The Sky's The Limit

Caution and vigor rarely travel in tandem, but TIME's Board of Economists called for hefty measures of both as members looked at the prospects for a dynamic world economy. Global megamergers, lofty stock valuations, the exponential growth of the Internet--the salient features of the dawning 21st century are a welter of challenges for the world's investors, business leaders and workers. No one doubts that the future is volatile. The question is whether--and for whom--volatility translates into vulnerability.

The good news is that the sheer urgency of change is a symptom of unprecedented vitality in the U.S., Europe, much of Asia and pockets of the developing world. The U.S. economy has been booming along for more than four years at an average of 4.2% growth, and the Board saw that trend continuing in 2000. Now the rest of the world is picking up steam. The pace is by no means even, of course. Some regions, like Latin America, are up against forces they cannot control; others, like Japan, are wallowing in the economic trough of the past. The overall outlook is heady. But only the deft will prevail in this supercharged economy. More than ever, even the most nimble are ultimately at the mercy of American shareholders, who could wake up one morning soon and decide that the stock market is for the birds.

TIME's economists were unanimous, however, in arguing that the pressures of the present should not divert attention from the big challenge of the future: aging populations that can't expect adequate support in retirement from moribund social-security systems. If anything, businesses, tax regimes and pension schemes need to change faster to meet those burdens.

Many companies are girding for the future by bulking up to unprecedented size. Robert Hormats, vice chairman of Goldman Sachs International, noted that in 1996 there were 211 corporate megamergers (deals worth $1 billion or more) around the world, valued at $1.2 trillion. In 1999 there were 476, worth $3.8 trillion. One of the main spark plugs for the trend was the new European currency, the euro, which encouraged companies to grow outside national borders. Last year more than 60% of the world's megamergers involved European companies. "We're likely to see more megamergers and more countries involved," Hormats predicted, "because the Asians haven't got into the game yet, and they have to."

The fat fees that flow to the investment banks from those deals will continue to beef up their bottom lines. But all elements of the financial-service sector--indeed, all intermediaries in the economy, from auctioneers to arbitrageurs--need to remind themselves daily that their hallowed brands and array of services will not fend off the challenges of the Internet.