National Stategies and Capabilities
for a Changing World

Globalization and National Security

Luncheon Address by Mr. Thomas Friedman, New York Times Columnist and Pulitzer Prize Winning Author

Dr. Robert L. Pfaltzgraff: Please be seated. Thank you. I hope that the plates have been removed and the wait staff will not be here during the address because we want people to be able to concentrate entirely on our speaker and not to be distracted by rattling dishes and so forth. Our speaker is really someone who does not need much of an introduction because all of us, I'm sure in this room, read his columns in the New York Times. His op-ed pieces, his numerous writings. But let me tell you something about him, something more about him. He has held, as we know, several important assignments with the New York Times beginning in 1981 as a financial reporter specializing in OPEC issues and other oil related topics. And later he served as Chief Diplomatic Correspondent at the White House, and International Economics Correspondent, New York Times.

He has twice been the recipient of the Pulitzer Prize for his outstanding news coverage of the Middle East, which is of course his field of specialization. He is very well known to many, if not all of us, in this room. And certainly to my students at the Fletcher School and elsewhere. First for his seminal book, "From Beirut to Jerusalem," and subsequently for his more recent books, which is the "Lexus and the Olive Tree," which I might add here stands in my view as required reading for anyone interested in globalization in the early 21st century.

He is a summa cum laude graduate of Brandeis University and is the recipient of a Master's Degree in Modern Middle East Studies from Oxford University. So it is with very great pleasure that I welcome on our collective behalf Thomas Freidman.

Thomas Friedman: Thank you Robert. It's a treat to be here this afternoon with you all. I'm going to take the next half hour or so to talk about the thesis of my book, "The Lexus and the Olive Tree," and try to give you the framework through which I'm looking at international relations today. I know some of you have read the book. Those of you who haven't, you know who you are. You know exactly who you are.

I always begin my talk about "The Lexus and the Olive Tree" by talking about my job as the foreign affairs columnist for the New York Times. Because I have the best job in the world. I mean, somebody has to have it. I've got it. And you don't. I get to be a tourist with an attitude. That is, I get to go wherever I want, whenever I want and write whatever I want to write about. It's a great, great job. I have to tell you. There's only one downside with my job as the foreign affairs columnist for the New York Times, and that's that I have to have attitudes twice a week -- every Tuesday and every Friday on the editorial page of the New York Times.

So the big challenge I had when I started this job in January '95 was what attitudes? What attitudes? Why be in Brazil and not Bosnia, or Bosnia and not China? And I'm actually the fifth foreign affairs columnist in the history of the New York Times. The first was a woman, Anne O'Hare McCormick who began in 1936. According to highly politically incorrect obit in the New York Times, she got her start accompanying her husband who was an engineer from Dayton, Ohio, on buying trips to Europe. And she started springing for the Times and writing for the Times, and they liked her stuff so much they anointed her with the first foreign affairs column in the New York Times which was called, in 1936, "In Europe." Because as far as the New York Times was concerned in 1936, "In Europe" was foreign affairs. In fact, the title of the column only changed to "Foreign Affairs" in 1954 with the start of the Cold War. Now the super story, the framework through which Anne O'Hare McCormick looked at the world and shaped her attitudes, was the crumbling of Versailles Europe and World War II. Her three successors had the Cold War as the framework and super story for their attitudes.

I started in January, 1995, when the Cold War had ended, and it was not clear to me what is the framework and super story I should be using to shape my attitudes. "The Lexus and the Olive Tree" is really my own personal answer to that question. And the answer, in short, is globalization. That's right. Globalization, at least in my view, is not a trend. It's not a fad. And it's not some Nintendo game. It is actually the international system that replaced the Cold War system and like the Cold War system, the globalization system has its own rules, logic, pressures, incentives, and moving parts that will and do affect everyone's company, country, community, and I might say, armed forces.

Now, I define globalization as the integration of markets, finance, technology, and telecommunications in a way that is enabling each one of us to reach around the world farther, faster, deeper, and cheaper than ever before. And at the same time, is enabling the world to reach into each of us farther, faster, deeper, and cheaper than ever before.

Now, the best way to understand this new globalization system is to compare it to the Cold War system. The Cold War system was characterized by one overarching feature, and that was division. The world was a divided place, and in that Cold War system all your threats and opportunities tended to flow from who you were divided from. Whether it was your country or your company. And that Cold War system was symbolized by a single word, The Wall, the Berlin Wall. The globalization system is also characterized by one overarching characteristic. Only it's integration. Now all your threats and opportunities tend to flow from who you're connected to and it is symbolized by a single word, The Web. The Worldwide Web.

So basically we've gone from a world of division and walls to a world of integration and webs. In the Cold War, we reached for the hot line, which was a symbol that we were all divided, but thank God at least two people were in charge. The United States and the Soviet Union. In globalization, we reach for the Internet, which is a symbol that we're all connected and nobody's in charge. Yes. What's really scary about the globalization system is that its internal logic exactly mirrors that of the Internet. We are all increasingly connected but nobody's quite in charge. So two Filipino college grads could put their Love Bug virus on the Worldwide Web, and melt down ten million computers and $10 billion in data on seven continents in 24 hours because we're all increasingly connected and nobody is quite in charge.

I just came from the Philippines a few weeks ago. I went there actually to try to see the Love Bug people because I believe the Love Bug was to the globalization system what the Cuban Missile Crisis was to the Cold War system. It was the event that taught us all our vulnerability. The Cuban Missile Crisis taught us our vulnerability in a world divided. And the Love Bug has taught us our vulnerability in a world connected.

Now had the Cold War been a sport, it would have, without question, been sumo wrestling. Two big fat guys in a ring, lots of ritual stomping around and grunting and throwing salt and all kinds of color and banging of drums, but not a lot of contact until the very end when one fat guy finally pushed the other fat guy out of the ring. If globalization were a sport, oh, it would be the 100 meter dash over and over and over and over. And if you lose by a tenth of a second, it's like you lost by a week, and the only thing that winning assures is that you get to get up and race again the next morning.

The Cold War system was a system built around weight. You wanted a big, fat company or country or army to protect you in that system. The globalization system is built around speed. In the Cold War, the big ate the small. In globalization, the fast eat the slow. In the Cold War, the first question we asked was, "Say, how big is your missile?" In globalization, the first question we ask is, "Say, how fast is your modem?" In the Cold War, the second question we asked was, "Who are you divided from?" In globalization, the second question we asked was "Who are you connected to?"

Two very different systems. The ideal document in the Cold War was the treaty. The ideal document in globalization is the deal. The ideal equation in the Cold War was e = mc². The ideal equation in globalization is Moore's Law, that the speed of microchips will double every 18 months and the price will halve. The ideal economists in the Cold War were Marx and Keynes. They wanted to tame capitalism, each one in their own way. The ideal economists in globalization are Schumpeter and Andy Grove, the chairman of Intel. Schumpeter because he believed that capitalism was about creative destruction. The ability and willingness of your country or company to shoot its wounded and quickly transfer their dead capital to more efficient producers. And Andy Grove of Intel who took his title for his book about life in Silicon Valley from Schumpeter, "Only the Paranoid Survive." Two very different systems.

Now, what I think is most relevant to your discussions here today is the last distinguishing feature between these two systems, and that is how power is structured within them. The Cold War system was a state-based system. What that meant was that you and I acted on the world stage through our state. And the story of the Cold War was the story of states, balancing states, confronting states and aligning with states. It was a state based power structure.

What is different about globalization is that instead of being built around one balance between states and states, it is built around three balances of power. The first is the balance of power between states and states. That still matters. Let me repeat that for all you realists out there. The balance of power between states still matters, whether it's America balancing Russia, Russia balancing China, or Japan balancing Korea. But now we have two new balances to keep track of.

The first is the balance between states and what I like to call the super markets. Yes, we have super powers, now we have super markets. The super markets are the 25 largest global stocks found in currency markets in the world which today have become increasingly autonomous, geopolitical actors. In some cases the equal of and in some cases stronger than states. Who ousted Suharto in Indonesia? Oh, it was not another super power. It was the super markets.

The United States can destroy you by dropping bombs. The super markets can destroy you by downgrading your bonds. Take your choice. So now we've got states and states acting out there, and states and super markets.

Thirdly, and most uniquely in the globalization system, we now have states and super-empowered people. Oh, this gets interesting. You see, when you start to blow away the walls and wire the world into networks, what that means is that you and I can increasingly act on the world stage directly unmediated by a state. Jodie Williams won the Nobel Peace Prize a couple of years ago for organizing a global ban on land mines against the wishes of most of the members of the U. N. Security Council. She was asked afterwards, "Say, how did you do that?" And she had a very short answer. "Email." Jodie Williams basically used email to galvanize a thousand NGOs on five continents in a global movement against land mines trumping the wishes of some of the biggest powers in the world. Jodie Williams was a super-empowered nice gal.

We had a story a couple of years ago that a lot of you I know paid attention to. It was the story that Time Warner CNN, the world's biggest media conglomerate, reported that American troops used poison gas during the Vietnam War. Hmm. Very controversial story. You know how that story got knocked down? Well, the first way it got knocked down was that story worked its way up the editorial chain at CNN and it hit the desk of a retired general, one of your own, Perry Smith. And when that story hit General Perry Smith's desk, a retired general working as a military consultant for CNN, he said, "That story is bogus. And if you run it, I quit." And Time Warner CNN, the world's biggest media conglomerate, said, "See you later. We don't take threats around here from retired generals."

Perry Smith went home. He had his own email brain trust -- around 300 former officers and generals. Well, he emailed his five closest friends from the Vietnam War, they emailed their five closest colonel friends from the Vietnam War. They emailed their five closest captain friends from the Vietnam War. It took them a week or so. They assembled a dossier so compelling without the benefit of a single document through the Freedom of Information Act that they brought Time Warner CNN, the world's biggest media conglomerate, to its knees apologizing to its viewers, recanting its story, and begging for mercy from five retired generals with email who got super empowered.

Now, there aren't just super-empowered nice guys and nice gals in this system. There are also super empowered, angry men and women. Osama bin Laden, the Saudi millionaire who blew up two American embassies in Africa two years ago, and maybe the U.S.S. Cole, well he had his own network too. A kind of jihad on line, JOL, which he used to take on the United States of America. And you know what we did to Osama bin Laden? I don't have a lot of regrets about this, but I found it fascinating. We fired 77 cruise missiles at him one day in Afghanistan. Think about that for a second. We fired 77 cruise missiles at a million dollars each at a person. That was a super power against a super-empowered, angry man. The first such battle in the history of the world.

Ramzi Yousef. Remember Ramzi? Ramzi was the Pakistani gentleman who wanted to blow up the two tallest buildings in America seven, eight years ago. The World Trade Center. I always wondered, what did Ramzi Yousef want? Did he want a Palestinian State in Brooklyn? Did he want an Islamic Republic in New Jersey? What did he want? So for my book, I went and reread the court case and what he wanted was to blow up the two tallest buildings in America. Period. Paragraph. End it.

And you know, the only reason the FBI ever got Ramzi Yousef was because remarkably, remarkably, one of his fellow bombers went back to the Ryder Rental Truck Agency after the bombing and asked for the $400 deposit back on the truck they used, claiming it had been stolen. Which itself is a wonderful story when you think about it. In the morning, you blow up the World Trade Center on the basis of your rage with America and in the afternoon you use American contract law to get your deposit back.

[Laughter]

Well, that tipped off the FBI to Ramzi Yousef. They trailed him all the way to an apartment in the Philippines. They broke in with the Philippine police, and they found all of Ramzi Yousef's plots exactly where he kept them. On the C drive of his Toshiba laptop. Ramzi Yousef was a super-empowered angry man. And if you really want to get scared when you all tuck yourself into bed tonight, just think about this. It's not that Ramzi Yousef or Osama bin Laden can or ever will be super powers. No. What is really scary about the world you are operating in today is how many people can be Ramzi Yousef and Osama bin Laden.

And what makes this globalization system so complex, both to manage and to understand is the fact that we now have states and states, states and super markets, and states and super empowered people all wildly interacting with one another.

Now, if my daughters were here, the next question they would ask is, "Daddy? Where did globalization come from? What blew away all the walls?" What I argue in "The Lexus and the Olive Tree," is that three simultaneous - I like to call them -- democratizations were born in the Cold War system, gathered strength in the Cold War, and eventually converged at the end of the 1980s to blow away all the walls.

The first of these was the democratization of finance. You know, there was nothing more anti-democratic in American in the 1950s than banking. If you wanted to have a bank loan to start a business, you couldn't just walk into the bank. You needed to know somebody, usually have an in. Well, you know, thanks to the home mortgage security market, the commercial paper market, Michael Milken's junk bond market, hugely democratizing, right up to last year, David Bowie the rock star issued $55 million in David Bowie bonds.

Yes, you too now can be rated AAA.

Finance has increasingly been democratized in our country, and in the west in general. And at the same time so has pension investing. Now, I dare say, my dad really didn't know where his pension was invested. We move ours around now three times a day, from Vanguard small cap to Magellan overseas to Fidelity large cap. That process of investing has increasingly been democratized. In fact, there's a wonderful commercial that E-Trade, the online broker, ran last year that really illustrated this point. It showed a guy driving down the street -- I don't know if you saw this -- in his convertible with his golf clubs sticking out the back seat. He's pulled over by a motorcycle cop. And the cop says to him, "Let's see your license." Guy gives him his license, cop looks at it and says, "Jerry Jones. Why, you're the manager of my mid-cap mutual fund." Guy says, "As a matter of fact I am." Cop says, "You were in the top ten mutual fund managers last year." Guy says, "As a matter of fact I was." Cop says, "But you weren't in the top five. So let's get back to work." And the last scene in the commercial is the cop carrying away his golf clubs. That's the democratization of finance, folks. Underlying that commercial is the message that even the cop on the beat now knows where his pension is invested. He's tracking it and moving it around accordingly.

The second democratization is the democratization of technology. Thanks to the microchip, the home computer, the Palm Pilot, and the phenomenon known as digitization. Digitization, the alchemy by which we take words and music and data, turn them into ones and zeroes, transmit them over modems, and they come out the other end as perfect copies of those original words, music, and data. Thanks to the PC, the microchip, and digitization, technology has increasingly been democratized to more people.

The last democratization is the democratization of information. And this is hugely important for international relations today, and it is the least understood aspect of international relations today in my opinion. The democratization of information thanks to satellites, cell phones, and fiber optics, and what happens when we all start to know how each other lives? Because that changes everything.

You know, the days when the Soviet newspaper Pravda, there was a story--Evidently back in the 1970s, Pravda ran a front page picture of Americans waiting outside of Szabo's Delicatessen in New York on a Saturday morning, for the deli to open. Under the headline, "Look. Bread lines in America, too." Oh, don't try that trick at home kids. Not today. Not in this system.

What happens when we all start to know how each other lives is that we all start to demand the same things. And when we can't get them, we get mad. And this is affecting politics now all over the world. A year ago, almost a year ago today, I was in Sri Lanka for an AID conference. I was on a panel with Garrett Fitzgerald, former Prime Minister of Ireland, and Jose Maria Figueres, the former President of Costa Rica and the youngest president in the world in his day. I did my thing, Garrett Fitzgerald did his. But Costa Rica's former President, Jose Maria was the star of the show. The audience were 500 young entrepreneurs from India, Pakistan, Nepal, Bhutan, Bangladesh, and Sri Lanka. Young men and women going into the entrepreneurial world and from their governments.

Jose Maria got up. He talked about how he got Intel to build a factory in Costa Rica. How they wired every high school there, gave every high school kid an email address. The audience was just wowed. And afterwards, it came to question time, and the first person to stand up said, "Would you run for president in my country?" Another person stood up and said, "I will pay your salary if you'll run for president in my country." When people know how each other lives, oh, it changes a lot.

I find this particularly acute among women in the developing world who are just now breaking into senior management positions. And just as they do, they discover their country is run by a boob. That the country next door has Jose Maria and they've got a boob. And believe me, this starts to chafe, and it starts to affect politics. Ask the Ayatollah in Iran today what it's like when all your people start to know how each other lives. What it's like is you hold an election and 75 percent of your people don't vote for the guy you want, but say, "Excuse me, but we'd like to be part of that conversation." So this is a hugely important, and I believe, under-measured fact in international relations today.

Now basically what happened, I believe, is that these three democratizations -- finance, technology, and information -- converged at the end of the 1980s into a whirlwind that in effect blew away all the walls, or started to blow down the walls. I'm exaggerating here. And when it did, when the walls fell down, basically the guts of this new globalization system we are in were created. And there are four key parts. Let me go through them very quickly for you.

The first part of this system is what happens when the walls fall. What happens when the walls fall in simple economic terms is that the barriers to entry around everyone's country or company or community start to erode or disappear. And when that happens, in simple economic terms, what it means is that the speed at which you move from innovation to commoditization gets turbocharged. That is, the speed at which you move from having a high value-added profitable product or service that only you make and is protected by high walls and barriers to entry, to having that product or service be able to be made by anyone, commoditized as it were, and the only difference is price, the speed at which you move from innovation to commoditization goes from 10 miles an hour in a world of walls to 110 miles an hour in a world without walls. And fasten your seatbelts and put your seat backs and tray tables into a fixed, upright position because with the Internet, that's going to go to 510 miles an hour.

Do you all know how Compaq computer was created? Compaq computer was created back in 1986. Intel came out with a new chip called the 386 chip, which was faster than the 286 chip. They came to their biggest customer, IBM, Big Blue. They came to IBM and said, "We've got the 386 chip. Run with it. Make a new computer." IBM said, "You know, we kind of live in a world of walls. We're Big Blue. And we're not ready for the 386 chip right now. We just came out with a new computer based on the 286 chip called the IBM AT (which stood for advanced technology)." IBM was telling its customers, "When you get an AT, you won't need a computer for five years, so we're going to save the 386 chip for our next system down the road, the PS 2. And after all, we're Big Blue. We can do whatever we want."

A little startup company down in Houston called Compaq -- they spelled their name funny, had a Q on the end -- said, "Excuse me. We'll take that 386 chip." And in 24 months they ate IBM's lunch in the PC business. They caught IBM with its walls down.

Now, the best way I can illustrate this phenomenon to you is with an ad for the Sony Mavica Camera I came across while I was writing my book. I love this ad. First thing I saw, it said, "Sony Digital Mavica Camera." I thought, "I didn't know Sony made cameras. That's interesting." Interesting ad, too. It had three pictures in it. The first picture is of the Sony Mavica camera, and under it, it says, "This is your camera." Next to it was a three and a half-inch diskette. Under that it said, "This is your film." Next to that is a computer with a baby picture on it. Under that it says, "This is your post office."

Now think about what that ad is saying. What that ad is saying is somebody at Sony headquarters woke up in the mid-'90s or early '90s and said, "Hey, what are we? What are we? We're really just a big factory for digitizing stuff. And when you can digitize films, it happens we've been digitizing music and films and videos, but what the heck. We can digitize anything. We can digitize your baby pictures. We can be Kodak." Sony basically woke up one day around 1993, '94, and said, "We are Sony and excuse me folks, but right now we're also Kodak."

And some guy down in shipping and receiving at Sony headquarters said, "You know while we're digitizing these pictures, why don't we transmit them around the world to your kids from Alabama to Auckland to Australia on modems. Why don't we also be Federal Express? That ad says we are Sony. We're now also competing with Kodak. And by the way we're now also a little Federal Express." I saw that ad, and I thought, "Wow. What do the people at Kodak think about this?" So I'm driving in my car. I hear an ad for Kodak on the radio. They're advertising all their PC Internet online services now. They're talking like a PC company.

So for my book, I go down to Compaq Computer down in Houston to interview them and I say, "By the way, how do you guys feel about Kodak going into the PC business?" They said, "We at Compaq, we're not worried about Kodak. We do business solutions now. Yes, we're like a big consulting company. Look at our ads. They just say 'Compaq. Better answers.' We don't even show pictures of the computers anymore." "Oh. Oh, you do business solutions. Interesting."

A couple weeks later I'm out with a friend of mine who works for Price Waterhouse Coopers, the business solutions people. I asked him how he feels about Compaq going into the business solutions business. He says, "We're not worried about Compaq, but we're terrified of Goldman Sachs, because they're now offering tax derivatives. Tax advice." He suggests I read a book about it. I go home, tell my wife, "I'm going to Border's." She said, "If you want to go to Border's, go to borderless books, Amazon.com." So I go downstairs. I call Amazon.com. What's the first thing I see? They're now selling CDs. I say, "Wait a minute. Wasn't that Sony's business?" When the walls fall, oh, we are all in each other's business. And when that happens, hold onto your hats. Because the speed at which you're going to move from innovation to commoditization is going to be turbocharged. We had a piece in the New York Times a few months back about AT&T diversifying into all these businesses. What I loved was the headline. It said, "AT&T, Ma Everything." And everyone today is either Ma Everything or Ma One Little Thing.

I was at the Davos World Economic Forum a couple of years ago, and there was a press breakfast that Bill Gates did. And all the reporters there were asking Mr. Gates, "These Internet stocks. Tell us. They're a bubble, aren't they? Come on. They're a bubble, aren't they? They're a bubble. Surely they're a bubble. They must be a bubble." Finally he said, "Look, you guys. Of course they're a bubble. Anyone who knows anything about the technology world knows you can't predict the earnings of a tech company 10 years out. I don't know if Microsoft is going to be here in four years. You're telling me Amazon.com will? But," said Mr. Gates, "You're all missing the point. Because this bubble is attracting so much new capital to the Internet industry, it is going to drive innovation faster and faster."

Wow. Same day, by coincidence, I went to interview President Hosni Mubarak of Egypt, who was also at Davos. And afterwards I was sitting around with some Egyptian businessmen, friends of mine, including a friend who is editor of a kind of Egyptian Business Week. He said, "Mr. Tom, Mr. Tom, we understand that we've got to get on this globalization train. But could you slow it down a little bit for us?" I said, "I'd love to slow it down, especially for you. The problem is, there's nobody driving. You find the person driving, I will slow down the train." Globalization, at least in my humble opinion, is driven by technological innovation.

There is a saying in the military that capabilities create their own intentions. Well, it's true in technology as well. Globalization is the consequence of the technologies that have been created. You find the engineer, I'll slow down the train. And that's the problem with this system, and it's one I have a lot of sympathy for. The people here or in Egypt or anywhere else. Everybody's looking for somebody to call. "Nine-one-one, slow down the train. 1-800-Give Me a Break."

I'm going to tell you a little secret. I want you all to promise you won't take it out of this room. I've been in the office of Treasury Secretary Robert Rubin. Yes. And you know what? He didn't have a phone at his desk, because he knew better than anybody, there is no one to call. There is nobody to call, and you can waste an enormous amount of time in this system looking for somebody to call. Trust me, there is nobody on the other end of the phone except somebody else looking for someone to call. That's the first part of this system.

The second part of this system is a new political garment that every country has to put on when they join the globalization system and they plug into it. Every era has its own styles. The Cold War had the Nehru jacket, the Mao suit, the Russian fur cap, the Stetson. The globalization era also has its outfit, the golden straitjacket. The golden straitjacket embodies all the economic rules of the globalization system. Margaret Thatcher was the original seamstress of the golden straitjacket with buttons and tailoring provided by Ronald Reagan. It's the only model on the rack this historical season.

There're two things that happen in your country when it puts on the golden straitjacket. One is your economy tends to grow from more privatization, deregulation, foreign trade, and investment. Your economy grows, but your political choices narrow to Pepsi or Coke. So mere nuances tolerated by the golden straitjacket. And politics in our country and in so many others that have been forced into this golden straitjacket have really been reduced between opposition and ruling parties to a mere debate about the tailoring and the buttons of a golden straitjacket.

Paddy Ashdown, the third party leader in Great Britain, the liberal party leader, listened to John Major and Tony Blair during their election two years ago, listened to their economic platforms and pronounced "synchronized swimming." And I see synchronized swimming all over the world today where companies have been forced into this golden straitjacket.

The third part of this system is a new energy source. I call that energy source the electronic herd. The electronic herd is made up of all those investors out there, from you at home trading on line on E-Trade right up to the big, multi-national banks and global multi-national corporations. This herd existed during the Cold War, but that world was so chopped up, divided up, and fenced up, the herd could never really gather, graze, grow and gain strength. But now that the walls have been blown away, and this herd can really graze and gather and grow around the world, it has become the energy source of the globalization system. With governments running balanced budgets today in the golden straitjacket, if you want to grow as a country, as a community, or as a company, you have got to tap into the resources, capital and technology of the electronic herd, which is why so much politics around the world has been reduced to governors, mayors, senators and presidents basically standing up and saying to the herd, "Come hither. Come hither to my command."

And that leads to the last part of this system. And the last part of this system is how do I relate to the herd? Because the herd is like a high voltage wire. Plug into it right, and it'll light up your whole country, community or company. Plug into it wrong, and it'll burn a hole through your financial system, your culture, or your environment faster than anything we've seen in the history of the world.

Now, I like to compare countries today to computers. In many ways, it's like for the first time in the history of the world, almost all of us have the same piece of hardware. We all have the same computer, the PC free market system. We all have the free market PC. Russia's got them now, and China's got them. Mexico's got them and Brazil's got them. We all have the same piece of hardware. The real question in today's world is who will get the operating system and the software to go with this free market PC so when your country plugs into the electronic herd, you get the most out of it and you cushion the worst.

Now, operating system in my own lexicon involves all of the economic rules of this globalization system. All the real liberal rules of economics. And software -- software for me stands for the rule of law, courts, regulatory institutions, oversight bodies, free press and democracy. Russia was like a computer at the end of the Cold War. Where the people said, "Hey, let's just plug into the electronic herd. That looks easy." With no operating system and no software inside. And when the herd surged, as it inevitably does, it melted down whatever tangled mess of wires was inside that Russian computer.

Thailand, Malaysia, Indonesia, Korea, they plugged into the herd, but with a very slow operating system. One that I like to call DOS Capital 1.0. Now, DOS Capital 1.0 is great for getting your country from 500 baht in income to 5,000 baht. But when the herd moves from a 286 chip to a Pentium III, and you're still running DOS Capital 1.0, also known as crony capitalism, what'll happen to you is what happens if you go home tonight and try to run Windows 2000 on your kids old IBM AT. A little sign pops up on your economic screen that says you've misallocated all your resources. Cannot move capital. Please download new operating system and software. And that's really what so many developing countries are trying to do today. Trying to go from DOS Capital 1.0 to DOS Capital 6.0.

Let me stop here and underline a certain point. There's a lot of talk today about the digital divide, how much bandwidth you have. All of that's important. But if there's one thing I've learned about globalization, it's this. The state, your state, your civil service, your bureaucracy, your regulatory institutions, your court, everything that we consider the state, your state matters more not less in the globalization system. The state is still the plug through which you plug your country into this system. If you have a good state, with reasonably good institutions, you will manage the flow between you and the herd quite well. If you have a lousy state, with eroded wires and eroded institutions, the flow between you and the herd will be highly disrupted and corrupted. The state, something real basic and real simple, is the secret sauce for succeeding in the globalization system. You go around the world and you see that the countries with the most efficient, non-corrupt, effective states, are those who are succeeding whether they are Botswana in Southern Africa, okay? Or Singapore in Asia. And those that don't have the state, or have lousy states, are the ones paying the price. The big challenge we have today in this globalization era, is what do we do with countries like Indonesia, Pakistan, Russia, or China, that are on the verge of becoming messy states? Messy states are states that are too big to fail or too messy to work. And the messy state problem is going to be one which I think is going to very much shape the strategic environment within which you all have to work.

Now, the messy state is a real problem. Because the way we in this country, in America, got our institutions-- We weren't born with them, either. It took us 200 years to evolve the Security and Exchange Commission, the Federal Reserve, all the systems, agencies, and habits that really make up what is the American system today. We had crony capitalism. We had robber baron capitalism. We had Tammany Hall. We have Palm Beach County. They took us 200 years to evolve. Okay? And that's one way you get these systems. You have to evolve them over time.

Another way you get these systems is through good old imperialism. You have the British raj come to India. And impose and implant a bureaucracy of civil service and a rule of law. Or you have the American raj come to Germany and Japan after World War II and do the same. The problem for Russia, China, and Indonesia today is that they are too early for evolution and they are too late for imperialism. They are too early for evolution, and too late for imperialism. So they have to find their own internal energy, resources and leadership to develop these institutions in a greatly reduced timeframe from the one that we had the luxury of operating in. And that's going to be a huge challenge for them. And it is going to shape the strategic environment in which we operate.

You and I, many of us, grew up in a world where the biggest threats to us were the military strength of Russia, the military strength of China, and the economic strength of Japan. I believe my kids and your junior officers are going to grow up in a world where the biggest threats to America are the weakness of Russia, the weakness of China, and the weakness of Japan as these countries go through the wrenching adjustment to the globalization system. Our national security problem has been completely stood on its head and inverted and in case you haven't noticed, the eight years of the Clinton administration have been much more about managing Russia and China's weakness than it has been their strength.

Let me say one last word about globalization and geopolitics. This I think is a much misunderstood subject, and I'd like to lay out some broad themes for the question. I believe that the difference between the Cold War system and the globalization system when it comes to geopolitics is the following.

The Cold War system was characterized, geopolitically speaking, by two institutions. I would call them the checkerboard, or the chessboard, and the checkbook. Chessboard and the checkbook. That is, the world looks like a chessboard. Every square was red or black. It was claimed either by us or the Soviets. And every square was important as every other square, because the loss of your pawn could lead to the loss of a bishop, could lead to the loss of a rook, could lead to the loss of your king and queen. So we competed over Nicaragua and El Salvador with the same energy that we competed over Egypt or Vietnam. The world was a chessboard, and two super powers competed over every space, which meant every conflict could potentially be globalized.

At the same time, in that Cold War system, the checkbook was in the hands of the Soviet government and the American government. And they used your tax dollars and mine to support these conflicts and their players on each side of the conflict. We built their dams, we sold them arms, we gave them arms. We gave them uniforms. We -- and the Soviets -- used our checkbooks to pursue this chess game.

Now we move to the globalization system. What happens? First of all, sweep away the chessboard. There's no red anymore. So there's no automatic black. There's no white anymore, so there's no automatic black. There are no "their guys," so there are no automatic "our guys." You really saw this for the first time, I believe, in Albania. When Albania collapsed right after the fall of the Berlin Wall and the whole competition around Albania, the whole geopolitical competition, was not to see who could get into Albania the first, it was to see who could get away from Albania the first, the farthest, and the fastest. And the power that lost Albania was the country that got stuck managing it -- Italy. Because when you win in this war, all you win is a bill. And that gets back to the checkbook. Who's got the checkbook now?

Oh, it's not the governments anymore. We're running a balanced budget. And if you notice, we're barely giving money to anybody anymore. The checkbook now is in the hands of the electronic herd. And this herd of investors, they don't give you money to fight your war. Just the opposite. They punish you for fighting the war. They take money away from you. Now what that means geopolitically is the following. Globalization does not end geopolitics. Let me repeat that again for all the realists out there. Globalization does not end geopolitics. But it sure as heck affects it. And the way it affects it is the following. It forces every leader in this system, including Kim Jong-Il of North Korea, to think three times before going to war. And it insures that if they still decide to go to war against a neighbor, and many people will, whatever price they think they're going to pay, they will pay three times that price.

Jimmy Carter tells a wonderful story in his autobiography about Deng Xiao Ping of China making his first visit to the Oval Office. He was on a state visit to the United States and they were walking to the State Dinner, I believe. And on the way to the State Dinner, Deng says to President Carter, "You know, when I get home, I'm going to invade Vietnam. Those guys piss me off." Carter said, "You can't. You can't invade Vietnam. What are you? Come into the Oval Office." And he calls Brzezinsky and Vance. He relates all this in the book. They get Deng in the Oval Office and Carter says to Vance and Brzezinsky, "Tell him he can't invade Vietnam." Deng says, "Why?" Carter says, "Because it would be bad for your image."

Well, I'll tell you something. Jiang Zemin may wake up tomorrow and decide he's going to invade Taiwan. But I'll guarantee you one thing he won't be thinking about is the damage to his image. He'll be thinking about the fact that Taiwan has 40,000 factories now operating on the mainland. He'll be thinking about how completely intertwined his economy is with the United States. The fact that 60 percent of his exports go to America. Oh, he may still invade Taiwan. But I assure you one thing. He will think three times before he does it, and he will pay three times the price if he does it.

And that's why you are seeing the strategic environment you're seeing here, okay? The drama of international relations today is what happens when what is very old -- our olive tree urges to assert identity, politics, and religion -- bump up against a new international system of globalization. Sometimes these urges burst right through that system. Kosovo. The West Bank today. Bosnia. Sometimes they burst up against that system, though, hit it and bounce right back down. And sometimes they live in harmony with this system. But if you don't think globalization is out there shaping this environment, you're making a very, very big mistake in my opinion. I will leave you with this story.

I just flew from China to Ramalla in the West Bank. I was in Nanjing one morning and I was in Ramalla in the West Bank the next afternoon. I flew via Hong Kong on the El Al flight from Hong Kong to Tel Aviv. I got on the flight and the guy sitting next to me was American. We struck up a conversation, "What do you do?" He said, "I'm in the textile business. My company is the biggest manufacturer of government-- Sorry. Of hospital garments and surgeons outfits in the world." I said, "What are you doing flying from China to Tel Aviv?" He said, "Well, we actually have a global supply chain. We sew our cloth in Shanghai. We then export it to Israel, where expert Israelis cut it into the patterns. Then we ship the cut cloth to Jordan, where it's sewn into the final garments, and then exported duty free to the United States and Europe."

I said, "What are you doing now?" He said, "Well, I'm going because our Jordanian factory is actually managed by Israeli technical experts, and because of the fighting, the Jordanians have urged them to stay home. Not because they don't want them to come, but because they feel it might be unsafe for them. And I'm coming now just to decide whether to pull Jordan out of our global supply chain."

Oh, he's out there too, folks. You're seeing on CNN the guys pulling the grenades, the guys shooting the guns. And it is real dangerous to think they're the only people shaping this environment. The guy I was sitting to on that airplane, he's also shaping the environment. The olive tree erupts in the world in real time. The Lexus brings it power to bear in historical time. Takes longer. Takes longer for that guy to make that decision. But there are about 5,000 Jordanians who will be affected when he does make that decision.

So the drama of international relations is the interaction between the two. The challenge for America is to keep this system as stable and sustainable as possible. Because after all, we are the biggest beneficiaries today of this system. Which is why I'll simply close the way I closed the penultimate chapter in my book. It's with two Hell's Angels on motorcycles. It's a cartoon from the New Yorker. Two Hell's Angels on motorcycles, and one says to the other, "Say, how was your day?" And the other says, "Well, advancing issues lead declines."

And that's how I feel about this whole globalization system. That is, if we can just keep advancing issues leading declines, for more people and more countries and more places and more days, we'll be doing the Lord's work. And that is America's mission. Thank you very much. (Applause)

Thank you.

Dr. Pfaltzgraff: I believe the applause says it all. But we do have time, although brief time, for a question or two for Tom Friedman. So who would like to begin the question period? It's hard to see out here as well. Yes, here's one? We'll start here, then over here for the second. Thanks for putting the lights on. Yes, please? Please with the microphone and identify yourself, and then pose your question. Briefly, if possible.

Audience: Jim Gelb with the Secretary of the Army's Office. What is the role of the military, then, in this system you've described?

Mr. Friedman: What is the role of the military in this system you've described? Well, I believe the role of the American military is hugely important. Because basically, there are three things America should bring to this globalization system. All this integration-- One of the things I always like to remind people in Silicon Valley, is that all this integration, all this internetting of the world, all this trade, all this telecom expansion, all this globalization, is happening in a power structure. It's not just happening. And it's a power structure that isn't just driven by electrons and stock options. It's a power structure that is maintained and preserved-- I'm not saying this for your benefit. I wrote this in the book. By something called the U.S. Army, the U.S. Navy, the U.S. Airforce, and the U.S. Marine Corps. We are the hidden fist that keeps the hidden hand operating. Ain't no McDonald's without McDonnell Douglas. And without America on duty, there's no America Online. And we must never, ever forget that. And so when people in our campaigns run down our government and run down our military, I think they're doing a very bad thing. Because we need-- We are the hidden fist that keeps the hidden hand operating. The problem is we also need to be the open hand. We also need to be out there helping people into this system with our generosity, with our technical support, with our advice. To have a Congress that is now cutting back foreign aid, reducing our international assistance to things like the World Bank and the Development Bank is flat out stupid. We have a Congress whose motto is "dumb as we want to be," and "stupid and proud of it," as far as I'm concerned. In case you haven't noticed, it is American products, American values, American culture, good and bad, American films, good and bad, American fast food, good and bad, American ideas and businesses that are most being globalized today. And if we don't have one overriding national interest that is as obvious as the nose on your face, it's called sustainable globalization. And to be at a time when we are the biggest beneficiaries from sustaining this system, to be doing nickel and dime stuff that only inhibits that role is just flat out stupid as far as I'm concerned.

Dr. Pfaltzgraff: Okay. Next question. We had someone over here I believe who had his hand up. Would you please wait for the microphone and identify yourself?

Mr. Friedman: If you want to know what I really think, ask me afterwards.

Dr. Pfaltzgraff: And after that, we have time for maybe one more question.

Audience: And my question is, given your globalization environment, how do you explain the sustainment of Iraq, given all the pressures that have been put against it and the continued pressure that exists today?

Mr. Friedman: How do we explain Iraq going along. Well, I-- What I do in the book is distinguish between countries that are in the system, and countries that are not in the system. Iraq is not in the system. That is, it's not plugged into the system. And what you can do in a North Korea and Iraq where you have a regime that's been able to seal itself off through pure, sheer brutality, in Iraq because they have oil, in North Korea because they have nothing, and either way you can keep your people out of the system. You can sustain it for quite some time. We know that. I believe sooner or later, you know, Iraq will crack. People thought Milosevic would never fall either. But when you're outside the system, you' re not going to be subject to all the pressures of the system. That's why I try to distinguish in my book the pressures that you come under when you're in the system and when you aren't in the system.

Dr. Pfaltzgraff: Final question? Is there one more? We have two over here. Yes, well let's take them both and take them quickly if we can. Please?

Audience: I would just be interested in your thoughts on the current situation in the Middle East and-- I mean, we see a lot of apocalyptic commentary in the press about how this works, and anything that's ever come before and there's no way back. And I know you've written on it recently and having been there recently, do you see it as a unique outbreak of violence, or is it-- Is there some sort of compromise?

Mr. Friedman: It's an important question. I'll tell you, as someone who followed the Middle East all my adult life, I've never been more confused. Feel like I was watching people who were-- A cousin of mine in Israel said this to me. "Putting together a thousand piece puzzle. And they really have just a few more pieces to go. Somebody came over, kicked over the table, the pieces are all over the floor. The dog's eating half of them. Others are broken. Now all we have to do is put it all back together." That's sort of where we're at. It's hard for me to-- You know, most wars, people say, "I know how it started. I just don't know how it ends." This one, I know how it ends, I just don't know why it started. I mean, it has to end in some kind of deal because these people are living cheek by jowl and really can't live like this.

Why did it begin? I think it's hard to know. I believe-- I've been quite critical of Arafat and the Palestinians on this because I believe that there was a road not taken. That you had the Israeli Prime Minister offering 92 percent of the West Bank, a Palestinian capitol in part of the old city of Jerusalem. A decent resolution, at least financially, of the refugee problem. And a Palestinian state. It was not up to what the Palestinians wanted. But it was a pretty good opening bid, and it was really the opening for Arafat to say, "Hey, here's something to build on." Instead, he rejected it and what-- What it really raises certain questions. Was this a strategic move just to get from 92 to 100 his own way? Instead of appealing to the Israeli people, by threatening the Israeli people? How much has Arafat been influenced by what Hezbollah did in South Lebanon, effectively evicting Israel militarily from South Lebanon?

I would tell you that is a huge mistake. I think if the Palestinians think they will do to Israel outside Jerusalem what Hezbollah did to them outside of Napatea, these are two very different theaters. So I don't know where this goes. I do know that sooner or later they've got to come back to the table. I think both sides have had a shock by this. You know what's interesting in Israel is both the left and the right have been devastated. People think it's only the left, that people who wanted peace thought we'd sit down with the Palestinians, everyone would sing "Cum Baya" and, you know, we'd all have a good time together.

Well, this has certainly been a shock to them, but the right also has gotten a shock. Because anyone who believed in the fantasy that Israel can keep the settlements in the West Bank at a powerful price and a deal that the Palestinians are going to approve is out of their mind. Now, I think that the same is going on on the Palestinian side. They will get a shock about the difference between South Lebanon and the West Bank.

But we're at a real dangerous point here. We're at a very, very dangerous point. We're literally today, as we speak, at the point you come to in every crisis where it's either going to escalate to a whole new level because the Israeli public will not let the government-- And Barak-This may sound brutal, but has actually been enormously restrained because he's brought to bear about one percent of his real power, you know, in this conflict. And it's either going to really escalate, or it's going to go back to the table.

The real danger, I think, from your point of view, is not the Palestinian/Israeli conflict because that doesn't really threaten our wider interests for the moment. It could. The real danger is we are one successful Hezbollah raid into northern Israel from South Lebanon from a regional war. Because here's what happens: if Hezbollah penetrates Israel's northern border, engages in some act of violence in northern Israel, I can predict this with pretty much a hundred percent certainty, Barak and the Israeli government, will not allow -- cannot afford to allow in its own view - Hezbollah to unilaterally change the rules of the game. To shift the game not from southern Lebanon into northern Israel. And Barak's response will be, I believe-- I'm pretty convinced-- They will take out the Syrian army in Lebanon. They will hold Syria responsible. They will go after every Syrian tank and rocket battery in Lebanon and because-- I don't have to tell this group, they can't be taken out without taking our radars inside Syria. You will have a very dangerous interstate conflict going. And I think one of the real-- We're one raid away from that. And the real danger here is-- You know, it's kind of-- Again, there's a lot of myths flying around on both sides. From Israel, what they think they could have in the West Bank. But one of the abiding Arab myths is that Israel's just become this rich, fat, lazy, Silicon Valley of the Middle East. Where everyone's just interested in their stock options and NASDAQ and their newest BMW. You know what? There's some truth to that. But there's two sides to Silicon Valley. There is the stock option side, the BMW side. And there is the real high tech side. There is the side that distinguishes between the incredible force the U.S. military brought to bear in the Gulf War, and how technology upgraded that even more so ten years later in Kosovo. Syrians have not encountered the Israeli Army since basically the summer of 1982. And if and when they do, they will meet the other side of Silicon Valley.

You know, there was a little reported incident that happened nine months ago in the Bekaa Valley. The Israeli Air Force at three in the morning took out ten tanks belonging to Achmed Jibril, a pro-Syrian Palestinian group in the Bekaa Valley. They took out ten tanks with eleven missiles. At three in the morning. And to this day, I think a lot of people on the ground there do not know what hit them. And so I think you have a very dangerous situation here and we're just one little raid away.

Dr. Pfaltzgraff: I had said that we would take one more question, but we really are now out of time. So this will have to have been the last question. So I would like, again, to thank Tom Friedman for being with us. This has been a tour de force, a tour de raison. A tremendous contribution.

(Applause.)