THE ECONOMIST

The case for treating disabled travellers better

Fri, 07/20/2018 - 19:32

TRAVELLING for work can be expensive, uncomfortable and unpleasant, even for those without a mobility issue. But spare a thought for people who do, many of whom get appalling service from train firms and airlines around the world. The latest case to have hit the headlines is that of Tanyalee Davis, a Canadian living in England, who has said that she was left feeling so humiliated that she “wanted to crawl under a rock and die” after a recent train journey from Plymouth to Norwich. Ms Davis, who uses a mobility scooter as she has a form of dwarfism, was forced to move from an unreserved wheelchair space to make way for a pushchair (pushchairs do not have priority for such spaces). When she complained, the guard announced to the train that they would be stopping indefinitely at the next station because the “woman in the mobility scooter was causing problems.” 

For Ms Davis, a touring comedian, incidents like this are all too frequent and are no laughing matter. And she is not alone. Frank Gardner, a disabled journalist at the BBC, a...Continue reading

The stress that kills American workers

Thu, 07/19/2018 - 16:55

WORK can make you sick and shorten your life. That is the argument of a hard-hitting book* by Jeffrey Pfeffer, a professor at the Stanford Graduate School of Business. In an obvious way, that claim is outdated. Health-and-safety rules help explain why deaths from accidents in American workplaces fell by 65% between 1970 and 2015. But one problem has not gone away: stress. As many as 80% of American workers suffer from high levels of stress in their job, according to a survey entitled “Attitudes in the American Workplace”. Nearly half say it is so debilitating that they need help.

Firms are at least aware of the issue. A study in 2008 by Watson Wyatt (a consultancy that is now part of Towers Watson) found that 48% of organisations said job-related stress affected performance. But only 5% of employers said they were doing anything to deal with the matter.

Mr Pfeffer’s book focuses on America, where the problem seems particularly acute. One survey found that 55% of employees log into...Continue reading

As inequality grows, so does the political influence of the rich

Thu, 07/19/2018 - 16:55

SQUEEZING the top 1% ought to be the most natural thing in the world for politicians seeking to please the masses. Yet, with few exceptions, today’s populist insurgents are more concerned with immigration and sovereignty than with the top rate of income tax. This disconnect may be more than an oddity. It may be a sign of the corrupting influence of inequality on democracy.

You might reasonably suppose that the more democratic a country’s institutions, the less inequality it should support. Rising inequality means that resources are concentrated in the hands of a few; they should be ever more easily outvoted by the majority who are left with a shrinking share of national income.

Indeed, some social scientists think that historical expansions of the franchise came as governments sought credible ways to assure voters that resources would be distributed more equitably. Daron Acemoglu and James Robinson argue that in the 19th century governments across the West faced the threat of...Continue reading

Netflix suffers a big wobble

Thu, 07/19/2018 - 16:55

EVEN the most celebrated firms have their hiccups. On July 16th Netflix, an online-streaming giant, presented disappointing news to investors: it had added just 5.2m new subscribers in the second quarter of 2018, well below its projected number of 6.2m. Shares plunged by 14%; they have since recovered some ground.

This most recent bout of volatility may say more about the firm’s soothsaying abilities than the strength of its underlying business. Although Netflix’s subscriber growth fell short of its own projections, it was still in line with that of past quarters (see chart). In percentage terms, Netflix registered a bigger miss against projected subscriber growth in the second quarter of 2016, when its shares fell by 13%. The firm has also had much bigger forecasting misses on the upside.

When asked this week to explain the forecasting error, Netflix’s chief executive, Reed Hastings, responded that the company never worked out what happened in 2016 either, “other than...Continue reading

Vanadium is the latest beneficiary of the battery craze

Thu, 07/19/2018 - 16:55

Going with the flow

OPEN a toolbox, pull out a spanner and you may be holding a bit of the answer to global warming: vanadium, a metal named after Vanadis, the Scandinavian goddess of beauty. Used mostly in alloys to strengthen steel, its appearance may not live up to the romance of its name. Yet vanadium could become a vital ingredient in large clean-energy batteries, in which case it will shine a lot brighter.

Its price has already been rising faster than cobalt, copper and nickel, all of which are used in lithium-ion batteries (see chart). The main reason for the run-up is prosaic. About nine-tenths of the world’s vanadium is used to harden steel; China has tightened standards on the strength of rebar to make buildings more earthquake-proof. Mark Smith, boss of Largo Resources, which mines high-purity vanadium in Brazil, says this alone should increase demand for the metal by up to 15,000 tonnes in 2018-19. Last year total production was 83,000 tonnes.

But...Continue reading

Universities withstood MOOCs but risk being outwitted by OPMs

Thu, 07/19/2018 - 16:55

“THERE’S only two things you do in the navy,” says Vice-Admiral Al Harms, former commander of the USS Nimitz, a nuclear-powered aircraft carrier that is one of the world’s biggest ships. “You fight, and you train to fight. Hopefully, most of the time you’re training.” The navy got Mr Harms hooked on continuous education, and in his 60s he felt the need for a top-up, so he took the online MBA programme of the University of Illinois (UoI), alongside his son. “I found it a very cool way to learn. You have the self-directed portion, working by yourself, and the enriching portion with class projects.”

When the web started to shake up higher education a decade or more ago, it was widely expected that the Massive Open Online Courses (MOOCs) it spawned would disrupt universities in the same way that digital media undermined newspapers and music firms. But that assumption rested on a misunderstanding of what students are paying for. They are not...Continue reading

David Solomon will be the new CEO of Goldman Sachs

Thu, 07/19/2018 - 16:55

Songs of Solomon

LAME-DUCK periods can last for only so long. It was clear beforehand that a Goldman Sachs earnings call this week would be packed with questions about succession. When would the chief executive, Lloyd Blankfein, step down? (He had said in March he was leaving, but gave no date.) What would his departure mean for the firm’s other over-achievers? Several had already decamped, including Harvey Schwartz, the bank’s co-president and co-chief operating officer. Left as heir-apparent was the man he had shared both jobs with, David Solomon, but with no hint of when his elevation would take place.

On July 17th Goldman ended the speculation by confirming the choice of Mr Solomon as CEO and saying that he would take over in October, earlier than predicted. Quarterly results presented that day by Martin Chavez, the chief financial officer, who is thought to be in his own succession battle to replace Mr Solomon, beat forecasts. Still, the share price sagged....Continue reading

Income-share agreements are a novel way to pay tuition fees

Thu, 07/19/2018 - 16:55

TO PAY for his professional flight degree at Purdue University in Indiana, Andrew Hoyler had two choices. He could rely on loans and scholarships. Or he could cover some of the cost with an “income-share agreement” (ISA), a contract with Purdue to pay it a percentage of his earnings for a fixed period after graduation.

Salaries for new pilots are low. Mr Hoyler made $1,900 per month in his first year of work. Without the ISA, monthly loan payments would have been more than $1,300. Instead, for the next eight-and-a-half years he will pay 7.83% of his income. He thinks that, as his pay accelerates, he will end up paying $300-400 more each month than with a loan. But low early payments, and the certainty that they would stay low if his earnings did, made an ISA the better option, he says. “I’ve been able to pay what I could afford.”

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What Venezuelan savers can teach everyone else

Thu, 07/19/2018 - 16:55

ASK the chief investment officer of a fund-management firm how to spread your investments and you will be told to put so much in stocks, so much in bonds and something in hedge funds or private equity. Chances are that white-elephant buildings, eggs and long-life milk will not feature. But in Venezuela, where the inflation rate is in the tens of thousands, things that people elsewhere would shun for fear they will lose value have become stores of real wealth.

That is why you can see scaffolding and other signs of a building boom dotted around Caracas, the capital of a country that has endured an economic collapse. Businesses need to park their earnings where they will not be wiped out by inflation. A smaller-scale response to galloping prices is the emerging “egg economy”. Eggs hold their value better than cash, for a while at least. They make for a convenient currency, too. It is easier to carry around a half-dozen eggs than a trunkful of banknotes. And many tradespeople would be happier to...Continue reading

Football talent scouts become more rational

Thu, 07/19/2018 - 16:55

Making a Kylian

CHEERS erupted from Calais to Cannes when Kylian Mbappé, a 19-year-old striker, thumped in France’s fourth goal in the World Cup final on July 15th. Among the smuggest onlookers were the accountants at Paris Saint-Germain, Mr Mbappé’s club. He was already a prized asset before the tournament, having broken the record for goals scored by a teenager in the Champions League, Europe’s premier-club competition. CIES Football Observatory, a research organisation, reckoned then that his club could charge €190m ($223m) for him. But an electrifying World Cup, with four goals, has surely increased his value.

That, at least, is how the transfer market usually responds to international tournaments. According to 21st Club, a consultancy, each time a player found the net in the World Cup and European Championship tournaments in 2004-16, his price went up by, on average, 13%. After the 2014 World Cup James Rodríguez, whose six goals for Colombia made...Continue reading

In China, a rare public spat between officials as debt pressures build

Thu, 07/19/2018 - 16:55

LIKE other countries, China has bureaucratic infighting. But it does better than most at keeping tussles hidden from outside view, especially under Xi Jinping, a president who brooks no dissent. So it has been highly unusual to see a spat between the central bank and finance ministry spill into the open. It reveals cracks in the government’s façade of unity as a campaign to control debt exacts a toll on the economy.

The disagreement started on July 13th when Xu Zhong, head of the central bank’s research department, spoke at a forum in Beijing. Officially, China is committed to a “proactive fiscal policy”, meaning that the government will spend to prop up growth. But Mr Xu argued that the finance ministry was not delivering what it had promised, thus making deleveraging more painful.

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Mario Draghi’s replacement is already being discussed

Thu, 07/19/2018 - 16:55

A LOT rests on the shoulders of the euro zone’s top central banker. The president of the European Central Bank (ECB) is not just in charge of ensuring monetary and financial stability in one of the world’s largest economies. In the absence of a single European fiscal authority, it also falls to the ECB to act as a backstop for the currency bloc. In times of crisis, the very survival of the monetary union seems to depend on the president’s words and actions. Central-bank bosses in America, Japan or Britain bear no burden as great.

With such demands, though, comes great influence. Those in need of convincing need only cast their minds back to July 2012. Greek interest rates were soaring and investors were entertaining the possibility that the euro zone would break up. But Mario Draghi, the ECB’s boss, soothed markets with a promise to do “whatever it takes” to save the euro. Six years on, that commitment still helps to contain Italy’s sovereign-bond yields, despite unease about its new...Continue reading

How bosses should respond to the sound of the clock ticking

Thu, 07/19/2018 - 16:55

TIME is one of the most disputed and confusing subjects in business. Schumpeter is writing this column after attending a conference which began with experts describing a new era of exponential technological change. It ended with a guru who had studied 70,000 years of history and who confidently discussed humanity’s fate over the 21st century (it does not look good). In the sessions in between, specialists discussed Asia’s outlook in 2030—though they struggled to cope with Asia in 2018, starting 68 minutes behind schedule, a daily lag which, if maintained across the intervening period, would mean the fourth decade of the century would begin seven months late.

In business well-established frameworks exist for everything from corporate finance to supply chains and human resources. Time is more slippery. Should firms act now or later? Quickly or slowly? There are no clear rules. In a state-led economy the government controls the future to some extent, setting laws and allocating resources in order...Continue reading

Google is fined €4.3bn in the biggest-ever antitrust penalty

Thu, 07/19/2018 - 10:33

“THE making of a big tech reckoning,” blared one typical headline earlier this year. “The case for breaking up Amazon, Apple, Facebook and Google,” touted another. Based on media coverage alone it might seem as if the tech titans are in trouble. Add in the news, on July 18th, of a record €4.3bn fine for Google by the European Commission and that impression is strengthened. But if you look hard at where the regulatory rubber is actually hitting the road, the techlash seems much less brutal. Notwithstanding this week’s fine—which amounts to just over $5bn and is the biggest antitrust penalty ever—the online giants are nowhere near being reined in.

To be sure, the mood has changed. In America a survey for Axios, a news website, found that between October and March the favourability ratings of Facebook, Amazon and Google had fallen by 28%, 13% and 12%, respectively. Republicans such as Ted Cruz, a senator, now employ anti-tech rhetoric. Last month the Federal Trade Commission (FTC)...Continue reading

What really happened to EgyptAir Flight 804?

Sat, 07/14/2018 - 19:42

GULLIVER is not the type of person to kick up a fuss on his travels, least of all when lucky enough to be at the front of the plane. But his patience was pushed to the limit a couple of years ago, when his EgyptAir flight from Cairo to London was blighted by the near-constant stench of cigarette smoke wafting in from the cockpit. Shackled by British meekness and an unwillingness to challenge a flight crew, your asthmatic correspondent suffered the coughs and tried instead to focus on work. Conversations with Egyptian friends later revealed that on-board cigarette smoke is hardly a rarity when flying with the North African flag-carrier. 

Naturally, anecdotes such as this provide only a snapshot of an airline’s safety standards. But it is a deeply disturbing snapshot given the stalled investigation into EgyptAir Flight 804, which crashed into the Mediterranean Sea during a routine flight from Paris to Cairo in 2016, killing all 66 people aboard. This month, France’s air-crash investigation agency, BEA, took the unusual step of criticising...Continue reading

Is North Korea the next Vietnam? Don’t count on it

Thu, 07/12/2018 - 16:48

AS AMERICA presses North Korea to abandon nuclear weapons, it has pointed to Vietnam as an example of the prosperity that awaits the isolated state. “It can be your miracle in North Korea as well,” Mike Pompeo (pictured), the secretary of state, said on July 8th, on a visit to Hanoi. It is not the first time Vietnam has been held up as a model for North Korea. Over the years, officials from the two countries have discussed lessons from Vietnam’s reforms. North Korea sees Vietnam as less threatening than China and more of a peer, making it a more welcome mentor. But North Korea’s economic path is likely to be more fraught.

Yes, there are similarities. Like North Korea’s economy today, Vietnam’s used to be largely collectivised. The Vietnamese Communist party’s ability to retain power at the same time as freeing markets must appeal to Kim Jong Un, North Korea’s dictator, who has vowed to improve his country’s economy. In 1985, on the eve of Vietnam’s Continue reading

A Chinese music-video app is making WeChat sweat

Thu, 07/12/2018 - 16:48

A PUBLIC spat between two warring and wildly popular Chinese apps has had the feel of a teenage dance-off. “Sorry, Douyin Fans”, ran an article from the short-video app on its WeChat account, in which it accused the mobile-messaging service of disabling links to Douyin’s most popular videos. “All hail Douyin the drama queen,” retorted Tencent, WeChat’s parent, which said it had acted because the content was “inappropriate”.

On June 1st Tencent sued Douyin’s parent company, Bytedance, for 1 yuan (15 cents) and demanded it apologise for its accusations—on its own platforms (and presumably without the snark). Tencent also alleged unfair competition. Within hours Douyin counter-sued for 90m yuan. Bytedance and Tencent later swapped accusations of tolerating smear campaigns against the other on their apps, and filed police reports about defamatory posts.

Rarely has an upstart so piqued Tencent, a Chinese gaming and social-media titan which in November became Asia’s first...Continue reading

Law firms climb aboard the AI wagon

Thu, 07/12/2018 - 16:48

LONG hours have been the bane of the legal profession for ages; few of them involve thrilling courtroom antics. As a junior corporate lawyer at Davis Polk & Wardwell, a law firm in New York, John Bick remembers spending most of his waking hours poring over contracts looking for clauses that could complicate or kill off a deal. Even once he became a partner he still had to pitch in on due diligence for large transactions. In 2015 nearly a third of British lawyers were looking to leave the profession, according to the job searches of more than 1,000 of them by Life Productions, a career-change consultancy, perhaps because of the drudgery.

Such dissatisfaction may recede in future. Now on his firm’s management committee, Mr Bick is drafting in artificial intelligence (AI) to do the gruntwork—like many others at top law firms in New York and London. The shift could transform lawyers’ work and slash costs for clients.

Prestigious firms make their money by throwing large...Continue reading

Even stockmarket bulls are more cautious than at the start of the year

Thu, 07/12/2018 - 16:48

BEARS sound clever; bulls make money. This piece of financial acumen, imparted by a trader to a colleague, is hard to beat for brevity. It also makes a good point. There is something about market pessimism that endows bears with an aura of wisdom that is not always deserved. The cautious sound clever because they appear to have weighed the odds. Optimists seem heedless by comparison. Yet it is only by taking on risk that investors can hope to make money.

So it is telling that even bulls are now sounding cautious. The economy and stockmarket in America have had a good run, after all. The expansion, which started in 2009, is now the second-longest on record. Unemployment is low. The Federal Reserve is hawkish. This mix tends to kill a bull market sooner rather than later. The question is how much further stocks can rise. Is there still time for bulls to make money? Or will being a bear save you money as well as make you sound clever?

In this debate, each side has a distinctive way of looking at...Continue reading

Despite falling foul of the #MeToo movement, Lululemon is soaring

Thu, 07/12/2018 - 16:48

Stretch targets

BOSS wanted for firm with tarnished reputation in troubled industry. On the face of it, the vacancy to become chief executive of Lululemon doesn’t ooze appeal. It is a clothing company, an industry that has been battered in recent years. And its previous two bosses have both left under a cloud.

In February its chief executive, Laurent Potdevin, resigned for conduct that the firm said fell short of its standards on integrity and showing respect for all employees. Industry observers considered his sudden departure to fit into a succession of corporate resignations sparked by the #MeToo movement against impropriety in the workplace. Mr Potdevin’s exit came three years after Lululemon’s founder, Chip Wilson, left the firm after more than a decade running it. Mr Wilson won notoriety for his on-air proclamation in 2013, after the company had to recall nearly a fifth of its yoga pants for being too sheer, that some women’s bodies “just don’t...Continue reading

Why the euro zone hasn’t seen more cross-border bank mergers

Thu, 07/12/2018 - 16:48

MERGERS of euro-area banks from different countries, a banker jokes, are “very much like teenage sex. There’s a lot of talk, but little action. And when it does happen, there’s a lot of disappointment.” In recent months gossip has linked each of France’s three biggest banks (BNP Paribas, Crédit Agricole and Société Générale), as well as UniCredit, Italy’s largest, with Commerzbank, Germany’s second-biggest listed bank. Lately chatter has connected UniCredit and Société Générale. But no big, cross-border takeover is imminent.

A stream of deals in the 2000s—notably UniCredit’s purchase of HypoVereinsbank, another leading German lender, in 2005—has slowed to a trickle (see chart, top panel). Policymakers at both the European Commission and the European Central Bank (ECB) would like the flow to revive. The euro area’s banking markets are still essentially national ones. “European banking remains as fragmented today as it was in 2012,” notes Magdalena Stoklosa...Continue reading

Big corporates’ quest to be hip is helping WeWork

Thu, 07/12/2018 - 16:48

WITH his flowing locks and hip clothes Adam Neumann, co-founder and chief executive of WeWork, looks less like a property baron than the frontman of a rock group. He speaks expansively on the subjects of character, destiny and God. His four-year-old daughter wanders through his office during an interview with The Economist. Yet Mr Neumann, a veteran of the Israeli navy, also has a reputation for being an intense and demanding businessman. Both sides to his character come together in WeWork. Mr Neumann thinks of his property startup as a profit-making version of Israel’s famed communal farms—a sort of “capitalist kibbutz”.

Shaking up the market for commercial offices globally is the firm’s mission. WeWork’s “co-working” offices, in more than 250 locations and over 70 cities worldwide, are a blend of small private spaces and large public areas designed to encourage a sense of community among its users. The firm rents huge chunks of space from landlords, kits them...Continue reading

MoviePass’s useful financial horror show

Thu, 07/12/2018 - 16:48

There goes $242m

EVEN by the standards of Hollywood, it sounds an unlikely pitch—an app that offers almost unlimited access to cinemas for $10 a month. The service, called MoviePass, pays cinemas full price for nearly every ticket that filmgoers use. By design, it loses more money the more people use it. The ending seems to be predictable. But might it have a twist?

MoviePass has burned far more cash even than its executives anticipated since introducing the unlimited plan in August last year. It has attracted more than 3m subscribers and will lose “at least” $45m this month, according to a filing to the Securities & Exchange Commission on July 10th by Helios & Matheson, a data firm which bought a majority stake in MoviePass last year and now owns 92% of it. Helios & Matheson reported it had lost $242m in the nine months to June 30th and that its monthly losses would increase as the service becomes more popular. The firm wants to issue more shares and...Continue reading

A welcome upgrade to apprenticeships

Thu, 07/12/2018 - 16:48

THE Advanced Manufacturing Research Centre (AMRC) in South Yorkshire, England, looks like the very model of a modern industrial site—bright, shiny, airy and clean. In June 1984 it was the site of a traumatic moment in British history—the Battle of Orgreave, when picketing miners clashed with police as they tried to stop lorries collecting supplies from a coking plant. The incident symbolised Britain’s post-war record of industrial decline and bitter strikes.

The old coking plant is long gone. In its place is a promising attempt to create jobs for a new generation of workers, and to tackle an ancient and ridiculous British class divide. An important part of this divide is that universities have long been seen as a place for academic subjects, calling for essays and equations. People who got their hands dirty making stuff did not go to college. But as of last autumn apprentices at the AMRC have been able to study for degree courses. When they graduate they will have an engineering degree from...Continue reading

Life as you know it is IPOver

Thu, 07/12/2018 - 16:48

DEAR chief executive. First, congratulations. You have decided to float your firm’s shares on the stockmarket. After years of toil behind the scenes, it’s time for the big stage. You probably feel pretty good right now, especially after those insightful bankers from Goldman Sachs said that your firm is one of the most impressive that they have ever seen in their careers and that they are generously going to give you a discount on their normal fee and charge you only 4% of the IPO proceeds. Unfortunately, though, things will now get much worse before they get better. An IPO is like having children: months of waiting, an agonising delivery and afterwards your world is never the same again.

At least you are not alone. American IPO volumes are at their highest level for three years. In New York Dropbox and Spotify recently listed. Even Michael Dell, who took his computer firm private in 2013 and grumbles about the myopia of stockmarkets, is taking his firm public again, through a merger. In China a...Continue reading

Development-impact bonds are costly, cumbersome—and good

Thu, 07/12/2018 - 16:48

IF A girl in a poor country goes to school, she will probably have a more comfortable life than if she stays at home. She will be less likely to marry while still a child, and therefore less likely to die in childbirth. So, not surprisingly, there is an Indian charity that tries to get girls into school and ensure they learn something, and there are Western philanthropists willing to pay for its work. What is noteworthy is how they have gone about this transaction.

On July 13th the Brookings Institution, a think-tank, presents the results of the world’s first large development-impact bond, which paid for girls’ education in the northern Indian state of Rajasthan. In this novel way of funding charitable work, a financial institution gives money to a charity, which tries to achieve various specified outcomes. If a neutral arbiter rules that it has succeeded, a donor or philanthropist repays the investor, plus a bonus. If it fails, the investor loses some or all of its money.

This is...Continue reading

Donald Trump insists on trade reciprocity. But what kind?

Thu, 07/12/2018 - 16:48

IN THE sixth episode of “The Apprentice”, a reality-television show first broadcast in 2004, Donald Trump, as always, fired a contestant vying for a job in his company. She was, he said, the worst negotiator. And she had failed to fight back when belittled by her teammate. The episode was entitled “Tit For Tat”.

That same principle of reciprocity guides Mr Trump’s trade policy as president. And it is animating his tariff war with China. On July 6th America imposed 25% duties on Chinese imports worth about $34bn. (Another $16bn-worth will be hit in due course.) China responded by slapping tariffs on a similar amount of American goods (including a cargo of soyabeans aboard the Peak Pegasus that arrived at the port of Dalian mere hours later).

The two sides disagree, however, about which is tit and which tat. China believes it is responding dollar-for-dollar to American aggression. But America too believes it is retaliating: punishing China for trade and...Continue reading

Investors are gorging on American assets

Thu, 07/12/2018 - 11:18

ECONOMISTS think prices, like spilt ketchup, are sticky. They move only slowly as firms digest economic conditions. Financial markets are an exception. Computerised trading by thousands of participants means prices, especially of currencies, can move in a McFlurry.

Since The Economist last updated the Big Mac index (BMI), our lighthearted guide to currency valuation, burger prices have remained constant in 19 of 44 countries. But every currency has shifted in value (see chart 1). Our index uses a nugget of economic wisdom called purchasing-power parity: currencies should adjust until goods cost the same everywhere. If, once converted into dollars, Big Mac prices vary, one or other currency looks dear. Big movements in exchange rates, without similarly supersized shifts in burger prices, can send a currency up or down the index.

That explains why the Argentine peso has been the biggest mover since January. Then, it looked 25% undervalued compared with the dollar; today, that has swelled to 51%. The peso tumbled...Continue reading

Airbus and Boeing are tightening their hold on the sky

Tue, 07/10/2018 - 22:46

AT A glitzy party in Toulouse on July 10th Airbus, Europe’s aerospace giant, revealed its “newest” plane. But many aviation buffs might find it familiar. It was a repainted C-Series aircraft—originally developed by Bombardier of Canada—a project in which Airbus bought a 50.01% stake on July 1st. Airbus welcomed the aircraft into its family of planes by renaming the CS-100 as the A220-100 and the CS-300 as the A220-300. The message was clear: it is now an Airbus plane. But with Airbus and Bombardier’s arch rivals, Boeing of America and Embraer of Brazil, announcing their own joint venture last week, the skies are running out of competition.

The tie-up between Airbus and Bombardier, originally signed last October, initially came as good news for many airlines. Before Airbus swooped, the C-Series project was financially on its knees following an attempt by Boeing, Airbus’s arch-rival, to get tariffs slapped on imports of the planes into America. That would have decimated its order book and pushed Bombardier to the brink of bankruptcy....Continue reading

Amazon wins from a Supreme Court ruling

Tue, 07/10/2018 - 15:02

FOR years, online retailers in America have enjoyed an unfair advantage over their bricks-and-mortar competitors. Unless they were physically located in the same state as a shopper, they were not obliged to collect state and local sales taxes. Shoppers were still legally required to pay taxes on their online purchases, but not everyone did in practice. Many instead to chose to treat the internet as a place to find discounts. Given that state and local taxes can add up to as much as 12% of a product’s prices, the potential savings were substantial. This practice is now coming to an end. On June 21st America’s Supreme Court ruled that online retailers would finally have to start collecting sales tax themselves.

The company that has benefited most from this loophole is probably Amazon, America’s biggest online retailer. When it started out, it collected sales taxes only from customers who lived in its home state of Washington. In recent years, however, Amazon has built distribution...Continue reading

Amazon takes a big step into online pharma

Thu, 07/05/2018 - 17:00

Jeff dispenses more disruption

FOR roughly a year speculation has been feverish: would Amazon, an online retail giant, muscle into America’s prescription-drugs market? On June 28th that uncertainty ended when it bought a small online pharmacy, PillPack, based in Manchester, New Hampshire, for about $1bn. When the deal is completed later this year, Amazon will be able to sell prescription drugs to customers in the 50 states where PillPack has licenses.

The news of Amazon’s entry had a predictable effect on incumbent firms. Shares of three large bricks-and-mortar pharmacy chains, Walgreens Boots Alliance, Rite Aid and CVS Health, lost $11bn in value. Drug distributors such as Cardinal Health and AmerisourceBergen were also hit. Amazon gained $19.8bn. Michael Rea, boss of Rx Savings Solutions, a health-technology firm, says the purchase increased the speed with which Amazon can get into the prescription-drug market, making slimmer profit margins...Continue reading

Canada’s cannabis firms plot world domination

Thu, 07/05/2018 - 17:00

IT IS rare to see the words “Canada” and “world domination” in the same sentence. The country’s cannabis producers want to change that. With an eye on October 17th, the date on which recreational marijuana will become legal, medical-cannabis firms have been expanding at home and talking up their global ambitions in a most un-Canadian way. Lots of joint ventures—in the legal sense—are being signed abroad. The hope is that having a base in the first large country to make pot legal for adults (Uruguay legalised cannabis in 2017) will give them an unbeatable lead.

To date firms have financed their expansion plans largely by selling shares, supplemented by funding from smaller investment banks and credit unions. Enthusiastic investors have pushed share prices to stratospheric levels (see chart)—many warn of a bubble. But the biggest banks, without whom nothing substantial is financed in Canada, have been wary. That changed on June 26th when the Bank of Montreal agreed to loan Aurora Cannabis up...Continue reading

New auto tariffs would batter German carmakers

Thu, 07/05/2018 - 17:00

Straight outta South Carolina

THE menace to Americans from immigration of the wrong sort is immense, according to President Donald Trump. The list of items he wants to deter from crossing the border includes objects as well as people, and one in particular holds his attention. In trade terms, he told Fox News on July 1st, “the cars are the big one.” With good reason, he views auto tariffs as a far deadlier weapon than the duties already imposed on steel and aluminium when it comes to extracting trade concessions from other countries.

That is dire news for all carmakers, which are among the world’s most globalised firms. But Germany’s are the most dependent on exports. Most well-off Americans long ago traded in Lincolns and Cadillacs for the refinement of Teutonic marques. A tweet from Mr Trump on June 22nd reaffirming his tariff plans sent the shares of Daimler, which makes Mercedes, and of BMW into a nosedive.

Mr Trump fumes that American cars exported...Continue reading

Shortages of carbon dioxide in Europe may get worse

Thu, 07/05/2018 - 17:00

Here’s to carbon capture

IN THEORY, the world has too much carbon dioxide. In 2015 the Paris climate agreement set limits on emissions of the gas to prevent global temperatures rising by more than two degrees Celsius above those of pre-industrial times. But in practice, makers of food and drink in Europe have found that they cannot find enough of the gas. And this unlikely shortage is likely to get worse in future.

Food-grade CO2 is a vital ingredient: it puts the fizz in carbonated drinks and beer, knocks out animals before slaughter and, as one of the gases inside packaging, delays meat and salad from going off. A shortage of the stuff has therefore created havoc in foodmakers’ supply chains. Heineken, a Dutch brewer, and Coca-Cola, an American drinks giant, have been forced to close some of their European plants. JD Wetherspoon, a British pub chain, ran out of some beers. Scotland’s largest pig slaughterhouse was forced to shut. On June 29th Warburtons,...Continue reading

Glencore faces a DoJ probe stretching from Africa to the Americas

Thu, 07/05/2018 - 17:00

IT EMERGED on July 2nd that Hollywood may make “The King of Oil”, a film about Marc Rich, an American-Swiss commodities trader who became a fabulously rich fugitive from American justice. On July 3rd Glencore, the firm founded by Mr Rich, said America’s Department of Justice (DoJ) had requested documents regarding its compliance with corruption and money-laundering laws. Depending on the outcome, the film may have a good sequel.

It has been a year of pain for Glencore, a mining and trading giant. News that the DoJ wanted over ten years of documents related to activities in three countries, the Democratic Republic of Congo (DRC), Nigeria and Venezuela, knocked its market value by 8.5%, or $4.3bn (on July 5th it announced a $1bn share buyback). Its shares had already lagged its peers this year because of its exposure to the DRC and Russia, where it has suffered collateral damage from American sanctions.

Glencore, whose boss, Ivan Glasenberg, is its second-biggest...Continue reading

China’s new $15bn tech fund emulates SoftBank’s Vision Fund

Thu, 07/05/2018 - 17:00

THE story of China Merchants Group began in the 1870s. After its defeats in the Opium wars, the Qing government tried to learn from the West by adopting foreign technology and encouraging new commercial ventures, including China Merchants. The banking-to-shipping conglomerate, based in Hong Kong, has since evolved into one of China’s largest state-owned enterprises, with $1.1trn in assets.

Fittingly, its latest endeavour again involves looking westward for new technologies. On July 1st it announced that its investment arm and other China-based investors would put 40bn yuan ($6bn) into a 100bn yuan venture-capital (VC) fund, the China New Era Technology Fund.

That total pot is a nod to the much larger project that it aims to replicate: the $100bn Vision Fund, formed by Masayoshi Son, founder of SoftBank, a Japanese telecoms and internet firm, to invest in flashy startups. It borrows a little of its aura by partnering with Centricus, a British investment company that helped Mr...Continue reading

The growth of index investing has not made markets less efficient

Thu, 07/05/2018 - 16:57

IN THE autumn of 1974 Paul Samuelson, a prominent economist and Nobel prizewinner, issued a challenge. Most stockpickers should go out of business, he argued. Even the best of them could not always beat the market average. But there was a snag. “If this advice to drop dead is good advice, it is obviously not counsel that will be eagerly followed.” An alternative was needed to set an example. Someone should set up a low-cost, low-turnover fund that simply tracked the S&P 500 index of stocks.

The following year Vanguard, then a fledgling firm, took up Samuelson’s challenge and launched an index fund for retail investors. It was not eagerly received. Denounced on Wall Street as “un-American”, the index fund raised a mere $17m in the half-decade after its launch. It has been only in the past two decades that index investing has prospered. Indexed funds have grown around six times faster than those tended by active fund managers who select stocks to buy. Lots of investors now get the average...Continue reading

China’s statistics are bad. Many criticisms of them are worse

Thu, 07/05/2018 - 16:57

“Our people crave, more than anything else, to know the extent of the nation,” says the narrator in “Do You Love Me?”, a short story by Peter Carey set on an imaginary world that lionises cartographers. To satisfy that craving, the country carries out a regular, exhaustive census: a “total inventory of the contents of the nation”. Helpful householders even move their possessions—furniture, appliances, utensils, heirlooms—into the street for easier counting.

China, like many countries, is keen to know its own extent. This year it is preparing its latest economic census, a twice-a-decade undertaking. Like the census in Mr Carey’s fable, it is a “mammoth task”. The most recent one employed 3m people, counted more than 8m enterprises and estimated a GDP of almost 59trn yuan ($9.5trn at the time). This year’s census may find that GDP per person has exceeded $10,000, enough to form a tidy pile of possessions on the street.

But why, many people will ask,...Continue reading

Central Europe’s Goldilocks economies

Thu, 07/05/2018 - 16:57

THEY evoke metal gorillas in a cavernous, floodlit hall: 640 robots with riveting guns and arms for handling parts. They will spring into action this autumn at the opening of a new plant for Jaguar Land Rover (JLR), built at a cost of €1.4bn ($1.6bn) on former farmland in Nitra, in western Slovakia. Cars under construction will travel along 3.9km of elevated maglev track, taking just two days from start to completion. The robots, together with 2,800 human workers, will assemble a Land Rover Discovery every two minutes.

JLR is just the latest carmaker to come to Slovakia. VW arrived 27 years ago, followed by Kia and PSA. The firms together churn out over 1m cars annually, more per head of population than any other country. JLR considered 30 or 40 locations, says Alexander Wortberg, who oversees operations at Nitra. Mexico has cheaper workers and (for now, at least) favourable access to the American market. But Nitra is close to a new motorway and Slovakia has an impressive supply chain,...Continue reading

Argentina’s currency crisis is far from over

Thu, 07/05/2018 - 16:57

Too pricey to drown sorrows

ON A residential street corner in Buenos Aires, Van Koning Market sells imported beers to the city’s well-heeled. Since it opened in June last year costs have soared. The peso has plummeted, meaning wholesale prices have shot up. Inflation is running at 26%; the reduction of government subsidies means the monthly electricity bill has risen from 700 pesos to 4,000 pesos ($142). Already losing customers, Sergio Discenza, the manager, is reluctant to raise prices much. “In a normal country this would be a viable business,” he says. “But here everyone is struggling.”

The year started badly for Argentina when the worst drought in 50 years hit the harvest of maize and soyabeans, both important exports. In May a stronger dollar and higher US Treasury yields prompted international investors to flee risky assets. Most emerging-market currencies suffered, Argentina’s especially. Its twin fiscal and current-account deficits have seen the peso...Continue reading

Companies appear to be gaining market power

Thu, 07/05/2018 - 16:57

COMPETITION forces companies to keep prices low to attract customers. But if a few firms become powerful enough, they can see off competitors and charge more. A new working paper by Jan De Loecker of the University of Leuven and Jan Eeckhout of University College London presents evidence that this is happening across the rich world.

The researchers examine markups—selling prices divided by production costs. At 1, products are sold at cost; above 1, there is a gross profit. Using the financial statements of 70,000 firms in 134 countries, the authors find average markups rose from 1.1 in 1980 to 1.6 in 2016.

America and Europe saw the biggest increases (see chart). But in many emerging markets markups barely rose. In China they fell. That suggests rich-world firms may have been able to increase markups by outsourcing to cut labour costs. Another possibility is that corporate concentration may have increased because of lax antitrust enforcement or the growing heft of companies benefiting from...Continue reading

Chinese and US tech giants go at it in emerging markets

Thu, 07/05/2018 - 16:57

TWO contests are under way in which titans holding billions in their thrall vie for global domination. One is unfolding on Russian football pitches and features the likes of Neymar and Harry Kane. The other is playing out on the smartphone screens of consumers in India, Indonesia, Brazil and other emerging economies. There, American online superstars such as Google, Facebook and Amazon are pitted against a Chinese dream team led by Alibaba and Tencent.

The geopolitics of business means that the world’s biggest tech firms have swelled to combined market capitalisations of over $4trn without really going head to head. China blocked Google et al with its Great Firewall, preventing American firms (Apple is an obvious exception) from taking on Chinese rivals on the mainland. Chinese giants have stayed out of America; Europe fell under the spell of Silicon Valley before Chinese tech had matured.

Time, and capabilities, have changed. Chinese tech firms once simply mimicked Silicon Valley...Continue reading

Politics is becoming a minefield for the travel and hospitality business

Wed, 07/04/2018 - 19:22

TRAVELLERS come in all different stripes. So it is generally not wise for the chief executive of a major airline to say something like this about a controversial presidential stance: “This policy and its impact on thousands of children is in deep conflict with [our] mission and we want no part of it." But that was Oscar Munoz of United Airlines on President Donald Trump’s now-reversed policy of separating immigrant children from their parents at the border. He is not the only airline boss to have attacked the policy. American Airlines issued a statement condemning the move as “not at all aligned” with its values. They, along with Frontier Airlines and Southwest Airlines, asked the government not to use their flights to transport children away from their parents. America’s other major airlines, Delta, also said that the family separations “do not align with Delta’s core values”.

The loud and explicit condemnation of the values of a serving president is unusual...Continue reading

The American president is stirring up trouble in a volatile oil market

Wed, 07/04/2018 - 16:33

IT USED to be said that America’s shale producers were the new “swing factor” in global oil markets. It turns out that role is being taken by America’s president. 

At a time when oil prices are at three-and-a-half-year highs, markets are being buffeted by three countervailing forces unleashed by President Donald Trump: his geopolitical agenda, particularly sanctions on Iran; his domestic political agenda, to lower American petrol prices before the mid-term elections; and his looming trade war with China. If he does not get his way, he may have a dangerous weapon up his sleeve—America’s Strategic Petroleum Reserve (SPR). His meddling risks making OPEC, the oil cartel that is a focus of his wrath, look like a paragon of predictability. 

First, geopolitics. Despite an agreement late last month by Saudi-led OPEC and Russia to increase output by up to 1m barrels a day (b/d), the price of Brent crude, a benchmark, has risen to above $77 a barrel. The proximate...Continue reading

User-rating systems are cut-rate substitutes for a skilful boss

Thu, 06/28/2018 - 18:22

IT OFTEN arrives as you stroll from the kerb to your front door. An e-mail with a question: how many stars do you want to give your Uber driver? Rating systems like the ride-hailing firm’s are essential infrastructure in the world of digital commerce. Just about anything you might seek to buy online comes with a crowdsourced rating, from a subscription to this newspaper to a broken iPhone on eBay to, increasingly, people providing services. But people are not objects. As ratings are applied to workers it is worth considering the consequences—for rater and rated.

User-rating systems were developed in the 1990s. The web held promise as a grand bazaar, where anyone could buy from or sell to anyone else. But e-commerce platforms had to create trust. Buyers and sellers needed to believe that payment would be forthcoming, and that the product would be as described. E-tailers like Amazon and eBay adopted reputation systems, in which sellers and buyers gave feedback about transactions. Reputation scores...Continue reading

The rich world needs higher real wage growth

Thu, 06/28/2018 - 18:22

CENTRAL bankers and economists have spilled much ink in recent years on the question of why wages have not grown more. The average unemployment rate in advanced economies is 5.3%, lower than before the financial crisis. Yet even in America, the hottest rich-world economy, pay is growing by less than 3% annually. This month the European Central Bank devoted much of its annual shindig in Sintra, Portugal to discussing the wage puzzle.

Recent data show, however, that the problem rich countries face is not that nominal wage growth has failed to respond to economic conditions. It is that inflation is eating up pay increases and that real—that is, inflation-adjusted—wages are therefore stagnant. Real wages in America and the euro zone, for example, are growing more slowly even as the world economy, and headline pay, have both picked up (see chart).

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China starts easing monetary policy. Or does it?

Thu, 06/28/2018 - 18:22

CHINESE investors often refer in jest to the central bank as “central mama”. The idea is that it can be counted on to provide tender love—that is, policy easing—when market conditions are rough. But during the past couple of years it has been more of a disciplinarian, taking cash away from reckless investors. Its latest move, a cut of banks’ required reserves, has triggered a debate about which school of parenting it subscribes to these days. Is central mama turning soft again, or is she still cracking the whip?

On June 24th the People’s Bank of China said it would reduce the portion of cash that most banks must hold in reserve by 50 basis points. This was equivalent to deploying 700bn yuan ($106bn) in the financial system, or nearly 1% of GDP, which might sound like a healthy dose of liquidity to shore up growth. But the central bank insisted that it was not easing policy.

Many analysts take the central bank at its word. In the past, when it focused on the quantity of money in the economy, reducing required reserves could be seen as a form of loosening. But in recent years it has placed more emphasis on interest rates. Its most important target is banks’ short-term cost of borrowing from each other. That remained stable over the past week at about 2.8% in annual terms, proof that the announcement had little discernible...Continue reading

Tortured by meetings

Thu, 06/28/2018 - 18:22

MOST workers view the prospect of a two-hour meeting with the same enthusiasm as Prometheus awaited the daily arrival of the eagle, sent by the gods to peck at his liver. Meetings have been a form of torture for office staff for as long as they have pushed pencils and bashed keyboards.

One eternal problem has been their inefficiency. In 1957, C. Northcote Parkinson, an academic and legendary writer on management, came up with the law of triviality, that “the time spent on any item of the agenda will be in inverse proportion to the sum [of money] involved.” In that same spirit, this columnist would like to propose an even broader principle, applying to gatherings of ten people or more, and immodestly called Bartleby’s Law: “80% of the time of 80% of the people in meetings is wasted.”

Various corollaries to this law follow. After at least 80% of meetings, any decisions taken will be in line with the HIPPO, or “highest-paid person’s opinion”. In short, those who backed a...Continue reading

America Inc and the rage against Beijing

Thu, 06/28/2018 - 18:22

ONE of the naughty secrets about America’s trade war with China is that it has the tacit support of much of America’s business establishment. For the past 20 years big firms’ default mode has been Sino-infatuation. Schumpeter attended a dinner in 2016 between the captains of USA Inc and Li Keqiang, China’s premier, and you could taste the deference in the air more keenly than the beef on the plates. But lately bosses’ mood has flipped into a hostility that risks becoming jingoistic and unhelpful.

While a few Sino-dependent companies such as Apple and Boeing want to lower the temperature, many others consider themselves mistreated by China; for them, it is payback time. This stance has two flaws. The sense of victimhood is over the top; American firms have done reasonably well in China. And it is stoking the White House to escalate a conflict that may spill over from trade tariffs into a war over investment by multinationals.

China may have been bad for steel workers in Cleveland...Continue reading

A disciplined startup emerges from the Wild West of crypto-currency

Thu, 06/28/2018 - 18:22

MOST startups proudly announce their presence on buildings, billboards and any surface offering visibility. Not Coinbase, a crypto-currency startup. Visitors to its headquarters on a high floor of an office tower in San Francisco find themselves before an unmarked door and doorbell. They are asked to confirm by intercom which firm they intend to see. An online search for Coinbase shows its offices at a different location, a diversion tactic to keep away disgruntled crypto-currency investors, thieves who are trying to get access to crypto-assets, and other malefactors.

Such inconspicuousness contrasts with the company’s high profile. Coinbase is one of Silicon Valley’s fastest-growing young firms and by far the most prominent business to emerge from the mania around crypto-currencies. The six-year-old startup, an online brokerage for buying and selling bitcoin and other crypto-currencies, claimed a valuation of $1.6bn when it raised $100m from venture capitalists last year. It reportedly now has a...Continue reading

The changing world of work

Thu, 06/28/2018 - 18:22

“MONEY often costs too much,” quipped Ralph Waldo Emerson. But a new study suggests that since 1950, the price of buying it with labour in America has fallen. Greg Kaplan of the University of Chicago and Sam Schulhofer-Wohl of the Federal Reserve Bank of Chicago have linked measures of how Americans today feel about various jobs to changes in employment.

Both men and women are less likely to be farmers, for example, now than in 1950, and more likely to be in management. Women are less likely to be secretaries, and men more likely to be in service-sector jobs. Assuming that people in 1950 felt the same way about particular jobs as people do now, workers today are less sad, less tired and in less pain.

But changes in other measures of well-being, and a separate analysis of men and women, are less uniformly positive (see chart). The economists find that modern employment patterns probably mean that today’s workers are more stressed. And although the jobs women have moved into are ones they...Continue reading

Italy’s resilient savers are driving consolidation in asset management

Thu, 06/28/2018 - 18:22

THE rumour mill is grinding again. In early 2017 reports swirled of a possible merger between Generali, Italy’s biggest insurer, and Intesa Sanpaolo, the country’s second-biggest bank. That deal came to nothing. But Intesa is still looking for a partner. Now it is said to be in talks with BlackRock, the world’s biggest asset manager, about a stake in Eurizon, the bank’s asset-management unit. Deal or no deal, two things are clear. Italy’s asset-management industry is consolidating. And though investors fret over a populist government and towering public debt, its pool of private savings will keep them keen.

Last year Amundi, a French asset manager, bought Pioneer, the fund-management arm of UniCredit, Italy’s biggest bank. Over half of assets under management are owned by 10% of Italians, which makes the wealthier end of the business especially appealing. Mediobanca, an investment bank, last year opened a private bank and bought 69% of RAM Active Investments, a Swiss investment manager. And in May Indosuez, the wealth-management arm of Crédit Agricole, a French bank, acquired Leonardo, a private bank.

There is lots to fight for. Although Italy’s savings rate has fallen by more than half since the 1990s, at 10% of personal income it still beats Britain’s or Spain’s. The financial crisis a decade ago saw assets under management contract by...Continue reading

European state rail firms face scrappy new competitors

Thu, 06/28/2018 - 18:22

THE opening of Britain’s Liverpool and Manchester Railway in 1830 marked several firsts in rail history. It was the world’s first inter-city line. It was the scene of the first widely reported passenger fatality. And it was also the first where all trains were hauled by the track owners. Previous lines had seen competition between operators, leading to the drivers of horse-drawn passengers trains and steam-pulled coal trucks having fisticuffs on the tracks. Two centuries later, the question of whether train and tracks should be operated by the same firm still simmers across Europe.

That is because new EU rules, enticingly called the “fourth railway package”, will force all state rail firms to open their tracks to rivals from next year. It means a “tectonic shift” for the industry, argues Leos Novotny of LEO Express, a rail startup based in Prague. And it comes at a time when commuters are particularly grumpy about trains. In France three months of labour strikes at SNCF, the state rail...Continue reading

Contrition wins the day for Uber in a big market

Thu, 06/28/2018 - 18:22

SECOND chances exist, after all. Last September Uber was sideswiped when Transport for London (TfL), the city’s transport regulator, revoked the ride-hailing giant’s licence to operate in the capital, citing concerns related to public safety and reporting of drivers’ criminal offences. The decision appeared to dent the prospects of the firm, which counts London as its largest European market and one of the most lucrative of its 600 cities. Uber continued to operate in London while appealing the decision, but a lot still hung in the balance.

Welcome news came on June 26th when a judge in London awarded the firm a licence for 15 months. In court Uber had taken a contrite and muted stance, promising to do more to provide support for riders and drivers, including launching a telephone hotline for passengers. The chief magistrate for the case, Emma Arbuthnot, decided that Uber had not acted in a sufficiently “fit and proper” manner previously, but that its new approach and leadership suggests it is ready to do so now.

TfL will still monitor it over the next 15 months, which will serve as a probationary period of sorts before its licence is again reviewed. Some doubt if Uber has really changed its rough-and-tumble ways. Gerald Gouriet, a lawyer representing the Licensed Taxi Drivers’ Association, said that an “Uber in sheep’s clothing” had...Continue reading

VW opens Rwanda’s first car-assembly plant

Thu, 06/28/2018 - 18:22

HOW to sell cars when most people can’t afford to buy one? That is the conundrum for Volkswagen in Rwanda, where it is opening the country’s first car-assembly plant. A new Polo costs 33 times the average Rwandan income. Most cars on the road are second-hand imports. Rwanda absorbs perhaps 3,000 new cars a year, says Thomas Schäfer, VW’s chief in Africa. Past projects by carmakers in Africa, he admits, have ended in “monumental failure”.

Yet there was a hopeful mood when VW launched its operations in Kigali, the Rwandan capital, on June 27th. The moment opens ”a new chapter in Rwanda’s journey,” said Paul Kagame, the president, after taking a demonstration model for a spin. In truth, little of the manufacturing will happen locally, at least to begin with. VW will build its vehicles elsewhere, partly dismantle them, then put them back together in Rwanda.

The real novelty is how the cars will be used. VW is linking production to a ride-hailing and car-sharing service,...Continue reading

Why foreigners are keen buyers of Chinese government bonds

Thu, 06/28/2018 - 18:22

IN MAY 1945 John Maynard Keynes wrote a memo on the post-war economy. In it he argued that Britain should seek to be in the mainstream of global commerce. It would suit finance as well as industry to have the whole world as a playground, he wrote. “We built up the pre-war sterling area because we were bankers amiable to treat with and having a long record of honouring our cheques.”

He passed over how Britain’s economic muscle had helped sterling’s dominance—perhaps because by then that muscle was wasting. Yet it is implacable economic might that leads many today to conclude that the yuan, China’s currency, will supplant the dollar, just as sterling gave way to the dollar after 1945. The yuan is already one of five constituents of the Special Drawing Right, a basket of reserve currencies created by the IMF. And China is opening up to capital flows. This year foreigners have been the biggest buyers of Chinese government bonds.

It is tempting to see this as another milestone on the way to the yuan’s preordained supremacy. But it is an error to interpret current events in the light of an imagined future. Foreign buyers of Chinese bonds are not swept along by an unseen law of history. Rather they are spurred by more prosaic considerations.

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Fighting the resource curse through online gaming

Thu, 06/28/2018 - 18:22

ALAIN LILLE is not pleased. His wildcat oil firm spent a fortune looking for oil in Petronia, a former colony known for cashmere wool, long before anyone else was willing to take the risk. After sealing a deal with the long-ruling government, he was poised to reap the rewards. But in last year’s election, a new president came to power, promising a better deal for the people. Mr Lille fears she will reopen negotiations, further delaying any profits for the company or revenues for the country. She has invited four foreign “experts”, who have never set foot in the country before, to advise her. As he shares these concerns at a drinks reception at Hôtel Capitale, Mr Lille notices one of these foreign advisers sidling up to listen in.

Mr Lille does not exist. Neither does the country, Petronia. They appear instead in a new online game created by the Natural Resource Governance Institute (NRGI), a think-tank based in New York and London that seeks to improve the management of oil, gas and mineral wealth in developing countries. As a player, you take on the role of that pesky foreign adviser eavesdropping on Mr Lille. As well as the drinks reception, your adventures will take you to the presidential palace, the capital city’s cafés and markets, and the coastal district of Neftala, where the oil was discovered.

In its training courses NRGI has long...Continue reading

The Trump administration plans to crack down on Chinese investment

Thu, 06/28/2018 - 18:22

PRESIDENT Donald Trump’s view of investment depends on who is doing it. On June 22nd he railed against Europeans exporting cars to America, demanding that they “build them here!” On June 26th he tweeted that all Harley-Davidson motorcycles should be made in America (see article). But when it comes to Chinese investors buying American technology, Mr Trump would prefer a frostier approach.

Investors have feared a clampdown since March, when the administration concluded that China’s unfair actions against American companies merited retaliatory restrictions on Chinese investments in “industries or technologies deemed important to the United States”. Mr Trump directed Steven Mnuchin, the treasury secretary, to come up with options. On June 24th it appeared policy might tighten dramatically, with reports of plans to limit investment in America in the...Continue reading

John Flannery gets down to business restructuring General Electric

Wed, 06/27/2018 - 18:37

THIS should have been one of the darkest weeks in the history of General Electric (GE). The firm founded by Thomas Edison has been a member of the Dow Jones Industrial Average, a stockmarket index comprised of leading American companies, for over a century. Alas, mismanagement and a failure to move with the times have turned the erstwhile icon of innovation into a disorganised, debt-laden mess. GE’s shares have plunged to below a quarter of their peak value in 2000. On June 26th GE was ejected from the Dow index and replaced by Walgreens Boots Alliance, a big health-care firm.

Yet on that same day a ray of sunshine also fell on GE. John Flannery, an insider known for his number-crunching skills who took over as the troubled firm’s boss last August, announced details of a much-awaited restructuring plan. Over the next couple of years GE will spin off its healthcare division and unwind its newish stake in Baker Hughes, a petroleum-services firm. He had previously confirmed the sale of...Continue reading

The founder of JetBlue is about to start a new airline

Fri, 06/22/2018 - 21:40

TWO decades ago, David Neeleman founded JetBlue Airways, promising to “bring humanity back to air travel.” It has since grown to become one of America’s largest airlines. But stories of poor service and a lack of humanity still abound in the country’s aviation industry. And so it appears that Mr Neeleman is back and preparing to launch a new airline.

Airline Weekly, a magazine, reports that Mr Neeleman, with $100m in financial backing, plans to create a new carrier called Moxy. The airline will aim to fill a niche in the American market by offering low-cost direct services between smaller airports,...Continue reading

As China mulls its response to Donald Trump’s tariffs, cool heads are prevailing, for now

Thu, 06/21/2018 - 16:48

The serried ranks

FOR now, at least, when speaking of the trade dispute with America, China’s government is taking a more-in-sorrow-than-in-anger tone. That helps explain the Chinese public’s surprisingly measured views of Donald Trump, and gives the Chinese government some breathing room to consider its options.

The state media have so far taken the high ground. True, the Global Times, a chest-thumping tabloid, accused the American president of “gambling” that China will be cowed by his “capricious and obstinate attitude”. No country can isolate itself from globalisation, said the Xinhua news agency: “The wise man builds bridges, the fool builds walls.” A new Xinhua web page popped up on June 20th, tracking multilateral deals that Mr Trump has quit, including on trade, climate change and Iranian nuclear arms.

But China has yet to debate, publicly, how to handle an American president who is an avowed populist...Continue reading

A wave of new environmental laws is scaring shipowners

Thu, 06/21/2018 - 16:48

THE shipping industry has encountered rough seas over the past decade. Between 1985 and 2007 trade volumes shot up at around twice the rate of global GDP but since 2012 their rate of growth has barely kept pace, leaving the industry with overcapacity. Freight rates for containers have plunged by a third since 2008. Worse may be to come. The industry does not regard as good news President Donald Trump’s announcement on June 15th of tariffs of 25% on up to $50bn of Chinese goods, which will slow trade growth further. Now a veritable hurricane of new environmental laws is about to hit.

Shipping accounts for only around 2% of global carbon emissions, but is quite dirty. Burning heavy fuel oil, the industry produces 13% of the world’s sulphur emissions and 15% of its nitrogen oxides. And by 2050 ships will be producing 17% of all carbon emissions if left unregulated, according to research by the European Union.

The International Maritime Organisation (IMO), the...Continue reading

A maverick French telecoms firm attempts Italian conquest

Thu, 06/21/2018 - 16:48

From Station F to Milano Centrale

“CHOOSE truth. Choose Iliad,” entreats the voice-over of a television advertisement after images of President Donald Trump speechifying and footballers feigning injuries flash across the screen. That may seem pretentious for a mobile provider, but the advert is part of Iliad’s entry into Italy, which began on May 29th. The group, led by one of France’s most prominent businessmen, Xavier Niel (pictured), is credited with having shaken up the telecoms industry at home. He wants to have a similar impact in Italy.

Mr Niel started out with a porn-chat service for Minitel, a French antecedent to the internet. In 2002 he launched his Freebox, which combined cheap web access, TV and fixed-line telephony, and in 2012 started selling low-cost mobile telephony. Growth came easily for years, allowing Mr Niel to spend time on other things, such as launching Station F, the world’s largest startup incubator, in Paris, and free coding schools in...Continue reading

Glencore dodges American sanctions rather than spurn its friends

Thu, 06/21/2018 - 16:48

AMONG Africa’s many foreign fixers and mining tycoons, few are more colourful than Dan Gertler, an Israeli diamond trader. Just over 20 years ago at the age of 23 he took a punt on Laurent Kabila, the rebel who in 1997 had just seized the Democratic Republic of Congo (then Zaire) from Mobutu Sese Seko, its dictator for the previous 32 years. Having met him through his son, Joseph, he lent the president $20m to buy weapons. He could have lost everything, but instead made it back a hundredfold. By the time Joseph Kabila took over from his father, after the latter’s murder in 2001, he had become the man largely in charge of distributing Congo’s mining licences to international mining companies.

Two decades on, Mr Gertler’s clout in Congo is undiminished. That was proved on June 15th when Glencore, the world’s largest commodities trader, decided it would rather evade sanctions than not pay the billionaire the royalties he was owed from a Glencore-owned mine. The American government...Continue reading

How two-wheelers are weaving their way into urban transport

Thu, 06/21/2018 - 16:48

THE streets of Beijing are thronged with two-wheeled contraptions. Some appear to be conventional petrol mopeds but as they zoom through red lights at pedestrian crossings their eerie silence and lack of exhaust reveals them as electric. Executives in suits cruise by on electric kick-scooters, looking like big kids on their way to school, though travelling much more enthusiastically. Electric bicycles, hacked together with a battery strapped to the frame and wired to a back-wheel hub containing a motor, crowd the edges of roads.

China’s cities are at the forefront of a quiet swarm of electric two-wheeled vehicles. Millions now roam their centres. This transformation of urban mobility is also happening in the West, albeit with a notable addition that has yet to take off in China: firms that rent out electric kick-scooters. These are taking many American cities by storm and are arriving in Europe.

In the bike-mad Netherlands nearly one in three newly bought bikes last year was electric,...Continue reading

Yacht-sharing startups vie to rule the waves

Thu, 06/21/2018 - 16:48

The yacht-sharing market could be this big

ONE of the busiest times of the year at Arzal marina on the coast of western France is a wooden sailing-boat festival in early summer. Hundreds of enthusiasts join Breton dances on the quayside, but as usual most of the 1,000-or so yachts, catamarans, day-sailers and motor-cruisers remain tied to the pontoons.

Few boat-owners make regular use of their expensive assets. By one estimate, a French yacht slips its moorings on average for just ten days a year, and for America’s 12m recreational boats, typical annual usage is two weeks. Meanwhile, would-be sailors have had few options, beyond pricey short charters.

Marine versions of property-sharer Airbnb or ride-sharer BlaBlaCar are trying to match the two. In Europe a French firm founded in 2013 by Jeremy Bismuth and Edouard Gorioux sets the pace. Click&Boat has 70 staff crammed onto a barge, its headquarters, on the Seine in Paris. They manage bookings for a fleet...Continue reading

Abraaj, a Middle Eastern private-equity firm, files for bankruptcy

Thu, 06/21/2018 - 16:48

UNTIL recently the Abraaj Group, aprivate-equity firm based in Dubai, was riding high. It was one of just a few such firms focused on emerging markets, and a darling of “impact investors”, who seek social or environmental returns, not just financial ones. Assets under management of $13.6bn made it the largest private-equity firm in the Middle East, and the 42nd-largest globally in 2017. Its Pakistani founder and boss, Arif Naqvi, a regular at Davos and a patron of the arts, had won awards for philanthropy. It is all the more surprising, then, that basic corporate-governance missteps led his firm to file for provisional liquidation on June 14th.

The problems began in late 2017 when four investors in its $1bn health-care fund, including the Bill & Melinda Gates Foundation and the private-sector arm of the World Bank, grew worried. Nearly $280m of $545m they had been asked for was not promptly spent on acquisitions, as is standard in the industry. Abraaj blamed delays in the...Continue reading

Most stockmarket returns come from a tiny fraction of shares

Thu, 06/21/2018 - 16:48

IN his book about the use of language, “The King’s English”, Kingsley Amis describes a tug-of-war. On one side are “berks”, careless and coarse, who would destroy the language by polluting it. On the other side are priggish “wankers”, who would destroy it by sterilisation.

The battle lines look similar in investment. The divide is not on points of grammar but on attitudes towards a handful of modish companies, known as FAANG. These stocks (Facebook, Amazon, Apple, Netflix and Google) have been the motor of the S&P 500 (see chart). All but Apple hit record highs on June 20th. Fill your boots is the attitude of coarse stockmarket berks. FAANG makes more sense than stocks in dying industries. For the prigs, the mania for FAANG stocks is as abhorrent as a split infinitive. The high-minded investor stands apart from the herd.

In matters of grammar, the unsure often follow the sticklers. They at least have rules. But they are often too rigid. Stockmarket sticklers can similarly lead others...Continue reading

Hedge funds worry about the legal risks of using “alternative” data

Thu, 06/21/2018 - 16:48

“QUANT” (quantitative) hedge funds, which craft elaborate algorithms to make trading decisions, rely on access to information. That used to mean market data, such as prices and trading volume. But some now seek an edge in novel sources. An industry has sprung up to serve them with, and help them analyse, “alternative” data, such as those gleaned from satellite images or by scraping websites. Many of these data firms have been founded by entrepreneurs, but some quant funds themselves are getting involved. Winton, a large London-based fund, is spinning off Hivemind, a data-analysis unit. A full-time management team was announced on June 18th.

For funds making macroeconomic bets by trading in, say, currencies or government bonds, real-time measures of inflation (scraped from e-commerce sites) or trade flows (from shipping data) can be better and more timely than the output of national statistics agencies. Funds trading in individual firms’ shares can infer information on sales from satellite...Continue reading

How an algorithm may decide your career

Thu, 06/21/2018 - 16:48

WANT a job with a successful multinational? You will face lots of competition. Two years ago Goldman Sachs received a quarter of a million applications from students and graduates. Those are not just daunting odds for jobhunters; they are a practical problem for companies. If a team of five Goldman human-resources staff, working 12 hours every day, including weekends, spent five minutes on each application, they would take nearly a year to complete the task of sifting through the pile.

Little wonder that most large firms use a computer program, or algorithm, when it comes to screening candidates seeking junior jobs. And that means applicants would benefit from knowing exactly what the algorithms are looking for.

Victoria McLean is a former banking headhunter and recruitment manager who set up a business called City CV, which helps job candidates with applications. She says the applicant-tracking systems (ATS) reject up to 75% of CVs, or résumés, before a human sees them. Such systems...Continue reading

Giddy property prices are a test for Swedish policymakers

Thu, 06/21/2018 - 16:48

ULF DANIELSSON is thinking of buying a holiday home—or even a new house, so that he, his wife and two children can have a garden and more space than in their flat in Uppsala. He can afford either, he says, and as a professor of astrophysics is surely able to work that out. But he is hesitating, lest the giddy rise in Swedish property prices end in an ugly crash. “You risk having a big loan that’s worth more than the house,” he says.

The property market has fallen a little closer to Earth: prices dropped by 9% between September and January, largely because of a surfeit of pricey new flats. They then steadied, and are around 5% below the peak—and 50% higher than at the start of 2013, calculates Valueguard, a data provider. As Swedes have borrowed to buy, their debts have risen. Finansinspektionen (FI), the financial-stability supervisor, estimates that borrowers’ debts rose by 36% between 2012 and 2017, while disposable incomes went up by 13%. Almost a fifth of households with new mortgages owe more than six times net income.

Continue reading

Michel Foucault’s lessons for business

Thu, 06/21/2018 - 16:48

NOT many businesspeople study post-war French philosophy, but they could certainly learn from it. Michel Foucault, who died in 1984, argued that how you structure information is a source of power. A few of America’s most celebrated bosses, including Jeff Bezos and Warren Buffett, understand this implicitly, adroitly manipulating how outsiders see their firms. It is one of the most important but least understood skills in business.

Foucault was obsessed with taxonomies, or how humans split the world into arbitrary mental categories in order “to tame the wild profusion of existing things”. When we flip these around, “we apprehend in one great leap…the exotic charm of another system of thought”. Imagine, for example, a supermarket organised by products’ vintage. Lettuces, haddock, custard and the New York Times would be grouped in an aisle called “items produced yesterday”. Scotch, string, cans of dog food and the discounted Celine Dion DVDs would be in the...Continue reading

Sino-American interdependence has been a force for geopolitical stability

Thu, 06/21/2018 - 16:48

IN THE 1990s America and Europe had a trade dispute over bananas. No one worried that tanks might soon roll as a result. But trade is about more than economics. The European Union, the world’s most ambitious free-trade area, was founded on the idea that trade integration would make war between members “not merely unthinkable, but materially impossible”. As the risk of a serious Sino-American trade war grows, attention is mostly focused on the prospect of dearer iPhones and unhappy soyabean farmers. But the stakes are much higher.

China’s economic miracle could not help but provoke geopolitical stress, given its size and illiberality. Relations between America and China are built on mutual suspicion. Geopolitical rivalry has been moderated, however, by economic interdependence: a mutual entanglement some economics wags have dubbed “Chimerica”.

As China opened up, American consumers hoovered up cheap Chinese goods. American firms built China into their supply chains, enjoying...Continue reading

Do Britain’s railways need a Fat Controller?

Sat, 06/16/2018 - 14:22

ON MAY 20th, the biggest changes to train timetables in modern British history took place, affecting commuters and business travellers across the country. In the weeks beforehand, the train-operating companies had been spinning the changes as good news for passengers due to an increase in the number of services offered. Journalists were being hosted on training rides on the new routes. But in practice the changes turned into the biggest railway-management disaster in modern British history:

It sounds more like an episode of “Thomas the Tank Engine” than a day in the life of a modern railway. But on May 25th an express train from Newcastle to Reading took a wrong turn, and got lost in Pontefract, 150 miles away. That might have been funny were it not part of a wider collapse in train services across northern England since a timetable change on May 20th. Shortages of rolling stock...Continue reading

Can refugees help to plug Europe’s skilled-labour gaps?

Thu, 06/14/2018 - 17:09

THE canteen of Stockholm University could scarcely be more Swedish. Young blond students sip coffee and tap away on Macs. In room 3.89, an outpost of the campus, is another, newer Sweden. Refugees, all of them teachers, from lands far to the south and east are preparing for the classrooms of their new home. Several keep their coats on as Khadije Obeid takes them through the basics of the curriculum and shows a YouTube clip about education law. “In Syria the teacher has much authority,” says Samer, an English teacher, as he raises his hand above his head. “Here he is equal to the students,” he adds as he lowers it.

The ten women and seven men are on a “fast-track” programme for refugees with experience in occupations where labour is short. As well as learning Swedish, they get 26 weeks of daily classes, teaching practice and mentoring. The hope is that they will then train or, if their previous qualifications are recognised, go straight to the classroom. The government is running some 30...Continue reading

A new breed of German startups

Thu, 06/14/2018 - 17:09

At a rooftop bar in Berlin on May 29th, the glitterati of Germany’s startup scene toasted a new arrival. Silicon Valley Bank, a commercial lender which counts as customers half of American startups that went public in 2017, has just opened an office in the country. “They are doing unique, cool things here,” gushed Greg Becker, the bank’s boss. One of his first German clients is Lilium Aviation, whose electric flying taxis have mastered the tricky combination of a drone-like vertical take-off and forward jet propulsion.

Silicon Valley Bank arrives as a new breed of German startups is gaining altitude. At first e-commerce firms dominated the scene, often by copying ideas from abroad. Rocket Internet, an early success, went further, cloning American e-commerce models in other countries, too. Rocket and Zalando, a fashion e-tailer, did initial public offerings in 2014. After that only two big stockmarket debuts followed, of HelloFresh (which sells meal-kits) and Delivery Hero (a...Continue reading

Trends in extortion payments by companies to Italy’s Mafia

Thu, 06/14/2018 - 17:09

THE toll of “pizzo” protection payments made by firms to Sicily’s Mafia is closely monitored. Nearly half pay up these days, according to estimates from the Confartigianato, a national business association—a big improvement from the early 1990s, when at least four-fifths of Sicilian firms paid it. Back then the levy claimed nearly a tenth of the turnover of victimised businesses. Today’s ratio is around half that. Other regions in Italy’s south, where the pizzo system is most entrenched, have also seen big drops.

For that businesses can thank a clutch of anti-pizzo groups. One is Addiopizzo (“goodbye, pizzo”) in Palermo, which advises businesses on pressing charges against crooks. It also encourages them to publicly forswear pizzo payments. Extortionists now think twice before bullying shopkeepers, knowing there will be a flurry of...Continue reading

The murky future of two Latin American oil giants

Thu, 06/14/2018 - 17:09

Truckers’ pricing power

IT SEEMED like such a comeback. When Pedro Parente took over as boss of Petrobras in 2016, Brazil’s state oil firm was drowning in $130bn of debt. It had lost $200bn in shareholder value, and its executive board had been gutted by the massive Lava Jato corruption scandal. Mr Parente slashed subsidies, sold assets and adopted a market-friendly pricing policy. The company’s debt shrank and the share price reached a 3½-year high in May.

Then, on June 1st, Mr Parente resigned and Petrobras’s shares plunged by over 20%. The cause was a ten-day lorry drivers’ strike that crippled Brazil’s economy and forced Petrobras to freeze diesel prices for ten days and the government to subsidise them for two months. That revived a conversation about price controls and fuelled concerns about future state meddling.

The same fears hang over Pemex, Mexico’s state-owned oil giant, ahead of a general election on July 1st....Continue reading

How open is America?

Thu, 06/14/2018 - 17:09

“JUSTIN has agreed to cut all tariffs and all trade barriers between Canada and the United States,” claimed President Donald Trump to laughter on June 8th, at the G7 summit in Quebec. The next day, in apparent seriousness, Mr Trump—who has slapped tariffs and quotas on imports of aluminium and steel from all the G7 countries, and others—called for unfettered trade within the group: “No tariffs, no barriers. That’s the way it should be.”

Over the next two days a more familiar Mr Trump reappeared. After Mr Trudeau said, at a post-summit press conference, that Canada would not be pushed around, he fired off a barrage of tweets calling him “very dishonest & weak”. He blasted Europe too. And he tweeted: “Sorry, we cannot let our friends, or enemies, take advantage of us on Trade anymore.”

Suspend disbelief and suppose that Mr Trump’s offer of a barrier-free world is serious. He may want to tear down tariffs and quotas out of a yearning for open markets and lower...Continue reading

Can the solar industry survive without subsidies?

Thu, 06/14/2018 - 17:09

A LITTLE over a decade ago, when JinkoSolar, a Shanghai-based company, entered the solar business, it was such a novice that when it visited international trade fairs, all it had was a bare table and a board with its name scribbled on it. But it also had luck, a technological edge and lots of public money on its side.

The industry globally was riding high on subsidies. Generous feed-in-tariffs (FITs), financial incentives for installing solar, made Germany the world’s largest solar market by around 2010. Germans turned to China for cheap sources of crystalline silicon solar panels, not least because subsidised land and loans enabled China’s fledgling manufacturers to undercut European and American competitors.

When European solar subsidies slumped during the euro crisis, the Chinese government once again stepped in to support its renewable-energy champions. It offered FITs to slather the remote west of China with solar farms. By 2013 China had eclipsed Germany as the world’s largest...Continue reading

How to play Argentina

Thu, 06/14/2018 - 17:09

THERE is a type of footballer who inspires the affection of fans and the ire of coaches. He is talented, usually extravagantly so. But he is also wayward to the same lavish degree. Discipline seems beyond him, on or off the pitch. It was said of one of this kind, Stan Bowles of Queens Park Rangers and England, that if he could pass a betting shop as well as he passed a ball he’d be a rich man.

Which brings us, naturally, to Argentina—not to its footballers, who have mostly fulfilled their potential, but to its economy, which has not. A century ago, it was the country of the future. It betrayed that promise without ever quite extinguishing hopes that it might eventually live up to it. Like a talented but troublesome sportsman, it keeps being given another chance. The board of the IMF will soon approve a $50bn support package for Argentina. It has had countless such programmes in the past without much changing. The fund is betting that this time is different. Should investors make a similar...Continue reading

Google runs into more flak on artificial intelligence

Thu, 06/14/2018 - 17:09

DISCOVERING and harnessing fire unlocked more nutrition from food, feeding the bigger brains and bodies that are the hallmarks of modern humans. Google’s chief executive, Sundar Pichai, thinks his company’s development of artificial intelligence trumps that. “AI is one of the most important things that humanity is working on,” he told an event in California earlier this year. “It’s more profound than, I don’t know, electricity or fire.”

Hyperbolic analogies aside, Google’s AI techniques are becoming more powerful and more important to its business. But its use of AI is also generating controversy, both among its employees and the wider AI community.

One recent clash has centred on Google’s work with America’s Department of Defence (DoD). Under a contract signed in 2017 with the DoD, Google offers AI services, namely computer vision, to analyse military images. This might well improve the accuracy of strikes by military drones. Over the past month or so...Continue reading

Why Japan’s sharing economy is tiny

Thu, 06/14/2018 - 17:09

AIRBNB, an American platform for booking stays in other people’s houses, can barely conceal its frustration. A law passed last year for the first time legalised minpaku, or home-sharing, in Japan, but also sharply restricted it. From June 15th hosts can rent out their property for a maximum of 180 days each year, provided they register with the local authorities. Most hosts will not meet that deadline because they are still obtaining their registration numbers, and on June 1st Japan’s main tourism body unexpectedly decreed that any without them had to cancel reservations at once. Airbnb accordingly eliminated four-fifths of its roughly 60,000 listings in Japan. Holidays are at risk.

The experience illustrates the country’s hesitant approach to the sharing economy, in which people rent goods and services from one another through internet platforms (a broader definition includes companies renting out goods they own, such as bikes, for a short time). A generous estimate of...Continue reading

China’s tighter regulation of shadow banks begins to bite

Thu, 06/14/2018 - 17:09

THE teller at ICBC, China’s (and the world’s) biggest bank, ushers a new, well-heeled customer into a private room. It is not for VIP treatment but a stern warning. The customer wants to invest in products offering higher returns than a basic savings account. The teller fixes a camera on her and reels off a series of questions. Are you aware that prices can go down as well as up? Do you understand that the bank does not guarantee this product? Only when the customer has been recorded saying “yes” does she get her wish.

Some complain that these videotaped agreements, now mandatory at Chinese banks selling similar investment products, feel like interrogations. But for the financial system, they are a step away from the precipice. Banks have used such transactions to channel cash into off-balance-sheet loans, serving riskier corners of the economy. Firms with little lending expertise have also muscled into the same space.

The catch-all phrase to describe this is shadow banking. It is...Continue reading

The insecurity of freelance work

Thu, 06/14/2018 - 17:09

THE decline of the conventional job has been much heralded in recent years. It is now nearly axiomatic that people will work for a range of employers in a variety of roles over their lifetimes, with a much more flexible schedule than in the past. Opinion is still divided over whether this change is a cause for concern or a chance for workers to be liberated from the rut of office life.

Is the shift really happening? Some figures from the Bureau of Labour Statistics (BLS), released on June 7th, showed that only 10.1% of American workers were in “alternative employment” last year, a lower proportion than the 10.7% recorded in 2005. In contrast, a study of the British economy by the Institute for Fiscal Studies (IFS) shows that the self-employed sector has been growing, with the number of self-employed sole traders rising by 25% between 2007-08 and 2015-16.

These two measures are different. But getting a good statistical fix is not easy when the jobs are hard to define. The ecology of...Continue reading

Other American banks may have misbehaved as Wells Fargo did. Which ones?

Thu, 06/14/2018 - 17:09

Role model

IF THERE is a single example of how dramatically the regulatory environment has changed for American banks in the past 18 months, it may be the trickle of information that has recently emerged about an inquiry into their sales practices. The Office of the Comptroller of the Currency (OCC), a banking watchdog, began it in 2016 after widespread malpractice was uncovered at Wells Fargo, one of the country’s biggest banks. It ended the inquiry quietly by writing to several banks on June 4th; it sent the letters to Congress on June 11th. The public learned of the probe only because of diligent reporting by American Banker, a trade publication which appears to have gleaned its information mainly from banking consultants.

The OCC responded to American Banker’s report by releasing enough information to suggest that some banks were guilty of at least minor jiggery-pokery. It confirmed as much in testy exchanges between...Continue reading

Donald Trump lobs a grenade from afar into the G7

Sun, 06/10/2018 - 18:50

FOR a moment, the Group of Seven (G7) leaders attending their annual summit, in a mountain village in Quebec, looked like they had managed to paper over their differences with President Donald Trump and present a united front. They found just the right wording to secure American agreement on matters that never used to be in question, such as supporting democracy, abiding by international-trade rules and fighting terrorism. Even Mr Trump professed himself pleased, calling the summit wonderful and rating his relationships with other leaders as ten out of ten.

Yet barely ten minutes after the official communiqué was published, he changed his mind. He tweeted from somewhere over the Pacific, en route to his “mission of peace” in Singapore with Kim Jong Un, North Korea’s despotic ruler, that he had instructed his officials not to endorse the communiqué. He attacked Justin Trudeau, Canada’s prime minister and host of the summit, for making “false statements” at his closing news...Continue reading

People going on stag and hen dos are disrupting flights too often

Fri, 06/08/2018 - 14:17

NOTE to travellers headed to a stag do: the festivities begin at your destination, not on the plane that is taking you there. This might seem obvious, but many revellers appear unsure. Last week, an easyJet flight from Bristol to Prague was delayed and ultimately cancelled after a group of stags got their celebration off to an early start. The details of their behaviour remain murky, but it led Bristol Airport police to tweet: 

Disappointing behaviour of a few who ruined a Friday flight from Bristol Airport, not just for their mates, but for the 140+ whose flight was cancelled as a result of their follow-up actions. It’s an aircraft—not a nightclub.

The airline clarified that the flight was delayed “due to a group of passengers...Continue reading

Aviation’s most outspoken boss thinks women cannot do his job

Thu, 06/07/2018 - 19:30

THE International Air Transport Association (IATA), a trade association for airlines, was founded in 1945 to promote the interests of carriers around the world. In recent years the airline cartel of old has been accused of being out of tune with the times, particularly by low-cost carriers such as Ryanair, which is Europe’s biggest. At this week’s AGM in Sydney the message from IATA was as dated as the organisation itself: women were not suited to running airlines. Akbar al Baker, the group’s new chairman and the boss of Qatar Airways, a Gulf carrier, told attendees that “of course”, his airline “has to be led by a man, because it is a very challenging position”. He later apologised for what he claimed was a joke blown out of proportion by the media. Yet this was not Mr al Baker’s first foray into misogyny. Last year he mocked American carriers for hiring “grandmothers” as flight attendants, boasting that the average age of his cabin crew is 26 years. Until recently, he forbade female staff from marrying or getting...Continue reading

Plans to privatise India’s flag-carrier have run into turbulence

Thu, 06/07/2018 - 16:45

AFTER a plane crash, air-safety investigators are dispatched to the wreckage site to find out what went wrong and ensure it never happens again. Their financial counterparts have a similar job to do with the Indian government’s proposed sale of Air India. Mooted for nearly a year, the first round of preliminary bids ended on May 31st having attracted not a single offer.

Bureaucrats running the divestment process had expected many suitors. Domestic aviation is booming. Air India has a modern fleet, an enviable brand and valuable landing rights in many foreign airports. No fewer than 160 queries had come in from interested parties, said to include local and foreign airlines as well as Tata, a conglomerate. Might a bidding war ensue, some wondered?

Not quite. Bidders were seemingly never as keen as government leaks to the media suggested. For one, Air India came saddled with unwanted cargo in the form of 334bn rupees ($5bn) of debt. And a potential buyer would also be expected...Continue reading

The world's first commercial drone-delivery service takes flight

Thu, 06/07/2018 - 16:45

Delivering the goods

LATE on a Monday morning the village of Zhangwei is quiet. Chickens scratch and cluck at the side of the road. Workers use wooden spades to spread grain on the highway to dry, using half its width so that traffic can still pass on the other side. Yet at the community centre at the village’s heart, two objects hint at a feat of ultra-modern logistics about to unfold: a circle of green astroturf laid down in the central courtyard, and a billboard on the front of the building bearing the logo of JD.com, China’s second-largest online retailer.

A low whirr breaks the stillness as a spiky dot appears on the horizon. The drone arrives overhead with a roar, hovers for a moment, then lowers itself towards the green circle like a mantis, three sets of propellers churning the air into whorls of straw and dust. Slung beneath it is a red cardboard box branded with JD’s cheery dog mascot. Just a few feet above the ground, the drone drops the box then zips back...Continue reading

Buying GitHub takes Microsoft back to its roots

Thu, 06/07/2018 - 16:45

ALMOST to the day 17 years ago Steve Ballmer, then boss of Microsoft, the world’s biggest software firm, called Linux a “cancer”, meaning that the open-source operating system would spell the death of proprietary software. On June 4th, his successor, Satya Nadella, announced that the firm would take over GitHub, the main source of such tumours today, for $7.5bn. The deal is yet another sign of Microsoft’s startling recent metamorphosis.

GitHub is no household name, but among programmers it is as important as Facebook—which explains the impressive price tag for a firm that earned only an estimated $200m of revenues last year. More than 28m developers globally keep their code on the website, which offers all kinds of tools and services. Most important of these is allowing software projects, whether open-source or not, easily to pull together code from different contributors.

For Microsoft the deal is a homecoming. It used to be a kind of GitHub itself. When Windows,...Continue reading

A judge blames many parties in the Gulf’s biggest-ever corporate scandal

Thu, 06/07/2018 - 16:45

Follow the Maany

THE glitzy Gulf states take pride in superlatives. They have the world’s tallest building, the biggest shopping mall, even (for a time) the most expensive cocktail. To that list, add a slightly less glamorous entry: what a judge has called one of the largest Ponzi schemes in history. On June 1st a court in the Cayman Islands issued a verdict in the long-running saga of Ahmad Hamad Algosaibi & Brothers Company (AHAB), a conglomerate. When the Saudi company defaulted in 2009, its creditors scrambled to recoup billions in losses. The effective bankruptcy touched off lawsuits from Saudi Arabia to Switzerland. At last, after the longest trial in Cayman Islands’ history, it is one step closer to resolution.

No one emerged from court looking good. Central to the case was whether the founding Gosaibi family knew about fraud carried out by Maan al-Sanea, one of their firm’s executives. Born to a Kuwaiti family, Mr Sanea married into the family in 1980 and...Continue reading

A case for owning euro-zone shares

Thu, 06/07/2018 - 16:45

IN AN episode of “Seinfeld”, a 1990s television comedy, George Costanza, a serial failure played by Jason Alexander, decides that every instinct he has is wrong. So he resolves to do the opposite. He is soon squiring a new girlfriend and is up for a dream job. “It’s all happening because I’m completely ignoring every urge towards common sense and good judgment I’ve ever had,” he says.

Success in investing often means going against the grain—and your own feelings. To do otherwise is to be swept along by the general greed and fear. Still, fear is a useful emotion. It would be unwise, for instance, to ignore the recent turmoil in Italy, where bond yields spiked in response to concerns that the country might be on the road to leaving the euro. Though the worst fears have subsided, the coalition that was eventually given the president’s blessing to form a government looks capable of causing trouble.

A natural inclination in the circumstances is to turn away from euro-zone...Continue reading

Rent the Runway is taking clothes-sharing mainstream

Thu, 06/07/2018 - 16:45

Clothing as a service

AT ABOUT 4.30am the first of thousands of black garment bags arrive by truck at a vast warehouse less than ten miles (16km) from Lower Manhattan. The bags brim with designer dresses and other trendy clothing and accessories. Workers begin inspecting the garments. A billowy, patterned blouse smells a bit ripe. A floor-length red gown has a tear. A stain sullies the floral pattern of a silk sundress.

Turnaround is quick. The blouse is sent to washing machines, the gown goes to one of the 75 seamstresses lined up next to a wall of thread, zippers, buttons and other adornments in every imaginable colour and the silk dress makes its way to the “spotters”: experts who know how to get tough stains out of delicate fabrics. Most items are in and out in less than a day.

Such efficiency is essential for Rent the Runway (RTR), a New York-based, privately-owned startup with a value of almost $800m that rents out...Continue reading

In developing countries, many people cannot afford not to work

Thu, 06/07/2018 - 16:45

No time for tweeting

AMERICA’S unemployment statistics attract close attention, even from presidents. Early on June 1st President Donald Trump tweeted that he was looking forward to the latest figure (3.8%), released that morning. China’s unemployment numbers, by contrast, attract mostly ridicule. They have barely budged since 2011 despite the upheavals of the period.

Many China-watchers therefore hoped that a new measure of unemployment, dating from 2016 but published monthly since April, would be more revealing. Unlike the older statistic, which counts only those registered as jobless at local labour offices, the new measure draws on a survey of the labour force, collected by trained enumerators and beamed directly to Beijing beyond the grasp of local officials. It now covers 120,000 households across urban China (on top of a longer-running survey of 31 cities), providing, in theory, a representative snapshot of the biggest unemployed population in the...Continue reading

A tax-evasion scandal ensnares Chinese film-production companies

Thu, 06/07/2018 - 16:45

Fan Bingbing, on location in Khorgos

IT IS hard to go a day in China without seeing Fan Bingbing. The doe-eyed starlet gazes from film posters (she has averaged four films a year for the past decade), airbrushed ads for global brands and glossy magazine covers. But in the past week she has graced articles about tax evasion. Shares in a film-production firm that she partly owns fell by 10% on fears that it might be ensnared in a scandal in which actors have allegedly concealed their salaries. Ms Fan has denied wrongdoing. On June 3rd the government began a probe into tax compliance in the entertainment industry.

The controversy began when Cui Yongyuan, a TV presenter, described two anonymous contracts on Weibo, a microblog, one for 10m yuan ($1.6m) and another, linked to the first, for 50m yuan. He said it was a case of the “yin-and-yang” payments prevalent in the film business: reporting a low salary for taxation and pocketing a larger sum. Share prices of big film...Continue reading

Artificial intelligence is awakening the chip industry’s animal spirits

Thu, 06/07/2018 - 16:45

SUPERCOMPUTERS usually fill entire rooms. But the one on the fifth floor of an office building in the centre of Bristol fits in an average-sized drawer. Its 16 processors punch more than 1,600 teraflops, a measure of computer performance. This puts the machine among the world’s 100 fastest, at least when solving certain artificial-intelligence (AI) applications, such as recognising speech and images.

The computer’s processors, developed by Graphcore, a startup, are tangible proof that AI has made chipmaking exciting again. After decades of big firms such as America’s Intel and Britain’s ARM ruling the semiconductor industry, the insatiable demand for computing generated by AI has created an opening for newcomers. And it may even be big enough to allow some startups to establish themselves as big, independent firms.

New Street, a research firm, estimates that the market for AI chips could reach $30bn by 2022. That would exceed the $22bn of revenue that Intel is expected to earn...Continue reading

A referendum on the way money is created

Thu, 06/07/2018 - 16:45

TO ITS opponents, the Vollgeld initiative is “suicidal” and a “dangerous experiment”. To its supporters, it is the ticket to a “fairer and more stable banking system”. Swiss voters will decide for themselves on June 10th, when the proposal for sovereign money, which would rewire the country’s banking system, are put to a referendum that, in theory, would be binding.

The heart of the argument is whether private-sector banks should be able to create money. In modern economies, most money takes the form of deposits in commercial banks, rather than the cash in circulation and the reserves determined by the central bank. And bank deposits are mainly created through bank lending. Lenders can thus lend far more than they hold in central-bank reserves.

Vollgeld supporters want to take such money-creating powers away from banks. Bank deposits are not as safe as sovereign money, they say. If a bank collapses, depositors lose...Continue reading

Two Asian stock exchanges tussle over market data

Thu, 06/07/2018 - 16:45

BUYING and selling shares in India is not for the faint of heart. Its own central-bank governor reckons equity capital is taxed up to five times. Never fear. There is a well-established alternative. Investors can just as easily buy financial instruments that track share prices but are not themselves shares. Such “derivatives” are used across the world to mirror markets in everything from platinum to pork bellies. But they also raise awkward questions: can the exchange that generates prices by matching buyers and sellers stop a rival using the data to create its own derivatives?

A quarrel between the Singapore Exchange (SGX) and the National Stock Exchange (NSE) in Mumbai touches that very issue. Since 2000 global investors wanting exposure to Indian shares but not Indian red tape and tax have gone via SGX. Under a licence from NSE, punters could trade a derivative linked to the Nifty 50, an index which is to India what the FTSE 100 is to Britain or the S&P 500 is to...Continue reading

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