Moneybox
A blog about business and economics.

Aug. 19 2015 5:52 PM

Airlines Tickets Are Finally Getting Cheaper

Back in December, my colleague Josh Voorhees wondered why U.S. air travelers weren’t seeing much relief in ticket prices. The cost of jet fuel, after all, was down 32 percent in the past 12 months. But instead of passing these savings onto consumers, domestic airlines had actually increased fares by an average of $10—or about 3 percent—in 2014. The reasons, he found, were manifold. A string of megamergers in the airline industry. Increasing demand for seats. Fuel contracts set months in advance. The most optimistic outlook for consumers came from the International Air Transport Association, the industry’s largest trade group, which suggested that when summer 2015 rolled around, the average airfare could fall by up to 5 percent.

Well, now that summer 2015 is in full swing, IATA’s ticket-price predictions are looking pretty prescient. Case in point: When the Consumer Price Index for July was released on Wednesday, it showed that the index for airline fares fell a striking 5.6 percent from June to July—the biggest one-month drop since December 1995. On a year-over-year basis, the airline fare index has also fallen 5 or more percent in each of the past five months. You can see July’s sharp downturn in the chart below:

cpi_airfare_0815

Federal Reserve Bank of St. Louis

While this is good news for consumers, it’s not the best for air carriers, despite their current record profits. From the Wall Street Journal:

Costs have dropped sharply for airlines, pushing profits higher. But a decline in ticket prices has hurt the companies’ unit revenue, which measures the amount of money taken in for each passenger flown a mile. Investors remain fixated on that metric, which has slumped this year and may not turn around until 2016. They are watching for signs that airlines are responding to better times by over expanding, setting up another downturn.

What’s hard to say is whether the decline in airfare that the CPI has registered accounts for another airline trend—unbundling tickets. In an effort to bolster profits, major air carriers have increasingly started to separate out all the amenities of a flight and sell them as add-ons. JetBlue earlier this year added a fee for passengers’ first checked bag for the first time. Ultra-cheap companies like Wow Air keep their base fares deceptively low by charging more for everything from prebooked seats to bringing a musical instrument aboard. As I wrote in Slate in December, buying a plane ticket today is kind of like ordering a sandwich and having to pay extra for the bread. On its website, the Bureau of Labor Statistics says only that the CPI’s airline fare measurement takes into account “all applicable taxes” as well as “fuel surcharges, airport, security, and baggage fees.” For once, it’s truly unclear if additional fees may apply.

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Aug. 18 2015 10:16 PM

Airbnb Wants to House Tons of Chinese Tourists. That’s a Lot Tougher Than It Sounds.

When Airbnb announced its latest funding round this June, it was easy to gloss over one of the names attached to it. At the time, the fact that China Broadband Capital was among the dozen-odd investors on board was much less interesting than the size of the round itself—a stunning $1.5 billion that valued Airbnb at $25.5 billion and vaulted it toward the top of the elite billion-dollar startup club. But on Tuesday, the home-sharing company made clear that China Broadband Capital is more than just another backer. It and Sequoia China are serving as two “strategic partners” in a newly announced Airbnb push to capture the vast and lucrative business of Chinese tourists traveling around the world.

Should this story sound familiar—“sharing economy” company lands big investment, makes equally big bet on China—that’s because it is. Back in December, Uber partnered with Internet giant Baidu, and then just two months ago announced it would devote more than $1 billion to expansion in China in 2015. In a letter to investors, Uber chief executive Travis Kalanick described the massive growth the service had seen since arriving there in February 2014. After its first nine months in Beijing, Uber’s trip volume was 29 times what it was during the same initial period in New York City. In Hangzhou, that multiplier was 422. “This kind of growth is remarkable and unprecedented,” Kalanick wrote. “To put it frankly, China represents one of the largest untapped opportunities for Uber, potentially larger than the U.S.” And finally: “Simply stated, China is the #1 priority for Uber’s global team.”

Top expansion priorities never come cheaply, and especially not when they involve winning the hearts and wallets of an estimated 1.3 billion people living halfway around the world. Uber hasn’t publicized its burn rate in China, but it must be astronomical. On “People’s Uber,” the UberX-like service the company operates in cities including Shanghai and Hangzhou, rider fares cover only basic driver expenses like gas. Uber subsidizes the rest, with some drivers making the equivalent of several thousand dollars a month. On a recent trip to China (arranged and paid for by the China–United States Exchange Foundation, a nonprofit, nongovernment organization based in Hong Kong), a 10-minute, 1.8-mile ride in a People’s Uber cost just 8 RMB, or about $1.30. With Uber providing a reported 100,000 rides a day in China, I’ll leave it to you to imagine how expensive that operation is.

Airbnb didn’t specify in its announcement how much it plans to spend on a China push, but again, it’s unlikely to be cheap. Airbnb’s efforts are focused on Chinese tourists looking for places to stay around the globe, though it also offers rentals within China. The company says China is its fastest-growing outbound market, with bookings from Chinese tourists traveling outside the country increasing 700 percent in the past year. (A company representative declined to provide additional specifics on bookings in China, pointing instead to a blog post by chief executive Brian Chesky.) Like Uber, Airbnb has identified China as a tremendous untapped opportunity; Chinese travelers took 109 million trips in 2014, the company explains, citing data from the World Tourism Organization. “It’s clear that Airbnb is uniquely positioned to connect Chinese guest to amazing travel experiences,” Chesky writes. “And as we move into our next phase of expansion in China, we know we will need deep local knowledge and expertise to keep this momentum going.”

That, of course, is where China Broadband Capital and Sequoia China will come in for Airbnb, and where Baidu is already helping out for Uber. To state the obvious, running a business in China is nothing like running it in the U.S., and American tech companies have largely either struggled to crack the tightly controlled market or chosen to keep their distance. Here again, the Uber narrative is telling—while the company has expanded and lobbied for regulatory changes aggressively in the U.S. and parts of Europe, Uber has carefully fallen in line in China. Earlier this summer, Uber made headlines when it warned drivers to steer clear of a protest in Hangzhou to “maintain social order.” The startup that brashly smacked down Bill de Blasio over a proposed vehicle cap in New York City is hardly recognizable in the Middle Kingdom. Airbnb’s reputation is far less brazen, but it will also presumably need to be extra-accommodating to position itself favorably in the Chinese market.

Lastly, what’s left unsaid in the Airbnb announcement is that it’s by no means the only company attempting to win the alternative-lodging game with Chinese travelers. One of the biggest competitors Airbnb will face is Tujia.com, a Beijing-based site for home rentals that in June raised $300 million at a valuation topping $1 billion. The lead investor on that round, All-Star Investments Limited, also holds a stake in Didi Kuaidi, the dominant provider of on-demand rides in China and Uber’s most formidable local rival. Chesky says that Airbnb’s partners on its China efforts have “proven track records in localizing technology for the Chinese market” and growing Chinese Internet firms into “respected market leaders.” In poetically optimistic fashion, he adds that Airbnb had its biggest night ever this summer and is eager to “help more people in China travel through the Airbnb platform” and gain “memorable travel experiences from around the world.”

In short: Airbnb is ready to belong in China. The question: Is China ready to have it?

Aug. 18 2015 5:02 PM

So Long, Cellphone Contracts. You Won’t Be Missed.

Earlier this month Verizon dealt a critical blow to the cruel tyranny of smartphone contract plans; on Monday so did Sprint. With T-Mobile eliminating the contract option long ago as part of its “uncarrier” campaign, AT&T has quickly become the only major wireless carrier in the U.S. to still offer multiyear contracts with subsidized phones, and even it is making those plans harder to obtain.

Don’t expect to see many tears. As long as contract plans have been the norm in the wireless industry, they’ve also been the bane of consumers—particuarly those who care about having the latest device. Phone contracts sign users into long-term agreements (typically two years) and keep them there with the threat of hefty early-termination fees. Want the new iPhone when it comes out only halfway through your existing carrier contract? Pay up, or tough luck.

So, are these new contract-free options better? The not-really-helpful answer is that it depends. If you’re the type of person who prioritizes having a shiny new device, then you probably stand to benefit from going the contract-free route. Under the “iPhone Forever” promotion that Sprint announced on Monday, for example, customers are eligible to upgrade any time they “don’t have the latest iPhone.” On the other hand, if you, like me, are happy to hang onto your dated smartphone for its two-year term, going contract-free might ultimately increase your spending. That’s because with most of these new plans, the cost of your freedom from a two-year contract is the full price of your device—either paid all at once upfront, or tacked onto your bill in monthly installments.

Whether ditching a two-year contract is cheaper or more expensive in the long run will depend on your particular plan and device. Consider Verizon. Under the company’s new pricing plan, an iPhone 6 user with 3GB of data would get a pretax monthly bill of about $92—$45 for data, $20 for the smartphone connection, and $27.08 for the monthly device payment—and can upgrade any time once she’s paid the device off. By contrast, with Verizon’s older “more everything” plan, that same iPhone 6 user would have paid $90 a month pretax ($50 for data plus $40 for the smartphone connection), as well as $199.99 for the subsidized device and $40 to either activate or upgrade. In this case, the new pricing model is cheaper because the subsidized device cost was essentially built into your monthly smartphone connection charges under the two-year contract. Still, there’s no guarantee that you’ll always save money by going contract-free.

That said, my guess is that lots of people will do it anyway because they fall into the I-want-a-new-phone category rather than the I’ll-hang-on-to-it-for-two-years one. In February, research firm Recon Analytics reported that 49 percent of Americans replaced their device every year in 2014. That was up from 45 percent of consumers in 2013. The portion of people replacing their device every two years, meanwhile, plummeted from 40 percent in 2013 to 16 percent in 2014. As you can see in Recon’s chart (above), many of those people appeared to shift to a third category—replacing their device at obsolescence. What’s unclear is whether that means they were ultimately hanging onto it for more or less time.

When you consider that trend, it makes sense that all the big carriers are hopping on the contract-free bandwagon. Phone technology improves fast, and consumers want to be able to upgrade apace. For now, it’s hard to say whether they’ll also pay a bit of a premium for that right. But as carriers compete to bring users on board—especially without the security of two-year contracts to lock them in—you can bet that costs will fall. So look forward to that.

Aug. 18 2015 3:36 PM

Scott Walker and Marco Rubio Explain How They Would Replace Obamacare, and It Isn’t Pretty

In what can only be described as a ill-fated attempt to focus this summer's primary campaign season on something other than Donald Trump's noxious opinions about Hispanics and women, both Florida Sen. Marco Rubio and Wisconsin Gov. Scott Walker have unveiled their plans for repealing and replacing Obamacare. Rubio laid out his thoughts in a Politico op-ed Monday night. Walker released a brief policy paper Tuesday, which he elaborated on during a speech delivered, as a few sharp observers noted on Twitter, before the symbolically inconvenient backdrop of a screw machine factory. The two proposals have much in common, and together should give the public a pretty good notion of what to expect from the GOP field on health care.

What's the major idea? After scrapping the Affordable Care Act, both Rubio and Walker would essentially give Americans a little bit of money so that they can possibly afford to buy cheap insurance. And by cheap insurance, I mean really crappy insurance. This is the approach that has been popular among conservative policy thinkers for a while, and is basically the inverse of Obamacare, which gives Americans subsidies to buy higher quality coverage. The GOP strategy consists largely of three main steps:

  1. Allow Americans to buy coverage across state lines.
  2. Give people who don't get insurance through their employer a tax credit so that they can purchase a private plan.
  3. Create special "high-risk pools" for the sick who can't get coverage otherwise.

Now here's how that all works together.

Today, even though Obamacare put in place a new set of federal standards, health insurers are still basically regulated by the states, which have different laws about consumer protection and what conditions companies are required to cover. The result is that Americans have to buy health plans in the state where they live. Republicans, like Rubio and Walker, would like to change that system by allowing consumers to shop around the country, which they argue would create competition and drive down prices.

In theory, there's nothing wrong with this idea. But it only works if the federal government sets acceptable guidelines about what sorts of plans insurers are allowed to sell. Otherwise, it would almost certainly spur a harmful race to the bottom, in which companies would flock to states with the loosest regulations, and offer cut-rate insurance offering little protection. The likely result, as the Congressional Budget Office argued years ago, is that young, healthy customers would opt for the least expensive options available, while older, sicker Americans would end up paying more for coverage. Meanwhile, many of those invincible-feeling twentysomethings would find their health insurance wasn't worth much once they actually needed it. And the chances are that a Walker or Rubio administration wouldn't do much to stop that from happening.

Setting those niggling little problems aside, letting Americans buy health insurance in a lightly regulated national market would probably lead companies to offer some affordable catastrophic coverage. That's where we get to Step 2. Both Rubio and Walker would offer Americans without job-based insurance a tax credit to buy on the individual market, which would likely be enough to pay for a low-end plan.

Walker notes that there are some people who, under his system, might actually get a bigger tax credit than they would now under Obamacare, which subsidizes coverage purchased on its health care exchanges. But if the governor really wants to offer even remotely generous tax credits, it's probably going to be expensive. And that's a bit of a problem, since he's planning to 86 all of the taxes that currently pay for the Affordable Care Act.

Of course, tax credits won't do much good for people if they can't get coverage because they have cancer or a disability. Obamacare, of course, outright bans insurers from discriminating against people with pre-existing conditions, then makes it up to the companies by requiring every American to get insured, which gives them more healthy (and profitable) customers. Rubio, Walker, and other Republicans would eliminate those rules. Instead, they would likely try to help the sick get coverage through other means, likely by subsidizing state-run "high-risk pools." (Both Rubio and Walker suggest this is only one option, but it's really the conservative policy of choice.) The idea is that companies can sell special insurance plans designed for the infirm, which the government can help pay for.

This is an idea that has been tried many times before, most recently as a stopgap measure under Obamacare that was meant to tide people over until the law went into full effect. The lessons have been pretty clear: Most of the time, the plans offered in high-risk pools remain extremely expensive and tend not to enroll many individuals. You could potentially fix those problems by injecting many billions of dollars into them. But last I checked, Republicans aren't typically fans of government spending, and the chances that they would appropriately fund the pools seem rather small.

Both Rubio and Walker offer up additional ideas, some of which would be, well, controversial. For instance, Rubio would seemingly fund his plan partly by cutting back on the tax break for employer-provided health insurance, which, as Vox's Sarah Kliff writes, would have the obvious effect of making most Americans' insurance more expensive (it's also probably a nonstarter in Congress). Both he and Walker, would also give more control over Medicaid to the states, which is typically code for cutting back on benefits to the poor. Rubio also explicitly says he would eventually turn Medicare into a program that helps seniors buy private insurance. Walker, perhaps wisely, doesn't really touch the subject.

But the big takeaway is that the establishment GOP contenders are edging toward a consensus alternative to Obamacare, a three-part plan that would potentially make insurance cheaper for the young, more expensive for the old and sick, and depending on how tight-fisted Congress felt, unaffordable for the ill. Thankfully for them, nobody should notice for a while. Everybody is still paying attention to Trump, after all.

Aug. 18 2015 12:31 PM

Nairobi Used to Be a Terrible Place to Do Business. How Did It Transform Into a Tech Hub?

This post originally appeared on Inc.

At first blush, you might not think of Nairobi, Kenya, as being especially ripe for startups. Public concerns over security, government red tape, and a long waiting period for corporate registration are a few reasons why the capital city has historically fostered less entrepreneurial activity.

Still, in recent years, Nairobi has seen massive development in all things digital. Counting thousands of STEM graduates from local colleges each year, Nairobi's tech scene could be worth as much as $1 billion to Kenya in the next three years, Bloomberg reports. 

As the use of mobile phones gains popularity, a more fertile marketplace for e-commerce businesses is being created. IBM recently chose Nairobi as the location for its first-ever "African research lab," citing the city's notable tech "buzz" and connectedness to the African continent at large.

M-Farm is one of the many tech startups to emerge from Nairobi's entrepreneurial ecosystem. Founded in 2010 by a trio of women, the company gives farmers access to real-time information about market prices, and where they can sell produce and buy supplies, all at the touch of a mobile button. 

To sign up for the service, farmers pay 800 Kenyan shillings ($8 U.S. dollars, which is a reasonably small fee in Kenya), for a six-month M-Farm subscription. An SMS transaction for a single crop, instead, is simply the cost of a text message. The company counts nearly 17,000 users in Kenya, and projects to have 1 million by the end of next year.

M-Farm aims to be more than an information platform. It wants to empower African farmers to grow more effectively by cutting out the costly middle man. Presently, those farmers are producing just one seventh of the possible yield per hectare that is produced in developing countries, according to consulting firm McKinsey and Co.

"In Kenya, agriculture has always been looked at as a punishment," says Linda Kwamboka, one of the M-farm co-founders. "You always hear farmers saying that they don't get enough profit from their transactions because the middle man is taking everything."

Still, Kwamboka continues to explain that it's the small-scale farmers who actually feed everyone. So the idea for M-Farm was born: "If the farmers really know how much their produce is going for in the market, they will be able to negotiate with the middle men," she said.

Innovative companies like M-Farm have given Nairobi the boost it needs to succeed economically. Currently home to 242 startups and nearly 2,000 private investors, the city—once nicknamed "Niarobbery" for its crime rates—is now adopting a new title: "Silicon Savannah."

The Kenyan government is recognizing that startups create jobs, and to that end, is making several investments to support the entrepreneurial ecosystem. In 2013, the government partnered with Kenyan incubator Nailab to launch a $1.6 million technology program to provide entrepreneurs with access to capital, education, as well as helpful contacts in the industry. Graduates of the program, which runs for three to six months, include startups like Soko Text, which solicits text messages to aggregate demand for food, and then determines wholesale prices for local micro entrepreneurs. 

Technology resources unaffiliated with the government are also springing up in Kenya. Founded in 2008, iHUB conducts business research in partnership with the University of Nairobi. The organization offers consulting services as well as a collaborative local workspace for business owners.

The IPO48 startup competition is another initiative that proved particularly useful to M-Farm's co-founders. The program brings together more than 100 Kenyan entrepreneurs, programmers, designers, and project managers, and solicits them to build a new mobile or web service over the course of just two days.

As the 2010 winner, M-Farm received a prize of $10,000 in investment money. Since then, the company has received additional (undisclosed) funding from other investors. "The most important thing we got out of this was the networking," Kwamboka says. "It gave us visibility for other people to know what we're doing, and to start getting involved. People know where to find you. If they come to Nairobi, and want to invest, people check the iHub to see what's going on." 

What's more, Kwamboka notes that the Kenyan government is remarkably supportive of women in business. "The Kenyan president [Uhuru Kenyatta] is taking strides to ensure that women entrepreneurs are being recognized and heard," she adds. 

Internet penetration in Kenya has surged over the years, creating a massive opportunity for digital entrepreneurs. As of 2014, nearly half (43 percent) of the Kenyan population had access to the Internet, according to the World Bank. This is a significant uptick from 2010, when penetration hovered at just 14 percent. What's more, 82 percent of Kenyans now own a cellphone, compared with 89 percent of Americans.

"Mobile phones are the best way to go [for businesses]," says Kwamboka. "The information it contains is very personal. You can store it, and you can always go back and check yesterday's price, or last week's price."

The ability to make smart and analytical decisions is essential for farmers. A suburban town elsewhere in Kenya, for instance, might have a better tomato market this week than Nairobi had last week, which lets farmers sell at a higher (more appropriate) price point. As Kwamboka explains, a farmer—equipped with the right market information—might be able sell his crop for an extra 10 shillings. Predictably, the middle man may reject that price in the morning but will agree to it by the afternoon. 

In 2007, Kenyan provider Safaricom also took advantage of mobile penetration to launch M-Pesa, a microfinancing company, in partnership with Vodafone. M-Pesa has become something of a mobile banking revolution, which has since spread across Eastern Africa, Afghanistan, India, and parts of Europe, and now counts about 15 million daily active users.

The service allows for easy money transfer, bill payments, and money withdrawals by simply sending a PIN-secured, SMS text message. The platform has spawned offshoot ventures, which all leverage the same technology. M-KOPA Solar, for example, gives Kenyan cheap access to solar energy.

In 2014, M-Farm partnered with M-Pesa to process mobile payments on the back end, as it sends out pricing information and updates to its users.  

Nairobi is fledgling when compared to urban giants like New York City or Los Angeles, but within Africa alone, it's one of the fastest-developing cities. In economic terms, Nairobi is Africa's seventh leading city, according to a recent report in PwC's series on "Cities of Opportunity." And in a 2012 study from the Economist Intelligence Unit, "Hot Spots: Benchmarking Global City Competitiveness," it was projected that Nairobi will become one of the 40 fastest growing urban economies in the world by 2016, due to its highly skilled workforce and comparatively low cost of living.

In fact, Kwamboka and her co-founder Jamila Abass, who studied in Kenya and Morocco respectively, each hold bachelor's degrees (Abass in computer science, and Kwamboka in business information technology). "Really, I do feel supported as a woman in tech [in Nairobi]," Kwamboka adds. 

Still, to better compete on the global landscape, the city needs to develop its physical infrastructure: Transportation in Nairobi is an infamous headache, for which the city ranked in the bottom 10 out of the total 120 cities surveyed by the EIU. 

With digital startups like M-Farm, though—which was recently singled out by U.S. President Barack Obama as inspiring "hope" for the country, during his July trip to Nairobi for the Global Entrepreneurs Summit—Kenya is fast emerging as a business hub within the global marketplace.

Aug. 17 2015 6:39 PM

Biking to Work Is Growing Fastest Among Richer Americans

Last week, the U.S. Census Bureau released a report on America’s commuting patterns. One prominent finding of the report was that more young, urban adults are giving up on driving to work. This was particularly true in cities with strong public transportation networks, where automobile commuting declined by 6 percentage points among workers ages 25 to 29. Another interesting takeaway? Biking to work is slowly but steadily on the rise—especially among wealthier employees.

From 2006 to 2013, bicycle commuting among workers with no access to a vehicle more than doubled among those making $75,000 or more—the highest earnings category in the report—rising from 1.1 percent to 2.4 percent. For workers in the lowest earnings category ($0 to $24,999), bicycle commuting edged up from 3.1 percent in 2006 to 3.5 percent in 2013. And for middle earners (those making $25,000 to $74,999), the amount of biking workers increased from 1.9 percent in 2006 to 2.9 percent in 2013.*

biking_to_work

Data from U.S. Census. Chart by Alison Griswold.

Of course, it’s important to distinguish between rate of growth in a commuting trend and the actual prevalence of that mode of commuting. As the charts above and below show, biking to work is most common among America’s lowest-earning workers:

But if the changes of the last several years are any indication, that gap is narrowing. The increase in bicycle commuting was also notable among younger workers—registering a “substantional proportional increase” of 0.3 percent for workers between the ages of 25 and 34, according to the report. While the census doesn’t really speculate as to why this is, it makes sense that younger people are getting more into biking to work—especially since the population of well-educated young adults living in cities is growing. As for income categories, it seems likely that the jump in bicycle commuting among higher earners with no access to a vehicle could be at least partly explained by the rise of bike-share programs in cities nationwide. You’d expect that the people living in these cities—and joining the bike-shares—are typically earning more than residents of cheaper, less urban areas. Maybe they’re disproportionately contributing to America’s bike-to-workforce, too.

*Correction, Aug. 26, 2015: This post originally misstated the group of workers for which the Census report gave data on bicycle commuting by earnings category. It is for “workers with no access to a vehicle,” not all workers.

Aug. 17 2015 2:42 PM

One Way That Going to College Pays Off Less for Black People Than White People

Having a college degree is supposed to insulate you a bit from the worst effects of a recession. But as a new report highlighted in the New York Times points out, for black and Hispanic families it seems to offer far less protection.

How much less? Well, take a look at this stunning chart. During the Great Recession, the median net worth of black and Hispanic bachelor's degree holders fell by 59.7 percent and 71.9 percent, respectively, compared with a 16 percent decline for whites. 

Zoom out a bit, and the view looks even more dire. Black and Hispanic college grads are now poorer than in 1992, while whites and Asians are far wealthier.

Why the disparities? Black and Hispanic graduates have far more debt and less family income than whites and Asians. And when the value of someone's assets, like a house, begins to fall, having debt exacerbates the damage to his or her net worth. During the recession, black and Hispanic college graduates saw their home values decline by far more than white bachelor's degree holders. That, combined with their large debts, dealt a body blow to their finances.  

It's especially interesting to look at black households in this instance, because of the role of student loan debt. Since their families often don't have much in the way of assets—for that, we can partly thank decades of racist housing practices like red-lining—black students tend to borrow heavily for college. Today, black Americans are both more likely to have student loans than whites and owe more on average, even though they go to college in lower numbers. For them, the cost of a degree has made it less of a financial bulwark when the economy goes bad. And worse yet, it's easy to imagine that this problem will perpetuate itself across generations. Since educated black families haven't been able to build wealth, we can expect that their children will likely be taking out large loans for school as well. And on it goes.

Aug. 17 2015 1:51 PM

Working for Amazon Can Be Awful. Is It As Awful As the New York Times Says?

Over the weekend, the New York Times published an explosive piece about culture and ambition in Amazon’s “bruising workplace.” The story, from reporters Jodi Kantor and David Streitfeld, portrays Amazon as a company that demands metrics-determined excellence from its staff and extracts it at just about any cost, culling the workers who can’t keep up. New hires, Kantor and Streitfeld report, are instructed to forget “poor habits” acquired at previous jobs. Model Amazon employees are deemed “Amabots.” Steady turnover is described as “purposeful Darwinism.” In the fifth paragraph of the article, the Times lays out its ominous thesis:

Even as the company tests delivery by drone and ways to restock toilet paper at the push of a bathroom button, it is conducting a little-known experiment in how far it can push white-collar workers, redrawing the boundaries of what is acceptable. The company, founded and still run by Jeff Bezos, rejects many of the popular management bromides that other corporations at least pay lip service to and has instead designed what many workers call an intricate machine propelling them to achieve Mr. Bezos’ ever-expanding ambitions.

Continue reading and you are told shocking anecdotes to back this up, many highlighting Amazon’s alleged mistreatment of women. Former Amazon employee Elizabeth Willet describes feeling forced out by her co-workers and boss after she had a baby and started leaving the office at 4:30 p.m., even though she was starting at 7 a.m. Michelle Williamson, a former employee in Amazon’s restaurant supply business, recalls being told motherhood would prevent her from succeeding at a high level in the company. Molly Jay, a former Kindle worker, says she had to take unpaid leave to care for her dying father and was told her attempts to cut back were “a problem.” Several other women—one with thyroid cancer, another with breast cancer, and one who had a stillborn child—tell the Times they were given little or no leeway during those personal crises, and in some cases essentially had their jobs put on notice.

These are undoubtedly horrifying stories. And, sadly, they feel especially ugly coming from a 21-year-old publicly traded company. What’s unclear is how representative they are of Amazon’s culture, past and—more importantly—present. Yes, the Times interviewed an impressive 100-plus current and former Amazon workers for its story. But Amazon currently employs more than 150,000 people, and has employed many more. One hundred is a vanishingly small percentage of that. The most accusatory material in the Times piece also glosses over important details. Most of the truly disturbing stories about how women were treated, for example, don’t mention when those incidents took place. We are allowed to assume that these pernicious interactions are ongoing and commonplace, when in fact we have no way of knowing whether such things happened in the latest quarter, or many years ago. 

You can make a similar critique of the Times’ insinuations about turnover. At Amazon, the article states, “Losers leave or are fired in annual cullings of the staff.” The “steady exodus” is reportedly offset by simultaneous mass-hiring initiatives; at “LinkedIn parties,” Amazon employees are “required to hand over all their contacts to company recruiters.” But here, again, the Times omits crucial specifics. First, what Amazon’s annual turnover rate actually is. Second, whether that rate includes blue-collar workers in Amazon’s warehouses—jobs with notoriously poor working conditions and high attrition—or just the white-collar ones the article otherwise focuses on. Third, whether any of that “annual culling” is achieved through Amazon’s relatively well known and much less nefarious-sounding “Pay to Quit” program, in which warehouse workers once a year are offered up to $5,000 to leave if they’re not in it for the long haul. Finally, the Times says these annual staff thinnings “can force managers to get rid of valuable talent just to meet quotas,” but does little to explain why a numbers-obsessed company with thin margins like Amazon would pursue such a strategy—turnover, after all, is costly.

The last, giant caveat that seems worth appending to the Times report is how it plays with and to some extent sensationalizes an expectations gap about workplace culture. We’ve been trained to think that “working at Big Tech Company” should equate to the rosiest description of “working at Google.” Free gourmet meals. Lavish benefits. In-office scooters. Puppies! Some of the things former Amazon workers tell the Times are truly awful, but half of the scandal comes from them being about Amazon, a Big Tech Company that doesn’t conform to the Google ideal. The sad, horrible fact is that similar anecdotes coming from ex-employees at Goldman, Skadden, Bain, or various fast-growing startups in Silicon Valley would probably be nonstories—that is, until someone actually dies.

Anyway, the Times clearly hit a nerve, because over the past few days it’s provoked a lengthy LinkedIn response from Nick Ciubotariu, head of infrastructure development for Amazon Search Experience, an internal memo from chief executive Jeff Bezos, and about 4,000 comments from readers on the article page. Amazon’s rebuttal has emphasized that the things reported by the Times are not representative of what Amazon is like today. “When I interviewed at Amazon, I heard all the horror stories from the past. They’re actually pretty well known in Seattle,” writes Ciubotariu. “I was told they were true, that the company continues to take steps to make things better, and that work-life balance was taken seriously.” Bezos is more pointed. “The article doesn’t describe the Amazon I know or the caring Amazonians I work with every day,” he says. “I strongly believe that anyone working in a company that really is like the one described in the NYT would be crazy to stay.”

Coming from Bezos himself, that sounds like a pretty open invitation for unhappy workers to depart. I’m curious to see how many take it.

Aug. 16 2015 4:20 PM

Donald Trump Explains His Ridiculous Plan to Make Mexico Pay for a Border Fence

Donald Trump has been called “the first post-policy” presidential candidate, because up until recently he had spent most of his campaign frothing about Mexican rapists and calling U.S. leaders "stupid" rather than detailing specifics about what he would do in the White House. That began to change earlier this week, when he expounded on a few policy subjects during an interview with Fox News' Sean Hannity. And now, finally, the man has succumb to the norms of American political discourse and put some of his ideas in writing. On Sunday, Trump released his first position paper. Of course, it's about illegal immigration, his favorite topic.

No. 1 on Trump's to-do list? Build a border wall, and make Mexico pay for it. This is a scheme he has floated  before—and Mexico's president has said that, obviously, his country wouldn't cooperate—but now he's detailing more precisely how he'd bludgeon our southerly neighbor into forking over the cash. To wit:

Mexico must pay for the wall and, until they do, the United States will, among other things: impound all remittance payments derived from illegal wages; increase fees on all temporary visas issued to Mexican CEOs and diplomats (and if necessary cancel them); increase fees on all border crossing cards of which we issue about 1 million to Mexican nationals each year (a major source of visa overstays); increase fees on all NAFTA worker visas from Mexico (another major source of overstays); and increase fees at ports of entry to the United States from Mexico [Tariffs and foreign aid cuts are also options]. We will not be taken advantage of anymore.

So, this is what it is. Parts are puzzling. I'm not exactly sure, for instance, how Trump plans to distinguish remittance payments "derived from illegal wages" from regular old remittance payments. But, it's probably best to pay attention to the broad strokes: If necessary, Trump is happy to start a trade war and diplomatic struggle with Mexico until it funds a fence.

Say what you will about the merits of this idea, as a marketing strategy it's kind of brilliant. At this point, barking about how we need to build a wall to keep immigrants out is old hat in Republican politics. But demanding that Mexico cover the bill adds a nice, jingoistic edge that freshens the concept up. It's familiar with a twist.

Which, honestly, kind of describes the overall vibe of Trump's immigration plan. For instance, he wants to end birthright citizenship. Extreme? Sure. But that's already a popular idea among certain Republicans in Congress.1 He wants to cut off money to "sanctuary cities" that don't enforce federal immigration law—and, well, the GOP-led house just passed a bill to do exactly that. He also advocates a bunch of basically standard, hard-line positions like increasing deportations and upping the number of Immigration and Customs Enforcement officers, and doesn't mention anything about a path to citizenship (though, as Josh Barro recently noted, Trump has made comments suggesting some "flexibility" on that subject). Borrowing from immigration skeptics on the left, he would take steps to curb guest worker visas.

Bottom line: Altogether the thing feels a bit crackpot-ish. But beyond Trump's trademark overlay of know-nothing bellicosity, some of the worst stuff isn't much we haven't seen before, especially from the GOP.

1Trump misleadingly suggests Democratic Senate Minority Leader Harry Reid supports the idea. He did introduce a bill in 1993 that would have ended birthright citizenship. But he walked back the idea six years later, and eventually called it "the biggest mistake I ever made."

Aug. 14 2015 4:59 PM

European Leaders Approve Greece’s Miserable Bailout Deal

Europe's finance ministers officially approved an €86 billion bailout deal for Greece on Friday, seemingly ensuring that the country will be able to remain in the eurozone. Parliaments in Germany and the Netherlands, among other countries, still need to vote on the agreement. But it appears that, finally, the drama is drawing to a close. Greece's rebellion against its creditors has been quashed. And Europe looks ready to lend it more money to pay off its old obligations and shore up its financial system.

There are, of course, still questions. How much debt relief will Greece get? The International Monetary Fund thinks the country needs a "significant" break on what it owes in order to make its burden sustainable, especially given the battered state of its economy. It also says it won't chip in on this rescue effort unless Europe offers said "significant" relief. But Europe isn't going to discuss alleviating Greece's debts until the fall, and generally seems to only have modest concessions in mind.

And what about politics? Greek Prime Minister Alexis Tsipras only managed to push the bailout deal through his parliament with the help of opposition lawmakers after more than 40 of the 149 members of his own left-wing, anti-austerity party, Syriza, rebelled. With the governing party riven in two, the country could be heading for new elections. Maybe, as some think, that will give Tsipras a mandate to implement the painful budget measures and reforms included in the deal. Or maybe not.

And then, of course, there's the fact the whole bailout deal seems to be premised on the somewhat ahistorical idea that Greece can run large primary budget surpluses (that is, surpluses before interest payments on debt) for years on end. As I wrote earlier this week, countries rarely pull off that feat, and those that do tend not to resemble present-day Greece—which is to say, they're not typically trying to climb out of a grinding depression.  

Speaking of which: Under the terms of the agreement, Greece is expected to face two years of recession. Now, leaving the euro wouldn't necessarily have been any better economically (and might well have been far worse). But the pain associated with staying in the common currency is going to be acute. Athens has its bailout, and all the misery that will come with it.

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