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The Middle Chapters

Lessin’s vision of the new economy

In his book, The Middle Chapters (Smith Barney 1997), Robert Lessin outlines his vision of how the international economy will change over the next decade. Here, adapted from the book, are some of his core arguments.


The new economy favors virtuality and rapid growth. Businesses are springing up that carry almost no assets, that have minuscule costs, and that show great potential to profit by buying, selling, and even manufacturing over the Internet. Anyone who tracks computer prices understands the deflationary trends in high-tech. For Internet startups, cost cutting becomes an effortless byproduct of technological advance.

In the future, ownership will be the only way to make money. You won’t make money on fixed-interest rates. You won’t get rich off your salary. The market has been stabilized — partly because inflation has disappeared, partly because companies have realized that they can control or capitalize on forces that create stock-market downturns. When prices are high, companies can use the power of their equity to acquire new holdings, to raise new capital, or to recruit new talent. And when prices drop, they can buy back their own stock on the promise of future upturns.

Retailing will become almost entirely virtual, and most shopping will be done over the Web. The landscape of cities and suburbs will become less commercial as residential and office space replaces stores and shopping malls.

These dramatic shifts bring danger as well as opportunity. The world is undergoing a virtual revolution. There will be casualties and disturbing social consequences: The huge disparity between the richest few and the rest — between those who own and those who don’t — will continue to grow. An increasing number of people who are ousted from well-paying corporate jobs will have to take lower-paying service jobs. Smaller independent businesses will be swept up in consolidations. All of these factors will aggravate the social unrest and crime that we’re already experiencing.

The old economy has to face its own demise — even hasten it. Big companies have one great strength: their brand and the mind share that it represents. They have one great challenge: to cannibalize themselves quickly. These “legacy” companies must first strip away everything that doesn’t relate to their brand franchise and then expand that franchise by consolidating with others in the same field. In this way, the bastions of the old economy can mimic new growth companies.