The Big Idea

Pulitzer Prize winning journalist Thomas L. Friedman, writes in his book, The Lexus and the Olive Tree,
about the phenomenon of globalization and how it has instituted an international system that has replaced
the Cold War. It is a system that has united the fates of peoples all over the world from Brazilian Indians to
Thai bankers to multinational company executives. Here, Friedman explains how the democratization of
information, technology and finance has shrunk the world into an over connected community where
billions of dollars are moved from one country to another with the click of a mouse. He offers not only an
astonishingly all-encompassing perspective on this globalized, Fast World but also options for countries
and companies who wish not only to survive in it but also to thrive in it. He also explains how in the
globalized world a balance must be maintained between the Lexus (the aspiration towards material
prosperity) and the olive tree (the ancient forces of culture, race, tradition and community).

Thomas L. Friedman was for some years the foreign affairs columnist for The New York Times, firing off
reports as Beirut correspondent and later winning a Pulitzer Prize for his book, From Beirut to Jerusalem. In
this new bestseller, Friedman explores an arena much larger than geopolitics because it encompasses the
globe itself. He ventures to declare that globalization has become the defining international system in the
world today, replacing the system put in place by the Cold War. In fact, he contrasts the efining principles
that distinguish the Cold War and globalization. During the Cold War, there were two superpowers, each
excluding the other in its spheres of political and economic influence. In the globalized world, the defining
principle is not exclusion but integration. The Internet is integrating the entire world.

Friedman says, “That’s why I define globalization this way: it is the inevitable integration of markets,
nation-states and technologies to a degree never witnessed before – in a way that is enabling individuals,
corporations and nation-states to reach around the world farther, faster, deeper and cheaper than ever
before and in a way that is enabling the world to reach into individuals, corporations and nation-states
farther, faster, and deeper, cheaper than ever before.”

Globalization is a spawn of a free market economy. Its defining measurement is speed. Friedman says the
most frequently asked question in a globalized world is, “How fast is your modem?” In this system, the
defining economists are Joseph Schumpeter, the Austrian Minister of Finance and Harvard Business School
Professor and Intel Chairman, Andy Grove. Schumpeter wrote in his book, Capitalism, Socialism and
Democracy that the essence of capitalism is the process of continuously destroying the old and less
efficient product or service and replacing it with new, more efficient ones. Grove took this notion and
popularized the idea that dramatic industry-transforming innovations are taking place so fast that only the
paranoid, those who are constantly on the watch for these innovations, can survive. In such a world there
are no friends or enemies, only competitors. Nothing is constant, not your job, your community or your
workplace, which can be threatened almost overnight by new technological forces beyond your control.

Friedman thinks globalization is built around three balances, which overlap and affect one another. There
is the traditional balance between nation-states, between nation states and global markets and between
individuals and nation-states. The balance between nation-states still exists. In explaining the second
balance, between nation-states and global markets, Friedman describes the millions of investors as the
Electronic Herd, who move money around the world with the click of a mouse and who center their
activities in such financial centers as Wall Street, Hong Kong, London and Frankfurt, which he calls, “the
Supermarkets”. Suharto's downfall in 1998 in Indonesia is example of the Supermarkets' clout. They
withdrew their support for the Indonesian economy. In the third balance, the one between individuals and
nation-states, the individual gains so much power that it can influence the decisions of nation-states.

To understand globalization, we need to perceive the interaction between these balances and these
players, the states, the supermarket and the super-empowered individuals.

Information Arbitrage
Friedman claims that in order to explain globalization, he uses “information arbitrage”. Arbitrage, a market
term, refer to the buying and selling of the same securities, commodities or foreign exchange in different
markets to profit from unequal prices and unequal information. Friedman says the effective journalist or
foreign affairs analyst needs to attain a perspective from different points of view. He or she needs to
practice information arbitrage in order to offer a comprehensive, balanced view to his readers.

After his Middle East assignment, Friedman was asked to report on a peculiar conjunction of finance and
foreign affairs. It was this sudden ability to see the financial aspect of events that affected politics, culture
and national security that enabled Friedman to perceive that at the core of globalization is the wave of
technological advances. So Friedman learned to “connect the dots”, to see the interplay of political,
economic, cultural, environmental and technological forces that were affecting global events. He
emphasizes that in order to understand world events and to explain them to readers and viewers,
journalists need to be “globalists”, to break out of their narrow geopolitical boundaries and to see the
complex interaction of political, economic and cultural forces that influence events.

Yale historians Paul Kennedy and John Lewis Gaddis wrote that while there remains a need for
particularists, experts in certain subjects, strategizing should not be left in the hands of particularists. They
however deplored the trend among academes to stress ever-narrowing fields of specialization rather than
broad encompassing perspectives of various fields.

The Lexus and the Olive Tree

Friedman explains the title of his book in this chapter. He reflects that explaining world events involves
studying what is as new as Internet websites and what is as old as olive trees in Jerusalem. He says that
while in one part of the world the Japanese are building Lexus cars with the use of advanced robotics, in
another part of the world, a whole gamut of issues hinged on who owned which olive trees in Jerusalem.
While the Lexus represented modernization, the triumph of technology, the olive tree symbolized
everything which identifies a people as unique. The tree signifies the core of values that make a people
feel that they are part of a country or a family. The olive tree tells them who they are. Friedman’s view is
that to understand our world today we need to grasp the interplay between the very human desire for
material betterment as symbolized by the luxury Lexus car and the need to cling to one’s individual and
communal roots, as symbolized by the olive tree.

Friedman offers examples of this symbolic interplay between the two forces. He narrates a trip to the
Kayapo Indian village in the Brazilian rain forest. The Kayapo have defended their share of the rain forest
from exploiters by forming international alliances with scientists and environmentalists. Friedman
observed that the Kayapo Indians were monitoring on television the price of gold on the international
markets because they wanted to be sure they were charging competitive prices from the miners whom
they allowed to dig on the edges of the rain forest. They then used the profits from the mining operations
to fund their conservation efforts for the rainforest.

Friedman also cites examples of the olive tree being sidelined in favor of the Lexus or the Lexus being
dumped in favor of the olive tree. He insists that a healthy balance must always be sought between the
two symbols. Societies need to aim for the Lexus but they should also recognize the need for the olive
tree.

And the Walls Came Tumbling Down

Friedman says the fall of the Berlin Wall reverberated all over the world. Events now impact not just the
immediate geographical area of their occurrence but in countries halfway around the world. The
interconnectivity of these events were caused by three fundamental changes, changes in how we
communicate, in how we invest and how we learn about the world.
It is important to understand that technological advancement is no longer the exclusive exercise of rich
and powerful nations. Technology has been democratized through changes in computerization,
telecommunications, and miniaturization, compression technology and digitization. Friedman quotes
former NBC president Lawrence Grossman: “Printing made us all readers. Xeroxing made us all publishers.
Television made us all viewers. Digitization makes us all broadcasters.” This democratization of technology
also brought about the globalization of production. Friedman points to Thailand, which became the fourth
largest maker of motorcycles and second largest producer of pick-ups trucks, using technology developed
in other countries. With democratization comes a dispersal of opportunities to create wealth. Swissair
moved its accounting division to India to take advantage of the lower labor costs for accountants,
secretaries and programmers. America Online has 600 customer representatives in the Philippines who
answer up to 12,000 inquiries on the telephone. The reps receive the same salary as unskilled workers in
the USA would make but still above the minimum wage in the Philippines.

The Democratization of Finance

Along with the change in how we communicate came a change in how we invest. The world of finance
began its democratization in the 1960s when the big banks began selling bonds to the public to raise
funds. This democratization was carried further along when Michael Milken began trading junk bonds,
which were bonds from companies that were formerly blue chip or new companies that were asked to pay
higher interest. Milken was able to see these junk bonds to private investors, mutual funds and other
ordinary people and gave them higher returns with not much higher risks.

A similar democratization took place in international markets as well. Loans extended to foreign
governments were converted into government bonds, which were sold to the public, which made the
market more liquid and yet added more pressure on foreign governments to improve their economic
performance. Suddenly, foreign governments with loans were accountable to ordinary citizens around the
world. The public bondholders simply sold their bonds if they felt that the particular country they had
invested in was not performing well. They then invested in another country. This forced foreign
governments to be serious in their economic improvement. Although this selling of government bonds to
the public is nothing new, but the degree to which it is now widely dispersed all over the world is
unprecedented.

The Democratization of Information

The democratization of information came about through the globalization of television. Television was at
first regulated by government and stations were limited. In the 1980s cable TV, and later the falling cost of
satellite dish technology made it possible for more people to see more channels from other countries at
less cost. The development of the digital videodisk also makes it possible now to make anyone a potential
movie mogul as well as movie distributor through the Internet.

But the crown jewel in the democratization of information is the Internet and the most remarkable aspect
is that no one owns it and yet it reaches into nearly every home. The Internet was born as part of the US
government’s response to Russia’s launching into space of the Sputnik satellite. President Dwight
Eisenhower created the Advance Research Projects Agenda (ARPA), which later became Pentagon’s arm
for promoting computer science research and information processing. The Internet prototype was unveiled
in 1969 and called ARPAnet, a crude private computer network linking the US Defense department with
key university researchers and government laboratories. The object of the network was to share computer
time and equipment through the network system. . . . . . .