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are in China, and that pollution and environ409

mental degradation together cost China $170 billion a year (The Economist, August

21, 2004).

And we have not seen anything yet. China, with its own oil and gas reserves, was once

a net exporter. Not anymore. In 2003 China surged ahead of Japan as the second largest

importer of oil in the world, after the United States. Right now about 700 to 800

million of China's 1.3 billion people live in the countryside, but they are heading

for the flat world, and roughly half are expected to try to migrate to the cities

over the next two decades, if they can find work. This will spur a huge surge in demand

for cars, houses, steel beams, power plants, school buildings, sewage plants,

electricity grids-the energy implications of which are unprecedented in the history

of Planet Earth, round or flat.

At the business conference I was attending in Beijing, I kept hearing references to

the Strait of Malacca-the narrow passage between Malaysia and Indonesia that is

patrolled by the U.S. Navy and controls all the oil tanker traffic from the Middle

East to China and Japan. I hadn't heard anyone talking about the Strait of Malacca

since the 1970s oil crises. But evidently Chinese strategic planners have begun to

grow increasingly concerned that the United States could choke off China's economy

at any time by just closing the Strait of Malacca, and this threat is now being

increasingly and openly discussed in Chinese military circles. It is just a small

hint of the potential struggle for power-energy power-that could ensue if the Great

American Dream and the Great Chinese Dream and the Great Indian Dream and the Great

Russian Dream come to be seen as mutually exclusive in energy terms.

China's foreign policy today consists of two things: preventing Taiwan from becoming

independent and searching for oil. China is now obsessed with acquiring secure oil

supplies from countries that would not retaliate against China if it invaded Taiwan,

and this is driving China to get cozy with some of the worst regimes in the world.

The Islamic fundamentalist government in Sudan now supplies China with 7 percent of

its oil supplies and China has invested $3 billion in oil drilling infrastructure

there.

In September 2004, China threatened to veto a move by the United Nations to impose

sanctions on Sudan for the genocide that it is perpetrat410

ing in its Darfur province. China followed by opposing any move to refer Iran's obvious

attempts todevelop nuclear-weapons-grade fuelto the United Nations Security Council.

Iran supplies 13 percent of China's oil supplies. Meanwhile, as the Daily Telegraph

reported (November 19, 2004), China has begun drilling for gas in the East China Sea,

just west of the line that Japan regards as its border: "Japan protested, to no avail,

that the project should be a joint one. The two are also set to clash over Russia's

oil wealth. China is furious that Japan has outbid it in their battle to determine

the route of the pipeline that Russia intends to build to the Far East." At the same

time it was reported that a Chinese nuclear submarine had accidentally strayed into

Japanese territorial waters. The Chinese government apologized for the "technical

error." If you believe that, I have an oil well in Hawaii I would like to sell you ...

In 2004, China began competing with the United States for oil exploration

opportunities in Canada and Venezuela. If China has its way, it will stick a straw

into Canada and Venezuela and suck out every drop of oil, which will have the side

effect of making America more dependent on Saudi Arabia.

I interviewed the Japanese manager of a major U.S. multinational that was

headquartered in Dalian, in northeastern China. "China is following the path of Japan

and Korea," said the executive, on the condition that he and his company not be quoted

by name, "and the big question is, Can the world afford to have 1.3 billion people

following that path and driving the same cars and using the same amount of energy?

So I see the flattening, but the challenge of the twenty-first century is, Are we

going to hit another oil crisis? The oil crisis in the 1970s coincided with Japan

and Europe rising. [There was a time] when the U.S. was the only big consumer of oil,

but when Japan and Europe came in, OPEC got the power. But when China and India come

into being the consumers, it will be a huge challenge that is an order of magnitude

different. It is megapolitics. The limits of growth in the 1970s were overcome with

technology. We got smarter than before, equipment became more efficient, and energy

consumption per head was lower. But now [with China, India, and Russia all coming

on strong] it is multiplied by a factor of ten. There is something

we really need to be serious about. We cannot restrict China, [Russia,] and India.

They will grow and they must grow."

One thing we will not be able to do is tell young Indians, Russians, Poles, or Chinese

that just when they are arriving on the leveled playing field, they have to hold back

and consume less for the greater global good. While giving a talk to students at the

Beijing College of Foreign Affairs, I spoke about the most important issues that could

threaten global stability, including the competition for oil and other energy

resources that would naturally occur as China, India, and the former Soviet Union

began to consume more oil. No sooner did I finish than a young Chinese woman student

shot up her hand and asked basically the following question: "Why should China have

to restrain its energy consumption and worry about the environment, when America and

Europe got to consume all they energy they wanted when they were developing?" I did

not have a good answer. China isa high-pride country. TellingChina, India, and Russia

to consume less could have the same geopolitical impact that the world's inability

to accommodate a rising Japan and Germany had after World War I.

If current trends hold, China will go from importing 7 million barrels of oil today

to 14 million a day by 2012. For the world to accommodate that increase it would have

to find another SaudiArabia. That is notlikely, which doesn't leave many good options.

"For geopolitical reasons, we cannot tell them no, we cannot tell China and India,

it is not your turn," said Philip K. Verleger Jr., a leading oil economist. "And for

moral reasons, we have lost the ability to lecture anyone." But if we do nothing,

several things will likely result. First, gasoline prices will continue to trend

higher and higher. Second, we will be strengthening the very worst political systems

in the world-like Sudan, Iran, and Saudi Arabia. And third, the environment will be

damaged more and more. Already, the newspaper headlines in China every day are about

energy shortages, blackouts, and brownouts. U.S. officials estimate that twenty-four

out of China's thirty-one provinces are now experiencing power shortages.

We are all stewards of the planet, and the test for our generation is whether we will

pass on a planet in as good or better shape than we found

412

it. The flattening process is going to challenge that responsibility. "Aldo Leopold,

the father of wildlife ecology, once said: 'The first rule of intelligent tinkering

is save all the pieces,'" remarked Glenn Prickett, senior vice president of

Conservation International. "What if we don't? What if the 3 billion new entrants

start gobbling up all the resources? Species and ecosystems can't adapt that fast,

and we will lose a major portion of the earth's remaining biological diversity."

Already, noted Prickett, if you look at what is happening in the Congo Basin, the

Amazon, the rain forest of Indonesia-the last great wilderness areas-you find that

they are being devoured by China's rising appetite. More and more palm oil is being

extracted from Indonesia and Malaysia, soybeans out of Brazil, timber out of central

Africa, and natural gas out of all of the above to serve China-and, as a result,

threatening all sorts of natural habitats. If these trends go on unchecked, with all

the natural habitats being converted to farmland and urban areas, and the globe

getting warmer, many of the currently threatened species will be condemned to

extinction.

The move to sharply reduce energy consumption has to come from within China, as the

Chinese confront what the need for fuel is doing to their own environment and growth

aspirations. The only thing-and the best thing-we in the United States and Western

Europe can do to nudge China toward that understanding is set an example by changing

our own consumption patterns. That would give us some credibility to lecture others.

"Restoring our moral standing on energy is now a vital national security and

environmental issue," said Verleger. That requires doing everything more

seriously-more serious government funding for alternatives, a real push by the

federal government to promote conservation, a gasoline tax that will drive more

consumers to buy hybrid vehicles and smaller cars, legislation to force Detroit to

make more fuel-efficient vehicles, and yes, more domestic exploration. Together,

added Verleger, that could help stabilize the price at around $25 a barrel, "which

seems to be the ideal range for sustainable global growth."

In sum, we in the West have a fundamental interest in keeping the American dream alive

in Beijing and Boise and Bangalore. But we have to stop fooling ourselves that it

can be done in a flat world with 3 billion potential new consumers-if we don't find

a radical new approach to en413

ergy usage and conservation. If we fail to do so, we will be courting both an

environmental and geopolitical whirlwind. If there was ever a time for some big

collaboration, it is now, and the subject is energy. I would love to see a grand

China-United States Manhattan Project, a crash program to jointly develop clean

alternative energies, bringing together China's best scientists and its political

ability to implement pilot projects, with America's best brains, technology, and

money. It would be the ideal model and the ideal project for creating value

horizontally, with each side contributing its strength. Said Scott Roberts, the

Cambridge Energy Research Associates analyst in China, "When it comes to renewable

technology and sustainable energy, China could be the laboratory of the world-not

just the workshop of the world." Why not?

::::: TWELVE

The Dell Theory of Conflict Prevention

Old-Time Versus Just-in-Time

Free Trade is God's diplomacy. There is no other certain way of uniting people in

the bonds of peace. -British politician Richard Cobden, 1857

Before I share with you the subject of this chapter, I have to tell you a little bit

about the computer that I wrote this book on. It's related to the theme I am about

to discuss. This book was largely written on a Dell Inspiron 600m notebook, service

tag number 9ZRJP41. As part of the research for this book71 visited withthe management

team at Dell near Austin, Texas. I shared with them the ideas in this book and in

return I asked for one favor: I asked them to trace for me the entire global supply

chain that produced my Dell notebook. Here is their report: My computer was conceived

when I phoned Dell's 800 number on April 2, 2004, and was connected to sales

representative Mujteba Naqvi, who immediately entered my order into Dell's order

management system. He typed in both the type of notebook I ordered as well as the

special features I wanted, along with my personal information, shipping address,

billing address, and credit card information. My credit card was verified by Dell

through its work flow connection with Visa, and my order was then released to Dell's

production system. Dell has six factories around the world-in Limerick, Ireland;

Xiamen, China; Eldorado do Sul, Brazil; Nashville, Tennesee; Austin, Texas; and

Penang, Malaysia. My order went out by e-mail to the Dell notebook factory inMalaysia,

where the parts for the computer were immediately ordered from the supplier logistics

centers (SLCs) next to the Penang factory. Surrounding every Dell factory in the world

are these supplier logistics centers, owned by the different suppliers of Dell parts.

These SLCs are like staging areas. If you are a Dell supplier anywhere in the world,

your job is to keep your SLC full of your specific parts so they can constantly be

trucked over to the Dell factory for just-in-time manufacturing.

"In an average day, we sell 140,000 to 150,000 computers," explained Dick Hunter,

one of Dell's three global production managers. "Those orders come in over Dell.com

or over the telephone. As soon these orders come in, our suppliers know about it.

They get a signal based on every component in the machine you ordered, so the supplier

knows just what he has to deliver. If you are supplying power cords for desktops,

you can see minute by minute how many power cords you are going to have to deliver."

Every two hours, the Dell factory in Penang sends an e-mail to the various SLCs nearby,

telling each one what parts and what quantities of those parts it wants delivered

within the next ninety minutes-and not one minute later. Within ninety minutes, trucks

from the various SLCs around Penang pull up to the Dell manufacturing plant and unload

the parts needed for all those notebooks ordered in the last two hours. This goes

on all day, every two hours. As soon as those parts arrive at the factory, it takes

thirty minutes for Dell employees to unload the parts, register their bar codes, and

put them into the bins for assembly. "We know where every part in every SLC is in

the Dell system at all times," said Hunter.

So where did the parts for my notebook come from? I asked Hunter. To begin with, he

said, the notebook was codesigned in Austin, Texas, and in Taiwan by a team of Dell