(FORTUNE Magazine) – MONEY & MARKETS/COVER STORY 40 THE RISK THAT WON'T GO AWAY Like alligators in a swamp, financial derivatives lurk in the global economy. Deriving their value from the worth of some underlying asset, like currencies or equities, these potentially lucrative contracts are measured in trillions of dollars. But they also lie in convoluted layers in a tightly wound market of global interconnections. And that gives them the capacity to bring on a worldwide financial quake. by Carol J. Loomis

MANAGING 60 NOW LET'S GO FOR GROWTH Easy to say, hard to do -- especially if you've grown up as a manager during the restructuring era. More and more executives see that you can get only so far by cutting down and tightening up. But achieving profitable growth can be harder than reducing costs. Here's how six go-for-it companies work their magic. by Myron Magnet

CORPORATE PERFORMANCE 74 BEHIND THE TUMULT AT P&G When the evidence showed that high prices were turning Procter & Gamble from mass marketer to mastodon, CEO Ed Artzt put in motion a tectonic shift. Figuring that agitation is better than stagnation, he is redesigning the way P&G develops, manufactures, distributes, prices, markets, and sells products. by Bill Saporito

85 COMPANIES TO WATCH Hardware and software developer Madge N.V., a multinational with business centers in San Jose, London, Tokyo, and Hong Kong, is stealing business from IBM by introducing a steady stream of high-speed product enhancements. by John Labate

Also: PeopleSoft, a software designer for the human-resources market, and clothing maker Chico's.

INFOTECH/QUARTERLY REPORT 86 THE INTERNET AND YOUR BUSINESS Companies like GE, IBM, and J.P. Morgan are on the Internet, that web of 25,000 computer networks connected worldwide. You should be there too. Here's what to expect. by Rick Tetzeli

92 STRAIGHT TALK ABOUT THE INTERNET

98 THE NETPLEX: IT'S A NEW SILICON VALLEY The world's most important growth industry links everywhere to everywhere. But the people building the electronic highway work just down the road from one another in and around Washington, D.C. The area's transformation into a great center of technology for the next century has been little noticed, and till now unnamed. Call this new crossroads the Netplex. by Thomas A. Stewart

107 THE WIRED EXECUTIVE Counting on computer software to help manage people may sound Orwellian, but a vice president at IDS Financial Services shows how you can use it to be a better boss. by Alison L. Sprout

THE ECONOMY/Fortune Book Excerpt 109 COMPETITIVENESS: DOES IT MATTER? A lot for companies, but hardly at all for countries, argues a top U.S. economist in a new book, and most of his colleagues agree. Raising domestic productivity, not capturing global markets, is what lifts living standards. International trade is not a zero-sum game. by Paul Krugman

CHINA 116 CHINA'S INVESTMENT BOOM Foreign investors are swarming into China, hoping to cash in on its double- digit growth. Like the boom in junk bonds in the 1980s, investment in the mainland offers vast potential. But the risks are bigger than most investors realize: Unchecked inflation could bring with it another currency devaluation, and a political backlash may develop if newly liberated consumers begin to demand further freedoms. by John J. Curran

DEPARTMENTS 4 EDITOR'S DESK 8 INDEX 14 NEWS/TRENDS Cracks in Japan's market, but . . . , San Francisco's multimedia gulch, what's new with credit cards, score two for Big Blue, and more.

23 FORTUNE FORECAST The economy is warm, not hot. by Joseph Spiers

Economic Intelligence: Paving begins on the information highway, Europe's debt trap, and the big payoff from computers.

31 PERSONAL INVESTING Beating puny CD yields. by Richard S. Teitelbaum

Also: Canada's natural riches finally start to pay, and Portfolio Talk with Denis Laplaige of MacKay Shields in New York City.

127 PRODUCTS TO WATCH A Windows system combining small-business and personal financial management; Eastman Kodak's Creation Station, which lets you fix photos after they're developed; and more. by Wilton Woods

128 LETTERS TO FORTUNE

133 KEEPING UP Addicts in high places (or the curse of work), how to order seafood, the disadvantage advantage, and other matters. by Daniel Seligman

138 ENTREPRENEURS Gert Boyle didn't know anything about running Columbia Sportswear when her husband died. But she took a risk -- and prospered. by Susan Caminiti

ABOVE: Financial derivatives have the potential to pose as serious a threat as this young predator, photographed by Jonathan Blair (Woodfin Camp).

COVER: The layers of international connections underlying derivatives give them the potential for roiling the waters -- like this Nile crocodile in Botswana. Photograph by Frans Lanting (Minden Pictures).

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