(FORTUNE Magazine) – WHERE WE GO from here depends on the lessons we draw from the hellish violence that gripped the City of Angels -- 58 dead, 2,383 injured, the worst riot since the Civil War. Those lessons could be dreadfully wrong, reinforcing old myths that too many Americans hold: Only the black are poor, and all blacks are violent and self-destructive. If that happens, the white middle class may draw the wrong conclusion. Says Jacqueline Jones, author of The Dispossessed, a history of the American underclass: ''They may say, 'These people aren't deserving of concern because they're not like the rest of us.' '' Utter nonsense. Blacks have made progress, vast progress, in the past three decades. And the fortunes of those who have been left behind -- still too many of them -- are inextricably bound up with the welfare of a society that urgently needs their muscle, their hearts, their brains. The great underreported success story of the past two decades is the rapid emergence of a thriving black American middle class, most of which no longer lives in the inner city. Since 1966 the percent of blacks in white-collar occupations has more than doubled, to 45%, driving the black poverty rate down from 42% to 30%. More than 11.5 million black men and women now work in occupations classified as managerial, professional, and technical. Even among the nearly half of black Americans still trapped in the poorest neighborhoods of central cities, the overwhelming majority -- both those below the poverty line and the larger number with jobs struggling to stay above it -- are as horrified and terrified by the young, violent males in their midst as anyone else. As the tally of victims and victimizers in Los Angeles reveals, black gang members hardly had the streets to themselves. Of the 58 killed, 26 were black, but 18 were Hispanic. In the first four days of rioting, more Hispanics were arrested than blacks -- 2,764 vs. 2,022. To view what happened in L.A. -- and the aftershocks that rippled through cities from Seattle to Atlanta -- purely through a racial filter is to miss the point. Outrage at a white jury's decision to acquit white cops of what appeared to most Americans a blatant and vicious case of brutality against a black man may have been the spark. But the tinder was the steady deterioration of America's inner cities, which, as New Jersey Senator Bill Bradley puts it, are now ''poorer, sicker, less educated, and more violent'' than at any time in modern memory. Why should suburbanites -- who will account for an estimated 51% of Americans who vote this year, up from 36% in 1968 -- back a renewed crusade to improve the lives of this desperate population? Try sheer self-interest, if moral arguments don't suffice. ''The economic woes and social woes we face in this country are inextricably linked,'' says Joseph Gorman, CEO of TRW. ''We cannot solve one without addressing the other.'' In the years ahead, as the baby-boomers retire, blacks, Hispanics, and immigrants will account for a growing share of America's labor pool. Notes Robert D. Hormats, vice chairman of Goldman Sachs International: ''Tomorrow's workers will have to be even more productive than today's simply for us to hold our own. We won't be able to do that if 15% to 20% of our future labor force is undereducated and socially alienated.'' DON'T EXPECT much help from Washington. Says Michael Walsh, CEO of Tenneco: ''One problem is, the federal government's broke.'' Another is political gridlock. Congress's key committees are still dominated by traditional liberals who distrust proposals to attack the problem through tax-relieved enterprise zones, welfare reform, or turning tenants of subsidized public housing into owners -- proposals advanced both by Democratic reformers and by Republican Housing and Urban Development Secretary Jack Kemp. And at least until Los Angeles put inner cities back in the headlines, George Bush shared that lack of enthusiasm. Even so, most of the 30 top corporate leaders interviewed by FORTUNE in the week after the riots expressed cautious optimism that progress is possible. Says James Robinson, chairman of American Express: ''The good news may be that this disaster will act as a catalyst to bring us together and get on with programs that work.'' Here are things that need to be done -- and how business can help.

-- Educate, educate, educate. The new fault line splitting America into two nations, rich and poor, does not run between blacks and whites. Rather, it increasingly separates well-educated, skilled professionals of all races from the rest of society. This global shift away from old-style assembly lines to knowledge-based economies has hit American blacks hardest, particularly black males, because in the past a disproportionate number of them failed to graduate from high school or go on to college, wore blue collars, worked in manufacturing, and joined unions, now in decline. Such differences largely explain the widening gap in black-white employment rates -- eight percentage points in 1991 vs. five in 1973. To restore hope to inner-city kids who despair of ever getting a rewarding job, ''education is the priority,'' says Dean Morton, chief operating officer of Hewlett-Packard. H-P lends executives, grants money, and provides training to several schools with mostly minority populations in East Palo Alto, California. In Cleveland, TRW supports a scholarship fund that sets aside money for kids who get good grades -- $40 for each A, $20 for a B -- provided they use it for post-high school education. Such activities are now standard at most major corporations, and many of the CEOs who spoke with FORTUNE pledged to intensify their efforts. Above all, says Apple Computer CEO John Sculley, the L.A. riots ''reinforce our strong belief that we need fundamental education reform in this nation.'' The most critical reform, even more important than expanding school choice, is to establish minimum competency requirements that graduates of public schools must meet. Already, black children, including black males, complete high school at about the same rate as white children -- a remarkable improvement from 20 years ago, when the black dropout rate was 57% higher. Nor are these kids simply staring out the windows. Some 97% of black 17- year-old high school students now read at a ''basic level,'' minimum literacy, or above -- up from 82% for blacks in 1971 and nearly the same percentage as whites. Tests of blacks' basic math skills show similar improvements, though the gap with whites is wider. America's challenge in the future will be to keep minority children in school while steadily improving their skills, using the educational achievements of top international competitors as benchmarks. Such sweeping reforms, however, will take years to install and won't do anything for those who graduate in the interim unprepared for the modern workplace. That leads to the next priority . . .

-- Train, train, train. Business, which already spends some $30 billion annually on training, has in recent years stepped up its support of high school apprenticeship programs, community colleges, and vocational schools. For example, at Central High in Louisville, Kentucky, kids manage a new mobile Kentucky Fried Chicken restaurant that will serve lunch to the city's schools. Says CEO John Cranor of KFC: ''We donate the facility and provide training and technical assistance. The students keep the profits.'' An even bigger payoff awaits if business can work with schools and the Pentagon to find new careers as instructors, trainers, and employees for the more than 400,000 servicemen and -women whom the U.S. military will be shedding over the next few years. An outsize share of these officers, noncoms, and troops will be highly skilled, disciplined, and motivated blacks and Hispanics. Hormats of Goldman Sachs argues that if a large number of these people can be redeployed as mentors and role models for inner-city youth, the country will gain more than it loses from the military's diminished ability to employ minorities. As he says, ''We should see this as a remarkable opportunity.''

-- Boost urban employment. Since 1980 the FORTUNE 500 industrial companies have shed 3.9 million employees from their payrolls, so don't look for them to be engines of growth in central cities. Would creating enterprise zones help? They couldn't hurt. Though few manufacturers would likely take the bait, big retailers and service enterprises might. Howard Stein, CEO of Dreyfus Corp., the mutual fund company, believes companies like his would move some operations to the economically ravaged South Bronx if tax credits were available. Two other alternatives would be to expand public works spending or provide tax credits based on whom you hire, not where you locate. TRW's Joe Gorman argues for the latter. ''A new WPA would be wrongheaded,'' he insists. ''Instead, we need tax incentives to encourage the private sector to hire more from the underclass and provide the education required to prepare them / for work. Either way will cost money, but it's much better to have these kids work in a permanent context in the private sector.''

-- Foster more black entrepreneurship. ''One of my problems as a black man is that I was always taught to get a good job, but never pushed to develop a business,'' says Pedro Newbern, president of the L.A. chapter of the National Organization of Minority Architects. His is no isolated lament. Though blacks make up 12% of the U.S. population, they own less than 3% of the nation's businesses. Most are tiny outfits employing one to four people, and with rare exceptions they haven't been growing. In 1973 the total revenues generated by black businesses were 40% higher than those of Hispanic businesses and twice those of Asian-owned firms. Blacks have since been outstripped by both groups. Nothing would do more to lift employment among inner-city blacks than restarting this sputtering job machine. Says Robert Woodson, president of the National Center for Neighborhood Enterprise and a big fan of Jack Kemp's ideas: ''We don't need more minority contractor set-asides. Our communities don't need to be treated as cesspools of pathology to be rescued by more social programs. We need infusions of capital to help us develop our potential as producers.'' Ron Gidwitz, CEO of Helene Curtis Industries in Chicago, agrees and calls upon business and government to begin exploring new ways to channel venture capital to inner-city entrepreneurs.

-- Link welfare to work and stop penalizing the working poor. William Weiss, CEO of Ameritech, the parent of five Midwestern Bell telephone companies, believes the L.A. riots should prompt government to undertake ''a serious rethinking of a welfare system that captures people in a permanent underclass.'' He's right, but maybe it's time that CEOs, who normally circumnavigate this politically perilous debate, plunge into the thick of it as well. If they do, they'll find that a broad consensus has developed among liberal and conservative students of welfare on two key points. First, the way America has tried to help mothers with kids -- the Aid to Families With Dependent Children program -- has often backfired. Until four years ago, more than half the states made AFDC payments contingent on a woman's being single, thus reinforcing and perpetuating the tragic breakdown of the inner-city family. A federal law passed in 1988 requires states to allow intact families to remain eligible for payments. Going further, Wisconsin recently won a waiver from the Bush Administration that permits women who marry the fathers of their out-of-wedlock children to keep receiving benefits. Congress should quickly make such a pro-family stance national policy. It should also eliminate the perverse incentives in the law that discourage poor women from taking the kind of low-wage jobs they're most likely to get (see box). Second, the culture of dependency can be cured only by insisting that welfare recipients, whenever possible, work or join training programs. ''This national trend toward a more demanding and paternalistic approach is quite powerful and appears to be producing results,'' says New York University professor Lawrence Mead, who has written a book on the phenomenon, The New Politics of Poverty. With the proper incentives, business could hire, train, and develop people on workfare.

-- Focus on young kids. Most CEOs express wariness about throwing money at social problems. The near universal exception: Head Start. Despite real spending increases of 53% since 1988, Head Start reaches only a quarter of the 2.5 million lower-income children who could benefit from the program. Says Bob Gower, CEO of Lyondell Petrochemical in Houston: ''If we were to spend more on only one thing, it should be on preschool education.''

-- Do more to combat crime. This isn't business's bailiwick. But you can bet corporate leaders in Los Angeles will be throwing their full support behind new police chief-designate Willie Williams's pledge to replace the paramilitary style of his predecessor, Daryl Gates, with a tactic known as community policing. Adopting this approach essentially means getting more cops out of patrol cars and onto the streets, and making an effort to communicate more with elected officials, clergymen, and other local leaders. In New York, San Diego, and other cities, community policing has made citizens of inner- city neighborhoods feel safer and police more welcome. LIKE THE COPS, white business leaders know they need allies in the inner city to have any hope of restoring civic order and economic growth to America's devastated urban neighborhoods. Says John Bryson, CEO of Southern California Edison: ''We can't solve these problems by ourselves. We don't have the tools or the credibility there. We don't know anything about these communities. But we can aid their own self-help efforts.'' To many CEOs one of the most encouraging developments of recent years is the growing willingness + of a new generation of black leaders, as Bill Weiss of Ameritech puts it, ''to insist that their own people do more as well as look to government for help.'' Looking for fast and simple answers is a typically American response to complex social problems. This one, more than most, is sure to defy such an approach. ''If we want to reduce the poverty, joblessness, illiteracy, violence, or despair of the so-called underclass,'' says poverty expert Christopher Jencks, ''we will surely need to change our institutions and attitudes in hundreds of small ways, not one big way.'' American business appears to understand that and seems increasingly ready to back efforts to tackle these problems in the same way that it goes after new markets -- one step at a time. It must not lose its sense of urgency.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHARTS/SOURCES: CENSUS BUREAU; NATIONAL CENTER FOR HEALTH STATISTICS; OFFICE OF FAMILY ASSISTANCE CAPTION: WHO ARE THE POOR?

CHART: NOT AVAILABLE CREDIT: FORTUNE CHARTS/SOURCES: CENSUS BUREAU; BART LANDRY; BUSINESS-HIGHER EDUCATION FORUM CAPTION: NOW THE GOOD NEWS

CHART: NOT AVAILABLE CREDIT: FORTUNE CHARTS/SOURCES: BUR. OF LABOR STATISTICS; NATL. CENTER FOR HEALTH STATISTICS; SENTENCING PROJECT CAPTION: THE BLACK MAN'S WOES

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCES: OMB; NATIONAL CENTER ON INSTITUTIONS AND ALTERNATIVES CAPTION: KIDS VS. CROOKS