All Commentary
Tuesday, August 1, 2000

The Lexus and the Olive Tree: Understanding Globalization

Globalization Is Likely to Lead to More Peace

Thomas Friedman has written a very surprising book. Surprising not in what he has written, but in that Thomas Friedman wrote it. Friedman is the foreign affairs columnist for the New York Times, and is probably known to readers of Ideas on Liberty as a moderately “liberal” establishment journalist. He is certainly not known as a defender of economic liberty. Yet this book presents a compelling story about the prospects for global economic liberty.

The interesting title is chosen as a metaphor for the choice Friedman says today’s societies face. They can pursue fancy cars like the Lexus by moving toward free trade, sound accounting, transparency, property rights, and the rule of law. Or they can continue to fight over olive trees through tribalism, nationalism, and isolation. As metaphors go, it’s not a bad one. Each choice offers benefits and pitfalls, but if you value freedom and prosperity, your society had better go for the Lexus.

Friedman sees globalization as the One Big Idea of the post-Cold War era. But joining the global village is not easy; it requires a nation to put on what Friedman calls the “Golden Straightjacket.” That’s private property, low inflation, shrinking government, free trade, deregulation, currency convertibility, reduced corruption, open markets, private pensions, and so on. In short, a libertarian dream.

Once you join the global world, you had better wrap the Golden Straightjacket pretty tight because if your country is seen to be at all weak on any part of it, you might get a visit from “The Electronic Herd.” That’s you and me trading everything from T-bills to Russian bonds. When the herd gets spooked—when we worry about Russian inflation for example—the herd can create a major crisis overnight. Friedman is one of the few journalists to actually understand the nature of the Asian/Russian currency crisis. Sure, people like Malaysia’s Prime Minister Dr. Mahathir Mohamad can blame it on George Soros or the Jews, but the real enemy was TIAA-CREF, e*, and Merrill Lynch.

The Electronic Herd can be unfair, even wrong, but to fight it is useless. You either embrace the Herd, and the discipline it mandates, or you’d better get off the range. In this, Friedman is less an advocate for globalization than the deliverer of the bad (or good depending on your perspective) news. His major point is that globalization is here to stay whether you like it or not.

Friedman loves his metaphors, though they sometimes get on one’s nerves. One of the more effective chapters is “DOSCapital 6.0.” Friedman describes countries as computers. Communist countries were running on a really bad operating system, DOSCapital 0.0 while others have advanced to DOSCapital 1.0 up to 6.0. The more free market your country, the more advanced your operating system. It is interesting to compare his list of countries with one of the economic-freedom indexes now available. Perhaps Taiwan is too high and Thailand too low on his scale, but basically he got it right.

In another interesting chapter, Friedman notes that “No two countries that both have McDonald’s have fought a war against each other since each got its McDonald’s.” This was true when he wrote it, but unfortunately is not true since the United States attacked Serbia. (Interestingly, the McDonald’s in Belgrade ran strong pro-Serb promotions during the attacks.) But the larger point is that globalization is likely to lead to more peace—a point free-market advocates have made for decades.

But Friedman does have some problems with his analysis. In a series of chapters he goes through some of the pitfalls associated with globalization. Some are real; some are imagined. For example, Friedman worries that globalization will increase income inequality. But as a rule, developed countries have more equal income “distributions” than less developed countries.

Friedman also worries that freer markets and prosperity will lead to greater environmental problems. There is a grain of truth to this fear. Developing countries often make short-term sacrifices of environmental quality to achieve economic growth. Nineteenth-century American cities were filthy messes. But over time development will lead to the willingness and ability to pay for a cleaner environment. To his credit, he grudgingly recognizes this and argues that corporations, not corrupt bureaucrats, are the more likely saviors of the environment, not corrupt bureaucrats.

As Friedman finishes the book, he offers words of caution about the inevitable backlash against globalization. Indeed, as Virginia Postrel argues in her book, The Future and Its Enemies, we do have conflicting visions before us. One is the dynamist world embodied in Friedman’s Lexus and the other is the stasist view of his olive tree. Several thousand World Trade Organization protesters in Seattle were a testament to the power of the olive tree. But the good news is that the dynamist view is winning and it is not easy to see how we can turn back.

  • Robert Lawson is the Jerome M. Fullinwider Endowed Centennial Chair in Economic Freedom in the O’Neil Center for Global Markets and Freedom. He is a member of FEE Board of Scholars.