The World is Not So Flat

When Thomas Friedman wrote his groundbreaking “The World Is Flat” many felt the way to the future had been defined. Friedman’s basic premise that the economy was exceedingly “macro” and the United States’ economy is increasingly dependent on the world economy. What happens in Redding, California affects what happens in Tokyo and so on.

And, regardless of what we might want, this is a force that is irresistible. Millions of jobs have been exported, as America imports cheaply made goods from China, India; etc.

And, according to Friedman and others this is somehow good. The middle classes of China, Brazil and India for example are growing, poverty is shrinking in developing countries, and American consumers enjoy cheap and quality made goods.

Friedman, to his credit, did warn that political instability in developing countries could hinder the flat world, disrupting communications and distribution. In fact, as we witness Egypt and now Libya, political disruptions indeed can threaten the flat world’s distribution system.

Another, larger threat is growing everyday; peak oil. The days of cheap oil are over!

Japan’s earthquake and the Ipad2 is a vivid example of the weaknesses of the flat world that depends on worldwide distribution and production systems. The earthquake disrupted production of the new Ipad2 chips at the same time the new electronic device was opened for sale. Instantly delivery dates went from a three day turnaround to a three week or more turnaround. Dozens of other electronic devices are likewise affected

As the “Coalition Forces” bomb Libya, oil prices soar. Just the threat of a conflict that could disrupt Middle East oil supplies have shot American gasoline prices up. The damage to the American gluttonous energy economy is dramatic.

The world may be flat, but is not predictable. The United States once was the “arsenal of democracy” precisely because we did have a production and distribution system that was stable, protected at the time by the Atlantic and Pacific Oceans.

America’s political system is another asset that has been discounted in its importance by the Flat World. In fact, a stable political system, where power is transferred without upheavals and uncertainty, is essential to economic stability. If the trains and trucks run on time, products can get to market predictably; and a stable, growing economy results.

The Flat World is not so stable. Global Warming, that Friedman to his credit predicts, offers another destabilizing affect to the world markets. It just so happens that areas of mass production, that use brutally cheap labor to make our electronic miracle devices, are particularly subject to global warming. Many of the production areas are in low lying areas, close to the ocean, that will flood with the rise in ocean levels that are coming due to the melting of arctic ice. Moreover, political instability is the standard in these regions, and stands to increase due to the stresses of global warming devastating the food supplies. Egypt is an example of what happens when the food supply is disrupted by high prices caused by speculation tied to global warming effects.

The rich nations, America included, have put themselves at the mercy of a worlwide, unpredictable and unstable production and distribution system.

Finally, there is the oil (or lack of it). We may think the Pacific and Atlantic Oceans are mere “inconveniences” that hinder distribution, but their vastness means it takes a lot of energy to traverse them. Ships burning diesel travel back and forth on these water highways, much like diesel trucks pass back and forth on America’s highway systems. This wasteful distribution system depends to its core on cheap, accessible energy.

Moreover, developing nations like Brazil for example, are dependent on cheap energy to bring consumer goods to their emerging middle class.

HD TVs are made in Asia for the most part. It takes a lot of diesel to get them to the Americas.

So, as the cost of diesel accelerates, there is no doubt the cost of distribution of cheap Asian made goods will explode; for emerging markets like Brazil and for older markets like the United States.

In one area the Flat World will remain, and that is communications. Satellite transmissions have tied the world together electronically; business can be conducted across vast distances. But talking, planning and working electronically doesn't move product. The product still needs to me moved and it takes energy to move it.

Unfortunately moving an HD TV is not possible through a cell phone. Regardless of science fiction predictions, cellular modulation methods are a long way off to move a TV from India to Topeka.

Japan’s disaster is a wake up call for the United States. The lag in getting an Ipad2 foretells the Achilles heel of the Flat World. Distance is still distance; the energy it takes to move products is becoming less available not more, with permanent oil decline the hard reality. The world is running out of oil!

It is time to start planning to bring the work home. We can still move our products within the United States using the most energy efficient way, trains. We frankly don’t have a choice!

The world is indeed shrinking, but not in the Flat World way. People will not be able to fly all over the world if the price of a ticket is so high they can’t afford it. Ships, solar powered, will become the norm in the near future as diesel supplies dwindle. In a sense the world will collapse upon itself, local will become the best way to organize a production and distribution system.

The more self-sufficient a country is, the stronger it will be. The United States still enjoys the protection of those two huge oceans, and to date a stable political system.

We have to bring the work home now, and products will cost more at first. But in the long run, homegrown production will be the ONLY alternative, because of the huge costs of moving goods across huge oceans.

Energy is now a scarcity. We have a world economy that at its core depends on cheap energy to move products thousands of miles from cheap labor factories to rich countries. The Flat World has a huge problem, it depends for its very existence on cheap oil.

Those days are beginning to end. Another paradigm shift is happening before our eyes, and the Ipad2 delay in delivery is what pointed us to it.

Bring the jobs home before we can’t afford to do so!