When Friedman says that the world is becoming flat, he means that people in countries around the globe are becoming more capable of competing with one another economically.  The days in which the West dominated the world are vanishing as other parts of the world become more competitive.  If Rao is correct, this process has been helped along by complacency on the part of the United States.  Rao is saying that Americans relaxed and stopped trying as hard as they once did.  By doing this, Americans allowed other countries to become more competitive, thus "flattening" the world.