A summary of Thomas Friedman’s, Lexus and
The Olive Tree

chillibreeze writer — Preeti Sharma

Thomas Freidman’s (author of The World is Flat) bestseller, ‘Lexus and the Olive Tree’, should be read to understand globalization and the new world order. The Pulitzer Prize winning journalist of the New York Times has explained, in a simple and easy to comprehend style, the geopolitics and economics of current times.

This detailed piece of work is the result of four years of intense research. It is an excellent analysis of global events and the author’s experiences and understanding of the present scenario through his extensive travels and journalistic stints and interactions with leaders, ambassadors, state officials, experts in finance and several other individuals from various economic and ethnic backgrounds across the world.

The Thesis

Freidman’s thesis is that ‘globalization is the new international system that has followed the Cold War and influences world geopolitics and economics’.

Lexus and the Olive Tree: The Analogy

The author is of the view that the functioning and conflicts of the world are determined by the need for ‘sustenance and sense of identity and community’, the origins of which can be traced back to the Genesis.

The Lexus represents the ‘global markets, financial institutions and computer technologies with which we pursue higher living standards today’ and the Olive tree is symbolic of ‘whom we belong to – linguistically, geographically and historically’.

The challenge and future of the new globalization system will depend on a delicate balance between the process of economic development and the preservation of individual, community and national identities.

The Cold and the New

Freidman has interestingly presented what defined the ‘frozen’ Cold War era, equating it to sumo wrestling and what symbolizes the ‘dynamic’ globalization phenomenon, the ‘hundred metre sprint’. The Cold War saw walls dividing the world into ‘friends and enemies’ and a ‘hotline’ connecting the USA and former USSR - which controlled global power play. There was ‘regional cultural homogenization’ and ‘fear of annihilation from known enemies’. State power was estimated by ‘Einstein’s mass energy equation’ and Karl Marx and Keynes were the economists of the era. On the other hand, globalization is all about a web integrated world, urban lifestyles, fear of rapid change and latent causal factors being of paramount importance. Schumpter and Grove are the lead economists in this era of free market economies, promoting innovation. ‘There are no enemies, only competitors’. Power and change is determined by interactions between nation states, super power USA, electronic herds, super markets and super empowered individuals.

Freidman explains Globalization

Freidman’s well researched writing is an engrossing blend of history, finance, trade, policy, diplomacy and technology- explained with anecdotes, events and conversations. The author has discussed the impacts and interlinking of major and minor events that have had global ramifications. To name a few : the fall of the Berlin wall; disintegration of former USSR; evolving role of finance and trade in international relations- the Mexican crisis, South East Asia’s financial crisis and its impact on global markets; technological developments that have led to the information age; increased Americanization; and the rise of super powered individuals.

Concepts that form the framework of this work:

Six Dimensional Information Arbitrage

With great clarity the author has identified six dimensions to understand globalization and its impact. These are: Politics, Culture, National Security, Financial Markets, Empowering Technologies and Environment.

Democratization of Technology, Finance and Information

Freidman has extensively written on changing trends in technologies, information access and financial markets that constitute the core process of globalization.

He writes that ‘democratization of technology happened as a result of pathbreaking innovations in 1980s involving computerization, miniaturization, compression technology, digitization, improvements in microchips’ topped by Berners Lee’s World Wide Web in 1990. The author is of the view that due to technological advancements ‘the potential of wealth creation becomes geographically dispersed, giving all kinds of previously disconnected people the chance to access and apply knowledge’.

The author explains the democratization of the financial markets citing the example of the Mexican crisis of the 1980s. The US bailed Mexico out on the condition that economic reforms would be put in place and US backed bonds were sold to individuals and mutual and pension funds.. When Mexico faltered again in 1995, US asked for its oil reserves as collateral.

Talking of information democratization, the author says that ‘no wall in the world is secure anymore’ and as a result governments can no longer misinform people, because information is everywhere and individuals can access it. If governments do not perform ‘they have a problem’.

Microchip Immune Deficiency

Freidman defines MIDS as ‘a disease that can afflict any bloated, overweight, sclerotic system in the post cold war era’.

The author believes that countries need to put in place processes for the democratization of technology, finance, information, decision making and power. They need to improve productivity, wages, quality of life, knowledge use and competitiveness for survival. If they fail to do so, they could be categorized as suffering from MIDS, a fatal ailment.

The Golden Straitjacket

Following his travels, especially in China, Thailand, Washington and Brazil, the author concludes that people are willing to experiment with free market economy following the failure of communism, socialism and fascism. This, according to him, is the ‘only model on the rack this historical season’

Countries will wear the ‘political- economic garment of this era’ by undertaking structural changes in the economy. These are aimed at increasing privatization, controlling inflation, downsizing bureaucracy, ensuring balanced budgets, reducing tariffs and restrictions on imports and foreign investments, deregulating markets, improving transparency and eliminating corruption. All this would result in improved economies and limited political and economic choices.

The Electronic Herd and the Supermarkets

Freidman calls the global financial market players the ‘electronic herd’ consisting of short horn and long horn cattle. These function in the mega markets of the world and control investments and money flow in and out of countries. He equates their impact to the ‘tail of the Tyrannosaurus Rex’ the movement of which ‘reshapes the world around it in some fundamental ways’.

The author has explained in detail the actions of the herd in what was the South East Asian financial crisis, which led to a chain reaction - the Russian economy crash which further led to turmoil in Brazil followed by the famous LTCM bail by the US to safeguard the global economy from a meltdown.

Citing the example of the Mexican peso crisis of 1994-95 and the 1998 IMF study on ‘Hedge funds and Financial Market Dynamics’, the author points out that the ‘biggest untold secret about the Electronic Herd is that most stampedes don’t begin with a hedge fund on Wall Street or a big bank in Frankfurt’, instead it is led by local players pulling out their money.

Freidman explains that the operations of the herd will lead to a ‘revolution from beyond’ or what he calls ‘globalution’ in countries. This would result in countries being forced to improve systems of governance, transparency, free press, free markets, global standards and democracy. The herd will invest only if nation states move on the path to change and improved governance giving them ‘flexibility, legitimacy and sustainability’ to function.

Indicators of Economic Power

The author explains the fact that in this phase of globalization, unlike previous revolutions, countries will have to function like companies. They will be compelled to improve their governance and market systems equivalent to DOScapital 6.0 and higher.

The power and potential of countries will be measured in terms of per capita availability of personal computers, bandwidth and ‘evernet, universal, all time connectivity’. In the wired world there will be ‘hot’ zones in countries and regions, which will be nerve centers of economic activity- ‘the future belongs to the shapers and adapters – and they can be companies or consumers, superpowers or super empowered individuals’.

Freidman has summarized nine habits of highly effective countries. These are the net speed of outputs – from design, production to marketing, knowledge management- capitalizing on the information, reducing GDP weight – innovations and optimization in raw material consumption and output quality, openness and creativity - encouraging innovation, transparency within - reducing corruption, decision makers with strategizing capability, creative destruction processes, forging alliances and building a valuable brand image for investors.

The Golden Arches Theory of Conflict Prevention

This interesting theory of Freidman’s says that ‘no two countries that both have McDonalds have fought a war against each other since each got its McDonalds’! This is explained further with the example of the Middle East, wherein threat of war looms large between Israel and countries which do not have a McDonald’s restaurant - Syria, Iran and Iraq. The theory became an issue of debate following NATO strikes against Yugoslavia. The author still maintains that the theory remains a ‘powerful general rule’. He highlights that globalization would not end geopolitics and the threat of war, even though the stakes would be much higher than ever before.

Glocalism and Filters

Freidman defines glocalism as the ‘ability of a culture, when it encounters other strong cultures, to absorb influences that naturally fit into and can enrich that culture, to resist those that are truly alien and to compartmentalize those things that, while different can nevertheless be enjoyed and celebrated as different.’ He further states that it is important that glocalism and other filters like ‘zoning laws, area protection laws and educational programs’ are put in place by nations to preserve their cultural and natural heritage and avoid a feeling of homelessness, lack of identity and total loss of natural flora and fauna due to the onslaught of globalization.

Rising Inequities and Backlash against Globalization

Taking the NBA as a case study, Freidman explains the phenomenon of an increasing income gap between players on the same playing field. He further points out that at the global level, the digital divide is increasing the gap between the rich and the poor – within and between the countries. The concept ‘winner takes it all’ is leading to an increase in social inequities which will have disruptive consequences.

He explains the lack of skill sets provided to people, preventing them from switching from agrarian to knowledge based systems and the inability of countries to hasten the adaptation process. A backlash against globalization (political, social, cultural, and economic) would happen – through different means and by varied cross sections of people and countries due to their experiences and will be controlled by the basic desire for a better life.

Superpower USA

The author believes that America has ‘more assets and fewer liabilities’ to thrive in the globalized world. Its advantages include its competitive geographic location, multicultural population with English as a binding language, democratic form of government, single currency across five different economic regions, innovative and efficient capital markets, strong entrepreneurship culture, freedom of information and its multinational corporations, and several others.

It presently leads the race; however, the author warns against complacency and calls attention to issues the US must tackle on the home front. Most importantly, the Americanization –globalization aspect, is creating security threats for the US in the form of super empowered individuals like Osama Bin Laden, Aum Shinrikyo and Ramzi Yousef and their numbers are increasing by the day.

The author points to the fact that even though the whole process of globalization is a way forward, yet it has the potential of being self annihilating. This is due to threats emanating from a weak Russia, closed up Japan, a corrupt China, socially disruptive and overly mechanical and programmed technologies or a ‘known unknown’- a problem that is known to exist but has no solution’.

The Bottom Line

Freidman is a globalist, who believes that the way forward for every society is to maintain the balance between the ‘Lexus and the Olive Tree’ and America needs to be a ‘beacon for the whole world’.

This one should be read by all!

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