Thomas Friedman tries to explain what just happened in his book, The World is Flat, and he gets a lot of it right.

It boils down to this: organizations that are tightly controlled from the top simply can't compete with groups of individuals free to collaborate. What has flattened the world in the last 15 years is the spread and increasing sophistication of computers, software, and the Internet, which have destroyed geographic and political barriers that were hindering collaboration.

As a former Peace Corps Volunteer with on-the-ground experience in international development, it was always clear to me that the people I worked with in India were just as capable as the people I went to college with in Iowa.

Friedman rightly says that when the world flattened, it was inevitable that Indians and Chinese would compete for and win jobs traditionally held elsewhere.

The World is Flat is enlightening, thought-provoking, and well worth reading, but Friedman is not a technologist and it shows in three major errors.

First, he totally misunderstands Microsoft, which has fooled him (too) into thinking it's an innovative organization that deserves respect. Look, Microsoft thinks "innovation" is figuring out how to incorporate other people's ideas into its products. Microsoft's primary skill is bullying and building barriers. It's an anti-competitive organization that should receive the full force of our skepticism, not our respect.

Second, although Friedman includes the Open Source movement as one of his ten flatteners, he doesn't really get it. Open Source has the potential to pull down not just Microsoft, which considers the Open Source movement "a cancer," but all the corporate knowledge and entertainment bullies hiding behind ever-lengthening copyright laws.

Third, he thinks people who grew up in the U.S. are more innovative than other people. There's no question that innovation - the ability to reorganize the data in our mental maps in more useful ways - is a key skill. But the idea that Americans have it to a greater degree than other people is just wishful thinking.

Friedman mentions his kids several times and worries about what advice to give them. It seems fairly simple to me - with luck, the future will be a meritocracy. You will earn respect based on your contributions to the community, not because of your looks, money, or country of citizenship. And this is a good!

In his final chapter, Friedman pulls this idea - as well as his entire book - together with the following story:

Meg Whitman, the CEO of eBay, once told me a wonderful story that went like this: "We took eBay public in September 1998, in the middle of the dot-com boom. And in September and October our stock would go up eighty points and down fifty in a single day. I thought, 'This is insane.' Anyway, one day I am minding my own business, sitting in my own cubicle, and my secretary runs over and says to me, 'Meg, it's Arthur Levitt [chairman] of the SEC on the phone.'" The Securities and Exchange Commission oversees the stock market and is always concerned about issues of volatility in a stock and whether there is manipulation behind it. In those days, for a CEO to hear that "Arthur Levitt is on the line" was not a good way to start the day.

"So I called my general counsel," said Whitman, "who came over from his cubicle, and he was white like a sheet. We called Levitt back together and we put him on the speakerphone, and I said, 'Hi it's Meg Whitman of eBay.' And he said, 'Hi it's Arthur Levitt of the SEC. I don't know you and have never met you but I know that you just went public and I want to know: How did it go? Were we [the SEC] customer-friendly?' And so I breathed a sigh of relief, and we talked about that a little bit. And then [Levitt] said, "Well, actually, another reason that I am calling is that I just got my tenth positive feedback on eBay and have earned my yellow star. And I am so proud.' And then he said, 'I am actually a collector of Depression-era glass, post-1929, and so I have bought and sold on eBay and you get feedback as a buyer and seller. And I thought you would just like to know.'"

Every eBay user has a feedback profile made up of comments from other eBay users who have done transactions with him or her, relating to whether the goods bought or sold were as expected and the transaction went smoothly….

The point, said Whitman, is that "I think every human being, Arthur Levitt or the janitor or the waitress or the doctor or the professor, needs and craves validation and positive feedback." And the big misconception is to think that is has to be money. "It can be really small things," said Whitman, "telling someone, 'You did a really great job, you were recognized as doing a great history paper.' Our users say to us [about eBay's star system], 'Where else can you wake up in the morning and see how much people like you?'"

But what is so striking, said Whitman, is that the overwhelming majority of feedback on eBay is positive. That's interesting. People don't usually write Wal-Mart managers to compliment them on a fabulous purchase. But when you are part of a community that you feel ownership in, it is different. You have a stake…."We are not running an exchange - we are running a community." Indeed, with 105 million registered users from 190 countries trading more than $35 billion in products annually, eBay is actually a self-governing nation-state - the V.R.e., the Virtual Republic of eBay.

And how is it governed? EBay's philosophy, said Whitman, is, "Let's make a small number of rules, really enforce them, and then create an environment in which people can fulfill their own potential. There is something going on here besides buying and selling goods." Even allowing for corporate boosterism, Whitman's essential message is really worth contemplating: "People will say that 'eBay restored my faith in humanity - contrary to the world where people are cheating and don't give people the benefit of the doubt. I hear that twice a week…EBay offers the little guy, who's disenfranchised, an opportunity to compete on a totally level playing field. We have a disproportionate share of wheelchairs and disabled and minorities, [because] on eBay people don't know who you are. You are only as good as your product and feedback."

This is what power to the people was always supposed to mean. People are at their best - ethically and economically - when they are free to make decisions in their own best interest.