Cornell Business Review Spring 2018 Magazine

TECHNOLOGY

Worse than Silver

An inside look into the Bitcoin craze

By Hunter Bosson

E

ven after inflating and popping the 21st century’s most obvious speculative bubble, Bitcoin’s acolytes have not been swayed from delusions of grandeur. An obscure “cryptocurrency expert” made a widely-published prediction that Bitcoin, currently hovering well south of $10,000 per coin, would reach $50,000 by the end of 2018. But the rise and fall of Bitcoin has obscured the rapidly growing influence of less wellknown cryptocurrencies and crypto-assets. These off-brand cryptocurrencies, called altcoins, enjoyed a digital Cambrian explosion with swelling ranks and skyrocketing prices; their collective value now surpasses that of Bitcoin. Ranging in promise, seriousness, and legality, altcoins spurred an ecosystem of amateur speculators just obscure enough to evade regulators but plenty influential to now shift investment paradigms.

Most major altcoins trace their origins to the original buzz surrounding Bitcoin circa 2014. When it became clear that bits could be sold for billions, developers lined up to improve upon the cryptocurrency Godfather’s design and provide infrastructure to facilitate transactions (thorough articles on

4 | CORNELL BUSINESS REVIEW

both Bitcoin and the cryptocurrency’s foundational technology can be found in previous editions of CBR). Although technologically distinct from Bitcoin, a platform called Ethereum emerged as the clear prince to king Bitcoin.

A number of altcoins enjoyed spectacular success on the back of their underlying technology. Litecoin (LTC), a coin created by a former employee of the largest cryptocurrency exchange, offers a dramatically lower transaction time and fee structure relative to Bitcoin and is the most widely accepted cryptocurrency outside the Bitcoin-Ethereum hegemony.

Some Altcoins, notably Ripple (XRP), have garnered a shocking amount of institutional acceptance. Boasting cryptocurrency’s third largest market capitalization, Ripple has been the up-and-coming coin since 2014 despite an 85 percent drop in the first three months of 2018. Ripple exists as more of a payment network that happens to use a coin to transfer funds between accounts. Fidor Bank, Santander, and the Commonwealth Bank of Australia are building applications to use the Ripple network.

The excitement surrounding

altcoins often dabbles in the absurd.

Deserving honorable mention in this category is the quintessential “memecoin”: Dogecoin (DOGE). Originally a spoof of bitcoin created in late 2013, DOGE is now worth billions of dollars with a committed online community of followers. The coin now markets itself as an online tipping mechanism; in one noteworthy instance, its users managed to donate $30,000 to help send the Jamaican bobsled team to the 2014 Olympics.

Naturally, the largely unregulated world of cryptocurrencies incubates some rather brazen scams. Perhaps the most obvious of these is BitConnect, a thinly-veiled Ponzi scheme offering returns over 150 percent annually in exchange for buying BitConnect’s own coin. BitConnect has since received cease-and-desist orders from Texas and North Carolina, and the $3 billion operation has lost more than 99.7 percent of its value. Some crypto speculators use strategies that are unlawful in developed markets, such as pump-and-dump schemes.

The dodgiest inhabitants of the altcoin universe, though, are Initial Coin Offerings (ICOs). Rather like an IPO for

TECHNOLOGY startups, ICOs are a procedure for raising capital whereby a company issues its own digital coins or tokens. ICOs are hot; as of mid-March, ICOs had already raised upwards of $3 billion. ICOs answer the question of what happens when monetized trendiness meets weaponized gullibility: a proliferation of questionable startup funding. PlexCoin had its $15 million ICO halted by the SEC after it promised its investors ludicrous returns of over 1300 percent within 29 days. Only the most daring crypto investors try to separate the ICO pyramid schemes from the legitimate attempts to secure funding.

As most major institutional investors stay clear of cryptocurrencies, hedge funds have taken the mantle of cutting-edge market participants for digital currencies and assets. The rise in the number of hedge funds mirrored the meteoric rise in cryptocurrencies themselves, as, according to Autonomous NEXT, the number of hedge funds increased from 37 at the beginning of 2017 to a whopping 226 by February 2018. These hedge funds employ the typical range of strategies: some are speculative, some market makers, and some make opaque investments in ICOs. Despite their growing influence, these hedge funds still largely exist under the regulatory radar. Autonomous NEXT estimates the funds manage upwards of $3.5 billion, making many of the firms too small for SEC oversight. State regulatory agencies are left to fill in the cracks. The SEC has since flexed its muscles, sending requests for digital investment valuation techniques and subpoenas to the more suspicious firms. The SEC has shown particularly great concern towards hedge funds’ involvement in ICOs, fearing that they feed into a speculative bubble that has proven susceptible to fraud. Due to crypto hedge funds’ relatively small size, regulators seem more focused on catching attempts to defraud investors than systemic threats.

On the other side of the complexity spectrum, there are the commercial investors. Lured by crypto’s outsize returns and the unwavering confidence of its supporters, otherwise inexperienced investors have poured cash into bets on the proliferating exchanges. Among the more outrageously stupid investment strategies these latter-day Warren Buffets concocted was purchasing coins using credit cards to increase leverage. Major banks banned the practice in early February.

Although recent surveys indicate less than 8 percent of Americans currently own cryptocurrency, this vocal minority still dominates crypto price movements. The majority of these holdings are Bitcoin, but a growing number have begun investing in altcoins as they race to catch up to the flagship coin; almost 1 percent of Americans own Ripple. Although cryptocurrency speculators compose a small portion of the total population, they compose a fair portion of active investors; only 14 percent of Americans directly own stock.

In a strange twist, many investors have more faith in cryptocurrencies than the stock market. Ever-mindful of the crash preceding the Great Recession, many young adults see the stock market as comparably speculative as cryptocurrency; only the latter promises returns with a few extra zeros at the end.

The ultimate irony of cryptocurrencies is that they draw riskaverse investors from safer investments. In particular, they offer unprecedented transparence; unlike the stock market, cryptocurrencies are always being traded, offering more skittish investors the chance to keep an eye on prices well into the night. All that

altcoins really lacked was a patina of legitimacy afforded by the established investor community.

One of the clearest indications that cryptocurrencies are gaining acceptance as reasonable investments is the growing popularity of the cryptocurrency portfolio. The change marks a shift in the expectations that surround money in cryptocurrencies; a speculative purchase of a few Dogecoin is the investment equivalent of a lottery ticket, but a diversified portfolio is expected to make money and avoid large losses.

So far Altcoin portfolios appear to come in two forms: crypto infrastructure diversification and crackpot portfolio theory. The former pushes the purchase of different kinds of coins depending on the technology and purported purpose behind them.

For instance, hedge fund manager Brian Kelly advocates splitting money between currencies, exchanges, “platforms” and the like.

The latter approach essentially entails attempts to replicate the performance of cryptocurrencies over the last year. The idea is that the observed returns and relationships among currencies reflect underlying forces that will have a sustained effect into the future. This implies that cryptocurrencies will continue to enjoy absurdly high Sharpe ratios; basic portfolio theory then suggests that people should make large investments in cryptocurrencies.

Of course both of these investment strategies really offer little more than the illusion of diversification. Although cryptocurrency returns correlate less than one might expect, they collectively represent investments in an absurdly specific part of the economy. A portfolio composed of the stock of every orange juice producer is barely shielded from risk; although such a portfolio mitigates losses from any particular stock, it entirely ties the fate of the investor to the orange juice business. Whether it be orange juice or cryptocurrencies, any such investment is just speculation with extra steps.

There is little reason to doubt now that the future will have a place for cryptocurrency. The question of the day is how many altcoins will eventually find practical uses. Bitcoin may, as the Winklevoss twins once put it, be “better than gold,” but that would give Altcoins the unclear distinction of being worse than something better than gold: hardly a basis for multibillion dollar valuations. Begging to be taken seriously by investors and benevolently neglected by regulators, altcoins have etched out their own little hive of scum and villainy. At their current collective size, cryptocurrencies are Bitcoin may, as the Winklevoss twins more of a financial nuisance than loomonce put it, be “better than gold,” but ing economic threat. that would give altcoins the unclear Hopefully they stay distinction of being worse than somethat way.

thing better than gold: hardly a basis for multibillion dollar valuations.

CORNELL BUSINESS REVIEW | 5

TECHNOLOGY

CRISPR The Blockchain

of Biotechnology

By Matthew Peroni

O

n February 15th, 2017, the US Patent and Trademark Office electrified the biotech industry when it announced that the patent for the Cluster Regularly Interspaced Short Palindromic Repeats, or CRISPR, was awarded to the Broad Institute of the Massachusetts Institute of Technology instead of the University of California at Berkeley. The gene-editing technology, which certainly does not take on a particularly inspiring name, drew the attention of an entire industry for good reason. CRISPR is to biotech what artificial intelligence and blockchain are to the tech industry, a promising breakthrough tool that could revolutionize an industry and humanity indelibly.

The patent dispute concerns the discoveries made by two labs on opposite coasts of the United States. Dr. Jennifer Doudna, a professor of Biochemistry at UC Berkeley, published a paper in 2012 titled, “A Programmable Dual-RNA– Guided DNA Endonuclease in Adaptive Bacterial Immunity.”

The discoveries made in this paper will be discussed shortly, but what Dr. Doudna discovered suggested that gene-editing could be done with far more precision and efficiency than ever previously thought possible. The following year, the Zhang Lab at MIT published a series of papers that expanded on Dr. Doudna’s work, but this time, extended the discoveries to mammalian cells. This extension is often critical in research because the application of mammalian cells implies the ability to conduct clinical trials on mammals such as rodents. This, in turn, implies the possibility of medical applications. Therefore, the dispute was a matter of whether Zhang’s work was an “obvious extension,” to quote UC Berkeley, of Dr. Doudna’s work, or a non-overlapping extension of breakthrough research. The US Patent office arrived at the latter conclusion. This decision largely placed the fate of CRISPR’s future in the hands of The Broad Institute.

Let us take a moment to discuss CRISPR itself. There are two components to the system: a DNA-cutting protein, called CAS-9, which stands for CRISPR Associated Protein-9, and an RNA molecule, called the guide RNA. Bound together, these two components form a structure, called a complex,

6 | CORNELL BUSINESS REVIEW

that can identify and cut out specific sections of DNA. Once the complex reaches the desired DNA segment, the RNA unwinds the section of the DNA, and the CAS-9 cuts it out.

Even though the cell will try to repair this segment of DNA, it is likely to insert errors, which will cause a mutation, resulting in a specific gene being turned off. In essence, there exists a biological structure that can be inserted into a cell that will edit the genes of that cell. There also exists slightly more complicated methods that allow scientists to cut out this DNA and insert a different desirable sequence before the cell can repair the strand itself. Before 2012, none of this had been truly considered or tested. The discovery, then, implied a new era of gene editing that was far more precise than past methods that were time-consuming and, at best, took out large strands of DNA, not always removing the desired segment.

Since these CRISPR gene-editing techniques can be used in live cells, scientists can engineer embryos of mammals, including human embryos. Applications of this technology include the ability to create mosquitoes that cannot carry the malaria parasite, humans who are immune to various genetic diseases, and, as shown in various recent studies, the successful targeting and killing of cancer cells in patients. The payoff of any of these breakthroughs is enormous, and that is why the many large firms in biotech and pharmaceuticals are buying in.

Returning to the industry of such discoveries, once the patent ruling was released, the Broad Institute made two major decisions. First, the Institute determined that it would be best to provide access to the technology for free to all research labs and universities across the world. The Institute will, however, charge private companies to utilize this technology in their own research and design work. Soon after the patent decision, the Broad Institute granted exclusive license to Editas Medicine, a pharmaceutical company, for therapeutic applications of CRISPR-Cas9. Soon after, rival companies Intellia Therapeutics and CRISPR Therapeutics obtained non-exclusive licenses to the technology. All three firms went public less than two years ago. Since 2016, each company has seen its

TECHNOLOGY respective stock value at least double.

Growth is always good, but the context of the industry must be considered. The biotech industry is notorious for its volatility. Often, the future of a company rests on the results of only a few clinical trials. Investing in one of these companies, then, is both risky and technically intricate. CRISPR differs from this norm in that it is a scientifically verified technique for gene editing. How successful this technology is when applied to a specific problem is the primary unknown. All three of the main CRISPR companies— CRISPR Therapeutics, Intellia Therapeutics, and Editas Medicine—have seen significant growth because the technology has only improved over the years since its conception, even though any given application of the technology can be more or less successful. It is often argued that, given the complexity of the science occurring at these firms, overly simplistic media coverage can often trigger impulse reactions from investors, causing the stock value of these companies to move up or down 10% in one day. The stability of the technology and positive media coverage it has received in the past year has drawn the attention of major biotech firms, which offers a few insights.

Among the largest investors in these companies are Bayer AG, Vertex Pharmaceuticals, Novartis, and Gilead Sciences. Vertex has partnered with CRISPR Therapeutics, and Novartis has partnered with Intellia. As an investor, going long on these large firms may pose considerable upside if CRISPR technologies continue to be successful in various clinical trials, but minimize risk if the technology takes a large scientific hit due to the size and diversity of their research and products. The upside will not be as large as it would be for the stock of the actual CRISPR company, but the risk is significantly minimized.

Another avenue, which Gilead has hinted at pursuing, is an acquisition. Gilead CEO John Milligan made a direct reference to this, stating that “one thing missing [in our company] is gene editing, but we’re talking to companies and we will do more collaborative deals in that space.” In this case, those who have invested in one of the CRISPR-based companies will do well

through cash or stock exchanges. In either case, the interest currently being shown by these large firms, and their financial involvement, is quite a positive indicator for the future of the CRISPR-based companies.

There remains a lingering question: if not absorbed by larger firms, will one of the three CRISPR companies dominate the rest? This is unlikely to occur because each of the three companies is currently putting the technology to different uses, and each has been successful in their respective pursuits so far. Of course, if the direction that a given company is going hits a scientific rut, that may be a staggering blow, but such a hit would not come from the success of another company in the running. To the contrary, the collapse of one of the three companies may well be bad news for the others. While these companies are using the technology differently - given the volatility of the industry - one company failing would likely indicate a flaw in the underlying technology, which could scare investors from the market entirely. The recent data security scare from Facebook, which is entirely unrelated to the work being done by these CRISPR companies, was enough to drop CRISPR Therapeutics’ stock value by over 10% in less than a week. It is not unimaginable, then, that serious concerns in closely associated firms would be a nightmare situation for the rest.

As an investor, it is in one’s best interest for all three of the CRISPR companies to be successful. It is clear from the involvement of large biotech and pharmaceutical companies, and from the scientific validation currently being reported from each of the CRISPR companies, that things are going well for this market.

The limits of this technology are a big question mark, but it is likely here to stay, in one form or another. Removing oneself from the point of an investor, one should hope for the success of these companies for the future of humanity.

Highly disruptive changes in gene-editing technology can improve our ability to cure diseases, mediate disorders, and ensure that future generations are not born with genetic conditions that negatively impact their quality of life.

CRISPR could be that disruptive factor and, like artificial intelligence or blockchain, it is out of the bag, and it is not going back.

CORNELL BUSINESS REVIEW | 7

TECHNOLOGY

Let’s Face(book) it, We(chat) aren’t all in this together

By Sonya Xu

It’s Sunday brunch with your friends, and the check comes. You pay the entire check and ask everyone else to pay you back. Sound familiar? Perhaps one of your friends opens Venmo and another sends you money using Facebook Messenger. Nevertheless, the money gets to you one way or another.

But if you lived across the world in China, the story unfolds differently. Sunday brunch with your friends is the same. The check still comes. But when it is time to pay, your friends most likely pull out WeChat Pay. All of these mobile payment platforms accomplish the same goal: sending and receiving money through a smartphone. Yet despite Facebook’s attempts to integrate payments into their Messenger app, WeChat Pay still dominates the mobile payment landscape. Can Facebook ever catch up?

Since Facebook is banned in China, citizens use a different social media app: WeChat, a messaging app launched by Tencent in early 2011.

Tencent Holdings is a conglomerate specializing in entertainment technology and internet related products and services. It is the parent company of Riot Games, creator of popular online games such as League of Legends.

WeChat controls the social environment in China. In 2016, users spent, on average, 66 minutes a day on WeChat (in comparison, users spent on average 50 minutes Facebook in 2016). Now, users can do much more on WeChat than simply send text messages or make video calls. In fact, the app allows users to not only transfer money to friends and family, but also to pay rent, donate to charities, and send and receive monetary gifts. Ultimately, WeChat’s success lies in its marketing abilities.

For years, Alipay dominated the mobile banking landscape, but WeChat Pay has quickly established ground. Three years ago, Alipay held 8 | CORNELL BUSINESS REVIEW

80% of transaction value in China, but by the first quarter of 2017, its market share had dropped to 54%.

WeChat Pay now claims 40% of the market. Even though WeChat controls less of the market, it has over 600 million active users, while Alipay has 450 million active users. The average Alipay transaction value is higher than that of WeChat. WeChat Pay’s quick rise demonstrates the Chinese public’s increasing acceptance of tech, stressing the role of social media in daily lives.

Both systems depend on one key feature: the QR code. Users scan a peer or business’s QR code to send them money in the form of a digital hongbao (red envelope). The user does not even have to be one of his or her WeChat friends. This allows businesses to easily accept payments from customers within China. Imagine, for example, a user going to her favorite hair salon for a haircut. There’s a QR code sitting on the table, and she is able to pay and tip her hairdresser, never needing to take out her wallet.

Despite the simplicity of this concept, security issues have arisen. On its website, Tencent says that WeChat complies with the Payment Card Industry Data Security Standards, which are regulations to make sure transactions occur on a secure platform. However, the risk of QR code fraud still remains.

In March 2017, the South China Morning Post reported that in Guangdong Province, 90 million yuan (USD13 million) was stolen through fraudulent QR codes. The fraud is committed by replacing real codes with fake codes that have built-in viruses pro-

gramed to steal information, occurring commonly with QR codes on restaurant counters. In response, the People’s Bank of China, the P.R.C.’s central bank, instituted guidelines that went into effect on April 1, 2018. Instead of a fixed code, a new code will be generated for each transaction, ensuring that codes cannot be swapped.

Similar to WeChat Pay, Facebook created a friend-to-friend payment system in 2015. Users connect a debit card to send money to Facebook friends, similar to using Venmo. In 2017, Facebook started allowing users to split payments between groups of people on their computers. This system uses two layers of encryption to ensure money transfers are safe. Apple’s TouchID fingerprint-recognition system can also confirm money transfers for added security.

But why did WeChat Pay take off in such a short time, while Messenger payments are rarely used? It is no secret that WeChat and Facebook dominate social media in their respective countries. WeChat itself has 963 million active users. Approximately half of these are in China. On the other hand, Facebook has 1.8 billion monthly active

TECHNOLOGY users, 214 million of which are in the United States (about 12%).

Granted, WeChat has an upper hand in the number of users; but more importantly, WeChat is China’s sole source of social media. On the other hand, users in the United States have a plethora of options, from Snapchat to Facebook to Instagram to Twitter, all of which are banned in China.

Tencent has the Chinese government on its side, which has played a key role in its growth. E-commerce was a major component of the Chinese Communist Party’s (CCP) twelfth five-year plan (2011-2015), which called for inviting foreign investment in high-tech companies. This plan’s effects have begun to come to fruition in recent years. In fact, in August of 2017, China’s cabinet, the State Council, met and discussed measures to make the foreign investment environment “more law-based, internationalized and convenient.”

The government’s support, coupled with the CCP’s card-payment monopoly, only makes the effect stronger.

China’s card payment, Union Pay, is controlled by the government. In 2015, China agreed to expand its card market to foreign players. Only in 2017 did major American card companies, such as Mastercard and Visa, begin licensing processes in China. Since mobile payments are already so integrated, new card companies will have a difficult time competing. The culmination of these advantages have enabled WeChat’s rapid rise as a primary mobile payment platform in China.

Even though limited competition between card companies allowed mobile payments to permeate daily life, WeChat Pay’s business transaction component has precipitated its success. In contrast to Alipay’s approach of integrating external financial services like ZhongAn (insurance services), Ant Micro Loan (personal credit line), and YuEBao (investments), WeChat Pay focuses on brands and companies. Companies can send notifications to their customers on sales or store events to amp up in-app purchases. Customers can post about companies and share information with their friends.

In effect, this allows customers to advertise for companies, while still benefiting from certain in-app deals. It’s a win-win for both parties. Conversely, Facebook Messenger and Alipay lack the social marketing component of WeChat Pay. According to the 2017 Mobile Payment Usage in China Report, 40% of Chinese people regularly have less than 100 RMB in cash on them (a little less than USD $16), suggesting movement away from the use of physical wallets.

Unlike Facebook, WeChat Pay transactions can be completed between strangers. With QR

code technology, users can send money to anyone with WeChat and a smartphone. It also takes a shorter time for WeChat to receive money from the sender than Facebook, which can take up to five business days to transfer.

A user can instantly see if their groceries were paid for, and the business owner can ensure that payment was received. Meanwhile, businesses cannot use Facebook Messenger for transactions, limiting their interactions with their customers on a daily basis.

Facebook has yet to catch up to WeChat in this manner.

Finally, consumers use Facebook for different purposes than WeChat. WeChat is an app that houses several apps within, taking over many aspects of daily life. For example, a user can order a taxi to go to a restaurant via WeChat. Then, order dumplings from the QR code at the restaurant. Finally, pay for those dumplings using WeChat.

WeChat serves extensive purposes. America does not use Facebook in the same ways that China uses WeChat for ordinary tasks. Messenger has not yet established partnerships with popular apps such as Uber and Grubhub that would allow similar functionality as WeChat; until they do, Messenger payments will continue to be merely another ignored function.

Furthermore, not all companies have a Facebook page; instead, they may choose to have an Instagram page, or tweet out deals. The range of social media platforms utilized in the United States does not allow Facebook Messenger payments to become standardized in the daily lives of Americans.

Mobile transfers herald a new paradigm of making and receiving payments. A 2017 report from the United Nations Conference of Trade and Development said that mobile payments will overtake credit cards by 2019.

China’s mobile-payments success lies in the app’s effortlessness.

Simply put, Facebook fails to streamline the process and successfully engage its users in mobile payment transfers.

On the other hand, in China, WeChat plays an integral role in the daily lives of millions of people.

It is second nature for citizens to pay for everyday purchases with their smartphones because the platform is so widely accepted. Facebook’s Messenger system cannot truly take off until American businesses partner with it. Perhaps one day we will not even need to carry around wallets anymore, but that day does not seem any time soon.

CORNELL BUSINESS REVIEW | 9

The Jet Set Career of

Liza Landsman an exclusive interview with

the NEA Venture Partner & Former President of Jet.com

Considering that you have worked in various companies and industries within the business world from Blackrock to Jet.com, how has your dynamic path led you to where you are today? What challenges have you faced?

There has been a theme across all the different organizations I have been a part of which is that I have been very focused on the smart use of data for better informed business decisions, and that was true when I worked at Blackrock, true at Citibank, and true at IBM. I think that a lot of that came together for me as we were building the launch of Jet.com where the product and pricing and going to market strategy were all significantly informed by the insights out of the quantitative data and a lot of the qualitative insights that we get from our research lab. Now, what challenges have I faced along the way? I would say there are some pretty generic ones : such as being a woman who spent most of my career in finance and tech which are industries that are primarily dominated by men, and so I think that has created some interesting moments and challenges. Maybe a little more specific to my own journey was figuring out the stuff that I was most passionate about and making sure to pursue those things as opposed to, in some ways, a more traditional path. I did not stay in banking, for example.

One of the things that really attracted me to the Jet opportunity was not just the substance of the work, but actually the the chance to come in on the ground floor and help shape the culture of the company and how work would be done.

How are you planning to translate your experiences and insights from your time at Jet.com to your new position at NEA and what are you most excited about?

Well I think that it’s really around recognizing the big ideas and having hopefully developed a really

keen eye for what makes great leaders and great talent because it’s often as much about conducting a team as it is the business. I am really excited about getting to be a little intellectually promiscuous for a while, so I think about multiple industries and not just e-commerce, and maybe not even purely consumer industries. A lot of my roots are in payments and fin-tech, so getting back to explore current trends there and also some things that are totally new for me. NEA is an example with a lot of investing in China which is a totally new field for me.

I just did my first trip to China in December and I was just blow away as to how they are years ahead of us in so many industries and I’m excited to have the opportunity to learn about some of that stuff in a more structured way. I also had the opportunity to get to know a lot of the partners there because NEA was an early investor in Jet, and I love the people. They are both brilliant and kind, and that’s my favorite combination.

What impact do you think the growth of e-commerce is going to have on the production and distribution of products in the future?

I think there is lots of evidence that suggests that the growth of ecommerce is growing the pie overall, but there definitely are people who shift channels. One of the things I really enjoyed and was a really interesting work opportunity for all of us who were legacy Jet employees post Walmart acquisition was to think more creatively around driving the connectedness [between e-commerce and brick-in- mortar stores]. One great example is that we created the functionality so that if you were a habitual shopper at Walmart stores, all of the stuff that you bought regularly just repopulated in your Walmart app so that you could auto-order really easily and that’s a great use of data but also makes your experience across channels more seamless. I think

the dawning reality is that if you are just brick- and mortar or just purely ecommerce that you are, to a large extent, fighting the last war because consumers want control and they want optionality. There are both kinds of moments in our lives, like when it’s a Friday afternoon and I realize that my kids have two birthday parties and they don’t have presents for either kid, and I’m stuck in a meeting and want someone that is going to deliver gift-wrapped items to my door before I get home. But sometimes, I am making a huge dinner and I want to pick out the produce myself because I want everything to be perfect, and you can’t do that online, so I think that the blend is the interesting thing for the consumer.

Arguably getting the cost structure right, and creating the right alignment of economic incentives and experiential incentives is important because consumers make choices that are good for businesses.

You spoke at Fortune’s Most Powerful Women Conference last year. Who is a female leader(s) you admire most, and why?

I mean, there are so many. An early inspiration for me was Sally Ride.

I’m a big math and data geek, so seeing her pursue her passion, and literally be a trailblazer was really inspirational for me. I also look at Angela Merkel and the things she has to do to try and restore the economy of Germany, and the magnitude of the problems she wrestles with. I’m still sad there’s not a female president in this country.

I would also say, maybe this a little bit sappy, but my mom, who is a small business owner and started that when I was in elementary school. She built it through hard work, but also there is the thoughtful and compassionate way she grew her business and still balanced that with raising a family and having a real life. I also look at some of the women who have worked for

me over the years who have taught me a ton, and who have worked on the marketing team under me. Sumaiya Balbale who is one of the best marketers I’ve ever worked with and is this right- brain/ left- brain genius, taught me ( and I’ve worked in digital marketing for twenty years), more in the last two and a half years than I learned in the two decades before that. I think one of the great things in choosing your workplace is to find people who inspire you in all directions.

It was quoted that your favorite side project is to try to get more women elected into public office. How does your personal interest in the topic of women and leadership translate into your own leadership style within the workplace and beyond?

I am very passionate about the topic of getting more women elected, but also getting more women into leadership roles. And think having more women in public service and in the private enterprises of corporate America are equally important to effecting change. These have certainly transitioned into a couple of things for me at work and my leadership style at work. One, I’m pretty outspoken around making sure that it’s an aggressively diverse place, not just along the gender line but also in ethnicity, nationality, etc., and I think that is something you have to do from day one, and not something that serves as icing on the cake, but is the cake. I’ve been an activist about that within my own team but also in my peers’ and partners’ teams. Two, I try to be outspoken in my sense of fair play, especially when it feels like things are not being handled in a fair and transparent way, and I encourage other people to do that as well. My thing is, (it’s not my thing … I stole it from the New York subways) “when you see something, say something.” When women get interrupted in meetings I stop the interrupter, nicely and politely, but I think these are the kinds of situations where, like with your kids, you are just as defined by what you do as by what you say, so I think exhibiting that behavior consistently is the only way to create change. For example, one time I was standing in our cafe area in front of the refrigerator and there were a bunch of younger men all standing around, and one of them made an off-color joke, not terrible but still questionable. I was about to say something and another younger man nearby said, “ actually that’s really not funny, and that’s really uncool of you to say.” I was just so happy because the easiest thing is just to say nothing, and I really think it’s a sign of a healthy culture that people feel comfortable saying, “hey, that kind of thing bothers me.” I mean we’re not the political correctness police, but at the same time, talking about and acting upon these things is what creates an inclusive culture, and think that comfort level to say uncomfortable things is really indicative to me of a healthy place to work.

At Jet, you developed some fantastic programs like Jet

Cares and the Equal Pay Pledge. How do you sort of continue to plan on making that social impact in your new role in venture capital?

That is a great question that I have not really had the time to fully think about. I mean certainly, NEA has a great track record of investing in women-founded businesses. It’s funny, I just did a little pre-onboarding with of a bunch of founders in Silicon Valley. Within the portfolio, a lot of them are women, and so I was really excited about getting to reconnect with that community. So while I don’t have a plan yet, I know it’s something that has always been important to me and will continue to be, and will definitely be a part of what I’m going to get down to in the first months there, to think about how to find additional ways to bring that to a different kind of work.

“I think one of the great things in choosing your workplace is to find people who inspire you in all directions.”

How have your experiences at Cornell shaped you both as a professional and as a leader, and what advice would you offer to students as they begin their careers?

I would say yes definitely but on two different tracks. One of the things that is a great is about a liberal arts education, and I’ve really benefited from this at Cornell, is that you get to sample a lot of different things and even though you may have a particular major, you’re kind of forced by the structure to really broaden your thinking and try different disciplines. That’s actually an approach I’ve brought to managing my career. I don’t have a traditional marketing background. I ended up with some time on the marketing side because I was quantitative at the time marketing became a more quant driven discipline.

I don’t have a traditional call center background, but I spent a lot of working in operations and around call centers because I was really interested in the consumer experience, and in a lot of financial services organizations that’s the closest to the customer you’ll ever get. And so, it’s that kind of developing the skill set to sample, extract the things that are of interest to you and carry them along with you in whatever your next undertaking is. I think that’s the skill set that I really picked up at Cornell. I think about this as our oldest kid is in college now, and unless you’re going to be a doctor, I don’t really think about college as vocational training. It’s just a place where you cultivate a love of learning and your ability to acquire and simplify facts, information, and develop a broader world-view. And on a second track, although we did not date in college, I married one of my best friends from college, and that’s a really great thing I got from Cornell, because he’s a keeper.

FEATURE ARTICLE

INDUSTRY

Tunnel Vision on

CARBON DIVIDENDS

CO2

Of all the imperfect fixes for climate change, a carbon tax which reimburses citizens is a reasonable idea. But it cannot be our only idea.

By Ethan Wu

T

heir plan was well hatched. A sleek new website. A punchy white paper. A volley of opinion articles in major newspapers. A full-page ad in the Wall Street Journal. The Climate Leadership Council (CLC) had made its ostentatious debut.

American politics are such that climate advocacy is widely associated with the left, the liberals, the Democrats.

Perhaps that is why the CLC’s inaugural white paper, released in February 2017, made such a splash. Entitled the “The Conservative Case for Carbon Dividends,” the paper was penned by an ace crew of conservative statesmen. Among them were George H. W. Bush’s Secretary of State, Ronald Reagan’s top economic adviser, and George W. Bush’s Treasury Secretary.

A ragtag band of political newbies this was not.

This February, buzz around the CLC’s proposal began afresh as a new climate advocacy group sprang up. Students for Carbon Dividends (S4CD), a bloc of 34 student-run political groups (including the Cornell Republicans), describes itself as “a student-led movement that aims to catapult a free-market climate solution into the national spotlight and open the door to bipartisan climate action.” S4CD wholeheartedly endorsed the CLC’s carbon dividends proposal. It also took a page out of the CLC’s publicity playbook. A flashy webpage. A high-octane promotional video. Another volley of opinion pieces. Flattering coverage from climate reporters promptly rolled in.

S4CD, though supposedly a bipartisan coalition, is largely composed of college Republican clubs, a fact which it touts. This is critical. The CLC and S4CD matter precisely because they are conservative organizations. Republican elected officials have an enormous political incentive to deny or, more commonly, obscure climate science—or else face a potential electoral challenge from the party’s right wing. Yet there is a broad scientific agreement that global warming is

primarily caused by human activity, though there remains narrow debate about the exact extent. The scientific reality is at loggerheads with the political reality. For Republicans, conservative climate-action groups like the CLC and S4CD offer a roadmap, one presenting a path away from denial and obfuscation toward productive engagement with policy.

A year after the CLC’s conspicuous launch, S4CD has revived the same policy proposal—and the same questions. As such, it is worth thinking through the plan both organizations are so keen on.

The CLC’s plan rests upon four pillars. First, a steadily increasing tax on carbon dioxide emissions, levied at the initial point of fossil fuel extraction. Oil wells and deepwater ports would pay the initial tax—which they would pass on to consumers via higher prices at the pump. Second, a monthly “carbon dividend” check paid out to anyone with a Social Security number. All would receive the same lumpsum payment, regardless of income. Third, a set of fees and rebates at the border to prevent other nations from gaining an unfair advantage—technically described as “border adjusting” the carbon tax. Fourth, the rollback of regulations which would now be, in principle, unneeded. The Environmental Protection Agency (EPA), a conservative bugaboo, would see its authority to regulate carbon emissions scaled back.

Start with the motivations for the first pillar: a carbon tax. Economists talk of carbon dioxide emissions as a “negative externality”—a cost borne not by the emitter but by everyone else. Fisheries, for instance, pay for global warming in the form of smaller catches. But fisheries are not compensated by those who initially released the Earth-warming gases. Society thus foots the bill for carbon polluters; the free market fails. To fix this, the bulk of economists prescribe a tax on carbon emissions, shifting the cost of pollution onto polluters—where it belongs. In economic terms, a carbon tax is the most efficient solution to an issue like climate change,

CORNELL BUSINESS REVIEW | 13

INDUSTRY lowering emissions while minimizing government meddling in private-sector affairs.

A carbon tax will surely bring down carbon emissions. The question is by how much. The CLC proposes an initial levy of $40 per metric ton of carbon dioxide. The carbon tax rate would, moreover, rise in tandem with inflation. The CLC’s in-house analysis claims that under its four-pillar plan, America will meet its commitment under the 2015 Paris climate accord—a 28 percent reduction in greenhouse gas emissions by 2025.

There are reasons to be wary of the CLC’s analysis. It excludes the impact of greenhouse gases other than carbon, such as methane and soot, which are more potent planet-warmers than carbon dioxide. It gives a shoddy account of how producers might react to a rising carbon tax rate, and consumers to rising fuel prices. It does not follow a clear methodology, instead opting to summarize three choice studies and then declare a conclusion. In that regard, the CLC’s analysis reads more like a political document than an rigorous piece of academic work. It seems highly improbable that the CLC’s plan would achieve the greenhouse gas reductions necessary to meet the commitment America made in Paris.

Still, a fair-minded evaluation will afford the CLC’s proposal the benefit of the doubt. Suppose its carbon tax would successfully curb greenhouse gas emissions. What can be made of the CLC’s other three pillars?

Consider the CLC’s second pillar: a “carbon dividend” check doled out to all citizens. Proposing a “dividend-paying carbon tax”—as the first and second pillars are called in combination—is meant to be the CLC’s big political innovation.

It claims that a dividend-paying carbon tax will, among other items, assist working-class Americans, strengthen the economy, stifle populism, encourage innovation, help stabilize world affairs, and allow the Republican Party to “appeal to younger voters, Latinos, and Asians.”

The case for carbon dividends is an intuitive one.

Rather than amassing revenue from the carbon tax in government coffers, they are distributed to the people. Consumers will eagerly spend their newfound disposable income, sparking economic growth. The poor will benefit most of all, as a lump-sum payment means more to someone with less money.

Crucially, the broadly felt effects of having $2,000 more per year (the CLC’s number) will result in a new political coalition forming to protect carbon dividends. Much akin to Social Security and Medicare, carbon dividends could become an untouchable fixture of American politics. And voilà, a carbon tax would become politically viable in a way it never could otherwise be.

But there is a lapse in this reasoning. The revenue that a dividend-paying carbon tax generates is linked to carbon emission levels. If emissions fall, revenue falls. And if revenue falls, so, too, do dividends. In other words, if the carbon tax does indeed yield the environmental benefits that the CLC claims, then dividends will, in turn, become ever more unsustainable. Policymakers could raise the growth rate of the carbon 14 | CORNELL BUSINESS REVIEW

tax to compensate for lost revenue, but that would not address the long-term revenue shortfall created by falling carbon emissions. Skyhigh carbon tax rates, moreover, would suffocate the oil and gas industries, which remain integral to America’s current energy supply. Dividends would have to eventually come down. The CLC may see carbon dividends as a sweetener to muster up short-term political support; that is all well and good.

But carbon dividends are not viable in the long run.

Yet another difficulty arises with the CLC’s third pillar—a set of fees and rebates at the border known as “border adjustment.” But first, how would this policy work? Imports would be taxed based on their carbon content, whereas exports would be exempted from the domestic carbon tax through a rebate. Though the economic effects are rather detailed, in theory, border adjusting a domestic tax is meant to keep American exports competitive, while not unduly favoring foreign imports.

Think of it as maintaining a level playing field for international trade.

The problem lies in implementation. Instituting a border-adjusted carbon tax would require a massive expansion of government to ensure proper inspection and enforcement.

Domestic and foreign firms alike would try to profit off of the system with wily accounting tricks. Bureaucrats would be tasked with identifying the exact level of carbon emitted in the production of an imported good, so as to tax it correctly. Verifying the fraction of carbon in a foreign good would be an immense hur-

INDUSTRY

dle, especially for goods imported from less-than-cooperative nations like China. For similar reasons, a carbon tax on foreign services would be an enforcement nightmare.

None of this is to say it cannot be done. One could argue that establishing the bureaucracy necessary to enforce a border-adjusted carbon tax would enable America to instate similarly complex taxes in the future, such as a value-added tax. There is something to that argument. But the CLC’s proposal—the fourth pillar of which calls for sizable administrative rollback—aims to reduce the size of government, not grow it. Such bureaucratic downsizing is inconsistent with a border-adjusted carbon tax that would cause government to swell.

Champions of the CLC’s proposal fail to recognize that it is incomplete. It is unlikely to meaningfully curb climate change. It does not fund its own carbon dividends. Its provisions on the scope of government are internally contradictory.

To be worth implementing, the CLC’s plan needs some alterations first. One idea: allowing carbon dividends to fluctuate based on incoming carbon tax revenue would ensure that dividends are fiscally viable in the long run. To see how this might work, look to Alaska. The Alaska Permanent Fund, an oil-dividend program written into the state’s constitution, lets its payouts fluctuate according to a formula. The fund has been financially sound for decades.

But the fundamental problem with the CLC’s propos-

al is its ambition. The plan is a well-intentioned attempt to slay a many-headed beast with a single line of attack. Its authors recognize the lofty political barriers for any legislation deemed government intervention. In response, they have cooked up a reasonable proposal that strives to be both politically feasible and environmentally desirable. Yet it forgoes the latter.

To create effective climate policies, the CLC’s plan must be coupled with other climate change solutions. Making a dividend-paying carbon tax part of the solution—rather than the only solution—gives America more avenues to combat climate change. How should this be done?

One idea is rationalizing the privileged tax treatment of oil and gas companies, something on which free-market types and environmentalists can agree. Another option, already adopted by California, involves cracking down on open wood fires and old diesel engines, both of which pump out soot, an especially noxious greenhouse gas. Greater investment in energy research is a worthy use of taxpayer dollars.

Barack Obama’s fuel efficiency standards for automobiles lower greenhouse gas emissions, help consumers, and enjoy support, however lukewarm, from the auto industry. The EPA now plans to “revise” the Obama-era standards, which likely means reversal. Better would be to keep them intact.

An oft-overlooked source of greenhouse gas emissions, agriculture, deserves its turn under the scalpel, too.

America should create a set of global technological standards for low-emission agricultural practices. As Scott Barrett, a professor of public policy at Columbia, has argued, America can enforce such a set of standards with a combination of carrots and sticks. It did precisely that with the highly successful 1987 Montreal Protocol, which instituted an international ban on chlorofluorocarbons (CFCs), a type of refrigerant responsible for depleting the ozone layer.

Lastly, Congress should approve, and the president ratify, the Kigali Amendment to the Montreal Protocol, which phases out hydrofluorocarbons (HFCs). Much like CFCs, HFCs are a class of ozone-depleting refrigerants that also warm the planet. This February, two senators, one Republican and one Democrat, introduced the American Innovation and Manufacturing Act, which would approve the Kigali Amendment. One of the senators, Republican John Kennedy of Louisiana, said of the bill, “It’s not often that Democrats, Republicans, industry, and environmental groups come together to agree on anything, but we are all in agreement on this one.”

The policies suggested above are vital ingredients in a wider climate agenda, of which the CLC’s dividend-paying carbon tax, with some revisions, should be made part. Mitigating climate change need not entail excessive regulatory imposition. Nor should America succumb to a generalized fear of rulemaking.

The CLC has put forth a constructive proposal. But its largest challenge lies ahead. Years of can-kicking have left the world with ever-dwindling time to act. Climate Leadership Council, lead on.

CORNELL BUSINESS REVIEW | 15

INDUSTRY

Modern Corporate Strategy

B

By Matias Zorrilla

uyout, acquisition, merger, takeover; banker jargon have become buzzwords of the mainstream. Open the Wall Street Journal on any given day, and news of mega-deals coat the paper’s pages. In 2017, mergers and acquisitions (M&A) reached an all-time high, with 51,206 tieups taking place worldwide. While the markets have recently been grappling with a massive bout of volatility, large-scale acquisition activity has demonstrated continued strength, as exemplified by the highly-reported AT&T/Time Warner deal, as well as other M&As in 2018 including Amazon/Ring, Albertsons/Rite Aid, and CVS/Aetna, to name a few.

This growth in corporate takeovers is not an isolated trend; it is indicative of an increasingly concentrated corporate landscape. According to IBISWorld, 10.86% (146/1345) of industries in the United States exhibit high market concentration, meaning that the top 4 competitors account for 70% or more of the industry’s revenues. Furthermore, 22.53% (303/1345) of industries face a medium market concentration; between 40 and 70% of revenues are generated by the top 4 firms. More than ever, a few firms come to represent the everyday lifestyles of the average American, and this consolidation of power amidst a few firms has had detrimental effects on society—not only for consumers, but also for corporations themselves.

Blandness of Market Perhaps the most obvious result of industry consolidation is the impact it has had on corporate diversity: diversity in

16 | CORNELL BUSINESS REVIEW

market presence, diversity in thought, diversity in ambitions.

A prime example of this growing dynamic is Facebook.

Facebook’s billion-dollar acquisition of Instagram shows a growing mentality in today’s market: winning means beating competitors or, simply, buying them. Facebook’s acquisition was not to maximize synergies, but to own “the thing” (i.e., the idea, the concept, the product, etc.) threatening Facebook in popularity and practicality. This tactic of merely copying the trend leader has been repeated time and time again with Facebook being no exception, as exemplified by its recent decision to adopt Snapchat’s features into its products.

There is a level of unreasonableness in believing that any market leader will always be a proponent of progress in the industry that it purveys. Nevertheless, what today’s market structure has encouraged is complacency in one’s own research and development. Cash is king, and for established firms, everything has a price (particularly the startups and competitors that are instigating change). Trying to maintain an oligopoly in a competitive society is what has inspired firms to build instantly gratifying products while chasing mantras of “corporate social responsibility.” What were once industry innovators are now trend chasers, and this accentuates a fundamental problem. Major companies are chasing trends because it is simply easier and more cost-efficient.

Displacing traditional ways of thinking, which is what once allowed blue-chip companies to garner their market positions, is becoming a rare art amongst established firms.

It is an undeniable fact that capitalistic markets are

INDUSTRY the greatest incubators of innovation. Unfortunately, in today’s society, the individuals that are driving change are being consumed by conglomerates. In today’s market, Davids are a dying breed, as Goliaths acquire or squander any corporation that stands as an interference or stepping stone towards its objectives or vision. What you get as a result of this model is a bleak outlook on industry.

Consumer Complacency Delving into a micro-level, it becomes clear that market consolidation has also had underlying consequences for the everyday person. Under current market conditions, the average consumer has fallen to a mentality of acceptance. Rather than questioning market offerings, consumers have come quick to accept what is deemed socially acceptable. According to Deloitte’s “Global Powers of Retailing 2017,” consumers are increasingly defining themselves by the products they have, due in large to the growing popularity of social media and increasing commercialization. Youth idolize the people and figures in their lives and buy the products their peers endorse.

This unquestioned support enables popular companies to produce lackluster products under the fair assumption that there will be an audience to buy them. It is in this way that consumer complacency is both a byproduct and instigator of market consolidation, creating a vicious cycle of beige.

these premiums are not necessarily warranted. An inelastic demand for well-regarded brands has driven companies to beat inflation and command high control of buyers’ willingness to pay.

Lack of Company Direction While consolidated markets have a strong impact on the current corporate and consumer landscape, they also hold implications for the future of business. In his article “Marketing Myopia,” economist Theodore Levitt analyzes the importance of defining a business. Levitt emphasizes the need to properly define a business because of its role in identifying a company’s audience and its needs. If focused too narrowly, a company becomes a niche, losing sight of the growth opportunities and ever-present threat of substitutes.

More prevalent in today’s society perhaps is hyperopia. Focusing too much on what a business can be, firms have expanded to an unreasonable level to compete. Take Amazon.

Amazon does well because it knows it can change the dynamics of industries that have been stagnant for years, whether that be in retail, groceries, security, shipping, or banking.

Amazon’s free cash flows can be neglected because it is led by Jeff Bezos. Amazon may appear successful; however, the fundamental inability to define what Amazon is presents an issue that extends beyond financial statement performance and headline coverage. It would be difficult to find anyone who continues to classify Amazon as a bookseller. And this lack of transparency is the biggest concern for Amazon. Amazon faces the peculiar threat of spreading itself too thin, substituting quantity of its endeavors for quality. While this danger may never be realized financially, it will impact the directional guidance the company will have in carrying its operations.

“More than ever, a few firms come to represent the everyday lifestyles of the average American, and this consolidation of power amidst a few firms has had detrimental effects on society—not only for consumers, but also for corporations themselves.”

Take Apple’s iPhone 8 models; fourth quarter sales in 2017 show that the iPhone 8 and 8 Plus collectively accounted for the largest share of iPhone sales, 41% to be exact (according to Consumer Intelligence Research Partners). This product was Apple’s least innovative and impressive product in the line’s history. Yet consumers are still willing to buy them because it gives them access, or the perception of access, to a network, a connection, a status. But consumers have not only become complacent with the quality of products. They have also become complacent with the prices that corporations set.

Apple is able to sell its products for a premium, even when

As a fierce believer in free trade, any statement discarding the benefits of capitalism would be heresy. In any of the aforementioned observations, correlation does not indicate causation. However, what makes capitalistic models so great, namely consumer choice and unrestricted competition, is ironically what has caused a few giants to squander the diversity in the business landscape. A growing society dominated by a decreasing few, the modern paradox, is influencing the landscape in which we live, both on an individualistic and corporate level. In the end, the greatest beneficiaries may be the investment bankers.

CORNELL BUSINESS REVIEW | 17

INDUSTRY

Above: A SpaceX Mars Simulation in Mauna Loa, Hawaii

SpaceX Mission to Mars

By Nikhil Dhingra

O

n February 16, SpaceX, a billion dollar private aerospace manufacturer and space transport services company, launched the Falcon Heavy rocket from a launchpad in Cape Canaveral, Florida. The successful launch and re-landing of the rocket not only marks the first time that a commercial company sent a vehicle of this size to space, but also allows Falcon Heavy to officially claim the title as the world’s most powerful rocket. On a larger scale, the launch represents a historic step towards an overarching vision that the company has pioneered for the last decade: the colonization of Mars.

The goal of February’s historic launch was simply to test the ability of the Falcon Heavy rocket to launch objects into orbit. SpaceX did this by launching the personal Tesla roadster of its founder, Elon Musk, into orbit. The successful launch is the first step towards using the rocket to send humans from the Earth to Mars as part of a larger colonization effort. This effort, though rooted in the age-old human aspirations to explore unknown territories, is only finally being realized by pioneering CEO Elon Musk.

Musk, who was born in South Africa, first rose to industrial fame after selling his start-up company, Zip2, to a division of Compaq Computers. Back in 2001, Musk began to

18 | CORNELL BUSINESS REVIEW

brainstorm a “Mars Oasis” plan which aimed to embed plant life from Earth within Martian soil. Musk ultimately realized the infeasibility of this plan due to a lack of proper technology and a finite NASA budget. As a result, Musk pitched his idea to numerous foreign companies before realizing that, due to the historically low price of rocket parts, he could buy the raw materials himself and start his own company. From here, SpaceX was born.

Shortly after the founding of SpaceX, Musk shifted his focus to the more ambitious venture of colonizing the red giant. As opposed to some of the expected motivations of business ventures, such as massive profits and market expansion, Musk’s primary motivation for colonizing Mars is complex and quite dire: preventing the extinction of humanity. Musk views Mars’ colonization as a last resort plan for extinction in the event that a global catastrophe were to wipe out the human race. To Musk, traveling to Mars ensures continuation of the human race.

In an interview, Musk stated that “there is a strong humanitarian argument for making life multiplanetary.”

He further reasons that it could “safeguard the existence of humanity in the event that something catastrophic were to happen, in which case being poor or having a disease would be irrelevant, because humanity would be extinct.”

From here, Musk sought to create a company that

INDUSTRY would one day be able to provide humans with an affordable trip to Mars. Teaming up with Hans Koenigsmann, a German engineer, and Tom Mueller, an American rocket engineer who created what would become the largest liquid-fueled engine ever built by an amaetuer, the group banded together to create SpaceX. At the same time, NASA’s steam was beginning to burn out. The space shuttle program which flew astronauts and cargo into orbit for three decades was set to expire in 2011, nine years after the company’s founding. While the Bush administration proposed a successor program called Constellation, which would send humans both to the ISS (International Space Station) and the moon, this program was ultimately cancelled in 2009 due to a lack of funding. Shortly afterwards, however, this was replaced with the Space Launch System, a powerful rocket designed for deep space exploration and a potential mission to Mars. It was around this time that NASA’s goals for space travel began to fall in line with those of SpaceX. As a result, Mike Griffin, an aerospace engineer at NASA who shared Musk’s vision for space travel, spent $500 million on a commercial space program that would ideally serve as a cheaper method for basic space programs, including travel to the ISS, while NASA could reorient their focus on the larger endeavor of space travel. Taking advantage of a universal action clause slipped into the 1958 law creating NASA, which was drafted in an effort to keep up with the ongoing space race with Russia during the Cold War, Griffin invested in both SpaceX and Rocketplane Kistler with the eventual goal of achieving human space travel. The investments were heavily conditional though, meaning that Musk was forced to take big risks: there would be no sharing of equity or intellectual property and no guarantee of payment before technological and financial milestones were reached. While Rocketplane Kistler was eventually dropped from the deal due to financial bankruptcy, SpaceX soared to the skies: they were able to secure $396 million from NASA, $454 million of outside capital from Musk’s wealthy ambitious friends in Silicon Valley, and $100 million of Musk’s own personal fortune. As of now, SpaceX cannot be stopped.

Arguably the most appealing aspect of SpaceX to both NASA and private investors is its relatively low cost due to reusable rockets. At NASA, rockets are usually trashed after completing their mission, meaning that hundreds of millions of dollars must be spent for every new mission in order to build a new rocket. In contrast, Musk aims to create rockets that only need to be refueled before they are launched again, which would make rockets much cheaper to create than they are today. As of now, Musk is well on track to achieve this goal; an average SpaceX launch is $61.2 million, compared to the $250400 million cost offered by their competitors.

SpaceX’s success in creating a low-cost rocket stems not only from their reusable parts but their different mindset towards rocket creation. Most of SpaceX’s competitors place an emphasis on performance rather than cost. While their rockets end up being spectacularly powerful, they often require thousands of workers to help refurbish the rockets in between flights. For example, United Launch Alliance, an association which consists of both Boeing and Lockheed Martin, produces rockets at an average of $380 million per launch. Musk believes that this is due to a “cost-plus” contracting model which the government traditionally uses. This creates incentives for manufacturers to maximize the costs of a rocket since they can make a profit even if they exceed projected prices.

SpaceX, on the other hand, focuses on minimizing

costs by analyzing how they can save money on each individual part of the rocket itself. Many companies use three different types of rockets during each phase of its flight: a rocket used for liftoff which is powered by RP1 (a refined form of kerosene), the main rocket which is used during its journey, and one during the final phase of its flight powered by liquid hydrogen. Musk believes that this only serves to triple factory and operational costs. Therefore, SpaceX built their Falcon rockets so that it would be powered by RP1 and liquid oxygen during the course of its flight, meaning that only an additional rocket is required for launch. For comparison, these components are traditionally split into seperate boosters by their competitors to maximize performance. SpaceX also uses Merlin rocket engines, one of the key components which separates the company from the rest of the market. While most rocket engines have droplets of fuel and oxidizer sprayed into the combustion chamber through a shower-head shaped injection plate, these engines use a needle-shaped injector that is significantly cheaper to make. Lastly, 80% of the components for the Falcon and Dragon rockets are made in-house due to incredibly high prices demanded by suppliers. By doing so, SpaceX can use cheaper materials than those made by suppliers which allow them to significantly reduce their costs. Small details like these allow SpaceX rockets to operate at a cost significantly cheaper than most other companies.

While markets for space technology are still in their infancy, SpaceX’s efficient design and massive growth over the past decade opens up endless possibilities for future endeavors.

SpaceX’s market domination over space travel has led rival companies to generate similar projects, such as Jeff Bezos’ (Amazon) “Blue Origin” program and Virgin Galactic’s push for commercial space travel. Space travel’s expansion into the market, combined with increased innovation from competing companies, could lead to technological advancements resulting in space travel’s rising popularity. These advancements may also contribute to other endeavors in related fields; instruments used to enhance space travel at a lower cost have applicability within other related fields such as mechanical engineering and astronomy. No matter which company ultimately prevails in this market, humanity stands to benefit from it.

“While markets for space technology are still in their infancy, SpaceX’s efficient design and massive growth over the past decade opens up endless possibilities for future endeavors.”

CORNELL BUSINESS REVIEW | 19

INTERNATIONAL

Big Brother:

Regulating Consumer Privacy in China

Chinese Internet Users observe Alibaba’s program which tracks consumer behavioral patterns

By Nathan Harkins of Google Maps and Google Translate which house data with Alibaba, a Chinese corporation. Meanwhile, Apple, deciding s Beijing continues to solidify its grip on power by to comply with the Chinese Government, agreed to house the eliminating term limits and appointing loyalists to key data from its iCloud on state-run servers – giving the governpositions, American companies have come to a crossment unprecedented access to private data. roads: do they push for access to Chinese markets at the risk As tech companies give the government control over of undermining their core values? Tech companies, who have private data, the government has begun looking outside the long seen restrictions from the Chinese government, are under tech industry for new industries to breach and requiring other increasingly intrusive demands which violate their commitcompanies to broadcast a state-friendly message. To do so, ments to consumer privacy and free access to information.

China has branched out to the hospitality industry to broadOther industries, who also collect data on customers, could be cast their propaganda. Hospitality companies like Delta Airnext as the crackdown on individual freedoms in China conlines and Marriott International, along with fashion companies tinues. As American consumers, we should be cautious when like Zara, have recently faced backlash over surveys sent out to companies preaching privacy integrity at home demonstrate a Chinese customers. willingness to compromise that privacy abroad.

In Marriott’s case, rewards program member feedback American companies like Apple, Facebook, Snapsurveys listed Taiwan, Macau, Tibet and Hong Kong as indechat, Google, and Twitter must contend with restrictions on pendent countries. While each of these regions have unique their access to the Chinese consumer. Forced to adapt to the backgrounds, China wants the world to know that they are not new market, each maneuvered these restrictions in different independent countries. Taiwan, an autonomous country, is ways. After being banned from China in 2009, Facebook took considered a rogue province by Beijing, while Hong Kong and a China - centric view and immediately began working to reMacau operate semi-autonomously and have their own goventer the market. It deployed Mark Zuckerberg, newly minted ernments under Beijing. Tibet, a province in China and home with his Mandarin skills, to meet with the president and create to the Tibetan people, has a strong separatist movement which a division whose sole responsibility is cracking the Chinese angers the government in Beijing and has long been a point of market. On the other hand, Google withdrew from China in contention on the world stage, especially given the reverence protest after discovering a hack perpetrated by the government reserved for the Dali Lama, who is from Tibet. Adding insult which accessed the personal information of Chinese citizens. to injury, a Marriott employee using an official Marriott TwitIn 2018, it began its return to the market with special versions ter account liked a tweet from a Tibetan separatist movement

A

20 | CORNELL BUSINESS REVIEW

INTERNATIONAL

praising the wording of the survey.

Beijing retaliated by shutting down access to Marriott’s websites and apps for a week and demanding the company halt its Twitter campaign. In response, Marriott executives issued strong apologies and reaffirmed its support of the Chinese Government in Beijing. It also condemned any group opposing the government. Finally, it terminated the employee for liking the tweet and ceased Twitter posts. Craig Smith, President and Managing Director of the Asia-Pacific office, called the gaffe, “Probably one of the biggest (mistakes) in my career.” It seems that, due to China’s harsh crackdown on political dissidents, Marriott is taking its cues from Facebook and appeasing the government.

The immediacy and urgency with which companies like Apple, Marriott, Delta and Google have responded to displeasure from China highlight the relevance of the Chinese market – no other economy can keep pace with it. More importantly, while the Western middle class struggles, China’s middle class is growing and its demand for imported goods is growing even faster. Chinese wages are also growing at an average rate of 11% year over year. This indicates that the Chinese consumers’ buying power is quickly outpacing our own and access to their markets is crucial.

Businesses are constantly pressured by their shareholders to grow revenues. Whether that be in the form of subscriptions like Netflix, sales like Apple, or new developments and increased average hotel occupancy like Marriott, the performance of the stock is directly tied to growth. Since the American markets for hospitality, technology, fast food and fashion merchandising are virtually saturated in the United States, current and future growth must come from abroad – namely from countries like China.

In this quest for relevance, corporations desperate to stay on top

will have a difficult time prioritizing the privacy of their consumers or the integrity of information when it comes time for quarterly stock reports. They must determine how far they are willing to compromise consumer privacy and access to information to remain viable in markets where personal privacy is not an option. The fact that Google created a separate Google Maps and Google Translate with data housed by Alibaba is troubling for several reasons. Housing data with Alibaba is itself problematic because Alibaba regularly shares data with the government. Alibaba maintains that it requires a set reason before it turns over consumer data to the police.

It can protest if it feels that the request is not merited, however, since there is no independent judiciary like in the United States, the Chinese government has the final say. This casts doubt on the validity of requests. Alibaba claims that it plays an integral role in stopping criminals; however, the service is also used to track dissidents’ actions and contacts - severely curtailing their personal freedom.

Privacy concerns combined with government censorship mean that

“Privacy concerns combined with government censorship mean that American companies will have to take creative routes to move their businesses into China.”

American companies will have to take creative routes to move their businesses into China. However, these alternatives could lead to further censorship. For instance, the new Google Maps and Google Translate could indicate that Google will create a separate Google search engine altogether - perhaps housed on Alibaba’s

servers. Such a search engine would presumably have facts deemed dangerous by the Chinese Government censored out. Even if it does not, the government would be able to track each person who visits “dangerous” sites and deal with them accordingly. This proposition runs directly opposite to Google’s mission: “To organize the world’s information and make it universally accessible and useful.”

Apparently, for Google, the universe does not include the millions of Chinese consumers it would be selling out by permitting and enabling censorship.

Luckily, American companies are very transparent about all the data that they share with the government of any country they operate in. They detail what types of requests they receive and what their compliance rate is. When pursuing partnerships with Chinese companies, they should demand that those companies hold themselves to the same standard. While American companies cannot legislate what data is or is not turned over to the government, they can require transparency in the process so that Chinese consumers know what information is privileged and what is not.

Even in industries like hospitality and foodservice which may not have the granular level of data that tech companies possess, the information they collect is still concerning. Simply by tracking wifi usage on smartphones, hotels can see when two people have been meeting and how long they met.

They can see every site visited and where in the building it was accessed. They can see what was watched on TV. Credit card data and address data is only a click away.

In foodservice, personal preferences as well as accompanying guests can be stored and utilized to customize the guest experience.

While nothing this granular has been required thus far by the Chinese government, every apology and desperate attempt to curry favor with the Chinese government chips away at the credibility and consumer trust placed in corporations. American companies, tech and otherwise, must decide what information will be protected and what could be turned over and be willing to communicate that to the Chinese government.

As the Chinese government becomes increasingly aware of corporations’ willingness to appease, their demands will only become more invasive and the rights of Chinese consumers will be all but forgotten.

CORNELL BUSINESS REVIEW | 21

INTERNATIONAL

Above: The artificial Palm Islands on the coast of Dubai, United Arab Emirates - a popular tourist destination

Crude Awakening

How Middle-Eastern Countries are Preparing for Life After Oil

By Jeremie Mutolo

T

his past January, oil prices attained peak levels not seen in more than three years. Hovering around $60 a barrel, oil appeared to be making its long-awaited return to pre-2014 levels; it is important to note that the past five years have seen oil drop from well over $100 a barrel to below $40.

Yet, an index tracking the average price per barrel for members of OPEC (Organization of Petroleum Exporting Countries) is down 40 points since May 2013. OPEC countries are located predominantly in the Middle East/North Africa, a region well known for its rich oil reserves and responsible for the majority of the global oil supply. Such an index provides a general indication for international oil demand, so the 40-point deficit between 2013 and now suggests that crude consumption is not what it used to be. While the recent uptick in prices ostensibly suggests that oil is making a comeback, many investors still consider today a period of cheap oil. If anything, much of the commodity’s recent ascent can be attributed to cooperation in curbing production by OPEC, as well as other major producers such as Russia, rather than a revival in demand.

Oddly enough, however, it seems that in spite of low prices, continued innovation and legislation aims to reduce consumption of a resource that accounts for nearly 30 percent of the global energy supply. Technological advancements have largely been made in heavy oil-consuming industries, most notably the automobile industry. The international push for lower carbon emissions has led to major automakers pouring billions of dollars into research and development of electric vehicles. Global automakers are anticipated to collectively spend roughly $90 billion, with companies such as Daimler

22 | CORNELL BUSINESS REVIEW

and Volkswagen spending $12 billion and $40 billion respectively. In the United States alone, transportation accounts for nearly 70 percent of petroleum consumption, yet we are seeing massive disruption in the industry as automakers are now beginning to shift towards entirely electric vehicles. In 2016, there were more than 2 million electric vehicles on the road worldwide, with 750,000 sold that year; it’s anticipated that by 2040, 30 percent of new car sales will be from electric vehicles. Compounded with the growing interest in autonomous vehicles and the emergence of ride-sharing culture, recent innovations in electric vehicles will immensely dampen the demand for oil. On the legislative side, the global community has seen a twenty-fold increase in climate change laws since 1997.

Most seem to focus on capping carbon emissions, as seen in places such as United Kingdom and California. Additionally, governments across the globe are beginning to incentivize the purchase and use of electric vehicles and punishing companies that fail to curb greenhouse emissions.

And let us not forget perhaps the biggest threat to oil: renewable energy. The international community has finally come to recognize the harmful effects of fossil fuels, and seeks to mitigate the resulting damage to the environment. The 2015 Paris Climate Agreement was signed by over 195 countries, including Saudi Arabia, the United Arab Emirates, and Iran, all large oil-producing nations (it is also interesting to note that China, the largest importer of Saudi crude, signed the agreement). Encouragingly, global powers such as China and international bodies like the European Union (EU) have also thrown their support behind the agreement.

The shift away from oil has led some to claim that oil is finished, but this argument is exaggerated. Although

INTERNATIONAL Bloomberg published a report last year projecting a rise in oil demand over the next several years, there is no denying the global demand for oil is plateauing, and the aforementioned rise in oil prices looks poised to further curb demand.

Consequently, entities that rely heavily on extracting oil for their livelihood must now seek alternative revenue streams to continue operating. This problem is most prevalent in the Middle East, where over 30 percent of world’s crude is produced.

These nations have managed to attain great wealth and influence through their large oil reserves and must now seek alternatives before they are left trailing other countries.

Several countries in the region, already recognizing the magnitude of this problem, have begun implementing huge economic reforms that seek to provide consistent income long after the age of oil ends. The largest and most notable of these countries is Saudi Arabia, a nation which contributed nearly 13 percent of the world’s total oil production in 2017. Saudi Arabia is the second-largest producer of oil globally, and it leads all nations in the export of crude. This is largely reflected in the nation’s gross domestic product, where crude exports account for an astounding 42 percent. Saudi Arabia has been seeking to decrease its reliance on oil since 1970, but fluctuating prices have made this goal seem impractical; if prices are high, Saudi Arabia will only benefit from extracting and exporting more oil. Given how integrated crude has become in the Saudi economy, it is no accident that the nation’s crown prince, Mohammed bin Salman, announced a plan to “triple nonoil revenue” by the year 2020. Entitled “Vision 2030,” the multi-staged plan aims to decrease the nation’s reliance on oil by seeking alternative streams of revenue for the Saudi economy. The main compo-

The largest solar farm in Saudi Arabia covers the parking lot of Saudi Aramco

nents of the initiative include: an initial public offering in the government-owned oil company, Saudi Aramco, creating the world’s largest sovereign wealth fund holding more than $2 trillion, and opening the economy to private investment to bolster certain sectors such as tourism, entertainment, and sports. The nation also began implementing social reforms in order to expand its workforce, such as granting greater rights to women and being open to more secular forms of investment. All this comes at a crucial time for the Saudi government: low oil prices have shrunk its budget, preventing it from hiring young Saudi citizens and thus pushing the unemployment rate higher.

Granting equal civil rights to women dramatically increases the number of individuals in the workforce and will positively impact their economy. Similarly, allowing nontraditional forms of investment portray Saudi Arabia as being “modern” and encourages companies to conduct business there, further stimulating their economy. At one point in time, these initiatives would never have been considered in such a conservative society, demonstrating oil’s enormous impact on the Saudi Arabian economy.

Vision 2030 reflects a broader theme in global oil consumption; that the decline in demand for oil will be steady, not abrupt. Saudi Arabia seeks to become a leader in the region, an example after which other oil-exporting countries in the Middle East can model themselves.

While some hostility may exist between countries in the region, it is certain that they all recognize the importance of transitioning away from oil. The United Arab Emirates has sought an alternative, more conservative route than its Saudi neighbors that nonetheless emphasizes moving away from oil. Spearheaded by Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the

UAE, the small Middle Eastern nation is seeking to raise clean-energy usage to 24 percent by 2021; by 2050, it hopes to generate 75 percent of its energy from renewables. Additionally, the UAE completed countless renewable energy projects in the last decade. More are currently underway, as the country is betting big on clean energy. More importantly, however, the UAE has had a great deal of success in moving its economy away from oil reliance. It has begun focusing heavily on tourism, science, and technology, as well as allowing foreign private companies to set up shop. By 2021, nearly 80 percent of Dubai’s GDP will consist of non-oil revenue.

It would be naive to think that although two of the largest oil-producing nations in the world are shifting their economies away from oil, that they will suddenly stop mining the precious resource altogether. The UAE is pumping nearly 3 billion barrels of crude per day, which is up from last year. Saudi Arabia has also run into hiccups in trying to expeditiously complete the first phase of Vision 2030, mostly from traditionalist within the government. However, the significance of these two nations aiming to produce less oil is perhaps indicative of the future of oil. For Saudi Arabia, there has already been internal backlash as citizens are not keen on relinquishing the privileges derived from their crude reserves, and the government is struggling to accept the “radical” changes put forth.

For the UAE, the rise in oil prices may deter motivation to transition to cleaner energy, as it would be leaving a tried and true investment opportunity on the table.

Ultimately, however, these two nations have been granted an opportunity to lead their region—and potentially the world— in the last days of oil and the renewable energy future.

CORNELL BUSINESS REVIEW | 23

INTERNATIONAL

A meager coastal wall currently protects the city from rising sea levels. Climate projections predict the wall itself may be underwater by 2030.

Keeping Jakarta Afloat Global Voices enter Indonesia’s flood debate

By Audrey Tirtohadiguno

T

oday, the impending effects of climate change on urban development can be seen in cities throughout the world, underscoring the need for strengthened coordination among investors across scales and sectors.

For Jakarta, Indonesia, a city situated on an inlet at the mouth of the Ciliwung River, the impacts of climate change manifest themselves most severely in the form of rising sea levels and floods. Parts of the city are dropping at 25 cm each year, while sea levels rise by about 2 mm each year. According to Indonesia Investments, “In fifty years’ time, the sea level is expected to be three to five meters above Jakarta’s street level.”

For many years, Jakarta’s geographic vulnerability has been exacerbated by its clogged waterways and the process of land subsidence, whereby the city’s residents have resorted to drilling deep wells to access clean water, making land more vulnerable to ravaging damages due to flooding. Actors responsible for partaking in land subsidence range from small informal communities to large multi-use developments such as malls and apartment complexes.

During peak seasons, large volumes of rainwater gush into the city’s streets and form murky rivers that reach several meters high, affecting vulnerable populations who live in informal housing settlements. These housing arrangements, or “kampungs,” are perched along canals on stilts in Southern

24 | CORNELL BUSINESS REVIEW

Jakarta, as well as longstanding elite neighborhoods in Northern Jakarta. If no immediate action is taken, more than four million people are expected to migrate from Northern Jakarta to the highly dense Southern Jakarta area, which may exacerbate the region’s congestion.

In April 2014, the Netherlands’ Minister of Infrastructure and the Environment, Melanie Schultz, proposed an infrastructural solution to Jakarta’s flooding: “The Great Garuda” is a 1000-hectare, USD 40-billion plan to build a 24-kilometer flood wall, consisting of 17 artificial islands around Jakarta’s northern coastline. Echoing the ambitions of Dubai’s artificial Palm islands, while incorporating an age-old Dutch concept of “living with water,” this plan distinguishes itself by taking the shape of the Garuda, a legendary bird from Hindu culture—and Indonesia’s national emblem.

With centuries of experience in building canals to tackle drainage issues, the Dutch are far from being new players to the game of floods. Dutch delegations today are traveling internationally and sharing their insights into innovative engineering and water management solutions at climate change conferences. As stated by Michael Kimmelman in the New York Times, “In the waterlogged Netherlands, climate change is considered neither a hypothetical nor a drag on the economy. Instead, it’s an opportunity. Like cheese in France or cars in Germany, climate change

INTERNATIONAL

is a business in the Netherlands.”

The proposed project is an attractive opportunity in the eyes of both private developers and public stakeholders. In addition to the flood protection it offers, the proposal includes plans for waterfront neighborhoods, creative technology headquarters, multi-modal transportation, a new financial district, public spaces and parks, as well as massive freshwater reservoirs behind the wings of the Garuda, into which Indonesian rivers will drain. After receiving the support of Indonesian president Joko Widodo, the implementation of the project largely fell into the hands of a private, Dutch-led consortium.

In the political sphere, the Garuda is significant because it represents an attempt at rekindling Indonesian and Dutch diplomatic relations that echo back to the Dutch colonial period of the 1800s. Controversially, the canal systems that were constructed throughout Jakarta by the Dutch in the past are clogged by pollutants and sediments, therefore magnify, rather than alleviate, the issue of flooding. A major concern is that the symbolism of the Garuda may be the only nod to the local culture that the plan conveys.

Initial projections state that emergency portions of the project are expected to be finished within three years, reaching full completion within ten years. However, the project has been stalled multiple times in the past few years due to oppositions from local community members at risk of being displaced.

Since the proposed plan will take place on reclaimed land, low-income local community members, particularly those living in village slums or kampungs, express skeptical attitudes toward foreign collaboration, partly tracing back to their post-colonial relationship. In August 2015, the Jakarta government undertook mass evictions of traditional fishing villages and waterfront communities, totaling to about 925 households in which 12 victims were injured and 27 arrested.

The project has also been delayed and revised multiple times due to conflicts among local community members.

Speaking on the unstable political climate that impeded the project’s progress, Sidney Jones, director of the local Institute for Policy Analysis of Conflict, stated, “Nobody here believes in the greater good, because there is so much corruption, so much posturing about serving the public when what gets done only serves private interests. There is no trust.” According to the New York Times, critics, consisting of a broad coalition of Indonesian scientists, land activists, and local residents, further frame the project as “outlandish” and an “environmental and social disaster.”

Meanwhile, community initiatives have begun collaborating on their own bottom-up solutions to the issue. According to sources, coalitions of community architects, students from the University of Indonesia, and researchers from Ruja are currently designing their own alternative plans for climate-adaptive developments. The strong community bonds and knowledge these local coalitions possess are an asset, despite constraints in terms of limited financial resources and social capital.

Nevertheless, leaders at the forefront of the project continue to hold fast to their hope of developing a solution through cross-regional collaboration. With years of experience in engineering solutions to their own cases of flooding, Dutch architects and engineers who are involved in this project believe that living with water is indeed possible.

The New York Times emphasizes the value of building public-private collaborations in this scenario and asserts, “the Giant Sea Wall will soon be the only way to save the city from catastrophic floods sweeping across the northern belt of land.”

Meanwhile, Reuters reports that the Garuda project has since been revised to address the importance of stopping underlying issues of land subsidence, water, and sanitation.

Controversial as it may be colossal, the turbulent process of constructing the Great Garuda brings to light some of the opportunities and costs of undertaking a radical infrastructure solution through international relations and some of the underlying institutional forces at play.

While globalized networks may enable developing cities to leverage external technical expertise, innovative solutions, and financial resources, relationships between local political constituents and affected community members must be taken into greater account in order for cities and investors to build mutually favorable outcomes and sustainable solutions in the long term.

Dredging North Jakarta’s Karang River (The New York Times) CORNELL BUSINESS REVIEW | 25

GOVERNMENT

Ready for Ramphosa

South African citizens demonstrating against President Jacob Zuma

By Arslan Ali

I

n December of 2015, thousands of South African citizens hit the streets, vibrantly singing songs of resistance that were popular during the apartheid. While their demonstration commemorated the progress that South Africa has made since those times, the citizens of the developing nation had a larger goal in mind. After hearing of the sacking of two popular finance ministers, the people of South Africa decided to finally openly revolt against their president, holding up signs reading “Zuma must fall.”

Their demands with these protests were simple: to replace Zuma with a leader who does not put their own interests above those of the people. Fortunately for the people of South Africa, they may have found that leader.

Jacob Zuma has been the face of corruption for years. Since becoming president in 2007, he had faced over 700 corruption charges from South African courts. According to a 2017 BBC article, Zuma was prosecuted for violating the constitution by failing to repay the government for using money to upgrade his private residence. The supposed “people’s president” constantly ignored the poverty that plagued his nation, further perpetuating the destabilizing inequality it has been dealing with since the 1990s. Studies show that 29% of the South African population is impoverished with four fifths of the rural

26 | CORNELL BUSINESS REVIEW

population living below the poverty line.

Unfortunately, this leaves children economically marginalized, as they are increasingly likely to remain impoverished for the rest of their lives. Meanwhile, the rich keep getting richer, with the top ten percent of South Africa’s population controlling 60% of total income. This problem has been amplified by corruption within South Africa, which is most clearly demonstrated by Zuma’s close links to wealthy businessmen Ajay, Atul, and Rajesh Gupta. These Indian entrepreneurs traveled to South Africa to take advantage of the lax business regulations and expand their financial interests in sectors like mining, energy, air travel, and media.

Years later, they have developed enormous political clout. A 2017 article by the BBC explains that the high courts of South Africa found that millions of dollars that were supposed to support poor farmers were directly deposited into Atul Gupta’s personal bank account. Policies such as these have caused the South African government to neglect their citizens in favor of their own personal interests. After years of protesting, though, Zuma was voted out of office in early 2018.

Zuma being ousted demonstrates a major step forward for the African National Congress’ fight against corruption in South Africa. Even more promising is the fact that his successor, Cyril Ramaphosa, has been at the forefront of cracking down

on corruption for years. Ramaphosa started his journey of political activism in college, where he adamantly protested racial discrimination in South Africa. These protests caused him to be a target of governmental suppression, making him a controversial figure in South African politics in his early career. In 1991, he was elected General-Secretary of the African National Congress, giving him a better platform to create change. Now, however, his rise to the presidency has given him an unprecedented opportunity to make long-lasting improvements in the fight against inequality and discrimination in his country.

Ramaphosa’s stance against the status quo is what gives him major popularity among his citizens and, more importantly, incredible momentum to enact change. In the month since he was elected, the government has replaced several cabinet members who benefitted from the corruption with Zuma and other wealthy business associates. Strong top-down legislation has raised hopes among South Africa that real change is coming, and the new era that politicians have been promising for decades will finally be supplemented with legitimate change. As reported by the financial times in December of last year, Ramaphosa promised a top-down campaign dedicated towards fighting socio-economic inequality.

It is not only the new president’s fierce rhetoric that puts him in a strong position to incite change, but there are good signs of growth for his country’s economy as well. The Economist points out in May of last year that inequality has improved in the last ten years. Living standards have jumped as the economy has been growing, and racial disparities have also been diminishing in the country. The Economist further posits that in 2004, whites, who only made up 8% of the population, accrued 86% of the nation’s wealth. In 2015, that share had fallen to 49%. Furthermore, the GDP of South Africa grew by 3.1 percent in the last quarter of 2017, the largest growth rate in the past one and a half years. Many attribute this uptick in growth as a response to the ANC finally removing Zuma from office.

While there are promising signs of alleviating economic inequality in South Africa, there are still major roadblocks to success. That same Economist article points out that the gains from economic growth have only really gone to the best-educated part of the population. And despite the former president’s promises to provide funding to those stuck in poverty, many of

GOVERNMENT those initiatives were facades to distract the public to funnel more money into the ballooning bank accounts of the political elite. This is something that Ramaphosa ought to deal with moving forward, as a lot of his constituents are those who benefited from pervasive corruption. They are vehemently opposed to any sweeping reforms, suggesting that creating sustainable change will first require their support.

Reducing inequality will clearly be an uphill battle, so to create lasting change, Ramaphosa should focus on several initiatives. The first is ensuring that Zuma and other corrupt politicians are properly persecuted for their crimes. This would provide Ramaphosa with legitimacy and a strong image as a leader as he moves forward in dealing with the more pressing problems in South Africa, including the lack of antitrust regulation. Monopolies have purchased political influence to ensure that they can conduct business practically unregulated, boosting corporate consolidation and turning many South African industries into unfair environments. This problem has been a major source of unemployment in

South Africa, with the unemployment rate reaching almost 25%.

Finally, Ramaphosa ought to inject capital into the education system so that more of today’s youth are adequately prepared for jobs in the future. With South Africa becoming increasingly integrated in regional and international trade deals, it will need to make sure that its people can enjoy the benefits of increased economic growth and take advantage of the new opportunities that globalization is offering to them. This comes with better education, and while this is not a concrete solution, it is a strong step forward towards progress in alleviating economic inequality across South Africa.

South Africa’s people have been demanding Zuma be replaced practically from the minute he was elected. Now that they have their wish, many believe that South Africa is entering a new period in its history, with the chance to really eliminate the racial and socioeconomic disparities that exist as a result of the apartheid. But shaping a new national identity will not be easy. If the new president wants to redefine South Africa’s image, he will have to stay on course with his promises of meaningful change.

Reforming the F1 Visa: How it will affect our tech sector

By Shilpa Sadhasivam

I

mmigration is currently a hotbed for political debate and discussion under the Trump administration. While certain immigration issues, such as DACA and the construction of a border wall, are at the forefront of news media, the movement of the Trump administration to limit the expansion of H-1B visa program has not garnered as much attention despite its impact on the techtnological sector. Although there are several issues regarding the small scale of the H-1B visa program, some believe that curbing the program will prove beneficial to American workers. While this standpoint may be true in a smaller subset of cases, there are various flaws in this reasoning that, if acted upon, will greatly hinder the American tech industry. Currently, a bill called The Protect and Grow American Jobs Act was introduced to Congress; it seeks to reform the controversial H-1B program at the expense of the United States’ current technological edge, falling in line with supporters of curbing the Visa program. However, this argument and the bill supporting it, would restrict the Visa program and impact the growth of the technological industry in the United States

by limiting the pool of talented workers from which employers can choose. Rather than regulating a program that fills talent gaps in the U.S, there should be movement to reform and expand the Visa program to better receive and accept those who are more than qualified to live and work in the U.S. The H-1B visa is a working permit meant to allow highly-skilled individuals to come to the U.S to live and work. Historically, the H-1B visa program was created to seek outside talent for growing industries in the United States. These workers are sought out for their specialized skills and knowledge, often in computer science and technology, in order to maintain and advance the U.S’s competitive edge in the technological market. By providing employers with the choice to hire talented workers from other countries, the visa expands the pool of potential workers, thus creating more job competition and higher standards for employee skills. The program not only provides employers with access to more talented individuals, but also encourages valuable workers to come to the U.S and apply for permanent residency and contribute

CORNELL BUSINESS REVIEW | 27

GOVERNMENT to American society. The U.S needs these workers to fill employment gaps and as a result, they provide additional economic benefits now and into the future.

Immigrants, especially those who are highly skilled, contribute more to American society than simply taking a job. A study from the National Academy of Sciences found that highly skilled immigrants are more likely to be entrepreneurial, create patents, as well as have children that earn above the average American middle class worker. When analyzing H-1B holders more specifically, the National Foundation for American Policy found that the average S&P company creates five new domestic jobs for every H-1B holder it hires. Resorting to the lottery system currently in place to allocate the limited available visas, rather than expand the program, will likely lead to the denial of individuals who have the potential to greatly contribute to the American economy.

While various factors indicate that the H-1B program must be expanded to allow more workers to come to the U.S, opponents to the visa advocate that the current program needs more regulation instead. A major argument against the visa program is that the H-1B undermines the employment of native skilled workers and increases outsourcing, ultimately drawing away economic productivity from the United States. In late 2015, about 250 tech workers at Walt Disney were laid off and, in response, sued Disney for cutting costs by replacing American workers with H-1B workers. H-1B workers are required to work at a minimum salary of $60,000 a year, which some view as too low, only incentivizing companies to switch out their current employees for “cheap foreign labor,” as seen in the Disney case. This case gives critics of the program a situational example where the visa was used to harm American workers rather than improve industry.

According to Vox, the majority of companies pay H-1B visa holders higher salaries than American workers of the same position. This suggests that the practice of hiring H-1B workers to cut costs is not as widespread as implied by some of its opponents.

One issue associated with increasing the minimum salary of an H-1B holder is that, although this may eliminate outsourcing to cut costs, it would also tend to make it more difficult for small businesses, nonprofits, and start-ups to hire these workers, due to the infeasibility of increased labor costs.

With all of the challenges to the H-1B visa program, the Protect and Grow American Jobs Act, authored by Representative Darrell Issa from California, complements the oppositional belief that the program should be more regulated.

The bill is meant to disincentivize firms

28 | CORNELL BUSINESS REVIEW

from outsourcing their tech workers to cut costs. The legislation involves increasing the minimum salary paid to H-1B visa holders from $60,000 to $90,000, and increasing the threshold for companies determined as H-1B dependent from 15% up to 20% of employees holding H-1B visas. Companies that cannot offer the salary increase must provide evidence that they did not displace an existing employee for a tenure of 5-6 years and that they sought American workers first before considering international workers. The bill passed the House Judiciary Committee and will soon be debated in the Senate.

Various pundits are concerned that the salary increase required by the bill is too drastic and will create a shock in the system that will hinder companies and applicants. The salary increase may harm smaller businesses and startups that cannot afford to increase their employees’ pay.

The bureaucratic hurdles included in the bill disincentivize companies from hiring these international workers by increasing the burdens associated with doing so.

Although this bill may address the cases where American jobs are outsourced to cut costs, the occurrence of this outsourcing is hardly widespread enough to warrant such a drastic change that may harm smaller tech companies.

Though the current political climate points to regulating the H-1B program, the Visa program, in fact, needs the opposite of this. It should be structurally expanded so that companies and applicants have greater chances to receive visas in order to fully realize the potential of the talented immigrants applying. Due to its current structure, the H-1B visa program lacks the capacity to provide all talented applicants with the ability to work in the U.S. In April 2017, there were 119,000 petitions for 85,000 visas; since the applications outnumbered the available visas, the visas were given out randomly in the form of a lottery. Every year the number of applicants greatly exceeds the number of available visas which results in the random rejections of many immigrant workers with educations of Bachelor’s degrees or higher.

Companies criticize this low supply of visas compared to the high demand because it limits their hiring abilities. Even with the recent increase in the quota from 65,000 to 85,000 visas, the lottery has been initiated frequently, signaling that perhaps incremental quota increases passed by Congress are not appropriate or frequent enough to keep pace with the increasing rate of applicants.

The United States’ limited H-1B visa system may also lead to the loss of competitive edge for American technological companies to countries like Canada, which have a much smoother immigration

process for highly skilled workers. Canada’s program, similar in purpose to the H-1B program, called Global Talent Stream, gives highly skilled workers temporary residency in as little as two weeks. For companies dependent on specialized skills and labor from other countries, relocating to Canada is an attractive proposition. It is worth noting that companies such as Google, Amazon, and Microsoft all have offices in Canada where they place workers waiting for clearance to immigrate to the United States in order to retain productivity and talent. While larger firms may be able to afford multiple international offices, smaller tech companies and startups often do not have this ability. According to Newsweek, this disadvantage has already resulted in increased interest shown by small tech companies to fully relocate to Canada in order to have easier access to talent, leading to an economic loss for the U.S. As of now, it is likely that the H-1B program will be reformed to increase the burden of regulation on both the applicants and smaller companies. However, in an effort to contribute to technological growth, reform should focus on creating a visa quota that adjusts according to the increasing number of applicants every year. Doing so would increase the amount of talented applicants a company can hire, as well as reduce the number of talented immigrants who face rejected applications. Unfortunately, the turn to nativism illustrated by the Trump administration seeks to paint the program as a source of cheap labor and as ‘stealing’ jobs from hard-working Americans, despite the contrary evidence. To formally correct this issue, the focus needs to be placed on increasing the number of workers accepted while enforcing standards for large companies to prove that their labor costs are not drastically cut by hiring H-1B workers. The currently proposed legislation would penalize small companies who cannot pay higher salaries rather than targeting the large firms that have been guilty of abusing the minimum salary requirement.

The United States needs to move past its current disinclination towards highly skilled immigration in order to truly advance and grow its own technological sector. The idea of implementing policy that hinders this process is counterintuitive not only by economic standards, but to the proclaimed American values of diversity and meritocracy. While the current wave of nativism from the Trump administration may be relatively temporary and confined to the remainder of the term, it can nonetheless produce long lasting detriments to the immigration system. Therefore, it must be critiqued and challenged not only to preserve American competitiveness, but also to preserve American values of inclusion.

How would you describe your vision for Cadmus under your leadership, and how has this vision changed or developed over time?

We are a technical and strategic consultancy that helps solve the world’s most challenging problems. We began twenty years ago as a consultant to the U.S. Environmental Protection Agency. And in 2005-2007 when we went through our ownership and leadership transition, we gave a lot of thought not only to who we’ve been, but who we wanted to be. It was important that we build on our legacy while expanding our horizons to include other societal problems.

When I transitioned to president and CEO during that time, I spoke with Cadmus team members old and new, and we were all very focused on articulating a vision that is not limiting.

We considered how we could create social and economic value for our clients and stakeholders and strengthening society and the natural world.

That became our vision - assembling outstanding teams of leading experts and generalists who work across disciplines to help our clients achieve the best results while also strengthening the natural world. It’s evolved in terms how we execute the vision, but not how we think about it or articulate it.

When you are working to strengthen society and the natural world, you are truly only limited by your own creativity and imagination. I not only loved the unrestricted aspect of the vision, but also the diversity of perspectives that it invites. Watching my colleagues at this firm grow and bring in new perspectives on what this vision means and how we can live up to it is one of many things that have made this job truly fun.

How does your interest in sustainable living and environmental awareness relate to your work at Cadmus, and how has it affected the policies that you are implementing in the workplace?

We not only provide advice on sustainable living and environmental awareness to our clients, but we look

inward at our own operations to reflect that same ethos. We have a number of policies that reflect the ethics of our work, and we are always adding more.

A foundational example is that we prioritize sustainable spaces for our offices. We don’t just help our clients achieve ENERGY STAR® certifications in their spaces; our own offices are in LEED® Gold and ENERGY STAR-certified buildings. We also purchase energy from renewable sources equal to 100% of our electricity consumption.

We choose office buildings close to public transit to incorporate sustainable commuter benefits. We even offer subsidies for our employees who use mass transit options and bikes. As a result of these policies, over the past decade, we have been ranked in the top 1% of U.S. businesses who have met the National Standard of Excellence in commuter benefits by the U.S. EPA and the National Center for Transit Research, and we have been named one of the Best Workplaces for Commuters.

Additionally, we are honored to be a Carbon Disclosure Product (CDP) Silver Consultancy Partner, so in addition to the work we do supporting clients in reporting and tracking their emissions, we submit our own company’s response annually to CDP. And little over ten years ago, I launched our Employee-Directed Charitable Giving Program, which enables our employee-owners to be directly involved in deciding how and where we provide charitable support. Employees propose gifts to organizations that they really care about, and that they personally invest time into. The program has expanded the firm’s reach in that we are able to give to a much wider array of organizations and the recipients additionally benefit from employees’ active involvement with those programs and organizations.

Every year, we provide summaries on who we’ve given to and why.

It gives us an opportunity to see the extraordinarily impressive and varied array of organizations and causes that our colleagues are supporting. It’s one of the initiatives I’m proudest of having

Ian Kline

an exclusive interview with

the President & CEO of Cadmus Group

founded here.

We also have a Sustainability and Resilience policy that has been fully adopted by the executive leadership as well as our board. Ours is one of the only integrated Sustainability and Resilience policies held by any consulting firm. Very few companies have the willingness or the expertise to integrate all-hazard preparedness into their sustainability plans. We developed our policy to take control of Cadmus’ impact on the natural environment and resilience to the effects of natural and human-made hazards.

It codifies several initiatives that are already part of our operations, pledges to introduce still more, and includes robust commitments to measure and continually improve the impacts of our actions.

Given Cadmus’ focus on environmental sustainability, how would you define the private sector’s role in delivering positive social impact? What do you believe this role should be?

The concept of resilience, whether it be climate resilience or broader resilience, is becoming increasingly important. We have a rapidly changing world and set of systems that are becoming more dynamic and interconnected every day. That connectivity invites vulnerabilities that everyone should be considering, and we bring that awareness to our clients.

There are multiple components to consider with resilience.

There is the crucial mitigation piece, and there are resilience and adaptation. These different yet interconnected components are why we have very purposely evolved from a firm that could, for many years, be considered an environmental consultancy to a firm that is much broader. It’s why, for example, we acquired Obsidian, which became our safety, security, and resilience practice. Bringing in experts who know how to strengthen society, particularly in resilience and all-hazard preparedness, really spoke to our mission. We then had a new capability and framework for thinking about problems, one we could apply to environmental, energy, climate, and a whole host of other issues.

And, perhaps more crucially, it helps our clients understand their problems in the broader context of resilience.

With our continued focus on the importance of interconnected resilience, I became strategically fixated on building a firm where we weren’t diversifying markets but diversifying capabilities. Over time, our clients are going to require firms that have expertise in an extraordinarily broad range of areas, from energy to environment to climate to health to food security to hazard preparedness to transportation. And they are going to need consultants who work in a collaborative platform with diverse expertise to come together as experts and generalists to solve critical problems.

What are some important trends in the sustainability industry that you think social ventures should pay close attention to?

I think the rise of climate-related financial disclosures is going to be an interesting trend.

Businesses are estimating the risks associated with climate change to their operations, their value chain, their reputation, the communities they serve. Mitigating these risks will allow businesses to take a more inclusive approach to sustainability programs. The partnership and collaboration between governments, NGOs, suppliers, and even the public will become even more important in corporate sustainability programs.

Also, the concept of energy equity – there’s an increasing focus on equitable distribution of and access to energy resources, particularly in the developing world and areas that are vulnerable to climate change and extreme weather. There are major energy programs focusing on distributive technologies that enhance resilience and improve lives in marginalized populations that historically haven’t benefited from access to technology. This is something that we’re very much on top of and see as an emerging trend.

Finally - this isn’t going to surprise you - mobility and transportation. The rapid trend toward shared transportation and using electrical and alternatively fueled vehicles is absolutely becoming a driving factor in the transportation sector and one that we are focusing on.

You have provided strategic and technical advice to the EPA, state governments, commercial clients, and more. What would you say has been your most challenging project and why?

This is an impossible question to answer. We engage in hundreds of dynamic and challenging projects each year. I honestly don’t think I could name just one.

What has been truly exciting to me over the last twelve years - I became president in 2005 and CEO in 2007 - is how much more diverse our client base has gotten. In 2003, we worked for the U.S. EPA - we had a few other clients, but mostly the EPA. And today, even within the U.S. federal government, we still proudly work for the EPA, but also the Department of Homeland Security, FEMA, the Department of Transportation, the Department of Energy, the Department of Health and Human Services, HUD, the General Services Administration, the Depart-

ment of Justice, and USAID. And that’s literally only the half of it these days because around 50% of our work is for clients other than the U.S government.

This expansion allows us to develop capabilities that support all of our clients in ways they may only need occasionally, but when they do, we are able to be their expert trusted partner.

We’re also doing some really cool and important work for international development agencies and for multilateral development banks. And we do considerable work on the energy side for electric and natural gas utilities on a range of issues from demand-side management to emerging issues around distributed energy resources.

Plus, with our recent acquisition of IFOK, a sustainability-focused market leader and international innovator for dialogue and collaboration headquartered in Germany, we are now a multinational firm. We are doing extraordinarily interesting and exciting work in Germany and across Europe on issues including climate, energy, transportation, and health.

As you can see by the range of projects, this is why the question so difficult to answer. They are all important and impactful. What I’ve found most exciting is as our client base has become more diverse, our capabilities have become more diverse and the challenges – and, as a result, the impacts - have become more diverse.

The projects keep evolving, and we keep expanding our own horizons in a way that ensures that we’re constantly taking on new challenges, and that’s one of the things that makes consulting such a fun gig. You have opportunities to continue to learn and apply that learning across a broad array of challenges in a way that can have a real impact.

Do you feel like there were any resources or experiences that you had at Cornell that helped you to get to where you are today?

Absolutely, and it’s one of the reasons that I continue to participate at a very substantive level with programs at Cornell including the Atkinson Center and the Center for Sustainable Global Enterprise at the Johnson School.

I was accepted into the College Scholars program in the College of Arts and Sciences my freshman year, which allowed me to create my own course of study. That didn’t mean that I could do whatever I wanted. I had an advisor, Dr. Lynne Abel, who ensured that throughout my time at Cornell I was able to articulate a course of study clearly. I had a huge interest in social and environmental issues, and as a result of the program, and being at Cornell, I was able to get exposure to an extraordinarily broad set of academic and personal experiences. In some respects, it turbocharged the intellectual curiosity that I brought to the university. It gave me incredible opportunities. But it also taught me how to apply that intellectual curiosity in a pragmatic and meaningful way that ultimately led me to consulting. When I think about the course of study that I ended up executing, I didn’t know it at the time, but I was becoming a consultant.

I love the university. I highly appreciate everything it gave to me, and I’ve really enjoyed having the opportunity to stay involved with the activities. I get back to campus roughly once per year, to do something, whether it’s talking in a course, or coming back for advisory group meetings. Even if I’m just coming back for a meeting, I usually try to find a program that’s interested in having me come and chat with students for a while. It’s more for me to learn than for them to hear anything from me. I enjoy hearing what the students are learning and thinking about.

It often takes me in a direction here at Cadmus that’s interesting and different than what I likely would have come up with on my own.

GOVERNMENT

Considering Yellen’s Legacy ing and investment, boosting US exports by weakening the dollar, and promoting a stronger equities market. The Fed will increase rates to cool down the economy, preventing excessive inflation while ensuring that short-term rates remain high enough to be cut in the event of a recession.The tricky part is heating up the economy just enough to keep demand for workers high without letting inflation get out of control.

Following the end of quantitative easing, Yellen faced pressure by so-called “hawkish” policy advocates, who believe that low inflation should be prioritized in monetary policy, by raising interest rates to prevent inflation from rising and the economy from “overheating” as it expanded post-recession. Yellen, however, believed that the most serious threat to the US economy was a prolonged period of weak job growth, rather than a resurgence of inflation. Despite fierce criticism from policy hawks, she argued that the Fed’s benchmark interest rate could be kept near zero for longer than previously believed, meaning post-crisis ecoJanet Yellen, Former Chair of the Board of Governors of the Federal Reserve System (2014-2018) nomic expansion could stay on track

By Christina Xu without overheating the economy.

Insiders noted that Yellen pushed n January 23rd, 2018, Jerome Powell illustrious. After starting her career on the policymakers at the Fed to reflect on the was confirmed as the 16th chairman Federal Reserve Board of Governors, Yellen human effects of monetary policy; she enof the United States’ central bank, served as chair of the Council of Economic couraged allocating attention to subgroups the Federal Reserve. Perhaps more notably Advisers under the Clinton administration, such as minorities, veterans, and low-infor some, January 23rd sealed the departure president of the Federal Reserve Bank’s recome Americans rather than considering gional bank San Francisco, and vice chair of of Janet Yellen, the Fed’s 15th chair, after a the Federal Reserve prior to being appointed all Americans as one large bloc. Yellen’s single term–an anomaly for chairs of the most heated critics, however, note that as Federal Reserve in recent history. Yellen’s de- Fed chair in 2014. the dollar has weakened and equity prices parture is particularly interesting considerThe Fed that Janet Yellen inherited have risen, Yellen’s steady refusal to revise ing the strong numbers the US economy saw was attempting to move the US economy the interest rate upwards has contributed to during her tenure: by the end of her term, past the financial crisis. One of their key a global asset price bubble that could push unemployment had dropped from 6.7 to 4.1 objectives was to wrap up quantitative easthe US economy into another recession. ing, the Fed’s unconventional asset purchase percent, over 17 million jobs were created, Were this recession to occur, the Fed would and the economy reached a quarterly growth program that was employed to stimulate the have extremely limited leeway in terms of economy during the 2008 financial crisis. rate of 3.3 percent at its peak. Now, all eyes conventional monetary policy, as it would are on Powell, a former private equity execu- Although the steps she took to move the US tive without a degree in economics who has economy past unconventional monetary pol- not be able to further cut rates. Meanwhile, unconventional monetary policy tactics icy were crucial, Yellen’s defining contribubeen described as a “Yellen-lite” in policy remain far from uncontroversial, and could tion to the American economy as Fed chair stance and experience. It is too early to set not necessarily be relied upon as a feasible is arguably her commitment to increasing in stone the legacy Powell inherits from the alternative. hiring, resulting in the tightest labor market first-ever female Fed chair. However, Yellen’s In 2014, following the final phase of quan(i.e. workers have been in highest demand) legacy certainly encompasses a unique set of titative easing, the New York Times wrote, in almost two decades. economic circumstances, a remarkable his“The Q.E.-driven recovery has been solid torical precedent, and a complex evaluation Attaining a tight labor market is and consistent — but has not been able to scheme. part of the Fed’s so-called “dual mandate” push the economy toward a sharp rebound.”

Yellen’s economic experience to maximize sustainable employment and makes her one of the most experienced maintain price stability, but it has historically Yellen’s focus on keeping rates low and encouraging a strong labor market helped push policymakers to head the Federal Reserve in taken the backseat. Generally, the Fed increases or decreases short-term interest rates the economy towards the sharp rebound its 104 years. After completing her Ph.D. in that workers, businesses, and investors were by increasing its target for the federal funds economics at Yale University in 1971, Yellen hoping for post-recession. While the slow, rate (the interest rate for overnight borrowbegan her career in academia, teaching at incremental rate hikes Yellen championed ing between banks). In general, the Fed will Harvard, the London School of Economics, were viewed by some as overly optimistic lower interest rates in order to stimulate the and Berkeley’s Haas School of Business. vis-à-vis the possibility of another financial economy by incentivizing increased spendHer career in policymaking is even more crisis, inflation remained persistently below

O

CORNELL BUSINESS REVIEW | 31

GOVERNMENT the Fed’s target rate of two percent and wage growth had been sluggish.

Whereas from the vantage point of 2017 and 2018 it may seem that Yellen was too hesitant to act more aggressively, in 2015, rates had not been raised in eight years and markets were much more skittish.

Yellen, who was a key original architect of using “forward guidance” to signal changes in timing and pace of monetary policy to avoid sharp spikes in volatility, established a moderate path from the beginning and stuck to it. From the 2013 surge in Treasury yields in response to news that the Fed would begin tapering its quantitative easing asset purchases (otherwise known as the “taper tantrum”), Yellen learned the importance of a steady hand and successfully kept financial markets from faltering. Time will tell whether or not asset prices will take a sharp downwards plunge, but recent smaller corrections indicate at least that markets are beginning to cool down without massive plunges. Yellen prioritized correctly in choosing to block out the noise and focus on labor markets post-recession, and strong economic indicators as she leaves office point towards good timing. Powell, meanwhile, finds himself in a delicate position, juggling a strong level of economic growth, weak inflation, and a potentially peaking stock market.

Yellen’s lasting legacy is difficult to assess, as she only held one term. As the first Federal Reserve chair in decades who did not face a recession or major crisis, Yellen never had to cut rates. Though she never had a full-blown financial crisis on her plate, her decisions required a high degree of precision and fine-tuning. As Kenneth Rogoff, a professor of economics and public policy at Harvard, noted, “She didn’t face the same kind of crisis that [Ben Bernanke, Yellen’s predecessor] faced, but she faced a more subtle kind of crisis: the fiercest existential crisis about the growth model that the U.S. used.”

On the surface, Trump’s decision to replace Yellen with Jerome Powell appears attributable to his goal of eradicating all vestiges of the Obama era. A more nuanced evaluation, however, should also consider the novelty of the concept of a female at the helm of one of the most powerful economic institutions in the world.

Though Yellen prefers to keep the spotlight off of her gender during her career (she instructed her staffers to refer to her as “chair” rather than “chairwoman” of the Fed), the cards are oftentimes stacked against women in the field of economics.

When Yellen received her doctorate at Yale, women received only 8% of all doctorates in economics, and she was the only female in her class; females were so underrepresented that in the year Yellen finished her Ph.D., the American Economics Association had to issue a declaration stating that “economics is not exclusively a man’s field.” Women often

32 | CORNELL BUSINESS REVIEW

face discrimination in obtaining tenure if they have children (paying a so-called “baby penalty”), they are less likely to receive credit for papers co-authored with males, and they often experience feelings of isolation and disconnect in heavily male teams. In her career, Yellen managed to achieve a breadth and

“Her accomplishments exist independent of her gender, but are all the more remarkable given the barriers set for women in leadership positions & within the field of economics” depth of experience that few men or women ever will. To tokenize and reduce her career to her gender would be a gross oversimplification and misrepresentation. At the same time, it is indisputable that gender has played a role in both her public perception and in the political aspects of her role–the nomination and renomination periods in particular.

Despite her extraordinary qualifications, Yellen was confirmed as chair of the Federal Reserve with the lowest-ever level of Senate support in history (56 votes to 26).

Indeed, Yellen seemed to face considerably more scrutiny than lawyer Jerome Powell, who passed his confirmation 84 to 13 sans the Ph.D. or academic background typical of Fed chair picks. In 2014, Yellen was the underdog candidate for Fed chair: Larry Summers, former Treasury Secretary and director of the National Economic Council was originally President Obama’s top choice.

During the selection process, commentators were more likely to highlight Summers’s brilliance in the field of economics. Meanwhile, they were more likely to describe Yellen as empathetic and hard-working despite her stellar academic career, symptomatic of a widespread problem amongst females attempting to gain tenure in academia.

Furthermore, whereas women in leadership positions are oftentimes stereotyped as emotionally turbulent and indecisive, critics wondered if Yellen’s careful, deliberate nature would prevent her from being able to effectively respond to crises. Some even complained that appointing Yellen as Fed chair would be “gender-driven” rather than merit-based, a criticism that no male economist could even receive. Eventually, Yellen won out against Summers, whose abrasive nature and policies surrounding financial regulation concerned Democrats.

Though Trump has praised Yellen for doing “a terrific job,” she is the first chair in modern Fed history to not be renominated after serving a term; her predecessors--Ben Bernanke, Alan Greenspan, and

Paul Volcker--all served for at least eight years, each successfully obtaining a renomination in spite of changing political parties in the Oval Office. Yellen’s replacement was accepted without much of a ruckus. Whereas Yellen’s deliberate nature was posited by critics as a possible problem in a time of crisis, Powell’s temperament and moderate nature are frequently cited as positives.

Yellen’s public image, though presumably separate from her career in economics, also points towards subtler ways her gender may have limited her role as a prominent economist. Despite making concerted efforts to remove her gender from her role as Fed chair, Yellen faced sexist comments from senior establishment figures. Liberal political activist and former Democratic presidential candidate Ralph Nader wrote an open letter to Yellen while she was chair of the Federal Reserve suggesting she “sit down with [her] Nobel-prize winning husband…[and] figure out what to do for tens of millions of Americans who...could stimulate the economy by spending towards the necessities of life.”

Former Governor of Arkansas Republican Mike Huckabee, when asked whether he would keep Yellen in her post if elected, said, “My wife’s name is Janet. And when you say Janet yellin’, I’m very familiar with what you mean.” She also faced sexist comments from the media: when Yellen wore the same outfit to both her official White House nomination and her confirmation hearing, Roll Call columnist Warren Rojas remarked, “At least we know her mind won’t be preoccupied with haute couture.”

While Yellen’s avoidance of gender discussions surrounding her role as Federal Reserve chair is understandable, one cannot help but wonder whether or not she missed an opportunity to raise awareness about systemic inequalities at the highest level of national leadership. Though it would certainly be unfair to place such a burden on one person’s shoulders, the symbolic significance of any “first” is heavy. Still, Yellen lets her work and extraordinary competence speak for themselves. Though Yellen has almost certainly faced adversity throughout her career in the male-dominated worlds of academia and government, her choice to remain silent shrouds the mechanisms by which systemic bias perpetuates itself at the higher levels of these fields. Yellen has been a steady-handed Fed chair who was able to fine-tune key economic decisions throughout her four years. Her accomplishments exist independent of her gender, but are all the more remarkable given the barriers set for women in leadership positions and within the field of economics. If there was a way to hear about them first-hand from one of the most powerful women in the world, perhaps more underrepresented groups could have the chance to be equally as remarkable.

SPRING 2018 - UNIVERSITY HIGHLIGHTS

Picture courtesy of the Cornell School of Architecture, Art, & Planning

Dragon Day 2018

An annual tradition, AAP students march across the Cornell Campus with their impressive 3D ‘dragon’ sculpture Picture courtesy of the Cornell SC Johnson School of Business

Cornell Business Impact Symposium

Hosted by the Center for Sustainable Global Enterprise and organized

by Cornell students, the March conference featured 20+ speakers who shared their professional experiences and sustainability outlooks in the food, fashion, finance, and technology industries.