Sailing Off The Edge

The latest book in my CD player is The World Is Flat, by Thomas L. Friedman. If you're looking for a scary book, this one rivals anything by Stephen King--because this one is true. The basic premise is that through computers and telecommunications there are very few jobs that can't be done as cheaply and potentially better overseas.

It's only a matter of time before you'll be ordering burgers at the McDonalds drive-thru via Bangalore, India. Depending on where you live, you may already be ordering via Colorado. Your taxes are likely being done in India, and the presentation your executive director just gave may have been written for him by someone halfway around the world while he was sleeping. Book a flight on JetBlue and you're probably talking to a Mormon housewife in Utah.

So what does this mean for the individual? Good question. I'm still coming to grips with that one (I'm only maybe a tenth of the way into the book).

What about the economic picture? Well, in the short run, expect increased economic turmoil in the United States, Great Britain, and most of the other advanced countries. There are Asian countries with billions of people who can be cheaply trained to take over jobs for a fraction of what someone in the US gets paid. Proximity to the work is becoming increasingly irrelevant--it's what you know that counts.

But from what I know of economics, this will shift over time. Unless the developed nations open up new fields of R&D we will eventually experience an excess in workforce. Supply and Demand dictates that the greater the supply, the lower the cost. Wages will drop, and we will either need to find yet cheaper goods or the demand for goods will drop, too. In the short term this would also be good for developing countries with cheap manufacturing. Large amounts of money will flow to Asia.

But the other side of the equation is the impact of this on Asia. If they're not careful they will have problems of their own to face. For one thing, the wage gap is making it easy for companies to offer high wages and great benefits and still provide their services to America at a heavy discount. They offer great wages because they can, not necessarily thinking of the long term consequences. The standard has been set.

As the demand for cheap labor in skilled jobs increases (outsourced from developed countries) there will be new players enter the market, but they will be forced to compete with the existing companies and will have to pay similar wages. In fact, the more options the workforce has, the more competition there will be in recruiting the top minds, resulting in an increase in wages.

Furthermore, these higher wages will raise the standard of living in these countries. The demand for cheap goods will increase, increasing the cost of the supply. In time the outsourcing companies will need to increase wages to keep pace with the cost of living at the level to which the new generation has become accustomed.

So as a result we see wages in Asia increasing at the same time wages in America and other advanced companies decrease. Given enough time they could potentially meet in the middle. Demand for workers in the Asian countries will slow, and it will be their turn to have to figure out how to cut costs. The cycle will start all over again, this time with South America or Africa or the Middle East becoming the new India and China.

When that point is reached the Asian countries had better have developed their own R&D capabilities or they'll experience greather economic stress than America is facing now. Can you imagine the impact of outsourcing jobs to other countries on a country whose economy is based on providing outsourcing? Picture the equivalent of the entire US manufacturing industry was put out of business within the space of a few years.

The Asian countries, having done it to the developed countries, should be better prepared when their jobs also go overseas. But they will also have less time, I believe, to prepare. They will also likely face the same challenge as the US and Europe will face: how do you develop the high-level creative and strategic workers when the preparatory jobs are no longer available?

For example, can you produce an accountant who is able to run strategic accounting firms if there are no lower ranks through which to rise and draw experience from? Can the US economy really evolve to focus primarily on R&D and Education, to provide the engineers, developers, and creators who think of new technologies for the lesser developed countries to build and support? Whatever edge we have in the sophistication of our research, development, and product release is already diminishing rapidly. How long can we stay ahead in that arena?

I also wonder what will happen to the world economy when borders blur even further. As countries, companies, and workers become increasingly comfortable with Friedman's "Flat World" paradigm and increasingly creative in their operations within it, the global economy will have to become increasingly agile to facilitate the flow of money around the globe.

For example, I believe the natural progression of this paradigm is the rise of virtual companies, wherein all but the executive layers of companies become "free agents," hiring their expertise and productivity out as needed. Companies will "rent" customized functional groups to meet their needs. They may contract with Thom's Product Development Agency to realize and develop the company's product of service idea, and hire Bill's Process Engineering Group to figure out how to produce the product most efficiently.

Next they would hire Kimberly's Marketing Specialists to market the product, contract with Call-Centers-R-Us to take orders and provide product support, and pay Janet's Rapid-Configure Factories to actually make the product. Srinivasa's Accounting Conglomerate would handle all receivables and payables, and at the end of each quarter simply cut a check to each functional group (or even each individual worker). The virtual company's executives get their profits sent to them, and all they really had to do in the first place was conceive the idea and supervise the process.

Furthermore, Thom's Product Development Agency may only have one full-time employee: Thom. When a request comes in he may do nothing more than flip through his database of free-agent product developers, see who is the most experienced in these types of products (from across the world, no less), and call them up to see if they're available. He puts together a customized team to handle the specific contract and coordinates their efforts from the comfort of his living room. Each one gets paid by Srinivasa's group, and when the job is done they all go back on the market. Thom's value add is knowing product development well enough to know who to recruit and how to coordinate their efforts.

And this is just a best guess, as I'm still grounded in the current paradigms. The reality could operate much the same and yet be astoundingly different. For example, there may not even be the need for "Thom" as the middleman. It could be that all product developers belong to a Developers Network that tracks each developer to know when they are available and automatically assigns work to them based on their experience profile. They may never even know who they are working for each day, just that someone wants to know the best way to add feature X to product Y. He does his analysis, uploads his work, and at some later date his pay shows up in his account.

In such a world you could be sitting in a theater (assuming they still exist) next to a total stranger and never even know that your analysis work you got paid $20,000 for just made that person a million dollars. Or that his product idea was a new energy source that will cut your heating bill by 10% when deployed. Our lives could be intricately entwined with others without our ever knowing it.

It could also make it entirely possible for a person to enjoy several careers at once. You could design an intake valve in the morning, work on a screenplay in the afternoon, and taste test a new pastry idea in the evening--and get paid for all three. You could regularly participate in a discussion group and never even know you were being watched by a recruiter (or automated netbot) that will one day approach you to do some paid work based on the level of expertise you displayed in the discussion. You could be interviewing for jobs without ever knowing it.

Perhaps I shouldn't be posting this. I sense a sci-fi book in the making here.

Anyway, "The World Is Flat" is certainly food for thought. If I'm taking all these flights of fancy from just the first few chapters, I can only imagine where the rest of the book will lead.