All posts on June, 2016


ApprovedBusiness and financeFINANCEFinance and economics

The consensus crumbles

AFTER the second world war, the leaders of the Western world tried to build institutions to prevent the horrors of the preceding decades from recurring. They sought to foster both prosperity and interdependence, to “make war not only unthinkable but materially impossible”. Their work has borne fruit. There has been no armed conflict in western Europe since. Expanded global trade has raised incomes around the world. Yet, as the Brexit vote demonstrates, globalisation now seems to be receding. Most economists have been blindsided by the backlash. A few saw it coming. It is worth studying their reasoning, in order to work out whether a retrenchment is inevitable or might be avoided.

Even economists realise that free trade can be a hard sell politically. The political economy of trade is treacherous: its benefits, though substantial, are diffuse, but its costs are often concentrated, giving those affected a strong incentive to push for protectionism. Since 1776, when Adam Smith published “The Wealth of Nations”, those pressing for global openness have won more battles than they have lost. Yet opposition to globalisation seldom disappears, and often…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

From folly to fragmentation

THE bleeding stopped on the third day: sterling steadied and stockmarkets perked up on June 28th, after two sessions of carnage (see article). By then Britain’s vote on June 23rd to leave the European Union had taken a heavy toll (see chart). The shares of Lloyds and the Royal Bank of Scotland, Britain’s biggest domestically oriented banks, were down by around 30% and those of Barclays by slightly more. Continental institutions were clobbered too: BNP Paribas, Deutsche Bank and Santander all lost 20%-plus and Italy’s beleaguered UniCredit 30%-odd. American banks with big operations in London also suffered, though not as much. Nor was the damage confined to banks: American insurers copped double-digit losses and Invesco, a big asset manager, shed 22%. A merger of the London Stock Exchange and Deutsche Börse, its German rival, looks likely to collapse.

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ApprovedBusinessBusiness and finance

Squeezing the tube

BUSINESS theorists routinely instruct managers to look over the horizon. “Blue Ocean Strategy” is the most successful book on business master-planning in recent years. In it W. Chan Kim and Renée Mauborgne of INSEAD, a business school in France, argue that companies should trawl for profits in “blue oceans” that their rivals ignore rather than “red oceans” that they squabble over. Companies often search for ways to disrupt their industries lest a rival or new entrant does the same and pulls the rug from beneath them. But reinventing a business from the ground up, to avoid being consumed by the fires of new technology, comes with huge risks as well as a potential for great rewards.

Ships that set sail for blue oceans are often becalmed in the middle of nowhere. AOL-Time Warner’s catastrophic merger in 2000 failed to remake the media business for the internet age. News Corp’s foray into social networking ended with the sale of Myspace for a small fraction of its purchase price. Sometimes being cautious, incremental and pragmatic when others are gambling on bold and visionary thinking is more sensible. Why take the chance when there is lots…Continue reading

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ApprovedBusinessBusiness and finance

Window dressing

BROWSERS, pieces of internet software that people probably spend more time with than they do in bed, have long been boring affairs. Save for occasional innovations such as tabs, these programs have remained fundamentally the same since the release of Mosaic, the first mainstream browser, nearly a quarter of a century ago. Just four browsers account for nearly all users: Apple’s Safari, Google’s Chrome, Microsoft’s Internet Explorer and Mozilla’s Firefox. It is difficult to tell them apart.

New, more interesting browsers have started cropping up. In August internet users will be able to download the first full version of Brave, the brainchild of a co-founder of Mozilla. Mozilla itself is working on a new type of browser which will give users suggestions on where to navigate next. Both are only the latest in a series of such efforts: last year Microsoft unveiled Edge, meant to replace Internet Explorer; March saw the release of Cliqz, a browser developed in Germany; a month later came Vivaldi.

If most browsers are boring and unwieldy, it is because they are expected to do more than ever before: not just surfing the web, but editing documents, streaming music and much more besides. As a result, priority is given to stability and ease of use. Too many fiddly buttons could scare away novice users. Innovation is outsourced to developers of…Continue reading

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ApprovedBusinessBusiness and finance

In the rough

“Real is rare”, bidders were rarer

“I’VE seen grown men with tears in their eyes” in front of it, an auctioneer from Sotheby’s said as he opened bidding on June 29th on the 1,109-carat Lesedi La Rona, the biggest diamond to be discovered in over a century. Within minutes the tears were, if anything, of embarrassment. Bidding, which started at $50m, was desultory. A rough stone that Sotheby’s had put in the same league as the 3,107-carat Cullinan diamond, discovered in South Africa in 1905, failed to make its $70m reserve. “I’m a bit disappointed. There were no private buyers and the diamantaires stayed away,” said Lukas Lundin, chairman of Lucara Diamond, a Canadian firm that unearthed the stone in Botswana last year.

It was the latest disappointment to befall an industry that has had little to celebrate. Two days before, William Lamb, Lucara’s chief executive, said he believed the auction would symbolise the allure of diamonds and their promise for African development. He hoped to “dispel the rumour that all diamonds are bad”. That reek of notoriety has clung to the industry in recent years, especially…Continue reading

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ApprovedBusinessBusiness and finance

Ticking all the boxes

Clicking your rights away

IF A prize were to be awarded for the world’s clunkiest prose, the paragraphs of indecipherable text that make up “terms of use” agreements would surely win. These legal thickets are designed to protect companies from litigious online shoppers and users of web services. Some firms require agreement, as when users are asked to click a box before creating an Apple ID. Other sites explain their policies without seeking customers’ explicit consent. Few consumers read these terms, let alone understand them. Because they involve no negotiation between customer and company, firms often insert language conferring broad protections to lower their risk of liability. But in a new twist, legal disclaimers designed to limit lawsuits are now unleashing litigation.

A surge of lawsuits in America claims that companies’ online agreements violate consumers’ rights. Consumers are banding together in class actions against targets including Apple, Avis, Bed Bath & Beyond, Toys R Us and Facebook. The cases have a tinge of the bizarre, citing a law passed before companies even had websites. And the lawsuits…Continue reading

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ApprovedBusiness and financeFINANCEFinance and economics

The infrastructure of power

AIIB careful with Avicenna

CHINA’s growing global clout can be unsettling for the incumbents who must make room for it. At the same time, China’s recent financial tumult has been unnerving for the investors exposed to it. This combination of vastness and vulnerability has left some people afraid of China and others afraid for it. Both groups have found reason to worry about the Asia Infrastructure Investment Bank (AIIB), which has just held its initial annual meeting in Beijing and approved its first $509m-worth of projects.

The AIIB reflects China’s new eagerness to institutionalise its official lending abroad, which has been generous but contentious. Another example is the sprawling “one-belt, one-road” initiative, which aims to revivify trade routes across and around the Eurasian landmass (see article). Harking back nostalgically to the Silk Road, it envisages a web of bilateral agreements between China and the beneficiaries of its largesse. The AIIB is…Continue reading

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Business and financeGulliver

Heathrow’s hopes of a building a third runway receive another setback

HEATHROW is probably the world’s most congested airport. It operates at 99% capacity; a plane lands or takes off there every 45 seconds. Most jets must circle London for a while until an air traffic controller can find them a landing slot on one of the airport’s two runways. No surprise then, that Heathrow would like to build another runway to ease the strain. Many businesses and passengers would like that too. But in the wake of the Brexit vote it is, alas, now much less likely.

David Cameron, Britain’s prime minister, dithered over whether to expand Heathrow for years. The idea of a third runway plays badly with Conservative MPs in posh constituencies under the flight path. Nonetheless a report that the government commissioned on how to increase air capacity around the capital was finally published last year. It looked at three options, including building a second runway at Gatwick, the capital’s second-biggest…Continue reading

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