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catch fire again with an updated analysis by Kletzer and Litan in 2001。 It got further 
political clout from the bipartisan U。S。 Trade Deficit Commission in 2001。 This 
commission couldn't agree on anything… including the causes of or what to do about 
the trade deficit… other than the wisdom of wage insurance。 
〃Trade creates winners and losers; and what we were thinking about were mechanisms 
by which the winners could compensate the losers; and particularly losers who were 
enjoying high wages in a particular job and suddenly found their new employment at 
much lower wages;〃 said Lawrence。 The way to think about this; he explained; is that 
every worker has 〃general skills and specific skills〃 for which they are paid; and 
when you switch jobs you quickly discover which is which。 So you might have a college 
and CPA degree; or you might have a high school degree and the ability to operate 
a lathe。 Both skills were reflected in your wages。 But suppose one day your lathe 
job gets moved to China or your basic accounting work is outsourced to India and you 
have to go out and find a new job。 Your new employer will not likely compensate you 
much for your specific skills; because your knowledge as a machine tool operator or 


a general accountant is probably of less use to him or her。 You will be paid largely 
for your general skills; your high school education or college degree。 Wage insurance 
would compensate you for your old specific skills; for a set period of time; while 
you take a new job and learn new specific skills。 
The standard state…run unemployment insurance program eases some of this pain for 
workers; but it does not address their bigger concerns of declining wages in a new 
job and the inability to pay for health insurance while they are unemployed and 
searching。 To qualify for wage insurance; workers seeking compensation for job loss 
would have to meet three criteria。 First; they would have to have lost their job 
through some form of displacement…offshoring; outsourcing; downsizing; or factory 
closure。 Second; they would have to have held the job for at least two years。 And 
third; the wage insurance would not be paid until the workers found new jobs; which 
would provide a strong incentive to look 
295 
for work quickly and increase the chances that they would get on…the…job retraining。 
On…the…job training is always the best way to learn new skills…instead of having to 
sign up for some general government training program; with no promise of a job at 
the other end; and go through that while remaining unemployed。 
Workers who met those three conditions would then receive payments for two years; 
covering half the drop in their income from their previous job (capped at 10;000 
a year)。 Kletzer and Litan also proposed that the government pay half the health 
insurance premiums for all 〃displaced〃 workers for up to six months。 Wage insurance 
seems to me a much better idea than relying only on the traditional unemployment 
insurance offered by states; which usually covers only about 50 percent of most 
workers' previous wages; is limited to six months; anddoes not help workers who suffer 
a loss of earnings after they take a new job。 
Moreover; as Kletzer and Litan noted; although all laid…off workers now have the right 
to purchase unsubsidized health insurance from their former employer if health 
coverage was offered when they were employed; many jobless workers do not have the 
money to take advantage of this guarantee。 Also; while unemployed workers can earn 
an additional fifty…two weeks of unemployment insurance if they enroll in an approved 
retraining program; workers have no guarantee that when they finish such a program 
they will have a job。 
For all these reasons; the Kletzer…Litan proposal makes a lot of sense to me as the 
right benefit for cushioning workers in a flat world。 Moreover; such a program would 
be eminently affordable。 Litan estimated that at an unemployment rate of 5 percent; 
the wage insurance and health…care subsidy today would cost around 8 billion a year; 
which is peanuts compared to the positive impact it could have on workers。 This program 
would not replace classic state…run unemployment insurance for workers who opt for 
that; but if it worked as projected; it could actually reduce the cost of such programs 
by moving people back to work quicker。 
Some might ask; Why be compassionate at all? Why keep any fat; friction; or barriers? 
Let me put it as bluntly as I can: If you are not a com296 


passionate flatist…if you are just a let 'er rip free…market flatist…you are not only 
cruel; you are a fool。 You are courting a political backlash by those who can and 
will get churned up by this flattening process; and that backlash could become 
ferocious if we hit any kind of prolonged recession。 
The transition to a flat world is going to stress many people。 As Joshua S。 Levine; 
E*Trade 's chief technology officer; put it to me; 'You know how sometimes you go 
through a harrowing experience and you need a respite; but the respite never seems 
to come。 Look at the airline workers。 They go through this 'terrible' event like 9/11; 
and management and the airline unions all negotiate for four months and management 
says; 'If the unions don't cut 2 billion in salary and benefits they will have to 
shut the airline down。' And after these wrenching negotiations the unions agree。 I 
just have to laugh; because you know that in a few months management is going to come 
right back 。 。 。 There is no end。 No one has to ask me to cut my budget each year。 
We all just know that each year we will be expected to do more with less。 If you are 
a revenue producer; you are expected to come up with more revenue every year; and 
if you are an expense saver; you are expected to come up with more savings every year。 
You never get a break from it。〃 
If societies are unable to manage the strains that are produced by this flattening; 
there will be a backlash; and political forces will attempt to reinsert some of the 
frictions and protectionist barriers that the flattening forces have eliminated; but 
they will do it in a crude way that will; in the name of protecting the weak; end 
up lowering everyone's standard of living。 Former Mexican president Ernesto Zedillo 
is very sensitive to this problem; having had to manage Mexico's transition into NAFTA; 
with all of the strains that put on Mexican society。 Speakingof the flattening process; 
he said to me; 〃It would be very hard to stop; but it can be stopped for a time。 Maybe 
you can't stop it totally; but you can slow it down。 And it makes a difference whether 
you get there in twenty…five years or fifty years。 In between; two or three 
generations…who could have benefited a lot from more trade and globalization…will 
end up with crumbs。〃 

Always remember; said Zedillo; that behind all this technology is a political 
infrastructure that enables it to play out。 〃There have been a series of concrete 
political decisions; taken over the last fifty years; that put the world where it 
is right now;〃 he said。 〃Therefore; there are political decisions that could screw 
up the whole process too。〃 
As the saying goes: If you want to live like a Republican; vote like a Democrat…take 
good care of the losers and left…behinds。 The only way to be a flatist is to be a 
compassionate flatist。 
Social Activism 
One new area that is going to need sorting out is the relationship between global 
corporations and their own moral consciences。 Some may laugh at the notion that a 
global corporation even has a moral conscience; or should ever be expected to develop 
one。 But some do and others are going to have to develop one; for one simple reason: 
In the flat world; with lengthy global supply chains; the balance of power between 


global companies and the individual communities in which they operate is tilting more 
and more in favor of the companies; many of them American…based。 As such; these 
companies are going to command more power; not only to create value but also to 
transmit values; than any transnational institutions on the planet。 Social and

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