The joint stock company, limited liability, and the principle of linking managers' rewards to those of shareholders were all good ideas that spurred economic growth. But they also have had some dangerous consequences.

In the wake of the recent corporate scandals, it's time to reconsider the assumptions underlying American-style stock-market capitalism. That heady doctrine--in which the market is king, success is measured in terms of shareholder value, and profits are an end in themselves--enraptured America for a generation, spread to Britain during the 1980s, and recently began to gain acceptance in Continental Europe. But now, many wonder whether the American model is corrupt. The American scandals are not just a matter of dubious personal ethics or of rogue companies fudging the odd billion. And the cure for the problems will not come solely from tougher regulations. We must also ask more fundamental questions: Whom and what is a business for? And are traditional ownership and governance structures suited to the knowledge economy? According to corporate law, a company's financiers are its owners, and employees are treated as property and recorded as costs. But whereas that might have been true in the early days of industry, it does not reflect today's reality. Now a company's assets are increasingly found in the employees who contribute their time and talents rather than in the stockholders who temporarily contribute their money. The language and measures of business must be reversed. In a knowledge economy, a good business is a community with a purpose, not a piece of property.

Why is business so admired in the United States and so often denigrated in Europe? How has America created 30 million new jobs in the last 20 years while the European Union, with a bigger population, only managed 5 million? What is feeding America's apparently inexhaustible appetite for growth and its recent dramatic improvements in productivity? In 1831, French philosopher Alexis de Tocqueville came to America to examine its prison system and returned with a vision of democracy so profound it has become part of our cultural heritage. More than a century and a half later, renowned British business philosopher Charles Handy retraces Tocqueville's intellectual journey, this time focusing not on democracy but on capitalism. The result is an eye-opening look at some of the fundamental assumptions underpinning business in America today. It is America's optimism that Handy finds most striking, the unquestioned belief that tomorrow can--and should--be made better than today. The energy engendered by American optimism, coupled with the Puritan belief in work and in the nobility of earned wealth lies, in Handy's view, at the heart of America's success. Will American capitalism, born as it was from a property-owning democracy, now adapt to a dematerialized world, where property is intellectual rather than physical? Handy lays out the challenges that must be overcome for tomorrow to indeed continue to be better than today in this still-young country.

On its 75th anniversary, HBR asked five of the business world's most insightful thinkers to comment on the challenges taking shape for executives as they move into the next century. 1) In "The Future That Has Already Happened," Peter Drucker examines the effects of the increasing underpopulation of the world's developed countries. 2) Esther Dyson's article "Mirror, Mirror on the Wall" reveals the mind shift executives will need to make in a networked world, where companies will be known for what they do rather than for what they say. 3) The old language of property and ownership no longer serves executives, writes Charles Handy in "The Citizen Corporation." 4) Technology has given executives more information than today's machines can help them understand, explains Paul Saffo in "Are You Machine Wise?" 5) Peter Senge's article "Communities of Leaders and Learners" urges executives to reject the myth of leaders as isolated heroes and instead to build a community of leaders.

The technological possibilities of the virtual organization are seductive. But its managerial and personal implications require rethinking old notions of control. As it becomes possible for more work to be done outside the traditional office, trust will become more important to organizations. Handy proposes seven rules of trust. Trust is not blind: It needs fairly small groupings in which people can know each other well. Trust needs boundaries: Define a goal, then leave the worker to get on with it. Trust demands learning and openness to change. Trust is tough: When it turns out to be misplaced, people have to go. Trust needs bonding: The goals of small units must gel with the larger group's. Trust needs touch: Workers must sometimes meet in person. Trust requires leaders. Virtuality's Three I's (information, ideas, intelligence) can improve quality of life. The question Handy asks is, Will they be for everyone? He believes the potential exists for the Three I's to benefit not just organizations but also those with whom they do business and society as a whole.

Given that organizations are seen more and more as minisocieties, the prospect of applying political principles to management makes a great deal of sense. Federalism is particularly appropriate because it offers a well-recognized system for dealing with paradoxes of power and control: the need to make things big by keeping them small; to encourage autonomy but within bounds; and to combine variety and shared purpose. Federalism responds to these paradoxes by balancing power among those in the center of the organization, those in the centers of expertise, and those in the center of the action--the operating businesses. Federalism avoids the risks of autocracy and the overcontrol of a central bureaucracy. It ensures a measure of democracy and creates a "dispersed center" that is more a network than a place. McKinsey Award Winner.