Summary: The Lexus and the Olive Tree

Review and Analysis of Friedman's Book

BusinessNews Publishing

• Publisher: Must Read Summaries
• Year: 2016
• ISBN:
  9782806233660
• Topic: Economics
• Subtopic: International Economics
• Index: Economics

The must-read summary of Thomas Friedman's book: `The Lexus and the Olive Tree: Understanding Globalization`.

This complete summary of the ideas from Thomas Friedman's book `The Lexus and the Olive` shows that globalisation is a fundamentally new and better way to do business. As such, a new and brighter era of globalisation is just in the process of beginning as all the major marketplaces evolve towards becoming global markets. Thomas Friedman uses a metaphor to explain the challenges in this upcoming era of globalisation: the human drive for enrichment and the best products (represented by the Lexus) will sometimes conflict with the natural desire to hold on to what has traditionally mattered in creating a sense of national and personal identity (represented by the Olive Tree). The challenge for individuals and nations will be to find and maintain a healthy balance between those two perspectives. This summary highlights that globalisation creates the opportunity to sell into vast markets but pure commercial success will only be meaningful if it can be accomplished using means that reflect the individuality and cultural values of the people involved. 

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To learn more, read `The Lexus and the Olive` and discover a challenging and provocative book for all who care about how the world really works.

Summary of The Lexus and the Olive Tree (Thomas Friedman)

Section 1: How Globalization Works

Main Idea

Globalization is the international system which has superceded the Cold War system. It effects everyone’s domestic policies, their international relations and the way business gets done in every country of the world. This era of globalization which is currently binding all the economies of the world together tighter and tighter is driven by the falling costs of telecommunications – microchips, satellites, fiber optics and the Internet. As a result, globalization is well on its way to becoming the dominant international system of the next millennium as liberalism and free-market capitalism reign supreme.

Supporting Ideas

Pure and simple, when a country globalizes its markets, it takes some specific policy decisions and actions:

• Domestic markets for goods and services are opened up to international competition – anyone can sell into the marketplace without requiring licenses, quotas and so on.
• State owned enterprises are privatized.
• All tariffs and other forms of subsidies for domestic companies are eliminated, allowing true market dynamics to set prices without artificial distortion.
• The markets are deregulated – allowing new entrants to come into the marketplace without restriction.
• Foreign investment is permitted without requiring government approval.
• Competition is encouraged in all markets as the key mechanism for lowering prices and encouraging efficiency and cost-effectiveness.
• Currency may be transferred without requiring government approval, while the local unit of currency is floated and currency exchange rates are determined by the markets rather than set by the government.

In short, globalization means the emergence of worldwide markets for products and services that operate according to market forces rather than bureaucratic oversight. The globalization era is being driven by the falling costs of telecommunications. The key defining technologies around which globalization is built and expanded are:

• Computerization.
• Miniaturization.
• Digitization.
• Satellite communications.
• Fiber optics.
• The Internet.

While globalization may seem like a modern idea, this is actually the second era of globalization. The first globalization era occurred soon after World War I, the Russian Revolution and the Great Depression, and lasted until the fall of the Berlin Wall in 1989. This first era of globalization was driven by falling transport costs, thanks to the invention of the railroad, the steamship and the automobile. It was dominated at first by British power, the British pound and the British navy. Then, since World War II and the rise of the Cold War, the first era of globalization was dominated by American power, the American dollar, American culture and the American navy. This lasted until the collapse of communism and the Information Revolution which began in the late-1980s.

Globalization is the defining international system of the 21st century. It is driven by free-market capitalism – the concept that the more a country opens its economy, encourages competition and removes trade barriers, the more efficient it will become. The differences between globalization and the Cold War system can be well illustrated by comparing some key features of each:

The Cold War

Globalization

Globalization, as a system, is built around three key balances:

1. The traditional balance between nation-states reflecting the balance of power between the United States and all other countries.
2. The balance between nation-states and the global markets – where the combined actions of millions of investors moving money around the world can have a direct impact on governments, national attitudes and individual corporate success.
3. The balance between individuals and nation-states – because people are now wired with direct access to large markets without intermediaries.

As a result of globalization, the traditional boundaries between politics, culture, technology, finance, national security and the environment are disappearing. Therefore, to be effective in business and take advantage of the newly emerging system of globalization, countries need to make decisions which take into account and reference all of these key areas or dimensions simultaneously.

So how did this era of globalization come about? Basically, it is the combined result of three separate processes which were born and incubated during the Cold War before achieving a critical mass by the late 1980s:

The Democratizat...