November 5, 2000 The Chaos at the Core of Prosperity By DAVID LEONHARDT THIS is not what a victory party is supposed to look like.

The American economy is enjoying its longest expansion on record, and an unusually large share of the gains has gone to corporate profits. It has been years since people questioned whether the United States was falling behind Europe or Japan. Instead, other countries are scrapping regulations to try to make their economies and corporations more like America's. Those United States companies are selling the world not just diet sodas, chicken sandwiches and blue jeans, but also movie tickets, Internet access and word-processing software.

Yet one could hardly describe the last few months in corporate America as a celebration. One after another, pillars of the vaunted American economy have been shaken.

AT&T, once the world's largest company, is splitting itself into four pieces, reversing its multibillion- dollar strategy of the last three years. The chief executives of Coca-Cola, Gillette, Procter & Gamble and Xerox B all prototypes of the global corporation B have resigned unexpectedly or been fired in the last year. J. P. Morgan, the nation's most prestigious commercial bank only 10 years ago, decided that it could no longer survive on its own.

No organization seems safe. Dot-com businesses are filing for bankruptcy, and Wal-Mart has yet to figure out how to build a good Web site. Medium-size companies are putting themselves up for sale, saying they cannot compete with global behemoths, while the behemoths are suffering from currency fluctuations. Stalwarts of both the new economy and the old, from Intel to Home Depot, have watched their stocks drop as much as 50 percent in a day because of mildly bad news.

"This is the best economy I've ever seen," said Charles Pradilla, 60, chief investment strategist for SG Cowen Securities, "and here we have some of these icons in deep trouble."

All of this offers perhaps the best evidence yet that corporate America has entered a new stage of instability, one in which seemingly ascendant companies can quickly lose their way. Many causes of this instability B like deregulation, globalization and changes in technology and on Wall Street B may not be new, but they are coming together in particularly explosive ways. A result, analysts say, is a reminder that the very companies that have pushed for such tectonic shifts must also often pay a price for them.

"People are dealing with more variables at one time than they ever did in the past, and a lot of the changes are of a fundamental nature," said William Esrey, chief executive of Sprint and the recently elected chairman of the Business Council, a group of more than 100 top chief executives. "The pace of change is clearly at an unprecedented level."

Against the Economic Grain

The turmoil of recent months, however, seems inconsistent with what life should resemble in the world's richest nation a decade after it last went through a recession or had a serious strategic rival on the world stage.

"It's a wonderfully counterintuitive situation," said Adrian J. Slywotzky, a management consultant who writes often about large companies.

An unprecedented bull market has left investors accustomed to 15 or 20 percent annual returns B and willing to punish harshly any companies that show signs of falling short of earnings targets. Those targets, meanwhile, have become harder to reach as economic growth has begun to slow.

http://www.nytimes.com/2000/11/05/business/05ICON.html

-- Martin Thompson (mthom1927@aol.com), November 08, 2000