THE 21st CENTURY ECONOMY

Don't expect volatility to go away, but as the '90s come to a close, all the elements are in place for an era of long-term growth

Economies, like living organisms, always evolve in response to challenges and opportunities. The changes can be dramatic.

Only 10 years ago, Japan was triumphant and the U.S. was struggling with slow growth and a hobbled banking system.

But today's statistics tell a very different story. By virtually every measure, the 1990s have turned out to be a decade of unexpected prosperity for the U.S.--what BUSINESS WEEK and others have called the New Economy. The numbers are impressive: a 70% increase in real profits since 1990, inflation below 2%, 4.5% unemployment, plus rising real wages, even for the lowest-paid workers.

What's next? For two months, a team of BUSINESS WEEK reporters and editors has examined every aspect of the economy, from technology to politics to higher education.

Our findings: The '90s are no fluke. Despite Asia's woes, all the ingredients are in place for a surge of innovation that could rival any in history. Over the next decade or so, the New Economy--so far propelled mainly by information technology--may turn out to be only the initial stage of a much broader flowering of technological, business, and financial creativity.

Call it the 21st Century Economy--an economy that, driven by technological progress, can grow at a 3% pace for years to come. The innovation pipeline is fuller than it has been in decades. With the advent of the Internet, the information revolution seems to be spreading and accelerating rather than slowing down. Biotechnology is on the verge of having a major economic impact. And in labs across the country, scientists are driving toward the frontiers of nanotechnology, with the goal of creating new devices that can transform entire industries.

What's more, the U.S. economy seems to be undergoing a wholesale rejuvenation. Businesses, financial service firms, and universities are reinventing themselves. Even politicians and policymakers are starting to grasp the new technological and economic realities.

To be sure, the path from the New Economy to the 21st Century Economy will likely be a bumpy one. Each innovative surge creates economic and social ills, from recessions to stock-market crashes to widespread job losses--and this one won't be different. But that's the price a nation must pay to achieve the benefits of dynamic change.

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