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get our edge back, he sent me this e-mail:

I taught at a local university. It was disheartening to see the poor work ethic of

many of my students. Of the students I taught over six semesters, I'd only consider

hiring two of them. The rest lacked the creativity, problem-solving abilities and

passion for learning. As you well know, India's biggest advantage over the Chinese

and Russians is that they speak English. But it would be wrong to assume the top Indian

developers are better than their American counterparts. The advantage they have is

the number of bodies they can throw at a problem. The Indians that I work with are

the cream of the crop. They are educated by the equivalents of MIT back in India and

there are plenty of them. If you were to follow me in my daily meetings it would become

very obvious that a great deal of my time is spent working with Indians. Most managers

are probably still under the impression that all Indians are doing is lower-end

software development-"software assembly." But technologies, such as Linux, are

allowing them to start taking higher-paying system design jobs that had previously

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been the exclusive domain of American workers. It has provided them with the means

to move up the technology food chain, putting them on par with domestic workers. It's

brain power against brain power, and in this area they are formidable. From a

technology perspective, the world is flat and getting flatter (if that is possible).

The only two areas that I have not seen Indian labor in are networking architects

and system architects, but it is only a matter of time. Indians are very bright and

they are quickly learning from their interaction with system architects just how all

of the pieces of the IT puzzle fit together . . . Were Congress to pass legislation

to stop the flow of Indian labor, you would have major software systems that would

have nobody who knew what was going on. It is unfortunate that many management

positions in IT are filled with non-technical managers who may not be fully aware

of their exposure . . . I'm an expert in information systems, not economics, but I

know a high-paying job requires one be able to produce something of high value. The

economy is producing the jobs both at the high end and low end, but increasingly the

high-end jobs are out of reach of many. Low education means low-paying jobs, plain

and simple, and this is where more and more Americans are finding themselves. Many

Americans can't believe they aren't qualified for high-paying jobs. I call this the

"American Idol problem." If you've ever seen the reaction of contestants when Simon

Cowell tells them they have no talent, they look at him in total disbelief. I'm just

hoping someday I'm not given such a rude awakening.

In the winter of 2004 I had tea in Tokyo with Richard C. Koo, chief economist for

the Nomura Research Institute. I tested out on Richard my "coefficient of flatness":

the notion that the flatter one's country is-that is, the fewer natural resources

it has-the better off it will be in a flat world. The ideal country in a flat world

is the one with no natural resources, because countries with no natural resources

tend to dig inside themselves. They try to tap the energy, entrepreneurship,

creativity, and intelligence of their own people-men and women-rather than drill

an oil well. Taiwan is a barren rock in a typhoon-laden sea, with virtually no natural

resources-nothing but the energy, ambition, and talent of its own people-and today

it has the third-largest financial reserves in the world. The success of Hong Kong,

Japan, South Korea, and coastal China can all be traced to a similar flatness.

"I am a Taiwanese-American with a father from Taiwan and with a Japanese mother,"

Koo told me. "I was bom in Japan and went to Japanese elementary school and then moved

to the States. There is a saying in China that whatever you put in your head and your

stomach, no one can take away from you. In this whole region, that is in the DNA.

You just have to study hard and move forward. I was told relatively early by myteachers,

'We can never live like Americans and Canadians. We have no resources. We have to

study hard, work hard, and export hard.'"

A few weeks later I had breakfast in Washington with P.V. Kannan, CEO of 24/7 Customer.

When it comes to the flat world, said P.V., he had just one question: "Is America

prepared? It is not. . . You've gotten a little contented and slow, and the people

who came into the field with [the triple convergence] are really hungry. Immigrants

are always hungry-and they don't have a backup plan."

A short time later I read a column by Steven Pearlstein, The Washington Post's business

columnist/reporter, under the headline "Europe's Capitalism Curtain." From Wroclaw,

Poland (July 23, 2004), Pearlstein wrote: "A curtain has descended across Europe.

On one side are hope, optimism, freedom and prospects for a better life. On the other

side, fear, pessimism, suffocating government regulations and a sense that the best

times are in the past." This new curtain, Pearlstein argued, demarks Eastern Europe,

which is embracing capitalism, and Western Europe, which is wishing desperately that

it would go away.

"This time, however, it is the East that is likely to prevail," he continued. "The

energy and sense of possibility are almost palpable here . . . Money and companies

are pouring in-not just the prestige nameplates like Bombardier, Siemens, Whirlpool,

Toyota and Volvo, but also the network of suppliers that inevitably follows them.

At first, most of the new jobs were of the semi-skilled variety. Now they have been

followed by design and engineering work that aims to tap into the largest concen264

tration of university students in Eastern Europe . . . The secret isn't just lower

wages. It's also the attitude of workers who take pride and are willing to do what

is necessary to succeed, even if it means outsourcing parts production or working

on weekends or altering vacation schedules- things that would almost certainly

trigger months of acrimony and negotiation in Western Europe. 'The people back home,

they haven't got any idea how much they need to change if they want to preserve what

they have,' said Jose Ugarte [a Basque who heads the appliance manufacturing

operations of Mondragon, the giant Spanish industrial cooperative]. 'The danger to

them is enormous. They don't realize how fast this is happening . . .' It's not the

dream of riches that animates the people of Wroclaw so much as the determination to

work hard, sacrifice what needs to be sacrificed and change what needs to be changed

to close the gap with the West. It is that pride and determination, says Wroclaw's

mayor, Rafal Dutkiewicz, that explain why they are such a threat to the 'leisure-time

society' on the other side of the curtain."

I heard a similar refrain in a discussion with consular officials who oversee the

granting of visas at the U.S. embassy in Beijing. As one of them put it to me, "I

do think Americans are oblivious to the huge changes. Every American who comes over

to visit me [in China] is just blown away . . . Your average kid in the U.S. is growing

up in a wealthy country with many opportunities, and many are the kids of advantaged

educated people and have a sense of entitlement. Well, the hard reality for that kid

is that fifteen years from now Wu is going to be his boss and Zhou is going to be

the doctor in town. The competition is coming, and many of the kids are going to move

into their twenties clueless about these rising forces."

When I asked Bill Gates about the supposed American education advantage-an education

that stresses creativity, not rote learning-he was utterly dismissive. In his view,

those who think that the more rote learning systems of China and Japan can't turn

out innovators who can compete with Americans are sadly mistaken. Said Gates, "I have

never met the guy who doesn't know how to multiply who created software . . . Who

has the most creative video games in the world? Japan! I never met

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these 'rote people'. . . Some of my best software developers are Japanese. You need

to understand things in order to invent beyond them."

One cannot stress enough: Young Chinese, Indians, and Poles are not racing us to the

bottom. They are racing us to the top. They do not want to work for us; they don't

even want to be us. They want to dominate us-in the sense that they want to be creating

the companies of the future that people all over the world will admire and clamor

to work for. They are in no way content with where they have come so far. I was talking

to a Chinese-American who works for Microsoft and has accompanied Bill Gates on visits

to China. He said Gates is recognized everywhere he goes in China. Young people there

hang from the rafters and scalp tickets just to hear him speak. Same with Jerry Yang,

the founder of Yahoo!

In China today, Bill Gates is Britney Spears. In America today, Britney Spears is

Britney Spears-and that is our problem.

Dirty Little Secret #3: The Education Gap

All of this helps to explain the third dirty little secret: A lot of the jobs that

are starting to go abroad today are very high-end research jobs, because not only

is the talent abroad cheaper, but a lot of it is as educated as American workers

or even more so. In China, where there are 1.3 billion people and the universities

are just starting to crack the top ranks, the competition for top spots is ferocious.

The math/science salmon that swims upstream in China and gets itself admitted to a

top Chinese university or hired by a foreign company is one smart fish. The folks

at Microsoft have a saying about their research center in Beijing, which, for

scientists and engineers, is one of the most sought-after places to work in all of

China. "Remember, in China when you are one in a million-there are 1,300 other people

just like you."

The brainpower that rises to the Microsoft research center in Beijing is already one

in a million.

Consider the annual worldwide IntelInternational Science and Engineering Fair. About

forty countries participate by nominating talent through local affiliate affairs.

In 2004, the Intel Fair attracted around sixty-five thousand American kids, according

to Intel. How about in China? I asked Wee Theng Tan, the president of Intel China,

during a visit to Beijing. In China, he told me, there is a national affiliate science

fair, which acts as a feeder system to select kids for the global Intel fair. "Almost

every single province has students going to one of these affiliate fairs," said Tan.

"We have as many as six million kids competing, although not all are competing for

the top levels . . . [But] you know how seriously they take it. Those selected to

go to the international [Intel] fair are immediately exempted from college entrance

exams" and basically get their choice of any top university in China. In the 2004

Intel Science Fair, China came home with thirty-five awards, more than any other

country in Asia, including one of the top three global awards.

Microsoft has three research centers in the world: in Cambridge, England; in Redmond,

Washington, its headquarters; and in Beijing. Bill Gates told me that within just

a couple of years of its opening in 1998, Microsoft Research Asia, as the center in

Beijing is known, had become the most productive research arm in the Microsoft system

"in terms of the quality of the ideas that they are turning out. It is mind-blowing."

Kai-Fu Li is the Microsoft executive who was assigned by Gates to open the Microsoft

research center in Beijing. My first question to him was, "How did you go about

recruiting the staff?" Li said his team went to universities all over China and simply

administered math, IQ, and programming tests to Ph.D.-level students or scientists.

"In the first year, we gave about 2,000 tests all around," he said. From the 2,000,

they winnowed the group down to 400 with more tests, then 150, "and then we hired

20." They were given two-year contracts and told that at the end of two years,

depending on the quality of their work, they would either be given a longer-term

contract or granted a postdoctoral degree by Microsoft Research Asia. Yes, you read

that right. The Chinese government gave Microsoft the right to grant postdocs. Of

the original twenty who were hired, twelve survived the cut. The next year, nearly

four thousand people were tested. After that, said Li, "we stopped

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doing the test. By that time we became known as the number one place to work, where

all the smart computer and math people wanted to work . . . We got to know all the

students and professors. The professors would send their best people there, knowing

that if the people did not work out, it would be their credibility [on the line].

Now we have the top professors at the top schools recommending their top students.

A lot of students want to go to Stanford or MIT, but they want to spend two years

at Microsoft first, as interns, so they can get a nice recommendation letter that

says these are MIT quality." Today Microsoft has more than two hundred researchers

in its China lab and some four hundred students who come in and out on projects and

become recruiting material for Microsoft.

"They view this as a once-in-a-lifetime income opportunity/' said Li of the team at

Microsoft Research Asia. "They saw their parents going through the Cultural

Revolution. The best they could do was become a professor, do a little project on

the side because a professor's pay is horrible, and maybe get one paper published.

Now they have this place where all they do is research, with great computers and lots

of resources. They have administrators-we hire people to do the dirty work. They just