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I do them on my Mac laptop, anywhere I am, from Santa Barbara to Minneapolis to my

apartment in New York. Sometimes clients give me a subject, and sometimes I just come

up with them. Morphing used to be one of those really high-end things you saw on TV,

and then they came out with this consumer [software] program and people could do it

themselves, and I shaped them so magazines could use them. I just upload them as a

series of JPEG files. . . Morphs have been a good business for different magazines.

I even get fan mail from kids!"

Greer had never done morphs until the technology evolved and created a new,

specialized niche, just when a changing market for his work made him eager to learn

new skills. "I wish I could say it was all intentional," he confessed. "I was just

available for work and just lucky they gave me a chance to do these things. I know

so many artists who got

washed out. One guy who was an illustrator has become a package designer, some have

gotten out of the field altogether; one of the best designers I know became a landscape

architect. She is still a designer but changed her medium altogether. Visual people

can adapt, but I am still nervous about the future."

I told Greer his story fit well into some of the terms I was using in this book. He

began as a chocolate sauce (a classic illustrator), was turned into a vanilla

commodity (a classic illustrator in the computer age), upgraded his skills to become

a special chocolate sauce again (a design consultant), then learned how to become

a cherry on top (a morphs artist) by fulfilling a new demand created by an increasingly

specialized market.

Greer contemplated my compliment for a moment and then said, "And here all I was trying

to do was survive-and I still am." As he got up to leave, though, he told me that

he was going out to meet a friend "to juggle together." They have been juggling

partners for years, just a little side business they sometimes do on a street corner

or for private parties. Greer has very good hand-eye coordination. "But even juggling

is being commoditized," he complained. "It used to be if you could juggle five balls,

you were really special. Now juggling five balls is like just anteing up. My partner

and I used to perform together, and he was the seven-ball champ when I met him. Now

fourteen-year-old kids can juggle seven balls, no problem. Now they have these books,

like Juggling for Dummies, and kits that will teach you how to juggle. So they've

just upped the standard."

As goes juggling, so goes the world.

These are our real choices: to try to put up walls of protection or to keep marching

forward with the confidence that American society still has the right stuff, even

in a flatter world. I say march forward. As long as we keep tending to the secrets

of our sauce, we will do fine. There are so many things about the American system

that are ideally suited for nurturing individuals who can compete and thrive in a

flat world.

How so? It starts with America's research universities, which spin off

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a steady stream of competitive experiments, innovations, and scientific

breakthroughs -from mathematics to biology to physics to chemistry. It is a truism,

but the more educated you are, the more options you will have in a flat world. "Our

university system is the best," said Bill Gates. "We fund our universities to do a

lot of research and that is an amazing thing. High-IQ people come here, and we allow

them to innovate and turn [their innovations] into products. We reward risk taking.

Our university system is competitive and experimental. They can try out different

approaches. There are one hundred universities making contributions to robotics. And

each one is saying that the other is doing it all wrong, or my piece actually fits

together with theirs. It is a chaotic system, but it is a great engine of innovation

in the world, and with federal tax money, with some philanthropy on top of that, [it

will continue to flourish] . . . We will really haVe to screw things up for our absolute

wealth not to increase. If we are smart, we can increase it faster by embracing this

stuff."

The Web browser, magnetic resonance imaging (MRI), superfast computers, global

position technology, space exploration devices, and fiber optics are just a few of

the many inventions that got started through basic university research projects. The

BankBoston Economics Department did a study titled "MIT: The Impact of Innovation."

Among its conclusions was that MIT graduates have founded 4,000 companies, creating

at least 1.1 million jobs worldwide and generating sales of $232 billion.

What makes America unique is not that it built MIT, or that its grads are generating

economic growth and innovation, but that every state in the country has universities

trying to do the same. "America has 4,000 colleges and universities," said Allan E.

Goodman, president ofthe Institute of International Education. "The rest of the world

combined has 7,768 institutions of higher education. In the state of California alone,

there are about 130 colleges and universities. There are only 14 countries in the

world that have more than that number."

Take a state you normally wouldn't think of in this regard: Oklahoma. It has its own

Oklahoma Center for the Advancement of Science and Technology (OCAST), which, on its

Web site, describes its mission as follows: "In order to compete effectively in the

new economy, Oklahoma

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must continue to develop a well-educated population; a collaborative, focused

university research and technology base; and a nurturing environment for cutting-edge

businesses, from the smallest start-up to the largest international headquarters. . .

[OCAST promotes] University-Business technology centers, which may span several

schools and businesses, resulting in new businesses being spawned, new products being

manufactured, and new manufacturing technologies employed." No wonder that in 2003,

American universities reaped $1.3 billion from patents, according to the Association

of University Technology Managers.

Coupled with America's unique innovation-generating machines-universities, public

and private research labs, and retailers-we have the best-regulated and most

efficient capital markets in the world for taking new ideas and turning them into

products and services. Dick Foster, director of McKinsey & Co. and the author of two

books on innovation, remarked to me, "We have an 'industrial policy' in the U.S. -it

is called the stock exchange, whether it is the NYSE or the Nasdaq." That is where

risk capital is collected and assigned to emerging ideas or growing companies, Foster

said, and no capital market in the world does that better and more efficiently than

the American one.

What makes capital provision work so well here is the security and regulation of our

capital markets, where minority shareholders are protected. Lord knows, there are

scams, excesses, and corruption in our capital markets. That always happens when a

lot of money is at stake. What distinguishes our capital markets is not that Enrons

don't happen in America-they sure do. It is that when they happen, they usually get

exposed, either by the Securities and Exchange Commission or by the business press,

and get corrected. What makes America unique is not Enron but Eliot Spitzer, the

attorney general of New York State, who has doggedly sought to clean up the securities

industry and corporate boardrooms. This sort of capital market has proved very, very

difficult to duplicate outside of New York, London, Frankfurt, and Tokyo. Said Foster,

"China and India and other Asian countries will not be successful at innovation until

they have successful capital markets, and they will not have successful capital

markets until they have rule of law which protects

minority interests under conditions of risk . . . We in the U.S. are the lucky

beneficiaries of centuries of economic experimentation, and we are the experiment

that has worked."

While these are the core secrets of America's sauce, there are others that need to

be preserved and nurtured. Sometimes you have to talk to outsiders to appreciate them,

such as Indian-born Vivek Paul of Wipro. "I would add three to your list," he said

to me. "One is the sheer openness of American society." We Americans often forget

what an incredibly open,

say-anything-do-anything-start-anyming-go-bankrupt-and-start-anything-ag ain

society the United States is. There is no place like it in the world, and our openness

is a huge asset and attraction to foreigners, many of whom come from countries where

the sky is not the limit.

Another, said Paul, is the "quality of American intellectual property protection,"

which further enhances and encourages people to come up with new ideas. In a flat

world, there is a great incentive to develop a new product or process, because it

can achieve global scale in a flash. But if you are the person who comes up with that

new idea, you want your intellectual property protected. "No country respects and

protects intellectual property better than America," said Paul, and as a result, a

lot of innovators want to come here to work and lodge their intellectual property.

The United States also has among the most flexible labor laws in the world. The easier

it is to fire someone in a dying industry, the easier it is to hire someone in a rising

industry that no one knew would exist five years earlier. This is a great asset,

especially when you compare the situation in the United States to inflexible, rigidly

regulated labor markets like Germany's, full of government restrictions on hiring

and firing. Flexibility to quickly deploy labor and capital where the greatest

opportunity exists, and the ability to quickly redeploy it if the earlier deployment

is no longer profitable, is essential in a flattening world.

Still another secret to America's sauce is the fact that it has the world's largest

domestic consumer market, with the most first adopters, in the world, which means

that if you are introducing a new product, technology, or service, you have to have

a presence in America. All this means a steady flow of jobs for Americans.

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There is also the little-discussed American attribute of political stability. Yes,

China has had a good run for the past twenty-five years, and it may make the transition

from communism to a more pluralistic system without the wheels coming off. But it

may not. Who would want all his or her eggs in that basket?

Finally, the United States has become one of the great meeting points in the world,

a place where lots of different people bond and learn to trust one another. An Indian

student who is educated at the University of Oklahoma and then gets his first job

with a software firm in Oklahoma City forges bonds of trust and understanding that

are really important for future collaboration, even if he winds up returning to India.

Nothing illustrates this point better than Yale University's outsourcing of research

to China. Yale president Richard C. Levin explained to me that Yale has two big

research operations running in China today, one at Peking University in Beijing and

the other at Fudan University in Shanghai. "Most of these institutional

collaborations arise not from top-down directives of university administrators, but

rather from long-standing personal relationships among scholars and scientists,"

said Levin.

How did the Yale-Fudan collaboration arise? To begin with, said Levin, Yale professor

Tian Xu, its director, had a deep affiliation with both institutions. He did his

undergraduate work at Fudan and received his Ph.D. from Yale. "Five of Professor Xu's

collaborators, who are now professors at Fudan, were also trained at Yale," explained

Levin. One was Professor Xu's friend when both were Yale graduate students; another

was a visiting scholar in the laboratory of a Yale colleague; one was an exchange

student who came to Yale from Fudan and returned to earn his Ph.D. in China; and the

other two were postdoctoral fellows in Professor Xu's Yale lab. A similar story

underlies the formation of the Peking-Yale Joint Center for Plant Molecular Genetics

and Agrobiotechnology.

Professor Xu is a leading expert on genetics and has won grants from the National

Institutes of Health and the Howard Hughes Foundation to study the connection between

genetics and cancer and certain neuro-degenerative diseases. This kind of research

requires the study of large numbers of genetic mutations in lab animals. "When you

want to test many genes and trace for a given gene that may be responsible for cer-

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tain diseases, you need to run a lot of tests. Having a bigger staff is a huge

advantage," explained Levin. So what Yale did was essentially outsource the lab work

to Fudan by creating the Fudan-Yale Biomedical Research Center. Each university pays

for its own staff and research, so no money changes hands, but the Chinese side does

the basic technical work using large numbers of technicians and lab animals, which

cost so much less in China, and Yale does the high-end analysis of the data. The Fudan

staff, students, and technicians get great exposure to high-end research, and Yale

gets a large-scale testing facility that would have been prohibitively expensive if

Yale had tried to duplicate it in New Haven. A support lab in America for a project

like this one might have 30 technicians, but the one in Fudan has 150.

"The gains are very much two-way," said Levin. "Our investigators get substantially

enhanced productivity, and the Chinese get their graduate students trained, and their

young faculty become collaborators with our professors, who are the leaders in their

fields. It builds human capital for China and innovation for Yale." Graduate students