Are security concerns over Huawei a boon for its European rivals?
Thu, 21 March 2019 15:41:20 GMT

IN THE DAYS of pre-internet capitalism the troubles of one dominant company in an industry tended to be good news for its rivals. In today’s hyperconnected world a threatened ban by Western governments of Huawei, the Chinese market leader in telecoms gear, is also a worry for its competitors. Both Ericsson, a Swedish company, and Nokia, a Finnish one, would prefer the geopolitical saga to end, the better to focus on competing for contracts related to the launch of super-speedy “fifth generation” (5G) mobile-phone networks.

The American government is not letting up its campaign to persuade allies to freeze Huawei out of 5G tenders. It worries that Huawei’s kit may contain “back doors”—deliberate security flaws inserted to allow Chinese spooks eavesdrop on, or attack, phone networks. Earlier this month, in a letter to Germany’s economics minister, America’s envoy to Berlin, Richard Grenell, threatened to cut back American co-operation with German security agencies if the country allowed Huawei or other Chinese firms to participate in the roll-out of 5G. Mike Pompeo, America’s secretary of state, suggested in Hungary recently that doing business with Huawei could tip decisions on where America stations troops.

So far Britain and Germany, among others, have not yielded to American demands. Angela Merkel, the German...

Regulatory capture may be responsible for Boeing's recent problems
Thu, 21 March 2019 15:41:20 GMT

AMERICA’S AIRCRAFT-SAFETY regulator has been the industry’s gold standard since it was set up in the 1950s. When the Federal Aviation Administration (FAA) called out an aeroplane as unsafe, counterparts around the world followed its lead. That changed after a Boeing 737 MAX jetliner crashed in Ethiopia on March 10th, killing all 157 on board, five months after the same model went down in Indonesia in apparently similar circumstances. The FAA grounded it only once all other big regulators around the world had done so.

A week on, analysis of the black box recovered in Ethiopia suggests “clear similarities” with the Indonesian accident, the country’s transport ministry said on March 17th. This raises questions about the FAA’s certification of the plane. On March 17th the Wall Street Journal reported that the Department of Justice had launched a probe into the MAX’s development. Two days later the transportation secretary began an audit of the aeroplane’s certification process.

What went wrong? Jon Ostrower, an aviation writer, points to Boeing’s decision in 2011 to put a new fuel-efficient engine on an earlier version of the popular 737. Airbus, its European arch-rival, was also planning to do the same on its competing narrow-body jet, the A320. But although there was plenty of room under the A320...

Masayoshi Son prepares to unleash his second $100bn tech fund
Thu, 21 March 2019 15:41:16 GMT

IT BEGAN WITH one of the most lucrative investment pitches in history. In September 2016 Masayoshi Son, boss of SoftBank, a Japanese internet and telecoms firm, painted a picture for Muhammad bin Salman, then Saudi Arabia’s deputy crown prince, of how his country might be transformed by technology. The prince was wooed. “45 minutes. 45 billion dollars. So $1bn per minute,” exulted Mr Son.

Nearly two and a half years on, Mr Son has disbursed or pledged $70bn of the $100bn vehicle that Prince Muhammad’s billions seeded. The Vision Fund, as it is known, owns stakes in around 70 young tech companies, including household names like WeWork, a property startup, and Slack, a workplace-messaging app. A big bet on ride-hailing—with stakes in Uber, Grab, a Singaporean firm that operates across South-East Asia, Ola, an Indian outfit, and China’s champion, Didi—collectively covers most of the world. A fresh injection of $1.46bn into Grab on March 5th lifted its ride-hailing holdings to $23bn.

The scale of Mr Son’s project upended the cosy world of Silicon Valley venture-capital (VC) firms. Its unspent $30bn alone is four times the size of the next-biggest pot of VC cash. So when Mr Son recently said that he wants to raise a new $100bn fund every two or three years, investors struggling to comprehend how the first one operates did...

Drivers wanted
Thu, 21 March 2019 15:41:16 GMT

IS THERE AN app for cognitive dissonance? Most consumers who have tried ride-hailing services find them cheap and convenient. But many worry that, because drivers are classified as independent contractors, they have fewer rights than normal employees. That treatment helps create the flexibility and low cost that consumers crave. However, it has also given the gig economy a slightly dubious reputation.

Now the ride-hailing companies are falling over themselves to proclaim that they treat their drivers well. Lyft, which launched the roadshow for its initial public offering (IPO) on March 18th, claimed in its prospectus that “we focus on providing drivers with a best-in-class experience”. It offers career coaches and “education resources” and is also paying a cash bonus to drivers who have undertaken more than 10,000 rides. Shares in the IPO have been put aside just for the drivers to invest in.

Uber’s rapid expansion has been dogged for years by legal battles over the employment status of its drivers. As The Economist went to press, the firm was expected to face yet another challenge in the British courts. A group of drivers argue that they have been denied access to data (despite a request under the EU’s General Data Protection Regulation) on issues such as their working time and performance...

A two-wheeler reflects the stops and starts of Indian capitalism
Thu, 21 March 2019 15:41:16 GMT

WHEN THE new Jawa motorcycle was unveiled last November, two years after the once-popular two-wheeler’s return to India was first revealed, its website crashed. Millions of Indian motorheads wanted to catch a glimpse of the original Czechoslovak design reimagined for the 21st century. An undisclosed (but modest) number of online orders were later filled in an instant.

This triumphant return is the latest in a series of Jawa’s stops and starts, which mirror India’s post-independence economic development. In the 1950s then-high-tech motorcycles were imported from Czechoslovakia. A decade later steep tariffs forced production to move to India, and then, in 1971, further restrictions on foreign products prompted it to be renamed Yezdi. The 1980s ushered in efficient Japanese-led joint ventures, boosted from 1991 by liberalisation. These, together with Royal Enfield, a colonial-era brand with a cult following which has been in Indian hands since the 1950s, outcompeted Jawa, which was also under pressure at home in Europe from a botched nationalisation (and the fission of Czechoslovakia in 1993). The last Yezdi left the firm’s factory in Mysore in 1996.

Jawa’s swift resurrection reflects how Indian business has changed since the Licence Raj. In 2015 Anupam Thareja, a former director of Royal Enfield, forged a joint venture...

Business takes on the baddies
Thu, 21 March 2019 15:41:15 GMT

DOWNTOWN JOHANNESBURG puts a bounce in your step. Streets bustle with noisy fruit-sellers and minibus drivers seeking custom. But South Africa’s commercial capital can also put a knot of fear in your stomach. Jozi, as locals call it, is notorious for muggings and armed robbery. Corporate offices bristle with impenetrable security and armies of guards. Yet the area has grown less edgy since Schumpeter first visited, nearly two decades ago. For that, give some credit to Business Against Crime. The association pays for hundreds of CCTV cameras, and for staff to monitor them and alert police to mischief.

South African bosses are far from alone in their concern over crime—be it against their customers, employees or property. According to the World Bank, 17% of all firms (from a global survey of 135,000) count crime as a “major constraint”. In Brazil or Ivory Coast it is nearer to 70%. In El Salvador and Kenya four in five firms pay for private security. A survey in Mexico found that small businesses there spend 6% of their income on such protection, double the level of a decade ago. Companies distributing goods in gang-run neighbourhoods of Medellin, in Colombia, lose 8-15% of their revenues to theft, says Sergio Tobón, who heads Proantioquia, which unites 50 of the country’s biggest companies in the city, once home to Pablo Escobar. In...

Fortnite’s developer is entering the retail business
Thu, 14 March 2019 15:43:59 GMT

A YEAR AND a half after its launch, “Fortnite Battle Royale” remains one of the world’s most popular games. Epic, the maker of the lighthearted online shooter, reported that 10.7m players watched an in-game concert on February 2nd by Marshmello, a DJ. Concurrent player numbers regularly exceed 7m. Netflix says it views “Fortnite” as more of a competitor than video-streaming rivals like Hulu or HBO. Epic, meanwhile, has set its sights on a new set of rivals: digital shopkeepers.

These days video games are mostly sold not in boxes but as digital downloads. On the PC, the market is dominated by Steam, an online store run by Valve, a reclusive American games developer. On Android, Google’s Play Store rules. Epic wants in.

Steam, the smaller of Epic’s targets, already has competitors, such as Good Old Games and digital stores run by big publishers such as Electronic Arts and Ubisoft. None has made much of a dent. Valve is privately owned, so reliable numbers are scarce. But Steam is thought to have around 290m users and 20,000 titles; its PCmarket share may be above 70%. It takes a 30% cut of each game sold. A conservative estimate puts Valve’s revenues in 2017 at $4.3bn, making the total market worth at least $13bn. Google’s Play Store is even bigger. Once again, the firm does not report detailed numbers. But according to...

The end of the affair
Thu, 14 March 2019 15:43:59 GMT

IT HAS BEEN a week of romantic second-chances in the business world. On March 11th Barrick Gold, the world’s most valuable gold producer, said it would no longer pursue its $17.8bn hostile quest for Newmont Mining, its nearest rival. Instead both parties agreed to form a joint venture (JV) to create the world’s largest gold-mining site, in north-eastern Nevada. The tie-up cemented the view that the state is the easiest place to get hitched in America.

A day later in Japan, the partners in what had become the business world’s most spectacular falling-out announced a “new start” to their ménage-à-trois. Renault, Nissan and Mitsubishi launched a “consensus-based” board to replace the command-and-control structure imposed by Carlos Ghosn, who chaired all three companies until his arrest in Japan on charges of financial misconduct (which he denies). The aim is to rekindle the romance that began when Renault first rescued Nissan from near-bankruptcy in 1999.

Such JVs and strategic alliances, however schmaltzy, receive too little attention as business entities. They lack the swashbuckling allure of mergers and acquisitions (M&A). Investment bankers shun them because they generate few fees. Yet they are indispensable. They enable businesses to collaborate without entering the touchy terrain of changing who controls them....

How the internet led to greater wage inequality
Thu, 14 March 2019 15:43:59 GMT

THE GREAT detective has summoned everyone to the library. “I was asked to identify the culprit behind the growing wave of wage inequality” he says. “I can reveal that the offender is there.” And the assembled suspects gasp as he points, not at a human, but at the computer in the corner.

In real life, few would be too be surprised at that verdict. Economists have long pointed to “skill-biased technological change” as one of the driving forces behind inequality. But demonstrating the influence of technology is important in an era when politicians routinely blame immigration or cut-price competition from imports instead. And the evidence that technology is indeed the perpetrator is getting stronger as academics look at its impact on inequality within individual firms, as well as across the broader economy.

A new working paper* by Christopher Poliquin of the University of California, Los Angeles, examined the effect on wages at Brazilian firms that adopted broadband between 2000 and 2009. The average employee experienced a 2.3% cumulative gain in real wages, relative to workers at firms without broadband. But managers at the firm gained 8-9% while executive directors enjoyed an 18-19% boost. Mr Poliquin thinks that the internet allowed skilled workers to be much more productive than before.

His suggestion chimes with...

Tech firms ramp up efforts to woo the energy industry
Thu, 14 March 2019 15:43:59 GMT

A GIANT HOTEL in Houston teemed with oil-and-gas executives on March 11th, the start of a CERAWeek. IHS Markit, a research firm which organised the shindig, lined up America’s energy secretary, the chief executives of BP and Chevron (two of the world’s largest oil companies), and other luminaries. Among the dark suits was an open-collared newcomer: Andy Jassy, head of Amazon Web Services. Speaking to a vast ballroom, he extolled the cloud-computing giant’s virtues of moving quickly and learning from failure. Mr Jassy was there not just to offer management advice to what were once the world’s most valuable companies. He was also after their custom.

Energy companies are keen to produce oil and gas more efficiently, as they grapple with volatile prices and uncertain long-term demand. Digital investments promise to cut costs and boost output. Tech giants like Amazon, Microsoft and Alphabet, as well as a clutch of startups, want to help. For all of Silicon Valley’s professed support for clean power over fossil fuels, the energy industry represents a huge opportunity. Oil companies’ valuations are dwarfed by tech firms’, but their coffers remain deep (see chart).

Countless industries claim that big data and artificial intelligence (AI) will usher in new prosperity. The trend in oil and gas is nevertheless notable, partly...

VW’s newish boss is going full-steam ahead with electric cars
Thu, 14 March 2019 15:43:59 GMT

“THE SUPERTANKER is picking up speed,” declared Herbert Diess, boss of Volkswagen (VW), presenting future plans to investors and the press on March 12th at the company’s headquarters in Wolfsburg. A fast move by the giant carmaker into electric vehicles (EVs) will become quicker still, he vowed. His promise of 70 new electric models by 2028, rather than 50 as previously pledged, and 22m EVs delivered over the next ten years is the biggest commitment to battery power by any car company. Mr Diess is taking on the tough task of turning a supertanker around.

VW’s investors have long grumbled that its vast bulk has not delivered high profits or helped its share price. Mr Diess wants to raise both. Before the “dieselgate” emissions scandal the firm’s bosses bet on scale. VW made nearly 11m vehicles last year. Putting growth before profits also suited its mighty unions, for which preserving jobs is paramount. As a result, VW disproportionately relies on its two premium brands, Audi and Porsche, for earnings. Productivity at its mass-market brands is woeful, and that in a segment where margins are anyway slender.

Any attempt to change the balance has met with stiff resistance. Workers occupy half the seats on the firm’s supervisory board and can usually count on the state of Lower Saxony, which owns 12% of VW, to back them. The...

Humans struggle to cope when automation fails
Thu, 14 March 2019 10:48:34 GMT

ONE WAY to tell who made the aircraft you are boarding is to steal a glimpse of the cockpit. A traditional control yoke in front of the pilots suggests a Boeing; a joystick beside each seat, an Airbus. Pilots argue about which system is better; neither is considered safer than the other. Each exemplifies a different approach to a problem that manufacturers of not just aircraft but also cars, trains and ships must grapple with as long as human operators handle increasingly automated machines.

The challenge of what engineers call the “human-machine interface” has tragically gained attention after the crash of an Ethiopian Airlines Boeing 737 MAX 8 on March 10th. Eyewitnesses reported that shortly after departing Addis Ababa, the aircraft climbed and dived repeatedly. Similarities were drawn with a fatal crash in Indonesia in October last year. That time, the pilots of a Lion Air MAX 8 struggled, also soon after take-off, with an automated safety system that erroneously tried to prevent the aircraft from stalling by lowering its nose.

Although authorities around the world have grounded the model, Boeing insists that it is airworthy. The company is updating the MAX’s automated flight-control software to make it easier for pilots to assume manual control. Boeing and Airbus both pack their planes with computers that do most...

Two tragic air disasters may not down Boeing
Thu, 14 March 2019 10:48:33 GMT

BOEING WAS hoping for good headlines on March 13th, the day on which it planned the glitzy unveiling of its new long-haul 777X jetliner at its factory outside Seattle. Instead, tragic events three days earlier in Ethiopia prompted it to cancel the event. On March 10th a Boeing 737 MAX 8 crashed near the capital, Addis Ababa, killing all 157 people aboard. The apparent similarities between this crash and one five months ago involving a MAX 8 operated by Lion Air in Indonesia raised concerns among aviation authorities around the world. By March 13th virtually all the world’s fleet of MAX 8s had been grounded by airlines or regulators. The tragedy has also frightened Boeing’s investors. Within days its share price fell by more than 10%, wiping nearly $30bn off its market value.

Accidents, even tragic ones, do not usually have such a chilling effect on planemakers’ shareholders. The crash last month off the coast of Texas of a Boeing 767 carrying cargo had virtually no impact on its maker’s share price, despite claiming three lives. As Howard Wheeldon, an aerospace analyst, explains, this is because most crashes are caused by human error. Airlines who hired those humans therefore get most of the blame.

This time is different. It is the second crash in less than a year involving a brand-new MAX 8. As in Indonesia, the...

It shouldn’t happen to a vet
Thu, 07 March 2019 15:49:26 GMT

THE MARKET town of Thirsk, two-and-a-half hours by rail north of London, has become a magnet for fans of James Herriot, the fictionalised Yorkshire vet, just as London’s Kings Cross, from where the train leaves, is for Harry Potter lovers. Herriot, modelled on the life of his creator, the late vet-turned-author Alf Wight, was made world famous in the 1970s by a series of books, films and a television series. The surgery on which the books were based has been turned into a museum displaying its original 1940s apothecary and a breakfast table on which Wight sometimes performed surgery. The “wild panorama of tumbling fells and peaks”, where in the stories Herriot spent as much time wrangling with the farmers as he did with their animals, is as striking as ever.

But some of the town’s folk are in high dudgeon over what they see as a betrayal of Herriot’s legacy of small-town professional devotion. In 2017 the Skeldale veterinary practice, a partnership once run by Wight and Donald Sinclair (aka Siegfried Farnon), sold out to Medivet, a chain of more than 260 vet practices backed by a London private-equity firm, Inflexion. Chris Jeffery, a breeder of whitebred shorthorn cattle (“that’s not because they eat white bread”), is among those who are fuming. “How much more traditional can you get than James Herriot’s practice?” he...

HBO’s boss resigns, raising questions about WarnerMedia’s strategy
Thu, 07 March 2019 15:49:26 GMT

ON THE EVENING of February 28th Casey Bloys, president of programming for HBO, a television network, called David Simon, creator of “The Wire”, one of its most highly regarded series, on a set in Manhattan. Richard Plepler, boss and public face of HBO, had just announced he was leaving, and Mr Bloys was trying to reassure the talent. The message, Mr Simon says, was to keep going, that “nothing has changed here”.

In truth, much has changed. HBO, long a powerful fief of creativity under Time Warner, a media group, is now run by AT&T, a vast telecommunications company. In June 2018 it closed its purchase of Time Warner after an antitrust judge approved the merger—a decision upheld on appeal on February 26th.

The phone firm could simply have declared that HBO would become its global streaming brand—a more prestigious version of Netflix—under Mr Plepler. During his reign as co-president from 2007 and as chief executive from 2013, HBO developed critically-acclaimed hits such as “Veep” and “Game of Thrones” while generating massive profits for Time Warner ($2.2bn in 2017).

Instead AT&T whittled away at the autonomy of Mr Plepler and of HBO. In October John Stankey, an AT&T executive put in charge of WarnerMedia (the new name for Time Warner), announced a new streaming service that would combine content from...

China’s formerly white-hot tech sector is in the doldrums
Thu, 07 March 2019 15:49:26 GMT

“ONLY WHEN the year grows cold do we see the qualities of the pine and the cypress,” wrote Robin Li, the boss of Baidu, in a new year’s letter to staff at China’s main online-search firm. It was yet another recognition of a chill sweeping through the country’s technology industry. The lavish financing that promising startups have come to expect has dried up. Job cuts have multiplied. Even China’s tech giants have not been spared and are slashing bonuses and travel expenses.

This wintry spell is a remarkable reversal for a batch of firms, such as Meituan-Dianping, an online-services super-app, that are among China’s most vivacious. Early last year they appeared to be in rude health and were drawing in vast dollops of investment. More money was raised for venture-capital funds in China in the first half of 2018 than in America, the first time that had ever happened: $56bn compared with $42bn, according to Preqin, a data provider. By the autumn no fewer than 86 new “unicorns”—private, billion-dollar startups—had emerged.

Then the “capital winter” set in. One trigger was a selloff in tech stocks globally that included China’s biggest stars, Alibaba and Tencent. Worries have multiplied about the pace of revenue growth in a slowing economy, as well as the time it is taking for highly valued private startups to approach...

The world’s biggest ship-breaking town is under pressure to clean up
Thu, 07 March 2019 15:49:26 GMT

HOW DO YOU make a 10,000-tonne container ship disappear? At Alang, a small town in Gujarat, on the western coast of India, it happens regularly. At roadside stalls on its outskirts, shopkeepers sell furniture together with lifeboats; washing machines alongside emergency flares. Nearer the town, stalls give way to warehouses and enormous open-air yards; cranes stretch to the horizon. Ships that look like Lego sets being dismantled sit on a stretch of beach.

Alang is the world’s biggest ship-breaking town. Almost a third of all retired vessels—at least 200 each year—are sent to be broken up here, at over 100 different yards stretching along 10km of sand. The industry employs some 20,000 people, almost all men who migrate from the poorer states of India’s northern Hindi-speaking belt. Taxes paid by breakers generate huge sums for the state government. Yet it is a dangerous industry for its workers and a filthy one in environmental terms.

Of 744 ships that were pulled apart worldwide last year, 518 were dismantled on beaches. Only 226 were processed “off the beach” at industrial sites designed for the purpose, according to the Shipbreaking Platform, an NGO which campaigns against beach-breaking. The majority of big shipping firms use beaches, except a tiny few such as Hapag Lloyd of Germany and Boskalis of the Netherlands...

Energy firms bet on offshore wind farms in America
Thu, 07 March 2019 15:49:26 GMT

THE FUTURE of clean energy depends on meetings like the one held at a small hotel in a small city in Massachusetts last month. Residents of New Bedford came together to voice their opinions about an offshore wind proposal from a company called Vineyard Wind. To date, such projects have not fared well in America; opponents have blocked big offshore wind farms. But opposition has dwindled. Though lobstermen fretted about local crustacea, supporters of the project in New Bedford touted the new jobs that would be on offer. Bureaucrats overseeing the plan offered heart-shaped chocolates at the sign-in table. If Vineyard Wind secures the necessary approvals, the project would be, astonishingly, America’s first large offshore wind farm. Construction could begin by the end of the year.

After nearly two decades of fighting, the wind industry is poised to sweep into American waters. In February a number of European energy giants, including Royal Dutch Shell, EDF, Equinor and Orsted, bid to build New York’s first offshore wind project, with a decision due this spring. Other plans are moving forward, from Virginia to New Hampshire. In total, states have sanctioned nearly 17,000 megawatts of offshore wind power. This increase is almost as large as Europe’s entire offshore wind market. Yet America remains perilous for wind developers, not just...

Vale and the aftermath of a devastating dam failure
Thu, 07 March 2019 15:49:26 GMT

FABIO SCHVARTSMAN, a hitherto well-respected businessman, may now be the most detested man in Brazil. As chief executive of Vale, a giant miner and the world’s largest producer of iron ore, it was Mr Schvartsman who had to face the public after the collapse of a company tailings dam in the town of Brumadinho on January 25th. Since then Vale has seen the erasure of 14% of its market value, grave legal allegations, the downgrading of its debt and a devastating body count: 186 people are now confirmed as dead, with 122 still missing.

So it was not a shock when, on March 2nd, Vale said that Mr Schvartsman and three other executives would step down. “Today the dams are impeccable,” Mr Schvartsman had said last year. Tailings dams contain tonnes of waste material from mining operations. The design used at Brumadinho was known to be the least expensive and most risky.

After a deluge of waste burst from the Brumadinho dam, ripping through a perilously located staff canteen and submerging a valley in mud, the company tried to respond quickly. Its board suspended share buybacks, dividends and bonuses for executives. It has made payments of 100,000 reais ($26,000) to 266 families. The resignations of Mr Schvartsman and three other executives follow a letter from prosecutors and police urging their dismissal (and that of others)....

A small step for women
Thu, 07 March 2019 15:49:26 GMT

THE GLASS ceiling in the corporate world is not broken, but it is starting to crack. Women are getting on to corporate boards at greater speed, and in greater numbers.

Research by LinkedIn, a professional networking site, shows that across five countries (America, Germany, India, Italy and Norway) women it lists as directors reached the position faster than their male counterparts did. In America, for example, women got there 9.8 years after leaving university and men after 10.9 years.

This suggests that younger women are making good progress in the boardroom. Overall, however, females are still lagging behind the males. The proportion of people in leadership roles (director-level and above) that is female in the five countries varies from 17% in India to 35% in America.

Britain has seen a clear advance; a campaign there called the 30% club has managed to increase the share of female directors of FTSE 100 companies from 12.5% in 2010 to 30.6%. But as the world marks International Women’s Day on March 8th, it is clear that the glass ceiling has not shattered.

Some firms may be paying only lip service to the idea of female leadership. A paper in the Academy of Management Journal* highlights the phenomenon of “twokenism”, a statistical bunching of American companies with exactly two...


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