Tag: Approved

Better than surfing down Sand Hill Road

HOLLYWOOD has produced plenty of films about underdogs rising to claim the limelight. Now Los Angeles is experiencing its own real-life Cinderella story, as the area’s technology scene has been transformed from backwater to boomtown in just a few years. Hordes of venture capitalists from northern California, once long dismissive of their southern neighbour, now regularly commute in search of deals in a less heavily hunted spot than the Bay Area. In 2016 the city’s startups received around $3bn in funding, around six times more than in 2012, according to CB Insights, a research firm.

Evan Spiegel went to Stanford University in the heart of Silicon Valley, but he wanted to live and work close to the sea. So he based his new company one block from the Pacific in Venice Beach, which is better known in Los Angeles for its silicone-enhanced bodies than the silicon chips that gave the Valley its name. Mr Spiegel’s firm, Snap, is best known for its ephemeral Snapchat social-media messages and is now valued at a whopping $18bn. Other successful technology firms are thriving nearby, including…Continue reading

Not a model of philanthropy

CAPITALISM has clocked the ethical consumer. Shoe brands like TOMS and Skechers tease in customers by matching purchases with a donation of a pair of shoes to a child in need. So far, TOMS has handed out 60m pairs of shoes, letting fashion-conscious consumers feel good about boosting children’s health, access to education and confidence. But evidence suggests that shoppers’ warm glow is unjustified.

Handing out aid in kind gives plenty to worry about. It could suck life from local markets, and foster a culture of aid-dependency. Handing out goods rather than cash runs the risk of spending money on things people neither need nor want. To find out if its intervention had worked, TOMS, to its credit, asked a group of academics to investigate and gave them assurances that they could publish whatever they liked. In late 2012 they randomly picked which of 1,578 children across 18 rural communities in El Salvador would receive pairs of TOMS’ black-canvas, rubber-soled shoes. By comparing the places and children who received the shoes with ones that did not, they could work out how much these boots…Continue reading

AIR-CONDITIONING doesn’t feel like much of a luxury in parts of India, but the taxman begs to differ. Cooled restaurants are deemed posher. Their patrons are liable to additional taxes the unventilated masses do not bear. Luckily for sweat-prone diners there is a catch: the tax only applies to the service and not the food, so only part of the tab incurs the extra levy. In their wisdom, India’s bureaucrats once decided that 60% of a restaurant’s offering is food, and so air-conditioning triggers a service tax payable on just 40% of the bill.

Indirect taxation in India often seems the product of a micromanaging bureaucracy run amok. The result of combined taxes levied by its 29 states, union territories and the central government is that the same products in different regions, or different products in the same region, are taxed at different rates. This makes it difficult to trade between states. Tariffs are enforced by internal borders at which lorries languish for hours. It also distorts the economy in favour of goods and services taxed at lower rates (usually as a result of energetic lobbying). The agreement in August to subsume all manner of…Continue reading

Lin-Keynes is on the left

IT IS not quite Keynes-Hayek, but Lin-Zhang is a marvel in its own right. Perhaps the most famous debate in the history of economics was that between John Maynard Keynes and Friedrich Hayek—a clash over the benefits and perils of government intervention that exploded in the 1930s and still reverberates today. It has echoed around Chinese lecture halls in recent months. Justin Lin, a former chief economist of the World Bank, who leans to Keynesian faith in public spending, has squared off against Zhang Weiying, a self-professed Hayekian who doubts bureaucrats can ever beat the free market.

Like their predecessors, Mr Lin and Mr Zhang have been sparring over two decades. And whereas Keynes and Hayek were down the road from each other (respectively, in Cambridge and London), the Chinese professors are now only a few paces apart, both at the prestigious Peking University. Their latest debate has been one of their fiercest, becoming a talking point for the domestic press, other academics and even officials.

At issue is one of the big questions facing China’s economy: does industrial policy…Continue reading

EUROPE has yet to produce a rival to Silicon Valley, but London’s “Silicon Roundabout” by Old Street station is closest. As a funding hub, the city’s venture-capital industry tends to attract more money than rivals in Berlin, Munich or Paris. And more venture capital is invested in Britain, relative to its GDP, than in any other big European economy. Britain’s vote to leave the European Union threatens this lead. Besides unknown risks, there is a prosaic worry: the most important backer of such firms is the European Investment Fund (EIF), an EU institution, whose mandate includes “fostering EU objectives”.

As the biggest investor in European venture funds, the EIF supplied almost a fifth of all commitments last year, with Britain, France and Germany the main recipients. It is also among the largest and earliest investors in any fund. For every pound it pumped into Britain in 2015, the EIF reckons it mobilised another four of private capital. Venture-capital managers debate the extent to which the EIF spurs private investment, but generally accept it is a linchpin of the industry. Nenad Marovac, of DN Capital, a technology…Continue reading

AS DONALD TRUMP sees it, America’s trade deficit is a sign of economic weakness, proof that lousy trade deals have sent production overseas. But Uncle Sam does not just import goods from the rest of the world and send nothing in return (though that would be a lucrative arrangement). Rather, the net inflow of goods is matched by a net outflow of stocks, bonds and other financial assets.

That makes America a debtor. In theory the interest and dividends paid to foreigners should chip away at national wealth in future. Since 1989 foreigners have owned more assets in America than Americans have owned overseas; in the jargon, the net international investment position (NIIP) has been negative. But America is an unusual borrower. For almost all of that time, it has received more income on its overseas investments than it has paid out to foreigners. This is strange: it is akin to someone’s savings earning more than enough interest to service his far bigger debts.

This contrast is getting starker (see chart). In recent years the NIIP has tumbled to -44% of GDP, the lowest since 1976, when the data begin. Yet net primary income—the…Continue reading

AS AMERICA’S presidential election approaches the country’s business class is in its weakest political position for decades. Twenty years ago both parties competed to be the most pro-business. Today they compete to denounce the malefactors of great wealth. The most startling change is that business has lost control of its ancestral party, the Republicans. Donald Trump may well embody many an American business type: somebody who inherits a fortune and goes on to make it even bigger. But he has taken over the Republican Party by channelling blue-collar anger against all elites.

Mr Trump has trashed free trade, liberal immigration rules and other corporate non-negotiables. Big companies have shied away from donating to his campaign. Meg Whitman, the boss of Hewlett Packard Enterprise, has called him “reckless and uninformed”. Tom Donohue, head of the United States Chamber of Commerce, has described his policies as “pretty sort of stupid”.

All this has driven lots of business people to cross the political aisle: an Ipsos poll shows that 53% of those earning $250,000 or more (the top 5% of households) plan to vote for Hillary Clinton,…Continue reading

EVERYONE wants to spot the moment when markets change trend. By riding one of the great bull markets—the rally in equities from 1982 onwards, for example—or avoiding a crippling bear market like that of 2007-08, fortunes can be made, or saved. The key lies in spotting the turning-point.

Commentators see several potential turning-points in today’s markets. The first is in government bonds. The ten-year American Treasury bond yield bottomed at 1.37% on July 7th and has since risen to 1.80%. The ten-year German bond yield reached a low of -0.18% on around the same date and has since edged back into positive territory, at 0.13%. British bond yields of the same maturity have shown an even sharper shift, rising from 0.61% to 1.17% thanks to worries about the economic impact of Brexit.

These yields are still very low by historical standards. But there has been a revival of talk that the long downward march of bond yields (and upward march of bond prices) dating back to 1982 may at last have reached an end.

A second turning-point may already have occurred, earlier in the year. Risky assets seem to have recovered in unison,…Continue reading

DURING a recent ride with Uber, this passenger received a surprising word of thanks for talking softly. To complete the job, the driver needed to follow the route provided by Uber, read out turn-by-turn by his phone; noise from the back seat drowned out the critical instructions. The control Uber exercises over its drivers, whom it calls “independent contractors”, is increasingly a point of dispute. Two were recently judged to be entitled to some employment benefits—such as a minimum wage and holiday pay—by a tribunal in London sceptical of the degree of independence they actually enjoy. In fact, the drivers sit within a grey area in employment law; rules regarding firms’ obligations to their workers will need to adjust in response.

More than the profitability of Uber is at stake. According to a recent report by the McKinsey Global Institute, 162m people in America and Europe, or more than 20% of the working-age population, work outside normal employment. Nearly half rely on such work for their primary income. Sensible changes to work rules to take account of the rise in gig work could make life better for millions of workers; bad ones could mean…Continue reading

ON THE outskirts of this west Texan city, on top of one of America’s most prolific oilfields, sit 230 square miles (600 square km) of scrubland owned by one family for more than a century. David Fasken, a Canadian lawyer, paid about $1.50 an acre ($3.70 a hectare) back in 1913, hoping to make a fortune out of cattle. But the land lacked sufficient groundwater. Before he died some years later, he swore it was the worst deal he had ever done. 

Today the farm, still owned by a few Fasken heirs, is valued in the billions. Oil-rich land in the Permian Basin, a 250m-year-old sea of oil lying up to 12,000 feet (3.7km) underground, has changed hands this year for an average of more than $25,000 an acre. On October 31st Occidental Petroleum (Oxy), a large American oil company, said it had paid $2bn in cash for 59,000 acres in the Permian. Amid a flurry of such deals, Bernstein, a research firm, predicts prices will go as high as $100,000 an acre. The nicknames range from “Saudi America” to “Texarabia”.

But Tommy Taylor, head of oil at Fasken Oil and Ranch, smells a rat. He has worked on the Permian, where oil was first struck in the…Continue reading