foresight/ vol.02, no.01, feb.

00

Camford

th e jou rn al of futu res stu dies, strateg ic th inkin g an d p olicy

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2000 Graham T.T. M olit or

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article:

1463-6689/00/010055-14

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( )

trends
and drivers

strategic options
for the
information
insurance and
econom y
banking industry
in the

graham t.t. molitor*

Hi-tech co m m unicatio ns transfo rm the m arket-p lace, d em o graphic s alter co nsum er

d em and s, g lobal and re gional developm e nts reca st w o rld d yna m ics. The U SA is
e njo ying a `G o ldilo cks eco nom y neither to o ho t, nor too co ld and g lob al trad e has
tr ipled o ve r th e p ast tw enty years. T he fac to rs driving th is su staine d g ro w th are m any,
tec hn o log ical, de m og ra phic a s w ell as so cial and b ehavio ural. T his article exam ine s th e
tr ends d riving th e ec ono m y, espec ially th e im p act o f info rm a tion a nd co m m unicatio ns
tec hn o log ies a nd g lob alizatio n on b usine ss activity w ith spec ial em phasis o n th e
b anking and finance sec to r.

Graham T.T. Molitor is president, Public

Policy Forecasting, 9208 Wooden Bridge
Road, Potomac, MA 20854, USA
(Tel/fax: +1 301 762 5174), and vice president
& legal counsel, World Future Society.
This article is based on a presentation made
at a conference on Strategic Options for the
Insurance and Banking Industry in the 21st
Century, organized by the Management
Centre for Competence, Dusseldorf,
Germany, 10 November 1999.

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America has been enjoying a `Goldilocks economy neither too hot, nor too cold,
but just right. During 1999 economic growth sailed along at 3.5 3.75% (2.5 3.0%
forecast for 2000); inflation remained in bounds at 2.1% (2.3% for 2000); in October
1999 unemployment dropped to 4.1% the lowest level in nearly 30 years;
productivity increases responded nicely at nearly 2%; stock market prices soared as
the Dow reached toward 12 000 by the end of 1999 (and 14 000 forecast by the end
of 2000, with books speculating 36 000 by 2002-04; 40 000 by 2016; and 100 000
by 2020). Prolonged economic growth since March 1991 has surpassed the previous
106 month long run (February 1961-December 1969). How did this come about?
The following thoughts review twelve of the significant contributing factors that
accounted for and sustain this unprecedented period of economic growth.
US gross domestic product of $8.08 trillion in 1997, nearly doubled from the
$4.54 billion in 1987. Distribution of the $7.636 trillion GD P in 1996 was led by
services, accounting for 20% of the total; followed closely by the finance sector at
19%, while manufacturing accounted for only 17%. Globally, GNP more than
doubled from $17.9 trillion in 1998, reaching $39 trillion in 1998.
Nearly half of productivity growth between 1977 and 1997 is attributed to
computerization and automation. Spending on information technology for 1997 totalled
$320 billion in the USA, and $196 billion in Europe. Communications and information
era undertakings comprise the epicentre or ground zero of this economic tsunami.
Strong economic growth can be attributed to many developments and trends:

technological advances
demographic accentuation of the large and affluent baby-boom generation
growth of economic globalization
well managed fiscal and monetary policy
market-based competition
end of the Cold War
prolonged peace among major nations
governmental deregulation
unifying policies of supra-government
business management effectiveness
and increasing economic transparency made possible by advanced communications
and information handling technologies.
..................

Factors prompting strong economic growth

..................

Low interest rates help to buoy the economy by `freeing up spending power for

other purposes. Interest rate increases or decreases of 1% on the $15.9 trillion of

credit market outstanding obligations amassed in 1993, theoretically applied straight
across the board, involve a $159 billion `swing. Interest rate changes either pare down
consumer disposable income or confer windfalls. Legislators rarely muster the
courage required to cut or add taxes amounting to as much as $159 billion. For
unelected Federal Reserve officials to wield this much power is dubious, but it gets
the job done. Refinancing mortgages at lower rates itself `liberated an estimated
$60 80 billion for consumer splurging during 1998.
Low energy prices, by the same token, also `free up funds for spending on other
things.Assuming a 150 billion gallon annual consumption of motor fuel alone (146.7
billion gallons actually were consumed during 1996), each dollar difference in price
translates into $150 billion. European motor fuel taxes ranging from $2 4 per gallon
differ markedly from about $0.50 in the USA a difference of $225 525 billion! A
30% drop in oil prices reaped a $20 30 billion windfall for US consumers during
1998. As petroleum supplies dwindle and as OPEC export market share increases oil
cartel pricing, higher pricing is inevitable. Oil prices from 1992 94 averaging

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$15.59, already had risen to about $25 per barrel by October 1999. Retail gasoline
in the USA, currently running about $1.35 per gallon, is currently more than three
times higher in many other countries. No matter how you look at it, Americans pay
far less for gasoline than European consumers.
Baby- boomer spending. The demographics of Amer icas affluent baby-boom age

cohort (born 1946 1964) who have been moving through their peak incomeearning years since 1982 perform a role that will continue to play out until 2010
when the oldest baby-boomers retire.This large affluent cohort contributes mightily
to the ongoing spending splurge that helps to buoy the economy. Even when they
retire, nest-egg s accumulated for comfortable retirement will continue to help buoy
the economy. Affluent baby-boomers tend to spend lavishly on lifes `mega-outlays,
creating a stream of spending that bodes well for a continuing strong national economy:
Child rearing. To begin with, raising a child born in 1997 to the age of 17 takes
$353 130 for families earning greater than $59 700; $242 890 for families earning
$35 500 59 700; and $178 840 for families earning less than $35 500. It may or
may not require a village to raise a child. But, one thing is for certain, it takes two
wage earners for most families to meet baby-boomer expectations.
College education. Four years of higher education currently cost betwee n
$50 000 $250 000. Tuition, room and board, and fees at private schools that
averaged $25 514 in 1974, rose to $64 410 in 1994 For public (state) schools, the
increase was from $11 032 to $25 785. Beyond that and an increasingly important
requirement in a competitive job market are the considerable additional costs
required to secure an advanced degree.
Home purchase.The largest single investment most persons make during the course of
their lives is buying a home. Median prices for single family dwellings rose from
$20 000 in 1965 to $134 600 in 1998. Home ownership reached an all-time high of
66.6% during 1998. Boomers, prone to demand the very best and express
conspicuous statements of their status, are likely to opt for the high end of the scale,
including second vacation homes. Family homes accounted for 30% of net household
assets during the late-1990s . Between 1996 99 the rising value of housing added
$1.2 trillion to wealth, accounting for about one-third of total equity gains.
Home furnishings. Upscale home furnishings include expensive status symbols of
conspicuous consumption. Home theatres, the new `electronic hearth and gathering
place in US households, often cost $100 000 or more.Whirlpool tubs and `rainforest
showers are shifting from exotic extravagances to the commonplace. Gourmet
kitchens include every conceivable upscale appliance. Luxury-laden bedroom suites,
complete with an upstairs kitchen to avoid treks to the central kitchen, add to a gaudy
spree of excess. Household assets (exclusive of the family home) accounted for 17%
of net household assets during the late-1990s. Luxury motor vehicles and second and
third car-owner households have become commonplace. Boats, snowmobiles and all
sorts of other `yuppie toys round out the holdings stored in home garages or docks.
The `good life can be quite expensive when taken to the hilt.
Marrying offspring. When it comes to wedding arrangements, boomers tend to go
overboard and provide the very best for their progeny. Costs easily range from a
modest $25 000 to $100 000 or much more for lavish affairs.
Nursing home care. Nursing home costs already ranging $35 000 40 000 per year
may reach $55 000 by 2018 when boomers will begin flocking to this end-of-life
service. Again, they will be demanding the very best that money can buy.
Taxes. For most American families the largest expenditure is no longer food, shelter
or clothing.Taxes take 35.6 40% of an average one-income familys 1997 earnings.

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Taxes demand a bigger proportion of household income than food, shelter,
clothing, transportation and entertainment combined! Taxpayers cope with 580
different tax forms and another 280 forms to explain them a bureaucrats fondest
dream come true! Amer icas 10 000 page tax code runs seven times the length of
the entire Bible. So, boomers hire costly accountants, tax experts, estate planners
and financial service providers to `wend them through the wickets.
Healthcare costs. Paying for healthcare is costly. Amounting to $40 billion in 1965,
costs passed the $1 tr illion mark by 1994, may reach $1.3 1.5 trillion by 2000 and
could total $2.5 tr illion by 2010. By 2033, if not before, healthcare costs will
constitute 20% of GNP.
Retirement nest-eggs. Baby-boomers have been heavily investing for retirement. The
value of these investments very often exceed $100 000, and set-asides of $1 million
have become quite common. Nearly one-half of stock investors in 1999 are babyboomers (aged 36 54). Personal investments amongst all Americans amounting to
$9.39 trillion in 1994, represents nearly a seven-fold increase over the $1.41 trillion
in 1974 holdings.Value in stock portfolios alone rose by $10 trillion from 1994 to
February 1999. Increased investments and booming stock market equity growth
created a `wealth effect, a sense of economic well-bein g that has encouraged a
marathon `spending spree . Wealth effects of 1998 advances in the stock market
alone liberated an estimated $100 billion to the consumer spending spree. A record
low of minus 1.5% in the August 1999 personal savings rate (based on disposable
or after-tax income) the first negative rate recorded since the data series began in
1959 fails to capture the full picture. `Nest-eggs , not included in savings
tabulations, have been counted since fall 1999.
Consumer debt. Contributing further to the current economic boom is easy credit.

Household debt as a percentage of disposable income soared from less than 60% in
1965 to nearly 98% during 1999. Non-federal debt percentage of GDP rose from
3.1% to 13% during 1992 99.
Social shame associated with `credit has been left behind. What once was a social
stigma, has become a passport to the good life, proof that one can afford to `put it on
the cuff . Debt-financed spending encouraged by instant gratification; self-indulgence;
hedonism; narcissism; living for the moment; materialism; and submission to buy
now/pay later advertising inducements is unlikely to be sharply curtailed any time soon.
Consumer instalment credit outstanding which amounted to $1.24 trillion in 1998
represented almost a doubling of debt from the $752 billions outstanding in 1990.
Consumers arent the only ones `putting it on the cuff . Direct borrowing by financial
institutions and securitized lending held by investors surged from $2.4 trillion in 1989
to $7 trillion in 1999 an amount considerably larger than household debt, and twice
the size of non-financial corporate debt. Businesses, it is worth noting, account for most
of the total national savings in the form of retained profits and depreciation.
Americans, saddled with high levels of personal indebtedness, could become `debt
constrained although no end to wanton ways is in sight. Warning indicators include
the increasing number of individuals delinquent in meeting current obligations and
the growing numbers opting for bankruptcy. Bankruptcy filings of 110 000 for 1960,
more than doubled to 254 000 during 1975, reached 594 567 for 1988, hit 725 484
in 1990 and 1 350 000 in 1997. Revisions in bankruptcy law are under consideration
as consumer abuses grow.
Full employment. Unemployment hovered around 4.3% (annualized rate) in

November 1999 and is expected to reach 4.4% during 2000. For 29 straight months
unemployment has stood at 5% or less. Not so many years ago is was assumed that
unemployment could not drop below 6%, the so-called `frictional rate, without
triggering unacceptable inflation rates. Contributing to these low rates, Krueger and

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Katz, surveying unemployment from the mid-1980s to late-1990 s suggest that:
A smaller sized youth cohort, among whom rates of unemployment typically are
very high, trims about 0.5% from overall unemployment. The 16 24 year old age
cohort that peaked around 1978 accounted back then for 25% of the total labour
force, compared to 16% in 1999.
Tougher imposition of criminal laws and sentencing since 1985 that keeps more
criminals behind bars than ever before, trims another 0.17%. Prison inmates soared
from 316 000 in 1980 to 1.3 million in 1998 90% of prisoners are male who are
less likely to be employed if on the street. During fall 1999, 2.3% of the male labour
force was behind bars. Because a good share of these criminals are likely to be
counted unemployed if on the street, the jobless rate is lower.
Temporary-help providers who tend to keep large numbers of workers from being
counted among the unemployed pare another 0.2 0.4% from statistical
tabulations. The temporaries share of the job market quadrupled from 0.5% of the
labour force during the early 1980s, to 2% of all employment during 1998, and
2.2% for 1999. Employers find it easier to fill short-term vacancies thereby keeping
counts of the unemployed lower. In addition, many unemployed people find it
easier to get new jobs faster by settling for `temp jobs, either taking them off or
more quickly moving them off the unemployment roster.
M iscellaneous factors. Several other factors contribute to current economic good

times. These include depressed prices for commodities, particularly metals, reduces
final cost of many material-intensive goods; cheap imports also contribute to greater
purchasing power potentials for US consumers; relatively low rate of factory
utilization (79.8% of capacity during August 1999) also tends to keep a lid on prices
that buoys consumer purchasing power.
Widespread investment. Perhaps the most important event surrounding this

unprecedented period of prosperity involves dramatic changes in the stock market.What

used to be a tiny enclave on Wall Street, has become the tramping ground of Main
Street.The proverbial `dyke wall that held back surging waves of investors began to be
breached in 1975 when Washington deregulated commissions on brokerage accounts.
In 1999 nearly half of Americans (48.2%) owned stocks, directly or indirectly,
compared to 28% in 1989, and 19% in 1983.The number of individual stock owners
doubled between 1965 and 1990 (over a 25 year period), then doubled again between
1990-1998 (over a mere 8 years). Household ownership of stock increased ten-fold in
value, skyrocketing from $1.1 trillion to $11 tr illion during 1980-1998 . During 1998
American stock holding surpassed the value of home equity. Amer ican investors
participating in equity markets during 1999 included 70 million directly involved in
securities investments, and 130 million indirectly involved in mutual funds and other
investment products, according to Depository Trust & Clearing Corporation. Back in
1916 stock market participation involved merely a few hundred thousand investors.
Statistics, though, often fail to reveal the whole truth. The fact is that almost all
privately held equity is in the hands of a mere 10% of households.
Ramifications of this shift suggest that the politics of tomorrow will be more
closely tied to business interests, the market-place, and self-sufficiency. When the
majority of Americans are stockholders in business, social interests and income
redistribution schemes may wane somewhat. Margaret Thatcher calculated that
union sway over domestic politics would be moderated when union members
owned their homes. By a parity of reasoning, when more Amer icans own stock, probusiness and more conservative attitudes may prevail. Tax incentives and policies
simplifying stock holdings contribute to this end. Legislative proposals to dedicate at
least a small portion of mandated government retirement funds to individuallycontrolled stock investments also reinforce this trend.

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Factors encouraging stock market investing are numerous:
the long-term bull market; company self-managed retirement plans (supplanting
defined-benefit plans)
increasing use of stock options
simplified 401(k), Keogh and IRA personal investment plans
cheaper fees
lower minimums
mutual funds (plans rose from 524 to 7 521 between 1979 99 while assets soared
from $95 billion to $6 tr illion)
estate planning
tax deferral opportunities
rise of professional financial counselling
retirement planning; increased media attention (specialized magazines, periodicals,
television and radio coverage)
advent of internet and online trading; and rising affluence.
Computers and communications technologies radically alter staid stock market
institutions. In 1999 42 million of the 99 million US households owned personal
computers, 24 million had internet access, and 12 million had online accounts.
American investors trading online are projected to more than double from 12.5% in
1999 to 29.2% by 2002. Easy-to-use, pocket-sized, two-way communications devices
that enable investors to stay in touch continuously with around-the-clock access will
boost do-it-yourself trading and decimate intermediary ranks of the financial
services. Computerized bill payment, including taxes, are among the opening
wedges. Numerous online services, banking, mortgaging, brokers, investment news
services and chat rooms among them increasingly supplant middlemen financial
services. Investment books burgeon and stock market tipster newsletters abound.
Investor club growth exceeds garden clubs 4:1. The day is not far off when
sophisticated software available to everybody, not just a privileged few, will
continuously direct and maximize personal financial affairs. Television channels
devoted to stock market and business proliferate (CNBC, CNNfn, Bloomberg).
Electronic exchanges already have been organized: Brussels-based Easdaq which lists
49 high-tech stocks (emulating Nasdaq), plans to provide trading in Europe, Israel
and the USA.
Tradepoint, founded in 1995, strives to establish itself as an alternative to the
London Stock Exchange. Fomentation is rampant. Change is coming.
Venerable institutions, including traditional stock exchanges around the world,
are heeding the ominous changes indicated by the advent of electronic trading. New
York Stock Exchange Chairman, Richard A. Grasso, announced in November 1999
that the exchange will establish an electronic trading system for orders of 1000 shares
or less; more than 50% of the BigBoard already is handled electronically.The London
Stock Exchange announced that it will reorganize by abandoning its 200-year-old
member-owned institutional arrangement. Suggested first steps include reorganizing
a for-profit shareholder-owned company which eventually may be taken public.
Mergers with other exchanges, including the Deutsche Bourse also are afoot.
Although the Dow Jones Industrial average remains the acknowledged world
leading indicator of stock market performance, its status is being challenged. The
parsimonious few (30) stocks selected may be just too sparse to meaningfully reflect
overall economic performance. Further more, by unduly relying on waning
`industrial companies and failing to capture the dynamics of high-tech supergrowth
businesses the Dow simply misses too much that is going on. Highlighting this
criticism is the comparison between the 1998 performance of:
the Dow index which rose 16.1%
the 26.7% rise in the Standard & Poors Index (S&P 500 stocks that provide a

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greater depth and diversity of representation that also is weighted to more accurately
reflect high-flying sectors), and outpaced Dow for three of the past four years; and
the 39.6% rise of the Nasdaq which represents more of the highly speculative stocks.
Globalization of trade. Commencing with local overland trading, international

commerce broadened its reach to inter-coastal areas, then to regional areas of the
known world, and eventually anywhere worldwide literally by overnight delivery.
World trade accounted for a 24.3% share of global GDP in 1998, nearly triple the
9.3% share of 20 years earlier. Global trade volume of about $6.5 trillion for 1998
will nearly double to $11.4 trillion by 2005, according to Standard & Poors DRI.
International commerce dominates global affairs as never before. Finance Ministers
and Trade Ambassadors, not armies, decisively influence the fate and survival of entire
nations in the contemporary environment.
During 1999 global trade grew at a rate two times faster than production, and
overseas investment increased at a rate three times as fast as trade.The 1500% increase
in the volume of world trade over the past four decades testifies to the scale of this
trend. The importance of international trade, measured as a percentage of GDP in
1997 varies: 77% for Korea; 57% for the UK; 49.8% for Germany; 25.1% for the
USA. Accounting for less than 4% of the world population, US economic interests
require pursuing global market potentials. After all, 96% of potential consumers are
situated abroad.
Developing nations, often viewed as having the most potential for trade, havent
worked out as anticipated. Better financial opportunities are to be found in reciprocal
US-EU trade. Two regions during the late-1990 s comprised the economic centre:
the USA and Euro-zone. The Euro-zone combined economy of $6.5 trillion was
somewhat smaller than $8 trillion in the USA. Both spheres of influence enjoyed an
18% share of world trade, and exported about 11% of GDP. Deregulation in these
areas has opened up entire economic sectors for competition from private sector
companies in fields including telecommunications, financial services, banking,
energy, and airlines. New US law surmounts regulatory restrictions that previously
barred banks, insurance companies, brokerages and other financial institutions from
engaging in one anothers business, and provides customers with the convenience of
bundled services. To cite one other area, single-business telephone operations
increasingly are being permitted to branch out into the emerging fields of cable,
internet, long distance, satellite, etc. The rules of the playing field are being altered.
Factors figuring prominently in sustaining international trade growth include:

keeping nations open to trade and investment

minimizing governmental red tape and regulation
reducing tariffs and non-tariff barriers
harmonizing laws among nations
weeding out corruption and political favouritism
encouraging economic transparency and availability of economic information
enhanced labour mobility
relaxation of barriers to entry in business
changed attitude toward `saving dominant, long-established local business
institutions; and eroding geographic boundaries and concomitant waning of
nationalistic pride.

Equally as important as technology advances in transportation and communication

in facilitating international commerce, are forward strides in governance. Trade
relationships were governed by: city-states, circa 950 1250; nation-states from the
1600s and onward; transnational/multinational corporation and state monopolies
during the post-WW II period; and regional trading blocs during the current period.
A host of common markets, customs unions, free trade areas, special trade preferences
(bi- and multi-lateral agreements) particularly intra-bloc preferential trading

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relationships of the expanding EC, and NAFTA, and others play vital roles. A new
`triad of trading blocs constitute a `new global geopolitics:
The 15 European Union nations, which may be expanded to 25, including Eastern
European nations, as early as 2010.
`Amexicana : Canada and Mexico allied with the USA under NAFTA (effective 1
January 1994). Other adjacent areas that could become affiliated include: Iceland,
Greenland,West Indies, offshore islands, Central America, South America.The mid1990s Summit of the Americas assembled 34 democratically-elected Western
Hemisphere leaders to discuss establishing a Free Trade Area of the Americas
(FTAA) by 2005.
Pacific Rim bloc:Australia, Japan, South Korea, New Zealand, Indonesia, Philippine
Islands, Singapore, Thailand possibly PRC, Hong Kong, and perhaps the West
Coastal areas of Canada and the USA.
Another dimension of political power change considers: who owns which century?
Global dominance during the 19th century is ascribed to Europe; the 20th century
to the USA; and most concede that Pacific Rim nations (dominated by Asia) will
dominate the 21st century. China, the slumbering giant and formerly the centre of
global civilization over a great span of the past 4000 years, is on the way to reclaiming
leadership. Forecasters project that the Pacific Rim region will account for 50% of
world GNP by 2040. Asian trade with the USA during 1996, $580 billion, was
double the volume of $270 billion with Europe the USA exported more to tiny
Singapore than to either Italy or France!
Demographics underscore the significance of the Pacific Rim area. The share of
world population residing in merely three Asian nations, China, India and Indonesia,
amounted to 40% during the mid-1990s, and will reach 66% by 2000. Within the
region China accounted for 1.25 billion persons; south Asia, 1 billion; east Asia, 0.5
billion; Latin America, 200 million; Mideast, 160 million; East Europe, 58 million;
compared to less than 1 billion for all the industrialized nations. Lester Brown is fond
of reminding us that `1.2 billion multiplied by any factor is very big.
Chinas geographic area is 2% larger than the USA, hosts a population about five
times larger (1.2 billion compared to 265 million, 4.66 times larger, to be exact); has
been soaring along at an economic rate of growth three-fold or five-fold the US for
several decades; and generating a GDP projected to overtake the US in about 10 years.
Global trade by Greater China (PRC, Hong Kong,Taiwan, Singapore) was projected to
become the worlds largest trading sector and surpass US global trade volume by 1998.
Business consolidation/ rationalization. US mergers and acquisitions, 12 523 of

them during 1998, represented a seven-fold increase compared to 1719 mergers

during 1985. The pace definitely has picked up. Not only has the sheer number of
transactions increased, but the dollar volume of these deals has also skyrocketed,
rising from $149.6 billion in 1985 to an extraordinary $1.7 trillion for 1998 an
eleven-fold increase. Just to reinforce how vast these transactions were, consider that
the $1.7 tr illion in 1998 deals was equivalent to 19.6% of US GNP! The end is
nowhere in sight, and the $714.5 billion recorded during the first six months of 1999
(M ergersstat) reveals that the pace continues to speed up.
Great waves of global consolidation radically alter the size, scope and nature of
international business. As of 1960, fully one-third of Americas top-25 companies did
not even exist! In contrast, the top-25 companies in Europe have remained one and
the same since 1960. Amer ican companies, no matter how big or how important,
come and go.
Consolidation of business undertakings does achieve higher degrees of efficiency and
cost-cutting opportunities termed economies of scale. Redundant staff can be pared
down, overhead reduced, over-capacity scaled down; enhanced purchasing power of larger

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volume decrease supplier costs; and cost-sharing of expensive research and development.
Competing against super-sized firms many of them currently or formerly stateoperated monopolies only recently privatized pits economic might of an entire
country against `outsiders. Competing against `global Titans requires comparative size.
Gaining rapid presence in new areas countries, markets, technologies, skills
can be accomplished by new link-ups and combinations with companies already
operating with a secure foothold in those areas. For example, offline companies may
acquire an online firm to gain rapid know-how and access to the internet. Or, long
distance telecommunications may branch out into cable, wireless or other
transmission modes. Businesses with no operations in Asia may seek alliance with a
well-establ ished local company to enter the marketing area.
Recent years have witnessed the biggest corporate takeovers ever. The largest
corporate takeover in US history creating MCI World Com/Sprint was consummated
during 1999.The deal involved $115.0 billion in 1998 revenues: MCI WORLDCOM
($30.4 billion); Sprint ($17.1 billion); and WorldCom ($47 billion). Previously, the
largest merger deal (1998) Exxon/Mobil involved $86.4 billion. Other recordsetting mergers during 1998 included: Travelers Group/Citicorp, $72.6 billion; SBC
Communications/Ameritech, $72.4 billion; and Bell Atlantic/GTE, $70.9 billion
M ega-sized multinational businesses (including a vast array of joint ventures and
informal cooperative arrangements) drastically re-shape global competitive arenas in
sector after sector. Prominent among economic sectors undergoing rapid
transfor mation are: banking and finance, com munications, motor vehicles,
pharmaceuticals, defence/aerospace, and basic metals. By sector, the ten largest 1998
merger/acquisition deals in the US involving four vital sectors included:
Petroleu m, gas, energy sector:
Exxon acquired Mobil = $86.4 billion
British Petroleu m merger with Amoco Corporation = $53-55 billion (forming BP
Amoco Group - includes Atlantic Richfield)
Banking and financial:
Travelers Group merger with Citicorp = $72.6 billion
NationsBank merger with BankAmerica = $61.6 billion
Norwest (US largest mortgage originator and servicer) merged with Wells Fargo =
$34.6 billion
Banc One merged with First Chicago NBD (creating US second largest credit card
issuer) = $29.6 billion
Communications:
SBC Communications merging with Ameritech = $72.4 billion
Bell Atlantic merging with GTE = $71.3 billion
AT&T merging with Tele-Communications (cable TV) = $69.9 billion
Automotive:
Daimler-Benz merged with Chrylser = $34.4 billion
Automotive Big Six. The Daimler-Benz merger, the largest in automotive history,

highlights the scale of sector consolidation. Global automotive manufacturers are

expected to dwindle from 40 in 1999 to six by 2010 2020. The `Big Global Six
automotive manufacturers 1998 revenues underscore this pattern: DaimlerChrysler,
$147.3 billion; General Motors, $140; Ford Motor, $118; Toyota Motor, $106;
Volkswagen, $75. Regional dominance will align with the `New Triad of geopolitical
economic influence: Europe hosts DaimlerChrysler and Volkswagen; North America
is home to General Motors, Ford Motor; and Asia is homebase for Toyota, Honda.
Consolidation among automotive manufacturers is being spurred by overcapacity which exceeded 20 million units during 1999. Consolidation efforts, almost
certainly, will be resisted by family-held small manufacturers with dedicated

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customers and the ability to survive with limited production volume Porsche and
BMW, for example. State-own ed operations where survival is a matter of national
pride, such as Renault, will resist take-over. Unique specialty vehicles not suitable for
mass production may retain niche markets. But note how many limited production
manufacturers already have been acquired by the `big Six as of February 1999:
GM (16.4% worldwide marketshare) owns Opel (Germany); Vauxhall (UK); 50%
share of Saab (Sweden); 49% share in Isuzu (Japan); 10% share in Suzuki (Japan);
and is in joint venture producing Prism (Toyota).
Ford (13.0% worldwide marketshare) owns Jaguar (UK); Aston Martin (UK);
minority share in Mazda (Japan); minority share in Kia (Korea); Volvo (Sweden);
and is rumoured to be after BMW and Honda.
Toyota (9.1% worldwide marketshare) owns Lexus.
Volkswagen (8.0% worldwide marketshare) owns Rolls Royce, Audi, Bugatti,
Lamborghini, and is rumoured to be after BMW.
DaimlerChrysler (7.5% worldwide marketshare) is rumoured to be after Nissan.
Energy Big Five. Closely allied to automotive manufacturing is the petroleum

industry where similar huge-scale mergers drastically also change the scale of
competition. BP Amoco PLC (London), Royal Dutch/Shell Group (Anglo/Dutch
company), and the 1999 merger of TotalFina SA and Elf Aquitane SA (Italy), situates
three of the `Big Four oil companies in Europe. The sole US giant is Exxon/Mobil
Corp. Reserves, barrels of oil equivalent (year-end 1998) provide another prospective
on this prowess: 20.6 billion Exxon-Mobil; 20.1 billion Royal Dutch Shell; 16.8
billion -BP Amoco; 9.4 billion TotalFina and Elf; 6.3 billion Chevron, (according
to Petroleu m Finance Co data)
Defence industries. Termination of the Cold War, and declining defence spending

reshuffles the military-industrial complex. Consolidation efforts shift companies into

peacetime endeavours. Giant companies dominating the landscape include: Loral
General Dynamics; Northrup Grumman; and Lockheed Martin Marietta, (the largest
US defence contractor). A proposed Lockheed-Northrup merger was withdrawn, and
Lockheed seeks to acquire a 49% share in Comsat Corp (satellite services company)
with a $2.8 billion purchase offer. Lockheed, a major builder of communications
satellites, established a global telecommunications subsidiary during 1998. Aerospace
companies with over 1000 employees plummeted from 67 in 1992 to 49 by 1998.
Defence manufacturing companies, worldwide, are undergoing consolidation in
order to survive. Largest defence company revenues (most recent year) include: $56.1
billion Boeing; $26.3 billion Lockheed Martin Corp.; $22.7 billion
Daimler/Chrysler Aerospace and Aerospatiale Matra SA (merged company to be
known as European Aeronautic, Defence and Space Company, EADS); $19.5
Raytheon; and $13.0 British Aerospace and Marconi Electric Systems (a unit of
Britains GEC) announced intended merger (1999).
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Banking and financial institutions

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Merger and acquisition deals worldwide for the first nine months of 1999 totalled $2.2
trillion, compared to the 1998 announced volume of $2.5 trillion. Artificial constructs
of country boundaries no longer limit banking transactions.Traditional and centralized
institutions operating in an insular mode, stultified by encrusted bureaucracies, and
favoring cronyism based on long and familiar relationships are undergoing change.
Nearly all the largest banking institutions in the Western world, measured by assets, are
situated in Europe: Deutsche Bank (Germany), $756 billion; Citigroup (US), $668.6;
UBS (Germany), $618.6; HSBC (UK), $467.1; ABN-AMRO Holding (Netherland s),
$450.6; Societe Generale (France), $400.0; Barclays (UK), $376.2.

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The merger wave of 1990s that transformed US banking accounted for over 25% of
deal values for all US business merger and acquisition activity. The number of
independent commercial banks in the US plummeted from about 9500 in 1980 to
fewer than 2700 by 1995. Amer icas first coast-to-coast $614 billion mega-bank was
created by Bank of Americas 1998 merger with NationsBank, coupled with 1999
acquisition of BankAmerica Corp. This truly national bank enables nationwide
companies to deal with a single bank for deposit and management of all US
transactions, thereby simplifying and speeding up financial manageme nt activities.
Euro-currency. European financial sway will be reinforced by phasing in the Euro-

currency, especially events of 2002 when currency is introduced into circulation (1

January), and as local currency is withdrawn from circulation (1 July). Efficiencies
made possible by a uniform single currency mainly sidestepping encumbrances,
delays, paperwork and costs associated with international exchange rate calculations
also will refashion European financial services from top to bottom.
Advent of the Euro-currency, a critical milestone along the way to global
prominence, is expected to exert many positive influences on European nations:
increase productivity; trim redundant jobs; streamline business; encourage mergers
and acquisitions that efficiently integrate community-wide operations. Eleven
Maastricht Treaty signatories Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, Netherlands, Portugal and Spain represented 33% of the world
economy during the late-1990 s; Euro-using nations added another 25% to the total.
Those proportions presage the magnitude and significance of these coming changes.
Regulatory attitudes. In Europe the shift away from state-owned bank monopolies

and deregulation restyle banking will accelerate. Bank mergers throughout Europe,
so far, have been mostly within countries, not across borders. Once unified currency
is in place throughout most of Europe, a single, seamless banking system cant be too
far behind. Domestic consolidation is likely to precede foreign bank mergers that
already are on the way.
In the USA, m ajor regulatory changes involve m oving away from
compartmentalization of banking that has hampered competition with other financial
service providers. The stock market crash and financial crises of 1929 and the Great
Depression spawned a host of laws intended to constrain financial excesses that were
blamed for the disastrous economic downswing. The Banking Act of 1933 (GlassSteagall law) separated commercial banking from investment, and a 1956 law forced
the compartmentalization of bank and insurance company activities.These regulatory
restraints hampered banking to the extent that: Americas largest mortgage lender is
no longer a bank, but a mortgage specialty firm (Country Wide Mortgages); the
largest credit card provider is not a bank, but a credit card firm; the largest financial
services company is no longer a bank; and the list could go on. Competitive rivalries
have eroded bankings share of financial assets which slipped from 40% to 25% of
totals held by all financial institutions between 1973 1993. Commercial short term
lending at large banks declined from 65% to 36% of the total between 1973 1993.
Banks, credit unions, mutual fund firms, insurance companies and other financial
institutions have been relying on loopholes and exceptions to circumvent outmoded
restrictions, long since removed from modern-day realities of new technologies.
Response to these restrictions have encouraged merger and acquisitions that create
new all-purpose financial conglomerates. Typical of this new wave of consolidation:
Travelers (insurance and securities firm) merger with Citibank forming Citigroup.
Banking reform law, about to be signed by the President, will open up competition
between banks, securities firms, insurance companies, and other financial institutions.
These changes will allow bundling of the full range of financial services, and provide
one-stop services for customers including: checking privileges; bank loans; insurance
policies (home, car, life); annuities; investment programs (retirement, portfolio);

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mutual funds; securities transactions (purchase, sale, trade of bonds, stocks, other
financial instruments); mortgage financing; business full-servicing (short-term
borrowing, stock underwriting, insurance); just in time bill payment; inventory (cash
balance) management; and so on.
Technological advances. `Revolutionary properly characterizes the nature of

electronic information handling capabilities recasting banking. Advent and ascent of

the internet and e-commerce strips away importance of `place and undercuts
established institutions imbued with inbred complacency and self-importance. Until
recently, banking remained relatively immune from severe rigours of price
transparency and electronic intrusiveness no longer. Competitive free-swinging
electronic systems decentralize transactions, and erode one-bank fealty in favour of a
per petual quest for the best deal and lowest cost. Enhanced electronics,
communications and information handling result in price transparency, real-time
movement of finances, and lower transaction costs. Banking transaction 1999 costs
provide the handwriting on the wall: $0.01 0.02 by internet; $0.25 0.27 by ATM;
$0.26 by PC software; $0.54 0.55 by phone; $1.07 1.08 face-to-face at a branch.
Transactions conducted at a branch office are too costly to last very long, except for
a few hold-outs.
The advantages and conveniences of electronic banking, are far too numerous for
it not to succeed. They include: 24-hour availability; access from anywhere; an end
to mailing costs and delays; elimination of time and travel to bank facilities;
termination of clearance waiting time; avoiding delay and uncertainty of `snail mail
delivery; avoidance of `late fees by just-in-time payment; sidestepping ATM fees;
lower costs; potentials for higher rate of return or interest payments on positive
balances or other investments (certificates of deposit); possibility of low or no fee
for bill paying; and time savings overall. Hang-ups include: security fears, privacy
problems and reduced interest-free `float time on transactions.
Changes in financial services are being accelerated by the growth of the internet,
online services and e-commerce. Amer ican households online which totalled 10.2
million in 1999, are projected to more than double to 21.4 by 2001, and jump to
32.6 million by 2003. Internet banking by 5 7 million Americans during 1999 is
expected to jump to 24 million by 2002.
Widespread use of cellular phones and mobile wireless devices will greatly boost
personal computer link-ups. Popularity of online brokerages, which did not even exist
five years ago, numbering over 100 during 1999 will add momentum to all other
online financial transactions. The number of online investment accounts in the USA
has grown from 1.5 million accounts with $111 billion in assets in 1996, to 8.4 million
accounts and $397 billion in assets during 1999. Countries with the highest online
customer base (year-end 1998) include: the USA at 37%; Sweden at 23%; Finland,
Norway and Denmark at 20%; the Netherlands at 15%, and Germany at 13%. For
these are the bellwether nations to keep tabs on progress involving these trends.
Information era high- tech services. A host of innovative new financial providers

will offer creative customer services that threaten staid banking firms. Until recently,
banks operated on the same basis as monopoly public services like the post office or
other public utilities. Open five days per week, and only from 9 5 when everybody
else was at work. Now 24-hour daily operations are made possible with ubiquitous
electronic communications. New bank formats already include `virtual banks no
bricks or mortar only an `electronic presence . Cyber-banking may eventually
become a major force. In the meantime, there are many other developments to stay
abreast of in order to keep up with the rapidly changing business environment.
Powerful new software programs for managing finances will continuously monitor,
manage and optimize personal finances automatically maximizing assets and
minimizing liabilities. Assets will be monitored at the speed of light 24-hours daily, 7

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days a week, 365 days a year, without interruptions of bank holidays or limitations of
locus. The program will constantly be busy searching out better opportunities for
higher returns (factoring in transactional costs). Liabilities will be monitored, in like
manner, to minimize costs and switch to lower cost mortgage financing (factoring in
transactional costs and load factors) to assure the best possible deals.
Savings and checking accounts may evolve over the next several decades into socalled `wealth accounts, a pooled collection of a customers diverse financial assets
homes, pensions, stocks, bonds, insurance cash value, financial instruments, art
collections, vintage cars, coin collections, antiques, any and all assets with `liquid
value. Continuous adjustment of pooled assets will be maintained `real-time by
computer monitoring that is able to increase or decrease valuation of holdings as
markets fluctuate. Accounts will require pledges or other legal conveyance to back all
of a customers financial transactions within an asset pool value cap.
Some observers fear that the cast of rivals ultimately may include a host of new
electronic competitors including software companies, browser companies, phone
companies, cable companies, and wireless communication firms.
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Industries of the future

..................

Contemporary economic prospects look bright. Emerging to sustain strong growth

through the next millennium are at least five economic undertakings that will
dominate advanced nations. These successive economic shifts involve growth sectors
and declining sectors which suggest investment opportunities and dead-ends.
History includes four successive waves of economic change that dominated
advanced nations over past centuries:

agriculture (jobs in this sector peaked during 1880s);

industrial manufacturing (peaked during 1920s);
services (peaked during mid-1950s); and
the current knowledge-information-education (reached dominance by late-1970s).

I believe that, over the next millennium, advanced economies will experience at least
another five waves of economic dominance:1
leisure/hospitality/recreation/entertainment
commencing 2015);
life sciences (by 2100);
mega-materials (2100 2300);
new atomic age (2250 2500); and
a new space age (2500 3000).

(dominant

sphere

of

activity

Future economic growth depends on staying at the forefront of these emerging

technologies. These shifts do not mean that previous economic activities will
disappear. The relative importance involving the ebbs and flows between economic
sectors is what changes. Dominance begins when the new wave becomes largest (the
mode) employer, and shortly thereafter generates the biggest share of gross domestic
product. Information era undertakings may begin to wane in as few as 15 years.
As older economic sectors mature and productivity advances, output levels of
established sectors can be maintained utilizing far fewer resources. During these late
stages, continuing process and productive efficiencies prompt cost-saving, efficiencyachieving consolidation. The economic importance and dominance of `yesterdays
industries wanes and new vital economic sectors step in to fill the breach and
1 See th e first in a series of articles on 3rd M illenn ium
Pers p ectives to b e pu blis hed in a forthco m ing issu e of
foresigh t in w h ic h I m ap these w aves.

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provide new areas of economic growth. Companies that want to survive remake
themselves by shifting into other economic undertakings with more promising
economic prospects.
Considered from many perspectives, both near- and long-term economic
prospects looming on the horizon appear very promising and hold enormous
potential. The eternal conversation of humanity involves a never-ending dialogue of
predicaments and prospects. Perspectives on impending change brought into focus
by forewarnings, provide a sound basis for a measured response to new opportunities
or for avoiding potential problems and pitfalls. Patterns of the past and present reveal
overarching timeframes that gird sound judgements about things to come. Powerful
momentum describing those trendlines reveals continuity and provides confidence
for dealing with tomorrows prospects.