Globalization or Why The Last Century is so Last Century

When it gets down to it—talking trade balances here—once we’ve brain-drained all our technology into other countries, once things have evened out, they’re making cars in Bolivia and microwave ovens in Tadzhikistan and selling them here—once our edge in natural resources has been made irrelevant by giant Hong Kong ships and dirigibles that can ship North Dakota all the way to New Zealand for a nickel—once the Invisible Hand has taken all those historical inequities and smeared them out into a broad global layer of what a Pakistani brick maker would consider to be prosperity—you know what? There are only four things we do better than anyone else: music, movies, microcode (software), and high-speed pizza delivery.

Neal Stephenson, Snow Crash

For most of the 20th century, college was in the business of producing what management guru Peter Drucker called Knowledge Workers, people who got paid for what they knew instead of what they did. For example, instead of farming corn or laboring in a factory (jobs that required physical labor, muscle, and coordination), people became accountants, lawyers, or doctors, jobs that required knowledge. Being a knowledge worker in the 20th century usually meant better pay, better working conditions, and fewer blisters.

But a funny thing happened on the way to the 21st century—the world changed. It went global. Not the geographic world, that’s always been global, but the business and economic world. Some people would call it the real world. This change had a life altering affect on knowledge workers; a lot of their jobs vanished. The new truth is people in other countries can do

13accounting, write contracts, read X-rays, and program computers just as well as Americans. And for a lot less money.

My local television station experimented with a weather guy who lives on the other side of the country to tell me what it’s like outside where I live. That’s right, the local weather guy lives in another state, and can’t lean his head out the window to see if it is raining before he goes on the air. Three times a day, they just beam him in via satellite for the 8 minutes we need him. People are usually shocked when I tell them that. (“Not the weather man!” Oh the horror!) But it poses the question, how many TV weathermen do we really need? (This channel eventually decided it didn’t even need a news show.) If a weatherman is only looking at a computer-simulated model to tell what the weather will be like, does it matter where he actually lives? It’s the same concept as the tax accountant for the State of New York checking tax returns from his cubicle in India.

However, it isn’t just outsourcing that is taking the jobs that knowledge workers have typically filled in America. Automation is also taking a bite out of the knowledge worker job base as well. Computers are now doing much of what knowledge workers have been traditionally paid to do, only faster, better and cheaper. Turbo Tax® takes an accountant’s job. Why hire a lawyer to write a contract when you can download one? Maybe you think a real accountant or lawyer will do a better job, and maybe you’d be right, but the automated versions are getting better, faster, stronger and cheaper all the time. The human versions are just getting older, more fallible and in need of more health insurance.

What do you do? Do you hang up the college degree thing and head straight to Starbucks for a career as a high-speed latte slinger? No, of course not. Because the fact of the matter is that most people need a college degree to live above the poverty level in this country. But you should not go to college expecting to get a career in something for the rest of your life. Let me throw some numbers at you. The average 20-year-old spends a year in a job; the average 30-year-old spends three. The only constant in the 21st century is change.

So, why is all of this so important? Why do I tell you this? Because every year students graduate from good colleges with great GPAs in fields that have too few actual jobs and even fewer job openings. While they may have “succeeded” in college, that success ends at graduation. When I was in graduate school, people were dropping out right and left to get jobs in the hot new .com sector. Those same people are now either back in school or working at some dead end job. Why? Because the world changed and they didn’t see it coming. The purpose of this book is to make sure that when you leave college, the same thing doesn’t happen to you.

Grades, GPAs, clubs, and athletics are all valuable measures of success at college, but to really make college pay off after graduation, you have to know what’s happening in the world outside the college bubble. Your mission is not just to pick the right school, the right major and make good grades. All of that goes without saying. Your larger mission is to develop the right strategy for your continuing success. To help you develop this strategy, it’s important that you understand globalization.

Globalization -- It’s The End Of The World As We know It

I think of globalization as a point of historical singularity. Globalization is a game changer. Once the effects of globalization take hold all the rules change. Sadly the majority of people don’t know how to adapt. Remember a few pages back, I was saying most people don’t know how to use college? The same is true with globalization. I quote Ferris Bueller, “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.”

So what caused this game changing point in history? In The Lexus and the Olive Tree, the multiple Pulitzer Prize-winning author Thomas Friedman refers to these history-changing forces as “democratizations.” When something becomes democratized, it becomes more accessible to the average person. That’d be us. Walt Whitman is said to have democratized poetry because he used the language of the average people. Thus making his poetry more accessible to those average people.

The three forces Tom Friedman and others cite as game changers are the democratization of technology, the democratization of finance, and the democratization of information. If you understand each of these and the ramifications they have, you can begin to understand what globalization means. Let’s deal with each one at a time.

The Democratization of Technology really means the democratization of digital technology. In the 60’s computers were big, think classroom sized- big, and expensive. IBM thought there would be a market for half a dozen mainframes. Today, what they called a mainframe in the 60’s is tiny and cheap and everywhere. To illustrate this fact and personalize the democratization of digital technology, I’d like to play a quick game with you now. Ready? How many computers do you have in your home? Take a moment and count them.

Did you count your cell phone? Your DVD players? CD players? iPods? Clock radios? Digital cameras? HDTVs? How many of these same things are built into your car? Even my refrigerator is loaded with microchips and it can tell me things I never knew I would need to know about myself or my refrigerator. My refrigerator is loaded with microchips because they are so cheap it doesn’t make sense not to include them. There’s another reason I’ll explain in a bit, but first let’s talk about your cell phone.

Your cell phone, which hardly anyone could afford ten years ago, has more computing power than the mainframe computers NASA used in the Apollo program. Think about that; a cell phone that you got “free” with your plan has enough computing power to calculate moon shots. It gets better. Apple’s iPhone really isn’t a phone. It’s a palm-sized, touch sensitive, Unix-based supercomputer (by 1960’s standards) that also happens to have a wicked cool, user friendly cell phone attached. In another five years, all phones will be iPhone powerful and capable of its cool tricks. Worry not my fellow Apple faithful, by that time Steve Jobs will be making something insanely cooler, for which we will still pay a premium and which will allow us to feel slightly superior.

What happens when everyone’s cell phones are no longer cell phones but hand held supercomputers that can also make calls? Well, you’ll use it to talk to every other digital thing in your home that we just named. Everything, everything that has a chip in it now will, bit by bit, be replaced with a new, improved version that also has a wireless Internet capability. Pretty soon, your cell phone will talk to all these other things. You know what this means, right? A few years from now, when we forget our shopping list, we’ll just call the refrigerator. Can’t remember if the camera needs batteries? Have the fridge ask it. I’m joking ... but I’m not.

If you were born after 1980, it’s difficult to appreciate the amount of technological power an individual can now possess for only a few hundred dollars. Think of it this way: a few years before you were born, people were spending three or four times what you probably paid for your cell phone, so they could hook up a box to their television to play a black and white version of Pong—and they were wildly excited about it. Consider that the next time you are sitting in the back row of a class playing Bejeweled on your iPhone.

The democratization of technology is the result of complementary and interconnected developments in miniaturization, computerization, and communication technologies. The rule of thumb that you need to know is that these devices will get more powerful and cheaper every year. But you probably already know that just from being immersed in the changes brought by digital technology. In the early 1990s, uber-geeks like Bill Gates were talking rhapsodically about “ubiquitous computing.” Now, computing is so ever-present we don’t even think about it. It just is, and that difference is affecting everything else. However that difference would not be possible without the democratization of information.

The Democratization of Information is about more than just all the free information that we can get off the web. Though certainly before the democratization of Web (thank you Al Gore and congrats on that Nobel, my friend), no one had a computer except geeky types. We were the only ones who thought we needed them. The democratization of the Web and cheap Windows 95 computers that could access the web had people, millions of people, snapping up computers and subscribing to dial up Internet services quicker then you can say “free online porn.”

I don’t make the porn joke just for shock value. (That’s just a side benefit.) It tells a truth about information. Serious media theorists and historians suggest that VHS beat Beta in the videotape format wars -- in part- -because there was more pornography available on VHS. We can take from this historic example of the format wars two lessons (1) A media device is only as valuable as the amount of media it can access. Really, how valuable is an 8-Track player today? (2) Information blocked from mainstream channels of delivery will look for other channels of delivery. Back in the day, porn films had one channel of delivery--seedy movie houses people had to risk being seen entering and exiting. The video tape could be anonymously delivered by mail and viewed, privately or semi-privately, at home.

While the VHS vs. Beta wars are in full swing and porn aficionados are trying to pick a machine, a visionary named Stewart Brand is speaking at the first Hackers’ Conference (1984). There Brand makes the following observation: On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other. In this statement, Brand defined a struggle that has escalated and continued to this day.

Even while Brand is speaking, people across America are perfecting the means not only to tape a television show with one VCR, but make copies of any tape, homemade or rented, with two VCRs. CD players are too expensive for the average person to own, but the FM radio stations are playing whole CD’s, with conveniently placed commercial breaks, so the people recording on their boomboxes can flip their tape and hit record again. The result was a “free” tape that sounded almost as good as one bought at full price in a music store.

People were illegally democratizing corporate entertainment information: television, movies, music, and books via a new breed of information technologies. Fast forward to today and people are downloading MP3’s and AVI’s via all means of P2P clients or acquiring copies from friends. Today, the pillage of media by pirates is a global adventure. Science fiction author and reformed futurist, Bruce Sterling, refers to our penchant for pirated media as “broken-open source.” Savvy? Arrrrrrrrr.

Today, corporate digital media is protected by some form of digital media protection -- a bit of software that keeps a song or movie from being copied. But the pirates break open the protection and give us the source media. “Broken open source” is also a play on the words “open source”-- referring to the open source movement. Open source is another important and totally legitimate part of the democratization of information.

Open source has it’s roots in the free software movement, a movement which has given us Firefox, Linux, Gimp, Droid, and whatever P2P client you are using to pirate media. Part of the philosophy behind the free software movement is that free and open software, software that anyone can identify flaws in and improve upon, is better than proprietary piece software which is closed to such improvements and expensive.

The spirit of open source didn’t end with free and open software. Users of the software and fans of the idea have begun to apply open source principals to other types of information and collaboration. Open source science is a movement among people working in propriety labs, chemical, genetic, engineering companies, to share data and reach mutual beneficial conclusions sooner. This collaboration, of course, happens via the web.

Web 2.0 sites such as Craigslist, Google, Blogger, Flickr, YouTube, MySpace and Facebook, often run on and provide open source software on their patrons. They also facilitate the type of collaboration at the heart of open source. Google doesn’t make the sites we search for, it just catalogs them. Google isn’t useful without all that free information we have scattered across billions and billions of web sites. Flickr and YouTube need us to create and catalog content that we also surf for on these sites. Facebook, Blogger and Flickr et. al. have gone so far as to publicly release their API (the rules and tools for programming applications for the site) and members of these sites are not only creating the content, they are creating new features for the websites as well.

Interlude: Before I move on to the Democratization of Finance, I want to take a paragraph to recap some ideas and expand on them. The Democratization of Technology gave us tons of cheap digital technologies and in turn made possible, and arguably necessary, the Democratization of Information. The Democratization of Information started with our ability to duplicate proprietary media and evolved to include the creation of open sources information in the form of both software and content.

Media piracy is upending the business model of the major media companies and they have no survival strategy. Craigslist and eBay are laying waste to the newspaper industry, which is struggling for survival. Microsoft has spent years and untraceable sums spreading fear, uncertainty and doubt about open source software. That’s Microsoft’s strategy. That, and to move to tightly connected hardware/software products like the X-Box and Zune, where they can still control the media.

If this still sounds small and unable to affect you--it’s not. The democratizations of technology and information are co-creating and destroying, not just jobs, but whole industries and business models that have existed for hundreds of years.

When I speak publicly about this issue I often point to ATM’s and self-service check outs. The college students don’t freak out about the fact blue collar jobs get automated out of existence, with our self-service help. I’ve seen a total of three bank tellers in the last decade and I always choose self check-out in a retail store if it’s offered. But when I point out that TurboTaxTM has unemployed lots of accountants (a white collar job) or that has the same effect on lawyers (a top-tier white collar job) the college students start to freak. What where you thinking?  The folks in the check outline aren’t less than you, just more easily automated. Your time to be devalued has arrived; you just haven’t noticed yet.

The models and industries being destroyed are often replaced with models that aren’t connected to business. Don’t think I am pimping for corporate America here. When you take away, say, half a million good middle class jobs--jobs that will let you buy a house, a car, have kids and send them to college; when you take away those jobs, that’s just not the problem of half a million families. That’s everyone’s problem. This change for the worse has rippled across the whole economy. In fact, the democratization of information has transformed the core of the modern economy because it changed finance.

To segue into the democratization of finance I offer you this quote from Paddy Chayefsky’s film Network:

There are no nations; there are no peoples. There are no Russians. There are no Arabs. There is no third world. There is no west. There is only one holistic system of systems; one vast interwoven, interacting, multivariate multinational dominion of dollars. Petrodollars, electrodollars, reichmarks, rubles, rin, pounds and shekels. It is the international system of currency that determines the totality of life on this planet. That is the natural order of things today. That is the atomic, subatomic and galactic structure of things today.

Now let me explain how things got that way.

The Democratization of Finance is both the hardest of these changes to easily explain and the one that can smack you the hardest if you don’t understand it. When I am speaking to groups and have to explain all this democratization stuff on the fly, I play another little thought game. Ready? Of all the democratized information pulsing through the Internet, which is the most valuable? Some wannabe comic always says porn. It’s not porn. (I’ll do the porn jokes, buddy.) It’s money. Because money is just a type of information, and like all information, it can be made digital and moved around the web at the speed of light.

In the United States, money became information on August 15, 1971 when President Nixon detached the U.S. dollar from the gold standard. The gold standard meant that every dollar was backed by a certain amount of gold. Now it’s based on solely on information. No, really!

Think of the dollar as a stock. The same things that affect the price of a stock --how well the company is doing and the surrounding news of the day--can affect the price of the dollar. A dollar is tied to our Gross Domestic Product (how much stuff America is making and selling) and the Borrowing Rates (how much it costs us to borrow the money we need to make the stuff). We want the first number to be high and the next number to be low. The news of the day also affects both of those things and as a result, the dollar’s value. On 9/11 the dollar went way down but not long after it came back. The immediate news was bad, but day by day, bit by bit, the news improved and so did the value of the dollar.

With me so far? Good, because this next part is tricky.

We are about to talk about the democratization of securitization. I just compared the value of the dollar to the value of a stock right? A stock is a type of financial security. A security is any instrument of investment (a stock, a bond, a mutual fund, etc.) providing documentation of ownership. Securitization is the legal act of creating such a security.

Let me explain by example. Say you, and a million others like you, take out a student loan. The loan companies only have so much money, right? So they need to get more money to make new loans. What the loan companies do is take like a million dollars worth of loans (or some other number), bundle them together and securitize them. Once they are a security, investors large and small can buy them.

The bank is happy because it now has more money. It can make more loans which it will later securitize so it can get more money and make more loans. It’s the circle of life if you are a bank. The students who took the loans are happy; they get to go to college. The investors who bought the securitized loans are happy because student loans are unbelievably safe. By the time these loans are paid off, and the securities reach maturity, the investors who own the security will be rolling in dough.

That, in a few paragraphs, is how securitization works at a basic level. It can be a lot more complex than my example, so complex I am afraid of going there. In A Brief History of Time Stephen Hawking famously says: “Someone told me that each equation I included in the book would halve the sales.” If I go on much more about the subtleties and complexities of securitization no one will be buying this book.

I do need to talk a bit about the history of securitization so that you understand how things have changed. Before the 1960’s, the average Joe Shmoe in the mall could only buy bonds from the government. Could be the city, county, state or federal government but it had to be the government. They could buy stocks on the stock market, but most didn’t.

But sometime between JFK saying we should go to the moon and the demise of The Beatles, it became possible to buy a bond directly from a company. Oh, it wasn’t the equivalent of a moon landing or MLK marching on The National Mall, but it was up there. To the financial industry it was Sgt. Pepper’s Lonely Heart’s Club Band important. The Beatles album radically changed the music scene, and this new securitization scheme radically changed the financial scene.

Fast forward to the 1990’s and there have been so many dramatic legal changes and economic inventions that you could securitize anything, anywhere. I mean anything. David Bowie--the rock star--sold a bond, based on his future record sales that promised the people who bought it a big pay off down the road. Has David Bowie bothered to write a song this decade? I told you –anything and everything. They are not all winners or number one hits.

The United States of America securitized its national debt and sold it to anyone and everyone. The nation of China is its single biggest buyer. The US isn’t alone, most nations with modern economies are all playing the “securitize my debt” game both nationally and internationally. All these types of securities were owned by literally millions of people all over the world.

The upside for the average Joe Shmoe in the mall is that all types of credit became easier to get. Meaning a car, a house, a credit card, even student loans became easier to obtain. There are big upsides and downsides to this new condition. Securitization has made the growth of companies like Google possible and securitization has ruined entire countries.

A third change happened between the 1980’s and 2000 that helped create the democratization of finance as we know it. Corporations stopped offering their employees pensions. Wanna know why? It was bankrupting them. A pension is a set amount of money a person gets every month after their retirement. But here was the problem with that: people were living much longer than expected. The medical care also associated with these pensions was skyrocketing in cost. This was killing otherwise great companies.

So what happened? Companies got together with the government and invented Individual Retirement Accounts (IRA’s) and other pension-like investment plans that let the corporations off the hook. When they did this, millions of Americans became investors overnight. This change also helped create the stock boom of the 1990’s. All those people had to have someplace to put their retirement money, right? So it’s a win-win-win. The people are placed in control of their retirement. The corporations’ stock prices goes up, and the dollar goes up.

When I was a kid who carried papers, I didn’t know a single person who owned stocks except one man on my paper route who received The Wall Street Journal, and I remember treating it as some exotic and strange object on his lawn. Now, I don’t know a family rich, poor or in between that does not have some type of investment—Mutual Fund, 401k, Stock, Bond, etc. and I read The Wall Street Journal online. Paper has a huge carbon footprint. Today, because of the liberalization of securities laws and some shrewd people on Wall Street, you can have quick access to a loan and, if you choose, use the money you were loaned to buy the very bond that backs your loan. This condition, globalization, is becoming the way things are all over the world.

Combined, the three democratizations allow more people than ever to research and invest (or divest) their money in or out of nearly any security they choose, all day, everyday and the transactions happen at the speed of light. Like crazed salmon, investments are now on a constant swim around the globe to find the best place to multiply and begin this quest again.

Globalization 3.0 and the Rise of the Creative Class

That’s you. You are the Creative Class. According to Friedman, we are just starting the third era of globalization or what he calls “Globalization 3.0.” What about Globalization 1.0 and 2.0? I’ll just let him explain:

Globalization 1.0. And that was primarily . . . the globalization of countries that began with Vasco da Gama and Christopher Columbus globalizing their countries and exploring the world on behalf of their countries. And that era, one could say, started in the 1400s and continued all the way—in its own way—right up to the invention of the steamship, the railroad and the telegraph, but ended with World War I. I call that Globalization 1.0. And it gradually shrank the world from a “Size Large” to a “Size Medium.” Then came Globalization 2.0. And that was really from World War II right up until the year 2000, until Y2K. And it really intensified from 1980 until 2000.

Globalization 3.0 is Globalization 2.0 on super-steroids. Between 1980 and 2000, we wired the planet for broadband and connected millions and millions of computers all over the globe. This shrunk the world to tiny size. It also means that individuals can take advantage of the tools and possibilities that drive globalization. In the last century, globalization was something that happened to us because of the actions of a country or corporation.

In the 21st century we’re players; we’re in the game. If you google “earth at night” and hit images you can see all these satellite images of the earth lit up by outdoor lights. I show that image to people all the time and call it a billion points of bright. All over the world every moment some new point of bright is logging onto this new global system. They’re turning on and tuning in to Globalization 3.0. You need to be one of these points.

Whether you like it or not, you are a player on a global field and you need to figure out how you best fit into that world. You must harness all the forces of globalization and use them to your advantage, just as corporations started doing in Globalization 2.0.

Globalization 3.0 is bringing about the end of the old school Knowledge Worker and at the same time producing Knowledge Worker 3.0, sometimes referred to as the “creative class.” The term “creative class” is the pet phrase of economist and author of The Rise of the Creative Class, Richard Florida.

Florida gets smacked a bit by critics because his definition of creative class is so broadly inclusive. But I give him props. He’s just trying to describe Knowledge Worker 3.0. If you were to read The Rise of the Creative Class, you would never see the word “globalization”, which I think is the missing piece of his puzzle. The “Creative Class” and “Knowledge Worker 3.0” are the same thing dressed a little differently. Whatever it’s called, it’s a sociological fact of life for Americans.

So why is all this important? Here we are, at the dawn of the 21st century, the beginning of Globalization 3.0, the birth of Knowledge Worker 3.0--there’s just one problem. The education system is still wired for the 20th century. Some people are suggesting that even the finest high schools are obsolete. Listen, I quote Bill Gates:

By obsolete, I don’t just mean that our high schools are broken, flawed and under-funded, Gates says. By obsolete, I mean that our high schools—even when they are working exactly as designed—cannot teach our kids what they need to know today.

If you are a recent high school graduate and are thinking, “Dude, you don’t know the half of it,” I have semi-good news for you. The American undergraduate experience, or what you’re headed into, is not obsolete. It is not fully up to speed or universally ready for the 21st century, but it isn’t obsolete. Let me give you one example.

If you are under 30-something and presently in college, you are a member of a generation that will be more responsible for your long term economic well being than your parents or grandparents. These preceding generations had opportunities for pensions and social security that very likely won’t be around when you retire. Pensions are gone, replaced with things like IRAs and 401k plans. Most of you probably don’t know what an IRA or a 401k is and that’s what I am getting at.

It’s possible to graduate from college and still not know. You could graduate from college and not know what a stock, bond, treasury bill, annuity or mutual fund is either. (They can all “live” inside an IRA or 401k.)

It is all too possible to graduate with a 4.0 and still not be prepared for the demands of 21st century life after college—unless you do the right things while you are in college. That’s what the rest of this book is all about- getting the most out of college and using it as a launch pad to a successful life.

All the strangers look like family All the family looks so strange The only constant I am sure of Is this accelerating rate of change

--Peter Gabriel