Book Review: The Lexus And The Olive Tree
If you want to understand the post-Cold War world, you have to start by understanding the new system that has succeeded it --- globalization. That is the premise of the book The Lexus and the Olive Tree by the New York Times foregin affairs columnist Thomas L. Friedman.
The book is divided into three parts. Part One, "Seeing the System" explains the system of globalization and how much it differs from the system that preceeded it---Cold War. He explains that the driving force behind globalization is free market capitalism. The more you open your economy to market forces, free trade and competition, the more efficient and flourishing your economy will be. He mentions three important forces that are reposnsible for creating and sustaining globalization, which are, the democratization of technology, information and finance. To be successful in this economy, you have to decentralize and give more responsibilities to people so that they can react faster to changes.
Due to the democratization of finance, anonymous investors around the world can invest their savings in various countries and companies around the world. This community of investors which Friedman calls the electronic herd, likes countries which have worn the Golden Straightjacket. By this he means counties which have made private sector the primary engine of economic growth, maintains a low rate of inflation, has small bureaucracy, has removed restrictions on foreign investment, promotes domestic competition etc.
The second part of the book, "Plugging into the system", Friedman compares countries to a computer. He says that for successfully participating in globalization, a country should have the right hardware and the right software. The right hardware is free market economy and the right software includes banking laws, commercial laws, bankruptcy rules, independent central bank etc.
Another term he introduces is "Globalution". This is the process by which the electronic herd uses its financial clout to bring about changes in the internal working of a country. This could be a simple as reducing corruption, bringing in more transparency and enforcing standards in accounting. As an example he gives the story of a Sri Lankan factory which manufactures textiles for Victoria's secret. Friedman was surprised not to see a sweatshop. Then the owner tells him that if he ran a sweatshop, then big brands would not buy from him. Besides quality and better price, global consumers are asking for better conditions for the workers as well. With Globalization each country has to think of itself as a publicy traded company.
Then he presents his Golden Arches theory of conflict prevention which states that no two countries which had McDonalds fought a war against each other since each one of them got its McDonalds. What this means is that when there is a middle class big enough to support a McDonalds network, those nations do not like to fight wars.
The third part of the book deals with "The backlash against the system". The backlash is caused by people who resent this phenomenon for various reasons such as they get economically pinched by it, they do not have the skills nor the will to survive, the widening income gaps, they do not have any control over it etc. This includes countries like Malaysia which tried to cut off from Globalization following the Asian crisis to the people who come to protest against the Davos Economic Summmit and WTO meetings.
The final part of the book is titled "America and the system", which explains why America has been very successful in exploiting Globalization to its advantage and why other countries have not been able to. It also explains why so many people and nations resent this and and how they react, from simple name calling to performing destructive acts like bombing the World Trade Center.
According to him, "Globalization is very difficult to reverse because it is driven both by enormously powerful human aspirations for higher standards of living and by enormously powerful technologies which are integrating us more and more every day, whether we like it or not". The best way to keep it alive is to get more and more involved.
The name of the book comes from the two opposing forces at work today. There are countries that still cling to their olive trees which stand for age old traditions and customs and the Lexus which stands for modernization. Most major conflicts in the world are between communities wanting to hold on to their olive trees and oppose any integration with the world and countries which have advanced their level of living for its citizens by modernizing and integrating with the world economy. The challenge for individuals and nations is to find a balance between these two.
Tom Friedman says in his book that someone has to have the best job in the world and that is him. He gets to travel all around the world (he has eaten from McDonalds in all countries where McDonalds is present) and talk to the Presidents, Prime Ministers, Finance Ministers, ordinary people in almost all the countries. This book is written based on anecdotes based on his travel. This book is easy to read, and even though it is a book about finance, there are no boring economic lectures. This book is highly recommended.