WHEN Elvira Nabiullina took over the governorship of the Russian Central Bank (CBR) in 2013, she faced a bloated and leaky finance sector with over 900 banks. Since then, more than 340 have lost their licences. Another 35 have been rescued, including, in recent months, Otkritie, once the country’s biggest private lender by assets, and B&N Bank, its 12th largest. The costs have been steep. According to Fitch, a ratings agency, over 2.7trn roubles ($46bn, some 3.2% of GDP in 2016) have been spent on loans to rescued banks and payments to insured depositors. Fitch reckons another few hundred banks could go before the clean-up concludes. More large private banks are whispered to be among them.
The CBR has rightly been praised for preventing a wider crisis and undertaking a clean-up during a punishing recession. Non-performing loans are at a manageable level, of around 10%. Bringing Otkritie and B&N under CBR stewardship calmed panicked markets. Yet nationalisation also raises...Continue reading
IN 2008, when she was in her mid-20s and sitting on a $500m inheritance, Liesel Pritzker Simmons asked her bankers about “impact investing”. They fobbed her off. “They didn’t understand what I meant and offered to screen out tobacco,” recalls the Hyatt Hotels descendant, philanthropist and former child film star. So she fired her bankers and advisers and set up her own family office, Blue Haven Initiative. It seeks investments that both offer market-rate returns and have a positive impact on society and the environment. “Financially it’s sensible risk mitigation,” she says. “Our philanthropy becomes far more efficient if we don’t need to undo damage done in our investment management.”
Such ideas are gaining ground, particularly among the young. Fans of “socially responsible investment” (SRI) hope that millennials, the generation born in the 1980s and 1990s, will drag these concepts into the investment mainstream. SRI is a broad-brush term, that can be used to...Continue reading
THE only media mogul still bestriding his industry in old-fashioned style is used to being a predator rather than prey, a builder of empires, not a dismantler of them. So Rupert Murdoch’s reported willingness to sell off much of 21st Century Fox, whether to a rival such as Disney or to a distribution firm like Comcast or Verizon, has come as a shock to many. It should not.
If Fox does follow through with selling the assets—its film and TV studio, its stake in Sky, a European satellite broadcaster, and many of its cable networks—it may well be remembered as one of his cleverest moves. Mr Murdoch would have correctly judged a shifting media and regulatory landscape and sold high (perhaps for $50bn or more; see chart). He would retain lucrative assets in news and sports broadcasting, notably Fox News Channel, which could serve as the base for a new fief of a different sort. Mr Murdoch would also retain plenty of political sway through his newspaper businesses, housed at separately...Continue reading
THIS month Schumpeter visited the Barnes Foundation, a gallery in Philadelphia full of paintings by Picasso, Matisse and Van Gogh. Albert Barnes, born in 1872, is notable for two things. He made a fortune from an antiseptic that cured gonorrhoea. And he stipulated exactly how his art collection should be posthumously displayed. The result is hundreds of paintings jammed together nonsensically, often in poky rooms, and the creepy feeling of a tycoon controlling you from the grave.
Barnes’s string-pulling comes to mind when considering today’s prominent tycoons, who often hail from technology, e-commerce and media. At the moment they seem omnipotent. But many founders are gradually cashing in shares in their companies. The consequences will vary by firm, with some tycoons gradually ceding control, and others clinging on to it.
A flurry of selling activity has been in evidence of late. On September 13th Jack Ma and Joe Tsai, co-founders of Alibaba, a Chinese e-commerce...Continue reading
THE one-percenters are now gobbling up more of the pie in America—that much is well known. This trend, though disconcerting, is not unique to the modern era. A new study, by Timothy Kohler of Washington State University and 17 others, finds that inequality may well have been rising for several thousand years, at least in some parts of the world. The scholars examined 63 archaeological sites and estimated the levels of wealth inequality in the societies whose remains were dug up, by studying the distributions of house sizes.
As a measure they used the Gini coefficient (a perfectly equal society would have a Gini coefficient of zero). It rose from about 0.2 around 8000BC in Jerf el-Ahmar, on the Euphrates in modern-day Syria, to 0.5 in around 79AD in Pompeii. Data on burial goods, though sparse, point to similar trends.
The researchers suggest agriculture is to blame. The nomadic lifestyle is not conducive to wealth accumulation. Only when humans switched to farming did people...Continue reading
IN 1997, two months after Hong Kong reverted to Chinese sovereignty, it acquired a cutting-edge payment technology. People could rush through turnstiles with a wave of their colourful Octopus cards—stored-value cards pre-loaded with cash. Its latest advance, however, is risibly low-tech. On October 30th Octopus launched an extensible pole with a plastic hand to help drivers pay at toll booths. Critics of Hong Kong’s cautious approach to fintech snorted in derision. Meanwhile, a government official was quoted as blaming Octopus for stifling the city’s shift to cashlessness. Both criticisms are unfair. Hong Kongers enthusiastically embrace electronic payments and do well from the fierce competition between different platforms.
The Octopus card, designed for journeys on Hong Kong’s trains, buses, trams and ferries, soon stretched its tentacles into shops. In 2016 the company generated revenues of HK$956m ($122m) for its owners (mostly...Continue reading
CHOOSING a hotel for a trip is generally seen as an apolitical decision. In contrast, restaurants and cafes have sometimes taken on an ideological tinge, with conservatives mocking liberals for their latte coffees, and liberals ribbing conservatives for their deep-fried everything and well-done steaks. But for most hotel users, location and good wi-fi matter more than the ideology of the owners. In some places that now appears to be changing: a trend turbocharged since the arrival of Donald Trump, an owner of an international hotel brand, in politics.
Suddenly the new Trump International Hotel in Washington, DC—on the same street as the White House and Capitol building—became the most politically-charged building in the city, if not the country. Celebrity chefs scrapped their plans to open restaurants there after Mr Trump made incendiary comments about Mexicans. Meanwhile, organisations such as the Kuwaiti embassy Continue reading
IN THE first quarter of 2018 thousands of banks will look a little less profitable. A new international accounting standard, IFRS 9, will oblige lenders in more than 120 countries, including the European Union’s members, to increase provisions for credit losses. In America, which has its own standard-setter, IFRS 9 will not be applied—but by 2019 banks there will also have to follow a slightly different regime.
The new rule has its roots in the financial crisis of 2007-08, in the wake of which the leaders of the G20 countries declared that accounting standards needed an overhaul. Among their other shortcomings, banks had done too little, too late, to recognise losses on wobbly assets. Under existing standards they make provisions only when losses are incurred, even if they see trouble coming. IFRS 9, which comes into force on January 1st, obliges them to provide for expected losses instead.
Under IFRS 9 bank loans are classified in one of three “stages”. When a loan is made—stage one—banks must make a...Continue reading
EUROPE’S largest pension fund, a scheme for Dutch public-sector workers called ABP, is much feted abroad for its efforts in “sustainable” investing. At home, however, where it provides pensions to one in six families and manages nearly one-third of pension wealth, it is suffering a crisis of confidence.
By international standards, Dutch pensions are extremely generous overall, offering 96% of career-averagesalaries (adjusted for inflation), compared with an OECD mean of 63%. And they are solid. Thanks to mandatory, tax-deductible saving, the Dutch have stored up a collective pension pot of nearly €1.4trn ($1.6trn), roughly double GDP. Mercer, a consultancy, marks the country as second only to Denmark in a global ranking of schemes.
Yet Dutch people’s faith in their pensions has sunk as low as their trust in banks and insurers. In March a political party for older voters, 50+, won four seats in the Dutch parliament, largely thanks to its promise to “stop the pension raid”. ABP’s own members mark it at just...Continue reading
What explains the remarkable strength of corporate profits and the sluggish growth of real wages in recent years? One explanation is that industries are getting less competitive. Work by The Economist found that two-thirds of American industries were more concentrated in the hands of a few firms in 2012 than in 1997.
Research by AXA Investment Managers Rosenberg Equities into the language used in American annual reports points in the same direction. Sherlock Holmes famously talked of the significance of the dog that did not bark in the night. It may be similarly important that companies refer to rivals much less than they did; usage of the word “competition” in annual reports has declined by three-quarters since the turn of the century. Business is less cut-throat than it used to be.
LAST year nearly 3.7bn passengers took to the sky on commercial jets. Few would have given much thought to exactly why their flight was scheduled at the time it was. Even fewer know about the tussles between regulators and airlines over how landing and take-off slots are allocated.
For the past 70 years the business of thrashing out timetables at international airports has been the job of the Slot Conference, a semi-annual meeting of airlines and airport co-ordinators run by the International Air Transport Association (IATA), an airline trade group. The 141st meeting, held last week in Madrid to set next summer’s schedule, attracted over 1,300 representatives from 250 airlines and nearly 300 airports around the world. Sitting around tables (with one for each country’s airports) in a massive hall, airlines negotiate and reschedule their slots to maximise their network’s efficiency. It is like “speed dating for airlines”, says Lara Maughan, the conference...Continue reading
BUOYANT financial markets meant that global wealth rose by 6.4% in the 12 months to June, the fastest pace since 2012. And the ranks of the rich expanded again, with 2.3m new millionaires added to the total, according to the Credit Suisse Research Institute’s global wealth report.
The report underlines the sharp divide between the wealthy and the rest. If the world’s wealth were divided equally, each household would have $56,540. Instead, the top 1% own more than half of all global wealth. The median wealth per household is just $3,582; if you own more than that, you are in the richest 50% of the world’s population.
America continues to dominate the ranks of millionaires with 43% of the global total. Both Japan and Britain had fewer dollar millionaires than they did in June 2016, thanks to declines in the yen and sterling. Emerging economies have been catching up in the millionaire stakes; they now have 8.4%...Continue reading
Applications are invited for a Marjorie Deane internship in our New York bureau. The award is designed to provide work experience for a promising journalist or would-be journalist, who will spend three to six months at The Economist writing about economics, business and finance. Applicants are asked to write a covering letter and an article of no more than 500 words, suitable for publication in The Economist. Applications should be sent by December 14th to firstname.lastname@example.org.
ONLY one thing spooks the oil market as much as hot-headed despots in the Middle East, and that is hot-headed hedge-fund managers. For the second time this year, record speculative bets on rising oil prices in American and European futures have made the market vulnerable to a sell-off. “You don’t want to be the last man standing,” says Ole Hansen of Saxo Bank.
On November 15th, the widely traded Brent crude futures benchmark, which had hit a two-year high of $64 a barrel on November 7th, fell below $62. America’s West Texas Intermediate also fell. The declines coincided with a sharp drop across global metals markets, owing to concern about slowing demand in China, which has clobbered prices of nickel and other metals that had hit multi-year highs. (In a sign of investor nervousness after a sharp rally this year in global stock and bond markets, high-yield corporate bonds also weakened significantly this week.)
The reversal in the oil markets put a swift end to talk of crude shooting above $70 a barrel, which had gained strength after the detention in Saudi Arabia of dozens of princes and other members of the elite, and increasing tension between the Gulf states and Iran over Yemen and Lebanon. The International Energy Agency (IEA), which forecasts supply and demand, said on November 14th that it doubted $60 a barrel had become a new floor for oil....Continue reading
IN MANY ways, Tommy John, a startup based in Manhattan, resembles a tech company straight out of Silicon Valley. On its website the venture-backed firm touts its innovative materials and patented designs. When recruiting talent, it describes itself as “disruptive” and “revolutionary”. But Tommy John does not deal in computer hardware, software or any other kind of technology. It makes men’s underwear.
Following the example of successful e-commerce brands such as Warby Parker, a glasses firm, and Casper, a mattress-maker, a growing number of startups are reimagining everyday household items—from pants and socks to toothbrushes and cookware. These “direct-to-consumer” (DTC) companies bypass conventional retailers and bring their products straight to customers via their online stores. They began several years ago to catch the attention of venture-capital (VC) firms, which have poured in more than $3bn since...Continue reading
REVIVING the original Trans-Pacific Partnership (TPP), a trade deal between 12 countries around the Pacific Rim, is technically impossible. To go into force, members making up at least 85% of their combined GDP had to ratify it. Three days into his presidency, Donald Trump announced that America was out. With 60% of members’ GDP gone, that deal was doomed.
But on November 11th, another began to rise in its place, crowned with a tongue-twisting new name: the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP). Ministers from its 11 members issued a joint statement saying that they had agreed on its core elements, and that it demonstrated their “firm commitment to open markets”. The political symbolism was powerful. As America retreats, others will lead instead.
The CPTPP is still far from finished, however. This inconvenient truth is unsurprising. Resuscitating the deal without its biggest member was always going to be hard. Without America, uncomfortable concessions made in the old TPP...Continue reading
IF MAKING America great again is the aim, you could do worse than bring back the economic growth rates of the late 1990s. President Donald Trump’s team reckons that the Republican tax plan making its way through Congress will do just that. “We are creating a model that creates economic growth in this country,” says Gary Cohn, the director of Mr Trump’s National Economic Council. Kevin Hassett, who runs the Council of Economic Advisers, reckons the bill should push growth above 4% per year.
Such heights are not beyond the realm of possibility, but if America reaches them tax reform will have little to do with it. That is not because of the specifics of the plan. Rather, it reflects an underappreciated reality: tax reform can accomplish many things, but raising long-run growth is not generally among them.
Most assessments of the Republican tax proposals, like most analyses of most tax plans, conclude their effects on growth will be small. The Penn Wharton Budget Model, a non-partisan public-policy initiative, projects that GDP in 2027 will be between 0.4% and 0.9% higher as a result of the bill.
Nonsense, say the adherents of the supply-side school of thinking. Economic growth can be broken down into changes in the supply of labour and in labour productivity. Supply-siders reckon that lower tax rates on labour income should raise its supply;...Continue reading
WHEN rumours swirled in August that Baidu, a Chinese online-search giant, was buying Toutiao, the scrappy news-aggregation platform reportedly quipped in response that reports had mistaken the buyer for the seller. The firm is proud with good reason. Toutiao’s growth since its launch in 2012 has been stellar: it says it has already drawn 700m users to the personalised newsfeeds on its smartphone app. Its valuation has shot up, to $22bn in its latest funding round (see chart).
Toutiao’s parent company, Bytedance, is definitely a buyer now. This month it snapped up Musical.ly, a lip-syncing video platform that has captivated American teens, for a reported $1bn. It looks like a good match. Musical.ly, based in Shanghai, is the first Chinese firm to build an app that has been so admired in the West; Bytedance, which has developed sophisticated artificial-intelligence (AI) technology to customise Toutiao’s newsfeeds, can provide it with winning algorithms.
Those algorithms are...Continue reading
CHARITY begins at home—or, if you are an Indian boss, in the boardroom. Since 2014 firms there by law must spend 2% of profits on corporate social responsibility (CSR), loosely defined as doing good in the community. After some griping, businesses are trying to make the best of their obligation, while keeping politicians happy by funding their pet projects.
The idea of compulsory charity had a mixed reception. Ratan Tata, who heads the charitable trusts that own much of Tata Group, India’s biggest conglomerate, was among those likening it to another tax on business. In fact, the law is more a nudge than an edict. Only large companies—those with domestic profits consistently over 50m rupees (about $780,000), or 5bn rupees in net assets, or turnover over 10bn rupees—are affected, and they can opt to give nothing, as long as they explain why.
In practice, most comply, at least in part. A study of listed firms by CRISIL, a credit-rating agency, found that over 1,100 firms...Continue reading
“NUMBER one, cash is king…number two, communicate…number three, buy or bury the competition.” These rules were laid out by Jack Welch, a brash but brilliant former boss of General Electric (GE). The American industrial conglomerate, founded by Thomas Edison, has operations ranging from health care and aviation to lighting and energy. During Mr Welch’s tenure, from 1981 to 2001, his company’s market value rose from about $15bn to over $400bn. Today, it barely tops $150bn. Having fallen by more than two-fifths this year, GE is the worst-performing stock in the Dow Jones Industrial Average, a composite index that has risen by nearly a fifth since January 1st.
Jeffrey Immelt, Mr Welch’s amiable successor, violated all three rules. To be fair, he did steer GE through a sharp downturn in aviation following the September 11th 2001 terrorist attacks and unwound its risky financial arm after the global financial crisis. But on his watch GE’s core power business deteriorated to the...Continue reading