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April 07, 2007

The World is Round?

Valeria Maltoni wrote about a very interesting article she ran across by Pankaj Ghemawat in Foreign Policy about why the world isn't flat (a free pdf can be found here), contrary to the thesis put forward by Thomas Friedman in The World is Flat.  One of the most interesting statistics Ghemawat showed was that when looking at cross-border transactions, a best estimate can be that only 10% of everything, from cash flows to immigration to trade, crosses national borders.  Only 10% of telephone revenue comes from cross-national calls, and 20% of trade and only 3% of migration crosses borders.  Another interesting point comes from the fact the previous peak of international integration was in the early 20th century.  It was only in the last 10 years that we passed the peak, and in some cases, we still haven't.

By viewing a localized world as a problem that needs to be solved, there are three areas that can potentially make a lot of money.  Finding a way for people, capital, and products to move relatively freely between countries are gold mines for entrepreneurs to go after.  With respect to people and products, some of the problem stems from government protectionism, but finding a way to transport people and goods at 10% of the current cost could radically change the global playing field.  What if a ticket to fly to Shanghai or London cost only $100?  How many more people would jump at the opportunity to travel?  I'm guessing the price of a ticket to California would drop to $15 and to New York to $20 each way. I would definitetly be traveling more at these kinds of prices. :D

Thought Experiment - Would a 90% decrease in travel costs further push a greater adoption of English around the world as the lingua franca?  Or would Mandarin start to edge it out as more middle-class Chinese were able to travel longer distances?


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