Bloomberg businessweek usa june 26 2017 by Somsak Rakagsorn

June 26, 2017

JOBS

Mind the gap: Why do women still make 80¢ on the dollar?

JOBS

Rebels in Colombia start to retool their résumés

POLITICS

Help wanted at the Trump White House

PLUS

There are more interior designers in the U.S. than coal miners ○ Tesla builds a gigafactory in the Nevada desert ○ Frank Lloyd Wright beyond Fallingwater

JOBS

REMARKS

Workers of the world, evil robots are not the problem

Climbing Asia’s broken jobs ladder

○ Download our new app for must-read daily content

PURSUITS

The Jag, the Mercedes, or the Porsche?

○ Subscribe to our new Daily IQ newsletter. Visit Businessweekmag .com/newsletter

○ Enjoy unlimited access to stories on Businessweek .com. Visit Businessweekmag .com/register and link your account

○ Download our new app for must-read daily content ○ Watch Businessweek on Bloomberg TV every Saturday at 3 p.m. ○ Enjoy exclusive subscriber beneﬁts. Visit Businessweekmag .com/subscribe ○ Listen to Bloomberg Businessweek Radio Fridays at 6 p.m. and Saturdays at 8 a.m., only on Bloomberg Radio

June 26, 2017

THE

J O B S ISSUE

June 26, 2017

PHOTOGRAPH BY TOMER IFRAH FOR BLOOMBERG BUSINESSWEEK

Grzegorz Swiech models the latest streetwear in Krakow, Poland, a city plagued by particulate pollution

CONTENTS

Bloomberg Businessweek

June 26, 2017

IN BRIEF ○ Bad times at Barclays ○ Travis Kalanick is out at Uber ○ Can Man Bun Ken rescue Barbie?

REMARKS

VIEW

Let’s focus on workers’ skills now and worry about evil robot overlords later

BUSINESS

With Amazon gobbling Whole Foods, Target may go hungry

We live in a job-hopping, work-at-home freelancer’s paradise, right? Nope

2 16

The Austrian mill where 14 workers are able to produce 500,000 tons of steel a year

ECONOMICS

TECHNOLOGY

Tesla builds a Gigafactory near Reno. Nevada builds a new Reno to go with it

CNN and other content publishers are starting to ask Facebook: What have you done for me lately?

Trump’s policies keep immigrants away and put Kansas in a bind

There are plenty of U.S. job openings— at the White House

A national goods and services tax may end India’s logistics nightmare

Seasonal businesses rely on seasonal visas, it turns out

35 29

Myanmar builds a brand-new tourism industry, but no one comes

A Saudi social reformer is now heir to the throne

Hats off to the MAGA mogul

At Work With: Ice tracker Gabrielle McGrath

Photostat: Filthy air is the mother of a Polish style invention

Michael R. Bloomberg on preparing for our automated future

FINANCE

Once upon a time, there lived a magical wizard called a money manager

Wall Street watchdog for hire Dan Brockett is no Robin Hood

Insurance as investment, an Anbang specialty, comes under scrutiny in China

POLITICS

PHOTOGRAPH BY CAROLL TAVERAS FOR BLOOMBERG BUSINESSWEEK

CONTENTS

Bloomberg Businessweek

June 26, 2017

PURSUITS

THE

J O B S

Uncovering new angles in Frank Lloyd Wright

Drive: Road-testing coupes from Jaguar, Porsche, and Mercedes

ISSUE

The wage gap is not only unfair, it’s also unproductive. Here are some companies working to close it Where jobs have been lost—and which ones might be next

Fitness: Join the team at Tone House

Drinks: Whiskeys even Pappy would admire

Critic: 1984 comes to the stage

The One: All-Clad’s Prep & Cook

Game Changer: Saru Jayaraman reshapes the restaurant biz

4 54

Editorial 212 617-8120 Ad Sales 212 617-2900 731 Lexington Ave., New York, NY 10022 Email bwreader@ bloomberg.net Fax 212 617-9065 Subscription Customer Service URL businessweekmag .com/service Reprints/Permissions 800 290-5460 x100 or email businessweekreprints @theygsgroup.com Letters to the Editor can be sent by email, fax, or regular mail. They should include the sender’s address, phone number(s), and email address if available. Connections with the subject of the letter should be disclosed. We reserve the right to edit for sense, style, and space.

Colombia’s rebels would be only too happy to turn their swords into plowshares The miracle of automation is breaking the Asian jobs ladder Driving school for robots, taught by the drivers they’re replacing

Bloomberg Businessweek (USPS 080 900) June 26, 2017 (ISSN 0007-7135) E Issue no. 4528 Published weekly, except one week in January, February, April, July, and August, by Bloomberg L.P. Periodicals postage paid at New York, N.Y., and at additional mailing offices. Executive, Editorial, Circulation, and Advertising Offices: Bloomberg Businessweek, 731 Lexington Avenue, New York, NY 10022. POSTMASTER: Send address changes to Bloomberg Businessweek, P.O. Box 332, Haywards Heath, West Sussex, RH16 3FP UK. Businessweek.subs@quadrantsubs.com QST#1008327064. Registered for GST as Bloomberg L.P. GST #12829 9898 RT0001. Copyright 2017 Bloomberg L.P. All rights reserved. Title registered in the U.S. Patent Office. Single Copy Sales: Call 800 298-9867 or e-mail: busweek@nrmsinc.com. Educational Permissions: Copyright Clearance Center at info@copyright.com. Printed In Belgium CPPAP NUMBER 0414N68830

Cover photographs for Bloomberg Businessweek, clockwise from top left: Damien Maloney; Laurel Golio; Lucas Foglia; Carlos Saavedra

FROM TOP: COURTESY MERCEDES-BENZ; PHOTOGRAPH BY VICTOR PRADO FOR BLOOMBERG BUSINESSWEEK

How to Contact Bloomberg Businessweek

IN BRIEF Europe

Americas

○ After a ﬁve-year investigation, Britain’s Serious Fraud Office accused Barclays of fraud in connection with investments in the bank by the Gulf state of Qatar.

○ Diageo bought Casamigos tequila from George Clooney et al. for at least

Qatar The kingdom’s sovereign wealth fund and other entities made two separate investments in the troubled bank during the global financial crisis

£4.5b

① June 2008

£7.3b

② October 2008

£2b

Barclays

③ Barclays loan to the Qatari government, November 2008

£332m

④ Fees to the Qatar Investment Authority, 2008-13

Allegedly not disclosed

Former executives charged John Varley Roger Jenkins Thomas Kalaris Richard Boath

$1b Not bad for a four-year-old side project.

Barclays says it “is considering its position.” Varley’s and Kalaris’s attorneys had no comment. Jenkins’s lawyer said he would contest the charges. Boath said the charges were false.

○ Germany’s Delivery Hero Group planned a June 30 IPO that would value the startup at as much as

CLOCKWISE FROM TOP RIGHT: RAINER JENSEN/DPA/ZUMA PRESS; COURTESY FORD MOTOR; COURTESY MATTEL; EITAN ABRAMOVICH/AFP/GETTY IMAGES; COURTESY BOEING; COURTESY CASAMIGOS

○ Boeing unveiled its 737 Max 10, a larger version of its best-selling jet, at the Paris air show. The company quickly collected 240 orders for the plane.

○ Russia approved six long-dormant Trump trademark applications during last year’s U.S. presidential campaign.

Africa ○ Atlas Mara, a conglomerate of African banks co-founded by former Barclays CEO Bob Diamond, said it would raise $200 million in equity to boost its stake in Union Bank of Nigeria from 31 percent to

44.5% Four went through on Election Day, according to a New York Times investigation.

$4.9b ○ The top United Nations human-rights official accused the Democratic Republic of the Congo of a continuing series of atrocities, carried out by militia groups.

○ Shares of Sears Canada tumbled by almost a third on June 21 after reports that the company was preparing to seek protection from creditors.

○ Former Argentine President Cristina Fernández de Kirchner said she would launch a new political party dubbed Citizen’s Unity in time for the October elections. She’s been critical of her successor’s budget cuts.

By Kyle Stock

Bloomberg Businessweek

June 26, 2017

Asia ○ “There will be many pages in history books devoted to @travisk—very few entrepreneurs have had such a lasting impact on the world.”

○ MSCI said it would add 222 domestically traded Chinese stocks to its popular emerging markets index, a major step toward China’s integration with the global financial system.

○ Saudi Arabia’s King Salman named his son Mohammed bin Salman heir to his throne, replacing his nephew Muhammad bin Nayef. The new crown prince is shifting the economy away from oil and pursuing a more activist foreign policy. 35

—Venture capitalist Bill Gurley on Twitter, after Uber CEO Travis Kalanick resigned under pressure from investors—including Gurley

○ Only 28 percent of Fortune 500 board seats went to women last year, according to executive recruiter Heidrick & Struggles.

○ The U.S. Supreme Court agreed to consider whether the 2011 redrawing of Wisconsin voting districts in a partisan gerrymander was unconstitutional.

○ Iran’s oil minister, Bijan Namdar Zanganeh, suggested OPEC may decide to make further production cuts in response to recent price declines.

○ Before a recent Chinese government crackdown, insurance giant Anbang had invested more than $10 billion abroad over three years. 25 Anbang’s acquisitions included:

$1.95b $1.5b $1b Waldorf Astoria, New York

Vivat NV, Netherlands

○

○ Ford Motor will shift much of its small-car production to China.

Rabobank mortgage portfolio, Netherlands

$1b $969m

The Westin St. Francis, San Francisco

Tongyang Life Insurance Co., South Korea

With sales of the Barbie brand falling 13 percent in the ﬁrst quarter, Mattel unveiled a diverse group of 15 Kens. (A few are shown here, mingling with Barbies who are just as diverse.)

$754m $705m Bentall Centre, Vancouver

The company will move manufacturing from Mexico in mid-2019, which it says will save $500 million in tooling costs.

JW Marriott Essex House, New York

REMARKS

THE ROBOTS ARE COMING (But You’ll Still Need to Work) ○ They may one day take over the world, but the big problems today are labor shortages and “skills mismatch” ○ By Peter Coy

The world’s workers seem to be in a bad spot: A recent study found that each new industrial robot displaces six employees. Automation is on the rise in ﬁelds from radiology to volleyball coaching (page 50 of this special Jobs Issue). Workers in poorer manufacturing-reliant nations are especially vulnerable, it’s said, because their jobs could soon be done by robots. Yuval Noah Harari, author of the new book Homo Deus, speculates in a recent Bloomberg View column about J O B S

REMARKS

Bloomberg Businessweek

the rise of a huge, embittered “useless class” living on the dole. But if work is being automated out of existence, how do you explain a 2.8 percent unemployment rate in Japan, one of the world’s most roboticized nations? What accounts for shortages of skilled workers in Brazil, India, Mexico, and Turkey? And why did U.S. employers report 6 million unfilled job openings at the end of April—the most in 16 years of record keeping? The big problem today is too few workers, not too many. Maine is so short of help that the governor conditionally commuted sentences of 17 state prisoners in May, in part so that they could take jobs (page 34). Michael Feroli, the chief U.S. economist of JPMorgan Chase & Co., headlined a research note, “The labor market’s getting tighter than a rusted lug nut.” On the dark side, those who can’t find work feel worse now because they think or they’re told it must be their fault, even when it’s not. On the bright side, low unemployment rates are putting intense pressure on governments and companies to help people ready themselves for the jobs of the future. Robots may yet take over, but we already know how to prepare for that: The measures that cope with today’s worker shortages will also be useful in a world of worker surpluses. The skills increasing in demand will presumably be even more valuable in coming decades. The good news is that human wants are infinite: The grandchildren of farmers and factory hands are masseurs, speech therapists, and videographers. What their grandchildren will do is utterly unpredictable. It’s easy to see how the world-without-work narrative has caught on. There are already robot drones, driverless vehicles, and phones that can translate your musings into Afrikaans, Albanian, or Amharic. But David Autor, a leading labor economist at the Massachusetts Institute of Technology, says people tend to overestimate how quickly and completely machines will take over. “The things that are being suggested are so far beyond what we’re capable of right now, it’s almost marketing for venture capital,” agrees Matt Busigin, chief information officer at Hover Networks Inc., a phone systems company in the Buffalo, N.Y., suburb of West Seneca. At Hover, he says, “We’re thrilled just to get a decent voice transcription.” If machines were displacing workers, you’d expect to see evidence in the statistics. It’s not there. Labor productivity is defined by economists as the output of the economy per hour of (human) work. In theory, it will approach infinity when the last working person in the world turns off the lights in the last office. That’s not how it’s been going. Nonfarm business productivity growth averaged a watery 1.2 percent a year from 2007 through 2016, down from 2.6 percent from 2000 to 2007. The labor shortages caused by weak productivity have been aggravated by demographic forces. Japan has an aging workforce. China’s has begun to shrink, a direct result of its onechild policy. In the U.S., baby boomers are retiring in droves, says Gad Levanon, chief economist for North America at the Conference Board, a business-supported research group. Labor shortages will continue until around 2030, he predicts. After that? “I can’t talk about the very distant future. Who knows, maybe artificial intelligence will be as big as people say,” he says. “But I think where we are now, even modest employment growth is enough to continue to tighten the labor market.” Labor shortages manifest themselves as skill shortages because employers don’t just need bodies, they need talents. The U.S. was ninth in skill shortages last year among

June 26, 2017

countries in the Organization for Economic Cooperation and Development, behind Japan, India, Brazil, Turkey, Mexico, Greece, Australia, and Germany, according to a survey by ManpowerGroup Inc., the staffing firm. “In the skill sets needed for the global market, the talent pool is quite small,” says ManpowerGroup Chairman and Chief Executive Jonas Prising. Life is harsh for people who are unemployed or underemployed because of what’s blithely labeled a “skills mismatch.” The U.S. lost 8 million manufacturing jobs from 1979 to 2009 and has regained fewer than 1 million since. Coal mining employment has fallen 42 percent since the end of 2011. While the future lies in knowledge work, many jobs that are open today are for orderlies, burger flippers, security guards, and the like. For American men, median weekly earnings of wage-andsalary workers are no higher now, adjusted for inflation, than they were in the 1980s. JPMorgan Chase CEO Jamie Dimon points to the “staggering” decline in labor force participation by men of prime working age, 25 to 54. “There’s something wrong,” he said in a conference call with reporters on June 6. Factory work, having gone high tech, is exciting for some but daunting for others. Line workers are being called on to manage complex robotic systems, says Blake Moret, CEO of Rockwell Automation Inc. in Milwaukee. For some, he says, “There are going to be severe constraints on what they can do at the tail end of their careers.” A sense of dislocation prevails. The size of the U.S.’s contingent workforce—temps, on-call workers, contract company workers, independent contractors, freelancers—has almost doubled in 20 years (page 14). It’s not a life most workers want, according to a 2016 report by the Shift Commission on Work, Workers, and Technology, a project of Bloomberg LP (the parent of this magazine) and the New America foundation. A “stable and secure” income topped “making more money” as a priority in all income groups. “Most Americans just want a good job that allows them to provide for their families,” wrote Hillbilly Elegy author J.D. Vance, a commission member. A lot of the fear of automation stems from the idea that it’s a substitute for human labor. Often it is. But it can also be a complement, something that empowers people. Think of a hoe or a drill or one of those laser thingies people use for PowerPoint presentations. In the future, those who turn automation to their advantage will tend to be more educated. They will ride the technology waves better because they’re more adaptable. That’s already the case: For those with doctorate degrees, the unemployment rate in May was a minuscule 0.7 percent. Michael Spence, a Nobel Prize-winning economist who splits his time between Italy and the U.S., says he’s an optimist about the medium term. “The simple, honest truth is, if you’re talking about what the world’s going to be like 10 years from now, it’s hard to know,” he says. “The best focus for people is to make the transitions as effective and painless as possible as opposed to worrying about what the end point is.” As Spence points out, fears of technology-driven unemployment aren’t new. A committee of scientists and activists sent an open letter to President Lyndon Johnson in 1964 warning that a “cybernation revolution” was creating “a system of almost unlimited productive capacity” that would strand “the poor, the unskilled, the jobless.” Are some people being left behind? Yes, and that’s troubling. But a world without work? Not for a long time.

VIEW

To read Joe Nocera on airline hell and Conor Sen on Amazon’s goal in buying Whole Foods, go to Bloombergview.com

Government and the Rise of Automation ○ Technological advances require new thinking on wages, health insurance, and education ○ By Michael R. Bloomberg

Capitalism has brought opportunity to billions of people around the world and reduced poverty and disease on a monumental scale. Driving that progress have been advances in knowledge and technology that disrupt industries and create new ones. We celebrate market disruptions for the overall benefits they generate, but they also present challenges to workers whose skills are rendered obsolete. Today, as the age of automation affects more industries, those challenges are affecting more and more people. Attempting to slow the pace of technological change to preserve particular jobs is neither possible nor desirable, and there may be no better example than in the energy industry. In the 1920s more than 800,000 Americans worked in the coal mines. Many developed debilitating and deadly health problems. In 2008 national coal production peaked, yet technology had cut the number of jobs by 90 percent. Today, as consumers turn to cleaner and cheaper sources of energy, the societal benefits are widespread: Deaths from coal pollution have dropped 40 percent, and jobs in the renewable energy industry have soared. But this trend has also left coal miners, whose numbers have dwindled, in difficult positions, particularly since their employers have been walking away from their pension and health-care obligations. We can both embrace the societal benefits of technological change and confront the challenges it poses for individual workers and their communities—but J O B S

only if we expect government leaders to look forward instead of backward and to develop effective responses rather than pitting groups against one another. There are no panaceas, including the idea that the wealthy should pay more in taxes, with the money redistributed to support those who lose jobs—which I’m not averse to, if the money is spent wisely. But work is an important part of what gives our lives meaning and direction. Giving people a check isn’t the same as giving them an opportunity to pursue their ambitions and fulﬁll their potential. Industriousness, and the chance to shape your own destiny, has always been a critical part of what’s made America an exceptional nation. Finding more ways to reward and encourage work will be essential to coping with automation. The Earned Income Tax Credit is one way to do that. It’s effectively a wage subsidy for low-income earners—and expanding it, or using other subsidies to encourage employment as we do with investment, may become increasingly necessary. It may even be that governments will experiment with direct employment programs, putting Americans to work performing jobs that produce some public beneﬁts, however limited. Whatever the approach—and all have their costs— keeping working-age adults in the labor market, rather than them sitting at home, is a goal worth pursuing. Disruption from automation will also have an impact on Americans’ health. Some 150 million Americans get health insurance through their work.

Employer-sponsored health insurance is an accident of history—businesses began offering the benefit as a way around World War II wage controls—and the Affordable Care Act left the system largely in place. One way to mitigate the harmful effects on workers who lose their jobs would be to de-link health insurance from employment to ensure that everyone can receive care when they need it, including when they are between jobs or unable to find one. We will also have to rethink our approach to education, which follows an antiquated model: School years are based on an agricultural economy that required children to work the fields during the summer months. Education laws stifle innovation and parental choice. And vocational training programs are based on an industrial past, turning off many students who might opt for such programs and often leaving those who do enroll ill-prepared for careers. At the same time, community colleges too often saddle students with debt without doing enough to ensure they earn a degree and marketable skills. And continuing education and training programs, which could help save adults from getting locked out of the evolving labor market, are often divorced from the needs of employers. There will always be politicians making promises the market won’t allow them to keep. But to spread the benefits of the age of automation far and wide, we’ll need more cooperation among government, business, education, and philanthropic leaders.

LOOK K AHEA HE D LOO

ergy rg es will will be a g price ○ Low ene hot topic ic at J. J.P. P. Mor organ gan’s Energ rgy h g s Ene g Equity ty Confe nfere rence on Jun June 27 E y Co

nce c its ○ Nike will announ s fourthqu rterr earning qua e q gs on June 29

Delta a Air ir Lin Lines’ es an annua nual meet eeting n ○ Delt g on June Jun e 30 3 coul ould dg give ve a hin hintt ab aboutt future f J ttravel deman d and d

B U S I N E S S g

PHOTOG PHOTOG HOTOGRAPH GRAPH APH BY CA CAROLIN L NE E TOMP PKINS FOR FO BLOOM BLOOMB LOOMBERG G BUSINESS BU SINE NES WEEK

The retailer has talked off increasing g its food f sales for f a decade. Now N Amazon could d leave it in the dust d st

Amaz Am azon on n.com com Inc n .’’s $1 $13. 3.7 bi 3. billlio llion o bid d fo f r Whol Whole e Food ds M rk Mark Ma ket Inc.. se ent shock k wav aves es acr c osss th the e reta retaiil indus us-try: y: Inv nves e to ors and rival alss su udd d enly ly y had to pond der h how quickl kly ly th the h d domi mina nant n onl nt nllin ine me m rcch hant mig ha i h ht t rbo turb tu boch char arge ge a str t ug ggl g in i g chaiin, known no own forr pri rice ey h nd ha n -bu -b butch here ed meatss and n $30 emu mu u egg ggs, s, to chal-len le nge U. U S. S superma erma mark ket lea eade de er Wa Wall-Ma Marrt rt Sto tore res Incc. Bu B ut a bi bigg gger gg e unc er ncer ertainty ty y sur urro r un und ds a ret ds etai aile ai ler er no n t invo v lved lv d in th the he de deal al: l: Ta T rg get Cor orp. p. The e No. 2 U.S. diisc disc scou ount ou unter ter has bee e n lo losi siing g shopper ho erss despiite e an ex xpand nded ed d food d off offerin ing g that at inc n lu ude d s mor mo ore fre r sh p oduc pr ce, glu uten-fr n-free ee and d organ rg ganic ic c produ rodu duc cts, and

gra -and g grab nd-g - o ite ittems. Now Tar arge get wiill lik kel ely y fa face ce a re eenerrgi g ze zed dW Wh hole Food odss th hat at’s ’s backe accke ked d by by a deeppp c etted pock po d pa are rent nt-to to -be b alrrea ady y cha hall hall lle engi g ng g the he co comp om an ny in appar arell an nd beaut uty y prod odu ducts tss. Amaz Am azon on’s ’’s mar arch c in nto br bricckk an andd mo dmort rtar a groce eriess co ie come mes jju just ass Ta T rg rget et emb mbar arks ar ks on a th hre ree-ye year ye ar,, ar $7 bil $7 illion n tur u na aroun nd pl p an n tha hatt in ncl c ud udes es slas lashin sh ng pr ces,, re pric r fu furb rbis ishi hing ng mor ore e th t an 600 0 sto ore r s, and o g more tha h n 10 lller outlet opening han 00 sm mal alle let e s in cit itie ie es d on college ll g c ampuse d to and es. Food oo od i s sup upp pose sed b an inte be egrral partt off the he store tores’ s’ red edes ed esign, whi hich hi h Chief Ex Exec ecut u ive e Offi Office cer Br Briian ian Co orn rnel elll un unve veiled in

Jun Jun u e 26, 2017 Edi dited by y James E Ell E is s E. s and d David D id Roc Rocks ks Bus Bu ess ssw week ee .co om B sine

13 3

Bloomberg Businessweek

June 26, 2017

February after the retailer’s worst holiday season in several years. It’s more than bad timing, though: Target’s food business has always paled in comparison to its apparel, beauty, and home decor departments, the so-called signature categories. Cornell’s handpicked grocery chief quit last year after 18 months on the job, and the CEO’s turnaround plan didn’t include any bold ideas for fixing its food business. Some analysts think Target should just outsource its grocery aisles to a supermarket specialist as it’s done with its pharmacy business, which since December 2015 has been operated by CVS Health Corp. Target stands to fare even worse once Amazon applies its digital know-how—pricing algorithms, customer-preference data, free shipping—to Whole Foods’ portfolio of antibiotic-free meats, organic kale, and hopped-up craft beers. The Amazon-Whole Foods combination “is a significantly damaging competitive blow to Target,” says Simeon Gutman, an analyst at Morgan Stanley. “Whatever competitive pressures were out there before today are now accentuated with this move.” Retailers from drugstore behemoth Walgreens Boots Alliance Inc. to discounter Dollar General Corp. have been adding more food to their stores because it keeps shoppers coming back week after week. Target could certainly use some help in boosting frequency. Its customer traffic has declined in three of the past four quarters, and now fewer than 1 in 3 U.S. households shops there once a month, according to researcher Kantar Retail. That’s down from about half of the nation’s households a decade ago. Says Patrick McKeever, an analyst at MKM Partners LLC: “Food is a key traffic driver and a business Target needs to get right.” Target says it’s moving to do just that. “We are on a journey to create a differentiated experience in food and beverage,” the retailer said in a statement. “While the work won’t be done overnight, we are committed to getting it right for the long term.” Yet at just 20 percent of sales, food remains a sideline at Target. Groceries account for more than half of Wal-Mart’s U.S. revenue, allowing it to press suppliers for the lowest prices and exclusive deals. Wal-Mart is also rolling out curbside pickup of online grocery orders, offering discounts on some web items picked up in-store, and even paying its employees extra to deliver some items using their own cars. While Amazon recently tried to woo Wal-Mart’s lower-income shoppers with discounts on its Prime membership, it will probably find it difficult to make inroads among Wal-Mart’s core customers. That’s because Wal-Mart lately has been aggressively cutting prices in response to the expansion into the U.S. by Germany’s giant Aldi and Lidl discount chains. “Wal-Mart’s grocery business is relatively welldifferentiated vs. where Amazon and Whole Foods is likely to go,” says MKM’s McKeever. But Target

is positioned as more midmarket—closer to where some analysts figure Amazon may slowly reposition Whole Foods’ offerings after the buyout. Even before Amazon’s grocery bid, Target was struggling to keep up with the e-tailing giant. Its biggest online idea this year is Restock, a facsimile of Amazon’s three-year-old Prime Pantry service, which delivers a box full of different household essentials for a flat fee. Restock is so far only available in Target’s hometown of Minneapolis. Unimpressed investors have sent the retailer’s shares down 30 percent this year. Perhaps most worrisome for Target is that its customers are also fans of Whole Foods and Amazon. Almost 1 in 4 of Target’s grocery shoppers also shops at Whole Foods, according to consultant Magid, compared with fewer than 1 in 10 for Wal-Mart and supermarket chain Kroger Co. More than two-thirds of moms aged 27 to 51 who shop at Target also use Amazon Prime, vs. 42 percent of all consumers. Those are the busy soccer moms most likely to embrace whatever time-saving digital deals Amazon and Whole Foods have to offer, particularly in categories such as apparel and beauty products that are moving online. “This gives Amazon Prime members just one more reason not to go to Target,” says Leon Nicholas, an analyst at Kantar. —Matthew Boyle

○ Share of primary household shoppers surveyed who made a purchase at each retailer in the prior four weeks* Walmart/ Walmart Supercenter 68% 63% 62% Target/ SuperTarget 43%

31% Amazon.com 25% 05/2008

05/2017

THE BOTTOM LINE Retailers are adding groceries to their mix because they keep customers coming back. But Target gets only 20 percent of sales from food, while Wal-Mart gets 56 percent.

The Truth About the Gig Economy ○ Everyone knows U.S. workers are constantly swapping jobs. So why is the data telling a different story?

As you’ve surely heard—and perhaps experienced ﬁrsthand—American jobs aren’t what they used to be. Corporations long ago stopped being a source of secure employment. Workers have responded by jumping from job to job and reinventing their careers. Loyalty is out the window. Before long the very idea of a “job” itself may be history, too, with ﬂeeting gigs as independent free agents, or maybe just robots, taking its place. At least, that’s the frequently told story. So why is it that so much of the data seems to contradict it? To wit: The median number of years that wage and J O B S

*SHOPPER DATA INCLUDES VISITS TO STORES AND WEBSITES; DATA: KANTAR RETAIL

BUSINESS

*QUESTION NOT ASKED FROM 1972 TO 1975 AND 1977 TO 1980; DATA: 1. U.S. BUREAU OF LABOR STATISTICS; 2. “UNDERSTANDING DECLINING FLUIDITY IN THE U.S. LABOR MARKET,” BROOKINGS PAPERS ON ECONOMIC ACTIVITY, SPRING 2016; 3. CENSUS BUREAU; 4. BLS

BUSINESS

Bloomberg Businessweek

June 26, 2017

salary workers in the U.S. have been with their current employer ① was 4.2 when the Bureau of Labor Statistics last checked in January 2016. That’s higher than at any time in the 1980s or ’90s. The percentage of Americans switching employers or shifting in and out of the workforce has been declining since the 1980s, economists at the Federal Reserve Board and University of Notre Dame documented last year. ② Moves across state lines, which are often made by people searching for new job opportunities, have become much less common. ③ Only 1.5 percent of Americans made such moves from early 2015 to early 2016, reports the U.S. Census Bureau, down from 3.6 percent from 1969 to 1970. Moves across county lines within the same state have also declined. Self-employment has fallen slightly as a percentage of overall employment over the past decade, according to the BLS, and is far below the levels of the 1950s. ④ Some of these results become less surprising when you dig into the demographic details. For example, men aged 45 through 54 saw their median job tenure drop from 12.8 years in 1983 to 8.4 years in 2016, which ﬁts the standard narrative of declining job security. A 2013 study by sociologists Matissa Hollister and Kristin Smith found that most of the rise in median tenure from 1983 to 2008 was a result of women becoming less likely to leave their jobs when they had kids. Still, over the past decade even middle-aged men have seen median job tenure rise. And in general, since the early 2000s the statistical evidence of reduced job-market dynamism has become more pronounced and harder to explain away with demographics. Another possibility is mismeasurement.

Perhaps the government’s standard jobs questionnaires are too moored in an old model of work to capture the changes going on. Even as self-employment as measured by BLS surveys has declined, for example, the Internal Revenue Service has seen big increases in the number of 1099-MISC forms reporting nonemployee income. The Census Bureau’s count of what it calls “nonemployer businesses” (also based on tax data) rose almost 60 percent from 1997 to 2015. And a study released last year by economists Lawrence Katz and Alan Krueger found that those in “alternative work arrangements” such as independent contracting and on-call jobs had jumped to 15.8 percent of the workforce in 2015, from 10.1 percent in 2005. These developments may well point to a very different job-market future. But when I asked Krueger whether there was a contradiction between his ﬁndings and the broad evidence of declining job turnover, he wrote back that “alternative jobs are still only 15 percent of the workforce, and some last a long time (e.g., being an independent contractor or contract employee). They are not necessarily less permanent.” So that leaves us … pretty much back where we started. “It just doesn’t seem to square with people’s perceptions that job turnover would be declining,” says Notre Dame economist Abigail Wozniak, who co-authored the job-switching study cited above and has conducted related research. One partial explanation, she says, is a sharp drop since the late 1990s in the number of jobs lasting only a few months. This has driven job turnover down and median tenure up, but it doesn’t mean a lot to long-term jobholders. “People feel uncertain because they know that these longer-term jobs are less stable,” Wozniak says. Short-duration jobs becoming less common just isn’t “an experience that’s as salient.” The decline in short-duration jobs seems to be part of a general trend of decreasing economic dynamism in the U.S. since about 2000. Startups have become rarer, turnover in the ranks of the Fortune 500 and S&P 500 is down, and more industries have come to be dominated by just a few companies. For all the talk of disruption, the past decade and a half has actually been great for incumbent businesses, which would seem to be compatible with reduced job turnover. Public perception may still be lagging this new reality. Then again, the public perception that jobs aren’t what they used to be is backed up by ample evidence that workers have lost ground since the late 1970s. Real wages (after inﬂation) have risen only modestly since then (they’ve fallen for men), and labor’s share of gross domestic product has dropped while corporations’ share has soared. Company pension plans have given way to 401(k)s, which don’t guarantee steady retirement income. Maybe the rational reaction to this

② Percentage of workers switching jobs or moving in and out of the workforce

① Hang Time Median years with current employer All wage and salary workers aged 16 and older Men

Women 4.5

3.5

4.2 years

3 1983

2016

18% 12% 6% 0 1983

2014

③ Percentage of Americans who moved from one state to another* 4% 3% 2% 1% 1948

2016

④ Unincorporated self-employed persons as a share of total employment 20% 15% 10% 5% 1948

2016

BUSINESS

Bloomberg Businessweek

June 26, 2017

reduced status and increased risk is to hold on to your job as long as you can. “People actually shifted jobs a lot in the 1950s,” says Rick Wartzman, author of the new history The End of Loyalty: The Rise and Fall of Good Jobs in America. “It wasn’t uncommon for a male worker to have 10 to 15 jobs over a career. What’s different is that’s what the worker chose. They moved in search of opportunity.” This may have begun to happen again as the job market has strengthened over the past few years. That 4.2-year median job tenure in 2016 was actually down from 4.6 years in 2014 (it’s measured every other year). It was the ﬁrst such drop since 2000—and an indication that job hopping can be a consequence of prosperity rather than insecurity. —Justin Fox

the facility, red-hot metal snakes its way along a 700-meter (2,297-foot) production line. Yet the floors are spotless, the only noise is a gentle hum that wouldn’t overwhelm a quiet conversation, and most of the time the place is deserted except for three technicians who sit high above the line, monitoring output on a bank of flatscreens. “We have to forget steel as a core employer,” says Wolfgang Eder, Voestalpine’s chief executive officer for the past 13 years. “In the long run we will lose most of the classic blue-collar workers, people doing the hot and dirty jobs in coking plants or around the blast furnaces. This will all be automated.” Voestalpine long ago decided it couldn’t compete on bulk steel with titans such as Luxembourgbased ArcelorMittal, Japan’s Nippon Steel, or South Korea’s Posco, let alone hundreds of lowcost Chinese furnaces. Management instead went for high-value niche products such as the wire made in Donawitz, which have kept Voestalpine profitable. But the shift has had a big effect on the number and kinds of jobs the company creates: An increasing share of workers are white-collar technicians—like the trio of controllers in Donawitz—rather than the coal shovelers of yore. The change comes as steel’s political significance is rising. France and the U.K. have considered nationalizing plants to stop closures, while Donald Trump has focused on steel as a symbol of U.S. industrial might and a source of well-paying blue-collar jobs. People in the industry say that’s a simplistic view. Steel “will create employment, but it will not be creating the numbers that many governments hope for,” says Edwin Basson, director general of the World Steel Association. “There’s a long way to go for this message to be adopted everywhere. We are fighting against historical experience and perception.” Over the past 20 years, the number of workerhours needed to make a ton of steel industrywide has fallen from 700 to 250, as new control processes and innovations such as casting steel closer to the shape of the finished product have improved productivity, according to the World Steel Association. From 2008 through 2015, Europe’s steel workforce shrank by almost 84,000 jobs— about 20 percent—to 320,000. Voestalpine’s Eder predicts employment in the sector could decline another 20 percent over the coming decade. “The industry will need less and less unskilled workers,” he says in his office at Voestalpine’s Linz headquarters, 110 miles north of Donawitz. The Donawitz mill, in a narrow valley flanked by lush green pastures filled with dairy cows, stands in stark contrast to the medieval churches and castles clinging to the rocky cliffs nearby. Alongside a small creek on the valley floor, the €100 million ($111 million) plant turns 3-ton beams of steel forged in Voestalpine’s blast furnaces next door into thick wire used to make components such

○ The number of steel jobs lost in Europe from 2008 to 2015

THE BOTTOM LINE Statistics say the labor force is more stable now than in the past. But workers have good reasons to be concerned about their prospects.

500,000 Tons of Steel. 14 Jobs ○ A mill in Austria shows how automation in steelmaking augurs less employment—but better conditions

The Austrian village of Donawitz has been an iron-smelting center since the 1400s, when ore was dug from mines carved out of the snow-capped peaks nearby. Over the centuries, Donawitz developed into the Hapsburg Empire’s steel-production hub, and by the early 1900s it was home to Europe’s largest mill. With the opening of Voestalpine AG’s new rolling mill this year, the industry appears secure. What’s less certain are the jobs. The plant, a two-hour drive southwest of Vienna, will need just 14 employees to make 500,000 tons of robust steel wire a year—vs. as many as 1,000 in a mill with similar capacity built in the 1960s. Inside J O B S

84k

BUSINESS

Bloomberg Businessweek

June 26, 2017

LISI NIESNER/BLOOMBERG; DATA: EUROFER

as shock absorbers and piston cases in BMW, Mercedes-Benz, and Audi factories across the border in Germany. While about 300 other workers in Donawitz carry out support roles such as shipping logistics and running the internal rail system, the rolling mill itself will be operated by just over a dozen people. The three technicians sitting in what’s called the “pulpit”—a structure like a ship’s bridge high above the plant ﬂoor—mostly play a monitoring role, watching for warning signs such as spikes in temperature or pressure. The former line workers spent three months training for their new jobs, studying control systems and working in a simulated pulpit learning how to interpret the data. The other employees maintain equipment or retool the plant for various wire gauges— hundreds of variations ranging from 4.5 millimeters to 60 millimeters. Within three years, the company aims to open a fully automated plant in Kapfenberg, a halfhour’s drive down the valley from Donawitz, that

will supply high-tech airplane components such as stress-resistant engine mounts and landing gear parts. Although the details are still uncertain, automating the plant—which currently employs 2,500 people—could dramatically change the jobs picture. Over the following decade, Voestalpine plans to modernize its blast furnaces, the massive tubs ﬁlled with molten metal that produce the bulk steel that gets processed at mills like Donawitz. The work there is dirty and labor-intensive, with a total of 2,700 employees at the company’s ﬁve furnaces, in Donawitz and Linz. Voestalpine says much of that process can be automated, providing a safer and cleaner environment for employees even as the number of jobs will likely fall. “What does steel production of the future look like?” Eder says. “The positive thing is, the jobs surviving in the long run will be really attractive.” —Thomas Biesheuvel THE BOTTOM LINE At Voestalpine’s new Donawitz wire mill, advances in technology mean fewer steelmaking jobs even as politicians point to the sector as a symbol of industrial might.

The “pulpit” at Donawitz, where just three employees control the plant

LOOK AHEAD

T E C H N O L O G Y

Edited by Jeff Muskus and Jillian Goodman Businessweek.com

○ New York City’s Hashtag Sports conference gathers speakers on the sports industry’s digital trends

Reno-vating

○ In the shadow of Tesla’s Gigafactory, the city in Nevada is starting to look more like Silicon Valley. These aren’t the factory jobs it’s used to June 26, 2017

○ The OnePlus 5 phone goes on sale online

“Are you with Tesla or Panasonic?” the waitress asks with a smile. It’s morning in Reno, and it’s natural to assume anyone eating breakfast among the rustic wood walls and Instagramworthy succulents of the Whitney Peak Hotel would work at the mammoth Tesla Gigafactory, jointly run by the two tech companies. For transplants landing in Reno, the boutique hotel, formerly a casino, has become a common crash pad—albeit one wrapped by an outdoor rock-climbing wall. Around 8:30 a.m., the men arrive in waves. The Panasonic workers from Japan head for one buffet, with rice, pork, and miso soup; the Tesla crowd favors eggs. Soon they’re gone, traveling J O B S

PHOTOGRAPHS BY LUCAS FOGLIA FOR BLOOMBERG BUSINESSWEEK (5)

○ Meal-prep startup Blue Apron goes public at a value of about $3 billion. The company says it expects to price shares at $15 to $17

TECHNOLOGY

Bloomberg Businessweek

June 26, 2017

by carpools and shuttles 20 miles east into the desert to the factory, where they’ll make lithium ion batteries to power Tesla’s electric cars. Not long ago, Reno was a home foreclosure capital and fading casino town. “There was only one place to go, and that was up,” says Mayor Hillary Schieve. Unemployment peaked at almost 14 percent in 2011, when Governor Brian Sandoval signed a law aiming to diversify the state’s economy, recognizing that gambling alone can’t sustain a workforce. The Reno area scored some early wins, such as a new, highly automated factory run by Ardagh Group SA that churns out 3.5 million cans of tomato paste and other food products a day. Then came

the big get in 2014, when Tesla Inc. chose the Tahoe Reno Industrial Center to build what will be the largest factory in the world and promised to create 6,500 permanent jobs in exchange for $1.3 billion in tax incentives. “What Tesla did was it took our success and made it huge by reinforcing the message,” says Mike Kazmierski, president of the Economic Development Authority of Western Nevada. More companies have expanded or moved to the area since. Reno’s unemployment rate is below 4 percent for the ﬁrst time since 2006, and the fastest job growth in the region comes from manufacturing, employing almost 15,000 workers, up 15 percent in the past two years.

Clockwise from top left ○ Workers on an early-morning bus to the Gigafactory ○ A road sign en route ○ A taste of classic Reno outside the Whitney Peak Hotel ○ The world’s tallest climbing wall (164 feet), built into the side of the hotel ○ Rocks outside a future site of luxury apartments and townhouses

Bloomberg Businessweek

June 26, 2017

While 21st-century U.S. manufacturing depends on robots and automated systems, squeezing out many of the traditional middle-class jobs associated with industrial production, there’s still room for humans in new factories. They just need a lot more training to work alongside the robots, monitor their performance, code their brains, and maintain their systems. The telltale signs of gentrification in Reno are creeping in. Thousands throng to the weekly Food Truck Fridays near downtown, dudes play cornhole while sipping cold brew coffee at a cafe by the river, and a local bartender can’t quite keep track of the number of craft breweries. Kristen Jaskulski opened Sol, a Polynesian kava bar, a few months ago and says the business is hitting its stride. The hipster scene helps young workers imagine moving to Reno, and those who can land these new kinds of factory jobs tend to have cash to spend once they arrive. Sitting on a balcony overlooking the Truckee River, Jake Warner, the young chief executive officer of cloud-computing startup Cycle, says he considered moving his company and its handful of employees from Toledo, Ohio, to Austin, Seattle—or Reno. “Elon Musk is just my idol,” he says. “I bought Tesla on IPO day.” While Cycle doesn’t manufacture products, he figured Musk must have seen something special in Reno and that other techies would follow the hype. Tesla may have put Reno on Warner’s radar, but it alone didn’t seal the deal. “Have you been to the Basement?” Warner asks, gesturing across the river to an old post office, where the bottom floor’s been converted to a food hall and marketplace. “That,” he says, “was the closer.” There, visitors can get a straight razor shave at the old-timey barbershop Beautiful Bearded Man or taste a bourbon truffle from Sugar Love Chocolates. A West Elm opened upstairs last fall, and a Patagonia store opened a block away in February. For years, students at the University of Nevada at Reno mostly left town after graduation. But after the state’s tax deal with Tesla was announced, UNR’s engineering college booked a large auditorium for an information session with the electric-car maker. When 800 students showed up, “we had to open up another room in a hurry,” says Indira Chatterjee, associate dean of engineering. At Tesla’s request, the department created two academic minors, one in battery engineering and the other in manufacturing quality, she says, but the excitement over Gigafactory work outpaced the reality of the time it took before hiring would start. “In our view, it was not fast enough,” Chatterjee says. Her grads have slowly started getting jobs; on a recent tour of the Gigafactory, she ran into three alumni. Construction on the Gigafactory began in 2014, and Tesla and Panasonic Corp. are finally staffing up in real numbers. In January, Panasonic told Nevada that it’ll hire as many as 3,000 workers this year. In a state with an $8.25 minimum wage, the entry-level

position at Panasonic starts at $14 an hour, and the next level up is $17. A technician starts at about $23 an hour, Panasonic tells applicants on its Facebook page. Nevadans can enroll at Truckee Meadows Community College in a free training program on the Fanuc robots used at the factory. While many residents may say good riddance to the Reno of $5.99 prime rib casino dinners, the change has come so quickly, it can be tough for the region to adapt. Some locals were outraged that Reno has been spending money to install Burning Man art around the city instead of fixing potholes or adding beds at homeless shelters. The art is “supercool, but people went crazy,” says Mayor Schieve. Other industries are feeling a squeeze. “If there is a dark side, it’s that you can’t snap your fingers and create 20,000 light industrial workers overnight,” says Celeste Johnson, president of the local staffing firm Applied Cos. The boom, she says, has driven up wages at employers such as the warehouses for online retailers. But raises aren’t keeping up with costs for everyone, so some longtime residents are worried about being displaced. Median home prices are up 18 percent in the past two years, according to the Reno/Sparks Association of Realtors. This summer, new Tesla employees will live in UNR dorms, a temporary fix. Until then, there’s always home back at the Whitney Peak Hotel. As the sun sets over the Sierra Nevada, shuttle buses cycle by in front of the hotel, and Panasonic workers scramble down. Some cram into the hotel elevator in search of their beds. Others fan out into the downtown streets. —Karen Weise

○ Change in manufacturing payrolls since May 2012 30% Reno area

20% 10%

U.S. 0% 5/2012

5/2017

○ Tesla says its Reno Gigafactory will need

4,550

production associates at an average annual pay of $47,400

200

material handlers at $47,400

460

equipment technicians at $58,000

360

quality technicians at $58,000

930

engineers and senior staff at $87,000

THE BOTTOM LINE While not quite everyone is seeing the upside, a run-the-robots manufacturing base anchored by Tesla’s Gigafactory has helped slash Reno’s unemployment.

CNN Has Had Enough ○ News outlets are balking at Facebook’s terms for TV-quality videos meant to compete with YouTube

When Facebook Inc. wants to try something new, one of its first calls is to CNN. It was a key partner when Facebook introduced its news-reading app, Paper, in 2014. When the social network shuttered Paper soon after, transmogrifying it into a series of fast-loading News Feed stories called Instant Articles, CNN remained on board. And last year, when Facebook began focusing on hosting live video,

DATA: BUREAU OF LABOR STATISTICS

TECHNOLOGY

PHOTO ILLUSTRATION BY 731; PHOTO: DAVID PAUL MORRIS/BLOOMBERG

TECHNOLOGY

CNN was one of the few parties to which it paid a nominal fee to produce clips of, say, election results being projected on the Empire State Building. But strain is showing in the relationship. Facebook’s latest pitch to publishers such as CNN is for them to provide a regular stream of TV-quality, edited, original videos that will give Mark Zuckerberg’s company a chance to compete with YouTube and siphon some of the $70 billion pouring into TV ads each year. In exchange, the publishers can share some of the revenue for ads that roll in the middle of the videos. Facebook will control all the ad sales. It’s getting tougher for CNN and others to view these arrangements as mutually beneficial. “Facebook is about Facebook,” says Andrew Morse, general manager of CNN’s digital operations. “For them, these are experiments, but for the media companies looking to partner with significant commitments, it gets to be a bit of whiplash.” Morse says the financial compensation Facebook offers isn’t enough to convince him that working directly with the social network will be worthwhile in the long term. Jason Kint, chief executive officer of the industry trade group Digital Content Next, was more blunt. “Media companies are like serfs working Facebook’s land,” he says. For the past few years, it’s been easy for the company to find news organizations eager to test its latest ideas. The companies rely heavily on Facebook to boost their audiences, especially on mobile devices. Outlets have started to pull back from Facebook partnerships, however, concerned that they’re putting more into the deals than they’re getting out of them. Creating the stories and videos can be expensive and limit publishers’ direct relationships with readers, according to executives at six news companies. They say Facebook keeps changing what kind of material it’s asking for, and the company doesn’t pay enough or turn over enough data. Several of the executives say they’ll decrease their Facebook commitments unless things improve. Fidji Simo, Facebook’s vice president for product, says the social network has heard the complaints and has been working to smooth its relationships. Among other things, it’s brainstorming ideas with media outlets rather than simply bringing them lists of demands. Facebook’s head of news partnerships, former NBC news anchor Campbell Brown, who was hired in January, has been hosting dinners and training sessions to hear out the companies’ arguments for better compensation. “If journalism isn’t surviving in this environment, that’s bad for society, but it’s also bad for Facebook,” she says. Still, Simo says media companies shouldn’t expect to get the upfront payment some are calling for, partly because Facebook rewards viewership and partly because viewership is its own reward. The news executives say Facebook’s journalism

Bloomberg Businessweek

initiatives have so far done little to improve their relationships with the company and that it remains less collaborative—and more skewed toward its own interests—than Apple News, Snapchat Discover, or Google Accelerated Mobile Pages. “If you come to us and say, ‘We want to help,’ I’ve got lots of ideas,” says Suzi Watford, the Wall Street Journal’s chief marketing officer. By the time Facebook offers to help with something, she says, it already has a plan and isn’t interested in further discussion. The New York Times recently pulled out of Instant Articles, as did the Guardian. Because those articles are hosted on Facebook directly instead of on the publishers’ sites, they haven’t yielded many subscriptions. Facebook has started working with publishers to promote digital subscriptions on Instant Articles. The Times also reduced its production of Facebook Live videos because Facebook’s quotas made it too tough to produce quality clips, says a person familiar with the matter. Facebook’s latest video push will require even more resources, because the videos need editing, but for now the Times is willing to experiment with them, the person says. While Facebook is scouting deals for shows and projects that can compete with YouTube this summer, for now it needs other companies to produce videos its 1.9 billion users will want to watch. And keeping News Feeds full of videos from big-name outlets can help Facebook allay concerns from users—and governments—that it’s circulating low-quality material or amplifying lies dressed as news. On June 8, Facebook announced it would allow publishers to put more ads in Instant Articles and said it’s been paying $1 million in total ad revenue daily to the companies using the service. Ben Lerer, CEO of online video machine Group Nine Media (Thrillist, NowThis News, the Dodo), says that while he’s not satisfied by his deals with Facebook, he’s optimistic they’ll improve. Either way, he says, “whining and complaining that Facebook isn’t making you money is probably not going to be the most successful approach to building a partnership with Facebook where they make you lots of money.” —Sarah Frier and Gerry Smith THE BOTTOM LINE Facebook’s efforts to build a library of high-end original videos are meeting resistance from publishers frustrated by the way the company has treated them.

June 26, 2017

“Media companies are like serfs working Facebook’s land”

LOOK AHEAD

○ College endowment funds end their ﬁscal year on June 30. Many expect to report strong returns after a difficult run last year

○ Mastercard shareholders vote on an executive pay plan opposed by ISS, an inﬂuential adviser to big investors

F I N A N C E

Coming for Your Trading Desk ○ Money managers are expensive and getting easier to replace

June 26, 2017 Edited by Pat Regnier Businessweek.com

Rishi Ganti used to help manage the personal fortunes of hedge fund founders David Siegel and John Overdeck, whose quantitatively driven strategies turned them into billionaires. Ganti, 45, says he’s glimpsed the future of his industry. A wave of coders writing self-teaching algorithms has descended on the ﬁnancial world, J O B S

and it doesn’t look good for most of the money managers who’ve long been envied for their multimillion-dollar bonuses. On a cold spring day, Ganti, clad in a gray hoodie, takes quick sips of Earl Grey tea at a bakery in Manhattan’s Tribeca neighborhood and explains that many of his peers don’t yet realize

ILLUSTRATION BY 731

○ Data for pending U.S. home sales in May are due

FINANCE

Bloomberg Businessweek

their careers won’t last. “Algorithms are coming for your job—they only ask for electricity,” says Ganti, jabbing his finger on a lime-green laminated table. “Algorithms are already reading, processing, and trading the news even before the photons have hit your retina.” Yet few money managers are alarmed by the threat. “They’re anesthetized,” Ganti says. He started plotting out the impact of algorithms while working for Siegel and Overdeck at Two Sigma Investments, before striking out two years ago to start his own firm, Orthogon Partners Investment Management Co. To survive, Ganti says, money managers should look beyond the multitrillion-dollar stock exchanges, bond-trading platforms, and big deals backed by private equity and venture capital. To a greater or lesser extent, computers can see all those markets, assess how they’re performing, and start detecting patterns that could reveal profitable trading strategies. Ganti’s answer is to look for what are known in the industry as esoteric assets—the most obscure stuff he can find. He’s arranged alternative funding for charter schools in the U.S. and paid cash upfront to collect judgments due at Brazil’s supreme court. His team also has purchased nonperforming loans at a discount in Portugal and partnered with local experts in Mexico to fund government infrastructure programs. It’s even provided interim financing for refugee camps in Italy. The point about these investments, he says, is that they require “high human capital” to manage, even if they’re plentiful. “It’s like dark matter,” Ganti says. “They dwarf the visible stuff lit up by markets.” It’s not unusual to hear hedge fund managers argue that investors need to go off the beaten path to boost returns. What Ganti is saying is that money managers need to go there to save their own careers. He thinks that about 2 percent to 7 percent of the hedge fund industry’s $3 trillion of assets will jump every year from predominantly human oversight to computers. Ganti, who earned his Ph.D. in economics at Harvard, concedes this is just his guesstimate, but there’s plenty of evidence of a trend gathering force. Funds that use algorithms for trading, according to Hedge Fund Research Inc., already account for almost a third of the industry’s assets. BlackRock Inc., the world’s biggest asset manager, is shifting some stock analysis to machines. Bridgewater Associates, Point72 Asset Management, and JPMorgan Chase are trying automation techniques. Then there’s the huge shift of assets to index funds, which can be thought of as a very simple but dirt-cheap and effective form of computerized investing. The problem is that hedge fund managers cost so much, traditionally charging 2 percent of assets and taking a 20 percent cut of profits. “Those are vast sums of money for recognizing patterns,” Ganti says. Ganti’s former boss Siegel said last year he’s “very worried” that machines could soon cost large

swaths of the global workforce their jobs. Some economists think financial managers in general, unlike most other categories of workers, will be protected from automation. But the ones who make their living picking investments for clients and trading in the markets may be at risk, says David Autor, an economist at the Massachusetts Institute of Technology who studies labor markets. “The distribution of rewards in finance will become even more skewed, with a small number of ‘superstars’ making huge sums, and much of the routine work done by machines,” he says. “With luck, the cost of financial services will come down. It’s not a great era in which to be a midlevel fund manager.” It’s one thing to delve into esoteric markets to distinguish yourself from the quants. It’s quite another to do well—the assets are hard to value and risky by nature. Orthogon’s strategy, for example, includes scooping up receivables and other claims owed to those in need of immediate cash—a refugee facility waiting for payment on a contract from a charity, for example. Tod Trabocco, a managing director at Cambridge Associates LLC, a Boston-based firm that advises clients on investing, says fund managers have to research such assets carefully. “There’s the risk that a hospital, for instance, billed a government agency incorrectly and now is owed less,” he says. “Or a purchaser claims that it got a defective product and now doesn’t owe any money.” Orthogon, which runs $110 million and started investing in 2016, returned 5.4 percent in its first eight months and 5.6 percent this year through May, according to an investor document. At Two Sigma’s private proprietary investment group, which also managed employee money, Ganti’s wagers on esoteric assets returned an annual average of about 14 percent from September 2008 to December 2014, according to the investor document. Prior to Two Sigma, Ganti did stints at hedge fund HBK Capital Management and JPMorgan’s proprietary trading group. “He’s smart, a little eccentric, and you can’t get further away from public markets and computers than what Rishi does,” says Paul Morelli, a managing partner at Vernal Point Advisors, which invests in Orthogon. Ganti says the demise of money managers won’t happen all at once—there are still bank tellers and candlemakers. He likens the process to a mountain surrounded by rising flood waters: The base is easily traded markets, such as stocks. Higher up are bonds and derivatives, then niche investments such as aircraft leasing, movie rights, and drug royalties, followed by human-heavy dealmaking such as mergers and buyouts. Esoteric assets are at the peak. “I’m surprised how slowly people are walking up the mountain instead of running,” he says. “They’re moving much too slowly.” —Saijel Kishan THE BOTTOM LINE Quantitative strategies and index funds are replacing a lot of human investment judgment, and many of today’s well-paid traders may not survive the shift.

June 26, 2017

“Algorithms are coming for your job—they only ask for electricity”

FINANCE

Bloomberg Businessweek

June 26, 2017

A Lawyer Stalks Wall Street Banks ○ How Dan Brockett got a $250 million trophy to hang on his wall

Ten years ago, lawyer Dan Brockett and his colleagues chose the equivalent of ditching their office jobs for careers as big-game hunters. As Wall Street cratered during the financial crisis, Brockett helped lead his firm’s move away from representing the world’s biggest banks, forgoing $1,000-an-hour defense work. Now he earns his keep by suing the very companies that used to pay his bills. He gets paid only if he wins, by getting a cut of a client’s recovery. “I like the fees,” he says. “Hourly rates are boring.” In his office at Quinn Emanuel Urquhart & Sullivan LLP in New York, Brockett, 61, points to a framed photo of a $250 million legal fee award that hangs near his desk. Lawyers such as Brockett are profitseeking securities watchdogs for hire, a role that could grow more prominent in the anti-regulatory era of President Trump. Facing tighter budgets, the U.S. Securities and Exchange Commission plans to cut enforcement staff and scale back travel budgets.

Quinn Emanuel, meanwhile, doesn’t miss the Wall Street defense work. (Outside Brockett’s group, the firm still bills hourly.) Its profits per partner last year were $5 million, second among all U.S. law firms, according to legal researcher ALM Intelligence. Over the last four years, Quinn Emanuel figures it has won more than $30 billion in financial-fraud settlements. “They’re making big bets and have a roster of real stars,” says John Coffee Jr., a law professor at Columbia University. The windfall commemorated on Brockett’s wall came from a $2 billion antitrust settlement last year by banks such as Citigroup Inc. and Bank of America Corp. It involved banks’ sales of credit default swaps, or contracts that let investors bet on companies’ creditworthiness. For years the U.S. Department of Justice and the European Commission had investigated banks for blocking competition, which could hurt investors by raising costs. But they never took

“Most people are looking for money or to do the right thing”

Brockett, a senior litigation partner at Quinn Emanuel, in his office in New York

FROM LEFT: THOMAS PETER/REUTERS; CHRISTOPHER GOODNEY/BLOOMBERG

FINANCE

Bloomberg Businessweek

action. Brockett, representing investors, picked up where they left off. Armed with the millions of pages of documents that the government had collected, Brockett says he and his team obtained damaging admissions during depositions. At first, the banks sought a joint settlement, negotiating as a block. Brockett targeted a few of them, hoping they would break away from the herd. In the summer of 2015, while sipping a drink by his pool in the Hamptons, he got a call from a lawyer representing Citigroup. The bank wanted to make a deal. The 13 others followed. He’s no Robin Hood. Although his clients include pension funds such as the Los Angeles County Employees Retirement Association, the parties in his class-action suits who end up with the most money are hedge funds. They trade the exotic securities that are the subjects of his cases more frequently and can claim more damages. Consider the experience of one client in the $2 billion settlement, the Essex Regional Retirement System. Executive Director Charles Kostro figures his fund, which invests for Massachusetts teachers and other public employees, spent $10,000 in staff time cooperating with lawyers. The pension fund’s cut: $624.54. Sometimes the government takes a cue from Brockett. In 2015 an attorney at the U.S. Commodity Futures Trading Commission noticed one of his lawsuits about another kind of swap, one that let investors bet on the direction of interest rates. The agency reached out, and Brockett laid out his case. The CFTC is now investigating Goldman Sachs Group Inc. and Citigroup for allegedly blocking fund managers from trading the swaps with each other, the companies disclosed in SEC filings. Brockett has developed a network of sources that sends disgruntled bankers his way. Quinn Emanuel can pay whistleblowers as much as $600 an hour. Some whistleblowers also file claims with regulators, making them eligible for a cut of the government’s financial recovery. “Most people are looking for money or to do the right thing,” says Brockett. Brockett rubbed some other lawyers the wrong way because he kept for his firm much of that $250 million check. As lead counsel, the firm was able to parcel out work—and thus fees—among attorneys on the case. Smaller shops felt stiffed, according to a person familiar with the attorneys’ complaints. Brockett says he earned every dollar. His aggressiveness once inspired an extraordinary statement from the bench. In 2014, U.S. District Judge Lorna Schofield rejected his team’s appeal to be lead counsel in a case alleging that banks manipulated foreign exchange rates. “Quinn Emanuel cannot serve as lead counsel in every major litigation in the country,” the judge said. —Matt Robinson

It’s Insurance. It’s an Investment. It’s Trouble

THE BOTTOM LINE In an anti-regulatory era, banks still have to deal with aggressive plaintiffs’ lawyers. The biggest winners are often hedge funds.

THE BOTTOM LINE Anbang has sold insurance products in China that look a lot like investments. For a while, that money helped to power the company’s growth.

June 26, 2017

○ Chinese authorities put the squeeze on Anbang and its ﬁnancial products

Outside China, Anbang Insurance Group Co. has been best known for its high-profile deals. It acquired New York’s iconic Waldorf Astoria hotel, made an aborted bid for Starwood Hotels & Resorts Worldwide Inc., and in March pulled out of talks for a real estate deal with a company owned by the family of Jared Kushner. Now it’s also notable for the recent detention for questioning by the Chinese government of its chairman, Wu Xiaohui. Anbang has said Wu can’t perform his duties for personal reasons. In its home country, Anbang has been a place to stash savings. Many of its popular insurance products were more like high-yielding investments. Think something like a U.S. certificate of deposit but riskier, with returns paid after a specific period such as one or two years. These weren’t bank accounts, but 99 percent of premium income in the company’s Anbang Life unit last year came from sales in banks. The products helped fuel Anbang’s investing. Before authorities brought in Wu, China began a clampdown in the insurance industry that’s hit Anbang hard. In May regulators temporarily banned its life insurance unit from applying for permission to sell new products. Authorities have asked lenders to suspend some business dealings with Anbang, and at least seven large banks have stopped selling Anbang policies in their branches, according to people with knowledge of the matter. “If Anbang can’t sell over bank counters, other channels can hardly contribute revenue in a meaningful way in the next few months,” says Steven Lam, a Bloomberg Intelligence analyst. The company could face a cash crunch if too many clients start asking for their money back. Anbang sold 47.6 billion yuan ($7 billion) of a policy called Longevity Sure Win No. 1 in 2015. Those customers can leave this year and get back what they put in plus a 4.7 percent annual yield, though that can rise to 5.8 percent if they stay three more years. An Anbang representative says it’s building new sales channels, such as a mobile app, and is selling more long-term, traditional insurance products. It said in April its life unit had cash reserves of 207.8 billion yuan. In a June 20 note, political risk consultants at Eurasia Group wrote that Chinese authorities would likely act to prevent losses to retail investors or a fire sale of Anbang’s long-term assets, but a disorderly implosion remained a risk. —Bloomberg News

○ Wu

LOOK AHEAD

E C O N O M I C S

Bloomberg Businessweek June 26, 2017 Edited by Cristina Lindblad

○ The winner of Mongolia’s June 26 presidential election will have to implement an International Monetary Fund-led $5.5 billion bailout package

○ U.S. jobless claims come out on June 29

○ On June 30, the U.K. publishes its final first-quarter GDP figure. A slight upward revision is expected

‘I Need More Mexicans’ Farmers and dairies in Kansas want a path to legalization for undocumented workers Undocumented immigrants make up about half the workforce in U.S. agriculture, according to various estimates. But that pool of labor is shrinking, which could spell trouble for farms, feedlots, dairies, and meatpacking plants— particularly in a state such as Kansas, where unemployment in many counties is barely half the already tight national rate. “Two weeks ago my boss told me, ‘I need more Mexicans like you,’ ” says a 25-year-old immigrant employed at a farm in the southwest part of the state, who spoke on condition of anonymity because he’s trying to get his paperwork in order. “I said, ‘Well, they’re kind of hard to ﬁnd.’ ” Arrests of suspected undocumented immigrants have jumped 38 percent since President Donald Trump signed a pair of executive orders in January. The crackdown is having a deterrent effect along the southern border: Apprehensions by U.S. Customs and Border Protection totaled 118,383 from January through May, a 47 percent decrease from the same period last year, which indicates fewer people are trying to enter the U.S. illegally. Michael Feltman, an immigration lawyer in Cimarron, Kan., says his ﬁrm has seen more people coming in with naturalization questions over the past six months than during the previous J O B S

four years combined. “I’m really worried every little traffic ticket’s going to turn into detention,” he says. Others feel the same way. “The threat of deportation and the potential loss of our workforce has been very terrifying for all of us businesses here,” says Trista Priest in Satanta, Kan. She’s the chief strategy officer at Cattle Empire, the country’s ﬁfth-largest feed yard, whose workforce is about 86 percent Latino. In Haskell County, where Cattle Empire is the biggest employer, 77 percent of voters cast ballots for Trump, compared with 57 percent statewide. But Priest and other employers interviewed for this story complained that the immigration policies emanating from Washington, 1,500 miles away, clash with the needs of local businesses. Representative Roger Marshall, a Republican whose district includes southwest Kansas, says immigration is the No. 1 concern he hears about from constituents. The freshman congressman says he’s conﬁdent that once the border is secure, “President Trump will look at this, too, as an economic problem.” The two executive orders issued in January call for a wall along the U.S.-Mexico border and prioritize the deportation of undocumented immigrants who’ve been convicted or charged with “any criminal

ECONOMICS

Bloomberg Businessweek

offense.” The language is so broad that all of the estimated 11 million undocumented immigrants in the U.S. could be targets, given that anyone who’s evaded border inspection or overstayed a visa could be charged with a misdemeanor or fraud. Trump has said that even as he ramps up deportations, he doesn’t want to slam the door on immigrants. He’s proposed a merit-based system akin to those of Australia and Canada. Those countries confer legal status via a point system that rewards those with higher education, better employment histories, and language skills. He’s also spoken generally about reforming the short-term visa program for farmworkers. Agriculture Secretary Sonny Perdue told Congress last month that the existing H-2A visa, which admits seasonal workers, “has not been as successful as we would like, and it’s very onerous,” especially for smaller farms, to navigate all the paperwork. But those proposals don’t offer a pathway to legalization for those who are already in the country, which is what agriculture and other industries including construction and restaurants have been calling for. Joe Jury, who’s been farming in Ingalls, Kan., since the 1970s and has employed “probably well over 100 Hispanic immigrants,” wants immigration reform that emphasizes making it easier for foreign-born residents to work as much as it ensures that criminals are deported. “The visa system is so slow and so expensive,” he says. “The government has dug this hole, and now they’re trying to dig themselves out through enforcement.” The American Farm Bureau Federation has proposed that to “minimize the impact on current economic activity,” unauthorized agricultural workers already in the country should be granted permanent legal status once they prove they’ve worked in the industry for a set period. The AFBF has warned that an enforcement-only

approach could slash industry output by as much as $60 billion annually. Feltman, the immigration lawyer, says his clients would be more than willing to pay hefty fines for assured legalization. If each undocumented worker were charged $1,000 or $1,500, that would change political sentiment. “The people that are the naysayers to all that might say, ‘That’s a lot of money for our country,’ ” he says. Pew Research Center estimates that 375,000 undocumented workers are employed in agriculture. “I didn’t come over here because I wanted to— my parents brought me here,” says the undocumented worker from southwest Kansas, who says he’s spent $24,000 on immigration lawyers and other expenses in his quest for legal status. “I’m here, I have to work.” The price of milk would jump to $6.40 a gallon if U.S. dairy farms were deprived of access to immigrant workers, according to a 2015 report commissioned by the National Milk Producers Federation, which estimated that half of all workers in the industry are immigrants. Lingering in Congress are two separate bills that would modify the existing H-2A agricultural visa program so dairy farms can hire workers year-round rather than seasonally. In an April 18 statement in support of the legislation, the milk producers’ trade group said, “Without the help of foreign labor, many American dairy operations face the threat of closure.” Kyle Averhoff, general manager of Royal Farms Dairy in Garden City, Kan., says he’s seen the flow of applicants slow in recent months as the labor market has tightened. Unemployment in Finney County, where Royal Farms is based, was just 2.8 percent in April, down from 3.1 percent a year earlier. “We’ve gone to some of the highest-unemployment counties in our state and ran ads, and without success,” he says. An entry-level job at Royal Farms could pay as much as $40,000 in wages and benefits, with no prior skills required, Averhoff says: “For us the immigration issue is not about cheap labor. It’s been about finding people who have the aptitude and want to work in our industry.” Averhoff’s pain extends beyond Kansas. An extreme shortage of agriculture workers, attributed to “recent changes in immigration policy,” was responsible for some growers in California discarding portions of their harvest in April and May, according to the Federal Reserve’s Beige Book, which surveys businesses. Meanwhile, U.S. homebuilders, whose optimism soared after the election on promises of deregulation and tax reform, are back to citing severe labor shortages as a big reason for their subdued spirits, according to survey data from the National Association of Home Builders and Wells Fargo & Co. —Michelle Jamrisko

Help Wanted Kansas unemployment rates, by county, in April Less than 3%

3% to 4%

More than 4%

FOREIGN-BORN POPULATION DATA COLLECTED FROM 2011 TO 2015; DATA: BUREAU OF LABOR STATISTICS, CENSUS BUREAU

○ Counties with a foreign-born population of more than 10%

Haskell County Unemployment rate: 2.3% Foreign-born population: 19.2%

Finney County Unemployment rate: 2.8% Foreign-born population: 21.3%

THE BOTTOM LINE The American Farm Bureau Federation warns that an enforcement-only approach to immigration could slash U.S. agricultural output by $60 billion annually.

June 26, 2017

“The threat of deportation and the potential loss of our workforce has been very terrifying”

ECONOMICS

Bloomberg Businessweek

June 26, 2017

One Tax To Rule Them All ○ A new levy will help businesses in India pare their logistics costs

Moving merchandise across India isn’t easy. Rolling a truck of vegetables into the state of Gujarat will cost as much as 2,000 rupees (about $31) even with your papers in order, according to Rakesh Kaul, vice president for Caravan Roadways Ltd. It’s worse in Uttar Pradesh, says Kaul, whose company has about 400 trucks plying India’s potholed roads. Getting past the tax collectors in that impoverished state, India’s most populous, takes upwards of 20,000 rupees—to say nothing of the winding lines at the state border, which can ensnare a rig for days. Logistics costs in India are up to three times higher than international benchmarks, according to the World Bank. That’s why businesses are cheering the implementation of the biggest tax reform since independence in 1947. Effective July 1, more than a dozen levies will be replaced with a single goods and services tax (GST). By reducing the immense power India’s myriad middlemen wield at state borders, the GST should help free up domestic commerce and widen the country’s paltry tax base. “Even if your documents are correct, they will find some small error and hold your vehicle,” says Kaul. “Once GST is there, all that is gone.” The tax is being billed as Prime Minister Narendra Modi’s most significant economic reform since coming to power in 2014. Yet with just days to go before its implementation, the government is still refining the details, announcing on June 18 it would relax initial filing requirements for July and August amid concerns businesses weren’t ready. Despite the last-minute accommodations, Finance Minister Arun Jaitley has reiterated that the July 1 deadline for implementation is firm. There’s no shortage of hyperbole when it comes to describing the GST, which went through a decade of protracted negotiations before Parliament waved it through last August. The government’s chief economic adviser, Arvind Subramanian, called it “transformative” in an April interview, as well as “a daring, bold experiment in what I call the good governance of cooperative federalism.” Getting India’s 29 states to buy in has required compromises. As a result there will be four main tax brackets instead of one flat rate, which is the norm in the more than 150 countries that have a GST. (The U.S. has always resisted a national sales tax.) Motor vehicles, refrigerators, and makeup will be taxed at 28 percent, for example, while

toothpaste lands at 18 percent. Plane tickets will be subject to a 5 percent rate, but business class passengers will pay 12 percent. Food staples such as grains and fresh vegetables will be exempted. The GST will spur companies to consolidate their supply chains in India among fewer, larger facilities, says Vineet Agarwal, the managing director of Transport Corporation of India Ltd., which has about 10,000 trucks on the road and 11 million square feet of warehouse space. Currently, businesses operate smaller factories and warehouses across the country to take advantage of tax breaks offered by various states, as well as to avoid transporting goods over too many borders. “Literally, almost all states act like different countries,” says Agarwal. The list of countries that have successfully implemented a GST include Australia, Canada, and Poland. But India is a nation of 1.3 billion people. “It is hard to think of a parallel to this reform elsewhere in the world,” says Ian Hall, acting director of the Griffith Asia Institute. In a nation in which fewer than 1 percent pay income tax, thousands of people will need to be trained to file the complicated returns and operate new IT systems. “There will inevitably be disruption,” predicts Samir Saran, vice president for the Observer Research Foundation. The tax’s debut comes less than a year after the government’s surprise move in November to remove 86 percent of currency in circulation—a decision that continues to reverberate across the $2 trillion economy. The optimistic case is that any initial ruffles will soon be smoothed over, according to Eswar Prasad, an Indian-born economics professor at Cornell in Ithaca, N.Y. “As in the case of the recent demonetization gambit, any disruption in commerce and economic activity is likely to be short-lived, while the longer-term benefits could be significant,” he says. Indian officials have said the GST may bolster growth as much as 2 percentage points. A separate analysis by HSBC projects the gains could amount to o.8 percent annually for three to five years. Big companies like his will be prepared, Agarwal says, but he frets about smaller, informal businesses, which make up the bulk of the economy. “There’s going to be chaos,” he says. That informal workforce includes Babu Ram

○ Official projection on the bump in economic growth India could realize from a GST

ECONOMICS

Bloomberg Businessweek

Rajput, a 28-year-old trucker in jeans and sandals who regularly drives goods across a vast swath of northern India. “I have not got any training,” he says, holding up a sheaf of tattered, dirty documents related to his current cargo. “I only know that GST is coming.” —Iain Marlow and Enda Curran, with Bibhudatta Pradhan

says Paul Rogers, a tourism consultant advising the government. A master plan for the industry drawn up by the Ministry of Hotels and Tourism projects $10.2 billion in annual revenue by 2020. That would be a huge contribution to what the World Bank estimates is a $63 billion economy. For reference, tourism accounts for about 11 percent of Thailand’s $395 billion economy. Myanmar’s stock of hotels almost doubled, to 1,300, in the five years through 2015, with foreign businesses pledging investments totaling $2.7 billion in that span, according to data from the tourism ministry. Evidence of overdevelopment is particularly glaring in Naypyitaw. Built almost overnight in the 2000s, when the former military government made it the nation’s capital, the city is now a ghost town with empty 14-lane highways, closed shops, and, according to the Union of Myanmar Travel Association, 5,000 mostly unused hotel rooms. A TripAdvisor review from a lodger at one of the city’s luxury properties last fall said “the only guests are lonely consultants” working for international aid organizations. Occupancy rates nationwide last year were less than 40 percent in the wet months of spring and summer, and about 50 percent during the peak, dry season between November and March, according to the figures compiled by the travel association. At Inle Lake, a popular tourist spot where traditional fishing villages sit on stilts above the water, a large swath of shoreline forest was bulldozed for new roads and buildings in 2012; now erosion chokes parts of the waterway. “There is a real danger the lake may actually disappear,” says Oscar Haugejorden, director of a Norwegian environmental group at Inle. Myanmar’s former military dictatorship built an 18-hole golf course and dozens of hotels in the middle of the sprawling Bagan archaeological site, a complex of thousands of temples dating from the 10th century. An earthquake in 2016 added major damage, and hotels are still being built in the monument zone. In September the tourism ministry said it would restrict new hotel projects in several major tourist spots. But the Department of Civil Aviation is pushing ahead with an expansion of Yangon International Airport, which by next year will be able to accommodate 20 million passengers annually, about the same number of travelers that flow through busy destinations such as Bali. “The current government is very keenly aware of these problems, and the damage they do to Myanmar’s brand,” says Sean Turnell, a government economic adviser and professor at Macquarie University in Sydney, “but tourism has huge potential for the country.” —Philip Heijmans

THE BOTTOM LINE Implementation of India’s goods and services tax may be chaotic at first, but for businesses the advantages will accrue over time.

Myanmar’s Hotel Room Glut

FROM LEFT: ILLUSTRATION BY SIMON ABRANOWICZ; TAYLOR WEIDMAN/BLOOMBERG

○ Occupancy rates hovered at 50 percent in peak season last year

With its sweeping views of Yangon’s gem-encrusted Shwedagon Pagoda, the Esperado Lake View Hotel should be bustling. Yet two years after it was built, the four-star property sits half-empty for months at a time, according to manager Nero Kyaw Wai. “We aren’t seeing the demand,” he says. When Myanmar opened to the outside world in 2011 after decades of military rule, there were expectations that the former British colony, with its lush landscapes and ancient temples, would fast become one of the world’s hottest travel destinations. It hasn’t turned out that way. A poorly regulated hotel-building boom has damaged national treasures including the Bagan archaeological site and scenic Inle Lake, which is becoming clogged with silt and garbage. Meanwhile, reports of mounting ethnic violence have eclipsed press coverage of the country’s peaceful transition to democracy under a coalition led by Nobel laureate Aung San Suu Kyi. After the government revised its tourism numbers in February amid criticism it had been padding statistics, the new data showed that the number of annual visitors plunged 38 percent in 2016, to 2.9 million. “It’s a massive challenge for the country to develop such a complex sector where they have no experience,”

THE BOTTOM LINE Myanmar’s master plan for the tourism industry envisions $10.2 billion in annual revenue by 2020. But development is far outpacing demand.

June 26, 2017

A lone biker on one of the capital’s new highways

Photostat Krakow’s Hottest Accessory

Ewa Zelenska-Olczak (top left) was nine months pregnant when this photo was shot in March. The 23-year-old master’s student at AGH University of Science & Technology in Krakow, Poland, says she’s almost never without a mask outdoors, especially from October to April. That’s when the city’s air is at its worst, heavy with smog, much of it caused by household stoves that burn coal, wood, and trash to generate heat. Local coal-fired power plants add to the problem. According to the World Health Organization, Krakow’s particulatematter pollution, a mix of small particles in the air that may affect the heart and lungs, can reach six times the levels considered safe on high-smog-alert days. Some residents don the kind of basic cloth mask used in hospitals. The city’s young, hip, and digitally connected, including Rafal Zralka and Agnieszka Dabrowska (top right and bottom left), make statements with fashionable masks from companies such as Dragon Mask of Krakow or RZ Mask of Burnsville, Minn. Jvlia Swiech (bottom right) first became active with local environmental groups to raise awareness of the harm inflicted by air pollution four years ago, when she was 13. The masks “communicate the same values, and unite people,” she says. “We’re smiling to each other when we see others wearing them.” The protective gear might lose favor once a law that bans household coal burning in the city, which faces resistance from the local coal industry, takes effect in 2019. —Dimitra Kessenides, with Marta Waldoch

Photographs by Tomer Ifrah

LOOK AHEAD

P O L I T I C S

Edited by Matthew Philips and Cristina Lindblad Businessweek.com

○ Republican leaders hope to hold a vote on the health-care bill they’ve been working on in secret

During Workforce Development Week at the White House in mid-June, President Trump and his top advisers spoke urgently about the need to fill millions of vacant jobs. “There are currently 6 million job openings in the United States— vacant jobs that can be filled,” Labor Secretary Alexander Acosta told reporters. “This is the highest number of job vacancies ever.” That may be true, but when it comes to job vacancies, Trump & Co. would do well to look closer to home. The White House has struggled to fill hundreds of critical political appointee positions in federal agencies, making it harder to advance the president’s agenda. From the Department of State, where no assistant secretaries and only a few ambassadors have been appointed, to the Department of Justice, where dozens of U.S. attorney positions remain vacant, Trump’s government has a skeletal feel as it heads into its sixth month. At the Department of Labor, the president has yet to fill any of the 13 senior positions that support Acosta. That includes the commissioner for the Bureau of Labor Statistics, the office tasked with tracking the number of job vacancies nationwide. As of June 20, the Trump administration had filled 44 of the senior positions that require confirmation by the Senate, or less than 10 percent of the more than 500 openings, according to data compiled by the nonpartisan, nonprofit Partnership for Public Service. In contrast, Barack Obama had 170 positions confirmed at this point in his presidency, and George W. Bush had 130 filled. The causes for the delay range from a chaotic period marked by the abrupt dismissal of transition chairman Chris Christie to concerns among potential appointees about working for an unpredictable boss. There’s also, as Trump called it in his May 11 interview with NBC News’s Lester Holt, “this Russia thing”—a broadening swirl of federal investigations casting a cloud of legal uncertainty over the presidency. “A few months ago, people might have been willing to say, ‘I still want a job, even if I don’t like Trump,’ ” says Julian Zelizer, a presidential historian at Princeton. J O B S

A lack of staff at key agencies is starting to affect the president’s ability to get things done

Trump’s Real Jobs Crisis

Positions requiring Senate conﬁrmation: ○ Filled ○ Empty*

June 26, 2017

○ France’s new Parliament convenes June 27

Treasury

Energy

Commerce

○○○○○○○○○○ ○○○○○○○○○○ ○○○○○○○○○○ ○

○○○○○○○○○○ ○○○○○○○○○○ ○○

○○○○○○○○○○ ○○○○○○○○○○ ○

*EXCLUDING U.S. ATTORNEYS, U.S. MARSHALS, AND U.S. AMBASSADORS. AS OF 6/20/2017. DATA: PARTNERSHIP FOR PUBLIC SERVICE

○ President Trump welcomes Indian Prime Minister Modi to the White House on June 26 and new South Korean President Moon on June 29

POLITICS

Bloomberg Businessweek

“My guess is there are more people now who are just not interested in being part of the chaos.” Personnel shortfalls have sometimes made for bad optics, such as during a recent meeting between Trump and top tech chief executive officers at the White House where key members of his American Technology Council were absent because they hadn’t been named yet. The lack of staff is also starting to impede the president’s ability to turn his campaign promises into policy, frustrating allies. The Coalitions for America, a think tank group of 25 conservative Republicans, sent a letter to White House Chief of Staff Reince Priebus on June 14 complaining about the staff shortage. “We remain very concerned over the lack of secondary and tertiary executive-level appointments,” it said. The White House says the pace of hiring is picking up. Trump has signed off on appointments for most of the top positions, but they can be announced only after lengthy FBI background checks and ethics reviews, according to a senior White House official who requested anonymity to speak about the process. Interviews are taking place for several other key positions, and Trump is approving 30 to 35 nominees each week, the official said. The delays have begun frustrating cabinet officials, who’ve had to operate with vacancies in key leadership positions. “It’s way too slow for my taste,” says Agriculture Secretary Sonny Perdue, who blames delays on government bureaucracy. “We have submitted names, and the White House has vetted these names and approved names or recommended them, but they cannot be submitted to the Senate until their FBI background checks are done and the Office of Government Ethics signs off on their ethics policy regarding them. That is taking exceedingly too long.” Business groups and lobbyists are also growing impatient, saying they often don’t know whom to contact in the administration about any number of issues. Because of the administration’s lack of personnel, American Airlines Inc. CEO Doug Parker says that U.S. airlines have struggled in their effort

to determine whether three Persian Gulf carriers are promoting unfair competition. “I think it’s well known that in many cases, their ability to handle a wide number of things is constrained somewhat by their ability to have staff,” he says. The vacancies also affect companies with pending mergers. The nation’s two main antitrust watchdogs, the Justice Department’s antitrust division and the Federal Trade Commission, are operating without permanent leadership. At the FTC, three of the five commissioner seats are vacant. Foreign investors’ acquisitions of U.S. companies are getting bogged down because the departments responsible for national security reviews are operating without the officials in charge of signing off on deals. Democrats haven’t made things easy, slowing down the confirmation process through procedural maneuvers. But the White House has been slow to fill positions that don’t need Senate confirmation, in part because of Trump’s demand for loyalty. The political office in the White House plays a role in hiring, and Republicans who spoke out against Trump during the campaign have mostly been blacklisted. Shermichael Singleton, who was hired as a senior adviser to Housing and Urban Development Secretary Ben Carson in January, says he was fired and escorted out of his office in February after the White House discovered some of his previous statements criticizing Trump. Singleton says the White House’s quest for ideological purity is hampering efforts to recruit top talent. “To want people to agree with you on everything is just ridiculous,” he says. “You should want people who are able to challenge you so that you are quite sure that whatever policy decisions you make are indeed the best possible positions.” Obama didn’t have such a requirement, says Don Gips, who served as personnel director for the previous president. “There was much more focus on whether they were loyal to the president’s policies,” he says. —Toluse Olorunnipa, with David McLaughlin, Alan Bjerga, and Mary Schlangenstein THE BOTTOM LINE Six months after taking office, President Trump has filled less than 10 percent of the more than 500 senior positions that require Senate confirmation.

State

Interior

Labor

○○○○○○○○○○ ○○○○○○○○○○ ○○○○○○○○○○ ○○○○○○○○○○ ○○○○○○○○○○ ○○○○○○○○○○ ○○○○

○○○○○○○○○○ ○○○○○○○

○○○○○○○○○○ ○○○○○○

June 26, 2017

“To want people to agree with you on everything is just ridiculous” 33

POLITICS

June 26, 2017

← With visa restrictions forcing the restaurant to close, business at the Pentagoet is way down

Why a Visa Crackdown Is Bad for Business

○ Without seasonal foreign workers, many small businesses can’t stay open

Kate Bridges should be waiting tables right now. She’s been a server at the lauded farm-to-table restaurant at the Pentagoet Inn in Castine, Maine, for six years, making enough during the summer season to carry her through the year. But in early June she was answering the phone at the inn, telling callers that the restaurant was closed for the foreseeable future. “We depend on that income,” she says. “If the restaurant doesn’t open, I don’t know exactly what I’ll do. But if we don’t have cooks, then we don’t have a restaurant.” The Pentagoet is the oldest continually running business in the tiny coastal community of Castine. Like a lot of seasonal businesses, it’s long relied on a federal program that provides temporary visas to low-skilled foreign workers. They come from all over the world, typically for six-month stretches, to take jobs that employers say they’re otherwise unable to fill. In the Pentagoet’s case, that’s meant six women from Jamaica (about a fifth of the total staff ) who work in housekeeping and in the kitchen. Some have come every year for almost a decade, but this year, because of changes to the H-2B visa program, they’re staying home. Congress failed to extend H-2B’s returning worker exemption when it expired in late 2016, reducing the number of visas by half, to 66,000 nationwide. Congress passed a measure this spring that would have doubled the number of visas available. But the Department of Homeland Security, which oversees the program, didn’t act. In an open hearing on

May 25, DHS Secretary John Kelly was asked about the delay by Senator Lisa Murkowski of Alaska, where the seasonal fishing industry relies on temporary workers. “This is one of those things that I really wish I didn’t have discretion over,” Kelly told Murkowski. He said his agency was still consulting with the Department of Labor and planning to release more visas, though he refused to say when or how many. “For every senator and congressman that has your view, I have another one that says, ‘Don’t you dare, this is about American jobs,’ ” he said. Many economists argue that rather than taking jobs from Americans, temporary workers support the creation of higher-paying positions for U.S. citizens. “I don’t think that people who talk about defending American jobs with this policy have ever looked into the economics of it,” says Giovanni Peri, chair of the economics department at the University of California at Davis. “They’ve never analyzed how local economies grow.” Peri says the low-skilled jobs that H-2B workers fill act as a complement to higher-wage management positions, and that when you reduce the supply of one type, you reduce the creation of the other. With the unemployment rate around 4 percent, he says the notion that Americans will fill these low-skilled positions is unrealistic. “I think this is one example in which the rhetoric is hitting reality,” he says. A 2010 report co-authored by the head of the Labor, Immigration and Employee Benefits division of the U.S. Chamber of Commerce states that “many

○ Research shows that adding 100 H-2B visa workers creates

464 jobs for U.S. citizens

PHOTOGRAPH BY CHRISTINE COLLINS FOR BLOOMBERG BUSINESSWEEK

DATA: SAUDI ARABIA GENERAL AUTHORITY FOR STATISTICS, VISION 2030

POLITICS

Bloomberg Businessweek

American businesses could not function without the H-2B program.” The report determined that 1 in 3 businesses would be forced to close or reduce operations if they couldn’t get H-2B workers. A 2011 study from the conservative American Enterprise Institute for Public Policy found that adding 100 H-2B workers would result in an increase of 464 jobs for Americans. “The particularly strong results for the H-2B program,” it notes, “may reflect that employers, who find the H-2B program expensive and bureaucratic, tend to reserve it for hard-to-fill jobs that are critical to expanding operations.” According to the H-2B Workforce Coalition, a lobbying group, the entire H-2B program represents less than one-tenth of one percent of all U.S. workers. In a June 14 letter to the Hill newspaper, its co-chairs argue that for industries that rely most on these workers—including seafood and meat processors, hotels, motels, golf clubs, and carnivals—visa holders do jobs that Americans simply won’t. “The reasons are many,” they write. “The work is often itinerant in nature. It is, by definition, temporary. And the work can be backbreaking.” Plus, the application process is costly and onerous. To be granted employees through the program, employers have to prove their need through a multistep procedure that involves three separate federal agencies and costs an estimated $2,500 per employee, not including the round-trip airfare and housing that they’re required to provide. Not every industry will be affected by this year’s shortage. Many employers whose seasons start earlier managed to make it in under the cap. President Trump’s Mar-a-Lago resort, for example, was approved for 64 H-2B workers late last year. Maine, meanwhile, is set to be hit so hard by the shortage that Republican Governor Paul LePage has conditionally commuted the sentences of a number of prisoners so that they can fill some of the needed positions. That’s not likely to help the Pentagoet back in Castine. The inn’s owners, Jack Burke and Julie Van de Graaf, say that including the costs of the newspaper ads they have to take out as part of the process, plus the $1,200 in monthly rent they’re paying on an apartment that’s sitting empty, they’ve already spent thousands of dollars they won’t get back. “What’s especially irksome now is, they’re changing the rules halfway through the game,” says Burke. Through mid-June, the Pentagoet has had to turn down at least one wedding, plus a number of big dinners. When people call to book a room and discover that the restaurant is closed, they often decide to stay elsewhere. Burke is trying to remain hopeful that the DHS will come through with the extra visas. But every day they don’t is money out of his pocket and another blow to the local economy. “I cannot survive without my restaurant,” he says. “This little town is being crippled.” —Jesse Ellison

Royal Visionary Meets Popular Pushback

THE BOTTOM LINE By not extending a key portion of the H-2B visa program for seasonal workers, Congress has robbed many businesses of a key source of labor that can’t easily be replaced.

June 26, 2017

○ As Saudi Arabia’s crown prince plans to Westernize, many cling to tradition

Gathered around food trucks off a busy highway in Riyadh, young Saudis kicked off a recent weekend with burgers and ice cream served by women covered head-to-toe in black as music muffled the din of generators. Normally a scene like this would be in violation of the country’s bans on music and sexes mixing in public. Yet as part of a grand plan to modernize Saudi Arabia, the royal family last year introduced a road map for the future called Vision 2030. Ostensibly intended to wean the economy off oil, the plan also calls for creation of a “vibrant society” with more female workers, sports clubs, and entertainment. Yet in a country where the teachings of an 18th century imam permeate every aspect of life, and where the Koran is the constitution, the reforms strike many Saudis as the kind of decadence they were warned about in schools and mosques. “They’re forcing women to do unnatural things, like selling to men,” says Abdullah, 35, a government worker moonlighting as a taxi driver who asked not to use his family name. “They want us to relax by listening to music. Who needs music when you have the Koran?” The 2030 plan is the brainchild of Prince Mohammed bin Salman, the powerful 31-year-old son of the king who on June 21 was promoted to crown prince, cementing his status as heir apparent to the throne and extinguishing any doubts over whether the kingdom would continue his reform agenda. Still, a year into bin Salman’s 2030 plan, there are signs that hard-line forces are successfully pushing back. After being stripped of their powers last year, the Saudi religious police who enforce Islamic code, or mutawa, are back cruising the streets and malls of Riyadh, ordering women to cover up. Saudi-backed satellite channels still broadcast ultrareligious messages. And while there was talk of opening movie theaters and reducing the time stores are required to close for the five daily prayers, such things have yet to happen. “The leadership in Saudi Arabia, even though there are some liberals among them, is still vulnerable to a potential backlash from the hard-line conservative elements,” says Nabeel Khoury, a former U.S. Department of State official who’s now a nonresident senior fellow at the Atlantic Council. “To take economic reforms to their logical conclusion, you need social and political reforms to fully liberate the energies of the population. That can only happen if you reform the religious establishment.”

○ Saudi Arabia’s population—one-third of whom are foreign nationals " Saudis: 20.1m Women 9.9m

Men 10.2m

Women 3.7m

Men 8.0m

Non-Saudi: 11.7m

○ Saudi unemployment rates, 2016 25% Among women: 23.6%

General unemployment rate: 12.1% Vision 2030 goal: 7%

Among men: 2.6% 0

Bloomberg Businessweek

That establishment is still entrenched. Grand Mufti Sheikh Abdulaziz bin Abdullah al-Sheikh, the country’s most senior religious leader, recently told a daily newspaper that some clerics and scholars were wrong to endorse music because it goes against Islamic teaching. “The implementation of the vision has created a kind of a shock, and the government should have prepared the public for it,” says Hatoon al-Fassi, a Saudi historian who teaches at Qatar University in Doha. “How can you teach that music, the genders mixing, and entertainment are Islamically banned and then put on a concert?” To cope with the collapse of oil prices, the government is seeking to replicate some of the economic success of its neighbors, including Dubai, which have prospered by opening up to the outside world. Cheap oil has also forced the kingdom to make deep cuts to domestic programs, including subsidies for fuel and electricity. Gas prices rose about 50 percent last year, making life harder for much of the country. Without economic revitalization, cultural changes strike many as superfluous. In interviews on the streets of Riyadh, several Saudi men say they can’t bear the thought of their wives going to the cinema or driving, and they oppose ending the mandatory closure of stores during prayer. Like so much of the local workforce, they’re all government employees and declined to give their names for fear of reprisals because of their opposition to the relaxation brought about by Vision 2030. “The kingdom, from its inception, has been conservative and not used to this,” says Mohammed, 30. “We need housing. We don’t need entertainment.” —Donna Abu-Nasr

her facility. Since August 2015, Trump entities have sent Ace checks for more than $21 million, Federal Election Commission records show. While Trump didn’t invent campaign swag, he used it as well as any candidate in recent memory— not only as a source of revenue but also to connect to voters and build a database of donors. Keeping an online store active between elections is crucial these days. “You build new supporters and you collect that data, so when you run for reelection you have a larger grass-roots organization,” says Steve Grubbs, who ran the online store for Senator Rand Paul’s 2016 presidential bid. “Even though the campaign is over, they have continuing costs that need to be covered.” Two years ago, Mahfouz, 39, was running a business on the verge of collapse, selling uniforms to oil and gas workers after the 2014 crash in oil prices. She was desperate to avoid bankruptcy. A devout Catholic, she says, “I turned to God and said, ‘Please help me.’ ” The answer to her prayers, it turns out, was Trump. In July 2015 she was watching his campaign announcement on TV and noticed people wearing campaign hats and T-shirts. She figured he’d need help in merchandising and put together a presentation complete with prototypes of hats and T-shirts and a mocked-up website. She also had the phone number for Eric Trump’s secretary, from the time she spent on the board of his charity foundation. A week later, Mahfouz was in Trump Tower, setting up her gear in a conference room and pitching Trump staffers. Eventually, Trump stopped by. He liked the website she’d built—and her pledge to make all the gear in the U.S. While Trump already had a manufacturer in California lined up for hats, Mahfouz promised she could find her own vendors to make items including yard signs, decals, and Christmas ornaments. Trump asked how long it would take to get the whole thing up and running. A week, she said. That was good enough. She hasn’t stopped hawking the swag since: Five months after he was sworn in, she was at a Trump rally in Iowa to sell more stuff. Under her agreement, Mahfouz gets reimbursed for shipping and handling costs for everything that goes through her facility, plus a fee, which she declines to disclose, on certain items. All sales are through the official Donald J. Trump online store and go directly to consumers; no other retailers are involved. The official red hat, still the best-seller, is $25. While foreign-made knockoffs go for less than half that, Mahfouz says true Trump fans want something American-made. During the campaign, she sent employees to rallies to set up official booths that were given prime locations. Still, plenty of business was lost to nonsanctioned sellers setting up in the parking lots. The Trump campaign has sent cease-and-desist letters to some sellers, but that hasn’t dried up the bootleg market. —John McCormick

THE BOTTOM LINE Without reforming its conservative religious establishment, Saudi Arabia’s efforts to modernize its economy will be met with internal resistance.

The Queen of Trump Swag ○ Meet the woman who runs the president’s official merchandise empire

By Christl Mahfouz’s accounting, the one-millionth official Donald Trump hat will ship this summer from her company’s warehouse in Lafayette, La. Ace Specialties Inc. is the official merchandise distributor for the Trump Make America Great Again Committee, a joint fundraising effort of the president’s campaign and the Republican National Committee. That means virtually every Trump-sanctioned hat, yard sign, button, or T-shirt in circulation has passed through

THE BOTTOM LINE Mahfouz, the only official distributor for Trump’s campaign gear, will soon sell the one-millionth official Trump ball cap.

June 26, 2017

○ Mahfouz

JOHN MCCORMICK

POLITICS

At Work With

U.S. Coast Guard Ice Patrol the International Convention for the Safety of Life at Sea that put in place safety regulations and also created the International Ice Patrol, which tracks icebergs and alerts passing ships to their presence. Why do you only patrol the North Atlantic?

Because it’s the only place in the world where the path of icebergs intersects with shipping lanes. We can track up to 10,000 icebergs in any one season. It takes one to three years from when an iceberg calves off a glacier to when it gets to our area. So how do you track an iceberg, anyway?

In 1913, when the Ice Patrol started, its ship would station itself near an iceberg and broadcast a signal out to all ships within range saying, “Hey, this is where the iceberg is.” Once the iceberg melted, they’d go on to the next one. After World War II we started using aircraft. For a long time it was mostly aerial photography. In the 1980s we started using radar. Something we’ve brought into play now is satellite imagery analysis. We’ve been working on it for decades, and it’s come to fruition just this year. Do you do this year-round?

PHOTOGRAPH BY CAROLL TAVERAS FOR BLOOMBERG BUSINESSWEEK

Gabrielle McGrath Age ○ 42

This is embarrassing, but I’ve never heard of the International Ice Patrol.

Industry ○ U.S. military

It’s a lesser-known entity to the U.S. Coast Guard. We’re at 17 people now. I joined in 2006 and have been commanding officer since 2013.

Location ○ Connecticut

And you what, patrol icebergs?

Job title ○ Commanding officer

Years at Coast Guard ○ 21

Following the Titanic disaster in 1912, several countries founded

February through July we fly. We’re typically in the air seven to nine hours a day, locating radar targets and collecting data. We find an iceberg and predict its path and deterioration based on factors including sea surface temperatures, wave heights, ocean drift. Once you find an iceberg in a shipping lane, what do you do? Can you get rid of it?

In the 1950s and ’60s we experimented with destroying icebergs by, say, placing bombs on them, but one large iceberg is easier to track than if you break it up into small pieces. So now we tend to leave them alone. We don’t do GPS tracking because as the iceberg melts, the tracking device will fall off. —Claire Suddath

Bloomberg Businessweek

June 26, 2017

For an individual, a job can be what deﬁnes you. For a corporation, a job can be just another cost to manage. For all of us, employment is a frame for understanding our time— from persistent inequality in the U.S. to the dangers of an automated China.

42 The Wage Gap 50 Who’s Most Vulnerable to Automation

58 Asia’s Abandoned Promises 60 Truckers Vs. Coders

54 Guerrillas For Hire 41

THE

J O B S ISSUE

Paid In Semi

Full

Lamb of Arjuna Capital

The gender wage gap is illogical and economically damagingâ&#x20AC;&#x201D; and not just to women. Some companies are actually trying to ďŹ x it. By Claire Suddath. Photographs by Laurel Golio

J O Bloomberg Businessweek

B S

June 26, 2017

At Citigroup Inc.’s annual meeting in New York City in April, after Chief Executive Officer Michael Corbat had summarized the company’s activities over the past year—1 million cardholders added! $23.6 billion in climate-change-reducing investments!—Citi Chairman Michael O’Neill gestured to two microphones placed in the audience and invited shareholders to speak. This was Natasha Lamb’s cue. She stepped to the mic. Lamb is a 34-year-old managing partner at the Boston investing company Arjuna Capital. Her investing philosophy at Arjuna, which calls itself an “enlightened” firm with a $200 million portfolio, is that environmental sustainability and social equality lead to long-term profitability. For the past year she’s been systematically submitting shareholder proposals on behalf of Arjuna’s clients, first to nine tech companies and then to six banks, asking them to analyze and make public any differences in the salaries of men and women they employ. The week after the Citigroup meeting, Lamb planned to make a similar presentation at American Express Co. The annual meetings of Bank of America, Wells Fargo, Mastercard, and JPMorgan Chase would soon follow. Shareholder proposals to Citigroup are limited to 500 words, and Lamb had only a few minutes to state her case. She started by reciting statistics: A study by the job-search website Glassdoor showed that even when accounting for education and experience, women in finance make about 6.4 percent less than men with the same jobs. At Citi, specifically, the crowdsourced compensation data company PayScale Inc. put that number at 6.1 percent. Would Citigroup prepare a public report on any pay gap the company may or may not have? Lamb had barely finished speaking when another shareholder, a retired budget officer from Ridgewood, N.J., named Russell Forenza, rose to announce his formal opposition to her idea. Forenza started with an anecdote about his daughter, who holds a degree in chemistry but teaches high school for a living and makes less money than she might otherwise. “Sometimes it’s personal decisions,” he said. “Or they leave and have children. That greatly affects their earning power. Men don’t have to do that, at least not yet.” Lamb responded to Forenza. “There’s a gender pay gap in our country that arises perhaps from ‘personal decisions,’ or having children and leaving the workforce. That’s one thing,” she said. “But the disclosure we’re looking for is like positions, like seniority.” She turned to O’Neill and continued. “Your U.K. peers are putting up the whole gap, saying, ‘We pay this much to men in our whole company, we pay this much to women, and there is a 30 percent gap.’ ” Lamb was referring to the British banks Virgin Money Holdings UK Plc and Schroders Plc, which had recently disclosed that men make 36 percent and 31 percent more money than women at their companies, respectively. But those figures represented the difference between median pay for all men and all women—and men, as is the case at most financial companies, held a disproportionate number of the highest-paying positions, while women tended to be grouped in lower positions. This is also true for Citi, where almost three-fourths of its administrative and clerical workers are women, a figure that’s remained unchanged for almost 20 years. “We’re not even asking you

to go that far,” Lamb said. “We’re asking for equal pay for equal work. What is the gap?” O’Neill said he didn’t see a point in conducting such a study. “The issue is, you want a number,” he said. “It is a simplistic way to address this problem. There are so many factors that make that one number not terribly relevant without a lot of analysis behind it.” “We’d be very pleased with multiple numbers and detailed analysis,” Lamb replied. But Citi didn’t want to offer that up either. When Lamb took her seat, the company asked stockholders to vote down her proposal. ver the past 50 years, women have achieved an astounding level of equality in the U.S. They have become astronauts and U.S. Supreme Court justices and have come so close to winning the presidency it’s easy to forget that until 1974 they couldn’t get a credit card unless a man co-signed the application. Women are the primary breadwinners in half of all U.S. families. They’re more likely to hold a bachelor’s or master’s degree than men, and should

J O Bloomberg Businessweek

they choose to marry, about a third of them will keep their last name. But one of the most intractable and measurable differences between women and men in the U.S. is the kind of jobs they hold and how much they’re paid. The most frequently cited ﬁgure when discussing this gender wage gap is that full-time working women in America earn roughly 80 percent of what men do. But that number, though true, doesn’t offer much insight into the underlying social and economic forces generating the inequality, nor why it’s remained relatively unchanged for the past 20 years. It also doesn’t explain how incredibly difficult it is to change the status quo. The current pay gap is a smaller, much narrower version of the one women have endured for generations. In the past, beliefs that women should be at home, or that they should be shielded from certain work, or doubts that they could perform jobs as well as men, led to discrimination in pay. In 1869 the U.S. Treasury employed 500 female clerks and paid them half the rate of men. Sometimes a world war would break out, and women would be allowed to hold jobs previously reserved for men; in 1918 the U.S. Employment Service published a list of what was considered acceptable “women’s work” (electric machine operator, automobile worker) during wartime. Labor McElhaney of the Center for Gender Equity & Leadership at Berkeley

B S

unions often lobbied, sometimes successfully, for women to be offered men’s salaries, so when returning soldiers took their jobs back—which they did—employers wouldn’t balk at suddenly having to offer them their old pay. Until now, the main attempts at narrowing the gap have come from state and federal governments. Last year the Obama administration mandated that companies with more than 100 employees report salary data broken down by race, ethnicity, and gender. A 2016 California law requires companies to justify why employees who do “substantially similar” work are paid differently. In Massachusetts companies can’t ask prospective employees about their salary history; the idea is that unjustifiably lower pay will carry over from job to job if new salaries are based on old ones. A similar law in New York City takes effect on Oct. 31. But legislation and executive action—not to mention enforcement—are subject to the whims of the controlling political party and can only do so much. California’s law can’t change this: According to a 2017 University of Southern California survey, only 4.2 percent of film directors are women. And despite President Obama’s support for equal pay, an American Enterprise Institute analysis found that the average pay for women in his administration was about 11 percent less than men’s. (The institute hasn’t run an analysis of the Trump administration.) If laws were a sufficient fix, none of this would be an issue, because gender discrimination at work has been illegal under the Equal Pay Act since 1963. here are two ways of looking at the wage gap. The first is to take a bird’s-eye view. The most significant reason women still make 80 percent of what men do is that they’re clustered into lower-paying fields, as seen at Citigroup. According to the Institute for Women’s Policy Research, of the 20 most common careers for men and women, only four overlap. In other words, men still work in primarily male-dominated fields and women in female-dominated ones. Roughly 79 percent of elementary and middle school teachers are women; 80 percent of software developers are men. Industries such as law and medicine are more mixed, but most secretaries and administrative assistants are still women (94 percent), and most electricians are men (97 percent). The traditionally male-dominated fields pay better—so much better, in fact, that a man with just a high school diploma is likely to make more money than a woman with some college education or even an associate’s degree. Salaries, of course, aren’t based on a set of immutable scientific facts. Are female-dominated occupations worth less to society? Are they easier to do? It’s true that electricians, who earn on average about $57,000 per year, according to the Bureau of Labor Statistics, need vocational training to ensure they can properly wire buildings. But anyone who’s struggled to find a good teacher to educate their child ($55,000, despite requiring a bachelor’s degree) or round-the-clock care for an elderly parent ($21,900) knows the value in that work and the skill required to do it well. Women aren’t earning less money solely because they pursue or are pushed into low-paying work. According to a 2009 study published in the academic journal Social Forces that looked at 50 years’ worth of U.S. Census Bureau income data, when a substantial number of women move into a field,

J O June 26, 2017

B S

as has happened in biology and design, the average wage drops for everyone in that field, men included. The opposite can be true, too. In the early days of computer science, when programming was considered a monotonous, low-level task akin to typing or filing, there were more women in the field, and the pay was much lower. Now that we think about it as a way to design the technological future, more men are entering computer science, and the pay has risen. The share of women pursuing degrees in the field has dropped from a high of 37 percent in 1984 to 18 percent today. Career clustering leads to an even wider pay discrepancy when the gap is broken down by race. For example, black and Hispanic women are more than twice as likely as white women to work in the service sector. As a result, they make about 63 percent and 57 percent of what white men do, respectively. (White men are still the largest subgroup in the labor force, so they’re often used as the default against which other race and gender combinations are measured.) According to employment data that Citigroup has provided to the U.S. government, about 60 percent of black women who work there are in administrative or clerical roles, a figure that has remained relatively constant since at least 1999. It’s often debated whether this segregation stems more from a lack of opportunity or outright discrimination—though considering the rising frequency with which blacks and Latinos are obtaining college degrees, it’s unlikely to be attributable to aptitude or preference. he second way to analyze the wage gap is to zoom T in on job-to-job differences in pay—what Lamb is pushing companies to disclose. Do men and women, working in the same job, with the same level of education and experience, make the same amount of money? You can slice women’s careers any number of ways—by industry, by specialty, by seniority level, sometimes even by company— but all too often the answer is no. A study published in July in JAMA Internal Medicine analyzed salaries of 10,000 physicians employed by medical schools and found that on average, women made $51,000 a year less than men. The difference wasn’t only because

fields such as gynecology and pediatrics, which are largely female, pay less (though they do). The gap also occurred within specific fields. Female orthopedic surgeons made $41,000 less than male orthopedic surgeons. The salaries of female oncologists were $38,000 less than those of male oncologists. And so on. This pattern isn’t unique to medicine. Last year, Glassdoor reported that even after accounting for age, experience level, and education, the average salary for a computer programmer drops 28 percent if that programmer is a woman. Most compensation gaps in comparable jobs aren’t that large; both Glassdoor and the nonprofit research company Catalyst Inc. estimate that across the U.S. economy, it’s only about 5 percent. Still, it’s a pretty consistent finding. And year after year, that lost 5 percent begins to add up. And that’s assuming the disparity doesn’t grow. According to the Census Bureau’s 2015 American Community Survey, women make almost the same as their male colleagues just out of college and when they are 22 to 27 (97 percent). Low-wage workers also make similar amounts because, as Randy Albelda, an economics professor at the University of Massachusetts at Boston, puts it, “those jobs are lousy for both men and women.” But the gap increases as women age and also as they advance into higher-paying careers. “When women start to have kids, it gets really obvious,” she says. A recent paper by the National Bureau of Economic Research that looked only at married men and women found that on average, college-educated men made about $355 per week more than college-educated women. Forenza, the shareholder who countered Lamb’s request for more salary transparency at Citi, might ascribe this whitecollar discrepancy to “personal decisions,” but for many women, it’s often not a choice that’s theirs to make. Childcare costs sometimes cause women to drop to part-time work or stagger their hours so they leave the office early and work from home at night when their children are in bed. A schedule shift theoretically shouldn’t affect one’s pay, but work done at home isn’t as visible, and therefore as appreciated, as that done in the office. It appears that women work fewer hours than men; according to the U.S. Department

Ten most common occupations by gender Weekly earnings ○ Men ○ Women Cleaners Stock clerks

Assemblers and fabricators Customer service representatives

Cooks

Retail salesmen Retail supervisors

$500

Sales representatives, wholesale and manufacturing

$1k

Secretaries and admin. assistants Cashiers Nursing and health aides

Accountants and auditors

$1.5k

Chief executives

$2k

Managers

Retail supervisors Customer service representatives

Managers

Office supervisors

Registered nurses

Elementary and middle school teachers

DATA: BUREAU OF LABOR STATISTICS

J O Bloomberg Businessweek

of Labor’s 2015 American Time Use Survey, for full-time workers, that difference amounts to 24 minutes per workday. Of course, most full-time workers aren’t paid hourly. Women aren’t working 24 fewer minutes per day because they’re less dedicated to their jobs. According to the survey, the extra time is going toward housework or child care, the majority of which, even in dual-income households, is still provided by the woman. In fact, as of last year, women were doing almost double the amount of cleaning, cooking, and child care as men.

t’s not easy to change something as complex and I ingrained as pay inequity. Doing so requires an overhaul of so many cultural norms—the factors that lead to career clustering, assumptions about how women should look and act, working parenthood as it relates to office hours and promotions— that sometimes it can feel out of any one person’s, or company’s, control. Still, some companies are trying—not out of some altruistic sense of doing the right thing (though their public-relations departments will often tell you that), but because in a country with a labor force that’s almost half women, it’s getting harder to ignore. And, companies are increasingly discovering, it makes financial sense. Fairness can be fruitful. Women make a disproportionate share of consumer decisions in the U.S. Boston Consulting Group estimates that they control about 65 percent, or $12 trillion, of the consumerspending market. That figure includes, along with single women and ones in same-sex relationships, the female halves of heterosexual partnerships, who are still more likely to do the daily household shopping. Women also make the majority of auto-purchase decisions. The country has already benefited from their increasing economic power: McKinsey & Co. estimates that about a third of the U.S. gross domestic product can be attributed to women’s increased participation in the labor force since the 1970s. Of course, that’s the macroeconomic view. On a more granular level, the experiences of Ida Tin, the Danish entrepreneur behind the period-tracking app Clue, highlight how financial opportunities can be missed in the absence of a diverse workforce. Tin started her first round of fundraising in 2012, pitching Clue to investors, who were usually men. “A lot of investors said, ‘I like investing in things that I can use myself.’ ” They had no need for a period-tracking app. In her first round, Tin raised only $56,000. Five years and 5 million users later, her last round brought in $20 million. Buffer, a 75-person social media management service, is aware that its homogeneous workforce still puts it at risk. “We had basically the typical tech company problem: the vast majority of men in engineering jobs and the vast majority of women in marketing and customer service jobs,” says Courtney Seiter, who holds the decidedly nonengineering title of director of people at Buffer. In 2013, Buffer decided to publicize its employees’ salaries, under the assumption that if everyone at the company knew what everyone else made, nobody would be treated unfairly. So the company was taken aback last year when an internal audit revealed that women made on average $9,500 less per year than men. “We just assumed that when we ran the numbers we’d see parity. We were very surprised when we didn’t,” Seiter says. A lot of Buffer’s gap stemmed from both the gendered clustering problem Seiter mentioned and the fact that men

B S

held most of the highest-paying positions at the company. At the time, Buffer hadn’t done much active recruiting, relying instead on employee referrals. But those were often— surprise—demographically similar to Buffer’s existing employees. To mitigate that, the company contacted organizations such as Women of Color in Tech and 20/20 Shift, a consulting and training startup that aims to help tech companies ﬁnd and hire more women and minorities. Buffer found a job-to-job gap, too. Salaries at the company are determined by a number of factors, including the somewhat arbitrary idea of experience level. “There was a lot of guessing on that one,” Seiter says. On the whole, managers tended to give less weight to women’s experience than men’s. She says Buffer couldn’t come up with a reason it was ranking women this way. “I can only say this anecdotally, but from my experience, men would be more likely to push back a little on how they were rated, and women said, ‘Oh, wherever you put me is ﬁne. I’ll just work hard, and you’ll notice me that way,’ ” she says. So Buffer scrapped its old evaluation system and created a method based on an employee’s clear, technical understanding of the company’s products. Buffer admits it still has work to do. Despite participating in one of 20/20 Shift’s classes—students designed social media campaigns for Buffer products—it’s yet to hire someone through the group. Buffer is still 77 percent white and 69 percent male (90 percent male in its tech department). It’s hired or promoted a few female executives and managers; one is even director of engineering. Now, at the managerial level or higher, women actually make more than their male counterparts. But because of the persistent clustering problem, the average man’s salary is $95,221—still $2,404 more than a woman’s. On a larger scale, the San Francisco-based cloudcomputing giant Salesforce.com Inc. has also struggled with a persistent wage gap. In 2015, on the advice of two female executives, Leyla Seka and Cindy Robbins, an unusually detailed analysis of its pay data found that about 6 percent of its employees, then about 1,020 people, were being inexplicably underpaid. The gap couldn’t be accounted for by the number of hours they worked, their education, seniority, or how good they were at their job. So Salesforce spent $3 million adjusting salaries to bring everyone up to par. This year it added race to its analysis and spent another $3 million adjusting the salaries of 11 percent of its employees. Salesforce says it needed to do this second rejiggering because last year it acquired 14 companies and their 7,000 employees, thus inheriting their preexisting pay gaps. When Salesforce delved into the reasons for these gaps, it found they often began during salary negotiations. “If your starting compensation is negotiated from your pay level at your previous company, how do you negotiate effectively based on that?” says Robbins, Salesforce’s executive vice president for global employee success. Salesforce has stopped the practice of pegging new hires’ salaries to their old ones. Buffer and Salesforce are relatively young companies that have been tackling the wage gap for only a few years. Corning Inc., the industrial glass and ceramics manufacturer in upstate New York, provides a rare opportunity to look at challenges over the long term. In 1985 an internal survey

J O B S

June 26, 2017

â&#x20AC;&#x153;But I think

there was

this idea that

for whatever

reason, this

is what 47

I was worthâ&#x20AC;?

Farmer, a senior director in software development

Seka (left) and Robbins, who led Salesforce’s pay-gap analysis

48 revealed that women were quitting the company at twice the rate of men. Corning was wasting $3.5 million a year on additional training and recruiting to replace them. In exit interviews, women said they were leaving Corning because they didn’t have opportunities to advance; at the time, almost all managers and executives were men. So the company put in place simple metrics to make sure women were promoted at the same rate as men. Some women also said they struggled to balance child care with a full-time job. In 1988, Corning started subsidizing day care, a practice it continues today. (The company underwrites the operating expenses for certain day care centers and allows employees to pay a sliding scale based on their income level.) Eventually, female attrition slowed. For years now, it’s been the same as men’s. In 2004, Corning made a push to hire more minorities and women by using Census Bureau employment data to determine what the gender and racial makeup of its applicant pool should look like for any open position. It then asked recruiting companies to send it an appropriately diverse set of applicants. It took a decade, but with this technique, the company has tripled its number of minorities. Corning, though, is part of a heavily male-dominated industry. Despite all its efforts, only a third of its North American workers are women. Still, those hiring and promotion metrics have ensured that 30 percent of its corporate officers and 37 percent of its managers are women (or minorities), too. Four years ago, Corning teamed with a consulting company that specializes in pay-gap analysis; it found a slight gap at 99.2 percent that seemed to coincide with women’s tendency to fall lower on the predetermined pay ranges for any given

job. “We worked on that for about three years and can now say we’re at 100 percent parity,” says Christy Pambianchi, vice president for human resources, who’s been with Corning since 2000. Her team runs its pay-gap analysis four times a year to avoid any large, retroactive adjustments. Achieving pay parity while also addressing clustering has required decades of persistence. Pambianchi likens it to an attempt to lose weight. “You can read magazine articles about how to lose 10 pounds; it’s pretty simple,” she says. “But doing it is a real challenge. You’re correcting long-held habits. Everything about this is hard.” ompanies that are motivated to make these kinds of changes, or at least talk about the problem, are the exception. For many women, even detecting the wage gap in the first place can seem like an act of subversion. “I only found out because someone slipped me an anonymous note in my mailbox with the names of three guys I worked with and their salaries,” says Lilly Ledbetter, who worked as a production supervisor at a Goodyear Tire & Rubber Co. plant in Alabama for almost 20 years before finding out she was earning 25 percent to 40 percent less than her male co-workers. “It wasn’t just the salary. The contributions to my 401(k) were tied to how much I made. My Social Security check is, too.” Ledbetter sued for back pay in 1999, but she ultimately lost because she hadn’t filed a complaint within 180 days of receiving her first unequal paycheck. Her case prompted Congress to pass the Lilly Ledbetter Fair Pay Act in 2009, which changed the 180-day rule so that it reset with every paycheck, extending workers’ ability to take action when they discover they’ve been underpaid. But they still have to uncover that discrimination on their own. “If I hadn’t received that anonymous note,” Ledbetter says, “I’d never have known.”

J O Bloomberg Businessweek

“I was involved in hiring, so I knew what people were making,” says Leah Farmer, who’s worked at Expedia Inc. and Amazon.com Inc. among other places and who now leads a software team at a large nonprofit hospital system. “Earlier in my career I thought, Maybe I’m just not ‘tech’ enough, or I’m young. I assumed it would eventually just get fixed.” Farmer says she received promotions and raises as her career progressed. But as she got older, the gap between what she made and what her male colleagues made widened. Farmer finally realized that someone working under her and with many fewer years of experience was making only $5,000 less a year than her. “I don’t think it was malicious, like, ‘Ha-ha, we can pay her less,’ ” she says, “but I think there was this idea that for whatever reason, this is what I was worth.” (Both Amazon and Expedia have publicly said that men and women in equivalent positions make the same amount of money.) A former vice president at the Disney Channel, who asked that her name be withheld because she signed a nondisclosure agreement and still works in Hollywood, says her first sense that something wasn’t right came when a man transferred to her department from another area of the company. “I received a call from HR, and in normal course of business, because he was now reporting to me, they said, ‘This is his salary,’ and I was like, ‘What?’ It was more than I was making,” she says. Her suspicions about the pay gap within the company were reinforced when she was promoted and offered a salary much lower than she knew was typical for the role. She grew more concerned when she promoted her assistant, a young Latina in her 20s, to be a coordinator for a television show. The woman happened to have a close male friend, also in his 20s, who received the same assistant-to-coordinator promotion on the same day. When they compared salaries, the female coordinator found hers was inexplicably lower than her friend’s. She brought it to Disney’s attention but says the company refused to change it. The female coordinator, who also asked that her name be withheld, had to find another job offer—which took about six months—before Disney bumped her salary up to her friend’s level. Disney declined to comment. ast year, when Arjuna Capital submitted shareholder L proposals at nine tech companies, seven of them issued press releases saying they had virtually no difference in pay between women and men in the same roles. (Six came forward voluntarily, and a 51 percent shareholder vote forced EBay Inc.’s hand.) Microsoft Corp. and Apple Inc. in particular made headlines for reporting that they’d achieved equal pay, though neither company acknowledged that fewer than a third of its employees were women. (At the executive level, the percentages drop into the teens.) Facebook Inc. wouldn’t provide Arjuna with a pay-gap number; on Equal Pay Day in April the company announced—on Facebook, naturally—that it had completed “thorough statistical analyses” and found that men and women earn “the same.” Lori Goler, vice president of people at Facebook, says the company has been running pay-gap analyses focusing on job-to-job comparisons since at least 2009 and double-checks them with a third party. Google Inc. remains silent. Last year it refused to supply the Department of Labor with the salary and employment data legally required of all federal contractors (Google, like

B S

June 26, 2017

many large companies, does business with the government), prompting the department to open an investigation that’s led to allegations of widespread gender discrimination in pay. “We found systemic compensation disparities against women pretty much across the entire workforce,” Janette Wipper, a Department of Labor regional director, testified in San Francisco court in April, the same month that Google put out a public statement claiming it had “closed the gender pay gap globally.” Google, which denied these accusations in court, declined to comment. “I’m highly suspicious of companies that do their own data analysis internally, because you can slice numbers any way you like,” says Kellie McElhaney, an associate adjunct professor and the founding director of the Center for Gender Equity & Leadership at the University of California at Berkeley’s Haas School of Business. She’s seen all manner of corporate foot-dragging: CEOs who hire her, then refuse to meet with her; companies who brag about achieving pay equality but don’t address clustering issues; male executives who are asked to oversee gender-related programs simply because they have working wives or daughters. “Don’t even get me started on the diversity speaker trail,” says Ariel Lopez, founder and CEO of 20/20 Shift. “I no longer want to be on panels, speaking about diversity. It’s the same thing over and over again. Everyone knows it’s a problem, so OK, what are your metrics? How many people do you need to hire to change this?” t Citigroup’s annual meeting in April, O’Neill repeatA edly emphasized the bank’s commitment to paying women and men the same. “We completely support the agenda,” he told Lamb. “But I don’t think there’s much point in beating a dead horse.” Lamb pushed him to explain why a company that claims to be committed to equality would be so reticent about checking to see if that equality really existed. “This has been wrapped up in a black box for so long, making it hard for women to see,” she said. Without specific numbers, everything women go through is just conjecture. A hunch. They needed the equivalent of Ledbetter’s anonymous note. “We just want to know what we’re dealing with,” Lamb said. O’Neill assured her that Citigroup ran its own internal pay analyses; it just didn’t want to make the results public. And the company won’t have to. When shareholder votes were tallied, 86 percent of them sided with Citigroup. At other banks, Arjuna’s equal pay proposals met the same fate. Lamb isn’t deterred. She says she’ll file the same proposals again next year, and she’s already in talks with several retail companies to see if they’ll release their numbers without the need for a formal shareholder proposal. In San Francisco, McElhaney has started borrowing tech companies’ preferred phrases to get her point across. A few months ago she gave a presentation to the cloud-based communications service Twilio Inc., which has grown from 90 to more than 800 people in only a few years but suffers from the same lack-of-women problem that the rest of Silicon Valley does. “One of their stated company values is something like, ‘We tackle hard problems,’ ” McElhaney says. “I told them, ‘OK, you pride yourself on solving unsolvable problems, disrupting things that need to be disrupted. Well, here’s a problem. Solve this. Disrupt this.’ ”

J O Bloomberg Businessweek

B S

How Scr wed Is Your Job? e

By Mark Whitehouse and Dorothy Gambrell With unemployment last measured at only 4.3 percent, the U.S. is approaching what economists consider “full employment,” a dreamed-of state where almost every worker who’s seeking a position has one and the remainder comprise the normal churn of people between gigs. Yet the national mood on jobs is edgy, even fearful. Last year, Donald Trump rode workers’ concerns about a decline in manufacturing and stagnant wages to the White House. And looking to the future, workers in ﬁelds from burger-frying to radiology are worried about a robot revolution. These graphics show the data behind this persistent angst—the sense that even when the economy is cooking, no one is truly safe.

Who’s felt the pain so far … This chart shows the U.S. industry sectors with the most job losses during seven time periods beginning in 1991. Box size represents annual averages.

Sector Manufacturing Retail Financial activities Information Construction Other

Number of jobs lost 5k 25k 50k

J O Bloomberg Businessweek

B S

1991–95

1996–2000

2001–05

2006–10

Don’t have a landline anymore? Neither do millions of other Americans, leading to 206,000 job losses over 27 years.

2011–15

2016

Month June 00, 26, 2017

2017 YTD

Aerospace

Apparel

Temps

Department stores

Mining support

Wired telecom

Savings institutions

Textile mills

Wired telecom

Building foundation and exterior contractors

Publishers

Medical underwriting

Department stores

Electronic instruments

Life insurance

Semiconductors and electronic components

Residential building

Vocational rehabilitation

Agricultural, construction, and mining machinery

Sports and music stores

Major retailers have announced about 3,000 store closings since the beginning of 2017. Apparel

Power generation

Motor vehicle parts

Professional organizations

Wireless telecom

Rail

Electronics stores

Textile mills

Building ﬁnishing contractors

Savings institutions

Publishers

Clothing stores

These yellow squares reﬂect the housing crisis. Not shown: those jobs rebounding in subsequent years. Commercial banking Miscellaneous nondurable goods

Computers and peripherals

Printing

Building equipment contractors

Other telecom

Department stores

Motor vehicle parts

Printing

Savings institutions

Publishers

Chemicals

A third of manufacturing jobs have vanished since 1980, down from 19 million to 12.4 million, even as output grows. Power generation Paper products

General merchandise stores

Semiconductors and electronic components Primary metals

New-car dealers

Life insurance

Primary metals

Spectator sports

Life insurance

Wood products

Clothing stores

Machine shops

Aerospace

Commercial banking

Primary metals Oil and gas extraction

CREDITS CREDITS CREDITS

Peak coal-mining employment was in 1923, at 863,000 workers. Today there are only about 51,000 such jobs—fewer than the 53,000 people who work as interior designers. Nonresidential building

Grocery stores Coal mining

Publishers

Coal mining

Printing

Bookstores and news dealers

DATA FOR 2017 ARE THROUGH APRIL, COMPARED WITH THE SAME PERIOD A YEAR EARLIER. SOURCE: BUREAU OF LABOR STATISTICS

J O Bloomberg Businessweek

B S

Physicians and surgeons

… And who might feel it next

CEOs

This chart plots the most common U.S. professions by wage and automation risk, as measured by researchers at the University of Oxford. Occupations on the left, with a lower probability of being replaced by technology, seem secure; those on the right, not so much.

Dentists

IT managers

Financial managers General managers

Lawyers Sales managers Pharmacists

All other managers

Specialized coders

Financial sales

Financial analysts

Electrical engineers

Physician assistants

Mechanical engineers

Management analysts

Coders

Civil engineers Business operation specialists

Sales supervisors, nonretail Postsecondary teachers Speech pathologists

Police/patrol officers

Secondary school teachers Office supervisors Elementary school teachers

Private investigators

Construction supervisors

Electricians

Plumbers, pipeﬁtters, steamﬁtters

Public relations

Fireﬁghters

Kindergarten teachers

Average annual income, all occupations

Chefs Coaches and scouts

Telecom line workers

Flight attendants Fitness trainers

Nurses (LPN & LVN) Retail supervisors

Preschool teachers

Hairdressers

Recreation workers

Child-care workers

Vehicle/ equipment cleaners

Paramedics

0 Probability

Court clerks

Medical assistants

0.2

← Least likely to be replaced by automation

Home health aides Packers

0.4

Merchandise displayers

J O June 26, 2017

B S

Average wage $200k Number of workers

Typical education level No formal education High school diploma (or equivalent) Postsecondary nondegree award Some college or associate degree Bachelorâ&#x20AC;&#x2122;s degree Advanced degree

100k 1m 2.5m

Financial advisers

Transportation managers

Cost estimators

Sales reps (wholesale, nontechnical) Dental hygienists

Market researchers

Aircraft technicians

Advertising sales agents

Customer service reps

$100k

Librarians Correctional officers

Computer support specialists

Automotive technicians

Teaching assistants

Painters

Retail sales

Insurance sales Paralegals

Claims adjusters

$49,630 Clerks

Legal secretaries Bookkeepers Telemarketers

Bartenders

Maids, housekeeping Lifeguards, ski patrol, etc.

Loan officers

Administrative assistants

Human resources assistants

Construction laborers

Janitors and cleaners Laundry and dry cleaning

Stock clerks

0.6

Executive assistants

Truck drivers

Machinists

Accountants and auditors

Real estate agents

Carpenters

Postal carriers

Security guards

Dishwashers Personal care aides

Miscellaneous agriculture

Freight/stock movers; miscellaneous laborers 0.8

Cashiers Waiters

Food prep

$0 1

Most likely to be replaced by automation â&#x2020;&#x2019; JOBS WITH MORE THAN 100K WORKERS. SOURCE: FREY & OSBORNE, BUREAU OF LABOR STATISTICS

Bloomberg Businessweek

J O B S

When the Résumé Reads: ‘GUERRILLA (1964-2016)’ Ex-rebels prepare to enter the workforce in postwar Colombia. By John Otis. Photographs by Carlos Saavedra

J O B S

June 26, 2017

Jereda picking pineapples at a plantation that employs former guerrillas

There are no guns in sight at a rebel camp in Guaviare, a state in south- central Colombia. Instead, some 500 former members of the Revolutionary Armed Forces of Colombia, or FARC, wear civilian clothes and pass the time playing soccer and volleyball, while they wait to be reintegrated into society. Several women among them—who while ﬁghting were forced to use birth control and have abortions—are pregnant or nursing newborns. Another ﬁrst: The ex-guerrillas are having to think about how they’ll earn a living now that they’ve laid down their weapons. Raul Andrés Ballesteros, 33, who dropped out of junior high to join the FARC, says he plans to study technology and become a systems engineer. Faisuri Mendoza, 29, a 10-year veteran and a member of the Cubeo Indian tribe, dreams of becoming an anthropologist. When Colombia’s government signed a peace treaty with the FARC

last fall, it meant more than an end to a 52-year conflict that left an estimated 220,000 people dead and forced more than 5 million civilians from their homes. It also meant 7,000 guerrillas would have a chance to disarm and enter the workforce. Whether Ballesteros, Mendoza, and the rest of their comrades find their bearings will go a long way toward determining the fate of Colombia’s peace process. Recruited as teenagers, many of the rebels are illiterate peasants who possess few skills beyond firing Kalashnikovs and patching up the wounded. Should they fail in their efforts to go back to school, find work, and organize a FARC-led political party— goals the Colombian government has pledged to support—they could once again return to the bush. Since the peace treaty was signed in September, more than 300 FARC guerrillas have broken ranks to form a dissident rebel group that’s attacking army troops and

shaking down business owners. The dismantling of the FARC’s war machine began in January, when its fighters moved to about two dozen camps on government-leased land, where they’re gradually disarming under the supervision of United Nations monitors. Once that process ﬁnishes later this summer, rebels who have cleared police background checks will be free to start their new lives. But like longtime inmates who view their prison walls as protection from an unsparing outside world, some of the rebels express trepidation about breaking free. For them the FARC has been a surrogate family, providing food, clothing, shelter, protection, companionship, and a sense of purpose. Individual enterprise and ambition—keys to success in the capitalist world—were frowned upon in the FARC. Asked about their postwar plans, several teenage rebels in Guaviare say they will do whatever their comandantes order.

J O B S

Bloomberg Businessweek

Unlike rebels who turned against the FARC and individually made up their minds to desert—a risky decision since those who were caught were often executed—these FARC fighters are disarming en masse because they’ve been told to. Just the thought of striking off on her own brings tears to the eyes of a 37-year-old rebel who goes by the nom de guerre Sofía Nariño. She’s spent two decades in the guerrilla army and identifies with the cause to such a degree that she plans to use her FARC name when she’s issued a government ID card. But after the peace treaty was signed and she ventured with UN personnel to Bogotá for a medical emergency, she felt odd without her AK-47 and frustrated around civilians who badmouthed the FARC. “Colombian society is not prepared to receive us,” she says. “We know that we will be rejected.” The FARC financed its half-century insurgency through kidnappings, extortion, and drug trafficking. Many Colombians would rather see ex-guerrillas

Nariño, who spent two decades in the FARC, is bracing for rejection

Cleaning up at a demobilization camp in Guaviare state

A training program arms ex-rebels with shears

The peace accord has triggered a FARC baby boom

behind bars than behind store counters or classroom desks, which is why voters narrowly rejected the peace treaty in a referendum last October. Congress ratified the accord, with some minor modifications, a month later. Enrique Lozada enlisted with the FARC at 17 because he was jobless and saw no future for himself, but after 11 years of fighting, he grew disillusioned and decided to flee. He walked four days and nights through the jungle, eluding poisonous snakes and rebel search parties. Lozada (his nom de guerre) insists that breaking out of the FARC was easy compared with breaking back into Colombian society. When he settled down in the

eastern Colombian town of Yopal, he was treated like an unrepentant mobster, he says. Employers tossed out his résumé once a background check revealed that he’d been a member of an outlawed organization. Banks blocked his efforts to open an account. Eventually, Lozada, 41, used a loan from his brother to open a small lumberyard. “They are in for a big shock,” he says of the FARC ﬁghters today, “because coming out of the jungle is very disorienting.” Still, Colombia has had a lot of practice at turning warriors into civilians. With vast gaps between rich and poor, the country has over several decades given rise to an alphabet soup of guerrilla groups, including the M-19, the ELN, and the EPL. Over the past 30 years, government aid—including housing, education, and jobs programs—has helped thousands of irregulars to disarm. “A lot of people ask, ‘What’s going to happen to all of these FARC people who are demobilizing?’ ” Colombian President Juan

J O B S

June 26, 2017

Many of the guerrillas were recruited as children and have no schooling or work skills

Manuel Santos said in a March speech. “They forget that we have already demobilized 59,000 fighters.” But not all have turned into productive members of society. Government officials celebrate high-profile figures such as Gustavo Petro, a former M-19 guerrilla who served in the Colombian senate, was elected mayor of Bogotá in 2011, and is now considering a run for president. They are less likely to mention how thousands of paramilitaries who turned in their weapons in the mid-2000s went on to form drug trafficking gangs. “That’s why it’s the responsibility of all of Colombians to generate opportunities and make this work,” says Miguel Suárez, a top official at the Reincorporation and Normalization Agency, or ARN, the government body that receives newly demobilized fighters. For ex-fighters, the ARN offers

counseling, because many suffer from post-traumatic stress disorder. It also runs high school equivalency programs, job training seminars, and shelters that serve as halfway houses; in addition, the agency provides seed money to start small businesses, such as bodegas and barbershops. The average demobilization process takes six years and costs about $13,000 per ex-ﬁghter. Hundreds of Colombian businesses are contributing to the effort—even though they were long targeted by the guerrillas, who kidnapped company executives and demanded extortion payments. Coltabaco S.A.S., the country’s largest tobacco company, has spent $15 million on minimarkets and tobacco plantations that employ former guerrillas as well as members of the paramilitary death squads that were the rebels’ archenemies. “We have to cooperate so that these people don’t return to a life of crime,” says Humberto Mora, Coltabaco’s vice president. “We are

not doing this simply out of altruism. This is also a form of self-protection.” But managing successful aid programs can be more complicated than waging war, and many projects have floundered. A glaring example is a pineapple farm in eastern Casanare state run for the past six years by former paramilitary and FARC rebels. Because of bureaucratic snafus, land disputes, and a lack of funding, just 1 of the farm’s 635 acres is under cultivation. On a recent afternoon, the plantation was desolate except for a few farmhands who trudged into the field with machetes and filled a wheelbarrow with pineapples. Among them was Pastor Jereda, who spent 13 years in the FARC before deserting in 2004. Back then, only a dribble of rebels was emerging from the wilderness. But the peace treaty is now producing a flood, and Jereda isn’t sure Colombia is ready. “If the government couldn’t handle us,” he says, “how is it going to handle 7,000 guerrillas?”

S B Bloomberg Businessweek

June 26, 2017

The Asian Jobs Ladder Is Broken 58

An economic model that’s organized an entire hemisphere for decades could be coming to an abrupt end By Kevin Hamlin and Dexter Roberts Thirty minutes by car into the scrubby desert outside Korla, in China’s remote Xinjiang region, a textile manufacturer owned by Jinsheng Group is building its latest factory complex. Inside the 16 billion-yuan ($2.4 billion) facility—a collection of stark white warehouses surrounded by an enormous expanse of pristine artificial grass—are rows of huge cotton spools, more than a million bright red and blue spindles, and almost no people. A few German engineers wander around, making sure the equipment runs at peak efficiency. This is the depopulated future of an industry that’s lifted millions of Asians out of poverty. Jinsheng’s factory covers almost 15 million square feet, more than five times the floor area of the Empire State Building, but it needs only a few hundred production workers for each shift. “Textiles used to be a labor-intensive industry,” said Pan Xueping, the chairman and chief executive officer, in a September speech in Urumqi, Xinjiang’s capital. “We are at a turning point.” Instead of moving production to whatever nearby country has the lowest wages, he added in an interview a day after the speech, “the industry can achieve a human-free factory.” Pan’s company is at the vanguard of a trend that could have devastating consequences for Asia’s poorest nations. Low-cost manufacturing of clothes, shoes, and the like was the first rung on the economic ladder that Japan, South Korea, China, and other countries used to climb out of poverty after World War II.

For decades that process followed a familiar pattern: As the economies of the early movers shifted into more sophisticated industries such as electronics, poorer countries took their place in textiles, offering the cheap labor that low-tech factories traditionally required. Manufacturers got inexpensive goods to ship to Walmarts and Tescos around the world, and poor countries were able to provide mass industrial employment for the first time, giving citizens an alternative to toiling on farms. Today, Bangladesh, Cambodia, and Myanmar are in the early stages of climbing that ladder—but automation threatens to block their ascent. Instead of opening well-staffed factories in these countries, Chinese companies that need to expand are building robot-heavy facilities at home. “The window is closing on emerging nations,” says Cai Fang, a demographer in Beijing who advises the Chinese government on labor policy. “They will not have the opportunity that China had in the past.” The transformation looks like it will happen fast. The International Labor Organization (ILO) estimates that mass replacement of less-skilled workers by robots could be only two years away. Overall, more than 80 percent of garment industry workers in Southeast Asia face a high risk of losing their jobs to automation, according to Chang Jaehee, an ILO researcher who studies advanced manufacturing. Chang recalls presenting her findings to a government official in a country in the region that she declines to name. The official’s response? If she’s right, the result could be civil unrest. Until recently, even as robots took over much of the manufacturing of larger goods such as cars and jet engines, the prospect of applying automation to towel-weaving or dress-stitching looked like a long shot. Sewing clothes is a delicate undertaking. Making a seemingly simple dress shirt with a breast pocket can require 78 separate steps, and machines that can match the dexterity of human fingers are still a costly rarity. What’s more, tech entrepreneurs had little incentive to design automated systems for a low-margin industry with ample access to cheap labor and little cash to spend on sophisticated gear. These factors have led to complacency in parts of the textile industry. “Today, there is no equipment that can make these handmade products,” says Sahil Dhamija, whose Sahil International produces bathmats and bed linens for export at a factory in Panipat, India, that employs about 500 people. He spoke at the Canton Fair, a trade conference in Guangzhou, China, in May. Dhamija might want to visit Atlanta. A group of Georgia Tech engineering and robotics professors founded a startup called SoftWear Automation there in 2007, with the goal of overcoming the difficulties machines have in picking up flexible fabric and pinpointing where to stitch and cut. SoftWear’s first prototype took seven years to develop, sustained in part by a $1.75 million grant from the Defense Advanced Research Projects Agency, a Pentagon group that pushes bleeding-edge development. In 2015 the company made the first sales of its invention, the Sewbot, to customers in the U.S. Revenue last year rose 1,000 percent, and it’s on track to do the same in 2017, according to CEO Palaniswamy “Raj” Rajan. The breakthrough was as much about vision as touch; before SoftWear’s robots could make clothes accurately, they needed to learn to see garments as a collection of fine folds and details, rather than undifferentiated blobs of fabric. For now, the Sewbot can handle products including towels, mattress covers, and

S B O

Finance, services

Internet industries JAPAN SINGAPORE HONG KONG Cars, computers CHINA SOUTH KOREA TAIWAN

Steel MALAYSIA THAILAND Textiles

Automation

INDONESIA PHILIPPINES VIETNAM

BANGLADESH CAMBODIA MYANMAR pillows, which require 10 steps or fewer to produce. But the company is at work on upgraded machines that can create T-shirts and eventually more complicated garments such as jeans and dress shirts. The ultimate goal, Rajan says, is “full automation, from a roll of material to ﬁnished product.” He says he has preliminary interest from clients in China, South Korea, Japan, and other countries across Asia. As automation accelerates, it’s not just Asia that could see its industrial trajectory affected. If the cost of labor is no longer a major factor, there’s no reason manufacturers can’t relocate production to where the bulk of their customers are: North America and Europe, where wages for decades have been too high to support textile production. Remove most of the workers from the equation, along with the costs and delays of roundthe-world shipping, and making clothes or shoes in Dallas or

Düsseldorf instead of Dhaka starts to look like a compelling idea. German sportswear giant Adidas AG moved some shoe production to a highly automated “speedfactory” in its hometown of Ansbach that’s scheduled to begin large-scale operations this year. The company plans to open a similar plant in the U.S. In May, China’s Shandong Ruyi Technology Group Co., the owner of luxury brands such as Sandro and Maje, announced that it would invest $410 million in a textile plant in Forrest City, Ark. “Automation essentially levels the playing field,” says Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. “What emerges is a giant strategic game, in which individual governments will seek to attract industries to set up shop locally.” The losers are likely to be poor countries that were counting on large-scale manufacturing employment to build prosperity. As wages rose in China, Transit Luggage Co., a suitcase maker based in the southern city of Dongguan, explored two options: moving production to low-wage Vietnam or investing in automation at home. Executives chose the latter. One robot now matches the output of about 30 workers making soft luggage, says sales manager Yang Yuanping. As a result, she says, the company employs fewer workers than it did a decade ago, while producing three times as many items. Even that pace of production is no guarantee of survival in a fast-innovating industry. Yang has begun to worry about competition from Poland and the Czech Republic, as automation allows European countries to compete on price for the first time. “We have to think about how we can beat them,” she says. “We know they will get the machines.” —With Jason Clenfield and Bloomberg News

Changing

Bloomberg Businessweek

J O

At the self-driving freight startup Starsky Robotics, truckers work alongside the coders who are trying to eliminate their jobs By Max Chafkin and Josh Eidelson Photographs by Damien Maloney

B S

June 26, 2017

Lanes

J O

A prototype control center allows truckers to drive big rigs from anywhere

Just before Stefan Seltz-Axmacher offers a job to an engineer at Starsky Robotics Inc., a driverless trucking startup in San Francisco, he gives them the talk. This is a company that employs truck drivers, is how the talk begins. The coders are sometimes taken aback—this differs from the usual change-the-world spiel deployed in hiring meetings. Truckers have very different ideas and different experiences from people like you, Seltz-Axmacher continues. Statistically speaking, many of them are Trump voters. They will say things that you may ﬁnd startling. Not in a malicious way, but because people from, say, rural West Virginia talk differently than people from San Francisco. Can you handle that?

“Not everybody can,” Seltz-Axmacher says over beers in Fort Lauderdale, where Starsky does some of its testing. “And that’s OK.” Most driverless vehicle operations, including those at Ford Motor Co. and Alphabet Inc.’s Waymo, are focused on developing cars or trucks that operate with no human oversight at all, or “level 4 autonomy.” The idea is that a passenger could safely take a nap, send a text, or tie one on while the software worries about the road, but that kind of freedom could be decades away. Seltz-Axmacher, Starsky’s co-founder and chief executive officer, is attempting something that’s both more modest and, potentially, more disruptive to U.S. employment. His company

B Bloomberg Businessweek

J O

has designed an artiﬁcial intelligence system for big-rig trucks that makes them mostly self-sufficient on highways, and then, when it’s time to exit onto local roads, allows them to be taken over and driven from a remote operations center. The plan is to eventually employ dozens of drivers, each of whom will keep an eye on a few trucks at once, sitting before arrays of monitors livestreaming views of windshields and mirrors. The company’s name is a reference to a CB radio slang term for when drivers work in teams—that is, like the title characters of the 1970s TV series Starsky & Hutch. Most of Starsky’s AI rivals are focusing exclusively on research, logging as many miles and as much performance data as possible. Seltz-Axmacher’s trucks are still in beta, too— but they’re already earning revenue, carrying containers full of goods along U.S. highways. While the remote-control system develops, two Starsky employees ride in each cab: a software engineer in the passenger seat, keeping an eye on the algorithms, and a truck driver behind the wheel. This proximity is why there’s a second talk. We hire truckers, Seltz-Axmacher tells prospective drivers right before offering them a job. But we also have a lot of engineers in Silicon Valley. Everything you’ve heard about San Francisco—it’s all basically true. There is something called raw denim, and in San Francisco people wear it, which means that some of your colleagues will pay up to $300 for a pair of blue jeans. They sometimes drink $7 lattes, too. Many of your co-workers will not be from the U.S. They will have accents. Can you handle that? The drivers all say yes, but really, not everyone can. Since Starsky’s founding in 2015, Seltz-Axmacher has parted ways with two of the eight drivers he’s hired. One used an anti-gay slur to refer to a fellow driver, which worried Seltz-Axmacher because Starsky headquarters is on Folsom Street—home to the Folsom Street Fair, the famous leather festival held every September. “His ﬁrst day was Wednesday, and his last day was Thursday,” Seltz-Axmacher says. “Mixing blue-collar workers with people who have postdocs is hard.” Economically speaking—that is, in the most brutal terms— truckers are disposable. Almost anyone can become a professional driver with a month or so of training, and most don’t stick around for long; median pay is about $40,000

“His ﬁrst day was Wednesday, and his last day was Thursday.

per year, and the work is often unhealthy, painful, and lonely. Software engineers, on the other hand, are some of the bestpaid, hardest-to-hire employees in the modern economy. The variety that Seltz-Axmacher employs—specialists in AI and machine learning—are even better paid and even harder to hire. Google has been known to pay its self-driving car engineers millions or even tens of millions. Starsky’s coders don’t make that much, but the point remains: In its cabs, side by side, are representatives of some of the most and least promising careers in America. Starsky’s offices have high ceilings and two dozen open-plan desks. It’s not fancy—the furniture is cheap, the carpets look old, and the coffee comes out of plastic pods—but the company’s engineers come from some of the world’s top research universities, including Carnegie Mellon, Stanford, and the University of California at Berkeley. Of the six truckers on staff, one or two are usually in San Francisco, and the rest are on the highway. “We basically have people from two worlds, neither of which has ever talked to each other,” says Seltz-Axmacher, who grew up in suburban Maryland. “That’s kind of what’s wrong with this country.” His hope is that Starsky, by employing truckers who oversee trucks from offices and work alongside engineers, can help bridge the divide. Of course, Starsky is a for-proﬁt business, not a truth and reconciliation commission. It’s one of a handful of companies trying to seize a piece of the trucking industry’s $700 billion in annual revenue. Starsky has raised $5 million in seed capital from, among others, Y Combinator, the Silicon Valley venture fund and incubator. Its competitors include Embark, which is also backed by Y Combinator, and Otto, a startup that raised no outside capital and had fewer than 100 employees when Uber Technologies Inc. acquired it for $700 million. (Otto is the subject of a lawsuit that claims its co-founder stole technology from Alphabet, Google’s parent.) A fourth company, Peloton Technology, has raised $78 million to pursue adding some autonomous capabilities to conventional trucks. There are also self-driving big-rig programs inside Alphabet, Tesla, Volvo, and Daimler. All of these companies want to avoid alarming truckers, their employers, and regulators. But if any of them succeed, they will drastically reshape the labor market in one of the country’s most important industries.

B J O

hree and a half million Americans drive trucks for T a living, making it one of the most common jobs in America. The larger trucking economy—including cargo brokers, truck manufacturers, truck stop waitresses, and so on—accounts for an additional 4 million jobs, according to the American Trucking Associations (ATA), a trade group. A huge proportion of them are threatened by a decade of driverless research coming out of universities and Silicon Valley companies. A truck traveling hundreds of miles to make a delivery represents an almost ideal application for the latest autonomous driving technologies. Long-haul truckers spend much of their time on interstate highways, where curves are gentle, lanes are well-defined, and pedestrians and bicycles—the bane of any AI vehicle engineer—are prohibited. Trucks are big and heavy, so they’re easier to outfit with special sensors needed to control them. All of this has caused trucking to be seen by automation experts, and in the popular press, as a test case for the impact of AI on employment. If a lot of long-haul truckers lose their jobs, then maybe lawyers and accountants—whose work is often repetitive—should be worried, too. But a major difference between trucking and those fields is that it’s a job few Americans seem to actually want to do. Truck tonnage—the weight of freight carried—is up by more than 30 percent in the U.S. since 2009, according to the ATA, while the industry’s labor force has grown by about 10 percent. The trade group has estimated there are 48,000 open jobs, a figure that’s expected to more than triple over the next decade. “It’s just more and more demand on the industry, and fewer people coming into it to drive the trucks,” says Chris Spear, the ATA’s CEO. Federal law limits truckers to 70 driving hours over eight consecutive days. But because drivers are paid by the mile rather than the hour, many fudge their time sheets to drive more hours. On a good day, an entry-level driver might make about $15 an hour. On a bad day—one spent in traffic or sitting in a port waiting for paperwork—he might make just a few dollars an hour. Drivers generally spend several weeks on the road at a time, sleeping in their cabs at rest areas. They gain weight and get lonely. The annualized turnover rate among drivers at large “truckload fleets” is 71 percent, the ATA says. “Most people who Naming the trucks is a work in progress

Mixing bluecollar workers with people who have postdocs is hard”

June 26, 2017

try it out decide, given the pay and the conditions, it’s not a very good job,” says Stephen Burks, an economist at the University of Minnesota at Morris and a former trucker himself. “People are voting with their feet.” Many of us, when we think of trucking, don’t see the industry this way. We think of freedom and the open road. We think of Convoy, the novelty country song that made it to No. 1 on the Billboard pop chart in 1976, or of Smokey and the Bandit, which would have been the nation’s highest-grossing film of 1977 if not for Star Wars. We think of a job that’s necessary and steeped in Americana. Whatever truth these ideas once possessed has faded. The union-friendly rules that once helped make trucking a wellpaid blue-collar job were dismantled by a series of reforms, culminating when Jimmy Carter signed the Motor Carrier Act and deregulated the industry in 1980. Membership in the mighty Teamsters union plummeted, and the short, regular routes that allowed truckers to go home most nights were replaced by a system in which truckers are treated a lot like Uber drivers. “The amount that they’re getting paid per mile is really a small fraction of what they were getting,” says Michael Belzer, an economist at Wayne State University and a former driver who wrote a book on the industry called Sweatshops on Wheels. “It’s not an exaggeration at this point to suggest that it’s half the pay.” Thanks in part to the advent of mundane technologies, such as automatic transmissions, that make driving easier to learn, the industry has moved away from employing career truckers and toward a model of paying little more than minimum wage and constantly replacing the drivers the industry churns out. Commercial licensing schools charge about $5,000 for a five-week course, but trucking companies will advance applicants the fees and then deduct the tuition from the new hire’s salary. “There’s a shortage, in part, because the industry wants it,” says Steve Viscelli, a sociologist at the University of Pennsylvania who studies the industry. “It’s cheaper and easier to manage the problem through high turnover.” This has turned trucking into a kind of economic safety valve—work you do when you’re out of options. The industry puts a more positive spin on this. “There’s a lot of pride that goes into moving the nation’s freight,” says Spear. But in a 2015 video produced by the ATA, the group’s chief economist Bob Costello suggested lowering the interstate truck driving age, currently 21, as a way to better compete for young people who would otherwise choose military service. “Often it’s a job of last resort,” he acknowledged. In other words, it’s pretty much the opposite of being a coder. eady?” Jeff Runions, a Starsky truck driver, is sitting in the front seat of Buster, a late-model Freightliner Cascadia that Starsky leases and has modded out with cameras and sensors. He glances at Kevin Keogh, an Irish-born AI specialist who previously worked at Jaguar Land Rover and who’s been tapping out a few last-minute adjustments to the Starsky code while Runions does the driving. “Good when you are.” Runions flips a blue switch on a little panel bolted onto the center console. “All right,” he says. “She’s hot.” Runions cautiously takes his hands off the wheel and slides his foot off

B Bloomberg Businessweek

J O

the accelerator. We are just west of Fort Lauderdale, cruising up Florida’s Highway 27 on a windy morning in late May, with the Everglades stretching out on either side. Runions says we’re near a stretch of road truckers call “Alligator Alley,” and sure enough we soon see an enormous dead gator on the shoulder. Starsky is testing in other states, but Florida is an attractive proving ground, because it’s especially relaxed about driverless vehicles. Unlike Nevada and California, for example, Florida doesn’t require a special permit to conduct tests on public roads, or any additional insurance, or even a human being behind the wheel, as long as a licensed driver is “operating” the vehicle by remote control. Nevada laws are written so the state could allow remote-control driving in the future; in Florida, any licensed driver can do it today without asking permission, which is exactly what Starsky intends to do later this year. In the meantime, there are still lots of problems to solve— like wind. Not long into our drive, a gust hits our left side, and the truck lurches toward the shoulder; the wheel turns left, overcorrecting and sending us drifting into the next lane. The experience is terrifying, although Runions and Keogh seem unfazed. “It’s got to adjust, that’s all,” Runions says, explaining that the combination of wind and weight—today’s load is 20 tons, more than in other tests—represents a novel challenge. He keeps his hand on the blue switch and his eyes on his side mirror to make sure we don’t cut off anyone. He looks tense, but the truck ﬁnds the right lane after a few seconds. Keogh says everything is normal. Starsky’s software is written to determine how hard the wind is blowing, he says, and then to steer against the wind and stay in the lane. But early on in a session, the computer isn’t fully calibrated yet. Runions offers a comparison: “You know how you are in the morning before you have your coffee?” A few minutes later, he and Keogh seem comfortable, cracking jokes about the size of the alligators near the farm where Keogh grew up in Ireland. At another point, Keogh says, “I think we’ve zoned in on the correct control parameters.” “Have you, now?” Runions shoots back, and then adds, “I’m learning to speak Irish.” The two men have a good rapport, but they couldn’t be more different. Keogh is 27, graduated from Dublin’s prestigious Trinity College, and got a master’s degree studying robotics. Runions, who has a shaved head and a salt-andpepper goatee, is 58 and didn’t graduate high school. When asked how he got into long-haul trucking, he responds instantly. “White Line Fever,” he says, without taking his eyes off the road. “Watch that movie.” In the ﬁlm, Carrol Jo “CJ” Hummer leads a strike against an abusive transportation conglomerate, Glass House, that culminates when CJ drives a bullet-riddled truck straight into corporate headquarters, a literal glass house, and is shot in the face. Runions had a rough childhood. He grew up in the foster care system in Wrigleyville, in Chicago, back when it was a bad neighborhood. He partied a lot, got into trouble, and then, at 16, got kicked out of the house. “I’ve been on my own since then,” he says. He took a job doing construction work in Savannah, Ga., and eventually found his way to a job at Great Dane, the trailer manufacturer. Runions started driving full time in 1979 and eventually married a truck driver—he and his wife, Marlene, met at a

truck stop in Atlanta in 1999—and has had pretty much every job you can have in the business. “It sucks,” he says about life on the road. “I was gone 21 days a month. If you stayed here for a couple days, you’d know what I’m talking about.” He barely saw Marlene and put on 75 pounds. Starsky pays its truckers about $55,000 per year and gives them beneﬁts and stock. Runions, as the company’s top driver, earns more and has fairly sane hours. He sleeps in his own bed, in a small house outside of Jacksonville, most nights. “Some people are really negative” about driverless trucks, says Runions, who read about Starsky’s technology and applied for the job online. “Then you tell them they’re going to have 40 hours a week instead of being gone all the time. People think you’re taking their jobs, but you’re not.” Seltz-Axmacher, who is watching us from the back of the cab, nods in agreement. He envisions climate-controlled “driver centers,” in towns like Jacksonville, where people like Runions will work regular shifts in front of computers, without the greasy food or loneliness that has traditionally gone along with being a trucker. Starsky, he believes, has “the ability to make 3.5 million people’s lives a lot better.” Not everyone agrees, of course. In May, drivers for Airgas Inc., which distributes industrial gases, went on strike in part because of a proposed contract provision that could allow the company, a subsidiary of the Paris-based Air Liquide, to use autonomous trucks. And in New York City, the unionbacked group New York Communities for Change is mounting a campaign to urge the federal Department of Transportation to cease all funding for autonomous vehicle research until

B J O

June 26, 2017

Marie Porter, a member of Starsky’s small driver crew One of Starsky’s semiautonomous trucks Jeff Runions, head driver for the company

a plan is put in place to protect any displaced drivers. If Silicon Valley companies aren’t forced to consider what happens to today’s drivers, “we will all lose our jobs,” says Rolando Perdono, one of the activists. “We won’t have anything to hold on to.” Perdono, 45, was born in the Dominican Republic. His English isn’t great, he didn’t make it through high school, and he has five kids to support. He’s been behind a wheel since he came to the U.S. 16 years ago and currently works as a local delivery driver for a cleaning-supply company. Perdono doesn’t love what he does for a living and would be game to be trained for a job working with driverless trucks. But in the meantime he argues that his current job is worth defending. “Being a driver is what I know,” he says. “That’s what I like about it.” here are three schools of thought about the long-term effects of AI on employment. The first argues that advances in robotics will lead to improvements in productivity similar to those that occurred after other inventions— such as sewing machines, combine tractors, and washing machines, which freed up workers to do less repetitive (and better-paid) labor. The second school worries that the same technologies will require so few jobs that they’ll create a permanent underclass. The third school argues that it’s all hype and the advances are decades away. Most people in Silicon Valley subscribe to either the first or second school. Much of the rest of the country, including many truckers, favor the third. “I can tell the difference between a dead porcupine and a dead raccoon, and I know

I can hit a raccoon, but if I hit a porcupine, I’m going to lose all the tires on the truck on that side,” says Tom George, a veteran driver who now trains other Teamsters for the union’s Washington-Idaho AGC Training Trust. “It will take a long time and a lot of software to program that competence into a computer.” The raccoon-porcupine divide is one of many in which computers may not work particularly well. But that doesn’t mean a system couldn’t be designed that would allow trucks to drive themselves most of the time. Viscelli, the University of Pennsylvania expert, says self-driving trucks will hit the road “in a matter of single-digit years,” and believes that they’ll allow the industry to eventually shed a few hundred thousand jobs. Seltz-Axmacher acknowledges that companies such as his could ultimately make traditional trucking jobs a thing of the past, and he’s not sure what he or anyone else should do about it, beyond trying to be decent to the workers he employs now. He’s been reading about universal basic income—the idea, popular in techie circles, of simply paying everyone enough to live on. But ultimately, Seltz-Axmacher believes, the tools he’s developing will be good for truckers. He cites a new book by Garry Kasparov, Deep Thinking, in which the chess great observes that middling chess players who play with the help of a standard computer are reliably better than either grandmasters or supercomputers by themselves. “I think humans and technology working together are always going to be better than either one alone,” Seltz-Axmacher says. “But maybe that’s just because I like humans.”

THE UNDISCOVERED FRANK LLOYD WRIGHT

P U R S U I T S 70 Which sports car is right for you? 72 The hardest workout in New York 73 Five cult whiskeys to try 74 A new Broadway production of 1984 75 An essential all-in-one kitchen gadget

PHOTOGRAPH BY HANS NAMUTH/GETTY IMAGES

76 The woman taking on the restaurant industry

Recent changes at his namesake foundation and school, plus a sage new museum exhibit, put a necessary twist on an iconâ&#x20AC;&#x2122;s legacy By Paul Goldberger

Bloomberg Businessweek June 26, 2017

The architect in 1958

Edited by Emma Rosenblum

June 26, 2017

From top: A model of the Guggenheim Museum, New York, 1943-59; model of St. Mark’s Tower, an unbuilt project in New York, 1927-31;

sk most people to name an architect, and cathedrals in his nursery and gave him wooden Froebel blocks they’ll probably say Frank Lloyd Wright. The to play with. He first became known for his prairie houses, 20th century American master is famous not low-slung structures that stretched out under wide roofs, and just for his beloved works, such as the auda- throughout his career he made much of the claim that he was cious, spiraling Guggenheim Museum and the creating a genuinely American variety of modernist architecture, cantilevered Fallingwater, which still attract different from the stark white boxes springing up in Europe. hordes of tourists, but also for his forceful As the exhibition shows, however, Wright was also interested personality, equal parts William Jennings in ornament, ecosystems, experimental farming, low-cost preBryan and Pablo Picasso. fabricated houses, and education for black children in the rural For many years after his death, at 91, in South, among other things. The organizers, true to the exhibi1959, the students at Wright’s school and the leaders of his foun- tion’s name, asked various scholars to delve into the archive. dation tried to stick to a very strict interpretation of his singular Each filled a room at MoMA with objects that shed light on one vision, revering the long-gone architect as an almost godlike aspect of Wright they felt was little understood. figure. Ironically, these attempts to protect his legacy He is generally thought of as a discordant mix of have damaged it—limiting the ways Wright could be political conservative and aesthetic radical. The open, studied and keeping his ideas from expanding and endless landscapes of the Great Plains that inspired influencing the future. the powerful and elegant forms of his prairie houses But a remarkable new exhibition at New York’s also led him to a political belief in what might Museum of Modern Art aims to change all of that. now be called American exceptionalism. Unlike Taking advantage of a broad collection of personal the European modernists, who were motivated and professional records that by a utopian, socialist impulse, was transferred from his founWright believed radical architecdation jointly to MoMA and the tural forms were not intended a sketch Wright made for his Plan for Greater Baghdad, 1957; to overturn the old order but Avery Architectural & Fine Arts to give it a uniquely American Library at Columbia in 2012, the spin, which is why even the show offers a glorious bounty of Wrightiana. “Frank Lloyd Wright most daring Wright houses often at 150: Unpacking the Archive” contain such traditional symbols consists of almost 400 works, as a central hearth. many of them never displayed But as the Davidson Little publicly, chosen to show that Farms Unit in the exhibition Wright’s long career, as multishows, Wright’s relationship dimensional and accomplished to politics could be pragmatic, as that of almost any architect too. Commissioned during the in history, was richer and more Depression by Walter Davidson, a complex than even admiring friend and client of Wright’s from critics knew. Buffalo, the all-but-forgotten Organizer Barry Bergdoll, project was Davidson’s attempt curator of architecture and design to invent a new model for susat MoMA, along with museum tainable agriculture at a time researcher Jennifer Gray, have when many local farmers were included many classic Wright going bankrupt. He asked Wright projects, such as Fallingwater, to design a structure that could Unity Temple, the Imperial Hotel combine stables, greenhouses, in Tokyo, and the unbuilt mileliving quarters, and a produce high skyscraper he designed in market. The architect not only 1956 for Chicago. But the majorobliged, he and Davidson tried ity of the drawings, objects, hard to interest the Roosevelt models, and photographs that administration in supporting fill the galleries will be new to the prototype as part of the most visitors. Bergdoll and Gray New Deal. are showing us surprising sides of Although their efforts came the architect, demonstrating that to naught, Wright used many of the arrival of the archive in New the ideas he’d developed with Davidson in his plans for the York makes possible a fresh age vast, decentralized Broadacre in Wright scholarship. Wright, who was born in City, a later and far better-known Wisconsin, was famously encourproject. This was a carefully aged to become an architect by plotted mix of agriculture, small his mother, who hung pictures of residences, and the occasional stained-glass design by Eugene Masselink for Wright’s Annunciation Greek Orthodox Church in Wauwatosa, Wis., 1955-61

Bloomberg Pursuits

THE FRANK LLOYD WRIGHT FOUNDATION ARCHIVES (THE MUSEUM OF MODERN ART | AVERY ARCHITECTURAL & FINE ARTS LIBRARY, COLUMBIA UNIVERSITY, NEW YORK) © 2017 FRANK LLOYD WRIGHT FOUNDATION, SCOTTSDALE, ARIZ. ALL RIGHTS RESERVED; HEDRICH

CULTURE

June 26, 2017

Farms Unit, 1932-33

tower, putting elements of city, suburb, and country together into demolished by a developer who a new pattern designed for the wanted to replace it with several automobile. Never built, it’s probMcMansions. A local businessably the most ambitious attempt man, Zach Rawling, bought the ever made by an architect to turn house in 2012, restored it, and suburban sprawl into a positive. then turned it over to the school Wright loved to rail against the for use as a learning center. traditional city—the Manhattan Visiting a Frank Lloyd Wright skyline “is a great monument to building can be more appealing power and greed,” he told Mike than living in one, and many of Wallace in an interview in 1957. the private houses the architect “I don’t see any ideas in any designed have suffered over the of it.” But that was the public years. For a long time they had Wright, who took pleasure in a reputation as being leaky and playing to the American tendifficult to maintain, hard to live dency to see cities as dangerous in and even harder to sell. Still, and corrupt, and the countryside the Chicago Tribune reported in as virtuous and pure. Here, too, 2015 that Wright houses in the the reality was more nuanced, as Chicago area, most of which the MoMA exhibition displays. In were designed 100 or more years 1926, Wright prepared a remarkago and had often been laggards able plan for several blocks in on the market, were selling central Chicago that envisioned faster and at higher prices than in the past. While there may be multiple towers in a tight pinwheel arrangement, maximizing an uptick in interest, finding buyers prepared to live with light and air but retaining a traditional feeling of urban density. the intense architectural presAnd while he managed to get ence of a Wright house can still only one small skyscraper built be a challenge. Architect magain his long career—the exquizine reported this month that site Price Tower, in Bartlesville, of five Wright houses across the Okla., shown in a large, breathcountry up for sale in the past takingly beautiful model—he year, only one had actually sold. foresaw the trend toward mixedThis included the George D. Tokyo’s Imperial Hotel, 1922-23; a model of the Davidson Little use towers combining resiSturges House in Los Angeles, a dences, offices, and shopping, well-known 1939 home that had now an urban staple. been owned by the actor Jack After Wright’s death, his widow, Olgivanna Lloyd Larson, whose estate tried to sell it at auction but Wright, oversaw the Wright legacy with such rigor found no takers. A century and a half after the architect’s birth, that the architects who continued his practice under there seem to be more Wright books, exhibitions, the name of Taliesin Associated Architects had to get her approval for their increasingly banal versions and tours than ever. He would probably have of the architect’s work. By 2012 the school associated relished these signs of his continued life. As Bergdoll with Taliesin was in danger of losing its accreditation, notes in the catalog of the exhibition, Wright may have and his archive was decaying, little used, in the bowels of been the first architect to know how to successfully exploit the Frank Lloyd Wright Foundation in Scottsdale, Ariz. media fame, beginning with his appearance on the cover of This led to the foundation’s decision five years ago to trans- Time in 1938 and continuing through several appearances in fer the archive, and that open spirit has spread to the school. the 1950s on shows such as What’s My Line? He was 89 when A new dean, Aaron Betsky, successfully negotiated indepen- he conceived of the Illinois, that mile-high tower, a project dence from the foundation earlier this year, maintaining the “for which he had no client, confirmed site, or sign of interschool’s accreditation and broadening its teachings beyond est,” Bergdoll writes. At its unveiling, “television cameras were Wright’s own ideas. on hand to record for future broadcast the story, which had The renamed School of Architecture at Taliesin seems been planted and building in the press for months,” he says. poised for a turnaround. It just “Wright and architecture had, for many Americans, become received the gift of the David and Gladys Wright House in nearby synonymous.” Frank Lloyd Wright Phoenix, designed by the archiat 150: Unpacking the Archive, $25 tect for one of his sons in 1952. for adults; New York Museum of Empty and derelict, it was almost Modern Art through Oct. 1 From top: Wright in New York in 1953; inside the Unity Temple sanctuary in Oak Park, Ill., 1965;

BLESSING COLLECTION/CHICAGO HISTORY MUSEUM/GETTY IMAGES (UNITY TEMPLE); JULIAN KRAKOWIAK JAPAN/ALAMY (IMPERIAL HOTEL)

CULTURE

DRIVE

Bloomberg Pursuits

June 26, 2017

Three for the Road Testing a trio of top sports coupes to ﬁnd the best in style, handling, speed, and comfort. Here’s how they stack up By Hannah Elliott

PORSCHE 911 The Porsche 911 Carrera S Cabriolet, with its 420-horsepower rearmounted six-cylinder engine, connects to the road unlike any other model in the group. The rear-wheel drive and torque vectoring (which transfers power to each 20-inch wheel) create such a firm grip, you feel like you could drive up a wall. It’s an impression boosted by Porsche’s excellent paddle-shift technology, which is ultraresponsive and smooth as the Winner

Carrera slips through its seven gears. luxury is restrained, with three perfectly (Much of this technology is available round gauges stacked behind the steeron the Cayenne and Macan SUVs, too, ing wheel. The buttons on the center which have outpaced the 911 in sales—last console are minimalist and intuitive, and the dashboard is clean year Porsche sold about 9,000 911s, compared with more Porsche 911 S Cabriolet and elegantly slim. than 15,000 Cayennes.) With track-proven techPrice $144,805 The exterior design of the Engine nology, including active sus6-cylinder Carrera, largely unchanged Horsepower 420 pension management and since the model was intro- Zero to 60 mph 4.3 sec. dynamic stability control, Torque 368 lb.-ft. you get the most for your duced in 1963, is relatively Weight 3,373 lb. modest. Likewise, the interior Top speed 190 mph money among these three.

STILL FROM DRIVE VIDEO BY MATT GOLDMAN FOR BLOOMBERG PURSUITS

The 20-inch Carrera S wheels have flashy red fixed-caliper brakes

DRIVE

Bloomberg Pursuits

June 26, 2017

MERCEDES-AMG GT S and more fun than any other car in Mercedes-Benz’s bad-boy halo car is the brand’s excellent fleet, with its designed to invoke fond feelings for 503- horsepower bi-turbo V8 engine. the brand’s glorious gull-wing SL from Driving it feels as if you’re steering a sleek the 1960s. With its protrudrocket ship—one that isn’t paring snout, the car practi- Mercedes-Benz AMG GT ticularly meant to turn while cally begs for attention from in flight. It’ll fishtail forward Price $170,210 young, new Mercedes shop- Engine if you punch the gas on a slick V8 pers, though so far not many Horsepower 503 road, and in the rain, the AMG are buying. Fewer than 1,300 Zero to 60 mph 3.7 sec. GT S can hydroplane with the Torque 479 lb.-ft. have sold per year. best of them. That this beast Weight 3,627 lb. The AMG GT S is faster Top speed is more than 250 pounds 193 mph

heavier and 2 inches longer than the less expensive Porsche 911 means that cornering is not tight, either. Inside, it has round dials through the center and the dash. The extras, such as carbon-fiber trim and carefully stitched leather seats, exhibit a visual emphasis on quality. The crash-avoidance and traction- and stability-control technologies, plus a state-of-the-art entertainment system, are impressive—the most advanced of the bunch.

You’ll like the AMG’s seats, with deep buckets, power memory adjustment, and three-stage heating

An adaptive dynamics system analyzes acceleration, cornering, and braking and then adjusts the suspension, transmission, and damping

JAG UA R F - T Y P E S V R This is the two-door coupe Jaguar introduced in 2013 to get back into the luxury performance game. It’s been quite a success; more than 4,000 were sold last year, outpacing sales of the Audi R8, the Acura NSX, the AMG GT S, and similar models. The SVR is a performance version of the $61,400 base F-Type; the souped-up model we tested has a supercharged V8 and tweaks such as a light titanium exhaust system to reach its price tag.

The first thing that impresses about and brakes feels abrupt and powerful. the F-Type SVR is the brawny exterior But the interior trimmings fall short: styling. The second is the starting The leather on the seats could be howl of the engine. With 575 horse- suppler, and the stitching seems gaudy. power, it’s more powerful The smartly arranged dashthan both the 911 and the Jaguar F-Type SVR board is a little better, with AMG GT S, and it also has air vents that automatically Price $126,945 better torque: 516 pound- Engine rise in accordance with the V8 feet of thrust on the heaviest Horsepower 575 climate control. Remember car in the group. The driving Zero to 60 mph 3.5 sec. the F-Type SVR is a trackTorque 516 lb.-ft. experience feels the most Weight inspired car, and it’s a good 3,759 lb. raw, too—punching the gas Top speed 200 mph deal for the power you get.

FITNESS

Bloomberg Pursuits

June 26, 2017

There’s No ‘I’ in Tone House It’s 20 minutes into my lunch break, and I’m already drenched is my second time here, which is actually worse,” says one of in sweat. I’m at Tone House, a three-year-old fitness studio, and my teammates. “Because now I know what I’m getting into.” my class of 16 people is racing to see who has the fastest 40-yard The workout itself is not that radical. It’s based on high“gallop”—think running but in a downward-facing-dog position. intensity interval training, which, unlike distance running or Tone House is the brainchild of Alonzo Wilson, a former cycling, demands short bursts of activity, usually for less than college football player who developed his workout philoso- a minute. My class is mostly leg work—sprints, jumps, squats, phy training NBA stars and the occasional Sports Illustrated and burpees, with short breaks in between. We gulp some air swimsuit model. It has two locations, both in New York: One and swallow some water, and our heart rate drops a bit. Then is tucked into a formerly nondescript block near Madison we spike it again with the next exercise. HIIT workouts are Square Park, and the other, which opened in March, is on very much in vogue, whether at high-end gyms like Equinox the Upper East Side. An hourlong session or specialty boutiques such as the Fhitting runs $40; the 50-class MVP pass, a yearlong Room, where a one-hour session costs about BA I L O N T H E N E X T membership that gives you priority booking, the same as at Tone House. WO R KO U T, A N D goes for $2,000. Think of Tone House as a supremely YO U ’ R E L E T T I N G Designed to appeal to former athletes devoted CrossFit group: If you bail on the next yearning to relive their high school glory workout, you’re not just letting yourself down, D OW N T H E T E A M days, the studio takes its cues from team you’re letting the team down. Everything is sports. “Leave your ego at the door,” reads the motto on the a race or a relay. We line up, one after the other, as if in some entrance. “It’s game time.” After checking in, I head downstairs demented army boot camp, and run through ladders laid on to the locker room, where ESPN is playing on a giant screen the turf, then jump over obstacles and drop into a pushup, all in the sort of lounge area that’s become common in the big while trying to keep up with the person in front and not be overleagues. My “teammates” and I gather there to get fired up. taken by the person behind. Coaches shout positive reinforceThere’s even a countdown clock to the time we’ll all be sum- ment throughout and goad us to do the same for one another, moned upstairs to huddle, introduce ourselves, and meet the though we usually manage only grunts and weak fist bumps. “coaches” on what they call “the turf,” artificial grass painted Before heading back to our jobs in Midtown Manhattan skyblack, with a giant Tone House logo in the center. scrapers, we mingle briefly in the co-ed lounge, enjoying that Bleachers line both sides like a football field, and workout distinct postworkout afterglow. If SoulCycle is pedaling with staples such as cones and rope ladders are scattered about. candles and intentions, Tone House is gasping with high-fives The studio is big and dark, and the theme song from Halloween and attaboys. The hardest workout in the city might also be the plays over the speakers, layering on the levels of dread. “This friendliest. 32 E. 31st St., New York; tonehouse.com

PHOTOGRAPH BY CHRISTAAN FELBER FOR BLOOMBERG BUSINESSWEEK

New York’s hottest—and hardest—workout taps into adults’ nostalgia for team sports By Jason Kelly

DRINKS

Bloomberg g Pursuitss

June 26, 2017

2. SONOMA COUNTY RYE WHISKEY $65

In the heart of California wine country, this fledgling distillery, founded in 2010, uses a recipe uncommon among American whiskeys: 100 percent rye, with no corn or barley. It’s double-distilled in traditional copper pot stills over a direct fire and aged in new, American oak barrels for at least a year, then blended with whiskeys as much as two years old. With notes of fig, it tastes great on its own or as a base for a Sazerac.

2 3

3. WILLETT POT STILL RESERVE $82

Willett rye is the one that most often gets compared to Pappy, and it’s now similarly scarce. Willett bourbon is a great alternative. The distillery in Bardstown, Ky., has been making whiskey since 1936, and this one—which comes in a bottle shaped like a pot still— was released in 2008. It’s got a fresh, fruity nose, and despite its high alcohol content (47 percent, vs. the usual 40 percent), it’s remarkably gentle. 4. OLD WELLER ANTIQUE 107 $30

PHOTOGRAPH BY VICTOR PRADO FOR BLOOMBERG BUSINESSWEEK

1. HILLROCK ESTATE SINGLE MALT WHISKEY $100

American Spirits Can’t snag a bottle of Pappy Van Winkle? Forget about it. Five other U.S. whiskeys deserve their own cult status By John deBary

The Hudson Valley distillery, led by real estate investment banker Jeff Baker and former Maker’s Mark master distiller Dave Pickerell, has created a single malt in hopes of rivaling the best Scotch across the pond. This gently peated whiskey comes from grain grown exclusively on Hillrock’s estate and distilled in a custom 250-gallon copper still. If you want something with more spice, try the brand’s solera bourbon, which uses a technique that borrows from sherry production; the liquid is then stored in oloroso casks. Enjoy it with a little bit of ice.

Rumor has it that this bottle is the exact same recipe as Pappy’s—a plausible fact considering that Julian “Pappy” Van Winkle, the originator of the Van Winkle recipe, got his start working for Weller a little more than 100 years ago. The bourbon is also made in the same distillery as Pappy’s, and with similar amounts of wheat in the recipe. Big, bold, complex, and oaky—it’s a great value if you can find it. 5. BRECKENRIDGE BLEND OF STRAIGHT BOURBON WHISKEYS $52

It used to be a shameful secret for U.S. distilleries to reveal they had “sourced” their whiskey—meaning the bourbon was bought already made. But this Colorado distillery bucks tradition and declares right on the label that the bottle blends liquors from Kentucky, Tennessee, and Indiana. The bourbon has a grassy, vegetal quality that finishes with pleasantly bitter coffee notes.

Bloomberg Pursuits

Dystopia, Now Playing 74

An electrifying stage production of 1984 joins The Handmaid’s Tale in turning our anxiety into entertainment. By Jason Zinoman

In the ongoing culture war between artists and our ex-reality-TVstar president, it’s surprising that theater, that famously fragile and fusty art form, has been the tip of the spear. Less than two weeks after Donald Trump was elected, a cast member of the musical Hamilton delivered a message of concern from the stage to Mike Pence. Never one to ignore a slight, Trump tweeted that the theater must be “a safe and special place.” A half-year later, the Public Theater, which originally produced that blockbuster, mounted a production of Julius Caesar in Central Park that imagined the doomed title character as an impulsive leader with flamboyant yellow hair and a Slavic wife. Several corporate sponsors, including Delta Air Lines Inc. and Bank of America Corp., dropped out, and protesters interrupted the show on multiple nights. Yet the most forceful theatrical response to the administration is now on Broadway, with a nerve-jangling adaptation of George Orwell’s classic novel 1984, which just opened at the Hudson Theatre. This harrowing production stages what might be the most famous picture of a totalitarian future, one that’s penetrated the lexicon (“Big Brother,” “double-think”) and subconscious of generations of readers because of its vision of perpetual war, constant surveillance, and state-sponsored lies. The show opened in London several years ago in the wake of the National Security Agency leaks from Edward Snowden. It transferred to Broadway with a new cast only after Kellyanne

June 26, 2017

Conway described some demonstrable falsehoods told by Sean Spicer, the White House press secretary, as “alternative facts.” Her comment catapulted Orwell’s book to the top of Amazon.com Inc.’s best-seller list. (When it reached No. 1, the publisher, Penguin Random House LLC, ordered 75,000 additional copies printed.) The play is an assault of flashing lights, rumbling noise, and skillfully staged violence that makes the elaborate series of stabbings in Julius Caesar look like mild atmospherics. Using a horror movie vocabulary—there’s even a creepy little girl singing nursery rhymes—the virtuosic production makes the dark implications of out-of-control state power feel urgent and real. Its running time is 101 minutes—a nod to Room 101, a part of Orwell’s perversely named Ministry of Love, where prisoners confront their worst fears. The viscerally gruesome scene inside this torture chamber operates like a rejoinder to Trump’s tweet: This theater isn’t offering anyone a safe space. The Trump administration has been dynamite for dystopia. A stylish adaptation of Margaret Atwood’s The Handmaid’s Tale, that bracing fable that imagines a theocracy where women are forced to live as concubines, was Hulu LLC’s most-watched premiere in its history. A second season is on order. (The book’s sales have also soared; Penguin has ordered 150,000 new copies printed.) Because 1984 also focuses on a protagonist, Winston Smith (Tom Sturridge), constrained by a repressive government, it faces a similar challenge: how to dramatize the inner life of a character not allowed to voice his anger in public. The Handmaid’s Tale finds fertile meaning in whispers and glances and makes its hero more active than the novel does. Using a different tactic, 1984 blurs the line between real and fantasy, giving us peeks into Winston’s dream life, including imagined scenes shown on a large onstage video screen. Anchoring the play is the romance between Winston and Julia, a rambunctiously vivid Olivia Wilde, two conspirators against the totalitarian party. The play communicates clearly that the inability to settle on mutually agreed-upon facts—a baseline of reality—helps the powerful and hurts anyone trying to fight against them. While this production of 1984 was inspired by fears of Trump, it has more to say about dissent than leadership. The most striking contemporary echoes are the debates between Winston and Julia over the best way to fight back against Big Brother. She responds to his fury by complaining about always having to focus on the actions of their unhinged leaders, arguing that quiet moments of personal happiness counter a repressive state. And while the last half hour of the show is an exercise in building tension, the audience chuckles when a character says the people won’t revolt because they’re too preoccupied “looking at their screens.” The most radical departure from the novel is a framing device that takes place in the future, when Big Brother is no more. A group of friends even talk about the events of the book as if they didn’t happen. Yet the production still ends on a chilling note, one that’s both in keeping with the world Orwell creates while resolutely refusing to send the audience home with an adrenaline rush of hope. This is a play with a message for the darkest of times: No matter what you do, resistance is futile. Tickets from $35; at Hudson Theatre, 139 W. 44th St., New York

ILLUSTRATION BY CARI VANDER YACHT

CRITIC

THE ONE

Bloomberg Pursuits

June 26, 2017

THE CHARACTERISTICS

THE COMPETITION

THE CASE

All-Clad Metalcrafters LLC is a Pennsylvaniabased cookware manufacturer of copper, stainless steel, and nonstick pots and pans. The company is part of the French global kitchen appliance conglomerate Groupe SEB, which this year introduced the Prep & Cook. The machine can weigh, cook, chop, crush, emulsify, whip, mix, steam, blend, grate, and knead. It has 12 speeds, 1,400 watts, and 15,000 RPMs to blend and process food, plus a heating element that can be set in 10-degree increments to warm the contents of its 4.7-quart stainless steel bowl from 90F to 270F. Along with buttons for speed and temperature, it offers a halfdozen preset cycles for sauces, soups, pastries, desserts, simmering, and steaming, for which a stainless steel basket is included.

The gadget arms race means that appliance companies promise less work with every invention, whether an $80 Instant Pot, a $150 Cuisinart food processor, or $600 juicers from Smeg. The do-it-all category is still relatively new to the American market, but it’s wellestablished in Asia and in Europe, where the Thermomix, which pioneered the category in the 1960s, remains the best-known brand. It relaunched in the U.S. last year with the TM5, a $1,850 web-connected appliance that makes from-scratch dishes a cinch for even the most timid cook. With a list price of $999.95, the Prep & Cook stakes out a modest price point in this group, tailoring its appeal to the cook who wants style and power without overpaying for digital hand-holding.

The machine lives up to its name. It comes with four blades: a food processor-style “ultra blade” for fine chopping, another for kneading dough and crushing ice, and two plastic blades for stirring and whipping. It finely chops onions for a chili recipe in one minute, then handily crushes frozen banana chunks to make a thick soft-serve smoothie the next. Keep butterscotch pudding from scalding by swapping in one of the plastic blades and setting it on stir; or choose to simmer until your rhubarb-raspberry jam is perfectly thickened. A cookbook comes with 300 recipes, including one for a hazelnut spread that tastes like a grown-up version of Nutella. It’s also impressively quiet—important when you’re cooking a chili on low for hours on end. All-Clad Prep & Cook; all-clad.com

PROP STYLIST: MILA TAYLOR-YOUNG

The All-Clad Prep & Cook This innovative kitchen counter space saver is the one gadget to rule them all Photograph by Joanna McClure

Bloomberg Pursuits

June 26, 2017

GAME CHANGER

Saru Jayaraman

After Sept. 11, the surviving won settlements requiring employees of Windows on the companies to offer grievance World, the 107th-floor restauprocedures, paid sick days, and rant destroyed in the World Trade other protections. As “alt-labor” Center attacks, needed an advocate. groups have proliferated, ROC has Union organizers who’d represented provided a template to follow. the workers recruited Saru Jayaraman, “Watching Saru, she’s got all of these then a 26-year-old Yale Law School graduate, incredibly innovative strategies in her portto help start a group to support employees in the folio,” says Janice Fine, a labor expert at Rutgers absence of a contract. Her organization, which she called the University. “It’s like when you watch a great ice skater doing just Restaurant Opportunities Center (ROC), soon faced a big test: one really impressive move after another.” The group’s “One The company that had managed Windows was starting an Fair Wage” push, which seeks to guarantee tipped workers the eatery but rejecting the majority of former Windows staffers same protections as everyone else, won a big ally in 2015 when who applied for jobs. Danny Meyer, Union Square Hospitality Group’s chief execuIt reminded Jayaraman of her experience as a high school tive officer, embraced the cause after meeting with Jayaraman. student in Southern California, when a teacher suggested that She had a novel argument: Dependence on tips exacerbates the best she and her mostly low-income Latino classmates could sexual harassment. “Your wages are primarily coming from the aspire to was community college or pregnancy. Jayaraman orga- customer, and you have no choice—you have to put up with it,” nized a protest at the restaurant’s red-carpet opening—a move she says. Last year, California legislators passed a $15 minimum so embarrassing the manager caved and doubled the number of wage law, and Maine voters approved an increase to $12 an hour, ex-Windows hires. “To say to a group of workers—mostly people with tipped workers included in both measures. of color who lost family members and livelihoods in your restauJayaraman’s approach has earned her plenty of enemies. rant—that they didn’t have the experience to work in Leaked internal memos in 2014 revealed that your new nightclub was just outrageous,” she says. the National Restaurant Association, an industry b. 1975, Los Angeles The group went national in 2008. Now with business group, was tracking stops on her book tour 25,000 members, Restaurant Opportunities Centers and the status of her Wikipedia page. “It’s definitely Was the second choice United has proved to be one of the most successful to lead ROC and a badge of honor,” Jayaraman says. Some of ROC’s considers it fate that experiments in advocating for low-wage workers in former targets, however, have pledged to work with she got the job the absence of a traditional union. ROC members the group. “You have to create consequences for don’t collectively bargain with restaurants—but Has written two taking the low road and then embrace anybody who books, including they’ve successfully lobbied for laws resulting in decides to take the high road,” she says. “Just as I’m Forked: A New higher pay. And through offensives blending lawbetter than the worst thing that I’ve ever done, so Standard for American is every employer.” suits, demonstrations, and media stunts, they’ve Dining, 2016

ILLUSTRATION BY SAM KERR

The “alt-labor” leader is working to improve restaurant workers’ lives from outside the union system. By Josh Eidelson