Book Summary Preview : The Lexus and the Olive Tree

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. . . . . . .

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