The 1990s Business and the Economy: Topics in the News

THE INTERNET AND BIG BUSINESS

In October 1969, two teams of computer scientists, one at the University of California, Los Angeles, and the other at the Bell Laboratories in Menlo Park, California, linked computers over telephone lines to operate as a single system. The U.S. military had sponsored the research, seeking to establish a national communications network that would continue to operate even if part of the system were disabled or destroyed in a nuclear attack. Thus began the Internet Age.

During the 1990s, the Internet became a force that transformed every aspect of life. Anyone with a computer, telephone, and modem literally had at his or her fingertips a staggering quantity and variety of information. As the decade drew to a close, the possibilities of the new technology seemed endless.

The initial impact of the Internet has been profound, especially for business. Financial markets became more accessible and efficient for those who wished to raise or invest money. Accessibility and efficiency, in fact, defined the Internet. Upstart online companies humbled large corporations that had been dominant for decades. If online sales of industrial and consumer goods and services were combined with the equipment and software needed to operate and support e-commerce, the Internet economy totaled more than $300 billion in 1999. By comparison, the U.S. automobile industry was worth $350 billion that same year.

A host of new businesses emerged from the Internet during the decade: new companies, business models, corporate structures, terminology, even industries. Confusion reigned supreme. Experts could not agree on what was happening, or on what the future was likely to bring. In the early 1990s, the World Wide Web (a graphical user interface for the Internet) made the Internet easier for nonprogrammers to use, calling into question all the former truths about how to conduct business. In 1997, for instance, Yahoo! Inc. was nothing more than a Web search engine and directory. By 1999, it had become a multibillion-dollar major media company. Perhaps more amazing, companies such as Amazon.com and eToys Inc., which by the end of the decade had yet to turn a profit, continued to attract untold numbers of investors. These success stories certainly perplexed traditional business executives who had spent their working lives trying to build companies with bricks-and-mortar offices, factories, assets, and profits.

One inescapable fact of doing business in the 1990s was that the Internet put customers in charge as never before. With access to the wealth of information that the Internet provided, customers pointed and clicked their way to the best goods and services at the lowest prices. The Internet offered new advantages as well as to merchants, who could now identify individual customers and collect unprecedented quantities of data about the character and pattern of their purchases. Yet the rise of the Internet compelled executives to rethink the nature of the companies they managed. Suddenly, factories, stores, trucks, warehouses, and even employees, once regarded as assets, came to be seen as unnecessary costs and liabilities. Savvy companies began to eliminate, or to avoid altogether, building costly facilities or hiring legions of sales representatives. They concentrated instead on expanding their capacity to use the Internet.

Experts agreed that the single most important reason for the dramatic worldwide explosion in economic productivity and market value during the 1990s was the advent of the Internet. The Internet altered the dynamics of the global economy at least as much as the introduction of railroads and electricity had during the nineteenth century. The rise of the Internet has also meant that the traditional requirements of economic growth and development—access to and control of resources and labor—may no

longer be the principal keys of economic strength. Economic power became increasingly linked to the control, accessibility, and manipulation of information.

By 1999, the United States dominated the Internet, accounting for more than 50 percent of all individuals online and 75 percent of all Internet commerce. Not surprisingly, the first country to develop and utilize Internet technology enjoyed the lion's share of the economic benefits it generated. Most experts predicted, however, that this advantage would decline over time as the number of European and Asian households with access to the Internet would increase dramatically early in the twenty-first century. In fact, by the end of the 1990s, Iceland, Finland, and Sweden already had more Internet users per capita than the United States.

"Two Commas"

Living through one of the biggest economic booms in U.S. history provided many Americans with the opportunity to amass great personal fortunes. Whether by getting lucky in the stock market, making the most of stock options, or being in on the ground floor of an Internet start-up, many Americans struck it rich in the 1990s. So many, in fact, that perseverance and perspiration seemed destined to fall by the wayside. Between 1995 and 1998, about one million new millionaires appeared. The phrase "having two commas" signified that someone had achieved his or her first million (in reference to the number of commas used when one million is represented numerically). The number of Americans "having three commas," or their first billion, went up, too. Forbes magazine reported in 1999 that on its list of the four hundred richest Americans, 250 were billionaires, up 60 from the previous year.

THE BOOMING "NEW ECONOMY"

The second half of the 1990s marked the longest sustained stretch of economic growth in U.S. history. Unlike other periods of long-term economic expansion, this one was not reversed by rising inflation (the continuing rise in the general price of goods and services because of an over-abundance of available money). Growth during the decade continued and even accelerated as inflation declined. Rapid technological change, the rise of the services sector, and the emergence of the global marketplace all combined to keep the economy moving.

A new U.S. economy had begun to take shape, one that defied many long-standing principles. Normally in a period of economic expansion, the federal government spends more money than it takes in—a practice called deficit spending. Yet between 1992 and 1997, deficit spending decreased from $290 billion to $67 billion. Another economic theory debunked in the 1990s was the belief that a growth rate of 2.5 percent coupled with an unemployment rate below 5 percent was guaranteed to generate inflation. After 1993, however, the U.S. economy grew at an annual rate of about 4 percent, and by the second half of the decade unemployment fell below 5 percent for the first time since the 1970s. Yet inflation did not arise to slow down or reverse these economic advances.

The majority of economists attributed these developments to a restructuring of companies, the growth of the Internet and the high-technology industry, and governmental policies such as the 1994 North American Free Trade Agreement (NAFTA) between Canada, Mexico, and the United States. This accord established a free-trade zone in North America. Tariffs (duties or taxes placed on imported or exported goods by governments) were lifted on the majority of goods produced by the three nations. In turn, this helped create a continental economy without national borders that initiated and sustained economic development. NAFTA further allowed companies to relocate facilities and jobs to locations both inside and outside the United States where they could pay lower wages. In addition, these companies hired growing numbers of temporary workers to whom they provided no health or retirement benefits. Taken together, these procedures helped companies lower their costs while increasing their profits.

As the decade drew to a close, economists wondered about the course the U.S. economy would take in the twenty-first century. It became painfully evident that the old rules governing the economy no longer applied; but it was equally obvious that no one knew what the new rules would be. Economists speculated that traditional indicators such as inflation, monetary policy, or interest rates may not determine future economic growth; rather, a lack of preparation, planning, education, and skills may prevent U.S. business from taking full advantage of opportunities in the dynamic "new economy."

CHANGING THE FACE OF BUSINESS

Throughout the 1990s, business offered women a mixture of advances and disappointments. Increasing numbers of women entered the workplace and moved into traditionally male-dominated occupations. At the same time, women were paid on average 30 percent less than their male counterparts. The National Committee on Pay Equity found that women lost an average $12,573 per year, or as much as $440,047 during the course of a lifetime, because of unequal pay practices.

Although acknowledging how far they had come, women recognized how far they still had to go. While they experienced less overt discrimination, they continued to battle for acceptance and equality. Many women occupied middle management positions, but they did not rise to the upper levels of the corporate world in representative numbers. As a result of such limitations, as well as concerns about having the flexibility to balance home life and career, many women opted out of the corporate world altogether and went into business for themselves.

American Nobel Prize Winners in Economics

According to a 1998 survey conducted by the Office of Advocacy of the U.S. Small Business Administration, 8.5 million women owned businesses in the United States in 1997. That figure increased to 9.1 million by 1999, and accounted for more than 33 percent of all small businesses. Between 1992 and 1999, the number of women-owned businesses in each of the top fifty metropolitan areas in the country grew from between 33 and 50 percent, generating a combined $2.1 trillion in annual sales.

Like white women, minorities continued to make some progress in corporate America during the 1990s. Native Americans, African Americans, Asian Americans, Hispanic Americans, and members of other minority groups advanced to positions of prominence, authority, and high salaries with greater frequency than ever before. These gains notwithstanding, business experts agreed that minorities were still underrepresented at the highest levels of corporate management.

Although the U.S. population includes approximately 30 percent minorities, statistics for the decade showed fewer minorities entering upper management or sitting on the boards of directors of public corporations. Although the prosperous economy of the 1990s had increased wages and employment opportunities for nearly all workers, the benefits of that prosperity were not shared equally. This inequity was evident even among minorities who attained a level of education comparable with their white counterparts. Statistics compiled by the federal government in 1997 revealed that a white male college graduate earned a median wage of $21.45 per hour. An Asian male with the same degree earned $19.86 per hour. Similarly educated Hispanic and African American males made $17.37 and $16.53, respectively.

1995: Average Wages and Cost of Goods

In the 1990s, executives who were more than fifty years of age became an endangered species in the corporate world. Riding the downsizing wave, companies could not get rid of them quickly enough. Then something curious happened. Companies began to face a crisis: those executives who opted for, or who were compelled to accept, early retirement left many companies facing a shortage of managerial talent. No one was left to train the next generation of business leaders.

As a consequence, many corporations sought to retain their most talented and experienced executives. Some of these companies fashioned consulting contracts and part-time assignments to accommodate older workers. Others went so far as to bring older workers out of retirement to provide stability and experience in critical positions and to pass on their knowledge, wisdom, and skills to younger colleagues.

Pets at Work

One trend that became popular at several companies during the 1990s was the practice of allowing people to bring their pets to work. Netscape Communications began the practice when it introduced an office policy, Dogs At Work. Eventually, not only dogs were invited to visit their master's office but also cats and even fish.

The rules were simple: A pet could stay as long as it behaved and did not break the two incidents rule (dirtying the carpet, fighting with other pets, biting the boss). Once a pet violated that rule, it could not come back until it had graduated from obedience training. Netscape and other companies that had similar policies found that, in many cases, worker productivity went up because workers' stress was reduced. Another benefit was that people were willing to work longer hours if they did not have to worry about their pets at home.

Citing health and safety concerns, some companies refused to adopt such pet-friendly policies. Other employers, such as Ben and Jerry's Ice Cream, offered a compromise: employees were allowed to bring their pets to work for the annual Dog Days of Summer party where the pet visitors were given a free flea dip and a lunch of hot dogs.

GLOBALIZATION: THE ECONOMY IN A BORDERLESS WORLD

The power and influence of multinational corporations grew during the 1990s, so much so that these companies rather than their host nations drove globalization—a new global economy unencumbered by national borders.

In 1999, the United States government dominated the world with a market value (the total value of goods and services produced that can be sold on the open market) in U.S. dollars of $15.013 trillion. Japan was a distant second, followed by the United Kingdom, France, and Germany. But eight of the top twenty-five economic entities in the world were corporations. Of the eight companies on the list, seven were American, and the top company was Microsoft, in tenth place with a market value of $546 billion. It ranked higher than countries such as Australia, Spain, Taiwan, and Sweden. The rest of the companies on the list were General Electric, Cisco Systems, Intel, Exxon-Mobil, Wal-Mart, Nippon, and AOL Time Warner.

Much of the economic power formerly controlled by nations also now resided in such international institutions as the European Union (EU), the World Trade Organization (WTO), and the International Monetary Fund (IMF). These entities gained substantial control over the national economies of many countries during the 1990s.

Critics of this development pointed out that nations would lose the strength of their individual governments to a world government that would form as a result of the concentration of power in multinational and international hands. Defenders of globalization, on the contrary, believed it was an inevitable change and the only question remaining was what sort of world economy and government would be established. Nations have always traded with one another for their mutual benefit, they argued

Those who backed globalization cited Mexico as an example of how a country can benefit from opening its markets to free trade and economic competition. The 1994 North American Free Trade Agreement (NAFTA) among Mexico, Canada, and the United States lifted tariffs (duties or taxes placed on imported or exported goods by governments) on most goods produced by the three nations. With no trade barriers, goods flowed freely among the nations. Politicians on both sides of the Mexican-U.S. border pointed out that the poorest Mexican cities have reaped the most benefits from NAFTA by gaining investments and high-wage manufacturing jobs.

Other international observers have disagreed. They argued that while Mexican workers may have moved from sugar cane farms and corn fields to factories, their wages and purchasing power actually declined. Those against globalization also pointed out that it favors developed countries and multinational corporations. Already the wealthiest nation, the United States gained the most from economic globalization. Perhaps most important, an international free market did not eliminate the economic differences between rich and poor countries. Nor did it resolve economic, social, and political inequalities within nations, as well as the crucial global problems of environmental standards and workers' rights.

Corporate Welfare

The 1990s was of one of the most sustained periods of economic growth and prosperity in U.S. history. Yet, during the second half of the decade, the federal government paid out approximately $125 billion per year to corporations. Advocates applauded these payments as promoting economic development. Critics denounced them as corporate welfare.

Corporate welfare can be defined as any action by a local, state, or federal government that gives a corporation or an entire industry a benefit not offered to others. These advantages can come in many forms. Governments regularly extend significant tax breaks to corporations: permitting them to pay only a certain percent of their assessed property taxes, granting them the right to make purchases without paying sales tax, or reducing or eliminating taxes on their corporate profits. Corporate welfare also comes in the form of loans from cities and states at interest rates much lower than banks normally charge. In addition, governments often award grants to fund research that enables companies to improve productivity and enhance profits.

The justification for corporate welfare has long been that government should help companies create jobs. Yet, according to labor statistics, the companies in the 1990s that received the most corporate welfare eliminated more jobs than they created. During the same period, the U.S. Congress voted to reduce welfare payments to individuals and families, believing that welfare was unjust, destroyed the incentive to work, and created an economic dependence among those who received it.

The difference between corporations and individuals? Corporations have a lobby that is strong and powerful and that has access to government officials in city halls, statehouses, Capitol Hill, and the White House. Individuals do not.

Environmentalists, union organizers, and human-rights activists brought many of these issues and concerns to worldwide attention with the violent demonstrations that disrupted the meeting of the WTO held in Seattle, Washington, in December 1999. Mindful of the problems that globalization created, economic, political, and corporate leaders began to address these issues as the decade closed, even if a way had not yet been found to solve them.