By Thomas A. Stewart, Susan Moffat, Paul Hofheinz, Louis S. Richman, Rob Norton, Christopher Knowlton, Brett Duval Fromson, Alan Farnham, Nancy J. Perry, Gary Hector REPORTER ASSOCIATES Rebecca Lewin and Ricardo Sookdeo

(FORTUNE Magazine) – If a new world is indeed to be born in the aftermath of the Cold War, the midwives will be business leaders. So, at least, argues Paul Saffo of the Institute for the Future, a research outfit in Menlo Park, California, whose clients include AT&T, Kodak, and Pfizer. Just as the power of the nation-state eclipsed that of the church following the Reformation in the 16th century, so now the corporation is beginning to overtake the state. Worldwide communications, the globalizing economy, the rash of privatization that has swept every inhabited continent -- all are signs of the growing importance of corporations. Business, in turn, needs visions, goals, and ideas. That's why FORTUNE set out to find and describe the most fascinating ideas for 1991. Not all 26 are new in the sense that they sprang forth full grown like Athena, the goddess of wisdom. But all have recently taken on new importance, new meaning, or major new adherents. Not all are big or good, nor do all apply directly to business. But they are shaping the public consciousness, changing the nature of wealth, and altering corporate strategy. Like research in basic science, they are almost certain to have commercial ramifications that seem barely conceivable today.

MANAGING NOW CAPITAL MEANS BRAINS, NOT JUST BUCKS That's what observers as disparate as Apple Chairman John Sculley and Alcoa CEO Paul O'Neill say. Ralph Stayer, CEO of Johnsonville Foods and an expert on shaking up organizations, argues that we are witnessing a fundamental shift in business history. First, entrepreneurial capitalism yielded to managerial capitalism, which now is giving way to something he and his consulting partner, James Belasco, call ''intellectual capitalism.'' It's a bit like reversing the Industrial Revolution, O'Neill says: Instead of dumbing-down production, business is evolving a high-tech version of preindustrial craftsmanship. This time the artisans are using their heads, not their hands. Traditional goods, says Stanford economist W. Brian Arthur, are ''congealed resources'' -- like the coal, coke, and iron that go to make an ingot of steel -- put together with a bit of know-how. New products -- like software and advanced aircraft -- are ''congealed knowledge'' bound up in a bit of material. Arthur is one of a handful of economists who say gray matter is so different from greenbacks that neoclassical economics, with its laws of supply and demand and of diminishing returns, cannot fully explain how the stuff works. So different, says Apple's Sculley, that intellectual capital will ultimately lead to ''a dramatic shift in the wealth of the world'' from natural resource owners to those who control ideas and knowledge. Tangible forms of intellectual capital -- patents and copyrights -- preoccupy many companies. Membership in the Society for Competitor Intelligence Professionals, a trade association for corporate intelligence and counterintelligence agents, doubled in 1990. Patent-infringement suits have multiplied. The fisticuffs were fiercest in high tech, which saw battles involving Motorola, Hitachi, Texas Instruments, and Intel, among others. Scarcity is one reason intellectual capital is so hotly pursued. In J. P. Morgan's day money was the hardest form of capital to get. Now, argues Virgil Barry of the A.T. Kearney consulting firm, ''brainpower is dangerously short -- at a time when business advances are being made by people who outthink others, not people who buy twice as many machines.'' It's a queer kind of wealth. For one thing, intellectual capital is virtually impossible to measure -- ''an off-the-balance-sheet asset,'' says Donald L. Curtis, a CPA and management consultant at Deloitte Touche. Your investment in a new plant shows up as an asset. But all the money you spend training your work force to double the output of the old one doesn't. Most important, the return on intellectual capital can be nearly infinite. Competition in knowledge-based products is often winner-take-most: VHS videocassette recorders largely drove Sony's Betamax off the market, just as a high-tech process of the 19th century -- alternating current -- short- circuited Thomas Edison's direct current. Winners can be impossible to dislodge, even if another product is more advantageous. The QWERTY keyboard configuration is a classic example: Designed to prevent keys from jamming on a manual typewriter, it persists because it is familiar, though other layouts are faster. Similarly, competing airlines feel they must tie in to American's Sabre reservations system even if they have their own and even though Sabre gets a fee for each booking, because 18,000 travel agencies are linked to the system, too many to ignore. Losers get immured in market niches, like a player struggling in the final stages of the Japanese game Go. Winners keep winning because ''congealed knowledge'' often has high up-front costs but negligible marginal cost -- resulting in staggering profits. It may take millions to write a piece of software, for instance, but copying it costs just a few dollars -- dramatically less in relation to R&D than, say, a second Ford Escort. Likewise, the markups are much higher than for low-tech products. And the sophisticated manufacturing processes that produce them are susceptible to cost-saving improvements that dwarf the usual economies of scale. The more nearly a product is pure knowledge, the higher the returns may be. In electronic networks the marginal cost for anybody with a terminal is a mere spark of electricity, and each participant can deal directly with all the others. MIT economists Julio Rotemberg and Garth Saloner show what that does in a network for electronic funds transfer. If two banks can exchange funds with each other and if the price of each transaction is $1, the network earns $2. Add a third bank, however, and it can make $6, because each bank can send money to two others. That's a 300% increase in value from a 50% increase in capacity. Put 20 banks on the line, and it's worth $380: Ten times the capacity has created a 190-fold increase in value. (Value can also vanish almost overnight, as happened when the fax put the kibosh on the telex.) The network will one day reach a point of diminishing returns, but far later than an appliance factory or a brewery -- and after a longer period of increasing returns. Brian Arthur argues that the effects of increasing, rather than diminishing, returns explain the economics of high tech. You want the temperament of a gambler but the deep pockets of a corporation. That's because up-front costs are so high and because, in winner-take-most games, market share is so valuable -- as many Japanese companies have learned. Managing knowledge workers is more than a matter of tolerating eccentric neckties. Most pay scales, for example, don't make sense when the source of wealth is brainpower -- often group brainpower -- not bricks and mortar. It's no accident that real estate costs more in an idea epicenter like Cambridge or Beverly Hills than in Pittsburgh or Detroit.Thomas A. Stewart

THERE ARE NO PRODUCTS -- ONLY SERVICES Take a step beyond ''total quality'' and ''customer satisfaction.'' There's a new view of the relationship between supplier and customer, and even which is which. The idea, as put by Rosabeth Moss Kanter of the Harvard business school: Think of every product you buy or sell as a service. In other words, look at what it does, not what it is. That way, selling a product becomes only one of your opportunities to do something for your customer. You can add a service package, for example. Fred Steingraber, CEO of the A.T. Kearney consulting firm, calls this ''bundling.'' Look at Toyota's Lexus. Thanks to a partnership with IBM, Lexus tracks every car on a national computer -- your sedan's complete maintenance history is available to every dealer from Miami to Seattle. Why? Because Lexus doesn't want its relationship with you to end at the showroom door. At Packaging Corp. of America, a Tenneco subsidiary, employees say they offer packaging solutions, not just packaging. Says CEO Monte Haymon: ''It used to be that we made a product and looked for people to buy it. Then we started doing research to learn what the market wanted, and developed products for that. Today we're working with individual customers.'' That means turning the company's manufacturing divisions -- which specialize in materials like ( corrugated cardboard and plastic -- into service arms that often work together to provide what customers want. Then there's unbundling. When you think of products as services, you might decide to contract out stuff you'd never have let out of your sight before. IBM, famous for its vertical integration, no longer handles its own warehousing. Two years ago it junked 21 parts warehouses in favor of half a dozen outside vendors, including Federal Express. Commodore Business Machines goes further: In November it unbundled virtually all its post-sale services for consumer products. Its partner is a new division of Fed Ex called Business Logistics Services. Fed Ex mans a 24-hour consumer help line for Commodore. If your computer needs to go to the shop, Fed Ex will pick it up the morning after you call, drop off a replacement, and often do the repairs at its Memphis hub. Customers never know they're dealing with Fed Ex employees, except for the delivery man. After a six-month trial, says Jim Reeder, Commodore's vice president for customer satisfaction, his company is offering better service at half the previous cost. This kind of collaboration is replacing competition in relationships with suppliers. Experts at the Cresap consulting firm call it ''supplier integration.'' It elevates outsourcing from a mere cost-cutting measure to the level of strategy. Says Cresap's George Bailey: ''In the long run the market doesn't tolerate beating up on suppliers.'' The new goal is a ''win-win'' alliance, where suppliers get the security of a long-term relationship and customers get more say over their upstream processes. In an integrated relationship, instead of pitting suppliers against one another to get the best price, purchasing agents work closely with a few select suppliers to reduce the total cost of the deal. Often, as in the arrangement between Fed Ex and Commodore, it is difficult to find the line between supplier and customer. Bundling and supplier integration require companies to analyze more than the manufacturing costs they usually focus on. What they must learn to identify, says Berkeley economist Oliver Williamson, is the cost of transactions -- that is, everything above the marginal cost of making a product or delivering a service. Transaction costs include inventory, technical support, managerial overhead, and plain old waste. Often, Williamson says, they result from the wrong kind of corporate structure: Vertical integration, for example, is an ( expensive way to acquire most commodity products but may be cheaper for some specialty items. Companies that think of the products they buy and sell as services can look for economies in the whole transaction, not just on the assembly line. Buffer inventory may virtually disappear in a just-in-time system. Or new products may be conceived when the manufacturer thinks not just about what it makes but also about how its customers use it -- as Xerox discovered when it redefined its business as document processing. At GE the Work-Out program, a continuing series of ''town meetings'' where employees look for ways to improve processes, has expanded to include joint sessions with customers like Sears. They study such questions as whether to share a single system to track purchase orders. The new slogan: ''GE and its customers -- one system, not two systems.'' - T.A.S.

SHOULD YOUR COMPANY SAVE YOUR SOUL? Few people are willing to put it quite that baldly, but look at the words they use: vision, mission, values, transformation. Almost unnoticed, some managers' thinking has changed drastically from only a couple of years ago, when the rallying cry wasn't ''values'' but ''shareholder value.'' The language of the pulpit has become the currency of the executive suite. Michael Ray, a professor at Stanford's business school, is offering a course this winter whose syllabus argues that business can find a ''new paradigm,'' which takes as its purpose ''the enlightenment of those in it.'' The course includes segments on ''inner wisdom'' and ''business as a spiritual discipline.'' In his best-selling book, Leadership Is an Art, Herman Miller CEO Max DePree writes of a ''covenant'' -- not a contract -- between company and employee as the basis for superior management. Says James Autry, president of Meredith Corp.'s magazine group: ''Work can provide an opportunity for spiritual and personal, as well as financial, growth. Good management is largely a matter of love . . . a calling . . . a sacred trust.'' Even when the impulse isn't religious, the effect is. Says Minneapolis consultant Thomas Eckstein, a 3M alumnus who specializes in new-product development: ''As business people look at the soft issues, they start with emotional ones -- like employees' need to feel part of a community -- but they don't seem to be stopping there. I think they'll end up at spiritual issues, but they don't really know it yet.'' Says Harrison Owen, an Episcopal priest | who has become a management consultant for such companies as Shell, Du Pont, and Owens-Corning Fiberglas: ''I tell my clients, 'However much shareholder equity you've got, you're not going to cut it if the spirit isn't there' -- and I get no argument.'' What's driving business to think in evangelical terms? One reason, says DePree, is to ground workers in a community. Churches, families, and neighborhoods provide less and less of the psychological sustenance people need, so ''for many the corporation becomes the main social involvement and even family.'' Only business, says Stanford's Ray, is ''global enough, flexible enough, pragmatic enough, and has people's interests at heart enough'' to take up the slack. Another cause: the trend away from standardized mass production to specialized, high-value-added work, which makes command-and-control management less feasible. Coach-and-cajole leadership cannot succeed unless employees' creativity is unleashed. But new-paradigm people may run who knows where unless they share an understanding of the answers to questions that are almost spiritual: ''Who are we? Where are we going? What is the purpose of what we do?'' Says Peter Senge, a research director at MIT's Sloan School of Management: ''A corporation can't save your soul, but it can stand in for the age-old idea of people collectively pursuing a path that has real meaning to them.'' Come to think of it, he adds, ''that's sort of like early Christianity.'' A spiritual view of work and management is all very well, but when is it time for a corporation to mind its own business? According to Ray, some employees of major corporations develop marital problems as their work becomes more fulfilling. Du Pont now conducts workshops to help its people pass the benefits along to the entire family. Many companies may not want to take on such responsibility. Conversely, a church may excommunicate an occasional heretic, but it doesn't impose layoffs on the congregation. A company's care for the souls of its employees has to stop at its bottom line and their private lives. Does wrestling with these issues make a manager's life more difficult? Says DePree: ''It never becomes heaven, you know.'' - T.A.S.

COMPETITION WHAT REALLY MAKES A NATION COMPETITIVE Nothing else I've written has had quite such an intellectual and emotional response,'' says liberal professor Robert Reich of Harvard's Kennedy School of Government. ''Neoclassical economists have praised me -- an unusual and unnerving experience.'' Reich's bombshell idea: A nation's competitiveness has little to do with the success of its corporations. In a January 1990 article in the Harvard Business Review titled ''Who Is Us?'' adapted from his forthcoming book, The Work of Nations, Reich asked which is the American corporation: company A, headquartered and owned in the U.S., which moves its R&D and manufacturing offshore; or company B, based abroad, which builds a lab and factory in the U.S.? Think Zenith is the sole American manufacturer of TV sets? France's Thomson employs 6,500 people in six plants in the U.S., vs. 5,000 in Zenith's two. IBM is an American company, of course, but 45% of its employees live abroad -- 25,000 of them in Japan, where officers of IBM's Japanese subsidiary sit on councils that advise the Ministry for International Trade and Industry. Then who is us? Reich's answer: a nation's work force. In a global economy, business goes wherever it can get the best return. A government, therefore, should work to attract any corporation, whatever flag it flies, that employs people with high-value skills like engineering, research, and sophisticated manufacturing. Sure, corporations are likely to keep core activities close to headquarters, but that's not as true as it once was. U.S. companies have increased R&D spending abroad faster than they have raised it at home. Even Japanese companies are moving R&D off the archipelago: Sony researches HDTV hardware in Japan, signal processing in Britain, and production and post-production in a San Jose, California, lab headed by Chicagoan Harry Taxin. Reich's formulation shakes shibboleths on both the left and the right. Sounding more like a captain of industry than a leading liberal intellectual, he complains, ''Democrats are still talking about entitlements, about sharing the wealth.'' Instead, government spending should focus on infrastructure, education, and worker training. On the other hand, he argues, Republican pleas to cut taxes to increase corporate investments are pernicious. In the absence of programs (including incentives to business) to increase American workers' skills, the investments would go abroad: ''When capital is global, trickle down means trickle out.'' Reich has even abandoned the idea of an industrial policy, which he once advocated. If a nation's competitive advantage is based on the value added by its work force, not its corporations, a government-corporate alliance makes no sense. So Reich would encourage foreign investment and refocus trade policy. Why should the U.S. help Toys ''R'' Us sell products in Japan that are made in China? Why bar foreign-flag corporations from receiving government funds for commercial R&D, provided they do it in U.S. labs? Even for national defense, Reich argues, ''it's better to have people doing research here than to have American companies training foreign citizens in foreign labs.'' The argument has flaws -- and critics. It undervalues profits, which tend to go to citizens of a company's home country, and also the worth to a nation of having its most skilled workers march to orders given from a headquarters within its borders. The juxtaposition of top management, central R&D, and critical production skills in a home base benefits both a corporation and a nation, says Harvard business school professor Michael Porter, author of The Competitive Advantage of Nations: ''You'd think a home base wouldn't matter in a global economy, but the process by which you create and deploy industry- specific knowledge and skills is very localized. Most successful companies have a clear national identity.'' But Reich's insight, although exaggerated, is invaluable. Let corporations do what they should do, he says: Improve their processes and increase their returns to investors however and wherever makes the most economic sense. Let government do what it should do: as Reich puts it, ''improve its citizens' standard of living by enhancing the value of what they contribute to the world economy.'' Says Reich: ''It is not what we own that counts. It is what we do.'' - T.A.S.

TO BE A LEADER IN TECHNOLOGY, YOU MUST SHARE IT Nations start to become technological leaders by copying and improving on technologies from abroad. But a country becomes truly dominant -- ''a technohegemon'' -- only when it starts freely swapping its knowledge with other countries. That is the seemingly oxymoronic thesis Japan is abuzz about, from top corporate executives and ministry bureaucrats to TV talk show audiences. Its originator is Taizo Yakushiji, a professor of international relations at Saitama University who also trained as an engineer. Yakushiji warns his countrymen that Japan could lose its grasp on technological leadership because it is unwilling to share. It's no news that countries borrow and steal technologies endlessly, often improving on the original. As Yakushiji points out, Britain copied textile technology from France and the Low Countries, and Germany copied Britain. The U.S. imitated, borrowed, stole -- and, most important, improved -- all sorts of key technologies from Europe. Toyota took the assembly line and made it radically better with the just-in-time parts-delivery system. The more widely a technology is spread, the more improvements are likely. The leaders start to decline when they get parochial or complacent, says Yakushiji. Britain began its downhill slide in the 19th century when it failed to learn from improvements made on textile technology stolen by upstart American makers. Today, he says, U.S. manufacturers are not studying their overseas competitors carefully enough. Yakushiji argues that the Japanese, too, show signs of parochialism: ''Some Japanese are becoming arrogant, believing that 'Made in Japan' is best and forgetting what we can learn from other countries. That is dangerous.'' Japan isn't yet in decline, says Yakushiji, but that is because it hasn't even reached a position of technological leadership. It must start by sharing its knowledge, as the U.S. has, to win friends and influence countries. Says he: ''Until Japan opens up, we cannot become a technohegemon.'' Hence the need for more cooperation -- particularly between Japan and the U.S., where the one-way flow of information threatens a cold war in trade. As in the old U.S.-Soviet balance, both countries must learn to manage their confrontational relationship. Says he: ''It's time we recognize that we need to forge a detente in technology.'' He's even coined a name for that -- technodetente. It's the word of the month in Tokyo. - Susan Moffat

COMMUNICATIONS EVERYTHING THAT COMMUNICATES MUST CONVERGE It's still possible to speak of telephone companies, computer makers, publishers, movie studios, and TV networks as separate businesses -- but only barely. All of them, and maybe others like financial services, are converging into a single huge industry. The reason: Once signals from phones, television, and information services are translated into digital form, they are, technically speaking, identical. The only difference between the bursts of 0's and 1's that bring you a Haydn symphony on a compact disc, your daughter's phone call from college, and an episode of Cheers will be whether the digital code represents sounds, pictures, words, or a combination. That makes it possible for all to be sent over a single line -- and even to be decoded by a single machine. Maybe we'll call it an information appliance. The new megaindustry, says Bell Atlantic CEO Ray Smith, one of its most visionary architects, ''will be able to provide information and entertainment of all kinds to everyone everywhere at low cost.'' Says Sidney Topol, retired chairman of Scientific-Atlanta, now learning more on the subject as a Harvard fellow: ''Through technologies like satellite communications we are building a vast global auditorium with balcony upon balcony, each representing a different level of participation in one integrated business.'' Pie in the sky? Maybe, but corporations are already maneuvering to slice it. Smith says Bell Atlantic is investing billions in this vision ''because we believe in it without one bit of equivocation anywhere in the company.'' A bellwether: Optical fiber is replacing copper so fast that in the past year Corning Inc. announced a doubling of its worldwide manufacturing capacity. Fiber hasn't reached the home except in trials, but dozens of these are under way in locations from Perryopolis, Pennsylvania, to Leipzig, Germany. BellSouth says it will have an all-fiber network serving all its customers, business and residential, by 2020. The emerging megaindustry has three parts, like legs of a tripod. First, creating programming, from cop shows to databases. Second, building and operating distribution systems -- wires, satellites, and switches. Third, making appliances (TV sets, PCs, telephones, faxes) that receive and manipulate programs in homes and offices. Corporations are scurrying to erect two or more legs of the tripod. Sony and Matsushita now have both the appliance and programming legs with their respective acquisitions of Columbia Pictures and MCA. NBC has added cable, satellite, and pay-per-view services, and now defines itself as a constellation of networks -- plural. A phone company -- AT&T -- is offering a credit card; a bank -- Citicorp -- is experimenting with an enhanced telephone for home banking. It features a miniature computer screen and a keyboard. AT&T wants to buy NCR to strengthen its appliance business. Some affordable home computers sport video and audio functions that make them more like TVs, while TV makers are designing computerlike add-ons. In a global market, the outdated antitrust rules that separate program creation from its distribution are under attack from all sides. | Who's going to sell the most tickets to the global auditorium? Innovative appliance makers with steady streams of new products will cash in big before prices are driven down to commodity levels. Some observers think distributors, meaning phone and cable companies, will control the industry. But distribution needn't be monopolistic -- Britain plans to let cable TV companies compete in the phone business -- and may be regulated if it is. People who create programs will be in great demand, but many products, such as home banking, will have small markets. As Sidney Topol points out, cable TV experience shows that entertainment is the only in-home service for which great numbers of consumers will pay a premium. The big money will be made in this industry, as in all others, by those who best focus on customer needs. As the sheer volume of information grows, ''the ultimate bottleneck is the individual's and the organization's ability to absorb the information,'' says Eli Noam, head of the Center for Telecommunications and Information Studies at the Columbia business school. Therefore, Noam says, ''the value added is the information subtracted.'' He means that selection and screening are the critical variable: extracting the relevant numbers from a mass of data, choosing the best shows for an entertainment network. No one has yet invented an ''information refinery'' better than the one we're born with. People with that skill -- selecting, synthesizing, and packaging what goes onstage in the global auditorium -- will be able to write their own ticket. - T.A.S.

THE WHOLE NEW BUSINESS OF TELEVISION The most powerful medium for entertainment, instant news, and advertising yet devised, TV has altered politics, leisure -- even childhood. Now it's in for a dose of its own medicine. The changes that began with cable are gaining velocity. This fall the Fox network established itself as a full-fledged competitor of ABC, CBS, and NBC, overturning decades of conventional wisdom that the U.S. had room for only three networks. Its early-morning news program in New York is running neck and neck with rival national shows. The big three's average combined prime time audience share has dropped to 65% -- vs. 90% a decade ago. In the top ten markets, it is below 50%. Now ''narrowcasting'' to select audiences, interactive TV, and new technologies that drive production costs down will radically alter the medium, including network fare. Since Miami's interactive Video Jukebox Network went national in 1989, it has signed up ten million subscribers in 65 cities. They choose music videos by using Touch-Tone phones to key in requests as if they were dropping quarters into a jukebox in a bar. Video Jukebox is interactive but not personalized: Your request joins the queue to play in every subscriber home in your area. The next step is being taken in Cerritos, California (pop. 60,000), the town that serves as a technology lab for GTE. In one home a viewer uses a souped-up remote control device to zap into a changing menu of movies and self-help videos. He can pick any recorded show at any time, day or night. If Monday Night Football is showcasing the Pats and the Browns, he can call up Lee Trevino's golf tips or Tango & Cash instead -- and stop it, rewind it, or fast-forward it. As the networks' dominance fades and new shows compete with a growing anthology of previously aired work, some of it superb, producers will seek specialized -- and necessarily smaller -- audiences. That means lower revenues. A one-hour program can cost $1 million or more, not the kind of money available to artists starving in lofts. A special computer and software from a California company called Light Source can help: It costs $2,000 and uses a Macintosh computer to edit videotape to standards equal to those of many sitcoms, replacing $50,000 machines. (It's also a cost saver for corporations that make videos.) With computer techniques already used by ad agencies, artists can ''paint'' and manipulate fantasy landscapes to stand in for costly on-location shooting. Some network offerings to one niche, upscale baby-boomers, have become downright highbrow. Says Robert J. Thompson, a professor at State University of New York, Cortland: ''Everyone is so TV literate, so well viewed, that shows have to get more sophisticated.'' That opens a possibility that seemed ludicrous a few years ago: real art on the tube -- and not just opera on PBS. Already, art TV can be seen in the work of Steven Bochco (Hill Street Blues, L.A. Law, and the late, unlamented Cop Rock), David Lynch (Twin Peaks), and others. Some music videos use cinematographic techniques every bit as sophisticated as experimental film. A week after Ken Burns's documentary epic The Civil War aired, it was shown at the Museum of Modern Art in New York City. Art TV will get more help as video libraries like the one in Cerritos create an aftermarket where it can recover costs, as serious films do, from videocassette rentals. And pay-per-view offerings of megaevents can subsidize loss leaders aimed at influential viewers. NBC will offer 600 hours of the 1992 Olympics on a pay-per-view basis.- T.A.S.

THE WORLD SERIES ON YOUR LIVING ROOM RUG At MIT's Media Labs, scientists working with General Motors have developed holograms -- laser-generated three-dimensional images that appear to float in the air -- created purely from computer data, not concrete objects. These ''synthetic holograms'' have allowed designers to display color models of their work within 24 hours, rather than spend a month making clay models. In 1990 professor Stephen Benton achieved a breakthrough in synthetic holography: an image that can be produced in just one-thirtieth of a second, ''real time'' in the lingo. Media Labs director Nicholas Negroponte thinks the technique, which relies on massively parallel computers, will have big possibilities. Best candidates: military uses (imagine a dogfight between drones observed holographically from hundreds of miles away) and medical imaging. A physician could study your arthritic hip in three dimensions by plunking its hologram on his desk or even transmit the image to a specialist in, say, Bern. A more distant possibility is holographic television. Push back the furniture, turn on the World Series, and watch 18 little holograms whose field of dreams is your living room rug. No fair trying to field a scorcher to third yourself. - T.A.S.

DIAL 1-800-CLUTTER There are ideas whose time has come -- and ideas that have come too far. Toll- free 800 numbers are an example of the first, but 800 listings that use letters rather than numbers exemplify the second. Trying to find the tiny letters on a keypad is bad enough. But recalling a kazillion of those supposedly easy-to-remember listings? Impossible. Need a place to sleep? Try 1-800-HILTONS, 1-800-CHECKIN (Hyatt), 1-800- HOLIDAY, or 1-800-I GO HOJO. If a roof over your head isn't important, there's always 1-800-MATTRES. Short of cash? 1-800-CASH NOW gets American Express's express cash service, but if someone then proceeds to pinch it, you'll want 1-800-554-AMEX for an emergency advance. Want to send a present to a customer? For posies, call 1-800-FLOWERS or 1-800-L((ong)) D((istance)) ROSES. 1-800-GIFT CAN brings popcorn. For a classier repast, call 1-800-535-GIFT -- another American Express number -- and buy a gift certificate for a restaurant meal; or, for something cozy, ring 1-800-4 CACHET and order California wine and gourmet grub. After all that food and drink, your trousers might be a bit snug. No problem: 1-800-MAN SEW 9 can get you an industrial sewing machine. To learn if you can deduct it, take a course from H&R Block (1-800-7 TAXLAW). Don't call 1-800-NFL DATA if you want to get the point spread on the Super Bowl. That's Computer Communications Systems Engineering, which will analyze your phone bill and help you set up a system that will operate more cheaply. (The owner chose NFL because it was catchy.) Okay, how about 1-800-442- PICK? Sorry -- see Education. If all this gives you a pain, there's a proctologist at the end of the line when you call 1-800-MD TUSCH.- T.A.S.

THE WORLD CAN THE SOVIET UNION SURVIVE GORBACHEV? Great ideas often drive history, but not always in the direction their creators expect. Mikhail Gorbachev staked his political fate on opening the Soviet Union to the ballot box. Muses an Armenian intellectual: ''He had no idea what kind of country his ideas would produce, but he plunged ahead anyway. In that sense he is one of history's great adventurers, as much of one as Lenin was.'' Adventure is certainly what Gorbachev got. He set off a revolution that demolished the Berlin Wall, unleashed narrow nationalisms suppressed for decades, and liberated economies mired in socialism for much of this century. Nationalism in particular grew in the vacuum created by a collapsing ideology. Partly in response to Gorbachev's stop-and-go approach to his own reforms, the country's 15 republics have begun to assert with increasing confidence their right to choose their own course. Like the old Holy Roman Empire, which was neither holy nor Roman, the U.S.S.R. is now neither a union nor socialist -- but what it is, or will become, no one yet knows. What is clear is that instead of presiding over a superpower, Gorbachev enters the 1990s struggling to salvage as much of the old union as he can -- and keep his job in the process. If he ever had a plan, he has long since outrun it. He seems to have fallen back on day-to-day improvisation. He has proposed, along with a new union treaty, that the U.S.S.R. rename itself the Union of Sovereign Soviet Republics. That at least would allow Olympic athletes to keep wearing those sweatshirts emblazoned CCCP (the country's initials in Cyrillic) while dropping the discredited term ''socialist.'' / In some places the rise of nationalism has rekindled historical dreams -- as in the tiny Baltic states, whose people have never forgotten the independence they enjoyed between the two world wars. Elsewhere, however, it has revived ancient hatreds. Armenians and Azerbaijanis now slaughter each other so routinely that their clashes no longer make headlines, even in the Soviet Union. In the vast Russian Federation, which spans 11 time zones in Europe and Asia and contains much of the Soviet Union's oil and minerals, the new pluralism has given Boris Yeltsin, chairman of the Russian parliament, a chance to speed ahead with economic reforms while his old rival Gorbachev temporizes. Still, the ties that ought to bind the Soviet Union remain powerful. Gorbachev knows that despite their bravura, the republics need one another more than they need separatism. Already the logic of union is being felt. Even Lithuania is having to reconsider its uncompromising declaration of independence. A minuscule economy with 3.6 million people, it is finding that in reality it needs Moscow's oil to survive. Similarly, the Russian Federation may be rich in oil and timber, but for cotton it depends on Uzbekistan. So the Soviet Union plunges headlong into the 1990s much as it stumbled into the 20th century: a caldron of pent-up misery and political unrest. Surveying the scene in 1842, Nikolai Gogol compared Russia to a sleigh careering madly out of control. ''Whither are you speeding so?'' he wrote in Dead Souls. ''Answer me! . . . Since you are without end yourself, is it not within you that a boundless thought will be born? . . . All things on earth fly by and other nations and states gaze askance as they step aside and give the right of way.'' Not even Mikhail Gorbachev knows which way the sleigh is heading. - Paul Hofheinz

PROSPERITY WILL OVERCOME TRIBAL WARFARE What a comedown. At the start of 1990, the largely bloodless collapse of totalitarian Communism seemed to signal a new era of peace. What ensued instead was tribal squabbling among ethnic and religious groups around the world, from the U.S.S.R. and the Balkans to the Middle East and India. Do not despair: The same global forces that undid the old order will eventually stabilize the new one. Start with the revolution in telecommunications. By democratizing access to information, it is speeding the unsettling message of people power everywhere. Says Robert Hunter of the Center for Strategic and International Studies in ( Washington: ''The victory of democratic pluralism is infectious, and its spread validates the feelings of disaffected groups.'' Then there's the end of the Cold War and its attendant ideological cleavage. The Soviet-American face- off often restrained local political frictions; now that it's over, the aggrieved feel freer to act. Most important, the steady, rapid emergence of a global economy has increased the chance of escaping from poverty. John Steinbruner, a scholar at the Brookings Institution in Washington, believes that the integration of the world's economies will create new prosperity -- which in turn will make plenty of room for people to work out their national and ethnic yearnings peacefully. Eventually, Steinbruner says, they will find ways to maintain their separate identities while confederating loosely in trade and mutual-security blocs. Quebec may be an early example. Canada's failure last summer to create a new agreement on provincial federation left the province feeling freer to chart a separate course. But le Quebec libre has no intention of severing its economic ties to either the rest of Canada or the huge U.S. market to the south. Even the Middle East's historic grievances with the West, often voiced in the rhetoric of Islamic fundamentalism, show signs of mutation toward a more benign nationalism. There are notable exceptions -- Iraq, Iran, Libya, Syria. But most Arab states see their economic interests linked to political systems that promote prosperity. Says Fouad Ajami, a Mideast expert at Johns Hopkins: ''The weapon of Pan-Arab nationalism is a dull and rusty sword. The region is being reformed along the lines of independent nation-states whose governments recognize that the price of melons, not some dreamy ideology of greater Islamic unity, is what the world is all about.''

Scholars of Ajami's persuasion are sure the fundamentalists will sheathe their scimitars if Arab nations expand wealth -- and spread it around more evenly. Religion may then become an important source of national cohesion and spiritual renewal. Says Steinbruner: ''There isn't a nationalities problem anywhere in the world that cannot be resolved by prosperity.'' - Louis S. Richman

THE TRIUMPH OF THE MARKET The destruction of the Berlin Wall will surely endure as the symbol of the end of Communism. But in the history of ideas, 1990 may be remembered mostly for the simple notion that provoked the upheaval: Market economies work best. * What's being debated across Eastern Europe today is not whether to move toward capitalism, but how best to do it. In Latin America as well, country after country is dumping the failed statist policies of the past three decades. ''It's no accident that the same kind of phenomenon is occurring in both places and that the nature of the rhetoric is the same,'' says Jeffrey Sachs, the Harvard professor who has played a key role in macroeconomic reforms from La Paz to Warsaw. Sachs notes that the Marxists of Eastern Europe and the dictators of Latin America all followed the same basic economic plan after World War II: autarkic, state-led, forced industrialization. And they all paid the same price for it. The rebirth of capitalism in both regions will be the grand economic experiment of the 1990s. In Latin America nearly every country that began creating open-market economies in the mid-1980s -- Bolivia, Chile, Colombia, Costa Rica, and Mexico -- has seen a renaissance in manufacturing and exports. The public sector is out, businessmen are in. Mexico, for example, is selling off state-owned enterprises, from the telephone company to Aeromexico. Tough new fiscal policies make U.S. deficit-cutting plans look like a children's game. Mexico's total government borrowing fell from 16% of GDP in 1987 to less than 6% in 1989. The move to markets faces its toughest tests in the two big countries that only recently began reforms -- Argentina and Brazil. Both are in deep recessions and trying to dig out from under hyperinflation. While December's coup attempt in Buenos Aires failed, it reflected the social and political disarray that comes with economic change. Replacing state paternalism with adequate social safety nets will challenge emerging market economies everywhere. In Eastern Europe the private sector was destroyed, not just suppressed, so the road back from economic serfdom will be twistier. The Poles have been bravest in their quick embrace of capitalism. But Poland's success in slashing government spending, hauling down inflation, and creating a stable, fully convertible currency has also brought recession and unrest. At the other extreme, the Soviet Union has produced any number of plans for economic reform without executing a single one. Whatever reversals lie ahead, the day when professors of Marxism could make the case for their man over the market is over. The Austrian economist Ludwig von Mises had the last word back in 1947, when the Red Army was imposing central planning from the Baltic to the Mediterranean and socialists everywhere were dreaming that they had the key to a better world: ''A socialist management of production . . . will squander the scarce factors of production, both material and human. Chaos and poverty for all will unavoidably result.'' - Rob Norton

FINANCIAL FIRST AID FOR EASTERN EUROPE The idea for the European Bank for Reconstruction and Development (EBRD) rode ashore on a breaking wave of political change: the epic collapse of the Communist regimes of Eastern Europe. ''We were surfing on history,'' says Jacques Attali, a close adviser to President Mitterrand of France. Attali conceived of the bank a year ago and will soon become its head. Think of the EBRD as the banking world's version of the Red Cross. An independent international entity headquartered in London, it will provide financial first aid to previously Communist Central and Eastern Europe in the form of investment advice and development capital. Forty-one nations have agreed to be shareholders, committing some ten billion European currency units ($13.8 billion) in capital. It is the first major new international financial institution since the creation of the Asian Development Bank in 1965. Says J. Paul Horne, chief economist with Smith Barney Harris Upham & Co. in Paris: ''The EBRD is very timely, and desperately needed.'' The EBRD, which will begin lending early this year, is three parts merchant bank to one part development bank, with a sprinkling of free-market ideology on top. Its backers hope it will become a major catalyst for reconstruction by promoting private industry. There's plenty for it to do: The deteriorating economies of Eastern Europe are likely to need $10 billion to $15 billion in new capital annually, according to Smith Barney, and there is as yet precious little private industry to invest in. Not everyone welcomes the EBRD. Says Roger F.G. Alford, a banking expert at the London School of Economics: ''I am personally very skeptical of such lending organizations. Most have not done as much as they should, and some have supported corrupt regimes.'' Others are less dubious about the bank than they are about its energetic founder. Festooned with degrees from five of France's most elite universities, Attali, 47, has a reputation for being as imperious as he is brilliant. Some find it odd that a socialist should create such an overtly capitalist enterprise. But Attali defies easy categorization. He has written pop songs and 15 books in his free time, which is between four and seven in the morning. He shakes off Marxist and Keynesian labels, describing himself instead as a Shakespearean economist -- one who savors the morality tales of economic history. Owlish and intellectual, Attali screens every memo to Mitterrand. All visitors must pass through his office. He attends cabinet meetings, provides economic counsel, and then goes golfing with his boss, whom he considers a friend and mentor. But his chief function has been to hatch ideas. He takes credit for a far-fetched one -- building mammoth dams to harness the floods of Bangladesh -- and another closer to home: a massive high-tech national library that could be the greatest bricks-and-mortar legacy of the edifice-happy Mitterrand presidency. Of his latest brainchild, Attali says grandly: ''If the EBRD is a success, it will be a central tool in shaping a new political and economic world order.'' Overblown, perhaps, but then Attali works in the Elysee Palace at a desk that once belonged to Napoleon. - Christopher Knowlton

THE ENVIRONMENT USING MARKET FORCES TO SAVE NATURE Want to clean the air, rescue the rain forests, and cut government red tape -- all at once? A fresh way to do these things is to enlist market forces. First, by finding and selling goods that make saving endangered areas more valuable than exploiting them. Second, by writing laws that use incentives, not regulations, to rein in polluters. A pioneer in green marketing is Cultural Survival, a human rights organization in Cambridge, Massachusetts. It aims to defend people whose traditional cultures are threatened by modern economic life -- like the Indians of the Amazon Basin, where every day 1,400 acres of rain forest are cleared for timber, cattle raising, or mining. Charles M. Peters of the New York Botanical Garden has shown that a Peruvian rain forest is worth more alive than dead: The fruit and rubber it produces are 14 times as valuable as its timber. Cultural Survival Enterprises, headed by anthropologist Jason Clay, helps natives form cooperatives to harvest and sell rain forest products. In its first year, ended August 31, CSE sold fruits, nuts, and oils worth $447,000. It also opened a $100,000 nut-processing plant in Xapuri, where a rancher gunned down activist Chico Mendes in 1988. This year, with $2.6 million of orders already in hand, CSE expects sales of $4.5 million. CSE's biggest product is Rainforest Crunch, a peanut-brittle-like confection studded with cashews and Brazil nuts. It's sold as candy and used in Ben & Jerry's Rainforest Crunch Ice Cream. In addition, Clay has imported samples of 350 resins, oils, and pigments of proven usefulness in products from soap to furniture polish. Seventy-five corporations, including Body Shop, Mars, Safeway, and Canada's Loblaw supermarkets, have been working with the samples; 17 are now steady customers. More than nine million pounds of shelled Brazil nuts come to the U.S. annually. What sets CSE apart from competitors is its effort to put the profit into the hands of forest residents, giving them less reason to sell out to miners and loggers. Says Clay: ''Poverty is as much a destroyer of the rain forest as greed. These people don't want to live in Stone Age zoos.'' CSE takes the same approach in Africa and Asia -- selling killer-bee wax and honey from Zambia, for example. Clay is eyeing the mushrooms, berries, tars, and resins found in North America's old-growth forests; some Native Americans have claims to a big share of revenue from products grown on their old lands. In this new environmentalism, entrepreneur and activist become one and the same.

Environmentalism and the market have met in another, more surprising, place: Washington, D.C. The Clean Air Act of 1990 is the first major triumph for policymakers who believe the marketplace can play a big cleanup role. To attack acid rain, the law requires huge reductions in emissions of sulfur dioxide by U.S. utilities. But a utility may use any means it likes to cut emissions, and those that do more than their share can sell their ''surplus'' to laggards. This system gives companies an incentive to exceed what the law requires: They can create a valuable asset in tradable pollution permits, which inefficient companies will have to buy. That rewards innovation and frees the government from micromanaging, something it does badly. Corporate leaders like Monsanto's Richard J. Mahoney have touted market- based environmental policies for years, but the idea has gained acceptance thanks to work by Robert N. Stavins of Harvard's Kennedy School of Government. With Senators Timothy Wirth and John Heinz, Stavins wrote a study called Project 88 outlining market-based approaches to 17 environmental problems, from the greenhouse effect to discarded lead batteries. ''Two years ago,'' says Stavins, ''we were complaining that no one listened to us. Now it's almost as if night had turned to day.'' Quick to see the light were the Bush White House and the Environmental Protection Agency, along with many private groups. Besides the Environmental Defense Fund, an early market advocate, the Wilderness Society, the National Wildlife Federation, the Sierra Club, the National Audubon Society, and others endorse at least parts of Project 88's agenda. Stavins, with economist Robert Hahn of the American Enterprise Institute, is preparing a sequel that proposes further market-based solutions. The market cannot ameliorate every environmental problem, however. It can encourage water conservation, the use of recycled products like newsprint, and reductions in emissions, but it's not as good for cleaning up old messes like leaky landfills. Paradoxically, as government and environmental groups have begun to coalesce around market-based policies, some businessmen are getting edgy. CEOs haven't wavered in their support, but Stavins says their lobbyists in Washington are nervous. With reason: These guys would rather get in the ring with a regulator, whose punches they can try to duck or deflect, than with the market, whose invisible hand will sooner or later land a haymaker. - T.A.S.

THE RIGHT WAY TO DEVELOP LAND Must economic progress inevitably mean a degraded landscape? Not according to a resolute band of land-use planners called the new regionalists. Yes, develop the land, they say, but follow a few simple guidelines: First, take a regional point of view. In the case of New York City, for example, that means considering everything from Times Square to the city's reservoirs lying as much as 110 miles upstate. Rampant development of those watersheds could endanger the drinking water of ten million city dwellers and suburbanites. Conversely, an exodus from a city that becomes daily less habitable could threaten those bosky dells up the Thruway with cell-block construction and congested roads. Second, concentrate development as much as possible. New regionalists encourage more densely built town centers in order to keep at least 50% of existing farmland open. That way, change comes about without destroying the spirit of a place. Finally, make maximum use of existing sites to create ''urban villages'' combining residential, commercial, and office projects. One regional study + concluded that the expected residential development needs of the San Francisco Bay Area could be accommodated for the next 20 to 30 years mainly by building on vacant land on the urban fringe, developing downtown areas more densely, and utilizing bypassed land -- abandoned commercial waterfront, former rail yards, derelict industrial space. Regionalism is catching on. In the past five years, eight states -- among them Florida and Vermont -- have adopted growth management plans along these lines. Two more -- Washington and Maryland -- are about to do the same. In the Connecticut River Valley of Massachusetts, 19 towns and cities have banded together to develop the region coherently. Says Robert Yaro, senior vice president of the Regional Plan Association: ''This is a grass-roots movement. Even New Jersey doesn't want to be New Jersey anymore.'' - Brett Duval Fromson

THE SOCIETY WHAT COMES AFTER.GREED? Greed, though far from dead, seems to have gone into hibernation -- like a bear in a Dunhill suit. When did it slink off? Pop historians, hunting for symbolic events to mark its passing, can choose from these: Malcolm Forbes's estimated $2 million 70th birthday bash, followed by his death. The simultaneous collapse of Donald Trump's marriage and empire. Drexel's demise. Milken's indictment. Perrier's recall. Say this much for the Eighties: When they were over, they were over. ''Greed really turns me off,'' Henry Kravis confided to FORTUNE in 1988. And while the world's reaction at that time was to breathe a collective, ''Sure, Henry, sure,'' maybe Kravis, sincere or otherwise, was being prophetic. Author Tom Wolfe, 3 for 3 at catching the nation's mood (the Sixties, Radical Chic; the Seventies, ''The 'Me' Decade''; the Eighties, The Bonfire of the Vanities), sees a change in values coming. Says Wolfe: ''We are leaving the period of money fever that was the Eighties and entering a period of moral fever.'' Already there are glimmers of what an optimist might call the New Altruism. At Christmas 1989, in San Jose, California, food kitchens for the homeless were inundated with volunteers. This Thanksgiving, yuppies ladled soup there. A marketer of luxury condominiums, age 36, explains why he chose 1990 to begin volunteering at Manhattan's Covenant House: ''I spent a decade focused on my career. Now I've reached a point in my life where I want to give something back.'' Indeed, during the Nineties, a generation fueled by Sixties ideals and Eighties money is hitting middle age -- the time most people feel their public spirit start to swell. At Harvard business school, dean John McArthur has made ethics the centerpiece of a revamped curriculum. New graduates no longer brandish dollar bills to celebrate getting their degrees. In 1990 they waved little international flags instead. Notes Mark Pastin, professor of management at Arizona State University: ''A little while ago, all my students wanted to major in finance, so they could be investment bankers. Now they all want to go into manufacturing, to make something. It's like they're trying to atone for the Ivan Boeskys of the world.'' It is early yet to diagnose a rash of real saintliness. Greed has practical reasons for lying low right now. With recession battering the real estate and financial markets, it has fewer chances to gratify its lust. One Harvard business school student, tired of squinting into the glare of his fellows' halos, thinks money-hunger could roar back tomorrow: ''If investment banks came here again offering six-figure salaries en masse, you'd see applicants lined up six deep waiting to talk to them -- same way they did five years ago.'' Rather than a New Altruism, we may be witnessing the birth of a New Venality. Walter Klores and Jerry Gerber, authors of Lifetrends: The Future of Baby Boomers and Other Aging Americans, think that enlightened self-interest explains some boomers' flirtation with good works. At companies where managements recognize the dollar cost of institutional lapses in morality, boomers see doing good as a way to advance their careers. The monied perceive that charity has the power to defuse resentment. The unwashed now look upon the rich the way cats look at birds. What FORTUNE last year dubbed the Trust Gap is widening. Democrats and populists advocate soaking the rich as a cure for social ills. Donald Kanter, professor of marketing at Boston University and co-author of The Cynical Americans, detects growing antipathy toward wealth made ''too easily'' or ''too fast'' by paper- shufflers -- stock brokers, real estate promoters, bankers, and Wall Streeters generally. Some rich are naughty; others, who perspire and make things, are nice. This attitude that one source of wealth is good, the other bad, has percolated up to Capitol Hill, where Democrat Daniel Patrick Moynihan of New York has drawn a distinction between Senators like himself whose wealth is ''earned'' by labor (writing, speechifying), and those whose wealth isn't (income from property or investments). When he mischievously introduced legislation in August to limit Senators' unearned income to 15% of their government salaries (the same as the limit on earned income), it passed the Senate -- nays from multimillionaires Bentsen, Heinz, Kennedy, and Rockefeller notwithstanding. Since it was attached to a campaign finance bill President Bush had promised to veto, the Senators could afford to let Moynihan make his point. Any form of preferment that can be said to be ''unearned'' is coming in for scrutiny, including real or imagined quotas for minorities. Populists such as Louisiana's David Duke capitalize on the resentment by sawing away at set- aside programs that benefit minorities. ''Do you realize,'' asks Duke, ''that governments are awarding contracts to firms whose bids are higher and whose work is often substandard? These programs are unfair.'' Scholars like Shelby Steele at San Jose State University say the unearned advantage that affirmative action programs give his fellow blacks is counterproductive. In this darkening atmosphere of envy and suspicion, with recession under way and populism ascendant, only the foolish or the brash will flaunt advantages, earned or otherwise. Altruists and New Venals alike will find modesty an ever more becoming garment for the Nineties. - Alan Farnham

WHY NOBODY CAN LEAD AMERICA For all their grimness, the early days of the Persian Gulf crisis provided a shining moment of leadership. In a matter of days, firm and purposeful, President Bush created the most powerful alliance in world history and united his country behind him. But how quickly that moment slipped away, replaced by the bickering and opportunism that have come to characterize U.S. politics. Events in the Gulf may yet help Bush pull from the fire the instrument he forged, but the episode was an especially poignant reminder that leadership doesn't last long on the American political stage these days. Why not? William Schneider of the American Enterprise Institute thinks Bush is the problem: ''He is a professional. He can make deals, usually good ones. But they look like deals, because the public is left out of the process.'' In this sense he doesn't do politics, just as some people don't do windows. That reticence hurts when people need to know why they should support tough decisions on issues such as war and spending. Schneider's point is shrewd, but the problem is broader. Despite the Animal House food fight over the 1991 budget, a Republican president and a Democratic Congress did manage to make a deal -- and one that cut spending and raised taxes just before an election. That they came together at all would have been considered a triumph of bipartisan leadership in decades past. Instead, Americans hooted and fumed -- then re-elected incumbents as if resigned to an inevitable leadership vacuum in Washington. Excessive pessimism is ''too cheap and easy,'' says Richard Neustadt, the Harvard professor who wrote the classic study of presidential power. Nevertheless, he is not optimistic about quick solutions: ''I don't see any light at the end of the tunnel. Let's hope that's just because there's a curve in it.'' He ticks off some things that make governing harder than it used to be: -- Television, which encourages leaders to strike poses rather than form coalitions or address issues (''fundamentally, we get our news from an entertainment medium''). -- The waning power of political parties, which reduces the penalty for politicians who pursue narrow agendas and deprives congressional leaders of reliable support from their troops. -- Hardening institutional jealousy between the White House and Congress. Ever-expanding claims of executive prerogative are matched by ever finer congressional nit-picking -- and both are exacerbated by persistently divided government. All these factors frustrate leadership. And leadership, as distinct from management, is what complex organizations need to strike out in new directions or to create a framework within which problems can be solved, not merely put off. Leaders build teams; managers form committees. What's the difference? Says management expert Ralph Stayer: ''A team has a vision. Committees have agendas -- often, separate agendas.'' Fractious, polycultural, and self-absorbed, Americans have endless agendas and no inhibitions against pressing them regardless of others. As John Donahue of Harvard's Kennedy School of Government puts it, the U.S. suffers from ''the flip side of the social boon of choice.'' Economic, cultural, and political divisions threaten to rend what Justice Felix Frankfurter called ''the binding tie of cohesive sentiment that is the ultimate foundation of a free society.'' Politicians struggle unsuccessfully to lead this 250-million-soul committee and its seemingly infinite subcommittees. Is it that they don't know how, or that the committee refuses to be led because its members so rarely agree on where to go -- and see no penalty for not agreeing? A business leader can develop visions and inspire in part because he has a captive audience: Your job, or at least your bonus, may be at stake. The public doesn't see what's at stake. Says Neustadt: ''An economic or international threat -- simple enough, sharp enough, clear enough -- might do wonders for this country. But the threats we'll get won't be that simple.'' Vision -- and myths and heroes that embody it -- is high among the things it will take to fill the leadership vacuum. Says Peter Kreeft, a professor of philosophy at Boston College: ''To be a leader you have to lead people to a goal worth having -- something that's really good and really there.'' Kreeft calls it ''metaphysical sanity,'' and it's never been in shorter supply. But where is the leader who can articulate such goals when so many people insist on their separate agendas? RESTORE METAPHYSICAL SANITY: Not much of a campaign slogan, but it would make a dandy bumper sticker. And it's a heckuva good idea. - T.A.S.

E PLURIBUS WHAT? There has been ''a permanent change in the content of American culture,'' says E. D. Hirsch Jr., author of the best-selling book Cultural Literacy. While Americans bemoan how little their kids learn in school and how much it costs to send them to college, debate rages over what they should be taught. On one side are people like Allan Bloom, the unabashedly elitist professor at the University of Chicago who wrote The Closing of the American Mind, and more than a thousand academics in the Princeton-based National Association of Scholars. They lament that academia is watering down the rich stew of Western culture's great works with a thin gruel of politicized ''oppression'' studies. On the other side stands a revisionist band. Some, like Gerald Graff of Northwestern University, argue that ''there is no monolithic Western tradition -- the assumptions that writers make about class, gender, and so forth are legitimate objects of study in literature.'' Others loudly demand a bigger place in the so-called canon -- the acknowledged body of great works to which all students should be exposed -- for whatever group they represent. The old joke is that academic politics are so fierce because the stakes are so low, but the latest brouhaha is about nothing less than the definition of American culture. Traditionalists see it as an extension of European civilization, the torch kindled in ancient Egypt and Greece, passed on to Rome, then to Western Europe and the U.S. There, depending on who's talking, it reached its finest flowering or its tackiest attenuation -- ''the Plato to NATO story,'' Stanford undergraduate dean Thomas Wasow calls it. Radicals argue that ethnic cultures are so different that they have little to do with one another. At their wackiest, these ''particularists'' (as Columbia Teachers College professor Diane Ravitch tags them) say there were no Hebrew slaves in Egypt because -- are you ready for this? -- ancient Egyptians were blacks and would never do such a thing. Let parochial schools glorify particular cultures, Ravitch says; if public education took the notion to its illogical extreme, ''you'd teach the Pythagorean theorem only in Greek neighborhoods.'' Centrists like Ravitch charge that both camps lack a sense of the rich, and changing, legacy of American and world culture. The image of the U.S. as a melting pot was always more romantic than real. (And alien to boot; it was invented in 1908 by a British playwright, Israel Zangwill, imagining a Russian Jew's life in the U.S.) Call it a salad instead, offers Corning CEO James R. Houghton, one of the business world's most outspoken supporters of cultural diversity. But a salad needs a bowl -- something to keep its Boston lettuce, Belgian endive, and Greek olives together. That something is multiculturalism. The word is in danger of becoming synonymous with particularism, which is both a mistake and a pity. Yes, multiculturalists maintain, Americans are many peoples with many histories, but they are also one people whose stories overlap and interact. E. D. Hirsch, who is developing a core curriculum for elementary schools, thinks that the defenders of the old order have to face up to new realities about American and world culture. Says Hirsch: ''There's an old saying that history is the story of the winners. We have more winners now, demanding that their contributions be recognized in schools. Not only is this legitimate, it's not going away.'' Separate the heat from the light, and multiculturalism isn't as shocking as some of its antagonists maintain. True multiculturalists like novelist and publisher Ishmael Reed feel like members of the Light Brigade, with canons to the right of them, canons to the left of them. ''We're caught between the Eurocentrists and the Afrocentrists,'' Reed complains. There's plenty of room to wrangle in the middle, too. Some multiculturalists, like Reed, feel that celebrating diversity takes precedence over finding common cultural ground, and say American education is too Eurocentric. Though he teaches at Berkeley, no white male bastion, Reed says, ''I see less Eurocentrism when I teach at universities like Heidelberg and Bologna.'' Others such as critic James Atlas extol the virtues of assimilation and argue forcefully for teaching a canon, albeit a more inclusive one. Says Atlas: ''A shared pool of knowledge is as important as a common language.'' While what goes into the pool can be debated endlessly, it's hard to argue that it should not be well and variously stocked. About 125 years ago the argument was over whether English literature was a subject worthy of study alongside the classics -- and the idea of teaching American literature was downright radical. When a British critic sang the praises of Walt Whitman's poetry, a writer in Harvard's undergraduate literary magazine retorted: ''Nobody can force us to drink from the polluted bucket a maniac has filled.'' Opening the canon once again ''isn't the end of Western civilization,'' says Hirsch. Progress comes when cultures meet, clash, and steal each other's best ideas. Part of the good news about a global economy is that these meetings and minglings become more likely to benefit both sides.T.A.S.

HOW TO BE A POLITICALLY CORRECT PERSON Campus orthodoxies are nothing new, as anyone knows who went to college in the late Sixties -- or the mid-Fifties or the early Eighties, for that matter. The credo of the moment is to be ''politically correct,'' as it's derisively known -- p.c. for short. If you don't know what being a p.c.p. (politically correct person) entails, you aren't communicating enough with your children. Here's a primer on its premises -- beliefs that go without saying: -- Those who are not white males have been systematically victimized by them. Victims include nonhumans, e.g., Alaskan beaches and old-growth forests. -- The purpose of government is to redress this victimization. This can be done only by promoting equality of outcomes via income redistribution and affirmative action. -- Nonvictimized groups simply cannot understand the experiences of victimized ) groups, whose members must therefore not be disputed when they define their history or their needs. In this respect, being a p.c.p. differs from being a Sixties activist. -- Although you cannot understand the sensibility of victimized groups, proper social behavior -- i.e., etiquette -- requires being acutely attuned to it. It is p.c. for Hispanic students to put on a festival of Latino culture, but not for fraternities to host a South of the Border party. (It is also incorrect, because elitist, to throw a party celebrating French culture and cuisine.) Well. The environment does need saving; ethnic slurs are disgusting; government should play a role in helping the disadvantaged, who could be said to have been victimized. But all too often the p.c. position on these matters is argued as if it were beyond dispute, and the guardians of p.c.-ness use it to close down reasonable dissent and inquiry. Then it's as vile as toxic waste. What should one do when accused of not being p.c.? Treat these latest orthodoxies gravely and tolerantly. Avoid both patronizing smiles and angry contradiction while challenging them, earnestly, when they lack intellectual rigor -- as they often do. The kids will outgrow them, even if their professors can't. After all, graduates of the Vietnam years became the ferocious investment bankers of the Eighties, and your dad was a Marxist in the Thirties.- T.A.S.

IN SEARCH OF A MASCULINE MYSTIQUE In the hill country outside Austin, Texas, about 150 mud-smeared, mostly middle-aged men are dreaming heroic dreams. They beat drums. They snake-dance across the sun-dappled glen. They hug. They grieve for the loss of their absent fathers and long for their ''male mothers,'' those strong, caring mentors of yore who initiated boys in the rites of manhood. Through their rituals they evoke the benign quintessence of primitive maleness that lurks within. Welcome to the most exotic flowering of the men's movement. In the past year dozens of such weekend gatherings have drawn thousands of enthusiastic seekers after a new masculinity. The father spirit of all this hairy-chested, tenderhearted manliness is poet Robert Bly, author of a recent exploration of masculinity called Iron John and the subject last January of a 90-minute PBS special by deeply feeling TV interviewer Bill Moyers. Something serious is going on here, though it is easier to understand what the new movement isn't than what it is. It is not a reactionary cult that reviles the progress women have made. It certainly is not a men's auxiliary of feminism that sees differences of gender as a throwback to a ruder age and that looks forward eagerly to an androgynous future. This movement starts with a fact feminists often overlook: Men have troubles too. It is a response to social and cultural forces that have them searching, sometimes desperately, for ways to redefine their roles as breadwinners, husbands, and fathers. The generation of American men born in the late 1940s and 1950s were the last reared in homes where mom reigned and dad disappeared daily to an almost exclusively male workplace. Now in their 30s and 40s, they vie with female colleagues for promotion on a career ladder jammed with fellow baby-boomers. Their wives probably work too, so they face demands for sharing domestic duties that dad never imagined. Says Morton H. Shaevitz, a psychologist who heads the Institute for Family and Work Relationships in La Jolla, California: ''Men today are troubled by contradictory expectations. There's been no diminution of the pressures they feel to compete and succeed at work, yet they are held to a higher standard to be better parents and husbands.'' As they try to resolve the conflict, more men are turning to what Shaevitz and others in the movement call ''an inner quest for balance and personal growth.'' That means reaching out to one another -- talking about feelings and relationships, as women more comfortably do. Says Buddy Portugal, a Chicago psychotherapist who holds weekend seminars for questing groups: ''For the past two decades women have been struggling to expand their role in society. Now it is men's turn to learn how to expand their relationships -- with their co- workers, their families, and each other -- by learning to give voice to their feelings.'' Portugal says the goal is to find room in the male psyche for both power and intimacy -- a middle ground between men as brutes and men as wimps. But if the new-model male remains blurry as yet, men have at least begun to ask seriously what the social revolution that has moved women so far over the past two decades means to them. - L.S.R.

EDUCATION THE RIGHT TO CHOOSE A SCHOOL The once startling idea that public money should pay for children to attend whatever school they like has suddenly picked up momentum. In December the U.S. Department of Education opened an office intended to help teachers, administrators, and parents who want to explore free choice. The Center for Choice, as it's called, even has a toll-free hotline: 1-800-442-PICK. Milwaukee was 1990's big battlefield for choice advocates, and its Barbara Frietchie was Wisconsin legislator Polly Williams. She carried the flag by battling the state education bureaucracy for a law that would let up to 1,000 low-income Milwaukee students leave public schools and enroll in nonsectarian private ones instead. The state is paying up to $2,500 per student, using money that would have gone to the Milwaukee public schools. Milwaukee thus joins -- at least for now -- several states that finance some form of school choice, though the others are restricted to public schools only. The Wisconsin Court of Appeals upheld a technical challenge to the law after Governor Tommy Thompson signed it, but it remains in effect while the parents and private schools fight back. Says a determined Williams: ''Right now there are no choices for poor children in public schools. The threat of competition from private schools may be what the public school system needs to get off its behind and change.'' Scholarly firepower for the choice movement comes from Politics, Markets, and America's Schools, a new book by John Chubb of Washington's Brookings Institution and Terry Moe of Stanford. Chubb and Moe recommend deregulating schools completely, removing practically all state-imposed rules, regulations, and performance standards and instead making schools accountable to parents and students who are free to use -- and choose -- their services. Chubb and Moe argue that all students should be allowed to attend any certified school in their state, with public money flowing to those they select. Any group or organization that met basic health, safety, and graduation requirements could compete. Schools would receive extra money for high-risk students -- for example, those with learning disabilities. Many business people welcome the idea of opening up the school business to practically anyone who wants to enter. Says Joe Alibrandi, chairman of Whittaker Corp.: ''The public school system is a rule-driven monopoly, like the post office and the Soviet Union. It's a failed concept. To run the most important function we have with a failed system is inexplicable.'' Deregulation of education raises a host of tough questions. Parents might choose schools for the wrong reasons -- say, because they provide on-site day ( care or have a good football team. Then there's the double-edged problem of race and religion. Would state funds flow to a parochial school or one opened by the Ku Klux Klan -- or by black separatists? Warns Albert Shanker, president of the American Federation of Teachers: ''Public money would be used to tear society apart. It is sowing the seeds of future religious and ethnic rivalry.'' Chubb and Moe counter that under their plan, at least, states would be able to bar schools that teach racism. Others who oppose choice complain that better-off families now paying for private schools would also qualify. But the affluent would continue to support public education with the taxes they pay. Finally, some people worry that choice is diverting attention from deeper problems. Says Chris Whittle, chairman of Whittle Communications: ''Choice without redesign of the schools is practically useless. We don't need to add more candles to the chandelier. We need to invent the light bulb.'' Proponents reply that giving market forces a try is bound to help. Alibrandi wants to sponsor a controlled free-market education experiment for low-income kids in Los Angeles. Says he: ''What have we got to lose? The arguments about poor kids being left in bad schools -- well, where are they now? The reason educators are afraid to let students leave the public schools is that they agree the alternative is better -- and the proof is that many send their kids to private or parochial schools.'' Could choice mean business opportunities for the private sector? You bet. Companies are already zeroing in on the education market. In December the Dade County, Florida, school board hired a private company, Education Alternatives Inc., to help design and run its newest elementary school. - Nancy J. Perry

SETTING STANDARDS FOR SCHOOL SUCCESS Just about everyone agrees that the U.S. has to raise school standards if the country is to have the competitive work force it needs. But then what? If the hurdles get higher, how can society keep students of ordinary ability from turning off and dropping out? One promising way out of that dilemma comes from a bipartisan panel called the Commission on the Skills of the American Work Force. The group's leaders include Ira Magaziner, a 1960s activist who is now president of SJS Inc., a foundation in Providence, and former Labor Secretaries William Brock and Ray Marshall. The proposal, made last summer, is that every high school student should get a ''certificate of initial mastery.'' Beginning as early as grade school, children would be expected to show steady proficiency in their work, picking up credits toward their certificate as they go along. To supplement basic schooling, teachers would help students design and carry out such group projects as writing a software program to run a piece of industrial equipment. These team-building exercises, which could last as long as an academic year, would put classroom training to work solving practical problems like those the students will face in a job. As they accumulate credits toward the certificate, they would build a portfolio of their papers, test scores, and project results for final evaluation by teachers, experts in the various subjects, or panels of community leaders. The evaluations would usually come in the junior year of high school. Employers fed up with today's largely meaningless high school diplomas should welcome a rigorous national certification system. Equally important, the commission hopes, certification should stoke the fires of school reform. The heart of the program is continual evaluation of student performance, measured against national norms. Instead of periodic benchmark tests designed to sort out the ablest kids, the frequent assessments the commission urges would help teachers spot learning problems in average pupils early and overcome them before discouragement sets in. The concrete projects students work on would also help them take schoolwork seriously and build their self- confidence. The steady feedback from the program would measure the educators' skills too. Says Magaziner: ''The nation spends some $370 billion on education each year, but we have no idea what we are getting for that investment. A high rate of student success against a challenging standard would tell teachers and administrators that they're doing their job.'' For that reason alone, many in the education bureaucracy will fight the idea. Nevertheless, Magaziner is optimistic that it will catch on. Already, he says, ''a good number of states'' plan to create assessment systems modeled on the proposal. The added price of educational competence? Nothing for students who already go on to complete their schooling, says Magaziner, since the vast sums that are now being spent should be ample to produce far better results. Another part of the plan, however, would be expensive. Schools would no longer be able to write off the roughly 800,000 students a year who drop out. State and federal aid usually ends when they leave. Under the commission's proposal, the money would keep coming; it would follow the dropouts and go to finance alternative education programs to help them finish. Reclaiming those dropouts, the commission estimates, would cost $8.2 billion a year, which deficit-strapped governments can ill afford. But if it's the best alternative to doing nothing, consider it cheap. With the economy facing a growing shortage of skilled workers, can the U.S. forgo the additional work- ready, can-do graduates such a system might produce? - L.S.R.

FINANCE CASH: ONCE TRASH, NOW TREASURE Ex-billionaire Donald Trump knows a hot idea when he hears one. Several months ago, when he was trying to unload the Trump Shuttle, he announced that cash was in, debt was out. Poor Donald -- if only he had put his money where his mouth was, he wouldn't be in hock to banks and bondholders today. In the decade of debt financing, cash was trash. It wasn't smart to sit with it when other assets were going to the moon. But in the past 12 months, everything except cash has come crashing down to earth. Mergers and acquisitions are off nearly 50% because few corporations can borrow the money to swing a deal. Reputable real estate developers are going bust, and heavily mortgaged homeowners cannot afford to sell at market-clearing -- that is, rock-bottom -- prices. Meanwhile, cash in the form of Treasury bills is returning a steady 7% to 8%. Cash is king, but how long will this uncompromising sovereign reign? Says James Grant, editor of Grant's Interest Rate Observer and an early prophet of the dash to cash: ''I think a long time, because of the extreme indebtedness built up in the 1980s. By historical standards, the banking system is woefully undercapitalized. Corporations are deep in debt, and individuals are too.'' The ascendancy of cash implies that credit will be tighter in the Nineties than in the Eighties. Lenders will discriminate against corporations with weak balance sheets, putting them at a competitive disadvantage. Compare Nordstrom, thewell-financed Seattle-based departmentstore chain that is steadily expanding, with R.H. Macy, which is selling equity and trying to shed assets to pay down debt. Investors with cash are already flying to vulture funds, which buy the securities of distressed companies at low prices in hopes of earning extraordinary returns over the long run. This is, however, a dicey game. ''So far in 1990 many of the vultures have lost more money than they have made,'' says Grant. He notes that after the crash of 1929, the so-called smart money jumped into stocks -- only to be wiped out because the market didn't bottom until 1932. For homeowners and commercial real estate developers, King Cash means that property prices will likely remain depressed. Why? Explains investment banker Lewis Ranieri, chairman of Ranieri Wilson & Co.: ''In today's environment, where asset values are falling, tighter credit standards are being imposed.'' Take, for example, a $100 million office building. In the good old days of debt, you could finance its purchase by putting up only 5% cash -- $5 million. Today, not only has the value of the property fallen to, say, $60 million, but a potential buyer must also come up with 25% cash -- $15 million. That's a high enough hurdle to forestall any rapid recovery in real estate. The macroeconomic implications of cash as an appreciating asset may not be pretty. Grant, for one, thinks that deflation -- that rare bird not seen on the American continent since the 1930s -- is a distinct possibility. Says he: ''If people decide that cash is a better store of value, then prices for houses and companies can only decline further. Potential buyers will demand that sellers capitulate on price before they will exchange the safety of cash for the illiquidity of other assets.'' Is there anybody left who doesn't understand that cash is now king? True story: Recently, an 8-year-old boy, visiting Trump's Plaza Hotel in New York City with his mother, spotted a forlorn salesgirl selling copies of Trump's two books in the lobby. Why, he wondered, were they being sold in a hotel? Said she: ''Because Mr. Trump owns the hotel.'' Replied the boy: ''I thought the banks owned it.'' - B.D.F.

ASSETS SHOULD BE MARKED TO MARKET Oh dear, accounting. Wake me when it's over, right? Except that if you sleep through this one, Mr. CEO, you might not recognize your company in the morning. In 1990, prodded by Chairman Richard Breeden, the Securities and Exchange Commission set in motion a process that may radically change the way accounting works. It is, says SEC commissioner Philip Lochner Jr., ''completely at odds with the accounting we've used since day one.'' The SEC wants all financial institutions to carry their portfolios of investment securities on their books at market value. Brokerage houses have done that for years, but banks carry them at ''historical cost'' -- that is, purchase price. The rationale: Merrill Lynch's stocks may be sold tomorrow, but Citicorp will hold its Treasury bonds till maturity. Breeden thinks that's a distinction without a difference -- especially since more and more bank assets, like mortgages, have become securitized and trade in secondary markets. Historical-cost rules undervalue a bank's best investments and overvalue its worst ones -- and when a bank fails, market value is the only measure of its assets that matters. To nonaccountants it doesn't sound like a big deal, but to hear some bankers talk, it's the worst idea since the income tax. Donna Fisher, who is leading the American Banking Association's vociferous opposition, says it would be ''a complete uprooting of the way banks manage their business'' and might ''jeopardize the industry.'' Fed Chairman Alan Greenspan sent Breeden a stiff letter; his kindest comment was that mark-to-market accounting is ''interesting, but not a relevant measure of the success of commercial banking.'' The bankers' position: Because such a high percentage of banks' assets are loaned out, even small changes in interest rates could cause their balance sheets to swing wildly, shaking confidence in the banking system. To reduce volatility, banks might shorten the maturities of their investments and make less money available for long-term fixed-rate loans -- thus raising the cost of capital. Besides, says Fisher, loan-loss reserves already do an adequate job of revealing problem assets -- and will do it even better when disclosure rules are toughened in 1991. Breeden counters that many savings and loans were already insolvent by the early 1980s, although their financial statements did not show it. Stricter rules will still leave a lot of latitude for opinion; better to rely on hard data than on bankerly judgment, however tightly circumscribed. As for volatility, Breeden says, ''You would think there were no devices available for hedging.'' Any investment banker knows how to protect against interest-rate fluctuations by holding a mix of bonds and various complex securities derived from them. Says Breeden: ''The question is not what possible inconvenience it will be to banks but why any institution should be able to potentially mislead creditors and shareholders by reporting that the ! value of its assets is greater than what it knows it to be. In other situations, that would be called fraud.'' Trouble is, no one really knows how mark-to-market accounting would affect the banking system. Says Harvard business school finance professor Samuel Hayes: ''If the market has X-ray vision, this will just make accounting statements recognize a reality it already sees.'' In other words, if the market is efficient, mark-to-market accounting won't amount to a hill of beans, and the people who count them can rest easy. Breeden sees plenty of evidence that the market doubts the numbers banks report. Says he: ''Look at the stock prices. For some money center banks, the P/E ratios are a third of the market average. It's clear that the market is making adjustments for the fact that assets are allowed to be portrayed at a higher value than the market believes is accurate.'' In the end, it's the SEC's call. If it goes ahead -- and that will be known in 1991 -- all financial institutions will be affected, including insurance companies and corporate lending arms like GE Capital Corp. and General Motors Acceptance Corp. Down the road, Breeden wants studies on mark-to-market accounting aggressively pursued for loan portfolios. Any changes would affect nonfinancial corporations as well. As a matter of principle, he says, historical cost accounting should be reserved for cases where it is truly justifiable -- such as your office computer network or the machinery in an aging plant. Real estate, ''you can argue either way.'' If companies had to estimate market value for highly illiquid assets, it could introduce a risk of flimflammery greater than the one Breeden wants to correct. - T.A.S.

NO PAIN, NO GAIN FOR THE FDIC Investor Warren Buffett has a prescription for what ails the Federal Deposit Insurance Corp. Private underwriters should insure a small percentage -- say 3% to 10% -- of all bank and thrift deposits save those in very small institutions. If they did, the insurance companies' expert risk assessors would set premiums high enough to penalize institutions that are plunging into dangerous waters. Then the government could apply the private underwriters' fee schedule to the deposits it continued to insure. Private insurance companies can't backstop all bank and thrift deposits, of course -- at $4 trillion, the amount is just too large for them to swallow. But the Omaha oracle argues that insurers have plenty of experience pricing their product. Says Buffett: ''What is needed is a system that combines the ability of private insurers to evaluate risk with the ability of government to bear it.'' Buffett's notion is picking up support. Earlier this year, Senator Alan Dixon, an Illinois Democrat on the Senate Banking Committee, introduced a bill with similar features. Regulators once cool to the idea are also coming around. In December the FDIC itself suggested linking rates to the risks banks take -- possibly, as Buffett suggests, by requiring them to buy 10% of their insurance from private companies. Buffett is ready to put his money where his mouth is: His Berkshire Hathaway holdings include an insurance company. What happens when weak banks fail because they can't afford market rates for deposit insurance? Not to worry, says Buffett: ''If an insurance structure doesn't produce pain, it won't produce change.'' - Gary Hector

DO WE REALLY NEED BANKS? The seemingly bottomless bad news about banks and S&Ls has pushed financial reform to the top of the Bush Administration's agenda for the new year. Still punch-drunk from the $200 billion S&L mugging, Congress must now grapple with the commercial banks. All those ill-considered loans -- to self-styled real estate grandees like Trump, leverage junkies like Campeau, and less developed countries like Brazil -- weigh down bank balance sheets with monuments to bad judgment. Even the Federal Deposit Insurance Corp. is in trouble. Says Comptroller of the Currency Robert Clarke: ''The discussion in Washington on banking's future really comes down to one question: Do we need the banking system we have now?'' Though Clarke sees a clear need for banks, he admits the answer is not a foregone conclusion. Says he: ''Those who say no will argue that there is nothing unique, much less sacred, about the banking system. Congress created it. Congress can change it.'' Indeed, a U.S. Treasury study is examining the case for a radical rearrangement. Among the ideas under debate: tearing down the tattered barriers between investment and commercial banking and allowing capital-rich companies like General Electric, General Motors, and American Express to affiliate with banks and help strengthen their capital base. Also on Treasury's agenda: finding ways to shore up the FDIC. Once upon a time commercial banks and savings institutions provided unique services. They accepted deposits, doled out cash, processed checks, and gave customers a warm and safe feeling about their money. Today virtually anything a bank does can be done -- often better -- by someone else. Dole out cash? Americans have always been able to cash checks in supermarkets, and now automated teller machines squirt out $20 bills right next to the squash. American Express, AT&T, and Sears issue credit cards. Dreyfus, Fidelity, and other mutual fund organizations provide dandy savings and checking accounts -- though they impose minimums on the size of the checks and they might balk at the low balances banks routinely accept. General Motors Acceptance Corp. and Ford Motor Credit make auto loans, mortgage bankers finance your home, and GE Capital Corp. and insurance companies meet the borrowing requirements of business. Who needs a bank? And who needs one dumber than Clyde Barrow? All those deposit-taking institutions brought their current problems on themselves through prodigal lending. Bring prudence back into fashion, the argument goes, and banks could regain their rightful place in the financial world as respected custodians of customers' money. Alas, nothing is that simple. Advances in technology, the spread of credit information, and innovations in financial markets have blown up the world that bankers knew. Their best customers no longer need them, while those that do -- the Trumps, Campeaus, and Brazils -- need them too badly. The companies that compete with banks in financial services have some distinct advantages. Many industrials can borrow more cheaply than banks in public debt markets, so they can charge their customers less. Financial concerns can process credit information just as efficiently as banks; their technology is just as good -- or better. Worse, these competitors are frequently run by tough-minded managers who have never known the coddled world of a regulated industry. Big companies, however, probably can't meet the banking needs of small and medium-size businesses as well as local lenders can. So the nation's continued economic health may require institutions that look, walk, and quack like commercial and savings banks. But isn't a massive deposit insurance scheme that has already cost the taxpayers some $200 billion a lot to pay for a duck? - G.H.