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it's 100 percent。 Nobook about the flat world would be honest if it did not acknowledge 
such con´ 
227 
cerns�察�or acknowledge that there is some debate among economists about whether Ricardo 
is still right。 
Having listened to the arguments on both sides�察�though�察�I come down where the great 
majority of economists come down´that Ricardo is still right and that more American 
individuals will be better off if we don't erect barriers to outsourcing�察�
supply´chaining�察�and offshoring than if we do。 The simple message of this chapter 
is that even as the world gets flat�察�America as a whole will benefit more by sticking 
to the basic principles of free trade�察�as it always has�察�than by trying to erect walls。 
The main argument of the anti´outsourcing school is that in a flat world�察�not only 
are goods tradable�察�but many services have become trad´able as well。 Because of this 


change�察�America and other developed countries could be headed for an absolute decline�察�
not just a relative one�察�in their economic power and living standards unless they 
move to formally protect certain jobs from foreign competition。 So many new players 
cannot enter the global economy´in service and knowledge fields now dominated by 
Americans�察�Europeans�察�and Japanese´without wages settling at a newer�察�lower 
equilibrium�察�this school argues。 
The main counterargument from free´trade/outsourcing advocates is that while there 
may be a transition phase in certain fields�察�during which wages are dampened�察�there 
is no reason to believe that this dip will be permanent or across the board�察�as long 
as the global pie keeps growing。 To suggest that it will be is to invoke the so´called 
lump of labor theory´the notion that there is a fixed lump of labor in the world 
and that once that lump is gobbled up�察�by either Americans or Indians or Japanese�察�
there won't be any more jobs to go around。 If we have the biggest lump of labor now�察�
and then Indians offer to do this same work for less�察�they will get a bigger piece 
of the lump�察�and we will have less�察�or so this argument goes。 
The main reason the lump of labor theory is wrong is that it is based on the assumption 
that everything that is going to be invented has been invented�察�and that therefore 
economic competition is a zero´sum game�察�a fight over a fixed lump。 This assumption 
misses the fact that although jobs are often lost in bulk´to outsourcing or 
offshoring´by big individ

ual companies�察�and this loss tends to make headlines�察�new jobs are also being created 
in fives�察�tens�察�and twenties by small companies that you can't see。 It often takes 
a leap of faith to believe that it is happening。 But it is happening。 If it were not�察�
America's unemployment rate would be much higher today than 5 percent。 The reason 
it ishappening is that as lower´end service and manufacturing jobs move out of Europe�察�
America�察�and Japan to India�察�China�察�and the former Soviet Empire�察�the global pie not 
only grows larger´because more people have more income to spend´it also grows more 
complex�察�as more new jobs�察�and new specialties�察�are created。 
Let me illustrate this with asimple example。 Imagine thatthere are only two countries 
in the world´America and China。 And imagine that the American economy has only 100 
people。 Of those 100 people�察�80 are well´educated knowledge workers and 20 are 
less´educated low´skilled workers。 Now imagine that the world goes flat and America 
enters into a free´trade agreement with China�察�which has 1��000 people but is a less 
developed country。 So today China too has only 80 well´educated knowledge workers 
out of that 1��000�察�and it has 920 low´skilled workers。 Before America entered into 
its free´trade agreement with China�察�there were only 80 knowledge workers in its world。 
Now there are 160 in our two´country world。 The American knowledge workers feel like 
they have more competition�察�and they do。 But if you look at the prize they are going 
after�察�it is now a much expanded and more complex market。 It went from a market of 
100 people to a market of 1��100 people�察�with many more needs and wants。 So it should 
be win´win for both the American and Chinese knowledge workers。 
Sure�察�some of the knowledge workers in America may have to move horizontally into 
new knowledge jobs�察�because of the competition from China。 But with a market that 


big and complex�察�you can be sure that new knowledge jobs will open up at decent wages 
for anyone who keeps up his or her skills。 So do not worry about our knowledge workers 
or the Chinese knowledge workers。 They will both do fine with this bigger market。 
;What do you mean�察�don't worry�拭─�you ask。 ;How do we deal with the fact that those 
eighty knowledge workers from China will be willing 
229 
to work for so much less than the eighty knowledge workers from America�拭�How will 
this difference get resolved�拭─�
It won't happen overnight�察�so some American knowledge workers may be affected in the 
transition�察�but the effects will not be permanent。 Here�察�argues Stanford new economy 
specialist Paul Romer�察�is what you need to understand�此�The wages for the Chinese 
knowledge workers were so low because�察�although their skills were marketable globally 
like those of their American counterparts�察�they were trappedinside a stifled economy。 
Imagine how little a North Korean computer expert or brain surgeon is paid inside 
that huge prison of a nation� �But as the Chinese economy opens up to the world and 
reforms�察�the wages of Chinese knowledge workers will rise up to American/world levels。 
Ours will not go down to the level of a stifled�察�walled´in economy。 You can already 
see this happening in Bangalore�察�where competition for Indian software writers is 
rapidly pushing up their wages toward American/European levels´after decades of 
languishing while the Indian economy was closed。 It is why Americans should be doing 
all they can to promote more and faster economic reform in India and China。 
Do worry�察�though�察�about the 20 low´skilled Americans�察�who now have to compete more 
directly with the 920 low´skilled Chinese。 One reason the 20 low´skilled Americans 
were paid a decent wage before was that�察�relative to the 80 skilled Americans�察�there 
were not that many of them。 Every economy needs some low´skilled manual labor。 But 
now that China and America have signed their free´trade pact�察�there are a total of 
940 low´skilled workers and 160 knowledge workers in our two´country world。 Those 
American low´skilled workers doing fungible jobs´jobs that can easily be moved to 
China´will have a problem。 There is no denying this。 Their wages are certain to be 
depressed。 In order to maintain or improve their living standards�察�they will have 
to move vertically�察�not horizontally。 They will have to upgrade their education and 
upgrade their knowledge skills so that they can occupy one of the new jobs sure to 
be created in the much expanded United States´China market。 ��In Chapter 8 I will talk 
about our society's obligation to ensure that everyone gets a chance to acquire those 
skills。�� 
230 
As Romer notes�察�we know from the history of our own country that an increase in 
knowledge workers does not necessarily lead to a decrease in their pay the way it 
does with low´skilled workers。 From the 1960s to the 1980s�察�the supply of 
college´educated workers grew dramatically�察�and yet their wages grew even faster。 
Because as the pie grew in size and complexity�察�so too did people's wants�察�and this 
increased the demand for people able to do complex work and specialized tasks。 
Romer explains this in part by the fact that ;there is a difference between idea´based 
goods and physical goods。; If you are a knowledge worker making and selling some kind 


of idea´based product´consulting or financial services or music or software or 
marketing or design or new drugs´the bigger the market is�察�the more people there are 
out there to whom you can sell your product。 And the bigger the market�察�the more new 
specialties and niches it will create。 If you come up with the next Windows or Viagra�察�
you can potentially sell one to everyone in the world。 So idea´based workers do well 
in globalization�察�and fortunately America as a whole has more idea´driven workers 
than any country in the world。 
But if you are selling manual labor´or a piece of lumber or a slab of steel´the value 
of what you have to sell does not necessarily increase when the market expands�察�and 
it may decrease�察�argues Romer。 There are only so many factories that will buy your 
manual labor�察�and there are many more people selling it。 What the manual laborer has 
to sell can be bought by only one factory or one consumer at a time�察�explains Romer�察�
while what the software writer or drug inventor has to sell ´idea´based products´can 
be sold to everyone in the global market at once。 
That is why America�察�as a whole�察�will do fine in a flat world with free trade´provided 
it continues to churn out knowledge workers who are able to produce idea´based goods 
that can be sold globally and who are able to fill the knowledge jobs that will be 
created as we not only expand the global economy but connect all the knowledge pools 
in the world。 There may be a limit to the number of good factory jobs in the world�察�
but there is no limit to the number of idea´generated jobs in the world。 
If we go from a world in which there were fifteen drug companies and fifteen software 
companies in America ��thirty in all�� and two drug companies and two software companies 
in China ��four in all�� to a world 

in which there are thirty drug and software companies in America and thirty drug and 
software companies in China�察�it is going to mean more innovation�察�more cures�察�more 
new products�察�more niches to specialize in�察�and many more people with higher incomes 
to buy those products。 
;The pie keeps growing because things that look like wants today are needs tomorrow�察─�
argued Marc Andreessen�察�the Netscape cofounder�察�who helped to ignite a whole new 
industry�察�e´commerce�察�that now employs millions of specialists around the world�察�
specialists whose jobs weren't even imagined when Bill Clinton became president。 I 
like going to coffee sho

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