and to be ready to suffer some short-run pain for longer gain.
I fear, though, that things will have to get worse before they get better. As Judy Estrin said, it will probably take a crisis. I would simply add: The crisis is already here. It is just playing out in slow motion. The flattening of the world is moving ahead apace, and barring war or some catastrophic terrorist event, nothing is going to stop it. But what can happen is a decline in our standard of living, if more Americans are not empowered and educated to participate in a world where all the knowledge centers are being connected. We have within our society all the ingredients for American individuals to thrive in this world, but if we squander those ingredients, we will stagnate.
I repeat: This is not a test. This is a crisis, and as Paul Romer has so perceptively warned, “A crisis is a terrible thing to waste.”
Developing Countries and the Flat World
NINE: The Virgin of Guadalupe
The more I worked on this book, the more I found myself asking people I met around the world where they were when they first discovered that the world was flat.
In the space of two weeks, I got two revealing answers, one from Mexico, one from Egypt. I was in Mexico City in the spring of 2004, and I put the question on the table during lunch with a few Mexican journalist colleagues. One of them said he realized that he was living in a new world when he started seeing reports appearing in the Mexican media and on the Internet that some statuettes of Mexico's patron saint, the Virgin of Guadalupe, were being imported into Mexico from China, probably via ports in California. When you are Mexico and your claim to fame is that you are a low-wage manufacturing country, and some of your people are importing statuettes of your own patron saint from China, because China can make them and ship them all the way across the Pacific more cheaply than you can produce them, you are living in a flat world.
You've also got a problem. Over at the Central Bank of Mexico, I asked its governor, Guillermo Ortiz, whether he was aware of this issue. He rolled his eyes and told me that for some time now he could feel the competitive playing field being leveled-and that Mexico was losing some of its natural geographic advantages with the U.S. market-by just staring at the numbers on his computer screen. “We started looking at the numbers in 2001 -it was the first year in two decades that [Mexico's] exports to the U.S. declined,” said Ortiz. “That was a real shock. We started reducing our gains in market share and then started losing them. We said that there is a real change here... And it was about China.”
China is such a powerhouse of low-cost manufacturing that even though the NAFTA accord has given Mexico a leg up with the United States, and even though Mexico is right next door to us, China in 2003 replaced Mexico as the number two exporter to the United States. (Canada remains number one.) Though Mexico still has a strong position in big-ticket exports that are costly to ship, such as cars, auto parts, and refrigerators, China is coming on strong and has already displaced Mexico in areas such as computer parts, electrical components, toys, textiles, sporting goods, and tennis shoes. But what's even worse for Mexico is that China is displacing some Mexican companies in Mexico, where Chinese-made clothing and toys are now showing up on store shelves everywhere. No wonder a Mexican journalist told me about the day he interviewed a Chinese central bank official, who told him something about China's relationship with America that really rattled him: “First we were afraid of the wolf, then we wanted to dance with the wolf, and now we want to be the wolf.”
A few days after returning from Mexico, I had breakfast in Washington with a friend from Egypt, Lamees El- Hadidy, a longtime business reporter in Cairo. Naturally I asked her where she was when she discovered the world was flat. She answered that it was a just few weeks earlier, during the Muslim holy month of Ramadan. She had done a story for CNBC Arabiya Television about the colorful lanterns called fawanis, each with a burning candle inside, that Egyptian schoolchildren traditionally carried around during Ramadan, a tradition dating back centuries to the Fatimid period in Egypt. Kids swing the lanterns and sing songs, and people give them candy or gifts, as in America on Halloween. For centuries, small, low-wage workshops in Cairo's older neighborhoods have manufactured these lanterns-until the last few years.
That was when plastic Chinese-made Ramadan lanterns, each with a battery-powered light instead of a candle, began flooding the market, crippling the traditional Egyptian workshops. Said Lamees, “They are invading our tradition -in an innovative way-and we are doing nothing about it... These lanterns come out of our tradition, our soul, but [the Chinese versions] are more creative and advanced than the Egyptian ones.” Lamees said that when she asked Egyptians, “Do you know where these are made?,” they would all answer no. Then they would turn the lamps over and see that they came from China.
Many mothers, like Lamees, though, appreciated the fact that the Chinese versions are safer than the traditional Egyptian ones, which are made with sharp metal edges and glass, and usually still use candles. The Chinese versions are made of plastic and feature flashing lights and have an embedded microchip that plays traditional Egyptian Ramadan tunes and even the theme song to the popular Ramadan TV cartoon series Bakkar. As Business Monthly, published by the American Chamber of Commerce in Egypt, reported in its December 2001 issue, Chinese importers “are pitted not only against each other, but also against the several-hundred-year-old Egyptian industry. But the Chinese models are destined to prevail, according to [a] famous importer, Taha Zayat. Imports have definitely cut down on sales of traditional fawanis,' he said. 'Of all fawanis on the market, I don't think that more than 5 percent are now made in Egypt.' People with ties to the Egyptian [fawanis] industry believe China has a clear advantage over Egypt. With its superior technology, they said, China can make mass quantities, which helps to keep prices relatively low. Egypt's traditional [fawanis] industry, by contrast, is characterized by a series of
