THE ECONOMIST

Americans will no longer have to sign for credit-card purchases

Thu, 04/19/2018 - 21:12

AMERICANS, and people who travel to America, have good reason to celebrate this month. By the end of April, the four major credit-card networks in the country will all stop requiring retailers to collect signatures from customers when completing transactions. Visa, the world’s biggest credit-card issuer announced in January that signatures would no longer be required from month for retailers in North America with chip card readers. For Mastercard, the world’s second largest, the same change became effective on April 13th, covering purchases in the United States and Canada. American Express, in third place globally, is dropping the signature requirement this month for retailers around the world. Discover, the fourth, is Continue reading

Sir Martin Sorrell leaves the world’s biggest ad company in a sorry state

Thu, 04/19/2018 - 16:48

DURING his spectacular rise from London beancounter to the globe-trotting boss of WPP, the advertising powerhouse he created out of a backstreet wire-basket and trolley company, Sir Martin Sorrell was rarely sentimental. The man who helped turn a ramshackle but chic industry into a global force poached accounts mercilessly and often pitted his own firms against each other in the quest for clients.

Not for nothing did the late David Ogilvy, one of the industry’s founding patriarchs, reputedly describe him as an “odious little shit” when WPP came after the Ogilvy Group in the late 1980s at the dawn of its decades-long acquisition spree (see chart). But Ogilvy later became WPP’s non-executive chairman, and the company turned into the world’s largest marketing conglomerate with more than $20bn in annual revenues. In business, Sir Martin charmed as well as cajoled.

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Amazon is not the only threat to legacy post offices

Thu, 04/19/2018 - 16:48

The Pony Express, British style

IT MAY be hard to imagine a world without cheap postal services, but 200 years ago sending mail was a luxury. Posting a letter from London to Edinburgh cost an average daily wage. In 1840, after a proposal by Rowland Hill, an inventor, Britain launched the Penny Post, the world’s first universal mail service. The state-run post office was given a mail monopoly in return for delivering letters to any address in the country at the same rate. Cheaper postage proved wildly popular and the flows of information it enabled boosted economic growth. But the scheme’s finances proved controversial. The low cost of the service hit profits and the government introduced income tax to fill the fiscal hole.

That did not stop the idea of a “universal service obligation” for post spreading across the entire rich world over the next century. At the industry’s peak, post offices worldwide delivered nearly 350bn items of mail in 2007. But over the past...Continue reading

A potential merger between IAG and Norwegian should worry flyers

Thu, 04/19/2018 - 16:48

WHEN flag carriers such as British Airways (BA) ruled the skies, only the rich could afford to fly across the Atlantic. That was until Freddie Laker, a British entrepreneur, came along. His dream was to open long-haul travel to the masses. In 1977 he launched Skytrain, the first low-cost long-haul flights between London and New York. “Thanks to Freddie Laker you can cross the Atlantic for so much less,” declared Margaret Thatcher in 1981. “Competition works.” But within a year of her speech Laker Airways had gone bust, amid accusations of predatory pricing.

Since 2013 Norwegian, another low-cost carrier, has been trying to make Laker’s dream a reality. Last year it painted his face onto one of its jets to show it is serious about disrupting transatlantic air travel. But just like Laker Airways, it has run into financial headwinds. And BA is once again a potential beneficiary. On April 12th IAG, a group of flag carriers including BA, said that it had bought 4.6% of its budget rival as a precursor...Continue reading

ESPN starts a streaming service

Thu, 04/19/2018 - 16:48

THE first week for ESPN+, a sports streaming service that Disney, owner of ESPN, launched in America on April 12th, had none of the razzmatazz associated with a firm known for blockbuster openings. Forget marquee matchups from the National Basketball Association. The games come from lesser-known football (ie, soccer) leagues, minor college sports and international fixtures with limited American audiences, like rugby and cricket.

This was tactical, says Kevin Mayer, the boss of Disney’s first shot at streaming in America. At $5 a month, the aim is to create a sort of mini-Netflix for sports. But Disney is loth to take customers away from the company’s lucrative ESPN networks on pay-TV. It wants to avoid the own goal of disrupting itself.

The delicate positioning of ESPN+ reflects an industry in flux. Cable networks are losing millions of subscribers to “cord-cutting”, whereby customers drop expensive pay-TV packages in favour of much cheaper internet services like Netflix. In response to this threat Disney decided to pull its films from Netflix and to develop its own internet-only entertainment service, which is scheduled to debut next year. In December the company agreed a $66bn deal to buy much of the entertainment business of 21st Century Fox, in order to gain the heft to compete with Netflix. Disney is betting that streaming is the...Continue reading

How Heineken beer survives in Congo

Thu, 04/19/2018 - 16:48

THE Bralima brewery in Kinshasa, the capital of the Democratic Republic of Congo (DRC), is an island of modernity in a city where chaos is the norm. Inside a building near the docks where barges begin the journey up the Congo river, conveyor belts rattle as thousands of glass bottles are washed and filled with amber liquid. A generator hums to power the new brewing machinery, creating enough booze to fill 28,000 crates every two days.

Yet the real achievement of Bralima, which is owned by Heineken, a Dutch brewer, is not making the beer. It is what happens when it leaves the factory. Congo is one of the worst-connected, most dysfunctional countries on Earth. Four times the size of France, it has almost no all-weather roads. In large parts of eastern DRC, the state is a fiction and rebels control the roads. Yet there is scarcely a village where it is impossible to get a beer.

Bralima was founded in 1923. Its main competitors, Bracongo and Brasimba, both owned by Castel, a secretive French...Continue reading

Some American startups are borrowing ideas from China

Thu, 04/19/2018 - 16:48

Hipster Hells Angel

“WHEN you enter [the marketplace] with that level of hubris and arrogance, you don’t create trust.” So declared a member of San Francisco’s Board of Supervisors this week. He was upset about the sudden appearance of dockless electric scooters, rented via smartphone, all over the city. Several American startups are battling each other and the authorities to promote them. They are clean, cheap and convenient. The snag is that some users ride them wildly or dump them willy-nilly after use. On April 17th the city passed an ordinance requiring a permit to park scooters on its pavements.

Similar clashes have taken place elsewhere. Bird, a Californian startup that raised $100m in venture-capital funding last month, launched its rental service for electrified scooters in September at its home base of Santa Monica. Since then, the beach town’s hipsters have completed over half a million rides on its scooters. Rather less keen were city officials, who...Continue reading

An American ban puts China’s ZTE in peril

Thu, 04/19/2018 - 16:48

TALK of restricting the use of Chinese telecoms equipment in the West is growing. This week the curbs went the other way, when America banned its companies from selling hardware and software for seven years to one of China’s state-owned tech champions, ZTE. On April 16th America’s Department of Commerce said that China’s second-largest telecoms firm had trampled on a settlement reached in March 2017 over ZTE’s illegal shipments since 2010 of American-made technology—telecommunications equipment to Iran, and routers, servers and microprocessors to North Korea—in known violation of trade sanctions.

The one at risk of being crippled by an embargo is now ZTE. In 2016 UBS, a bank, estimated that 80-90% of its products relied on American parts. Jean Baptiste Su of Atherton Research, an American technology-research outfit, described the ban as “devastating” for ZTE, especially the loss of chips made by America’s Qualcomm used in about 70% of ZTE’s smartphones. Although ZTE...Continue reading

A new bankruptcy code is reshaping Indian business

Thu, 04/19/2018 - 16:48

ENRIQUE IGLESIAS, a Spanish pop singer, plays an unlikely part in the story of Indian capitalism. His presence at a party to mark Vijay Mallya’s 60th birthday, in December 2015, was, literally, a showstopper. A flamboyant booze heir, Mr Mallya was then best known for founding Kingfisher Airlines, which had earlier imploded because of its debts. Given that he had personally guaranteed some of these loans, the self-proclaimed “king of good times” was assumed to have been chastened. Upon hearing of Mr Iglesias’s performance, bankers—and politicians—started asking how Mr Mallya had continued to live so large. The party had lasted for three days.

Mr Mallya is hardly the only embattled Indian tycoon to have cocked a snook at his bankers. Some “promoters” of companies, as founding shareholders of Indian companies are known, have long made full use of a loophole of local corporate law that thwarted banks’ attempts to seize companies in default on their loans. A bunged-up court system made...Continue reading

Business writer

Thu, 04/19/2018 - 16:48

The Economist is looking for a business correspondent to work at its headquarters in London. An ability to write informatively, succinctly and wittily, combined with numeracy and curiosity, matter more than prior experience. Applicants should send a CV and an article which they think would be suitable for publication in the Business section to businessjob@economist.com. The closing date for applications is May 18th 2018.

Coco bonds have not lived up to their promise

Thu, 04/19/2018 - 16:48

DURING the financial crisis, Western governments poured hundreds of billions of dollars into their banks to avert collapse. The search for ways to avoid future bail-outs started before the turmoil ended. One of the niftiest proposals was the “contingent convertible” (coco) bond, which turns into equity when the ratio of a bank’s equity to risk-weighted assets falls below a predetermined danger point (since set at a minimum of 5.125% for cocos, although it can be up to around 7%). The ambition was grand. As the Squam Lake Group, composed of mostly American academics, put it in 2009, the automatic conversion of cocos would “transform an undercapitalised or insolvent bank into a well-capitalised bank at no cost to taxpayers”.

At first, regulators were keen. In 2010 Mervyn King, then the governor of the Bank of England, said he wanted contingent capital to be a “major part of the liability structure of the banking system”. Swiss regulators, too, pushed for coco issuance. The hybrid nature of cocos seemed a way to satisfy both regulators, who wanted banks to have bigger safety buffers, and bankers, who were reluctant to issue new shares because of the high cost of capital. The hope was that investors, too, might see the appeal of an asset that offered a higher yield than bank bonds but lower risk than bank shares.

Nine years after the first cocos...Continue reading

Hong Kong defends its dollar peg in both directions

Thu, 04/19/2018 - 16:48

THE Hong Kong dollar is one of the most and least manipulated monies in the world. For over 34 years the territory’s monetary authority, the HKMA, has kept it pegged to America’s currency at around HK$7.80 to the dollar, resisting all temptations to let it fall or rise. In 2005 it refined the peg with two promises: to buy dollars at the price of HK$7.75 and to sell them for HK$7.85.

The strength of the Hong Kong dollar has obliged the HKMA to keep the first promise many times since. Its purchases of American dollars have even drawn the accusation that it manipulates its currency for competitive advantage.

In fact, the HKMA has always been ready to manipulate its currency upwards, too. But since 2005 it has had no occasion to, until last week. On April 12th the Hong Kong dollar weakened to HK$7.85, forcing the authority to buy HK$51bn over the next few days in exchange for American dollars.

The Hong Kong dollar’s weakness reflects the gap between rising American interest rates and...Continue reading

Indicators that signal financial-market trouble are flashing

Thu, 04/19/2018 - 16:48

WATCHING financial markets can be like watching a horror film. A character walks into the darkness alone. A floorboard creaks. The latest spooky sign is the spread between the three-month dollar London interbank offered rate (LIBOR) and the overnight index swap (OIS) rate. It usually hovers at around 0.1%, but has recently climbed to 0.6% (see chart). As it widens, bankers are bracing for a jump scare.

To see why, consider what each rate represents. LIBOR is the rate that banks charge other banks for unsecured loans. The OIS rate measures expectations for the federal funds rate, which is set by the central bank. As LIBOR rises above the OIS rate, that suggests banks fear it is getting riskier to lend to each other. (The gap was 3.65 percentage points in the depths of the crisis, after Lehman Brothers filed for bankruptcy.)

Market-watchers were already twitchy. Last November they shuddered as the yield curve, which plots the yields of Treasury bonds of different maturities, abruptly flattened....Continue reading

Should one of the world’s largest banks be wound down?

Thu, 04/19/2018 - 16:48

DEUTSCHE BANK is one of the financial industry’s hardest problems. It is not a viable business when judged by any sensible yardstick, because it is unable to make enough profits to generate a remotely adequate return. Its existence does not seem to be in the public interest, since it is dominated by an investment bank that has paid its lucky staff a colossal €40bn ($49bn) over the past decade. The bank’s governance has misfired for ages. On April 8th Deutsche fired John Cryan, its chief executive, in the third regime change in seven years. If the rules of capitalism apply to banks, Deutsche should be wound down. Is that possible?

Deutsche was founded in 1870 to help German companies go abroad. In 1999 it bought Bankers Trust, a Wall Street firm, and went on a long expansion in the investment-banking business. Today it has four elements. A decent asset-management operation called DWS; a profitable payments business that ships money around the world for companies; a mediocre German retail bank...Continue reading

Tax cuts and higher interest rates help boost banks’ earnings

Thu, 04/19/2018 - 16:48

SO THIS is how normality feels. Between April 13th and April 18th America’s biggest banks reported a strong set of first-quarter earnings, with a helping hand from the taxman. Some are more profitable than they have been for years. They are paying billions to shareholders; regulatory reins are being loosened. Yet the stockmarket shrugged. On April 18th the S&P 500 index of banks’ share prices was 4.1% lower than at the start of reporting season.

Banks expected three main effects from the corporate-tax cut signed into law by President Donald Trump in December. The first was a write-down of deferred tax assets—past losses that could be set against future bills—which clobbered most lenders’ bottom lines in the fourth quarter but did no real damage. (Some, including Wells Fargo, carried deferred liabilities and hence recorded a gain.) The second was a permanent reduction in their tax bills. The third was a boost to business from a more lightly taxed America Inc.

The direct benefits of lower taxes are plain. Although pre-tax profits at the six biggest banks rose by $4.3bn, compared with the first quarter of 2017, taxes fell at five of them. (At the sixth, Goldman Sachs, the bill was unusually low a year ago because of a change in the treatment of employees’ shares and options.) Of a total increase in net profit of $5.4bn at those five, lower...Continue reading

America’s Treasury refrains from naming any currency manipulators

Thu, 04/19/2018 - 16:48

MOST governments are happy when foreigners want their bonds, especially when those foreigners are long-term holders, like central banks. But America is different. It worries that some foreign governments buy its debt to keep the dollar pricey and their own currencies cheap. This “currency manipulation” gives other countries a competitive edge, raising their own trade surpluses and America’s deficit.

Brad Setser of the Council on Foreign Relations, a think-tank, sees an “arc of intervention” across Thailand, Singapore, Taiwan and South Korea that has slowed the dollar’s decline over the past nine months. America has reportedly persuaded South Korea to forswear currency manipulation in a “side-agreement” to their revised trade deal. And on April 16th President Donald Trump tweeted that “Russia and China are playing the Currency Devaluation game...Not acceptable!”

Mr Trump’s tweet was at odds with his Treasury Department’s assessment. Every six months it must tell...Continue reading

A Victorian survivor in fund management

Wed, 04/18/2018 - 17:15

WHEN the Foreign & Colonial Government Trust was launched in 1868, The Economist had its doubts. “The shape is very peculiar,” we worried, adding that “the exact idea upon which it starts has never been used before.” Some of the trust’s promises were “far too sanguine to ever be performed”. Nevertheless, we concluded that: “In our judgment, the idea is very good.”

That turned out to be one of this newspaper’s more successful forecasts. One hundred and fifty years later, the trust is still going strong, having delivered a compound annual return of 8.1%. It now looks after a portfolio of £3.5bn ($5bn), rather than the £588,000 it raised at launch.

In its own way, the trust is an example of how much the financial sector has changed—and how much it has stayed the same. The idea of a pooled portfolio seems commonplace now, but at the time it was revolutionary.

This was the 19th century, when Britain was confident of its worldwide role. The first...Continue reading

Six precepts every investor should remember

Wed, 04/18/2018 - 16:55

SIR ELTON JOHN has a three-year farewell tour planned. This columnist has only a few weeks to go, before heading off to a new Economist beat. So it seems like a good idea to summarise some of the themes which have dominated this blog. 

To start, long-term investing. Here are a set of precepts every investor should remember.

  1. You can't start too early. Albert Einstein may not have said that compound interest is the eighth wonder of the world but it is a good motto to remember. Buttonwood started a pension plan for his daughters when they were three years old. Let us assume a return of 4% a year. That means a sum doubles in 18 years, quadruples in 36 and rises eightfold in 54. Looked at another way, say you have a set sum in mind for retirement. If you start saving at 20, you need to contribute only half as much money a month, as if you start...Continue reading

One person dies after an engine explodes on a Southwest flight in America

Tue, 04/17/2018 - 23:08

A SOUTHWEST AIRLINES flight became the stuff of nightmares on April 17th when a jet engine apparently exploded in mid-air and a passenger was partially sucked out of a window before being rescued by fellow flyers. The flight from New York’s LaGuardia airport was bound for Dallas, but at 11:30 am, when it was near Philadelphia, the left engine blew up, according to multiple reports. Details are still unconfirmed, but according to reports by passengers and media, a piece of shrapnel from the engine shattered a window in the cabin, and a woman was partially sucked out of the hole. Other passengers scrambled to assist and pulled her back in. Oxygen masks were released in the cabin, and the plane dropped from 32,500 feet at a rate of more than 3,000 feet per minute before levelling out at about 10,000 feet, according to NBC, a broadcaster. The pilots were able to...Continue reading

After a good run of growth, China’s economy braces for bumps

Tue, 04/17/2018 - 17:49

JUST a few years ago Wuhan, a sprawling metropolis in the middle reaches of the Yangtze River, exemplified China’s economic woes. Municipal debt had soared. The most senior local official was known as “Mr Dig Up The City”, a reference to his zeal for grandiose construction projects. A movie theme park, intended as a landmark, closed after failing to draw crowds. It would take nearly a decade, it was estimated, to sell all of Wuhan’s vacant homes.

These days, the city of 11m stands as a monument to China’s resilience. Its economy has accelerated even as the government has controlled debt more strictly. Five subway lines were opened or extended in the past two years alone; they are jammed in rush hour. Investment is pouring into semiconductor production, biotech research and internet-security companies. The glut of unsold homes is almost cleared.

But today China’s economy, like Wuhan’s, looks in much better shape. Then, the country was reeling from a stockmarket crash,...Continue reading

A plan to put beds on planes

Mon, 04/16/2018 - 13:24

Airbus recently announced that it has entered into a partnership with Zodiac Aeropsace, a French aviation-equipment company, to develop “lower-deck modules with passenger sleeping berths.” In other words, passengers in need of 40 winks might eventually be able to go below decks to the cargo hold and sleep in bunk beds. The video released by the companies shows a clean, white, modern, and comfortable-looking space, although one conspicuously devoid of windows.

Starting in 2020, Airbus says, the beds will be available on its widebody A330 planes, and could possibly appear on A350s as well. The sleeper modules will be easily swapped in and out, the company...Continue reading

Japanese e-commerce giant Rakuten struggles to retake the lead from Amazon

Thu, 04/12/2018 - 16:54

RAKUTEN is a jack-of-all-trades. Since pioneering e-commerce in Japan in 1997, it has been a rare example of a highly entrepreneurial Japanese firm. Today it spans more than 70 businesses providing credit cards, a travel agency, a golf-reservation system, matchmaking, wedding planning and insurance. It owns Viber, a calling and messaging app and has invested heavily in Lyft, a car-hailing service. Now it is adding another: on April 9th the government gave Rakuten a concession to operate Japan’s fourth mobile network (Rakuten currently runs mobile services using another operator’s infrastructure).

Rakuten sees this as the next step in building its “ecosystem”. It reckons it retains its approximately 95m registered users in Japan by being a trusted brand that can provide customers with everything they need at every stage of their life, and by rewarding their loyalty. Customers get points if they use their popular Rakuten credit cards, for example. These they can then spend on other...Continue reading

Catching the bitcoin bug

Thu, 04/12/2018 - 16:54

SINCE the heady days of late 2017 and January of this year, crypto-currencies have gone into retreat. Bitcoin, the best-known example, is now worth just a third of its value at its peak (see chart).

But there remain plenty of true believers in digital currencies. They point out that prices are still well above where they were in 2016. And interest from institutional investors is still strong enough for analysts to want to make sense of the crypto-phenomenon.

The latest bank to take a shot is Barclays, which devotes a lot more of its “Equity Gilt Study 2018” to the impact of technological change on finance and the economy than it does to either equities or gilts. Its report describes crypto-technology as “a solution still seeking a problem”.

It identifies four challenges in particular. The first is trust. In most countries, consumers and businesses have faith in the currencies issued by the government. The second is sovereignty: the potential for tax avoidance and loss of...Continue reading

The outlook for US government debt

Thu, 04/12/2018 - 16:54

THE bond market used to be the prime exhibit for those predicting low long-term economic growth. In the summer of 2016 the ten-year Treasury yield briefly dipped below 1.5%, as expectations for growth and inflation sagged. Things have changed. Earlier this year the ten-year yield briefly went higher than 2.9%. Even after recent share-price gyrations, it remains around 2.8%, well up since the start of 2018. The rebounding interest rate partly reflects higher confidence in global growth. Inevitably, a new set of pessimists now voice a fresh worry: that bond yields might go on rising for less welcome reasons.

They point to three threats. The first is monetary policy. The Federal Reserve has raised short-term interest rates by 1.5 percentage points since December 2015. At their March meeting, rate-setters slightly upgraded forecasts of how far rates should eventually rise. Last October the Fed began shrinking its $4.5trn portfolio of assets, mostly government debt, amassed since the start of...Continue reading

The proxy-voting season kicks off on Wall Street

Thu, 04/12/2018 - 16:54

JING ZHAO’S main occupation is translating Latin classics into Chinese. He runs a small think-tank, the US-Japan-China Comparative Policy Research Institute. He lives off rents from property bought cheaply after the financial crisis. But this quiet, intellectual California resident has a surprising sideline: submitting proposals to be voted on by the shareholders of companies in which he owns small stakes. That makes him part of a movement that is forcing management at some of the world’s biggest firms to consider not just profitability but broad shifts in social attitudes.

The annual meetings of America’s listed companies, usually held between February and June, have come to constitute “proxy season”—so-called because shareholders need not cast their votes in person. This year proposals from Mr Zhao will be on the ballot at four giant firms. He wants Apple to create a human-rights committee, citing its decision last year to bow to Chinese censorship by removing hundreds of “virtual private network” apps from its Chinese app store. For Twitter, he proposes a new committee to oversee issues such as human rights and corporate social responsibility. A third proposal would lessen Elon Musk’s dominance over Tesla by giving the board more power. And finally, he wants changes to remuneration policies at Wells Fargo, a big bank that...Continue reading

The shipping industry attempts to cap carbon emissions

Thu, 04/12/2018 - 16:54

ACROSS the river from the International Maritime Organisation (IMO) headquarters in London protesters have pressure-hosed “IMO DON’T SINK PARIS” into the muck lining the walls of the Thames. The river bank is not the only thing that is dirty.

Shipping and airlines were the only greenhouse-gas-emitting industries not mentioned in the 2016 Paris climate agreement. This was, in part, because assigning emissions is hard. To whom should you designate emissions for shipping Chinese goods, made with South Korean components, across the Pacific to American consumers? But similar problems did not stop airlines quickly agreeing on an industry-wide limit. This week delegates to the IMO, a United Nations agency responsible for shipping safety and pollution, met in a belated attempt to catch up. A deal was due as The Economist went to press.

It may not be an impressive one. A preliminary agreement set out to achieve cuts of 50% on 2008 emission levels by 2050. Ambitious nations, like those in Europe, think the industry should be carbon-free by then. Shipping produces 3% of the world’s greenhouse-gas emissions, similar to an economy the size of Germany’s, and that is likely to grow.

Lack of cleaner shipping technology is not a constraint. New design standards are already lowering harmful emissions. Zero-carbon fuels are becoming...Continue reading

Kinder Morgan’s frustrated attempt to build an oil pipeline reflects badly on Canada

Thu, 04/12/2018 - 16:54

ALMOST all Canada’s oil and gas is landlocked, so getting it to market requires pipelines—lots of them. But building them requires skills more suited to circus artists than engineers. They must walk the financial high wire, jump through ever-changing regulatory hoops and juggle conflicting demands from environmental groups and numerous governments. The list of failures is long. It includes Northern Gateway, meant to bring Alberta crude to a port in northwestern British Columbia; Energy East, which would have linked Alberta to the Atlantic coast; Pacific Northwest, to bring gas to the west coast; and the legendary Mackenzie Valley gas pipeline, first proposed in 1974 and dropped in 2017 by its last, exhausted promoter.

Another flop is likely following the announcement this week by Kinder Morgan, one of North America’s biggest pipeline firms, that it would freeze spending on the Trans Mountain Expansion, a C$7.4bn ($5.9bn) plan to triple the capacity of an existing pipeline carrying fuel from Alberta to...Continue reading

Upstart meal-kit companies may need a new recipe for growth

Thu, 04/12/2018 - 16:54

FOR all the allure of televised fare like “MasterChef” and “Chef’s Table”, the reality is that many people are loth to rustle up anything more taxing than a bacon sandwich. Cue the recent emergence of more than 150 companies to make cooking easier. Two of the largest, Blue Apron in America and Germany’s HelloFresh, deliver boxes of pre-portioned ingredients and easy-to-follow recipes to doorsteps worldwide for a fee of around $60 a week.

Blue Apron is also serving up a belly full of woe to investors. Less than a year after it went public in June with a $1.9bn valuation, its share price has fallen by 80%. Although the shares of HelloFresh, which debuted on Frankfurt’s stock exchange in November, have risen by 24%, analysts are concerned that both services may fall prey to competition not from rival startups, but from big grocers.

Supermarkets have gobbled up the meal-kit idea and made it their own. Instead of enrolling customers in a weekly menu of meals, these companies offer...Continue reading

The departure of the VW boss heralds a big shake-up

Thu, 04/12/2018 - 16:54

From dieselgate to Diess?

MOST chief executives relish a jump in their company’s share price. But spare a thought for Volkswagen’s Matthias Müller as he watched the gauge of value leap by 4.5% on April 10th. That was galling because investors were responding to rumours, in effect promptly confirmed by VW’s board, that he was to depart this week after less than three years as head of one of the world’s top three carmakers.

The pensive Mr Müller, 64, rarely had the air of a man enjoying the limelight. His contract ran until 2020, but he had become increasingly frustrated at internal opposition to his efforts to change the way the company was run in the aftermath of “dieselgate”, a crisis sparked by VW’s rigging of car-emissions tests. To an outsider, changes such as more decentralisation and the sale of peripheral businesses hardly seemed controversial. But they were too much for some. He may be happy to go; the board referred to his “general willingness”...Continue reading

American sanctions, and fears over Syria, roil Russian markets

Thu, 04/12/2018 - 16:54

ON APRIL 6th America imposed harsh new sanctions on Russia in response to its “malign activity” abroad. Rattled investors sent stocks tumbling when the Moscow exchange reopened on April 9th. The principal stockmarket index fell by 8.3% that day. The rouble sank sharply. Oleg Tinkov, a banker, lost $250m, but brushed it off with reference to a previous daily loss of $1bn. “Being on the Russian stockmarket is like living on a volcano,” he said.

Geopolitics drove markets through the week. Tensions over Syria (see article) and talk of potential sanctions on Russian government bonds weakened the rouble further. A fiery morning tweet from Donald Trump threatening Russia sent stocks tumbling again on April 11th. But when the treasury secretary came out against sanctions on bonds later that day, the rouble and the stockmarket perked...Continue reading

America’s once-moribund chemicals industry is booming. But politics threatens to get in its way

Thu, 04/12/2018 - 16:54

“THIS is what $3bn looks like.” So beams a manager at Chevron Phillips Chemical (CPC), a petrochemical company jointly owned by Chevron and Phillips 66, both American oil firms. She throws open her arms in a figurative embrace of a giant cracker (pictured) built by the firm in Baytown, a gritty part of Houston. The new plant turns vast quantities of ethane, which is derived from natural gas, into ethylene, an important building block in plastic. Another nearby facility, which the firm has recently expanded, converts the ethylene into plastic resin that is sold worldwide. All told, CPC has spent some $6bn expanding its chemicals-production infrastructure around Houston.

A decade ago, this would have been unimaginable. Chemicals firms in America, beaten down by rivals from the Middle East that enjoyed cheap feedstocks and others from China feasting on subsidised capital, had not invested in new local plants in years. Growth in global demand for chemicals, once roaring, had slowed thanks to the...Continue reading

Deutsche Bank gets a new chief executive

Thu, 04/12/2018 - 16:54

THE supervisory board at Deutsche Bank, Germany’s biggest lender, has been sounding out replacements for its chief executive for weeks. On April 8th it made its choice: Christian Sewing, an experienced insider. He starts with immediate effect, replacing John Cryan, who became joint chief executive in 2015 and sole boss a year later. It is the latest in a series of quick changes for the bank.

Mr Sewing is the first German in 16 years to serve as Deutsche’s sole boss. He is also the first in many years without a career in investment banking. In his 25 years at the bank he has worked in commercial banking, auditing and risk management, most recently as joint head of the retail division, which he successfully slimmed down. The appointment is seen by many as heralding a shift in favour of retail banking, especially since Marcus Schenck, joint head of investment banking, is also leaving after being rebuffed in his efforts to expand his division.

Yet the circumstances surrounding...Continue reading

British law firms seek similar across the pond

Thu, 04/12/2018 - 16:54

MOST of London’s “magic-circle” law firms are intrepid creatures. Over the past 20 years they have busily expanded abroad, opening offices everywhere from Antwerp to Yangon. But despite having hundreds of lawyers on the ground in America, one prize has proved elusive: laying down deep roots in the world’s most litigious market.

Allen & Overy, a top-tier London firm, would like that to change. It has reportedly been in merger talks with an American firm, O’Melveny & Myers. With O’Melveny denying any plans to merge, a union, which would create one of the world’s largest law firms by revenue, may not get off the ground. But that is unlikely to stop Allen & Overy from approaching others in its pursuit of an American alliance.

For the big British firms, America holds the key to greater profitability. Its allure in part reflects its importance on the world stage. Judgments made in America’s courts, such as those in anti-bribery cases, have ramifications beyond its...Continue reading

How developing countries weave social safety nets

Thu, 04/12/2018 - 16:54

SOUP kitchens serve the needy for free; restaurants serve the hungry for money. In parts of South Asia, eateries near mosques sometimes fall into a third category. They feed the poor sitting patiently outside, whenever a pious or charitable passer-by pays them to do so. Alms-giving of this kind provides one traditional safety net for the destitute in developing countries. But it is, thankfully, not the only one.

According to a new report by the World Bank, developing countries spend an average of 1.5% of GDP on social safety nets designed to stop people hitting rock-bottom. (The rich countries in the OECD spend on average 2.7%.) Among these are workfare schemes, pensions, free school meals and cash handouts, sometimes conditional on recipients sending their children to school, getting them vaccinated and the like. This spending has reduced the number of people living in extreme poverty (less than $1.90 a day) by 36% on average in the countries examined by the World Bank.

South Asia’s...Continue reading

Indian states squabble over how to share out federal cash

Thu, 04/12/2018 - 16:54

THE population of Uttar Pradesh is over 220m, enough to make the northern Indian state the world’s fifth-most populous country. But statistics still used by bureaucrats in New Delhi put it at less than 85m. Antiquated census data are used to split everything from federal funding to seats in the national parliament. A proposal to use up-to-date figures has created a political storm.

In the mid-1970s India’s southern states were doing better than northern ones at controlling population growth. That meant losing federal power and money, both doled out in proportion to population. The inelegant solution was to keep using census figures from 1971, an arrangement that became indefinite.

But buried in a recent government memo is a proposal to use figures from the most recent count, in 2011, for federal funding. Southern states are fuming. Their populations have risen since 1971, but nothing like as much as those of Uttar Pradesh and its neighbours (see map). They have also become much richer than...Continue reading

America’s gripes with China make a deal hard to imagine

Thu, 04/12/2018 - 16:54

Trade warriors at work

AFTER weeks spent threatening tariffs on an ever-greater share of Chinese imports, President Donald Trump seems to be in a more conciliatory mood. On April 10th a speech by the Chinese president, Xi Jinping, prompted him to tweet a prediction: “We will make great progress together!”

Many besides Mr Trump share that hope. If China offers him a deal that he is willing to sign, a trade war may still be averted. Or sense may prevail, as it did last month, when American allies such as Canada and Mexico were exempted from tariffs on steel and aluminium. But such optimism shades into naivety. China hawks in the American administration have long seethed over aspects of the relationship with China that rarely feature on Mr Trump’s Twitter feed. Those problems predate his presidency. And they do not look easy to resolve.

The rules-based system of international trade works best for problems that are clearly defined, and when it is easy to...Continue reading

A year after United's public-relations disaster

Thu, 04/12/2018 - 12:29

A YEAR ago this week, David Dao went from being an unknown pulmonologist to a household name. Dr Dao had boarded a flight from Chicago to Louisville when the United Airlines crew announced that four passengers would have to leave to make room for additional staff. Three passengers accepted enticements to switch to a different flight, but Dr Dao, who said he had patients to see, refused to give up his seat. Eventually, he was dragged down the aisle by airport security, gaining a bloody face in the process and a national reputation as a consumer champion after videos and photos of the incident went viral. (One of the security officers, who was fired after the event, is suing the city's airport authority, claiming he hadn't been adequately trained.)  

The news was a public-relations disaster for United. A Continue reading

The smartphone and the toilet

Wed, 04/11/2018 - 12:56

THE impact of technology on the economy is one of the most-debated issues of the moment, whether it is the potential for automation to cause unemployment, boost long-term productivity, or widen inequality. A good deal of the annual Barclays Equity-Gilt Study, published yesterday, was devoted to the subject. But one section caught my eye; the idea that technological change was making GDP a less useful measure.

The report says that

When GDP was first introduced, manufacturing accounted for a large share of the core advanced economies, and the (system of national accounts) was designed primarily to measure physical production.

But the modern economy is dominated by services and

Services cover a wide range of activities and are often customised, making their basic unit of production, as well as differences in quality and changes over time, hard to define

Furthermore, the report points out that

Digitised goods or services are often free: and without an...Continue reading

An update from Jeremy Grantham

Tue, 04/10/2018 - 18:11

JEREMY Grantham is an investor with 50 years of experience in the markets who is known for his caution about the outlook for long-term returns (he works for the GMO fund management group). But he caused a stir earlier this year when he said the chances were high of a melt-up in the markets this year. 

Buttonwood caught up with him when he visited London this week and asked whether the recent volatility had changed his view. He does think that the odds of a melt-up have fallen. The acceleration stage of a bull market, as in 1928 and 1999, tends to be smooth and quick. The trade tensions evoked by President Trump could be very damaging. He thinks that it is likely that, in five years, the American market may be 20% lower but this will not necessarily be via a sharp crash but through a series of advances and retreats. 

The reason that the market has been doing well until now is the combination of low inflation and high profits; that explains...Continue reading

Gulf Air tries to reclaim its crown

Tue, 04/10/2018 - 11:00

WITH their geographical advantage for connecting flights between far-flung places, there is plenty to keep the airlines of the Gulf countries busy. Yet Bahrain’s skies are nearly empty compared with its neighbours. About 9m passengers used its airport last year, far fewer than the 88m for Dubai, 37m for Qatar and 26m for Abu Dhabi. The difference is striking given that Gulf Air, Bahrain’s flag carrier, was for decades the most prestigious airline in the Middle East. In its heyday in the 1970s and early 1980s, none of its three neighbours even had national airlines.

Geopolitics was the driving force behind Gulf Air’s rise and fall. During the 19th century, Bahrain was a protectorate of the British empire and the busiest trading centre in the Gulf. In the 1950s, its strategic importance motivated British Overseas Airways Corporation, at the time Britain’s flag carrier, to become a major shareholder in Gulf Aviation, the island’s fledgling local airline. By...Continue reading

A plan that needs more money

Mon, 04/09/2018 - 15:36

AMERICAN private-sector workers face a problem. Too few of them have private-sector pensions, and the government scheme, Social Security, set up by Franklin Roosevelt (pictured) is less generous than it used to be. One study estimated that 20m elderly Americans will be living in poverty or near-poverty by 2035.

A new book* by Theresa Ghilarducci and Tony James has a plan to deal with the problem. It comes complete with a foreword and endorsement by Timothy Geithner, a former treasury secretary who had to battle the financial crisis.

The authors set out the problem in admirably clear fashion. Some 64% of women and 56% of men claim Social Security earlier than the official retirement age (which is rising in stages to 67), and thus suffer a reduction in their pensions. Those who retire at 62 get a Social Security cheque that replaces just 29% of a median earner’s income. The average monthly Social Security payment is $1,300.

That would not be a problem if recipients also had a private pension. But 24% of retired Americans...Continue reading

A plan that needs more money

Mon, 04/09/2018 - 13:48

AMERICAN private-sector workers face a problem. Too few of them have private-sector pensions, and the government scheme, Social Security, set up by Franklin Roosevelt (pictured) is less generous than it used to be. One study estimated that 20m elderly Americans will be living in poverty or near-poverty by 2035.

A new book* by Theresa Ghilarducci and Tony James has a plan to deal with the problem. It comes complete with a foreword and endorsement by Timothy Geithner, a former treasury secretary who had to battle the financial crisis.

The authors set out the problem in admirably clear fashion. Some 64% of women and 56% of men claim Social Security earlier than the official retirement age (which is rising in stages to 67), and thus suffer a reduction in their pensions. Those who retire at 62 get a Social Security cheque that replaces just 29% of a median earner’s income. The average monthly Social Security payment is $1,300.

That would not be a problem if recipients also had a private pension. But 24% of retired Americans have...Continue reading

A plan that needs more money

Mon, 04/09/2018 - 13:47

AMERICAN private-sector workers face a problem. Too few of them have private-sector pensions, and the government scheme, Social Security, set up by Franklin Roosevelt (pictured) is less generous than it used to be. One study estimated that 20m elderly Americans will be living in poverty or near-poverty by 2035.

A new book* by Theresa Ghilarducci and Tony James has a plan to deal with the problem. It comes complete with a foreword and endorsement by Timothy Geithner, a former treasury secretary who had to battle the financial crisis.

The authors set out the problem in admirably clear fashion. Some 64% of women and 56% of men claim Social Security earlier than the official retirement age (which is rising in stages to 67), and thus suffer a reduction in their pensions. Those who retire at 62 get a Social Security cheque that replaces just 29% of a median earner’s income. The average monthly Social Security payment is $1,300.

That would not be a problem if recipients also had a private pension. But 24% of retired Americans have no...Continue reading

Why do so many animals die on United flights?

Fri, 04/06/2018 - 15:26

THE numbers seem damning. As Gulliver recently reported, 18 animals died last year on United Airlines flights. No other airline had more than two animal deaths, according to data from America’s Department of Transportation.

So is America’s fourth largest carrier really nine times as deadly as the next most perilous airline for a travelling pet? The Washington Post, a newspaper, has conducted a strikingly thorough investigation of this question, and the answer is no.

United, the paper found, has allowed certain high-risk dog breeds that other airlines have barred to travel on its flights. The canines in question are brachycephalic (in layman’s terms...Continue reading

Air India is trying to crack down on corruption

Thu, 04/05/2018 - 17:27

EVERYONE grumbles about the injustices of air travel, but most people assume that the inequities are at least grounded in a fair system. Pay for business class (or have your company pay), and you get comfort and free drinks. Go frugal with basic economy and get stuck in a lousy seat without a carry-on bag. But it is not always a proper free market at 35,000 feet. Sometimes, corruption skews the equation.

For instance, on Air India, the country’s state-owned flag carrier, who you know can apparently determine where you sit. The airline’s chief executive, Pradeep Singh Kharola, recently felt compelled to admonish his staff to stop upgrading friends and family members for free from economy class to business or first.

“It has come to my knowledge that operating crew carry out upgrades to business and first class unofficially during the flight for their friends and relatives,” Mr Kharola wrote on March 13th to his employees, in a letter that was...Continue reading

A trade war between America and China takes shape

Thu, 04/05/2018 - 16:51

TALK of tariffs is in danger of developing into cries of trade war. On April 3rd America published a list of some 1,300 Chinese products it proposes to hit with tariffs of 25%. Just a day later China produced its own list, covering 106 categories. “As the Chinese saying goes, it is only polite to reciprocate,” said the Chinese embassy in Washington, DC.

According to the Peterson Institute for International Economics, a think-tank, America’s list covers Chinese products worth $46bn in 2017 (9% of that year’s total goods exports to America; see graphic). China’s covers American goods worth around $50bn in 2017 (38% of exports). The sums were enough to move markets on April 4th, though the S&P 500 index soon made up lost ground.

Continue reading

TSMC is about to become the world’s most advanced chipmaker

Thu, 04/05/2018 - 16:51

MORRIS CHANG is preparing for retirement. After 30 years in the role, the founder of Taiwan Semiconductor Manufacturing Company (TSMC), the island’s largest firm, will step down as chairman in June. He will hand the reins over to the current co-CEOs, C.C. Wei and Mark Liu, the former becoming sole CEO and the latter chairman. Later that month the company will ship new semiconductors manufactured with its latest technology. For the first time the world’s most powerful chips will be made by TSMC, not by Intel, its American rival.

Intel and TSMC are different sorts of company. Intel is an integrated device manufacturer (IDM). It both designs and manufactures chips. TSMC is a “foundry”, making chips for designers without factories, or “fabs”, which cost a fortune. TSMC’s latest fab will cost $20bn. The Taiwanese company pioneered this model and is its dominant exponent. In 2017 it had 56% of the foundry market, according to Trendforce.

Intel led the pack in squeezing...Continue reading

Chinese carriers are the new disrupters in air travel 

Thu, 04/05/2018 - 16:51

The Chinese have got their tails up

ANYONE who doubts the ambitions of China’s airlines need only look over the plans for Daxing International Airport, which will serve Beijing after it opens in late 2019. It will be the world’s biggest airport by far, with eight runways and room for 100m passengers a year. The new facilities are needed to serve a fast-growing appetite for air travel. The three Chinese carriers that will dominate the passenger traffic passing through Daxing’s cavernous halls are all in rapid ascent. And that has rivals everywhere complaining about the sorts of subsidies that have fuelled airlines since the dawn of commercial aviation.

China’s airlines are adding passengers at a rate not seen since Emirates, Etihad and Qatar Airways started to attract customers to their Gulf hubs, handily placed between Europe and Asia, with a winning combination of cheap fares and superior service. Between 2010 and 2017 passenger numbers on China’s three biggest...Continue reading

Online retailers go offline in China

Thu, 04/05/2018 - 16:51

THE season for the best xiaolongxia (“little dragon shrimp”) is just beginning, and so on a recent evening four young friends tucked into a pile of steaming-hot crayfish. But rather than sitting in a restaurant they were at a table surrounded by supermarket aisles stocked with nappies, baby formula and cooking oil. Above them, groceries and made-to-order meals, gathered by store attendants from shelves and nearby cooking stations, were wafted on aerial conveyor belts into a storeroom. There they were packaged and whisked to Shanghai homes within a 3km radius, at any hour and in under 30 minutes.

“Eat-as-you-shop” is one innovation of Hema Xiansheng, a chain of fancy supermarkets. And these shops are themselves the showiest elements of a bid by Alibaba, a Chinese e-commerce emporium that handles more transactions than Amazon and eBay combined, to master “online-to-offline”, or O2O, retailing, in which customers use digital channels to buy from physical businesses....Continue reading

Takeda eyes up Shire

Thu, 04/05/2018 - 16:51

Takeda shows some bottle

WHEN it comes to foreign deals, Japanese drug companies are interested in buying the product, not the company, says Fumiyoshi Sakai of Credit Suisse, a bank. So the news that Takeda, Japan’s biggest pharmaceutical company, wants to buy Shire, a similar-sized Irish drugmaker that specialises in treatments for rare diseases, came as something of a surprise. At $85bn, the combined value of the two firms would be in the ranks of industry behemoths such as Bayer and GlaxoSmithKline.

In recent years Takeda and its domestic rivals, Astellas and Shionogi, have bought a handful of small foreign firms. Most were American biotechnology companies with one or two specialist products. But the need to expand abroad is becoming a matter of greater urgency for Japanese drugmakers.

Their main domestic client, the government-run health system, accounts for 40% of drug spending. As Japan’s ageing population puts ever more pressure on its budget, the...Continue reading

Viacom rejects a merger with CBS

Thu, 04/05/2018 - 16:51

Mr Redstone has a message for you

NOTHING is ever easy at Sumner Redstone’s media empire. For two months the boards of CBS and Viacom, two entertainment companies controlled by the Redstone family, have explored a possible combination, something long wished for by Shari Redstone, the ailing media mogul’s daughter and anointed deputy. But on March 30th those talks turned to acrimony after CBS made an offer valuing Viacom below its market capitalisation of $12.5bn, and reserved no leadership role at the combined firm for Viacom’s CEO, Bob Bakish. Ms Redstone and Viacom’s bosses regarded the offer as an insult, according to sources.

The tactics amount to a stunning power play by Les Moonves, the CEO of CBS. It leaves Viacom, owner of Paramount film studio and cable networks including MTV and Comedy Central, in a state of limbo. Viacom’s board made clear the offer was a non-starter, and is expected to make a counter-offer that would include a leading role for Mr...Continue reading

Insurance and the gig economy

Thu, 04/05/2018 - 16:51

THE rise of the gig economy means not only workers, but those who insure them, are having to adapt. Take third-party liability insurance—the sort that would pay out if, for instance, a courier hit and injured a pedestrian. An employee driving a company van would be covered by a standard commercial-insurance policy. But “gig” couriers, working when they wish and using their own cars, must often insure themselves. Even if they have personal cover, it will not usually pay out for accidents that happen while they are driving for work.

Among the firms seeking to fill this gap is Zego, which sprang up to serve scooter couriers such as those working for Deliveroo, a food-delivery service. Deliveroo and its rivals require proof of insurance from couriers, but had no easy way to check it was valid. Couriers, meanwhile, were often loth to pay stiff premiums. Harry Franks, formerly of Deliveroo and co-founder in 2016 of Zego, spotted an opportunity and convinced insurers that a different model could be...Continue reading

The choice of a boss for the New York Fed ends in a familiar way

Thu, 04/05/2018 - 16:51

John Williams: a neutral answer

THE president of the Federal Reserve Bank of New York is perhaps the second most important person in America’s financial hierarchy, behind only the chairman of the Federal Reserve. Unlike the presidents of the other regional Reserve Banks, he sits permanently on the committee in Washington, DC that sets interest rates. The New York Fed supervises Wall Street and, during financial crises, often gathers bankers to hash out a fix or to impose one on them. On April 3rd it was announced that John Williams would be next in line to take charge of the institution, replacing William Dudley.

Mr Williams has led the San Francisco Fed since 2011, when his predecessor in that job, Janet Yellen, moved to Washington. He is best known for his academic contributions to monetary policy. In particular, his estimates of the “neutral rate” of interest, at which money is neither tight nor loose, are regularly cited. In recent years he has appeared moderately...Continue reading

Germany’s biggest lender is in the doldrums

Thu, 04/05/2018 - 16:51

No walk in the park

JOHN CRYAN has spent almost three years on the thankless task of revitalising Germany’s biggest bank. Deutsche Bank’s shares fetch around €11 ($13.50) each. That is less than half their price when he became joint chief executive in July 2015 (he became sole boss 11 months later) and an eighth of the peak in Deutsche’s pre-crisis pomp (see chart). Paul Achleitner, the chairman of Deutsche’s supervisory board—perhaps sharing investors’ impatience, perhaps to shore up his own position—has reportedly sounded out possible replacements for Mr Cryan.

The two men are also said to...Continue reading

Tesla is heading for a cash crunch

Thu, 04/05/2018 - 16:51

“WE ARE sad to report that Tesla has gone completely and totally bankrupt.” So tweeted Elon Musk, boss of the electric-car company, on April 1st. He even posted a picture of himself supposedly drunk and inconsolable as proof. It was meant as an April Fool’s Day joke, but the gag backfired. It is uncomfortably close to the truth. America’s leading manufacturer of electric vehicles is under pressure. Mr Musk is fighting battles on many fronts and they all exacerbate his main threat: a financial squeeze that could eventually push Tesla over the edge.

Even Tesla’s shareholders, who are rarely put off by bad news, are jittery. Its shares have fallen by 16% since the end of February, most steeply after a Tesla using the firm’s Autopilot software crashed into a roadside barrier in California on March 23rd, killing the driver and raising questions about the safety of its system for semi-autonomous driving. The crash is being investigated by the authorities.

The pile-up of woes...Continue reading

Fake news flourishes when partisan audiences crave it

Thu, 04/05/2018 - 16:51

THE theories lurk in odd corners of the web, occasionally bubbling into broader public consciousness. That President Donald Trump is working with Robert Mueller, for example, and preparing a hammer blow against the true threats to American democracy: Barack Obama, Hillary Clinton and their “deep state” allies. Such fabrications are not new. Yet the capacity of fake news to influence the outcome of political votes seems to have grown, and is provoking a backlash. France, for example, may soon allow judges to censor fake-news stories during election seasons. Malaysia’s government says it may jail those who publish or circulate fake news. Such steps risk enabling governments to limit legitimate speech (on April 3rd India’s government abandoned similar plans after widespread criticism). What is more, they are unlikely to do much to stem the flow of disinformation so long as there remains an audience of readers hungry for fakery.

Outrage over fake news is overwhelmingly targeted at the supply side:...Continue reading

Economics renames itself to appeal to international students

Thu, 04/05/2018 - 16:51

ECONOMISTS do not much like their discipline being dubbed the dismal science. Some American universities are paying more attention to the noun than to the adjective. The reason is not philosophical, but pragmatic. Foreign STEM graduates (the acronym stands for science, technology, engineering and mathematics) can get visa extensions for three years of practical training (ie, work). Those from other disciplines are allowed only a year.

Two more years working in America means more earnings. It also means a better chance of finding an employer willing to sponsor an application for an H-1B visa, the main starting-point for skilled foreign workers who hope to settle permanently. In 2012 the Department of Homeland Security expanded the list of STEM courses. Now any reasonably crunchy economics degree can count as STEM with a tweak to its federal classification code, from economics (45.0601) to econometrics and quantitative economics (45.0603).

Economics departments appear to be catching on....Continue reading

Subscribers are the new, new thing in business

Thu, 04/05/2018 - 16:51

ONE of the most fashionable ideas in business is that companies should earn their crust from subscribers, who are “locked in” for a period of time, rather than from customers who can easily switch to another provider at any time. Subscription models are seen by many investors and executives as the holy grail, because they promise a recurring stream of revenue. But the approach suffers from three underappreciated problems. Acquiring subscribers can be eye-wateringly expensive. Their urge to run away is often only temporarily suppressed. And consumers may have more than one relationship at a time.

The best-known subscription model is probably Amazon Prime. It has about 80m members in America alone and for $99 a year offers films and music, speedy delivery of goods and even discounts on goods such as baby food. There are many other examples. Netflix offers a wall of TV for a monthly fee. And more are coming. Venture-capital firms are pouring money into subscription-based home-delivery firms that...Continue reading

Europe’s tough new data-protection law

Thu, 04/05/2018 - 11:33

BOOK clubs usually meet to discuss literature. But members of DataKind, a group of volunteers that helps charities use data to improve their services, are gathering in London to study a legal text. The General Data Protection Regulation (GDPR), set to come into effect on May 25th, is arguably the most complex piece of regulation the European Union (EU) has ever produced. A thick print-out includes its 99 articles and 173 preliminary comments. Gianfranco Cecconi, a data scientist leading discussions, is poring over a lengthy section he has annotated in red pencil.

After years of deliberation on how best to protect personal data, the EU is imposing a set of tough rules. These are designed to improve how data are stored and used by giving more control to individuals over their information and by obliging companies to handle what data they have more carefully. Recent revelations that Cambridge Analytica acquired data on Facebook users in underhand, and possibly illegal, ways has underscored the need to...Continue reading

Spotify makes its stockmarket debut

Wed, 04/04/2018 - 18:22


WHEN Spotify, a music-streaming service, went public on April 3rd, its founder, Daniel Ek, rang no bells on the trading floor of the New York Stock Exchange. Rather than the “pomp and circumstance” of an initial public offering, the Swedish firm, which is widely credited with turning round the fortunes of the music industry, opted for an unusual direct listing. No new shares were issued. Bankers did not sign up new investors, set a target price or stabilise early trading. Existing investors were simply allowed to trade their shares publicly.

Despite the low-key approach, and even as other tech firms’ shares wobbled, there was plenty of interest. That will cheer other firms considering going public. The share price ended its first trading day at $149, comfortably above prices reached in private markets earlier this year. That values the company at $26.5bn, making it the largest firm to list since Snap last year, and the eighth-largest tech listing ever.

Continue reading

Gulliver’s most popular posts on the world of travel

Mon, 04/02/2018 - 20:16

TODAY is a very special day for Gulliver, for it is ten years to the very day since his column at The Economist opened for business. Since then, much has changed in the world of travel. A barrel of oil is now worth a tad over $60, instead of around the $100 mark as in April 2008. Old friends such as Monarch Airlines of Britain, Continental, NorthWest and US Airways of America and Air Berlin of Germany have long been consigned to the dustbin of history due to bankruptcies and mergers. Airbus’s A380 superjumbo, the largest passenger airliner ever built, somehow managed to go from the future of aviation to its past in less than a decade. 

But 2,911 posts since Gulliver started to blog for The Economist (after he had escaped from the tiny Lilliputian people that...Continue reading

Wakandanomics

Wed, 03/28/2018 - 17:36

“THIS will require a quick lesson in global economics…bear with me,” says Erik Killmonger, the muscular villain in “Black Panther”, a long-running Marvel Comics series. In that saga and the recent film it inspired, Killmonger and the Black Panther vie for the throne of Wakanda, a fictional African kingdom little known to the outside world. A land of great wealth and technological sophistication, it lends itself to several quick lessons in economics. Bear with us.

The source of Wakanda’s riches is its “great mound” of vibranium, a versatile ore left behind by a meteor strike, which can absorb sound and motion. Like other deposits of natural treasure, Wakanda’s vibranium attracts some vicious intruders. But unlike some other resource-rich countries, Wakanda has never succumbed to outside foes.

That has helped it escape the “resource curse”, in which natural riches keep a country poor by crowding out manufacturing or ushering in predatory government. The curse is...Continue reading

Mediapro offers a combustible mix of sport and politics

Wed, 03/28/2018 - 17:36

LIKE Jaume Roures and Gerard Romy, two of its founders, Mediapro is proudly Catalan. Too proud, according to the Spanish police. The television company, which launched in 1994, has been investigated for paying for a press centre for foreign journalists during an unconstitutional independence referendum in the region last October, and for producing a sympathetic documentary on the vote. Mediapro denies wrongdoing. At Madrid’s main annual contemporary art fair last month its third co-founder, Tatxo Benet, purchased a contentious set of photographs which labelled the plebiscite’s jailed Catalan organisers as political prisoners.

Pro-independence antics may be popular in Catalonia, which on March 25th again erupted in violent protest after German authorities arrested Carles Puigdemont, the former Catalan president. But they could be a headache for Mediapro’s new Chinese owners. On February 15th Orient Hontai Capital, an investment firm from Beijing, bought 53.5% of Imagina, a holding firm which owns Mediapro, in a deal that valued the firm at...Continue reading

Royal Dutch Shell and Total flirt with becoming utilities

Wed, 03/28/2018 - 17:36

IN AMERICA Big Oil remembers BP’s attempt to go “Beyond Petroleum” in the 2000s as a toe-curling embarrassment. In Europe it is seen as being ahead of its time. Once again the oil industry is experimenting with cross-dressing. Statoil, a Norwegian oil firm, is abandoning a name given to it almost 50 years ago to become the wispier Equinor. The firm formerly known as Dong, for Danish Oil and Natural Gas, is now Ørsted, a big wind firm named after the founder of electromagnetism.

Royal Dutch Shell and Total, Europe’s biggest private producers, are (mercifully) not changing their names. But they are toying with a strategy that could be far more adventurous—moving their core businesses from hydrocarbons to electrons.

Amid pressure to limit climate change, and the growth of renewable energy and electric vehicles (EVs), they expect low-carbon electricity to become a much bigger part of the world’s energy mix within the next few decades. They have already invested heavily in building global natural-gas businesses for cleaner...Continue reading

A long overdue disruption in menstrual products

Wed, 03/28/2018 - 17:36

Period piece

THE disposable sanitary pad debuted in the late 19th century. It was such a taboo that a purchase involved dropping the exact sum in a box at the chemist’s counter. The pack was handed over, no words uttered. Menstrual products could not be advertised on American television until 1972. In 2015 an ad showing a runny egg yolk was questioned by New York’s subway for being too suggestive of period flow (which was the point).

Squeamishness has hampered innovation. The applicator tampon, invented in 1931, was the last big novelty in menstrual devices to go into widespread use. Its cardboard applicator, a tube within a tube, allowed women to push a tampon inside without committing another no-no (touching their bodies).

In the decades since, big manufacturers such as Procter & Gamble, Kimberly-Clark and Essity have only made tweaks. Pads became thinner and acquired an adhesive strip. Plastic replaced cardboard in applicators. Compact tampons with no...Continue reading

Uber makes a tactical retreat from South-East Asia

Wed, 03/28/2018 - 17:36

Green is the new black

BEING a commuter in much of South-East Asia requires reserves of patience. In city after city, bar Singapore, jams confine people in taxis for hours, or force them onto the back of motorbikes that weave precariously through traffic. These qualities of perseverance are not shared by Uber, an American ride-hailing firm. This week it announced that after five years and $700m of investment in the region, it would be selling its business there to Grab, a Malaysian startup based in Singapore.

South-East Asia is not known for giving birth to Silicon Valley-beating tech companies, says Ming Maa, Grab’s president. “This acquisition shows that this is changing,” he boasts. Under the terms of the deal Uber will take a 27.5% stake in Grab, which is valued at $6bn. The deal makes Grab, which started in 2012 after its two co-founders met at Harvard Business School, the dominant ride-sharing app in a market of 634m people. It operates in 191 cities across...Continue reading

Mexico switches on its government-run wholesale mobile network

Wed, 03/28/2018 - 17:36

G-whizz

JAWS dropped when earlier this year a White House memo argued that the American government should build and run its own 5G mobile network. The reason given was national security. The memo cited Huawei, a Chinese maker of telecoms gear, as a strategic threat. Many assailed the idea of such massive state intervention and the idea was quickly squashed. South of the border, Mexico is experimenting with something that could be a more sensible version of the American officials’ suggested venture: a wholesale mobile network.

Red Compartida (“shared network” in Spanish) went live on March 21st. The motive behind one of the world’s most ambitious telecommunications projects is not national security. Rather, Mexico is trying to pull off a triple feat of expanding mobile coverage, lowering prices and creating a viable business environment for 5G, the next generation of wireless mobile internet.

The project is a $7.2bn public-private partnership that is part of the country’s 2014 telecommunications...Continue reading

Technology has upended the world’s advertising giants

Wed, 03/28/2018 - 17:36

IN BUILDING the world’s largest advertising company over the past 30 years, Sir Martin Sorrell, chief executive of WPP, has weathered two recessions and survived a global financial crisis. His firm nearly went bankrupt in the early 1990s. Now he must make his hardest advertising pitch yet, to convince the corporate world that image-making agencies like his are not dinosaurs on the brink of extinction.

The world’s advertising giants are struggling to adapt to a landscape suddenly dominated by the duopoly of Google and Facebook. Some of their biggest clients, such as Procter & Gamble (P&G) and Unilever, are also being disrupted, in their case by smaller online brands and by Amazon. They are cutting spending on advertising services, and also building more capabilities in-house. Consultancies with digital expertise such as Deloitte and Accenture are competing with agencies, arguing that they know how to connect with consumers better, and more cheaply, using data, machine learning and app...Continue reading

America’s trade strategy has many risks and few upsides

Wed, 03/28/2018 - 17:36

AMERICA’S president claims to view China as a friend. But the friendship is going through a rocky patch, to say the least. America’s trade deficit with China, “the largest deficit in the history of our world”, is “out of control”, Donald Trump groused on March 22nd. “A tremendous intellectual-property theft situation” also irks him. And so, after laying out his concerns, he announced plans for some tough love. Litigation against China at the World Trade Organisation (WTO), investment restrictions and tariffs are all on the cards.

The announcement early in March of tariffs on steel and aluminium imports to America was chaotic, even prompting the resignation of Gary Cohn, the head of Mr Trump’s National Economic Council. The latest targeting of China, by contrast, is the culmination of months of planning and commands broader support. It was masterminded by Robert Lighthizer, the United States Trade Representative (USTR) and a seasoned trade lawyer. As a deputy USTR under Ronald Reagan...Continue reading

The average American is much better off now than four decades ago

Wed, 03/28/2018 - 17:36

JUST how bad have the past four decades been for ordinary Americans? One much-cited figure suggests they have been pretty bad. The Census Bureau estimates that for the median household, halfway along the distribution, income has barely grown in real terms since 1979. But a recent report by the Congressional Budget Office (CBO), a non-partisan think-tank, gives a cheerier rise of 51% for median household income between 1979 and 2014. Which is nearer to reality?

The gap between the two is accounted for by three methodological differences (see chart). First, the CBO takes demography into account. This seems sensible: more Americans are living alone and American women are having fewer children, so households have fewer mouths to feed.

The second is that the CBO uses the personal-consumption expenditures (PCE) index to measure inflation, whereas the Census Bureau uses the consumer-price index (CPI). These differ in two main ways. The CPI includes only what consumers spend on themselves, whereas the...Continue reading

Asia’s small open economies may suffer in America’s trade war

Wed, 03/28/2018 - 17:36

CHINA is the stated adversary in Donald Trump’s incipient trade war. But 30% of the value of the goods China exports to America is added elsewhere. If the row escalates, countries entwined in Chinese supply chains will suffer.

In absolute terms, Japanese suppliers will fare worst. Japan is the country that exports most to firms in China that export onwards to America. But relative to economic size, such suppliers are a bigger part of several small, open Asian economies (see chart). Between 1% and 2% of some countries’ total output is shipped first to China and then on to America. If Chinese exports to America were to fall by 10%—an extreme but not impossible scenario—it could knock 0.1-0.2 percentage points off their economic growth.

China’s competitors in industries that have been threatened with tariffs, namely aerospace, machinery and IT, however, would benefit. There are many of these in Mexico, Germany and Japan. Tariffs also encourage companies to switch their investment plans....Continue reading

Getting a handle on a scandal

Wed, 03/28/2018 - 17:36

A POPULAR riff doing the rounds in tech circles is that, if data are the new oil, then Facebook’s Cambridge Analytica fiasco is the equivalent of Deepwater Horizon. That was the name of an oil platform that exploded in April 2010, coating the Gulf of Mexico and the reputation of BP, the firm responsible, in a toxic slick.

Yet just how damaging are “Deepwater” incidents for firms and their owners over time? Perhaps they cease to matter after the initial burst of media purgatory, grovelling by executives, celebratory cant from competitors and politicians’ grandstanding.

To answer this, Schumpeter has looked at eight of the most notable corporate crises since 2010, including those at Uber and Wells Fargo. The evidence shows that these episodes were deeply injurious to the companies’ financial health, with the median firm losing 30% of its value since its crisis, when compared with a basket of its peers. Facebook should beware.

When a scandal first breaks, executives at the...Continue reading

China wants to reshape the global oil market

Wed, 03/28/2018 - 17:36

TRADITIONALLY, to count as an oil power a country had to be a big producer of the black stuff. China is the world’s biggest importer but still wants to break into that exclusive club. On March 26th it launched a crude futures contract in a bid to gain more clout in the global market. Some think that, if successful, the yuan could start to displace the dollar in oil trading. For now, though, that is fanciful.

A previous attempt by China to introduce oil futures, in the early 1990s, failed because of unstable pricing. This time regulators prepared methodically. To ward off speculators, notorious in Chinese markets, they made the storage of oil very expensive. Volumes were light in the first few days of trading—less than a tenth of the averages for similar contracts in New York and London. But all went smoothly. It was a good, if modest, start.

China has two goals. The basic one is to help its companies hedge against volatility. Chinese refiners and traders have struggled to...Continue reading

India’s economy is back on track. Can it pick up speed?

Wed, 03/28/2018 - 17:36

Along for the ride

IT IS easy to be awed by the Indian railway network. The 23m passengers it carries daily travel, in total, over ten times the distance to the sun and back. It is just as easy to find it unimpressive. Delays are frequent and trains antiquated. It takes 14 hours to get from India’s capital, Delhi, to its commercial hub, Mumbai. The equivalent trip in China—from Beijing to Shanghai, a similar distance—takes just over four hours.

Similarly, India’s economy can be seen in two lights. Its long-term growth rate of 7% a year has proved far more dependable than the rail timetable. GDP has doubled twice in the past two decades. Yet deep poverty still lingers and jobs are scarce. And Indian growth has been left in the dust by the Chinese express (see chart).

After slow running for much of 2017, India is now near to full throttle. Growth of 7.2% in the three months to December put it ahead of China (which grew at a relatively leisurely 6.8%) and...Continue reading

We have seen the future and it twerks

Wed, 03/28/2018 - 12:21

CYNTHIA Nixon is the latest celebrity to run for office in America; the "Sex and the City" star is trying to be governor of New York. If she succeeds, she will follow in a long line of celebrities-turned-politicians including Sonny Bono, Arnold Schwarzenegger, Jesse Ventura and most notably, Presidents Ronald Reagan and Donald Trump.

This may not be a uniquely American phenomenon. Beppe Grillo, a comedian, launched the Five Star movement, now Italy's biggest party. Silvio Berlusconi cultivated the celebrity style. George Weah, the footballer, has just been elected President of Liberia; Joseph Estrada, a movie star, was president of the Philippines.

Even conventional politicians are expected to show a bit of star quality. Al Gore failed in his run for President in part because his public demeanour was seen as wooden and dull (it was said he reminded women of their first husbands). The attempts in last year's election campaign to create a...Continue reading

More market volatility seems likely

Wed, 03/28/2018 - 11:33

“FASTEN your seat belts. It’s going to be a bumpy night.” Those famous lines of Bette Davis in “All About Eve” may turn out to be the motto for the markets in 2018. After the “volatility vortex” in February, sparked by concerns about inflation, markets have thrown a “tariff tantrum” after President Donald Trump sparked fears of a trade war with China.

In February stocks sank on heavy hints of American levies on imported steel and aluminium. The prospect of trade measures against China, signalled on March 22nd, again hit shares. Then reports that China and America were making progress in trade talks caused the S&P 500 index to rise by 2.7% on March 26th, its best day since August 2015. It promptly fell again by 1.7% the next day (see chart).

Further volatility seems likely, not least after the appointment of John Bolton, an ultra-hawk on foreign policy, as Mr Trump’s national security adviser. That raises the possibility of increased tension with North Korea, despite the...Continue reading

Qantas starts flying non-stop between Australia and London

Tue, 03/27/2018 - 19:28

WHEN migration from Europe to Australia first got going in the nineteenth century, it would take several months to get there by ship. Even by the end of the second world war, the trip still would take over 30 days. But in 1947 Qantas, Australia’s flag carrier, cut the time it took to fly between the two to a matter of days when it opened a new air service between London and Sydney called the “Kangaroo Route”. Even so, the trip was slow and expensive compared to today’s flights. The original “Kangaroo route” took four days and nine stops, and cost at least £525 per passenger—equal to two and half years’ wages for an average worker. Now the same trip, via Dubai or another Asian hub, takes less than 24 hours and costs less than a week’s pay.

Qantas hopes that a new non-stop flight service between Britain and Australia will again revolutionise the economics of flying between the two countries. On the morning of March 25th, the first scheduled nonstop flight from Perth to London...Continue reading

The poor behaviour of pilots and flight attendants is hitting the news

Mon, 03/26/2018 - 21:18

NEARLY every day new stories hit the headlines about misbehaving flyers who get drunk on flights, turn violent or try to bring weapons or unusual animals on board. But it is not just the behaviour of passengers that now appears on a downward slide, but that of crew as well.

Last week videos were posted to Weibo, a Chinese social-media platform, that appeared to show an orgy of at least six people in a hotel room. Reports followed that the participants were flight attendants for China Eastern Airlines, a Chinese flag-carrier, or possibly its subsidiary Shanghai Airlines. In a statement apparently issued by the company, it denied that its flight attendants were involved and suggested that the creators of the video were seeking to damage its reputation. According...Continue reading

Ukraine convinces Ryanair to return

Fri, 03/23/2018 - 19:33

ALMOST one year ago to the day, Ryanair, Europe’s largest low-cost carrier, announced plans to begin serving Ukraine. The eastern European country had been a glaring hole in the airline’s route network, deliberately avoided because of the anti-competitive advantages afforded to Ukraine International Airlines (UIA), the flag carrier based in Kiev, the capital city. A new infrastructure minister, Volodymyr Omelyan, brokered the deal between Ryanair and Boryspil Airport, Kiev’s main gateway and home base of UIA. But it collapsed within months. Now, Ryanair, the government and the airport are trying again.

On March 23rd Ryanair announced that it will launch ten routes to Kiev and five to Lviv in October. The most recent move marks a scaling up of Ryanair’s original plan. The airline never lost interest in serving Ukraine, but said its business confidence was “dented by the Kiev experience”. Continue reading

Markets think trade war is good for "absolutely nothing"

Fri, 03/23/2018 - 11:03

IN THE original Godzilla movie, made in Japan back in 1954, the testing of American nuclear weapons leads to the creation of a giant dinosaur that threatens to destroy not just Japan, but the rest of the world. Now Asians face another American creation that seems to be laying waste to all around it.

President Donald Trump has already pulled out of the TPP (the Trans-Pacific trade pact) and the Paris climate change agreement. Now he appears determined to roll back the international trade arrangements that have been in place since 1945. Yesterday's announcement of tariffs on $60bn of Chinese trade threatens to launch a trade war between the world's two largest economies (the Chinese have already suggested retaliatory measures). Small wonder that Asian markets have taken a hit today (March 23rd); Japan's Nikkei was down 4.5%, China's Shanghai Shenzhen dropped 2.9%; Hong Kong's Hang Seng 2.5%. European markets...Continue reading

The EU wants to tax tech giants’ revenues

Thu, 03/22/2018 - 16:48

IT IS a choice that would make Thomas Hobson proud. European officials this week unveiled plans for a quick and dirty tax policy to apply to big digital firms, in theory by the end of the year. The idea, promised since September, would ditch a tradition of taxing profits and instead let collectors in member states take a share, 3% for starters, of the firms’ local revenues. There is a lively debate about where exactly the tech giants create taxable value. Is it where their programmers sit? Or the intellectual property? Or users? The firms have become so adept at tax avoidance that the European Commission is not going to hang around until the argument is settled.

Pierre Moscovici, the commissioner overseeing the proposals, was at pains to say on March 21st that the turnover tax would be an “interim” fix. He denied Americans are his targets. Between 120 and 150 companies would be affected, around half of them American and a third European. (Apple, Google and other American giants would surely get the biggest bills.) Only those with global...Continue reading

Dropbox goes public

Thu, 03/22/2018 - 16:48

DREW HOUSTON and Arash Ferdowsi must have few regrets since they turned down an offer for their startup from Apple’s then boss, Steve Jobs, in 2011. Dropbox hasn’t done too badly in the interim. It rakes in over $1bn in revenue by allowing users—500m at the last count—to store and share data in the cloud. On March 23rd it is due to go public, making it the biggest firm to do so since Snap, a messaging app, floated in early 2017. Dropbox’s range for its share price values it at between $8bn and $9bn. That will comfort other “unicorns”, the tag given to startups valued at over $1bn, that are considering listing.

True, the valuation is less than its early backers were hoping for when they valued the company at $10bn in 2014, when it last raised equity. But as Matthew Kennedy from Renaissance Capital, a research firm, points out, the previous valuation coincided with peak investor exuberance for tech firms. The adjustment may also reflect some doubts about the firm’s long-term prospects.

Its challenge, common to many...Continue reading

Why tariffs on steel and aluminium are easier said than done

Thu, 03/22/2018 - 16:48

HISTORY will rhyme on March 23rd, when Donald Trump’s tariffs on steel and aluminium imports are due to come into force. Several previous presidents, from Ronald Reagan to Barack Obama, also used tariffs in an attempt to protect America’s steel producers from foreign competition. (There are historical echoes, too, in Mr Trump’s plans to slap tariffs on a range of Chinese imports; in the 1980s Japan was the target.) A rhyme is not a repeat. But past experience is not encouraging.

The central problem for America’s policymakers is that trade is like water. Block its flow in one place and pressure builds elsewhere. When many countries are covered by tariffs, trade may simply be diverted through those countries that are let off the hook. Importers will howl for exemptions. As a result, whatever the Trump administration’s broader ambitions with respect to trade, bellicose unilateralism will make them harder to achieve.

In 1982 America browbeat the European Community, the forerunner of the European Union, into limiting its steel exports to America. But compensating flows from other countries were so great that America’s steel imports increased overall. Exemptions for Canada, Mexico, Israel and Jordan when George W. Bush imposed tariffs on steel imports in 2002 allowed the value of their exports to America to surge by 53%. Canadian and Mexican exporters, who...Continue reading

Li Ka-shing cedes a sprawling empire to his son

Thu, 03/22/2018 - 16:48

“TOO long” was how Li Ka-shing, known fondly by locals as chiu yan (Superman) for his business nous, described his working life when he announced on March 16th that he would be retiring in May. Asia’s pre-eminent dealmaker has been around for longer than his fictional namesake, scoring and selling assets in ports, telecoms, retail and property to amass a fortune estimated at $36bn.

Few expect Mr Li, who will turn 90 this summer, to hang up his cape for good. He says he will stay on to advise his eldest son, Victor Li, who will inherit his two main businesses. The first is CK Hutchison, a conglomerate with interests in power plants, perfume and much in between. It runs 52 ports and owns 14,000 high-street stores, including Watsons at home and Superdrug in Britain. The second is CK Asset, one of Hong Kong’s biggest property developers. Combined they are worth $79.7bn.

At the press conference the younger Mr Li made all the right noises. “When I return to work tomorrow, it will be the same,” he told...Continue reading

Japan Inc and the government are trying to tackle overwork

Thu, 03/22/2018 - 16:48

Dreaming of lifestyle change

SANAE ABUTA is a manager at Panasonic, a giant electronics manufacturer, in Osaka. One day she may work from 9am to 5.45pm. On another she may take a break in the middle, to go to the bank or see a doctor. Or she will stay with her child in the morning and start at 11am. One day a week she works from home. “I appreciate the flexibility,” she says.

Ms Abuta’s schedule is unusual in Japan. Long office hours are seen a proxy for hard work, itself regarded as the cornerstone of Japan’s post-war economic boom. Companies offer to look after employees for life in return for a willingness to dedicate that life to the company, including “service” (ie, unpaid) overtime or moving house on demand. People hesitate to leave the office before their peers, and certainly before their boss. Some sleep at their desks. Convenience stores sell shirts for workers who have no time to go home and change. Death by overwork is so common—191 people in the...Continue reading

FDA wants to help unproductive drugmakers

Thu, 03/22/2018 - 16:48

SCOTT GOTTLIEB, the thoughtful head of America’s Food and Drug Administration (FDA), has had a busy first year. He has launched the process of lowering nicotine levels in cigarettes, approved self-testing kits for breast-cancer genes and waved through the most new medicines in two decades, as well as a record number of copycat drugs (see article). There is one thing he and his regulatory agency are doing less of, however—regulating. New rules were at a 20-year low in 2017, according to analysts at PwC, a consultancy. Instead, the FDA is providing more guidance to industry. This approach, Mr Gottlieb hopes, will help pharmaceutical firms in America develop drugs more efficiently. Since that is where most drug development happens, the FDA’s philosophy matters beyond American borders.

Given the rapid pace of scientific advances in...Continue reading

Indian drugmakers need a new prescription

Thu, 03/22/2018 - 16:48

A SINGLE pill of Abilify, a drug used to treat manic depression, costs $30 or so in America. Or you could try gAbilify (the g stands for “generic”), better known to chemists as Aripiprazole. Thrifty pharmaceutical companies, many of them in India, can provide it for less than $1 a pop since the drug’s patent expired in 2015. That is bad news for Otsuka and Bristol-Myers Squibb, the two labs that formulated Abilify and got it approved by authorities in the 1990s. Everyone else, from patients to insurers to the public purse, is correspondingly better off. Generics-makers have thrived, particularly in India. But the prognosis for the industry is less rosy.

India became the world’s biggest exporter of generics almost by accident. Lax intellectual-property rules in the 1980s allowed its firms to crib drugs patented elsewhere for its huge domestic market. Trade deals gradually opened markets abroad. As patents for a wave of drugs from the 1980s expired two decades later, sales of Indian generics...Continue reading

The world’s three biggest engine-makers hit a snag

Thu, 03/22/2018 - 16:48

It never walks. But does it run?

IT USED to be the world’s two biggest makers of airliners that would invariably deliver new designs late and over budget. A decade ago the cost of Airbus’s A380 superjumbo soared by about €5.5bn ($6.6bn) after engineers got its 330 miles of cables in a jumble. Boeing’s rival 787 Dreamliner exceeded its forecast costs by a whopping $20bn, give or take; its parts, once assembled, did not fit together properly. But just as both planemakers are mending their ways—Airbus’s A350 and A320neo and Boeing’s 737 MAX arrived in a much more timely and economical manner—manufacturers of the engines which power the aircraft are beginning to stall.

On March 15th Boeing revealed that the new engines, the largest ever made, for its new 777X wide-body airliner had completed their first test flight. But GE, the American engineering giant that built them, is already three months behind with their development, because of hiccups with the...Continue reading

Europeans fret that Chinese investment is a security risk

Thu, 03/22/2018 - 16:48

“WE ARE not naive free traders. Europe must always defend its strategic interests,” said Jean-Claude Juncker, the president of the European Commission, last year as he introduced plans to screen foreign investment into the European Union. America has had such rules since the 1970s; they are set to tighten further. The EU used to be more relaxed about acquisitions by foreigners. Now it too is toughening up.

The target is China, whose firms have been on a shopping spree (see chart). Purchases of fripperies such as football clubs and hotels have been curbed by the Chinese authorities, but investment continues to flow into technology and infrastructure, notes James Zhan of the UN...Continue reading

The EU wants to make finance more environmentally friendly

Thu, 03/22/2018 - 16:48

TO GAUGE an issue’s importance, a guest list is a good place to start. The one for a conference in Brussels on March 22nd to discuss the European Union’s “action plan” on sustainable finance features heavy-hitters including Emmanuel Macron, France’s president, and Michael Bloomberg, a former mayor of New York who campaigns on climate change. Given that sustainable finance is well-established, what action does the EU think is needed?

Investing with an eye to environmental or social issues, not just financial returns, has become mainstream in the past decade. According to the Global Sustainable Investment Alliance (GSIA), $23trn, or 26% of all assets under management in 2016, were in “socially responsible investments” that take account of environmental, social and governance (ESG) issues. New asset classes have sprung up. According to SEB, a Swedish bank, the issuance of green bonds, the proceeds of which are invested in environmental projects, reached $163bn in 2017, up from less than $500m in 2008.

Yet standards are a...Continue reading

Corporate citizens of somewhere

Thu, 03/22/2018 - 16:48

WHEN it comes to companies and their passports, there is a flutter of activity in the air—and a reek of hypocrisy. This month Qualcomm, an American-domiciled tech giant which does 65% of its business in China, booked most of its profits last year in Singapore, and pays little tax at home, successfully lobbied the Trump administration to block a hostile takeover on the ground that its independence was vital to ensure American strategic supremacy over China. The predator was Broadcom. It is listed in America but domiciled in Singapore, where it gets tax perks. On November 2nd, four days before its bid, it announced a burning desire to shift its legal base to the home of the brave.

In Europe, Unilever, which a year ago demanded that the British authorities help it fend off an unwelcome takeover by Kraft Heinz because it was a national treasure, is shifting its sole base to the Netherlands (at present it is split between London and Rotterdam). The consumer-goods firm says it wants to simplify its...Continue reading

What if China corners the cobalt market?

Thu, 03/22/2018 - 16:47

COBALT derives its name from Kobold, a mischievous German goblin who, according to legend, lurks underground. For centuries it vexed medieval miners by lookinglike a valuable ore that subsequently turned into worthless—and sometimes noxious—rubble. Once again it is threatening to cause trouble, this time in the growing market for batteries for electric vehicles (EVs), each of which uses about 10kg of cobalt. The source of mischief is no longer in Germany, though, but in China.

It is widely known that more than half of the world’s cobalt reserves and production are in one dangerously unstable country, the Democratic Republic of Congo. What is less well known is that four-fifths of the cobalt sulphates and oxides used to make the all-important cathodes for lithium-ion batteries are refined in China. (Much of the other 20% is processed in Finland, but its raw material, too, comes from a mine in Congo, majority-owned by a Chinese firm, China Molybdenum.)

On March 14th concerns about...Continue reading

Can’t hardly wait

Thu, 03/22/2018 - 16:47

LIKE teenagers, central bankers long to feel normal. For many of them (the central bankers, that is), the past decade has been an unusually angst-ridden one. They stumbled through it, confused by the way their policymaking bodies were changing, unsure what to do with their interest rates, embarrassed by their burgeoning balance-sheets. Teenagers often seek to quell their anxiety and insecurity by imitating behaviour they regard as normal. So too for central bankers.

But the desire to normalise policy, and leave crisis-era measures behind, could distract central bankers from their main goals, namely to support growth and control inflation. The Bank for International Settlements, a global club for central bankers, recently urged officials not to let market jitters discourage them from raising interest rates. Yet at worst, chasing some elusive notion of normal could put the global recovery at risk.

What central bankers mean by normalising policy is clear enough. As Peter Praet, the chief economist of the European Central Bank (ECB), explained in a recent speech, to normalise is to end their reliance on “unconventional” or “non-standard” tools such as quantitative easing (QE, the printing of new money to buy assets). It means returning to a familiar world in which adjustments to interest rates are their main policy lever.

Central bankers make no...Continue reading

Wall Street looks overvalued

Thu, 03/22/2018 - 16:47

FEW measures of stockmarket valuation are as controversial as the cyclically adjusted price-earnings ratio, or CAPE. American equities have looked expensive on this measure for most of the past 20 years, which is why many bulls tend to dismiss its usefulness. It is pretty clear that the CAPE does not help investors to time the market.

But a new paper* from Research Affiliates, a fund-management group, explains why many criticisms are overblown. The strongest case for the measure is that a higher ratio tends to be associated with lower long-term returns. A study of 12 national markets shows that a 5% increase in the CAPE, from 20 to 21, say, tends on average to reduce the total ten-year expected return by four percentage points.

The attraction of the CAPE is that it smooths out the vicissitudes of the profit cycle. In a recession, profits can plunge even faster than share prices. So if you look only at the ratio of a share price and the previous year’s profits, the market can look very expensive....Continue reading

Beware of performance figures

Tue, 03/20/2018 - 17:17

GOLFERS are familiiar with the concept of a "mulligan" - the chance to retake a shot. Give an averagely talented player enough mulligans and he or she will get one close to the hole. And a version of the mulligan exists in fund management too.

Readers will be familiar from past blog posts with the idea that actively-managed funds cannot be relied upon to beat the index. Many of these studies are conducted in the US market, which is probably the most efficient (and thus hardest to beat) in the world. But the same is true in Europe.

Figures from S&P Dow Jones Indices show that, over the 10 years to December 2017, less than 15% of euro-denominated European equity funds beat their benchmark; for emerging market funds, it was less than 3%; and global funds, under 2%. For sterling-denominated funds, less than...Continue reading

Airlines in America are in a race to improve their meals

Mon, 03/19/2018 - 19:28

IN THE 1950s—when the International Air Transport Association (IATA), a cartel of airlines, used to set fare levels and service quality on international routes—there were few differences between major carriers. One way to persuade passengers to choose one airline over another was to offer better meals as entertainment on board. And so an arms race to serve fancier food on transatlantic flights broke out. It came to an end in 1958, when SAS, a Scandinavian carrier, was fined $20,000 by IATA for serving open sandwiches that, contrary to IATA’s rules, contained overly fancy ingredients such as ox tongue, lettuce hearts and asparagus. The quality of food on board flights has fallen greatly since. Liberalisation of the aviation industry in the 1980s and 1990s, with IATA losing its power over fares, has meant that most carriers now compete on price rather than service quality. 

But there are signs that some airlines in America may be getting into a new arms race—or, put another way, a...Continue reading

Why China is swooping on Georgia’s airline industry

Thu, 03/15/2018 - 19:03

IN ANCIENT times, traders on the Silk Road connecting China with Europe rarely ventured into the northern Caucasus region that is now home to Georgia. Diverting from established routes through Armenia and Anatolia to the south served little purpose unless conflict made the trackways impassable. Today, advances in transport and logistics mean that geography is less of a hurdle for traders. But friendly relations are just as important. Having signed free trade agreements with China and the European Union, Georgia is keen to pitch itself as a trade and transit hub for President Xi Jinping of China’s One Belt One Road initiative. A new rail line passing through the city adds to its appeal, halving the time it takes to carry freight from China to Turkey. Foreign direct investment by Chinese companies has ballooned.

Hualing Group, the largest such investor, has spent hundreds of millions of dollars developing real estate, logistics infrastructure, and sea and ground transport facilities in the country. Its attention...Continue reading

AT&T’s merger with Time Warner goes on trial

Thu, 03/15/2018 - 16:50

AN ANTITRUST trial over AT&T’s $109bn acquisition of Time Warner, which begins on March 19th, will have more keen observers than one courtroom can handle. Disney, Comcast, 21st Century Fox, Verizon, Charter Communications, CBS and Viacom will be watching. So will Netflix, Amazon and Google.

The reason is simple. If AT&T wins the case against the Justice Department, and the “vertical merger” of the distribution and content businesses goes through, a wave of consolidation deals will follow. Companies that rely on large numbers of people to watch video will want to bulk up to compete with each other and Silicon Valley’s mightiest.

Comcast may make a hostile bid for Fox’s assets, setting off a bidding war with Disney, which has already agreed a $66bn deal with Fox. (Comcast already wants to buy Sky, a European satellite provider that is part of the Disney-Fox transaction.) Other pay-TV and mobile firms, like Charter and Verizon, will feel emboldened to go after content companies such as CBS or Lionsgate. All are...Continue reading

The reckoning at Theranos

Thu, 03/15/2018 - 16:50

“The Next Steve Jobs”

“THE Next Steve Jobs” is how Inc., an American business magazine, described Elizabeth Holmes when her photograph appeared on its cover in 2015. They may share an affinity for black turtlenecks but the reputations of Ms Holmes and Apple’s celebrated late boss could not be more different. On March 14th Ms Holmes was accused of fraud by America’s Securities and Exchange Commission (SEC). She has agreed to pay a $500,000 fine, not serve as an officer of a public company for ten years and turn over much of her stake in Theranos, the startup she founded (she has neither admitted nor denied wrongdoing).

Only a few years ago Ms Holmes, who is 34 years old, was touted as the world’s youngest self-made female billionaire, a shatterer of Silicon Valley’s reinforced-glass ceiling. She graced magazine covers and speechified about Theranos, which was trying to upend diagnostic testing by using pinprick amounts of blood rather...Continue reading

Germany’s two biggest utilities strike a deal

Thu, 03/15/2018 - 16:50

Windy with a chance of profits

WHEN Johannes Teyssen took control of E.ON in 2010, it was Germany’s second-biggest company after Siemens, an industrial giant. From its headquarters in chic Düsseldorf, the utility looked down on RWE, its longtime rival, based in Essen, a down-at-heel former coal-and-steel town 40 minutes’ drive away.

The illusion of superiority did not last. The following year Angela Merkel, Germany’s chancellor, reacted to the meltdown at Fukushima in Japan by starting a process to shut down Germany’s nuclear-power plants, on which both companies relied. Other aspects of the Energiewende, or energy transition, added to their woes, as lavish support for renewables clobbered the country’s wholesale electricity prices. The companies’ profits slumped, as did their share prices (see chart).

In 2016 E.ON recorded its biggest-ever loss, moved its headquarters from Düsseldorf to Essen, and reinvented itself as a renewable-energy business and a household...Continue reading

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