More not flat

I recently responded at length to a comment on my criticism of Tom Friedman’s The World is Flat. But I’m particularly eager to pursue one of the connections mentioned in that response. Suzanne Berger’s new book, How We Compete, sounds unmissable. From John Gray’s review in the current New York Review of Books, it sounds like a definitive refutation of the notion that there is one true path to success (which was peddled by Friedman in his earlier book, The Lexus and the Olive Tree, as well).

From Gray’s review:

Standard models assume that globalization means that one way of doing business will be imposed on everyone, but this is not supported by Suzanne Berger’s research on many companies in different parts of the world. She writes that the common belief is that “globalization forces everyone onto the same track. But that’s not what our team found.” Drawing on a five-year study by the MIT Industrial Performance Center, Berger presents a wealth of evidence about the different strategies adopted by five hundred international companies to survive and prosper in the global market. The result is a consistently enlightening analysis that explores the many different ways in which companies respond successfully to global competition. The computer company Dell is strongly focused on distribution and outsources all manufacturing of components overseas, for example in India, while Samsung makes almost everything itself; but both are rapidly growing, profitable businesses. General Motors is finding it difficult to adjust to high-wage labor, while Toyota—which has kept production at home or in other advanced countries—is doing well. Faced with similar challenges, companies can thrive or fail in different ways.

Devoting a significant part of her analysis to the dilemmas surrounding outsourcing, Berger concludes that the threat of continuing job losses in the US is at least partly real. Many economists insist that as old jobs are lost, new technologies and industries will appear to replace them. Berger does not entirely reject this view, but suggests that the experience of those who have been laid off and cannot find jobs without accepting large reductions in pay may point to a trend that mainstream economics has missed: “After crying wolf so often, perhaps this time the pessimists about technological advance and employment have really spotted one.” Outsourcing poses a real risk to employees; but Berger believes a “race to the bottom” can be avoided if companies accept that employing cheap labor is not the most effective way of responding to global competition. The activities that succeed over time are those that involve conditions —such as long-term working relations with customers and suppliers and specialized skills—which companies whose main asset is cheap labor cannot match. A company policy of forcing wages down is not a recipe for long-term corporate success.

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