Is the World as Flat as We Think?

In 2005, Thomas Friedman’s award-winning book The World Is Flat championed the transformative power of globalization. It highlighted how the traditional barriers of commerce, communication and politics were rapidly changing in these early years of the 21st century, due to the powerful impact of the Internet. It’s a brilliant work whose core ideas continue to be proven as the digitization of every industry accelerates.

Yet the choppy global economy and the roiling geopolitical landscape are revealing some glaring examples of where the flat-world theory falls short. In her July 7 column on Fortune.com, Becky Quick of CNBC’s Squawk Box wrote about the rise of protectionist government policies worldwide. She noted how hard times make national borders loom larger, “and the engine that fuels this rush into a global free-market economy can come grinding to a sudden halt.”

That observation came just two weeks after German book publishers filed an antitrust complaint against Amazon.com, “accusing it of violating competition laws and asking the government to investigate,” as The New York Times reported. Globalization is a mantra that continues to be chanted at every business school, but when times get tough, many countries assume a defensive posture.

High-tech hostilities between the U.S. and China over cyberspying and security breaches have been escalating since late 2012, when a congressional committee report urged American companies to avoid partnerships with Chinese telecom giant Huawei. For its part, China recently banned Windows 8 from government computers–calling it a security threat–and has reportedly been pressuring its banks to replace IBM hardware.

In the U.S., we see the rising popularity of “corporate inversion,” the perfectly legal practice of American companies reincorporating abroad to lower their tax bills.

Though we may think of the Internet as a borderless engine of globalization, we are now facing the reality of the tangled ties woven by corporate businesses, government regulations and cultural differences. As cloud computing services expand, standards of privacy and security will likely be redefined, country by country. How long will it be before our virtual borders are defined as sharply as the geographical and geopolitical ones we live inside today?