Egypt: Get In the Horizontal Stack

February 09 2011 tweetmeme_style = 'compact'; tweetmeme_source = 'wallstCS'; Email This

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While policy experts, propagandists, and power mongers brawl over the fate of Egypt (NYSE:EGPT), the practical solution to peace and prosperity may be hard for the people to see.

I am not an orthodox Randian by any stretch of the imagination. But I think business strategist Andy Kessler — author of the new book Eat People — has one of the best frameworks for ending violence, extremism, and poverty in volatile countries:

Give the people access to the global horizontal stack.

What the Hell is a Horizontal Stack?

The horizontal stack is an academic term describing how each contributor to an economic sector can create a good or service critical to the overall existence of the sector. For example, the horizontal stack for the personal computer looks something like this:

External Hardware (e.g., keyboard, screen) Internal Hardware (e.g., chips) Software (e.g., operating system, programs)

An optimal use of the horizontal stack is for a company to pick one niche in the stack and become one of the best businesses. For example, Intel (NASDAQ:INTC) proves the benefits as an expert chip maker. Microsoft (NASDAQ:MSFT) proves the benefits as an expert operating systems producer.

How Can Egypt and Other Countries Benefit from the Global Horizontal Stack?

Generally, most political and economic instability originates from unemployment. When people are unemployed, they have less resources to get their necessities or attain standards of living like those they see in their community. Whether we like the welfare system or not, it’s indisputable that we’ve had a lot less revolutions since the underclass has been given minimally acceptable standards of living.

In countries which don’t adequately deal with this dilemma, entering the global horizontal stack can transform an unstable and undesirable standard of living into one delivering peace and prosperity.

Andy Kessler explains:

Hitler had a manufacturing engine, but felt Germans were above toiling in factories. So he chose to increase German living standards by the blitzkrieg process: take what you need by force. Grab territory. Steal their resources. Put them to work. Get rich. Vertical instead of horizontal.

And they lost to a nation that went the horizontal route. America won WWII. Japan and Germany could have been American territories. But the horizontal model kept them independent as trading partners and we bought manufactured goods from partners around the world, especially Japan and Germany. It was better economics to let these countries run at their own pace, and own some horizontal layer (radios, clothes, cars). Today they trade cars and TVs for oil.

The problem in many countries like Egypt is the majority of people do not have access to the global horizontal stack — access to the realistic opportunity to increase their standard of living and create productive lives. Instead, a small class of people hordes all the wealth from a very limited group of businesses. As a result, there’s no incentive to educate the masses and train them to build their own wealth (which, of course, leads to power and other things which threaten incumbents).

However, if the Egyptian people were given resources to develop an expertise in multiple layers of the global horizontal stack (e.g., computer programming), a very large group of angry people may suddenly find more value in enjoying their daily life than overthrowing governments.

Kessler notes:

Globalization has linked the free world in a smart horizontal alliance. Computers, cell phones, and fiber optics are not made in any single country to be exported worldwide, but instead have components and labor from more than 30 inseparable countries, including China and Vietnam. Horizontal rules!

I agree. Give the people of Egypt (and elsewhere) a chance to create wealth in the global economy and the entire world will benefit from greater peace and prosperity.

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Tags: Andy Kessler, Business, Eat People, Economics, Economy, Egypt, Emerging Markets, global economy, Horizontal Stack, Industry, Markets, NASDAQ:INTC, NASDAQ:MSFT, NYSE:BRIC, NYSE:DIA, NYSE:EEM, NYSE:EGPT, NYSE:IWM, NYSE:QQQQ, NYSE:SPY, NYSE:VWO

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