the economist 2020-03-13 - eslpai.com · the benefits of tracking the disease and the invasion of...

Thecontents

[2020-03-13]

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Covid-19

Thepoliticsofpandemics

TOSEEWHATistocomelooktoLombardy,theaffluentItalianregionattheheartofthecovid-19outbreakinEurope.Itshospitalsprovideworld-classhealthcare.Untillastweektheythoughttheywouldcopewiththedisease—thenwavesofpeoplebeganturningupwithpneumonia.Havingrunoutofventilatorsandoxygen,exhaustedstaffatsomehospitalsarebeingforcedtoleaveuntreatedpatientstodie.

Thepandemic,astheWorldHealthOrganisation(WHO)officiallydeclareditthisweek,isspreadingfast,withalmost45,000casesandnearly1,500deathsin112countriesoutsideChina.EpidemiologistsreckonItalyisoneortwoweeksaheadofplaceslikeSpain,France,AmericaandBritain.Less-connectedcountries,suchasEgyptandIndia,arefurtherbehind,butnotmuch.(Formorecoverageofcovid-19seeourcoronavirushub.)

Fewoftoday’spoliticalleadershaveeverfacedanythinglikeapandemicanditseconomicfallout—thoughsomeareevokingthefinancialcrisisof2007-09(see

article).Astheybelatedlyrealisethathealthsystemswillbuckleanddeathsmount,leadersareatlastcomingtotermswiththefactthattheywillhavetoweatherthestorm.Threefactorswilldeterminehowtheycope:theirattitudetouncertainty;thestructureandcompetenceoftheirhealthsystems;and,aboveall,whethertheyaretrusted.

Theuncertaintyhasmanysources.OneisthatSARS-CoV-2andthediseaseitcauses,covid-19,arenotfullyunderstood(seearticle).Anotherisoverthestatusofthepandemic.Ineachregionorcountryittendstoproliferaterapidlyundetected.Bythetimetestingdetectscasesinoneplaceitwillbespreadinginmanyothers,asitwasinItaly,IranandSouthKorea.Bythetimegovernmentsshutschoolsandbancrowdstheymaybetoolate.

China’ssolution,endorsedbytheWHO,wastoimposeabrutalquarantine,bolsteredbymass-testingandcontacttracing.Thatcameatahighhumanandeconomiccost,butnewinfectionshavedwindled.Thisweek,inavictorylap,PresidentXiJinpingvisitedWuhan,wherethepandemicfirstemerged(seearticle).YetuncertaintypersistseveninChina,becausenobodyknowsifasecondwaveofinfectionswillriseupasthequarantineeases.

IndemocraciesleadershavetojudgeifpeoplewilltolerateChina’sharshregimeofisolationandsurveillance.Italy’slockdownislargelyself-policedanddoesnotheavilyinfringepeople’srights.ButifitprovesleakierthanChina’s,itmaybealmostasexpensiveandalotlesseffective(seearticle).

Efficacyalsodependsonthestructureandcompetenceofhealth-caresystems.Thereisimmensescopeformixedmessagesandinconsistentinstructionsabouttestingandwhentostayisolatedathome.Everyhealthsystemwillbeoverwhelmed.Placeswherepeoplereceiveverylittlehealthcare,includingrefugeecampsandslums,willbethemostvulnerable.Buteventhebest-resourcedhospitalsinrichcountrieswillstruggle.

UniversalsystemslikeBritain’sNationalHealthServiceshouldfinditeasiertomobiliseresourcesandadaptrulesandpracticesthanfragmented,privateonesthathavetoworryaboutwhopayswhomandwhoisliableforwhat(seearticle).TheUnitedStates,despiteitswealthandtheexcellenceofitsmedicalscience,faceshurdles.Itsprivatesystemisoptimisedforfee-payingtreatments.America’s28muninsuredpeople,11millegalimmigrantsandanunknownnumberwithoutsickpayallhavereasonstoavoidtestingorisolation.Redtape

andcutshavefatallydelayedadequatetesting(seearticle).

Uncertaintywillbeadragonthethirdfactor—trust.Trustgivesleaderslicencetotakedifficultdecisionsaboutquarantinesandsocial-distancing,includingschoolclosures.InIranthegovernment,whichhaslongbeenunpopular,iswidelysuspectedofcoveringupdeathsandcases.Thatisonereasonrebelliousclericscouldrefusetoshutshrines,eventhoughtheyspreadinfection(seearticle).

Nothingstokesrumourandfearmorethanthesuspicionthatpoliticiansarehidingthetruth.Whentheydownplaythethreatinamisguidedattempttoavoidpanic,theyendupsowingconfusionandcostinglives.Yetleadershavestruggledtocometotermswiththepandemicandhowtotalkaboutit.PresidentDonaldTrump,inparticular,hasveeredfromunfoundedoptimismtoattackinghisfoes.Thisweekheannounceda30-daybanonmosttravelfromEuropethatwilldolittletoslowadiseasewhichisalreadycirculatinginAmerica.Aspeoplewitnessthedeathoffriendsandrelatives,hewillfindthatthepandemiccannotbepalmedoffasaconspiracybyforeigners,DemocratsandCNN.

Whatshouldpoliticiansdo?Eachcountrymuststrikeitsownbalancebetweenthebenefitsoftrackingthediseaseandtheinvasionofprivacy,butSouthKoreaandChinashowthepowerofbigdataandmass-testingasawayofidentifyingcasesandlimitingtheirspread.Governmentsalsoneedtoanticipatethepandemic,becauseactionstoslowitsspread,suchasbanningcrowds,aremoreeffectiveiftheyareearly.

ThebestexampleofhowtorespondisSingapore,whichhashadmanyfewercasesthanexpected.Thankstoanefficientbureaucracyinasinglesmallterritory,world-classuniversalhealthcareandthewell-learnedlessonofSARS,anepidemicofarelatedvirusin2003,Singaporeactedearly.Ithasbeenabletomakedifficulttrade-offswithpublicconsentbecauseitsmessagehasbeenconsistent,science-basedandtrusted.

IntheWestcovid-19isachallengetothegenerationofpoliticianswhohavetakenpowersincethefinancialcrisis.Manyofthemdecryglobalisationandexperts.Theythriveondivisionandconflict.Insomewaysthepandemicwillplaytotheiragenda.CountriesmayfollowAmericaandturninwardandclosetheirborders.Insofarasshortagescrimptheworldeconomy,industriesmaypullbackfromglobalisation—thoughtheywouldgainmoreprotectionby

diversifyingtheirsupplychains.

Yetthepandemicalsoputsdoctors,scientistsandpolicyexpertsonceagainattheheartofgovernment.Pandemicsarequintessentiallyglobalaffairs.Countriesneedtoworktogetherontreatmentprotocols,therapeuticsand,itishoped,avaccine.Worriedvotersmaywellhavelessofanappetiteforthetheatricalwrestlingmatchofpartisanpolitics.Theyneedtheirgovernmentstodealwiththerealproblemstheyarefacing—whichiswhatpoliticsshouldhavebeenaboutallalong.■

Digdeeper:

Formorecoverageofcovid-19seeourcoronavirushubThescienceofthevirusFatalityratesforcovid-19couldvaryenormouslyHowtodealwithanewsortoffinancialshockShouldothercountriescopyItaly’snationwidelockdown?

ThisarticleappearedintheLeaderssectionoftheprinteditionundertheheadline"Thepoliticsofpandemics"

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Briefing

IsDimon’sworkdoneatJPMorganChase?[Mar14th2020]





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ThehousethatJamiebuilt

IsDimon’sworkdoneatJPMorganChase?

ITHADBECOMEarunningjokeonWallStreetthatwheneverJamieDimonwasasked,afterbeatingcancerin2014,howmuchlongerheintendedtostayatthehelmofJPMorganChase(JPM),healwaysreplied:“anotherfiveyears”.Sometimeshesaiditwithatwinkleinhiseye;atothertimestheresponsewastetchy.ThematterbecamemoreseriousafterMarch5th,whenthe63-year-oldunderwentemergencysurgeryforarareheartcondition.Thebanksaidafterwardsthathewas“recoveringwell”,andthattwotrustedlieutenants,GordonSmithandDanielPinto,hadsteppedintorunthebankuntilhisreturn.Thequestionofhowlongbeforehestepsdown,andwhowillreplacehim,isnowamoreurgentone,though.

Foramannotknowntounderestimatehimself,evenMrDimoncannotimaginehehasmuchmoretoachieveasabanker.Over15yearshehasbuiltJPMintotheworld’smostreputablebank.ItisAmerica’sbiggestbyassetsandalsoitsmostprofitable:in2019itbroketheworldrecordforbankearningsinasingleyear.ItisthedominantplayeronWallStreet,whilealsorunningaformidableretail

bank.

MrDimonishisfirm’sbest-knownbosssinceitsbulbous-nosednamesake,JohnPierpontMorgan,lordeditoverWallStreetinthelate19thcentury.Thestraight-talkingsonofsecond-generationGreekimmigrantswhosettledinNewYork,hehasbroughtadown-to-earth(somewouldsaybrusque)authenticitytowhatwasonceoneofAmerica’smostbuttoned-up,blue-bloodedfinancialfirms.(JPMspokespeoplehavelongjokedthattheirmainjobistomakesurehedoesn’tswearinpublic.)Heisknownforencouragingopennessandinspiringloyalty.

EvenasJPMhascontinuedtogrowintoadizzyinglysprawlingfinancialgiant,andasMrDimonhasweighedinonarangeofpublic-policyissuesbeyondhisken,fromhealth-carereformtoinequality,hehasavoidedmuchofthepublicvilificationdirectedathispeers.Atvarioustimeshehasbeentoutedasapossibletreasurysecretary,andevenasadark-horsepresidentialcandidate.Itishardtoimagineanyothermoneymanbeinginapositiontoconsidercanvassingforpopularsupport.

MrDimonmadearguablythemostimportantdecisionofhiscareerinhistwenties,whenheturneddownacushyjobatGoldmanSachstohelpcreateavastfinancialfirmwithhismentor,SanfordWeill,thenbossofAmericanExpress.MrDimon’simpatiencetorunCitigroup,theinstitutiontheybuilttogether,atthetenderageof42,ranupagainstMrWeill’sunwillingnesstorelinquishthetopjob.HeunceremoniouslyfiredMrDimonin1999.IntheyearthatfollowedMrDimonturneddownaraftofjoboffers,earninghimselfthemonikerof“themostfamousunemployedmaninthecountry”.Hewaswaitingforhismoment.Itcamein2004whenhepulledoffamergerbetweenBankOne,theChicago-basedbankhehadrunforfouryears,andthemoreillustriousJPMorganChase.

Itwasasignofhissteelydeterminationtoreachthetopthat,withabeadyeyeonMrWeill,hesaidthemergerwould“giveCitiarunforitsmoney”.UnderMrDimon,JPMhasachievedfarmorethanthat.AtthetimeCitigroupwasconsideredthegreatestAmericanbank.Itwastwiceasvaluableasitsnewlymergedrival;ithadthebiggestpileofassetsofanybankglobally;andithadearnedanaveragereturnonequity(ROE)of19.2%overthepreviousfiveyears.JPMhadregisteredapaltry8.9%.Itwasseenasalumberinglaggard(seechart1).

Itsretailbankhasballoonedinsize.In2006JPMheld3.6%ofAmericanretaildeposits;itnowholds9%.Thebankopenedalmostaquarterofallnewchecking(current)accountsinAmericalastyear.Ithasalsoscoopedupagrowingshareofcorporatedeposits.JPM’sasset-managementbusinessruns$2.7trn-worthofinvestmentsonbehalfofclients,doubletheamountheldin2006.Acquisitionsmadeopportunisticallyduringthefinancialcrisisof2007-09,suchasBearStearns,aninvestmentbank,andWashingtonMutual(WaMu),a

savings-and-loaninstitution,havehelpedJPMleapfrogotherAmericanandEuropeanbanksinsize(thoughaclutchofChinesebanksarestilllarger).

Importantly,thisgrowthhasbeenreflectedinthebottomline.Earningspershareof$9in2019werefourtimeshigherthanin2005.Thebank’sROEin2019was15%,severalpercentagepointshigherthanthoseofAmericanandChineserivalsanddoublethatofthebest-performingEuropeanones.Thishasbeenachievedwithoutrelyingoneasywaysofboostingperformance,likeincreasingleverageortheriskthebanktakes(seechart2).

WhataretheingredientsofMrDimon’ssuccess?Thebestbossesarebothluckyandsmart,andheisnoexception.Europeanbanks,whichstormedintoAmericainthe1990s,havefallenbythewaysideinpartowingtoproblemsinscleroticdomesticmarketswhererock-bottominterestrateshavecrimpedmargins.ThesameistrueofJapanesebanks.TheburgeoningChineselendersarekeptat

arm’slengthbyinternationalinvestors,whoarerightlywaryofwhattheystuffintotheirloanbooks.

Goingwiththeflow

InsomekeybusinessesMrDimonhasdeftlytakenadvantageoftheevolutionofthefinancialsystemsincethecrisis.Takefixed-incometrading.Beforethemeltdown,themostsuccessfulinvestmentbanksfocusedoncomplexderivativestransactions.Thesearemuchlessprofitablenow,thankstoathicketofpost-crisisregulation,sothelargestplayersarethosethatexcelat“boring”flowtrades(buyingandsellingfinancialinstrumentswithclients’fundsratherthantheirown).ThisisjustonemarketinwhichMrDimon’sbankhasgobbledupmarketshare.

Buthealsodeservescreditforstrategicthinking,whichsomeoncedoubtedhepossessed.Whenhetookthehelm,hewasalreadyoneofAmerica’shighest-profilebankexecutives:precocious,telegenicandcharismatic.Assuch,hehadlongattractedmediaattention.Somefrettedabouthistemperament.HisshoutingmatcheswithMrWeillwereinfamous,andhewasalsoconsideredbrash.MrDimon’swifeoncereportedlyaskedhimwhyhecouldn’tbeas“patient”and“mature”asBillHarrison,hispredecessoratJPM.

Healsohadareputationaslittlemorethananumber-cruncherandcost-cutter.ThevaluehehadcreatedatBankOnewasmostlygeneratedbyfrugality,notrevenuegrowth.Doubtslingeredabouthisabilitytopulloffasimilartrickonabiggerstage.

Yetinhis2005lettertoshareholders,hisfirstasthebossofJPM,hesketchedoutavisionforthefirmthathehasstuckwiththroughthickandthin.Itregisterednotonlyhisloathingofbureaucracyandbloat,butalsohisfondnessfora“fortressbalance-sheet”.Hewroteofthenaturalconnectionsbetweendifferentpartsofalargebank—betweenthecommercialandinvestmentbanks,thecredit-cardbusinessandtheretailbank,andthecash-managementandasset-managementarms.Insummary,MrDimondeclaredthat“size,scaleandstayingpowermatter”.

Thisvisionhasbeenvindicated.First,duringthepre-crisisyears,hefocusedonriddingthebankofflab.Thiscamenaturallytohim,givenhisexperiencewieldingthescalpelwithMrWeill,andtidyingupanill-executed,pre-Dimon

mergerbetweenBankOneandFirstUSA.Hethensetaboutallocatingcostsproperly,inordertocutthemmoreeffectively.MrDimonwasperturbed,forexample,thatmanagersatChasebranchesclaimedtheyweremoreprofitablethantheirBankOnecounterpartswhenthefirmdidnotallocatealltheirfirmwidecosts—likemarketing,riskandlegal—toeachbranchindividually,astheydidatBankOne.Onceaccountedforonalike-for-likebasis,theBankOnebranchesmademoremoney.Hejettisonedconsultantsthefirmhadhiredandtrimmedbenefitsforexecutives.HedeclaredthemergercompleteinJanuary2006,andROEdulyclimbedto13%,narrowingthegapwithrivals.

Butitwasthefinancialcrisisthatwasthemakingofhim.ItquicklybecameclearthanJPMwasbetterpreparedtoweatherthestormthanmost.Thiswasinpartthankstohisinsistenceonasolidbalance-sheet,butalsobecauseofhismanagementstyle.Asonebankanalystputsit,“Jamieisalwayslookingfromtheperspectiveofwhatcangowrong.”

SuchhealthyparanoiaformsthebasisforaweeklymeetingbetweenMrDimonandtheheadsofallthemainbusinesses.Themeetinghasnotimelimit—sometimesittakesminutes,othertimesallday—andhequizzesthemonwhattherisksareintheirunits.Itwasoverthecourseofthesemeetingsin2006thatproblemswithsubprimemortgageswererevealed.AsaresultJPMbegantoreduceitsexposureacrossallitsbusinesses,18monthsbeforemostotherbanksdid.Whiletheywerestrugglingtostayafloat,JPMwasinapositiontosnapupBearStearnsandWaMuforasong.

Oneblow-upinthepost-crisisyearsmadeitappearthatevenMrDimonwasincapableofrunningabankaslargeasJPMhadbecome.In2012itlost$6bnasaresultofoutsizedderivativestradesbyanemployeeknownasthe“LondonWhale”.Shareholdersproposedamotiontoseparatethejobofchiefexecutivefromchairman(thoughitwasdefeated).Politicians,punditsandanalystsalikeaccusedJPMofbeingbothtoobigtofailandtoobigtomanage.Ithasalsofacedcriticismforremainingweddedtodirtyindustries.Itisabigfinancieroffossilfuels—thoughinFebruaryitannouncedapartialpullback.

Throughout,however,MrDimonhasstucktohisoverarchingstrategy,andtheeconomiesofscalehavepaidoff.Thisisclearnotonlyfromthefirm’sfinancialresultsbutalsofromthebehaviourofitsrivals.GoldmanSachs,whoseexecutivesoncescoffedatprosaicbankingbusinessesliketakingdeposits,nowseektoemulateJPM’stypeoffull-servicebank.Whenaskedwhetherhefeelsasenseofvindication,MrDimonsimplyreplies:“Ialwaysbelievedthatscalemattered.”

What,then,isthereleftforthebosstodo?Healthpermitting,hecouldofcoursefindplentyofreasonstostayput.Inthepastthreeweeksalone,thebank’ssharepricehasfallenbyathird,asthecovid-19epidemichasshakenfinancialmarkets.Theshipwillneedsteadying.

Inthelongertermthereisalsoatechwartowin.Withfintechfirmscontinuingtosprout,andtechgiantslikeAmazonandGooglebusilyexperimentinginfinancialservices,digitaldisruptionissettoupendbankingoverthenextdecadeorso.Somefinancialexpertsexpectittohavethesameimpactontheindustryaselectricitydidonmanufacturinginthe1890s.MrDimonisalivetothethreat.Hehaslongendorsedenormousinvestmentintechnology.LastyearJPMspent$11.5bn,morethananyotherAmericanbank,onimprovingitssystems.

Meanwhile,MrDimonmayseescopeforfurtherexpansion.RumourshavecirculatedthatJPMispreparingtolaunchaBritishdigitalbanklaterthisyear,asapossiblesteptowardstakingtheretailbankglobal.Hemightwanttodoafewmoredeals.Atthebank’sinvestordayonFebruary25thhehintedthatafintechacquisitionmightlooktempting.

Itmust,indeed,behardtosaygoodbye.Thedecisionisespeciallytrickyforabosswhoissowidelylauded,andfamouslydedicatedtothejob.MrDimononceinsistedonkeepinganappointmentwithTheEconomistdespitefeelingwoozyafterundergoinganintrusivemedicalprocedureearlierthatday.

OneofthemostcriticalrolesofaCEOistogroomasuccessorandthentorecognisewhenthetimehascometopassthebaton.MrDimon’shealthproblemswillfocusinvestors’mindsonthisquestion.Hehas,however,longbeenaccusedofpushingoutheirsapparent.“JamieDimonhasonlyonesuccessionplan,”quipsoneEuropeanbankboss,“Ifheseesasuccessor,hekillsthem.”Thebankdeniesthisandsaysthosewholeftwerenotontheboard’slist.

PlentyofputativesuccessorshaveleftduringtheDimonera,includinglieutenantswhofollowedhimfromCitigroup,likeCharlieScharfandMikeCavanagh(seechart4).AJPMdiasporanowrunbankswith$5trn-worthofassets.AndMrDimoncontinuestokeepthenetofpotentialheirswideopen.Atleastsixnamesarecommonlymentioned:alongwithMessrsSmithandPinto,MarianneLake,whorunsconsumerlending;DougPetno,headofthecommercialbank;JenniferPiepszak,thechieffinancialofficer;andMaryErdoes,headofwealthandassetmanagement.

Havinghadtwoserioushealthscares,MrDimonmaynowbereflectingmoreseriouslyonhowchangeatthetopcanreinvigoratethelowerrungs.JackWelch,alongtimebossofGE,whodiedonMarch1st,oncesaidthatwhenhefinallydecidedtoleavethefirmitwasnotbecausehewantedto,but“foreveryoneelse”.

WereMrDimontobowoutnow,hisplaceinthepantheonofbankinggreatswouldbeassured.HisstarhaslongsinceeclipsedMrWeill’s.IninterviewssincethefinancialcrisishisformermentorhasadmittedthatoneofhisbitterestregretswaslettingMrDimongo.MrWeilllingeredtoolongatCiti.ItishardtoimagineanyshareholdercheeringMrDimon’sdeparturewhenitcomes.Buthemustbecarefultoavoidmakingthesamemistake.■

ThisarticleappearedintheBriefingsectionoftheprinteditionundertheheadline"ThehousethatJamiebuilt"






Scienceandtechnology

Plasticrubbishsmellsgoodtoturtles[Mar14th2020]






Oceanpollution

Plasticrubbishsmellsgoodtoturtles

TURTLESHAVEanunfortunatehabitofdevouringplasticobjectsfloatinginthesea.Thesethengetsnaredintheiralimentarycanals,cannotbebrokendownbytheanimals’digestiveenzymesandmayultimatelykillthem.Itiswidelyassumedthatthispenchantforplasticsisamatterofmistakenidentity.Driftingplasticbags,forinstance,looksimilartojellyfish,whichmanytypesofturtleslovetoeat.Yetlotsofplasticobjectsthatendupinsideturtleshavenoresemblancetojellyfish.JosephPfalleroftheUniversityofFloridathereforesuspectsthatsomethingmorecomplicatedisgoingon.AshewritesinCurrentBiology,hethinksthattheodourofmarinemicro-organismswhichcolonisefloatingplasticobjectsinducesturtlestofeed.

Theideathatthesmellofplasticflotsammightlureanimalstotheirdoomfirstemergedin2016.ResearchersattheUniversityofCalifornia,Davis,noticedthatcertainchemicals,notablydimethylsulphide,whicharereleasedintotheairbymicro-organism-colonisedplastics,arethosewhichmanyseabirdssnifftotrackdownfood.Thesechemicalsmarkgoodplacestohuntbecausetheyindicatean

abundanceofthealgaeandbacteriathatlieatthebottomofmarinefoodchains.Theresearchersalsofoundthatbirdswhichpursuetheirfoodinthiswayarefiveorsixtimesmorelikelytoeatplasticthanthosewhichdonot.

Sinceturtlesareknowntobreakthesurfaceperiodicallyandsnifftheairwhennavigatingtowardstheirfeedingareas,DrPfallertheorisedthattheyarefollowingthesesamechemicals,andarelikewisefooledintothinkingthatfloatingplasticobjectsareedible.

Totestthatidea,heandhiscolleaguessetupanexperimentinvolvingloggerheadturtles,aspeciesfrequentlykilledbyplastic.Theyarrangedfor15oftheanimals,eacharoundfivemonthsold,tobeexposed,inrandomorder,tofourodoursdeliveredthroughapipetotheairaboveanexperimentalarena.Theodourswere:thevapourfromdeionisedwater;thesmellofturtle-feedingpelletsmadeofshrimpandfishmeal;thesmellofacleanplasticbottlechoppedupintotenpieces;andthesmellofasimilarlychoppedbottlethathadbeenkeptintheoceanforfiveweekstoallowalgaeandbacteriatogrowonit.

Twoofthesmellsprovedfarmoreattractivetotheanimalsthantheothers.Whensniffingboththeodouroffoodpelletsandthatoffive-week-oldbottlesturtleskepttheirnostrilsoutofthewatermorethanthreetimesaslong,andtooktwiceasmanybreathsastheydidwhenwhatwasonofferwasthesmelloffreshbottle-plasticordeionised-watervapour.Onthefaceofit,then,theturtleswererespondingtothesmellofoldbottlesasifitwerethesmelloffood.

Thoughtheyhavenotyettestedwhetherdimethylsulphideistheculprit,DrPfallerandhiscolleaguesthinkitisthemostlikelycandidate.Inanunpollutedocean,prettywellanythingwhichhadthissmellwouldbeedible—or,atleast,harmless.Unfortunately,five-week-oldplasticbottlesandtheirlikearenot.■

ThisarticleappearedintheScienceandtechnologysectionoftheprinteditionundertheheadline"Sirensmell"






Europe

WhythepaygapinGermanyissolarge[Mar14th2020]






Frompeertomaternity

WhythepaygapinGermanyissolarge

“REVOLUTIONARY”ISnotawordthatoftenescapesAngelaMerkel’slips.YetonMarch8th,internationalwomen’sday,thatwashowGermany’schancellordescribedthechangeshehadobservedinmen’sattitudestobalancingworkandfamily.ThismattersinacountrythatcanstillderideRabenmütter(“Ravenmothers”),womenwhosupposedlyneglectchildrenforcareer.Butonanothermeasureofequality—pay—Germanyislagging.

ThemedianhourlywageforGermanwomenis€17.09($19.31),21%lessthanmen’s€21.60.IntheEuropeanUnion,onlyEstoniahasawidergap.Buttherawnumberscanmislead.Adjustforsector,skills,ageandotherfactors,andthegapplummetsto6-7%.Womenarelikelierthanmentoworkinbadlypaidservicejobs;two-thirdsofshopassistantsarefemale.Almosthalfofworkingwomenarepart-time(comparedwith9%ofmen)andsotendnottoclimbthecareerladderasfast.KatharinaWrohlichattheGermanInstituteforEconomicResearchnotesthatsomecountrieswithlowerpaygaps,suchasItaly,havefarfewerwomenworking.Womenwhoearnlowwagesdragdowntheaverage;

thosewhoearnnothingarenotcounted.

Yettheadjustedfiguresleavesomethingout,too.Whichcareertofollow,andwhethertoworkpart-time,areindividualchoices.Yettheyareinfluencedbytaxandbenefitrules,educationandchild-carepolicy,andsocialnorms.Ensuringequalpayforequalworkwouldnot,initself,makeGermany’sboardroomslessmale,orgetmorewomenintowell-paidsectors.

Thepaygaphasalmostvanishedforfull-timeworkersunder30,theaverageagefornewmothers,butforthoseover40ithasbarelybudgedforthreedecades.ThemotherhoodwagepenaltyishigherinGermanythaninmanyrichcountries;tenyearsaftergivingbirththeaverageGermanmotherearnsalmosttwo-thirdslessthanbefore,afarmoreprecipitousdropthanincountrieswithbetterchild-careprovision,suchasSwedenorFrance.Taxrulesandeducationpractices,includingschoolsthatcancloseasearlyasnoon,nudgelargenumbersofwomenintopart-timework.

Germanyischanging.Since2013thestatehasguaranteeddaycareforchildrenover12months(thoughfindingaspotcanbenightmarish).Theminimumwage,whichwasintroducedin2015,disproportionallyhelpedwomen.Newtransparencyrulesobligebigfirmstoexplainpaydecisionstocuriousstaff.Butmuchremainstobedone,includingchivvyingmentotakeonmoreofthedutiesofparenting;just36%ofGermanfatherstakepaternityleave.Therevolutionisincomplete.■

ThisarticleappearedintheEuropesectionoftheprinteditionundertheheadline"WhyGermany’spaygapissolarge"






Business

TheriseandriseofAccenture[Mar14th2020]






Schumpeter

TheriseandriseofAccenture

MANAGEMENTCONSULTANTSthriveonasimplebusinessmodel.First,scarecompaniesbylayingbarewheretheyarefailing.Thensoothethemwithcounselonhowtoimprove.Thescaringparthasgrowneasierastechnologyupendsoneindustryafteranother.Rareisthechiefexecutivethesedaysunconcernedaboutcyber-security,artificialintelligence(AI)ortheironlineoffering.Thesoothing,though,mayhavebecomeharder.Whoisabosstotrustwhenconsultanciesthemselvesareonlyslowlygettingtogripswiththemeaningoftechnologicalupheaval?

ToagrowingnumberofCEOstheanswerisAccenture.Thefirm,whosenameisaportmanteauof“accentonthefuture”,certainlyhaspedigreewhenitcomestotech.ItisdescendedfromArthurAndersen,anaccounting-and-advisorygiantwhichhelpedpersuadeGeneralElectrictoinstallaUNIVAC1,corporateAmerica’sfirstcomputer,in1954.In2000AndersenConsultingfinallysevereditsstrainedtiestoitsparent(whoseremainingaccountancybusinesswasfelledtwoyearslaterbytheEnronfraudscandal).Itchangeditsnameand,in2001,

listedonthestockmarketatavalueof$14bn.

Sincethenitsgrowthhasbeententacular.Todayaround200clientsarethoughttopayAccentureatleast$100meachannuallytokeeptheirtechhumming.Its500,000orsoemployeesperformmenialfunctions(runningclients’overseascallcentresormakingtheirsalessoftwareconnectproperlytoaccounting)andmoreglamorousones(uploadingbusinessestothecloud,designingtheirapps,buildingAIchatbots,evenimaginingtheirnextadcampaign).Lastyearthefirm’srevenuesreached$43bn.Totalshareholderreturns,includingdividends,cometo118%overthepastfiveyears,comparedwith56%fortheS&P500index.InFebruaryitsmarketcapitalisationhit$137bn.

TwothingshelpexplainAccenture’srise.Onewasbeyonditscontrol:technology’srolewithincompanieshasmovedfromthebackofficetothecoreofwhatmanyofthemdo—hencethosecorner-officejitters.Thesecondfactorwasatech-heavysoothingstrategy.PierreNanterme,aFrenchmanwholedAccenturefrom2011untilshortlybeforehisdeathinJanuary2019,doubleddownonallthingsanalytics,mobile,cloudandcyber-security.Eachyearthefirmspendsroughly$1bnonaroundtwodozenacquisitionstogetontopofthebuzziesttechtrends.WhatAccenturecalls“TheNew”nowaccountsforaroundtwo-thirdsofitssales,upfromone-thirdfiveyearsago.

“TheNew”complementsAccenture’soldercapabilitiesinawaythatishardforrivalstomatch.UnlikeoutsourcingcompetitorssuchasIndia’sInfosysorTataConsultancyServices,ithasmanagement-consultingchopsfromtheAndersendays.Atthesametime,incontrasttoauguststrategyfirmslikeMcKinseyoraccountant-adviserslikeDeloitte,EYorPwC,itsarmyofrelativelycheapwhite-collarlabour,roughlyhalfofitinIndiaandthePhilippines,canbeenlistedtoperformlabour-intensivetaskssuchastakingdowndodgyvideosonsocialmedia(whichAccenturedoesforFacebookandGoogle).Aglobalfootprinthelpsinsulateitagainstdownturnsinanyparticularregion.Despiterivals’claimsofthesuperiorityofthelimited-partnershipmodel,whichstilldominatestheindustry,Accenture’sstockmarketlistingdoesnotappeartohavehurtitsgrowth.

Theresultisanunusualabilitytoofferclientsacomprehensiveservice.Refocusingyourbusinessaroundanewapp?Accenturewillbeonhandtowritethecode—butcanalsosupplydesignerstomakeitlookpretty.Needanadblitztosellittoconsumers?Accenture’smarketingarmgrossed$10bninrevenuelast

year,placingitamongthefivebiggestadgroupsintheworld—ithasbecomeacreativeagencynotdissimilarfromWPPorPublicisGroupe.Wanttoexpandintonewmarkets?Justringoneofitsmorethan200officesin51countries.

ThequestionforJulieSweet,anAmericanwhotookchargeinSeptember,iswhetherAccenturecankeepballooning.Shefacesthreechallenges.First,thesheerscaleofthefirmalreadyfeelsdaunting.NolistedcorporationbarAmazonandChinesehardware-makersaddedmoreemployeesinthe2010s.Itistrickytobuildaculture—andfosterasenseofpurposethatcleverclogsnowdemandoftheiremployers—thatappealstobothbuttoned-downdatabasemanagersinBangaloreandtattooedcreativedirectorsinSpitalfields.Accenturehasmorphedintoawhite-collarconglomerateatatimewheninvestorsfavourfocusedbusinesses.ItsmarginsarelessjuicythanthoseoftheIndianoutsourcers.

Thesecondchallengeisaneconomicdownturn,liketheonethatlooksincreasinglypossibleascovid-19goespandemic.Recessionshurtconsultantsascash-strappedclientsfocusonsurvivalratherthanexpansion.Accentureweatheredthefinancialcrisisof2007-09butitsrevenuessank.Itssharepricehasnowfallenasitdidbackthen,thistimebyaquartersinceitsFebruarypeak,fasterthanthecovid-infectedmarketsasawhole.

MsSweet’sfinalpredicamentisperhapsthemostconsequential.Ifherfirmkeepsdoingsuchabang-upjobinconvincingclientsthattechnologyiscentraltotheirsuccess,moreofthemmightopttobuildandrunabiggersliceofitin-houseratherthansplurgingonoutsideadvice.Accentureseemsattimestosuggestthatcompaniesshouldletitsconsultantshandlenotjusttheirbrandandtechinnards,butalsotheirpowertoinnovate.

Techtonic

Still,theNanterme-eradigitalstrategyhaslifeinityet.Manycompaniesarebehindinthetechnologyrace.Beforemostsomuchasaskthemselveshowzippy5Gnetworks,the“InternetofThings”ormachinelearningwilltransformtheirbusinesses,Accenturealreadyhassomeanswers.Ifsomeone,someday,findsafunctionforblockchain,expectAccenturetobetheretoadvisebossesonitsuse—andtosoothefrayednerves.■

ThisarticleappearedintheBusinesssectionoftheprinteditionundertheheadline"TheriseandriseofAccenture"

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Dailychart

Howdeadlyisthenewcoronavirus?

ASTHENUMBERofdeathsamongpeopleinfectedbythenewcoronavirusmounts,itistemptingtodividethatfigurebythenumberofreportedcasesandconcludethattheresultisthefatalityrate.Applysuchmathstotheworld’stotalofconfirmedcasesanddeathsonMarch11thandyougetafatalityrateof3.6%.Butthisfigure,whichepidemiologistscallthe“naive”casefatalityrate,maybewrongintwodifferentways.First,manyoftheinfectionsdetectedatthisearlystageoftheepidemicarerecent,sosomewilleventuallyresultindeaths.Thatwillpushthefatalityrateup.Second,manyinfectionshavenotbeenspottedbecausetestingforthevirushasbeenpatchy.Lotsofmildcasesofthediseasehavegoneunnoticed.Ifallinfectionswereactuallycounted,theresultwouldbeabiggerdenominator.Thatwouldpushthefatalityratedown.AsChinabegantotraceinfectionsmorecarefully,itsfatalityratefell(seeleft-handchart).

Aconclusivemeasureofthedenominatorrequirestestingforantibodiesagainstthevirusinalargesampleofpeopleinaplacewhichanoutbreakhasalreadysweptthrough.SuchstudiesareunderwayinChina.Inthemeantime,

researchershaveestimatedthefatalityrateforcovid-19usingacohortofpeopleforwhomthereisafullcountofinfectionsanddeaths:passengersontheDiamondPrincesscruiseship.Abungledquarantineonboardledtonearly700casesofcovid-19.Eightpeoplehavediedsofar.AworkingpaperpublishedonMarch5thbyTimothyRusselloftheLondonSchoolofHygieneandTropicalMedicineandaninternationalteamofresearchersestimatesthatthefatalityrateamonginfectedpassengerswillendupbeing1.2%.

Theresearchersappliedtheresultsfromtheshiptodataoncovid-19casesanddeathsinChina.Theyconcludethatthefatalityrateforcovid-19inthecountry’soutbreakwas0.5%.Forcomparison,thatisfivetimesthefatalityratefortheseasonalfluinAmerica.

Thecovid-19fatalityrateamongthoseontheDiamondPrincesswashigherpartlybecausetheiraverageagewas58,olderthanthegeneralpopulationinanycountry.Atthesametime,theyareprobablyinfairlygoodshape.Theymustbehealthyenoughtoembarkonanextendedholiday.Peoplewhogooncruisestendtobericher.Sothefatalityrateamongthesepassengersmaybelowerthanitwouldbeamongpeopleofasimilarageintheirhomecountries.

ArecentstudybyresearchersattheUniversityofBern,inSwitzerland,shedsmorelight.Itprovidesestimatesofcovid-19fatalitybyagegroupinHubei,theprovinceinChinawiththeworstoutbreakofthedisease.Fatalityisdramaticallyhigheramongpeopleolderthan60,risingto18%amongthoseintheir80sorolder(seeright-handchart).

Butcovid-19mayprovenolessdevastatingforpoorcountries,whichtendtohaveyoungerpopulations.Thediseaseismoresevereinpeoplewhoseimmunesystemsareweakenedbychronicdiseases,sothosewhoaremalnourishedorhaveHIV/AIDSwillprobablybehithard.

Thefatalityrateinanycountrywilldependprimarilyonthequalityofcareitcanprovide—andhowmanypeoplehaveaccesstoit.About5%ofpeoplediagnosedwithcovid-19inChinahaveneededintensivecare,whichisinshortsupplyornon-existentinmosthospitalsindevelopingcountries.Asurgeincaseseveninrichcountriescansoonoverwhelmhospitalsandresultinhigherfatalityrates.

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