Rise of the Internet - Essay Example

Is The World Flat? Rise of the Internet The book by Thomas L. Friedman (2005) claims that world have become much smaller. From any computer in the world, you can contact almost anyone around the world who has a computer (Brakman and Van Marrewijk, 2007, p. 2). Businesses realized that this is a great tool to take advantage of. A service or product is no longer limited to the shop, nor the clients limited to a certain town or city; it can be the whole country, or even the world. Physical boundaries have become almost meaningless (Friedman, 2005). The rise in the number of internet users further inspired businesses to go on the World Wide Web. In the latest statistics shown in Table 1, more than half of the population of Europe are already online, which is a growth of 352 percent since the year 2000 (anon., 2010). Table 1. World Internet Usage and Population Statistics WORLD INTERNET USAGE AND POPULATION STATISTICS World Regions Population Internet Users Internet Users ( 2010 Est.) Dec. 31, 2000 Latest Data Africa 1,013,779,050 4,514,400 110,931,700 Asia 3,834,792,852 114,304,000 825,094,396 Europe 813,319,511 105,096,093 475,069,448 Middle East 212,336,924 3,284,800 63,240,946 North America 344,124,450 108,096,800 266,224,500 Latin America/Caribbean 592,556,972 18,068,919 204,689,836 Oceania / Australia 34,700,201 7,620,480 21,263,990 WORLD TOTAL 6,845,609,960 360,985,492 1,966,514,816 Source: http://www.internetworldstats.com/stats.htm Another powerful result is the ease of transfer of technology and workload. Jobs can now be broken into pieces and sent to other places where they can be done most efficiently, and when done, they can simply be returned to the source and reassembled. A. J. Jacobs (n.d.), editor-at-large at Esquire magazine, wrote about the way he outsourced his life, from his job to personal necessities. Even in Europe, jobs can simply be moved to cheaper regions in the Central and Eastern European (CEE) countries. Companies and Trade Initially, technological improvement made it possible for people to communicate better with each other. With the increase and ease of contact between cities, states and countries, companies find it practical and profitable to expand. Soon enough, the seas were no longer enough as a barricade to progress. Companies already realized the potential of other countries to provide cheap labour, but before the widespread of the internet as a medium of communication, it has mostly been limited to manual labour. The increase in communication speed provided businesses with a way to outsource some parts of the process where it can be done much cheaper and, due to the time zone difference, the work can even be done “overnight,” which is mentioned in several places by Thomas Friedman in his work “The World is Flat” (2005). This 24-hour accessibility has obvious advantages, especially in pleasing clients. An example of moving of jobs is the move of Western European firms to the cheaper regions of the Eastern European states. Although it was mainly due to its growth after its accession to the European Union (EU) and the European Common Market, it was further aided by this move. However, not all jobs transfer between EU states; some are moved to other countries like China. Peter Dicken said (2003, p. 9), “national boundaries no longer act as ‘watertight’ containers of the production process.” The effect of transplanting jobs to other countries, according to Debora Spar (2001, p. 207), has ramifications more than just moving jobs; it also has political ramifications and “potentially subject to the long arm of domestic policy.” There is also the issue of protectionism when it comes to trading agricultural products. The Common Agricultural Policy (CAP) of Europe provides farmers with a minimal price for products and also subsidizes the exports, an action that renders the agricultural products of other countries, especially developing countries, less competitive both within Europe and within their own markets. Spar (2001, p. 208) explains that because trade easily crosses national borders and can affect a national economy, “governments have nearly always tried to govern the trading economy and shape the performance of trading firms” and they “create rules that directly and indirectly affect the ability of firms to compete across borders.” Information Exchange In the Information Age, information becomes power. There is a transfer of information in the world, from Western locations, such as the United States of America and the European Union, to Asian ones like China and India. Most notably, China has been a much preferred place to outsource because of the low cost of labour (Brown, 2005). Because of this, the many countries are gaining power in the global market, but this does not necessarily create a level playing field. As mentioned in the previous paragraph, China is preferred because it has lower cost of labour. Thomas Friedman (2005, p. 441) mentioned that “entrepreneurs and CEOs were responding to the flattening of the world.” However, by moving to China, it is not necessarily the flattening of the world that they are thinking about but simply practicality in the face of economic crisis. The necessity of looking for cheaper labour will allow companies to grow and expand and funnel more funds into looking for more specialists to hire. Friedman (2005, p. 463) added that it is “not to save money by firing more people.” That may be so, but it still becomes the inevitable result. As information becomes easier to transfer and obtain, so does the process of doing businesses. A process can be outsourced at a fraction of the price it takes to perform it locally. The result is that more people can be hired to do the job, and the results are multiplied. It is also a question of efficiency. It is better to find three new, outsourced agents working in eight-hour shifts than to force or coerce an experienced employee to work for 24 hours straight. The company covers more ground, saves money, expands, and if at first the outsourced employees proved inefficient, there is still room for further improvement, or if not, there is still an available pool of cheap labour. However, according to Robert Feenstra (1998, p. 14), whether the rise of inequality in terms of wage is due to the improvement in communication or trade or both cannot be completely answered, but that they provide partial explanations. Byron Dorgan (2007) expressed his concern over the security process of outsourcing. In his book, “Take This Job and Ship It,” he used the example of the U. S. Predator drone which has components that are made in foreign countries. He suggested the scenario that if such countries turn hostile, not only can they cease the production of the components, but they may also be able to duplicate the weapon and use it against the United States. Of course this is just one example, albeit an extreme one. There may be other ways to see disadvantages of taking jobs and shipping it to other countries and territories all for the sake of cost-cutting, or for whatever business purpose the company might think of. Is Flat Equality? There must be some misunderstanding when people say the world is becoming flatter to mean that everyone has equal opportunity for work or income. The previous illustration should have dispelled that mistaken notion. Companies will more often than not choose and develop three inexperienced but cheap labourers than pay more for one experienced person to do the same job. That means more jobs are going out to countries with cheaper labour, and that is where companies will expand. Brakman and Van Marrewijk (2007, p. 6) mentioned that the result of the flattening should be a “tendency for income levels of similar workers to become more equal over time.” They also added (Brakman and Van Marrewijk, 2007, p. 6) that “low initial levels of income should grow faster than countries with initially high levels of income in order to converge.” But the income convergence graph made by the authors based on the details provided by Angus Maddison (2007) on initial per capita income and economic growth from 1950 to 2003 does not support the hypothesis (see Figure 1 and Table 2). Figure 1. Income Convergence, 1950-2003, from Brakman and Marrewijk (2007, p. 6). Table 2. Convergence; regressions for 1950-2003 Furthermore, there is also the issue based on the research of Alberto Chong and Mark Gradstein (2006, p. 29) that shows “information on various aspects of firm-level illegality across various countries with diverse institutional quality.” Since “country-wide measures of institutional quality” greatly contributes to the extent of illegality (Chong and Gradstein, 2006, p. 29), this only serves to make the world even less equal, especially in poor countries since companies can take advantage of them. When Friedman (2005, p. 437) talked about “large numbers of people escaping poverty,” he might have failed to realize the possibility of illegality thanks to the lax application of laws in poor countries. Unequal Wage The question arises why there is no equality when it comes to the wages, even though there seems to be an equal opportunity to access information. How come neither the wages of developing countries do not increase significantly nor the wages of developed countries go down so that there would be a convergence in wages? Paul Krugman (1996) may have an answer: “Even though world trade is larger than ever before, national living standards are overwhelmingly determined by domestic factors rather than by some competition for world markets.” We now live in a world where international trade is difficult, if not outright impossible, to avoid, and where productions are handle by transnational corporations (Dicken, 2003, p. 12). Globalisation occurs, but it does not mean that the world will become flat. It may instead be even more uneven than before because of the global trade. Globalisation is hard to ignore because it “has drawn attention to itself as a consequence of its rapid acceleration” (Anon., 2010). People are easily connected through a fast medium, and so are trade and businesses. However, the pace is not quite as apparent in the “global poor” areas of the world that are being left behind (Anon., 2010). Globalisation, then, “is linked with widening global inequality” (Anon., 2010). The Significance of Globalisation But globalisation also provides great significance for the prosperity of the world, says Jonathan Michie in his work on globalisation (2003, p. 1). He also added that the debates surrounding it are “far from being resolved” but that because of this “they reflect the continued policy debate and action, and the continuously changing contours of the globalisation process itself (Michie, 2003, p. 1). As the International Income Distribution Chart in 1980 and 2000 by Edward Leamer (2006) shows, there has no tendency for income to equalize. Douglas Irwin (2006, p. 47) said that “[i]t is the task of economists to confront these fears about globalisation – not to dismiss them, but to address them.” Friedman’s concept of a “flat world” may be too optimistic, which, although there is nothing bad with being such, it is a different matter to downplay the disadvantages. For example, Friedman (2005, p. 24) knows that “call center jobs are low-wage, low-prestige jobs in America, but when shifted to India they become high-wage, high-prestige jobs.” This is already a sure sign of inequality. The flat world (Friedman, 2005) also suggests a kind of job specialization, where grunt-type jobs should be sent to grunt-type areas, but this is ignoring the fact that many people all throughout the world often rely on grunt-type jobs to feed their family. To outsource this, even with the intention of providing more “higher-level jobs” to people is to forget that those who lost their grunt-type jobs may not be qualified for “higher-level jobs.” Some Solutions Dorgan (2007, p. 142) offered some suggestions for the U. S. to try, some of which may still be applicable for other countries that are also facing some trade concerns. Those that may not be universally applicable, however, are discarded. 1. Fair Trade Team This will handle the development of fair trade plans. Spar (2001) said, “[o]f all the rules that impinge upon the conduct of international business, the rules of trade are perhaps the most obvious.” Whatever advantages or disadvantages it may provide it is better to have a team who can prepare to pre-empt any changes in the market. Dorgan suggested that the goal of the team should be to balance trade deficits as well as worker wages. In Figure 2, Béla Galgóczi (n.d.) shows the “levels of average gross industrial wages in CEE countries, calculated in euros at official exchange rates.” However, see added “wages are depressed and their uneven development is not in line with economic performance in most CEE countries.” Figure 2. Wage levels, current euros vs. PPP, source: WIIW database and Galgóczi (n.d.). 2. National Security Assessment As mentioned earlier, Dorgan expressed concern over the outsourcing of military components. This is a risk that may not be worth the cost-cutting or business expansion in the end. An additional example from Dorgan (2007) might prove helpful. He mentioned that Oliver North accused the Swiss government ordered a Swiss company called Micro Crystals to stop their shipment of a component that is used in Operation Enduring Freedom. According to him, the reason is that the Swiss opposed the war in Iraq. While some countries and territories in the CEE may not have such concerns, it is still best to at least consider national security when it comes to trade. 3. Trade Prohibition with Questionable Companies It was also mentioned earlier that there are some companies who, due to the lax of law enforcement, practice certain illegalities. However, in this recommendation, Dorgan also includes those that violate human rights. Continuous trade with such companies will simply further expand the human rights violation because they realize that not only can they get away with it, but they can also earn much more than if they resort to legal means. 4. Trade Deficits Ceiling If there is debt ceiling, Dorgan reasons, there should also be trade deficits ceiling. He recommends that action should be taken once a certain limit is reached in trade deficit, such as 25% of the Gross Domestic Product (GDP). This may seem too much of a protectionist act, but it is far better to avoid debt than to find a cure once inundated. 5. Better Labour Unions Dorgan claims that labour unions actually provide a check and balance to corporate power and abuse. Although he accepts that they also abused their power, it is now the corporations who are abusing their power. It is a counterbalance of which everyone might be able to benefit. In the CEE countries, “trade unions need solid roots in the workplace” if they are to represent the interests of the employees (Galgóczi, n.d.). 6. Health Care and Education Health care and education should be improved. Health care ensures that employees can continue working and education ensures that people can find creative-type jobs in the future, if ever governments decide to ship grunt-type jobs out of the country. In his book, Dorgan (2007) suggested the idea of his Senate colleague, John Kerry, whose program would allow students to earn an equivalent of their state’s four-year public college tuition by working for a community service. This concept may also be applicable in countries in the CEE. Dorgan provided practical steps to resolving potential problems. It is up to the people to show their support for these suggestions. References Anonymous, 2010. Internet Usage Statistics, Internet World Stats, [online], Available at: [Accessed 30 November 2010] Anonymous, 2010. Winners and Losers, OneWorld.net, [online], Available at: < http://uk.oneworld.net/guides/globalisation?gclid=CPqyys-xwqUCFQd76wodOHo4ZQ> [Accessed 28 November 2010] Brakman, S. and Van Marrewijk, C., 2007. It’s A Big World After All. [pdf] Available at: [Accessed 27 November 2010]. Brown, A. S., 2005. The China Road. Mechanical Engineering, 127(3), pp. 36-40 Chong, A. Gradstein, M., 2006. Is The World Flat? Or Do Countries Still Matter? [pdf] Washington DC: Inter-American Development Bank. Available at: [Accessed 27 November 2010] Dicken, P., 2003. Global Shift: Reshaping the Global Economic Map in the 21st Century. London: SAGE Publications Ltd. Dorgan, B., 2007. Take This Job and Ship It: How Corporate Greed and Brain-Dead Politics are Selling Out. New York: St. Martins Press. Feenstra, R., 1998. Integration of Trade and Disintegration of Production in the Global Economy. [pdf] Available at: [Accessed 27 November 2010]. Friedman, T., 2005. The World is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux. Galgóczi, B., n.d. Wage Trends in Central and Eastern Europe. [pdf] Available at [Accessed 28 November 2010] Irwin, D., 2006. Commentary: Shifts in Economic Geography and Their Causes. [pdf] Available at: [Accessed 27 November 2010]. Jacobs, A. J., n.d. My Outsourced Life. 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