The Customer is the Company
Threadless churns out dozens of new--with no advertising, no professional designers, no sales force and no retial distribution. And it's never produced a flop.
From: Inc. Magazine, June 2008 | By: Max Chafkin
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Jake Nickell stepped to the front of a small classroom on the MIT campus in Cambridge, Massachusetts, and looked around. It was an autumn morning in 2005, and before him sat a dozen executives from some of the country's largest companies -- General Mills, Pitney Bowes, Clorox, and Google (NASDAQ:GOOG) -- and a contingent of innovation researchers from MIT's Sloan School of Management and other business schools. The meeting had been organized by Eric von Hippel, an MIT bigwig and the foremost authority on something called user innovation. Von Hippel had heard about Nickell from a graduate student and had invited him to Cambridge to share his story with the group.
Nickell was somewhat befuddled by all the attention. He was not familiar with the term user innovation -- or, for that matter, the term Eric von Hippel. Business at Nickell's company, Threadless, had been growing quickly -- annual sales were on track to hit $5 million, and he had lately started getting curious calls from venture capitalists and large retailers. But Threadless didn't quite seem like MIT material. At 25, Nickell hadn't even graduated from college.
Von Hippel, a Harvard graduate, entrepreneur, and former McKinsey consultant who was 40 years Nickell's senior, called the room to attention and began lavishing praise on Threadless; he called the company a "perfect example" of a new way of thinking about innovation. Von Hippel's theory, which he had introduced in the late 1970s, was that most product innovations do not come out of corporate research and development labs but from the people who use the products. Nickell shot a confused glance at Jeffrey Kalmikoff, Threadless's chief creative officer, and Jacob DeHart, his chief technology officer. The meeting had barely begun, and they had already learned something.
Nickell started talking about his company. Threadless, he explained, ran design competitions on an online social network. Members of the network submitted their ideas for T-shirts -- hundreds each week -- and then voted on which ones they liked best. Hundreds of thousands of people were using the site as a kind of community center, where they blogged, chatted about designs, socialized with their fellow enthusiasts -- and bought a ton of shirts at $15 each. Revenue was growing 500 percent a year, despite the fact that the company had never advertised, employed no professional designers, used no modeling agency or fashion photographers, had no sales force, and enjoyed no retail distribution. As result, costs were low, margins were above 30 percent, and -- because community members told them precisely which shirts to make -- every product eventually sold out. Nickell's company had never produced a flop.
The audience members listened, rapt. For years they had suspected that this kind of business model was possible -- even inevitable. They had seen the beginnings of it in the open-source-software movement, and they had been trying to make it happen in small ways within their own companies. But somehow, this T-shirt guy had gone whole hog. He had built an entire business around the idea that an online community could drive innovation. "We were blown away," says von Hippel.
Nickell does not seem like the kind of guy whose presence would blow anyone away. He's 5 feet 10 inches but seems smaller, with a frame that barely fills out the medium-size T-shirts he wears like some kind of uniform. His fine features, unkempt hair, and scraggly red beard make him look almost elfin. His mannerisms, including a whisper-quiet voice and a tendency to punctuate his sentences with a faint giggle, do little to dispel this impression.
But Nickell is at the vanguard of a new innovation model that is quietly reshaping a host of industries. Whether it's called user innovation, crowdsourcing, or open source, it means drastically rethinking your relationship with your customers. "Threadless completely blurs that line of who is a producer and who is a consumer," says Karim Lakhani, a professor at the Harvard Business School. "The customers end up playing a critical role across all its operations: idea generation, marketing, sales forecasting. All that has been distributed."
This idea goes against a basic principle that has been taught in business schools since the invention of mass production: Employees make stuff, and customers buy it. But this notion seems anachronistic in a marketplace of ever-narrowing niches and nearly unlimited consumer choices. Meanwhile, a generation of so-called Web 2.0 companies has succeeded by encouraging customers to contribute to, and in some cases create, the product being sold. Not only do we have instantaneous access to countless television programs though video websites, but anyone with a YouTube account and a digital camera can create a show of his or her own. Professionally edited, dead-tree newspapers are besieged by digital news sites that are produced and edited by their readers. The 240-year-old Encyclopaedia Britannica finds itself eclipsed -- at least in terms of readership -- by Wikipedia.com, which pays its writers nothing and requires that they possess no expertise at all.
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In a superficial way, Threadless resembles these Web 2.0 firms. It is an online business, built around a social network, in which users collaborate with one another. The difference is that Threadless is not a software or media company. It designs, manufactures, and sells actual stuff. "They're the beginning of a new wave," says von Hippel, the author, most recently, of Democratizing Innovation. Von Hippel envisions a future in which most companies essentially abandon market research and product design and instead rely on communities of users to figure out which products to sell. Tim O'Reilly, the founder of O'Reilly Media and the guy who coined the term Web 2.0, goes even further. "As manufacturing technology gets richer, this model will be much more widely applied," he says. Already, the prices of rapid prototyping gadgets like three-dimensional printers and laser cutters are plummeting, a fact that O'Reilly believes will allow for open-source electronics, furniture, and toys. "How far off," he asked in a 2006 essay posted to his blog, "is a future in which the creative economy overflows the thin boundary that separates 'information' from 'stuff'?"
Nickell had no such vision as he put the finishing touches on a T-shirt design in late 2000. It was for the New Media Underground festival, an informal gathering of Web designers in London. He had no intention of attending the event, but he cared about it deeply. At the time, Nickell was 20 years old, living in a tiny Chicago apartment. He spent his days on the sales floor at CompUSA; at night, he was a talented if unenthusiastic part-time student at the Illinois Institute of Art. Though his girlfriend visited him each weekend, he had few close friends.
When he wasn't working or studying, Nickell was tinkering with Web design, a hobby he indulged in on Dreamless.org, an Internet forum for illustrators and programmers. He would spend hours at a time cruising the forum, talking with his online friends and engaging in a pastime called Photoshop tennis. In it, designers pass digital photographs back and forth and challenge one another to manipulate the images in the most outrageous way possible.
Nickell's design for the New Media Underground festival -- three lines of gray text that mimicked the layout of the Dreamless website -- was an entry for a contest that the festival's organizers were holding online. The design was simple and not quite pretty. But it was strikingly clever -- a physical representation of their digital community. The Dreamless members agreed. Nickell won the contest.
In concrete terms, this accomplishment meant exactly nothing: He got no money or even a copy of his winning shirt. But the experience was exhilarating. Dreamless members spent a lot of time batting ideas back and forth, but their creations rarely made it out of the digital realm. Suddenly, Nickell had an idea: What if the best designs were printed on T-shirts and sold in the real world? He suggested as much to Jacob DeHart, one of a handful of friends he had met on Dreamless. DeHart, a student at Purdue University, loved the idea, and each pitched in $500 -- enough to pay a lawyer to set up the business and print the first round of shirts.
Nickell and DeHart held their first contest in November 2000. They asked the designers on Dreamless to submit their best work and to pick their favorites. The grand prize: two free shirts and the promise that any proceeds would be reinvested in future contests. They called the competition Threadless, a play on thread -- either a clothing item or a discussion topic on an online forum. In all, they printed two dozen copies of five shirts out of slightly fewer than 100 submissions with in-joke titles like "Evil Mother F---ing Web Design" and "Dead Sexy Designer." The shirts went on sale in January 2001 for $12 each and sold out quickly. In the months that followed, Nickell and DeHart ran regular competitions using an automated rating system that allowed users to score designs on a scale from 1 to 5, but it never occurred to them that they had a real company. "It was just a hobby, a way for people to get their artwork out," Nickell says. By 2002, the hobby had surpassed $100,000 worth of T-shirts and attracted more than 10,000 community members, mostly artists in their teens and 20s. Even so, Nickell, DeHart, and Kalmikoff -- who joined the company that year -- spent much of their time doing freelance Web design to pay the bills.
Shortly after founding the company, Nickell and DeHart began awarding small cash prizes to the artists whose T-shirts were selected. Initially the prizes were $100 per winning design, but they gradually climbed to $2,500, plus reprint fees. But the appeal of Threadless to artists has never had much to do with getting paid. "It wasn't so much the money," says artist Glenn Jones, who won $150 in a contest in 2004, at age 29. "It was how cool it was to get your shirts printed." Young illustrators had few outlets in which to display their art, and within a few years of the launch, Threadless had acquired a sort of American Idol cachet. It was where unknown designers went to make their names.
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In addition to attracting a lot of talent, the contest format encouraged artists to tell their less artistic friends about the site. Designers labor mightily on their submissions; they spend weeks tinkering with their work and soliciting advice from other members. Then they post links to their submissions on their websites, blogs, and MySpace pages, asking their friends to click, vote, and, the artists hope, buy. (Threadless helps with this, sending the artists digital submission kits that include HTML code and graphics to help them create professional-looking advertisements for their designs.) "Threadless was a huge word-of-mouth thing," says Tom Burns, a 30-year-old freelance designer in Murfreesboro, Tennessee, who discovered Threadless through a mention on a design forum in late 2004. When he submitted his first design, he told all his friends and posted links on every design forum he frequented. "I spread the word as much as I could," says Burns, who eventually won for a design called Spaghetti Western.
Threadless users are not required to join the social network or vote in order to buy shirts, but many users have offered their opinions on thousands of designs. There's something enjoyable and empowering about playing critic in a never-ending gallery of pop art. "Participation on Threadless is not just about voting for designs you really want to buy," says Frank Piller, a management professor at Germany's Aachen University and a researcher at MIT. "It's an exploration of new designs, and it's fun." For a 2006 paper he published in the Sloan Management Review, Piller surveyed Threadless customers and found that only 5 percent were buying shirts without first voting on designs. "Almost no one was simply consuming," he says. "They were all participating."
This rabid engagement propelled the company through four years of phenomenal growth, beginning around 2004. The user base grew tenfold, from 70,000 members at the end of 2004 to more than 700,000 today. Sales in 2006 hit $18 million -- with profits of roughly $6 million. In 2007, growth continued at more than 200 percent, with similar margins. Though Nickell refuses to disclose the exact revenue number -- perhaps because he now counts Insight Venture Partners, a New York venture capital firm, as a minority shareholder -- it seems fair to assume that Threadless sold more than $30 million in T-shirts last year.
Ask Nickell what he makes of his company's whirlwind success, and he will respond rather sheepishly. "I think of it as common sense," he says. "Why wouldn't you want to make the products that people want you to make?" Indeed, the idea that the users of products are often best equipped to innovate is something many entrepreneurs know intuitively. And it is supported by a growing body of research. A study published last year in the Strategic Entrepreneurship Journal suggested that the vast majority of companies are founded by "user-entrepreneurs" -- people who went into business to improve a product they used. Meanwhile, studies by von Hippel and others show that in industries as diverse as scientific instruments and snowboard equipment, more than half the innovations generally come from users, not from research labs.
Some major corporations are beginning to experiment with these ideas. Pitney Bowes is building an online social network for direct marketers who use its mail machines, and Ford now allows drivers of its Focus sedan to add third-party hardware and software to their vehicles' navigation and entertainment systems. But most companies still prefer what von Hippel calls the "find-a-need-and-fill-it" paradigm -- which involves market research, focus groups, testing, reworking, and retesting. Not only is this method extremely costly, but it fails to capitalize on a company's most dedicated customers -- who often are already improving existing products to fit their needs. Think of the hacker who tweaks his iPhone to allow it to run Skype, the mountain biker who builds an improved chain guard, the teenage girl who cuts the collar off her Gap (NYSE:GPS) T-shirt.
Some companies actually punish these people by cracking down on unauthorized innovations. Apple has famously "bricked" -- that is, electronically disabled -- iPhones that have been enhanced by their owners. Other companies pay lip service to user innovation but have trouble following through on the concept. "Companies are very good at creating platforms for external input, but they're very bad at using this input," says Piller, who has studied BMW's use of an innovation portal, a website that invites consumers to submit ideas. "BMW gets a thousand good ideas each year," he says. "Maybe they use one every two years." In other words, no matter how much technology goes into prettying up the suggestion box, the suggestions tend to get dumped in the trash at the end of the week.
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Threadless is an exception to this. "You could say that what Threadless does is trivial, but it's not," says Harvard's Lakhani. In fact, the very triviality of Threadless's product -- something as low tech and as commoditized as a T-shirt -- proves that vibrant online communities can drive all sorts of nontechnical businesses. This should be encouraging news to entrepreneurs. Customer communities have become exceedingly inexpensive to build and manage; blogging software and social network platforms, for example, are now available for free from a handful of start-ups. "We thought that open source could only work in software, and now it's being successfully applied to a product as mundane as a T-shirt," Lakhani says.
Threadless's headquarters is in a former printing plant on Chicago's Ravenswood Avenue. The 25,000-square-foot office is open to customers, a dozen of whom stop by every day to pick up shirts in person. They sometimes stick around for hours and hang out in a space that resembles a college dorm room constructed on an impossibly large scale. There are video game consoles, go-carts, a giant television, beanbag chairs, action figures, a singing-buck trophy, a Ping-Pong table, and a full-size Airstream trailer that the company uses as a studio in which to produce podcasts.
These diversions and many others are captured in a host of videos published at Threadless's website. There's the one of Nickell smashing a television with a homemade potato gun, the Halloween video with employees throwing pumpkins off the roof, and the one that depicts Threadless employees in a fierce pillow fight. Many videos depict employees dancing, often in ridiculous costumes. In short, the impression is of a teenage paradise -- a company that has nothing but fun.
But take a closer look, and the company is suspiciously companylike. The go-carts generally stay parked, the buck stays mute, and the Ping-Pong table serves as a gathering place for impromptu meetings. "When I started, we spent half the day playing," says Lance Curran, a bearded 29-year-old wearing a beanie, jeans, and a flannel shirt. "That doesn't happen anymore." This is not to say Curran doesn't like his job. On the contrary, he nearly glows when he talks about his rise from a temporary warehouse worker in 2005 to the warehouse manager in charge of a staff of 18 today. When Curran arrived, the average time from an order to shipment was a full month during peak season. Today, it's one day, thanks to a system by which the warehouse is regularly reorganized based on what is selling well. Hot products are placed near the packaging area, which means that packers, who will often walk three miles in the course of a shift, don't have to travel as far to get shirts. "Visitors come in here with degrees, and they can't believe how this place has evolved without any outside help," says Curran.
Like Curran, most of Threadless's employees come with no obvious qualifications for their jobs. The oldest staff member is 33, and many are under 25. The employees do, however, arrive with a deep and abiding love of Threadless, having joined the community long before they entered the work force. Joe Van Wetering, a 21-year-old illustrator who works in the production department, was a frequent visitor to Threadless's offices as a teenager before taking a job in the warehouse in 2006. Ross Zietz had won seven competitions while studying art at Louisiana State University before he took a job as the company's janitor in 2004. He has since been promoted to art director, charged with helping the winning designers get their entries ready for printing. In fact, 75 percent of the company's 50 employees were community members before they were hired.
Nickell makes hiring decisions based primarily on one metric: trust. "It's pretty much the only thing we talk about when we interview," he says. The goal is to find people who can work independently. "It takes a while for people to get adjusted to this place," he says, adding that those who do not display an ability to figure things out on their own are quickly dispatched. (The first and only person over the age of 40 to work at Threadless, the CFO, left after only 60 days on the job in early 2007.)
Trustworthiness is especially important at Threadless because the company's most important asset -- its vast online community -- is managed collectively. Threadless employs no moderators, and no single person or group is charged with keeping the community happy. Nor, technologically speaking, is the social network itself especially advanced. It lacks many of the features found on MySpace or Facebook. There are no virtual friends, no messaging features, and no status messages. Users' profiles are made up of their blog postings and their submissions.
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But what Threadless lacks in flashy features, it makes up for in steadfast dedication to staying close to its customers. Both Nickell and Kalmikoff spend much of their time cruising Threadless.com -- posting comments on blogs, inspecting designs, and tweaking the website. They publish their instant-message addresses and regularly query the public about changes to design or contest policies. "If someone changes something on Facebook, there's no expectation that some random 14-year-old from the middle of Idaho is going to be able to get in touch with Mark Zuckerberg," Kalmikoff says. "On Threadless, if people see something they don't like and want to talk to Jake, they get Jake."
Employees have long served as the models for the company's shirts; this puts community members on a first-name basis with them. "Ross makes one hot Dylan," reads a recent comment from one of Zietz's admirers in response to a Bob Dylan-inspired pose he struck. (Users are also invited to upload photos of themselves wearing Threadless shirts. For each photo submitted, the company doles out a credit worth $1.50.) Meanwhile, each employee is encouraged to talk regularly with users. For instance, when Curran is planning on cleaning out the warehouse, he alerts the customers on his Threadless blog. The posts typically generate dozens of requests. "Keep an eye out for the XL Corporate Zombie," reads one from a customer eager to score a lost copy of a sold-out design.
In 2005, Nickell got a call from a buyer at the retailer Urban Outfitters (NASDAQ:URBN) about carrying Threadless's shirts in the company's 150 stores. Around the same time, Target (NYSE:TGT) sent him a several-hundred-page contract for a "test" involving tens of thousands of shirts in a handful of stores and on Target.com. Nickell reluctantly declined both offers, fearing a backlash from a community that often uses "Urban Outfitters" as a synonym for uncool. "We would do a deal with Target or Urban Outfitters," Nickell insists. "The only stipulation we need is to have some kind of presence in the store where people are able to easily learn about where the designs come from. You go to Target or Urban, and it's just shirts on a wall. You have no idea where they came from or who designed them," he says. He would like to see a computer kiosk that allows shoppers to score designs and read about artists, but when he pitched the concept to Urban Outfitters -- which approached Threadless again in 2007 -- the clothing giant demurred. "As long as the story isn't lost, we're OK," he says. Urban Outfitters and Target declined to comment, citing company policy.
Still, Nickell is not averse to pushing his model in new directions. In late 2006, he sold a minority stake to Insight Venture Partners for an undisclosed amount. He informed the community with a release titled "Holy Crap, Big News!" With Insight's cash and expertise, Nickell began work on a Threadless retail store and started looking into the possibility of opening a European warehouse to speed international shipments. He also broke with DeHart, who had lost interest in expanding Threadless and wanted to start something new. (DeHart declined to comment for this story. He maintains his ownership stake in Threadless and a board seat but no longer works at the company.)
Last September, Threadless opened a two-story store in Chicago's Lakeview neighborhood. Nickell spared no expense in designing the space, which is appointed with zinc panels, hardwood accents, and 20 flat-screen television monitors. But the most striking thing about the store is how few products are on sale. The upper floor is dedicated exclusively to art, and 20 or so T-shirt designs are sold on the lower level. This layout makes the space feel worlds away from American Apparel (AMEX:APP) stores, which are usually crammed floor to ceiling with all things cotton. Nickell imagined the store as a marketing channel -- a physical embodiment of Threadless.com that would help attract attention to the website, give artists a chance to see their work sold in a real-life setting, and serve as a venue for events such as concerts and art exhibits. He figured it would lose money.
Six months later, the store is profitable, and Nickell is already planning a children's shop in Chicago and a second store in Boulder, Colorado. Eventually, he hopes to open stores in midsize cities such as Austin, Seattle, and Minneapolis. The expansion, which has been greeted positively by much of the Threadless community, is not without its detractors. "Please promise me that this will be the ONLY store you will be opening," wrote a member several days before last year's grand opening party. "Next thing you know, everyone on every other block will be wearing the same shirt." And LovesThreadless.com, one of several independently run fan sites, greeted retail expansion coolly. "Congratulations, guys, but keep it real," wrote the site's creator, Chris Cardinal, a 22-year-old Phoenix-based Web developer.
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Such tension, Nickell says, is inevitable in community-based businesses. "Even before now, we've been losing our core people and gaining new core people," he says. "It's kind of like a band in its infancy: As soon as a lot of people start listening to the band, the core fans go away." Nickell points out that the look of Threadless's T-shirts -- what other clothing companies might call the brand -- has changed drastically as his audience has evolved from a small collection of geeky Web designers to include tens of thousands of teenagers from middle America. Webmaster jokes have been replaced by cultural references; wordplay has given way to painterly richness. The Threadless brand is not the shirts but the community experience. As Nickell puts it, "Our brand is a fun boys' and girls' club."
Now, Nickell is set to let his club loose on other businesses. In addition to expanding to children's clothing and retail, Threadless will begin selling prints and posters online. And later this year, the company will add a range of products, including handbags, wallets, and dinnerware, under the brand Naked & Angry. Each item will be adorned with patterns submitted by users, with a new product launched each month. "I think Naked & Angry, if handled properly, has the potential to be way bigger than Threadless, because we have the flexibility to do everything," says Kalmikoff, who envisions moving into high-end clothing as well as housewares. Jeff Lieberman, managing director of Insight Venture Partners and a board member, is even more bullish. "To say it's just a T-shirt company is absurd," he says. "I look at it as a community company that happens to use T-shirts as a canvas."
That a quirky T-shirt company can elicit such glowing statements from a private equity professional who invests mostly in an industry called software-enabled services is something of an accomplishment in itself. Indeed, nearly everyone who touches Threadless seems to come away feeling a little cooler. The executives and academics who met Nickell and Kalmikoff three years ago at MIT still speak glowingly of the kids from Chicago who bailed out on a group dinner at Legal Seafoods in order to attend a customer meet-up in a Cambridge bar. "They're a bunch of guys in T-shirts, but they're incredibly thoughtful," says Jim Euchner, vice president of growth strategy and innovation at Pitney Bowes. Euchner marvels at the way Threadless has built a defensible business based not on proprietary information or technology but on an extremely loyal group of customers. "It's just a different way to think about business," he says.
The way Eric von Hippel sees it, Threadless has tapped into a fundamental economic shift, a movement away from passive consumerism. One day in the not-too-distant future, he says, citizen inventors using computer design programs and three-dimensional printers will exchange physical prototypes in much the same way Nickell and cohorts played Photoshop tennis.
Eventually, Threadless-like communities could form around industries as diverse as semiconductors, auto parts, and toys. "Threadless is one of the first firms to systematically mine a community for designs, but everything is moving in this direction," says von Hippel. He foresees research labs and product-design divisions at manufacturing companies being outstripped by an "innovation commons" made up of tinkerers, hackers, and other devout customers freely sharing their ideas. The companies that win will be the ones that listen.
This may or may not come to pass, but the lesson of Threadless is more basic. Its success demonstrates what happens when you allow your company to become what your customers want it to be, when you make something as basic and quaint as "trust" a core competency. Threadless succeeds by asking more than any modern retail company has ever asked of its customers -- to design the products, to serve as the sales force, to become the employees. Nickell has pioneered a new kind of innovation. It doesn't require huge research budgets or creative brilliance -- just a willingness to keep looking outward.
Max Chafkin is an Inc. staff writer.
e diel, 25 maj 2008
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How Everything You Learned in High School History Comes Together in Globalization
The Rise of the Rest
It's true China is booming, Russia is growing more assertive, terrorism is a threat. But if America is losing the ability to dictate to this new world, it has not lost the ability to lead.
Fareed Zakaria
NEWSWEEK
Updated: 2:24 PM ET May 3, 2008
Americans are glum at the moment. No, I mean really glum. In April, a new poll revealed that 81 percent of the American people believe that the country is on the "wrong track." In the 25 years that pollsters have asked this question, last month's response was by far the most negative. Other polls, asking similar questions, found levels of gloom that were even more alarming, often at 30- and 40-year highs. There are reasons to be pessimistic—a financial panic and looming recession, a seemingly endless war in Iraq, and the ongoing threat of terrorism. But the facts on the ground—unemployment numbers, foreclosure rates, deaths from terror attacks—are simply not dire enough to explain the present atmosphere of malaise.
American anxiety springs from something much deeper, a sense that large and disruptive forces are coursing through the world. In almost every industry, in every aspect of life, it feels like the patterns of the past are being scrambled. "Whirl is king, having driven out Zeus," wrote Aristophanes 2,400 years ago. And—for the first time in living memory—the United States does not seem to be leading the charge. Americans see that a new world is coming into being, but fear it is one being shaped in distant lands and by foreign people.
Look around. The world's tallest building is in Taipei, and will soon be in Dubai. Its largest publicly traded company is in Beijing. Its biggest refinery is being constructed in India. Its largest passenger airplane is built in Europe. The largest investment fund on the planet is in Abu Dhabi; the biggest movie industry is Bollywood, not Hollywood. Once quintessentially American icons have been usurped by the natives. The largest Ferris wheel is in Singapore. The largest casino is in Macao, which overtook Las Vegas in gambling revenues last year. America no longer dominates even its favorite sport, shopping. The Mall of America in Minnesota once boasted that it was the largest shopping mall in the world. Today it wouldn't make the top ten. In the most recent rankings, only two of the world's ten richest people are American. These lists are arbitrary and a bit silly, but consider that only ten years ago, the United States would have serenely topped almost every one of these categories.
These factoids reflect a seismic shift in power and attitudes. It is one that I sense when I travel around the world. In America, we are still debating the nature and extent of anti-Americanism. One side says that the problem is real and worrying and that we must woo the world back. The other says this is the inevitable price of power and that many of these countries are envious—and vaguely French—so we can safely ignore their griping. But while we argue over why they hate us, "they" have moved on, and are now far more interested in other, more dynamic parts of the globe. The world has shifted from anti-Americanism to post-Americanism.
I. The End of Pax Americana
During the 1980s, when I would visit India—where I grew up—most Indians were fascinated by the United States. Their interest, I have to confess, was not in the important power players in Washington or the great intellectuals in Cambridge.
People would often ask me about … Donald Trump. He was the very symbol of the United States—brassy, rich, and modern. He symbolized the feeling that if you wanted to find the biggest and largest anything, you had to look to America. Today, outside of entertainment figures, there is no comparable interest in American personalities. If you wonder why, read India's newspapers or watch its television. There are dozens of Indian businessmen who are now wealthier than the Donald. Indians are obsessed by their own vulgar real estate billionaires. And that newfound interest in their own story is being replicated across much of the world.
How much? Well, consider this fact. In 2006 and 2007, 124 countries grew their economies at over 4 percent a year. That includes more than 30 countries in Africa. Over the last two decades, lands outside the industrialized West have been growing at rates that were once unthinkable. While there have been booms and busts, the overall trend has been unambiguously upward. Antoine van Agtmael, the fund manager who coined the term "emerging markets," has identified the 25 companies most likely to be the world's next great multinationals. His list includes four companies each from Brazil, Mexico, South Korea, and Taiwan; three from India, two from China, and one each from Argentina, Chile, Malaysia, and South Africa. This is something much broader than the much-ballyhooed rise of China or even Asia. It is the rise of the rest—the rest of the world.
We are living through the third great power shift in modern history. The first was the rise of the Western world, around the 15th century. It produced the world as we know it now—science and technology, commerce and capitalism, the industrial and agricultural revolutions. It also led to the prolonged political dominance of the nations of the Western world. The second shift, which took place in the closing years of the 19th century, was the rise of the United States. Once it industrialized, it soon became the most powerful nation in the world, stronger than any likely combination of other nations. For the last 20 years, America's superpower status in every realm has been largely unchallenged—something that's never happened before in history, at least since the Roman Empire dominated the known world 2,000 years ago. During this Pax Americana, the global economy has accelerated dramatically. And that expansion is the driver behind the third great power shift of the modern age—the rise of the rest.
At the military and political level, we still live in a unipolar world. But along every other dimension—industrial, financial, social, cultural—the distribution of power is shifting, moving away from American dominance. In terms of war and peace, economics and business, ideas and art, this will produce a landscape that is quite different from the one we have lived in until now—one defined and directed from many places and by many peoples.
The post-American world is naturally an unsettling prospect for Americans, but it should not be. This will not be a world defined by the decline of America but rather the rise of everyone else. It is the result of a series of positive trends that have been progressing over the last 20 years, trends that have created an international climate of unprecedented peace and prosperity.
I know. That's not the world that people perceive. We are told that we live in dark, dangerous times. Terrorism, rogue states, nuclear proliferation, financial panics, recession, outsourcing, and illegal immigrants all loom large in the national discourse. Al Qaeda, Iran, North Korea, China, Russia are all threats in some way or another. But just how violent is today's world, really?
A team of scholars at the University of Maryland has been tracking deaths caused by organized violence. Their data show that wars of all kinds have been declining since the mid-1980s and that we are now at the lowest levels of global violence since the 1950s. Deaths from terrorism are reported to have risen in recent years. But on closer examination, 80 percent of those casualties come from Afghanistan and Iraq, which are really war zones with ongoing insurgencies—and the overall numbers remain small. Looking at the evidence, Harvard's polymath professor Steven Pinker has ventured to speculate that we are probably living "in the most peaceful time of our species' existence."
Why does it not feel that way? Why do we think we live in scary times? Part of the problem is that as violence has been ebbing, information has been exploding. The last 20 years have produced an information revolution that brings us news and, most crucially, images from around the world all the time. The immediacy of the images and the intensity of the 24-hour news cycle combine to produce constant hype. Every weather disturbance is the "storm of the decade." Every bomb that explodes is BREAKING NEWS. Because the information revolution is so new, we—reporters, writers, readers, viewers—are all just now figuring out how to put everything in context.
We didn't watch daily footage of the two million people who died in Indochina in the 1970s, or the million who perished in the sands of the Iran-Iraq war ten years later. We saw little of the civil war in the Congo in the 1990s, where millions died. But today any bomb that goes off, any rocket that is fired, any death that results, is documented by someone, somewhere and ricochets instantly across the world. Add to this terrorist attacks, which are random and brutal. "That could have been me," you think. Actually, your chances of being killed in a terrorist attack are tiny—for an American, smaller than drowning in your bathtub. But it doesn't feel like that.
The threats we face are real. Islamic jihadists are a nasty bunch—they do want to attack civilians everywhere. But it is increasingly clear that militants and suicide bombers make up a tiny portion of the world's 1.3 billion Muslims. They can do real damage, especially if they get their hands on nuclear weapons. But the combined efforts of the world's governments have effectively put them on the run and continue to track them and their money. Jihad persists, but the jihadists have had to scatter, work in small local cells, and use simple and undetectable weapons. They have not been able to hit big, symbolic targets, especially ones involving Americans. So they blow up bombs in cafés, marketplaces, and subway stations. The problem is that in doing so, they kill locals and alienate ordinary Muslims. Look at the polls. Support for violence of any kind has dropped dramatically over the last five years in all Muslim countries.
Militant groups have reconstituted in certain areas where they exploit a particular local issue or have support from a local ethnic group or sect, most worryingly in Pakistan and Afghanistan where Islamic radicalism has become associated with Pashtun identity politics. But as a result, these groups are becoming more local and less global. Al Qaeda in Iraq, for example, has turned into a group that is more anti-Shiite than anti-American. The bottom line is this: since 9/11, Al Qaeda Central, the gang run by Osama bin Laden, has not been able to launch a single major terror attack in the West or any Arab country—its original targets. They used to do terrorism, now they make videotapes. Of course one day they will get lucky again, but that they have been stymied for almost seven years points out that in this battle between governments and terror groups, the former need not despair.
Some point to the dangers posed by countries like Iran. These rogue states present real problems, but look at them in context. The American economy is 68 times the size of Iran's. Its military budget is 110 times that of the mullahs. Were Iran to attain a nuclear capacity, it would complicate the geopolitics of the Middle East. But none of the problems we face compare with the dangers posed by a rising Germany in the first half of the 20th century or an expansionist Soviet Union in the second half. Those were great global powers bent on world domination. If this is 1938, as some neoconservatives tell us, then Iran is Romania, not Germany.
Others paint a dark picture of a world in which dictators are on the march. China and Russia and assorted other oil potentates are surging. We must draw the battle lines now, they warn, and engage in a great Manichean struggle that will define the next century. Some of John McCain's rhetoric has suggested that he adheres to this dire, dyspeptic view. But before we all sign on for a new Cold War, let's take a deep breath and gain some perspective. Today's rising great powers are relatively benign by historical measure. In the past, when countries grew rich they've wanted to become great military powers, overturn the existing order, and create their own empires or spheres of influence. But since the rise of Japan and Germany in the 1960s and 1970s, none have done this, choosing instead to get rich within the existing international order. China and India are clearly moving in this direction. Even Russia, the most aggressive and revanchist great power today, has done little that compares with past aggressors. The fact that for the first time in history, the United States can contest Russian influence in Ukraine—a country 4,800 miles away from Washington that Russia has dominated or ruled for 350 years—tells us something about the balance of power between the West and Russia.
Compare Russia and China with where they were 35 years ago. At the time both (particularly Russia) were great power threats, actively conspiring against the United States, arming guerrilla movement across the globe, funding insurgencies and civil wars, blocking every American plan in the United Nations. Now they are more integrated into the global economy and society than at any point in at least 100 years. They occupy an uncomfortable gray zone, neither friends nor foes, cooperating with the United States and the West on some issues, obstructing others. But how large is their potential for trouble? Russia's military spending is $35 billion, or 1/20th of the Pentagon's. China has about 20 nuclear missiles that can reach the United States. We have 830 missiles, most with multiple warheads, that can reach China. Who should be worried about whom? Other rising autocracies like Saudi Arabia and the Gulf states are close U.S. allies that shelter under America's military protection, buy its weapons, invest in its companies, and follow many of its diktats. With Iran's ambitions growing in the region, these countries are likely to become even closer allies, unless America gratuitously alienates them.
II. The Good News
In July 2006, I spoke with a senior member of the Israeli government, a few days after Israel's war with Hezbollah had ended. He was genuinely worried about his country's physical security. Hezbollah's rockets had reached farther into Israel than people had believed possible. The military response had clearly been ineffectual: Hezbollah launched as many rockets on the last day of the war as on the first. Then I asked him about the economy—the area in which he worked. His response was striking. "That's puzzled all of us," he said. "The stock market was higher on the last day of the war than on the first! The same with the shekel." The government was spooked, but the market wasn't.
Or consider the Iraq War, which has produced deep, lasting chaos and dysfunction in that country. Over two million refugees have crowded into neighboring lands. That would seem to be the kind of political crisis guaranteed to spill over. But as I've traveled in the Middle East over the last few years, I've been struck by how little Iraq's troubles have destabilized the region. Everywhere you go, people angrily denounce American foreign policy. But most Middle Eastern countries are booming. Iraq's neighbors—Turkey, Jordan, and Saudi Arabia—are enjoying unprecedented prosperity. The Gulf states are busy modernizing their economies and societies, asking the Louvre, New York University, and Cornell Medical School to set up remote branches in the desert. There's little evidence of chaos, instability, and rampant Islamic fundamentalism.
The underlying reality across the globe is of enormous vitality. For the first time ever, most countries around the world are practicing sensible economics. Consider inflation. Over the past 20 years hyperinflation, a problem that used to bedevil large swaths of the world from Turkey to Brazil to Indonesia, has largely vanished, tamed by successful fiscal and monetary policies. The results are clear and stunning. The share of people living on $1 a day has plummeted from 40 percent in 1981 to 18 percent in 2004 and is estimated to drop to 12 percent by 2015. Poverty is falling in countries that house 80 percent of the world's population. There remains real poverty in the world—most worryingly in 50 basket-case countries that contain 1 billion people—but the overall trend has never been more encouraging. The global economy has more than doubled in size over the last 15 years and is now approaching $54 trillion! Global trade has grown by 133 percent in the same period. The expansion of the global economic pie has been so large, with so many countries participating, that it has become the dominating force of the current era. Wars, terrorism, and civil strife cause disruptions temporarily but eventually they are overwhelmed by the waves of globalization. These circumstances may not last, but it is worth understanding what the world has looked like for the past few decades.
III. A New Nationalism
Of course, global growth is also responsible for some of the biggest problems in the world right now. It has produced tons of money—what businesspeople call liquidity—that moves around the world. The combination of low inflation and lots of cash has meant low interest rates, which in turn have made people act greedily and/or stupidly. So we have witnessed over the last two decades a series of bubbles—in East Asian countries, technology stocks, housing, subprime mortgages, and emerging market equities. Growth also explains one of the signature events of our times—soaring commodity prices. $100 oil is just the tip of the barrel. Almost all commodities are at 200-year highs. Food, only a few decades ago in danger of price collapse, is now in the midst of a scary rise. None of this is due to dramatic fall-offs in supply. It is demand, growing global demand, that is fueling these prices. The effect of more and more people eating, drinking, washing, driving, and consuming will have seismic effects on the global system. These may be high-quality problems, but they are deep problems nonetheless.
The most immediate effect of global growth is the appearance of new economic powerhouses on the scene. It is an accident of history that for the last several centuries, the richest countries in the world have all been very small in terms of population. Denmark has 5.5 million people, the Netherlands has 16.6 million. The United States is the biggest of the bunch and has dominated the advanced industrial world. But the real giants—China, India, Brazil—have been sleeping, unable or unwilling to join the world of functioning economies. Now they are on the move and naturally, given their size, they will have a large footprint on the map of the future. Even if people in these countries remain relatively poor, as nations their total wealth will be massive. Or to put it another way, any number, no matter how small, when multiplied by 2.5 billion becomes a very big number. (2.5 billion is the population of China plus India.)
The rise of China and India is really just the most obvious manifestation of a rising world. In dozens of big countries, one can see the same set of forces at work—a growing economy, a resurgent society, a vibrant culture, and a rising sense of national pride. That pride can morph into something uglier. For me, this was vividly illustrated a few years ago when I was chatting with a young Chinese executive in an Internet café in Shanghai. He wore Western clothes, spoke fluent English, and was immersed in global pop culture. He was a product of globalization and spoke its language of bridge building and cosmopolitan values. At least, he did so until we began talking about Taiwan, Japan, and even the United States. (We did not discuss Tibet, but I'm sure had we done so, I could have added it to this list.) His responses were filled with passion, bellicosity, and intolerance. I felt as if I were in Germany in 1910, speaking to a young German professional, who would have been equally modern and yet also a staunch nationalist.
As economic fortunes rise, so inevitably does nationalism. Imagine that your country has been poor and marginal for centuries. Finally, things turn around and it becomes a symbol of economic progress and success. You would be proud, and anxious that your people win recognition and respect throughout the world.
In many countries such nationalism arises from a pent-up frustration over having to accept an entirely Western, or American, narrative of world history—one in which they are miscast or remain bit players. Russians have long chafed over the manner in which Western countries remember World War II. The American narrative is one in which the United States and Britain heroically defeat the forces of fascism. The Normandy landings are the climactic highpoint of the war—the beginning of the end. The Russians point out, however, that in fact the entire Western front was a sideshow. Three quarters of all German forces were engaged on the Eastern front fighting Russian troops, and Germany suffered 70 percent of its casualties there. The Eastern front involved more land combat than all other theaters of World War II put together.
Such divergent national perspectives always existed. But today, thanks to the information revolution, they are amplified, echoed, and disseminated. Where once there were only the narratives laid out by The New York Times, Time, Newsweek, the BBC, and CNN, there are now dozens of indigenous networks and channels—from Al Jazeera to New Delhi's NDTV to Latin America's Telesur. The result is that the "rest" are now dissecting the assumptions and narratives of the West and providing alternative views. A young Chinese diplomat told me in 2006, "When you tell us that we support a dictatorship in Sudan to have access to its oil, what I want to say is, 'And how is that different from your support of a medieval monarchy in Saudi Arabia?' We see the hypocrisy, we just don't say anything—yet."
The fact that newly rising nations are more strongly asserting their ideas and interests is inevitable in a post-American world. This raises a conundrum—how to get a world of many actors to work together. The traditional mechanisms of international cooperation are fraying. The U.N. Security Council has as its permanent members the victors of a war that ended more than 60 years ago. The G8 does not include China, India or Brazil—the three fastest-growing large economies in the world—and yet claims to represent the movers and shakers of the world economy. By tradition, the IMF is always headed by a European and the World Bank by an American. This "tradition," like the segregated customs of an old country club, might be charming to an insider. But to the majority who live outside the West, it seems bigoted. Our challenge is this: Whether the problem is a trade dispute or a human rights tragedy like Darfur or climate change, the only solutions that will work are those involving many nations. But arriving at solutions when more countries and more non-governmental players are feeling empowered will be harder than ever.
IV. The Next American Century
Many look at the vitality of this emerging world and conclude that the United States has had its day. "Globalization is striking back," Gabor Steingart, an editor at Germany's leading news magazine, Der Spiegel, writes in a best-selling book. As others prosper, he argues, the United States has lost key industries, its people have stopped saving money, and its government has become increasingly indebted to Asian central banks. The current financial crisis has only given greater force to such fears.
But take a step back. Over the last 20 years, globalization has been gaining depth and breadth. America has benefited massively from these trends. It has enjoyed unusually robust growth, low unemployment and inflation, and received hundreds of billions of dollars in investment. These are not signs of economic collapse. Its companies have entered new countries and industries with great success, using global supply chains and technology to stay in the vanguard of efficiency. U.S. exports and manufacturing have actually held their ground and services have boomed.
The United States is currently ranked as the globe's most competitive economy by the World Economic Forum. It remains dominant in many industries of the future like nanotechnology, biotechnology, and dozens of smaller high-tech fields. Its universities are the finest in the world, making up 8 of the top ten and 37 of the top fifty, according to a prominent ranking produced by Shanghai Jiao Tong University. A few years ago the National Science Foundation put out a scary and much-discussed statistic. In 2004, the group said, 950,000 engineers graduated from China and India, while only 70,000 graduated from the United States. But those numbers are wildly off the mark. If you exclude the car mechanics and repairmen—who are all counted as engineers in Chinese and Indian statistics—the numbers look quite different. Per capita, it turns out, the United States trains more engineers than either of the Asian giants.
But America's hidden secret is that most of these engineers are immigrants. Foreign students and immigrants account for almost 50 percent of all science researchers in the country. In 2006 they received 40 percent of all PhDs. By 2010, 75 percent of all science PhDs in this country will be awarded to foreign students. When these graduates settle in the country, they create economic opportunity. Half of all Silicon Valley start-ups have one founder who is an immigrant or first generation American. The potential for a new burst of American productivity depends not on our education system or R&D spending, but on our immigration policies. If these people are allowed and encouraged to stay, then innovation will happen here. If they leave, they'll take it with them.
More broadly, this is America's great—and potentially insurmountable—strength. It remains the most open, flexible society in the world, able to absorb other people, cultures, ideas, goods, and services. The country thrives on the hunger and energy of poor immigrants. Faced with the new technologies of foreign companies, or growing markets overseas, it adapts and adjusts. When you compare this dynamism with the closed and hierarchical nations that were once superpowers, you sense that the United States is different and may not fall into the trap of becoming rich, and fat, and lazy.
American society can adapt to this new world. But can the American government? Washington has gotten used to a world in which all roads led to its doorstep. America has rarely had to worry about benchmarking to the rest of the world—it was always so far ahead. But the natives have gotten good at capitalism and the gap is narrowing. Look at the rise of London. It's now the world's leading financial center—less because of things that the United States did badly than those London did well, like improving regulation and becoming friendlier to foreign capital. Or take the U.S. health care system, which has become a huge liability for American companies. U.S. carmakers now employ more people in Ontario, Canada, than Michigan because in Canada their health care costs are lower. Twenty years ago, the United States had the lowest corporate taxes in the world. Today they are the second-highest. It's not that ours went up. Those of others went down.
American parochialism is particularly evident in foreign policy. Economically, as other countries grow, for the most part the pie expands and everyone wins. But geopolitics is a struggle for influence: as other nations become more active internationally, they will seek greater freedom of action. This necessarily means that America's unimpeded influence will decline. But if the world that's being created has more power centers, nearly all are invested in order, stability and progress. Rather than narrowly obsessing about our own short-term interests and interest groups, our chief priority should be to bring these rising forces into the global system, to integrate them so that they in turn broaden and deepen global economic, political, and cultural ties. If China, India, Russia, Brazil all feel that they have a stake in the existing global order, there will be less danger of war, depression, panics, and breakdowns. There will be lots of problems, crisis, and tensions, but they will occur against a backdrop of systemic stability. This benefits them but also us. It's the ultimate win-win.
To bring others into this world, the United States needs to make its own commitment to the system clear. So far, America has been able to have it both ways. It is the global rule-maker but doesn't always play by the rules. And forget about standards created by others. Only three countries in the world don't use the metric system—Liberia, Myanmar, and the United States. For America to continue to lead the world, we will have to first join it.
Americans—particularly the American government—have not really understood the rise of the rest. This is one of the most thrilling stories in history. Billions of people are escaping from abject poverty. The world will be enriched and ennobled as they become consumers, producers, inventors, thinkers, dreamers, and doers. This is all happening because of American ideas and actions. For 60 years, the United States has pushed countries to open their markets, free up their politics, and embrace trade and technology. American diplomats, businessmen, and intellectuals have urged people in distant lands to be unafraid of change, to join the advanced world, to learn the secrets of our success. Yet just as they are beginning to do so, we are losing faith in such ideas. We have become suspicious of trade, openness, immigration, and investment because now it's not Americans going abroad but foreigners coming to America. Just as the world is opening up, we are closing down.
Generations from now, when historians write about these times, they might note that by the turn of the 21st century, the United States had succeeded in its great, historical mission—globalizing the world. We don't want them to write that along the way, we forgot to globalize ourselves.
It's true China is booming, Russia is growing more assertive, terrorism is a threat. But if America is losing the ability to dictate to this new world, it has not lost the ability to lead.
Fareed Zakaria
NEWSWEEK
Updated: 2:24 PM ET May 3, 2008
Americans are glum at the moment. No, I mean really glum. In April, a new poll revealed that 81 percent of the American people believe that the country is on the "wrong track." In the 25 years that pollsters have asked this question, last month's response was by far the most negative. Other polls, asking similar questions, found levels of gloom that were even more alarming, often at 30- and 40-year highs. There are reasons to be pessimistic—a financial panic and looming recession, a seemingly endless war in Iraq, and the ongoing threat of terrorism. But the facts on the ground—unemployment numbers, foreclosure rates, deaths from terror attacks—are simply not dire enough to explain the present atmosphere of malaise.
American anxiety springs from something much deeper, a sense that large and disruptive forces are coursing through the world. In almost every industry, in every aspect of life, it feels like the patterns of the past are being scrambled. "Whirl is king, having driven out Zeus," wrote Aristophanes 2,400 years ago. And—for the first time in living memory—the United States does not seem to be leading the charge. Americans see that a new world is coming into being, but fear it is one being shaped in distant lands and by foreign people.
Look around. The world's tallest building is in Taipei, and will soon be in Dubai. Its largest publicly traded company is in Beijing. Its biggest refinery is being constructed in India. Its largest passenger airplane is built in Europe. The largest investment fund on the planet is in Abu Dhabi; the biggest movie industry is Bollywood, not Hollywood. Once quintessentially American icons have been usurped by the natives. The largest Ferris wheel is in Singapore. The largest casino is in Macao, which overtook Las Vegas in gambling revenues last year. America no longer dominates even its favorite sport, shopping. The Mall of America in Minnesota once boasted that it was the largest shopping mall in the world. Today it wouldn't make the top ten. In the most recent rankings, only two of the world's ten richest people are American. These lists are arbitrary and a bit silly, but consider that only ten years ago, the United States would have serenely topped almost every one of these categories.
These factoids reflect a seismic shift in power and attitudes. It is one that I sense when I travel around the world. In America, we are still debating the nature and extent of anti-Americanism. One side says that the problem is real and worrying and that we must woo the world back. The other says this is the inevitable price of power and that many of these countries are envious—and vaguely French—so we can safely ignore their griping. But while we argue over why they hate us, "they" have moved on, and are now far more interested in other, more dynamic parts of the globe. The world has shifted from anti-Americanism to post-Americanism.
I. The End of Pax Americana
During the 1980s, when I would visit India—where I grew up—most Indians were fascinated by the United States. Their interest, I have to confess, was not in the important power players in Washington or the great intellectuals in Cambridge.
People would often ask me about … Donald Trump. He was the very symbol of the United States—brassy, rich, and modern. He symbolized the feeling that if you wanted to find the biggest and largest anything, you had to look to America. Today, outside of entertainment figures, there is no comparable interest in American personalities. If you wonder why, read India's newspapers or watch its television. There are dozens of Indian businessmen who are now wealthier than the Donald. Indians are obsessed by their own vulgar real estate billionaires. And that newfound interest in their own story is being replicated across much of the world.
How much? Well, consider this fact. In 2006 and 2007, 124 countries grew their economies at over 4 percent a year. That includes more than 30 countries in Africa. Over the last two decades, lands outside the industrialized West have been growing at rates that were once unthinkable. While there have been booms and busts, the overall trend has been unambiguously upward. Antoine van Agtmael, the fund manager who coined the term "emerging markets," has identified the 25 companies most likely to be the world's next great multinationals. His list includes four companies each from Brazil, Mexico, South Korea, and Taiwan; three from India, two from China, and one each from Argentina, Chile, Malaysia, and South Africa. This is something much broader than the much-ballyhooed rise of China or even Asia. It is the rise of the rest—the rest of the world.
We are living through the third great power shift in modern history. The first was the rise of the Western world, around the 15th century. It produced the world as we know it now—science and technology, commerce and capitalism, the industrial and agricultural revolutions. It also led to the prolonged political dominance of the nations of the Western world. The second shift, which took place in the closing years of the 19th century, was the rise of the United States. Once it industrialized, it soon became the most powerful nation in the world, stronger than any likely combination of other nations. For the last 20 years, America's superpower status in every realm has been largely unchallenged—something that's never happened before in history, at least since the Roman Empire dominated the known world 2,000 years ago. During this Pax Americana, the global economy has accelerated dramatically. And that expansion is the driver behind the third great power shift of the modern age—the rise of the rest.
At the military and political level, we still live in a unipolar world. But along every other dimension—industrial, financial, social, cultural—the distribution of power is shifting, moving away from American dominance. In terms of war and peace, economics and business, ideas and art, this will produce a landscape that is quite different from the one we have lived in until now—one defined and directed from many places and by many peoples.
The post-American world is naturally an unsettling prospect for Americans, but it should not be. This will not be a world defined by the decline of America but rather the rise of everyone else. It is the result of a series of positive trends that have been progressing over the last 20 years, trends that have created an international climate of unprecedented peace and prosperity.
I know. That's not the world that people perceive. We are told that we live in dark, dangerous times. Terrorism, rogue states, nuclear proliferation, financial panics, recession, outsourcing, and illegal immigrants all loom large in the national discourse. Al Qaeda, Iran, North Korea, China, Russia are all threats in some way or another. But just how violent is today's world, really?
A team of scholars at the University of Maryland has been tracking deaths caused by organized violence. Their data show that wars of all kinds have been declining since the mid-1980s and that we are now at the lowest levels of global violence since the 1950s. Deaths from terrorism are reported to have risen in recent years. But on closer examination, 80 percent of those casualties come from Afghanistan and Iraq, which are really war zones with ongoing insurgencies—and the overall numbers remain small. Looking at the evidence, Harvard's polymath professor Steven Pinker has ventured to speculate that we are probably living "in the most peaceful time of our species' existence."
Why does it not feel that way? Why do we think we live in scary times? Part of the problem is that as violence has been ebbing, information has been exploding. The last 20 years have produced an information revolution that brings us news and, most crucially, images from around the world all the time. The immediacy of the images and the intensity of the 24-hour news cycle combine to produce constant hype. Every weather disturbance is the "storm of the decade." Every bomb that explodes is BREAKING NEWS. Because the information revolution is so new, we—reporters, writers, readers, viewers—are all just now figuring out how to put everything in context.
We didn't watch daily footage of the two million people who died in Indochina in the 1970s, or the million who perished in the sands of the Iran-Iraq war ten years later. We saw little of the civil war in the Congo in the 1990s, where millions died. But today any bomb that goes off, any rocket that is fired, any death that results, is documented by someone, somewhere and ricochets instantly across the world. Add to this terrorist attacks, which are random and brutal. "That could have been me," you think. Actually, your chances of being killed in a terrorist attack are tiny—for an American, smaller than drowning in your bathtub. But it doesn't feel like that.
The threats we face are real. Islamic jihadists are a nasty bunch—they do want to attack civilians everywhere. But it is increasingly clear that militants and suicide bombers make up a tiny portion of the world's 1.3 billion Muslims. They can do real damage, especially if they get their hands on nuclear weapons. But the combined efforts of the world's governments have effectively put them on the run and continue to track them and their money. Jihad persists, but the jihadists have had to scatter, work in small local cells, and use simple and undetectable weapons. They have not been able to hit big, symbolic targets, especially ones involving Americans. So they blow up bombs in cafés, marketplaces, and subway stations. The problem is that in doing so, they kill locals and alienate ordinary Muslims. Look at the polls. Support for violence of any kind has dropped dramatically over the last five years in all Muslim countries.
Militant groups have reconstituted in certain areas where they exploit a particular local issue or have support from a local ethnic group or sect, most worryingly in Pakistan and Afghanistan where Islamic radicalism has become associated with Pashtun identity politics. But as a result, these groups are becoming more local and less global. Al Qaeda in Iraq, for example, has turned into a group that is more anti-Shiite than anti-American. The bottom line is this: since 9/11, Al Qaeda Central, the gang run by Osama bin Laden, has not been able to launch a single major terror attack in the West or any Arab country—its original targets. They used to do terrorism, now they make videotapes. Of course one day they will get lucky again, but that they have been stymied for almost seven years points out that in this battle between governments and terror groups, the former need not despair.
Some point to the dangers posed by countries like Iran. These rogue states present real problems, but look at them in context. The American economy is 68 times the size of Iran's. Its military budget is 110 times that of the mullahs. Were Iran to attain a nuclear capacity, it would complicate the geopolitics of the Middle East. But none of the problems we face compare with the dangers posed by a rising Germany in the first half of the 20th century or an expansionist Soviet Union in the second half. Those were great global powers bent on world domination. If this is 1938, as some neoconservatives tell us, then Iran is Romania, not Germany.
Others paint a dark picture of a world in which dictators are on the march. China and Russia and assorted other oil potentates are surging. We must draw the battle lines now, they warn, and engage in a great Manichean struggle that will define the next century. Some of John McCain's rhetoric has suggested that he adheres to this dire, dyspeptic view. But before we all sign on for a new Cold War, let's take a deep breath and gain some perspective. Today's rising great powers are relatively benign by historical measure. In the past, when countries grew rich they've wanted to become great military powers, overturn the existing order, and create their own empires or spheres of influence. But since the rise of Japan and Germany in the 1960s and 1970s, none have done this, choosing instead to get rich within the existing international order. China and India are clearly moving in this direction. Even Russia, the most aggressive and revanchist great power today, has done little that compares with past aggressors. The fact that for the first time in history, the United States can contest Russian influence in Ukraine—a country 4,800 miles away from Washington that Russia has dominated or ruled for 350 years—tells us something about the balance of power between the West and Russia.
Compare Russia and China with where they were 35 years ago. At the time both (particularly Russia) were great power threats, actively conspiring against the United States, arming guerrilla movement across the globe, funding insurgencies and civil wars, blocking every American plan in the United Nations. Now they are more integrated into the global economy and society than at any point in at least 100 years. They occupy an uncomfortable gray zone, neither friends nor foes, cooperating with the United States and the West on some issues, obstructing others. But how large is their potential for trouble? Russia's military spending is $35 billion, or 1/20th of the Pentagon's. China has about 20 nuclear missiles that can reach the United States. We have 830 missiles, most with multiple warheads, that can reach China. Who should be worried about whom? Other rising autocracies like Saudi Arabia and the Gulf states are close U.S. allies that shelter under America's military protection, buy its weapons, invest in its companies, and follow many of its diktats. With Iran's ambitions growing in the region, these countries are likely to become even closer allies, unless America gratuitously alienates them.
II. The Good News
In July 2006, I spoke with a senior member of the Israeli government, a few days after Israel's war with Hezbollah had ended. He was genuinely worried about his country's physical security. Hezbollah's rockets had reached farther into Israel than people had believed possible. The military response had clearly been ineffectual: Hezbollah launched as many rockets on the last day of the war as on the first. Then I asked him about the economy—the area in which he worked. His response was striking. "That's puzzled all of us," he said. "The stock market was higher on the last day of the war than on the first! The same with the shekel." The government was spooked, but the market wasn't.
Or consider the Iraq War, which has produced deep, lasting chaos and dysfunction in that country. Over two million refugees have crowded into neighboring lands. That would seem to be the kind of political crisis guaranteed to spill over. But as I've traveled in the Middle East over the last few years, I've been struck by how little Iraq's troubles have destabilized the region. Everywhere you go, people angrily denounce American foreign policy. But most Middle Eastern countries are booming. Iraq's neighbors—Turkey, Jordan, and Saudi Arabia—are enjoying unprecedented prosperity. The Gulf states are busy modernizing their economies and societies, asking the Louvre, New York University, and Cornell Medical School to set up remote branches in the desert. There's little evidence of chaos, instability, and rampant Islamic fundamentalism.
The underlying reality across the globe is of enormous vitality. For the first time ever, most countries around the world are practicing sensible economics. Consider inflation. Over the past 20 years hyperinflation, a problem that used to bedevil large swaths of the world from Turkey to Brazil to Indonesia, has largely vanished, tamed by successful fiscal and monetary policies. The results are clear and stunning. The share of people living on $1 a day has plummeted from 40 percent in 1981 to 18 percent in 2004 and is estimated to drop to 12 percent by 2015. Poverty is falling in countries that house 80 percent of the world's population. There remains real poverty in the world—most worryingly in 50 basket-case countries that contain 1 billion people—but the overall trend has never been more encouraging. The global economy has more than doubled in size over the last 15 years and is now approaching $54 trillion! Global trade has grown by 133 percent in the same period. The expansion of the global economic pie has been so large, with so many countries participating, that it has become the dominating force of the current era. Wars, terrorism, and civil strife cause disruptions temporarily but eventually they are overwhelmed by the waves of globalization. These circumstances may not last, but it is worth understanding what the world has looked like for the past few decades.
III. A New Nationalism
Of course, global growth is also responsible for some of the biggest problems in the world right now. It has produced tons of money—what businesspeople call liquidity—that moves around the world. The combination of low inflation and lots of cash has meant low interest rates, which in turn have made people act greedily and/or stupidly. So we have witnessed over the last two decades a series of bubbles—in East Asian countries, technology stocks, housing, subprime mortgages, and emerging market equities. Growth also explains one of the signature events of our times—soaring commodity prices. $100 oil is just the tip of the barrel. Almost all commodities are at 200-year highs. Food, only a few decades ago in danger of price collapse, is now in the midst of a scary rise. None of this is due to dramatic fall-offs in supply. It is demand, growing global demand, that is fueling these prices. The effect of more and more people eating, drinking, washing, driving, and consuming will have seismic effects on the global system. These may be high-quality problems, but they are deep problems nonetheless.
The most immediate effect of global growth is the appearance of new economic powerhouses on the scene. It is an accident of history that for the last several centuries, the richest countries in the world have all been very small in terms of population. Denmark has 5.5 million people, the Netherlands has 16.6 million. The United States is the biggest of the bunch and has dominated the advanced industrial world. But the real giants—China, India, Brazil—have been sleeping, unable or unwilling to join the world of functioning economies. Now they are on the move and naturally, given their size, they will have a large footprint on the map of the future. Even if people in these countries remain relatively poor, as nations their total wealth will be massive. Or to put it another way, any number, no matter how small, when multiplied by 2.5 billion becomes a very big number. (2.5 billion is the population of China plus India.)
The rise of China and India is really just the most obvious manifestation of a rising world. In dozens of big countries, one can see the same set of forces at work—a growing economy, a resurgent society, a vibrant culture, and a rising sense of national pride. That pride can morph into something uglier. For me, this was vividly illustrated a few years ago when I was chatting with a young Chinese executive in an Internet café in Shanghai. He wore Western clothes, spoke fluent English, and was immersed in global pop culture. He was a product of globalization and spoke its language of bridge building and cosmopolitan values. At least, he did so until we began talking about Taiwan, Japan, and even the United States. (We did not discuss Tibet, but I'm sure had we done so, I could have added it to this list.) His responses were filled with passion, bellicosity, and intolerance. I felt as if I were in Germany in 1910, speaking to a young German professional, who would have been equally modern and yet also a staunch nationalist.
As economic fortunes rise, so inevitably does nationalism. Imagine that your country has been poor and marginal for centuries. Finally, things turn around and it becomes a symbol of economic progress and success. You would be proud, and anxious that your people win recognition and respect throughout the world.
In many countries such nationalism arises from a pent-up frustration over having to accept an entirely Western, or American, narrative of world history—one in which they are miscast or remain bit players. Russians have long chafed over the manner in which Western countries remember World War II. The American narrative is one in which the United States and Britain heroically defeat the forces of fascism. The Normandy landings are the climactic highpoint of the war—the beginning of the end. The Russians point out, however, that in fact the entire Western front was a sideshow. Three quarters of all German forces were engaged on the Eastern front fighting Russian troops, and Germany suffered 70 percent of its casualties there. The Eastern front involved more land combat than all other theaters of World War II put together.
Such divergent national perspectives always existed. But today, thanks to the information revolution, they are amplified, echoed, and disseminated. Where once there were only the narratives laid out by The New York Times, Time, Newsweek, the BBC, and CNN, there are now dozens of indigenous networks and channels—from Al Jazeera to New Delhi's NDTV to Latin America's Telesur. The result is that the "rest" are now dissecting the assumptions and narratives of the West and providing alternative views. A young Chinese diplomat told me in 2006, "When you tell us that we support a dictatorship in Sudan to have access to its oil, what I want to say is, 'And how is that different from your support of a medieval monarchy in Saudi Arabia?' We see the hypocrisy, we just don't say anything—yet."
The fact that newly rising nations are more strongly asserting their ideas and interests is inevitable in a post-American world. This raises a conundrum—how to get a world of many actors to work together. The traditional mechanisms of international cooperation are fraying. The U.N. Security Council has as its permanent members the victors of a war that ended more than 60 years ago. The G8 does not include China, India or Brazil—the three fastest-growing large economies in the world—and yet claims to represent the movers and shakers of the world economy. By tradition, the IMF is always headed by a European and the World Bank by an American. This "tradition," like the segregated customs of an old country club, might be charming to an insider. But to the majority who live outside the West, it seems bigoted. Our challenge is this: Whether the problem is a trade dispute or a human rights tragedy like Darfur or climate change, the only solutions that will work are those involving many nations. But arriving at solutions when more countries and more non-governmental players are feeling empowered will be harder than ever.
IV. The Next American Century
Many look at the vitality of this emerging world and conclude that the United States has had its day. "Globalization is striking back," Gabor Steingart, an editor at Germany's leading news magazine, Der Spiegel, writes in a best-selling book. As others prosper, he argues, the United States has lost key industries, its people have stopped saving money, and its government has become increasingly indebted to Asian central banks. The current financial crisis has only given greater force to such fears.
But take a step back. Over the last 20 years, globalization has been gaining depth and breadth. America has benefited massively from these trends. It has enjoyed unusually robust growth, low unemployment and inflation, and received hundreds of billions of dollars in investment. These are not signs of economic collapse. Its companies have entered new countries and industries with great success, using global supply chains and technology to stay in the vanguard of efficiency. U.S. exports and manufacturing have actually held their ground and services have boomed.
The United States is currently ranked as the globe's most competitive economy by the World Economic Forum. It remains dominant in many industries of the future like nanotechnology, biotechnology, and dozens of smaller high-tech fields. Its universities are the finest in the world, making up 8 of the top ten and 37 of the top fifty, according to a prominent ranking produced by Shanghai Jiao Tong University. A few years ago the National Science Foundation put out a scary and much-discussed statistic. In 2004, the group said, 950,000 engineers graduated from China and India, while only 70,000 graduated from the United States. But those numbers are wildly off the mark. If you exclude the car mechanics and repairmen—who are all counted as engineers in Chinese and Indian statistics—the numbers look quite different. Per capita, it turns out, the United States trains more engineers than either of the Asian giants.
But America's hidden secret is that most of these engineers are immigrants. Foreign students and immigrants account for almost 50 percent of all science researchers in the country. In 2006 they received 40 percent of all PhDs. By 2010, 75 percent of all science PhDs in this country will be awarded to foreign students. When these graduates settle in the country, they create economic opportunity. Half of all Silicon Valley start-ups have one founder who is an immigrant or first generation American. The potential for a new burst of American productivity depends not on our education system or R&D spending, but on our immigration policies. If these people are allowed and encouraged to stay, then innovation will happen here. If they leave, they'll take it with them.
More broadly, this is America's great—and potentially insurmountable—strength. It remains the most open, flexible society in the world, able to absorb other people, cultures, ideas, goods, and services. The country thrives on the hunger and energy of poor immigrants. Faced with the new technologies of foreign companies, or growing markets overseas, it adapts and adjusts. When you compare this dynamism with the closed and hierarchical nations that were once superpowers, you sense that the United States is different and may not fall into the trap of becoming rich, and fat, and lazy.
American society can adapt to this new world. But can the American government? Washington has gotten used to a world in which all roads led to its doorstep. America has rarely had to worry about benchmarking to the rest of the world—it was always so far ahead. But the natives have gotten good at capitalism and the gap is narrowing. Look at the rise of London. It's now the world's leading financial center—less because of things that the United States did badly than those London did well, like improving regulation and becoming friendlier to foreign capital. Or take the U.S. health care system, which has become a huge liability for American companies. U.S. carmakers now employ more people in Ontario, Canada, than Michigan because in Canada their health care costs are lower. Twenty years ago, the United States had the lowest corporate taxes in the world. Today they are the second-highest. It's not that ours went up. Those of others went down.
American parochialism is particularly evident in foreign policy. Economically, as other countries grow, for the most part the pie expands and everyone wins. But geopolitics is a struggle for influence: as other nations become more active internationally, they will seek greater freedom of action. This necessarily means that America's unimpeded influence will decline. But if the world that's being created has more power centers, nearly all are invested in order, stability and progress. Rather than narrowly obsessing about our own short-term interests and interest groups, our chief priority should be to bring these rising forces into the global system, to integrate them so that they in turn broaden and deepen global economic, political, and cultural ties. If China, India, Russia, Brazil all feel that they have a stake in the existing global order, there will be less danger of war, depression, panics, and breakdowns. There will be lots of problems, crisis, and tensions, but they will occur against a backdrop of systemic stability. This benefits them but also us. It's the ultimate win-win.
To bring others into this world, the United States needs to make its own commitment to the system clear. So far, America has been able to have it both ways. It is the global rule-maker but doesn't always play by the rules. And forget about standards created by others. Only three countries in the world don't use the metric system—Liberia, Myanmar, and the United States. For America to continue to lead the world, we will have to first join it.
Americans—particularly the American government—have not really understood the rise of the rest. This is one of the most thrilling stories in history. Billions of people are escaping from abject poverty. The world will be enriched and ennobled as they become consumers, producers, inventors, thinkers, dreamers, and doers. This is all happening because of American ideas and actions. For 60 years, the United States has pushed countries to open their markets, free up their politics, and embrace trade and technology. American diplomats, businessmen, and intellectuals have urged people in distant lands to be unafraid of change, to join the advanced world, to learn the secrets of our success. Yet just as they are beginning to do so, we are losing faith in such ideas. We have become suspicious of trade, openness, immigration, and investment because now it's not Americans going abroad but foreigners coming to America. Just as the world is opening up, we are closing down.
Generations from now, when historians write about these times, they might note that by the turn of the 21st century, the United States had succeeded in its great, historical mission—globalizing the world. We don't want them to write that along the way, we forgot to globalize ourselves.
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