This anecdote, which regularly made the rounds at Princeton, is still apt for every business person in the world. As we move into a new century, we have witnessed the end of the business world as we knew it. And to answer the immense challenges ahead successfully, one must comprehend the dramatic changes that have given rise to today’s reality.

Arguably the most profound and talked about business revolution of the past 75 years is the Internet. Yet an equally remarkable transformation went unnoticed, unheralded: The shift in the world economy dominated by excess demand to a new world order where supply exceeds demand. This has enabled the consumer to take control of the relationship with providers for the first time since the early days in the bazaars of Mesopotamia. Technology has helped eradicate the barriers of entry in most industries, perforating the protective armor of past competitive advantages. Raw materials of all kinds, manpower skills, distribution channels, manufacturing capacity, technology itself, importantly capital – most everything (or its substitute) has become available and plentiful. (Fossil fuel is still an exception, but only because it is kept artificially in short supply and because adequate resources have yet to be made, to produce practical, economic alternatives). In essence, everyone can share in what used to confer an advantage. Almost overnight, the rules of engagement in business were rendered obsolete. As a result of the seismic shift between excess demand to excess supply, products and services quickly become commodities. Price competition seems the only way to fight for market share.

At the same time, Marx’s prediction that capitalism would ultimately die, became reality (but for different reasons). Capital, as the critical resource available to few companies and few nations as the winning strategy, became plentiful and cheap. The new engine of growth and value creation is free enterprise: the deployment of all resources, including capital, in the most efficient, effective and creative way to produce added value. Those companies and nations connected with the free enterprise system will be participants in the global marketplace. The remainder will be condemned to see their enterprises founder and the standard of living of those nations stagnate and decline.

It should be noted that for free enterprise to work effectively, government must provide a level playing field for all competitors. Governments, media and NGOs must play the roles of referees and enforcers in the often aggressive game of free enterprise, while staying out of the marketplace as participants. Protectionism has been consistently associated with failure, unfairness, increasing poverty and lack of sustained success.

The new Internet technology is turbo-charging both free enterprise and excess supply. As Tom Friedman describes in his seminal The World is Flat, each company and each individual is now capable of connecting and participating in the free enterprise global marketplace, from any place, at any time. The ability to adopt to this leveling of opportunity will be the essential prerequisite for this century’s free enterprise.

China and India understand this. For the first time in more than a century, America is lagging two competitors who are significantly larger in size, capable of producing high quality products at a dramatically lower cost—for years to come. China and India are not only competing and winning the excess supply commodity businesses, they want to dominate the future high-end, value-added markets. Their qualifications are impressive. They have the hunger and ambition. They are fully committed to Internet technology. But while the ultimate success is not certain, nor smoothly achieved, it is foolhardy and certainly unwise for America or Europe to assume otherwise.

So what will it take for American businesses (or those of other developed nations) to attend and sustain competitiveness, and a reasonable standard of living for future generations. Let me cite some enduring principles:

The only way out of the commodity trap of lower margins and profits is the creative power of differentiation through innovation and invention. Productivity has been a powerful ally for America’s business, but in a reasonably stable world economy, it cannot make up for diminishing revenue growth. Simply put, productivity is an essential management tool but not sufficient. Relevant differentiation alone drives volume margins and profits. And to sustain differentiation, creativity must become institutionalized and an enlightened leadership of collaboration and support must replace the outmoded command and control structures. The creative capacity of organizations will soon become the only leverageable asset on any company’s balance sheet. And new competencies, in addition to the traditional ones, will be critical. First, the ability to build and measure strong brands is a vital new art and science. A brand is a relationship with a satisfied customer built on trust. Profitable commerce demands strong brands. Vitally important will be the acquisition of technological skills – the basic, fundamental competency for all free enterprise business. And this will require massive training (and continued learning) provided by businesses and academics.

Finally, practicing basic human values in business will become a competitive advantage. A creative business demands a values-based enterprise culture. And brand relationships with customers and consumers will have to be built on trust, and mutual respect—honesty and integrity. The American culture traits of individual freedom and fundamental honesty will also prove to be a valuable added strength to the tough competitive world ahead.

But in the end, everyone in business needs to wake up to the new reality. Understand the new flattened, excess supply world, and follow the basic strategic principles as the source of success. In the process, you’ll be heeding Professor Einstein’s admonition: The answers to the challenges tomorrow – they are turning out to be different. But one thing remains the same: your survival and success will depend on understanding those answers.