1990s (405d040a)

The 1990s appear in the book as a decade of striking contradictions: American firms emerged leaner after the failures of the old corporate model, yet hierarchy and concentrated authority remained influential; companies praised decentralization even as they celebrated CEOs as corporate saviors; and an explosion of financial news accompanied a market bubble in which investors increasingly watched and followed one another. The period’s significance lies in this conflict between the promise of widely distributed knowledge and the persistent organizational and market pressures that can suppress or distort it.

Corporate Restructuring and the Persistence of Hierarchy

American companies responded to the collapse of the old corporate model in the wake of the 1970s by reinventing and reengineering themselves. By the end of the 1980s they had emerged leaner and more efficient. Yet the assumptions that integration, hierarchy, and concentrated power produced success continued to hold much of American business in their grip. Silicon Valley firms, generally more decentralized and less committed to top-down decisions, made other companies eager to appear as if they were pushing authority downward. In practice, the appearance often exceeded the change, despite information technology making it increasingly feasible and cost-effective to distribute information among employees.

The practical obstacle was not simply outdated structure but the incentives and relationships that structure produced. In an example from a machine shop in the early 1950s, workers paid by piece rate restricted their output because working faster could lead management to raise the thresholds needed to earn higher rates. Their attention shifted from maximizing production to manipulating the incentive system. The book connects that pattern to corporate targets: when managers receive disproportionate rewards for surpassing forecasts, they have reason to set easily attainable goals and, once those goals are fixed, to manipulate results—including through accounting choices that improve current performance at future expense. The comparison makes the information problem concrete: a system intended to reward achievement can encourage people to conceal what they can really do or what the business is really facing.

Ownership, Authority, and the CEO Ideal

During the decade, stock options became an increasingly prominent way for companies to align employees’ interests with corporate performance. The book notes that research on broad-based option grants found gains in productivity, profits, and stock-market returns. Even modest grants could foster a sense of ownership, but the potential benefit depended on distributing options widely; most U.S. corporations still directed the great majority of them to a small circle of executives. Ownership incentives, in this account, were not a substitute for giving employees real decision-making power. Rewards had to accompany work practices that allowed workers to influence decisions.

That argument sat uneasily beside the decade’s growing celebration of individual CEOs. In the 1940s the average American would not have known Alfred P. Sloan; in the 1990s, the book argues, the public certainly knew Jack Welch. The trend had begun in the 1980s, when Lee Iacocca became a symbol of American capitalism’s revival, but accelerated as executives with only a few good years were hailed as visionaries. Companies, investors, the press, and the public embraced the idea of the CEO as a corporate savior. A survey found that 95 percent of investors said they would buy a stock based on their opinion of the company’s CEO, a striking measure of how strongly corporate reputation could be attached to one person.

The same faith produced an abrupt reversal when leaders failed to meet expectations. CEO tenure during the 1990s was shorter than ever: executives could be treated as superheroes and then quickly dismissed as failures, often with golden parachutes. The book questions whether the evidence justified the belief that an individual at the top could reliably make superior strategic decisions. Roughly 80 percent of new products failed to survive their first year; corporate profit margins did not rise over the decade even as executive compensation soared; and approximately two-thirds of mergers destroyed shareholder value. These figures do not establish that CEOs never matter, but they challenge the presumption that their decisions are consistently exceptional.

Market Bubbles and Collective Judgment

The decade’s corporate and financial optimism also formed the setting for a broader argument about collective judgment. The book identifies the technology-stock bubble of the late 1990s as one of the rare episodes in which a broad swath of investors appeared caught in a shared frenzy. Smaller bubbles had gathered around particular sectors, but in a major bubble, prices lose their connection to underlying value: people buy because they expect prices to keep rising, until the expectation breaks and investors rush to sell. The Internet was genuinely transformative, just as other manias had begun around real trends. The danger was that a plausible initial opportunity could become a market in which investors increasingly took their cues from other investors.

The financial-news boom intensified this tension. In the late 1990s, the Internet and cable television gave investors access to vastly more information about companies and markets. CNBC became an especially influential source: at the market’s peak, seven million people watched it each week, and its coverage reached far beyond trading floors and brokerages. Its continuous reports and stock ticker made the market seem to speak to itself. Yet as the network’s popularity grew, it did more than report market activity: unintentionally, it began to move markets. In the book’s account, the influence lay not only in what was said but in the attention generated by its being said there. More information did not automatically mean better independent judgment; under conditions of imitation, a faster and more pervasive flow of market news could help synchronize investors’ reactions.

A Decade of Unresolved Tensions

The decade’s defining contrasts reach beyond finance. Companies recognized the potential of decentralization and broad employee participation, yet the CEO ideal concentrated public attention and presumed authority at the top. Stock options could spread a sense of ownership, but their benefits were limited when most grants went to executives rather than the workforce. Technology expanded access to information, while corporate structures and market imitation could still block its effective use. The 1990s therefore stand not simply as a period of innovation or excess, but as a test of whether information and responsibility could be distributed widely enough to improve decisions.

In the book’s wider account, collective intelligence requires more than assembling information or adding communication channels. It depends on preserving independent judgment, making local knowledge usable beyond its point of origin, and designing incentives that do not reward concealment or conformity. The 1990s provide examples of both the promise and the failure of those conditions: broad-based ownership and decentralization offered alternatives to rigid hierarchy, while CEO worship, distorted targets, and the market’s self-reinforcing news cycle exposed how easily apparent access to information can coexist with poor collective judgment.