Thursday, October 09, 2008

Financial Crisis 2.0

I am re-reading Thomas Friedman's The World Is Flat. With the recent financial crisis, this is almost an appropriate time to examine the world's political and economic infrastructure. Forfuitously, Yihong Ding has written an interesting entry on the financial crisis' effect on China and the United States. Ding, who is not only a computer scientist, but also philosopher, historian, and political commentator - offers a unique blend of intellectualism and insight in arguing that the crisis in the markets will actually benefit the US while hurting the Chinese economy. As someone who is deeply interested in Chinese history, I am intrigued by Ding's insight, particularly in regards to how the financial crisis is interconnected with Web 2.0 and technology. He points out that:

By studying the dot-com bubble, researchers have found that the optical network built during the hype period had become the foundation of the following economic boom at the Web industry, namely the Web 2.0 hype. Without the investment of these optical networks and without the bankrupt of the original optical network investors, we were not able to obtain the cheap price of network usage which is an essential reason behind the Web 2.0 hype. By this mean, it was the IT crisis that constructed the foundation of the new Web-based industry. . .

. . . In comparison we may watch China. The future is, however, not optimistic at all because of this financial crisis. The deep drop of the stock market will greatly hurt the industrial innovation. Moreover, western investors are going to invade China on its debt market and real estate market to cause severe economic inflation in China. As we have discussed, the high price of real estate in China will hurt the formation of Chinese Web-based small businesses. As the result, the technological distance between USA and China will not decrease but increase. As a Chinese myself, I am quite sad on this prediction of the future. However, be honest I would say that it is the future most likely to happen.

Friedman's thesis is a stark contrast to Ding and Chinese economist Junluo Liu's contention. According to the Flat World premise, developing countries such as India and China are quickly catching up to the US due to their increasingly educated and dedicated workforce. Entrepreneurs, particularly in wireless telecommunications industries, no longer require real estate. Everything can be done remotely in era Globalization 3.0. Indian entrepreneurs are very happy to stay in Bombay as America supplies them with outsourced work. True, nothing can replace land; but then again, nothing can replace a talent and creativity.

China had fallen behind due to ten years of a disastrous Cultural Revolution, and trampled by a century of civil war and foreign invasion. But the past is behind us. With a workforce that continues to grow not only in talent, but also in fierce nationalism, can they overcome this upcoming crisis?


Yihong Ding said...

Allan, thank you for sharing the viewpoints.

It is hard to tell the future. In person, I do expect that Junluo's prediction would be wrong and Friedman be right. Let's pray. ;-)


Anonymous said...

In view of the recent financial crisis this is also an appropriate time to read a small, but interesting book, by Aronica and Ramdoo, "The World is Flat? A Critical Analysis of Thomas Friedman's New York Times Bestseller," which offers a counterperspective to Friedman's theory on globalization.

Interestingly enough, the book written about two years back, discusses in the following chapters,
"Debt and Financialization of America"
"America"s Former Middle Class"
"A Paradigm Shift for America" with prescriptions for the future

the debt ridden American society, deregulated financial institutions, mortgage crisis and other related issues, with clear pointers to the economic crisis gripping US today. For more information regarding the same, check this out:

This is a small book compared to the 600 page tome by Friedman, and aimed at the common man and students alike.

"Globalization is the greatest reorganization of the world since the Industrial Revolution," says Aronica. Aronica and Ramdoo conclude by listing over twenty action items that point the way forward, and they provide a comprehensive, yet concise, framework for understanding the critical issues of globalization.

You may want to see
and watch
for an interesting counterperspective on Friedman's
"The World is Flat".

Also a really interesting 6 min wake-up call: Shift Happens!

There is also a companion book listed: Extreme Competition: Innovation and the Great 21st Century Business Reformation