The World
is not
Flat!

 

A recent book by New York Times contributor Thomas L Friedman enlightens our perspective on the global economy with the startling revelation that the world is indeed flat. While the fact that we are in a global economy could be news to some, you won’t have to break the news to the average business.
This is not a critique of the book, it is true, there is more global competition for everything. My issue is with the title, “The World is Flat” and how it might be perceived. If you assume the world is flat or level by reading the title, (and way more people see the title than actually read the book), you would assume we are in some kind of fair economic battle.
Let’s look at three major factors that would support the Christopher Columbus reality that the world is still round.

Regulatory pressure in the U.S. though often well intentioned, can create a huge burden on businesses that developing nations do not have to deal with. If you load in the skyrocketing costs of insurance and litigation you soon add another layer of non revenue producing activity that our companies must overcome to be profitable. I have never seen a statistic on it, but I wonder how many local, state and federal people are involved in monitoring businesses for different and overlapping reasons in the USA. Most likely, many times more than are watching out for terror or illegal border crossings. Why the big mistrust of business? A few may be less than valuable corporate citizens but by and large most are very responsible with the environment and their workforce. This mindset that US business needs to be heavily monitored and fined regularly is a huge disadvantage in direct costs and time lost for all companies. Not to mention a major tax liability to the taxpayers.

A complicated subject but not a minor problem is the currency valuation system used to determine currency benchmarks. China, a major importer to the US, has resisted subjecting their currency valuation to the free market. They gain an advantage in trade by undervaluing their currency creating an environment where U.S goods can not compete as imports to their country. The Chinese delegation coming to discuss trade imbalance with our government this week has already announced they will not discuss subjecting the Yuan to the free market. For me, that sends up a red flag, pun intended. Economists argue back and forth about whether a free market currency or strapping the Yuan to the dollar is the right thing to do between the US and China. We welcome all nations into the civilized world of capitalism, but a 40% difference in currency valuation between the two countries will spell trouble for our economy if allowed to continue.

Most people are aware of the difference in wages between established and developing countries. This seems to get the most attention and it is very easy to understand the disadvantage here. If U.S. companies compensate in an hour or two what developing nations might pay in a week, you can easily calculate the disadvantage we have here. Though wage disparity gets the most attention, it is not the only or the toughest challenge we face in the analysis of the competitive models.

Of the three differences here, for obvious reasons, I would prefer we take a serious look at reducing regulatory pressure and urging legislators to find creative ways to correct the currency issues. No one wants to lower our standard of living to compete globally, so we should look at other ways to be more competitive first.

Business will not be able to do much about the regulatory burdens and currency issues on their own. We must work with our employees, communities and legislators to find ways to reduce the cost of doing business in the US.

So is the world flat? The rest of the world has embraced capitalism with great enthusiasm so it would appear that way at first blush. Look a little deeper and you will see significant differences in the cost of doing business here.

We need to let business do what it does best, create wealth. Supporting them instead of trying to micro-manage them. Vote for legislators who understand a level international playing field and will work to achieve it.
If we can reduce the cost of doing business on the first two issues, we have a better chance of keeping our wage levels up while remaining globally competitive.

Bill Henderson
Executive Director, MCED

765-362-6851