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○ Amazon’s other Jeff 22
○ The next billion-dollar color 52
○ Can Macron fix France? 40
April 23, 2018
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President Xi reiterates China’s commitment to further opening up at the
Boao forum By Yuan Yuan
China will continue to open up its
economy and expand cooperation with
its economic partners in the future,
said Chinese President Xi Jinping in his
keynote speech at the opening ceremony
of the Boao Forum for Asia (BFA) Annual
Conference 2018 on April 10.
Addressing more than 2,000 politicians,
scholars and business and media leaders
from over 60 countries and regions at the
four-day event in South China’s tropical
Hainan Province, Xi began his speech by
reviewing China’s successful experience
over the past four decades since the
adoption of economic reforms in 1978.
Xi described how the Chinese people have
unleashed and enhanced productivity in
China through hard work and an unyielding spirit.
“Today, the Chinese people can say with
great pride that reform and opening up,
China’s second revolution, if you like, has
not only profoundly changed the country,
world,” Xi said.
New measures
China will continue to increase openness
and expand economic cooperation, Xi
declared. A series of major measures will
be undertaken to broaden market access, create a more attractive investment
environment, strengthen the protection
of intellectual property rights (IPR) and
expand imports.
for vehicles and reduce import tariffs for
some other products this year, Xi revealed
in his speech.
Several other measures will be launched
access, to accelerate the opening up
of the insurance industry, and to ease
restrictions on the establishment of
allow expansion of their business scope,
while more areas of cooperation between
also be opened.
Instead of primarily relying on favorable
policies for foreign investors as in the
past, Xi said that China will improve the
country’s investment environment in
order to attract foreign investment.
“We will enhance alignment with international economic and trading rules,
increase transparency, strengthen property rights protection, uphold the rule of
law, encourage competition and oppose
monopoly,” Xi said.
Meanwhile, China is reinstituting the State
step up law enforcement, deploy relevant
offenders as a major deterrent.
“We encourage normal technological
exchanges and cooperation between
Chinese and foreign enterprises, and
protect the lawful IPR owned by foreign
enterprises in China,” Xi said.
Import Expo, to be held in Shanghai this
November, Xi described the event as not
just another expo in the ordinary sense,
but as a major policy initiative and part
of China’s commitment to opening up its
Worldwide implications
Xi’s speech on the role of reforms in
boosting the development of China over
the past four decades resonated with
participants and analysts.
“China has grown into the world’s
second-largest economy, the largest
industrial producer, the largest trader
of goods and the holder of the largest foreign-exchange reserves,” said
Gu Xueming, President of the Chinese
Academy of International Trade and
Economic Cooperation of China’s Ministry
of Commerce. “It could not have reached
these heights without the reform and
opening-up process. Meanwhile, we have
lifted 700 million people out of poverty.
All of these achievements are not easily
China has achieved remarkable progress
by adopting a policy of reform and opening up, and it stands as a successful case
of developing an open economy. China’s
development has also contributed to
the overall progress of the world, said
Xu Xiujun, a professor with the Chinese
Academy of Social Sciences. “An open
China will exert a more central role in
promoting the regional integration of Asia
and the globalization of the world,” he
Aravind Yelery, Assistant Director of the
Delhi-based Institute of Chinese Studies,
applauded Xi’s address. Yelery believes
its opportunities and outcomes are goLQJWREHQHĶWWKHZRUOGq;LVDLGDGGLQJ
that China has no geopolitical ambitions,
seeks no exclusionary blocs and imposes
no business deals on others.
He also pointed out that as the Belt and
Road is a new initiative, it is natural that
there might be different views on cooperation. “As long as the involved parties
embrace the principle of extensive consultation, joint contribution and shared
cooperation and resolve any differences,”
Xi said.
“This way, we can make the Belt and
Road Initiative the broadest platform for
international cooperation, in keeping with
the trend of economic globalization and
Xi said.
“Cooperation is essential to global economic development,” said Xu Hongcai,
Deputy Chief Economist of the China
Center for International Economic
Exchanges. “The world economy is projected to grow 3.9 percent year on year
in 2018, compared to 3.6 percent last
year. However, it is still below the average
“The Belt and Road Initiative is important
for all the countries that are attached to
it,” Gabor said. “China is a very important
country for the world. The better China
does, the better the world does.”
“The initiative is one of the instruments to
implement the vision of a shared future
for mankind,” said Giulio De Metrio, Chief
airport operator. “It is a way of bringing
more prosperity to neighboring countries.
A good neighbor for China is also a good
neighbor for Europe.”
Chinese President Xi Jinping delivers the keynote speech at the opening ceremony of the Boao Forum for Asia Annual Conference 2018 in Boao, in South China’s Hainan Province, on April 10.
that a more open China will bring opportunities to Indian businesses investing in
China. “India has been looking for initiatives and opportunities for ways to engage
with China, and the policy of opening up
“Xi’s speech shows that China proceeds
toward action in a very deliberate and
active way,” said Allan Gabor, President of
Merck China, who has been living in China
for 20 years; this year, it was his eighth
time at the BFA. “For those of us in the
business community, the speech provides
a lot of transparency and stability. It is
very important to us,” he added.
“President Xi’s speech underscored
China’s strong support for economic
globalization, trade liberalization and
connectivity,” Jon R. Taylor, a professor
of political science at the University of St.
Thomas, told Beijing Review.
Greater connectivity
Apart from emphasizing China’s will to
the achievements of the Belt and Road
Initiative in his speech. “The Belt and
Road Initiative may be China’s idea, but
Ban Ki-moon, former U.N. Secretary
General and newly elected Chairman
of the Board of Directors of the BFA,
underlined the need to promote the socioeconomic and sustainable advancement
of all the peoples of the world, particularly
those in developing countries. “I think
President Xi has already laid out a very
good vision and mechanism with the Belt
and Road Initiative, which is supported by
the Asian Infrastructure
Investment Bank,” he
said. Q
(Reporting from Boao,
Hainan Province, with
contributions from
Hou Weili and Liu Ting)
Scan QR code to visit Beijing Review’s website
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Bloomberg Businessweek
April 23, 2018
○ Sensitivity training at Starbucks ○ Gay pride hits China’s web ○ London realty’s falling down
Margaret Thatcher and the
future of Chinese finance
Delays are nothing
new at Tesla. But
now investors are
getting nervous
Bringing more women, and
fewer retired white guys,
into the boardroom
Moncler discovers
there’s more to life than
thousand-dollar ski parkas
At least Mike Pompeo has the president’s trust.
That’s more than Rex Tillerson could say
Amazon’s other
Jef on AI, robots,
and Trump
The true value of a
Bitcoin: $20. Or
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All those “terms and
conditions” you never read
are being challenged
So many retail spaces are
going vacant, to be replaced
by… well, not much
Microbes from Indigo may
grow healthier plants—and
replace pesticides
Finding a bank in Iran is
easy. Finding one that will
lend isn’t
“Prior to
the merger,
frankly, they
were just
a bunch of
garbage men”
China can’t shake
suspicions that its
growth numbers
are rigged
If Macron can fix
France, saving
Europe might
be next
A change in leadership
probably won’t change
a lot in Cuba
Can Trump appointees
say “you’re fired!” to
administrative law judges?
Dating apps for the
elite may exacerbate
economic inequality
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April 23, 2018
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Cover: Alex Wong/Getty
○ The IRS ofered
Americans an extra day
to do their taxes after an
error caused its website
to tell e-filers that it would
be down for a “planned
outage” from tax day,
April 17, through the year
○ French oil giant Total,
which is stocking up on
traditional utility providers,
agreed to pay $1.7 billion for
a majority stake in Direct
Energie. The deal brings
2.6 million customers;
Total aims to provide power
to 7 million homes and
○ “I
UN Ambassador Nikki Haley responded to Larry Kudlow, director of the National
Economic Council, who said she was sufering from “momentary confusion” when
she promised new sanctions against Russia. Kudlow later apologized.
○ Telefónica hired
investment bankers
to handle an IPO of its
Argentine unit. The
debt-laden Spanish
wireless carrier is hoping
to raise as much as
○ Barbara Bush,
the wife of
one president
and mother of
another, died on
April 17 at 92.
in the ofering, which is
planned for next year.
While generally declining to discuss
policy, she was a force in supporting
literacy and civil rights. And she liked
to walk her dog in her bathrobe.
○ An independent auditor
for MoviePass said it had
“substantial doubt” that
the popular subscription
service could stay in
business. MoviePass,
which lets members see an
unlimited number of films
for $10 a month, posted a
2017 loss of
○ Britain joined the U.S. in
alerting citizens of Russian
cyberattacks on April 16.
The rare joint missive said
Russian operatives had
seized control of routers
to support spy activity,
while urging households to
change passwords.
○ Shire agreed
to sell its cancer
drug business
to France’s
Servier for
○ Puerto Rico
experienced yet
another islandwide blackout on
April 18.
AEE, the island’s electric utility, tweeted
that it would need 24 to 36 hours to
restore service. Rhodium Group reports
that Hurricane Maria has cost Puerto
Ricans more customer-hours than the
rest of the U.S. lost from all causes in
the past five years.
○ Protesters gathered on April 15 at a Philadelphia Starbucks where, days before,
two black men were arrested while waiting for a friend. CEO Kevin Johnson, calling
the arrests “reprehensible,” will shut all 8,000 Starbucks-owned U.S. stores for four
hours on May 29 to give employees racial-bias training.
The deal could cool interest from
Japan’s Takeda Pharmaceutical,
which had been weighing an ofer
for the Dublin-based company to
bolster its own oncology business.
By Kyle Stock
Bloomberg Businessweek
April 23, 2018
○ Saudi Aramco, the state-run energy giant whose financial reports were recently seen
by Bloomberg News, is more profitable than some of the world’s largest companies. If oil
prices keep rising, its margins could grow.
First-half 2017 net income
contrasts with gains in rural
parts of England.
Aramco $33.8b
Apple $28.9b
Brent crude price per barrel
Microsoft $13.8b
Exxon $7.4b
Alibaba $2.4b
○ Advertising
giant WPP began
searching for a
new CEO after
Martin Sorrell
abruptly stepped
○ North Korea’s Kim
Jong Un secretly met
with CIA Director Mike
Pompeo to discuss terms
for a summit with President
Trump. Meanwhile, U.S.
troops practiced an
emergency evacuation
of American citizens in
South Korea.
A driving force behind the industry’s
frenzied consolidation, he was being
investigated for personal misconduct,
an allegation he’s denied.
○ A spell of good weather
should take solar power
production in Germany
to a weekly peak of
25.6 megawatts, Bloomberg
analysts say—close to
the record of 27.8MW
reached in May 2017. Wind
power was also forecast
to reach a record just a
few days before Earth Day.
Data for January showed
that electricity from wind
turbines in the country had
increased 90 percent from
a year
Saudi oil output, barrels per day
○ Sixteen major designers
wrapped up Saudi Arabia’s
first fashion week, putting
Riyadh on the sartorial
circuit alongside Milan, New
York, and Paris.
A design by
Mashael AlRajhi
○ Chinese mircroblogging
site Sina Weibo, in
pursuit of a “sunny and
harmonious community
environment,” said it
would remove posts with
violent, pornographic,
and homosexual themes.
Bombarded with hashtags
such as #Iamgay or
#Iamgaynotapervert, it
promptly reversed the
decision to delete gay
First half 2017
○ China promised
to loosen rules
for foreign
making planes,
drones, and
electric cars
within its borders.
Specifically, it will slowly ease
requirements that General Motors,
Volkswagen, and other companies
partner with local manufacturers.
○ George Weah, president
of Liberia,
ordered a probe
of Exxon’s 2013
deal for coastal
drilling rights. A report by
Global Witness alleged
in March that the sellers
had acquired those rights
illegally. Exxon has yet to
comment on the probe but
says it complied with all
applicable antigraft laws.
○ Uganda
lawmakers are
weighing a tax on
social media use
of 200 shillings,
or 5¢, a day.
Champions of the legislation say
it will boost productivity.
○ London home prices
posted their first annual
drop since 2009, as Brexit
spooked potential buyers
and sent some to the
Continent. The decline of
○ Thatcher’s 1979 financial reforms
transformed Britain. Is the People’s
Republic about to undergo the same?
○ By John Micklethwait
In 1984, I came to China as a grumpy, uninquisitive backpacker,
dragged from crowded bus to uncomfortable hostel to inedible
meal by two student friends who spoke Mandarin. The highlight of my trip was a visit to Maxim’s, supposedly the only
Western restaurant in Beijing. The cofee tasted like nectar, and
I survived another week. The idea that China was ive years
into Deng Xiaoping’s great opening shamefully passed me by.
I thought of Maxim’s as I waited for a plane at Haikou
Meilan International Airport earlier this month, nursing a cappuccino at yet another Starbucks; opposite me was a Jimmy
Choo shop, each shoe worth several times the cost of a hostel three decades ago; on the other side stood a mountain of
Lindt chocolate. These Western luxuries weren’t there for
international visitors. Haikou is a provincial airport—the place
China’s middle classes pass though on their way to the beach.
For the past month, everything to do with the Middle
Kingdom has been seen through the prism of China’s
trade relations with the U.S.—and the chaotic tweeting of
Donald Trump. At Haikou, I was on my way back from Xi
Jinping’s speech at the Boao Forum for Asia, China’s humid
(and slightly shambolic) version of Davos. Xi’s success was
being judged less on what China’s leader actually said than
whether the reforms he outlined had satisied his American
counterpart. So when the Donald duly tweeted his pleasure,
the markets’ concerns subsided.
Putting of a trade war (if that is what Xi managed to
do in Boao) is no small accomplishment. But in terms of
deeper change, the more signiicant announcement came at
a side panel the next day. Yi Gang, the new governor of the
People’s Bank of China, unveiled a string of reforms giving
far greater freedoms to foreign banks, insurers, and investment managers. Hitherto limited to joint ventures, foreign
inanciers will be allowed to hold majority stakes by the end
of June—and all restrictions on ownership will go in three
years. While China has embraced Western-style consumerism, its inancial sector remains a bog, unable to satisfy
the banking, insurance, and retirement needs of its growing middle classes.
Technically, the mild-mannered Yi was just setting a more
explicit timetable for reforms announced last November.
And don’t expect Trump to make much of them: Nobody
in the Midwest cares much about whether JP Morgan Chase
& Co. or Goldman Sachs Group can operate more freely in
China. But this could turn out to be the Chinese equivalent
of Britain’s Big Bang.
When Margaret Thatcher became prime minister in 1979,
the City of London was a relatively insular, bowler-hatted
afair. Exchange controls were in place. The City had its freewheeling parts—such as the euro markets—but the stock
market was carved up by British brokers and jobbers, with
Hogwartian names such as Ackroyd & Smithers. The Big Bang
swept away many of these rules, let foreigners in, and created
the modern cosmopolitan City of London, which until Brexit
looked like a challenger to New York.
China starts from a very diferent position—it’s the world’s
second-biggest economy. But its inancial system faces many
of the same restrictions as Britain’s did—not only that foreign
ownership is banned. There’s a tortuous system of licenses
and strict rules on capital lows, and nobody cares that local
Bloomberg Business
April 23, 2018
Big Bang
consumers get a lousy deal. This is basically a state-run
industry. Until recently, you could face the death penalty for
taking deposits without the proper licenses.
Thatcher’s reforms were rooted in ideology as well as
economics. China’s are being driven by a group of Westerneducated technocrats. Liu He, the vice premier with purview of economic policy who has a masters degree from
Harvard, has been given unusual autonomy by President
Xi. Other reformers include Governor Yi, who studied in
America; Guo Shuqing, a former visiting scholar at Oxford,
who heads the PBOC’s Communist Party Committee and
runs the nation’s banking regulator; and Fang Xinghai, the
Stanford-educated economist overseeing the opening of
China’s stock market as deputy head of the securities regulator. Wang Qishan, the de Tocqueville-quoting vice president, is also sympathetic.
It’s unlikely we will ever know how many of the reforms
announced by Governor Yi were always in the works, but
Trump’s belligerence seems to have accelerated them. At
the very least, Liu’s technocrats have shown a skill in taking
advantage of the trade crisis.
There’s no shortage of people in China keen to play down
the changes—not least Yi himself. He reacts in horror to the
idea of a Big Bang. China is all about gradual change. And in
the short term, not much will change. Foreign banks, insurers, and money managers won’t be rushing in just because
China is taking of the limit on foreign ownership. They will
still need to get licenses, which may be slow in coming. Many
foreign companies are happy with their local tie-ups. One
leading Chinese hedge fund manager doubts whether foreign investment managers will ever master the Wild East of
Chinese equities: Their main selling point will be the ability to get money out of the country. (“Though if they can do
that,” the hedge fund manager says, “I will be a customer.”)
The most recent estimate, from UBS AG, shows foreign companies had only 1 percent of the brokerage business at the
end of 2016—though they’ve done slightly better in insurance
and banking.
g Foreigners
had 1.3
percent of the banking
g market and 5.2 percent of insurance.
But the lesson of inancial revolutions is that they’re cumulative. Yi talked about reform of the inancial sector being
linked to reform of the capital account and the currency. In
May, China becomes part of the MSCI global indexes. There’s
a lood of foreign money interested in investing in the world’s
fastest-growing large economy and an equally huge amount
of Chinese money wanting to get out. To get Western funds,
Chinese money managers will have to follow the same rules
about transparency.
In inance, local knowledge counts for a lot; but it can be
bought. The British jobbers and brokers who thought the
Yanks would never beat “Caz”—the long-established stock
brokerage Cazenove—or the suave corporate inanciers at
Morgan, Grenfell & Co.—were right for a while. Foreign companies lost a fortune in the early parts of Big Bang. But Caz
is now part of JP Morgan Chase and Morgan Grenfell disappeared into Deutsche Bank. It’s hard to imagine China
letting foreigners buy its biggest banks, as Britain did; but
again, foreigners won’t have to do that much to start changing Chinese markets.
At the very least, for competitive reasons, the pay gap
between Chinese bankers and Western ones will narrow. At
the moment, the head of the Industrial and Commercial Bank
of China, China’s biggest bank (and the world’s most profitable), is paid $100,000 a year; at JP Morgan Chase, Jamie
Dimon earns that every 27 hours.
One of Thatcher’s least appreciated qualities was luck: She
looked set to be a one-term prime minister until an Argentine
generalissimo was stupid enough to invade the Falkland
Bloomberg Businessweek
Islands. China’s reformers have three problems where they
will need a lot of luck.
The irst is that inance is by its nature a somewhat explosive business. Few banks seemed more stable in Britain than
Barings Bank—until it collapsed in 1995 as a result of the
dealings of a rogue employee in Singapore. The idea of,
say, the Agricultural Bank of China, one of the oldest in the
People’s Republic, wandering into derivative trading isn’t
an appetizing one.
Second, the technocrats already have a inancial crisis
to deal with: China’s mountain of debt. Lending has grown
by almost 100 percent of gross domestic product in the past
nine years—the same sort of increase that took place in the
U.S. before 2008. You don’t have to go far up the coast from
Boao to ind uninished empty apartment blocks. Banks have
hidden a lot of the bad stuf of their books in the form of
opaque instruments channeled through trusts and other
inancing vehicles.
Cleaning this up is an immense task. Some Chinese talk
about the need for a controlled explosion—the government
should let something signiicant go bankrupt to send a message to investors and other borrowers. That’s a tricky business,
even in the West, as the U.S. government discovered when it let
Lehman Brothers fail. In China’s opaque circle of inluences,
even private companies have their political protectors.
And that leads to the third problem. The technocrats are
extremely clever, but they’re not politicians. Their mandate
comes not from the ballot box, but from the permission of
one man. Xi has given them autonomy. A big bankruptcy, a
securities scandal, or even just the arrival of Wall Street salaries may make him pause. He wouldn’t be the irst ruler to
make scapegoats out of his know-it-all grand viziers.
So China’s Big Bang may splutter a bit. But once you begin
these things, they create their own momentum. Thatcher
was fond of saying, “There is no alternative.” China has
an aging population that needs products such as pensions
and life insurance. What may soon be the world’s biggest
economy needs a inancial sector to match—and a inancial center. It would be odd if one of the main impacts of
Trump’s trade war ends up being the growing sophistication of inance in his main opponent. But as anyone who
went to the Beijing branch of Maxim’s in 1984 will tell you,
things can change a lot. Micklethwait is editor-in-chief of Bloomberg.
To read Noah Smith on Airbnb’s impact
on tourism worldwide and Justin Fox
on Mark Zuckerberg’s monopoly, go to
The Importance
Of Trump’s Trust
○ Whatever the merit of his policies,
Mike Pompeo has at least one
advantage over Rex Tillerson
If it’s true that proximity to President
Trump is the key to efective policymaking, then Secretary of State nominee
Mike Pompeo stands a good chance to
succeed—whatever the merit of his policies. That’s as it should be. To think
otherwise is to misunderstand the role
of the secretary of state.
The job of this oiceholder, fourth
in the line of presidential succession,
is to uphold the Constitution, execute
the lawful policies of the president,
and strengthen the efectiveness of the
department he or she leads.
In short, as much as Trump’s critics
April 23, 2018
may wish it to be, Pompeo’s job is not to
restrain the president, but to let Trump
be Trump—and thereby respect the voters who elected him. The Senate has to
decide whether Pompeo has the competence and character to reflect the
president’s thinking—or instead deserves
to join the fewer than 2 percent of cabinet nominees since 1789 it’s rejected.
Unlike Rex Tillerson before him,
Pompeo clearly enjoys Trump’s trust.
(He’s already been to North Korea for the
president.) The two are much closer on
issues, including how to approach North
Korea, Iran, and the Paris accord on climate change. When Pompeo speaks, U.S.
allies and adversaries alike can be relatively sure he represents Trump’s views.
As a lawyer, businessman, U.S. representative, and now director of the CIA,
Pompeo has demonstrated his competence. During his conirmation hearing,
he pledged to respect congressional
oversight, ill empty Department of State
positions, shepherd its budget, and
restore the department’s “swagger.”
Senators were right to ask whether
Pompeo would be willing to “stand up”
to the president. They’ve also been right
to raise questions about Pompeo’s troubling remarks attacking Muslims and
the legalization of same-sex marriages.
The job of representing American values to the world—not least human rights,
which Pompeo has promised to champion—leaves no room for intolerance,
bigotry, or discrimination. Character is
as important as competence.
That said, the greatest foreign policy
challenges facing the U.S.—in North
Korea, Iran, Syria, Russia, and China—
will demand robust and sustained
diplomacy as a irst resort. That’s all
but impossible when a president feels
he can’t rely on his diplomats. For better and worse, Trump often changes his
mind. He’s made two about-turns on the
Trans-Paciic Partnership. Could there be
more permanent and positive shifts—say,
with the Paris accord—in the oing? The
odds will be better if Trump is working
The story of retirement is being rewritten. It’s no longer a brief period
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○ CinemaCon, the movie industry’s
largest trade show, opens on April 23
in Las Vegas
○ Automakers Ford, General Motors,
and Fiat Chrysler report first-quarter
○ Persistent delays at the
electric car maker have
investors thinking about
the once unthinkable
Incrementalism doesn’t make for the best sales
pitch, especially in Silicon Valley. That certainly
wasn’t how Tesla Motors—now just Tesla Inc.—was
sold to investors. When Elon Musk, the company’s
chief executive oicer, published his “Secret Tesla
Motors Master Plan” in 2006, he made it clear that
the upstart electric vehicle maker’s sporty Roadster—
described by one impressed reviewer as a “carboniber mosquito”—was just the beginning:
“The strategy of Tesla is to enter at the high end
of the market, where customers are prepared to pay
a premium. … I can say that the second model will
be a sporty four door family car at roughly half the
$89k price point of the Tesla Roadster and the third
model will be even more afordable,” Musk wrote.
Investors bought it, but things didn’t happen
quite that way. The next two vehicles, the Models S
○ Coca-Cola holds its annual
shareholders meeting on April 25
in Atlanta
and X, were also big-ticket luxury rides with sticker
prices that could easily exceed $100,000 for a fully
tricked-out vehicle. Even so, Tesla hasn’t reported a
single annual net proit since it went public in 2010.
Not that it seems to have mattered, as the company’s $50 billion market cap attests.
Now, though, Tesla’s first real attempt at a
mass(ish)-market car, the Model 3, is mired in what
Musk calls “production hell.” Output just scraped
over 2,000 a week by the end of March, far short of
both the company’s original and revised guidance
to investors. This seems to have hit a nerve, with
the stock having bungee-jumped from about $350 to
$250 and then to $290 or so in just the past month.
Already facing concerns about its cash burn
because of the billions of dollars invested in preparation for the Model 3, Tesla stabilized things by
reiterating it would get production up to 5,000 cars
a week this summer and thereby avoid having to
tap public markets for more money. Musk has since
apparently increased that target to 6,000 a week,
according to a leaked email that surfaced on April 17.
But what happens if it misses that one, too?
Scan enough tweets about Tesla (not advisable),
and you might conclude the answer is binary:
April 23, 2018
Edited by
James E. Ellis,
Dimitra Kessenides,
and David Rocks
Bloomberg Businessweek
April 23, 2018
Investors Bet Big on Tesla’s Future
The company’s huge market value belies tiny 2017 sales
General Motors
9.6m vehicles sold
Fiat Chrysler
Model 3 deliveries made
up only 1,764 of last
year’s sales
market cap
Tesla will either hit a wall or just shake it of again.
The latter view is really just the same bull argument that’s sustained Tesla for years: Namely, no
matter what, the company will realize Musk’s longterm vision, disrupt the automotive and energy
industries, and become the fabulously proitable
master of both.
Thing is, the long term is simply an accumulation of many short-term things such as hitting milestones or paying debts. Even geniuses can run out
of money, and the skeptics’ case centers on Tesla’s
chronic reliance on outside funding.
Tesla ended 2017 with about $5.4 billion of
liquidity. Analysts forecast it will burn through
$2.8 billion of cash this year. Meanwhile, about
$1.2 billion of convertible debt matures in the next
12 months. Because Tesla’s share price is currently
too low to induce holders to exchange the debt for
equity, the borrowings may well need to be settled
in cash or reinanced.
That doesn’t leave much wiggle room for the
unexpected, especially when you consider two
things. First, those cash-low forecasts rest on
average weekly Model 3 output rising almost tenfold by 2018’s fourth quarter compared with the
irst. Second, analysts’ forecasts about Tesla tend
to be a tad rosy.
Those estimates have been fed by Tesla’s own
overly ambitious guidance. In May 2016, Musk
said the company might produce as many as
200,000 Model 3s in the second half of 2017 alone.
Yet through March 2018, it had built only about
12,500. Musk claims to be sleeping at the Bay
Area factory to ix things. On April 16, however, it
emerged that Tesla had temporarily shut down the
production line at the plant, presumably to reconigure it—necessary but also eating into output.
Tesla says it won’t require external funding,
but there’s a strong likelihood it will. In 2011, Musk
said he felt “conident” that Tesla wouldn’t ever
“need” another inancing round; there have been
six equity rounds since. When Moody’s Investors
Service Inc. recently cut Tesla’s credit rating further into junk territory, it said the carmaker will
likely require a $2 billion capital raise this year. New
bonds look out of the question given the downgrade and Tesla’s continuing cash burn, which suggests equity could be called upon to ill any gap.
Which brings us back to that stock price.
Even after the recent sell-of, Tesla trades at
135 times its forecast 2019 earnings. No, there isn’t a
decimal missing here. That multiple relects Tesla’s
single greatest strength: its cultlike following. At the
risk of oversimplifying things, while stock market bears point frantically to the balance sheet,
bulls extrapolate from the revenue line and price
the shares accordingly. That’s why, even as debts
increase and targets are missed, that mighty market cap looks like, to them, an unassailable source
of funding if needed.
In that context, Tesla’s desire to pull out all the
stops to get as close to an arbitrary quarter-end
production target for one week, as it did with the
Model 3, makes a certain kind of sense. The same
goes for the periodic unveiling or teasing of tomorrow’s wonders, including an electric truck, solar
roofs, or the proposed Model Y crossover vehicle.
Such things keep investors’ eyes ixed on the glowing horizon rather than the cloudy present.
But the Model 3 is diferent because it marks the
automaker’s long-promised pivot from niche player
to bid for world conquest. If Tesla doesn’t reach
that next target, the brief investor panic of March
will likely be revisited—and may not prove to be as
brief. That would make the need for a new round of
equity all but certain while simultaneously weakening the pitch. Even if investors have mostly proven
forgiving, there’s no knowing when their disappointment may reach a tipping point.
This by no means would make it certain Tesla
would lame out. But it would make raising more
money both more of a necessity and more painful
for current shareholders.
That is the case even if, as some have posited,
○ Musk
Bloomberg Businessweek
Tesla’s diiculties attracted a potential acquirer.
While a suitor might find value in the brand
and the data from Tesla’s drivers, it’s fanciful to
assume a potential buyer would pay upward of
$50 billion for the company. It also seems unlikely
Tesla could alternatively scale back to being a
niche, high-end manufacturer à la Ferrari, even if
it wanted to. The company already has built a footprint, balance sheet, and culture around being a
world-scale disruptor.
To be fair, judging by the scramble of many
incumbent automakers to plug in, Tesla already
has achieved the disruption bit of its master plan.
The big problem is that the commercial bit—to sell
expensive cars and use the money from that to
build successively cheaper ones—hasn’t worked
out as well.
That has put Tesla on a funding treadmill, and
the pitch has expanded accordingly. It’s worked
remarkably well for eight years. But belief is the
most intangible of assets. Don’t count on it holding
up if Tesla has a hellish summer. —Liam Denning,
Bloomberg Gadly
April 23, 2018
THE BOTTOM LINE To meet forecasts, production of Tesla’s
Model 3 will have to rise tenfold by the fourth quarter of 2018
compared with the year’s first quarter. That has investors worried.
New Kids on the Board
○ Companies are putting less experienced executives in boardrooms in favor of more diversity
For most of the past decade, Cheryl Miller has
spent her days trying to put more cars on America’s
roads—irst as the treasurer and now as the chief
inancial oicer of AutoNation Inc., the largest auto
retailer in the U.S. And for the past year she’s been
working on behalf of another of the country’s biggest companies, Tyson Foods Inc., as one of the newest members of its board of directors.
When she was appointed in late 2016, at age 44,
Miller, one of several female directors in the meat
and poultry company’s 83-year history, had never
served on a corporate board. A growing number
of companies, including Tyson, Republic Services,
Foot Locker, and Best Buy, are eschewing traditional
board candidates—retired chief executive oicers,
who are overwhelmingly older white men—and opting for diverse members, many of them irst-timers
with no experience.
In 2017, 45 percent of appointees to the boards of
S&P 500 companies were novice directors, the most
since recruiter Spencer Stuart started keeping tabs
in 2006. Last year also was the irst time a majority of
the incoming directors were women or minority candidates. “Two years ago, they would have said, ‘Oh,
it would be great to have diversity, but we really want
a CEO,’” says Julie Daum, who leads Spencer Stuart’s
North American board practice. “Now it feels like
the female will occasionally beat out the CEO.”
Tyson’s board started searching for new candidates about three years ago, after the company’s
$7.8 billion purchase of rival meat producer Hillshire
Brands. Since then, two other younger irst-time
directors have joined the board, both white men:
Jef Schomburger, 56, global sales oicer at Procter
& Gamble Co., in late 2016, and Dean Banks, 44, who
heads the X unit of Google parent Alphabet Inc., in
late 2017. “I’ve seen a richer outcome from having a
whole lot of voices around the table trying to have
the best conversation possible,” says John Tyson,
chairman of the company.
Waste management company Republic Services
Inc. has been looking for diverse directors since 2011,
after a 2008 merger with Allied Waste Industries left
it with an all-male board, including one black man.
“Change meant bringing people into the waste business who had other experiences,” says CEO Don
Slager. “Prior to the merger, frankly, they were just
a bunch of garbage men.”
○ New independent
Bloomberg Businessweek
As part of this push, the company enacted
some new policies, including a mandatory retirement age of 73 for directors. A variety of experience
also was a priority, Slager says. Candidates ideally
would bring expertise in areas not already represented, such as logistics and inancial reporting.
“When you drop a layer below the C-suite, it opens
you up to a whole new group of people who are
the future leaders of these organizations,” he says.
Within ive years, retirements created a few openings. Republic added Jennifer Kirk, 43, the controller at oil producer Occidental Petroleum Corp., in
July 2016, and Sandra Volpe, 50, the senior vice president for strategic planning for FedEx Ground, in
December of that year. Both had never been directors before. In 2017 a third woman, Kim Pegula, 48,
one of the principal owners of the NFL’s Bufalo Bills
and another novice, joined Republic’s roster.
Changing a board’s demographics and traditions
comes with risks, says David Larcker, a professor
at Stanford’s Graduate School of Business. “We’re
really pro-diversity,” he says. Still, the board needs to
function well to perform its oversight. “It’s not just a
check box,” he says. “It’s going to take some give or
take on both sides.”
Less experienced directors often require more
training and resources early in their tenure to better understand and ill their roles, says Bonnie Gwin,
who heads the board management practice at executive recruiter Heidrick & Struggles. Often boards
pair new members with experienced directors who
serve as coaches during the transition.
For Miller, joining Tyson’s board required regular one-on-one meetings with the other directors
before her appointment, as well as a crash course in
the meat company’s business. She also was coached
by AutoNation’s lead director, Michael Larson, the
chief investment oicer of BMGI, which manages Bill
Gates’s non-Microsoft investments and those of the
Bill & Melinda Gates Foundation Trust. (Larson also
sits on Republic Services’ board.)
Getting that irst appointment is hard, says
Stacy Brown-Philpot, 42, CEO of TaskRabbit
Inc., which connects consumers with homeimprovement services. Many boards still are reluctant to appoint executives who don’t have a track
record, she says. It took her three years to land
her irst appointment, at HP Inc., in 2016. She
says she felt she needed to bolster her application
with recommendations from big names, such as
Facebook Chief Operating Oicer Sheryl Sandberg
and HP CEO Meg Whitman.
Turnover remains slow. Fewer than 7 percent of
directors’ seats change hands in any given year, and
the average age has risen to 63, from 61 two years
ago, according to Spencer Stuart. As long as it takes,
Miller says, she’s committed to helping more candidates like herself. “Let’s look at diversity not just
because it’s going to check a box,” she says, “but
because we think it’s going to add value as a company in the marketplace.” —Jef Green
April 23, 2018
THE BOTTOM LINE More than 75 percent of corporate directors
in the S&P 500 are white men. Several companies are actively
working to change that.
When Cold-Weather
Coats Get Too Hot
○ After transforming ski parkas into high-fashion
items, Moncler is looking for its next act
Remo Ruini has shown he can sell down jackets in
July. He’s found buyers for fur-trimmed ski parkas
from not one, but two stores in Hawaii. And he’s
managed to turn outerwear designed for subzero
temperatures into a fashion statement on runways
in New York, Paris, and Milan. Now he has to prove
that he can keep selling enough of his $1,000 jackets—in climes both hot and cold—to warrant his
company’s market valuation of $10.7 billion.
“People aren’t dressing the way they did 10 years
ago,” Ruini, 56, says at the Milan headquarters
of Moncler SpA, where the showroom racks are
stufed with everything from tiny pufers for children to $1,700 fox-fur hats. “The down jacket is a
part of this new look.”
Moncler’s proit margins are second only to
Hermès International SA’s among publicly traded
fashion companies, its shares have returned an
average of 30 percent annually since its initial
public ofering in 2013, and sales last year jumped
17 percent to €1.2 billion ($1.5 billion). As rivals step
up eforts to mimic the trend, Ruini—Moncler’s
chief executive oicer and chairman—is reshaping
his approach to marketing, forging ties with new
designers, and applying his brand’s duck mascot
to more apparel such as sneakers and swimsuits in
an attempt to keep customers coming into stores
whether there’s snow or sun in St. Moritz.
With Moncler nearing insolvency when he took
over in 2003, Ruini pulled out of midrange sporting goods stores and opened his own boutiques in
luxury shopping areas such as Rodeo Drive in Los
Angeles and the Boulevard St. Germain in Paris. The
○ Profit margin*
of leading luxury
companies, 2016
Christian Dior
Salvatore Ferragamo
Bloomberg Businessweek
April 23, 2018
⊳ Moncler show at
Paris Fashion Week in
October 2017
company became known for extravagant runway
shows, with troupes of hip-hop ballerinas prancing
through ersatz autumn forests and models traipsing
across fake snowields. The push upmarket paid of
in attention from the rich and famous: The rapper
Drake donned a bright red Maya jacket from Moncler
in the video for his 2015 hit Hotline Bling. Michelle
Obama wore one skiing in Aspen, Colo. Ruini
“helped take sports dressing and made it into a fashion piece,” says Elizabeth von der Goltz, global buying director at luxury e-commerce site Net-a-Porter.
Moncler’s success breathed new life into the
industry, with global sales of designer outerwear
growing more than 20 percent in the ive years
to 2016, to more than €70 billion, researcher
Euromonitor International estimates. With clothing retailers including Uniqlo, Zara, and Hennes &
Mauritz adding pufy jackets, the look is becoming
ubiquitous. Rappers and hipsters are giving street
cred to producers of sports-oriented parkas such
as North Face and Patagonia. And Canada Goose
Holdings Inc., a maker of heavy-duty winter coats
that can cost more than $900, has seen its sales
double in two years. A recent HSBC Holdings Plc
survey found that Canada Goose has become more
sought-after than Moncler in the crucial Chinese
market. Moncler’s sales growth has slowed every
year since it went public, and analysts see it cooling further.
Ruini’s strategy now is to ditch fashion week
runway shows and instead ofer new products
almost monthly. While the likes of Gucci and
Céline SA employ top designers to impose a singular vision on every aspect of their brands, Moncler
is parting ways with its stars, Thom Browne and
Giambattista Valli. Ruini is planning collaborations with a rotating cast of eight creative directors, including Valentino’s Pierpaolo Piccioli
and Japanese DJ-turned-streetwear-designer
Hiroshi Fujiwara. These people will mix their
vision with Moncler’s aesthetic, and their collections will be released via parties, pop-up shops,
and partnerships with online retailers such as Moncler is “multiplying
opportunities for people to come back, to get people who haven’t come before into the brand,” says
Erwan Rambourg, luxury analyst at HSBC.
Ruini is rounding out the lineup by applying
his trademark quilted down to everything from
pufy backpacks to scarves and adding items such
as alpaca sweaters, mink house slippers, and logo
caps and T-shirts. To stay relevant year-round, he’s
introducing sporty rain shells and new shapes for
his “long season” models—slimmed-down jackets
that are light enough for a chilly summer night on
Nantucket and can be layered for more warmth in
the winter. “I’m always looking for new energy,
young energy,” he says. “Brands that have energy
understand the world is changing. They have to
follow the new customer, the new generation.”
—Robert Williams
THE BOTTOM LINE As more rivals pile into the market for pufy
jackets, Moncler is reshaping its approach to marketing, hiring new
designers, and developing more categories for the brand.
○ Facebook’s earnings will test
whether ad sales can keep shares
rising after their March nosedive
○ Investors in Microsoft will watch
earnings for evidence it can snatch
market share from Amazon’s cloud
T Amazon’s Other Jeff
Jef Wilke, Bezos’ No. 2, talks AI plans and says his delivery
business has plenty of ways to work around Trump
April 23, 2018
Edited by
Jef Muskus, David
Rocks, and Jillian
Donald Trump has hammered Inc.’s
share price in recent weeks by trying to pick ights
online with Chief Executive Oicer Jef Bezos. But
the actual object of his Twitter onslaught is the
domain of Jef Wilke, Bezos’ right-hand man for most
of the past 18 years. Wilke runs Amazon’s worldwide
consumer division, meaning he’s in charge of both
selling people stuf and iguring out how to deliver
the items as eiciently as possible. Often, the company uses the U.S. Postal Service. That’s an arrangement Trump has repeatedly threatened to hamper,
arguing that it’s ruinously unproitable for taxpayers.
In Amazon’s irst public response to the president’s criticism, Wilke says the business has been
a win-win. “We’ve been around through four presidents and leadership changes all over the world,”
○ As Alphabet reports earnings,
investors can evaluate the damage
from YouTube advertiser boycotts
Bloomberg Businessweek
he says. “For more than two decades, we’ve worked
with the post oice to invent and deliver for customers and business all over the U.S. proitably, creating a bunch of jobs in the process. It’s been a terriic
partnership, and I hope it will remain so.”
Amazon relies on the Postal Service for the
so-called last mile (delivery from warehouses to
customers’ homes) on as many as 40 percent of all
U.S. orders, according to analyst estimates. While
the relationship is mutually beneicial—the mail carriers are getting paid for otherwise unused capacity—it saves Amazon an estimated $2.6 billion a year
vs. the rates at independent couriers such as United
Parcel Service Inc. and FedEx Corp. Trump recently
ordered a review of the Postal Service’s inances and
suggested on Twitter that it might start charging
Amazon higher delivery rates. Wilke says the company has other options, including UPS, FedEx, and
its own couriers. “There are a bunch of ways to get
product to the last mile all over the country,” he says.
At 51, Wilke is just beginning to take a more public role in shaping Amazon’s agenda, which includes
advancing its technological ambitions as well as playing defense against presidential tweets. When he
started at Amazon, the company was struggling to
igure out how to proitably build warehouses that
could deliver packages to customers’ homes. Wilke
took over North American retail in 2007 and, despite
the Great Recession, built Amazon Prime memberships into a gargantuan sales machine. He added
music and video streaming, narrowed delivery times
to as little as an hour for certain products in dozens
of cities, and watched the company’s revenue grow
more than tenfold, to $178 billion.
The downsides have been well-publicized. In
2011 news reports of its brutal warehouse working conditions led Amazon to publicly commit to
reforms, including $50 million in new air conditioning across its U.S. facilities. And the company has
taken various steps to soften its corporate image
after a 2015 New York Times report described a cutthroat atmosphere where backstabbing lourished.
Through it all, Wilke thrived. In 2016, Bezos named
him CEO of the global consumer business, overseeing everything from the website and customer
service to the Kindle and the Echo.
Wilke is a Pittsburgh native with, at least by
Bezos standards, a relatively easygoing vibe.
(Colleagues refer to him by his initials, JAW, to avoid
confusing him with the other Jef.) With degrees
from Princeton and MIT, he came to Amazon from
Allied Signal (now Honeywell International Inc.),
where he ran a division that made pharmaceutical
chemicals. He wears a ton of lannel during the holiday season and still dreams of being able to throw
a 100 mph fastball. But former Amazon execs say
he shares with Bezos a propensity for grand (and
risky) experiments. “Wilke is a big supporter of
crazy ideas,” says Neil Ackerman, a former colleague who once proposed that Amazon use the
empty space aboard returning delivery trucks to
get into the recycling business.
These days, Wilke is focused largely on advancing Amazon’s artiicial intelligence and machine
learning tools, technologies also being pursued by
rivals including Google parent Alphabet, Apple,
and Facebook. All the tech giants are competing to
prove their AI bona ides, hire the top researchers
and computer scientists, and pioneer the next generation of smart, intuitive computing services.
Google is the undisputed leader in the research
community—making headlines with AI that can,
say, beat top human players at the complex Chinese
game Go. But Amazon may have the lead in applying machine learning to things you can buy. Wilke’s
team basically invented the smart speaker category
with the Echo. In the past four years, Amazon has
sold tens of millions of Echo speakers and other
devices carrying the company’s digital assistant,
Alexa. “I don’t think they want to be the people who
beat the world champion in Go,” says Oren Etzioni,
CEO of the Allen Institute for Artiicial Intelligence
and a computer science professor at the University
of Washington. “They want to be the people who
roll out very successful AI-based products.”
Although Amazon’s product recommendations
and search engines now beneit from some of its AI
advances, other, more visible eforts clearly need
more work. That includes the Echo; Wilke acknowledges that it’s often diicult to get the devices to
respond conversationally. “Sometimes it takes
four or ive questions to zero in on what somebody
wants,” he says. The company also has yet to add
cashierless Amazon stores beyond a test model in
Seattle, which opened to employees in late 2016
and to the public earlier this year. The store, called
Amazon Go, uses AI algorithms and dozens of video
cameras aixed to the ceiling to track when people
take sandwiches, snacks, and drinks from shelves,
charging them as they walk out.
Wilke says that while the store’s testing phase
is over, there are bugs to work out. “We want to
reduce those as much as we can, which will make
it more cost-efective,” he says. He wouldn’t discuss
expansion plans beyond saying the no-cashiers
model is unlikely to extend to Amazon’s 470 Whole
Foods Market stores.
Amazon’s most signiicant use of AI, in its network of about 240 warehouses, is less visible. It does,
however, play into anxieties that the technology
April 23, 2018
“I don’t think
they want to
be the people
who beat
the world
in Go”
Bloomberg Businessweek
could one day replace human labor. The company is using some 130,000 Kiva robots, conveyors that look like jumbo Roombas and move whole
shelves around warehouse loors, sparing workers
from having to walk miles each day to retrieve items.
Amazon’s researchers are working to train robots
to identify and grab products from shelves, too,
though the company has canceled an annual “pick
challenge” in which teams of researchers competed
to build the best grasping robot.
While that sounds like it can’t help but eliminate human workers, Wilke says automation will
just shift Amazon warehouse stafers to higherorder tasks. “That’s going to continue for as long as
we have the ability to provide training and skills to
people,” he says. Amazon added 130,000 employees worldwide last year, mostly in its warehouses.
Despite its size, Amazon’s retail business
remains inherently low-margin. Investors are
much happier with Amazon Web Services, its fastgrowing, megaproitable cloud computing arm.
That’s where the other big Bezos deputy, Andy
Jassy, resides. When Bezos tapped Wilke as consumer CEO, he also made Jassy CEO of the cloud.
The consumer business is more mature, but
Wilke isn’t ready to concede that AWS will one day
be the bigger business, as Bezos has occasionally
suggested. He’s especially focused on expanding the
U.S.-centric retailer into India, Australia, and Brazil.
“We think the worldwide retail market is $25 trillion,” Wilke says. “We round to less than 1 percent
of that.” —Brad Stone and Spencer Soper
Clearly stated, that is, in a document longer than
The Great Gatsby—almost 50,000 words spread
across 21 separate web pages. “They didn’t have
any checks in place to make sure I was over 18,”
says Margolis, now 28. “Instead, they contact me
12 years later. It’s completely absurd.”
Personal inance forums online are brimming
with complaints from hundreds of PayPal customers who say they’ve been suspended because
they signed up before age 18. PayPal declined
to comment on any speciic cases, but says it’s
appropriate to close accounts created by underage
people “to ensure our customers have full legal
capacity to accept our user agreement.” While that
may seem “heavy-handed,” says Sarah Kenshall, a
technology attorney with law irm Burges Salmon,
the company is within its rights because the users
clicked to agree to the rules—however diicult the
language might be to understand.
Websites have long required users to plow
through pages of dense legalese to use their
services, knowing that few ever give the documents more than a cursory glance. In 2005
security-software provider PC Pitstop LLC promised a $1,000 prize to the irst user to spot the
ofer deep in its terms and conditions; it took
four months before the reward was claimed.
The incomprehensibility of user agreements
is poised to change as tech giants such as Uber
Technologies Inc. and Facebook Inc. confront
pushback for mishandling user information, and
the European Union prepares to implement new
privacy rules called the General Data Protection
Regulation, or GDPR. The measure underscores
“the requirement for clear and plain language
when explaining consent,” British Information
Commissioner Elizabeth Denham wrote on her
blog last year.
During two days of testimony before the
U.S. Congress this month, Mark Zuckerberg,
Facebook’s chief executive oicer, was repeatedly
chastised for burying important information
in text that’s rarely read. Waving a 2-inch-thick
printed version of the social network’s user
agreement, Senator Lindsey Graham quoted a
line from the irst page, then intoned: “I’m a lawyer, and I have no idea what that means.” The
South Carolina Republican later asked Zuckerberg
whether he thinks consumers understand what
they’re signing up for. The Facebook CEO’s
response: “I don’t think the average person likely
reads that whole document.”
GDPR, which comes into force in Europe in
May and calls for ines as high as 4 percent of a
company’s global revenue for violations, will make
THE BOTTOM LINE Bezos deputy Wilke is pushing into new
markets and AI frontiers while thinking through backup plans if
Trump delivers on his threats against Amazon’s postage rates.
Lost in Translation
From Legalese
○ Companies face a growing backlash to their
websites’ impenetrable “terms and conditions”
Eleanor Margolis had used PayPal for more than
a decade when the online payment provider
blocked her account in January. The reason: She
was 16 years old when she signed up, and PayPal
Holdings Inc. insists she should have known the
minimum age is 18, because the rule is clearly
stated in terms and conditions she agreed to.
April 23, 2018
“I’m a lawyer,
and I have no
idea what that
Bloomberg Businessweek
April 23, 2018
it tougher to get away with book-length user agreements, says Eduardo Ustaran, co-director of the
cybersecurity practice at law irm Hogan Lovells.
He suggests that companies streamline their rules
and make sure they’re written in plain English.
If a typical user wouldn’t understand the documents, the consent that companies rely on for
their business activities would be legally invalid.
“Your whole basis for using people’s personal data
would disappear,” Ustaran says.
Companies are scrambling to ensure their
user agreements comply with the law, says Julian
Saunders, founder of, a British software
maker that helps businesses adapt to GDPR. But
he says many website owners aren’t yet explicit
enough in stating why they’re collecting a
consumer’s information, which other companies
might gain access to it, and how people can ensure
their data are deleted if they request it. Saunders
says he’s signed up 100 businesses for the service
and urges them to bend over backward in helping
users understand the details. “Areas that used to
get hidden in the small print of terms and conditions should now be exposed,” he says.
Martin Garner, an analyst at technology consultancy CCS Insight, suggests companies walk
readers through their policies step by step. That
way they could opt out of selected provisions—
limiting, for instance, third parties that can gain
access to the data or restricting the kinds of information companies may stockpile. Much of what’s
in the terms and conditions might be afected by
the settings a user chooses, and including that
information in the initial agreement unnecessarily
complicates the document. “Users typically only
have the choice of accepting the terms and conditions in their entirety or not using the service
at all,” Garner says. Companies must “pay much
closer attention to explaining to users how their
data will be stored and used and getting them to
consent to that explicitly.” —Nate Lanxon
THE BOTTOM LINE To comply with new EU data regulations,
website owners are scaling back and simplifying complex user
agreements that can be longer than many novels.
Less Pesticide, More Bacteria
(That’s a Good Thing)
○ Indigo is turning microbes
loose on Big Agriculture
Fresh snow coats the sidewalks outside Indigo
Ag Inc.’s Boston oices, but inside the temperature is calibrated to mimic spring in the Midwest.
Hundreds of almost identical soy seedlings sit
beneath high-intensity arc lamps, basking in the
artiicially sunny 60F weather.
The plants aren’t destined to stay identical for
long. “We haven’t imposed the stress yet,” says
Geofrey von Maltzahn, the company’s lanky 37-yearold co-founder. The MIT-trained microbiologist gestures toward photos showing what happens when
you apply Indigo’s signature product—a coating of
carefully chosen microbes—to some seeds but not
others before planting, then dial back the water supply: One shows a tall, lourishing stalk; the other,
what looks like a tangle of shriveled leaves.
In humans, a healthy microbiome—the universe
of bacteria, fungi, and viruses that lives inside all
of us—is increasingly recognized as critical to overall health. The same is true of the plant world, and
Indigo is among the dozen or so agricultural technology startups trying to take advantage of the
⊳ Seedlings in an
Indigo field test
growing scientiic consensus. Their work is enabled
by advances in machine learning and a steep reduction in the cost of genetic sequencing, used by
companies to determine which microbes are present. Approaches vary: AgBiome LLC, with funding from the Bill & Melinda Gates Foundation, is
studying how microbes can help control sweet
potato weevils in Africa, while Ginkgo Bioworks
Inc. announced a $100 million joint venture with
Bayer AG to explore how microbes can encourage
plants to produce their own nitrogen.
Indigo is the best-funded of the bunch, having
raised more than $400 million. To develop its microbial cocktails, Indigo agronomists comb through
normal ields in dry conditions to see which plants
seem healthier than average. They take samples of
the thriving plants and “ingerprint” their microbiomes using genetic sequencing; once they’ve
done this with thousands of samples, they use statistical methods to pick out which microbes occur
most often in the healthiest plants. These proceed
to testing, then large-scale ield trials.
The company’s irst commercial products are
focused on improving drought tolerance, one of
the most diicult traits to address through genetic
modiication. “It’s like a symphony,” founder von
Maltzahn says of a plant’s reaction to water stress,
“and GMOs are like slamming down on one note
on one instrument.” Drought conditions are likely
to become a greater threat to agriculture because
of global warming. Indigo is also investing heavily in research and development eforts to see how
microbes inluence factors such as nitrogen use and
pest resistance, aiming to reduce or even eliminate
the use of synthetic pesticides and fertilizers as well
as genetically modiied seeds. With the general public rejecting chemical treatments and GMOs in favor
of “natural” foods, Indigo is counting on a potentially multibillion-dollar market. So far, its microbe
coatings have boosted cotton yields by an average
of 14 percent in full-scale commercial trials in Texas
and wheat yields by as much as 15 percent in Kansas.
Indigo Chief Executive Officer David Perry
doesn’t want to just market a suite of seed treatments, however. He wants to reshape the structure
of the agriculture industry completely, competing
not only with chemical companies such as Monsanto
and Dow Chemical, but also with agricultural distributors like Cargill and Archer Daniels Midland.
Perry, a biochemist who grew up on a small farm in
rural Arkansas, founded two pharma-related companies, a drugmaker he eventually sold for multiple billions of dollars and an online marketplace for
research supplies that went public in 1999. After joining Indigo in 2015, Perry quickly zeroed in on a fundamental business challenge: Most farmers have no
choice but to sell their harvest at commodity prices.
Without the opportunity to earn more for using
environmentally sustainable methods, they have
little incentive to alter their ways.
For farmers to adopt Indigo technology,
Bloomberg Businessweek
April 23, 2018
they’d need a buyer willing to pay a premium for
non-GMO, pesticide-free products. So, Perry reasoned, Indigo would facilitate the sale. Today
the company contracts upfront with hundreds of
farmers to buy their entire harvest of, say, Indigo
Wheat, at a hefty premium. “Now you’re growing a
value-added product, and that starts to go directly
to farm proitability,” he says. Indigo then sells the
wheat to end users such as breweries, lour mills,
and food companies, which have become more
interested in transparency and control when it
comes to the origin of their grains. Perry says he’s
betting on a long-term shift away from commodity
agriculture and toward specialty markets, as the
cofee and cocoa industries are seeing.
While the science behind microbiome treatments is promising, Indigo has a long road ahead.
Its success depends on proving that microbes can
meaningfully inluence more than just drought
tolerance while at the same time scaling up to the
kind of sprawling, complex operation that can buy
and sell millions of bushels of grain from tens of
thousands of farms.
Michael Dean, chief investment oicer for the
venture capital investment platform AgFunder Inc.,
sees Indigo’s technologies as potentially disruptive
but suggests that one of the biggest challenges the
company will face is persuading farmers to turn
their back on comfortable relationships with Big
Ag. “Farmers have tended to buy seed from the
guy their dad bought from, and sold it to the same
grain elevator,” Dean says. “This is going to make
waves, and not everyone will be happy about it.”
—Elizabeth G. Dunn
Indigo scientists tend
plants at the company’s
Boston headquarters
THE BOTTOM LINE Leveraging the plant microbiome to improve
crop yields is more and more promising, but any upstarts will have
a hard time getting between farmers and Monsanto.
○ Commercial trials
have shown that in
stress conditions,
Indigo improves crop
yields by as much as
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22-23 May
Station F
Paris, France
I M M I N E N T LY P O S S I B L E .
Attend Sooner Than You Think ,
Bloomberg’s premier technology
event in Paris. Learn how A .I.,
the Internet of Things, and
cybers ecurity are reshaping
the very near future.
○ Warren Bufett leaves the board of
Kraft Heinz on April 23. His Berkshire
Hathaway is the largest shareholder.
○ European competition authorities
will weigh in on whether Apple can
buy music discovery app Shazam.
○ Simon Property Group, which has
182 million square feet of U.S. retail
space, reports quarterly earnings.
○ Crop circles
○ Yeti
○ Bermuda
○ Stonehenge
○ The True Value of Bitcoin
It took two economists one three-course meal and
two bottles of wine to calculate the fair value of one
Bitcoin: $200.
It took an extra day for them to realize they were
one decimal place out: $20, they decided, was the
right price for a virtual currency that was worth
$1,200 a year ago, lirted with $20,000 in December,
and is still around $8,000. Setting aside the fortunes
lost on it this year, Bitcoin, by their calculation, is
still overvalued, to the tune of about 40,000 percent. The pair named this the Côtes du Rhône theory, after the wine they were drinking.
“It’s how we get our best ideas. It’s the lubricant,” says Savvas Savouri, a partner at a London
hedge fund who shared drinking and thinking
duties that night with Richard Jackman, professor emeritus at the London School of Economics.
Their quest is one shared by the legions of traders, techies, online scribblers, and gamblers and
grifters mesmerized by Bitcoin. What’s the value
of a cryptocurrency made of code with no country enforcing it, no central bank controlling it, and
few places to spend it? Is it $2, $20,000, or $2 million? Can one try to grasp at rational analysis, or is
this just the madness of crowds?
Answering this question isn’t easy: Buying
Bitcoin won’t net you any cash flows, or any
ownership of the blockchain technology underpinning it, or really anything much at all beyond
the ability to spend or save it. Maybe that’s why
April 23, 2018
Edited by
Pat Regnier
Bloomberg Businessweek
Warren Bufett once said the idea that Bitcoin
had “huge intrinsic value” was a “joke”—there’s no
earnings potential that can be used to estimate its
value. But with $2 billion pumped into cryptocurrency hedge funds last year, there’s a lot of money
betting the punchline is something other than zero.
If Bitcoin is a currency, and currencies have value,
surely some kind of stab—even in the dark—should
be made at gauging its worth.
Writing on a tablecloth, Jackman and Savouri
turned to the quantity theory of money. Formalized
by Irving Fisher in 1911, with origins that go back to
Copernicus’s work on the efects of debasing coinage, the theory holds that the price of money is
linked to its supply and how often it’s used.
Here’s how it works. By knowing a money’s
total supply, its velocity—the rate at which people use each coin—and the amount of goods and
services on which it’s spent, you should be able
to calculate price. Estimating Bitcoin’s supply at
about 15 million coins (it’s currently a bit more),
and assuming each one is used an average of about
four times a year, led Jackman and Savouri to calculate that 60 million Bitcoin payments were supporting their assumed $1.2 billion worth of total
U.S. dollar-denominated purchases. Using the
theory popularized by Fisher and his followers,
you can—simplifying things somewhat—divide the
$1.2 billion by the 60 million Bitcoin payments to
get the price of Bitcoin in dollars. That’s $20.
So far, so straightforward. It turns out, however,
that when it comes to putting a price on Bitcoin, the
same equation can yield many diferent answers.
In September, Dan Davies, an analyst at inancial
research irm Frontline Analysts Ltd., wrote up
a “guesstimate” of Bitcoin’s value that he’d originally conducted in 2014 using—again—the quantity
theory of money. He plugged in estimates for each
variable and got about $600.
On Dec. 10, Mark Kirker, a high school math
teacher in California, published an analysis online
using the same equation for the same purpose.
He concluded that Bitcoin should be way above
then-current levels. He’s since revised the number.
Contacted by Bloomberg, he says it could be $15,000.
How can something be worth $20, $600, and
$15,000 within the same theory? One key reason
stems from what we don’t know about cryptocurrencies rather than what we do know. We know
Bitcoin’s maximum supply is 21 million, and we
know the velocity of most commonly used currencies. We don’t know how widely Bitcoin will be
adopted tomorrow, how frequently it will transact,
or what it will be used for. In Davies’s example,
a guide to Bitcoin’s future potential was the illicit
drugs market, an obvious home for more-or-lessuntraceable digital cash. The United Nations has
estimated this market at $120 billion. Plugging in
that number helped Davies get to $600.
For Kirker, though, drugs and criminals are only
part of the story. He imagines including the output of
some developing countries where cryptocurrencies
might have better takeup than traditional banking.
But with so much up in the air, the equation starts
to look less like algebra and more like alchemy. Even
in the non-Bitcoin world, the velocity of money and
its price can luctuate in ways not predicted by fundamental analysis. “I am not wholly surprised it
doesn’t pin down a price target to within a factor of
100 either way,” Davies says.
Some believe the cloud of confusion has to do
with the simple fact that cryptocurrency is something entirely new—it needs a fresh school of economic thinking to go with it. A quantity theory of
cryptomoney, perhaps.
John Pfefer, formerly a partner at KKR & Co.,
has written several papers to this efect, arguing that technology is turning the centuries-old
equation on its head. Bandwidth and computing
resources are the fuel of cryptocurrencies, and they
need their place in quantity theory, he argues. His
version of the equation imagines a world in which
more powerful computers and faster connection
speeds combine to lower the cost of maintaining a crypto-economy over time, while the same
forces radically increase the availability and speed
of its digital coins. There already exist hundreds
of tokens other than Bitcoin, pointing to a world
where digital currencies are, well, a dime a dozen.
In a future where cryptocurrencies become
a form of economic resource (like fuel, water, or
electricity) that’s computerized and commoditized,
would anyone get rich from hoarding them in her
trading account? No, says Pfefer. In his view, the
more widely used a particular brand of digital cash
becomes, the higher the probability its value tends
toward zero. In quantity theory terms, cryptocoins’
velocity could go way, way up, while the cost of
many services within the crypto-economy could
go way, way down. Crypto could change the world
and still leave a lot of people with worthless tokens.
Pfefer dangles one hope in front of the Bitcoin
faithful who dream of riches: the possibility
there’s one cryptocurrency out there that will
serve as a store of value for the digital world. Like
gold, a metal seen by investors as a haven in times
of crisis or when the purchasing power of cash
is eroding, whichever coin wins that crown will
have a completely diferent use—and price—than
the rest. Applying this thinking to Bitcoin, Pfefer
April 23, 2018
○ How Jackman
and Savouri came to
their estimate of the
price of one Bitcoin.
(Minus the wine.)
① The basic equation is:
M is the amount of
currency in circulation;
V is the money’s
velocity, or how often
it changes hands;
P is the price;
And Q is the value
of what it buys
② Rearrange the
equation to solve for
the price:
P = MV/Q
③ Assume about
15 million Bitcoins in
circulation, changing
hands roughly four
times a year, supporting
about $1.2 billion in
payments …
P = (15,000,000 x 4) /
or …
P = 0.05
④ That’s the number
of Bitcoins per dollar.
Divide one by 0.05 to
get a dollar value of
each Bitcoin:
Bloomberg Businessweek
explains, would yield a price target of $260,000
to $800,000.
Such a value would be not too far of $1 million—where the frequently mocked, frizzy-haired
self-help guru James Altucher expects Bitcoin to be
in 2020. Software entrepreneur John McAfee has
said it will hit $500,000. “If not, I will eat my d--on national television,” he tweeted. He later doubled his target price. Pfefer has been more careful
than most in warning of signiicant risk of investment loss. “This could all go substantially to zero
for various reasons,” he wrote in December.
Putting a price on Bitcoin is therefore less about
crunching numbers and more about deciding just
what it is and what it could be, if anything. That’s
appetizing for risk-hungry optimists in the venture
capital world, who are accustomed to their investments turning into big hits or big lops. Ride-hailing
service Uber Technologies Inc., for example, has
lost an eye-watering amount of money, yet it’s one
of the most highly valued companies in the world.
It’s a bet that more traditional investors would have
diiculty justifying using traditional metrics.
But it also means science and snake oil sit side
by side. Quantity theory is one example of how an
equation can be remodeled to it diferent scenarios or diferent wishes about where the price will
land. And it’s not the only one: Network adoption,
the cost curve of Bitcoin mining, and transaction
volumes have all been bundled into marketable literature advising traders and investors on what to
buy. It’s a thick numbers soup. At least Uber has
inancial accounts to review.
Those with long memories also remember the
quantitative analyses that underpinned the hot new
asset classes of the past, from dot-com stocks to
securitized art. These were often sold to investors as
new metrics and radical investment theses, only to
be ditched when a recession or panicked sell-of hit.
“They’re always talking about a new paradigm, but I
say it’s the same meat, diferent gravy,” says Côtes du
Rhône theorist Savouri, who maintains traditional
economic theory should be embraced rather than
ignored by the Bitcoin faithful.
For Savouri, the easiest way to understand the
efflorescence of theories and valuations being
bandied about is to opt for a simple, overarching one: the greater fool theory. It says that one
fool buys in the hope that there’s an ever-bigger
sucker willing to pay more. “The problem,” he
says, “is that we don’t breed fools geometrically.”
—Lionel Laurent, Bloomberg Gadly
Retail’s Real Estate
Glut Is Growing
THE BOTTOM LINE Figuring how much Bitcoin is worth is much
like trying to calculate how many angels can dance on the head
of a pin.
April 23, 2018
○ Stores have announced the closing of 77 million square feet
of shopping space this year
The fall of the Toys “R” Us chain, with more than
700 U.S. stores, shows how much retail real estate
has changed in just the past decade. When Bain
Capital, KKR, and Vornado Realty Trust took over
the company in 2005, the buyers justified the
$7.5 billion price, in part because of the supposedly valuable properties that came with the deal.
Real estate can put a loor under the value of a
retailer and make it easier for the company to borrow. Maybe a particular store concept doesn’t work
out as consumers’ tastes change, but in that case,
investors can always sell the land and buildings to
someone with a better plan. Long-term leases can
be similarly valuable. But what if the problem isn’t
that a particular store is out of fashion, but that
consumers are shopping less at brick-and-mortar
retailers in general? As more storefronts empty, the
valuation loor will look wobblier.
⊳ The chain is
winding down
in the U.S.
The ultimate fate of Toys “R” Us locations will
be sorted out as the company shuts down its
U.S. business and sells of its various parts. But
its stores won’t be the only vacancies hitting the
retail market. While it’s not going out of business like the toy seller, J.Crew Group Inc., which
leases its locations, says it’s closing a net of nine
stores this iscal year, after shuttering a net of 41
last year. Walmart Inc.’s Sam’s Club in January said
it will close 63 locations, about 10 percent of its
total. At last count, U.S. store closures announced
this year reached a staggering 77 million square
feet, according to data on national and regional
chains compiled by CoStar Group Inc. That
Bloomberg Businessweek
means retailers are well on their way to surpassing the record 105 million square feet announced
for closure in all of 2017.
There’s no indication the shakeout will end
anytime soon, with shifts to internet shopping and
retailers’ debt woes continuing. “A huge amount
of retail real estate in the U.S. is going to meet its
demise,” says James Corl, managing director and
head of real estate at private equity irm Siguler
Guf & Co. Property owners will “try to re-let it as
a gun range or a church—or it’s going to go back to
being a cornield.”
Even though retailers have been retreating for
years, the country still has about 24 square feet of
shopping space per person, many times more than
any other developed nation, according to research
irm Green Street Advisors LLC. Consumers aren’t
spending enough money oline to support such
a generous amount. Vacancies are headaches for
landlords, of course, but they also have a mushrooming efect. People may steer clear of a mall
that has lost an anchor tenant or has an abundance
of “for lease” signs in smaller spaces. Deserted bigbox stores, their facades naked and parking lots
barren, can spread a sense of blight for blocks
around. Who wants to open a shop next to a place
that’s gone out of business?
Shopping space isn’t completely done for. Inc., blamed for the death of so many
bookstores, has opened more than a dozen of its
own and is betting on the grocery market with
its purchase of Whole Foods. Apple Inc.’s stores
are packed, and internet retailers such as Warby
Parker Retail Inc. and Blue Nile Inc. are trying out
physical locations.
There’s a silver lining of a sort in the dead real
estate as some investors see other uses for it.
“Certainly, lease values have come down,” says
Andy Graiser, co-president of A&G Realty Partners
LLC. But for owned property, “the range of interested parties has gotten a lot wider.” Some retooling is under way. Simon Property Group Inc.,
the largest U.S. retail landlord, recently filed
plans to redevelop an aging mall north of Seattle
into a complex that includes oices and apartments. Reimagining retail real estate is also part
of Brookield Property Partners LP’s agenda in its
takeover of GGP Inc., the No. 2 mall owner.
But not every deserted retail property can be
turned into a gym, theater, or boutique outlet of
a tech company. That reality will weigh on any
investor thinking about scooping up a struggling
chain with real estate assets today—especially
buyers in private equity, who borrow heavily to
inance their deals. “Retailers cannot support
large debt loads,” says Perry Mandarino, head of
restructuring at B. Riley FBR, an investment bank
that’s worked on retail liquidations. “Add to that
the possibility of a decrease in the value of other
collateral, such as real estate, and the successful execution of a retail-leveraged buyout may be
almost impossible.” —Noah Buhayar and Lauren
April 23, 2018
○ Announced store
closings of national
and regional chains,
in square feet
THE BOTTOM LINE As retail chains close more locations, the real
estate in some companies’ portfolios may become less enticing
to investors.
Iran’s Giant Banking Mess
○ The country’s overextended and isolated financial system is on the edge of crisis
Ahmad, who runs an advertising agency in a busy
commercial district of Tehran, has given up trying
to get a business loan from any of the dozens of
lenders just a short walk from his oice.
Finding a bank in Iran is easy. The challenge is
inding one that will lend at afordable rates, or even
lend at all. The central bank’s rates for businesses
are set as high as 18 percent. Ahmad, who employs
about 20 people, says his bank told him that his
company’s healthy accounts put him in a good position for a loan. But when he applied, he was refused
and given excuses, says Ahmad, who asked not to be
to be identiied by his full name because of concerns
in Iran about speaking to foreign media.
Money is harder to come by in a struggling economy, and Ahmad’s experience relects the inancial
problems in a country that three years ago looked
to be on the cusp of prosperity after a rapprochement with the U.S. and Europe. Now it’s lirting
with its own version of the credit crunch that crippled Western banks a decade ago. With the deal
on its nuclear program failing to deliver promised
Bloomberg Businessweek
April 23, 2018
gains, experts in Tehran say a banking crisis poses
a bigger economic threat to the country than any
decision by Donald Trump to rip up the agreement.
Years of poor regulation since the inancialservices market was opened to private lenders in
2004 allowed banks to proliferate with little oversight. Many were used as vehicles to fund populist policies under former President Mahmoud
Ahmadinejad, such as investments in social housing projects. The amount of loans at risk of default
soared and liquidity was squeezed after oil prices
began tumbling in 2014 and foreign investment
failed to materialize. “Solving the banking crisis is
the priority for us now, our No. 1 problem, and we
have to resolve it,” says Teymur Rahmani, professor of economics at the University of Tehran. “If we
want to ix the situation, we have to be prepared to
absorb some costs and damage.”
The solutions aren’t clear. The industry is
largely cut of from the outside world and relies
on the Central Bank of Iran to pump money into
the system. Parviz Aghili-Kermani, board member
and managing director of privately owned Middle
East Bank Co., told an audience of investors and
executives in Switzerland in October that it could
cost the country as much as $200 billion to overhaul the banking system, roughly equal to about
half the economy. Iran can’t aford that, he said.
A ix would also require several banks to merge
with healthier ones, or, he suggested, to be done
away with altogether. Bankers in Iran worry that
healthy institutions would be destroyed by taking
on a big bank with toxic assets. Should the worst of
them be allowed to fail, there could be civil unrest.
“Iranians haven’t been through a banking crisis
before, and they don’t know how it plays out,”
says Charles Robertson, global chief economist at
Renaissance Capital in London. “Once you’ve been
through a banking crisis, you then spend the next
20 years worrying about a banking crisis.”
Many of the country’s 35 licensed inancial institutions are trying to repair their books after ofering deposit rates of as high as 22 percent in 2014 to
lure money when oil prices were high. (Although
they carry rates, loans and deposits are structured
to comply with the Islamic ban on interest.) The
assets underpinning the loans, such as oice blocks
and shopping malls, have dropped in value in subsequent years. The central bank’s latest igures,
published in January, put bad loans at $26.6 billion.
That’s about 11 percent of total lending, down from
15 percent when President Hassan Rouhani came to
power in 2013 and sought to open up the economy.
Yet the problem could be bigger than it looks.
The central bank is limited in its ability to pursue a
chunk of the unpaid debt because it’s owed by state
institutions and powerful companies and individuals connected to them, one Western senior diplomat says. Saderat Bank, which says it runs Iran’s
largest banking network, had a loss equal to about
$1.5 billion for the nine months ended in December,
according to a inancial statement.
Banks took deposits and “invested the money in
high-risk projects, particularly in the property sector,” says Rahmani, the professor. “Look across the
city,” he says, gesturing toward the skyline, where
oice blocks yet to be completed loom like giant
cages of iron girders. “Most of the projects you see
that are uninished are a result of this problem.”
Central bank oicials didn’t reply to questions
Bloomberg sent in February. Requests for interviews with managers at Middle East Bank, Eghtesad
Novin Bank, Saman Bank, Bank Saderat, Bank Melli
Iran, and Ayandeh Bank were either declined or not
answered. “We are a strong bank,” says Mohammad
Reza Mansouri, general manager in Frankfurt for
Sepah Bank, Iran’s oldest state-run bank.
The country has already seen a dress rehearsal
of sorts with the collapse of several so-called credit
institutions. These are unregulated and, in many
cases, unlicensed lenders that aren’t banks, some
of which ofered rates of as much as 85 percent to
select individuals. Their collapse helped fuel protests in January, and the government has spent billions of dollars trying to recover customer deposits
and consolidate the industry.
Inlation is running at 9.6 percent, partly as a
result of the central bank injecting money into the
system, and unemployment is high. Concerns about
Iran slipping back into a period of isolation roiled
its markets this month, with the rial plummeting
as demand for dollars soared. President Rouhani
has complained speciically about banks. He called
on them to end “nonbanking” practices such as
owning businesses. “Why is it that in every street
we have to see so many branches for each bank?
Where did they get all this money to be able to pay
for the expensive buildings?” he asked central bank
oicials on March 4, according to the partly statefunded Iranian Students’ News Agency.
The efect is that the economy is short of credit
just when businesses need it most. Ahmad, who
runs the ad agency, ended up getting a personal loan
using his home as collateral. “The banking system is
something that could really help us as a business to
progress,” he says. “But there are a thousand and
one barriers in front of us.” —Golnar Motevalli
haven’t been
through a
banking crisis
THE BOTTOM LINE Bad loans in Iranian banks could be a bigger
problem than oicial estimates suggest, and the government may
not be able to aford a fix.
○ Rates for some
business loans in Iran
○ Brace for a weeklong barrage of
first-quarter GDP numbers, with the
U.S., France, and others reporting
○ Data on new-home sales in the
U.S., set for release on April 24, will
likely show supply remains tight
○ The European Central Bank and
the Bank of Japan are expected to
leave rates untouched
○ Beijing’s credibility continues
to sufer from the evenness of
the country’s economic data
China’s gross domestic product grew 6.8 percent in
the irst quarter, smack on its pace in the preceding quarter, which was unchanged from the quarter before that. It’s a well-established pattern: Since
2015, China’s quarterly growth igures haven’t varied by more than 0.1 percentage point on a yearon-year basis. That contrasts with the U.S., where
swings of a full percentage point from quarter to
quarter aren’t uncommon.
Getting an accurate read on the world’s secondlargest economy has never been more important.
China supplied around one third of global growth
in 2017, up from 18 percent in 2007, according to
Bloomberg calculations. That means an economist
working at the Reserve Bank of Australia in Sydney
and a number cruncher in the sales department at
Vale SA, the giant iron ore exporter based in Rio de
Janeiro, both need Chinese data to help generate
their forecasts. And with oicials in Beijing promising to open the nation’s inancial markets to the
outside world, the ranks of investors who rely on
this information are bound to grow.
The world has long suspected that China fudges
its numbers, which is why the investment community has assembled an array of alternative
measures, including rail cargo volume, electricity use, and satellite imagery of factory sites, to
gauge economic output. “I suggest investors
April 23, 2018
Edited by
Cristina Lindblad
Bloomberg Businessweek
ignore China’s GDP growth rate,” says Andy
Rothman, a former U.S. diplomat in Beijing who’s
now an investment strategist at Matthews Asia, a
money manager. “There are so many other data
points which help us understand the health of
the Chinese economy and which we can verify by
comparison with private data.” High-frequency
metrics on movie ticket sales, iron ore imports,
and orders for bulldozers are considered a
more useful measure of demand in key sectors
from consumption to construction. Bloomberg
Economics’ monthly growth tracker, which shows
more variability than the oicial GDP number, registered growth of 6.97 percent in March.
The variety of proxy indicators available can’t
completely dispel investors’ concerns about a lack
of transparency that makes pricing risk in China
especially diicult. “If the oicial data lacks credibility, alternative narratives—like an economy on
the verge of a hard landing—can take hold,” says
Tom Orlik of Bloomberg Economics.
There are those who argue that as China’s economy matures, the quality of its data will improve.
In a sign that Beijing is prodding provincial cadres
to clean up their act, oicials in Inner Mongolia and
Tianjin have been publicly called out for exaggerating growth numbers.
Another marker of progress is that China’s
National Bureau of Statistics has begun releasing
monthly unemployment igures based on surveys—
which is how the U.S. and European countries
measure joblessness. The latest report showed the
jobless rate rose marginally to 5.1 percent in March
from 5 percent a month earlier. “I believe China will
use the pressures that come with market opening
as a way to propel these changes,” says Stephen
Jen, chief executive oicer of Eurizon SLJ Capital
Ltd. in London.
The stability of quarterly GDP numbers isn’t
necessarily a sign that Beijing is cooking the books.
The combination of a one-party system and a centrally controlled economy means China’s policymakers can intervene quickly and massively when
growth drivers wobble—by launching a huge public works program, for instance. “This is a political system that controls market behavior through
tools that do not show up in the numbers used
in the mathematical models created by and for
Western economies,” says Pauline Loong, managing director at researcher Asia-Analytica in Hong
Kong. “Dismissing this diference as irrelevant to
economic forecasting is to run the risk of ending
always slightly behind the curve in identifying what
drives growth in China and what generates proits.”
—Enda Curran, with James Mayger and Jef Kearns
April 23, 2018
○ China’s share of world
GDP growth
China’s economy
grew in 2009,
but the world’s
THE BOTTOM LINE China’s growth figures haven’t varied by more
than 0.1 percentage point since 2015, whereas variations of a full
percentage point are the norm in the U.S.
Cuba’s Historic Transition
Promises More of the Same
○ Raúl Castro is relinquishing the presidency, but his handpicked successor is not expected to buck the system
To survive in Cuba, Alejandro Menéndez has kept
one step ahead of the Communist government’s
long reach. He used to shoot photographs for the
alternative magazines that began to pop up when
Raúl Castro assumed the presidency after his ailing
brother Fidel stepped aside in 2006. After a crackdown on the independent press a few years ago,
Menéndez and some friends started a music label
they christened Band Era, a play on the Spanish
word for lag. So far they’ve avoided scrutiny by
eschewing political messages of any kind, he says.
Now, Cuba is approaching its most signiicant
political transition in Menéndez’s lifetime. For
the irst time since the brothers led the revolution in 1959, the island nation of 11.5 million will
be ruled by someone other than a Castro. Fidel
died in 2016, and Raúl is set to formally cede the
presidency when the National Assembly convenes
on April 18. He’ll be passing the baton to Vice
President Miguel Díaz-Canel, 57, who personiies
Bloomberg Businessweek
April 23, 2018
a younger generation of technocrats who’ve come
up through the party ranks.
While analysts ponder whether Díaz-Canel will
be more amenable to loosening the government’s
tight grip on the economy, Menéndez is skeptical.
In his studio, which is illed with top-notch recording equipment, all imported, the 30-year-old says
Cubans his age are more interested in tracking the
performance of top soccer teams, such as Real
Madrid or Barcelona, than those of national politicians. “It’s a disconnect we have with our own
political system,” he says. “Right now, I feel a profound sense of apathy.”
The sentiment appears to be widely shared.
Even for a country that limits political campaigning, the streets of Havana were eerily quiet in the
days before the National Assembly was to meet
to formalize the transition. There were no posters advertising the historic event or visible signs of
stepped-up security in public spaces such as the
Plaza de la Revolución or in front of the Capitolio.
Hardly any of the Cubans interviewed for this
story say they expect Castro’s successor to launch
reforms that would spur the economy, which is
growing at its slowest pace in two decades, according to World Bank igures. Low prices for the country’s most important commodity exports, sugar
and nickel, are partly to blame, as is reduced assistance from foreign patron Venezuela. Cuba’s hopes
of a loosening U.S. embargo, kindled by President
Barack Obama’s 2016 visit to the island, have been
snufed out by the Trump administration’s decision
to tighten restrictions on travel and trade.
Longtime Cuba watchers say the economy
hasn’t been this weak since the so-called Special
Period, after the Soviet Union’s collapse, which
forced the government to drastically ration food
and fuel. “It’s not as severe, but right now the challenges are clearly the worst they have been since
the 1990s,” says Carmelo Mesa-Lago, a Cuban-born
economist who’s on the faculty at the University of
Pittsburgh. “Fidel managed to come out of it then
by doing modest economic reforms. They won’t
have a Castro this time.”
Could the economic strain cause a lifelong
party apparatchik like Díaz-Canel to morph into a
free-market maverick, as happened with Russia’s
Mikhail Gorbachev or China’s Deng Xiaoping?
Not likely. “The party picked Díaz-Canel because
they see him as a loyal person who’s not going to
change anything,” says Mesa-Lago. “You have this
entrenched bureaucracy that clearly sees the nonstate sector, the private sector, as a threat.”
A former minister of higher education and an
engineer by training, Díaz-Canel rose through
the Communist Party to become vice president
in 2013, the highest rank ever achieved by someone born after the revolution. His ascension to
the presidency is a testament to his survival skills;
several contemporaries who were being groomed
for the same job ended up banished to far-lung
provinces or low-ranking ministries. “He’s young,
and he’s not a military guy, and in that way he’s
diferent,” says Jose Fernandez, who was an assistant secretary of state under Obama. “But he’s
a product of the system. He’ll be constrained in
what he can do exactly because he’s not an historic igure.”
Castro will remain head of the Communist Party
while the military controls vast swaths of the economy, including tourism, which accounts for almost
10 percent of gross domestic product when related
spending is included. “He will have to be a highwire artist, balancing the interests of the diferent
groups,” says Pedro Freyre, a Cuban-American lawyer based in Miami who represents U.S. companies
that want to do business on the island.
In public appearances, Díaz-Canel has stuck
to boilerplate Communist Party language, making vague promises that he will be responsive to
the will of the people. Yet in a leaked video of a
private meeting with party leaders last year, he
showed a hard-line streak, railing against the U.S.,
threatening to shut down media that was “against
the revolution,” and dismissing economic change
as a tool of imperialism. Some saw it as a revelation of his true character; others suspected an
orchestrated efort to raise his proile in advance
of Castro’s retirement.
Díaz-Canel will be charged with fixing an
economy so full of distortions that trained
Díaz-Canel (left) with
his mentor, Castro
Bloomberg Businessweek
professionals have left their government jobs
because they can earn far more driving taxis for
tourists or renting their homes on Airbnb. To
address the problem, the government will have to
carry out a long-delayed uniication of the Cuban
peso, in which local prices and wages are denominated, and the convertible peso, which is used
at retail outlets run by the government as well as
in a variety of commercial transactions involving
state enterprises. The system is a jumbled mess of
prices and exchange rates. Unifying the currencies
is seen as a key step toward allowing broader economic reforms and attracting foreign investors.
With Venezuela in free fall, Díaz-Canel may not
be able to count on support from that longtime
ally for much longer. Jorge Piñon, director of the
Latin America and Caribbean energy program at
the University of Texas at Austin, estimates that
shipments of Venezuelan oil, once as high as
115,000 barrels per day, have fallen at least 40 percent in the past decade. They’re still worth about
$1.1 billion annually, though, and if they disappear
altogether, Piñon says, “I don’t believe Cuba has
the cash low” to pay its oil bill.
If Venezuela cuts of aid, the government will
need to ind new sources of revenue. A decade
ago, the government announced a series of policy
changes that were supposed to pave the way for
more private enterprises and greater foreign investment. It wasn’t quite an embrace of capitalism, but
it represented a marked change from central planning—akin to retroitting one of Havana’s ubiquitous Soviet-era Lada sedans with a modern engine.
The number of self-employed Cubans has since
grown fourfold, to more than half a million. Yet the
Communist Party bureaucracy is loath to sacriice a
big chunk of its income from state-run companies
to small entrepreneurs setting up competing businesses. For every reform, the government seems
to add a tax or regulation, analysts say. Meanwhile,
foreign investment has been slow to materialize as
the government drags its feet in approving applications for new joint ventures.
Joao Diezcabeza, who runs a small cafe in the
heart of Havana, hopes Díaz-Canel will ind a way
to chart his own path. “I respect the fact that Fidel
and Raúl have defended their ideals until the end,”
he says. “But with someone new, he won’t have
that obligation or that weight, which is also good.
Perhaps that’s a less romantic version of what is
‘revolution,’ but I think that’s good for progress.”
—Ezra Fieser, with Hannah Berkeley Cohen
Swipe Right For
More Inequality
THE BOTTOM LINE Cuba’s newly anointed president is unlikely to
push for reforms that could jolt an economy growing at its slowest
pace in two decades.
April 23, 2018
○ Elite dating apps threaten to widen America’s wealth gaps
Their romance began on a server at a San Francisco
startup. Anna Wood had submitted a proile to the
League, a dating app aimed at young professionals.
She was the perfect prospect: Degree from a top university? Check. Management-track job at a marquee
company? Check. Carefully selected proile pictures
and a winning smile? Check and check.
The League’s algorithm quickly matched Wood,
who’d been working in sales at Google and had just
been admitted to Stanford’s business school, with
⊳ Thomas and Wood,
a match made on the
Tracy Thomas, an employee at a Bay Area startup
with a wardrobe straight out of preppy clothier
Vineyard Vines. Within a week, they’d arranged
to meet at a tennis tournament. Sushi, drinks, and
frozen yogurt followed. Three years later, they’re
engaged to be married. “It was important to me
that someone I was going on a date with was welleducated, and driven, and had a lot of the same
goals I did,” says Wood, who runs a lifestyle blog
and coaching service called Brains Over Blonde. “I
have big career ambitions, and that had, in the past,
intimidated—scared away—people I’d dated.”
The League is among a new crop of elite dating apps whose business models are predicated on
the age-old reality that courtship is partly an economic exercise. The services are facilitating unions
between educated, aluent millennials who are
clustering in such cities as San Francisco and New
York. In the process, they could be helping widen
America’s wealth gaps. Dating apps “help you ind
exactly what you want,” says Tyler Cowen, an economist at George Mason University who has written
on the topic on Marginal Revolution, a popular blog
he co-hosts. Now, “you marry a college professor
across town, a lawyer in D.C., rather than someone you work with or someone your brother-in-law
Bloomberg Businessweek
April 23, 2018
matched you up with.” (Cowen is also a columnist
for Bloomberg.)
“There’s pure, unbridled ambition here, and
that was something that I wanted to rein in and
help people who are busy and doing amazing
things ind other people who are busy and doing
amazing things,” says the League’s founder, Amanda
Bradford, whose service initially targeted Bay Area
singles. A Carnegie Mellon University computer science graduate who peppers her conversation with
phrases like “love, love, love,” Bradford was working toward her MBA at Stanford when she hit on the
idea of an exclusive dating app.
The League launched in 2015 and now has
300,000 active users across 36 cities, along with a
500,000-person waitlist. The business operates on
the freemium model. Those who join at no cost are
entitled to three daily “prospects,” while $349 a year
buys more prospects and an assortment of other
perks, such as “VIP passes” to get friends’ membership applications fast-tracked. The admission rate
ranges from 20 percent to 30 percent depending on
the market, according to the company.
There’s no shortage of competitors. Luxy, which
bills itself as the No. 1 online match service for millionaires, claims half its active members earn more
than $500,000. Sparkology describes itself as a
“curated dating experience for young professionals”
and accepts members only by invitation or referral.
“Ladies, you asked for quality gentlemen: Men are
veriied grads of top universities,” reads the pitch to
prospective female clients.
Apps like these have become an integral part of
the millennial mating game. Nationally, just 10 percent of 20- to 24-year-olds registered with an online
matchmaking service in 2013, according to a Pew
Research Center analysis. Just two years later, that
igure had almost tripled, to 27 percent. “I would
prefer to meet someone organically, but if I’m in
an airport, and just walking to and from the oice,
that’s obviously not going to happen,” says consultant Joslyn Williams, who moved to the Chicago area
from Nashville in November and immediately signed
up for the League.
College-educated singles in the U.S. have long
gravitated to cities, a preference that has grown
more pronounced in recent years. Across America’s
50 largest metro areas, more than half of adults living
in city centers had degrees in 2015, compared with
29 percent in 1990. Likewise, 33 percent of inner-city
residents were between 22 and 24 years old, up from
29 percent in 1990. Those trends were even more
pronounced in cities such as New York and Chicago,
based on a University of Virginia analysis.
This clustering efect is reinforcing another phenomenon: More Americans are seeking spouses with
similar levels of schooling. According to research by
University of California at Los Angeles sociologist
Robert Mare, what scholars call assortative mating
was high in the Gilded Age, fell of in the 1950s, when
incomes were more even, and has marched higher
in recent decades. On the League, about 30 percent of users come
from Ivy League schools, and they’re more than
twice as likely to match with another Ivy Leaguer
on the service. Overall, users with similar education
levels are three times as likely to match.
If dating services make it easier to ind, date, and
marry people with very similar backgrounds, they
may end up perpetuating inequality. College graduates have higher earnings potential; when they wed,
they consolidate that advantage under one roof.
Millennial households headed by a college graduate
earn more than comparable families in prior generations, according to Richard Fry, an economic analyst at Pew. Less-educated households, in contrast,
make less than in prior generations.
Jay Feldman, a medical student in New York, says
“the girls are much better” on the League than on
Tinder, which does not vet users. They’re not all
pretty, he notes, but they have nicer proile pictures
and they’re all working or in school. He’d prefer to
date someone with an education, because it makes
for better conversation and because she needs to be
“presentable” if he takes her home to his family, he
says. Feldman took the six months he spent on the
waitlist before getting admitted into the League as a
good sign: “It’s the same kind of principle as going
to a club. If they make you wait, it must be good.”
—Jeanna Smialek
“It was
to me that
someone I was
going on a date
with was welleducated, and
Smart in the City
Share of adults who have a bachelor’s degree or higher in the
50 largest metro areas in the U.S.
0 miles from the city center
30 miles
THE BOTTOM LINE Dating apps that match singles on the basis
of factors like education reinforce patterns of assortative mating
that scholars say contribute to income disparities.
April 23, 2018
Edited by
Matthew Philips
○ North Korean leader Kim Jong Un
and President Moon Jae-in of South
Korea meet on April 27
○ U.S. Supreme Court begins
reviewing the legality of President
Trump’s travel ban on April 25
○ Mike Pompeo could face a
close vote in the Senate over his
nomination for secretary of state
Macron Wants
To Save Europe
To Save
○ The French president heads
to Washington in hopes of gaining
support for his ambitious agenda
Bloomberg Businessweek
Emmanuel Macron announced his arrival on the
world stage last May by grabbing hold of Donald
Trump and not letting go. France’s youngest-ever
president had been in oice for 11 days when they
met at a NATO summit in Brussels. Trump is known
for trying to dominate fellow politicians with an
aggressive grip, but Macron turned the tables on
him, seizing his hand and holding tight even as
Trump tried to pull away. Macron then gave his
remarks in French, even though he’s luent in
English. Trump, with no translation earpiece, nodded along earnestly. The point was plain: Macron
was not going to be dominated.
His strategy seems to have worked. A senior oicial in the Elysée presidential palace says Macron
and Trump have established a strong relationship.
U.S. administration oicials say the French president has become an inluential voice for Trump
on Iran, Syria, and trade. Despite their clear differences in character, both are political outsiders
who have little patience for diplomatic niceties, the
French oicial says. That allows them to get down
to business, even when they disagree.
Trump has rewarded Macron, 40, with what will
be the irst oicial state visit of his presidency, set
for April 23-25. Macron arrives in Washington in better standing with Trump than his German counterpart, Chancellor Angela Merkel—who visits the White
House on April 27, but just for one day. The allied airstrikes against Syria were a diplomatic victory for
Macron, who was the irst and strongest advocate
for a military response to the suspected chemical
attack against civilians, conirming his position as
one of Trump’s most trusted foreign counterparts.
Germany earned a rebuke from Trump’s future
ambassador to the country, Richard Grenell, for
refusing to join the coalition. “Macron is the only
major European leader to have a working relationship with Trump,” says Martin Quencez, a fellow at
the German Marshall Fund of the U.S. “That gives
[France] a stronger position vis-á-vis Berlin.”
If Macron can prevent Trump from advancing
down the path to a trade war, it will earn him political capital he’ll be able to deploy as he pursues his
two grand ambitions: to reform a France that has
resisted change for 30 years and to reverse the relative decline of Europe. His goal is to restore not
just the Continent’s economic muscle but the aspirational idea that the European Union can be a uniied superpower.
That premise has been put to the test over the
past several years, irst by the sovereign debt crisis,
then the inlux of refugees leeing war and terrorism in the Middle East, and inally the Brexit vote
in 2016. Exhausted by the compromises required
to contain those troubles, most European leaders
are now eager to preserve their sovereign powers
rather than embrace Macron’s plan for a more federal union. “Europe’s destiny is being decided now,”
Macron said in a French television interview on
April 15. “My responsibility is to advance this ambition in the name of France, and that is why I am
doing all these reforms, all these transformations.”
While chasing his dreams for Europe, Macron
has a lot of work to do at home. France has stubbornly high unemployment, the second-highest
tax burden in the Organization for Economic
Cooperation and Development, an outdated industrial base, and a restive populist movement. An
accelerating economy helped him roll back labor
protections and cut taxes for investors, but now
he’s facing the irst big obstacles in his 10-year plan
to transform France and Europe (yes, he seems to
be banking on a second term).
Workers at the state rail company shut down
much of the train network in April and have scheduled weekly stoppages through June as they ight his
plans to shake up the enterprise. Students are protesting reductions in their entitlements, and pilots
and cabin crews at Air France are striking over
pay. A survey published by France’s most watched
TV news channel shows 74 percent of respondents believe Macron’s policies are “unfair” and
77 percent say they’re dividing French society. His
approval rating slipped to about 40 percent in early
April after entering the year at 47 percent. Macron is
not deterred. “I want to change things, and I will not
let up,” he told French television in another interview this month. He will push on “to the end.”
A stronger France would help Macron challenge Merkel’s vision of Europe as a community
of nations and convince her that it could become
a more integrated economic superpower. He envisions a sovereign entity—a United States of Europe
in all but name—that can match the U.S. for innovation and entrepreneurship and use its clout to
protect industries and workers. Macron’s Europe
would impose common labor and environmental
protections across the bloc. It would force tech
giants to pay their fair share of taxes and enforce
external borders to control the low of refugees
and immigrants.
His fellow EU leaders aren’t so excited about
making Europe great again—at least not if it means
falling in line behind a resurgent France and its
precocious president. Dutch Prime Minister Mark
Rutte openly deies him, leading a group of eight
northern countries that insist member states need
to do their own work to make the bloc stronger,
rather than look for new forms of risk-sharing.
April 23, 2018
○ Economic factors
GDP per capita, current
U.S. dollars
Unemployment rate
Bloomberg Businessweek
April 23, 2018
Germany’s 37-year-old health minister, Jens
Spahn, part of a new generation of German leaders jostling to succeed Merkel, said in March that
the EU needs to “get real” and forget about “lofty
speeches” and a “utopian vision” of grand projects.
Macron is starting to realize that Merkel may
never sign up for his boldest plans, according to
a person familiar with his thinking. In fact, senior
French government oicials suspect that his vaulting rhetoric is starting to annoy her. As a June deadline approaches for a joint Franco-German plan to
let banks compete across Europe, Macron is struggling to win Merkel’s support for a common deposit
guarantee system. And his talk of European economic sovereignty sends shivers down the spines of
German industrialists imagining foreigners defending their export interests.
Merkel, who scored only a narrow victory last
year, has faced protests at home over the European
Central Bank’s decision to allow inlation to accelerate to encourage growth in the rest of the euro
area. When Macron talks of European solidarity,
conservatives in Berlin picture non-Germans gaining the power to funnel their tax euros to basket
cases like Greece.
Macron’s hubris doesn’t help. In March he was
almost an hour late for a meeting with Merkel in
Paris—after spending much of the day in the south
of France for a photo session with Annie Leibovitz.
A few days later, Rutte was showing Macron around
his oice in The Hague as the French leader looked
conspicuously uninterested, twice cutting of his
host’s historical explanations. Dutch daily De
Telegraaf said the snub was “brutal,” and video
of the exchange went viral in the Netherlands.
“I’m not arrogant, I’m determined,” Macron told
German weekly Der Spiegel in October (again cutting short an exchange).
That claim isn’t entirely convincing from someone who celebrated his election last year not with
the French national anthem but the European
one. And, pointedly, he walked out to deliver his
victory speech across the Louvre’s Courtyard of
Napoleon (another provincial guy who tried to conquer Europe, the Paris wags observed). Macron has
entertained world leaders and corporate titans at
the Palace of Versailles, inviting comparisons to
the Sun King, Louis XIV, who dominated the 17th
century. “When you are French, there is always
an idea that you will be somewhat arrogant,” says
Jean Pisani-Ferry, a professor at Sciences Po in Paris
and the Hertie School of Governance in Berlin, who
advised Macron during the campaign. “You have
to be aware of that and be careful. But being ambitious is not being arrogant.”
One force restraining Macron’s ego: his 65-yearold wife and former high school drama coach,
Brigitte. When the president’s irritation with the
constant press attention threatened to boil over
during a visit to a Beijing art gallery in January, for
instance, the irst lady put a hand on his arm. She
suggested he enjoy the exhibition irst and then talk
with the reporters. Macron smiled and complied.
Macron’s trip to Washington is a reminder
to his critics that he’s becoming the most efective European leader on the world stage at the
moment. He already has fans in the U.S. business community. In January, Macron entertained
Goldman Sachs Group Inc. Chief Executive Oicer
Lloyd Blankfein at Versailles. Speaking at a panel
in March, Blankfein said, “Right now the most central, important leader in Europe is Macron. He has
the potential to be a real deal.” —Helene Fouquet
and Ben Sills, with Gregory Viscusi, Jennifer Jacobs,
and Margaret Talev
“Macron is
the only major
leader to have
a working
with Trump”
THE BOTTOM LINE French President Macron wants to reform
France and strengthen Europe. His relationship with Trump could
help, but he’ll have to win over his skeptics in Europe.
Trump’s War on
‘Deep State’ Judges
○ The Supreme Court could make it easier
for agency chiefs to fire in-house jurists
For years, Ray Lucia was a nationally syndicated
radio host and inancial adviser who crisscrossed
the U.S. touting his Buckets of Money retirement
plan. Using data that regulators later argued were
fake, he wowed audiences with presentations
showing how his investment strategy would have
protected nest eggs in the booms and busts of the
1960s and ’70s. In 2015, endorsing an administrative
law judge’s inding that Lucia misled retirees, the
Securities and Exchange Commission kicked him
out of the inancial advice business.
On April 23, Lucia’s appeal will be heard in the
U.S. Supreme Court, with Lucia arguing that the
judge who irst ruled against him wasn’t appointed
properly. Siding with him—and against the SEC’s
long-standing position—will be the Trump administration. The move amounts to a broadside aimed
at the 1,900 administrative law judges (ALJs) who
help federal agencies enforce laws and are a key
Bloomberg Businessweek
part of the administrative “deep state” that Trump
has vowed to dismantle.
The case hinges on whether these judges are
“oicers,” a constitutional designation that could
make them easier for politically appointed agency
chiefs to ire. White-collar defense lawyers, rightwing think tanks, and the Chamber of Commerce
argue that they are oicers. A November brief by
Solicitor General Noel Francisco, the administration’s top Supreme Court lawyer, marked the irst
time the White House agreed.
If successful, the challenge could erode the independence of judges at federal agencies. In a Supreme
Court docket full of big cases, Lucia “may be the
sleeper,” says Brianne Gorod, chief counsel for the
Constitutional Accountability Center, a liberal think
tank in Washington. In a separate case in May, Judge
Carlos Lucero of the 10th Circuit Court of Appeals
wrote that the efort to attach the oicer designation
“threatens to unravel much of our modern regulatory framework” and “places the legitimacy of our
administrative agencies in serious doubt.”
Trump has made no secret of his antipathy
toward Washington bureaucracy. Administrative
law judges are integral to how the federal government operates. They hold hearings and make initial rulings on anything from SEC violations to black
lung beneits. They’re also judicial workhorses, handling ive times as many cases—more than 1.5 million
a year, according to the administrative judiciary’s
estimate—as are iled in federal district court.
Traditionally they haven’t been considered oicers, a designation that requires appointment by
the president, the president’s appointees, or a
court. Until Trump, the federal position was that
ALJs are employees without enough authority to
it that designation. Solicitor General Francisco
reversed that, arguing on behalf of the SEC that its
original position was wrong. The court then had
to appoint a private attorney to defend the SEC’s
prior stance.
The critique of ALJs is that they’re both too independent and not independent enough. They’re hired
on a merit basis through the Oice of Personnel
Management and can be ired only for cause by the
Merit Systems Protection Board. Congress sets their
pay. They aren’t eligible for agency bonuses or subject to agency performance reviews.
That independence was on display the same day
Francisco iled his Lucia brief. William Moran, the
ALJ who reviews mine safety enforcement actions
from the Department of Labor, sent back a proposal
from Labor Secretary Alexander Acosta that reduced
safety ines for a mining company by 82 percent. “As
with virtually all of his settlement motions,” Moran
wrote of the secretary, the proposal was “fact free.”
The opposite complaint—that ALJs aren’t independent enough—is leveled most often at the SEC,
where, according to a Chamber brief in the Lucia
case, “increased use of in-house administrative
proceedings” in lieu of litigation in federal court
has had “one indisputable result: The Commission
prevails much more frequently.” The claim stems
from an oft-cited 2015 Wall Street Journal article that said the SEC has a lopsided win rate in
cases that begin before ALJs. Academics have since
debunked that inding.
To Lucia, the bias is obvious. With an ALJ, “the
Division of Enforcement brings a case and pretty
much knows they’re going to win,” he says. Lucia
argues that the SEC held his Buckets of Money presentation to a legal standard that didn’t exist and
found no victims: “A federal judge would have
thrown this out. They would have said, ‘Wait a
minute, where’s the proof that this person has misled someone?’ ”
Lucia’s promotional presentation tracked what
would have happened to four ictional families
had they retired with $1 million in 1966 or 1973 and
invested in diferent ways. The family using Lucia’s
strategy, which included real estate investment
trusts, quadrupled their money. The others earned
less or went broke. The presentation used inaccurate historical data that made REITs unrealistically
attractive, the SEC said. Lucia’s irm was paid by
REIT issuers and also earned commissions through
ailiated brokers, according to the SEC.
Should the court conclude that ALJs are oicers,
the ramiications could take a while to become
clear. Lucia wants the case dismissed, but the SEC
is unlikely to agree. The Supreme Court might let
lower courts sort out what it means for pending
cases. The bigger impact could be long-term, if and
when the high court decides to let agency heads
ire those who don’t adhere to administration priorities, such as mine safety judge Moran.
That would make the ALJs more politically
vulnerable and, as Francisco wrote, “safeguard
the president’s power to control and supervise
the executive branch.” A ruling for Lucia “could
destabilize the modern federal government,” says
Gorod of the Constitutional Accountability Center.
“It’s not surprising that conservative opponents of
the administrative state might welcome that outcome,” she says. “But it’s quite stunning to see
the federal government itself push for this result.”
—Margaret Newkirk and Greg Stohr
THE BOTTOM LINE The Lucia case could redefine the role
of administrative law judges and be the sleeper decision in a
blockbuster term for the Supreme Court.
April 23, 2018
○ Lucia
Bloomberg Businessweek
ur photos
ome address
Your daily routine
Your social media
Your face
Your mortgage
Your visa status
Your domestic travel
r personal
one calls
Your work phone
r computer
Your siblings
xtended family
Your sex partners
Palantir Knows
Everything About You
Your charitable
Your spending
Your pets
Your business
Your prescriptions
April 23, 2018
Your arrests
Your court
Your vehicle’s
Your credit
Your web history
Your hobbies
Your savings account
Your persona
Your printer usage
Your interests
Your keystrokes
Your ATM usage
Your résumé
Your international
Your politica
Your online
Peter Thiel’s data-mining company is using War on
Terror tools to track American citizens. The scary thing?
Palantir is desperate for new customers
By Peter Waldman, Lizette Chapman,
and Jordan Robertson
Your friends
Bloomberg Businessweek
April 23, 2018
Aided by as many as 120 “forward-deployed engineers”
from the data-mining company Palantir Technologies
Inc., which JPMorgan engaged in 2009, Cavicchia’s group
vacuumed up emails and browser histories, GPS locations
from company-issued smartphones, printer and download
activity, and transcripts of digitally recorded phone conversations. Palantir’s software aggregated, searched, sorted, and
analyzed these records, surfacing keywords and patterns of
behavior that Cavicchia’s team had lagged for potential abuse
of corporate assets. Palantir’s algorithm, for example, alerted
the insider threat team when an employee started badging
into work later than usual, a sign of potential disgruntlement.
That would trigger further scrutiny and possibly physical surveillance after hours by bank security personnel.
Over time, however, Cavicchia himself went rogue.
Former JPMorgan colleagues describe the environment as
Wall Street meets Apocalypse Now, with Cavicchia as Colonel
Kurtz, ensconced upriver in his oice suite eight loors above
the rest of the bank’s security team. People in the department were shocked that no one from the bank or Palantir
set any real limits. They darkly joked that Cavicchia was listening to their calls, reading their emails, watching them
come and go. Some planted fake information in their communications to see if Cavicchia would mention it at meetings, which he did.
It all ended when the bank’s senior executives learned that
they, too, were being watched, and what began as a promising
marriage of masters of big data and global inance descended
into a spying scandal. The misadventure, which has never
been reported, also marked an ominous turn for Palantir, one
of the most richly valued startups in Silicon Valley. An intelligence platform designed for the global War on Terror was
weaponized against ordinary Americans at home.
Founded in 2004 by Peter Thiel and some fellow PayPal
alumni, Palantir cut its teeth working for the Pentagon and
the CIA in Afghanistan and Iraq. The company’s engineers
and products don’t do any spying themselves; they’re more
like a spy’s brain, collecting and analyzing information that’s
fed in from the hands, eyes, nose, and ears. The software
combs through disparate data sources—inancial documents,
airline reservations, cellphone records, social media postings—and searches for connections that human analysts
might miss. It then presents the linkages in colorful, easy-tointerpret graphics that look like spider webs. U.S. spies and
special forces loved it immediately; they deployed Palantir to
synthesize and sort the blizzard of battleield intelligence. It
helped planners avoid roadside bombs, track insurgents for
assassination, even hunt down Osama bin Laden. The military success led to federal contracts on the civilian side. The
U.S. Department of Health and Human Services uses Palantir
to detect Medicare fraud. The FBI uses it in criminal probes.
The Department of Homeland Security deploys it to screen
air travelers and keep tabs on immigrants.
Police and sherif’s departments in New York, New Orleans,
Chicago, and Los Angeles have also used it, frequently ensnaring in the digital dragnet people who aren’t suspected of committing any crime. People and objects pop up on the Palantir
screen inside boxes connected to other boxes by radiating lines
labeled with the relationship: “Colleague of,” “Lives with,”
“Operator of [cell number],” “Owner of [vehicle],” “Sibling
of,” even “Lover of.” If the authorities have a picture, the rest
is easy. Tapping databases of driver’s license and ID photos,
law enforcement agencies can now identify more than half the
population of U.S. adults.
JPMorgan was effectively Palantir’s R&D lab and test
bed for a foray into the financial sector, via a product
called Metropolis. The two companies made an odd couple. Palantir’s software engineers showed up at the bank on
skateboards. Neckties and haircuts were too much to ask, but
JPMorgan drew the line at T-shirts. The programmers had to
High above the Hudson River in downtown Jersey
City, a former U.S. Secret Service agent named
Peter Cavicchia III ran special ops for JPMorgan
Chase & Co. His insider threat group—most large
financial institutions have one—used computer
algorithms to monitor the bank’s employees,
ostensibly to protect against perfidious traders
and other miscreants.
Bloomberg Businessweek
April 23, 2018
agree to wear shirts with collars, tucked in when possible.
and energy making sure our products are used for the forces
As Metropolis was installed and reined, JPMorgan made of good,” the statement said.
an equity investment in Palantir and inducted the company
Much depends on how the company chooses to deine
into its Hall of Innovation, while its executives raved about good. In March a former computer engineer for Cambridge
Palantir in the press. The software turned “data landills into Analytica, the political consulting irm that worked for Donald
gold mines,” Guy Chiarello, who was then JPMorgan’s chief Trump’s 2016 presidential campaign, testiied in the British
information oicer, told Bloomberg Businessweek in 2011.
Parliament that a Palantir employee had helped Cambridge
Cavicchia was in charge of forensic investigations at the Analytica use the personal data of up to 87 million Facebook
bank. Through Palantir, he gained administrative access to a users to develop psychographic proiles of individual voters.
full range of corporate security databases that had previously Palantir said it has a strict policy against working on political
required separate authorizations and a speciic business jus- issues, including campaigns, and showed Bloomberg emails
tiication to use. He had unprecedented access to everything, in which it turned down Cambridge’s request to work with
all at once, all the time, on one analytic platform. He was a Palantir on multiple occasions. The employee, Palantir said,
one-man National Security Agency, surrounded by the Palantir worked with Cambridge Analytica on his own time. Still, there
engineers, each one costing the bank as much as $3,000 a day. was no mistaking the implications of the incident: All human
Senior investigators stumbled onto the full extent of the relations are a matter of record, ready to be revealed by a
spying by accident. In May 2013 the bank’s leadership ordered clever algorithm. Everyone is a spidergram now.
an internal probe into who had leaked a document to the New
York Times about a federal investigation of JPMorgan for possi- Thiel, who turned 50 in October, long reveled as the liberbly manipulating U.S. electricity markets. Evidence indicated tarian black sheep in left-leaning Silicon Valley. He contribthe leaker could have been Frank Bisignano, who’d recently uted $1.25 million to Trump’s presidential victory, spoke at
resigned as JPMorgan’s co-chief operating oicer to become the Republican convention, and has dined with Trump at
CEO of First Data Corp., the big payments processor. Cavicchia the White House. But Thiel has told friends he’s had enough
had used Metropolis to gain access to emails about the leak of the Bay Area’s “monocultural” liberalism. He’s ditching
investigation—some written by top executives—and the bank his longtime base in San Francisco and moving his personal
believed he shared the contents of those emails and other investment irms this year to Los Angeles, where he plans
communications with Bisignano after Bisignano had left the to establish his next project, a conservative media empire.
bank. (Inside JPMorgan, Bisignano was considered Cavicchia’s
As Thiel’s wealth has grown, he’s gotten more strident. In
patron—a senior executive who protected and promoted him.) a 2009 essay for the Cato Institute, he railed against taxes,
JPMorgan oicials debated whether to ile a suspicious activ- government, women, poor people, and society’s acquiesity report with federal regulators about the internal security cence to the inevitability of death. (Thiel doesn’t accept
breach, as required by law whenever banks suspect regulatory death as inexorable.) He wrote that he’d reached some radviolations. They decided not to—a controversial decision inter- ical conclusions: “Most importantly, I no longer believe that
nally, according to multiple sources with the bank. Cavicchia freedom and democracy are compatible.” The 1920s was
negotiated a severance agreement and was forced to resign. the last time one could feel “genuinely optimistic” about
He joined Bisignano at First Data, where he’s now a senior vice American democracy, he said; since then, “the vast increase
president. Chiarello also went to First Data, as president. After in welfare beneiciaries and the extension of the franchise to
their departures, JPMorgan drastically curtailed its Palantir use, women—two constituencies that are notoriously tough for
in part because “it never lived up to its promised potential,” libertarians—have rendered the notion of ‘capitalist democsays one JPMorgan executive
racy’ into an oxymoron.”
who insisted on anonymity to
Thiel went into tech after
missing a prized Supreme
discuss the decision.
The bank, First Data, and
Court clerkship following his
Bisignano, Chiarello, and
graduation from Stanford
Cavicchia didn’t respond
Law School. He co-founded
to separately emailed quesPayPal and then parlayed his
tions for this article. Palantir,
winnings from its 2002 sale
to EBay Inc. into a career in
in a statement respondventure investing. He made
ing to questions about how
an early bet on Facebook
JPMorgan and others have
Inc. (where he’s still on the
used its software, declined
board), which accounts
to answer speciic questions.
for most of his $3.3 billion
“We are aware that powerful
fortune, as estimated by
technology can be abused
Bloomberg, and launched
and we spend a lot of time Thiel addresses the 2016 Republican National Convention
Bloomberg Businessweek
his career as a backer of big ideas—things like private space
travel (through an investment in SpaceX), hotel alternatives
(Airbnb), and loating island nations (the Seasteading Institute).
He started Palantir—named after the omniscient crystal
balls in J.R.R. Tolkien’s Lord of the Rings trilogy—three years
after the attacks of Sept. 11, 2001. The CIA’s investment arm,
In-Q-Tel, was a seed investor. For the role of chief executive
oicer, he chose an old law school friend and self-described
neo-Marxist, Alex Karp. Thiel told Bloomberg in 2011 that civil
libertarians ought to embrace Palantir, because data mining is
less repressive than the “crazy abuses and draconian policies”
proposed after Sept. 11. The best way to prevent another catastrophic attack without becoming a police state, he argued,
was to give the government the best surveillance tools possible, while building in safeguards against their abuse.
Legend has it that Stephen Cohen, one of Thiel’s cofounders, programmed the initial prototype for Palantir’s
software in two weeks. It took years, however, to coax customers away from the longtime leader in the intelligence
analytics market, a software company called I2 Inc.
In one adventure missing from the glowing accounts of
Palantir’s early rise, I2 accused Palantir of misappropriating
its intellectual property through a Florida shell company registered to the family of a Palantir executive. A company claiming to be a private eye irm had been licensing I2 software and
development tools and spiriting them to Palantir for more
than four years. I2 said the cutout was registered to the family
of Shyam Sankar, Palantir’s director of business development.
I2 sued Palantir in federal court, alleging fraud, conspiracy, and copyright infringement. In its legal response, Palantir
argued it had the right to appropriate I2’s code for the greater
good. “What’s at stake here is the ability of critical national
security, defense and intelligence agencies to access their
As shown in the
privacy breaches
at Facebook and
Cambridge Analytica,
the pressure to
monetize data at
tech companies is
April 23, 2018
own data and use it interoperably in whichever platform
they choose in order to most efectively protect the citizenry,”
Palantir said in its motion to dismiss I2’s suit.
The motion was denied. Palantir agreed to pay I2 about
$10 million to settle the suit. I2 was sold to IBM in 2011.
Sankar, Palantir employee No. 13 and now one of the company’s top executives, also showed up in another Palantir
scandal: the company’s 2010 proposal for the U.S. Chamber
of Commerce to run a secret sabotage campaign against the
group’s liberal opponents. Hacked emails released by the
group Anonymous indicated that Palantir and two other
defense contractors pitched outside lawyers for the organization on a plan to snoop on the families of progressive activists, create fake identities to iniltrate left-leaning groups,
scrape social media with bots, and plant false information
with liberal groups to subsequently discredit them.
After the emails emerged in the press, Palantir ofered an
explanation similar to the one it provided in March for its
U.K.-based employee’s assistance to Cambridge Analytica: It
was the work of a single rogue employee. The company never
explained Sankar’s involvement. Karp issued a public apology
and said he and Palantir were deeply committed to progressive causes. Palantir set up an advisory panel on privacy and
civil liberties, headed by a former CIA attorney, and beefed
up an engineering group it calls the Privacy and Civil Liberties
Team. The company now has about 10 PCL engineers on call
to help vet clients’ requests for access to data troves and pitch
in with pertinent thoughts about law, morality, and machines.
During its 14 years in startup mode, Palantir has cultivated
a mystique as a haven for brilliant engineers who want to solve
big problems such as terrorism and human traicking, unfettered by pedestrian concerns such as making money. Palantir
executives boast of not employing a single salesperson, relying instead on word-of-mouth referrals.
The company’s early data mining dazzled venture investors, who valued it at $20 billion in 2015. But Palantir has
never reported a proit. It operates less like a conventional
software company than like a consultancy, deploying roughly
half its 2,000 engineers to client sites. That works at wellfunded government spy agencies seeking specialized applications but has produced mixed results with corporate clients.
Palantir’s high installation and maintenance costs repelled
customers such as Hershey Co., which trumpeted a Palantir
partnership in 2015 only to walk away two years later. CocaCola, Nasdaq, American Express, and Home Depot have also
dumped Palantir.
Karp recognized the high-touch model was problematic
early in the company’s push into the corporate market, but
solutions have been elusive. “We didn’t want to be a services
company. We wanted to do something that was cost-eicient,”
he confessed at a European conference in 2010, in one of several unguarded comments captured in videos posted online.
“Of course, what we didn’t recognize was that this would be
much, much harder than we realized.”
Palantir’s newest product, Foundry, aims to inally break
Bloomberg Businessweek
April 23, 2018
The founder of Palantir is
extremely well connected.
Here’s how his life
might appear in the
company’s model
Funder of
Operator of
Operator of
Funder of
Operator of
Operator of
Former operator of
Funder of
Owner of
Colleague of
Colleague of
Operator of
Married to
Operator of
Funder of
Owner of
The Web of
Peter Thiel
Colleague of
Operator of
Funder of
Colleague of
Funder of
Employee of
Operator of
operator of
Employee of
Funder of
Employee of
Operator of
Former operator of
Operator of
Colleague of
Former operator of
Funder of
Operator of
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operator of
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Funder of
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Operator of
Operator of
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Operator of
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Student of
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through the proitability barrier with more automation and
less need for on-site engineers. Airbus SE, the big European
plane maker, uses Foundry to crunch airline data about speciic
onboard components to track usage and maintenance and
anticipate repair problems. Merck KGaA, the pharmaceutical
giant, has a long-term Palantir contract to use Foundry in drug
development and supply chain management.
Deeper adoption of Foundry in the commercial market is
crucial to Palantir’s hopes of a big payday. Some investors are
weary and have already written down their Palantir stakes.
Morgan Stanley now values the company at $6 billion. Fred
Alger Management Inc., which has owned stock since at least
2006, revalued Palantir in December at about $10 billion,
according to Bloomberg Holdings. One frustrated investor,
Marc Abramowitz, recently won a court order for Palantir to
show him its books, as part of a lawsuit he iled alleging the
company sabotaged his attempt to ind a buyer for the Palantir
shares he has owned for more than a decade.
As shown in the privacy breaches at Facebook and
Cambridge Analytica—with Thiel and Palantir linked to
both sides of the equation—the pressure to monetize data
at tech companies is ceaseless. Facebook didn’t grow from
a website connecting college kids into a purveyor of user
proiles and predilections worth $478 billion by walling of
personal data. Palantir says its Privacy and Civil Liberties
Colleague of
Team watches out for inappropriate data demands, but it
consists of just 10 people in a company of 2,000 engineers.
No one said no to JPMorgan, or to whomever at Palantir volunteered to help Cambridge Analytica—or to another organization keenly interested in state-of-the-art data science,
the Los Angeles Police Department.
Palantir began work with the LAPD in 2009. The impetus was federal funding. After several Sept. 11 postmortems called for more intelligence sharing at all levels of law
enforcement, money started lowing to Palantir to help build
data integration systems for so-called fusion centers, starting in L.A. There are now more than 1,300 trained Palantir
users at more than a half-dozen law enforcement agencies
in Southern California, including local police and sherif ’s
departments and the Bureau of Alcohol, Tobacco, Firearms
and Explosives.
The LAPD uses Palantir’s Gotham product for Operation
Laser, a program to identify and deter people likely to commit crimes. Information from rap sheets, parole reports,
police interviews, and other sources is fed into the system to
generate a list of people the department deines as chronic
ofenders, says Craig Uchida, whose consulting irm, Justice &
Security Strategies Inc., designed the Laser system. The list is
distributed to patrolmen, with orders to monitor and stop
Bloomberg Businessweek
The platform is supplemented
with what sociologist Sarah Brayne
calls the secondary surveillance
network: the web of who is related
to, friends with, or sleeping with
whom. One woman in the system,
for example, who wasn’t suspected
of committing any crime, was identiied as having multiple boyfriends
within the same network of associates, says Brayne, who spent
two and a half years embedded
with the LAPD while researching
her dissertation on big-data policing at Princeton University and
who’s now an associate professor at the University of Texas at
Austin. “Anybody who logs into
the system can see all these intimate ties,” she says. To widen the
scope of possible connections, she
adds, the LAPD has also explored
Screenshots of Palantir’s Gotham program, from a promotional video
purchasing private data, including
the pre-crime suspects as often as possible, using excuses social media, foreclosure, and toll road information, camsuch as jaywalking or ix-it tickets. At each contact, oicers era feeds from hospitals, parking lots, and universities, and
ill out a ield interview card with names, addresses, vehicles, delivery information from Papa John’s International Inc. and
physical descriptions, any neighborhood intelligence the per- Pizza Hut LLC.
son ofers, and the oicer’s own observations on the subject.
The LAPD declined to comment for this story. Palantir sent
The cards are digitized in the Palantir system, adding to Bloomberg a statement about its work with law enforcement:
a constantly expanding surveillance database that’s fully “Our [forward-deployed engineers] and [privacy and civil libaccessible without a warrant. Tomorrow’s data points are erties] engineers work with the law enforcement customers
automatically linked to today’s, with the goal of generating (including LAPD) to ensure that the implementation of our
investigative leads. Say a chronic ofender is tagged as a pas- software and integration of their source systems with the softsenger in a car that’s pulled over for a broken taillight. Two ware is consistent with the Department’s legal and policy obliyears later, that same car is spotted by an automatic license gations, as well as privacy and civil liberties considerations that
plate reader near a crime scene 200 miles across the state. may not currently be legislated but are on the horizon. We as
As soon as the plate hits the system, Palantir alerts the oi- a company determine the types of engagements and general
cer who made the original stop that a car once linked to the applications of our software with respect to those overarching
chronic ofender was spotted near a crime scene.
considerations. Police Agencies have internal responsibility for
The Constitutionality Question
Why the courts haven’t
ruled on whether
Palantir’s analytical
tools are legal
Civil rights advocates say the compilation of a digital dossier of someone’s life, absent a court warrant, is
an unlawful intrusion under the U.S.
Constitution. Law enforcement oicials say that’s not the case. For now,
the question is unsettled, and that
may be no accident. Civil liberties
lawyers are seeking a case to challenge the constitutionality of Palantir’s
use, but prosecutors and immigration agents have been careful not to
cite the software in evidentiary documents, says Paromita Shah, associate director of the National Lawyers
Guild’s National Immigration Project.
“Palantir lives on that secrecy,”
she says.
Since the 1970s, the Supreme
Court has diferentiated between
searching someone’s home or car,
which requires a warrant, and searching material out in the open or shared
with others, which doesn’t. The justices’ thinking seems to be evolving as
new technologies rise.
In a 2012 decision, U.S. v. Jones,
the justices said that planting a GPS
tracker on a car for 28 days without a
warrant created such a comprehensive picture of the target’s life that it
violated the public’s reasonable expectation of privacy.
Similarly, the court’s 2014 decision in Riley v. California found that
cellphones contain so much personal
information that they provide a virtual window into the owner’s mind,
and thus necessitate a warrant for the
government to search. Chief Justice
John Roberts, in his majority opinion,
wrote of cellphones that “with all they
contain and all they may reveal, they
hold for many Americans ‘the privacies of life.’ ” Justice Louis Brandeis, 86
years earlier, wrote a searing dissent in
a wiretap case that seems to perfectly
foresee the advent of Palantir.
“Ways may someday be developed,” Brandeis warned, “by which the
government, without removing papers
from secret drawers, can reproduce
them in court, and by which it will be
enabled to expose to a jury the most
intimate occurrences.” —P.W.
April 23, 2018
Bloomberg Businessweek
ensuring that their information systems are used in a manner
consistent with their policies and procedures.”
Operation Laser has made L.A. cops more surgical—and,
according to community activists, unrelenting. Once targets
are enmeshed in a spidergram, they’re stuck.
Manuel Rios, 22, lives in the back of his grandmother’s
house at the top of a hill in East L.A., in the heart of the city’s
gang area. Tall with a fair complexion and light hair, he struggled in high school with depression and a learning disability
and dropped out to work at a supermarket.
He grew up surrounded by friends who joined Eastside 18,
the local ailiate of the 18th Street gang, one of the largest
criminal syndicates in Southern California. Rios says he was
never “jumped in”—initiated into 18. He spent years addicted
to crystal meth and was once arrested for possession of a
handgun and sentenced to probation. But except for a stint
in county jail for a burglary arrest inside a city rec center,
he’s avoided further trouble and says he kicked his meth
habit last year.
In 2016, Rios was sitting in a parked car with an Eastside 18
friend when a police car pulled up. His buddy ran, pursued
by the cops, but Rios stayed put. “Why should I run? I’m not
a gang member,” he says over steak and eggs at the IHOP near
his home. The police returned and handcufed him. One of
them took his picture with a cellphone. “Welcome to the gang
database!” the oicer said.
Since then he’s been stopped more than a dozen times,
he says, and told that if he doesn’t like it he should move. He
has nowhere to go. His girlfriend just had a baby girl, and he
wants to be around for them. “They say you’re in the system,
you can’t lie to us,” he says. “I tell them, ‘How can I be in the
hood if I haven’t got jumped in? Can’t you guys tell people who
bang and who don’t?’ They go by their facts, not the real facts.”
The police, on autopilot with Palantir, are driving Rios
toward his gang friends, not away from them, worries Mariella
Saba, a neighbor and community organizer who helped him
get of meth. When whole communities like East L.A. are algorithmically scraped for pre-crime suspects, data is destiny, says
Saba. “These are systemic processes. When people are constantly harassed in a gang context, it pushes them to join. They
internalize being told they’re bad.”
In Chicago, at least two immigrants have been detained for
deportation by Immigration and Customs Enforcement oicers
based on erroneous information in gang databases, according
to a pair of federal lawsuits. Chicago is a sanctuary city, so it
isn’t clear how ICE found out about the purported gang ailiations. But Palantir is a likely link. The company provided
an “intelligence management solution” for the Cook County
Sherif’s Oice to integrate information from at least 14 diferent databases, including gang lists compiled by state and local
police departments, according to county records. Palantir also
has a $41 million data-mining contract with ICE to build the
agency’s “investigative case management” system.
One of the detained men, Wilmer Catalan-Ramirez,
a 31-year-old body shop mechanic, was seriously injured
When whole
communities are
scraped for precrime suspects,
data is destiny
when six ICE agents burst into his family’s home last March
without a warrant. He’d been listed in the local gang database twice—in rival gangs. Catalan-Ramirez spent the next
nine months in federal detention, until the city of Chicago
admitted both listings were wrong and agreed to petition the
feds to let him stay in the U.S. ICE released him in January,
pending a new visa application. “These cases are perfect
examples of how databases illed with unveriied information that is often false can destroy people’s lives,” says his
attorney, Vanessa del Valle of Northwestern University’s
MacArthur Justice Center.
Palantir is twice the age most startups are when they cash out
in a sale or initial public ofering. The company needs to igure
out how to be rewarded on Wall Street without creeping out
Main Street. It might not be possible. For all of Palantir’s professed concern for individuals’ privacy, the single most important safeguard against abuse is the one it’s trying desperately to
reduce through automation: human judgment.
As Palantir tries to court corporate customers as a more
conventional software company, fewer forward-deployed
engineers will mean fewer human decisions. Sensitive
questions, such as how deeply to pry into people’s lives,
will be answered increasingly by artiicial intelligence and
machine-learning algorithms. The small team of Privacy and
Civil Liberties engineers could ind themselves even less
inluential, as the urge for omnipotence among clients overwhelms any self-imposed restraints.
Computers don’t ask moral questions; people do, says
John Grant, one of Palantir’s top PCL engineers and a forceful advocate for mandatory ethics education for engineers.
“At a company like ours with millions of lines of code, every
tiny decision could have huge implications,” Grant told a privacy conference in Berkeley last year.
JPMorgan’s experience remains instructive. “The world
changed when it became clear everyone could be targeted
using Palantir,” says a former JPMorgan cyber expert who
worked with Cavicchia at one point on the insider threat
team. “Nefarious ideas became trivial to implement; everyone’s a suspect, so we monitored everything. It was a pretty
terrible feeling.” —With Michael Riley
Bloomberg Businessweek
April 23, 2018
The Quest
For the Next
The world’s first new blue pigment in two centuries is finally
on sale, nine years after it was discovered. Now its
creator wants to find the first truly safe, stable, bright red
By Zach Schonbrun
Photographs by Ian Allen
Bloomberg Businessweek
as Subramanian, the biggest celebrity in the
uncelebrated world of pigment research, glances at a
cluster of widemouthed jars containing powders in
every color of the rainbow, save one. He’s got OYGBIV. “We’re
getting closer,” he says brightly. He points to a jar of reddish
brown dust, smoky and rich as paprika. Fetching, but it isn’t
what he’s looking for.
During his nine-year sojourn into the strange, inicky
realm of color, Subramanian, a materials science professor
at Oregon State University at Corvallis, has grown infatuated with a form of chemistry that he, like many of his
peers, once considered decidedly low-tech. His renown
derives from his accidental creation, in 2009, of a new pigment, a substance capable of imparting color onto another
material. YInMn blue (pronounced YIN-min) is an amalgam of yttrium, indium oxide, and manganese—elements
deep within the periodic table that together form something unique. YInMn was the irst blue pigment discovered
in more than 200 years.
It isn’t only the exotic blueness that has excited the color
industry, but also the other hues the pigment can generate.
Subramanian soon realized that by adding copper, he could
make a green. With iron, he got orange. Zinc and titanium, a
muted purple.
Scanning these creations, scattered across his workbench
like evidence of a Willy Wonka bender, he frowns. “We’ve
made other colors,” he says. “But we haven’t found red.”
The world lacks a great all-around red. Always has. We’ve
made do with alternatives that could be toxic or plain gross.
The gladiators smeared their faces with mercury-based vermilion. Titian painted with an arsenic-based mineral called
realgar. The British army’s red coats were infused with
crushed cochineal beetles. For decades, red Lego bricks contained cadmium, a carcinogen.
More than 200 natural and synthetic red pigments exist
today, but each has issues with safety, stability, chromaticity, and/or opacity. Red 254, aka Ferrari red, for example, is
safe and popular, but it’s also carbon-based, leaving it susceptible to fading in the rain or the heat.
“If we sit out in the sun, it’s not good for
us,” says Narayan Khandekar, director of
Harvard’s Straus Center for Conservation
& Technical Studies and curator of the
Forbes Pigment Collection. “That’s the
same for most organic systems.” One red
is stable, nontoxic, and everlasting: iron
oxide, or red ocher, the ruddy clay found
in Paleolithic cave paintings. “It’s just
not bright in the way that people want,”
Khandekar says.
A new pigment can generate hundreds of millions of dollars annually, afecting product categories from plastics to
cosmetics to cars to construction. The most commercially
successful blue, phthalocyanine, is found in eye shadow,
hair gel, even the cars on British railways. Subramanian’s
April 23, 2018
blue appears to be superior, but that doesn’t mean it has
made him rich. What began as a scientific pursuit has
opened up a whole new set of challenges getting YInMn
approved, produced, and on the market.
With that process in motion, Subramanian, more scientist
than chief executive, is now hunting for a similarly safe,
inorganic red derivative of YInMn—something that could
put Ferrari red, which is worth an estimated $300 million
annually, well in its rearview mirror. Mark Ryan, marketing
manager at Shepherd Color Co. in Cincinnati, says that whoever inds such a red “wouldn’t have to come into work the
next day.”
Told of Ryan’s promised reward, Subramanian chuckles.
“I’d still come in to work,” he says. “I love what I do.”
ubramanian is 64 and short, with a slight paunch and a
dark mustache that curls down the sides of his mouth.
Raised in Chennai, on the southeastern coast of India,
he developed a fascination with the makeup of objects by
examining beautiful seashells that had washed ashore. “How
does nature make these things?” he would ask himself. It
wasn’t until much later that he began asking how the shells
got their colors.
Technically speaking, colors are the visual sensates of
light as it’s bent or scattered or relected of the atomic
makeup of an object. Modern computers can display about
16.8 million of them, far more than people can see or than
printers can reproduce. To transform a digital or imagined
color into something tangible requires a pigment. “Yes, you
have this fabulous blue,” says Laurie Pressman, vice president of the Pantone Color Institute, which assists companies
with color strategies for branding or products. “But wait,
can I actually create the blue in velvet, silk, cotton, rayon,
or coated paper stock?
“It’s not just the color,” she adds. “It’s the chemical composition of the color. And can that composition actually be
realized in the material I’m going to apply it to?”
This limitation restricts the pool of pigments available
to the garment, construction, tech, and
other industries. A single one, titanium
dioxide, accounts for almost two-thirds
of the pigments produced globally; valued at about $13.2 billion, it’s responsible
for the crisp whiteness of traic lines,
toothpaste, and powdered doughnuts.
Getting other colors has historically
meant incorporating dangerous inorganic elements or compounds, such as
lead, cobalt, or even cyanide. In recent
years, health and environmental regulations have created a heavy push toward more benign organic
pigments, leading researchers to discover plenty of blacks,
yellows, greens. Blue is a diferent story.
Subramanian entered the annals of pigment lore even
though he wasn’t looking for a pigment or even mixing
Out of the oven
came a blue so
radiant, so fantastic,
it appeared almost
Subramanian in his lab. YInMn was his 57th career patent
ingredients thought capable of making a distinctive color. He
and his co-investigators were after electronics—speciically
a multiferroic, a material that’s both electrically and
magnetically polarized, which is useful for computing. The
yttrium began as pale white, the indium oxide black, and
the manganese a bilious yellow. One of Subramanian’s postdoctoral students, Andrew Smith, ground them to gray, placed
the blend in a small dish, and stuck it in a furnace heated to
2,200F. Twelve hours later, out of the oven came a deep,
vibrant, intoxicating blue. It was so radiant, so fantastic, it
appeared almost extraterrestrial—the ripest Venusian blueberry, cleaned, polished, and glowing from within.
“What the heck happened?” asked Subramanian when he
saw it.
“I did exactly what you told me to do!” Smith said.
“Are you sure you made the right one?”
“Let’s try it again.”
Subramanian knew a little something about discovery.
After getting his doctorate in chemistry at the Indian Institute
of Technology, Madras, he’d spent three decades researching solid-state materials chemistry at DuPont Co., essentially
studying the composition of anything that wasn’t a liquid. He
had 54 patents to his name, mostly involving superconductors, thermoelectric materials, and other esoterica compelling
only to a narrow band of chemists concerned with electronics. Nothing colorful. But Subramanian could tell something
was up with this.
He called some colleagues at the University of California at
Santa Barbara. “You’ve got to see this to believe it,” he said.
They didn’t share his extracurricular fascination.
“I’d never seen a color like that in my life,” he recalls.
“I’ve made so many oxides. Superconductors are always
black or brown or sometimes yellow. Never made this.” It
was as though he’d crossbred tomatoes with onions and
sprouted a cantaloupe. “I was always worried, is this true?
Am I dreaming?”
Blue is one of nature’s most abundant tones, but
it’s proven hard for human hands to create. When the
ancient Egyptians tried to replicate the deep, oceanic tone
of ultramarine to adorn tombs, papyrus, and art, they
wound up with something more like turquoise. During
the Renaissance, ultramarine could be costlier than gold,
because the lapis lazuli from which it derives was mined
in remote Afghanistan. (Michelangelo nevertheless scored
some for the Sistine Chapel ceiling.) The irst modern synthetic pigment, Prussian blue, or ferric ferrocyanide, wasn’t
discovered until the early 18th century, by a German chemist trying to make red. Since then, many common blues
(cerulean, midnight, aquamarine, smalt) have contained
traces of cobalt, a suspected carcinogen.
Subramanian and Smith began testing their compound
by dunking it into acid; they were pleased to ind it didn’t
dissolve. YInMn also proved to be inert, unfading, and nontoxic. It was more durable than ultramarine and Prussian
blue, safer than cobalt blue, lighter than phthalocyanine
blue, darker than Victoria blue. It was remarkably heatrelecting, potentially allowing whatever object it coated to
remain cool under the sun. Subramanian started keeping
two wooden birdhouses positioned beneath a pair of heated
lamps on a table in his oice. One of the roofs was painted
with equal parts black chromium oxide and cobalt blue;
Bloomberg Businessweek
the other was black mixed with YInMn blue. The YInMn
house stayed around 55 degrees cooler than its counterpart.
Subramanian wrote a paper describing his blue’s properties, eventually publishing it in the Journal of the American
Chemical Society, and filed for a patent (No. 8,282,728,
issued in October 2012 to Subramanian, Smith, and a colleague). Word that he’d fathered some sort of new blue
generated media attention—and corporate suitors in
turn. Subramanian was surprised by the interest and
quickly applied for more government funding. “I thought
everything was known about this,” he says. “Who was
going to give me money to do research on pigments?”
There was more at stake than he initially grasped. The
research company Ceresana estimates that pigments are a
$30 billion industry, headlined by major chemical companies
such as Lanxess, BASF, Venator (a spinof from Huntsman),
and Chemours (a spinof from DuPont). High-performance
pigments—the most colorful, stable, and durable ones—are
a rapidly growing market segment, accounting for almost a
sixth of the total value in 2016, according to Smithers Rapra
Ltd. Demand is rising as lead-based pigments are phased out
and emerging markets put high-performance ones in industrial and building coatings.
A safe, durable, environmentally friendly blue ought to be
enormously lucrative. It’s overwhelmingly America’s favorite
color, according to Pressman of the Pantone Color Institute.
“Blue is that concept of hope, promise, dependability,
stability, calm, and cool,” she says. “We think of it as a color
of constancy and truth. It’s one of the most approachable
colors, the color that’s the most comfortable.” Blue is central
to the brand imaging of Ikea, Ford, Walmart, and Facebook.
It’s on our refrigerator shelves, our walls, our clothes. Twothirds of Major League Baseball teams feature blue on their
uniforms. Blue is everywhere.
The companies calling Subramanian had plenty of ideas for
YInMn. HP wanted to know if the pigment could be converted
to an ink. Chanel was interested in it for cosmetics. Merck
wondered about skin care. Nike was curious whether it could
be used in sneaker leather to keep feet cool. Subcontractors
to companies working on self-driving cars thought YInMn’s
Mixing together yttrium, indium, and manganese to make YInMn
April 23, 2018
relective properties might improve the vehicles’ sensors.
Pigment sellers were interested, too. Shepherd Color Co.
sent representatives to Oregon State within a week of the
paper’s publication, then spent two years testing YInMn for
environmental resilience, regulatory itness, and cost. The
next step was licensing. The patent belonged to Subramanian,
but Oregon State was entitled to split the royalties because
the discovery had occurred in a university-owned laboratory.
Shepherd won the exclusive license in 2015 and began preparing to produce half-ton batches for what it decided was the
most viable market: industrial coatings for sidings and roofs.
(The company declined to disclose the terms of the deal.)
Last September, eight years after Subramanian’s discovery,
the U.S. Environmental Protection Agency inally approved
YInMn for commercial sale in industrial coatings and plastics.
Shepherd swiftly went to market.
A natural next step would be for Shepherd to submit an
application to be listed on the EPA’s Toxic Substances Control
Act inventory, which would approve it for all applications—
potentially including some of the ones in which Nike et al were
interested. But Shepherd has yet to apply. So far, YInMn’s only
other forays into the market have been from Crayola LLC,
whose irst new crayon in a decade, Bluetiful, was purportedly “inspired” by YInMn—Shepherd wouldn’t comment on
whether the company is paying royalties—and Derivan, the
Australian paint maker, which has transformed the pigment
into an acrylic that’s being ofered to artists at a handful of
retailers, on a sample basis.
The early market for Shepherd has been limited somewhat by its high price, a function of the cost of indium, a
metal primarily used in the clear, thin, conductive layer
of smartphone touchscreens. For this purpose it needs to
be exceptionally pure, which, coupled with high demand,
meant it was selling for $720 per kilogram at the end of 2017.
(The igure for manganese was $1.74.) As a result, Shepherd
lists YInMn blue at $1,000 per kilogram, by far its most
expensive pigment. Ryan, Shepherd’s marketing manager,
jokes that unless an indium meteor crashes into southwestern Ohio, the price will remain high.
That doesn’t mean it can’t generate a lot of money.
Geofrey Peake, R&D manager at Shepherd, says YInMn and
others in its class, complex inorganic colored pigments, are
the company’s most durable oferings. As paint coatings,
they can come with a warranty of up to 50 years—well worth
the investment for metal rooing or skyscraper facades.
Other applications, and lower prices, will have to wait until
researchers at Shepherd or Oregon State can replace the
indium without dulling the blue.
The slow pace of testing and regulatory approval, plus attorney fees and other licensing expenses, has meant that,
almost nine years after his discovery, Subramanian still
hasn’t seen any royalties. Still, YInMn has rejuvenated his
career and given it new direction. “If we can create a beautiful red pigment, which is stable and nontoxic, it’s going to
be a big hit,” he says. “That’s what I’m hoping.”
Bloomberg Businessweek
April 23, 2018
atent No. 8,282,728 is for something potentially far more red capable of supplanting not only cadmium but also synvaluable than YInMn itself. In fact, it only briely men- thetic dyes such as Natural Red 4—which the Food and Drug
tions “intense blue color.” Subramanian’s true invention Administration approves as safe for consumption, but which
was the crystal structure—or the atomic arrangement—of don’t tend to last in paint coatings—and carmine, a pigment
the material, called trigonal bipyramidal coordination. The derived from crushed insects that has caught the attention
manganese imparts the blueness, and by adjusting its propor- of Peta, and that might make you think twice before buying
tion in the compound, you can lighten or darken its tint. But, as that lipstick.
Subramanian’s jars of lilac and mossy green demonstrate, the
Red might not be America’s favorite shade, but it’s the
structure is also capable of absorbing (and, conversely, relect- color of courage and seduction, joy and revolution, and it
ing) other colors. This discovery was like
remains culturally and commercially siginding a hidden door in a bookshelf.
niicant the world over. Pressman says it’s
Jun Li, a research associate at
the boldest color outside of black, so it
Subramanian’s lab, says they initially
evokes power and authority (a good qualthought that just decreasing the amount of
ity in stop signs). Red cars make up only
indium would produce red. But this wasn’t
8 percent of the automotive population,
as simple as it sounded. Most red pigments
but that leaves plenty of room to make
The market for high-performance
pigments, YInMn’s class, in 2016
are semiconductors, and retaining their
money, especially given the color’s prevalence in lashy, expensive sports cars.
conductivity requires some inagling. One
approach is to adjust the distance between atoms in the comSubramanian wants to make a red that can strike these
posite, thus altering the electrons’ absorption energy when notes while being so safe that it can sit on store shelves
they receive light to allow the compound to absorb blue—and undisguised. “I go to Home Depot and all they have are
therefore relect red. But doing this, Li explains, could equally color numbers,” he says. “Nobody knows what it is,
return the material to its original, laccid gray. “You can try to chemistry-wise. It is amazing. We take it for granted. We
predict,” she says. “But you just never know.”
see a color and say, ‘OK, it must come from a pigment.’ But
Reducing or replacing the indium would also make a nobody knows what is really behind the color.”
new red cheaper (and potentially lead to an indium-less ofshoot of YInMn blue). The inability to keep costs in line with
t lunch at a pub down the street from his lab, Subramanian
demand scuttled the most promising red of recent decades,
mentions a recent trip he and his wife, an artist, took to
a deep shade discovered in the late 1990s by two researchNew York. “We went to the Guggenheim,” he says. “I used
ers in Germany. They’d been looking for a replacement for to hate going to museums. I’d tell her to go without me, and I’d
cadmium, a naturally occurring heavy metal found in the go to a nearby university and visit the chemistry department.”
Earth’s crust. In paint, cadmium had long been considered But on this trip, he stopped in front of Kandinsky’s Blue
safe and durable; its brilliance enlivened the works of Monet, Mountain and gawked at the ultramarine used to paint the
van Gogh, and Munch. But it had grown notorious, known to arresting peak. “It’s really amazing how much it has changed
leach into the environment during production and to contam- my life,” Subramanian says of YInMn.
inate food supplies. A 1997 study identiied traces of cadmium
The walls inside the pub are painted with a dull, rusty
in children’s backpacks, toys, and headphones. (The metal red. He takes a knowing, unimpressed glance around. “Iron
has since been found in Miley Cyrus brand jewelry and seats oxide,” he says. “Deinitely.”
He professes again to be unconcerned that he isn’t getting
from Highbury, Arsenal F.C.’s former home pitch.)
The German researchers’ red used a compound called rich from YInMn. He’s proud that his 57th career patent is,
perovskites (CaTaO2N and LaTaON2) in place of cadmium. if not exactly tangible, at least vaguely relatable to the averIn an article published in Nature in 2000, they said their age person. A stranger who recognized him as the inventor
inorganic pigment seemed like “a promising replacement” for of a new color approached him at an airport recently and
cadmium-based colors. But the mixture proved too expensive remarked, “That’s a very pretty blue. How did you ind it?”
to sell in abundance (and, incidentally, required toxic ammonia
The diicult thing about pigment research is that, even
gas for synthesis) and never reached the commercial market.
after the most meticulous planning and scrupulous strategizThe European Union has considered banning the sale of ing, you still don’t know for sure what you’ve created until you
cadmium pigments but, facing pressure from artists’ groups, open the oven door. Looking for electronics, Subramanian
ultimately decided against it. As did the U.S. Consumer wound up with a new blue. Maybe while looking for red, he
Product Safety Commission, which recommended “accept- jokes, he’ll stumble on some new electronics.
able daily intake” levels of cadmium after citizens petitioned
At least this time he has a concrete starting point and a
for it to be regulated. Cadmium currently sits seventh of 275 sense of direction. Back in the lab, he picks up the jar of
on the U.S. Agency for Toxic Substances and Disease Registry’s burnt orange. Asked if it makes him feel conident he’ll ind
his red, he smiles.
priority list of hazardous materials. (Cobalt is No. 51.)
“No,” he replies. “We’re only going towards it.” For Subramanian, success would mean discovering a
Bloomberg Businessweek
Vikram Rangnekar grew up in Mumbai, studied
computer science at the University of Delaware, and by the
waning days of the Obama administration had been working
in Silicon Valley for almost six years. Through his job as a software engineer at LinkedIn Corp., Rangnekar secured an H-1B,
the temporary visa for high-skilled workers, and the company
began the process of sponsoring his green card way back in
2012. But he had dozens of senior colleagues from India who’d
been waiting a decade or more for their green cards and still
didn’t have them. “Some said it’d take 20 years for my turn,”
Rangnekar remembers. “Others calculated 50 years—which
is basically never.” As a young man with a global sensibility
and an in-demand set of skills, Rangnekar had no reason to
let the uncertainty of a green card application deine his family’s life. In the early fall of 2016, he, his wife, and their two
young boys made the move north, to Canada.
Their irst few months in Toronto were mostly spent settling in and scouting out decent tacos. Then Donald Trump
won the U.S. presidential election. Rangnekar’s inbox blew up
with messages from friends and colleagues in the U.S. on H-1Bs
asking for advice on how to migrate. Rather than deal with
each one individually, he registered a website, MOVNorth
April 23, 2018
Some of the most highly prized tech workers
are ditching their visas and moving north
By Karen Weise and Saritha Rai
.com—a reference to MOV, a classic coding command for copying data from one location to another—and wrote everything
down there. He shared the URL on LinkedIn—of course—hoping it would help a few people. Sitting in a light-illed cofee
shop in his hip Toronto neighborhood less than a year later,
Rangnekar pulls up the website on his MacBook. “That’s me,”
he laughs, pointing to a selie of him in a parka and wool
beanie, both dusted with snow, smiling broadly and “freezing away.”
In its irst two days online last July, got
20,000 views. He quickly set up a forum where people
could ask and answer each other’s questions, and early last
fall added a paywall to encourage people to commit to the
community. Today, the site gets as many as 100,000 views
per month—Rangnekar can track Trump’s rhetoric just by
the spikes in traic. Roughly 250 people pay $99 a year for
access to the forum, almost all of whom are actively pursuing a move. He knows of at least a dozen other engineers who
took his advice and have already arrived in Toronto.
Rangnekar still gets email queries daily, mostly from engineers with Indian surnames, all looking for the same information. Then there are the other emails, the ones Rangnekar
Bloomberg Businessweek
April 23, 2018
calls “nastygrams.” He pulls up a sample with the subject line where the greatest number of Americans could beneit.
“Ignorant Idiot.” “You’re going to ruin your own country’s
Rangnekar received his H-1B in 2010, but his history with
economy by making it harder for Canadians to ind jobs, so employment visas dates to 2005, when he graduated from
for that reason we here in the US stopped foreign visas,” he the University of Delaware and wanted to start a company
reads. “We are becoming a proud independent nation again.” with two of his former classmates. The U.S. didn’t have an
There are anti-immigrant and so-called alt-right groups in entrepreneur visa, so they moved to Singapore, returning four
Canada, but they haven’t gained the same traction as in the U.S. years later to present their product—Socialwok, a pre-Slack
and Europe. The country has historically courted immigrants social platform for professional collaboration—to investors at
to propel economic growth. Now, at least 1 in 5 Canadian resi- the TechCrunch50 startup conference in San Francisco. They
dents was born abroad; in Toronto, which has a thriving Indian didn’t attract new cash, but all three walked away with the next
community, more than half are foreign-born. “Canadians don’t best thing: a promising job ofer.
send me any of this,” Rangnekar says, waving a hand at the
Rangnekar had met his wife, Deepa Chaudhary, in Mumbai,
screen. Sometimes Canadians—always polite—write wonder- and they married before moving to Singapore. Once they seting whether an invasion of engineers will hurt the country. He tled near San Jose, “I was seduced by the Californian lifestyle,”
writes back explaining what to him
Rangnekar says. “The work environChaudhary and Rangnekar with their younger son, Dhruv
is an obvious, pragmatic reality: that
ment, the free food, the state-of-thetech is growing in its importance to
art gym, a home in the Santa Cruz
mountains.” Yet there were things
culture and economies, and the benpreventing them from commiteits in terms of jobs and wealth are
increasingly concentrated in global
ting for the long haul. In Singapore,
Chaudhary worked for Salesforce.
cities like Toronto. In short, as he sees
it, the inlux of migrants to Canada
com Inc.’s philanthropic foundation,
helps everyone.
but the spousal visa that comes with
the H-1B, the H-4, at the time forbade
The H-1B was created in 1990, part
her from holding a job. (Guidelines
issued in early 2015 allowed certain
of an immigration overhaul signed
H-4 holders to apply for work perinto law by President George H.W.
mits, but the Trump administraBush that also created the EB-5 investion is reconsidering that policy.)
tor visa—the subject of a fracas involvImmigration law limits how many
ing Kushner Cos. seeking Chinese
people from any given country can
investment—and the diversity lottery, which Trump has attacked.
be granted green cards, and because
Today, an estimated half a million
Indians get about three-quarters of all
H-1B holders live in the U.S. No one
H-1Bs, their backlog has grown. The
tracks exactly how many ditch their
couple began considering where they
skilled visas for the permanent resimight go: to Singapore, to a European
dency Canada ofers, but during the
tech hub such as Berlin, or even to
irst year of Trump’s presidency, the number of tech profes- India. Then a friend of a friend mentioned Toronto.
sionals globally who got permanent residency in Canada ticked
In 1967, Canada became the irst country to adopt a pointsup almost 40 percent from 2016, to more than 11,000.
based immigration system. The country regularly tweaks how
Almost from the beginning, the H-1B system had obvious it rates applicants based on national goals and research into
laws. Outsourcing companies lood the application pool what makes for successful integration: A job ofer used to
with jobs that barely qualify as high-skill, taking visas that come with 600 points, but now it’s worth just 200. Other faccould go to full-time employees at advanced technology tors like speaking luent English or French—or, even better,
companies. The cap on the number of H-1B visas luctuates, both—have been given more weight over the years. Country
but in the ive-day annual application window in early April, of origin is irrelevant.
about 190,000 people petitioned for just 85,000 spots—in
In 2016, Canada increased national immigration levels to
Obama’s last year, 236,000 applied for the same number of 300,000 new permanent residents annually. Last year, in convisas. The lucky winners are chosen in a lottery. H-1Bs cost sultation with trade groups, it created a program called the
employers from $1,710 to $7,700, depending on factors such Global Skills Strategy to issue temporary work permits to peoas their size and how much they depend on foreign staf. A ple with job ofers in certain categories, including senior softchunk of those fees is earmarked for training U.S. workers ware engineers, in as little as two weeks. Since the program
in science and technology, but an analysis by the Brookings started in June, more than 5,600 people have been granted
Institution found that, on balance, the money isn’t going to permits, from the U.S., India, Pakistan, Brazil, and elsewhere.
the areas with the highest demand for tech workers, i.e.,
When he and Chaudhary decided to move, Rangnekar
Bloomberg Businessweek
had an idea for a startup aimed at helping developers use
advanced programming interfaces, or APIs, to build apps, but
neither of them had a job ofer. Still, for Canada at least, they
were desirable applicants. Standing in the bright kitchen of
their rented row house, their 3-year-old son slurping strawberry ice cream, they explain how simple it was to go online
back in San Jose and, using a calculator provided by the
Canadian government, determine with relative certainty that
they would qualify for permanent residency. The hardest part
about applying was taking a photo that met Canada’s speciications. “She sent them to me, and I was like, ‘This looks
OK,’ ” Rangnekar says. Chaudhary cuts him of: “I was like,
‘No! It has to be centered like this!’ ”
Once Trump was elected, Canadians would cautiously ask
Rangnekar, “What do you think about him?” “I make it clear
what side I’m on,” he says. Rangnekar watched as the travel
ban triggered sweeping protests, legal challenges, and, among
many in Trump’s base, red-blooded exultation. The nationalist wave hit home for many H-1B workers that February when
a white man walked into a bar in Olathe, Kansas, shouted “Get
out of my country!” and shot two Indian engineers.
Trump has since called for broad cuts to legal immigration and accused the H-1B system in particular of stealing
jobs from American workers. He’s also advocated adopting a
points-based system similar to Canada’s, but since Congress
has to approve any changes to immigration law, it’s hard to
see the U.S. replicating the lexibility of the Canadian system.
At irst, after Rangnekar started MOV North, “People’s
questions were like, ‘Tell us about Canada,’ ” he says. “That
was really it.” They wanted to know the basics—jobs, schools,
snow. Over time, as people began seriously considering a
move, they asked detailed questions about the immigration
process. “I was like one of them on the other side,” he says.
Topics of interest now range from how to get ingerprinted
for the FBI background check Canada requires to tips for getting letters from former employers detailing work experience.
Anand Iyer was living near San Jose when he stumbled on
a post about MOV North that Rangnekar had put on the Q&A
platform Quora. Iyer had an H-1B visa through his work for a
cloud-services company and a house in Silicon Valley where he
lived with his wife, but the uncertainty of waiting in the green
card line was getting to him. “Friends in the same boat would
constantly remind us that we might have to leave the country
in weeks if our H-1B extension did not come through,” he says.
The couple eventually sold their home and moved to
Mississauga, outside of Toronto, with their 2-year-old. Iyer
still works remotely for the same company, but he took a pay
cut to relect the lower cost of living. Taxes are higher, but the
government provides more, including health care and preschool. List prices for single-family homes in Iyer’s suburb
and row houses in Rangnekar’s hipper neighborhood have
risen to around $900,000 (roughly C$1.1 million)—not cheap,
but not Bay Area. All told, Iyer inds his quality of life has
improved. “Silicon Valley is way more competitive,” he says.
He’s remained active on the MOV North forums, answering
April 23, 2018
questions rather than asking them. His responses have already
persuaded some friends of his wife’s who were caught in green
card paralysis to apply for passage into Canada.
In MOV North’s early days, Rangnekar tended to the site
at night after working on his startup all day. But as the volume of questions coming in increased, so did the amount of
time the site demanded. People would email to thank him—
then ask for more help. “That motivated me because it tells
you you’re kinda doing something right,” he says. “Very few
people wrote to me about my APIs.” He began wondering if
MOV North could became his primary business.
As recently as a few years ago, the kind of jobs that might
interest a top engineer weren’t plentiful in Toronto, but that’s
changing. Google, Uber, and Amazon are expanding their engineering outposts, and the Canadian government is pouring
money into artiicial intelligence research and facilities such
as the MaRS Discovery District, a tech incubator whose startups have employed more than 6,000 people as of the end of
2016. There’s work to be found in other Canadian cities, too.
Montreal is home to Google’s AI research lab, the e-commerce
giant Shopify Inc. is based in Ottawa, and the social media manager Hootsuite Inc. is Vancouver’s hometown darling, though
most people Rangnekar talks with are interested in Toronto.
For now, the diferences between U.S. and Canadian immigration policies are creating major opportunities for Canadian
entrepreneurs to lure workers who otherwise would have
looked south. Bob Vaez was raised in Toronto, and in the
2000s, Vaez worked for Silicon Valley chipmaker Nvidia Corp.
on a TN work permit, a provision under the North American
Free Trade Agreement that makes it easy for Canadian professionals to work in the U.S. The TN, like the H-1B, is tied to
employment, so when Vaez decided to start his own company, that was that. “To me it was, ‘This is the land of opportunity,’ ” he says. “And the next thing, I got a call from the
company’s lawyers, like, ‘You know, you have to leave the
U.S. in ive days.’ ” He knew Canada could be more welcoming. Vaez’s engineer parents immigrated from Iran, but his
aunts came over as refugees during the Cultural Revolution.
“We’ve got the point system, but there is also a diferent situation when there is humanity at stake,” he says.
Vaez returned to Toronto and co-founded EventMobi,
which builds apps for conventions and corporate training
sessions. He hopes to take advantage of the uncertainty in
the U.S., in part, by working with MOV North on a new hiring platform Rangnekar is building. Once it’s up and running, companies will be able to search for applicants, which
his algorithm ranks based on their relevant skills and experience. “I’m a software guy. I just look for any excuse to automate something,” Rangnekar says. He knows the business
well—after all, he spent years at LinkedIn. One advantage he
has over traditional recruiters, as he sees it, is that people
who sign up for his site have already expressed interest in
Canada. So far thousands of people have registered, all saying they want to move. 61
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As tourism surpasses tea as an economic driver, one
hotelier hopes to promote this island nation through his
otherworldy resorts. By Nikki Ekstein
Photographs by Victoria Hely-Hutchinson
April 23, 2018
Wild Coast
Tented Lodge
food panic
Weighted voting: What
could go wrong?
Fizzy water,
snazzy design
Saving the world
with electric cars
Edited by
Chris Rovzar
n 2004 businessman Malik
Fernando bought Castlereagh, a
decrepit bungalow in the terraced,
emerald hills of Sri Lanka’s sprawling tea country. The structure had no
roof. “It was in absolute shambles,”
he recalls. “There were cattle roaming
through the whole house.”
But it had one irresistible asset: “It
was what was available,” he says, shrugging and welcoming me to the neat,
gingerbread-style mansion on a clear,
80F winter day. That was enough to
make it the perfect place for the area’s
irst luxury hotel.
When Fernando closed 13 years ago
on Castlereagh, Sri Lanka’s government
was in a cease-ire with a secessionist
militia, the Liberation Tigers of Tamil
Eelam, and optimism was in the air.
He saw an opportunity to cater to fans
of his family’s burgeoning tea farms,
who were locking here from around
the world. It took him a year to update
the colonial ruin, named after a longago tea picker who lived there, into a
parquet-loored paradise with ive bedrooms and a leet of butlers in sarongs
servicing a hillside pool. Over the next
year, he did the same thing with three
more bungalows, giving each a different style, its own restaurant, and
rooms facing the tea ields. Then the
cease-ire ended.
Standing with Fernando in front of
Castlereagh, with its lakefront views
and blooming purple gardens, it’s hard
to reconcile that it was just a decade
ago that Sri Lankans hid for cover from
daily bomb threats. But locals remember it like it was yesterday. The civil
war stretched from July 1983, when the
Tamil Tigers irst struck the Sinhalese
government’s armed forces, until
May 2009, when the militia lost its last
ight. In between, Sri Lankan civilians
were in the crossire.
In the three years that followed the
2004-05 cease-ire, about 350,000 of
them were displaced from their homes,
2,000 disappeared or were kidnapped,
and 9,000 died. Fernando harbors
memories of bomb warnings arriving
during dinner, planes getting blown up
at airports, and a constant current of
Bloomberg Pursuits
fear for his wife and children. Serving
jasmine-scented gin and tonics to
tourists was a bit beside the point.
But he was among the lucky few business owners who could aford to hang
on until better days, thanks to his family’s tea empire, Dilmah. So he welcomed a trickle of visitors to what is now
a 27-room resort complex he calls Ceylon
Tea Trails—and waited for change.
Today, Fernando’s hotel company,
Resplendent Ceylon, stretches from
inland tea country to the palm-fringed
beaches on the island’s southwestern
shore. Castlereagh remains the heart
of it all: a place where lazy lunches can
consist of inger-size prawns and singleestate silver-tip tea that sells for $1,000
per kilo, and where the perpetually soldout hotel rooms start at $675 a night.
Excess isn’t the intention. Rewriting
Sri Lanka’s narrative and casting
a global spotlight on the country’s
assets—cultural, natural, and agricultural—is. There is a tremendous upside
in doing so: Countrywide, the number
of visitors has jumped from fewer than
450,000 in 2009 to more than 2 million in 2016. But with the luxury hotel
industry in its infancy, the bulk of tourists traditionally have been backpackers at surf shacks. Sri Lanka is poised
to welcome a wider audience.
ernando, 52, had picked up my sister Jenifer and me in a seaplane in
Colombo, the nation’s capital and largest city. When we land in tea country,
he escorts us through what he jokingly
calls the CIA: Castlereagh International
Airport, whose runway is a reservoir.
Stafers wait at the end of a wooden pier
to gather our luggage.
The unevenly paved, single-lane road
to the resort passes packed terraces of
Camellia sinensis bushes, crumbling
19th century colonial buildings, and
rickety tuk-tuks that grant our van right
of way. The road surveys the land that
made Fernando’s family famous: His
father, Merrill, created Sri Lanka’s irst
fair-trade tea company in 1988. Today,
Dilmah sells in more than 100 countries
worldwide. Its mission, then and now,
has been to grow and package pure
Ceylon tea at the source. (The company
dramatically prunes the 140-year-old
plants every few years, then manually
harvests individual leaves every ive to
seven days.) Rather than blend small
amounts of Ceylon with cheaper varieties from other countries, as its competitors do, Dilmah works only with Sri
Lanka’s prized crop. That means its talent and proits are fully retained within
the country.
During the war, tea exports held
steady, and to this day the industry
remains a critical part of the economy,
directly employing 1 million Sri Lankans
(25,000 work for Dilmah alone). “From
a GDP perspective, though, tea isn’t as
important as it used to be,” Fernando
Fishermen unload their catch of Sri Lanka’s southern coast
says. Tea has accounted for 2 percent
of the country’s gross domestic product for years; as of 2017, tourism claims
5 percent. In other words, tea allowed
the country to survive, but tourism is
helping it thrive.
Halfway up the road to Tientsin
Bungalow, a squad of grinning young
townsmen bursts from around a bend
in the road, some dressed in plaid
button-downs and some in sarongs,
singing in Sinhalese and hoisting a
float covered in a rainbow of flowers, tinsel, and embroidery. Inside is
a gilded igurine of Surya, the Hindu
sun god. Behind the men, an entire
Tamil community spills out, singing
and dancing for the Pongal harvest festival. We wait for them to pass. “You
can’t rush things here,” Fernando tells
us. “You just have to slow down and
enjoy the ride.”
ernando has just brought his hotel
company’s head count to 450
with his latest endeavor, Wild Coast
Tented Lodge, on Sri Lanka’s southeastern tip. It opened in November
with 28 spaceshiplike suites on stilts,
set between Yala National Park, a
haven for endangered leopards, and
towering sand dunes that frame the
Indian Ocean. After Tea Trails and a
beach resort near Galle, Wild Coast is
Resplendent Ceylon’s third property;
taken together, the circuit gets a jingleready tag line: “Tea, sea, and safari.”
Although its resorts share the same
attention to detail as the best properties in the world, what distinguishes
Resplendent Ceylon from, say, the
Aman resorts on Sri Lanka’s beaches is a
commitment to giving back: Fernando’s
operation is set up to funnel profits to MJF Charitable Foundation and
Dilmah Conservation, his family’s nonproits. Together, they support more
than 120 conservation and community
projects across the island. MJF itself
is the largest private foundation in Sri
Lanka. It contributes to entrepreneur
mentorships, sustainable agriculture
programs, and a culinary school for
disadvantaged youth—initiatives that
earned Fernando’s father the prestigious Business for Peace Award, an
annual prize granted by previous Nobel
laureates. By 2020, MJF estimates it will
have had an impact on 200,000 lives
across the country.
Much of that is thanks to Fernando
himself, who acts as a trustee at MJF and
imbues his hotels with its ethos. Near Tea
Trails, MJF operates a children’s day care
and a wellness clinic; its nature-focused
counterpart, Dilmah Conservation, is
creating a wildlife research station at
Wild Coast where Sri Lankan scientists
can compare indings and produce policy papers to inform future legislation.
Guests may not even realize that
10 percent of Resplendent Ceylon’s profits go back into Fernando’s initiatives.
But that philanthropy is one thing that
appeals to Philippe Gombert, president
of Relais & Châteaux, the independent
hotel group to which Fernando’s resorts
belong. “A commitment to the local community is one of the stronger pillars of
the Relais & Châteaux brand,” he says.
Fernando’s engagement, he adds, is
among the best he’s seen.
he next day we hop on a seaplane
for a half-hour’s light down to the
safari-style Wild Coast Lodge and watch
the rippling landscape latten along the
way. Upon arrival, we’re ushered into a
dramatic, arching pavilion made from
thatched bamboo that opens to the
crashing waves of the Indian Ocean.
1. Resplendent Ceylon’s breakfasts
include fresh-squeezed juices and
Sri Lankan egg hoppers
2. A leopard prowls in Yala National Park
3. Fernando tends to the
grounds around Wild Coast
4. Villas at Wild Coast ofer
views of protected jungle
Bloomberg Pursuits
Our villa is a futuristic bubble, stitched
in undulating waves from PVC-coated
polyester and featuring oversize portholes that overlook the jungle. Outside,
there’s a private plunge pool. That night
we dine on Sri Lankan shrimp curry,
stewed okra, and lentil dal at a moonlit
table in the sand.
On 2,000 acres between the property and nearby Yala, Fernando wants
to establish his most ambitious initiative:
a private wilderness reserve, like those
dotting Africa. It’s set to open next year
and would help reduce congestion in
the national park—which can see “jungle jams” of 50 Jeeps swiveling madly
toward a single animal—while giving
wildlife more protected room to roam.
Yala may be one of the world’s best
places to see leopards, but because of
overcrowding, the staf at Wild Coast
varies the expeditions. Along with a
chef we go to a market in the tiny town of
Kirinda on a muddy dock where ishermen unload king mackerel, marlin, and
enormous jackish from colorful boats.
Locals—mostly men, with a smattering
of women and children—shout prices
at the vendors before swapping cash
and loading up motorbikes. We choose
a moderate-size halibut for lunch and
throw it onto an ancient scale. It costs
about $2, and the chef serves it steamed
in a banana leaf with a dizzying array of
local salads a few hours later.
When we inally head to Yala, it’s with
Chandika Jayaratne, an environmental
lawyer who switched careers when luxury tourism made guiding a suiciently
lucrative career path. Job creation is one
of the biggest beneits of tourism growth
in Sri Lanka, says Tifany Misrahi, who
focuses on travel and tourism at the
World Economic Forum. According to
her research, it takes only 30 irst-time
visitors to the country to create one job
for a local. This can slow the trend of
young adults leaving their hometown
for Colombo or Dubai.
Jayaratne adeptly picks out the
page-lipping sound of peacocks mating,
identiies birdlife—jungle fowl, bee eaters, striped painted storks—and schools
us on the area’s quirky geology, including
massive boulders with evocative names
April 23, 2018
such as Darth Vader Rock (it looks like
it’s wearing a helmet).
To avoid gridlock in the bush, he takes
us to a relatively quiet part of the park
an hour away from the lodge. Within
moments of arriving, I hear a squawk
and an angry series of snorts. Jayaratne
loors the gas pedal to lurch the car forward through a dense, tangled forest.
As we swerve down the narrow dirt
road, a herd of bufalo charges loudly
in our direction, angrily frothing up
a shallow pond. From their midst, a
leopard darts out, leaping into a bristly
bush. I see only the lash of her spotted
hide, and then it’s nothing but gnarled
horns smashing into the greenery. “Holy
shit,” we all repeat in whispers like an
incantation, hearts racing, not knowing
whether to watch or look away. This is
an apex predator with plenty to lose.
Estimates indicate that there are only
250 leopards in all of Yala, and they’re
a main draw for tourists to the entire
region. “Please get out, please get out,
please get out,” Jayaratne whispers to
the cat, until inally she catapults herself out of the bush and onto a tree in
a streak of spots. Eventually a lightly
injured bufalo calf emerges from within
the pack, and we piece together the
drama. “They were both lucky to get
out alive,” he says.
y the time I plan my next trip to Sri
Lanka—and I will deinitely return—
it’s likely that Fernando will have brought
his circuit to ive hotels or more. Up next
is a property he wants to build on pylons
in the shadow of Sigiriya, the famous
“lion rock” monument in the central part
of the island. That will be followed by a
Robinson Crusoe-inspired beach resort
in Trincomalee. He estimates that within
three years, Resplendent Ceylon will
employ 800 Sri Lankans. That’s nowhere
near the size of Dilmah’s workforce, but
it’s certainly signiicant.
“We’re lying the lag for Sri Lanka the
same way my family has at Dilmah over
the years,” Fernando says. In tourism as
in tea, it’s all about the positioning, the
packaging, and the pricing. “My success
is my country,” he says, “and it’s time to
stop underselling it.” 67
Bloomberg Pursuits
Don’t Panic!
High prices may grab headlines, but your favo
foods aren’t going extinct. Many have staged d
comebacks. Here, then, a case for optimism.
○ Chocolate
(Except when it comes to eels. They’re screwed.)
billion total retail
By Kate Krader Photographs by Caroline Tompkins
sales worldwide
○ Avocado
○ Almonds
2.4 99
billion projected consumption in the
U.S. in 2018, from 539 million in 2000
What you’ve heard
California’s five-year drought led to panicinducing headlines like this one in New
York magazine: “Have You Eaten Your Last
Avocado?” Then in late 2017, devastating
fires added to its woes.
The truth
The 2018 California crop is estimated to grow
50 percent from 2017. Supply also remains high
in Mexico, which produces 75 percent of the
fruit in the U.S. Ken Melban of the California
Avocado Commission says confidently, “You
will never eat your last avocado.”
What you’ve heard
Climate change is happening, so your candy
bars are in danger. Environmental shifts and
fungal disease in Ghana and Côte d’Ivoire,
which produce more than half the world’s
cocoa beans, have pushed up prices almost
40 percent this year.
percent of all U.S. almonds are
produced in California
What you’ve heard
In 2017 it was too much rain; this year,
it’s a freeze. And then there’s the
indisputable fact that it takes 1.1 gallonss
of water to produce one almond, while
the Central Valley, the epicenter of
almond production, sufered a five-yearr
The truth
Cocoa can be—and is—grown outside of
Africa; Brazil and Ecuador are ramping up
production. Scientists are also at work on
a hybrid diseaseresistant cocoa plant,
the CCN-51. “But the
cocoa is not good,”
warns chocolatier
Jacques Torres.
The truth
Daniel Sumner, an economist at the
University of California at Davis,
maintains that the drought didn’t afectt
production. In a nutshell, “we took wateer
away from the cotton and kept it on thee
almond trees. And planted more.”
○ Maple Syrup
What you’ve heard
Maple trees have quit growing!
The truth
Size doesn’t matter like it used to, as sm
tapping tech is revolutionizing production.
Vermont syrup—40 percent of the U.S.
supply—has grown in 10 years from
640,000 gallons to 1.9 million. Canada’s has
climbed 225 percent, to 12.2 million gallons
a year, over the same time.
Chill Out
23, 2018
○ Vanilla
$278 hat you’ve heard
st year’s Cyclone Enawo devastated
nilla bean fields in Madagascar, which
ovides 80 percent of the world’s
pply. This, after demand spiked when
ajor consumer food companies such
as Nestlé SA moved from artificial to
real vanilla.
○ Peanuts
Prices rose 29 percent in 20 6
following alternating drough
and floods in America’s sout
peanut-growing states. But t
2017 U.S. crop was 3.5 million
tons, the largest ever.
The truth
t’s not pretty. But Craig Nielsen, vice
resident for sustainability at Nielsenassey Vanillas Inc., says Madagascar
opes to increase production from
500 tons per year to 2,500. The market
s weathered constriction before: In
004 Cyclone Gafilo’s destruction sent
ices higher than $226 per pound. But
rmal levels returned.
○ hickpeas
Earlier this year a drought i
India led to a sharp inccreas
in the cost of hummus
in the U.K. The shortag
appears to be short-livved,
however: Indian producction
in 2018 should hit a reccord
11.1 million tons.
$1,300 price per pound
for baby eels,
bout the same as an ounce of gold
hat you’ve heard
el populations have declined by
0 percent in 30 years because of
il egal smuggling and this slinky fish’s
treme vulnerability to changing
ather conditions. In 2013, Japan
signated freshwater eels as
○ cto
Ubiquuitous o
menuus, top-quality
produuct from
Morocco is g ting
hardeer to fin . Ia
Gregor, o er
of thee Lobster Pla
in Neew York, has
mbled to find
alternnate sou
But there’s ho
for thhese suck
Areass around orth
Africa have be n
decreeasing the
size oof catches
w populatio s
to rebbound.
wholesale price per pound,
up from $40 in 2015
e truth
problem is serious but also partly
lical. In late 2013 demand sent
l prices to $2,400 a pound. A poor
7 harvest in Asia, coupled with a
po ching crackdown in Europe, also
pu ed up prices. And in July, Japan
will celebrate the Day of the Ox by
ti g grilled eel, when the country
ll onsume 30 percent of its annual
ly. Monitor closely.
Freak Out
Bloomberg Pursuits
What’s Your
Vote Worth?
Economist Dambisa Moyo argues that
to save liberal democracy, it’s time
to kill its core principle: One
vote for one person. By Peter Coy
It’s hard sometimes not to despair for the future of
democracies. Voters can be tribal and poorly informed. Last
year the Annenberg Public Policy Center at the University of
Pennsylvania surveyed 1,013 U.S. adults and found that only a
quarter could name all three branches of government (executive, legislative, and judicial). A third couldn’t name any.
Dambisa Moyo has had that same sinking feeling. But
unlike you, she wrote a book about it. In Edge of Chaos: Why
Democracy Is Failing to Deliver Economic Growth—and How to
Fix It, she argues that the public is too shortsighted to choose
economic policies that will produce long-term prosperity.
“Political myopia is the central obstacle on the path of growth
in advanced economies,” she writes.
Readers are likely to ind themselves nodding along until
page 198, which is where Edge of Chaos gets seriously edgy.
At the end of a list of ixes, she calls for a system of “weighted
voting,” in which a ballot counts more or less depending
on a voter’s qualiications. Weight would be determined
by a civics test or maybe by one’s profession or education.
Weighted voting “will no doubt be seen as jarring and antithetical to the principles of democracy,” Moyo concedes. Yet
she argues that it “reduces the inluence of those most likely
to be apathetic or disengaged from public policy debates and
thus to make poor electoral choices.”
As a black woman, Moyo belongs to two groups that were
April 23, 2018
long denied any vote in America, let alone an equal one.
Women didn’t get to vote in national elections in the U.S.
until 1920, and the black electorate still faces obstacles. As
recently as December, the American Civil Liberties Union
accused Alabama of suppressing the black vote in its special U.S. Senate election by insisting on photo IDs while closing driver’s license oices in predominantly black counties.
Yet Moyo presumably sees herself as one of the people
who would get an overweighted vote: She holds a master’s
degree from Harvard and a doctorate in economics from the
University of Oxford. Born and raised in Zambia, Moyo has
worked for Goldman Sachs Group Inc. and the World Bank
and expects to become a U.S. citizen this year. (She’s published three other books, the best-known being Dead Aid,
which argues that dependence on foreign aid has actually
made Africa poorer.)
Moyo says her aim is to save democracy, not squelch it,
through weighted voting and other tweaks to the political
system: compulsory voting, higher salaries for oiceholders, longer terms in oice combined with stricter limits on
the number of terms, etc. Because if something isn’t done
soon to boost growth, tyrants will arise. “In fact,” she writes,
“overwhelming evidence shows that economic growth is a
prerequisite for democracy, not the other way around.”
She’s right that a stagnant economy is dangerous to civil
liberty. Global freedom declined for a 12th consecutive year
in 2017, the watchdog group Freedom House said recently,
citing setbacks in Bahrain, Hungary, Turkey, and Venezuela,
among other countries. With economic anxiety on the rise,
70 percent of the world’s putative democracies have become
“indistinguishable from authoritarian regimes,” Moyo writes.
As is often the case, though, Moyo’s solutions aren’t as persuasive as her diagnosis. If you think about it, even devoted
democrats draw the line somewhere on ballot box access:
The right to vote is generally denied to prisoners, children,
noncitizens, and people judged mentally incompetent. But
imagine the envy and anger that would be unleashed if voting
power were based on profession or education. Who would
decide how to divide the public into irst-, second-, and thirdclass citizens? Would biology professors be certiied as “highly
qualiied” but high school history teachers ranked “standard
qualiied”? What about journalists vs. carpenters vs. actors
vs. the unemployed? And how much of the public would be
consigned to the lowest tier of “unqualiied” voters—would
it be 1 percent or 10 percent or more?
A civics test seems a more defensible way to implement
weighted voting, but not really. It implicitly equates knowledge
with good judgment, which experience tells us isn’t a sound
equation. As the conservative writer William F. Buckley Jr.
once said, “I’d rather entrust the government of the United
States to the irst 400 people listed in the Boston telephone
directory than to the faculty of Harvard University.”
In the end, Moyo comes across as a well-meaning meritocrat. Democracy has its laws, all right, but elitism isn’t the
Bloomberg Pursuits
April 23, 2018
A Sparkling Solution
Make hydration a long-term
investment with a minimalist
water carbonator from Aarke
Photograph by Will Anderson
Most home carbonating machines are similar in their basic
function. The $199 Aarke sparkling water maker, released in
late 2016, occupies a unique position because of its stainlesssteel construction and its small countertop footprint—just
6 inches deep, it’s both taller and slimmer than other options.
Its distinguishing feature, though, is a sleekly designed lever,
instead of push buttons, that activates the CO2 tank. Pull it
down to add bubbles; let it go, and it releases the pressure in
the bottle. It’s as simple as turning on a faucet.
The Competition
• SodaStream is the biggest name in the
market and works admirably well. The
$150 Power, from design guru Yves Béhar,
has push-button activation.
• The $199 KitchenAid, also made by
SodaStream, uses a similar lever-activated
system, but in a more vintage guise.
• ISi’s Soda Siphon, at $99, is a water
carbonator for those on the go; its tiny
1-liter CO2 tanks are less suited for a family
with a full kitchen.
The Bottom Line
The Aarke’s best feature is the lever, which gives
the act of carbonation the feel of pulling an
expert cup of espresso. Its sturdy housing and
Swedish good looks make for a reliable appliance
that shouldn’t go out of style. $199;
Bloomberg Pursuits
April 23, 2018
Raj Kapoor
The Silicon Valley veteran has a new plan: Save
the world with electric cars. By Arianne Cohen
Raj Kapoor thinks autonomous vehicles will save the Earth. as a Carnegie Mellon undergraduate. In 2011 he joined the
With some caveats. “The big idea is actually making sure board of Lyft. “He’s very meticulous,” says Paul Twohey,
that we have all four together: autonomous, electric, shared who co-founded the workout startup Fitmob with Kapoor in
rides with shared ownership,” explains the chief strategy 2013. “When we had to change paths, he was egoless—he’d
oicer at Lyft Inc. “Climate change is probably one of the just say, ‘What do we have to do for the business?’ ”
world’s biggest challenges,” because one person acting alone
After Twohey and Kapoor merged Fitmob with ClassPass,
can’t really make a diference. “Policy alone can’t change another itness-facilitating startup, in 2015, Kapoor began
it. Technology alone can’t change it. So I felt like I had to studying urbanization. Reducing carbon emissions will hinge
do something.”
on designing cities with eicient transportation—a massive
Last year, Lyft set an aggressive goal to provide at least business opportunity. Kapoor considered starting an invest1 billion rides per year by 2025 in self-driving electric vehi- ment fund focused on urban development, but he ultimately
cles. Consumer-owned cars, Kapoor says, spend most of came back to Lyft and its potential to inluence urban behavtheir time parked, whereas a shared vehicle could almost ior. He wanted to work there, he told founders Logan Green
always be in use. Electric engines have 20 moving parts, vs. and John Zimmer, but only if he could focus on environmenmany hundreds in gas-powered ones, so they require less tally responsible expansion. They accepted.
maintenance. Thanks to the diminished cost of upkeep,
Kapoor’s work is cut out for him as he guides the comcheaper fuel, and lack of operators, driverless EV
pany’s transition from a gig-economy model to a
rides should be cheap enough that the average
mostly driverless EV leet. Lyft has teamed up with
Ford Motor Co., Waymo LLC, and a few self-driving
person could take one every day, providing a key
b. 1970, Bethlehem, Pa.
link between public transit and your front door.
startups to develop technology, but the company
Kapoor made his name in Silicon Valley foundHis parents started
is far from proitable and will have to build infrathe city’s first multiing and later selling Snapish, a photo-sharing
structure to support a leet. Kapoor is optimistic.
faith Hindu, Sikh,
service, to Hewlett-Packard for an estimated
and Jain temple
“I went to my 9-year-old’s third-grade class to talk
$300 million in 2005, but he’s long been interested
about transportation, and none of them had any
Sings lead in a cover
in cars. In the 1970s and ’80s his father engineered band called Coverflow, desire to get a license,” he says. “They all want
which plays primarily
superhighways in Pennsylvania, and in the early hip-hop
self-driving vehicles, especially if they could watch
and electronic
Netlix and play video games.” ’90s, Kapoor worked on an autonomous vehicle
dance music
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