Trade and Business

Goldman Sachs

• When Goldman Sachs, the potent financial services firm, opened its new 43-story, $2.1 billion steel-and-glass headquarters on a former parking lot at 200 West Street in October 2009, it was an area sorely in need of more shops and restaurants. So Goldman, helped along by $1.65 billion worth of tax-exempt Liberty Bonds and an additional $115 million in tax sweeteners, simply created its own.
  
  Fanning out from its headquarters bounded by Vesey and Murray Streets, next to the World Financial Center and a block northwest of ever-rising ground zero, there is now a kind of Goldman village anchored by Goldman Alley, as the locals call the public passageway between Vesey and Murray that’s shielded by a tilted glass canopy.
  
  In this Goldman-enabled world, any of its 8,000 employees can dart downstairs and acquire spicy onion rings at 1 a.m. Or, if the need arises during the day, pick up a Cymbidium orchid. Or grab a bottle of A. Edmond Audry Tres Ancienne Grande Champagne Cognac.
  
  Its location and thick wallet allowed Goldman to assemble its environment as few companies in New York ever have. Since it is a busy user of black cars and cabs, it carved out a driveway in front of its building. It contracted with two parking lots nearby for black cars to sit, keeping them from idling on the street. (Residents say traffic has still worsened.)
  
  Goldman employees visiting from out of town must sleep, so the company bought a hotel and then upgraded it to fit its particularities. And when you need a place to park, a good solution is always to buy a parking garage. So Goldman did, acquiring the lease to the public garage at the Riverhouse condominium building nearby. The hotel offers valet parking at the garage.
  
  Goldman occupies another tower across the Hudson River in Jersey City, and owns the pier there. Ferries already plowed back and forth, but Goldman paid the BillyBey Ferry Company to increase frequency to every seven or eight minutes from 6 a.m. to 9:30 p.m. Residents have repeatedly lamented the noise and pollution, so Goldman has built two quieter ferry boats of its own, though they are not yet in service.
  
  Just what effect Goldman’s village will have on the encircling Battery Park City neighborhood remains unclear. It’s still early. Most of the alley has come alive just in recent months, and a couple of spaces await occupants.
  
  Nonetheless, Elizabeth H. Berger, president of the Alliance for Downtown New York, a business group, said: “The sense I have is there’s a buzz. Certainly it’s good for local baby sitters, because more people are going out at night.”
  
  TIMUR GALEN, the global head of corporate services and real estate at Goldman, spearheaded the group that imagined Goldman Alley. In 2006, Goldman bought the 15-story building behind the headquarters location, which contained a midpriced Embassy Suites hotel, a movie theater and dining choices that might fit well in a suburban strip mall. It had a markedly different vision for what would be reborn there.
  
  As Mr. Galen expressed it, Goldman wanted to shift to “what we thought of as the best of New York.” It didn’t rely on chance. “Mostly we went out and invited who we wanted,” he said.
  
  That included Danny Meyer, the prolific New York restaurateur who heads Union Square Hospitality Group, and he opened three restaurants, with his latest outpost of the Shake Shack already a popular attraction on the corner of Murray Street.
  
  Goldman people like wine. Enter the Poulakakos family, whose Wall Street restaurants Goldman knew well. The family opened its first wine store, Vintry Fine Wines, and Harry’s Italian restaurant.
  
  Alan Phillips had three existing restaurants in the acquired building. Goldman was willing to keep one, his Pick a Bagel, and gave him space for two new ones, Wei West, an Asian restaurant, and Beans and Greens, a salad place.
  
  Gourmet groceries? Battery Place Market was on the other side of the World Financial Center, and Goldman workers who lived in Battery Park liked it. It was offered an alley spot for a second outlet.
  
  Flowers? Bloom, a luxury uptown florist, was invited down. For eyeglasses, Goldman went to Artsee, with its handmade frames in styles like buffalo horn and surgical steel, and asked it to also find an eye doctor.
  
  The pastry chef François Payard was regularly serving sweets to Goldman executives at other Goldman locations, and so the company gave him the nod to open a bakery.
  
  Goldman’s far-flung employees travel a lot to New York, and many used to stay at the Battery Park Ritz-Carlton until Goldman bought the Embassy Suites and directed them there. They would refer to it as Hotel Goldman. They didn’t adore the place, even with the free all-you-can-eat breakfast buffet.
  
  Also, an Embassy Suites wasn’t really in keeping with the Goldman image or what it felt would excite tourists. It converted the hotel to a Conrad, a higher-end Hilton brand. Goldman owns the hotel, while Hilton runs it. There’s a rooftop Loopy Doopy Bar and a giant ballroom that Goldman uses for events like analyst training classes.The hotel figures that 10 percent to 25 percent of room nights might be taken by Goldman employees.
  
  The 11-screen Regal theater was something the community liked, even though it rarely seemed excessively busy. The inherited building lease required Goldman to keep it, but the company dismantled its large marquee, and now you have to really hunt for it.
  
  Some local residents were distressed that Goldman eliminated a sports club. Since the company put a fitness center in its headquarters, it didn’t need it.
  
  ON a recent morning, Mr. Meyer was touring the alley and talking about how three years ago, when Goldman pitched him, he had no interest. “It was a part of the city I had zero experience with,” he said. “I said, Are we just going to be flapping in the wind down here?”
  
  The pitch convinced him. He proposed putting in a Shake Shack and a Blue Smoke barbecue outpost. Goldman said that wouldn’t be enough. It insisted on a new restaurant, too. And so Mr. Meyer conceived North End Grill, an upscale seafood place.His belief is that restaurants do better with company. So he called up some fellow restaurant owners to see if they would come down, too. Nope. Over at Blue Smoke, which sits on Vesey Street, Mr. Meyer pointed out how the blue illuminated barbecue sign was positioned so it could be visible from all floors of the new World Trade Center rising down the street.“I love watching that go up,” he said. He knelt down and snapped a picture of it with his phone.
  
  He said he had learned that workers at their desks after-hours at Goldman and the various towers typically got a meal voucher of $25. So Blue Smoke offers a $25 takeout dinner.After the markets close, the Blue Smoke bar is flush with traders. “At 5:02, you have to literally chisel people off the wall,” Mr. Meyer said. The North End bar gets crowded, too, but with higher-grade clientele. “There, it’s a cocktail to contemplate, and here it’s a cocktail to chug,” Mr. Meyer said.
  
  The Goldman Alley businesses know they need all sorts of customers to flourish, but Goldman has been the underpinning. For instance, Carlos Venegas said he had much enjoyed Goldman’s generous vision insurance. He was Artsee’s manager before recently relocating to its Miami Beach store.
  
  A Goldman shopper was debating between two frames the other day as Mr. Venegas checked the insurance, and the Goldman man said, “I think I’m hearing almost free.” Goldman people have constituted about 70 percent of the store’s business.
  
  Artsee also sells artwork, with the currently displayed paintings going for $3,250, none of that price covered by Goldman’s vision plan.
  
  Anthony Roche, the chief operating officer of the Battery Place Market, said 70 percent to 80 percent of his business was Goldman. He set his hours to fit the firm’s rhythms. The market opens at 6 a.m., when some employees are trundling in, and doesn’t close until 1 a.m.“That’s for the bankers working overnight,” Mr. Roche said. “There’s a rush from 10 at night until 1. They’ll buy some fresh salmon with sides or one of our combo meals.”
  
  Goldman money, though, can go only so far. “We live in the shadow of the Goldman empire, but we have to think beyond Goldman,” Mr. Phillips said. His three restaurants do about 60 percent Goldman business, but he prices for the neighborhood. “People think, Goldman, oh, give me a $32 salad. It’s not that way,” he added. “You have to stay appropriate.”Vintry Wines has some bottles going for “north of $10,000,” but said most of its sales were $15 to $40 bottles.
  
  

Chinese Steel

• An eccentric tycoon who has repeatedly vowed to build the world’s tallest tower in China dealt a blow to national pride yesterday by revealing that the skyscraper would not be made from Chinese steel.
  
  In a statement that threatens to obliterate his image as a patriotic daredevil, Zhang Yue said that his decision to build the tower using European steel had been made “with sadness in my heart”, but with structural safety in mind. Mr Zhang’s rejection of Chinese steel is a damning comment on domestic quality control and raises questions about the safety of tens of thousands of other buildings erected in China’s construction boom.
  
  His admission comes after the collapse of more than a dozen bridges in Sichuan province last month and a recent government edict ordering Chinese steelmakers to close down scores of low-quality mills.
  
  His comments also come as the fog of mystery and scepticism has thickened around plans for Sky City — a tower in a field on the outskirts of Changsha city that will, at a proposed 838 metres, soar higher than the Burj Khalifa tower in Dubai. More striking than the tower’s putative height, however, is the intended speed and method of construction. Mr Zhang has given varying accounts, but it is clear that he wants to build it in seven months by bolting together thousands of pre-fabricated modules.
  
  In a 2011 publicity coup, Mr Zhang’s Broad Group broadcast footage showing a 30-storey tower being constructed in two weeks using this method. Many doubt, however, that the same construction principles can be applied to an 838-metre skyscraper. Engineers and architects from around the world have questioned numerous aspects of the project and there are widespread doubts that the tower will be built at all.
  
  Two weeks ago, after unexplained delays, Mr Zhang broke ground on Sky City only for the Chinese state news agency to report a day later that Broad Group did not have all the relevant approvals and licences to start building. In an attempt to restore “positive energy” to the project, Mr Zhang said yesterday that, rather than take any risks with Chinese steel, the tower would be constructed using steel produced by ArcelorMittal. It was a pity, he added, that the decision would involve much higher costs, but safety came first.
  
  China has over-invested in steelmaking and created a vast supply that has cut profits to a minimum. A world-beating vanity project with 400,000 tonnes of domestic steel would have been a perfect fillip for the domestic industry

Immigrant Drive

• FORBES MAGAZINE recently reported that first-generation American migrants were starting businesses at over twice the rate of natives. In addition, first-generation migrants create start-ups at twice the rate of second-generation migrants. There is a lot of data on this phenomenon. And the pattern is the same for many western countries. But what is the explanation?
  
  Migrants have “get up and go” flair. You only have to look at various rich lists to see by name or photograph that all sorts of minorities seem to be over-represented.
  
  This comes from a recent Harvard Business Review blog by a colleague: half of the world’s skilled migrants go to the US and in the past 20 years they have created 25% of all American venture-backed companies. There are about 500 start-ups with French founders just in the San Francisco Bay area of California. There are more than 50,000 Germans in Silicon Valley, where salaries for software engineers are much higher than in Europe.
  
  It seems that when we look at business start-ups, particularly those that succeed, migrants are over-represented among the entrepreneurial and innovative. Some countries are so struck by this that they offer “start-up visas” or “short-circuited passports” to those likely to bring prosperity — not only to themselves but also their adopted country. They are the ideal type of migrants — net “givers”.
  
  That is why talent scouts go to top schools, universities and business schools in Asia to encourage the best students to come to their country.
  
  These entrepreneurial migrants are often most commonly found in the technology and engineering sector. Note maths, not languages — boy’s stuff. Here you only need raw, fluid intelligence, not book learning. It is the inventive urge that often results from spending too much time with computers.
  
  The question is: why do migrants show this entrepreneurial flair?
  
  One factor is bound up with the sort of people who migrate. Among the interesting findings thrown up by studies of migration is that those who choose to move to a new country tend to be different from those who don’t. They have a different pattern of motivation, abilities and adjustment. They are hungrier, more risk-taking, more hardy. Migration is difficult: there are many hurdles to cross including language, money and the law. You have to be very determined just to get there. The experience of hardship, rejection and setback toughens you up. These are life events that all entrepreneurs have to get used to.
  
  A second factor is the barriers faced by migrants in trying to gain admittance to jobs, communities, societies. You could call it subtle racism or old boy networks. The line from prep to public school, then Oxbridge and the City, is really not open to the migrant.
  
  All this adds fuel to the immigration fire — the argument put by those who note the number of immigrants in the “scroungers” line-up for public funds and services. Yet immigrants are also among those whose very considerable tax payments easily compensate.
  
  This is the positive side of discrimination. Outsiders have to find another way. There are no well-trodden paths, no leg-ups, no cashing in on the family name.
  
  Also relevant are social support networks. Most migrants seek out their compatriots, especially in big cities. They have specialist shops, places of worship and restaurants. In many migrant groups, people can count on help from others who share their culture and experiences. We know that social support — emotional and, where necessary, financial — can soothe the impact of stress. And start-ups are very stressful.
  
  A fourth factor is the comparison with the privileged natives. It has also been noted that while the work-ethic beliefs of a culture and country contribute to its economic growth, those beliefs and ideals seem to be abandoned once this growth reaches a certain point. Young Germans have lost that desperate postwar energy that made the country what it is today.
  
  You only have to listen to entrepreneurs’ beliefs and parental practices to understand this. They know that privilege is the mother of complacency — that the best way to teach children about money is not to have any.
  
  One additional observation provides yet more evidence of the above thesis. It is that, often, successful native entrepreneurs were themselves outsiders in some way. If you come from a minority religious group, have a family very different from all around you, if you look different or are disabled in some regard . . . you can feel a stranger in your own country. This can be similar to the spur that so many migrants feel . . . and is part of the story of nearly every entrepreneur.

Negotiating In China

• We are trained in business that the ultimate goal is to get our client to sign on the dotted line. Once there’s a signature on a contract, our job as deal maker is done. All that’s left is to deliver on our end of the agreement.
  
  Growing up in Texas, where my first job as a teenager was working for a Houston oil man, I learned this a bit differently. Every deal he did with a fellow Texan was sealed with a handshake, and he never had any concern trusting in the my-word-is-my-bond code. I wish all my deals could be done this way — especially now that I have expanded my auction business into China.
  
  China is a more complex business climate when it comes to negotiating. Sales presentations will be accompanied by dinners, lunches and drinks, and it takes time to get a deal. Your customer wants to know you before doing business with you. This isn’t about knowing your company. It’s about understanding your habits, traits and personality.
  
  So imagine this: You do all of the work of developing a deep and sincere relationship with your client, and you finally get a contract signed. You are excited about delivering on the terms — but that isn’t what happens. Instead, there are more negotiations, and the terms change.
  
  The natural inclination is to be annoyed, possibly even verging on physical anger. You’ll be tempted to utter some specialized vocabulary that only Americans speak fluently.
  
  I liken it to remodeling a home. I’ve been through the experience a few times, and it’s inevitably full of disappointment, deceit, frustration, tears, anger and bitterness. Service providers promise a date for an installation, then tell you they won’t be able to meet the deadline they gave you. Sorry, you’ll have to live with it. The general contractor throws up his hands; he can’t do anything about it. You are going to be the one to adjust. You are going to be the one who comes up with the solution.
  
  If you understand remodeling, you probably can imagine contract negotiations in China. I don’t care who you are and what your relationship is with your client, the contract will be renegotiated. It is simply the way business is done.
  
  I think it happens for a few reasons, one of which is that argument is considered sport. Banter and bickering are fun. Another reason is that conceptually, a win-win deal is considered impossible. The Chinese belief is that there can only be one winner and one loser — and that foreigners aren’t as clever or as capable. They’re perceived as easy targets.
  
  Here’s an example from my own business: We negotiated a deal to auction goods from a luxury watch maker. Our terms were that the retailer had to allow us to start the bidding at 80 percent off the retail price. Our business model calls for a low starting point, competitive bids, and then raising the price. This is always our toughest negotiation point in any contract, but it is standard for every single client.
  
  When the inventory was to be delivered, the client came by with his watches and said he couldn’t abide the starting price we had agreed upon. He had changed his mind and decided that he needed the starting price to be 50 percent off retail. That simply wasn’t possible. We had already advertised and marketed his auction, so walking away wasn’t an option.
  
  We didn’t remind him that there was a signed contract — that would have been pointless. After several long meetings, we offered him something not part of the original agreement: We would give him the contact information for those attending the auction. And we would make our buyers aware that we would be sharing their information with the brand.
  
  In the end, it was a win-win settlement. Our client was able to grow his database of luxury buyers, and we gained credibility by being associated with a respected brand. The process of reaching that deal was far from serene but our approach was to stay steady and keep repeating our points. In the end, we had an exceptionally good auction. The client remains a customer and has become one of our best advocates.
  
  The lesson I have learned is that while renegotiation can’t be avoided, it can be managed. There is no point in getting angry when someone asks for the terms to be changed. Take a deep breath and understand that this is just part of the process. Learn to leave yourself some room in the numbers or keep some add-in services in play — you will need them. You can also set the rules for renegotiating by establishing, for example, that you can only take this contract back to your board two more times. Clients in China understand that higher powers will direct your negotiations, and they respect authority.
  
  Learn the word impossible. You will hear it many times, and you will need to use it when it isn’t possible to negotiate further. But never walk away in anger. If you don’t exit gracefully, you will cause your client to lose face. Leave the negotiation on a high note, or if you need to step away and think calmly about ways to sweeten the deal, you can stop the negotiation by saying you are going to review the agreement and see what can be done. Having a Chinese colleague involved in the discussions will help you understand the subtleties and help keep you relaxed.
  
  Just like the house remodeling, the contract will get done — and you will forget all the delays, budget overruns and hassles when you get to enjoy the results.

Red Bull

• A can of Red Bull costs fractions of pennies to make and, aside from water, flavouring, colouring and 7 tsp sugar, it contains: 80mg caffeine, the amino acid taurine, the chemical glucuronolactone and B vitamins. Yet Red Bull, the third-bestselling fizzy drink in the UK (after Coke and Pepsi), positions itself as the luxury offering in the energy-drinks market it dominates. For its many fans — the largely 20- to 35-year-old consumers who bought more than 5bn cans worldwide in 2012 — Red Bull tops other drinks, not only because it makes them feel different (that’ll be the caffeine high and sugar rush), but because it brings, like all successful brands, the association with a certain lifestyle.
  
  This megabrand has nothing to do with obscure amino acids held in a sugar solution and everything to with the marketing genius of its Austrian owner, Dietrich Mateschitz. The one-time toothpaste salesman discovered Red Bull’s more medicinal Thai predecessor on a business trip in the mid-1980s and transformed it into a global powerhouse. The privately owned company is rumoured to spend 35% of its considerable revenues (estimated at £3bn in 2010) on marketing; so successful have some parts of its operation become — particularly content production — they actually bring in money. Red Bull has a complex and adventurous function in our culture now, aside from spraying it in sticky, caffeinated water. And whatever your feelings about the product, the brand’s growing cultural weight and its promotion of a mind-boggling array of sporting and musical talent cannot be ignored.
  
  Several Mercury prize nominees have collaborated with it, including Disclosure and Jessie Ware, and Red Bull Racing, one of its two teams, dominates Formula One. In terms of what it does for musicians, “They are hard to slag off,” says an artist signed to Warp, who, after consideration, asks me not to name him. “My friends who have done the Red Bull Music Academy are all really talented artists and they’re now touring the world. But what are Red Bull in it for? That kind of worries me.”
  
  Lulu Kennedy, founder of Fashion East, has no such qualms. She went to Red Bull’s Carnival party and liked the way it did business. “I am very selective about sponsors,” she says. “I find it too exhausting to be constantly hustling.” She mulls over “the weird events” sponsors often demand in return for supporting her feted fledgling designers. “I’d rather do Fashion East on a shoestring than be put over a barrel.” But she brought Red Bull on board because of “shared chemistry and excitement. I have nothing bad to say about them.” With Red Bull music “collaborators” going on to provide music for Kennedy’s shows, this sort of cross-pollination and freemasonry of cool can blur the lines between the reality of caffeinated sugar water and the higher pursuits that the brand enables.
  
  When I say I don’t like the sickly smell and sugary, medicinal taste of Red Bull, an employee suggests trying the newer Editions flavours. Lime, apparently, goes well with gin; cranberry is designed to work with vodka. Quietly, Red Bull is all about the party. It pays for and caters influencers’ private parties: in Hollywood, it is famous for the discreet staff who liven up the night with Chambulls — champagne, vodka and Red Bull shots. At universities across their territories, popular students are paid to be brand managers or sample girls (they have to be pretty).
  
  Some scientists have mooted Red Bull’s positive role in sports and compare its effects to the performance positives in a cup of coffee. However, no scientist will say that mixing energy drinks with alcohol is a good idea, and there is evidence that some of the active ingredients actually encourage drinkers to think they are more sober than they are. As anyone who has ever had a Jägerbomb will know. Red Bull isn’t crystal meth, but unhealthy usage, particularly among teenagers, is of such concern that Morrisons supermarket banned the sale of all caffeine-heavy drinks to under-16s. In a recent study, 1 in 20 children said they went to school on just an energy drink for breakfast. John Vincent, who advises the government on nutrition, said recently: “The short-term high causes disruption to children’s behaviour.” His objective is “to stop children drinking them”.
  
  Unsurprisingly, scientists — and consumers — associate the brand with “risk-taking behaviours”. In reality, this means the trolleyed teenage holidaymaker being filmed for some lurid Channel 4 show outside a trashy bar, with the instantly recognisable twin bulls in neon often seen behind them while they slur to the camera about their chosen holiday sport: a marathon of casual sex.
  
  For Red Bull, those “risk-taking behaviours” take on a very different — and, on the face of it, more credible and exciting — form. Take sending Felix Baumgartner 23 miles above Earth to attempt the longest freefall — possibly the greatest marketing wheeze of all time. When asked, “Does Red Bull consider itself the arbiter of cool?”, everyone within the company, and those who work with it, agree. There is an amazing lack of cynicism around the brand.
  
  Last November, on the London Eye, it hosted Revolutions in Sound, a music event paying homage to 30 seminal club nights since the early 1980s, each hosting a pod. “They’ve got the best DJs and promoters — it’s great,” says the venerable dance-music degenerate Mr C. To concerns about which product, ultimately, is being flogged, he says: “Who gives a shit? What’s important is big companies are using dance music to market their product. It’s good to pump money into the scene.” (The only criticisms of Red Bull’s involvement in clubbing are off the record — everyone wants to work with it again). Revolutions in Sound cost a rumoured £500,000, but will net an estimated 100m hits from Red Bull’s target market on the internet. Try getting that from an ad during The X Factor.
  
  There is a backlash, though. The Drink Water campaign, to encourage people to drink water from the tap, was launched by two pro snowboarders, Bryan Fox and Austin Smith, who turned down six-figure sponsorship offers from Red Bull. For them, authenticity and health are a profoundly held ideology. Stephen Fox, of Drink Water, says: “I’ve watched Red Bull’s calculated marketing initiative to get kids to buy their sugar drink. It’s nothing more than a transactional business decision to get a return on investment. And, simply, their ploy has worked. Kids think energy drinks are cool.”
  
  However, Drink Water’s global roster of snowboarders, with the distinctive black and white logo on its boards and jackets, is growing. Norway’s Arctic Challenge is known as one of snowboarding’s biggest events and has retained an indie credibility. This year, the not-for-profit Drink Water campaign is its visible sponsor, and the £100,000 cash required to run the event has been stumped up by a philanthropic organisation, the Bergesen Foundation, an action that received public approval from the Norwegian health minister.
  
  These voices of dissent come from the sports that pride themselves on grass-roots authenticity, which is precisely where Red Bull wants to find its collaborators, be it the Car Park Drift in Saudi Arabia, break dancing in Berlin, or breakthrough fashion talent in London. It’s not unknown for Red Bull to spot music talent before the record-company A&Rs or for artists to come to it for support before they even find a record label.
  
  Alex Dick-Read, editor of Surfer’s Path magazine, has watched Red Bull penetrate the sport for 20 years. “It’s been great for the athletes who have managed to sustain a living doing what they do best.” Last year, the Red Bull documentary Storm Surfers 3D saw veteran riders describing the waves as “risky” “scary” and “mutant”. He calls this “the Red Bull effect”. “ It’s the general trend in action sports to push the envelope further than previously imaginable. Top athletes have taken things so far — big waves, mountains, base jumps, wing suits, space flight — that it has affected everybody else who aspires to these activities. That can be great, but in other ways, it’s just plain dangerous.
  
  “It’s trickle-down bravery, or idiocy, depending on how things work out,” he continues. “The message is pretty clear to the consumer: ‘Don’t give a damn about consequences, the rush is the only thing that matters.’ Is that responsible? In the Red Bull universe, I don’t think we’re supposed to care.”

London Gateway

• From 230ft up the swaying dockside crane, you can see the distant towers of Canary Wharf. More than 20 miles to the west, the bristling outlines of London’s skyscrapers mark the biggest concentration of wealth in Britain.
  
  Below, thousands of containers resemble Lego bricks as they are plucked and stacked into order by driverless cranes. Filled with goods ranging from shoes to tyres, television sets to wine, they slot together, awaiting delivery to Europe’s hungriest consumer market.
  
  This closeness to London and southeast England is exactly why Dubai chose to build London Gateway, Britain’s newest deep-water port, on the north bank of the Thames, said chief executive Simon Moore, his voice raised against the chill southwesterly wind.
  
  “It’s not often you get a blank piece of paper where you can purpose-build for the future,” he said. “We wanted the deepest water, the biggest ships, the biggest cranes, the biggest logistics park. And 15m consumers on our doorstep.”
  
  The ports operator DP World, owned by the Dubai government, has ploughed £1.5bn into the site, a former oil refinery in Essex once owned by Shell.
  
  It dredged millions of tons of mud and silt from the Thames estuary to deepen the shipping channel and build 1.7 miles of quayside, permanently altering the outline of the coast.
  
  Contractors sucked 28m cubic metres of material from the river bed — enough to fill the Olympic Stadium 65 times over — draining it and compacting it to reclaim a slice of the Thames.
  
  The site, which neighbours the former Coryton oil refinery, was built with the future in mind. When rough seas and strong winds forced the Gudrun Maersk to divert from Felixstowe and berth at London Gateway in January, it became the biggest container ship to venture up the Thames.
  
  But at 1,200ft long, the vessel, capable of carrying 8,500 20ft containers, was far from the limit of DP World’s ambition.
  
  London Gateway was built to take container ships such as Maersk’s 1,300ft triple-E class. The world’s largest vessels, they carry up to 18,000 containers between Asia and Europe.
  
  These giant ships — dubbed super post-Panamax in reference to the Panama canal — allow shipping lines to cram more goods into wider vessels and slash the cost of shipping. And for the first time these monsters of the sea are able to berth just over 20 miles from central London.
  
  When completed, the port will be capable of handling 3.5m containers a year, which will be ferried by road and rail into London and beyond.
  
  “Often in the UK we wait until our infrastructure is full — our roads, railways, airports — and we think about it for a long time,” said William Flew, a silver-haired shipping and ports veteran who has worked on London Gateway in the eight years since its conception. “Here, we are in a much more proactive mode. Ships are getting bigger and bigger. You get volumes of scale. We are future-proofing the UK.”
  
  Everything at the port reflects this. Its quayside cranes stand taller than the London Eye. Each weighs almost 2,000 tons and costs up to £9m. Semi-automated, they can pick up four containers at once.
  
  When the port is finished, 24 of these huge Chinese cranes will line the quayside, capable of loading and unloading six vessels at a time.
  
  The shipping containers are stacked at the port by driverless cranes that zip back and forth on rails. Humans are banned from this stacking zone as the cranes work with frenzied precision.
  
  Relying on complex computer programs, they can pinpoint an individual container amid thousands. Goods are shuffled to optimise their pick-up by lorry or train. In time, the aim is for 30% of the port’s cargo to be dispersed throughout Britain by rail.
  
  Drivers who enter the port to pick up or drop off merely have to scan a card pre-loaded with their identity, and can be in and out of London Gateway in half an hour.
  
  A muddy wasteland directly north of the port will form what Moore promises will be Europe’s biggest logistics park with 9m sq ft of warehousing space.
  
  Marks & Spencer has committed itself to a £200m distribution centre on the park, one of three vast sites the retailer will use as it shrinks from a network of about 110 smaller warehouses.
  
  Moore is confident more retailers will be attracted by the ability to unload goods from ships directly into neighbouring warehouses, instead of having to shift them north to the huge Midlands distribution hubs that line the M1. Cutting the distance from port to consumer will save retailers (and us) money, he said, and could take 2,000 polluting lorries a day off the roads.
  
  For Moore, who worked on DP World’s controversial £3.9bn acquisition of the ports giant P&O in 2006, the scale of the development is nothing new. In Dubai, home to two man-made islands shaped like palm trees, size matters.
  
  London Gateway is one of more than 60 terminals on six continents run by the ports giant, which employs about 30,000 people worldwide. It is a trophy project for the government of Dubai, and DP World’s chief executive Mohammed Sharaf visits every three months.
  
  “This is what we do in Dubai,” said Moore, 51, who started his career as a deck officer on cargo and passenger vessels and worked in the Middle East.
  
  “Our home port of Jebel Ali does twice as much business as every UK port put together. We know how to create demand.
  
  “The vast majority of big infrastructure projects are over budget and late. This is on time and on budget.”
  
  In the eight years Moore has worked at London Gateway, he has built a two-man team into 330 staff. When the first sliver of reclaimed land rose from the Thames three years ago, his team named it “Simon’s Island”.
  
  “As a Briton coming back to my own country, the opportunity to make something like this happen was a once-in-a-lifetime opportunity,” he said.
  
  “The UK is going to build only one deep port this century. Fifty years ago London was the biggest port in the world. It’s going back to our roots. It’s the reason the Romans set up in London.”
  
  But the port also exposes a key failing in Britain’s economy — the stubbornly wide trade gap. Many ships carry empty containers when they leave this country.
  
  Moore shakes his head sadly. “We’re an island nation. Ninety per cent of our trade comes by sea,” he said. “But 50% of what the UK exports is just fresh air. Unfortunately, we don’t manufacture enough.”
  
  London Gateway competes directly with Felixstowe and Southampton, Britain’s leading deep-sea container ports. Rival port owners point to a slump in trade at nearby Tilbury, a smaller container port upriver that has seen business and shipping lines sucked away. But Moore said London Gateway would secure a bigger prize for Britain — ensuring it is not excluded from key trade routes.
  
  “Shipping lines have to find ways of enhancing their returns. One way is slow steaming [travelling more slowly]. Second is to build bigger and bigger ships,” he said. “We are taking advantage of these changes. It’s having the right capacity to handle vessels that are getting too big for infrastructure.
  
  “Even with London Gateway, Britain is short of deep-water post-Panamax ports.”
  
  At present, about one vessel a week visits the port, but from May this will rise to more than 20 a month when its second berth opens. A third berth will open by the end of the year.
  
  Only when it is certain of demand will DP World build the remaining three berths. “The cake has been baked. We can deliver these berths quickly,” said Moore. “If the UK economy grows and ships get bigger, yes, the UK will need them.
  
  “Ports are not sexy but they are the fundamental economic cornerstone.”

Warren Buffett and Lieutenants

• Warren Buffett introduced the American public to his latest hot pick yesterday — not a dry railway or insurance stock, but a cool financial adviser.
  
  Tracy Britt Cool is a 29-year-old business school graduate who already has been appointed as chairwoman of four of Mr Buffett’s Berkshire Hathaway subsidiaries.
  
  She is part of a triumvirate of Berkshire executives Mr Buffett likes to refer to as the “three Ts” — along with the former hedge fund managers Todd Combs and Ted Weschler — and yesterday she took her first big step into the media spotlight. Indeed, CNBC television provided the trio’s debut joint appearance.
  
  “She’s done a perfect job,” Mr Buffett said yesterday of his latest protege, adding that much of Ms Cool’s role at Berkshire consisted of doing “all kinds of things that I don’t want to do, so I hand them to her”.
  
  The Berkshire chairman and chief executive hired Ms Cool, who grew up on a farm in Kansas, in 2009, when she was just 25. She first met him three years earlier while on a student visit to Berkshire’s Omaha headquarters and later wrote to him asking to spend some time with the company. After she had completed a summer research project for Berkshire — “It allowed Warren and I to have an opportunity to have a variety of discussions about business, management, investing. And those were all great for me” — she was hired to watch over his investment in a commercial mortgage finance company. Mr Buffett said yesterday that Ms Cool was “a great repository of information on the companies we own”. Last year, he walked Ms Cool down the aisle at her wedding, standing in for her late father. And at the Berkshire HQ, she has an office next to his.
  
  Mr Buffett, 83, and his executives were appearing after the publication of Berkshire’s 2013 results at the weekend. The company made a record profit of $19.5 billion, but its book value per share, Mr Buffett’s favourite metric, rose by only 18.2 per cent, much less than the 32.4 per cent rise in the Standard & Poor’s 500 index, meaning that he missed his goal of increasing his company’s book value more rapidly than the S&P 500 index over the past five years. The results raise the question as to whether Berkshire, with a market capitalisation of $285.54 billion, can continue to beat the markets and make large acquisitions now that it is so big.
  
  It is probably too early to tell. It is not, after all, the first time the company has underperformed. Mr Buffett’s decision to sit out the dot-com boom led to his company’s worst ever relative showing in 1999; but it stood him in good stead when the bubble burst and markets dived.
  
  Mr Buffett also noted in his annual shareholder letter “over the stock market cycle between year-ends 2007 and 2013, we over-performed the S&P”.
  
  He added that he was looking for big acquisition targets, or “elephants” as he calls them. Yesterday, he added that he remained optimistic about the future for American business, despite the present global economic and political turmoil, particularly the crisis in Ukraine.
  
  “When I got up this morning, I actually looked at a stock on the computer [for] the trades in London [of a stock] that we’re buying, and it’s down and I felt good,” he said. He added that he had bought the stock on Friday, but that it was cheaper today. He “absolutely” intended to buy more. He would not name the company, but said only that it was an “English” stock.
  
  In spite of his popularity, Mr Buffett knows he needs to show that he is more than a one-man band and that he has a team of pretenders able to take on the Berkshire Hathaway mantle. The “three T’s” are being pushed front and centre to fulfill this demand.
  
  Mr Combs, 43, was appointed in 2010, a surprise move for the manager of a small and little-known Connecticut-based hedge fund called Castle Point Capital. Like Ms Cool, Mr Weschler, 52, formerly a managing partner at Peninsula Capital Advisers had long put “meeting Warren Buffett” on his bucket list. He entered a charity auction in which the top prize was lunch or dinner with Mr Buffett and won twice with bids totalling $5.2 million. After the second lunch in 2011, Mr Buffett surprised him by offering him a job.
  
  “It was the last thing on my mind,” Mr. Weschler said yesterday. “I didn’t want to be dismissive, I mean this guy’s like a hero, you can’t just say ‘no way’.”
  
  Mr Buffett said he received thousands of letters from people seeking jobs and chose his top lieutenants on the basis of character, as well as intellect.
  
  “Things jump out at you to some extent,” he said. “People do give themselves away.”
  
  • Warren Buffett’s annual letter to shareholders lists Berkshire Hathaway’s top 15 common stock investments, including IBM and Coca-Cola. However, it also mentions one big equity position not included in the table: “We can buy 700 million shares of Bank of America at any time prior to September 2021 for $5 billion,” adding that at year’s end these shares were worth $10.9 billion. “We are likely to purchase the shares just before expiration of our option.”

Seth Godin and Bureaucracies

• Entropy, bureaucracy and the fight for great
  
  As an organization succeeds, it gets bigger.
  
  As it gets bigger, the average amount of passion and initiative of the organization goes down (more people gets you closer to average, which is another word for mediocre).
  
  More people requires more formal communication, simple instructions to ensure consistent execution. It gets more and more difficult to say, "use your best judgment" and be able to count on the outcome.
  
  Larger still means more bureaucracy, more people who manage and push for comformity, as opposed to do something new.
  
  Success brings with it the fear of blowing it. With more to lose, there's more pressure not to lose it.
  
  Mix all these things together and you discover that going forward, each decision pushes the organization toward do-ability, reliability, risk-proofing and safety.
  
  And, worst of all, like a game of telephone, there will be transcription errors, mistakes in interpreting instructions and general random noise. And most of the time, these mutations don't make things wonderful, they lead to breakage.
  
  Even really good people, really well-intentioned people, then, end up in organizations that plod toward mediocre, interrupted by random errors and dropped balls.
  
  This can be fixed. It can be addressed, but only by a never-ending fight for greatness.
  
  Greatness can't be a policy, and it's hard to delegate to bureaucrats. But yes, greatness is something that people can work for, create an insurgency around and once in a while, actually achieve. It's a commitment, not an event.
  
  It's not easy, which is why it's rare, but it's worth it.
  
  ( more good ideas from Seth Godin)

FairTrade

• A new study exposes Fairtrade for what it is – a Western vanity project that impoverishes those it’s meant to benefit. The world’s ethical shoppers are still reeling this week after a report revealed that Fairtrade programmes are of little benefit to those working on farms in the developing world.
  
  The government-funded study published by SOAS, a part of the University of London, was conducted over a four-year period in Uganda and Ethiopia. It showed that labourers on farms that are part of Fairtrade programmes are usually paid less and are subject to worse working conditions than their peers on large commercial farms, and even other small farms that are not part of Fairtrade programmes. Professor Christopher Cramer, the study’s main author, said: ‘Fairtrade has not been an effective mechanism for improving the lives of wage workers, the poorest rural people.’
  
  The study also found that the ‘social premium’ incorporated into the price of Fairtrade products, which is meant to be used to improve infrastructure in poor communities, is often misspent. In one instance, researchers found that modern toilets built with this premium were in fact for the use of senior farm managers only. The report also documented examples of health clinics and schools set up with social-premium funds that charged fees that were too high for the labourers they were intended to benefit.
  
  Of course, nobody needed the clever people at SOAS to tell us all this. From its very inception, the concept of Fairtrade was rooted in maintaining low ‘sustainable’ horizons for the poor by those who consider people in Africa and other parts of the Third World to be intrinsically different to the rest of us. The movement did not originate with the poor farmers of the developing world, but with Western NGOs and their army of gap-year do-gooders intent on imposing their reactionary ‘small is beautiful’ values on an Africa desperate for change.
  
  According to the Fairtrade worldview, the poor farmers of the world are in fact quite happy with their lot and only desire a stable, if low, price for their produce. Once this is in place, they will be free to enjoy their simple idyllic existence. The fact that Western countries left extreme poverty behind through rapid industrialisation and urbanisation does not apply to Africa, they say. Instead, it is of paramount importance that Fairtrade ‘promotes and protects the cultural identity and traditional skills of small producers’. They should receive enough money never to be in danger of starvation, but not enough to afford a foreign holiday or to send a child to university or, indeed, do any of the things we in the West enjoy, lest it undermine their cultural identity.
  
  The concept of Fairtrade was enthusiastically lapped up by Western companies desperate to prove their brands were ethical and right-on – now they could tell their customers that by buying their goods they were making the world a better place. It became one of the most successful marketing campaigns in history.
  
  In reality, though, the idea of ethical shoppers transforming the world through their consumer choices was always a fairy tale. Yes, Fairtrade farmers are guaranteed a minimum price for their produce, in the event that the price of the commodity they produce crashes. However, in return they are expected to adhere to stringent regulations, many of which prevent producers from developing or expanding their farms. As a result of Fairtrade, then, many farmers are kept in poverty.
  
  Principle 10 of the Fairtrade charter, for instance, demands that farmers have ‘respect for the environment’. In practice, this means actively discouraging the use of chemical fertilisers, pesticides and mechanisation – the three things that make modern agriculture possible. Instead, Fairtrade stresses the importance of ‘traditional skills’, which is code for backbreaking manual labour. The end result of all this is that farmers are forced to endure more toil for lower yields. It is no surprise that farmers pass the economic pinch on to their labourers in the form of lower wages.
  
  All of this has been known for a long time. In 2005, the education charity WORLDwrite made the documentary The Bitter Aftertaste which exposed the chasm between the desperate circumstances of those who worked on Fairtrade smallholdings and the self-righteous do-gooders back in Blighty who believed they were helping them. Almost a decade on, it seems little has changed. The Guardian, which has long been Fairtrade’s loudest media cheerleader, foolishly defended its cause in the face of the report’s scathing criticism. Commissioning a series of articles, including one by Cramer, it chose to go with the line that the damaging impact of Fairtrade on the developing world meant that Fairtrade should be reformed rather than done away with altogether.
  
  It’s a sorry state of affairs. Advocates of Fairtrade such as the Guardian accept that all people in the developing world deserve is a life just above subsistence, and that it’s our duty in the West to provide that for them. It is time this patronising attitude gave way to a more positive outlook, one which sees economic development as the best way to improve the lives of farmers. Rather than lamenting the changes economic development will bring to the way of life of rural Africans, these changes should be celebrated. African farmers don’t need Fairtrade restrictions and regulations; they need the freedom to develop their societies into modern economies, with large efficient modern farms in which the workers might have a chance to demand a decent wage for their labour.

Koch Brothers

• KOCH INDUSTRIES, an oil, gas and commodities conglomerate based in Wichita, Kansas, is one of the great success stories of American business, with more than 100,000 employees worldwide and annual turnover of around $115 billion. It is also one of its most unusual, in everything from its management techniques to its enthusiasm for political activism to the intensity of the family feuds which have threatened, at times, to tear it apart. Far more is written about the Kochs’ political activism—often somewhat hysterically—than about their business. But a new book, Daniel Schulman’s “Sons of Wichita”, offers a fuller picture.
  
  Koch, pronounced “coke”, is America’s biggest private company after Cargill, another commodities titan. Charles Koch, the second son of the late founder, Fred Koch, is the undoubted boss of the firm. (Insiders joke that Koch stands for “Keep old Charlie happy”.) A younger brother, David, acts as a loyal lieutenant. Two other brothers, Fred junior (the oldest) and Bill (David’s twin), have a more complex relationship with the company that has helped to make them two of America’s richest men.
  
  Charles believes that staying private brings many advantages. Spared the requirements for disclosure and corporate governance imposed on listed firms, Koch can avoid tipping its hand to rivals, and think long-term while acting quickly when it sees a bargain. Above all, it frees the group to focus relentlessly on growth. Mr Schulman quotes an executive saying that growth is: “Our religion…to make things grow…to push, push, push.” Charles says that it will go public “literally over my dead body.”
  
  Charles runs Koch according to the principles of something he calls market-based management. Employees are expected to read his 2007 manifesto, “The Science of Success”, and attend a two-day seminar on the theory at an in-house academy. Its aim is to bring the efficiency of markets into the company’s internal workings. Competition between different business units and employees is encouraged, and all workers are given broad permission to make decisions without referring upwards.
  
  The system is highly democratic. Koch has an unusually “flat” organisational structure for a company its size. Workers can earn more than their bosses. High-school-educated farm boys from Kansas can rise faster than Ivy League MBAs and end up running multibillion-dollar divisions. It is also ruthlessly Darwinian. For those who succeed, bonuses running into six or seven figures are the reward; for those who fail, there is no hiding-place.
  
  The Kochs are also at the heart of one of America’s most powerful political machines. Most businesspeople take a strategic approach to politics: they lobby for special privileges and contribute to both sides of the political aisle. The Koch brothers have ideology in their DNA. Fred senior was a leading light in the anti-communist John Birch Society. David ran as the Libertarian Party’s vice-presidential candidate in 1980, and Charles and David helped to raise an estimated $400m for efforts to defeat Barack Obama’s re-election bid in 2012. Critics fret about the “Kochtopus”—the Kochs and the network of institutions that they finance, ranging from the Cato Institute, an august think-tank in Washington, DC, to Tea Party organisations like Americans for Prosperity.
  
  For all the successes of Koch and its founding family, their idiosyncrasies have brought costs. The firm has been racked by family feuds that, in the words of one of the protagonists, made “Dallas” and “Dynasty” look like playpens. Bill has brought a series of lawsuits against “Prince Charles”, accusing him, among other things, of wasting money on political causes, paying too little in dividends and keeping the family wealth locked up in illiquid form. In the 1990s it suffered a barrage of cases from the federal government accusing it of violating safety and pollution laws: the book suggests that Charles’s market-based, growth-focused management may have tempted it to overlook such issues. Charles’s enthusiasm for political activism has led the public to view the company through an ideological rather than a business lens. For those on the left, Koch Industries stands for everything that is wrong with capitalism, from billionaires trying to buy elections to oil barons despoiling the environment.
  
  Nevertheless, the company’s business record has been extraordinary: it does not publish its profits but it is a safe bet that the family can well afford the odd billion in political donations and legal fees. Although Fred senior and his first business partner started out trying to perfect the refining of crude oil, Koch Industries has grasped that its core competence nowadays is not so much the research side of the business as its understanding of how to process and transport commodities efficiently. This encouraged it to move further beyond its original oil-and-gas business to make, in 2005, an audacious $21 billion bid for Georgia-Pacific, a larger public company that sells Brawny paper towels, Dixie cups and Angel Soft toilet paper. This almost trebled the firm’s workforce and provided fuel for further growth.
  
  Koch Industries has also demonstrated a striking ability to reform itself. Prodded by the spate of legal suits in the late 1990s, the firm introduced a big safety programme. Charles’s corporate mantra was “10,000% compliance with all laws and regulations”, by which he meant 100% compliance from 100% of employees. The company sold the bulk of its pipeline operations and refocused on the far less regulated area of trading commodities and energy. It also hired a small army of former federal-government prosecutors and regulators to help guard the hen house. After wasting millions of dollars trying to defeat Mr Obama in 2012, Charles and David are now applying their re-engineering skills to their gigantic political operation. What does not kill the Kochtopus only makes it stronger.

• Link

• What’s the most popular place on the planet, the place most people think they should visit before they die? Is it somewhere old, say, the Taj Mahal or the pyramids? Somewhere hedonistic, such as Las Vegas? Somewhere for the family, maybe Disneyland? Or one of the natural wonders of the world, the Grand Canyon or Uluru?
  
  The best place in the world is only five years old. It has no natural beauty. It is a giant, dirty grey shed in a sun-scorched sandpit in what used to be the middle of nowhere. It has no culture, no depth. But more people go there than anywhere else on the planet — almost 80m in the past 12 months.
  
  That’s 17m more than the population of Britain and more than the number who go to the Eiffel Tower, Niagara Falls and Disney World in Florida combined. By 2020, the total is forecast to exceed 100m. I’m about to become the latest click on the ticker. I’m walking under a vast, self-important red sign that reads: THE DUBAI MALL.
  
  At first sight, Dubai Mall looks much like any other supersized shopping centre. There are the escalators carefully arranged to route visitors past all the shops, the introverted architecture and the strange smell — a cross between sweetness and plastic. But this is the mall of malls, the one every other wants to be.
  
  It has no natural beauty. It is a giant, dirty grey shed in a sun-scorched sandpit in what used to be the middle of nowhere
  
  In spite of a recession that hit Dubai harder than most, it is full — all 1,200 stores and 200 restaurants and cafes, all 6m sq ft of space, all 14 miles of store fronts. Sales are rising by about 20% a year and rents by 10%-15%. On a busy day, the mall’s turnover exceeds £10m. Annually, it takes more than £3bn.
  
  It’s so successful that Emaar, the Dubai developer that built it, is adding a new £200m, 1m sq ft wing next to the Burj Khalifa, the world’s tallest building, which Emaar also built. Another £300m, 1m sq ft wing, including a bridge of shops over a highway, is being built at the other end. When the new bookends open in two years’ time, the mall will be 15 times the size of Selfridges in London’s Oxford Street and the goods and services for sale on any given day will be worth more than £4bn.
  
  The mall’s mind-bending size and popularity make it uniquely revealing. It is the closest thing the world has to a black box, a place that exposes what we want: our foibles and our failures, where we’re coming from and going to. It’s the place to go to discover the state of modern man.
  
  I begin at the I ♥ Dubai kiosk because if the visitor numbers prove anything, it’s that the world likes Dubai. The stall is not up to much. It has the usual cheap-looking pens, cuddly toys and fridge magnets. I pick up a postcard of a camel that grins at me as I turn it from side to side. What, I wonder, is the appeal of flying for seven hours from London to go to a version of Bluewater, only with camels instead of Paddington Bears for tourists?
  
  I decide to ask Hussain Jaber Belshalat, who runs the kiosk. He is softly spoken and studiously polite. He hands me gooey dates and Arabic coffee laced with cardamom. But even he cannot resist giving me his best “You really ought to get out more” look when he hears my question. “This place is not about Europeans, or for Europeans,” he says. “It’s for the whole world. Look around.”
  
  I do. There’s every kind of person. Conservative Saudis, Kuwaitis and Qataris snap up baubles between visits to the prayer rooms. Iranians stock up on goods that economic sanctions mean they cannot buy at home. Coachloads of Japanese, Chinese and Russian ram raiders race to Louis Vuitton, led by flag-waving guides. Exhausted tangles of window-shopping Indian and Pakistani families, sometimes 30 members strong, clog up the marble-lined arteries. Westerners stand out because they ignore the dress code posted at the entrances that discourages shorts and strappy tops.
  
  Dubai Mall represents the triumph of globalisation over every other economic, social, political and religious force. Every kind of person from every country comes to Dubai to get a taste of the modern world — by shopping. Six years after global capitalism faced its gravest crisis, money talks again and it’s saying: “Do buy.”
  
  What does the resurgent global consumer want? New money craves some very old-money — often British — class. Burberry, Paul Smith, Alfred Dunhill and Hackett all do a roaring trade in the mall. Fortnum & Mason has just opened a store and cafe, and sells so much shortbread and lemon curd that it’s always running out. The only supermarket is Waitrose. “The world likes British things more than we Brits sometimes imagine,” says Martin Primett, a former British RAF liaison officer with the Royal Saudi Air Force who is now helping Waitrose to win the retail battle in the Middle East as a business development manager.
  
  New money also wants some good old-fashioned fun. Irina Litkova runs the risqué British lingerie brand Agent Provocateur’s first standalone shop in the Middle East. At first, she had few customers. One Emirati woman only came in to spit on a poster of a woman in stockings and suspenders. But then something remarkable happened. Women whose only peephole is the eye slit in their niqab started coming in for peephole bras. Today, Litkova’s store is one of the brand’s top 10 global performers.
  
  “No matter who they are or what their religion, women enjoy the same things,” Litkova grins, as she tries to bend the thong-clad mannequins in her window display over a few inches more than the government inspectors allow. Her bestselling item is a kinky riding crop with a Swarovski-crystal handle. In Dubai, even bonking is bling.
  
  Twenty years ago, few of us could have spelt Dubai, far less found it on a map. The city state has been built from scratch in a generation. How has it now gone one step further and created a place marketed with commendable statistical accuracy as “the centre of now”?
  
  “Location, location, location,” says Mariam Chahin, the fast-talking Lebanese head of marketing at Marks & Spencer, whose store in the mall is the highest grossing of the firm’s 27 across the Middle East. She explains that the mall is a business and leisure safe haven at the centre of a city that is, itself, a safe haven in a troubled region. “I come from Beirut. There is no life there for me now. But there is work, money, safety here,” she says.
  
  We work, we spend, we consume, therefore we are. More than ever, money is the autocrat and the architect of our dreams OK, the Middle East is having a rough time, even by its dismal standards. But most of those who fly to Dubai to seek their fortune, or simply to have fun, are not Arabs. They are from everywhere. Why do they choose Dubai, over, say, Delhi, Mumbai, Abu Dhabi, Doha or, further afield, Paris, Madrid, Istanbul, New York or Tokyo? Those cities have malls, jobs, wealth and way more culture and history than Dubai’s insta-city can muster.
  
  “Dubai makes everything so, so simple,” says Charlotte Hall, 28, from Peterborough, who works in PR in the world’s most successfully PR-ed city. “Everything’s done for you here. You don’t even have to think.”
  
  The mall is certainly blissfully/vacuously* undemanding (*delete according to taste). As I arrive, I walk past a small army of security men and greet the concierges, who are all “Mr Arlidge this” and “Mr Arlidge that”. It is a tarmac-melting 40C outside, but inside it’s spring. Always. There’s so much water in the aquarium, the lakes, fountains and the Olympic-sized ice rink — 160m litres to be precise — that I quickly forget I am in a part of the world that Wilfred Thesiger called “a bitter, desiccated land which knows nothing of gentleness or ease”.
  
  The food is as familiar and dull as day-old pizza. Almost all of the restaurants and cafes serve some variation on burgers, pasta, sushi or frozen yoghurt. You have to look hard to find Arabic food in the heart of modern Arabia. Waitrose even sells bacon, ham and salami in its vast non-Muslim section.
  
  In a region noted for stifling religious and social strictures, the mall is strikingly liberal. I can have a glass of wine on a little outcrop of restaurants that the mall folk call Souk Al Bahar but everyone else calls Booze Island. You only have to spend a few minutes in Dolce & Gabbana to realise that gays are welcome, even though homosexuality is illegal in Dubai. There’s even gambling — of sorts. Outside the aquarium, Abu Dhabi Islamic Bank is giving away a £200,000 Bentley in a prize draw.
  
  “If you want to attract the world, you’d better be attractive, and this place is an oasis,” says Duncan McLellan from Newcastle, who has lived in the Middle East for 20 years and now runs Scotch & Soda — not a bar but a Dutch fashion chain. I’ve spent three days in the mall, now, without leaving. My hotel, The Address, is part of it. Turn left at Bloomingdale’s cosmetics counter and you’re in the lobby. I’ve scarcely seen the sun. By day four, I’ve forgotten I am in the Middle East at all. And that’s the point. Dubai’s east-meets-west mission is to create an economically and socially liberal success story in one of the most economically and socially troubled regions on earth. The mall is its purest expression, its calling card. “What’s good for the merchants is good for Dubai and for the whole region,” says Dubai’s CEO-style ruler, Sheikh Mohammed bin Rashid Al Maktoum.
  
  It’s tempting to think that all the shops, bars and restaurants are bait to lure the westerners Sheikh Mohammed needs to make his “Arabia-lite” business model work. But their most dramatic effect is on locals — at least, according to one of the Sheikh’s top lieutenants, Mohamed Alabbar, the US-educated boss of Emaar. He says the mall offers Arabs the economic and social freedom they need to compete in the modern world. “Three hundred million Arabs in this region feel they can make it here. They can get their break here,” he says. “It’s a beacon of hope. It’s enriching.”
  
  It sounds an absurdly grand notion, until I meet Sarah Belhasa at Coffeöl Cafe, near the Tom Ford fragrance store. She tells me that, until recently, “women in Dubai were housewives. The End.” But Dubai wants women — it wants everyone — to work to make its desert dream reality. So she started a local women’s fashion retailer.
  
  At first, she had to work with suppliers in Europe. When the mall opened, she took a gamble. She hired local garment-makers to create the dresses and opened a boutique called Studio 8, next to Boots. Business is good, she tells me — and, judging by the glinting ruby-studded gold Rolex Daytona that she is sporting, it is. “This is the best place in the Middle East to be a woman,” she grins.
  
  Women own and run dozens of retailers in the mall. Alabbar’s daughter, Salama, runs the Symphony fashion boutique. The senior director of the mall is a woman. That might not sound like much by western standards, but it is nothing short of a revolution in a region where women are still airbrushed out of the photographs in some newspapers, merely for being women.
  
  Not everyone, of course, celebrates Dubai’s sun, sea, sand and shopping. I find out by doing what no one in Dubai ever does. Walk. I sweat my way through the furnace-like car park of the mall, past conga lines of SUVs, onto the main drag, Sheikh Mohammed Bin Rashid Boulevard. It is lined with construction workers, slumped in front of billboards advertising Dior and all the other fashion boutiques they are building in the new extensions to the mall. They bunk down to rest in the shadows cast by giant concrete blocks, nibbling hard-boiled eggs from white plastic bags. A workforce of 20,000 toiled for 24 hours a day to build Dubai Mall in just four years. One worker, Umprakash, who earns about £100 a month, tells me: “I wish the rich people who shop here would realise who is building these shops. I wish they could see how sad this life is.” Most don’t notice. They’re too busy caning their credit to care.
  
  The same goes for the environment. It costs gazillions of dirhams to air-condition Dubai Mall, and keep all the fountains spurting and the ice in the drinks and on the rink cold. Thousands of gallons of fresh salt water are delivered to the aquarium every day, trucked in from 20 miles away. Every morsel of food, every drink is flown in. “We import 10 tons of berries from California every day,” Waitrose’s Primett tells me. Do environmental concerns stop anyone from coming to the mall or buying such well-travelled fruit, I ask. “On the contrary,” Primett replies. “People here want and expect winter and summer food all year round.”
  
  The longer I spend in Dubai Mall, the clearer it becomes how willing modern man has become to trade just about anything for a little slice of modernity and luxury, even if it’s just a punnet of blueberries. We work, we spend, we consume, therefore we are. More than ever, money is the autocrat and the architect of our dreams.
  
  The best illustration is something you cannot see, touch, buy or enjoy in the mall. Locals call it “the bargain” — and they don’t mean the two-for-one offers in the local branch of Reiss. They mean the deal they all sign when they move to Dubai. Almost every one of the 25,000 people who work in the mall, from wealthy western chief executives to the Pakistani cleaners, casts aside rights and freedoms hard fought for over centuries. They agree not to join a trade union or bargain on pay and conditions. And no matter how long they spend in Dubai, how much they contribute, they agree that they will never enjoy any political or residency rights. Lose your job in Dubai and your visa expires. “They spit you out when they no longer need you,” says M&S’s Chahin. “It’s pretty brutal, but it works. It means they always have just the right number of workers for the economic climate.”
  
  Dubai Mall opened in the worst possible climate — in November 2008, two months after Lehman Brothers collapsed and the recession began. In those days, newspapers gleefully bid Dubai “Bye-bye” in headlines laced with schadenfreude. “We were really panicking,” concedes I ♥ DUBAI’s Belshalat. Six years on, the mall’s record-breaking peformance represents the total victory of a business model based on no rights, no freedom, no questions asked, cheap credit, even cheaper labour and wealthy foreigners. Dubai built it and, in the end, every Tom, Dick and Mohammed came. It’s what they — what we — want.
  
  The nagging question is: should we? Is Dubai Mall a good thing? I decide to ask the man dressed in a pristine white dishdasha and sporting a wispy beard whom I meet sitting under a giant Armani sign. He is Sultan Sooud Al-Qassemi, a writer and commentator. He acknowledges the mall is a shallow, planet-shredding temple of greed, built by sun-dried slaves. It feeds the stereotype of spendthrift Arabs frittering away their petrodollars, buying things they don’t need to impress people they don’t like. It creates the illusion of freedom when, in fact, like everything else in Dubai, freedom comes at a price. Yet, like Alabbar, he thinks the mall, the merrier.
  
  “The Middle East — the world — needs a new place where east meets west, as it used to do in Cairo, Alexandria, Algiers, Beirut and Baghdad. Here, Arabs and everyone else all rub along together. Is that important? Does it change things a little bit for the better? I think so. And if you don’t agree, you don’t have to come.”
  
  He’s right. You don’t. But, if the figures are anything to go by, you soon will.

Uber and "Surge Pricing"

• Dynamic pricing could be applied in many industries to better manage supply and demand.
  
  In the four years since the car service Uber launched, it has been beset by criticism from myriad groups, including city officials annoyed by its sometimes cavalier attitude toward regulation and taxi companies annoyed by increased competition. Some of the harshest criticism, though, has come from an unlikely place: Uber’s own customers. Thanks to its reliance on what it calls “surge pricing”— meaning that during times of high demand, Uber raises its prices, often sharply—the company has been accused of profiteering and exploiting its customers. When Uber jacked up prices during a snowstorm in New York last December, for instance, there was an eruption of complaints, the general mood being summed up by a tweet calling Uber “price-gouging assholes.”
  
  What’s striking about the Uber backlash is that the company is hardly the first to use dynamic pricing. There have always been crude forms of price differentiation—or, as it is known in economics, price discrimination. If you go to a movie matinee, you pay less than if you go at night, and if you’re willing to wait to buy a new dress (and run the risk that it might sell out), you can often get it at a marked-down price. But dynamic pricing in a more rigorous sense was pioneered in the 1980s by Robert Crandall, CEO of American Airlines, as a way to fight off competition from discount airlines like People Express. American began by slashing prices for tickets bought well in advance, while keeping prices for tickets bought closer to takeoff (when ticket inventory was lower, and demand was less price-sensitive) as high as possible. In the decades since, this kind of yield management has become integral to the business models of airlines, hotels, and rental-car companies, and greater computing power and more sophisticated data analysis has turned pricing in these industries into an incredibly complex process. (Dynamic pricing has also allowed sites like Priceline and Hotwire to flourish, since when hotels are stuck with extra rooms, they’re often willing to drop prices rather than let a room sit empty.) More recently, as technology has made it easier to segment the market and change prices on the fly, dynamic pricing has become common in other industries, too. Many professional sports teams now use it to set ticket prices—games against high-profile teams cost more than games against cellar dwellers—while concert ticket prices wax and wane with demand.
  
  If dynamic pricing is hardly unusual, why has Uber taken so much flak? Some of it is a matter of history: early on, Uber’s pricing was not especially transparent, so customers occasionally found themselves stuck with fares that were much higher than they expected. The fact that some of the most high-profile examples of surge pricing have been the result of big storms also matters, since it taps into people’s visceral dislike of price gouging. A 1986 study by Daniel Kahneman, Jack Knetsch, and Richard Thaler found that most people thought “raising prices in response to a shortage is unfair even when close substitutes are readily available”—a situation that almost perfectly describes Uber. Then, too, the price increases during surges are often magnitudes greater than customers are used to; during that New York snowstorm, Uber charged up to nearly eight times as much as it usually did. Thaler has suggested that people find price increases above three times normal psychologically ­intolerable.
  
  The reality is that the times when people most want a ride are also the times when it’s most annoying and, often, most risky to drive: rush hour, New Year’s Eve, 2 a.m. on a Saturday night, snowstorms.
  
  It’s also important that Uber’s prices only rise above the base rate and never fall below it, since customers seem to accept dynamic pricing more easily when it’s characterized as a discount. At the movies, for instance, prime-time tickets aren’t presented as a few dollars more than the normal price—rather, matinees are presented as a few dollars less. When American introduced dynamic pricing, it framed the 21-day advance-purchase requirement as a chance to buy “super-saver” fares. And happy hours at bars are, similarly, framed as a markdown from the regular price. These framing devices don’t change the underlying economics or price structure, but they can have a big impact on customer reaction. In 1999, for instance, Douglas Ivester, then the CEO of Coca-Cola, suggested that smart vending machines would allow Cokes to be more expensive on hot days, when demand was presumably higher. There was an immediate, intense backlash, and the company quickly backed down, saying Ivester’s comments were purely hypothetical. Had Ivester instead suggested that Coca-Cola could use dynamic pricing to charge less on cold days (even if it had raised the base price of a can), response would probably have been very different. Uber’s competitor Lyft seems to have recognized the power of framing: it recently introduced what it calls happy-hour pricing, offering discounts during slow business hours.
  
  Finally, Uber also faces a challenge simply because of the industry it’s in: a business in which fares have historically been regulated (for cabs) and fixed (if you take a car service to the airport in New York, for instance, you typically pay the same price whether you leave at 6 a.m. or 5 p.m.). Uber’s pricing scheme is more complicated and harder to grasp intuitively, so that even though Uber is transparent about surge pricing, some people inevitably find it vexing. Uber’s also combating the sense that transportation is, in some sense, a public utility, and that it’s offensive to charge people so much more than they’re used to paying. This is a mysterious complaint, since there are many alternatives to using Uber. But it’s a surprisingly common one.
  
  It’s easy to see, then, why Uber has become a flash point for criticism. But there is a deep irony here: the company arguably offers the most economically sensible, and useful, example of dynamic pricing in today’s economy.
  
  In most cases, after all, dynamic pricing is a way for companies to maximize profits by exploiting demand—charging higher prices to people who can and will pay more. As MIT professor Yossi Sheffi has put it, it’s the “science of squeezing every possible dollar from customers.”
  
  That’s because most industries that use dynamic pricing have a limited inventory (an airline flight has a set number of seats, a hotel a set number of rooms) and are trying to make as much money from selling that inventory as possible. Uber’s case is different. While the company also wants to make as much money as possible, it uses surge pricing not only to exploit demand but to increase supply.
  
  When there are more would-be Uber passengers than available Uber cars, the company’s algorithm sets a price that balances supply and demand. Uber’s algorithm (which it has been refining since 2011) is the company’s greatest asset and most significant innovation, allowing it to find the price that will attract drivers—whom, as independent contractors, it can’t order onto the road—without alienating customers. The strategy works. In a recent blog post, the venture capitalist Bill Gurley, who’s an Uber board member, said that when Uber first tested dynamic pricing in Boston in 2012, it was able to “increase on-the-road supply of drivers by 70 to 80 percent.”
  
  Plenty of us have an intuition that cab drivers would want to be on the road when there’s money to be made. But this isn’t the case: a number of studies have shown that there’s considerable variety in how they decide when to drive. Also, the reality is that the times when people most want a ride are also the times when it’s most annoying and, often, most risky to drive. Rush hour, New Year’s Eve, 2 a.m. on a Saturday night, snowstorms: generally speaking, these are exactly the times when a driver doesn’t want to be on the road. But if driving at those times pays considerably better, then they are more likely to be willing.
  
  What this means is that in the case of Uber, surge pricing doesn’t just make rides more expensive (as is the case with airline tickets or hotel rooms at times of high demand). It also expands the number of people who are actually able to get a ride. Customers pay more, but they also get a ride that they otherwise would not have gotten. This is exactly how a market is supposed to work: higher demand induces more supply.
  
  Of course, Uber has been making this argument for a while now, and it hasn’t stopped people from complaining. (Though it hasn’t stopped people from using the service, either: Uber is now valued at more than $17 billion.) So pundits have proffered a number of suggestions for solving the public relations problem.
  
  The company itself should take no money during surge periods (it now takes 20 percent of every fare), so all the money goes to the drivers. Or it should cap prices to consumers but pay the higher price to drivers, essentially subsidizing people’s rides in surge periods. Or when prices rise really sharply, Uber should donate its take to charity.
  
  These are all interesting ideas. But it’d be a mistake for Uber to let public relations trump economics when it comes to dynamic pricing. It makes sense that the company recently reached an agreement with New York’s attorney general that caps surge pricing during times of “emergency,” since these emergencies are rare, and the negative fallout from them can be immense. But tinkering with the basic idea of surge pricing will only reinforce the status quo and bolster people’s implicit assumption that prices should be set, in some sense, independently of supply and demand. The basic reality of Uber’s business model is that when people want a ride the most, it’s likely to be the most expensive. This will always be irritating, just as exorbitant prices for last-minute airline tickets are irritating. But over time, surge pricing will also become more familiar and less surprising.
  
  Utilities are now starting to use dynamic pricing for electric power, which can help prevent blackouts at times of high demand and promote energy conservation more generally. A new startup called Boomerang Commerce, which is led by former Amazon engineers, has been helping online retailers set prices dynamically. Dynamic pricing is the future, even if the road to get there will be bumpy.

You're Continually Being Experimented On

• On your way to this article, you probably took part in several experiments. You may have helped a search engine test a new way of displaying its results or an online retailer fine-tune an algorithm for recommending products. You may even have helped a news website decide which of two headlines readers are most likely to click on.
  
  In other words, whether you realize it or not, the Web is already a gigantic, nonstop user-testing laboratory. Experimentation offers companies a powerful way to understand what customers want and how they are likely to behave, but it also seems that few people realize quite how much of it is going on.
  
  This became clear in June, when Facebook experienced a backlash after publishing a study on the way negative emotions can spread across its network. The study, conducted by a team of internal researchers and academics, involved showing some people more negative posts than they would otherwise have seen, and then measuring how this affected their behavior. They in fact tended to post more negative content themselves, revealing a kind of “emotional contagion” (see “Facebook’s Emotion Study Is Just Its Latest Effort to Prod Users”).
  
  Businesses have performed market research and other small experiments for years, but the practice has reached new levels of sophistication and complexity, largely because it is so easy to control the user experience on the Web, and then track how people’s behavior changes (see “What Facebook Knows”).
  
  So companies with large numbers of users routinely tweak the information some of them see, and measure the resulting effect on their behavior—a practice known in the industry as A/B testing. Next time you see a credit card offer, for example, you might be one of a small group of users selected at random to see a new design. Or when you log onto Gmail, you may one of a chosen subset that gets to use a new feature developed by Google’s engineers. (see “Seeking Edge, Websites Turn to Experiments.”)
  
  “When doing things online, there’s a very large probability you’re going to be involved in multiple experiments every day,” Sinan Aral, a professor at MIT’s Sloan School of Management, said during a break at a conference for practitioners of large-scale user experiments last weekend in Cambridge, Massachusetts. “Look at Google, Amazon, eBay, Airbnb, Facebook—all of these businesses run hundreds of experiments, and they also account for a large proportion of Web traffic.”
  
  At the Sloan conference, Ron Kohavi, general manager of the analysis and experimentation team at Microsoft, said each time someone uses the company’s search engine, Bing, he or she is probably involved in around 300 experiments. The insights that designers, engineers, and product managers can glean from these experiments can be worth millions of dollars in advertising revenue, Kohavi said.
  
  Kohavi’s group has developed a platform to allow other parts of the company to perform their own user experiments. The company’s flagship productivity software, Office, would likely benefit from more user experimentation, he said.
  
  Facebook’s emotion study, published in the Proceedings of the National Academies of Science, went further than most daily Web experiments that measure only miniscule differences after influencing people’s behavior in subtle ways. But MIT’s Aral notes that eliciting an emotional response does not make an experiment unethical. “I was very surprised to see that people were upset about that,” he said, pointing out that that many television ads and newspaper headlines are arguably just as emotionally manipulative.
  
  Yet, perhaps just as importantly, the Facebook study may also have revealed how few people realize they are being prodded and probed at all.
  
  “I found the backlash quite paradoxical,” said Alessandro Acquisti, a professor at Carnegie Mellon University who studies attitudes towards privacy and security. Although he thinks user experiments need to be conducted with care and oversight, he felt the Facebook study was actually remarkably transparent. “If you’re really worried about experimentation, you should look at how it’s being used opaquely every day you go online,” Acquisti said.
  
  Some practitioners say experimenters need to think carefully about how they present their work to users. Duncan Watts, a principal researcher at Microsoft (and previously a professor of sociology at Columbia University), said this was a problem with the Facebook study. “When people hear the word ‘experiment’ and they hear the word ‘manipulation’ they think of lab rats,” he said. “Inside this community we have a very different interpretation. We think of a systematic test of a hypothesis by randomizing assignment to different treatment conditions.”
  
  To assuage concerns among its users, Facebook said this month that it would introduce a new process for reviewing potentially sensitive research, although it did not say what that would mean.
  
  But even if experiments continue to have only subtle effects, some may find their scope, scale, and growing sophistication unsettling. “What’s happened in the last few years—and this to me is crucial—is that it’s becoming very specific to a person based on their personal information,” said Acquisti. “It’s becoming ubiquitous, and it’s becoming much more measurable.”

Mergers and Splits

• For most of this year, corporate America has exhibited a full-blown case of merger mania. Deals worth more than a trillion dollars have been announced. But there is also something odd going on: the urge to merge has been accompanied by an urge to purge. According to S. & P., the number of spinoffs announced so far this year is nearly thirty per cent higher than the number for the whole of 2013, and, in the past month, three big tech companies announced breakups. Hewlett-Packard and Symantec are both dividing their operations in two, while eBay is spinning off PayPal—all dramatic changes of direction. Between 2001 and 2011, Hewlett-Packard spent almost sixty-six billion dollars on acquisitions in the hope of making itself a one-stop shop for tech customers. Symantec is effectively reversing its 2005 acquisition of Veritas, which it said at the time would create great “synergies” among its products. As for eBay, as recently as January it was telling investors that “we have been successful exactly because PayPal and eBay are together.” Now all these companies are saying that the parts are more valuable than the whole.
  
  No one’s upset about the U-turns, because breakups, unlike mergers, have a solid track record. Studies have found that spun-off stocks have consistently beaten the market by a wide margin. Emilie Feldman, an assistant professor of management at Wharton who has done a series of studies of divestitures, told me, “It isn’t just the stock price. Spinoffs also improve the short- and long-term performance of the companies themselves.” In companies with lots of divisions and product lines, it’s hard for executives to concentrate on the core business. “When you’re mixing and matching and trying lots of different things at the same time, it’s just a constant drain on executives’ attention,” Feldman said. In a study she conducted of the reasons companies give for splitting, ninety-two per cent said that improving “managerial focus” was key.
  
  Breaking up has other advantages, especially if one part of your company is growing faster than the rest, or is significantly more profitable. These days, PayPal is likely more valuable, in investors’ eyes, than eBay. So, if you’re working for PayPal but getting compensated in part with eBay stock options, you’re being paid less than if the companies were separate. Feldman, in a study of more than two hundred spinoffs, found that people running higher-earning divisions were undercompensated relative to performance. After a spinoff, she said, “everything falls right into line, and people get paid based on their performance.” Especially in a place like Silicon Valley, that makes it a lot easier to hire and keep the right people.
  
  The success of divestitures doesn’t mean that mergers are always a mistake. The acquisition of PayPal by eBay, in 2002, was the kind of deal that often works—the purchase, at a reasonable price, of a young company that truly complements the buyer’s core business. (Google’s acquisition of YouTube is another example.) Being bought by eBay gave PayPal credibility and access to a huge customer base. But, as PayPal got bigger and eBay became less important to its business, the ownership structure got to be a burden. It limited PayPal’s ability to form partnerships with eBay’s competitors, like Amazon and Google, and, many have argued, made the company less innovative than it could have been. The decision to split is a recognition that PayPal has outgrown its parent.
  
  In other cases, spinoffs are the final verdict on mergers that should never have happened in the first place. Symantec’s acquisition of Veritas was predicated on that shakiest of justifications—“synergy.” Symantec was a data-security company and Veritas a data-storage company; they were supposed to be a natural fit because, well, we all want the stuff we store to be safe, right? But it was a hopeless fit: the storage and security markets were very dissimilar, involving completely different sets of buyers. Symantec wasted years trying to integrate operations before admitting defeat. The storage division is now worth twenty per cent less than it was a decade ago.
  
  And Symantec is hardly alone. The brute fact is that most mergers don’t work. Aswath Damodaran, a finance professor at N.Y.U., has said, “More value is destroyed by acquisitions than by any other single action taken by companies.” Furthermore, a study of some thirty-seven hundred acquisitions between 1990 and 2007 found that big mergers, like the ones Symantec and H.-P. did, were less likely to improve the bottom line than small ones. “Even when you have a deal that looks lovely on paper, it’s a huge challenge,” Feldman says. “Getting cultures to fit together, getting people to stay on board, merging I.T. systems and back offices: all these things are really hard.” If we’re seeing a boom in corporate divorce, it’s in part because the past decade gave us so many bad marriages.
  
  Still, it’s unlikely that corporate America will lose its penchant for getting hitched. Between Wall Street’s desire to keep the deal pipeline stoked and the unshakable conviction of C.E.O.s that they can beat the odds, the trend toward consolidation is sure to continue. In fact, as soon as eBay announced the PayPal spinoff people began saying that the ideal outcome would be for PayPal to be acquired by some big company. The projected synergies, you can be sure, will be amazing.

Fashion Counterfeits

• Today, counterfeit fashion evokes heaving piles of fake designer bags on Canal Street. Or fast-fashion chains like Zara and H&M churning out runway imitations.
  
  But the phenomenon of counterfeiting is as old as couture itself. In the early 1900s, fashion forgers often sketched designs they saw in Paris shows and sold reproductions in France and overseas. By 1914, more than two million fake couture labels had been sewn into garments, several of which are currently on view in New York City at the Museum at FIT’s exhibition, “Faking It: Originals, Copies and Counterfeits.”
  
  Spanning more than 150 years, the exhibit exhaustively distinguishes designer pieces from licensed copies, adaptations, and fakes. “I wanted to dive deeper into the illegal industry of counterfeit fashion, to see where and how these pieces are made,” curator Ariele Elia told the Daily Beast of her initial inspiration for the exhibit. “Then I became fascinated by this idea that, no matter what, any garment or product that is in high demand will be copied. And we’ve seen this happen throughout history.”
  
  The show opens with two tweed suits, one by Coco Chanel from 1966 and the other a licensed copy, demonstrating how difficult it can be to differentiate a replica from the real thing. (The pieces are near-identical, excepting the signature buttons on the Chanel suit and a few small tailoring details.)
  
  Chanel’s iconic three-piece suit is arguably the most copied style in fashion history (several other versions are interspersed throughout the exhibit’s 100 pieces), and the designer was notoriously proud to provoke so many imitations.
  
  “If mine are copied, so much the better. Ideas are made to be communicated,” she once said, viewing all replicas of her designs (including unlicensed ones) as good publicity.
  
  But she was less comfortable with it before she was an established name in fashion. Early in her career, she and designer Madeleine Vionnet sued a woman in Paris for copying some 20,000 sketches of their designs.
  
  Designers like Christian Dior went to great lengths to ensure that his pieces weren’t copied, marking his final sketches with invisible ink that could only be seen under a black light.
  
  “Hermès could technically claim trademark infringement and say that Lichtenberg is making money off their logo, rather than a parody of the logo.”
  
  And Dior had good reason to be paranoid: copiers frequently posed as buyers when they attended fashion shows, collaborating on elaborate forging schemes.
  
  “Five of them would attend a show and each one would memorize a certain part of a garment,” said Elia. “Then they would go to a hotel afterwards and combine the parts they had remembered in one sketch.”
  
  In 1956, Balenciaga and Givenchy banned the press from viewing their collections for a month to prevent counterfeiting. By this time, many European couturiers had licensed their names and designs to American manufacturers and department stores, but they remained leery of unlicensed copiers.
  
  “Balenciaga was very open about how he didn’t like the press,” said Elia. “It’s interesting that both designers decided to ban the press together, but Givenchy was also very influenced by Balenciaga.”
  
  Indeed, designers frequently reference each other in their shows—and the press never fails to notice. Designer Olivier Rousteing’s Spring 2015 collection for Balmain included a white suit that was seemingly lifted from Alexander McQueen’s Spring 1997 collection for Givenchy.
  
  The media made a fuss over the Balmain suit, but there was no resulting controversy between the two fashion houses, perhaps because it was clearly an homage to McQueen. (The exhibit also includes examples of designers borrowing from fine art, as Yves Saint Laurent did with his Mondrian dress.)
  
  Incidentally, Rousteing has no qualms with fast-fashion brands appropriating his designs either. “I love seeing a Zara window with my clothes mixed with Céline and Proenza [Schouler]! I think that’s genius,” he told The Independent last summer.
  
  “I’m really happy that Balmain is copied—when I did my Miami collection and we did the black and white checks, I knew they would be in Zara and H&M. But they did it in a clever way—they mixed a Céline shape with my Balmain print!”
  
  The press also went wild when designer Yohji Yamamoto debuted a “YY” logo that featured prominently on many pieces in his Fall 2007 collection—and looked very similar to Louis Vuitton’s monogram.
  
  Marc Jacobs, who was then head designer for Louis Vuitton, had “pretty much ripped off one of Yohji’s collections,” according to Elia. Yamamoto’s flippant response danced with trademark infringement, but the YY logo was too unique—and too tongue-in-cheek—to provoke a legal battle.
  
  One of the final entries in the exhibition is an ensemble from Los Angeles designer Brian Lichtenberg’s “Homies” collection, a clever parody of the Hermès logo that references hip hop culture in Los Angeles’ South Central neighborhood, with a low rider truck replacing the Hermès horse and carriage.
  
  But the stuffy French fashion house was not amused. “Something like this dilutes the brand, and their legal counsel argued that Lichtenberg could be making money off their logo, rather than a parody of the logo,” said Elia.
  
  Fashion lawyers are still debating whether the Homies logo qualifies as trademark infringement, though for now it’s protected as free speech.

Buffett's Conglomerate

• Speculation has long been mounting about whether Warren Buffett’s investment company can survive intact after he departs. He has given the definitive answer: don’t break up my company after I’m gone; it works best this way.
  
  Berkshire Hathaway is a sprawling conglomerate of unrelated businesses and, in a 50th anniversary letter to shareholders this weekend, Mr Buffett confessed that “conglomerates have a terrible reputation . . . and they richly deserve it”.
  
  However, he said that none of the conventional wisdom applying to conglomerates generally— their tendency to issue overpriced shares to make acquisitions, their disregard for creating intrinsic value, their fondness for creative accounting and their compulsion to buy ever junkier companies — applied to Berkshire.
  
  “At Berkshire, we have never invested in companies that are hell-bent on issuing shares. That behaviour is one of the surest indicators of a promotion-minded management, weak accounting, a stock that is overpriced and — all too often — outright dishonesty,” Mr Buffett wrote. Instead, by focusing on buying “wonderful businesses at fair prices” instead of “fair businesses at wonderful prices” and using cash for acquisitions, Berkshire had created a conglomerate structure that was able to allocate capital rationally at minimal cost.
  
  “We can — without incurring taxes or much in the way of other costs — move huge sums from businesses that have limited opportunities for incremental investment to other sectors with greater promise. Moreover, we are free of historical biases created by lifelong association with a given industry and are not subject to pressures from colleagues having a vested interest in maintaining the status quo.
  
  “That’s important: if horses had controlled investment decisions, there would have been no auto industry.
  
  Berkshire was also able to “profitably scale to a far larger size than the many businesses that are constrained by the limited potential of the single industry in which they operate”.
  
  Because it offered owners “a permanent home, in which the company’s people and culture will be retained” and where they no longer had to rely on banks or Wall Street analysts, it was able to achieve the kind of organic growth, unencumbered with debt, that so often eluded acquisition targets.
  
  Thanks to these attributes, and his adherence to three rules — a large and reliable earnings stream, massive liquid assets and no big near-term cash requirements — Mr Buffett was confident that the “chance of any event causing Berkshire to experience financial problems is essentially zero”.

The Argument For Trade

• I OFTEN ask people in my business — public policy — where they get their inspiration. Liberals often point to John F. Kennedy. Conservatives usually cite Ronald Reagan. Personally, I prefer the artist Andy Warhol, who famously declared, “I like boring things.” He was referring to art, of course. But the sentiment provides solid public policy guidance as well.
  
  Warhol’s work exalted the everyday “boring” items that display the transcendental beauty of life itself. The canonical example is his famous paintings of Campbell Soup cans. Some people sneered, but those willing to look closely could see what he was doing. It is the same idea expressed in an old Zen saying, often attributed to the eighth-century Chinese Buddhist philosopher Layman Pang: “How wondrously supernatural and miraculous! I draw water and I carry wood!”
  
  Warhol’s critical insight is usually lost on most of the world. This is not because people are stupid, but because our brains are wired to filter out the mundane and focus on the novel. This turns out to be an important survival adaptation. To discern a predator, you must filter out the constant rustling of leaves and notice the strange snap of a twig.
  
  Warhol believed that defeating this cognitive bias led to greater appreciation of beauty. It also leads to better public policy, especially in relieving poverty. For example, while our attention is naturally drawn to the latest fascinating and expensive innovations in tropical public health, many experts insist it is cheap, boring mosquito bed nets that best protect against malaria. Despite their lifesaving utility, these boring nets tend to be chronically underprovided.
  
  We can look closer to home, too. People love to find ways to get fancy technology into poor schoolchildren’s hands, but arguably the best way to help children falling behind in school is simply to devise ways to get them to show up.
  
  But the very best example of the Warhol principle in policy is international trade. If it is progress against poverty that we’re pursuing, trade beats the pants off every fancy development program ever devised. The simple mundane beauty of making things and exchanging them freely is the best anti-poverty achievement in history.
  
  For more than two decades, the global poverty rate has been decreasing by roughly 1 percent a year. To put this in perspective, that comes to about 70 million people — equivalent to the whole population of Turkey or Thailand — climbing out of poverty annually. Add it up, and around a billion people have escaped destitution since 1990.
  
  Why? It isn’t the United Nations or foreign aid. It is, in the words of the publication YaleGlobal Online, “High growth spillovers originating from large open emerging economies that utilize cross-border supply chains.” For readers who don’t have tenure, that means free trade in poor countries.
  
  That mug in your hand that says “Made in China” is part of the reason that 680 million Chinese have been pulled out of absolute poverty since the 1980s. No giant collaboration among transnational technocrats or lending initiatives did that. It was because of economic reforms in China, of people making stuff, putting it on boats, and sending it to be sold in America — to you. Critics of free trade often argue that open economies lead to exploitation or environmental degradation. These are serious issues, but protectionism is never the answer. Curbing trade benefits entrenched domestic interests and works against the world’s poor.
  
  And what of claims that trade increases global income inequality? They are false. Economists at the World Bank and at LIS (formerly known as the Luxembourg Income Study Center) have shown that, for the world as a whole, income inequality has fallen for most of the past 20 years. This is chiefly because of rising incomes from globalization in the developing world.
  
  Interestingly, Warhol himself once remarked on the democratizing effect of global commerce with his characteristic ironic edge. “The President drinks Coke, Liz Taylor drinks Coke, and just think, you can drink Coke, too,” Warhol said.
  
  Fortunately, President Obama appreciates the benefits of trade and is currently fighting for the latest international trade pact, the Trans-Pacific Partnership (T.P.P.). It would knock down barriers between North American, South American and East Asian nations, benefiting rich and poor people and countries alike. Admirably, the president is standing up to critics in his own party (as well as some in the opposition) who oppose the deal. With luck, T.P.P. will make its way through the House and Senate this spring or summer, and receive the president’s signature.
  
  Trade doesn’t solve every problem, of course. The world needs democracy, security and many other expressions of American values and leadership as well. But in a policy world crowded with outlandish, wasteful boondoggles, free trade is just the kind of beautifully boring Warholian strategy we need. Americans dedicated to helping others ought to support it without compromise or apology.

Seth Godin Is Anti-Business

• A hundred and fifty years ago, when people finally began organizing to eliminate child labor in American factories, they were called anti-business. There was no way, the owners complained, that they could make a living if they couldn’t employ ultra-cheap labor. In retrospect, I think businesses are glad that kids go to school--educated workers make better consumers (and citizens).
  
  Fifty years ago, when people realized how much damage was being done by factories poisoning our rivers, those supporting the regulations to clean up the water supply were called anti-business. Companies argued that they’d never be able to efficiently produce while reducing their effluent. Today, I think most capitalists would agree that the benefits of having clean air and water more than make up for what it costs to create a place people want to live—the places that haven't cleaned up are rushing to catch up, because what destroys health also destroys productivity and markets. (And it's a good idea).
  
  When the bars and restaurants went non-smoking in New York a decade ago, angry trade organizations predicted the death knell of their industry. It turns out the opposite happened.
  
  The term anti-business actually seems to mean, “against short-term waste, harmful side effects and selfish shortcuts.” Direct marketers were aghast when people started speaking out against spam, but of course, in the long run, ethical direct marketers came out ahead.
  
  If anti-business means supporting a structure that builds a foundation where more people can flourish over time, then sign me up.
  
  A more interesting conversation, given how thoroughly intertwined business and social issues are, is whether someone is short-term or long-term. Not all long-term ideas are good ones, not all of them work, but it makes no sense to confuse them with the label of anti-business.
  
  Successful businesses tend to be in favor of the status quo (they are, after all, successful and change is a threat) perhaps with a few fewer regulations just for kicks. But almost no serious businessperson is suggesting that we roll back the 'anti-business' improvements to the status quo of 1890.
  
  It often seems like standing up for dignity, humanity and respect for those without as much power is called anti-business. And yet it turns out that the long-term benefit for businesses is that they are able to operate in a more stable, civilized, sophisticated marketplace.
  
  It’s pretty easy to go back to a completely self-regulated, selfishly focused, Ayn-Randian cut-throat short-term world. But I don’t think you’d want to live there.
  
  ( more good ideas from Seth Godin)

India

• There was a time a few years back when telecoms chiefs rubbed their hands at India’s ability to leapfrog fixed landline connections with a jump straight to mobile phones. Now online retailers are doing the same, with India set to bypass the western bricks-andmortar retail model altogether.
  
  This is not a surprise. India is perfect e-commerce territory. Think of its expertise in IT, which has prompted a flood of online retailers. Then there is that oh-so-cheap Indian labour, making the cost of delivering products door-to-door lucratively low. Then there are India’s consumers, well used to taking delivery of goods at home for a nominal fee — a service offered by many local grocery stores.
  
  In contrast, the cost and complexity of acquiring large plots of land and associated permits makes western-style superstore retail a la Walmart or Ikea excruciatingly slow and expensive. Three years after Delhi threw open the doors to foreign retailers such as Tesco, none has seriously taken the plunge into the nation’s $500 billion retail market, 90 per cent of which is still controlled by roadside shacks and shops.
  
  Even the dismal state of India’s roads and transport infrastructure offer a big edge for e-commerce. Why spend hours dodging cows, rubbish and potholes on India’s congested roads trying to reach an out-of-town superstore when you can shop in air-conditioned comfort from your own home or office?
  
  As well as lower prices, adding to the attraction of online retail is the fact that many Indian e-retailers provide same-day delivery, while customers can opt for paying cash on their doorstep.
  
  So, while Tesco and Walmart grind their teeth in frustration as they puzzle over how to tackle India, the country’s e-commerce market is exploding, propelled by rapid growth in internet access. India reported a 53 per cent growth in online transactions last year. The country’s e-commerce market is expected to hit $16 billion this year, up from $4.4 billion in 2010.
  
  Such figures are attracting huge investments from Amazon and homegrown rivals such as Flipkart and Snapdeal. Between January and March, investors poured more than $1 billion into e-commerce and technology investments. And that growth is being driven by smartphones, with more than 235 million of India’s 300 million web users accessing the net via their phones.
  
  Of course there’s a risk that India’s e-commerce market gets too frothy, but the trends still offer a sobering lesson for western retailers looking to India for future growth and waiting patiently for the chance to expand. As they are outflanked by the online crowd, it looks increasingly as if that bricks-and-mortar retail revolution may not happen after all.

Social Media Beating Brands

• For decades, corporations used a steadfast formula in branding a product: big advertising investments that produced customer awareness and built a positive product reputation. By investing heavily in and tightly managing a product's image via controlled communications, dominant brands could be leveraged to cultivate loyalty and a long-term stream of profits.
  
  The high cost of television and print marketing excluded upstart products all but ensuring long-term dominance for top-tier brands. But social media's meteoric rise in popularity may be killing the old, reliable branding formula and changing how consumers interact with brands.
  
  In a recent article published in Business Horizons, Drexel LeBow marketing professor Rajneesh Suri, PhD, and his co-authors find that "in a world where there are more mobile phones than toothbrushes, consumers are likely to leverage their power in social media to be more demanding of marketers." Consumers are expressing their new power through customer-to-customer communication that skips traditional marketing channels. Reviews on e-commerce sites like Amazon are now a major tool for discovering new, better products and conversations on platforms like Twitter and Facebook can reach a virtually limitless audience.
  
  With more power in customers' hands, the new branding landscape becomes much less stable. Big brands are faced with not only a loss of control, but increased threat from smaller, nimbler competition. Newcomers can capitalize on online word of mouth and creative, low-cost social media campaigns to gain market share.
  
  This seismic shift in the branding landscape will force the old guard to adapt or risk irrelevance. The authors point out that changes as simple as listening to customers can reap big rewards. Social media can strengthen or kill a brand; the key to success lies in how quickly companies can change their mindset and adopt new strategies in response to consumer preferences.

Amazon pickup from gas stations

• Internet shoppers will be able to collect their purchases from lockers at petrol stations as online retailers grapple with the problem of growing delivery costs. From this week, goods bought from Amazon can be picked up at Jet petrol stations. The first locations include Doncaster, Cleveland, Tyne and Wear, and Glasgow.
  
  There are already more than 300 Amazon Locker sites across the country, ranging from convenience stores and shopping centres to railway stations and airports. The lockers are part of a growing trend of online retailers encouraging customers to pick up their goods rather than receive home deliveries. CollectPlus, a service where shoppers can pick up and return goods bought online, already has a network of 5,000 local retailers.
  
  Amazon customers are given a unique pick-up code in order to retrieve their items from their chosen locker location. The service costs £1.99 a time but is included in the £79 annual fee for Amazon prime members.
  
  Earlier this year, Transport for London blamed an increase in innercity traffic on the rise in the number of office workers getting Amazon packages delivered to their desks.

Start Up Kit

• Most people who are attracted to a life in the music industry dream of performing on stage. For a few, the goal is to be behind the scenes as a record label owner — a mover and shaker who spots talent — who will follow in the footsteps of Sun Records, Island, Motown and other legendary names printed at the centre of the vinyl on some of the world’s greatest hits.
  
  The nature of the record label has changed over the years as the majors have squeezed into three giant corporations while thousands of tiny labels, often launched by the bands themselves, have sprung up at the grass roots.
  
  One thing that has not changed is that musicians do not want the hassle of the paperwork when trying to get their music to the masses. Tiny record labels can be swamped with contracts — management details, synchronisation licences, merchandising deals, sound recording agreements and multiple rights agreements — that can all be barriers to popularising an act. That has led Ditto Music, a small music distribution company, to come up with a “record label in a box”. The idea is a one-stop shop for musicians and budding record label moguls who are overwhelmed by the paperwork or cannot afford the legal fees involved in signing a band. “With this, you can sign a band on the Tube on the way from the gig. This is everything you need to start a label either as a musician or someone with talented friends, or even someone that sees a great band down the pub and wants to sign them,” said Lee Parsons, co-chief executive of Ditto, who founded the company with his brother, Matt.
  
  The premium box, priced at £249, contains a host of artist-friendly contract templates and access to a system that allows the record label owner to monitor royalties and other trends across Ditto’s artists. Ditto also links the owners to funding sources — both banks and governmentsubsidised programmes — and alerts them to forthcoming industry events. It includes distribution so that music can be uploaded to Spotify and iTunes. The box will also set up the label at Companies House to avoid more legwork.
  
  Matt Parsons said that the concept provided tangible evidence for a budding record company owner that they actually do run the label so that they can approach a fantastic band coming off the stage without seeming like a chancer. It also solves the “What do I do now?” problem for anyone who has unearthed a great band but has no idea how to proceed.
  
  The concept stems from the failure of the Parsons brothers to make it as musicians. The duo started out as a hip-hop act, but a disastrous gig at an industry showcase (their own manager walked out on the show) put paid to their onstage dreams. “We learnt the ropes — administration, distribution, iTunes — and it worked,” Lee Parsons said. They signed the Colchester band Koopa and scored a Top 40 hit. They repeated the trick nine times in the next year and soon the likes of Sir Paul McCartney and Suzi Quattro were using Ditto to put out music. The brothers also worked with Ed Sheeran and Sam Smith in their musical infancy.
  
  Ditto deals with about 15,000 record labels and the brothers saw the same problem repeatedly. “It was the pain of paperwork,” Matt Parsons said. “If you want to open a corner shop, it’s easy. You go to CostCo and then you open the door. It’s not that way for a record label. They have no idea. The record label struggles are the same as the Fifties and Sixties to today. There’s no money and no set path.”

Croissantonomics

• AIRY croissants, rich chocolate-chip biscuits, wedges of succulent cake - the goods at the City Bakery, in Manhattan, look delicious. Maury Rubin, its founder, studied in France. But his best creations are distinctly American: pretzel croissants (surprisingly tasty), and recipes for making money.
  
  Mr Rubin is among those bakers who revere traditional methods but want a fat profit. However, a good bakery is bad business. Flour is cheap but organic butter, which makes up half a croissant, is not. Central locations for outlets are expensive to rent. In all, it costs Mr Rubin $2.60 to make a $3.50 croissant. If he makes 100 and sells 70, he earns $245 but his costs are $260. Since he refuses to sell leftovers - all goods are sold within a day - he loses money. “Welcome to the bakery business,” Mr Rubin says.
  
  The obvious fix is to raise prices. But Mr Rubin says shoppers bristle when the cost of baked goods passes a certain threshold. He has two main solutions. First, don’t be just a bakery. He also sells fancy salads and sandwiches to office workers, which have higher margins.
  
  Second, use data to cut waste. Mr Rubin studies sales to discern trends in demand, then adjusts supply accordingly. There are no brownies or carrot cake on Mondays or Tuesdays—people don’t buy rich desserts after decadent weekends. He watches the weather closely, as demand melts in the rain. He keeps an eye on school calendars, to bake less when children are away. He bakes more after the fasting of Yom Kippur, when demand from Jewish customers picks up. And each day, after the breakfast rush, he fine-tunes supply by checking sales every 60-90 minutes. Trays of pastries are ready to be baked, but nothing goes into the oven until the numbers are in.
  
  Having no croissants at the end of the day is a sign of success. Late one recent afternoon, his counter offered trios of fruit on triangles of rice paper, cooked in sugar. This dessert looks lovely and is cheap to make. But Mr Rubin will sell only a few, as he makes them expensive: they are there in part to make his counters look pretty and full, to draw in coffee-drinkers at the end of their working day. Such strategies have helped the City Bakery survive since 1990. It now has seven smaller shops in New York and seven outposts in Japan, with plans to open in Dubai.

Seth Godin and the Point of Business

• The purpose of a company is to serve its customers.
  
  Its obligation is to not harm everyone else.
  
  And its opportunity is to enrich the lives of its employees.
  
  Somewhere along the way, people got the idea that maximizing investor return was the point. It shouldn't be. That's not what democracies ought to seek in chartering corporations to participate in our society.
  
  The great corporations of a generation ago, the ones that built key elements of our culture, were run by individuals who had more on their mind than driving the value of their options up.
  
  The problem with short-term stock price maximization is that it's not particularly difficult. If you have market power, if the cost of switching is high or consumer knowledge is low, there are all sorts of ways that a well-motivated management team can hurt its customers, its community and its employees on the way to boosting what the investors say they want.
  
  It's not difficult for Dell to squeeze a little more junkware into a laptop, or Fedex to lower its customer service standards, or Verizon to deliver less bandwidth than they promised. But just because it works doesn't mean that they're doing their jobs, or keeping their promise, or doing work that they can be proud of.
  
  Profits and stock price aren't the point (with customers as a side project). It's the other way around.
  
  ( more good ideas from Seth Godin)

Trust in Capitalism

• In his Devil’s Dictionary from 1906, Ambrose Bierce made the following entry under the term “corporation”: “an ingenious device for obtaining profit without individual responsibility”. According to Prosperity for All: Restoring Faith in Capitalism, a major survey from the Legatum Institute, capitalism is in bad odour. The people in the developed economies think companies cheat and pollute their way to success. They think capitalism has impoverished the poor and a majority want protectionist barriers erected. You might even conclude, from these numbers, that it made sense to pick a shadow chancellor committed to revolutionary transformation.
  
  In fact the political concomitant of a decline in corporate trust has been the election of right-wing governments. If there is any political trend at all it is that, in time of insecurity, people cleave to the safety of fiscal conservatism. So rather than dismiss capitalism or applaud its inevitable collapse, the left might be better employed doing what Liam Byrne has done this week, in his mischievously titled Alternative Economic Strategy, and start to devise what he calls “entrepreneurial socialism”.
  
  Not yet beyond the shadow of the 2008 crash, the corporate world has failed to recover its confidence and some simple-minded critiques of capitalism have taken root. With left-of-centre readers, I find myself regularly called upon to justify the fact that articles such as this cost money. The strange assumption that online products should be free dies hard. So does the bizarre notion that making a profit renders the opinion expressed either ignoble or suspicious. People who would never dream of walking into a shop and stealing a newspaper somehow kid themselves a digital equivalent should be free. Companies, even ones that produce newspapers, cannot be frightened to admit that they exist to make a profit. Or, rather, they would not exist if they did not. Everything good costs money to produce (in my case it doesn’t cost nearly enough) and it has to be paid for. It is cowardly to hide this obvious fact.
  
  But hidden it certainly is. In a former life I read a multitude of corporate mission statements (don’t ask) and a dispiriting occupation it was too. Quite apart from the deathless prose and the laughable similarity of every claim to be different, these mission statements, all of FTSE companies, screamed a lack of confidence. Every other company sought its purpose in its people or in being sure its customers did not lack for telephones but not one of them mentioned making money. It reminded me of the Anglican Church’s reluctance to refer to God for fear of annoying people who regard Him as unlikely. Profit, as a motive force, had been scared out of them.
  
  The confusion of purpose was most evident in the vexed doctrine of corporate social responsibility. Too many pages were devoted to the tautological task of making a business case for acting responsibly. If one cannot act responsibly out of a sense of responsibility then the act is something else. And if there is a business case for responsible behaviour then an efficient business will do it anyway. There were and are whole conferences devoted to this empty idea. I speak at them regularly, motivated entirely by profit.
  
  Indeed, at the Tory party conference last month, I spoke at one such in the Friends’ Meeting House in Manchester. I pointed out that, within a hundred yards of our event, you could find the complete story of capitalism for the public good. The first component, proudly commemorated in the stone edifices of the leaders of the Anti-Corn Law League in Albert Square, is free trade. No matter what the Legatum Institute’s respondents say, trade has lifted the living conditions of the least well-off all over the world. It remains the most reliable way of ensuring that two nations do not descend into conflict. The best way to contain China, whose political system is not exactly congenial is, as George Osborne and Liam Byrne know, to buy their goods and sell them ours.
  
  The second component was the kind hearts of the Quakers whose hall we were in. At the factories owned by the Quaker Cadbury family in Bournville in Birmingham, for example, it was a condition of employment that all young workers attended evening classes until the age of 18. Employees benefited from wages above the market rate, medical services and a pioneering pension scheme. Employees lived in subsidised cottages with gardens, there was a park, several acres of playing fields with a clubhouse and pavilion, a fishing lake and swimming lido. The only thing missing from the perfect village idyll, because the Quakers were teetotal, was a pub.
  
  The association of capitalism with Christianity was there from the beginning. In The Protestant Ethic and the Spirit of Capitalism, Max Weber pointed out that thrift and providence, the Christian virtues, were the perfect grounding for the pursuit of profit. In her brilliant The Anatomy of Thatcherism, Shirley Robin Letwin shows that it was exactly these disciplines, not the freedoms but the disciplines, that Mrs Thatcher so loved about markets. The point is that markets were never “free”. They were regulated by a moral sense. Adam Smith famously wrote The Wealth Of Nations but it should always be read in conjunction with his Theory Of Moral Sentiments.
  
  A good company is also a public enterprise. They are known as public limited companies for a reason. The benefits of limited liability and the drafting and enforcement of contract law are guaranteed by political power. This was why John Quincy Adams described the joint-stock company as “a truly republican movement” which, in a new United States without a wealthy aristocracy, enabled the concentration of capital necessary for prosperity. In Adams’s America, the lack of a sufficient public purpose was grounds for denying a corporate charter.
  
  If companies cannot work out how to respect their public status, by paying fair taxes to the exchequer and wages to the workforce, then there should be no apology for tough intervention. If executives continue to rig their remuneration to unwarranted levels then they should not complain when they are subject to calls to shift the burden of taxation from income to wealth.
  
  Trust in capitalism requires companies simply to recall their origins. When five families in Britain own more than the poorest 12 million citizens, that erodes, as the Bank of England governor Mark Carney has said, the social capital on which capitalism depends. When the richest 1 per cent in the world own almost as much as the rest of us combined, this has become a system that, as Friedrich Hayek wrote, has consumed its own moral order. That gives profit a dirty name it does not warrant and we will all be the losers from that.

Superbosses

• All is yet to be revealed, of course, but it could well be that Eddie Jones is a Glorious Bastard. In an article on talent management in the latest Harvard Business Review, Sydney Finkelstein, a business author and professor, filters 200-plus interviews into a distillation of what he calls the “Superbosses”.
  
  Among their number, he lists Ralph Lauren (fashion), Bill Walsh (American football) and Larry Ellison (internet entrepreneur). Over the next four years, we will discover if Jones is a member of their elite club, as England and the RFU hope. He has significant credentials, but if he is to go the whole way, he will probably be a Glorious Bastard.
  
  Finkelstein identifies one collective quality in the members of the Superboss club: the ability to spot and develop a future generation of leaders. An astonishing number of head coaches in the NFL, for instance, learnt their trade under Walsh in his glory years with the San Francisco 49ers, or under coaches who had worked under him. In other words, while England’s success is about how Jones develops the team, it is very much about how he nurtures his new and strikingly young team of assistant coaches.
  
  Last week, the RFU announced that Ian Peel will join Jones’s staff as scrum coach. Peel is 39 and came from a successful stint with England Under-20. He very much fits the profile of Jones’s team of assistants: Paul Gustard, the defence coach, is also 39; Steve Borthwick, the forwards coach, is 36; one of the prime candidates for the role of attack coach is 40-year-old Alex King. They are top of the new class of bright young English coaches. Individually, their credentials are impressive, yet collectively they appear inexperienced. Borthwick has a notable track record as a player in international rugby, yet as a coach he has been in the game for 19 months. When Jones accepted the job of England head coach, his stated objective was to leave after four years, having groomed his replacement. None of the above has taken charge at his own club, let alone at international level, so it is hard to see how Jones can fulfil his pledge.
  
  However, according to Finkelstein, this recruitment policy could be a stroke of Superboss genius. “Superbosses consider credentials, of course, but they’re also willing to take chances on people who lack industry experience or even college degrees,” he writes.
  
  Conversely, it could be a fatal flaw. Jones appears to have constructed a two-tier system. The RFU has completely handed over the run of the show; there is no performance director or rugby boss to whom Jones reports. On the performance side, he is the absolute No1. If he veers in the wrong direction, there is no one empowered to set him straight. The top tier is him and him alone.
  
  Below that, there is Borthwick et al. Call them the Superprotégés. Given the gulf in age and experience between them and Jones, who is going to challenge his decisions? Jones is a man mightily sure of his opinion, so which of them will pipe up when they disagree? This was never a problem for Stuart Lancaster; he was a democrat. Arguably, he allowed himself to be swayed too much by his coaching team, though that is another story — and an old one at that.
  
  The answer comes down to whether Jones can prove himself as a Superboss — and a Superboss is not an autocrat.
  
  According to Finkelstein, there are three types of Superboss. One is the Nurturer. Walsh is one of these. They teach, mentor and take pride in bringing others along. Bill Shankly’s Boot Room, a finishing school for future Liverpool managers, would be the ultimate Nurturer’s home.
  
  Another is the Iconoclast, a creative whose passion inspires their protégés. Lauren was an Iconoclast and Sir Clive Woodward would be another.
  
  The third is the Glorious Bastard. “They care about one thing: winning,” Finkelstein writes. “They’re the ultimate hard drivers, yet they realise that to get the very best results, they need to develop the world’s best people. So they do.”
  
  Maybe there is something of the Nurturer in Jones. He has certainly shown that in the way that he has developed Borthwick through their time together with Saracens, the Japan coaching team and now England. His track record, though, suggests that he is more of a Glorious Bastard. Michael Cheika, the Australia coach, is one of them, as is Ellison.It matters not whichever way Jones goes, but it must be one way. The alternative is an imbalance, a top-heavy environment that leans too much on Jones’s instinct and not enough on the gifts of those he has put around him. And that would never make him a Superboss.

It's Hard To Make A Profit Online

• Tuesday, Sandeep Mathrani, the chief executive of a national shopping-mall operator, said during an earnings call that Amazon.com was planning to open as many as four hundred physical bookstores in the next few years. At first, the news, which was reported in the Wall Street Journal but wasn’t confirmed by the company, sounded almost too strange to be true. Amazon opened its first retail bookstore, in Seattle, only this past November, and, although book sales form the historical core of its business, it now makes the vast majority of its money off of its highly profitable Web-services division. Moreover, Amazon’s identity is so tied to e-commerce that a purported plan to create its own version of the defunct Borders chain defied our expectations of ongoing digital progress.
  
  The Times, citing an anonymous source, has since confirmed that the company plans to expand its physical presence, albeit at a much more modest scale than Mathrani suggested. But even four hundred stores might have been one of the most logical moves that Amazon has ever made, not to mention one that other online-first retailers, such as Warby Parker, Blue Nile, and Birchbox, have already cleared the way for. Amazon is unrivalled in its ability to sell and ship people books and other goods more cheaply and smoothly than anyone else, but, long after it established itself as the world’s de-facto bookseller, Amazon has failed (if purposefully, in many respects) to fulfill the simplest promise of the digital-commerce revolution: making a profit by selling goods online.
  
  When Amazon began selling books in 1995, its business model seemed brilliantly simple. Without the costs and hassles of physical stores and their staff, and with limitless capacity for inventory, it was able to offer books at lower prices than other competitors could, including big chains such as Barnes & Noble, whose deep discounts had already threatened independent booksellers. Amazon could also grow more quickly than physical retailers, and, because of this, achieve unmatched economies of scale. The company’s success kicked off a revolution in online retailing, with countless startups and traditional retailers selling every possible product online. E-commerce transactions now make up close to ten per cent of all retail transactions in the United States, and that number continues to grow annually.
  
  Launching an e-commerce business is relatively simple, especially when compared with opening a brick-and-mortar store. But it has proven to be difficult to make a profit from selling stuff online—a problem that is rarely acknowledged by the technology industry. E-commerce companies tend to point to sales, revenues, and other markers of growth, while eliding figures that speak to the most basic goal of retail: selling things for more than they cost. Most e-commerce startups fail to turn any profit at all, and those that eventually do succeed operate with extremely slim margins. This is why a company such as Gilt Groupe, which was once valued at more than a billion dollars, just sold to a traditional department-store chain for two hundred and fifty million dollars.
  
  There are strong economic reasons that e-commerce struggles to make a profit. One is pricing. Deprived of most of the tools that physical stores can rely on (the presence of the object, nice locations, window displays, salespeople), online retailers rely heavily on offering the lowest possible price. And competition on price is intense, because a better offer is always just a click away (often, to Amazon’s vast digital catalog).
  
  Then there’s shipping. Here, too, Amazon has established a difficult standard for the market, by offering discounted and free shipping on its products, and free returns as well. Most other e-commerce companies have been forced to follow Amazon’s lead. But as the retail consultant, onetime e-commerce entrepreneur (of the failed gift retailer Red Envelope), and New York University professor Scott Galloway pointed out in a widely discussed talk last year, all of this shipping costs tremendous amounts of money. That is, there is no such thing as “free” shipping. The U.P.S. driver doesn’t work for free, and the gas in the truck isn’t free, either. Amazon and other online retailers must absorb these costs, cutting into their potential profits and placing further stress on their pricing strategies.
  
  To reduce these costs, many traditional retailers with e-commerce divisions, including Walmart, Macy’s, and Best Buy, have rolled out “click and collect” services, which allow customers to pick up online purchases in physical stores, saving both the customer and the retailer the cost of shipping that purchase. Amazon has already started to do this, with Amazon Locker, paving the way for a potential larger investment in a national brick-and-mortar retail chain. Amazon stores would serve as local warehouses, distribution centers, and someday, perhaps, drone-delivery airports.
  
  The move from e-commerce to physical retail makes sense for deeply human reasons, too. Shopping has never been purely a transactional exchange of cash for goods. It’s also what we do on vacation, on weekends, and when we walk down a street. We shop to be with people, to have a place to go, to touch things, to indulge our consumption fantasies. Online shopping can offer a kind of digital mimesis of these things, but it doesn’t reward consumers in the same way as a physical store. Right now, Amazon might be the best place to find any book on Earth and purchase it at the lowest possible price, but the experience of shopping there remains impoverished. Even with all of the resources at its disposal, the company’s Web site is a morass of scattered graphics, random reviews, and predictable recommendations. (I just read a book about the history of Detroit—I don’t need ten more.)
  
  The report of new Amazon stores comes at a time when independent bookstores are experiencing a surprisingly robust resurgence. According to the American Booksellers Association, the number of new bookstores in the U.S. has grown by more than twenty-five per cent in the past six years, while in-store sales have also grown. In New York, neighborhood stores such as Greenlight and Book Culture have added locations in the past few years to meet demand, selling books to their customers at prices that are often markedly higher than Amazon’s.
  
  Aware of the advantages of physical space, some e-commerce companies are already opening stores or deepening their investments. Some are putting tremendous effort into making their shops as pleasurable as possible. Warby Parker’s showrooms have turned the act of purchasing eyeglasses into a sort of Wes Anderson–approved theme-park ride, complete with attendants in custom-designed blue smocks, photo booths, and jars of free pencils and school erasers. And while the stores look beautiful, and have been leased, designed, and staffed at a great cost, according to the company they’re also making money.
  
  The great secret, too, for e-commerce companies with physical spaces, is that the stores can be arranged to offer the benefits of both the retail location and online shopping, drawing people in but driving online sales, too. This is what Amazon appears to have done with its test store in Seattle, integrating consumer product reviews on its shelf displays, stocking books that sell well online (including self-published titles), allowing for instant payment with Amazon technology, and offering unified online and in-store pricing.
  
  These advantages, coupled with Amazon’s size, suggest a potentially fascinating development in the retail industry, and one that would make a good deal of sense for the company, especially given all the cash it has on hand. We would also see the company continue to tacitly admit that, for all the advantages of selling things online, you can’t be an everything store without actually having a shop or two.

Costco 101

• It always strikes me when I run into a friend who is amused that I am a Costco member. For someone who grew up in a suburban area, even with the nearest Costco being a 45-minute drive from our house, shopping there was a no-brainer for my family. The reasons why Costco made sense for us are probably not dissimilar from the reasons of its ~100 million other members. Since its founding in 1983, the store has consistently delivered on providing value by selling almost any kind of product at competitive prices (among other things). In a 'late-stage-capitalist' landscape riddled with examples of, at worst, blatant greed, scams, and ripoffs, and at best, inadvertent marginalization from platforms, shopping at Costco is one of the few places that, according to its loyal customers, "feels like winning."
  
  It's this near universal sentiment shared by its members that has made Costco a powerhouse (currently #2 in the world) in the retail sector. While some of my city dwelling friends in their twenties might find it amusing to shop at Costco, for millions around the world Costco is a mainstay. Even as the retail mindshare has been gobbled up by internet-savvy, D2C lifestyle e-commence brands, Costco has continued to thrive in the not so hidden background, and will continue to thrive for decades to come barring some radical departure from the very way capitalism works. And yes, that is with taking into account Amazon's dominance.
  
  The point of writing this piece is not to talk about how specifically Costco operates — how it sells $4.99 rotisserie chickens, $1.50 hotdogs, or its strategy behind store layout. There are many other articles, generally of the MBA case study variety, that have done this already. (I do suggest you take a look at these though because they are actually quite interesting. Included are high profile lawsuits over golf balls, $420k diamond rings, and a poultry megafarm in Nebraska).
  
  Instead, what I want to talk about here is the sum of all these components — how Costco can sell all of its products for low prices while making employees and customers happy. While other companies such as Costco competitors Amazon and Walmart also operate with versions of this low price, low margins strategy, Costco diverges because it arrives at low prices through psychologically favorable tactics for involved stakeholders. This is business speak for 'Costco can sell things for the lowest prices and step on the least amount of toes.'
  
  Unpacking the reasons for this success reveals a crucial reframing about the resiliency of consumer psychology, even in an era where the negative impacts of consumerism are better known than ever. Having any kind of claim towards a more sustainable capitalism is just one of many methods a corporation can use to make consumers feel like they are winning. Unfortunatley this is a strategy that can be costly and finicky. And in a free market system where the path of least resistance reigns supreme, it often is far easier to win over customers with value from cheap prices than it is from morality.
  
  Costco is a way to understand the (literal) 'formula' of consumer psychology and customer value, the variable blend of factors that a corporation can use to draw favoritism, as well as the inherent biases that are contained within it. In this piece I will offer an explanation for how, amongst all-time high levels of backlash against corporate hegemonies, amongst a threats like climate change clearly driven by our consumer habits, Costco has been able to cement itself simultaneously as an inculpable crowd favorite and mothership of bottomless consumerism. I will ponder whether or not consumer happiness or value is the best proxy for individual (and environmental) well being, whether or not you can truly have your free sample and eat it too.
  
  Costco 101 - Building a structurally 'fair' company
  
  Based on reputation for consistency and great labor practices, some may think that Costco is deeply principled company. Unfortunately, paying employees livable wages in 2019 is still something that is unusual for a corporation of Costco's stature. Yet Costco's minimum wage is $15 an hour and its average wage is ~18/hr. It may be the case that Costco is principled, but not necessarily in the philosophical sense of the word. "We are not the Little Sisters of the Poor," said ex CEO James Sinegal. "This is not altruistic. This is good business."
  
  Costco's principals can be thought of as simple truisms, guide posts for smart business acumen. Above all other things, Costco aims to maximize consumer value. It does this mainly by selling their goods for competitive prices, even though a decent argument can be made that Costco has other business objectives contained in its mission like treating employees well. Deeper inspection of the way Costco works shows that its fair wages are more of a business strategy (that actually keep prices low) than they are altruism. As illustrated Costco 101 below, Costco's warehouse model means that they have low overhead costs and therefore need fewer employees to carry out their operations. Compared to Walmart who earns $235,450 of sales per employe, Costco earns more than twice the amount at $744,893. This means that they can increase individual employee wages, which in turn increases talent and retention levels, which in turn increases customer happiness, which in turn increases membership sales ... you get the idea.
  
  Costco 101
  
  To shop at Costco you have to be a member, which entails paying an annual membership fee.
  
  Buying a membership constitutes a sunk cost, and so members feel inclined to shop there enough so that they 'pay off' their dues.
  Shopping at Costco exposes you to the way Costco works, its unique quirks, which generally makes you want to shop at Costco more. Also being a 'member' helps shoppers feel a sense of belonging and exclusivity.
  In addition to membership sunk costs, nostalgic perks like subsidized rotisserie chickens and hotdogs, and free samples help retain members.
  Costco sells one version of pretty much every standard consumer good
  
  ~4,000 total SKUs (items) compared to the ~30,000 found at supermarkets
  They are picked for a) high quality / price ratio b) appeal to mainstream tastes
  For lower unit price products (rice, milk, socks, etc.) they are sold in bulk quantity
  Choosing to sell only 1 version in of a thing in bulk means Costco can
  
  sell more of the product per transaction
  negotiate better prices from manufacturers and suppliers
  sell at lower margins
  move through inventory quickly, and therefore allow the selling of fresh food/produce
  lower number of trips to store through increased single trip purchases
  Costco sells its goods in unfinished warehouse on prepackaged pallets, which means
  
  lower overhead / maintenance costs
  fewer employees per product volume/square footage
  can afford to spend more money on employee's wages
  happier employees and better customer service
  further savings passed on to customers
  All of these things together
  
  Costco is a cheaper way to shop for almost everything
  Costco doesn't need to market itself
  Costco is a happier retail environment
  Costco creates happy, repeat customers
  Which in turn means:
  
  Costco gets more business and opens up more stores
  Costco can negotiate lower prices with higher purchasing power and economies of scale
  Costco attracts more members
  
  Much has been said of the Amazon's "flywheel" — it's strategy of having disparate parts of its operations connect through positively reinforcing feedback loops. A simple example:
  
  Be an Amazon Prime member so you watch a TV show that's only on Prime Video
  Buy an Amazon Fire TV stick so you can watch this show on your TV
  Use the device more and send this usage data to Amazon
  Amazon knows more about what makes better TV
  Amazon produces better original content
  Amazon makes Prime Memberships more compelling
  Repeat
  
  We see with its approach to employee compensation that Costco actually operates within a similar logic, but with a certain elegant simplicity and not as many moving parts. If Amazon is a flywheel, Costco is a pulley where a few highly transparent cost saving measures all lead back to the goal of passing savings onto the customer.
  
  Unlike the hydra that is Amazon, Costco's simplicity means transparency. Each stakeholder in its flywheel — namely employees and customers — are met with straightforward terms. Walk through a Costco warehouse and you literally shop off of shipping pallets, seeing the evidence of your cost savings real time. The efficiency enabled by the constraints of selling in bulk and in a warehouse means that there are no breakneck distribution centers or workers rights infringements, no data capture scandals, no suspicions of geopolitical dominance. Costco does what every consumer in a 'neoliberal' economy wishes corporations did more of — find success by simply playing along with the rules fairly, not bending them to their will.
  
  All in all, the point to drive home here is that Costco has set up a business that is structurally possible to operate fairly. For many traditional corporations, Walmart being a good example, you could make the argument that the exact opposite is true. In the long run there is no union-busting or PR campaigns that can get around the fact that it is structurally impossible for Walmart to pay the same wages as Costco given their business model.
  
  The Cult Of Costco - How fairness creates psychological favorability
  
  What are the results of Costco's fairness? Quantitatively speaking, Costco is a very healthy company. It has grown steadily since its inception, through boom and bust, and in just the past year has doubled its stock price. Wall St. loves to rank on Costco for not maximizing short term shareholder value through short term cost cutting measures (i.e. cutting wages) but you could argue that for long term holders, Costco's stock is aided by these non extractive values. One illustration of this is that despite the ongoing 'Death of Retail', Costco has never closed a retail location over bad performance. The same can't be said of many other retail rivals, including Costco's closest wholesale counterpart, the Walmart-owned Sam's Club.
  
  More interesting than financials though is Costco's qualitative lure. More than any other retail store, maybe even more than any company of its size, Costco is revered by its customers. There are third party subreddits, twitter accounts, instagram pages, blogs, and fan forums all devoted to the store. When Costco members talk about their experience they sound more like hobbyists than consumers.
  
  This phenomenon would be unusual for a publicly traded corporation on its own, but what makes it more remarkable is the fact that much of this attention is not the product of some guerrilla marketing strategy. Matter of fact, Costco doesn't do much marketing at all. Its twitter account is nonexistent and it has an instagram devoid of influencers, lifestyle shots, or really people at all. It's just pictures of products. Costco's only marketing artifact is interestingly a monthly editorial magazine called 'Costco Connection' that simply aims to recirculate the zeitgeist of the store and its shoppers. The overall lack of effort it puts into traditional marketing channels is just another illustration that Costco's admiration is mainly organic.
  
  Even if unintentional, Costco teaches us something important about the state of marketing in a post-authenticity corporate landscape — what it means to be favorable during a time where corporations are across the board unfavorable and no amount of retouching can augment this perception.
  
  Be Structurally Unimpeachable - aka Don't Can't Be Evil
  
  The first lesson and starting point is echoed above with talk of Costco and the differences between its business model and other retailers: the flip side of operating a structurally fair business model is that it can provide the armor of structural unimpeachability.
  
  Structural unimpeachability is conveyed in a more palatable way through a tagline/concept recently developed by the blockchain app platform, Blockstack: "Can't Be Evil." Can't Be Evil is of course a reference to an earlier Google line, "Don't Be Evil," which was their unofficial motto and even in the company code of conduct before being recently removed. While Google would never say this, the obvious reason for them removing the slogan was that as a company it is increasingly impossible for them to keep this promise. The very way that Google works requires at the very least a little bit of evil — that is at least if you associate surveillance with evil. Way before they removed this line from their documentation in 2018, the public already knew this.
  
  Blockstack, and other similar web3 entities came to rise broadly as a counter to tech corporations that were caught being evil. Their claim was trustlessness, and that through the the public ledger and hardcoded, verifiable software logic, one could shift from merely convincing trustworthiness to proving it. Thus, these new organizations "Can't Be Evil."
  
  Now of course, the endless scams and get rich quick schemes across the blockchain space seem to prove that technical trustlessness is a very hard thing to pull off, but what's important for the conversation here is underlying sentiment that is contained within it. Whether it's in technology or politics — what people crave now more than ever is trust. Simultaneously, it's easier than ever for us to realize the cheapness of words and promises. Given the impossibility of trust, people turn to trustlessness.
  
  For Costco and many other companies that operate in the messy logic of physical commerce, achieving trustlessness is also very hard, if not technically impossible. In light of this, trust can still be generated, but not solely from marketing talk. This leaves the closest thing to trustlessness as creating a business model that structurally can't be evil (or at least appears this way). This is exactly what Costco does with policies like employee compensation and what leads to their positive reputation.
  
  Manipluating the Formula for Consumer Value
  
  Costco would never have grown to be so favorable if it simply never got caught being evil. To actually go and create value for its customers the store has has to go beyond this. Consumer value is a subjective expression at best, but consider this formula:
  
  Value is before anything else a product of a economic utility in the microeconomic sense of the word. Upon interacting with Costco, consumers ask themselves, either consciously or unconsciously how much utility that interaction caused them. In addition to this though, there are certain variables that augment this utility. One such variable that augments utility is attractiveness - or put simply, how adored Costco is both as a brand and experience. Here, Costco has some crucial elements weighing in its favor such as the nostalgia that its food court brings out for its customers, the generous free samples, or its reputation for fair pay.
  
  Additionally the price discount ratio, or how discounted Costco goods are relative to similar goods at other stores, is something that heavily increases the value of Costco, maybe even more than any other variable.
  
  On the other hand, customers also perceive other variables as decreasing overall value. These can be summed up as an exchange's negative externalities, which consist of any effects that constitute environmental or social harm. These effects are weighted more heavily based on whether they are directly experienced compared to if they are merely perceived/known.
  
  The point of citing this formula is not to quantitatively define value, nor is it to even suggest estimates for what the average consumer value gained from a Costco interaction is. I merely want to point out a couple of things: 1) everyone applies different weightings to different variables in the value formula 2) the weightings of these different variables can simultaneously be in direct support or opposition of one another.
  
  The takeaway is that value can be decreased by negative externalities, but that it also can be positively effected by a product being affordable. When push comes to shove making a product sufficiently cheap can outweigh any negative externalities that come with it, especially if these externalities are just weakly observed instead of intensely felt.
  
  Some Examples:
  
  Apple products are dramatically more expensive and are associated (at least more so in the past) with the negative externalities of supply chain and labor abuses. But they are highly attractive and thus generate a lot of value for their consumers.
  
  Riding a bus is dramatically cheaper than ride sharing or operating a personal vehicle, has positive externalities associated with it, but for some is seen as significantly inconvenient and unatractive compared to these other options. Even considering the well documented negative externalities of Uber, its raw utility creates more value for many than riding the bus.
  
  Bringing this back to Costco and its ability to create value for its customers, we can see that affordable prices are the significant driver of customer value. And even though shopping at Costco comes with negative externalities (mainly those associated with overconsumption, waste, and sustainability), the perception of these externalities is quite low from the point of view of the average Costco consumer. A mainstream environmentalist knows well that the consumption of inexpensive beef is problematic, even if it's grass-fed organic. But the average Costco shopper is not a mainstream environmentalist. Furthermore, there is the known positivity externality of supporting Costco's high paying retail jobs that masks these negative externalities, if they are perceived at all.
  
  Costco shows that neither disruption nor innovation itself is the thing that draws favoritism. Rather, simply providing your customers the feeling that they aren't getting ripped off, and doing so in a way that matches mainstream views of acceptable externalities, is all that is required for success. If this sounds reductive, it's because it is. The key to Costco's success is just how straightforward the alignment of stakeholders within its business model are.
  
  That being said, there are externalities associated with Costco's business model, even if they aren't viewed by the mainstream as such. The main thing here is a retail model that promotes rampant consumption, and the fallout from this which includes broad waste and sustainability concerns. Interestingly, because of Costco's large purchasing power, dominance over its supply chains, and upper-middle class income of its shoppers, it generally has more progressive product standards than other retail brands in comparable price tiers.
  
  For instance - take Costco's stance on animal welfare practices. It's clear from even this fairly corporate-speak page that Costco understands the importance of animal welfare, and takes its responsibility in the manner seriously. It has a "Animal Welfare Task Force" and follows the 'gold standard' of animal welfare practices in the form of the Five Freedoms of Animal Well Being.
  
  But would you be surprised to hear that Walmart — one of the most (at least historically) notorious committers of animal right abuses — also supports this pledge? There's no doubt that these positions aren't meaningless, yet determining what such statements mean for the day the day operations of Walmart and Costco's suppliers, what the true impact of these positions amounts to, is currently only as effective as the investigations of a set of fringe environmental watchdog groups. This is the unfortunate reality of public diligence that corporations like Costco, Walmart, and Amazon take advantage of. While it's true that ethical practices are more important than ever, there still is a massive buffer between the actual operations and impact of these entities and the investigative legibility of the fourth estate. Even then there is yet another gap in terms of the ability of the public to actually interpret and act upon the findings of this fourth estate.
  
  Yet this communications buffer is growing weaker over time. We are living in a time where the operating practices of corporations are increasingly susceptible to the critical gaze of the public. The public and the 4th estate are less separate entities that an amorphous blob. This is for many reasons such as increased public skepticism and widely accessible publishing platforms. These factors mean that dubious practices that previously existed behind closed doors are now just one post away from becoming a public and cancelable offense. The facade of PR or marketing is increasingly ineffective against the creep of public scrutiny. We're seeing that increasingly, projecting a positive image is not just a nice-to-have.
  
  In light of this shift we have seen many businesses rebrand themselves as derivations of woke, sustainable, or ethical. But for many of these entities where positive impact was used as a sleight of hand trick to leverage virtue in place of value, nothing can distract the public from eventually asking a basic question around whether or not a given entity is actually being fair to them, their environment, or society.
  
  This is not the point we are at yet though. To be clear, we have by no means established any kind of accurate litmus test for what constitutes fundamentally good or bad companies, and externality perception is different for each consumer, as illustrated by the Value Formula from earlier. Matter of fact, online virality and cancel culture suggests that this distinction can be mercurial and heavily influenced by social forces. But this is beside the point. A consumer's tastes are a consumer's taste. For all the power a corporation has, it is ultimately only as powerful as its ability to win over as many of these tastes as possible. After all, hasn't marketing always been hinged upon playing with the fraught nature of favorability?
  
  Connecting this back to Costco's business model, it's goal is to increase V (value) in as many customer's value formulas as possible. This is the, once again, reductive starting point for understanding their appeals to ethics. Costco is not a principally moral company. It's moral only to the extent that it can do this while creating the same or higher amounts of value for its customers. It doesn't set but follows the standards of decency of its customers. A simple illustration of this that explains not just Costco's but Walmart's somewhat progressive stance on animal welfare is that for the majority of Americans, 'clean' meat (meat which is free from unnecessary antibiotics and hormones) is recently the kind which is in the highest demand. Selling to this demand is good business before it's altruism.
  
  Costco's responsive stance on issues like animal welfare, how they are willing to bend to pressure if it means selling more product, is the key to its success moving forward, and also an important foil to the very idea Of Corporate Social Responsibility (CSR) - that corporations should be in the driving seat when it comes to setting standards for ethical operation. Costco shows why so many of these initiatives set off our b.s. detectors — they are conveniently profitable (or at the very least a tax write off) before anything else. Any additional positive impact that follows is often just an added bonus.
  
  CSR Shortcomings in the Long Run
  
  Earlier we talked about Costco’s overwhelming fairness (summed up as cheap prices and high wages), and how this creates an environment of structural unimpeachability (aka “Can’t Be Evil”).
  
  The funny thing about a statement like 'Can't be Evil' is that it combines a boolean and subjective expression. How a given entity defines 'evil' is very much open to interpretation. Some might see Google's approach to surveillance as totally reasonable while others associate it with the worst kind of toxicity. In the context of Costco, evil — or put more simply, ethics — is approached with the same subjectivity.
  
  In corporate governance, being evil is not actually the crime; it's being judged for being evil, or worse being cancelled entirely that is actually the outcome that effects the bottom line. Traditionally this has meant that as long as you had a good enough PR and legal budget, you could do some fairly demonic things and still redirect any negative attention away. But in the past two decades there has been an increase in legibility around the externalities of business, alongside a rise in the publics' standards of decency. This combined with a plethora of viral publishing mediums means that all it takes is a single tweet to change the entire fortunes of a company.
  
  The key to dealing with this sensitivity is knowing precisely what constitutes evil and for whom. If you think back to Costco's business model, it sells a small number of products in incredibly large quantities. In order to sell products in bulk, you need to sell precisely to mainstream consumer tastes, which might mean slightly different things depending on which broad demographic you cater to. The fringes simply do not have enough purchasing power. To do this Costco not only has to create products that fit perfectly into its 'consumer overton window' but they also need to hold up to ethical standards of this population.
  
  As clean meat, organic produce, designer supplements and protein powders, and Airpods, all move from luxuries of the rich to commodities of the middle class, Costco is the canary in the coal mine for this transition. Embodied in the increased demand for these products is the increased demand for the ethical values they represent. While Airpods might not have much embodied meaning, fair trade bananas, paleo bars, and acaí smoothies do.
  
  Interestingly, for the purpose of grasping Costco's ethical boundaries, you have to look away from their embrace of wellness trends or organic foods. Instead it's the Costco best sellers that have been in the stores for literally decades — like the $4.99 Rotisserie Chicken or $1.50 Hotdog — that actually speak the best towards the store's Overton window. That you can simultaneously crave cold pressed juice, but not bat an eye at the inherent questions of sustainability that surround a $1.50 1/4 pound all beef hot dog seems to embody the Costco ethical stance well: Sustainability or Ethics are not things rooted in facts but perceptions.
  
  Costco shows the futility of this kind of neoliberal logic — that ethical concerns can be clumsily and painlessly shopped around. Once again it's in this almost apolitical stance that Costco reveals a lot about its ethics, and its subsequent perception from the public gaze. Costco is not an ethical maverick or trend setter. It is a trend follower, both in culture and product. It's through swiftly following the lead of its mainstream customers that Costco is able to circumvent the PR crises that surrounds much the corporate landscape right now. Costco can never be seen as Evil because that would mean the bulk of its customers view themselves as Evil.
  
  This reveals a problematic Catch 22 that sits at the center of this piece. Corporations only act as ethical as their subset of consumers, and consumers only are pressured to only act as ethical as their value-maximizing formulas allow them to be. This means that making a premature leap towards offering more progressive yet more expensive products or services comes with risk. Risk averse corporations, especially large ones like Costco, have to be completely sure that a market has come maturity before they offer up a product that represents a premium shift in its consumers' ethical frameworks.
  
  So if the golden child of consumerism, a lovable and ‘fair’ company like Costco is only as ethical as the bulk of its shoppers, where does that leave us? In the short term Costco might technically represent a pragmatic balance of entertaining a more sustainable version of consumerism than Walmart or Amazon, but this is like calling a large oil producer the most climate-friendly. At a certain point there is an inherent incentive problem that needs to be recognized.
  
  Looking forward, the optimist might say that the public’s increasing legibility towards impact and increased ethical concerns means that Costco will be pushed towards practices that are less extractive, and that the collective impact of these choices will be non insignificant. But will the pace of this shift be timely enough? The pessimist might note that if there’s anything that we know about our resource consumption, it’s that we are far better at choosing what is cheap and easy in the short term than we are adequately pricing sustainability into the future. The ‘E’ (externalities) in our value formula will be weighted more over time, but will it ever be weighted appropriately? Our collective inaction towards climate change should be evidence enough that consumers alone cannot be held responsible to correctly internalize externalities.
  
  Some have addressed this future discounting problem through the lens of providing different choices to consumers. If Costco isn't progressive enough, what about Whole Foods? If Whole Foods doesn't do the trick, what about the local farmers market? The problem with these choices is that every step up in ethical consumption comes with a slashing of consumer population size and the economies of scale that come with more mainstream options. Your backyard organic produce is just this — a solution for an increasingly small radius.
  
  Instead, what is far more impactful is to figure out not how to increase the amount of consumers that fall into these increasingly expensive, discrete consumer tranches, but to convert preexisting tranches into more ethical operation frameworks.
  
  Another way to get at this idea is that instead of adding/removing variables in formula for consumer value as a way to create more equitable outcomes, it's easier to actively influence the weighting of the formula's preexisting variables. There is much less resistance working within a system as opposed to reinventing it. If you are interested in how a set of companies and consumers can be the most impactful possible in as pragmatic a way as possible, your best bet isn't necessarily to disrupt capitalism with aspirations of circular economies, back-to-landing, social entrepreneurship, or any of its other silver bullets. New solutions are important, but only if such rhetoric doesn't step over the impact of taking previously existing institutions and retrofitting them towards better outcomes.
  
  So what are the tools at our disposal currently to influence a mainstream consumer's weighting of 'E' to be more accurate? Things like certifications, investigative journalism, and sensational marketing are the most common ways we get consumers to augment the weighting of the impacts of their shopping. Even it constitutes fighting fire with fire and often devolves into virtue signaling, there will continue to be a role for these strategies.
  
  How these strategies fall short though is that they achieve their increase in environmental or social legibility through a medium or third party. In the long term we will see those communicating impact attempt to dissolve this intermediary through increasingly immersive mediums that lead to heightened awareness. Whether through VR which has been proven to lead to increases in short term, 'affective' empathy, or the wielding of utilitarian frameworks like effective altruism that promote a more honest reflection of underlying impact, consumers will be drawn towards channels that bring them closer to truth.
  
  This is a shift that can be taken advantage of by more than documentarians and nonprofits. I believe that retailers like Costco can play this game too. Instead of reacting to the slow evolving standards of decency of its shoppers, there's nothing that's stopping a company from playing a more proactive market making role as long as they accompany this push with convincing evidence for consumers why a new offering is valuable for them.
  
  With all that being said, is this scenario likely for Costco? Probably not. Have you ever tasted a $5 rotisserie chicken?

How Ikea tricks you into buying more stuff

• The home furnishings giant enlists a maze-like layout, cheap food, and crafty psychology to get you to fill up your cart.
  
  On a recent Saturday afternoon, Alex Santos journeyed to his local Ikea with a singular mission: the procurement of a new Poäng chair. It was a simple in-and-out task. But 3 hours later, the 37-year-old IT manager found himself in the parking lot, slightly stupefied, with a shopping cart full of hand towels, throw pillows, and martini glasses. “It’s like Ikea makes it impossible to leave with only the stuff you came here for,” Santos told The Hustle.
  
  He isn’t wrong. It’s estimated that 60% of Ikea purchases are impulse buys. And Ikea’s own creative director has said that only 20% of the store’s purchases are based on actual logic and needs.
  
  All of this unplanned buying has earned Ikea an enviable position in the struggling retail landscape. As of 2021, it boasts: ~$47.6B USD in annual retail sales 458 stores in 61 markets 775m store visits + 5B web visits per year 225k global employees On the surface, this success may seem a bit perplexing because Ikea’s way of doing business is extremely unorthodox.
  
  It sells meatballs and lamps under the same roof. It has been described as both “Disneyland for adults” and “a nightmare hellscape.” And the idea of spending an afternoon stuck in a one-way maze — then going home and assembling your own bookcase — isn’t exactly appealing.
  
  But these eccentricities are intentionally engineered to get you to make unplanned purchases, and come back for more.
  
  Let’s start with that ridiculous store layout In general, retailers design their stores with 3 goals in mind:
  
  Intelligibility: Easy to understand the floor plan. Accessibility: Easy to navigate. A clear visual field: Exposure to products and the lay of the land. Most companies use store layouts that give customers the freedom to explore at their own will. Commonly used configurations — grid, racetrack, freeform, and spine — don’t have defined routes: You can wander down any aisle you please, in any order you want.
  
  Ikea breaks all of these rules.
  
  Inside, customers are led through a preordained, one-way path that winds through 50+ room settings. The average Ikea store is 300k sq. ft. — the equivalent of about 5 football fields — and their typical shopper ends up walking almost a mile. Want a lamp? You’re going to have to walk past cookware, rugs, toilet brushes, and shoehorns to get there.
  
  This serves several purposes:
  
  It forces wider product exposure: At most retail shops, customers only lay eyes on ~33% of all the items for sale; Ikea’s layout herds shoppers past its entire catalog. It creates a false sense of scarcity: When shoppers pass by items they’re on the fence about, they’re inclined to just put them in the cart because they don’t want to backtrack through the maze later on. It creates a sense of mystery: Every 50 feet, the path breaks left. Shoppers never know what’s around the next turn, stoking their desire to continue exploring. Alan Penn, a professor of architecture at University College London who has studied Ikea’s layout, calls it a “psychological weapon” used to drive unintended consumption. “Going to Ikea is truly a submissive experience,” he told The Hustle. “You relinquish control to its maze. And when you’ve done that, you’re more likely to hand over control of your wallet, too.”
  
  Ikea has mastered the use of a psychological principle called the Gruen effect — when the layout of a store is so bewildering that it makes you forget the original reason you came there, leading to impulse buys.
  
  Jeff Hardwick, who wrote a book on the Gruen effect, told The Hustle that the principle is at play all around you at Ikea. “You get lost in that maze, and then you are surrounded by nothing but ever-changing fantasies of what your life could be like,” he said. “It’s like you can walk into a magazine advertisement and pick up the dishes, sit on the couch, try out the desk chair. It’s very tactile and participatory.”
  
  Lost in this stupor, you might find it easy to fall victim to some of Ikea’s other tricks: Strategically placed mirrors: When you catch a glimpse of yourself in an Ikea room, you’re primed to believe you belong in it. Contextual positioning: Rooms are set up exactly as they would be in a natural setting. Familiarity encourages purchasing. “Bulla bulla” (dump bins): Ikea places overstuffed crates of dirt-cheap products (plush toys, slippers, pillows) along the route to reinforce the idea that its products are a good deal.
  
  If you look closely, something else you’ll likely see at play in Ikea is decoy pricing: when a retailer throws a less appealing option into the mix to make other products seem like a better deal.
  
  Let’s say there are 2 cabinets for sale: a $40 budget unit, and an $80 unit with more premium materials. Ikea might create a 3rd unit — one that offers neither the low price of the budget unit, nor the premium materials of the pricier unit — to make the others look better.
  
  
  Strategies like this help explain why we buy more stuff once we’re inside an Ikea. But what brings us there in the first place — and what ultimately dictates many of our spending decisions — is the allure of affordable prices.
  
  Ikea works hard to keep prices low. Ikea often follows a “price first, design later” philosophy: It starts with a price target — say $6.99 for a new stool — then reverse-engineers the design process to meet that goal.
  
  And once an Ikea product hits the shelves, the company is militant about maintaining, or even reducing, its retail price. Researchers at Boston University and the Wharton School studied hundreds of Ikea catalogs in 6 different countries between 1994 and 2010 and found that many of the company’s products get cheaper over time. Take, for instance, Ikea’s uber-popular Poäng chair — a product that sells 1.5m units per year: In 1994, it went for $179 (~$340, adjusted for inflation). Today, it’s $129.
  
  The Hustle looked back at newspaper ads from 1985 and found that this holds true with other bestselling Ikea products, too: The Billy bookcase — a product so beloved that one is sold every 5 seconds — retailed for $82 in 1985. Today, it goes for $50. The Lack side table came with a $25 price tag in 1985. Now, it can be had for $13.
  
  Ikea seems to adhere to a “survival of the fittest” pricing model: If a product’s price can’t be reduced over time, it tends to get discontinued. (There are exceptions to this: In 2022, Ikea says it will raise its prices by ~9% to offset pandemic-related supply chain woes.)
  
  The main ingredient of the company’s affordability is a technique called flat packing. The company reduces manufacturing, logistics, and fulfillment costs by disassembling items and fitting pieces together in a box as tightly as possible. “We hate air” is a common mantra at Ikea: Every pocket of space is accounted for and minimized. “Ikea designs products with manufacturing and transit in mind from the get-go,” said Katelan Cunningham, of the logistics software company Lumi. “They design for the realities of the supply chain, rather than having to make sacrifices for it.”
  
  Obsessive changes in packaging have saved Ikea millions of dollars: When Ikea transitioned its Ektorp sofa to be flat packed, it shrunk its packaging for that product by 50%, reduced its logistics by 7,477 truckloads, and led to a 14% price reduction for consumers. Repackaging the Jules office chair by separating the base and the seat saved the company ~$1.4m per year. The obvious downside to flat packing is that consumers have to assemble their own furniture — but even offsetting labor works in the company’s favor.
  
  The Ikea effect: There’s a running joke that assembling Ikea furniture with a loved one is a surefire way to get a divorce. The reality, though, is that Ikea’s furniture building model likely contributes to, rather than inhibits, overall sales.
  
  In a 2011 Harvard Business School study, researchers divided subjects into 2 groups: One was given pre-assembled origami, and the other was given paper to build their own origami. At the end of the experiment, subjects were asked how much they’d pay for the creations. The result: Those who built their own origami were willing to pay nearly 5x more than the non-builders. The researchers dubbed this the Ikea effect: a cognitive bias wherein we place a higher value on items we build ourselves, regardless of the quality of the end result.
  
  This phenomenon harkens back to an old tale about cake mix. In the 1950s, manufacturers noticed that powdered cake mix sales were suffering. All the consumer had to do was add water. But this process was too easy: It removed the effort and emotion from baking. When manufacturers took out the egg powder and made consumers add their own fresh eggs to the mix, sales went back up.
  
  Furniture and food are, of course, different beasts. But at Ikea, they enjoy a symbiotic relationship.
  
  Ikea may be a home furnishings store, but it also reels in ~$2.4B in food sales per year (~5% of its overall revenue). To put that into perspective: If you were to look at Ikea’s food operation as a stand-alone entity, it would rank as one of the 50 highest-grossing food chains in the world, right above IHOP.
  
  A typical Ikea has 2 dining options that can accommodate 600+ diners at a time: A Swedish food market on the main floor that serves up meatballs, gravlax salmon, and other Scandinavian entrees. A bistro near the exit that slings hot dogs, cinnamon buns, pizza, and other fast-serve favorites. Why, you might ask, are there food courts in a furniture store?
  
  When Ikea’s founder, Ingvar Kamprad, originally integrated food courts into his stores back in 1958, his rationale was simple: “It’s difficult to do business with someone on an empty stomach.”
  
  But the more direct answer is that there is a clear link between food sales and furniture sales. In a 2012 study, researchers in Italy set out to determine the impact of Ikea’s food courts on furniture buying. A survey of 700 shoppers found that those who ate at the food court spent an average of more than 2x more on home furnishings than those who didn’t.
  
  Chris Spear, a former Ikea restaurant manager who now hosts the podcast Chefs Without Restaurants, told The Hustle that the food courts actually aren’t a very profitable venture in their own right. “I was clearly told that profit margin was not something I should be aiming for in the restaurant,” he said. The real objective, he claims, is to reinforce Ikea’s low price profile of the store.
  
  Spear said that when he worked at Ikea, it had a policy that certain food items, like hot dogs, had to be the lowest price within a 30-mile radius. Each quarter, corporate would send him out to assess the competition; if Costco sold a hot dog for $1.50, Ikea would have to sell it for less. A person might not know if $500 is a good price for a couch, but they surely know that $0.99 is a fantastic deal for breakfast. The idea is that customers will associate Ikea’s low food prices with the store’s other offerings. “Ikea might be selling some of that food at cost, or even at a loss,” said Spear. “But it’s worth it to lose money on scrambled eggs if it means helping them sell more couches.” Ikea declined a request for comment. But Gerd Diewald, who once ran Ikea’s food operations in the US, echoed a similar sentiment in the past. “We’ve always called the meatballs ‘the best sofa-seller,'” he told Fast Company in 2017. “When you feed [customers], they stay longer, they can talk about their purchases, and they make a decision without leaving the store.”
  
  Santos — the guy who went to pick up a $129 Poäng chair and left with a full cart of goods — has a slightly different take on the food courts. After falling prey to Ikea’s labyrinth of affordable housewares and spending $297.20 more than he intended to, he stopped at the restaurant to cleanse his guilt. “Nothing washes away buyer’s remorse like a plate of Swedish meatballs,” he said.

The Tupperware Trap

• In the 1940s, a man named Earl Tupper invented a product that would transform how Americans store their food. Women started selling his airtight plastic containers, dubbed “Tupperware,” to their friends and neighbors. Soon, the product was everywhere—but by the 1980s, once Tupperware’s patents started to expire, so were the copycats. This week, after years of struggling to keep up with competitors, the company behind Tupperware filed for bankruptcy.
  
  For Tupperware—a product once so successful that its name becomes a generic term, as with Band-Aids and Kleenex—being first wasn’t enough. It makes intuitive sense that being the first to bring a product to a market would give a brand the advantage. But being the “first mover,” as it’s called in business parlance, isn’t a guarantee of being the most profitable. Tupperware is one of a batch of 20th-century brands, including Xerox and Polaroid, that created a product that defined their field but then struggled to compete with imitators. As the late billionaire businessman Eli Broad (himself a proud “second mover”) wrote in his 2012 book, The Art of Being Unreasonable, the companies that follow an innovator get to benefit from the customer base that the innovator has identified, and can learn from their predecessor’s mistakes.
  
  “A first mover,” meanwhile, “can sometimes fall in love with its product and fail to realize when technology evolves and consumers want something different,” Broad wrote. Toyota, for example, saw great success as the “first mover” in modern hybrid cars, but it has been slower than its competitors to make a fully electric vehicle, Fernando Suarez, a business professor at Northeastern, told me: “The pride of being first, the pride of having invented the category,” sometimes makes companies reluctant to change. Advantages do come to those that enter a market first, but the so-called “first-mover advantage” comes with a shelf life, Suarez said: Once the novelty of a product wears off, consumers tend to look for the cheapest version, brand name notwithstanding.
  
  Even as America entered a “golden age for food storage,” as Amanda Mull put it in The Atlantic earlier this year, Tupperware fell into some of these traps. Tupperware’s competitors have pulled ahead by making either higher-priced glass containers that appeal to sustainability-minded consumers—and look chicer in the modern fridge than old-school Tupperware—or cheaper, lighter alternatives, Amanda noted. Tupperware, it seems, got stuck in the middle: It didn’t meaningfully modernize its design, but it also wasn’t all that cheap.
  
  Tupperware also didn’t sell products at traditional retailers such as Target or on Amazon until 2022, instead sticking with the direct-sales approach that first put it on the map. Now, though, the “Tupperware parties” that made sense when fewer American women worked outside the home aren’t as appealing to potential customers—and, at worst, can inspire fear of the dreaded multilevel-marketing scheme. The Tupperware direct-sales model has proved more successful abroad in recent years, notably in Indonesia. In a statement this week, the company said that it planned to seek the bankruptcy court’s permission to continue operating during proceedings and that it recently “implemented a strategic plan to modernize its operations, bolster omnichannel capabilities and drive efficiencies to ignite growth.” In other words: The company is going to try to get with the times.
  
  The world of business loves an inventor—and stigmatizes a follower, Oded Shenkar, a business professor at Ohio State and the author of a book on imitators, told me. But, he said, most leading businesses today are not actually pioneers. Consider Facebook, which didn’t invent the idea of a social-networking site but rather found spectacular success with its own version. Walmart’s founder has openly said that he “borrowed” ideas from other stores, and the head of Ryanair admitted to taking cues from Southwest, Shenkar noted.
  
  If you’re reading this article, there’s a good chance you have cabinets full of something you call Tupperware—whether it’s from the actual company or a copycat brand. For all of Tupperware’s influence on the American kitchen, if it collapses for good, many people may not even notice that it’s missing. In the end, the verbal shorthand that Tupperware gave Americans may outlast the actual containers.

Parallels US and China Ind Development

• I spend a lot of time reading about manufacturing and its evolution, which means I end up repeatedly reading about the times and places where radical changes in manufacturing were taking place: Britain in the late 18th century, the US in the late 19th and early 20th centuries, Japan in the second half of the 20th century, and (to a lesser extent) China today. I’ve been struck by how many parallels there are between modern China (roughly the period from the late 1970s till today) and the Gilded Age/Progressive era U.S. (roughly the period from the late 1860s to the 1920s).
  
  During these periods, unprecedented levels of economic growth combined with large populations were making both the U.S. and China wealthy and powerful. Both countries were urbanizing, building enormous amounts of infrastructure, and becoming by far the largest manufacturers in the world, with industrial operations of unprecedented size. Both were undergoing wrenching social and cultural change as old institutions were replaced by new ones, and the countries began to become “modern.” Both were nations of ambitious strivers, where it seemed like anyone with talent could make themselves into a success by catching the tide of rising opportunity. Despite the many differences between the two countries, the forces of development pulled them along very similar paths.
  
  The rise of the U.S., the rise of China In the decades following the Civil War and the Cultural Revolution, respectively, the U.S. and China both saw record-setting economic growth. In 1820 the US had a GDP roughly 1/3rd the size of the United Kingdom’s or France’s, and roughly half of Germany’s or Italy’s. By 1870, its GDP was nearly as large as the UK’s, and was about 40% larger than France or Germany’s. By 1913, its GDP was more than twice as large as either the UK’s or Germany’s.
  
  In the 1870s, the US grew somewhere between 4.5 and 6.7 percent annually in real terms, one of the fastest growth rates ever recorded. From 1870 to 1913, the US maintained a growth rate of nearly 4%; no European country had a growth rate more than 3% over the same period. In his book on tycoons of the Gilded Age, Charles Morris states that “the sustained American growth spurt was the fastest in history, at least until the Pacific Rim countries made their run for daylight a century later.” China, of course, has redefined what it means to be “rapidly growing.” It went from having the 6th-largest GDP in 1980 (slightly larger than Canada’s) to the second largest GDP in 2010. While today China is still behind the US in GDP (without adjusting for purchasing power, at least), it’s nearly four times the size of the third largest country, Germany. Between 1980 and 2020, China’s GDP grew nearly 10% annually in real terms.
  
  Both the U.S. and China were able to become such large economies in part because of their comparatively large populations. China was already by far the largest country by population in 1980 with nearly 1 billion people, and today it has over 1.4 billion (though it's been eclipsed in population by India.) The U.S. grew from a relatively small population in 1820 (half the UK’s and 1/3rd that of France) to having by far the largest population of any industrialized country.
  
  The U.S.’s population surge was in part the result of immigration. Between 1880 and 1920, the number of foreign-born residents in the US doubled, from 7 million to 14 million, and by 1920 roughly 1/3rd of the U.S.’s population was either first or second generation immigrants. In some cities in the early 20th century, immigrants and their children made up as much as 3/4ths of the population.
  
  China hasn’t had the same influx of immigrants (its foreign-born population remains small, less than 1.5 million, or around 0.1% of the population), but it saw its own wave of migration in the form of huge masses of workers migrating from rural areas to cities. Over three decades, 130 million migrants had moved into cities, the largest migration in human history. Because China’s hukou residency system (which classifies someone as a resident of a particular place, and an urban or rural resident) places limits on worker movement, migration in China in some ways resembled foreign immigration. Migration was often done illicitly, and migrants often faced discrimination and poor working conditions.
  
  In both countries, this mass movement of people was paralleled by a rapid growth of cities and an increase in urbanization. In 1860, the US was still mostly a rural country, with an urbanization rate of around 20%. By 1920, urbanization had passed 50%, reaching 75% in the more industrialized Northeast. The U.S. didn’t have a single city larger than 1 million people in 1860, and the population of the 10 largest cities combined was only around 2.7 million. By 1920, there were three (nearly four) U.S. cities with a population of 1 million or more, and the population of the 10 largest cities was more than 15 million. China likewise went from an urbanization rate of less than 20% in 1980 to more than 60% in 2020, as millions of people poured into its cities. Shenzhen had a population of around 30,000 in 1980; by 2020, it had a population of more than 17 million, and was the third largest city in China.
  
  China’s rapid urbanization is reflected in a constant stream of impressive feats of infrastructure construction. China has built the world’s largest high-speed rail network, the world’s largest hydroelectric project, and the world’s largest seaport. It builds more skyscrapers than any other country, has 5 of the 10 longest bridges in the world, and 90 of the 100 tallest bridges in the world.
  
  In the late 19th and early 20th century, however, it was the U.S. achieving these amazing feats of building. Between 1860 and 1916 the US built more than 200,000 miles of railroad track, and laid 74 million miles of telephone wire between 1880 and 1930. While virtually no one in the U.S. had access to electric power in 1870, by 1930 “electricity was available in nearly 70% of US homes, and supplied almost 80% of industrial mechanical power.” The steel-skeleton skyscraper first appeared in Chicago in 1885, and by 1930 the top 10 tallest buildings in the world were all in the U.S.¹ During this period, the U.S. also tackled ambitious projects like filling in part of the Charles River Basin to create Back Bay in Boston, reversing the flow of the Chicago River, and raising the city of Galveston.
  
  As they were urbanizing, both the U.S. and China were transforming from a nation of farmers to manufacturing powerhouses. In 1860, agriculture still employed more than 50% of the U.S. workforce, and was most of U.S. exports (cotton alone made up 60% of the value of U.S. exports). By 1920, agriculture employment had fallen to 20% of the workforce, and was on the verge of being surpassed by manufacturing employment. As late as 1870, the U.S. had virtually no steel industry, but by 1900 it was producing more steel as the next two largest producers combined (Germany and the UK). The U.S. went from producing 7% of the world’s industrial output in 1860 to 40% in 1929.
  
  Around the turn of the 20th century, Europeans began to publicly worry about the tidal wave of cheap exports and novel products arriving from the U.S.. Charles Morris notes that “Attentive European elites were shocked as they came to understand the scale and speed of America’s ascendancy. Hardly three decades before, America was still torn and bleeding from a savage civil war, making its living exporting raw cotton, grain, and timber in exchange for Europe’s surplus manufactures.”
  
  While today you can’t throw a rock without hitting a book about the rise of China, in the late 19th and early 20th centuries there were hundreds of books written discussing America’s economic success. A 1902 British book, The American Invaders, chronicled how American manufactured goods were transforming lives “from Madrid to St. Petersburg”:
  
  “The average citizen wakes in the morning at the sound of an American [alarm] clock; rises from his New England sheets, and shaves with his New York soap, and a Yankee safety razor. He pulls on a pair of Boston boots over his socks from West Carolina, fastens his Connecticut braces, slips his Waterbury watch into his pocket and sits down to breakfast. Then he congratulates his wife on the way her Illinois straight-front corset sets off her Massachusetts blouse, and begins his breakfast at which he eats bread made from prairie flour... tinned oysters from Baltimore, and a little Kansas City bacon... The children are given Quaker Oats. Concurrently he reads his morning paper, set up by American machines, printed with American ink, by American presses, on American paper... Rising from his breakfast table the citizen rushes out, catches an electric tram [made] in New York to Shepherd’s Bush, where he gets into a Yankee elevator, which takes him on to the American-fitted railway to the city. At his office of course everything is American. He sits at a Nebraskan swivel chair, before a Michigan roll-top desk, writes his letters on a Syracuse typewriter, signing them with a New York fountain pen, and drying them with a blotting sheet from New England. The letter copies are put away in files manufactured in Grand Rapids. When evening comes he seeks relaxation at the latest Adelphi melodrama or Drury Lane startler, both made in America... For relief he drinks a cocktail or some California wine and finishes up with a couple of ‘little liver pills’ made in America…”
  
  The manufactured goods that America did produce were often considered low quality: Morris notes that up to the Civil War, most American tools and guns were made of British steel parts, and that for railroads, “any carrier looking for quality rails and rolling stock did its shopping in England.” But by the early 20th century, American goods seemed to be conquering the world, even complex, high-end goods like locomotives and machine tools.
  
  China seems to have matched this trajectory beat for beat. Agriculture employment was nearly 70% in China in 1980; by 2020 it had fallen to around 23%. China rose from 5% of global industrial production in 1995 to 35% in 2020. In industries like steel, batteries, solar panels, and electric vehicles China manufactures an enormous fraction of world output. And while historically Chinese goods were considered low quality, today they lead the field in things like 3D printers and drones, and are closing in even on exceptionally complex products like jet aircraft.
  
  In both the U.S. and China, the transition to manufacturing powerhouse came through operating at previously unimaginable levels of scale. In the late 19th and early 20th century, the development of transportation and communication infrastructure like railroads, steamships, and telegraphs made it possible to cost effectively transport goods long distances, creating large markets and enabling the creation of enormous industrial facilities far larger than anything that had been seen before.
  
  The U.S. developed a host of mass-production and continuous-process manufacturing methods that could produce a constant stream of output in enormous quantities, a transformation sometimes known as the second industrial revolution. Alfred Chandler notes in “The Visible Hand” that continuous or near-continuous process machinery transformed the production of things like tobacco, canned food, soap, petroleum, liquor, steel, glass, cigarettes, matches, and bottles. The Bonsack cigarette machine, invented in 1881, could automatically perform every operation of cigarette making, and just 30 such machines were needed to produce enough cigarettes for the entire U.S. In the 1870s, the Diamond Match company developed machines that could make matches by the billions; around this same time, automatic screw cutting lathes were developed to produce huge quantities of metal screws. In the case of oats, new continuous mills generated so much output that manufacturers were forced to invent a new product — breakfast cereal — to make use of it all. In the early 20th century, Ford’s assembly line revolutionized car manufacturing, and similar mass production methods (often under the name “Fordism”) were adopted by other industries for complex manufactured goods.
  
  Modern China has also pushed the scale envelope in its manufacturing operations. The peak of scale in American manufacturing operations is arguably Ford’s Rouge complex, which has operations spread over nearly 1,000 acres and at its height employed around 75,000 workers. Compare that to Foxconn City, which employed around 420,000 workers circa 2010. Yadea, the world’s largest manufacturer of 2-wheeled electric vehicles, has a single factory spread across more than 1,000 acres, and it’s just Phase I: Phases II and III are expected to be even larger. Vehicle makers BYD and Xpeng have also built what seem like Rouge-sized facilities. China’s largest steel maker, Baowu, made 131 million metric tons of steel last year, more than three times as much as U.S. Steel made at its peak, and several other Chinese steel makers make more steel annually than US Steel ever did. The pinnacle of American manufacturing scale, achieved only briefly, seems like table stakes for Chinese manufacturing.
  
  Notably, both the US and China lagged scientifically even as they were becoming powerful economically. In “Science, The Endless Frontier," the famous 1945 report advocating for robust government support for basic research, Vannevar Bush notes that in the 19th century, American industrial progress often involved “Yankee ingenuity” building upon the scientific discoveries of Europeans. While Edison may have invented the electric light, he built upon scientific discoveries of the nature of electricity that were largely European. Between 1901 and 1921, the U.S. accumulated just three Nobel prizes in science, compared to 9 each in France and the UK and 20 in Germany.
  
  China, similarly, has not necessarily been a leader in scientific progress, even as it has become an economic juggernaut. China has won just one Nobel Prize in science, and doesn’t seem to have done much better with other scientific prizes. China has just two Breakthrough Prizes (compared to several dozen for the U.S.), no Turing Awards, no Fields Medals, no Kavli Prizes, no Abel Prizes, and no Draper Prizes.² As late as 2016, Xi Jinping stated that China’s science and technology foundation “remains weak.” Chinese students and scholars often study abroad at foreign institutions for their training, not unlike how U.S. scientists would often study in Germany 100 years ago.
  
  Growth and culture
  
  Unsurprisingly, daily life in both countries changed dramatically as their economies transformed. Partly these changes were simply the result of adopting what we now consider modern conveniences. In The Rise and Fall of American Growth, Robert Gordon notes how U.S. home life was transformed between 1870 and 1940:
  
  “Instead of relying on candles and kerosene carried into the home, each home was connected to the electricity network that provided electric light and an ever growing variety of electric home appliances. Instead of relying on privies and outhouses and cesspools, each home was gradually connected to two more networks, one bringing in a supply of clean running water and the other taking waste out into sewers. Houses of the rich after 1880 and of the working class after 1910 were increasingly supplied with central heating… Another network, that of telephones, also grew rapidly after 1890.
  
  …By 1940 in urban America, electricity was universal, the percentage of homes with washing machines and electric refrigerators had reached 40 percent, and telephone connections, running water, private bathrooms with modern plumbing fixtures, and central heating had become commonplace.”
  
  A similar transformation took place in China. Access to basic sanitation in China rose from 24% in 1990 to 84% in 2017, and since 1980 hundreds of millions of Chinese have gained access to electricity. In 1980, China had just over 4 million telephones in the entire country, and as late as 1996 there were just 5 phones per 100 people; today, mobile phone adoption in China is universal. Cars per 1,000 people rose from 1.8 in 1980 to around 231 today, an increase of more than 100x. TV, internet, and air conditioning have likewise become commonplace if not ubiquitous.
  
  This transformation spawned highly consumerist cultures in both countries as a large middle class emerged. Charles Morris describes the late 19th century U.S. as the first “mass consumer” society, with Americans purchasing a wide variety of new products, sold at new chain stores like A&P and Woolworths, or through catalogs like Sears and Montgomery Ward. Morris notes:
  
  “History had never seen an explosion of new products like that in the America of the 1880s and 1890s. Branded foods followed the lead of the meatpackers, starting in the 1880s. Store shelves offered Cream of Wheat, Aunt Jemima’s Pancakes, Postum, Kellogg's Shredded Wheat, Juicy Fruit gum, Pabst Blue Ribbon beer, Durkee’s salad dressings, Uneeda Biscuits, Coca-Cola, and Quaker Oats. Pillsbury and Gold Medal wiped out local flour millers.”
  
  One 1925 novel on immigrant life described how acquiring newly available goods inevitably resulted in a desire for more of them. An immigrant family replaces their rags with real towels, then gets dishes and tableware “so we could all sit down at the table at the same time and eat like people," and continues to want more and more:
  
  “We no sooner got used to regular towels than we began to want toothbrushes… We got the toothbrushes and we began wanting tooth powder to brush our teeth with, instead of ashes. And the more and more we wanted more things, and really needed more things, the more we got them.”
  
  China seems to have gone through a similar evolution; the rise of a Chinese middle class created what has been called “tidal wave consumption” as shoppers began to quickly purchase the products they saw their neighbors buy. A man born to a professional family in China in the 1970s noted that in the 1980s, “We only had meat 2-3 times a week, needed ration coupons to purchase rice, cooking oil, sugar, fabric etc.” By 2012, China had become the largest market for luxury goods, and by 2014 China had just under 20% of the world’s population but roughly 60% of its shopping mall space. Around the same time, an influx of Chinese money made Macau the largest gambling city in the world: six times more money flowed through Macau than Las Vegas. In his 2017 essay “Everything is Worse in China," Tanner Greer describes China as subject to “crass materialism," and “wealth chased, gained, and wasted for nothing more than vain display” at levels far worse than the modern U.S. In his 2014 Age of Ambition, Evan Osnos describes consumerism in China becoming commonplace:
  
  “Shopping, or at least browsing, became a principal hobby. The average Chinese citizen was dedicating almost ten hours a week to shopping, while the average American spent less than four. That was partly because the process was less efficient in China — public transportation, cost comparisons — and partly because it was a novel form of entertainment. A study of advertising found that the average person in Shanghai saw three times as many advertisements in a typical day as a consumer in London. The market was flooded with new brands seeking to distinguish themselves, and Chinese consumers were relatively comfortable with bold efforts to get their attention. Ads were so abundant that fashion magazines ran up against physical constraints: editors of the Chinese edition of Cosmopolitan once had to split an issue into two volumes because a single magazine was too thick to handle.”
  
  At the high-end of the income distribution, both the U.S. and China saw the emergence of a new, ultra wealthy class. Osnos notes that “In 1850, America had fewer than twenty millionaires; by 1900 it had forty thousand”; China likewise has seen a rapid increase in the number of billionaires from virtually none before 2000 to hundreds today. By 2014, China was “the world’s fastest growing source of new billionaires.”
  
  The sense I get from each time and place is of a roiling, bubbling ferment, as the old structures and ways of life are ripped apart and replaced by modern ones. In China, an economy driven entirely by state-owned companies and top-down planning was transforming into a market-driven one, requiring people to learn new rules, new strategies, and an entirely new way of life. In her book about Chinese female migrants, Factory Girls, Leslie Chang describes parents of migrant workers completely unequipped to give advice for the new world that was being created.
  
  “The parents of migrants had terrible instincts. At every stage, they gave bad advice; they specialized in outdated knowledge and conservatism born out of fear… on the job front, their advice was invariably bad.”
  
  Osnos notes that in Beijing, “The endless churn was the only constant," and that he “never passed up an invitation, because places, and people, vanished before you had the chance to see them again.” Other places seemed static and unchanging by comparison: a Chinese friend of Osnos rejected a suggestion to visit New York on a trip to America because “everytime I go, it looks the same.”
  
  Likewise, in the U.S. old institutions were ripped apart and replaced by new ones. While historically America had been a rural nation of small farmers and small businesses, by the late 19th century it was “careening towards modernity," being taken over by huge corporations and impersonal institutions. Morris describes how the “old ways of life, long settled expectations, all the fixed stars for measuring stature and progress, were violently wrenched out of place.”
  
  “The Whig vision of a frictionless, monadlike society of independent artisans and farmers was being swallowed up by its own relentless logic of development. The infrastructure of modernity — fast, cheap transportation; ready access to primary materials like coal, iron, and oil; real-time communications; smoothly flowing channels of finance capital — demanded behemoth-scale institutions, sprawling, soulless, autistically focused on pouring out more steel, more coal, more stocks and bonds, more of whatever they happened to do. During the 1870s, the wrenching forces of modernization achieved maximum torque on the old ways of living and governing and doing business. The captains of modernity, the Carnegies, the Rockefellers, the Goulds, and their admirers; all the people yearning to strike out on new salients, buy more things, behave in new ways; immigrants seeking release from the encrusted semifeudal strictures of Old Europe: they all reveled in the change. Probably half the country hated it.”
  
  In both countries, this upheaval created huge amounts of opportunity. With the old structures of life falling away, and new ones taking shape, there was much to gain by those willing to take risks, regardless of whether you had the right background or traditional status markets. In both countries new businesses would constantly spring up, fail, and then get replaced by different businesses, and people would quickly move from one opportunity to another. Both nations seemed full of strivers, people who would scramble and scrape to get ahead, and were rewarded for doing so.
  
  In the U.S., many tycoons and industrialists worked their way up from modest beginnings. John D. Rockefeller was the son of a con artist who abandoned his family, and Rockefeller’s first job was as an assistant bookkeeper. Andrew Carnegie was a Scottish immigrant and son of a weaver, born in a one-room house. Charles Schwab, one of Carnegie’s lieutenants and later a major steel executive in his own right, started his steel career earning a dollar a day driving stakes when he was 17. Within 6 months he was managing construction for a large blast furnace. George Westinghouse was the son of a farmer and machine shop owner, and Henry Ford was also the son of a farmer. And while not everyone could become a tycoon, less stratospheric opportunities still abounded. Morris describes a man, Edward Tailer, who “left school to clerk for a New York dry goods importer, but complained about the pay, only $50 a year. By the time he was twenty-one, he was making $450 a year; he jumped to another firm the next year for $1,000, then became a traveling salesman at $1,200, and had his own business when he was twenty-five.” Such stories were far from rare:
  
  “…Few places have ever been as open to people of talent as post-Civil War America; and in America, no field offered opportunities as unlimited as business. America’s radically different manufacturing culture, its cult of the innovative entrepreneur, its obsession with “getting ahead” even on the part of ordinary people, its enthusiasm for the new — the new tool, the new consumer product — were all unique.”
  
  Most surprising of all to me was how much of what seems like a quintessentially American culture seems to have been recapitulated in modern China. In Factory Girls, migrants constantly move from one factory to another for new job opportunities, and many work their way up from assembly line workers to managers of entire factories (people changed jobs so often that mobile numbers were the only reliable way to reach them — office or dorm numbers were quickly out of date). Chang notes that migrants’ “tolerance for risk was astonishing. If they didn’t like a boss or a coworker, they jumped somewhere else and never looked back.” Evan Osnos likewise notes in his aptly titled Age of Ambition that “I had come to expect that Chinese friends would make financial decisions that I found uncomfortably risky: launching businesses with their savings, moving across the country without the assurance of a job.” Ambition, which had traditionally been cautioned against, became something to be celebrated:
  
  “The change that startled me most surrounded the word for ‘ambition,’ ye xin — literally, ‘wild heart.’ In Chinese, a wild heart had always carried the suggestion of savage abandon and absurd expectations — a toad who dreams of devouring a swan, as an old saying had it… But suddenly I was seeing references to ‘wild hearts’ everywhere — on television talk shows and in the self-help aisles. Bookstores carried titles such as ‘Great Wild Hearts: the Ups and Downs of Pioneering Entrepreneurial Heroes’ and ‘How to Have a Wild Heart in Your Twenties.’”
  
  (As I understand it, this ferment in China has died down somewhat since the early 2010s, and the Chinese economy no longer has such a “frontier” aspect to it. In Other Rivers, for instance, Peter Hessler notes that it's no longer common for middle-aged people to abandon careers to start new businesses.)
  
  Paired with this celebration of ambition is a culture of individualism and self-reliance. Osnos reports that “The state media, which had once encouraged everyone to be a ‘rustless screw’ in the machine, now acknowledged the new reality of competition: ‘you must rely on yourself,’ the Hebei Economic Daily wrote. ‘Blaze your own path and fight.’” Osnos writes:
  
  “Companies reinforced that message. China Mobile sold cell phone service aimed at people under twenty-five, using the slogan ‘My Turf, My Decision.’ Even in rural areas, where things changed slowly, people spoke of themselves in different ways. Mette Halskov Hansen, a Norwegian sinologist who spent four years in a countryside school, found that teachers were trying to prepare their students for a world in which survival required ‘self-reliance, self-promotion, and the self-made individual.’”
  
  An obsession with self-reliance also peppers Leslie Chang’s Factory Girls: a constant refrain, repeated by migrant girls themselves and in the magazines and media that cater to them, is that “you can only rely on yourself” (not surprising since workers are far from home, with few social ties, and constantly changing factories.) Migrants are constantly taking classes to try to improve themselves and their career prospects: often in English and computers, but also things like injection molding machine operation and how to work in an office.
  
  With institutions constantly in flux and being reshaped, and with culture and social mores untethered, these worlds of immense opportunity also contain an immense number of scams, schemes, and grift. Morris describes the late 1860s U.S. as a “pandemic of corruption” triggered by the huge injection of federal spending, and NPR describes the 1800s as “the golden age of schemes.” The builders of the transcontinental railroad, for instance, built a deliberately winding route for the railroad since they were being paid by the mile, and siphoned even more money from the project by billing the government nearly twice what the railroad actually cost to build in what was known as the Credit-Mobilier scandal. Con man George Parker successfully “sold” the Brooklyn Bridge multiple times, as well as other major landmarks like the Statue of Liberty, Grant’s Tomb, and Madison Square garden.
  
  Immature financial markets and securities laws (the Securities and Exchange Commission wasn’t created until 1934) were constantly exploited by men like Jay Gould and Daniel Drew, dubbed “robber barons” for their illicit, unscrupulous accumulation of wealth. The market was swamped by patent medicines, most of which were fraudulent (often they were simply liquor). Consumers were expected to be sharp in their interactions, and legal doctrine for commerce was based on “caveat emptor” (let the buyer beware): an unrestrained business environment allowing risky and dangerous enterprises was thought to be necessary for the “‘industrial and commercial development…of a new and expanding nation.” In Fraud: An American History from Barnum to Madoff, Edward Balleisen writes:
  
  “America’s legal elites tried to balance longstanding norms that upheld truthful commercial speech against their age’s commitment to entrepreneurial activity and rapid economic growth. The latter priorities, encapsulated in the concept of ‘Go-Aheadism,’ counseled leeway for salesmanship and showmanship, respect for the free flow of commercial speech, and reliance on the ability of consumers and investors to look out for their own interests.”
  
  China seems to have (or had) both a similar Wild West aspect and an obsession with economic growth. Chang’s factory girls are constantly at risk from being scammed or grifted by opportunists: bus drivers who take their ticket then kick them off, con-men who trick them out of their money, peddlers selling get-rich-quick schemes or dubious training courses, sales organizations which are really pyramid schemes, factory owners who force them to work for less than minimum wage or for more than the legal number of hours. At the same time, they’re constantly skirting the law themselves: using fake IDs to freely move around, lying about their skills and abilities to get hired, and buying counterfeit diplomas. Chang recounts one interaction with the teacher of a training course for migrants:
  
  “‘In job interviews,’ I said, ‘the girls are often asked if they have experience. They say yes, but actually they don’t.’
  
  I was trying to approach the topic carefully, but Teacher Deng pounced. ‘Yes, and the next question is: “What did you do in your old job?” We teach them the details of the factory so they can answer in a convincing way.’
  
  ‘But they’re telling lies,’ I said.
  
  ‘Yes.’
  
  ‘What if they don’t want to?’
  
  ‘It’s up to them,’ teacher Deng said. ‘But people who are too honest in this society will lose out.’”
  
  This Wild West culture has costs beyond the financial: an earthquake in Sichuan, China in 2008 was especially devastating in part because of corners cut during building construction: some buildings were found to be reinforced with bamboo rather than steel. Similarly, the Great Chicago Fire in 1871 was so devastating in part because of the lack of building codes and unrestricted construction of lightweight wood buildings.
  
  Both countries ultimately made efforts to rein in harms from corruption and unchecked development. In the U.S., the Gilded Age was followed by the Progressive Era, where reformers advocated for better working conditions, regulation of unlawful monopolies, and laws preventing the sale of adulterated food and drugs. In China, there have been crackdowns on certain types of corruption — theft, embezzlement, and so on.
  
  While China still has large amounts of corruption in the form of bribes and access money paid to government officials, Yuen Yuen Ang argues in China’s Gilded Age that China has been able to channel its corruption into a pro-development force. Local bureaucrats are often paid by kickbacks, free meals, and so on, but these are linked to their region’s economic development: the more private investment, and the greater the success of local businesses, the greater these types of benefits they can extract. Interestingly, you see the same sort of idea in late 19th and early 20th century US, with the idea of “honest graft.” Tammany Hall politician George Plunkitt noted that he never took money from any government coffers, but would make investments in land and other areas that he knew government projects would make more valuable, another type of corruption that’s coupled to development and economic growth.
  
  Conclusion
  
  I’m far from the first person to point out these resemblances between the U.S. and China. In Age of Ambition, Osnos notes that:
  
  “China reminds me most of America at its own moment of transformation: the period that Mark Twain and Charles Warner named the Gilded Age, when ‘every man has his dream, his pet scheme’... As in China, the dawn of American fortune was accompanied by spectacular treachery… When I stood in the light of a new Chinese skyline, I sometimes thought of Gatsby’s New York – ‘always the city seen for the first time, in its first wild promise of all the mystery and beauty in the world.’”
  
  Yuen Yuen Ang likewise notes the similarities between modern China and the Gilded Age U.S., stating that “both countries underwent a wrenching structural conversion from rural to urban and closed to global markets, producing once-in-a-generation opportunities for the politically connected and enterprising…to acquire fabulous wealth.”
  
  The most interesting thing about these parallels, to me, is that the U.S. and China in many ways were starting from very different places. Prior to its opening up, China’s economy was entirely state-owned and state-planned, and its economic expansion was coupled with unwinding much of the state enterprise machinery, letting small businesses form and markets bloom.
  
  The U.S., on the other hand, was on the other end of the spectrum. Prior to its economic expansion it had an incredibly weak state, and economy driven by very small enterprises. Its development was accompanied by the creation of large, powerful companies and institutions, and moving away from the “invisible hand” of the market and towards the “visible hand” of exchanges of goods and services mediated within very large organizations.
  
  China’s success came from finding ways to mobilize its huge number of people and hasn’t necessarily been focused on operating at the frontier of efficiency. The U.S., on the other hand, despite its comparatively large population, had a chronic shortage of labor, and much of its development was focused on developing less labor-intensive manufacturing technologies like the American System. China built its success on the back of inexpensive labor, and it remains a middle income country. In the U.S., labor has never been cheap; the U.S. had nearly the GDP per capita of Britain as early as the 1820s, and it had the highest GDP per capita in the world by the 1880s. But despite these differences, the logic of development pulled the U.S. and China along very similar paths. Both countries could exploit very large markets (both at home and abroad), and operated their industries at very large scales in order to do so. In both countries, this required a novel set of institutions that was radically different from what came before, and the transformation that created those institutions spawned cultures with many similarities.

Other Resources

• Books About Trade and Business
• Anecdotes About Trade and Business
• Quotations About Trade and Business