Gilded Age II

How did it all start? What triggered the 1990s political corruption, its inequality in wealth and its stock market bubble? This is the decade that Kevin Phillips rails against in his historical epic of how the rich get richer and the poor get further in debt.

Arguably it all started in Silicon Valley, with a little help from the Department of Defense (which pioneered the epochal breakthroughs--transistor and Internet--that sparked the electronics revolution). Given the government's basic research, such private companies as Hewlett-Packard, Microsoft, Apple, Intel and Cisco generated creative, profitable products using new technologies. As the intellectual property of these well-managed companies began to rise, their stock prices began to rise, as did those of their suppliers, buyers, competitors, financial consultants, management analysts, lawyers and accountants. Even the stock prices of companies unrelated to high tech began to soar.

The frenzy struck executive salaries. Top-notch high-tech managers made a lot of money because their pay was tied to stock options. As their company's stock price skyrocketed, so did their salaries. Soon other corporate leaders--good, bad and indifferent--tied their own salaries to the price of their company's stock. The financial markets regarded stock options as a way to make managers more "efficient" using the litmus test of stock-price performance. In practice, some managers cooked the books and inflated stock prices by making risky short-term investments and acquisitions. Long-term investments in new plant, equipment, research and intellectual property, necessary for permanent jobs, became an afterthought.

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