Perils of Prosperity: Realities, Risks and Rewards of the Global Knowledge Economy

By John J. Sarno

The most profound social and economic transformation over the last quarter century has been how knowledge and intellectual assets have supplanted physical labor in rearranging work and organizations. Competition for high-paying, knowledge-intensive jobs has become fierce, as corporations seek out the best talent for the cheapest price. Knowledge-intensive work is the key to long term success.

How will people and organizations succeed? A new nationalism seemscounterproductive considering that Americas well being is inextricably linked to the rest of the world. A purpose-driven life seems unattainable given lifestyles that are built on brand loyalty and consumption. Innovation seems an illusion given massive job de-skilling and outsourcing. Such are the perils of prosperity. Nevertheless, people and organizations must strive to work collaboratively and in innovative ways.

• Language: English
• Publisher: AuthorHouse
• Release date: Feb 9, 2009
• ISBN: 9781467028479

John J. Sarno

John Sarno is president of the Employers Association of New Jersey (www.eanj.org), which advises employers on fair employment practices.  His early career was spent advocating for equal rights and access for people with disabilities.  He later earned a law degree.  A judicial clerkship launched a practice in complex litigation in federal and state courts. He also teaches law and ethics.    His insight is formed by decades of hard practice and his critique is based on time spent “actually in the arena,” as Theodore Roosevelt might have said.  He lives with his wife Diane and daughters Elizabeth and Carolyn in Warren, New Jersey.

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© 2011 by John J. Sarno. All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.

First published by AuthorHouse 09/14/2011

ISBN: 978-1-4389-4616-0 (sc)

ISBN: 978-1-4389-4617-7 (hc)

ISBN: 978-1-4670-2847-9 (ebk)

Library of Congress Control Number: 2009900561

Printed in the United States of America

Any people depicted in stock imagery provided by Thinkstock are models, and such images are being used for illustrative purposes only.

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Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

Contents

Dedication

Preface

Preface to First Edition

1. Drift or Mastery

2. The Knowledge Economy

3. Work, Social Identity

and Autonomy

4. Reengineering and the Changing Nature of Work

5. The Knowledge Firm

6. A Digression on Private Property

7. The Protection of Intellectual Property

8. The Role of Government

9. The Role of Markets

10. The Economics of Knowledge

11. Deregulation and Decentralization

12. On The Nature of Leadership

13. Information Ethics

14. We the People

Epilogue

Epilogue to Revised Edition

Sources

About the Author

Dedication

For Diane Belcuore

The most successful person I know

Share your knowledge. It’s a way to achieve immortality.

Dalai Lama

Preface

Perils of Prosperity was rushed to print in January 2009 to coincide with the swearing in of Barack Obama and the executive MBA class that I was starting that month at the New Jersey Institute of Technology. The class focused on legal and ethical issues in the global economy and I assigned the book and the class graciously worked around the distractions of typographical and cut-and-paste errors. Having now taken responsibility for the editorial shoddiness of the first edition, the nature and purpose of the book remains ambiguous.

As a polemic, its critique of the status quo tends toward gauziness and subjectivity. As advocacy, its argument makes no case but the obvious. As reporting, it relies exclusively on secondary sources. Oddly then, Perils of Prosperity succeeds as typical business fare—subjective, obvious and unoriginal—but its dense incomprehension and rambling passages could never advance a consultancy. In short, it can only be viewed as a provocation to a dialogue.

Indeed, the dialogue within the class was exceptional. As one student noted in his evaluation, the class was a worthwhile learning experience that didn’t settle for the soft answers, but provoked a deeper level thought on the issues of our day. I believe that new insight and knowledge was created. In the end, however, we never did get around to addressing the question implied in the book’s Epilogue.

Observing that America was experiencing a state of mourning or loss, I wrote in Epilogue: It is likely that America is on the verge of developing new tools that will affect all aspects of life. Economic growth and national purpose are likely not over. In fact, it is likely that new life has already begun. What is that new life? Since I made that observation, Americans seemed to have settled into what some have called a new normal.

The difficult and sustained recessions and financial panic in the first decade of the new century has left a permanently altered economy and has actually accelerated the forces of modern globalization that began at about 1980. For nearly every job cut in the United States by an American corporation, another was created abroad. From 2000 to 2010, U.S. multinationals cut 2.9 million jobs in America but created 2.4 million overseas. While not every job created outside the United States by a U.S. corporation would have been created domestically, developing countries like China and India offer expanding consumer markets and low wages. For example, by one estimate China earned just four dollars from the production of an iPod that sells for $299 in the U.S. Thus, even during a time of enormous economic challenges, corporate profits have soared. By the end of the decade, American corporations held over two trillion dollars in cash, more than the size of the annual federal budget deficit, about half of which held abroad beyond the reach of the Internal Revenue Service.

In the book, like other observers of wider cultural and ethical trends, I speculated about whether Americans would stoically adapt to the new normal by embracing a new ethic focused less on consumption and more on production and investment. Regrettably, I was caught up in a popular myth and terribly naïve. The nearly 15 trillion dollars U.S. economy is based overwhelmingly on consumer consumption, nearly 70 percent. In many ways, this consumption is the sign of a mature economy that has transcended the old rules of scarcity and that has vaulted into the era of abundance and affluence. Indeed, Americans living below the poverty line are far better off than many middle class people in Asia and Africa. But part of the new normal is really a reprise of the old way of capital’s tendency to accumulate into fewer and fewer hands during periods of economic upheaval and financial panic. Thus, as wages fell for the average American corporate profits and capital gains soared.

As economists have observed in years past, the wealthy can purchase only so much luxury goods, certainly not enough to prop up the world’s biggest economy. To make up for the loss of purchasing power, Americans and their government relied on massive borrowing to keep the economy going during the Great Recession of 2008-2010. This merely continued a thirty year trend. President Obama’s $830 billion stimulus program enacted in 2009 increased government borrowing with the intent of priming the pump. When all was said and down, federal government spending reached about a quarter of the entire economy. In addition, the Federal Reserve literally printed money (in reality, created the money electronically) through purchases of Treasury bonds and securities to the tune of $2 trillion, lowering borrowing rates to near zero. By 2011, the federal government’s operating deficit was about ten percent of the economy and the cumulative debt amounted to about the size of annual Gross National Product, or close to $14 trillion.

In July, 2011 Senators Olympia Snow and Jim Demint arguing for a constitutional amendment to balance the federal budget observed: In the real world, if a household brought in $44,000 annually but spent $74,000 by borrowing $30,000 each year to sustain its spending habits, such behavior would be considered reckless and irresponsible. But what would the senators say if that hypothetical American household did exactly that? Reckless and irresponsible? In 2011, after years of chronic unemployment and stagnating wages for most people, household indebtedness still remained at an all time high. Collectively, Americans borrowed the equivalent of 135 percent of their annual incomes even during the worst economic slowdown in 75 years.

I discussed this debt burden in the context of a restive, undifferentiated nationalism that went beyond the mere suspicion, even hatred, for President Obama after his election. Indeed, in the Epilogue I noted the viciousness of the 2008 presidential campaign and how the new media was making it difficult for the average voter to discern the difference between fact and fiction. But the point is that some of the same developing countries that have been the destination for American corporations have also been purchasing U.S. sovereign debt. So by 2011, China surpassed Japan as the biggest holder of U.S. Treasury securities, exceeding one trillion dollars. In effect, China takes with one hand and gives with the other, thus supporting America’s consumption based economy in exchange for manufacturing jobs.

Yet as manufacturing jobs leave the U.S. in droves, America remains the world’s top manufacturer by far. The U.S. out-produces China by more than 40%. In 2009 U.S. manufacturers produced nearly $1.7 trillion in goods. America firms produce more and better quality goods with less labor because of capital investments that has increased productivity, or output per hour. In short, low end manufacturing has been ceded to other countries as American firms focus more on high-end products that require skilled labor to produce. But for the eight million less skilled production workers that have been displaced since 1980, higher productivity has meant long periods of welfare, unemployment and lower wages. Even for those Americans that have held on to their jobs, prodigious productivity has oddly left them feeling insecure and vulnerable and perhaps looking to place blame for what is perceived as America’s decline.

When somebody writes the history of our time fifty or one hundred years from now, says Laurence Summers, it is unlikely to be about the Great Recession of 2008… or about the fiscal problem that America confronted in the second decade of the twenty first century. It will be about how the world adjusted to the movement of the theater of history toward China. Summers, economist, scholar, president of Harvard, and presidential economic advisor, believes with many others that the western influence over all human endeavor that has dominated for the last five hundred years is waning. However, while I accept this shift I do not view this transformation as a clash of civilizations. In contrast, I believe that human nature is nearing an evolutionary turning point.

Since the beginning of human history competition over physical resources defined the struggle for survival, a zero sum game where one person’s gain was another’s loss. Conflict over resources is as old as recorded history. China and the West remain in competition over the physical resources of the planet—land, water, oil, minerals and jobs. A military confrontation cannot be ruled out. Indeed, some observers on both sides of the Pacific believe a military confrontation is inevitable so both sides prudently plan for the possibility. But the two economies are linked at all micro and macro levels and together form a center of gravity for a global network that encompasses nearly every country in the world. Unlike the Cold War when the center of gravity emanated from the adversarial nature of the relationship between the U.S. and the Soviet Union as an extension of the Second World War, the reality of the two biggest competitors co-existing as compatriots is quite different and poses different and unique challenges. In short, mismanaged economic competition between the U.S. and China could bring on a worldwide economic collapse of unimaginable long term consequences.

As during the Cold War, irrational people on both sides could bring the parties to the brink. But ultimately, competition gave way to cooperation and collaboration. With both sides sharing the same goals, it became possible to develop win-win strategies. Cultural and business exchange created bonds that transcended suspicion and eventually the Politburo realized that the Soviet command-and-control governing structure suppressed individual initiative and ingenuity and undermined the work ethic. Cooperation and collaboration then is the next big step for both West and East, assuming that cultural exchange can alleviate the fear and suspicion that exists on both sides.

For now, the U.S.-China relationship is a win-win for both sides but many Americans view the world as a zero sum game. In a national poll in 2011 about four in ten Americans viewed an economically powerful China as a threat and more than half held the view that America was in a long term economic decline. Government debt has long replaced the Cold War as the most potent political issue and has placed the role of government in the center of our political and social discourse. One of the things I observed in the book was that if the federal budget could somehow be magically balanced it would not only reduce the size and role of government, it would result in the biggest transfer of wealth from the poor to the wealthy in modern human history by triggering a fire sale of America’s private and sovereign assets. And who has the available cash to scoop up these assets? The winners would be very same nations that have built up immense cash reserves in sovereign wealth funds by swapping paper for jobs. It wound be one of the great ironies of history if balancing the federal budget resulted in the swift internationalization of American industry, finance and culture. Privatizing America’s public assets would be the equivalent of the momentous privatizations of the Chinese or Soviet economies in the remaining days of the twentieth century and would unleash a torrent of wealth and property which could inevitably create an oligarchy that would rival that of America’s Gilded Age. Much should trickle down to the average American, or so the thinking goes.

Indeed, by 2010 foreign investment, not including government securities, in the U.S. already exceeded $230 billion. One study suggests that Chinese firms alone increased their investments in the U.S. by 130 percent per year since 2005, investing in everything from greenfield projects, wind turbine plants, steel mills, banks and brokerage firms. Japanese companies employ almost 700,000 Americans with an annual payroll of nearly $50 billion. In 2008, the average job created by foreign investment paid $71,000 per year according to the White House Council on Economic Advisors, about one-third above the U.S. average. Such is the case because many foreign firms will pay a premium to upgrade their technology and capture higher levels of the value chain. Thus, America can succeed in a globalized, privatized economy with a strategy that plays to its strengths, which in my view is based on innovation at all levels of the economy, or what I have dubbed an innovation ethic. And it’s the nurturing of that ethic which forms the core of the book. Corporations and government play a huge role as direct investors and by maintaining an environment that ensures foreign money (and people) continue to come into the country. At the same time, if public resources are to be privatized or deregulated, markets, organizations and people must be competitive enough to avoid a type of wage and debt slavery.

In addition to maintaining a level of excellence to compete globally, corporations face the unprecedented challenge of fulfilling their profit driven missions at a time when the nation is engaged in difficult transition from a labor-intensive to an information-intensive economy. As I have noted, this transition has already dislocated millions of Americans, as inflation-adjusted wages for the average American have stagnated. This fact has had an enormous impact on families, student achievement, physical and mental health, crime rates and lifestyle decisions of all types, including decisions that have a direct and immediate impact on medical treatment, retirement, marriage, divorce rates, childrearing and job mobility.

For the first time since the 1930s, Americans’ confidence in both government and business has dropped. For the first time in 50 years, polls show that the majority of Americans have soured on corporate America. A majority of Americans now report that long-term unemployment is either caused, or is made worse by, the outsourcing of jobs abroad. Polls also show that the majority of Americans believe that financial crisis of 2008-2009 was caused by corporate greed. The majority of Americans want limitations on executive compensation and for the first time ever, the majority of Americans believe that trade policies hurt American workers. These opinions are hardening all along the political continuum. Economic nationalism is being advocated on both the right and the left and the gimlet eye is cast toward America’s foreign trade partners, particularly China.

According to a 2011 Kaufman Foundation report, tens of thousands of U.S. educated foreign nationals from China and India are returning home, many believing that economic opportunities are better. In 2010, foreign students studying on temporary visas earned six of ten engineering degrees in the U.S. These people have intelligence, skills, and ambition. Indeed, since 1995, immigrants have started more than half of the companies in Silicon Valley. Yet a large segment of the American population says good riddance caring little of the great benefits of diversity. And the foreign nationals have left the U.S. apparently without too much concern as long as the financial grass is greener in their home countries.

Implicit with the best and brightest leaving America behind (and America leaving its own citizens behind with inferior education systems) is the observation that democracy may not be indispensible to economic freedom. Indeed, the deconstruction and decentralization of media has blurred the lines between fact and fiction. Information is highly politicized making it difficult to form a democratic consensus on how to solve some of our most important problems. Emotion has trumped objectivity and rational discourse is imperiled. As a result, many Americans have simply dropped out of the democratic process altogether, thus perpetuating the sense of alienation and disconnectedness. Millions don’t bother to vote, let alone spend any time engaged in civic or political issues.

At the same time, corporations, labor unions and other groups spend tens of millions of dollars annually to influence legislation. Enabled by the U.S. Supreme Court in Citizens United v. Federal Elections Commission, decided in 2010, corporations, unions and advocacy groups can anonymously give unlimited amounts of money to buy access to state and federal governments. Reading the writing on the wall, Americans have tuned out and turned off, more likely identifying with a commercial brand than a political party. The result for many is a transactional, commoditized, public reality governed by 24/7 advertising that permeates all public media. For most Americans the sole purpose of working is to further consumption.

Similarly, I have also argued that the Internet and open-source models would facilitate the emergence of decentralized, innovative social systems. True this is occurring but I simply did not anticipate how corporations and governments would enclose and dominate this new frontier. In the West, the promise of spontaneous innovation and engaged civic participation facilitated by an open Web is quickly giving way to a creation of a vast consumption portal. In other parts of the world, the Web is fast becoming a grotesque spying machine.

As I pointed out, Americans once mocked and ridiculed Russians for waiting on long lines to buy consumer goods. We called them unfree, even slaves. We extolled the virtues of civic engagement and democracy. We pitied the Soviets and the Europeans too, for their dead-end jobs and lack of job mobility and innovation. We believed that democracy formed the foundation of economic freedom, innovation, opportunity and growth. Today, Americans think nothing of waiting on long lines for many hours for a sale or the latest gadget—it is considered an entitlement. In my view, democracy, along with America’s industrial base, is withering away, resulting in less innovation not more. In my view, autocratic, command-and-control social systems degrade human capital and stifles ingenuity. Although it appears that economic growth can occur without a robust democracy, as it appears to be occurring in China and elsewhere, innovation and entrepreneurialism is less likely to occur under the control of a monopoly—political or corporate. Indeed, the policy of indigenous innovation promoted by China seeks to leverage monopoly power not to spark original innovation but to appropriate and copy it. It is a view of economic growth as genetic engineering, as the intellectual property of the West is appropriated and incorporated into the economic DNA of China in the hopes of eventually creating a new, stronger and more resilient organism. It is economic growth from the top. It is not unlike the monopoly practices of American corporations that engage in antitrust violations or the big technology firms that acquire innovative startups.

In contrast, in a more or less free market the most successful and enduring innovations, the game changing technologies, have not come from monopolists. Most of the big, transformative breakthroughs have come from start-ups founded by individuals motivated by both profit and purpose. This tends to promote organic economic growth from the bottom up. In short, democratic institutions and free markets allow individuals to fulfill their human potential by giving full range to the trial and error of improvisation and risk taking. Thus, it can be argued that in addition to an educated and skilled workforce, an informed, engaged citizenry able to support democratic institutions is just as indispensible to national and individual success in the globalized, knowledge-intensive economy.

Finally, my students are left to consider how one can live a life in a post-modern, post-industrial American which is becoming increasingly less free and still maintain some degree of personal dignity and integrity. It is a question that I cannot presume to answer for another. However, in helping to at least create a framework for individuals to address the question for themselves, we have discussed human history and evolutionary biology and have at least reached a consensus that each person in society is capable of moral agency. My own view is that moral agency is difficult to achieve within most corporations because of the lack of individual autonomy. By in large, most employees are not paid to think or to assume personal responsibility even over their own work product. They are paid simply to perform their jobs efficiently at the pleasure of their superiors. In short, most employees are paid to do what they are told.

Autonomy refers to a person’s capacity for self-determination—free will—in the context of moral choices. Autonomy is demonstrated by a person who decides on a course of action out of respect for moral duty. That is, an autonomous person acts morally solely for the sake of the greater good, independently of other incentives, like a paycheck or other form of pleasure. Compliance with a moral code creates the essence of human dignity and personhood.

We know that autonomy is not absolute and is usually, to one extent or another, given to another authority, such as by agreeing to follow governing laws. In a corporation, employees cede autonomy and agree to conform to corporate rules in order to be team members.

In class, we have focused on Lawrence Kohlberg’s theory of moral development, which postulates a stage theory of moral thinking from childhood to adulthood. In Kohlberg’s first stage, the child assumes that powerful authorities hand down a fixed set of rules which he or she must obey. At this stage, the child defers to superior power or prestige. In other words, the child conforms. At this early stage of child development, there is no substantive notion of free will or self-determination. The child’s primary concern is receiving rewards and avoiding punishment.

In 2002 Betty Vinson, a mid-level accountant at WorldCom pleaded guilty to securities fraud. Her lawyer was quoted as describing Ms. Vinson as a victim of unscrupulous higher managers. In other words, Ms. Vinson was only following orders. She had no choice, no capacity to decide. Viewed through the lens of Kohlberg’s theory of moral development, Vinson lacked free will and was essentially operating at the moral level of a child.

In contrast, Cynthia Cooper, WorldCom’s internal auditor pursued what she called the rotten accounting. Faced with an angry supervisor who threatened her with discharge, Ms. Cooper reported accounting improprieties to the audit committee of the board. When WorldCom’s comptroller was confronted by the committee, he admitted that the accounting could not be justified.

Cooper was able to achieve and maintain a degree of dignity and a sense of personhood within WorldCom’s degrading, oppressive environment. Vinson did not.

I have posited that innovation is an organizing principle that can serve as a foundation for corporate structures—the belief that a free people who spontaneously organize can create flexible social structures that produce new solutions to solve big complex problems. The innovation myth is inseparable from autonomy and is redefining the pursuit of happiness. I have argued that intrinsic happiness is based on autonomous individuals freely choosing to engage others in sustained and meaningful effort that promotes the greater good. I have called the personal choice to engage others, the innovation ethic; the effort itself, knowledge work; and the individuals who make the effort, knowledge workers. These are merely short hand designations that are meant to evoke a spirit, attitude, or general outlook of a time and place.

I have tried to teach my students that in the face of shrinking physical resources, collective knowledge building and innovation are the most important strategic tasks for most firms. Some students just assume that we will innovate out of any problem, whether it’s global warming or nuclear proliferation. But unlike production work—knowledge work can’t be forced out of people. To create a climate in which employees contribute their creativity and expertise, leaders need to develop collaboration, communication and conflict resolution skills and manage at the highest levels of integrity. Decision-making must be fair and ethical. Trust and commitment must be instilled within the team and across teams to avoid hoarding of ideas. Knowledge workers must be motivated intrinsically from within just as much, perhaps more, than by a paycheck. Innovation is not a passive exercise. It requires discipline, continuous effort and athleticism.

The hard work of management and leadership at all levels is to encourage and nurture an open and sustainable environment where information is freely shared and expectations for performance are transparent. The measure of the leader’s success is how well they inspire employees to not only to perform their best, but also to perform at the highest level of trust, sharing and cooperation. Various case studies, whether WorldCom, Enron or BP Petroleum, demonstrate at best profound ethical lapses by leaders and an uninspiring work ethic among the workforce. At worst, the cultures in these organizations perpetuated egregious fraud and criminality.

I have tried to call it straight. Much of corporate work is dehumanizing. Since the corporate form of organization and control and the work that is performed from within these hierarchical structures are inescapable, for many workers autonomy and intrinsic happiness are only remotely attainable. But the principle of innovation and the evidence of technological and scientific advancement that follow are most likely powerful enough to instill the hope necessary to ensure survive and advance progress.

The innovation ethic presupposes working with awareness, passion and a level of engagement that expresses both individuality and an attachment to community. Innovators therefore do not need to be original or ingenious and do not need to create or invent something new. However, to be faithful to an innovation ethic, workers need to contribute something of value by working with heart, body and mind on tasks that they are asked to perform or choose to do.

I hypothesize that knowledge workers tend to be intrinsically motivated and tend more to share information than hoard it. I have opined that social media can facilitate productive knowledge work. Finally, I have speculated that knowledge workers within open environments that add value will also instinctively aspire to be ethical leaders and good stewards of collective assets. I also want to be clear that without a free and robust market supported by democratic institutions, the knowledge economy may further entrench corporate governing elites. And that too is a peril of prosperity as it becomes ever more difficult for individuals to fulfill their aspirations and act ethically within command-and-control, monopolized social structures.

Consequently, laws must also evolve. The master-servant rules that supported the industrial economy, when physical labor was exchanged for a paycheck, do not lend itself to personal autonomy, free agency and knowledge based work. Likewise, the work-for-hire doctrine tends to disadvantage and demotivate employees. Intellectual property law fosters monopoly which tends to suppress competition and innovation. In short, as property becomes less physical and more intellectual and intangible, property law must also evolve to serve the needs of innovators.

In the meantime, I have argued that most corporations suppress innovation and personal integrity through the deliberate de-skilling and modularization of work. Contrary to management propaganda, when performing much of what is called corporate work, workers are more or less disengaged. Employers accept this disengagement because they are not paying employees to innovative. In fact, during the Great Recession of 2008-2010 employers released most experienced and educated members of the workforce. While this outcome has much to do with age discrimination, it has more to do with computer programs that permit cheaper and less experienced employees to productively perform corporate work.

I have taken the liberty in this second addition of Perils of Prosperity to not only correct substandard editing but also to revise and update the original text with new economic data, laws and case law.

John J. Sarno

September 11, 2011

Preface to First Edition

On a perfect Sunday afternoon on the first day of autumn in Princeton, New Jersey I was watching the final ten minutes of a soccer game. The players, twelve and thirteen year old girls, were playing with focused determination. The contest was very competitive. As the end of the match neared, parents cheered and whooped, as the girls bore down for the last few minutes.

It reminded me of a game I had watched years earlier on Mulberry Street in Newark (N.J.), as group of city kids created magic on a basketball court with the same joy and improvisation, using space in unexpected and spontaneous ways, creating something from nothing. I remembered reading somewhere that Great Britain had ruled an empire from the pitch and I imagined these young people, these competitors with their focused intensity and ingenuity, creating the next generation Internet platforms in the not too distant future, perhaps the text speech applications and translation software that would transcend nationality and that would truly connect the world’s cultures.

For that brief moment in time, everything seemed perfectly crisp, clear and simple. The girls and boys playing beautifully in joyous competition seemed to encapsulate the perfect mix of teamwork, concentration, spontaneity, collaboration and endurance—the qualities necessary to succeed in a world that is scarcely recognizable from the world that existed forty years ago when I was their age. My reverie lasted quite some time but later in the day I picked up the Wall Street Journal and read how the biggest U.S. technology companies, including IBM, Google and Microsoft are increasingly expanding research facilities in China. Electrical engineers are cheaper in China, which produces 700,000 electrical engineering graduates each year, but the companies also say the increasing gravitation of their customers to China is another reason for opening research and development facilities there. China is a huge laboratory in which we can work, John E. Kelly III, IBM’s director of research was quoted as saying.

That laboratory also proved to be a type of spider’s web as well, as state-owned firms in China engage in indigenous innovation. Often in exchange for the lure of vast consumer markets, foreign corporations in China have willingly given up proprietary knowledge, trade secrets and intellectual property. Automobile, aerospace, high-speed rail and green-energy companies and other technology firms have all made the deal to trade intellectual property for market penetration. Some companies like General Electric and Siemens AG have mildly complained and Google has discontinued some operations on the Chinese mainland after a cyber attack on its intellectual property, but many firms are planning long-term for global mergers.

I must admit, even as I have long believed that free markets and trade provide superior mechanisms for allocating resources and creating wealth and opportunity, I felt vaguely bewildered, worried and threatened. I have known these children for a long time, watched them grow up and compete with joy, seen their promise and believed in their potential. They are worthy and deserving of an opportunity for success and I wondered how it got to the point that America’s best and most innovative technology companies no longer viewed the United States as their huge laboratory for innovation.

I wondered too whether the working lives of these children where already predetermined by immutable technological and evolutionary forces dominated by transnational corporations and government social programs, or whether they would be able to exercise at least a vestige of freedom and dignity in pursuing their dreams.

After years of practicing law, training, teaching and counseling managers and advising businesses, it was at this moment that I decided to write this book.

This book is about the realities, risks and rewards associated with a global environment that is increasingly becoming ruled by information and knowledge, an economy that requires innovation and collaboration to win. Various observers describe today’s global economy as one in transition to a knowledge economy, as an extension of an information society. This transition may require the rewriting of the rules and practices that determined success in the industrial economy but that may no longer apply in an interconnected, globalized economy where intangible resources such as know-how and ingenuity are as critical as machinery and other capital resources.

I have written this book with those children in Newark and Princeton in mind, and mine too, but I am also writing for my executive MBA students and also thinking about the thousands of supervisors and managers at the hundreds of firms for which I have provided management training. I did not set out to write a business book, per se, but rather a book that I hope will provoke present and future leaders to understand the social and ethical context of their working lives. Steven Johnson has referred to this context in evolutionary terms as humans take available knowledge, make connections and create new insight. The secret to innovation is connecting the odds and ends, he says. But to my dismay, I have found some the brightest people ill prepared for the challenges of the knowledge-intensive global economy. By in large, it is not the lack of ambition or the willingness to work hard that is the problem—both are in ample supply. What is missing is an integrated and engaged way of thinking and a deeper understanding of how seemingly casual events and discrete choices are interrelated. While all of these executives have enormous amounts of information at their disposal, what many lack is the intuition to find meaning in the jumble of data and to make sense of seemingly disconnected events. Business schools do no teach this. Instead, they teach technique and collaboration, which are important, but they do not teach meaning—meaning in one’s work and the social context within which business decisions are made.

Likewise, executives and managers at most firms have been trained in various production methods and have been taught to squeeze as much efficiency out of their people as possible. While many speak of their employees as their most important asset, that can only be true when employees are paid for creating and leveraging knowledge. Since production and efficiency are often incompatible with innovation, most employees are considered more as a liability than as an asset. The typical employer manages employees as if they were risks, rather than as assets. What passes for knowledge management is a software platform that standardizes inputs so as to achieve uniform outputs. Little independent thinking is required. As such, human capital is probably the most underutilized and least productive resource within the firm.

Moreover, the organizational structures of most firms simply do not enable widespread innovation to occur. As a result, innovation is left to the sole domain of an elite cadre of highly knowledgeable workers. Most other labor is subject to outsourcing. This hierarchy is supported by biological evolutionary dogma and justifies corporate restructuring and outsourcing, as firms seek comparative advantage. As communications technology and new media allow firms to tap into a global knowledge pool for innovative products and applications, what some call brain circulation, much of the American workforce has in large part been commoditized.

But I am convinced that America and the other advanced economies are quickly nearing their next evolutionary step in a world of increasingly diminishing physical resources. When the Book of Genesis proclaimed that God gave the Earth to mankind so that humans could freely exercise dominion over it, it created the foundation of western economic and social progress—private property—and the natural selection that resulted from competition over resources. For better or for worse, America’s civic creed of liberty and property is an enduring affirmation of this biblical command. It is my belief that America is not in decline. It is in transition. And at this crossroads in the early twentieth century, a new global dynamic challenges both liberty and property, and therefore the core of our beliefs, at least in the democratic West.

Much of the strain and anxiety is caused by the big gap between the haves and have-nots. The byproduct of liberty and property has always been inequality, which can be justified on ethical grounds as long as individuals have more or less equal opportunity to compete and the winners do not breed excessive cynicism and apathy by owning too much property and wealth or by being too oppressive and corrupt. At that point, the incentives for productive work reach diminishing returns, thus requiring compulsory labor if the economy is to produce. Thus, to the extent democratic