PREPARING FOR LEANER TIMES Expectations are lower and anxiety is higher as everybody worries about his job. Maybe it's time to play down careers and money, and emphasize values instead.

(FORTUNE Magazine) – WITH SURPRISING suddenness, many Americans have been overtaken by the feeling that tomorrow, next year, and in the decade to come, we may not be better off than today. Ashley Ferry, marketing director of a San Francisco-area car rental chain, sums up the veering toward anxiety: ''I don't wonder whether I'm rich anymore. I just wonder if I'm covered.'' The switch from apparently indefatigable economic optimism that has characterized Americans since World War II to a sense of diminished expectations has the potential to effect profound changes in how we value work, wealth, family, and community. Being well educated and well off won't necessarily offer immunity from discomfort. The continuing, massive restructuring of corporate America means that many affluent people who flourished in the past decade face what may prove the greatest change of fortune. Dislocation will demand new attitudes: ''Getting your self-esteem from money, power, and control is diminishing,'' says Marilyn Puder-York, a psychologist who counsels scores of executives and professionals in New York. Is all this just an overreaction to the economy's current troubles? Not necessarily. Many thoughtful experts offer plausible reasons why the Nineties will be tougher than preceding decades. Even if they are not proved completely correct -- and what forecast ever is? -- the evidence they muster is enough to suggest that a prudent defensive strategy is called for now in managing one's affairs. In the pages to follow, FORTUNE offers a guide to what may be coming and how to cope. The worry extends beyond the seemingly ubiquitous fear of losing one's job. The general angst is fueled by concern that the nation's political and business leaders are permanently bewildered, that the country is not adapting effectively to domestic problems or to a new world order, and that there are no easy solutions. Only 30% of Americans think the U.S. will be the world's dominant economic power in the next century; 53% think it will be Japan. Says Daniel Yankelovich, a poll taker for more than 40 years: ''Every previous recession was viewed as a traffic jam, with the sense that we'd soon be on our merry way. People are reacting to this as though they've had an auto accident. They're scared witless.'' Nearly 60% of Americans now believe the nation's wealth is limited and that most people will not be better off in the future, says Kevin Clancy, a market research consultant. With some cause. The economic trajectory of many people -- the rate at which they are pulling ahead of the previous generation -- stopped climbing a while back. Baby-boomers may be frantic that their kids will be the first generation in U.S. history to be worse off than their parents, but their worries are misplaced. Often it is the boomers themselves who are falling behind. Says Richard Easterlin, an economist and demographer at the University of Southern California: ''Average real earnings of males in the baby-boom generation are lower than those of their predecessors, or at best, no better.'' What happened? Sometime in the early 1970s, growth in American productivity -- the output of the average worker -- dropped sharply. For the first seven decades of the century, productivity increased at a healthy clip -- about 2.3% annually, says Paul Krugman, an economist at MIT and Harvard. In the 20 years after World War II, productivity grew even faster, around 2.8%. But since the 1970s, annual productivity increases have dropped well below their historical average, to 1.2%. That doesn't mean a permanent, withering disease has hit the economy. The spike in productivity of the Fifties and Sixties reflects soaring demand for American goods after the Depression and World War II. The subsequent slowdown in productivity may be an aberration too. It probably resulted from millions of baby-boomers flooding -- and being absorbed into -- the job market. Despite all that, overall American productivity remains the highest in the world, and manufacturing productivity climbed an amazing 3.8% per year in the 1980s. The problem is that productivity in the service sector, which now accounts for 75% of privately employed American workers, is rising at a rate so slow as to be ''staggering,'' says Stephen Roach, a Morgan Stanley economist. Total service productivity climbed just 0.7% a year in the past decade, by Roach's calculations. In the long run, a nation's living standards improve only if its productivity rises. The 20-year halving of productivity growth means wage growth has dropped sharply. Says Krugman: ''If productivity had improved as fast in the past 20 years as it did in the preceding 70, living standards would be 25% higher than now. Everything else is a minor issue.'' HOW FAR HAVE newer workers fallen behind their predecessors? A man who was born in 1935 -- perhaps the father of a baby-boomer -- gained 100% in average real income from age 25 to age 35. A boomer born in 1948 gained only 35% during the same ten years of his life, says Frank Levy, an economist at the University of Maryland's School of Public Affairs. Forty-year-old men with four years of college averaged $37,000 a year in 1979, but male graduates who were 40 in 1989 made only $36,000, adjusted for inflation, that year. Service sector productivity may rise appreciably during the Nineties, says Roach, but white-collar employment won't follow immediately. What's needed first is ''a profound, dramatic restructuring,'' of the service sector, he argues. But that will also mean a ''real threat to job security'' and painful cuts to income as layoffs widen. Can it really be that boomers have been less prosperous than their parents? In fact, boomer families had more money than preceding generations, but got it in untraditional ways, the result of once-in-a-lifetime shifts in behavior that are now adding to the sense of squeeze for many. The 78 million people born between 1946 and 1964 often adjusted for their diminished income growth by postponing marriage, by two years on average. Women, better educated than ever, entered the work force in huge numbers -- often to be independent and to pursue satisfying careers but seeking the money too. Married women stayed at work longer, delaying baby making, cutting down on the average number of children per family from about three to two, or not having children at all. For many boomers, the feeling of falling behind previous generations may be worse than it really is. Donald Petrie, a father of five, says boomers set high expectations for themselves that were barely sustainable. Petrie, 68, wound up an executive vice president at U.S. Trust, but says there were plenty of lean years before that. ''My children see my success when I was at the top, and this is how they view their opportunity. They probably forget it took a long time to get to that point.'' The result: In the Eighties it was easy to be confused about just how well everyone was doing. In both the Seventies and Eighties family incomes rose, mainly because there were more workers per family; per capita income also climbed because there were fewer baby capitas. But these trends in the averages masked the fact that the incomes of many individuals dropped, and for others income rose more slowly than ever. Shifts in marriage age and baby making, and the resulting improvement in living standards, can't be pushed much further. About two-thirds of young marrieds now begin life with both partners working. Marriages are not being postponed any longer and the birthrate has stopped falling. Over the long run, says Levy, ''demographic shifts are not a mechanism for continued increases in living standards.'' IN AN EFFORT to keep living well, the boomers and just about everybody else stopped saving and spent more. From the decade after World War II to the 1980s, the savings rate among individuals declined by one-third, falling to 4.6% of disposable income. Meanwhile, consumer debt rose dramatically. Thirty years ago average consumer debt came to about half a year's disposable income; now it exceeds 92%. The underlying assumption of the past decade was that somehow there would always be more money -- to pay off debts, eventually, and to keep home prices rising. These days the consequences of that attitude can be terrifying. Sara and Peter Rutenberg -- she a television-studio attorney and he a Hollywood musician -- tore down their small home in Los Angeles three years ago. They stretched and borrowed to build a spectacular house in its place, and then saw a recession descend on the entertainment industry and the once booming housing market. ''I'm having incredible anxiety,'' says Sara, 40. ''I worry about credit, layoffs, and medical bills.'' She wishes, too, that she could spend more time with the kids, but can't afford to, and worries that there are no more breadwinners to throw into the labor market if the squeeze continues. In San Francisco, Ashley Ferry, 47, was impressed by the zooming appreciation of old Victorian apartment buildings. Using loans and an inheritance, he bought one in 1984. When its value rose, he borrowed against it, putting the proceeds and much of his salary from the car rental company into more apartments. He wound up with five buildings and 23 units in San Francisco and Portland, Oregon. Although his employer has no pension plan, he stopped putting retirement money into IRAs and Keogh plans and bet it all on real estate. ''If only I hadn't kept expanding the empire,'' Ferry says now. The soft economy in the Bay Area means he has had to accept a salary cut at the car company. Credit card charges he once planned to pay off with raises are mounting instead. Housing prices are down too, rents are flat, and taxes and expenses are rising. Managing the properties, once nearly effortless, has become a burdensome and unrewarding second job. ''I was hoping to retire at 55,'' Ferry says. ''I'll be grateful to keep the whole package together.'' In the housing market, there are no more waves of boomers buying, and the post-boom generation is so small that prices may continue to drop. One of the darkest forecasts comes from Gregory Mankiw, a Harvard economist, who says real house prices could fall 2% to 3% a year for a decade or more. Mankiw admits that such predictions are tricky because there have never been such dramatic shifts in the population size of successive generations. At the Wharton Real Estate Center in Philadelphia, professor Susan Wachter is a bit more upbeat. The effects of the baby bust have already been felt, she says, but adds that home prices probably won't climb any faster than inflation for several years and may actually rise more slowly. Most families still own homes worth more than they paid for them. But home equity accounts for more than half the assets of most middle-income families, and many people relied on homes as their major investment, so the end of rapid appreciation has a wrenching effect on expectations. The higher strata of society really did improve their lot in the 1980s: The wealthiest 10% of Americans got substantially richer, with that group's incomes rising 21% over the decade, according to Krugman of MIT. The top 1% of the population did even better: Its yearly income doubled. As Krugman and other experts see it, the result was greater disparity in income between the high and the low, and a windfall for the rich that won't be repeated. ''Inequality isn't like growth,'' says Krugman. ''Growth continues exponentially, but any wealth gained from inequality is a one-time shift.'' According to his projections, if the poor don't get any poorer and the economy keeps growing the way it has, the top fraction can look forward to only a 1%- per-year gain in real income over the next decade. Says Levy: ''We rise as one nation and we fall as one, depending on the quality of the work force.'' As the well-off may already note. Plog Research, a California economic research firm, conducts polls to determine how different income groups are faring. Over the past four years, those with annual incomes of $100,000 or more have seen the biggest jump in major economic setbacks, says Stanley Plog. Their ranks include executives who have been laid off. This recession has also produced the worst slowdown since the late Fifties in the growth of white- collar employment. Morgan Stanley's Roach says that service sector jobs increased at a rate of 110,000 a month in the first seven months of the 1982 recovery but by only 2,000 per month in the last seven months of 1991. Margaret Regan, a consultant on work force issues at Towers Perrin, says corporations are ''squeezing out anyone not involved in selling, delivering, and marketing to the core customer.'' Even the survivors have lost the sense of financial security that once came from working with a big company. Says a Chevron manager in California: ''Big oil is here to stay, but they keep reorganizing and reorganizing. I'm just treading water. I don't feel like my life is going to get better.'' Susan Rowlands, a Towers Perrin expert on compensation, says that both promotions and across-the-board merit raises are becoming rarer: Middle management raises have averaged about 5% annually for the past several years, barely keeping ahead of inflation. But more people aren't getting anything. Says she: ''There was a time when everybody got 7%, but companies are finally starting to pay people for performance.'' Corporate restructuring has discouraged many youngsters from seeking jobs with big companies. A UCLA poll that tracks the aspirations of college freshmen finds that interest in business careers, which doubled in the Seventies and Eighties, is plummeting and likely to drop further. Joseph Amon, 22, was attending a Massachusetts college four years ago. ''We would read incredible stories about Wall Street paying liberal arts graduates $50,000 a year. But since I graduated, I haven't been able to find a job. I feel burned.'' One classmate is lugging vegetables at a farm, another is washing dishes -- both at minimum wage. Amon decided to get his master's degree in parasitology at Tulane and will join the Peace Corps. His motives are a mix of idealism and practicality. He wants to help lesser-developed countries, and he doesn't have to begin paying off his $20,000 in tuition loans if he is in school or in the Peace Corps. He supports himself as a teaching assistant now, but after that job, Amon figures, he may not get back into the private work force until the year 2000. ''I'm going to be poor for a long time.'' Still, the downsizing of expectations may have an upside too. Nobody will expect anybody else to be rich. Already, in-your-face displays of affluence seem increasingly in bad taste. When Laurel Cutler, a New York advertising executive, was picked up at the airport by a driver in a stretch limousine, she balked. The driver explained that it was the only car available and there was no extra charge. ''That's not the point,'' she told him. ''Don't you realize it's embarrassing to be seen in one of these now?'' In fact, adjusting to leaner times may prove easier than many people think. A funny thing happened to some important American values a generation or more ago, when the notion began to sink in that prosperity would increase forever. Being the family breadwinner -- doing your job no matter how dreadful and unsatisfying -- became less important. Self-fulfillment and satisfaction became more important, as any aging 1960s ex-flower child can attest. And then, says Daniel Yankelovich, who has studied values changes closely, ''baby- boomers made a great discovery that went largely unnoticed at the time: Some types of work could serve the value of self-fulfillment better than leisure.'' Success at work, says he, became a prime focus of boomers' energy. Displaying that success with material things became an easy next step. But now, for many people, corporate work itself is becoming less satisfying, says Alan Schnur, who surveys employee attitudes for Towers Perrin. ''We hear over and over again that senior managers are feeling increasingly disenfranchised. Decision-making is moving higher and higher. Companies talk a good game about employee empowerment, but as times get tough, top management calls the shots.'' If you can't get your satisfaction from work and money, where do you look for self-fulfillment? Try family, friends, and community, suggests Rolf Reinalda. Three years ago he was intent on becoming ''the Lee Iacocca of the sales motivation business,'' and quit a comfortable position to take on a potentially lucrative job with a struggling outfit. A year later he was out of work. Reinalda discovered friends were overwhelmingly sympathetic. ''The stigma of being financially strapped is gone. I think that artificial class system pegged to money and career is breaking down.'' He is now senior vice president at a successful marketing company, ''but 3 1/2 months of being 'available for lunch' permanently affects your lifestyle,'' Reinalda says. Dinners out now consist of potluck gatherings at friends' houses, and he recently won a seat on the local school board in Fair Haven, New Jersey. ''This is a nice town. It was time to give something back to it.'' Simple pleasures won't pay for the kids to go to Stanford, but many less prominent private colleges have slowed the rate at which their tuition is increasing. Consider one of them, or a state college, where some departments may be just as good even if the status value of the rear-window decal is less. Says Michael McPherson, an education economist at Williams: ''The premium on going to college is high, but not necessarily on going to an expensive college.'' There's even some cause for hope on the retirement front. All those two- income families mean two pensions in old age. Regan at Towers Perrin says 53% of couples will have twin pensions in the early 2000s. ''That will offset the fact that neither of them has saved enough. That, and part-time work and Social Security will get them through.'' You should save anyway. By investing prudently you should beat inflation, which will probably stay around 3.5% for the next several years, says Roach, the Morgan Stanley economist. Besides, saving is good for you, the country, and your kids' future. While cutting back on consumer spending may hurt the economy in the short run, a higher savings rate makes it cheaper for corporations to invest and create jobs. If the savings rate had stayed at high postwar levels, living standards -- and, yes, productivity -- would be 5% higher now, Federal Reserve economists calculate. WILL AMERICA fall to pieces if we're not all beavering away at moneymaking and careers? Corporate employers don't seem to think so, or they wouldn't be putting so many people out to pasture. There is no sign that Americans are lazy. Yankelovich finds they want to be productive, not sunbathing, in their spare time. Without the social stratification that money intensifies, your sense of community may expand, and your attention may drift to broader issues, like the quality of schools, crumbling bridges, or saving whales. You might even develop a network of friends that will serve you better in retirement than that 80-foot schooner you were hankering for. Who knows? Solve enough problems, and productivity might soar and we'd all be rich without even realizing it.