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Will robots displace humans as motorised vehicles replaced horses?

 

IN THE early 20th century the future seemed bright for horse employment. Within 50 years cars and tractors made short work of equine livelihoods. Some futurists see a cautionary tale for humanity in the fate of the horse: it was economically indispensable until it wasn’t. The common retort to such concerns is that humans are far more cognitively adaptable than beasts of burden. Yet as robots grow more nimble, humans look increasingly vulnerable. A new working paper concludes that between 1990 and 2007, each industrial robot added per thousand workers reduced employment in America by nearly six workers. Humanity may not be sent out to pasture, but the parallel with horses is still uncomfortably close. 

Robots are just one small part of the technological wave squeezing people. The International Federation of Robotics defines industrial robots as machines that are automatically controlled and re-programmable; single-purpose equipment does not count. The worldwide population of such creatures is below 2m; America has slightly less than two robots per 1,000 workers (Europe has a bit more than two). But their numbers are growing, as is the range of tasks they…Continue reading

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Business and financeFree exchange

Podcast: Luxury for the masses?

The Chinese middle class led a boom in demand for luxury goods. But a government crackdown made consumers wary about showing off their wealth. How has China’s new modesty affected the luxury business as a whole? Also: India’s power sector has until now been dependent on using dirty coal but things are changing. And sand has become a scarce resource, leading to a burgeoning trade in illegal mining. Simon Long hosts.

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Business and financeGulliver

How airlines are responding to America’s laptop ban

THE recently announced ban on laptops and other large electronic devices on direct flights from Middle Eastern airports to America is bad news for business travellers hoping to get work done on these long journeys. That, in turn, spells trouble for the airlines that fly these routes. Carriers like Emirates, Turkish, Qatar, and Etihad compete for long-haul flyers all over the world. They have just become a little bit less competitive. (Gulliver recently booked a flight from Manila to Washington, DC on Emirates, via Dubai; had he known what was coming, he might well have opted to fly via Tokyo or Beijing instead.)

Turkish Airlines stock tumbled more than 7% after the ban was announced in America. (Britain announced similar restrictions soon after, though crucially the superconnectors’ hubs in the United Arab Emirates, Qatar and Turkey were not included.) Rival airlines, meanwhile, are thrilled at the news. Emirates, Etihad and Qatar currently serve half the travellers flying between India and the United States, for example. Air India now Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

The Trump administration will review all of America’s trade deals

ACCORDING to a document crafted by the Trump administration, a model trade agreement has 24 elements. Second on the list is “trade-deficit reduction”, giving a hint as to why Mr Trump wants to review America’s existing agreements. In January Sean Spicer, his press secretary, said the administration would “re-examine all of the current trade deals.” A presidential order to do just that is reported to be in the offing.

America boasts 14 bilateral and regional free-trade agreements (FTAs). Mr Trump seems to blame these agreements for America’s large trade deficit. Most economists disagree, seeing it as reflecting macroeconomic imbalances. The FTAs are in any case with countries representing just two-fifths of America’s two-way trade in goods, and less than 10% of its goods-trade deficit (see chart). Most (77%) of America’s deficit stems from trade with China, the European Union and Japan. None has an American FTA.

A focus on trade deficits means that tiddly deals such as those with Jordan and Oman will not face much heat. NAFTA (an agreement with Mexico and Canada), and KORUS (South Korea), will face more scrutiny because of chunky…Continue reading

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ApprovedBusinessBusiness and finance

Big tyremakers are regaining their grip

CARS can be objects of desire and the bonnet badge an indicator of wealth and status. Yet the four small patches of rubber that do the vital job of attaching them to the road stir little emotion. A third of drivers cannot name the make of tyre on their car. Nor do they know that the dominant global brands have been fighting a losing battle for 15 or so years against Chinese competitors and now have a chance of winning back ground.

The established tyremakers have advantages over the industry they serve. They have margins that outstrip even Germany’s luxury carmakers. Supplying manufacturers accounts for only a third of revenues of a typical tyre firm and even less of the profits. The rest comes from replacing tyres on vehicles on the road, which wear out every four years or so.

The expansion of the global vehicle fleet, forecast to grow by around 3.5% a year, helps gradually to reduce firms’ dependence on the cyclical market for new cars. Tyremakers also benefit by selling most of their wares to thousands of distributors. They are fragmented and weak compared with carmakers, and less inclined to drive hard bargains.

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ApprovedBusinessBusiness and finance

The battle to build Donald Trump’s wall

FEW slogans were chanted with as much passion by Donald Trump’s supporters in the presidential campaign as “Build that wall!”. The construction industry is almost as enthusiastic. Last week America’s Customs and Border Protection agency (CBP) issued two invitations for companies to bid to build the wall on the border with Mexico, which is expected to cost anywhere between $12bn and $25bn. The deadline for designs falls on March 29th. One request is for a solid concrete border wall, and the other for a wall using “alternatives” to reinforced solid concrete, suggesting the government has yet to decide what the barrier should be made of.

More than 700 companies, from big general contractors to firms selling materials to niche providers of lighting and surveillance systems, have registered to try to become suppliers. To the surprise of some, about one in ten of the firms bidding are local ones with Hispanic owners, drawn by the scale of the earnings on offer. Cemex, a Mexican cement giant that has plants on both sides of the border, said it would not sell cement for the project, though it had earlier expressed interest in joining the bidding. Another, tiny, Mexican firm…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

China’s growing clout in international economic affairs

THE IMF “systematically impoverishes foreigners”, and the World Bank’s advice has “negative value to its best clients”. These harsh words were voiced not by lefty critics of the Washington Consensus, but by two men (David Malpass and Adam Lerrick, respectively) whom Donald Trump has picked to lead his Treasury’s dealings with the rest of the world, including the international financial institutions (IFIs), such as the World Bank and IMF, and the G20 group of leading economies.

Their future boss, Steven Mnuchin, America’s treasury secretary, is not much more reassuring to the global financial establishment. At his first G20 meeting, in Baden-Baden in Germany on March 17th-18th (pictured), he vetoed a long-standing pledge to “resist all forms of protectionism”. It had often been breached. But hypocrisy is the tribute vice pays to virtue.

To veterans of international economic affairs, this combative stance is baffling. America’s government now seems to disdain a set of institutions it nurtured into life—institutions that are more commonly criticised for following America’s will too closely. “The United States is just handing the leadership over…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

The unusual gap between American and European bond yields

AMERICA may be the world’s largest economy, but these days its government pays more than many others to borrow money. Its ten-year bond yields are higher than those in Britain, France, Singapore and even Italy.

The gap between American and German ten-year yields has been above two percentage points. For much of the past 25 years, it was very rare for the difference to exceed a single percentage point. On occasions, American yields fell below German levels (see chart).

Go back a generation and you might have expected the country with the higher bond yields to be the one with the weaker currency; investors would demand a higher yield to compensate for the risk of future depreciation. But that is not the case today. The dollar has been strong, relative to the euro, and many people expect it to strengthen further. Indeed, the higher yield on American government debt is one reason why investors might want to buy the dollar.

Instead, the gap may reflect differences in both monetary and fiscal policy. In America the Federal Reserve stopped buying Treasury bonds a while ago and has raised interest rates three times since December 2015; the European…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

An earthquake in European banking

IN BRITAIN alone millions of people make formal complaints each year about their banks. For them, Sebastian Siemiatkowski, founder of Klarna, a Swedish payments startup, brings good news. New European rules, he says, will open the door to a host of innovative services that analyse transactions, so “an app could tell you there’s a cheaper mortgage available and start the switching process for you.” Apps could warn account-holders if they spend more than a predetermined amount or are about to become overdrawn, or even nudge them to save more. Customers need barely ever interact with their bank.

To date, despite dire warnings, European retail banking has been remarkably unscathed by technology-driven disruption. Customers stay loyal, and banks still do the most of the lending. Financial-technology (“fintech”) companies are beginning to mount a challenge, most conspicuously in the online-payments industry in northern Europe: Sofort, iDEAL and other fintech firms conduct over half of online transactions in Germany and the Netherlands, for example. But their reach is more limited elsewhere in Europe. Physical payments are still overwhelmingly made with cash or bank…Continue reading

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ApprovedBusinessBusiness and finance

Companies are racing to add value to water

PRESENTED in an unusually-shaped heavy glass bottle with outsized black lettering, it could be a fine vodka. On sale for £80 ($99) in Harrods, an upmarket department store in London, it has a price tag to match. In fact, it is a bottle of water. Harvested directly from Norwegian icebergs that are up to 4,000 years old, Svalbardi is one of hundreds of water brands that are sourced from exotic places and marketed as luxury products.

From the basic to the expensive, the market for bottled water is an attractive place to be. According to Zenith Global, a consulting firm, the global market has grown by 9% annually in recent years and is worth $147bn. The main reason is changing lifestyles. People are spending more time, and eating more of their meals, away from home. They are also switching from soft drinks and alcohol to healthier fare. Data from Beverage Marketing Corporation (BMC), another consultancy, show that consumption of bottled water overtook that of sugary soft drinks in America in 2016 (see chart).

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ApprovedBusinessBusiness and finance

Uber is facing the biggest crisis in its short history

AS A teenager, Travis Kalanick’s first job was to knock on strangers’ doors and sell them knives. Now he is trying to dodge the daggers aimed at him and at Uber, a ride-hailing firm that is the world’s most valuable startup. On March 19th Jeff Jones, the company’s president, stepped down after six months, declaring that “the beliefs and approach to leadership that have guided my career are inconsistent with what I saw and experienced at Uber.” At least six key executives and high-ranking employees have left in the past nine weeks. They include Uber’s head of mapping, a former head of self-driving car technology, and an artificial-intelligence (AI) expert who had been put in charge of the firm’s AI research lab only three months ago.

Aggressive and unrelentingly ambitious, Mr Kalanick built his eight-year-old company into America’s largest privately owned technology firm by treading on the toes of different groups, including traditional taxi drivers, other…Continue reading

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ApprovedBusinessBusiness and finance

America and Britain prohibit large electronic devices in aircraft cabins on some routes

For whom the belt tolls

NEW intelligence appears to have prompted the decision of the authorities in both America and Britain to prevent the carrying of large electronic devices into the passenger cabins of aircraft flying from several Middle Eastern and North African countries. However, the announcements, which both came on March 21st, raise several unanswered questions. Passengers, and the affected airlines, may be concerned that there is an element of politics behind the new measure, coming as it does in the wake of Donald Trump’s second attempt to ram through a highly controversial executive order restricting travel to America from some Muslim countries.

Some speculate that the intelligence may have been gathered by a raid carried out by American special operations forces on al-Qaeda’s affiliate in Yemen, known as al-Qaeda in the Arabian Peninsula (AQAP). One such raid took place on January 29th and left a Navy SEAL and up to 30 civilians dead. Some reports suggested that the botched operation yielded no actionable intelligence. But administration officials maintained that material indicating future AQAP targets was seized.

AQAP has…Continue reading

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ApprovedBusinessBusiness and finance

America’s shale firms don’t give a frack about financial returns

INSIDE the boardrooms and bars of Houston, the spiritual capital of America’s energy industry, the swagger is back. The oil price may only be at $48, or half the level it was three years ago. But shale fracking—the business of getting oil and gas out of rocks by blasting them with water and sand—is booming once again after the crash of 2014-16. Exploration and production (E&P) companies are about to go on an investment spree. Demand is soaring for the industry’s raw materials: sand, other people’s money, roughnecks and ice-cold beer.

Shale’s second coming is testament to Texan grit. But the industry’s never-say-die spirit may explain why it has done next to nothing about its dire finances. The business has burned up cash for 34 of the last 40 quarters, according to figures on the top 60 listed E&P firms collected by Bloomberg, a data provider. With the exception of airlines, Chinese state enterprises and Silicon Valley unicorns—private firms valued at more than $1bn—shale firms are on an unparalleled money-losing streak. About $11bn was torched in the latest quarter, as capital expenditures exceeded cashflows. The cash-burn rate may well rise again…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Economic shocks are more likely to be lethal in America

AMERICAN workers without college degrees have suffered financially for decades—as has been known for decades. More recent is the discovery that their woes might be deadly. In 2015 Anne Case and Angus Deaton, two (married) scholars, reported that in the 20 years to 1998, the mortality rate of middle-aged white Americans fell by about 2% a year. But between 1999 and 2013, deaths rose. The reversal was all the more striking because, in Europe, overall middle-age mortality continued to fall at the same 2% pace. By 2013 middle-aged white Americans were dying at twice the rate of similarly aged Swedes of all races (see chart). Suicide, drug overdoses and alcohol abuse were to blame.

Ms Case and Mr Deaton have now updated their work on these so-called “deaths of despair”. The results, presented this week at the Brookings Institution, a think-tank, are no happier. White middle-age mortality continued to rise in 2014 and 2015, contributing to a fall in life expectancy among the population as a whole. The trend transcends geography. It is found in almost every state, and in both cities and rural areas. The problem seems to be getting worse over time. Deaths from…Continue reading

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ApprovedBusinessBusiness and finance

A meat scandal in Brazil damages two of its biggest firms

The steaks are high

EVEN amid Brazil’s pungent stew of recent big corporate scandals, the latest is particularly stomach-turning. On Friday March 17th, in time for a traditional weekend churrasco, or barbecue, the federal police accused some of the country’s biggest meat producers of bribing health inspectors to turn a blind eye to grubby practices. These include repackaging beef past its sell-by date, making turkey ham out of soyabeans rather than actual birds and overuse of potentially harmful additives. The police operation, dubbed Weak Flesh, could reduce Brazil’s meat exports, worth $13bn a year, and damage its two big global meat producers, JBS and BRF.  

Two days later the president, Michel Temer, treated 27 diplomats from the country’s main export markets to prime Brazilian cuts at a steakhouse (pictured) in the capital, Brasília. Nevertheless, straight after that China, the European Union (EU), Chile and South Korea, which together consume a third of Brazilian meat sold abroad, said they would ban some or all imports from Brazil until it can allay misgivings about its inspection regime. The…Continue reading

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Business and financeButtonwood's notebook

Donald Trump, trade and the new world order

TWO months into the Trump administration and we have had more sound and fury than concrete proposals about its economic agenda. The most alarming sign so far is that America forced the G20 to drop a pledge about resisting “all forms of protectionism” from a joint statement but this may be purely symbolic.

Nevertheless, Mr Trump’s determination to shake up the status quo may yet have global consequences. In a research note, Chris Watling of Longview Economics suggests that

Trump’s policies might inadvertently bring about a new international monetary order as the administration struggles to fulfil campaign promises in the light of the original misdiagnosis of the ‘trade deficit’ problem.

The current monetary system emerged from the downfall of Bretton Woods in the 1970s. Under the Bretton Woods system, devised in part by John Maynard Keynes (pictured, left), currencies were fixed to the dollar (with scope for occasional devaluations or revaluations) and the dollar was fixed against gold. But this required America to act as the anchor of the system; other…Continue reading

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Business and financeFree exchange

Podcast: A most unusual company

The one-time bookseller Amazon accounts for more than half of every new dollar spent online in the US. But how did it get to be the fifth most valuable company in the world? Also: why it costs the American government more to borrow money on the bonds market than European ones. And the big brands used to account for two-thirds of the tyre market. Now China has massively deflated their share. Simon Long hosts.

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Business and financeGulliver

Donald Trump’s proposed budget cuts would have serious implications for travellers

THREE months into his presidency, Donald Trump has engendered little but despair among among travel-industry types. Restrictions announced today on taking laptops and iPads aboard airlines originating from eight Middle Eastern countries are probably reasonable (see Gulliver). But an ill-considered attempt in January to ban travellers from seven mostly-Muslim countries seems to have affected visitor numbers. When that order was shot down by the courts, and a revised one proposed, it turned out that it might cause longer waits for foreigners leaving the country. Then last week in his budget blueprint, Mr Trump proposed big cuts to domestic spending to help fund the military. Several of the programmes on the chopping block have implications for business travellers.

One such is a call to privatise the country’s air traffic control system. The budget outline says privatisation would make air traffic control “more efficient and innovative while…Continue reading

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Business and financeGulliver

IAG enters the low-cost, long-haul market

WILLIE WALSH has spent much of the past few years stripping the frills from British Airways planes, at least on short-haul routes. The boss of IAG, BA’s parent firm, seems keen to ape the success of Europe’s low-cost carriers, such as Ryanair. Hence, everything that once distinguished it as a “full-service” carrier—whether a complimentary sandwich, a free checked bag or to the right to choose your seat—has been deplaned. The strategy has proved a success. Despite the weak pound, British Airways posted an operating profit of £1.5bn in 2016—about 80% of IAG’s total.

When it comes to long-haul flights, however, Mr Walsh has had to contain his cost-cutting zeal. On such routes, BA must compete against carriers that boast sparkling amenities, particularly at the front of the plane, such as Emirates and Singapore Airlines. So although BA has managed to skimp a bit in the premium cabins (by, for example, reducing the food options and downsizing the washbag) it is also investing £400m to upgrade its posh Club World service.

On transatlantic flights, however, the full-service carriers are facing a new threat to their business: low-cost long-haul operators….Continue reading

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Business and financeGulliver

Free health cover for Britons in Europe is under threat

BUSINESS travellers face several uncertainties after Brexit. Will travelling to the European Union in future require a visa? Given the state of the pound, will companies start to crack down on expenses? And what happens if you get ill abroad?

This last question has perhaps been farthest from the front of road warriors’ minds—until this week. On March 15th, David Davis, the minister in charge of Brexit, told a parliamentary committee that it was “probably right” that once Britain leaves the EU British travellers would lose access to free or subsidised health care within the European Economic Area (EEA). Currently, British travellers are entitled to be treated as if they were a national of the EEA country (plus Switzerland) they are visiting if they have a European Health Insurance Card, or EHIC. Some 200,000 Brits received medical aid through the scheme while travelling last year, according to ABTA, a travel agents’ association. The card covers those who get ill or have an accident while abroad, or have a serious pre-existing condition that needs…Continue reading

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ApprovedBusinessBusiness and finance

Mobileye and Intel join forces

Data trafficking

CARMAKING in Israel has amounted to little more than some unstylish models put together in the latter half of the last century and a few rugged off-roaders still assembled for the country’s security forces. A reluctance to make them, however, has not stopped Israel from becoming a thriving centre for the high-tech kit with which cars now bristle, and also for mobility services such as ride-hailing.

The latest evidence of Israel’s pre-eminence in the field came on March 13th, when Intel, a giant American chipmaker, paid $15.3bn for Mobileye, a Jerusalem-based firm that is at the forefront of autonomous-car technology. With the acquisition, Intel joins the ranks of technology companies that are trying to outmanoeuvre carmakers and auto-parts suppliers to develop the brains of vehicles of the future.

Mobileye is an attractive target because of what it does now and what it will soon be capable of. Its EyeQ software is already used by most of the world’s carmakers to help their vehicles stay in their lanes and brake in emergencies, precisely what will also be required in autonomous vehicles. This…Continue reading

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ApprovedBusinessBusiness and finance

What Satya Nadella did at Microsoft

A DECADE ago, visiting Microsoft’s headquarters near Seattle was like a trip into enemy territory. Executives would not so much talk with visitors as fire words at them (one of this newspaper’s correspondents has yet to recover from two harrowing days spent in the company of a Microsoft “brand evangelist”). If challenged on the corporate message, their body language would betray what they were thinking and what Bill Gates, the firm’s founder, used often to say: “That’s the stupidest fucking thing I’ve ever heard.”

Today the mood at Microsoft’s campus, a sprawling collection of more than 100 buildings, is strikingly different. The word-count per minute is much lower. Questions, however ignorant or critical, are answered patiently. The firm’s boss, Satya Nadella (pictured), strikes a different and gentler tone from Mr Gates and Steve Ballmer, his immediate predecessor (although he, too, has a highly competitive side).

Both these descriptions are caricatures. But they point to an underlying truth: how radically the world’s biggest software firm has changed in the short time since Mr Nadella took charge in early 2014. Back…Continue reading

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ApprovedBusinessBusiness and finance

The business model for the Olympic Games is running out of puff

PIERRE DE COUBERTIN, the French aristocrat who founded the modern Olympics, was seduced by the world’s fair. In 1900, 1904 and 1908 his games were embedded within such exhibitions. He soured on the arrangement eventually because the games were overshadowed, “reduced to the role of humiliated vassal”, as he put it. The Olympics still criss-crosses the globe, but with city after city ditching ambitions to put on the world’s largest sporting event, the model is under threat.

The latest blow comes courtesy of Budapest, which on March 1st withdrew its bid to host the 2024 summer games after public opposition. Its retreat comes on the heels of Boston, Rome and Hamburg canning their bids within the past two years, whittling a once-crowded pool of candidate cities down to only two: Los Angeles—itself a replacement for the torpedoed Boston bid—and Paris.

The situation ought to feel familiar by now to the International Olympic Committee (IOC), the governing body of the games. After lots of cities bowed out of the competition for the 2022 winter games it was again left with two options: Almaty, Kazakhstan and Beijing, China….Continue reading

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ApprovedBusinessBusiness and finance

A battle over Euro Disney

IF YOU judge only by the volume of screams and the beaming faces of those taking rides at Europe’s most-visited, privately-owned tourist destination, then it is clear that Disneyland Paris has much to celebrate. In the three decades since Disney, an American media firm, agreed to put its European theme park on a site east of Paris, and the 25 years since its doors swung open, in 1992, 320m customers have queued for attractions such as “Space Mountain”, a stomach-twisting rollercoaster, and photo-ops with Disney characters.

To mark these anniversaries the firm is making bold claims for the park’s economic and social benefits. Nearly €8bn ($8.6bn) has been invested in or near the site, which includes a second Disney studio-themed park, 8,500 hotel rooms, convention centres and a golf course. France’s economy has supposedly seen gains worth €68bn and the creation of 56,000 jobs. Politicians pay it heed: François Hollande, the retiring president, made an end-of-term visit late last month.

But investors tell a different story. Shares in Euro Disney (the French parent company) have performed like a raft on the…Continue reading

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ApprovedBusinessBusiness and finance

Elon Musk supercharges progress on energy storage

Storage salesman

HOW much power does a tweetstorm involving two tech tycoons, the prime minister of Australia and 8.5m Twitter followers generate? Enough, at least, to supercharge a debate about the future role of batteries in the world’s energy mix.

Elon Musk, a Silicon Valley entrepreneur (pictured), may be best known for his gravity-defying ambition, but his core product is the battery: whether for his Tesla cars, for the home or for grid-scale electricity storage. He gave the last of these an unexpected jolt of publicity on March 10th, by responding to a blackout-inspired challenge on Twitter from an Australian software billionaire, Mike Cannon-Brookes. Mr Musk said he could install 100 megawatt hours (MWh) of battery storage in the state of South Australia in 100 days to help solve an energy crisis it faces, or it would be free of charge. “That serious enough for you?” he asked.

In response, Malcolm Turnbull, the prime minister, communicated with Mr Musk and appeared to turn from pro-coal sceptic into battery believer. On March 14th Jay Weatherill, the premier of South Australia, went further. Declaring…Continue reading

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ApprovedBusinessBusiness and finance

Chinese pharma firms target the global market

The way things were

WALK into the Shanghai laboratories of Chi-Med, a biotech firm, and you encounter the sort of shiny, cutting-edge facilities common in any major pharma company in America, Europe or Japan. Chi-Med has just had positive results in a late-stage trial of its drug for colorectal cancer, which is called Fruquintinib. If the drug is approved both in China and in Western markets it could be the very first prescription drug to be designed and developed entirely in China that will be on a path to global commercialisation.

Given China’s ageing population, higher incomes and rising demand for health care it is clear why innovation in drugs is a priority for the country. Its national market for drugs has grown rapidly in recent years to become the world’s second-largest. It could grow from $108bn in 2015 to around $167bn by 2020, according to an estimate from America’s Department of Commerce. By comparison, America spends about $400bn a year on drugs.

Chinese firms mainly sell cheap, generic medicines that earn only razor-thin margins. The pharma industry is extremely fragmented, with thousands of tiny…Continue reading

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ApprovedBusinessBusiness and finance

Citigroup’s decade of agony is almost over

IF YOU ask financial types in New York for their views on the world’s big banks, they usually come up with similar vignettes for each one. They agree that JPMorgan Chase is an unstoppable force under its boss, Jamie Dimon. Goldman Sachs is on a roll, with its shares up by 36% since the election (even if some worry that its Darwinian culture is going soft given all the regulation it faces). Across the pond Deutsche Bank is struggling to keep its head above water; its leader, John Cryan, embarked on a capital-raising and cost-cutting plan on March 5th. Yet one big bank elicits shrugs of bafflement: Citigroup. Its managers are anonymous and they get paid about a fifth less than their peers at other financial groups. No one is quite sure what Citi is up to or what it exists for. Once too big to fail, it is now too drab to mention.

That Citi has become the world’s half-forgotten bank is surprising. It was America’s biggest firm before the financial crisis, measured by size of assets; it is now the fourth-largest. After suffering huge losses on loans and subprime securities, in 2008-09 it received the biggest bail-out of any American bank. Citi can still…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

The progressive case for immigration

“WE CAN’T restore our civilisation with somebody else’s babies.” Steve King, a Republican congressman from Iowa, could hardly have been clearer in his meaning in a tweet this week supporting Geert Wilders, a Dutch politician with anti-immigrant views. Across the rich world, those of a similar mind have been emboldened by a nativist turn in politics. Some do push back: plenty of Americans rallied against Donald Trump’s plans to block refugees and migrants. Yet few rich-world politicians are willing to make the case for immigration that it deserves: it is a good thing and there should be much more of it.

Defenders of immigration often fight on nativist turf, citing data to respond to claims about migrants’ damaging effects on wages or public services. Those data are indeed on migrants’ side. Though some research suggests that native workers with skill levels similar to those of arriving migrants take a hit to their wages because of increased migration, most analyses find that they are not harmed, and that many eventually earn more as competition nudges them to specialise in more demanding occupations. But as a slogan, “The data say…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

The South Korea-US trade agreement turns five

IT SHOULD have been a happy anniversary. On March 15th 2012, KORUS, a trade deal between America and South Korea, came into effect. It slashed tariffs, tightened intellectual-property rights and opened up South Korea’s services market. When it was signed, the head of an American manufacturing lobby hailed it as meaning “jobs, jobs and jobs”. Wendy Cutler, its American negotiator, calls it “the highest standard deal we have in force”.

Five years on, jubilation has given way to anxiety. On the campaign trail, Donald Trump referred to the deal as a “job-killer”. On March 1st his administration’s official trade-strategy document singled it out for criticism. America’s trade deficit in goods with South Korea has more than doubled since 2011. “This is not the outcome the American people expected,” it lamented.

Trade between America and South Korea has indeed fallen short of expectations. When the deal was signed, the United States International Trade Commission predicted that it would boost American goods exports to South Korea by around $10bn. In fact they fell by $3bn between 2011 and 2016. The deal suffered…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Is the Federal Reserve giving banks a $12bn subsidy?

EVERY time the Federal Reserve has raised rates since the financial crisis, as it did on March 15th, it has done so in part by increasing “Interest On Excess Reserves” (IOER). This obscure policy rate is surprisingly controversial. Jeb Hensarling, the Republican chair of the congressional committee that oversees the Fed, has called it a “subsidy” to some of the largest banks in America.

To understand the argument, consider the Fed’s year-end financial statement. In 2016 it earned $111.1bn in interest income on its vast portfolio of securities. But it also paid JPMorgan Chase, Wells Fargo, and other mostly big banks $12bn in interest on excess cash deposited at regional Federal Reserve banks. Such IOER payments are both woefully unpopular and critical to the Fed’s monetary policy.

Over a decade ago, to give the Fed better control of short-term interest rates, Congress authorised it to pay interest on funds in excess of those banks need to meet reserve requirements. The policy was first used during the financial crisis in 2008. But today, IOER is the Fed’s primary monetary-policy tool, essential to its setting of…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

Do smart-beta investment funds work?

IN THE world of investing, everyone is always looking for a better mousetrap—a way to beat the market. One approach that is increasingly popular is to select shares based on specific “factors”—for example, the size of companies or their dividend yield. The trend has been given the ugly name of “smart beta”.

A recent survey of institutional investors showed three-quarters were either using or evaluating the approach. By the end of January some $534bn was invested in smart-beta exchange-traded funds, according to ETFGI, a research firm. Compound annual growth in assets under management in the sector has been 30% over the past five years.

The best argument for smart-beta funds is that they simply replicate, at lower cost, what fund managers are doing already. For example, many fund managers follow the “value” approach, seeking out shares that look cheap. A computer program can pick these stocks more methodically than an erratic human. A smart-beta fund does what it says on the tin.

But does it work? The danger here is “data mining”. Carry out enough statistical tests, and you will always find some strategy that worked in the…Continue reading

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