Rise and ... rise of America Inc.

Entrepreneurial spirit and technology fuel the longest economic expansion in US history.

A few years ago, Kathy Daigle was getting "farm workers" wages - $7,000 a year - at a seed company in rural Maine. To feed her two children, she needed food stamps and the free hot lunch the school provided. She navigated Maine's rutted roads in a 1981 Mercury with 220,000 miles on it.

Today the Brunswick, Maine, native drives a new black Nissan, her children buy their own lunch, and she has tripled her income. The difference: She's working for a two-year-old high-tech company, part of the reinvention of the economy that has helped turn America Inc. into the most envied and powerful economic force in the world.

In many ways, the turnaround in Ms. Daigle's life is emblematic of the economy in the 1990s. While the decade opened with a recession - back when surfing still required water and before the letters S, U, and V had been introduced to one another - it closed with almost untempered optimism and confidence.

In fact, on Tuesday it will pass another milestone, becoming the longest economic expansion in US history. In the process, it has changed both how Americans think about money and how the world does business. The latest brand of capitalism to emerge since the form evolved with 17th-century Dutch merchants is fueled by a combination of ubiquitous American entrepreneurial spirit, massive amounts of technology, and a man named Greenspan.

These factors combined to create a cold-fusion economy - one that grows at a steady 4 percent per year, with little sign of radioactive inflation.

Not only is this expansion the longest, but its steady pace has allowed it to overflow from Wall Street and spill over into the bank accounts of the middle class. It has added on average the equivalent of $20,000 per year to every household in America. More than most previous expansions, the jobs and larger digits on the paychecks have also filtered down to the poorest levels of society - though the gap between rich and poor is still growing.

"You see people at the bottom of the economic scales beginning to be impacted positively, and that's probably the best of the news of this economy," says Commerce Secretary William Daley.

A job machine

One of the hallmarks of this economic boom is the huge growth in employment. Since the spring of 1991, 21 million new jobs have been created, and the unemployment rate has dropped to around 4 percent. The last time it hit that level John F. Kennedy was president and bouffant hairdos were popular. It was the start of the longest previous economic expansion, which was aided by the ramp up to the Vietnam war and lasted into the Nixon administration to 1969.

The latest boom has been aided by - and helped to stimulate - an old impulse in the American character: a deep entrepreneurial drive among the young.

Indeed, it's now not unusual for the CEO of a new company to still be in his or her twenties or thirties. One measure of this drive: Last year entrepreneurs raised a record $100 billion in Initial Public Offerings, that is new stock shares, compared with $4.4 billion 10 years ago. Often those who go public become rich fast, generating a new class, "the working rich" - not to mention retirees so young they should be still paying off their college loans.

Kathy Daigle is a long way from joining the new rich, but she is doing much better than during her seed-company days. She is invested in the stock market, through her 401(k) retirement plan at work. She harbors hopes of becoming a shareholder in the company, which is currently growing at 350 percent per year.

That makes her part of the ultimate symbol of the '90s boom economy: the stock market. Wall Street has added $10 trillion in new wealth over the past decade, causing an unprecedented spending spree. "This wealth effect feeds upon itself - as individuals feel more confident, more comfortable, they spend more," says David Komansky, the chairman of Merrill Lynch & Co. in New York.

The record boom has added an additional $2 trillion in gross domestic product - more than the annual output of Germany. One example of how vibrant the economy has become: Detroit, which once had an unemployment rate of 15 percent, now has a tight labor market - partially driven by high-tech companies. The economy has also jump-started communities from Bethlehem, Pa., to Richmond, Va., to Williamsville, N.Y.

Others around the world have taken note of the US boom as well. In the 1980s, the premier economic model was Japan Inc. Today it is America Inc. - though many countries still harbor misgivings about the US brand of capitalism.

"We've seen a fostering of the view that markets know best and decentralized decisionmaking is better than the heavy hand of government," says Harvey Kerrich, an economist at TIAA-CREF, the nation's largest pension manager.

For example, in Germany, the idea that decisions are made for all stakeholders, including unions, is starting to lose out to the US "shareholder" model. Japan is starting to experience hostile takeover attempts.

As markets are remodeled to accommodate a greater degree of innovation and risk, it has some political ramifications. With the rise of globalization, companies can no longer bloat bureaucracies. "To be competitive, you have to be as efficient as the best practice and the best practice at this juncture is akin to the American model," says Mr. Kerrich.

The economic achievement in the US has taken place despite a recession in Asia and a tepid economy in Europe. In fact, the US has dragged its trading partners along. While the flood of imports has swelled the US trade deficit, it has also "helped to keep our inflation down, stimulating competition and productivity," says Mr. Daley.

Unlike other economic recoveries, the boom has continued with little intervention from Washington - most notably without tax cuts. In fact, the federal budget, which can be another way to prod the economy, is in surplus as income-tax collections soar. "There is a certain amount of Washington gridlock," says David Wyss, an economist with Standard & Poor's DRI in Lexington, Mass. "They can't agree on how to spend the money."

What steering of the economy there has been has come more from the Federal Reserve, which economists agree is a major reason for the prolonged expansion. In the past, the nation's central bank has sometimes hit the brakes too hard when it wanted to slow the economy. Altogether the US has had nine recessions since the end of World War II.

"Fed Chairman Alan Greenspan realizes there are some things he can't do, such as determine the right level of the market, incomes, unemployment, or the yield on long term bonds," says Mr. Wyss. "To his credit, he knows he can do something about inflation."

Indeed, for the past nine years, the inflation rate has averaged 2.6 percent per year. The last time the inflation rate was consistently so low was in the 1960s. "By historical standards, this is a stellar performance," says Mark Zandi, an economist at the Dismal Scientist, an economic Web site.

But Alan Greenspan, the Fed chairman, has benefited from some outside help in his inflation fight. Commodity prices have remained low, since much of the rest of the world is growing at a slower rate. Since the spring of 1991, in fact, key commodities such as corn, cattle, cotton, and copper have dropped in price. The only major commodity that is up significantly is oil.

Productivity revolution

With low raw material prices, companies have also focused on increasing their productivity - another major reason the US has been able to maintain steady growth with low inflation. It is "information technology that defines this special period," said Mr. Greenspan recently. "Its major contribution is to reduce the number of worker hours required to produce the nation's output."

Computer advances have also allowed businesses to monitor sales and inventories more closely. It has allowed them to make quick adjustments to changing conditions. "After all, most of the recessions we have experienced in the post-war period were inventory recessions, where companies were unable to manage their inventories properly," says Leo Kamp, an economist with TIAA-CREF.

In the past, it could take months or weeks for corporations to obtain reports and make changes. With the advent of the Internet, information arrives at the click of a keypad. This has sped up business and changed the way everything from cars to airline tickets is sold.

Brunswick's renaissance

Many of the ways changes in the economy have played out can be seen in Kathy Daigle's Brunswick, a salt-encrusted community that hugs the rocky Maine coast. Historically, the community counted on lumbering, textiles, and paper for its industry. But the last paper mill shut down in the 1980s, and the unemployment rate grew to 6 percent.

Today the new employers are high-tech companies like Brunswick Technologies Inc., which manufactures carbon-fiber and Kevlar products used in everything from snowboards to bridges. Chief Executive Officer Martin Grimnes estimates his company has been increasing its productivity by 5 percent a year.

He's had little choice: Since unemployment in the area is down to 2 percent, it's hard to find new workers. One of the only ways the company can boost output is to operate more efficiently.

EnvisioNet, for its part, opened its doors only five years ago but now employs 1,000. It will add 500 in March. "This year will be another aggressive year for growth as well," says Heather Blease, CEO of the firm that provides customer care and support services for Internet firms.

EnvisioNet's growth has certainly benefitted Daigle. The tech support engineer now oversees about 20 people. She has moved into a three bedroom apartment. "The boost to the old self-esteem is just tremendous," she says. "It's nice to just sit with the kids and not worry about the bills or the work environment."

(c) Copyright 2000. The Christian Science Publishing Society

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