Laurel Miller Dakin Munson Kaytee Norris

1. The World Is FlatAmerica and the Flat WorldChapter 5:America and Free TradeIs Ricardo Still Right? Laurel Miller Dakin Munson Kaytee Norris

2. Flattening and the Uneducated • http://video.on.nytimes.com/?fr_story=74b000d4cce1471f197eb2ed4e68ccc176ea97c8 “Thomas L. Friedman, Op-Ed columnist, and Joseph E. Stiglitz, winner of the 2001 Nobel Prize in Economics, discuss how globalization is changing the world.” -- Short Clip from NYTimes.com

3. America and Free Trade • “Will free trade benefit America as a whole when the world becomes so flat and so many more people can collaborate and compete with my kids?” (pg. 263) • Answer: Yes!

4. “Ricardo is Right” • David Ricardo • English economist • Developed free trade theory of comparative advantage • Theory states: “…if each nation specializes in the production of goods in which it has a comparative cost advantage and then trades with other nations for the goods in which they specialize, there will be an overall gain in trade, and overall income levels should rise in each trading company.” (pg. 264)

5. Arguments Against Free Trade • Not only are we trading goods – we are trading services. • This eliminates jobs that support middle-class Americans • We could be headed for a decline unless we protect these jobs by not allowing free trade • Wages will undoubtedly set a lower equilibrium

6. Discussion Question #1 • Do you think that free trade would benefit or hurt Americans in a flat world? • Should we allow trade with those countries that are taking away some of our jobs?

7. Outsourcing Vs. Unemployment Rates • Standard of living since WWII has consistently INCREASED every decade in the U.S. • U.S. unemployment is just over 5%, even with Outsourcing – which is about ½ of the most developed countries in Western Europe. • “You should be afraid of free markets only if you believe that you will never need new medicines, new work flow software, new industries, new forms of entertainment, new coffeehouses, and only if you believe that your country’s citizens will never be able to develop the knowledge skills to fill the jobs these new industries or business models will spin off” (- Andreessen, p 270). • “It takes a leap of faith, based on economics, to say there will be new things to do”

8. Intel and Google • Intel chips are constantly being upgraded to stay current with technology’s needs. • Search Engine Optimizer (SEO) is a position that has emerged in the flattening world, which evaluates algorithms about which websites appear first under searched items. Example: “Suitcase” searched via Google. “Tom’s Suitcases” vs “Samsonite” • – which gets listed first? – which gets more ‘hits?’

9. Discussion Question #2 • If jobs are constantly being made, and the unemployment rate is staying constant, is outsourcing really bad? • Does it take a “leap of faith” to think that outsourcing doesn’t hurt the America worker?

10. Comparative Advantage • The question all economists are finding themselves asking is “How are developed and developing countries going to define their comparative advantage in the flat world?” (p.273) • The answer is that in a flatter world a country can and will lose its comparative advantage much more quickly than a country pertaining to the rounder world. -Ex. China and India are huge competitors in several different fields that interfere with business of Western Nations • This aspect of comparative advantage in a flat world will regenerate the flow of jobs for Americans and for those of developing countries such as India and China; this would act as a way to commoditize jobs and make them more tradable which helps out everyone in the business world.

11. India and China • Always remember the Indians and Chinese aren’t racing us to the bottom. They are racing us to the top and that is a good thing for the whole world. • Higher standards of living: they want what Americans have. They create more room at the top of the chain because the more money they receive, the more money they spend, which results in innovation for everyone. • Ex. As Americans send knowledge work to India, Indians are turning around and using their earnings to lift the poverty stricken people into the middle class which can in turn create more consumers of American products (p. 274).

12. India and China • Low- Cost Innovation is the new key to business in developing countries. • Tata Motors in India is working on designing a compact car that will sell for $2200 (India’s cheapest car). The Company has hopes of beating out the main competitor: Suzuki. This product sprung into design because of the Indian’s increasing demand of quality products at a much affordable price. • HeyMath.com is an Indian Education company that acts as a tutoring service for Singapore and other neighboring countries. • It puts Indian students to work creating lesson plans, Powerpoint presentations, and homework packets with the help from a group of experts on math and science curriculum. Cambridge University also contributes efforts into the scheme of things.

13. Mckinsey Quarterly, Beyond Cheap Labor: “Lessons for Developing Economies” (p.275) • For example, an Italy textile and apparel industry has moved much of its garment production to lower cost locations. Their solution to maintaining stable employment for both locations is to develop more resources which creates more task such as coordinating global production networks (p. 275). • Another case of this was in a Minnesota plant called Donaldson Co. Their solution to making sure they weren’t destroying their comparative advantage was to send all the blue collar jobs overseas and create more jobs in the areas of engineering, chemists, and designers. By going to this system of operations has evolved their company greatly in an increase of nearly 2000 jobs since outsourcing in 2003.

14. Discussion Question #3 • How would you feel if your father was one of the blue-collar middle class workers of Donaldson Co., who had to be forced into unemployment knowing that a guy within his present workplace (such as an engineer or chemist) was being kept merely because of his title and the company’s logic on comparative advantage?