain behaviors are illegal in one context, it can only make people think a little bit more about their ramifications in other areas.

Finally, what about Islamic Fundamentalism? This ideology is completely incompatible with globalization, and if you believe in globalization, Islamic Fundamentalism is in trouble. There are many reasons for this, but among them are the invasion of American culture as shown on TV and by Hollywood. The Western standard of living is shown in the context of political tolerance, women's rights, and individual freedoms. It may be hard for the Mullahs to maintain control in the face of popular discontent when viewers compare their situation to that in the US. This is why it is illegal in Iran to watch Western television (a widely skirted regulation).

There are many other problems with Islamic Fundamentalism. In extreme fundamentalist Afghanistan, most working women have been forced to leave the work force. There is no way to compete in the global economy with such a reduction in available labor. Of course Afghanistan is not to the point of really trying to compete there, anyway, but that day will come.

In summary, this book is both entertaining and thought-provoking, a winning combination. I recommend it to everyone; even if your interest in foreign countries is small, it provides you a convenient framework for understanding overseas developments which inexorably affect us as members of the global economy.

Home - Satellites - Family - Religion - Politics - Book Reviews - Software Development