Transitions of the '90s: Opportunities, Unseen Threats

HISTORIANS tell us that every age is an age of transition. The early 1990s will not disappoint them. This is a period of many far-reaching transitions, but also of growing contradictions. Geopolitics. With the end of the Persian Gulf war, we are in the midst of transition from cold war to, shall we say, cool peace.

Western Europe. The 1990s are an era of economic and political metamorphosis - to a new and centralized supranational government headquartered in Brussels, and a concurrent dismantling or substantial reduction of national controls over the private sector.

Simultaneously, the these changes are expected to provide more opportunity for continent-wide business competition, although at a time when the European Community's substantial barriers to external commerce remain in place and some are rising. For many Western European companies, the 1990s present tremendous opportunity to expand their markets and to enhance their efficiency.

Eastern Europe. Following the breakup of the Soviet satellite system and the demise of the Warsaw Pact, the present is a period of transition from communism to something less monolithic and more decentralized. For some of those countries, it will be a most welcome return to democratic capitalism, but a powerful movement to authoritarian governments may be in the offing for others.

Japan. This nation faces a difficult adjustment to the uncertain status of a true global superpower in the post-cold-war environment. Japan's twofold challenge is to learn how to use national power to advance the country's own interests while taking on the broader responsibilities commonly thrusted upon a global power.

The developing nations. Be they in Africa, Asia, or Latin America - the 1990s are an especially frustrating time for these countries. The gap is widening between those few nations (such as Thailand and Mexico) that are joining the ranks of industrialized societies and the many (such as Sudan, and Bangladesh) that are falling into greater poverty and outright starvation.

United States. This is a time of many transitions, not all of which are proceeding at the same pace. Already we are witnessing a shift from less government involvement in business to more and more costly regulation, especially in the environmental area. Simultaneously, the nation is moving away from tax reductions designed to propel growth and toward tax increases aimed at reducing income inequality across the population.

The business community is deemphasizing the use of high-yield and high-risk "junk" bonds to fund hostile takeovers and putting more venture capital toward entrepreneurship. Companies are moving away from a highly leveraged debt position toward a reemphasis on equity ownership in order to strengthen their balance sheets. Moreover, another transition is taking place - from a preoccupation with the gains from financial dealmaking, and back to the more conventional concern with designing, manufacturing, and marketing better products and services.

The nation is moving away from a large and rapidly growing military budget that finances a major share of the nation's total research and development effort. This transition to a smaller military market generates concern over the adequacy of overall national support for R&D at a time when the pace of technological advance is rapidly changing the international economy.

Each of these transitions is bound to generate important economic impacts that at best we can only dimly see. In the aggregate, these many transitions - and their accompanying contradictions - will result in new opportunities as well as unexpected threats, to both the public and private sectors.

Just consider the power of modern communication and transportation. That power helps explain the unexpectedly swift domino effect in Eastern Europe in 1989, where the "virus" of freedom was transmitted so rapidly from country to country. It also sharpens the pace of economic competition.

An unusual business example occurred on the first day of Iraq's invasion of Kuwait last year. An alert manager moved virtually an entire bank from Kuwait to Bahrain via his fax machine while the shooting was going on. With copies of all the key documents in Bahrain the next day, the bank opened as a Bahraini institution and avoided both the freeze on Kuwaiti assets and a takeover by Iraq.

The early 1990s are surely a challenging time for decisionmakers in the public and private sectors. Given the foggy nature of our crystal balls, recent events also underscore the need for contingency planning.