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

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

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

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

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

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

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

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

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Wakandanomics

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

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

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

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Mediapro offers a combustible mix of sport and politics

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

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

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Royal Dutch Shell and Total flirt with becoming utilities

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

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

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

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A long overdue disruption in menstrual products

Period piece

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

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

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

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Uber makes a tactical retreat from South-East Asia

Green is the new black

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

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

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Mexico switches on its government-run wholesale mobile network

G-whizz

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

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

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

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Technology has upended the world’s advertising giants

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

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

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America’s trade strategy has many risks and few upsides

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

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

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Getting a handle on a scandal

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

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

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

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

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China wants to reshape the global oil market

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

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

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

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

Along for the ride

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

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

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

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More market volatility seems likely

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

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

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

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We have seen the future and it twerks

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

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

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

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Qantas starts flying non-stop between Australia and London

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

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

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

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

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

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What if China corners the cobalt market?

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

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

On March 14th concerns about...Continue reading

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Ukraine convinces Ryanair to return

Can’t hardly wait

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

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

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

Central bankers make no...Continue reading

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Markets think trade war is good for "absolutely nothing"

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

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

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Why tariffs on steel and aluminium are easier said than done

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

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

In 1982 America browbeat the European Community, the forerunner of the European Union, into limiting its steel exports...Continue reading

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Li Ka-shing cedes a sprawling empire to his son

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

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

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

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The EU wants to tax tech giants’ revenues

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

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

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Japan Inc and the government are trying to tackle overwork

Dreaming of lifestyle change

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

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

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FDA wants to help unproductive drugmakers

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

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

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Indian drugmakers need a new prescription

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

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

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Dropbox goes public

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

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

Its challenge, common to many...Continue reading

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

It never walks. But does it run?

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

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

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Europeans fret that Chinese investment is a security risk

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

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

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The EU wants to make finance more environmentally friendly

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

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

Yet standards are a...Continue reading

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Corporate citizens of somewhere

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

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

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Wall Street looks overvalued

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

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

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

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Beware of performance figures

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

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

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

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Airlines in America are in a race to improve their meals

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

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

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America’s public markets are perking up. Can it last?

FOR years, discussions of America’s public markets have usually featured a lament for their dwindling appeal. According to Jay Ritter of the University of Florida, the number of publicly listed companies peaked in 1997 at 8,491 (see chart). By 2017 it had slumped to 4,496. True, many of the companies that went public in the internet’s early days should never have done so. But the decline worries anyone who sees public markets as the best way for ordinary investors to benefit from the successes of corporate America.

The mood right now is more buoyant. Bankers and lawyers who usually chat with journalists in their offices are on the road...Continue reading

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Why China is swooping on Georgia’s airline industry

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

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

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

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

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

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

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The reckoning at Theranos

“The Next Steve Jobs”

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

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

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Germany’s two biggest utilities strike a deal

Windy with a chance of profits

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

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

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

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Unilever picks Rotterdam

PROUDLY overlooking the River Thames, Unilever House looks more royal palace than office building. Built on the site of a Tudor estate, for nine decades it has been the London home to Unilever, one of the world’s largest consumer-goods firms. Since a merger of British soapmakers and Dutch margarine merchants in 1929, Unilever has been a dual-nationality company. It is legally domiciled in Britain and the Netherlands, with headquarters in both the London building and in Rotterdam.

The appeal of dual citizenship has faded. After a year-long review, on March 15th Unilever’s board announced plans to move its legal base to Rotterdam. (The firm will continue to have a listing in London, and claims no British jobs will be lost.) Many in the City of London finger Britain’s decision to leave the European Union for the move. But Graeme Pitkethly, the firm’s chief financial officer, insisted Brexit was “absolutely not a factor” in the decision. Over the past decade Unilever has been shifting its production facilities nearer to its customers in...Continue reading

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Which firms profit most from America’s health-care system

EVERY year America spends about $5,000 more per person on health care than other rich countries do. Yet its people are not any healthier. Where does all the money go? One explanation is waste, with patients wolfing down too many pills and administrators churning out red tape. There is also the cost of services that may be popular and legitimate but do nothing to improve medical outcomes. Manhattan’s hospitals, with their swish reception desks and menus, can seem like hotels compared with London’s bleached Victorian structures.

The most controversial source of excess spending, though, is rent-seeking by health-care firms. This is when companies extract outsize profits relative to the capital they deploy and risks they take. Schumpeter has estimated the scale of gouging across the health-care system. Although it does not explain the vast bulk of America’s overspending, the sums are big by any other standard, with health-care firms making excess profits of $65bn a year. Surprisingly, the worst...Continue reading

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Online starlets are refashioning Chinese e-commerce

Ms Jiang and Mr Liang, salespeople of the year

LIANG TAO shifted 80 pink Givenchy bags in 12 minutes. Becky Fang offloaded 100 turquoise Mini Cooper cars in just five. Both are wanghong, literally “red-hot on the web”. Every day millions of Chinese trawl social media for wanghong posts or tune in to live-streams for opinions on everything from a French fashionista’s essentials to rampant sexism in China. The fans are helping this new breed of Chinese internet star to monetise their popularity—and to shake up the country’s e-commerce industry in the process.

Unlike conventional luxury-and-beauty brand ambassadors, many wanghong have built their fan bases through compelling online content rather than a famous name. Some of the most successful are not especially glamorous. “Pudgy Luo” is a middle-aged man who discusses everything from Chinese emperors to 3D printing on his talk-show. MC...Continue reading

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Renault-Nissan-Mitsubishi has become the world’s biggest carmaker

RENAULT unveiled the EZ-GO, a concept for a robotaxi, at the Geneva motor show, which opened on March 5th. Nissan, in conjunction with DeNA, a Japanese software firm, recently began trials of driverless taxis in Japan. The two companies are pursuing their own paths towards the future of mobility. Yet both are bound together in a close alliance, which celebrates its 20th anniversary next year. In 2016 they were joined by Mitsubishi. Last year the trio sold 10.6m cars between them, one in every nine worldwide.

It is a unique carmaking liaison, neither a full merger nor as loose as the many tie-ups forged to spread the cost of developing pricey pieces of technology. Each firm remains autonomous but shares a growing number of links in the supply chain with the other two. It all looks hugely successful. In 2017 Renault-Nissan-Mitsubishi overtook Volkswagen (VW) as the world’s biggest car company (if lorries are included, the German firm is narrowly ahead).

Yet enthusiasm for the alliance among...Continue reading

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Protectionism may impede Delta’s expansion plans

AS AMERICA’S oldest airline still aloft, Delta makes much of its southern roots. At its biggest hub, Atlanta airport, the company museum recounts how it became the world’s second-biggest carrier. The answer: by buying up domestic rivals. With few takeover targets left at home, Delta’s chief executive, Ed Bastian, is looking abroad. But his plans for more foreign joint ventures (JVs) face regulatory headwinds.

Last year Mr Bastian announced a flurry of JVs. In May Delta launched one with Aeromexico and in June another with Korean Air. In July Delta formed one of the world’s biggest JVs with Virgin Atlantic of Britain and Air France-KLM, a European group. In December it sealed one with WestJet, Canada’s biggest low-cost carrier. It wants closer relations with China Eastern and GOL of Brazil, two airlines in which it owns shares. And on March 12th it emerged that Delta and Air France-KLM plan to bid for Air India, an ailing flag carrier. If all these deals come off, one passenger in eight...Continue reading

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A startling amount of land in Japan has no official owner

Property, period

THE tsunami of 2011 left gaping holes reminiscent of war zones in the landscape along the coast of Tohuku, in the north-east of Honshu, Japan’s main island. Car navigation systems gave directions to landmarks that had vanished into the sea. The subsequent reconstruction effort hit an unexpected roadblock: missing landowners. Officials were stunned to find that hundreds of plots were held in the names of people who were dead or unknown.

The deluge threw the problem into particularly sharp relief in Tohuku, but it is widespread elsewhere too. A report last year for the government by a panel of experts estimated that about 41,000 sq km of land, or 11% of Japan’s surface, was unclaimed, most of it in rural regions. By 2040, it warned, the area could more than double. The cumulative cost in lost productivity could be as high as ¥6trn ($56bn).

The countryside is littered with vacant plots and empty houses. Some date from Japan’s great post-war...Continue reading

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Do credit booms foretell emerging-market crises?

ON THE morning of December 7th 1941, George Elliott Junior noticed “the largest blip” he had ever seen on a radar near America’s naval base at Pearl Harbour. His discovery was dismissed by his superiors, who were thus unprepared for the Japanese bombers that arrived shortly after. The mistake prompted urgent research into “receiver operating characteristics”, the ability of radar operators to distinguish between true and false alarms.

A similar concern motivates research at the Bank for International Settlements (BIS) in Basel, Switzerland. Its equivalent to the radar is a set of economic indicators that can potentially detect the approach of financial crises. A prominent example is the “credit gap”, which measures the divergence between the level of credit to households and non-financial firms, expressed as a percentage of GDP, and its long-term trend. A big gap may reflect the kind of unsustainable credit boom that often precedes a crisis. Anything above 9% of GDP is reason to worry, according to Iñaki Aldasoro, Claudio Borio and Mathias Drehmann of the BIS.

The biggest blips on the oscilloscope include Canada (9.6%), Singapore (11.1%) and Switzerland (16.3%), according to the latest readings, released on March 11th. But the one that has kept everyone’s eyes peeled is China, with a gap of 16.7% in the third quarter of 2017 (the latest...Continue reading

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A lose-lose trade war looms between America and China

PRESIDENT DONALD TRUMP has not yet started a global trade war. But he has started a frenzy of special pleading and spluttered threats. In the week since he announced tariffs on steel and aluminium imports, countries have scrambled to win reprieves. Australia, the European Union and Japan, among others, have argued that, since they are America’s allies, their products pose no risk to America’s security. If these appeals fail, the EU has been most vocal in vowing to retaliate, in turn prompting Mr Trump to threaten levies on European cars.

In China, ostensibly the focus of Mr Trump’s actions, the public response has been more restrained. Officials have said the two countries should strive for a “win-win outcome”, a favourite bromide in their lexicon. As a rival to America, China knows that an exemption from the tariffs is not on offer. It also knows that it needs to conserve firepower. If this is the first shot in a trade war, it is, for China, small bore. Its steel and aluminium exports to America amount to roughly 0.03% of its GDP, not...Continue reading

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A primer on blockchain-based versions of central-bank money

BITCOIN, Ethereum, XRP, Stellar, Cardano: the infant world of cryptocurrencies is already mind-bogglingly crowded. Amid the cacophony of blockchain-based would-be substitutes for official currencies, central banks from Singapore to Sweden have been pondering whether they should issue digital versions of their own money, too. None is about to do so, but a report prepared by central-bank officials from around the world, published by the Bank for International Settlements on March 12th—a week before finance ministers and central-bank heads from G20 countries meet in Buenos Aires—offers a guide to how to approach the task.

The answer? With care. For a start, it matters who will be using these central-bank digital currencies (CBDCs). Existing central-bank money comes in two flavours: notes and coins available to anyone; and reserve and settlement accounts open only to commercial banks, already in electronic form (though not based on blockchain) and used for interbank payments. Similarly, CBDCs could be either widely available or tightly...Continue reading

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Prudential, a British insurer, demerges

WHEN the underpinnings of an industry change, the effects may seem slow and limited for a while, only to prove surprisingly speedy later on. Europe’s life-insurance industry provides a case study. The demerger announced on March 14th of Prudential is the latest in a flurry of activity prompted at least partly by shifts in European regulation over two years ago. Britain’s largest insurer (unrelated to the American insurer of the same name) is splitting off its British and European business into M&G Prudential, which will be largely focused on asset management. The remainder of Prudential will be left as an insurer in Asia, America and Africa.

Life insurers have been hurt by a prolonged period of low interest rates, prompting them to move towards investment-like products that leave more risk with policyholders, and away from products with guaranteed returns, such as annuities. More stringent capital requirements in the European Union for insurers from the beginning of 2016, under a set of rules called Solvency 2, mean that life insurers...Continue reading

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United Airlines kills another pet

GULLIVER recently wrote about a pet that suffered a grizzly end after it was not permitted to fly. Spirit Airlines refused to allow a hamster on board as an emotional-support animal and it ended up being flushed down an airport toilet. But sometimes it is more dangerous for an animal to be permitted to ascend to 35,000 feet. Particularly, it seems, if it is flying on United Airlines.

On March 12th, on a flight from Houston to New York, a United Airlines flight attendant knowingly stowed a French bulldog in the overhead compartment, where it died, the family that owned the dog alleges. United quickly apologised to the family for what it called “a tragic accident that should never have occurred, as pets should never be placed in the overhead bin.” The airline promised an investigation “to prevent this...Continue reading

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