It is no wonder that Craig Addison, the former editor of Electronic Business Asia magazine, wrote an essay for the International Herald Tribune (September 29, 2000), headlined “A ‘Silicon Shield’ Protects Taiwan from China.” He argued that “Silicon-based products, such as computers and networking systems, form the basis of the digital economies in the United States, Japan and other developed nations. In the past decade, Taiwan has become the third-largest information technology hardware producer after the United States and Japan. Military aggression by China against Taiwan would cut off a large portion of the world’s supply of these products . . . Such a development would wipe trillions of dollars off the market value of technology companies listed in the United States, Japan and Europe.” Even if China’s leaders, like former president Jiang Zemin, who was once minister of electronics, lose sight of how integrated China and Taiwan are in the world’s computer supply chain, they need only ask their kids for an update. Jiang Zemin’s son, Jiang Mianheng, wrote Addison, “is a partner in a wafer fabrication project in Shanghai with Winston Wang of Taiwan’s Grace T.H.W. Group.” And it is not just Taiwanese. Hundreds of big American tech companies now have R & D operations in China; a war that disrupted them could p. 424 lead not only to the companies moving their plants elsewhere but also to a significant loss of R & D investment in China, which the Beijing government has been betting on to advance its development. Such a war could also, depending on how it started, trigger a widespread American boycott of Chinese goods—if China were to snuff out the Taiwanese democracy—which would lead to serious economic turmoil inside China.
The Dell Theory had its first real test in December 2004, when Taiwan held parliamentary elections. President Chen Shui-bian’s pro-independence Democratic Progressive Party was expected to win the legislative runoff over the main opposition Nationalist Party, which favored closer ties with Beijing. Chen framed the election as a popular referendum on his proposal to write a new constitution that would formally enshrine Taiwan’s independence, ending the purposely ambiguous status quo. Had Chen won and moved ahead on his agenda to make Taiwan its own motherland, as opposed to maintaining the status quo fiction that it is a province of the mainland, it could have led to a Chinese military assault on Taiwan. Everyone in the region was holding his or her breath. And what happened? Motherboards won over motherland. A majority of Taiwanese voted against the pro-independence governing party legislative candidates, ensuring that the DPP would not have a majority in parliament. I believe the message Taiwanese voters were sending was not that they never want Taiwan to be independent. It was that they do not want to upset the status quo right now, which has been so beneficial to so many Taiwanese. The voters seemed to understand clearly how interwoven they had become with the mainland, and they wisely opted to maintain their de facto independence rather than force de jure independence, which might have triggered a Chinese invasion and a very uncertain future.
Warning: What I said when I put forth the McDonald’s theory, I would repeat even more strenuously with the Dell Theory: It does not make wars obsolete. And it does not guarantee that governments will not engage in wars of choice, even governments that are part of major supply chains. To suggest so would be naïve. It guarantees only that governments whose countries are enmeshed in global supply chains will have p. 425 to think three times, not just twice, about engaging in anything but a war of self-defense. And if they choose to go to war anyway, the price they will pay will be ten times higher than it was a decade ago and probably ten times higher than whatever the leaders of that country think. It is one thing to lose your McDonald’s. It’s quite another to fight a war that costs you your place in a twenty-first-century supply chain that may not come back around for a long time.
While the biggest test case of the Dell Theory is China versus Taiwan, the fact is that the Dell Theory has already proved itself to some degree in the case of India and Pakistan, the context in which I first started to think about it. I happened to be in India in 2002, when its just-in-time services supply chains ran into some very old-time geopolitics—and the supply chain won. In the case of India and Pakistan, the Dell Theory was working on only one party—India—but it still had a major impact. India is to the world’s knowledge and service supply chain what China and Taiwan are to the manufacturing ones. By now readers of this book know all the highlights: General Electric’s biggest research center outside the United States is in Bangalore, with seventeen hundred Indian engineers, designers, and scientists. The brain chips for many brand-name cell phones are designed in Bangalore. Renting a car from Avis online? It’s managed in Bangalore. Tracing your lost luggage on Delta or British Airways is done from Bangalore, and the backroom accounting and computer maintenance for scores of global firms are done from Bangalore, Mumbai, Chennai, and other major Indian cities.
Here’s what happened: On May 31, 2002, State Department spokesman Richard Boucher issued a travel advisory saying, “We urge American citizens currently in India to depart the country,” because the prospect of a nuclear exchange with Pakistan was becoming very real. Both nations were massing troops on their borders, intelligence reports were suggesting that they both might be dusting off their nuclear warheads, and CNN was flashing images of people flooding out of India. The global American firms that had moved their back rooms and R & D operations to Bangalore were deeply unnerved.
p. 426 “I was actually surfing on the Web, and I saw a travel advisory come up on India on a Friday evening,” said Vivek Paul, president of Wipro, which manages backroom operations from India of many American multinationals. “As soon as I saw that, I said, ‘Oh my gosh, every customer that we have is going to have a million questions on this.’ It was the Friday before a long weekend, so over the weekend we at Wipro developed a fail-safe business continuity plan for all of our customers.” While Wipro’s customers were pleased to see how on top of things the company was, many of them were nevertheless rattled. This was not in the plan when they decided to outsource mission-critical research and operations to India. Said Paul, “I had a CIO from one of our big American clients send me an e-mail saying, ‘I am now spending a lot of time looking for alternative sources to India. I don’t think you want me doing that, and I don’t want to be doing it.’ I immediately forwarded his message to the Indian ambassador in Washington and told him to get it to the right person.” Paul would not tell me what company it was, but I have confirmed through diplomatic sources that it was United Technologies. And plenty of others, like American Express and General Electric, with back rooms in Bangalore, had to have been equally worried.
For many global companies, “the main heart of their business is now supported here,” said N. Krishnakumar, president of MindTree, another leading Indian knowledge outsourcing firm based in Bangalore. “It can cause chaos if there is a disruption.” While not trying to meddle in foreign affairs, he added, “What we explained to our government, through the Confederation of Indian Industry, is that providing a stable, predictable operating environment is now the key to India’s development.” This was a real education for India’s elderly leaders in New Delhi, who had not fully absorbed how critical India had become to the world’s knowledge supply chain. When you are managing vital backroom operations for American Express or General Electric or Avis, or are responsible for tracing all the lost luggage on British Airways or Delta, you cannot take a month, a week, or even a day off for war without causing major disruptions for those companies. Once those companies have made a commitment to outsource business operations or research to India, they expect it to stay there. That is a major commitment. And if geopolitics p. 427 causes a serious disruption, they will leave, and they will not come back very easily. When you lose this kind of service trade, you can lose it for good.
“What ends up happening in the flat world you described,” explained Paul, “is that you have only one opportunity to make it right if something [goes] wrong. Because the disadvantage of being in a flat world is that despite all the nic
e engagements and stuff and the exit barriers that you have, every customer has multiple options, and so the sense of responsibility you have is not just out of a desire to do good by your customers, but also a desire for self-preservation.”
The Indian government got the message. Was India’s central place in the world’s services supply chain the only factor in getting Prime Minister Vajpayee to tone down his rhetoric and step back from the brink? Of course not. There were other factors, to be sure—most notably the deterrent effect of Pakistan’s own nuclear arsenal. But clearly, India’s role in global services was an important additional source of restraint on its behavior, and it was taken into account by New Delhi. “I think it sobered a lot of people,” said Jerry Rao, who, as noted earlier, heads the Indian high-tech trade association. “We engaged very seriously, and we tried to make the point that this was very bad for Indian business. It was very bad for the Indian economy . . . [Many people] didn’t realize till then how suddenly we had become integrated into the rest of the world. We are now partners in a twenty-four by seven by three-sixty-five supply chain.”
Vivek Kulkarni, then information technology secretary for Bangalore’s regional government, told me back in 2002, “We don’t get involved in politics, but we did bring to the government’s attention the problems the Indian IT industry might face if there were a war.” And this was an altogether new factor for New Delhi to take into consideration. “Ten years ago, [a lobby of IT ministers from different Indian states] never existed,” said Kulkarni. Now it is one of the most important business lobbies in India and a coalition that no Indian government can ignore.
“With all due respect, the McDonald’s [shutting] down doesn’t hurt anything,” said Vivek Paul, “but if Wipro had to shut down we would afp. 428fect the day-to-day operations of many, many companies.” No one would answer the phones in call centers. Many e-commerce sites that are supported from Bangalore would shut down. Many major companies that rely on India to maintain their key computer applications or handle their human resources departments or billings would seize up. And these companies did not want to find alternatives, said Paul. Switching is very difficult, because taking over mission-critical day-to-day backroom operations of a global company takes a great deal of training and experience. It’s not like opening a fast-food restaurant. That was why, said Paul, Wipro’s clients were telling him, “ ‘I have made an investment in you. I need you to be very responsible with the trust I have reposed in you.’ And I think that created an enormous amount of back pressure on us that said we have to act in a responsible fashion . . . All of a sudden it became even clearer that there’s more to gain by economic gains than by geopolitical gains. [We had more to gain from building] a vibrant, richer middle class able to create an export industry than we possibly could by having an ego-satisfying war with Pakistan.” The Indian government also looked around and realized that the vast majority of India’s billion people were saying, “I want a better future, not more territory.” Over and over again, when I asked young Indians working at call centers how they felt about Kashmir or a war with Pakistan, they waved me off with the same answer: “We have better things to do.” And they do. America needs to keep this in mind as it weighs its overall approach to outsourcing. I would never advocate shipping some American’s job overseas just so it will keep Indians and Pakistanis at peace with each other. But I would say that to the extent that this process happens, driven by its own internal economic logic, it will have a net positive geopolitical effect. It will absolutely make the world safer for American kids.
Each of the Indian business leaders I interviewed noted that in the event of some outrageous act of terrorism or aggression from Pakistan, India would do whatever it takes to defend itself, and they would be the first to support that—the Dell Theory be damned. Sometimes war is unavoidable. It is imposed on you by the reckless behavior of others, and you have to just pay the price. But the more India and, one hopes, soon Pakistan get enmeshed in global service supply chains, the greater disinp. 429centive they have to fight anything but a border skirmish or a war of words.
The example of the 2002 India-Pakistan nuclear crisis at least gives us some hope. That cease-fire was brought to us not by General Powell but by General Electric.
We bring good things to life.
Infosys Versus al-Qaeda
Unfortunately, even GE can do only so much. Because, alas, a new source for geopolitical instability has emerged only in recent years, for which even the updated Dell Theory can provide no restraint. It is the emergence of mutant global supply chains—that is, nonstate actors, be they criminals or terrorists, who learn to use all the elements of the flat world to advance a highly destabilizing, even nihilistic agenda. I first started thinking about this when Nandan Nilekani, the Infosys CEO, was giving me that tour I referred to in Chapter 1 of his company’s global videoconferencing center at its Bangalore headquarters. As Nandan explained to me how Infosys could get its global supply chain together at once for a virtual conference in that room, a thought popped into my head: Who else uses open-sourcing and supply-chaining so imaginatively? The answer, of course, is al-Qaeda.
Al-Qaeda has learned to use many of the same instruments for global collaboration that Infosys uses, but instead of producing products and profits with them, it has produced mayhem and murder. This is a particularly difficult problem. In fact, it may be the most vexing geopolitical problem for flat-world countries that want to focus on the future. The flat world—unfortunately—is a friend of both Infosys and al-Qaeda. The Dell Theory will not work at all against these informal Islamo-Leninist terror networks, because they are not a state with a population that will hold its leaders accountable or with a domestic business lobby that might restrain them. These mutant global supply chains are formed for the purpose of destruction, not profit. They don’t need investors, only recruits, p. 430 donors, and victims. Yet these mobile, self-financing mutant supply chains use all the tools of collaboration offered by the flat world—open-sourcing to raise money, to recruit followers, and to stimulate and disseminate ideas; outsourcing to train recruits; and supply-chaining to distribute the tools and the suicide bombers to undertake operations. The U.S. Central Command has a name for this whole underground network: the Virtual Caliphate. And its leaders and innovators understand the flat world almost as well as Wal-Mart, Dell, and Infosys do.
In the previous chapter, I tried to explain that you cannot understand the rise of al-Qaeda emotionally and politically without reference to the flattening of the world. What I am arguing here is that you cannot understand the rise of al-Qaeda technically without reference to the flattening of the world, either. Globalization in general has been al-Qaeda’s friend in that it has helped to solidify a revival of Muslim identity and solidarity, with Muslims in one country much better able to see and sympathize with the struggles of their brethren in another country—thanks to the Internet and satellite television. At the same time, as pointed out in the previous chapter, this flattening process has intensified the feelings of humiliation in some quarters of the Muslim world over the fact that civilizations to which the Muslim world once felt superior—Hindus, Jews, Christians, Chinese—are now all doing better than many Muslim countries, and everyone can see it. The flattening of the world has also led to more urbanization and large-scale immigration to the West of many of these young, unemployed, frustrated Arab-Muslim males, while simultaneously making it much easier for informal open-source networks of these young men to form, operate, and interconnect. This certainly has been a boon for underground extremist Muslim political groups. There has been a proliferation of these informal mutual supply chains throughout the Arab-Muslim world today—small networks of people who move money through hawalas (hand-to-hand financing networks), who recruit through alternative education systems like the madrassas, and who communicate through the Internet and other tools of the global information revolution. Think about it: A century ago, anarchists were limited in their ability to communicat
e and collaborate with one another, to find sympathizers, and to band together for an p. 431 operation. Today, with the Internet, that is not a problem. Today even the Unabomber could find friends to join a consortium where his “strengths” could be magnified and reinforced by others who had just as warped a worldview as he did.
What we have witnessed in Iraq is an even more perverse mutation of this mutant supply chain—the suicide supply chain. Since the start of the U.S. invasion in March 2002, more than two hundred suicide bombers have been recruited from within Iraq and from across the Muslim world, brought to the Iraqi front by some underground railroad, connected with the bomb makers there, and then dispatched against U.S. and Iraqi targets according to whatever suits the daily tactical needs of the insurgent Islamist forces in Iraq. I can understand, but not accept, the notion that more than thirty-seven years of Israeli occupation of the West Bank might have driven some Palestinians into a suicidal rage. But the American occupation of Iraq was only a few months old before it started to get hit by this suicide supply chain. How do you recruit so many young men “off the shelf” who are ready to commit suicide in the cause of jihad, many of them apparently not even Iraqis? And they don’t even identify themselves by name or want to get credit—at least in this world. The fact is that Western intelligence agencies have no clue how this underground suicide supply chain, which seems to have an infinite pool of recruits to draw on, works, and yet it has basically stymied the U.S. armed forces in Iraq. From what we do know, though, this Virtual Caliphate works just like the supply chains I described earlier. Just as you take an item off the shelf in a discount store in Birmingham and another one is immediately made in Beijing, so the retailers of suicide deploy a human bomber in Baghdad and another one is immediately recruited and indoctrinated in Beirut. To the extent that this tactic spreads, it will require a major rethinking of U.S. military doctrine.
The World Is Flat Page 49
