I grew up in a planned economy. Bureaucrats didn't run

everything: Small-business men were more or less free to buy and sell

as they saw fit. But those who controlled the economy's "commanding

heights," its key industries, were administrators rather than

entrepreneurs, conformists who were valued less for their

productivity than for their loyalty, whose career advancement

depended on their political skill. For ordinary workers, the system

had some benefits: It was hard to get ahead, but once you had a good

job, your life was secure. Still, the economy was often appallingly

inefficient and consistently unresponsive to consumer needs.

No, I am not an immigrant from Eastern Europe. I'm talking about

the U.S. economy of the '50s and '60s, when General Motors was the

very model of a modern major company.

In those days progressive thinkers like John Kenneth Galbraith

used to ridicule economists who still believed what they had learned

from Paul Samuelson's textbook, which was that free markets could be

counted on to match supply and demand. After all, business itself

was clearly moving away from markets and toward planning. More and

more of the economy was dominated by large corporations, and those

corporations didn't place much faith in the invisible hand. For

example, AT&T owned it all--not just the long-distance lines, but the

local phone systems, the factories that made telecommunications

equipment, even the phones in your home. By contrast, in today's

cutting-edge e-businesses (see Cover Stories), the company often

owns--or rather, rents--little but brainpower.

That's a long way from the era of the man in the gray flannel

suit, when the great business empires were not run according to the

principles of supply and demand: They were command-and-control

systems, and people did what they were told. As technology grew more

complex, as big corporations grew ever bigger, as computers made it

easier to impose centralized control, it was clear to smart people

that the economy would bear ever less resemblance to the competitive

system described in obsolete economics textbooks.

But over the past two decades the market has steadily gained

ground--not only against socialism but against big-business

capitalism. Large companies account for a steadily declining share

of employment and value added. Moreover, even within corporations

there is a growing tendency to rely on individual initiative, on

independent profit centers free to take risks and do it their way.

(True, sometimes individual initiative leads to something that looks

like mass conformity--seen one Banana Republic, you've seen 'em all.

But we're talking about management here, not tastes.)

The retreat of business bureaucracy in the face of the market was

brought home to me recently when I joined the advisory board at

Enron--a company formed in the '80s by the merger of two pipeline

operators. In the old days energy companies tried to be as

vertically integrated as possible: to own the hydrocarbons in the

ground, the gas pump, and everything in between. And Enron does own

gas fields, pipelines, and utilities. But it is not, and does not

try to be, vertically integrated: It buys and sells gas both at the

wellhead and the destination, leases pipeline (and

electrical-transmission) capacity both to and from other companies,

buys and sells electricity, and in general acts more like a broker

and market maker than a traditional corporation. It's sort of like

the difference between your father's bank, which took money from its

regular depositors and lent it out to its regular customers, and

Goldman Sachs. Sure enough, the company's pride and joy is a room

filled with hundreds of casually dressed men and women staring at

computer screens and barking into telephones, where cubic feet and

megawatts are traded and packaged as if they were financial

derivatives. (Instead of CNBC, though, the television screens on the

floor show the Weather Channel.) The whole scene looks as if it had

been constructed to illustrate the end of the corporation as we knew


What happened to the man in the gray flannel suit? No doubt he

was partly a victim of sex (er, I mean gender) and drugs and rock &

roll- -that is, of social change. He was also a victim of

information technology, which ended up deconstructing instead of

reinforcing the corporation. But probably the biggest force has been

a change in ideology, the shift to pro-market policies. It's not

that government has vanished from the marketplace. It's still a good

guess that in a completely unregulated phone market, long-distance

companies would buy up local-access companies and deny their

customers the right to connect to rivals, and that the evil

empire--or at least monopoly capitalism--would rise again. However,

what we have instead in a growing number of markets--phones, gas,

electricity today, probably computer operating systems and high-speed

Net access tomorrow--is a combination of deregulation that lets new

competitors enter and "common carrier" regulation that prevents

middlemen from playing favorites, making freewheeling markets


Who would have thunk it? The millennial economy turns out to look

more like Adam Smith's vision--or better yet, that of the Victorian

economist Alfred Marshall--than the corporatist future predicted by

generations of corporate pundits. Get those old textbooks out of the

attic: they're more relevant than ever.