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April 22, 2019

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 April 22, 2019

◀ The hearing aid

of tomorrow will call
for help, take your
blood pressure,
count your steps,
offer simultaneous
translation, and more

5
PHOTOGRAPH BY ACKERMAN+GRUBER FOR BLOOMBERG BUSINESSWEEK

FEATURES 50 Courtroom Campout

The Boy Scouts are just Scouts now, and that makes Girl Scouts mad

56 The Future Sounds Fine

Starkey is turning your hearing aid into a personal assistant

62 The Kids Use TikTok Now

But is the Chinese social media giant using them?
 ◼ CONTENTS Bloomberg Businessweek April 22, 2019

◼ IN BRIEF 9 Stratolaunch takes flight; Tiger takes a fifth green jacket How to Contact
Bloomberg
◼ AGENDA 10 The U.S. reports GDP; will Facebook run out of friends? Businessweek
◼ OPINION 10 How not to help our overfished oceans
Editorial
212 617-8120
◼ REMARKS 12 Venezuelans plot the future in Colombia’s Casablanca Ad Sales
212 617-2900
731 Lexington Ave.,
BUSINESS 16 Japan’s Don Quijote is tilting at retail—and winning New York, NY 10022
1 18 If only there were a shot for what ails Walgreens
Email
bwreader
20 Buzzy beers with, um, no buzz @bloomberg.net
Fax
212 617-9065
TECHNOLOGY 22 How the NRA killed the smart gun Subscription Customer
2 25 AI that reads between the lines in earnings reports
Service URL
businessweekmag
.com/service
Reprints/Permissions
FINANCE 26 Credit-default swaps, Wall Street’s blood sport
3 28 Are calm markets the nail in the coffin for FX traders?
800 290-5460 x100
or email
businessweekreprints
29 Vivendi’s Vincent Bolloré’s terrible, no good, very bad year @theygsgroup.com

Letters to the Editor

ECONOMICS 32 Rest in peace, inflation can be sent by email,
34 Can anything stop Japan’s deflationary spiral? fax, or regular mail.
They should include
35 The bond market’s $52 trillion time bomb the sender’s address,
phone number(s),
and email address if
POLITICS 36 Climate change catastrophe goes nuclear available. Connections
38 Europe’s rightists try to get along (with one another) with the subject of
the letter should be
40 ▼ A visit to San Antonio’s Border Security Expo disclosed. We reserve
the right to edit for
sense, style, and space.
6
Follow us on
social media

Facebook
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SAN ANTONIO: PHOTOGRAPH BY MARK PETERSON FOR BLOOMBERG BUSINESSWEEK

SOLUTIONS 44 Automating airline manufacture at Airbus

46 If you can stand the heat, Pared will get you into a kitchen
48 One job the robots can’t steal: Robot fixer

◼ PURSUITS 67 Weird wheels, “youngtimers,” and other collectible cars

70 Angkor Wat is amazing—but stay to see Siem Reap
72 You might as well dazzle in the drizzle
74 The Good Fight may be the show for our turbulent times Cover:
Photograph by Jamie
75 Get a top-notch pasta maker for not a lot of dough Chung for Bloomberg
Businessweek;
prop stylist: Anna
◼ LAST THING 76 The unicorn IPO tsunami is not big enough Surbatovich
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 ◼ IN BRIEF Bloomberg Businessweek April 22, 2019

By Benedikt Kammel

● Qualcomm ● Hospital and health-

insurance stocks lost
and Apple settled
their two-year
legal battle. $28b
in market value on April 16
as investors worried
about “Medicare for All”
proposals supported by
Apple will make a one-time payment
some contenders for the
to Qualcomm, which in turn will Democratic presidential
supply chips—including the 5G
parts Apple desperately needs—and
nomination. The rout
license its technology to the iPhone continued the next day.
maker. Qualcomm’s stock surged
23 percent on the news, its biggest
one-day gain in 20 years.

●Former Peruvian
President Alan
Garcia died on
April 17 after
shooting himself
● The dual-fuselage stratolauncher
when authorities
completed its maiden flight over
California on April 13. With a record-
arrived at his
long 384-foot wingspan, the plane
can hold a payload of up to 250 tons.
house to arrest 9

It’s intended to carry small rockets

to the edge of the stratosphere for
him in connection
hoisting into space. Stratolaunch says
its system is more flexible and fuel-
with a bribery ● Notre-Dame was badly damaged by a fire on April 15. President Emmanuel
efficient than ground launches.
investigation. Macron vowed to rebuild the Paris cathedral within five years. French tycoons and
others have pledged almost a billion euros to support the effort.

● “It’s unreal for me

● Chevron agreed to ● Jack Ma, China’s richest
NOTRE-DAME: ED ALCOCK/MYOP. STRATOLAUNCHER: COURTESY STRATOLAUNCH SYSTEMS. MA: ANDREY RUDAKOV/BLOOMBERG

buy Anadarko for man, is touting

$33b
a controversial

to be experiencing number: 996. It

describes the grueling

this. I’m kind of at a

in a deal that brings it 9 a.m.-to-9 p.m., six-days-a-
assets ranging from week routine he says people
U.S. shale oil to African need to follow to survive

loss for words, really.” liquefied natural gas. at Alibaba Group, the giant
e-commerce platform he
founded. Anyone looking for
a better work-life balance
need not apply.

Tiger Woods won his fifth Masters golf tournament title, pulling off one of the
biggest turnarounds in sports history after a long period of scandals, injuries,
and other personal setbacks.

● Democrats subpoenaed Deutsche Bank to obtain documents that might show foreign-nation involvement in U.S. politics.
● Indonesian President Joko Widodo was poised to win another term running the world’s largest Muslim-majority country.
● Disney unveiled the Disney+ streaming service, priced at $7 a month to undercut Netflix.
● The final season premiere of HBO’s Game of Thrones drew 17.4 million viewers, 8.1 percent more than last season’s debut.
 ◼ AGENDA
Bloomberg Businessweek April 22, 2019

▶ Tesla discloses its first- ▶ In Boeing’s first-quarter

quarter earnings on April 24
as well. It’s been a tough
start to the year for the EV
pioneer, with falling demand
for its Model 3 sedan.
earnings report, also coming
on April 24, investors will
gauge the fallout from the
737 Max jet’s grounding
after two deadly crashes.

▶ Russian citizen Maria ▶ The U.S. announces first-

Butina will be sentenced
by a U.S. judge on April 26
for trying to infiltrate
conservative American
political groups.
▶ Can Facebook Keep Its Friends? ▶ Sweden’s Riksbank is
Facebook reports first-quarter earnings on April 24. set to leave interest rates
Investors will look for signs that the world’s largest social unchanged on April 25;
network can still grow in mature markets such as Europe— economists don’t foresee
while keeping its daily active user base steady and a hike until the last quarter
advertisers happy—despite several privacy scandals. of 2019.
quarter GDP on April 26.
Economists still see just
a 25 percent chance of a
recession happening in the
next 12 months.
▶ Kenyan Eliud Kipchoge
will defend his title at the
London Marathon—one of
the Big Five, with Berlin,
Boston, Chicago, and New
York—on April 28.

◼ BLOOMBERG OPINION

appropriations for new-boat loans, and in the late ’90s and

10
The Perils of Overfishing
● Subsidies for fleets end up harming the food supply
and the fishing industry itself
Overfishing threatens disaster not only for fish, oceans, and
the food supply, but also for fishing itself. The industry’s
prosperity declines right along with populations of tuna,
shark, swordfish, and other species. Yet all over the world,
companies persist in taking more fish than nature can replace.
If this practice seems foolish, still more so are government
efforts to encourage it. The largest fishing nations spend tens
of billions of dollars annually to help fishing companies pay
for fuel and vessels. The U.S. government has been a leader of
international efforts to end subsidies, but it’s now proposing
one of its own: low-interest loans for fishing boat construc-
tion. The National Marine Fisheries Service should abandon
this disturbing reversal of policy.
Subsidies make it possible for enormous boats to travel
long distances to fish the deep waters that lie far from any
coastline. More than half of this high-seas fishing would be
early 2000s the government spent millions buying back
vessels, gear, and fishing permits. These days, most U.S.
government investment in fishing goes to research, monitor-
ing and conserving fish stocks, and other beneficial activities.
The U.S. has pushed to end other countries’ subsidies.
Prohibitions against them are included in the Trans-Pacific
Partnership (from which the U.S. subsequently withdrew) and
the yet-to-be-ratified United States-Mexico-Canada Agreement.
The U.S. is also part of an effort at the World Trade Organization
to cut subsidies to expand capacity. Agreement in that forum
would be ideal, because it would encourage the broadest possi-
ble compliance. All this makes it especially counterproductive
for the U.S. to change its approach.
The National Marine Fisheries Service has suggested a com-
promise: Allow subsidized loans, but only for vessels meant to
operate in waters that aren’t overfished. This is no good. As
Duke University environmental economist Martin Smith has
demonstrated, the subsidies have a cascading effect. When
new boats are built, they replace older ones that sail on to
more exploited waters. A better idea would be to support
fishing in ways that don’t increase capacity by investing in
conservation and other efforts to replenish stocks, or by sup-
porting activities such as fishing for ocean plastics.
ILLUSTRATION BY REBEKKA DUNLAP

unprofitable without subsidies. Curtailing it would boost pop-
ulations of migratory fish, helping to restock coastal fisheries.
China provides the biggest subsidies. Japan, South Korea,
and Spain spend heavily also. But in the U.S., beginning in
the 1990s, both political parties came to recognize the prob-
lem and pulled back. For many years, Congress barred
Scientists are increasingly convinced of the nutritional
value of fish—one more reason to avoid exhausting the
Earth’s abundance. The U.S. should resume its position as a
leader in preventing overfishing. <BW>
Written by the Bloomberg Opinion editorial board
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 12
 REMARKS

Is in Bogotá
All the Action

PHOTOGRAPH BY JUAN CRISTÓBAL COBO FOR BLOOMBERG BUSINESSWEEK

◼ REMARKS Bloomberg Businessweek
● The city is awash in refugees, plots,
and counterplots from Colombia’s
troubled neighbor, Venezuela
● By Ethan Bronner and Ezra Fieser
Small families with bedrolls loiter quietly on the red-brick side-
walks outside the high-end eateries and upscale boutiques of
Bogotá’s northern neighborhoods, taking handouts. Along the
gritty, honking avenues farther south, young men push cart-
loads of candy for sale or shoulder food-delivery backpacks as
employees of one of the Colombian capital’s fastest-growing
startups. They are Venezuelan refugees, hundreds of thou-
sands of them, and in the past couple of years they’ve poured
into this damp, thin-aired, sprawling city high in the Andes.
Geopolitical crises tend to create unexpected centers of ref-
uge and espionage. During the Cold War, it was West Berlin; in
the buildup to the Iraq War, the Jordanian capital of Amman.
Now the world’s attention has shifted to Venezuela, a nation
whose people are near starvation, even as they sit atop the
world’s largest known oil reserves. The Trump administra-
tion, invoking the Monroe Doctrine claim of U.S. primacy in
the Western Hemisphere, says the departure of its president,
Nicolás Maduro, is nonnegotiable. It’s led more than 50 coun-
tries in supporting opposition leader Juan Guaidó as interim
president and has imposed punishing economic sanctions.
Moscow has replied by sending military advisers to Caracas.
Along with Beijing, Ankara, and Havana, it’s standing by
Maduro. So is the Venezuelan military command, at least so far.
With U.S. diplomats pulled out of Caracas and Venezuela
barely functioning amid power cuts and hyperinflation,
Bogotá has become a proxy battleground for the conflict
building on Colombia’s eastern border. Those candy sellers?
Members of a counterintelligence unit known as la Sombra—
“the Shadow”—sent by the embattled Maduro regime. Those
middle-aged folks in tasteful but worn suits sipping coffee at a
cafe in Virrey Park as rollerbladers speed by? Venezuelan pro-
fessors who escaped arrest last year and rushed here without
documents to live in noisy first-floor apartments furnished
with sleeper sofas. And those fit young men in crew cuts
drinking beer at the Hotel Dann Carlton? Mercenaries and
ex-Venezuelan officers plotting their next move.
Flights into Colombia are full. Vice President Mike Pence
and Secretary of State Mike Pompeo, along with congressional
Democrats Representative Eliot Engel of New York and Senator
Tim Kaine of Virginia, have all recently led delegations here.
Before his 2018 poisoning in England caused a major blowup
with Russia, Sergei Skripal, a former double agent working
for MI6, was sent to help the Colombians figure out what to
do about the growing Russian presence. (Since surviving his
murder attempt, Skripal has changed his identity and couldn’t
be reached for comment.) The Cubans have told Colombian
April 22, 2019
officials they’re reducing their numbers in the country, but
the Colombians say the opposite is true. The U.S. isn’t yielding
the playing field: Its Bogotá mission, one of the largest in the
world, has 3,000 employees. Meanwhile, more Venezuelans
are coming every hour.
Some say Bogotá feels like Casablanca during World
War II. As in the 1942 Humphrey Bogart classic about life and
death in the wartime city, refugees are rushing in and upend-
ing the social order. In the film, a leading Amsterdam banker
has to work as the pastry chef at Rick’s Café Américain, and
his father as a bellboy. Here there are Venezuelan judges
driving Ubers, their bank accounts and homes seized by
the regime.
Of course, Casablanca—both the historic place and
Hollywood’s version—was a place refugees hoped to get out
of, seeking passage to Lisbon and then New York. For some
Venezuelans, Bogotá is also a stop on the way to somewhere
else—Brazil, Chile, Peru. But for many others it’s a comfort-
able place to make a new life. One with no plans to leave is
Humberto Calderón, 77, a gruff former energy minister and
OPEC president who’s the representative to Colombia from
the Guaidó “administration,” Venezuela’s parallel ruling struc-
ture, which has international backing but no actual authority.
He’s had the job for a few months and works out of the same
building where he lives. “We don’t move too much, so as not
to give them the opportunity to follow us,” he says. 13
Calderón took control of the official embassy, about a mile
away, when Colombia recognized Guaidó as Venezuela’s pres-
ident and revoked diplomatic status for Maduro’s represen-
tatives. Under Maduro’s control, the embassy was little more
than the “center of an intelligence-gathering operation” with
hundreds of operatives, Calderón says, switching seamlessly
between English and Spanish. Two men stand guard by the
floor-to-ceiling windows of the conference room in his build-
ing, framing a recently refurbished park with outdoor exer-
cise equipment, part of a civic focus on fitness. At one end
of the park, a Venezuelan family of four sits on a bench ask-
ing passersby for help.
Colombia has always been a paradox, sophisticated and
crude at the same time. Its technocratic class was training at
the world’s finest institutions while gangs of Marxist revolu-
tionaries took over the countryside by force. For decades,
Bogotá was a dismal place, with its endless chilly rain and
traffic-choked streets, filled with petty thievery and devoid of
charm. Wearing a watch was risky; someone might yank it off
your wrist and sell it on the next corner. As recently as 2002,
the presidential inauguration was interrupted by homemade
guerrilla rockets.
But lately the place has blossomed with hundreds of first-
class restaurants, miles of bike paths, numerous green spaces,
and chains of appealing coffee houses. There’s a sense of
freedom, of hipster experimentation. On weekends, bikers
trek up the mountains to the east, lunching at grills over-
looking the city where guerrillas used to rule. Bomb-sniffing
dogs still patrol major hotels and lines of buses belch fumes
 ◼ REMARKS Bloomberg Businessweek
right alongside the bike paths, so Bogotá is perhaps best
seen as a city in transition rather than one that’s arrived. In
January, guerrillas drove a car bomb into a police academy,
killing more than 20 cadets. But it’s far more confident than
ever in its history and has been embracing its fleeing neigh-
bors with grace and generosity.
Zair Mundaray is grateful for that. He was the director of
Venezuela’s state prosecutor’s office in Caracas until the sum-
mer of 2017, when his boss, Prosecutor General Luisa Ortega,
fled to Bogotá under threat of arrest for investigating Maduro’s
role in a corruption scandal that had spread from Brazil across
Latin America. Mundaray followed and, along with a small staff
of lawyers and investigators, has set up a cramped version of
their office in exile. The escape was messy. Their passports
had already been confiscated, and they had to walk across the
border in disguise and request protection from the Colombian
attorney general. It was granted immediately. Some months
afterward, Mundaray was walking in Bogotá when two cars
blocked his path. Four men jumped out and called his name.
He ran and found refuge at a busy construction site. The men
drove away. Since then, he’s had a two-man guard unit pro-
vided by the Colombian government.
Other Venezuelan exiles in Bogotá—physicians, legisla-
tors, and military officers—have similar stories. José Manuel
Olivares, a member of the opposition-controlled legislative
14 body who’s played a key role in frustrated attempts to get
U.S. emergency aid across the border, says he started receiv-
ing photos of himself in his WhatsApp feed: Someone was
following him and wanted him to know it. In February, two
men with Venezuelan accents trailed him on bicycles as he
jogged, calling out his name. Photos of his wife and young
child were among the files the opposition discovered when
it took over the Venezuelan Embassy.
Not since it gained independence in the 19th century has
Colombia had to wrestle with immigration—Congress never
even felt the need to pass a law limiting or regulating immi-
gration—because so few foreigners wanted to move here. Its
issues have been internal, leading to decades of bloody battles.
Billions of dollars of U.S. aid helped it tamp down an explod-
ing cocaine industry and sign a 2016 peace deal with Marxist
guerrillas who once held sway over large sections of the coun-
try. As Colombia wrestled with itself, people left—usually for
Venezuela, the Caribbean paradise to the east and the conti-
nent’s richest nation, where the Cuban-inspired government
provided food, housing, and education for all.
Now the stampede is entirely in the opposite direction.
Over the past two years, the Colombian government has
counted 1.2 million permanent Venezuelan arrivals, an
additional 700,000 in transit to elsewhere in the region, plus
half a million Colombians returning from Venezuela. There
are also tens of thousands of so-called circular migrants who
live in Venezuela and come into Colombia daily in search of
food and supplies. If this goes on for another year, Venezuela
will surpass Syria in the scale of its refugee crisis. Colombia
has vaccinated more than 900,000 newcomers, and it’s
April 22, 2019
placing tens of thousands of Venezuelan children in schools.
Felipe Muñoz, an economist with many years in Washington
under his belt, is President Iván Duque’s point person on
Venezuela. A sweater-vest, white-board kind of technocrat,
Muñoz explains the challenges he faces while hunched over
data in his office in the impressive Nariño presidential palace
in the Candelaria neighborhood. As a military band marches
across the plaza outside, competing briefly for his attention,
Muñoz cites a study that found international aid has amounted
to $5,000 per Syrian refugee; for Venezuelans in Colombia, it’s
been less than $300. Much more is needed to prevent the coun-
try from being overwhelmed, he says.
Then there are the ex-Venezuelan military who camp in
Bogotá to plot coups d’état. One lives elsewhere in Colombia
and comes to the city often to meet with fellow dissident offi-
cers. He wears jeans and T-shirts, stays at modest, inconspicu-
ous hotels, and takes public buses, all to make himself harder
to trail. He doesn’t want his name published and goes silent
at the mention of guns. The Colombians bar him and the oth-
ers from keeping arms (though they do anyway).
Another former Venezuelan soldier, Carlos Guillen, says
he’s proud of his anti-Maduro activities and won’t hide behind
anonymity. A recent arrival in Bogotá, he suggests meeting
at a working-class cafe in a barrio south of downtown. As
soon as the interview begins, he asks to move to a different
section of the city; he fears he’s being watched. He speaks of
collaborators inside the headquarters of Venezuela’s secu-
rity services in Caracas and shows videos of the building’s
interior—they need the layout for the planned invasion. He
says he’s ordering spying equipment from the U.S.—pens that
record video, eyeglasses with cameras—which he’ll send on
to his colleagues in Caracas.
The Colombian authorities despise Maduro and are eager
to see him driven from power. But the presence of armed
agents makes them nervous. They don’t mean to be inhospi-
table, but they worry about Bogotá’s growing reputation as the
center of anti-Venezuelan plotting. On Feb. 23, when interna-
tional aid was blocked by Maduro’s militias, more than 1,000
Venezuelan National Guardsmen slipped across seeking asy-
lum. The Colombians want to accommodate them, putting
them up at a hotel replete with a palm-lined pool near the bor-
der while considering granting them entry. But there’s fear that
some are spies and many others hotheads; authorities have
caught and deported a handful of alleged Maduro-sent infiltra-
tors. The influx poses challenges the Colombian government
is only starting to grasp.
“We as a country hadn’t thought about how we were going
to handle the people coming into the country on the 23rd,”
says Major Victor Guerra of the Customs Police. “We weren’t
prepared with any protocol. We’re in the process of creating a
system to tell us whether they’re entering the country for the
reasons they said or for other reasons and, most importantly,
who they really are.” If the refugees cause more problems,
Bogotá will have a ready word when it rounds up its “usual
suspects”: Venezuelans. <BW>
 A I L E
Bloomberg Businessweek
A R E T
B
BRE A K S A L L
U
TH E R U L E S
S ● Don Quijote won a cult
I
following in Japan by giving
local stores unprecedented
control. Can that strategy
N
work internationally?
Entering a branch of Don Quijote, the ubiquitous
E
Japanese discount chain, can be a jarring experi-
ence. At the entrance of every location is an array of
exotic fish that would put many pet stores to shame.
It might feel like a drugstore inside, with rows of
S
16
obscure unguents—think cream for damaged skin
made from fish roe—for sale. Go upstairs, and every
floor takes on a different identity: a clothing shop
with rows of kitschy shirts next to a boutique area
S with Coach bags, then an electronics shop that sells
iPhone accessories as well as cassette tapes.
For years, Don Quijote—an unclassifiable seller of
everything from humidifiers to sex toys—has been
a cult phenomenon in Japan, favored by the cash-
strapped households of the so-called recession gen-
eration. Now it’s big business. Thanks largely to the
discounter’s rabid fan base, its parent company,
Tokyo-based  Pan Pacific International Holdings
Corp., is on track to become Japan’s fifth-largest
⊲ The Mega Don Quijote retailer, with revenue likely to reach 1.4 trillion yen
in Tokyo’s Shibuya
neighborhood ($12.5 billion) in the fiscal year ending June 30. That’s
a remarkable feat for a chain that barely sells online
and does almost no conventional marketing.
Now Don Quijote is trying to come up with a
strategy to take its unique formula across Asia, eye-
ing locations in Hong Kong, Indonesia, Malaysia,
and the Philippines to add to recent experiments in
Singapore and Thailand. Chief Executive Officer Koji
Ohara and founder Takao Yasuda are betting that
an only-in-Japan retail phenomenon can translate
abroad and buck the trend toward online shopping
that’s hobbled merchants worldwide.
Edited by
“I haven’t seen anything else quite like Don
James E. Ellis Quijote,” says Michael Causton, a retail analyst in
Tokyo for Japan Consuming. “It’s chaotic, messy
stores, which belie what’s behind it—a highly disci-
plined, extremely rigorous management philoso-
phy.” Investors seem to agree: Pan Pacific’s shares
have climbed 34 percent in the past year, giving the
company a market value of 1.2 trillion yen.
As convention-defying as its literary namesake,
Don Quijote is a little like a mashup of TJ Maxx,
Dollar Tree, Costco, and the no-frills grocer Aldi,
with a dollop of Japanese eccentricity thrown in.
It also shares DNA with European brands such as
Flying Tiger Copenhagen, whose stores stock an
unpredictable mix of cheap products intended to
spur impulse buys.
Retail experts have described Donki, as it’s popu-
larly known, as a jungle, a hoarder’s paradise, even a
fire hazard, with shelves so heavily packed they look
as if they might fall over. But the heart of its strategy
is simple: Floor staff should have near-total auton-
omy to decide what to sell. Store managers control
merchandising, negotiating prices directly with sup-
pliers, and decide how to change sales displays to
keep customers coming back. And they come any-
time they please, since all locations stay open 24/7.
In the past year, Don Quijote has closed branch
offices and cut the number of regional-level man-
agers to ensure store staff answer to fewer peo-
ple and make decisions themselves. Managers can
spend on costly frills when needed. Consider the
roller coaster installed on the roof of Donki’s outlet
in Tokyo’s Roppongi entertainment district (never
used because of complaints from neighbors), or the
Ferris wheel in front of one Osaka store.
At the seven-story outpost in Tokyo’s hip Shibuya
neighborhood, that flexibility is plain to see. During
a recent visit, a shelf facing the beauty section
heaved with cooling wipes, sunscreen, and multi-
colored deodorants. Until that morning, manager
Yohei Hasebe says, the space had been devoted to
moisturizers. Anticipating warmer weather, staff
decided to make a swap. They were also chasing a
vendor to send more stock of a gadget that waxes
nose hairs—a surprise hit they can barely keep on
KENTARO TAKAHASHI/BLOOMBERG (10)

17
 ◼ BUSINESS
the shelves. Downstairs, the food area drew in
teenagers with tapioca milk tea, a trendy beverage
in the capital. Hasebe says he might soon add a sec-
tion for spicy snacks, designed to appeal to Chinese
tourists. Unusual in risk-averse Japan, experimenta-
tion isn’t avoided but rather encouraged. “We’re just
always in a trial-and-error mode,” he says.
That ability to change tack is largely a function
of Don Quijote’s sourcing strategy. Almost half of
its products are leftover goods that manufacturers
couldn’t otherwise sell. Most Japanese retailers ship
unsold items back to producers with minimal pay-
ment, so manufacturers will eagerly resell them
for next to nothing—which is where Don Quijote
steps in. Analysts estimate that half the company’s
gross profit comes from selling such leftover items
acquired on the cheap.
Don Quijote has successfully taken the pulse
of Japanese consumers for four decades, but as
it expands it also must grapple with its newfound
size. Last fall, Pan Pacific made its largest acqui-
sition, a 28.2 billion-yen deal to take full control
of Uny, a 182-store chain that it’s now working to
convert to Don Quijote-style discount emporiums.
Analysts say that effort, which will involve indoc-
18 trinating Uny’s senior management and store staff
into Donki’s decentralized retail philosophy, will be
the company’s biggest short-term challenge.
Appealing to overseas shoppers also may
prove a struggle. Founded by Yasuda in 1978 as
a Tokyo variety store called Thieves Market, the
chain had never made a serious effort to expand
Trouble at the Corner Drugstore
● Amid price pressure and a shift to web sales, Walgreens itself could use a prescription
When billionaire Stefano Pessina took over as chief
executive officer of Walgreens Boots Alliance Inc. in
2015, he soon began hunting for his next big deal.
By October of that year, he’d found it: a $9.4 billion
plan to buy Rite Aid Corp. that would have vaulted
Walgreens past CVS Health Corp. to become by far
the largest U.S. drugstore chain. But after he spent
almost two years wooing government officials and
investors, regulators prevented Walgreens from
swallowing Rite Aid. In September 2017, Pessina had
to settle for buying 1,932 Rite Aid stores, less than
half as many as his original target.
Bloomberg Businessweek April 22, 2019
outside Japan—where it has about 300 locations— ● Annual revenue of
selected Japanese
until two years ago. While the operating company retailers, by region
changed its name to Pan Pacific in February to ◼ Japan
reflect these wider ambitions, it says it’s still in ◼ Other
an “experimental” mode for foreign stores. CEO
Seven & I (7-Eleven)
Ohara wants to eventually generate at least one- 6.8t yen
third of sales abroad.
That means studying foreign consumer habits
and hiring locally, as the chain does for store man-
agers and staffers in Singapore and Thailand. It’s also
tweaking offerings. Don Quijote devotes as much as
80 percent of the Singapore stores to food, betting Fast Retailing (Uniqlo)
on the popularity of Japanese classics such as sushi 2.1t yen
and donburi. That compares with only 30 percent
in its Japanese stores. And listening to locals helped
Donki score a hit selling baked yams year-round in
tropical Singapore—even though they’re typically Yamada Denki
1.6t yen
eaten only during cold months in Japan.
Even if Don Quijote implants itself in a few new
Asian markets, it will still be far from matching the
success and global name recognition of Japan’s Pan Pacific International
Holdings (Don Quijote)
larger retail superstars, Fast Retailing Co.’s Uniqlo 942b yen
and Ryohin Keikaku Co.’s Muji. “Management seems
confident about their prospects in Thailand and
Singapore, but that’s not a big enough market” to Ryohin Keikaku (Muji)
give the international push a major impact, says 410b yen
Sho Kawano, a retail analyst in Tokyo for Goldman
Sachs Group Inc. “The hurdle is still high for them.”
�Lisa Du, with Ayaka Maki
THE BOTTOM LINE Don Quijote, which breaks retailing rules
about central management and keeping products consistent
across the chain, will become Japan’s fifth-largest merchant.
As it turns out, that might have spared Walgreens
DATA: COMPILED BY BLOOMBERG FOR MOST RECENT FISCAL YEARS
an even more painful reckoning than the one it now
faces. On April 2 shares of the company plummeted
13 percent after it said earnings would be stagnant
for the rest of its fiscal year, which ends on Aug. 31.
Pessina, who owns 15.9 percent of Walgreens shares,
lost $1.2 billion of his personal wealth in one day;
the stock’s total decline since his Britain-centered
Alliance Boots drugstore chain merged with the U.S.-
based chain has reached 28 percent. For more on the future
of health care, go
Walgreens’s troubles reflect a power shift to Bloomberg.com/
that’s reshaping the entire prescription-drug prognosis
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 ◼ BUSINESS
industry, from the companies that research and
manufacture pills to the insurance companies that
pay for them. Washington’s clamor to reduce drug
costs has compressed profit margins for physical
drugstores such as Walgreens, CVS, and Rite Aid.
Big Pharma isn’t raising the list prices of brand-name
drugs as fast as they once did, limiting growth in
the already small cut drugstores can make from new
blockbusters. Meanwhile, pharmacies have been
unable to make up the shortfall with bigger mark-
ups on generic medications, because those prices
aren’t falling as rapidly as in years past.
Then there’s Amazon.com Inc. The giant online
retailer has already made life miserable for drug-
stores by selling beauty products and over-the-
counter cold remedies at rock-bottom prices. Now,
after buying online pharmacy PillPack for about
$1 billion last June, Amazon may be poised to under-
cut their prescription business. “It is the tough-
est environment I’ve ever seen” for pharmacies,
says Goldman Sachs analyst Robert Jones, who cut
Walgreens to a sell rating in December. “The core
business is declining very rapidly.”
Perhaps most troubling, insurers are pitting phar-
macy chains against one another as they seek to lock
20 in low prescription costs. In the past, if a health
plan left a major chain out of its network, it risked
alienating members who may have fewer pharma-
cies nearby. Now there’s no such reluctance. With
around 60,000 drugstores crowding American street
corners, insurers can drop one of the two big chains
without inconveniencing many consumers.
There are 9,560 Walgreens stores in the U.S.
competing with 9,800 CVS locations and 22,000
community pharmacies. Then there are the phar-
macies tucked inside food stores and big-box dis-
counters such as Walmart. Those players are often
willing to offer lower prescription prices to get shop-
pers through the door. These days, “nobody cares
whether you have Walgreens in the network,” says
Michael Rea, founder of Rx Savings Solutions, which
has an app that helps patients find the best prices.
“It is the same drug everywhere you go, and peo-
ple don’t want to pay a premium because it has
Walgreens on the bottle or CVS on the bottle.”
Insurers have increasingly embraced “nar-
row networks” that force patients to pay more to
roam beyond preferred pharmacies to pick up a
prescription. In 2019, 92 percent of Medicare drug
plans used such networks, compared with 7 per-
cent in 2011, according to Drug Channels Institute.
Sixty-one percent of employers in 2018 limited phar-
macy networks in some way, up from 36 percent in
2015, according to surveys by the Pharmacy Benefit
Management Institute. A big reason: Health plans
Bloomberg Businessweek April 22, 2019
typically save 3 percent to 7 percent of total drug
costs by adopting a narrow network, according to a
white paper by DST Pharmacy Solutions.
So Walgreens is tightening its belt. It will try to
shave more than $1.5 billion in annual expenses
within three years and close 750 of the Rite Aid
stores it bought. Walgreens declined to make Pessina
or other executives available for comment.
Walgreens has been attempting in the past year
to make up some ground through a raft of collabo-
rations, including a retail partnership with grocer
Kroger Co., a drug-delivery pact with FedEx Corp.,
and a digital health effort with Microsoft Corp. And
it plans to open 600 medical-testing locations of
Laboratory Corp. of America Holdings in its stores.
Still, Walgreens’s fortunes remain tied to its
stores, exposing it to the ongoing declines among
so many retail segments. Comparable U.S. sales of
“front of the store” items like makeup and sham-
poo, for example, have fallen slightly at Walgreens
in every quarter since July 2016. “The reality is we
probably have 20,000 too many pharmacies,” and
they’re thousands of square feet too big, said Ross
Muken, an analyst at Evercore ISI, in an April 10
webinar. For Walgreens, “there are just not a lot of
clear answers what to do.” �Robert Langreth
THE BOTTOM LINE Insurers and benefit managers for employers
increasingly limit the number of pharmacy chains they do business
with. That could be bad news for massive chains like Walgreens.
The No-Buzz
Beer Boom
● Alcohol-free brews are the fastest-growing
part of the market, and brewers are taking notice
As a recovering alcoholic, Becky Kean’s father had
a hard time hanging out at the pub: He still loved
the atmosphere, but he was frustrated sipping his
mineral water while his mates sampled an end-
less parade of new flavors such as bitter pale ales,
smooth nitrogen stouts, or tropical fruit sours. So
three years ago, Kean founded Nirvana Brewery,
aiming to create nonalcoholic beer every bit as
tasty and trendy as craft brews. Today, she makes a
 ◼ BUSINESS
half-dozen no- or ultralow-alcohol brews with names
such as Kosmic, Karma, and Tantra in an indus-
trial district in northeast London. “It was a way to
include him, make him feel part of the social circle
again,” Kean says. “With something he could enjoy—
not just a substandard thing he has to have, but what
he would choose to have.”
Like Nirvana, brewers worldwide are discover-
ing it’s OK to mix suds with sobriety as demand for
no- and low-alcohol beer soars. While growth of the
broader craft beer market is slowing and sales of col-
lege beer-pong staples such as Bud Light and Coors
stagnate or fall, lower-alcohol brews are the hot-
test trend. Sales this year will grow by a third in the
U.K. and 9 percent globally, while the overall U.K.
beer market will expand by 2 percent, researcher
Euromonitor predicts. Nonalcoholic newcomers are
benefiting from interest in artisanal brews and the
shift toward healthier living, with customers rang-
ing from designated drivers to pregnant women to
folks who simply like the taste of beer but want to
cut back on their alcohol consumption. “It’s people
in high-pressure jobs like law or banking who are try-
ing to find balance,” Kean says.
The industry’s giants haven’t missed the trend as
they reassess a business that once largely focused
on lowest-common-denominator lager for sports
fans. Carlsberg AS makes a no-alcohol pilsner called
Nordic, Heineken NV offers 0.0 lager, and Anheuser-
ILLUSTRATION BY FRAN CABALLERO; DATA: EUROMONITOR INTERNATIONAL
Busch InBev NV—the maker of Budweiser—sells
scores of alcohol-free cousins of leading brews,
including Hoegaarden, Leffe, and Stella Artois. In
2016, AB InBev introduced a standalone brand called
Prohibition, and by 2025 the company says it wants
no- and low-alcohol brews to account for 20 per-
cent of its volume. “What makes this segment even
more exciting is that these brands often command
a premium price,” AB InBev Chief Executive Officer
Carlos Brito told investors in February.
Alcohol-free beers can be extremely profitable.
Although they sell at relatively elevated prices—a
pint of Nirvana runs about £4 ($5.24) in pubs,
Bloomberg Businessweek April 22, 2019
toward the top of the market for beer—they typically
don’t face the taxes levied on booze. Producers say
sober brews are a natural fit for lunch menus, and
they’re starting to market them as sports drinks; in
Germany, they’re a popular choice for marathon
runners. “Business is very, very good, as there’s a
lot of innovation in our sector that’s turning heads
toward alcohol-free,” says Stuart Elkington, founder
of a web store called DryDrinker.com.
The hardest part of brewing a buzz-free beer is
simulating the taste of the real thing. Alcohol pro-
vides a distinct mouthfeel and flavor that are difficult
to replicate. Most producers simply use traditional
brewing methods, then heat the finished product
to burn off the alcohol. But that involves expensive
equipment and dulls the flavors of the hops and
grains in the brew. Lactose is often added for extra
bulk, but it can create a chemical aftertaste. Avoiding
such tricks takes work: BrewDog, the U.K.’s biggest
craft brewer, went through about 25 iterations of its
0.0 percent Punk AF offering before settling on a rec-
ipe it found acceptable. “It’s far, far more difficult
to make a good nonalcoholic beer than a good alco-
holic beer,” says founder James Watt.
Instead of de-alcoholizing its beers, Nirvana
adjusts the temperatures, sugar, malt, and fermenta- ● Top retail beer markets
21
by 2017 revenue
tion times to deliver brews with only trace amounts
◼ Alcoholic beer
of alcohol. The India pale ales and malty stouts taste
◼ Nonalcoholic beer
lighter than versions with alcohol, but they’re close
enough to the new flavors that have reinvigorated China $28b
the market that they work as a reasonable substi-
tute. “People like Nirvana are proving that you can
produce alcohol-free beers that don’t taste crap,”
says Stuart Anderson, who runs a beer emporium Mexico $11b
called Ghost Whale in the south London neighbor-
hood of Brixton. U.S. $51b
While Nirvana remains a minnow—it produces
100,000 liters a year, or 0.0001 percent of AB InBev’s
output—it’s growing fast. Kean says revenue dou-
bled in 2018 and is on track to do so again this year,
and Nirvana has signed up 2,000 outlets across
Britain, ranging from Boisdale, a London water-
ing hole popular with bankers, to a department
Australia $8b
store in Newcastle. It’s had inquiries from prospec-
tive importers in Europe, Asia, and the U.S. And it’s Canada $8b
boosting its appeal locally by participating in nearby Russia $16b
beer festivals and with gimmicks such as yoga ses-
sions alongside the three silver tanks where it makes
U.K. $9b
its brews. “You get a few snobs who say, ‘It’s not
beer,’ ” Kean says. “But to us, beer is about the ingre- Brazil $10b
dients, a social drink that brings everyone together—
Japan $19b
it’s not about the alcohol at all.” �Thomas Buckley
THE BOTTOM LINE While sales of traditional beer brands
stagnate or fall, shipments of no- or low-alcohol brews are on track Germany $8b
to jump by a third in the U.K. and 9 percent globally this year.
 Bloomberg Businessweek
The
T yet managed to make guns any smarter. (Michael
Death
E
Of the
C
Smart
H
Gun
N openly about guns, let alone invest in them. There
O
● Firearms makers have resisted
a Silicon Valley innovation that
could transform public safety
L
22
Smith & Wesson still feels the wound it suffered two
decades ago when it decided to invent a smart gun.
The idea was to invest heavily in the development
O of a personalized weapon that could be fired only
by a single person: its owner. This was considered
an almost sci-fi proposition in the late 1990s, years
before smartphones and finger sensors became
G ubiquitous. But consumer backlash against the proj-
ect drove the gunmaker to the verge of ruin, and
Smith & Wesson recently told shareholders that
“sales still suffer from this misstep.”
Y The ordeal didn’t lead to a technical break-
through anyway, and Smith & Wesson never brought
a smart gun to market. Neither have competitors
Colt, Glock, Mossberg, Remington, Winchester, or
Sturm, Ruger. It’s not clear that any of these other
major gunmakers has seriously tried. No one can
quite agree on who’s to blame for the standstill. Gun
manufacturers fault difficult-to-navigate technology.
Investors and entrepreneurs are sure that restric-
tive legislation has created a dead end. Politicians
blame each other.
Almost half of gun owners in the U.S. would
consider buying a smart gun, according to a Johns
Hopkins University study. The promise of guns
that can be used by only one person is that fewer
Edited by
Dimitra Kessenides
would be fired by accident or by someone who
and Aaron Rutkoff shouldn’t have access to a gun—and fewer would
April 22, 2019
be sold on the black market. This is the story of
why the multibillion-dollar U.S. gun industry hasn’t
Bloomberg, founder of Bloomberg Businessweek
owner Bloomberg LP, is a donor to groups that sup-
port gun control.)
Trae Stephens isn’t afraid to put real money into
a product most gunmakers are too anxious to touch.
His venture capital firm, the Peter Thiel-backed
Founders Fund, is noteworthy among its Silicon
Valley peers for investing in defense and security.
But two years spent looking at almost a dozen differ-
ent smart-gun startups—companies aiming to raise
seed money or Series A rounds, valued in the six-
to seven-figure range—haven’t turned up anything
worth backing. “I want to do this,” Stephens says.
“But there’s just no way I can.”
It’s not easy finding a VC willing to speak
have been frequent calls for technology compa-
nies to take on firearms—it’s the type of stagnant
industry that seems ripe for Silicon Valley disrup-
tion. President Barack Obama sounded the call
for the Apples and Googles of the world to get
into the business. “If we can set it up so you can’t
unlock your phone unless you’ve got the right fin-
gerprint,” he asked in 2016, “why can’t we do the
same thing for our guns?” But funneling engineer-
ing resources into next-generation weapons, even
for the sake of public safety, has proved anathema
in the liberal Bay Area.
Stephens is a contrarian, a right-leaning techie
who started out in Washington working for former
Ohio Representative (now Senator) Rob Portman—a
Republican with an A rating from the National Rifle
Association. He once worked as an engineer at
Palantir, the controversial data-mining company that
has contracts with the U.S. military, and co-founded
a defense-tech startup, Anduril, that develops digital
surveillance tools for border security. He also served
on Donald Trump’s presidential transition team.
Wiring electronics into firearms feels like an
inevitable next step for the tech industry, which
has succeeded in putting motherboards in vacuum
cleaners, microwaves, and doorbells. “Why is it
the weapons we’re still using haven’t meaningfully
changed since World War I?” Stephens asks.
He and his colleagues have found glaring tech-
nical challenges. Prototypes generally feature bio-
metrics or proximity-sensing radio-frequency
identification (RFID) chips to authenticate users
and unlock firearms. The trouble is that fingerprint
readers don’t work well when there’s sweat or dirt.
Friends in law enforcement advised Stephens that
cops often wear gloves that would interfere with

the scanner anyway. A sensor error in a self-defense
situation could prove fatal. Gunmakers have pointed
to the same obstacles: In a report filed with the U.S.
Securities and Exchange Commission in February,
Connecticut-based Sturm, Ruger & Co. described
“difficult design issues” that prevent the develop-
ment of a smart gun. “Despite blanket assertions
to the contrary,” the company wrote, “no proven
user-authentication technology exists.”
Stephens agrees. “How many times have you
tried to unlock your iPhone, and it’s like [no]?” he
asks. “This is one of the rare situations in which
false negatives are the difference between life and
death.” His research came up at a Founders Fund
debrief with Thiel and the fund’s other partners in
2017. “I said, ‘Look, there’s zero chance that any of
these companies will actually make money. Am I
missing something?’” he recalls. “That was it. End
of conversation.”
Adding digital safety features to guns seemed
closer at hand in 1996. Federal researchers at Sandia
National Laboratories issued a report that year
declaring smart guns feasible—all it would take was
ILLUSTRATION BY MAX LOEFFLER
a large research and development investment and
possibly two generations of product development.
Four years later, Smith & Wesson made a deal with
then-President Bill Clinton to set aside 2 percent of
its revenue for smart-gun research.
23
Smith & Wesson went to work on the project,
sometimes referred to internally as E-Fire. The
nuts-and-bolts mechanical engineering required
to produce a gun proved poor preparation for mas-
tering the electronic fields needed to bring smart
features to life. The company explored various
unlocking mechanisms, including biometrics such
as skin sensors and voice recognition, according
to patents. For an early prototype, according to
an engineer involved with the project who asked
not to be named discussing a former employer,
a fingerprint sensor was jury-rigged onto a Palm
Pilot PDA to test how the weapon would unlock.
In some tests the scanner failed about 1 out of 100
times, this engineer recalls. “Why is it the
The NRA vilified the partnership with Clinton— weapons
and Smith & Wesson customers revolted, leading we’re still
to a 40 percent drop in business. The losses per- using haven’t
suaded other major gunmakers to all but abandon meaningfully
the concept. By the time Virginia Chandler, Smith changedsince
& Wesson’s former vice president for new product World WarI?”
development, arrived at the company in the mid-
2000s, smart guns were nowhere on the road map.
“Smart guns were never even brought up,” says
Chandler, who left the company in 2013 and now
works with a smart-gun startup.
Today no mainstream gunmaker sees con-
sumer demand for a smart gun, according to
  TECHNOLOGY
the National Shooting Sports Foundation, a gun
industry lobby. The conglomerate that now owns
Smith & Wesson, American Outdoor Brands Corp.,
revealed in a letter to BlackRock Inc. that it doesn’t
invest in smart guns. Sturm, Ruger Chief Executive
Officer Christopher John Killoy said at an annual
meeting last year that “just because you can get
your fingerprint recognition on an iPhone” doesn’t
mean it will work on a gun. Remington appears
never to have tried.
There’s one small gunmaker, Tracking Point, that
focuses on adding digital technology to firearms. But
rather than restricting who can fire the weapon, its
technology is intended to improve accuracy.
That decade-plus of disinterest from the gun
industry has been aided by a liberal lawmaker.
Loretta Weinberg sponsored the New Jersey
Childproof Handgun Law, which passed with
bipartisan support in 2002. “Childproof ” was
a euphemism: The bill was part of a state initia-
tive that funneled millions of taxpayer dollars into
jump-starting research into smart guns. But it also
included a provision that enraged gun-rights activ-
ists. The bill stipulated that once smart guns went
on sale anywhere in the U.S., New Jersey’s gun deal-
24 ers would have three years to take all other hand-
guns off their shelves. If anyone anywhere sold a
smart gun, every gun sold in New Jersey would
have to be smart.
The NRA feared the legislation could spread
to other states and urged its millions of mem-
bers to protest. The group said in a statement on
its website that it doesn’t oppose research but
“opposes any law prohibiting Americans from
acquiring or possessing firearms that don’t pos-
sess ‘smart’ gun technology.”
The New Jersey law attempted to do just that;
as a result, it became a tool to mobilize opposition
to any attempt to sell smart guns anywhere. When
a gun-store owner in Rockville, Md., named Andy
Raymond decided to become one of America’s first
smart-gun retailers in 2014, he had to import the
merchandise from overseas. The burly, tattooed
owner of Engage Armament found a German-made
Armatix iP1 pistol that could only be fired when a
watch with an embedded RFID chip was within
15 inches of the firearm.
Protesters attacked his store on social media,
making national headlines. They were concerned
that the first retail sale of a smart gun could start
New Jersey’s clock ticking toward the ban on sales
of conventional guns enacted by the Childproof
Handgun Law. Raymond, who reported death
threats, posted a video in which he sipped whiskey
and explained that selling smart guns would draw
Bloomberg Businessweek April 22, 2019
“fence-sitters” to the pro-gun camp. He slammed
the NRA’s hypocrisy on the issue.
The NRA tested the Armatix iP1 and found it
“disappointing at best, and alarming at worst,”
in a review distributed to members. Others have
found issues with the same gun. Armatix at the
time said the gun passed all tests of the U.S. Bureau
of Alcohol, Tobacco, Firearms and Explosives.
Thanks to the poor reviews, and the New Jersey
law, the NRA could claim that an unreliable fire-
arm would be the only gun available on the mar-
ket. The smart gun went from being viewed as
politically toxic by gun-rights supporters to out-
right dangerous.
Meanwhile, researchers at New Jersey Institute
of Technology, using the New Jersey R&D money, ○ Stephens
made progress with so-called dynamic grip recogni-
tion. The idea was to record a gun holder’s unique
squeeze pattern to unlock a weapon as its trigger
was pulled. To developers, the approach held the
prospect of avoiding the false negatives that bedevil
fingerprint systems and RFID sensors. They believed
grip recognition could also work reliably through
gloves and for multiple users—a pair of police part-
ners or parents, for example—while remaining use-
less in the hands of a bad guy or a kid. ○ Weinberg
By the time New Jersey’s smart-gun research
was ready to move out of the lab, however, manu-
facturers were too spooked to use it. “NJIT couldn’t
find a manufacturer to build a prototype, because
they were all afraid,” recalls Weinberg, sponsor of
the smart-gun law.
In more than four years since the Armatix
uproar, no comparable gun has made it to market.
Many blame the New Jersey law. Stephens, the VC
investor, calls it the most “obvious example of reg-
ulatory stunting of innovation.” New Jersey law-
makers could modify the Childproof Handgun
measure this year in an effort to undo the freeze
effect on smart guns. Gone from a bill before
the New Jersey Legislature, co-sponsored by
Weinberg, is the mandate that all guns sold in the
state include smart technology. The updated ver-
sion would require firearms vendors in the state to
stock at least one such weapon once there’s a com-
mercially viable smart gun.
“If legislators honestly want to see smart guns
developed, they need to keep their hands off them,”
says Scott Bach, executive director of the Association
of New Jersey Rifle and Pistol Clubs, the state affili-
ate of the NRA.
JULIO CORTEZ/AP PHOTO
Perhaps the most Silicon Valley way to grapple
with a national tragedy is to offer seed funding to
any promising startup with a vision of how to fix
things. That’s what a group of investors led by Ron
◼ TECHNOLOGY
Conway did in 2013, after the Sandy Hook school
shooting in Connecticut that killed 20 children and
6 adults. The Smart Tech Challenges Foundation
amassed a $1 million grant to back startups working
on ways to reduce gun violence, and some of the
smart-gun entrepreneurs who came forward with
pitches walked away with tens of thousands of dol-
lars in funding. But a number of them say they’ve
struggled to raise additional funds.
Kai Kloepfer, an MIT dropout, used his grant
to develop Biofire, which incorporates a finger-
print sensor into a handgun. He’s made a proof-
of-concept device from off-the-shelf components
and wants to build a prototype from scratch.
He recently embarked on a roadshow to raise a
seed round, but it’s been difficult to get investors
interested. “Unless you happen to be a machine
learning startup working on cryptocurrency appli-
cations, fundraising is always hard,” Kloepfer says.
LodeStar Firearms, another smart-gun startup,
operates out of the Radnor, Pa., home of CEO
Gareth Glaser, and counts on volunteers for
most of its staff. “There is no ‘industry,’” Glaser
says of smart guns. “What you’ve got is a hand-
ful of innovators who have been tinkering in their
garages or won a prize. They’re just doing experi-
mental work.”
Conway and Founders Fund’s Stephens have
talked over the years about the future of smart
guns. Stephens is doubtful the tech world will ever
throw its weight into “investing in companies that
are literally selling firearms.” He also believes that
for any Silicon Valley effort to succeed, it must
aim to create a safer and better product than tra-
ditional firearms. Sideways approaches to gun con-
trol will end up alienating customers.
But Conway, who says his interest in smart guns
“has nothing to do with infringing on the Second
Amendment,” has grown bullish on the future,
and particularly Kloepfer’s company, in which he’s
invested a few hundred thousand dollars. “We’ll get
mainstream VCs,” Conway says.
Stephens, declining to comment on specific com-
panies he’s reviewed, says, “We often talk about
multiple-miracle problems” related to the chal-
lenges any tech startup must almost magically over-
come to earn an investment from Founders Fund.
“We are always happy to invest in single-miracle
problems. But double or triple? Your likelihood of
success starts declining at an exponential rate. It’s
not a good return on investment.” �Polly Mosendz,
Austin Carr, and Neil Weinberg
THE BOTTOM LINE No major gunmaker is exploring development
of a smart gun, but the effort is being pursued by a handful of
startups interested in trying to reduce gun violence.
Man vs. Machine Wall Street Analysis
Amenity Analytics promises to automatically parse earnings calls,
making it easier for investors to wade through information and
quickly make trading decisions. Amenity’s text analytics software,
which reviews call transcripts, among other sources of information,
can spot when CEOs try to duck tough questions. Using machine
learning that can grasp the context of words, Amenity says, the
software can detect signs of potential deception—the use of
qualifiers, for example—and will assign the transcript a numeric
score for how positive or negative it is likely to be for the company.
Former AIG CEO Hank Greenberg and insurer Allstate are among
the investors who have just given Amenity an additional $18 million
in venture capital funding. �Jeremy Kahn
The Benefit
Research firm Evercore successfully used Amenity’s software to
examine S&P 500 earnings calls to determine which companies
were most likely to be affected by a U.S.-China trade war and for
hints that the long bull market might be coming to an end.
Innovator Background
Nathaniel Storch, CEO and co-founder “We find all sorts of nuances in language,”
of Amenity Analytics in New York; Ronen says Storch, a former Wall Street analyst
Feldman, professor at Hebrew University and portfolio manager. He and Feldman
25
in Israel and text-mining expert formed Amenity Analytics in 2015.
Challenges
Amenity has lots of competition, from IBM and its Watson AI platform to Alphabet’s Google,
and from similar systems built by some large banks.
The Verdict
Amenity’s software is used by ratings company Moody’s, Nasdaq,
and media giant Time Warner, among others. When I tested the
software on the transcript of the infamous Tesla quarterly earnings
call from May 2018, in which Elon Musk berated an analyst for
asking “boring” questions, it scored the call as off-the-charts for
“deception.”
Amenity Deception Score* of Tesla earnings calls
400
“...of course, I could be completely delusional, “Boring, bonehead
but I think I see a clear path to that outcome” questions are not cool”
200
0
Q3 ’16 Q4 ’18
*NUMBER OF INSTANCES OF EVASIVE OR DECEPTIVE SPEECH PATTERNS, WEIGHTED FOR SIGNIFICANCE AND NORMALIZED FOR
VARIOUS FACTORS, INCLUDING THE INDIVIDUAL SPEAKING, THE COMPANY, AND THE LENGTH OF THE CALL. DATA: AMENITY ANALYTICS
 Bloomberg Businessweek
F WALL
I
N
A
N
C ● In a cutthroat game, hedge
E
26
funds can profit by pressuring
companies to default
Conventional investing isn’t a zero-sum game: One
investor can buy shares of Apple Inc., and another
can buy Microsoft Inc., and both can make money.
Even if the two companies brutally compete with
each other for market share, both can grow as long
the technology business does.
That’s not true with the financial instruments
known as credit-default swaps. In this arena, one
investor comes out the winner, and the other will
be the loser. These derivatives are a way to wager
on whether a company will default on its debt. They
work like insurance for lenders—except you don’t
have to own the company’s debt to buy protection
against failure. The trader on one side of the bet col-
lects the insurance payments as long as things go
well; the one on the other side can get a big payday
if they don’t. Someone’s going to get hurt.
Some hedge funds that invest in credit-default
swaps have turned this market into the financial
equivalent of Fight Club, weaponizing the fine
print in esoteric contracts. They may influence
troubled companies to go into default. Or, as in
a recent case involving bankrupt Sears Holdings
Edited by
Pat Regnier and
Corp., they might try to engineer the size of the pay-
David Rocks out from CDS contracts. “The participants in this
April 22, 2019
CDS market are all incredibly sophisticated, with
wonderful lawyers,” says Henry Hu, a law profes-
sor at the University of Texas at Austin who studies
swaps. “They’re endlessly creative.” Such deals are
still a small portion of the $10 trillion CDS market.
But they’ve gotten so wild that the main trade group
for the derivatives industry, which is hardly a bunch
of shrinking violets, has proposed new rules to pre-
vent what some consider manufactured defaults.
Take the case that got Wall Street to snap to atten-
tion, involving homebuilder Hovnanian Enterprises
Inc. In 2017 traders at GSO Capital Partners, the
credit arm of private equity titan Blackstone
Group LP, offered Hovnanian a low rate on new
debt. But there was a catch: Hovnanian had to agree
to skip a payment on a small portion of its previous
debt. That would trigger a payout on $333 million
of CDS insurance that GSO had purchased. One of
the funds on the hook for those payouts sued GSO
and Hovnanian, claiming manipulation. At the time,
Blackstone said the suit was without merit, and
Hovnanian said it had acted properly. The dispute
was ultimately settled last year; the homebuilder
made the missed payment and kept the financing.
Corporate borrowers themselves now have
a chance to play dueling hedge funds off one
another. Last year newspaper publisher McClatchy
Co. struck a deal with hedge fund Chatham Asset
Management. Chatham agreed to extend loans to
McClatchy, which it could use to pay down bonds.
Chatham had been selling CDS contracts insuring
◼ FINANCE
STREET
McClatchy’s debt. With the bonds paid off and
the loans tied to a different unit of the company,
Chatham would effectively never have to pay for
a default. But then another group of hedge funds
offered McClatchy a new refinancing deal that
would keep some bonds around and thus retain
the value of their CDS trades. McClatchy took it and
tweaked its loan agreement with Chatham.
If this sparks a feeling of déjà vu, it should. It
was about a decade ago when CDS first made head-
lines. CDS contracts on mortgage-backed securities
enabled rampant speculation on U.S. homeown-
ers and saddled the global financial system with a
tangled mess of losing bets. The U.S. government
ultimately had to rescue one of the CDS market’s
biggest players, insurer American International
Group Inc. The fallout led to regulations intended
to make the market safer, such as trading deriva-
tives through clearinghouses that can absorb losses
when a dealer fails. But even the savviest practi-
tioners didn’t foresee the strange place the market
would go next.
That is until 2013, when a GSO trader in London
named Akshay Shah dreamed up what seemed like
a no-lose CDS trade on a Spanish gaming company
called Codere SA. GSO agreed to keep the company
afloat with a new loan on the condition that Codere
skip an interest payment long enough to trigger a
payout on its swaps.
That deal seems simple compared with what’s
happening now. When the CDS traders started
Bloomberg Businessweek April 22, 2019
circling the bankrupt estate of department-store
chain Sears, it took a while for the company to even 27
figure out what was going on. After the October
Chapter 11 filing, Sears set up a hotline to answer
questions. Resellers would call looking to buy up its
stock of Kenmore refrigerators. Real estate agents
would ask about listings on liquidated stores. Then
came some curious inquiries from a bunch of Wall
Street types, according to a person familiar with
the matter who asked not to be named because the “The
details were private. They wanted to buy an obscure participants
set of notes that were owed by one part of Sears to in this CDS
other parts of the company. market are
Such unsecured debt would normally be worth- all incredibly
less in a bankruptcy. Then advisers for Sears figured sophisticated,
out the game. The value wasn’t in the notes them- with wonderful
selves, but in the way they could be used during the lawyers”
process of settling the value of CDS contracts on
Sears. By digging up more bad Sears debt and buy-
ing it on the cheap, traders who bought CDS could in
effect show that they were owed a bigger insurance
payout. Then another hedge fund, which had sold
the CDS protection, snagged the notes from Sears for
$82.5 million and was able to keep them from being
used by the other traders.
Some in the industry worry that aggressive trad-
ers will undermine confidence in the market for
swaps. “I don’t know how long the CDS market can
survive if it is untethered by the underlying credit
risk,” says Robert Pickel, who until 2014 was chief
executive officer at the International Swaps and
 ◼ FINANCE
Derivatives Association, the trade group that in
March proposed new default guidelines. Pickel
advised the fund that sued GSO.
Hedge funds do bring something to the table:
They may give companies attractive financing that
can help with a CDS trade. Conversely, the CDS mar-
ket can be a way for banks and investors to hedge
their credit exposure and, ultimately, give compa-
nies greater access to credit. But who’ll want to pro-
vide insurance against a default if some hedge fund
can orchestrate one and take you to the cleaners? “In
Nobody Loves a Currency Fund
● Calmer markets have been bad news for traders who thrive on volatility
Currency-only hedge funds were once a hot corner
of the investment world. From 2000 to 2008 the
tally of currency funds tracked by the BarclayHedge
28 Currency Traders Index almost tripled, to 145. Now
they’re looking more like an endangered species,
with just 49 in operation.
Managers who try to play trends in foreign-
exchange rates—swapping dollars for pesos or
euros for yen—have been victims of a long run
of relative calm in financial markets. “In tradi-
tional asset classes, volatility is a bad thing,” says
Peter Jacobson, co-founder of Rhicon Currency
Management Pte. Not so in currency. If not much is
changing in the relative fortunes of different coun-
tries and in the value of their currencies, there are
fewer ways to profit.
In the years since the financial crisis, major cen-
tral banks around the world have all pulled in more
or less the same direction: holding down inter-
est rates, encouraging growth, and trying to keep
markets calm. This hasn’t given traders much to
work with. Volatility in currency markets took a
fresh dive starting in late March. The J.P. Morgan
Global FX Volatility Index sank to its lowest level
in five years as traders coalesced around the view
that the U.S. Federal Reserve and its counterparts
will extend their quantitative-easing (QE) measures.
“The way most people make money in a foreign-
exchange fund is to expect that, in fact, the market
is going to move away from quietness to activity,
and of course the Fed wants it to go back to quiet,”
says John Taylor, who runs Taylor Global Vision,
which produces a newsletter on financial markets.
Bloomberg Businessweek April 22, 2019
recent cases of defaults causing further disruption
to CDS markets, this has flowed into funding mar-
kets,” says John Feeney, a former board member of ● Size of the credit
default swap market
ISDA and the founder of Martialis Consulting. “If you
are relying on speculators to provide liquidity rather
than regular bank funding, the next company may
$10t
find it a little bit harder to find regular financing.”
�Claire Boston and Davide Scigliuzzo
THE BOTTOM LINE CDS contracts can be a way for investors in
debt to protect themselves. But hedge funds increasingly see them
as a way to squeeze money from other traders.
*J.P. MORGAN GLOBAL FX VOLATILITY INDEX AT YEAREND. †AS OF APRIL 15. ††AS TRACKED BY THE BARCLAYHEDGE CURRENCY TRADERS INDEX. DATA: JPMORGAN CHASE, BARCLAYHEDGE. ILLUSTRATION BY MIHA ARTNAK
“Before the flame starts, they snuff it out.” Taylor
speaks from hard experience. FX Concepts LLC,
which he founded in 1981, was once the world’s
largest currency hedge fund, with about $14 billion
under management at its peak in 2008. But after
years of losses for the fund, its parent company
filed for bankruptcy in 2013.
The good old days for currency hedge funds
were tough times for everyone else—during the
throes of the Great Recession, when stock mar-
kets crumbled and markets were in disarray. The
Citi Parker Global Currency Manager Index earned
about 8 percent from 2007 through 2009, but the
S&P 500 lost about 16 percent in that period.
The recent spike in stock market volatility in late
2018 didn’t give currency funds much of a boost.
Jacobson’s Rhicon shut down the bulk of its trad-
ing positions in October as classic havens, such as
A Flight From Forex
As currency volatility faded, fund managers closed up shop
Forex volatility index* Number of currency funds††
21% 140
14 70
7 0
1993 2019† 1993 2019
◼ FINANCE
the yen, failed to respond to gyrations in equity
markets. While the fund still isn’t at typical trad-
ing levels, Jacobson, who splits his time between
Singapore and Sydney, remains optimistic that cur-
rency trading will prove its worth. Central bank-
ers are talking about risks to growth ahead, and
prices in the bond market seem to be giving the
same warning. “Given the late stage of the eco-
nomic cycle, I would say that it is a good time to
start looking at currencies,” he says.
Jacobson may still have a hard time persuading
the likes of Aberdeen Standard Investments, which
invests in hedge funds. It’s steering clear of “pure-
play” currency funds, says investment manager
John Sedlack III, in favor of those that can invest
in a variety of different assets to take advantage of
big-picture trends. “We prefer managers that have
the flexibility to find the asset class that is most mis-
priced,” he says.
The grim outlook has James Wood-Collins at
Record Currency Management Ltd. considering
branching out to other asset classes. Assets in the
firm’s active currency strategy have declined to
$3.6 billion, from about $29 billion in 2008. “We are
certainly well aware of the opportunities for similar
investing styles outside of currencies,” says Wood-
Collins, the London-based fund’s chief executive offi-
cer. “We definitely wouldn’t rule it out.”
One move that’s worked lately is to wager that
the FX market, as traders call it, will just stay bor-
ing. Among 2018’s standouts was LCJ Investments
SA; the Geneva-based firm returned more than
4 percent last year, compared with a 3.4 percent
loss for the Citi Parker index. In addition to direc-
tional bets, the fund also employs options contracts
to wager that exchange rates will stay in specified
ranges. “Volatility is down across many markets as
well as FX,” says co-founder Jonathan Tullett. “The
post-crisis, QE world changed many of the dynam-
ics, but there are still investment opportunities in
FX.” �Katherine Greifeld and Charlotte Ryan
THE BOTTOM LINE The managers of currency funds see
opportunity in a darkening global economic outlook. But hedge
fund clients say they prefer more diversified plays.
Bloomberg Businessweek April 22, 2019
A French Tycoon’s
Lousy Ye
ar
● A sale of Universal Music would vindicate
Vincent Bolloré after a string of setbacks
The past year has been unusually harsh for French
billionaire Vincent Bolloré. The former chairman
of media giant Vivendi SA was implicated in a brib-
ery scandal in Africa, his electric car-sharing pro-
gram in Paris shut down, and he’s losing a battle
for control of Telecom Italia—the troubled carrier at
the heart of his plan to create a southern European
entertainment juggernaut. He dodged a bullet at
Vivendi’s annual meeting on April 15, after inves-
tors narrowly approved a measure that can allow
his group to increase control over the company.
Despite the setbacks, help is on the way—from
Taylor Swift, Lady Gaga, and U2. Vivendi is plan-
ning to sell a 49 percent stake in Universal Music
Group, the world’s biggest recording house. The
sale could bring in more than $15 billion for Vivendi 29
and send its stock soaring, analysts say—a payout
that would deliver billions of euros to Bolloré’s
holding company, Vivendi’s No. 1 stockholder.
Over the past four decades, the 67-year-old finan-
cier has transformed a family-owned paper manu-
facturer in Brittany into a takeover machine with
holdings in industries including ports, advertising,
media, and battery technology. Along the way, the
urbane tycoon established a web of interlocking,
publicly traded companies and became known as
“le Smiling Killer” in French financial circles.
Yet in contrast to today’s shareholder activ-
ists, who shake up companies for the benefit of “Bolloré’s
hedge fund clients, Bolloré is an old-school corpo- primary
rate raider driven by a more elemental ambition: intention is
building a dynasty. In recent years, he’s placed his to make sure
children in key positions at his companies while he manages
amassing a family fortune in excess of $5 billion, to grab even
according to the Bloomberg Billionaires Index. more control”
“Bolloré is very proud of his history, and he’s con-
vinced himself that he can use all the resources
of capitalism to consolidate his patrimoine famil-
ial, his family’s wealth and legacy,” says Maurice
Levy, chairman of the supervisory board at Publicis
Groupe, the Paris advertising giant. “Sometimes,
he’s had to behave like a corsair.”
Like a good pirate, Bolloré prefers to sneak
up on his targets. In 2012 he acquired a 4.4 per-
cent stake in Vivendi, a company founded in the
  FINANCE
19th century as a water provider for French cities
that had morphed into a global media conglomer-
ate. As Bolloré built his stake—today he owns more
than a quarter of Vivendi—he started pushing for a
shakeup and took control of the board.
That yielded the asset that’s shaping up to be
Bolloré’s salvation. Universal is home to many of the
hottest names in music and has deep song catalogs
from the likes of the Rolling Stones and Bob Marley.
Although the industry suffered mightily as the inter-
net destroyed CD sales, revenue has rebounded
since 2014 thanks to paid streaming platforms such
as Spotify and Apple Music. Morgan Stanley ana-
lyst Omar Sheikh says Universal is worth $30 bil-
lion, making it Vivendi’s most valuable business
by far. (Its Telecom Italia stake is valued at $2.1 bil-
lion.) Sheikh speculates that Vivendi might auction
off a majority stake or even sell all of Universal,
which could send Vivendi’s stock price up by two-
thirds, netting €5.5 billion ($6.2 billion) for holding
company Bolloré SA. The tycoon “would probably
accept an offer for control if he felt the value was
high enough,” Sheikh wrote in a March report.
A lucrative deal for Universal would take much
of the sting out of Bolloré’s annus horribilis, which
30 began to unfold last April when French authorities
charged him with corruption and forgery in con-
nection with an African bribery case. Investigators
suspect that his companies offered campaign ser-
vices to politicians in Guinea and Togo in exchange
for contracts at ports in those countries. Bolloré
denies the allegations, but with charges looming he
resigned as chairman of Vivendi a year ago and was
succeeded by his 39-year-old son, Yannick. Bolloré
declined to comment for this story.
Two months later came the day of reckoning for
Autolib, Bolloré’s electric car-sharing service. With
its silver-colored subcompacts humming through
Paris since 2011, the venture had been a publicity
bonanza for Blue Solutions, a manufacturer of elec-
tric vehicles and batteries Bolloré controls. But as
Autolib struggled with debt, he asked the municipal-
ity for millions of euros to keep the cars running.
No deal, said officials, who pulled the plug five years
before Autolib’s contract was due to expire.
In Milan, Bolloré is battling to maintain his hold
on Telecom Italia, the onetime state-owned phone
monopoly. Vivendi owns almost a quarter of the
carrier’s shares, and Bolloré had planned to cre-
ate a conglomerate in the mold of Walt Disney
Co., steering Vivendi’s content—from Universal
and Studiocanal, Europe’s top producer of movies
and TV shows—onto Telecom Italia’s networks. To
extend its reach in Italy, Vivendi acquired 29 per-
cent of Mediaset SpA, the broadcaster founded by
Bloomberg Businessweek April 22, 2019
Silvio Berlusconi. The relationship broke down
when Vivendi abruptly canceled its purchase of
Mediaset’s pay-TV unit, landing the two in court.
And as Telecom Italia struggles under its €26 bil-
lion in debt, investors have dumped shares: Its
market value has dropped by about half since
Bolloré started consolidating control of the com-
pany in 2015.
Those troubles set up a brawl with Paul Singer,
the New York hedge fund manager whose Elliott
Management Corp. has acquired almost 10 per-
cent of Telecom Italia with an eye toward spin-
ning off its fading landline business. Elliott has ○ Bolloré
said Vivendi’s “poor stewardship” has resulted in
“deeply troubling corporate governance issues” at
Telecom Italia and no clear strategic plan. Elliott
has wrested control of the carrier’s board from
Bolloré, and just before the company’s annual
meeting in March, Vivendi abruptly withdrew its
candidates for director because there was scant
chance they would win. The episode shows that
Bolloré’s idea of creating a next-generation media
giant with an old-guard company was flawed,
says Carlo Alberto Carnevale Maffe, a professor
at Bocconi School of Management in Milan. “It was
an industrial strategy based on yesterday’s tech-
nology,” he says.
The difficulties have accelerated Bolloré’s
handover of power to his children. Bolloré stepped
down from Vivendi’s board on April 15, though he
will still advise Arnaud de Puyfontaine, the chief
executive officer. Bolloré’s 33-year-old son, Cyrille,
has now joined Vivendi’s board, and he’s also ○ Bolloré’s estimated
net worth
set to replace his father as chairman and CEO of
Bolloré SA. Marie, 30, has been the head of the
Blue Solutions auto venture since 2017. The eldest,
$5.5b
Sebastien, 41, sits on the boards of several com-
panies, including Gameloft, a video game maker
owned by Vivendi. “Bolloré’s primary intention is
to make sure he manages to grab even more con-
trol to ensure his family legacy,” says Pierre-Yves
Gauthier, CEO of equity research firm Alphavalue.
“Shareholders should be aware of this.”
It’s unclear how the management dynamics will
change, and Bolloré is tight-lipped when it comes
to the inner workings of his companies. But the
tycoon will still wield significant power via his con-
trolling interest in Financiere de l’Odet, a holding
company that’s Bolloré SA’s biggest shareholder.
“He’s had a lot of ups and downs,” says advertising
MARLENE AWAAD/BLOOMBERG
boss Levy. “But he always manages to rebound.”
—Ed Robinson and Angelina Rascouet
THE BOTTOM LINE Vivendi’s planned sale of a 49 percent
stake in Universal could bring in more than $15 billion for Vivendi,
delivering billions to Bolloré and his family.
 Inflation

E
C
O
N
32
O
M them appear expendable? Far from being lauded

I Who Killed for a job well done, they’re under populist attack.
“If the Fed had done its job properly, which it has
not, the Stock Market would have been up 5000 to

Inflation? 10,000 additional points, and GDP would have been

C
well over 4% instead of 3% … with almost no infla-
tion,” President Donald Trump tweeted on April 14.
On April 5, channeling Freddie Mercury of Queen,

PHOTO ILLUSTRATION BY JUSTIN METZ; PHOTO: ALAMY. DATA: BUREAU OF ECONOMIC ANALYSIS
he said “you would see a rocket ship” if the central
● The lack of price pressures

S has turned central banks into

political punching bags
If economics were literature, the story of what hap-
pened to inflation would be a gripping whodunit.
Did inflation perish of natural causes—a weak econ-
omy, for instance? Was it killed by central banks,
with high interest rates the murder weapon? Or is
it not dead at all but just lurking, soon to return
with a vengeance?
Like any good murder mystery, this one has a
Edited by
twist. What if the apparent defeat of inflation blew
Cristina Lindblad back on the central bankers themselves by making
bank eased up.
The irony of Trump’s criticism of the Federal
Reserve is that by historical standards, the bank is
remarkably dovish—that is, inclined to keep rates
low. After decades of working to tamp down infla-
tion, even at the cost of inducing recessions, and
finally succeeding, central bankers in developed
economies have spent most of the past 10 years
reversing course and trying to reignite it, with very
little success. At a press conference on March 20,
Fed Chairman Jerome Powell said low inflation is
“one of the major challenges of our time.”
As Powell acknowledges, persistently low
inflation is hard to explain using standard
macroeconomic theory. Price pressures were
◼ ECONOMICS
weak in the aftermath of the global financial crisis
because there was a lot of slack in the economy,
including underutilized factories and workers.
What’s surprising now is that even after one of the
longest economic expansions in U.S. history, and
with the unemployment rate hovering around half-
century lows, inflation is still subdued. The Fed has
repeatedly missed the target it set in January 2012 of
2 percent annual change in the price index for per-
sonal consumption expenditures. Once you strip
out volatile food and energy prices, inflation by
that measure has reached 2 percent just one month
( July 2018) in the past seven years.
As recently as January, Powell was declaring that
the economy seemed strong enough to sustain two
quarter-point interest-rate increases in 2019, on top
of the four the Fed orchestrated last year. But infla-
tion has again come in below the Fed’s expectations,
and both 2019 rate hikes have been erased from the
median forecast of the bank’s policymakers.
While five-digit, Venezuelan-grade inflation is
destructive, a little bit greases the wheels of com-
merce. It makes it easier for companies to give
stealth pay cuts to underperformers, because keep-
ing their pay flat is tantamount to a reduction in
real wages. Some inflation is also useful to central
banks because it helps them fight recessions. To
spur borrowing, they like to cut their policy rates
to well below the rate of inflation. But they have no
room to do so if the rate is barely above zero. A sur-
prise decline in inflation also punishes borrowers
by making their debts more burdensome.
So who, or what, slayed inflation? There’s
increasing evidence that the killer wasn’t the
Fed or the European Central Bank or the Bank
of Japan, even though the central bankers have
tended to believe in Milton Friedman’s dictum
that inflation is “always and everywhere a mone-
tary phenomenon.” Researchers are finding that
low inflation is in large part a consequence of glo-
balization or automation or deunionization—or a
combination of all three—which undermine work-
ers’ power to bargain for higher wages.
In other words, the capitalists killed inflation.
In the decades after World War II, Polish econo-
mist Michal Kalecki depicted inflation as a prod-
uct of the struggle between business and labor. If
workers manage to extract big wage increases, their
employers recoup the costs by putting through price
increases, forcing workers to seek even more, and
so on in a wage-price spiral. In contrast, if work-
ers have little or no leverage, as is now the case
in many industries, the wage-price spiral never
gets started. Kalecki’s Marxian analysis survives in
Modern Monetary Theory, a once-fringe flavor of
Bloomberg Businessweek April 22, 2019
economics for which liberal Democratic politicians “Maybe
such as Senator Bernie Sanders of Vermont and aging affects
Representative Alexandria Ocasio-Cortez of New people’s
York have developed a taste. willingness
Surprisingly, even the Fed has entertained the to bargain
idea that inflation could be related to something for wages, to
like class struggle. Richard Clarida, a Columbia switch jobs,
University economist who began a four-year term to invest”
as vice chair of the Fed in September, likes to point
to the decline in labor’s share of national income,
to 66.4 percent at the end of 2018, from a range
of 68 percent to 71 percent from 1970 to 2010. His
implicit argument is that business could give labor
a solid raise without raising prices of goods and
services, as long as it was willing to give back some
of its increase in the share of national income.
With inflation dead or dormant, central banks
are taking hits from the left and the right for not
doing more to juice growth. Stephen Moore,
Trump’s pick (as of now) for an open seat on the
Fed’s Board of Governors, has said that “hun- ● Personal consumption
expenditures price
dreds” of Fed economists are clueless and should index, 2012 = 100
be fired. “I’ll say that again: Growth does not Actual
cause inflation,” he told Bloomberg Television Level had the Fed
on April 11. “We know that. When you have more achieved its target
inflation rate
output of goods and services, prices fall,” he 33
said. Moore’s argument is a supply-side one: that 115
growth increases the productive capacity of the
economy at least as much as the demand side, so
there’s no upward pressure on prices.
In the view of Harvard economist Lawrence 105
Summers, persistently low inflation is a symptom
of what he calls secular stagnation. Given that inter-
est rates are already low, one essential treatment for
such a condition is an aggressive fiscal policy, accord- 95
ing to Summers, who was President Bill Clinton’s 12/31/11 1/31/19
Treasury secretary and director of President Barack
Obama’s National Economic Council. He’s not a fan
of Trump’s tax cuts but argues that the federal gov-
ernment should step up public investment, even if
it means taking on more debt.
Germany and other northern European
countries that carry little debt are particularly
well-positioned to spend more and help fire up
global growth, argues Mohamed El-Erian, chief
economic adviser at Germany’s Allianz SE and a
Bloomberg Opinion columnist. “Unfortunately,” he
writes in an email, “the political will to implement
such an approach is lacking.”
Which means this could drag on for a while. In
an April 15 presentation at the Peterson Institute
for International Economics, Summers said the
major industrial economies will be stuck with low
inflation and low interest rates “for another 10 to
15 years, at least.”
  ECONOMICS
One reason for lowflation’s persistence is that
it’s connected to the aging of societies. “I used to
say that was just an excuse, but I begin to wonder
if the Japanese have a point,” says Adam Posen,
president of the Peterson Institute. “Maybe aging
affects people’s willingness to bargain for wages,
to switch jobs, to invest.”
Part of why inflation has stayed low even as
unemployment has tracked lower is that com-
panies are finding new ways to hold the line on
wages. Juan Salgado, chancellor of City Colleges
of Chicago, a network of community colleges, says
employers such as Accenture Plc and Aon Plc are
recruiting people with an associate’s degree for
jobs they once reserved for those with a bachelor’s
degree. Then they invest in training to bolster the
skills of new hires.
Standard macroeconomic theory holds that no
matter how inventive employers get, tight labor
markets must eventually lead to higher wages
and general inflation. An April paper by Joseph
Gagnon and Christopher Collins of the Peterson
Institute argues that unemployment is finally low
enough that there could be “moderate increases
in inflation over the next few years.” But the
34 authors add cautiously that there could also be
little change. A January paper co-authored by
Olivier Coibion of the University of Texas at Austin
and Yuriy Gorodnichenko and Mauricio Ulate of
the University of California at Berkeley finds “no
evidence that inflation is on the brink of rising.”
One new idea gaining traction is for central
banks to sacrifice a bit of their independence
and coordinate their efforts more closely with
fiscal authorities, who are in charge of taxation
and spending. The Peterson Institute’s Posen
told Bloomberg that if the federal government
embarked on big projects in fields such as clean
energy or health care, it could induce the private
sector to follow suit. That could put the entire econ-
omy on a higher growth path, he says.
The Fed knows its credibility is in jeopardy,
which is why it launched a “Fed Listens” tour that
will culminate in a research conference at the
Federal Reserve Bank of Chicago on June 4-5. Topics
will include monetary policy strategy, tools for man-
aging the economy, and communications practices.
(Salgado is on the speaker roster.) Fed officials have
already made clear that, despite the call for new
ideas, they’re not ready to write the obituary on
the 2 percent inflation target just yet. —Peter Coy,
with Matthew Boesler, Rich Miller, and Craig Torres
THE BOTTOM LINE Inflation, the guiding star of monetary policy,
has all but disappeared in developed economies. Some say it could
be a decade or more before it makes a comeback.
Bloomberg Businessweek April 22, 2019
Japan and the
Paradox of Thrift
○ Consumers living on fixed incomes
have become intolerant of price hikes
When the maker of a popular Japanese popsicle
decided to raise prices for the first time in 25 years,
executives of Akagi Nyugyo Co.—which introduced
the treat in 1981—felt a need to apologize to their
customers. On the day of the hike, in April 2016,
they ran a 60-second commercial showing the
company’s gray-haired chairman, backed by a pha-
lanx of dark-suited workers, all bowing in deep con-
trition. Three years later, the Akagi Nyugyo manager
who came up with the idea for the ad is still feeling
contrite. “It’s not like people have any extra spend-
ing money,” Fumio Hagiwara says.
Japan is the only developed economy where
wages have dropped year after year. Since 1996
inflation-adjusted pay has fallen about 13 percent-
age points—a big reason businesses are loath to raise
prices or invest in a shrinking market. The down-
ward spiral has led to a “deflationary mindset” that ○ The price of this brand
of popsicle went up in
Bank of Japan Governor Haruhiko Kuroda blames 2016—for the first time
for thwarting his efforts to revive the economy, in a quarter-century
using every trick in the central bankers’ playbook.
Thrift has become so deeply ingrained in the
Japanese psyche that a rare bump in the most
recent round of seasonal bonuses paid to workers
ended up powering a savings surge instead of a ○ Index of inflation-
adjusted wages
shopping spree. “It’s not surprising when people in Japan
have had negative wages for so long,” says Michael
Causton, an expert on Japanese spending patterns 115
and co-founder of research firm JapanConsuming.
After six recessions in 30 years, figuring out ways
to save money has turned into a national obsession.
One television show, Cocorico Creates a Legend, 105
scored a hit in the mid-aughts by challenging celeb-
rities to survive for a month on a $3-a-day budget—
black humor for a still-rich country where living
standards are slowly eroding and the poverty rate 95
has crept up to a more U.S.-like 16 percent. 1996 2019
Some ingenious savers have become minor stars,
too. In recent months, blogger and life-hacker Miwa
Komatsu has been making the rounds of Japan’s TV
talk show circuit, explaining how she managed to
sock away $100,000 over 10 years, despite making
only $1,300 a month as an office worker and raising
four kids on her own. Her techniques, which she
also describes in a 2017 memoir, include cutting
 ◼ ECONOMICS
tissue boxes in half so they last twice as long and
using radish skins instead of paper towels to wipe
down sinks. “It’s a game to me,” the 49-year-old
says. “I still enjoy doing it even though money isn’t
that tight anymore.”
Economist Andrea Ferrero, at the University of
Oxford, was one of the first to argue that Japan’s
malaise is linked to something more inexorable than
mindset, and that’s demographics. In a 2014 paper,
“What Explains Japan’s Persistent Deflation?,” he
and co-author Carlos Carvalho showed that aging
populations exert a drag on interest rates and, by
extension, growth—which is partly why Japan was
slow to recover after real estate and stock market
bubbles burst in the early 1990s.
Five years on, there’s a gathering consensus that
this should be a warning for other advanced econo-
mies, which are also aging fast and struggling with
less-than-stellar growth following the 2008 global
financial meltdown. “For countries coming out of
the crisis,” Ferrero says, “this may be the moment
when pressures stemming from demographics are
more likely to emerge.”
The tight budgets of retirees such as Makoto
Miyakawa, a 71-year-old who lives near Yokohama,
are a big part of the reason Japan’s annual
economic growth has averaged an anemic 0.9 per-
cent since 2000, about a third of what it was in
the previous two decades. Miyakawa says his
wife controls the family purse strings, and after
he retired she decided to cut his monthly allow-
ance in half, to the equivalent of $10 a day. (She’s
quick to remind him, he says, that the neighbors’
husbands get less.) The couple are careful about
spending because they don’t want to outlive their
money or end up facing medical bills they can’t
afford. “Everybody wants to go out fast, but you
have no control over that,” he says.
If there are any winners in all of this, it’s Japan’s
discount retailers, which are thriving. Nitori
Holdings Co., a budget furniture store with the
ubiquitous catchphrase “More than you paid for”
(it’s cooler in Japanese), has grown into one of the
country’s top 10 retailers, adding more than three
DATA: MINISTRY OF HEALTH, LABOR AND WELFARE; BLOOMBERG
stores a month for years. And Japan’s 100-yen shops,
the equivalent of dollar stores, which were mostly
unheard of until the late 1990s, now have almost
7,000 outlets pulling in almost $7 billion in annual
sales. “There’s no reason,” says one fan, 75-year-old
Naoko Ishikawa, “to feel embarrassed about shop-
ping at a 100-yen store anymore.” �Jason Clenfield,
Toru Fujioka, Shiho Takezawa, and Edward Gelband
THE BOTTOM LINE Japan’s deflationary mindset has defied
policymakers, impeding a sustained improvement in the country’s
economic fortunes.
Bonds Lowflation Gamble
Comments by the U.S. Federal Reserve and other central banks
have encouraged investors to keep pouring money into bonds,
driving down yields. But two dangers loom. One is the sheer
amount of investment-grade debt—it’s doubled, to $52 trillion,
since the financial crisis—at ultralow yields. There’s also the
prospect of mass selling once interest rates start to rise. With
more sellers than buyers, investors could be forced to accept
lower prices, and suffer bigger losses, to unload their bonds.
——Liz McCormick and Katherine Greifeld
Complacency
One sign of investors’
$10t
willingness to buy bonds at
ultralow rates: The amount
8
of negative-yielding debt
climbed past $10 trillion
6
in March. 1/10/17 4/12/19
“The debt load in the world is so high now
that it can’t withstand any historically
normal size of interest-rate increases 35
anymore,” says Stephen Jen, chief
executive officer of Eurizon SLJ Capital.
One way to gauge bond market risk is by looking at duration, a measure of bonds’
sensitivity to changes in interest rates. The duration of $52 trillion of investment-grade
bonds tracked by Bloomberg now stands at about 7. That means if rates rise a full
percentage point, the bonds would lose 7 percent of their market value. For a half-
percentage-point jump, that works out to 3.5 percent, or a $1.8 trillion loss.
Bloomberg Barclays Aggregate Bond Index
7
6
5
1990 1995 2000 2005 2010 2019
Liquidity
When Elaine Stokes, a Loomis Sayles money manager, screens
for securities to buy, the ability to get out of the trade is key.
“There are fewer market makers out there and way more
investment-grade and sovereign bonds,” she says, adding that
even in the highly liquid Treasuries market, the ability to buy and
sell, without affecting prices, declines in times of high volatility.
 Bloomberg Businessweek April 22, 2019

P
O Could
L
I Fukushima
T
I Hap
C
36

S
● U.S. nuclear plants
weren’t built for the growing
risks of climate change
In 2011, after an earthquake and tsunami caused
a meltdown at Japan’s Fukushima-Daiichi power
plant, Gregory Jaczko, then the chairman of the
U.S. Nuclear Regulatory Commission, had to
worry about two things: whether radioactive fall-
out would harm the U.S. and whether a similar acci-
dent could befall an American plant. The answer to
the first question turned out to be no. The second
question preoccupies him still.
Edited by
The NRC directed the operators of the 60 or so
Jillian Goodman working U.S. nuclear power plants to evaluate their
current flood risk, using the latest weather modeling
technology and accounting for the effects of climate
change. Companies were told to compare those risks
with what their plants, many almost a half-century
old, were built to withstand, and, where there was
a gap, to explain how they would close it.
That process has revealed a lot of gaps. But Jaczko
and others say that the commission’s new leader-
ship, appointed by President Donald Trump, hasn’t
done enough to require owners of nuclear power
plants to take preventative measures—and that the
risks are increasing as climate change worsens.
According to a Bloomberg review of correspon-
dence between the commission and plant own-
ers, 54 of the nuclear plants operating in the U.S.
weren’t designed to handle the flood risk they face.
Fifty-three weren’t built to withstand their current
 ◼ POLITICS
pen
Here?
risk from intense precipitation; 25 didn’t account
for current flood projections from streams and riv-
ers; 19 weren’t designed for their expected max-
imum storm surge. Nineteen face three or more
threats that they weren’t designed to handle.
The industry argues that rather than redesign
facilities to address increased flood risk, which
Jaczko advocates, it’s enough to focus mainly on
storing emergency generators, pumps, and other
equipment in on-site concrete bunkers, a system
they call Flex, for Flexible Mitigation Capability. Not
only did the NRC agree with that view, it ruled on
MELISSA LYTTLE/BLOOMBERG
Jan. 24 that nuclear plants wouldn’t have to update
that equipment to deal with new, higher levels of
expected flooding. It also eliminated a requirement
that plants run Flex drills.
Matthew Wald, spokesman for the Nuclear
Bloomberg Businessweek April 22, 2019
Energy Institute, a nuclear trade group, calls the
odds of a Fukushima-style nuclear meltdown that
affects people outside a power plant’s walls “van-
ishingly small.” He says those risks got smaller
once plants installed Flex emergency equipment
after Fukushima. “There is a perennial problem in
any high-tech industry deciding how safe is safe
enough,” he says. “The civilian nuclear power
industry exceeds the NRC-required safety margin
by a substantial amount.” He also notes that nuclear
power produces more than half the carbon-free
electricity in the U.S.
The commission’s three members appointed by
President Trump wrote that existing regulations
were sufficient to protect the country’s nuclear
reactors. Jaczko disagrees. “Any work that was
done following Fukushima is for naught because
the commission rejected any binding requirement ◀ Peach Bottom,
sits next to the
to use that work,” he says. “It’s like studying the Susquehanna River,
safety of seat belts and then not making automak- which creates a
potential flood risk
ers put them in a car.”
The commission “is carrying out the Trump
deregulatory philosophy,” says Edwin Lyman,
head of the Nuclear Safety Project at the Union
of Concerned Scientists. “The NRC basically
did everything the industry wanted.” The two 37
Democratic appointees objected to the NRC’s rul-
ing. “The majority of the commission has decided
that licensees can ignore these reevaluated haz-
ards,” commissioner Jeff Baran wrote in dissent.
His colleague Stephen Burns called the decision
“baffling.” Through a spokesman, the Republican
appointees declined to comment.
“Nuclear power is weird—it exists to produce
electricity, and at the same time it can’t exist
without electricity,” says Allison Macfarlane, who
chaired the NRC from 2012 through 2014. Plants
need constant power to pump cool water into a
reactor’s core; if flooding interrupts that power sup-
ply for long enough, as happened in Fukushima,
the core can overheat, melting through its container
and releasing deadly levels of radiation.
The true risk to U.S. nuclear facilities may
be even greater than what the documents from
the nuclear commission show. The commission
allowed nuclear plant operators not only to per-
form their own estimates of current flood risk but
also to decide what assumptions to make—for exam- “Anything
ple, the maximum likely hurricane speed or how that increases
much rain would fall in an extreme storm. (The their costs now
commission reviews that work.) The commission threatens their
also rejected a recommendation by their own staff existence”
that would require nuclear power plants to update
their risk assessments periodically to reflect the
advancing threat of climate change.
 ◼ POLITICS Bloomberg Businessweek April 22, 2019

Changes They
Didn’t See Coming
Most of the country’s
nuclear power plants are
exposed to at least one Minneapolis Boston
flood risk they weren’t Detroit
Chicago
designed to handle New York

D.C.

Plants facing at least

0 1 2 3 4 or more
Los Angeles
flood risks not incorporated into
their original design Phoenix
Dallas Atlanta
Peach Bottom
Electricity generating Atomic Power
capacity, in Station
Houston
megawatts

= 4k = 1k
Miami

DATA: U.S. NUCLEAR REGULATORY COMMISSION, BLOOMBERG ANALYSIS OF CORRESPONDENCE

BETWEEN THE NRC AND THE PLANTS, U.S. GEOLOGICAL SURVEY, NATURAL EARTH

On a blustery morning in February, a nuclear
power executive named Patrick Navin led a tour of
38 shivering reporters into a concrete bunker 50 miles
west of Philadelphia. Navin is in charge of Peach
Bottom Atomic Power Station, on the shore of the
Susquehanna River; inside the bunker, he gestured
toward tightly packed rows of generators, pumps,
lights, and debris removal equipment, along with
tractors ready to haul that machinery to what-
ever part of the plant might be inundated if the
Susquehanna ever jumped its banks.
According to documents provided to the commis-
sion by Exelon Corp., which owns Peach Bottom, the
plant wasn’t designed for its current flood risk from
heavy precipitation, storm surge, ice-induced flood-
ing, or a standing wave called a seiche. Navin said
those risks were unlikely. “I think we’ve got a very
robust design here,” he said.
The fight over regulation and climate change
comes when the nuclear industry, under pressure
from cheap natural gas and still viewed with suspi-
cion by many environmentalists, can least afford it,
according to Peter Bradford, a former commissioner.
“Anything that increases their costs now threatens
their existence,” he says.
Whatever the likelihood of a Fukushima-style
disaster, the aftermath offers a glimpse of the costs
of failure. Eight years later, much of the adjacent
city of Okuma remains uninhabitable; in 2016 the
Japanese government estimated total cleanup and
compensation costs would approach $200 billion.
Macfarlane, the former NRC chairman, says the
lesson of Fukushima is that the nuclear industry,
including regulators, needs to prepare for seem-
ingly unlikely threats. “Boy, did we misjudge nat-
ural hazards,” she says. “If something happens
and you don’t learn from it, woe unto you.”
�Christopher Flavelle
THE BOTTOM LINE Safety advocates argue that U.S. nuclear
regulators haven’t gone far enough to require plants to prevent
a disaster like the one in Fukushima.
Europe’s F a r Right
Unites, or Tries to
● They stand to make major gains—but may not
be organized enough to press their advantage
Angelo Ciocca of Italy’s League party is in the
European Parliament’s plenary chamber in
Strasbourg, France, railing against the European
Union’s “crazy, criminal project” to admit Muslim
Turkey. Never mind that the body minutes earlier
has called for suspending Turkey’s membership
talks, which anyway have been stalled for a decade.
Welcome to what some have called the YouTube
parliament, where populist members such as
Ciocca make speeches aimed more at energizing
 ◼ POLITICS
voters back home than shaping EU legislation. The
closer the May 23-26 EU-wide elections get, the more
inflamed their speeches are. The League and other
nationalist parties expect big gains, winning as many
as one-third of seats. Steve Bannon, former strategist
for U.S. President Donald Trump who’s advised
many in Europe’s insurgent right, has predicted
May’s elections will be a political “earthquake.”
Hyperbole aside, the 60-year-old bloc is about to
see a significant change.
Power in the EU’s parliament depends on the size
of the group of parties you belong to. The euroskep-
tic right has a history of squabbling that’s marginal-
ized it in the past—it’s presently split among three
parliamentary groups—but there’s reason to think
that may change. League leader Matteo Salvini con-
vened a group of representatives from like-minded
parties in Milan on April 8 to forge a preelection coa-
lition around a new, more nation-focused vision of
the Continent—though in a sign of challenges ahead,
just three other countries showed up.
Should they manage to consolidate, the populists
would be entitled to committee chairmanships and
other posts with the power to shape legislation. They
could also coordinate to influence the EU’s other two
pillars, the European Commission and the Council
of national leaders and ministers. That would
require drawing in Poland’s Law and Justice Party
and Hungary’s Fidesz, led by Prime Minister Viktor
Orbán, says Member of the European Parliament
(MEP) Marco Zanni, who’s from the League.
Law and Justice currently shares an EU parlia-
mentary group with Britain’s Conservatives. Fidesz,
meanwhile, was recently suspended from Europe’s
largest parliamentary group, the European People’s
Party, for abusing some of its core values. Add in
the Alternative for Germany (AfD), which is pro-
jected to gain nine seats (it has one), some smaller
governing parties from southeastern Europe, and
League allies such as Marine Le Pen’s National Rally
of France, and the Italian party could soon head
one of Parliament’s biggest voting blocs. Now that
the U.K. will have to participate in May’s election,
Nigel Farage’s Brexit Party and his former colleagues
in UKIP are expected to do well, too. To the extent
Britain remains in the EU after the vote, that would
further swell Parliament’s populist numbers.
DATA: KANTAR PUBLIC, EUROPEAN PARLIAMENT
“It would be a big challenge, shifting from a small
party in opposition to the pivotal party in the rising
group that is challenging Europe’s traditional pow-
ers and leaders,” says Zanni, speaking between ple-
nary sessions at his office in the Winston Churchill
office building block of the Parliament’s occasional
home in Strasbourg, where it moves from Brussels
for one week each month.
Bloomberg Businessweek April 22, 2019
The hope of liberals such as Jean Arthuis, the ● Latest projections of
seats in the European
Parliament’s budget committee chairman, is that Parliament after
any such threat from the far right will galvanize elections in May
centrist parties to unite and fight back. “Europe has ◼ Populist party seats
advanced only through crises,” says Arthuis, a sup- ◼ All other seats
porter of French President Emmanuel Macron and 27 The League, Italy
a former French finance minister.
The wise won’t discount the possibility that any 24 Law and Justice,
far right alliance will be felled by the fractiousness Poland
that’s plagued past attempts to form a coalition. 21 National Rally,
France
Parties such as UKIP and Le Pen’s National Rally 18 Five Star, Italy
have struggled to work together, or even with them-
13 Fidesz, Hungary
selves: One UKIP member was left sprawled uncon- 10 AfD, Germany
scious on the Parliament floor in 2016 after being 10 Podemus, Spain
clocked by another. Both parties have torn into mul-
tiple parts since the last EU parliamentary elections
in 2014, when the populist right also made big gains.
Nationalism and ideology can also get in the way.
Before splitting, Farage’s UKIP wouldn’t work with
the National Front, as Le Pen’s party was known. 506
“He thought it was too extreme, while the National
Front says it can’t work with Jobbik, because it’s
too extreme. Which says it can’t work with Golden
Dawn, and so it goes on,” says Richard Corbett, a
British Labour Party MEP. Jobbik and Golden Dawn
are ultranationalist parties in Hungary and Greece. 39
The League disagrees with the hard right
Freedom Party of Austria over the status of South
Tyrol, still a largely German-speaking part of the
Hapsburg Empire that Italy annexed after World
War I. It disagrees with the AfD about the euro area’s
budget deficit restrictions, which the Italians want
loosened or lifted but the Germans don’t. Salvini,
like Orbán, is a fan of Russian President Vladimir
Putin and wants to normalize relations with
Russia; Poland’s Law and Justice is opposed. Mario
Borghezio, one of the League’s longer-serving MEPs,
has switched groups seven times. “If your main line
is that you hate foreigners, it’s a bit difficult to work
with foreigners,” Corbett says.
Britain’s tortured effort to leave the EU without
damaging its own economy has prompted other
nationalist movements to drop the idea. That’s
hardly reassuring, says Jaroslaw Walesa, son of the
Solidarity leader and former Polish President Lech
Walesa. He fears that the populists—still hostile to the
EU in their guts—will unpick the bloc’s achievements
through a kind of malicious recklessness.
As for their uniting into a single, organized
bloc, Walesa, an MEP from Poland’s opposition
Civic Platform says, “I’ll believe it when I see it.”
�Marc Champion and Jonathan Stearns
THE BOTTOM LINE Even members of Europe’s far right parties
doubt their ability to form a cohesive voting bloc, a necessary
precursor to exerting any influence over EU policy.
 Security
At the 13th annual Border Security Expo, held in late March in San Antonio, U.S. Border Patrol agents shopped for
surveillance drones, drone-disabling frequency guns, fiber-optic perimeter-monitoring systems, security dogs, vehicle
scanners, and other gadgets to stop drugs and people from entering the U.S. illegally. Ronald Vitiello, who resigned soon
after as interim director of Immigration and Customs Enforcement, part of a broader Department of Homeland Security
purge, got the celebrity treatment. Nobody talked much about the wall. �Ryan Collins; photographs by Mark Peterson

40
 Border Trade Show
① The Skywall 100 shoots a net that can capture and
ground a drone potentially carrying smuggled goods
or drugs. ② A guard dog from EST-ALFA K-9 Security
Service attacks a motorized dummy. ③ The booth
for TPS Armoring, which makes armored vehicles.
④ The IXI EW Dronekiller produces radio signals
that can disrupt a drone’s communication system.

41

① ④
JON RIMANELLI

Founder and CEO, ASX.US

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 Future of Work
S
O A Ballet of
L Airbus Jets
U
T
I
O
44

N
S
A new facility in Hamburg updates
artisanal manufacturing methods
Airbus SE has manufactured planes in a maze
of brick- and metal-clad buildings outside
Hamburg for the better part of three decades.
Every day, whale-shaped cargo planes called
Belugas touch down on the adjacent air-
strip and disgorge fuselage tubes, wings, and
cockpit sections that will be joined together
April 22, 2019
into commercial jetliners. The production
process has changed little over the years.
Edited by
Dimitra Kessenides
Passenger jets are some of the world’s most
and David Rocks
complex machines, but making them remains
surprisingly artisanal, with millions of rivets
installed largely by hand.
A short stroll from those original production
halls, behind the facade of a towering building
the length of two football fields, a revolution is
taking place. Last year, Airbus inaugurated a
facility for the A320 model where the assembly
line, the fixed cranes to move the planes, and
many of the workers are gone. Instead, there
are open spaces, robots, and mobile assembly
platforms operated by remote control. “Building
an aircraft is basically a long to-do list,” says
Eckart Frankenberger, the company’s chief
industrial architect, who led the design of the
 ◼ SOLUTIONS Bloomberg Businessweek April 22, 2019

new layout. “The philosophy of this hangar was to make it An Airbus worker
in Hamburg steers
as flexible as possible and thereby more efficient.” a plane through
Idiosyncratic rules govern output. Safety standards production by
remote control
are paramount, making certification arduous and preci-
sion the No. 1 requirement. And unlike in car production,
in which completed sections are preassembled and then
bolted into the chassis by robots, a modular approach isn’t
common for aircraft. That’s because some of the best-
selling planes date to an era when output was far lower
(the Boeing 737 dates from the 1960s). Planes were drawn
with paper and ink rather than 3D-computer graphics pro-
grams. There was little regard for human-machine inter-
action on the line, making some parts difficult to reach with
robotic arms. “When the last generation of narrowbodies
were designed, engineers didn’t put a priority on designing
it to be manufactured in an industrially efficient way,” says
Manfred Hader, co-head of the aerospace and defense
practice at consulting firm Roland Berger.
With an order backlog of almost 6,000 A320s, Airbus
needs to focus on efficiency. The company can make
10 planes a month in the new assembly hall, on par with
each of the other local facilities, but with 20 percent fewer
people than on the other lines, which were designed with
a static layout and equipment that needs servicing every
year, halting production for two weeks. Tasks demand
rigorous attention to detail and physical endurance: 45
Thousands of components get hauled up several flights of
stairs connecting assembly stations on two levels; work-
ers have to do neck-straining overhead drilling or crouch
to install window frames, insulation mats, and ventilation with wings suspended like giant mobiles from their
ducts. Aligning the front and rear sections of the tubes to movable rigs, awaiting assembly. The white platforms and
form the body can take a half-dozen workers five hours. red arms that hold the fuselage in its metal cradle look
Identifying space for the new line was the easy part: straight out of a science fiction movie. Airbus will have
A vast hangar where workers installed the interiors of the an opportunity to create a similar facility in the next few
mammoth A380 sat largely idle because of low demand years when another huge hall across the street becomes
for the double-decker. Airbus started with what it calls a available as the A380 winds down entirely. Before then,
“clean-floor concept,” with only a few fixed installations in it aims to extend the lessons it’s learned to the rest of its
the space, such as a yellow crane at the gate that hoists facilities—including in Hamburg, at its primary assembly
the large structural parts into the building. Instead of mov- site in Toulouse, France, and at the wing-manufacturing
ing down a line, the planes rotate like 16-ton ballerinas on factory in Wales.
mobile platforms, giant structures that a single person can Given the intricacies of building planes, the rela-
steer by remote control. The nose landing gear is installed tively low output, and the sheer size of the components,
by a hulking robotic arm that’s folded under the aircraft and Roland Berger predicts the process won’t be more than
controlled from a computer console. Aligning the two wings 65 percent automated for at least the next decade. But
happens simultaneously, saving time. The forward and the advances shown on the Airbus line point the way to
aft sections of an A320 are guided together with lasers, the next generation of production, from blueprint to fin-
a process that cuts assembly time to half an hour. Then ished aircraft, says Guillaume Faury, who took over as
the two pieces are joined by a pair of enormous robots, chief executive officer on April 9. “This is one of the build-
dubbed Luise and Renate, to distinguish left from right. The ing blocks of our digital trajectory and robotization of our
twin sisters weigh 22 tons each, and their multidirectional production.” �Benedikt Kammel and Benjamin D. Katz
arms can reach up more than 20 feet to drill 2,400 holes
COURTESY AIRBUS (2)

in each plane and fill them with rivets, all with precision that
THE BOTTOM LINE With an order backlog of almost 6,000 A320s, Airbus
exceeds that of the humans on the other lines. must prioritize efficiency. A new assembly hall will increase monthly output by
The new hall is quiet and calm, the gray floors spotless, automating much more of the production process.
  SOLUTIONS Bloomberg Businessweek
This App Finds
Food Workers Fast
If you can stand the heat,
Pared will get you into a kitchen
On a busy Friday night during the 2018 holiday season at
the San Francisco restaurant Frances, chef and owner
Melissa Perello faced a potential disaster. A dishwasher
hadn’t shown up for work, and she was already down a
person in the kitchen. “I got on the Pared app,” she recalls.
“And 35 minutes later, a dishwasher walked in the door.”
Perello’s predicament is a long-standing problem for
the industry, and it’s only getting worse. The number of
full-service restaurants in major cities is increasing—in
New York it rose to 9,809 in the third quarter of 2018,
from 8,563 in the third quarter of 2016—but millennials are
less inclined to commit to a full-time schedule. This makes
dishwashers harder to hold on to. Staffing problems ulti-
mately affect diners, who might be wondering why their
46 roast chicken is taking so long to come out. According to
statistics from the scheduling app 7shifts, the average ten-
ure of a restaurant employee is one month and 26 days.
The Pared app, designed to solve this problem, was
introduced in December 2015 by Will Pacio, a Stanford
graduate who cooked at the French Laundry, the leg-
endary Napa Valley restaurant, and Dave Lu, a veteran of
Apple and Yahoo! who founded fan club network Fanpop.
At the start, Pared was a Bay Area-based program for fill-
ing such jobs as dishwashers and prep cooks. It’s since
grown to include many more positions, including serv-
ers, baristas, and even oyster shuckers. In March 2018,
Pared expanded to New York, where it now has several
high-profile clients, including Jean-Georges Vongerichten,
Tom Colicchio, and Tao Group. Pacio and Lu are expand-
ing to Philadelphia and Washington, D.C., by the end of the
year, with the goal of being in all the major U.S. metropol-
itan markets by 2020. “Every day, I beg them to come to
Los Angeles,” says Perello, who’s opening a restaurant, M.
Georgina, there in the summer.
For employers, Pared’s benefits are easy to see: The
cost of losing and replacing an hourly worker is $5,864
per employee, according to the Cornell School of Hotel
Administration. The 2016 Bureau of Labor Statistics esti-
mates that the restaurant sector experiences annual
employee turnover of 73 percent; over the course of
16 months, a restaurant can expect to lose its entire staff.
The app isn’t meant only for employers. It’s also
designed for kitchen staff who have trouble keeping
April 22, 2019
regular schedules because they’re juggling multiple gigs
or have child-care, transportation, or other difficul-
ties. The average annual income of a restaurant cook is
$26,400, according to 2018 BLS figures; for dishwash-
ers it’s $23,100. “These people are working crazy sched-
ules that they can’t control,” Lu says. “If they miss a day,
they usually get fired. The gig economy has eluded them.”
Using Pared is straightforward: Potential workers sub-
mit a work history, attaching at least two references. The
app’s staff of about 50 uses a virtual reference-check sys-
tem to vet their backgrounds. Pared then uses algorithms
to match applicants to vacancies that correspond to their
skills. The company says it has 10,000 approved contrac-
tors in its database. “Our pros make $20 an hour, which
is annualized to about $41,000,” Lu says. “One pro made
$9,000 a month.” He says the cut paid to Pared comes
from restaurants and not workers. Pared is a privately held
company; Lu declined to disclose earnings.
There are some drawbacks to the model, Perello says.
“A Pared employee might come in and say, ‘I’m getting
paid $20 an hour,’ and your full-time guy will think, Why
am I only making $16? They don’t think about the taxes or
the health-insurance coverage that they’re getting.” So the
full-timer bolts, and Perello is down a worker.
Wade Moises, executive chef of Rosemary’s in New York,
found the app costly. “We haven’t used Pared in a while,”
he says. “It was a great help when we were desperate, but
we also spent more money than we would normally for a
job that, in the past, someone would just jump in and cover.”
Still, Moises recognizes it’s a good deal. “We pay no
ILLUSTRATION BY TOMI UM FOR BLOOMBERG BUSINESSWEEK
labor taxes, OT, sick pay, vacation time, or health insur-
ance. Just a flat hourly,” he says. “And if you’re a Pared
employee, you write your own schedule. Thinking about
Pared now, I’m not sure if I should fire my whole staff or quit
myself.” —Kate Krader
THE BOTTOM LINE Jobs app Pared helps Bay Area and New York City
restaurants find staff in a pinch. The service will expand to Philadelphia and
Washington, D.C., later this year.
 Fast is
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  SOLUTIONS Bloomberg Businessweek
Learning to
Mend the
Robots
In a former Pratt & Whitney jet-engine-testing facility, a
canary-yellow robotic arm is rotating above a table. An
instructor taps on a tablet, and the arm shifts to move in a
different direction. The demonstration is part of a tour of a
new robotics and automation training center that Goodwin
College, in East Hartford, Conn., and engineering consul-
tant Rapid Global Business Solutions Inc. unveiled in March.
The new center is part of Goodwin’s 60,000-square-foot
manufacturing facility on the banks of the Connecticut
River, near the aerospace giant’s global headquarters.
About 25 percent of U.S. workers—representing 36 mil-
lion jobs—could be replaced by automation in the next
few decades, according to a Brookings Institution report
released this year. Goodwin is one of a number of U.S. insti-
48 tutions investing in training to prepare blue-collar workers
for that shift. While jobs are being eliminated, many posi-
tions that are safer, more interesting, and pay better than
the typical assembly-line assignment are being created.
An advanced degree in engineering or artificial intelligence
isn’t required, but some training is.
A skills gap could result in 2.4 million unfilled manufac-
turing jobs over the next decade, warns a study released in
November by Deloitte and the Manufacturing Institute. “It’s
not this dark, dull, dying industry,” says Rob Luce, vice pres-
ident of SME Education Foundation in Southfield, Mich., the
philanthropic training arm of the SME manufacturing trade
group. “It’s a lucrative industry if you have the right skill set.”
U.S. companies bought almost 28,500 robots last year,
up from about 24,600 in 2017, according to the Association
for Advancing Automation, a trade group in Ann Arbor,
Mich. America’s industrial robot density—the share of
robots to workers—was 200 per 10,000 employees in
2017, about double China’s, according to the International
Federation of Robotics in Frankfurt. To remain competitive,
U.S. companies must keep pushing to automate, says Tony
Osladil, a former Intel senior engineer who teaches robot-
ics at Sierra College in Northern California.
Ten to 15 students will enroll in Goodwin’s pilot robot-
ics program this fall before a full-time program starts early
next year. They’ll work with hardware and software to
learn to maintain, fix, and program automated systems,
such as warehouse sorting networks or aerospace parts
production, says Cliff Thermer, who oversees the school’s
April 22, 2019
As automated systems
proliferate, people
who can fix them are
in demand
manufacturing programs. Robotics is the latest track within
its four-year-old advanced manufacturing program, created
to supply talent to Connecticut’s more than 4,000 manu-
facturers, which make everything from elevators to nuclear
submarines. “All of the industries desperately need people,”
Thermer says. “But we need a trained workforce.”
You don’t simply install robots and turn them on, says
Arnold Kamler, chief executive officer of Kent International
Inc., America’s biggest domestic bicycle manufacturer. A
dozen automated machines at his factory in Manning,
S.C., help produce about 1,200 bikes a day. “Unfortunately,
robots and automation systems go out of whack—all the
time,” Kamler says. “As we get better at making robots use-
ful, they are running more and more continuously, which
means when they break down, the entire pipeline of the
manufacturing process is at risk,” says Northwestern pro-
fessor Todd Murphey, who oversees one of about a dozen
robotics master’s degree programs in the U.S. Kamler is
blunt: “If you want to make yourself really valuable,” he says,
learn to fix robots. “You can earn a really nice salary.”
George Brown College, a public school with cam-
puses in Toronto, even offers distance learning in
automation-related disciplines. The courses are utilitarian:
Students can get what they need quickly and apply it on the
job the next day. Scott Duncan, a consultant who oversees
robotics and other programs at George Brown’s School
of Distance Education, says he expects “continued strong
growth” as robotics spreads beyond autos. “Universities
are going into robotics full tilt,” he says, “to really do the
hardcore research and development.”
Three years ago, Kyle Mantecon had never seen an
industrial robot. Now the 33-year-old is a product engineer
for Inovision, a Rochester Hills, Mich., business that serves
as a middleman for robot makers and automotive factories.
ILLUSTRATION BY TOMI UM FOR BLOOMBERG BUSINESSWEEK
“You would think you would need to be some sort of super-
genius to work with robots,” he says. “That’s not the case.”
And the earnings potential is greater, he says. “If you’re will-
ing to work 60 to 70 hours per week and travel, you could
be making six figures, easy.” —Nick Leiber
THE BOTTOM LINE Connecticut’s Goodwin College is one of a
number of institutions focusing on industrial robotics training to fill
a skills gap in manufacturing.
 Bloomberg Businessweek

When the Boy Scouts of

America decided to become
simply Scouts, it raised
an uncomfortable question:
What about Girl Scouts?

By Claire Suddath
Photographs by Holly Andres

O
50

N
C RO T
BE PREPA

Scouts in Portland, Ore.

 April 22, 2019

51

V
O RE S
Y
ARED FOR
 Bloomberg Businessweek
One evening in early February, in the back room of a small Lutheran
church in Blacksburg, Va., seven girls joined the Boy Scouts.
They stood in front of an American flag, wearing the same
khaki shirts and bandanna neckties as the 19 boys there with
them. Together they recited the Pledge of Allegiance, followed
by the traditional Boy Scout oath. As historic moments go, it
was a quiet one.
Over the next hour, members of Blacksburg’s Troop 158 dis-
cussed a coming campout and held a physical fitness challenge
that amounted to running a few laps around the church park-
ing lot. The girls demonstrated the sled they intended to use in
a multitroop race, while some boys debated whether an assault
rifle would make a good weapon during a zombie apocalypse.
(The consensus was yes.) “I like Boy Scouts so far,” said Amalie,
who’s 13, when the meeting was over. “Sorry, I mean Scouts.
We’re supposed to say the new name now.”
A week earlier, the Boy Scouts of America—the national
organization that oversees various outdoors programs for
about 2 million children, including Cub Scouts, Boy Scouts,
and Venturing—had changed the name of its original, 109-year-
old program to Scouts BSA. That made Amalie one of its first
girl scouts. Not to be confused, of course, with the Girl Scouts—
though Amalie said she’s one of those, too.
The process by which a male-only centenarian institution
transforms itself into an inclusive, co-ed brand would be com-
plicated under any circumstances, but for the Boy Scouts it’s
52 been doubly so. For decades—in fact, as recently as 2015—
the organization had argued, in interviews and in court, that
scouting was only for boys. And a lot of people associated with
the Boy Scouts still agree with that.
“‘This is crazy! This is what’s wrong with America! Girls
in the Boy Scouts? I mean for crying out loud!’” says Michael
Surbaugh, the group’s chief scout executive, imitating angry
emails and tweets he’s received. Conservative news outlets
have run articles with headlines such as “The Boy Scouts
Admit Girls, Failure” (Weekly Standard) and “Girls in Boy
Scouts Is Bad for Everyone” (Washington Examiner). But
strangely, the fieriest reaction has come from the group most
famous for supporting young girls: Girl Scouts of the United
States of America.
For the past two years, the Girl Scouts—which is also more
than 100 years old and serves just under 2 million children—has
been expressing outrage over the idea of girls in the Boy Scouts.
When she first got wind of the
change, the Girl Scouts’ board Membership
president emailed the entire Boy Scouts Girl Scouts
BSA board saying the decision
would be “fundamentally under-
cutting Girl Scouts of the USA.”
Then after BSA announced it, a
spokesperson for the Girl Scouts
told ABC News the Boy Scouts
was just desperate because its
“house is on fire.”
In November, with the change
imminent, the Girl Scouts sued 1920 1973 2017
April 22, 2019
the Boy Scouts for trademark infringement, citing online
flyers and promotional materials that seemed to conflate the
two organizations. In the poorly sourced, factually indiffer-
ent areas of the internet, articles have implied that the two
groups were merging. (They’re not.) Girl Scout troop leaders
and volunteers say they’ve fielded questions from confused
parents asking why, given the Boy Scouts’ decision, the Girl
Scouts still exists.
Two of America’s most benign charitable organizations fight-
ing over the right to call young girls “scouts” feels a bit like the
Humane Society and ASPCA arguing about who can best care
for kittens. But buried within the Girl Scouts’ lawsuit is a much
more fundamental argument about the best way to advance
women’s equality. “GSUSA’s services,” the complaint reads, “are
founded on research showing that girls learn best in an envi-
ronment led by girls, through programs tailored specifically for
girls.” In other words, the best way to help girls—and by exten-
sion, women—thrive is to create something specifically for them.
The Boy Scouts now finds itself arguing for gender inclu-
sion in scouting, but it’s not clear how much inclusion it wants.
The new Scouts BSA doesn’t technically allow co-ed troops; the
girls in Blacksburg attend the same meeting as the boys, but on
paper they’re in a separate, all-female version of Troop 158, led
by a different scoutmaster. “There’s this concept—I don’t know
if you’ve heard it before—separate but equal,” says Jan Helge
Bohn, the boys’ Scoutmaster of Troop 158. “That’s essentially
what they’ve done.”
Given the abundance of extracurricular clubs and
intramural sports that fill kids’ afternoons these days,
it’s easy to overlook just how deeply scouting was once
ingrained in American childhood. At the peak of its popu-
larity, in the 1970s, the Girl Scouts USA and Boy Scouts of
America collectively served about 15 percent of U.S. children.
Today, each is less than half the size it once was—a dismal
trend that no amount of marketing has been able to reverse.
Their stories begin in 1908, when Robert Baden-Powell, a
British lieutenant-general, published Scouting for Boys, a chil-
dren’s version of a training manual he’d written for his troops
during the Boer War. His goal was to fix what he saw as a weak,
emasculated generation of city slickers unfit for military duty.
Within two years his scouting program had attracted thousands
of members across a handful of countries, including the U.S.
Girls first asked to join the Boy Scouts in 1909. Baden-Powell
refused them, but he later asked his sister to start a companion
program called Girl Guides. In 1912 a Savannah socialite named
Juliette Gordon Low took the Girl Guides program to the U.S.,
replacing “guide” with “scout,” because she believed it better
4m reflected America’s pioneering spirit. (The Boy Scouts has a dif-
DATA: NEWS REPORTS, COMPANY REPORTS
ferent version of the Girl Scouts’ founding. “There were reasons
why they went to Girl Scouts,” Surbaugh says with a smile. “We
2 were growing really fast.”)
Girl Scouts learned semaphore, Morse code, and how to
load and fire a gun, just as the boys did. Early manuals offered
0 badges in “keeping house”—scrubbing floors and scouring
saucepans—but they also suggested a variety of careers—teacher
Bloomberg Businessweek April 22, 2019

Girl Scout Merit and nurse, yes, but also architect and gay men who’d been rejected or kicked out; two from atheists
Badges for the doctor—that a girl might pursue when who refused to pledge their “duty to God”; and one from
Information Age she grew up. Its early leaders were an 11-year-old California girl who wanted to join her twin
active in the suffrage movement. “The brother’s troop. The BSA won every case on the premise
Robotics way Girl Scouts encouraged girls that a private organization is able to set its own member-
3:
to look for new paths as women ship requirements, even if what it does appears discrimi-
De
s ig n

was
wa quite subversive,” says Mary natory. That may have been a sound legal argument, but it
R
Rothschild, a women’s studies didn’t earn the Boy Scouts much corporate goodwill. When
a robo

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be

professor emeritus at Arizona BSA reaffirmed its stance against homosexuality in 2012, sev-
rs
t

ec

State University. “It’s just eral large donors, including Intel, Merck, and UPS, withdrew
ur
it y

that no one noticed, their support.

1:

because they looked The loss of corporate money was a big problem. BSA was
Basics

Mechanical engineering: so wholesome.” bleeding millions of dollars fighting other lawsuits, filed by
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Over time, former Boy Scouts who say they were sexually abused as chil-
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ad

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focus on Seattle, BSA confirmed it had kept a list of thousands of abuse
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in
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of that list prompted two of its longtime liability insurers to

a l e n gi n e

o d el c
refuse to cover abuse claims. If BSA kept a list, they argued,
g: M ar
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in it clearly knew what was happening. The Boy Scouts main-
n ic

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tains that the list was an attempt to protect children in an

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careers says it agrees victims are due fair compensation. But

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h
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nization emphasizes Every day after school in January, a 17-year-old 53
y1

that it still offers badges girl named Rebecca set up a folding table
: Ba

in archery and camping, but outside a store or restaurant in Austin—

sic s

the overwhelming focus is on her favorite spot was on the campus of

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professional skills and things that the University of Texas—and spent the
Cy
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pr

look good on a college application. evening selling Girl Scout cookies.

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eu

The Boy Scouts, meanwhile, has stayed The night I met up with her, her
r

truer to its wilderness origins. Both orga- location of choice was a sub-
it y

2:
Inventor
Saf
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nizations still use Baden-Powell’s original urban Lowe’s.
scouting motto: Be Prepared. It’s just that
today they’re preparing for different things. Mechanical
Robotics 1:

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Boy Scout troops are always sponsored by an

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organization, oftentimes a church, while those of
gg

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Programming robots
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Girl Scouts exist on their own. Troops are led by an

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Designing robots
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unpaid volunteer, usually the parent of a scout. This

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setup worked fine through the 1960s, but as more and

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more mothers started working full time, both groups strug- s 1: What r
tic o
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gled to find anyone free to spend their Tuesday afternoons
bo
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teaching kids how to light a fire.

Social innovator
do

Surbaugh says that for a long time the BSA didn’t under-
stand why it was shrinking. “We thought, We probably just Rebecca had
need to increase our marketing, or maybe it’s our programs. a whole strategy for
Maybe we need to add some new merit badges.” Boy Scouts displaying her cookies. She
Sh
introduced activities such as traffic safety, with limited suc- placed the most popular types, Thin
cess. (Do you know any 12-year-old who wants to demon- Mints and Caramel deLites (in other parts of the country
strate how to use a seat belt?) “Then we got into the 1990s, they’re called Samoas), at the far end of the table, and gave
and we started getting embroiled in some social contro- newer, lesser-known flavors like S’mores and Lemonades
versy,” he says. prominent spots in the middle. Even though it was already
The Boy Scouts spent much of that decade on the receiv- dark at 5:30 p.m. and the Lowe’s was at the far end of a
ing end of discrimination lawsuits. There were several from sprawling strip mall, obscured from the road, a steady
 Bloomberg Businessweek
stream of customers managed to find Rebecca, thanks to
the Girl Scouts’ location-based cookie app. People bought an
average of four boxes each.
“It’s so much easier than it used to be,” she says of selling
cookies. She’s been in Girl Scouts for 12 years and remem-
bers going door to door armed with order forms. With the
app, Rebecca thinks she’ll quadruple her sales this year, to
4,000 boxes. She takes credit cards.
Cookie sales are one of the Girl Scouts’ oldest programs. A
troop hit on the idea in 1917 as a way to fund activities in an
era when wealthy philanthropists weren’t particularly inter-
ested in backing programs for girls. At first they baked the
cookies themselves, but by 1936 they’d started using whole-
salers. Prices, set by local councils, usually hover around
$5 per box, the majority of which goes directly to regional
councils and local troops.
Girl Scouts won’t say how much money troops pull in from
cookies—the figure most widely circulated, $700 million, is
nearly 20 years old. Regional councils won’t share numbers
either, but they do sometimes mention cookie sales in their
publicly available annual meeting minutes. Last year, Girl
Scouts sold 4.6 million boxes in the Washington metro area.
The Girl Scouts of Western Pennsylvania, which oversees
20,000 girls, sold 120,000 more boxes of cookies in 2018 than
it did the year before. Kids manage to peddle enough boxes
every year to make the Girl Scouts America’s second-largest
54 cookie seller, after Oreo, the organization says.
All this cookie money has enabled the Girl Scouts to get
more creative—and expensive—with programming. It funds
robotics teams. It hosts coding camps and career days. It runs
a program called Girl Scouts Beyond Bars, which takes girls to
visit their incarcerated parents. It’s built a $14 million, 92-acre
facility in Dallas for girls to learn about STEM and is planning
another one for Oklahoma. At the same time, adult participa-
tion has dwindled so much that in 2014, Girl Scouts had to put
30,000 kids on a waitlist.
The organization has tried to stave off decline by recruiting
girls in low-income and minority communities. “I didn’t even
know what Girl Scouts was
until they came to my build-
ing,” says Ebony Daniel, who
lives in a New York homeless
shelter with her three daugh-
ters, all of whom are in the
program. “In the inner city
Girl Scouts was not a popu-
lar thing.” Today a third of
scouts live in low-income
neighborhoods.
Girl Scouts USA has largely
sidestepped the social con-
troversies plaguing the Boy
Scouts. The organization has
accepted openly gay kids and
leaders for so long, it’s hard
to pinpoint when it started. In Girl Scouts on a hike in Corona, Calif.
April 22, 2019
2011 a transgender girl in Colorado asked to join a troop and,
after some initial hemming and hawing, the Girl Scouts agreed.
These moves have rankled a few religious groups and the occa-
sional politician—in 2012 an Indiana state lawmaker opposed an
otherwise unanimous resolution honoring the Girl Scouts, call-
ing it a “radicalized organization” that promotes “feminists, les-
bians, or communists”—but they sit just fine with companies
such as Dell Inc., which has donated thousands of tablets to
girls who can’t afford them.
Sylvia Acevedo, who became chief executive officer in 2016,
sees Girl Scouts as a way to provide girls with educational
opportunities that have eluded them. A former NASA engineer
who’s also worked at Apple, IBM, and Dell, she credits the orga-
nization with getting her interested in science and astronomy in
an era when a Latina girl living in poverty in New Mexico wasn’t
expected to achieve much of anything. Acevedo remembers
telling her high school guidance counselor that she wanted to
study engineering: The woman laughed. “She said, ‘Girls like
you don’t go to college.’”
Even people so focused on teaching girls can, at times,
make limiting assumptions. A few years ago the head of Girl
Scouts’ national programming, Jennifer Allebach, recom-
mended adding a cybersecurity badge. At first, Acevedo said
no. “Having worked in technology, the cyberteams are prob-
ably one of the most male-oriented technical areas. I’m like,
Oh, my God, this is the Dungeons & Dragons crowd. This is
not going to be open for girls.” Allebach argued that avoiding
cybersecurity wasn’t going to help women make inroads in
the field. Girl Scouts now offers several cybersecurity-themed
badges for girls of different ages, using a curriculum designed
with security firm Palo Alto Networks Inc. “I’ll own it: I almost
put the kibosh on it,” Acevedo says. “That was a mistake.”
When Surbaugh took over the Boy Scouts in 2015, he found the
organization in deep distress. The way he saw it, BSA had two
choices. “Either become a very small, boutique organization
serving what’s probably a legacy clientele—a largely white,
largely suburban population,” he says. “Or do we transform
into something
else?” Given where
the organization
started—with Baden-
Powell’s fears about
girly men—change
wasn’t going to be
easy. “To get that
ship turning slowly
in any direction, it
takes a lot of time,”
Surbaugh says.
The organization
had already lifted
the ban on openly
gay scouts, but in
2015 it extended it
to gay adult leaders.
 Bloomberg Businessweek
Two years ago, the Boy Scouts admitted transgender kids. These
changes didn’t go over well with the Mormon church, which
adopted Boy Scouts as its official youth program in 1913. The
church considers homosexuality a sin and announced it will
sever formal ties with BSA at the end of this year, potentially
taking 420,000 boys with it. There still isn’t a formal policy on
avowed atheists.
In 2017 the Boy Scouts turned to the question of girls. It had
always run Cub and Boy Scouts as single-gender programs, but
it was aware that local troops sometimes relaxed the rules.
A scoutmaster might allow his daughter to tag along with a
troop, or a sister might help her brother work toward Eagle
Scout. Plus, admitting girls might help stave off the member-
ship decline. In Britain, Baden-Powell’s original organization,
now called the Scout Association, has grown every year since
it went fully co-ed in 2007. By 2016, more than 70 percent of
its new members were girls.
But BSA wasn’t sure its program would work for girls.
To find out, it commissioned an academic survey of peer-
reviewed studies dealing with boys’ and girls’ physical abili-
ties and learning habits to see what, if anything, needed to be
changed. “We had a lot of debates on what did we think the
percentage of content of Cub Scouts and Boy Scouting would
be relevant to young women,” Surbaugh says. He wouldn’t
say exactly what BSA fretted girls wouldn’t like—was it the
kayaking? CPR lessons? The instructions in the handbook for
doing a necktie?—but he admits the concern was wrong. Boy
Scouting, like cybersecurity, was perfectly suitable for girls.
The next question was what to do about the name. If girls
were going to join the program, “Boy” should probably be
dropped. That turned them into Scouts. The BSA initials were
tacked on to avoid confusion with any other national orga-
nization that involved girls and also used the term scouting.
Whatever that might be.
Ads for the rebranded Scouts BSA use the slogan “Scout
me in,” alongside images of boys and girls canoeing together.
The pictures are a little misleading, given the way the troops
are actually structured. The formal separation of the boys’
and girls’ troops “became a way of, How do you maintain that
integrity of the single-gender environment?” Surbaugh says.
“That’s what we came up with.”
The Boy Scouts says it decided to keep girls separate after
consulting with childhood-development experts and review-
ing literature about the best educational practices for kids.
But it’s declined to talk publicly about what that research
entailed. “I haven’t seen it. Does it exist?” asks Bohn, the
Blacksburg scoutmaster. It does, but it concludes overwhelm-
ingly that boys and girls should be taught together. In fact,
surveys by both the American Psychological Association and
the U.S. Department of Education have found no educational
benefit to separating kids by gender. Some studies even sug-
gest that sorting kids based on a visible characteristic like
CREDITS CREDITS CREDITS
gender or race or even what color T-shirt they’re wearing
makes them biased against people who look different.
The Girl Scouts, by the way, doesn’t talk about any of
this. Its dedication to a single-gender model has more to do
April 22, 2019
with its 100-year history as one of the few organizations—
sometimes, the only one—focused on serving girls. For all the
degrees women have earned and Supreme Court positions
they’ve held, Acevedo sees the statistics that only 18 percent
of computer science degrees go to women and that women
account for less than a quarter of Congress and concludes
that the strides America has taken toward equality haven’t
been enough. “From a philanthropic position, not a lot of
dollars go to girls’ and women’s programs,” she says. “Thank
God for the cookie program, because even animals get more
dollars than women and girls.”
Since the Girl Scouts filed its lawsuit last year, the Boy
Scouts has instructed Scouts BSA troops never to use the word
“girl” in front of the word “scout” in printed materials. But
in conversation there’s really no way to avoid it without say-
ing something like “female members of Scouts BSA,” which
no one does, because that’s ridiculous. Scouting is a generic
term used by organizations all over the world. And since 1938,
when the U.S. Supreme Court told Nabisco and Kellogg Co.
that they could both call their cereals “shredded wheat,” U.S.
courts have been fairly consistent in allowing competing busi-
nesses to share a generic term. And yet, the term Girl Scouts
is trademarked. “It’s a complex case,” says Rebecca Tushnet,
a Harvard Law School professor who specializes in trademark
law. “My prediction is that they’ll probably be able to change
to ‘Scouts,’ but the issue will be over whether they have taken
reasonable measures to avoid confusion.” 55
As far as the program itself, BSA’s insistence on gender seg-
regation may be based less on science than on how its 2 mil-
lion members feel about the issue. BSA executives downplay
the infighting, but there are plenty of people who’re against
adding girls. “My first reaction was that knee-jerk, old-school
‘Girls don’t need to be in Boy Scouts,’” says Joe Mattingly, 50,
who lives in Auburn, Ala., and whose son has been in Cub and
Boy Scout troops since 2006.
Parents in Blacksburg had a strong reaction as well. A
week after Bohn held that first troop meeting with girls, he
was asked to step down as Troop 158’s scoutmaster. A num-
ber of boys’ parents were upset that he’d included girls in
their meeting. Some went so far as to switch their sons to a
different troop. As Bohn was telling me this, I realized: The
only people upset by BSA’s new policy seemed to be adults.
I talked to dozens of kids for this article, and every one of
them said they liked the idea of girls in Scouts. Girl Scouts
didn’t mind, because they already had a club they liked. Boy
Scouts just wanted to go rock climbing and camping.
Mattingly, in Alabama, noticed this too. When he saw how
excited his daughter was to be able to do the same thing
as her brother, he realized he’d been wrong. So he formed
a girls’ troop and became its scoutmaster. There are only
14,000 girls in Scouts BSA so far, but the number is growing.
And no amount of troop-hopping or scoutmaster-switching
will make them go away.
“I kind of want girls to come in and join us,” says Dylan, 17,
who belongs to a Scout troop in Portland, Ore. “Girls make
things much more interesting.” <BW>
 Bloomberg
Bloomberg
Businessweek
Businessweek Month
April 00,
22, 2019

Somehow, a By Josh Dean

strange and brazen
Photograph by
corporate fraud Pippa Drummond
case preceded a
breakthrough in
wearable tech:
A hearing aid that’s
also a fitness
tracker, a health
monitor, a fall
detector, and a
near-instantaneous
translator

56

‘THE EAR
I S T H E N E W W R I ST ’
 Bloomberg Businessweek April 22, 2019

W
hen Brandon Sawalich started at Starkey Hearing tiny sensors plus, as its name suggests, artificial intelligence
Technologies in suburban Minneapolis, he to selectively filter noise and focus on specific sound sources—
was 19 and there were about 70 companies for instance, the person across the table in a busy restaurant—
worldwide making hearing aids. That was 1994. His job was while also tracking various health metrics, including steps
to clean the ones mailed in for repair or, occasionally, as walked, stairs climbed, and cognitive activity, such as how
returns, because the user was dead and no longer required much the wearer is talking and engaging with other humans.
them. Today, Sawalich is 43, there are five companies, and It also does near-instantaneous translation of 27 languages and
he’s president of Starkey, which employs 6,000 people and will, after a forthcoming update, measure heart rate. The cost
sold $800 million in hearing aids last year. “We’ve been right is next-level, too: $2,500 to $3,000 per hearing aid or more,
here in Eden Prairie since 1974,” Sawalich says as he walks depending on the doctor and his or her services.
me through company headquarters, then corrects himself. “In the next five to seven years, your hearing aids are going
“Technically, it started a few years before that, in the
basement of Mr. Austin’s home. It’s one of those great
entrepreneurial American success stories.”
Sawalich moved from waxy buildup to events to sales
to, finally, president, the company’s top position, which
he assumed in 2016 in the wake of a fraud scandal that
rocked Starkey. He’s also stepson of the aforementioned
Mr. Austin—William Austin, the billionaire company
founder who built Starkey into a privately held Goliath
and has made hearing aids for seemingly every famous
person who requires them, including four U.S. presidents,
two popes, Nelson Mandela, and Mother Teresa.
Starkey is now the only one of the surviving Big Five
manufacturers based in the U.S. What’s thinned the herd
58 of competitors, Sawalich says, is technology. Hearing
aids used to be relatively simple, inexpensive to make,
and not hugely different from brand to brand. Today
they’re an increasingly complex digital product, requir-
ing teams of engineers and robust investment in research
and development.
A thin, barely visible wire curls over the top of each
of Sawalich’s ears and vanishes into the canals, where an
earpiece the size of a marker tip delivers sound. “These
are real,” he says. “I do have some minor hearing loss.”
(It’s from loud music and shooting guns in his youth.)
He’s also wearing these tiny, barely visible aids because
they’re the company’s latest and greatest development—
the reason 300 of America’s top audiologists will arrive
in two days’ time at this building, the William F. Austin
Education Center, via red carpet while running a gantlet
of whooping and clapping Starkey employees.
Austin
PHOTOGRAPH BY ACKERMAN + GRUBER FOR BLOOMBERG BUSINESSWEEK

Sawalich is fond of saying that Starkey makes a prod-

uct nobody wants. Almost two-thirds of the people in
America who need hearing aids don’t have them, and those to be like Jarvis from Iron Man,” Sawalich says. “It’s going to be
who do accept their fate wait an average of seven years from your personal assistant. It’s going to know more about what’s
the first symptom before seeking help. “With these, hearing going on with your body that you want to know—your heart
aids are going to evolve,” he says, “so that you don’t have to rate, blood pressure, glucose. The ear is the new wrist.”
have hearing loss to want a hearing aid.” This is the kind of ridiculous slogan that only someone inside
You heard—correction, read—that correctly. Starkey is now the bubble of wearable med tech could use unironically. But
pitching the world a hearing aid for people who don’t need it’s not an insane idea. The ear is where pediatricians get your
hearing aids. kid’s temperature. It’s an ideal spot to measure heart rate and
Sawalich pulls an iPhone out of his jacket pocket and opens equilibrium, which is how the Livio also provides fall detection
an app called Thrive, built to accompany this paradigm shift for wobbly seniors. If a user doesn’t tell the Thrive app that
of a product. The Livio AI, as the new device is called, uses he or she is fine within seconds after a fall, it will call for help.
Bloomberg Businessweek
Starkey is a company reborn, Sawalich says. And not only
because it had to be, what with the former president and for-
mer chief financial officer getting indicted and later convicted
for conspiring to steal more than $20 million in an elaborate
corporate fraud case. The case, which reached court in early
2018, captivated the local media and caused great embarrass-
ment for Austin, who testified in the trial, and Sawalich, who
didn’t and hasn’t talked about it before. “I just hate going back
and thinking about it,” he says, “because it makes me ill.”
The defense strategy in court, I observe, seemed to be to
drag Starkey’s two principals through the mud, to try to make
them unsympathetic victims for a jury. “I don’t think they
tried,” Sawalich says. “They did.”
We pass a large corner office. Inside are 12 desks crammed
in fairly tight quarters. “This was our former administration’s
president’s office,” Sawalich says. That man, Jerome Ruzicka,
was at one time Sawalich’s mentor. “I named my son after him.
Not many people know that. William George Jerome Sawalich.”
He sighs. “A lot of these guys had been here for decades. They
were family. I admired them. I wanted to be them.”
Sawalich waves a hand at the office. “Everybody thought that
I couldn’t wait to get in there,” he says. “I don’t want anything
to do with it.” Instead, he had the space gutted and handed it
over to engineers doing advanced technology projects.
He notes that much of what’s around in the offices is new.
Software systems have been replaced, departments realigned,
the org chart overhauled. An engineering center was opened
in Tel Aviv, and the existing list of 600 projects was winnowed
by two-thirds. There’s a new chief counsel from Sun Country
Airlines, a new chief operating officer from General Electric,
and a new chief technology officer from Intel.
“Over the last two years, we’ve made Starkey a lot healthier
and stronger, and we’ve narrowed our focus,” Sawalich says.
“I wish what happened didn’t happen. But one door shuts and
another one opens, right?”
B
ill Austin tends to be in one of three places: in a
makeshift clinic, fitting people for hearing aids
under a tent in a developing nation; on a Gulfstream
jet in transit between developing nations; or standing over
a detailing machine nicknamed Bill’s Wheel across the hall
from the office he never uses at Starkey HQ. This week, it’s
the latter. A few days earlier he arrived back in Minneapolis
from a nine-country, three-week run through Africa—during
which a team from the Starkey Hearing Foundation, led by
Austin and his wife, Tani, fit 12,000 people with hearing aids—
and proceeded directly to the office, which is where we find
him, working on orders in his uniform of black sneakers, black
pants, black shirt, and white lab coat.
Austin has ice-blue eyes, the deep creases of an enthusi-
astic smiler, and a sculpted poof of white hair that comes to
a Dracula point on his forehead. He says there’s nothing he’d
rather do than tinker with hearing aids. When I ask his wife
why a 77-year-old billionaire isn’t out enjoying his twilight
years, she replies that he’s “having a ball” and that she has to
April 22, 2019
remind him to turn on his cellphone so that she can call and
force him to turn off the lights and come home. “I’ve got to
say, ‘Bill, put your toys up,’ ” she says. “ ‘Your back is going to
be out.’ I did that at 10:30 last night.”
“I enjoy working,” Austin says. “It gives me meaning to
help other people. That’s why I started this endeavor in the
first place.”
Famous people with failing ears flock here, to “the Mayo
Clinic of hearing,” as Sawalich calls it. Rows of framed head-
shots display the universe of celebrities who’ve come for Bill
Austin’s Midas touch. He’s fit Frank Sinatra, Elton John, Steve
Martin, Paul Newman, Chuck Norris, Chuck Yeager, Walter
Cronkite, Bob Woodward, and a bunch of astronauts. Not long
ago, Gene Simmons and the Dalai Lama came on the same
day. Another time, it was Hugh Hefner and megachurch pas-
tor Roger Schuller. “I didn’t tell Roger, of course,” Austin says.
“He’d think these hands had touched the devil.”
Austin and I are scheduled to talk more formally the next
day—this is only a brief stop to say hello. But once Starkey’s
founder winds up, it’s hard to slow him down. “I’ve done more
ears than anyone—no one is close,” he says. “No one has done
one-tenth as many, not a fraction. But it’s OK. No one else wants
to. Lots of people want to be good golfers. Lots of people want
to be good skiers. Not many people want to eat dust.”
“Okay, Bill,” Sawalich says. “We’ll catch up with you—”
“I wanted to do something else,” Austin says, launching 59
into his origin story. “I was gonna save lives with these hands
and be a missionary doctor like Albert Schweitzer.” He was
Austin asked Ruzicka how
repairing hearing aids at night to save money for medical
school when an old man came in for help. “I was able to help
him hear when no one else could,” Austin says. “And I saw
in his face what it meant to him.”
On his way home that night, Austin interpreted a quote on
the side of a bus as a message urging him toward a higher call-
ing, and before going to bed he sat down and talked to himself
out loud. “I said, ‘Bill, the reason you want to be a doctor is so
you can help people.’ ” But patients can’t always be fixed, and
even on his best day he’d be lucky to help 25 people. “All of a
sudden, my personal limitations dawned on me,” he says. “And
I had a fast-forward vision in living color—like I was in a trance.
I saw myself in the bottom of a grave. And people were stand-
ing around. And one guy said, ‘He was a nice old doc, and he
helped our community.’ ”
Here, as Sawalich makes some final let’s-move-this-along
gestures, Austin smacks his hands together. “I was out of the
grave like that. I knew what I was gonna do. I dropped out
of school and started the business. ... It was our destiny to
become the leading provider in this field, because we were
doing it not for money but to serve people better. And that
was the goal every day. And I got a little derailed with foun-
dation work because I thought poor people needed a chance.
So I was traveling the world for years.”
 Bloomberg Businessweek
At this point, he’s no longer just going through his
bio. He’s talking about the troubles—the events that nearly
destroyed his company.
“Now we’re back on it,” he says. “The whole thing got dis-
torted from my vision into a different vision. Now we’re back
having fun, doing what we like to do.”
S
tarkey was already famous in Minneapolis for its
annual gala, a glamorous party that attracts A-list
celebrities to the Twin Cities every summer to raise
money for the foundation. But the indictments announced by
U.S. Attorney Andrew Luger on Sept. 21, 2016, raised the compa-
ny’s profile even higher. Five perps, including Ruzicka and CFO
Scott Nelson, were charged with conspiring to steal more than
$20 million from the company and its owner. Ruzicka and W. Jeff
Taylor, former president of a supplier to Starkey, were found
guilty. Ruzicka was sentenced to seven years in prison, Taylor to
18 months, and Nelson, who cooperated, to 24 months. Ruzicka
and Taylor are expected to appeal.
Austin honestly seems madder about time lost than about
close friends stealing from him. He says he sometimes won-
dered why innovation wasn’t happening at the rate he expected,
but he trusted the people running the company while he was
traveling 200-plus days a year for the foundation. In retrospect,
there were signs of trouble. “It was hard to get things done,” he
60 says. “I’d tell people, ‘We can do this.’ They’d say, ‘We can’t do
that now. We’ve got too much software backlog,’ or, ‘It’ll take a
year.’ I thought, Well, that’s just the way life is.”
much he’d stolen. He said, “About $10 million”
In July 2015, Austin got word that Ruzicka had been
approaching employees about joining him in a hearing aid
company he was planning to start upon leaving Starkey in 2016.
“I just thought, that isn’t right,” Austin says. Austin doesn’t do
email or even know how to use a computer, but he asked a
few trusted employees to take a peek into Ruzicka’s corporate
email, and this quiet investigation revealed more skulduggery.
Ruzicka wasn’t just recruiting employees to join a company
that would compete with Starkey; he seemed to have been
stealing. “It was like pulling on a string and unraveling this
unbelievable chain of things that I had no idea I was going to
find,” Austin says. Among those things were bonuses disguised
as insurance premium payments, evidence of payments Austin
knew he hadn’t authorized—including one for $2 million to the
guy running the company’s small, unprofitable retail opera-
tion—and even the theft of a company car.
By Sept. 8, Austin had seen enough. He summoned Ruzicka
for a meeting. There’s audio of this. Austin secretly recorded
it, and it was played in court. “You know how much time I’ve
spent studying you, Jerry,” Austin says on the recording. “I
tried to dismiss all of this. ... Well, it wasn’t very brilliant.”
Later that day, Austin met Ruzicka again, for dinner. He
stared at his longtime president and asked how much he’d
taken. “Jerry ducked his head and said, ‘About $10 million,’ ”
April 22, 2019
Austin told the court. In fact, it was almost $19 million.
Austin fired Ruzicka, Nelson, and several other key execu-
tives, then referred the matter to the authorities. “I couldn’t
really investigate any further. I couldn’t get bank records. So
I just turned it over to the FBI, forgot about it, and went back
to work,” he says.
Austin claims to hold no grudges. He feels sorry for Ruzicka,
he says, but happy for the company. “Because of this, we had to
make a lot of changes to get to where we wanted to go,” he says.
“We brought in new people that we needed to go to the level
that we’re going to. I’m not complaining about what happened.”
He says he’s not even angry about the ugly trial. “I’m not
running for political office. I’m not running for sainthood.
They can say anything they want. I knew they had to do any-
thing they could to save themselves from going to jail. I prob-
ably would have gone along with it, too.”
Starting on Feb. 9, 2018, Austin spent three days on the
stand, much of that time helping the prosecution lay out a com-
plicated and often boring fraud case. But when the defense took
over for cross-examination, things took a turn.
The defense attorneys hammered away at his character.
They accused him of establishing residency in Texas to avoid
taxes. They introduced a $66 million settlement he’d reached
with his second wife in 1988. They asked him about “lick ’em
and stick ’em,” audiologist shorthand for using saliva to lubri-
cate a hearing aid before inserting it—something Austin did reg-
ularly, Miller’s attorney suggested, including on his client.
“It’s not a frequent habit,” Austin replied.
“Well, it’s a grotesque thing for you to do anytime, wasn’t it?”
“That’s your opinion you’re entitled to,” Austin said.
Another attorney asked if it was true, as Austin claimed in
an interview, that the archangel Michael took over his body
and spoke to a young boy in Toluca, Mexico, in 2011.
“I do make that claim,” he replied, calmly.
Austin talks openly of receiving visions through the years,
as well as receiving directives in answer to his prayers, such as
one he got in 1980. “I was told it was not about hearing aids,”
he told the courtroom. “It was about reflecting [God’s] love for
his people, and hearing aids were the vehicle that I could use.”
Sawalich was also a major focus of the defense attorneys’
cross-examination. Some of it was salacious, especially the
assertions by the former CFO, Nelson, that Sawalich had mul-
tiple affairs with underlings, which he denies. But a good por-
tion of the defamation focused on Sawalich’s qualifications to
lead Starkey, which is a peculiar line of inquiry in a fraud trial
where he was neither victim nor accused.
“He was made president because he was the stepson, the
son of his wife,” the attorney said. “Isn’t that true?”
“I believe that to be true, yes,” Nelson replied.
When I ask Sawalich about this assertion, he bristles. “You
can either do this job or you can’t,” he says. “And Starkey is
Bill’s baby. He’s not going to hand it off to just anyone.”
 Bloomberg Businessweek
For Austin, it was just another thing to take in stride.
There was never a master plan to install his stepson, he
says, but a situation arose, and he rolled with it. “Brandon’s
done one hell of a lot better than I would have thought he
could,” Austin says. “I really applaud him for not being the
genius himself, but putting together a team, knowing that
he needed all of these different attributes to make this thing
go. ... Jerry was running it like a dictator. Everything funneled
back to him.” Sawalich, on the other hand, “just coordinates
the team. He’s like a coach.”
E
veryone at Starkey seems to agree that the most
important thing Sawalich has done as president
is hire Achin Bhowmik as chief technology officer.
Bhowmik’s previous job was in Silicon Valley, running Intel
Corp.’s Perceptual Computing Group, a vaunted unit of 1,400
engineers working on autonomous intelligent systems—such
things as self-navigating robots,
drones that can fly themselves Sawalich
without hitting trees or wires, and
facial recognition cameras.
When Starkey was courting him,
Bhowmik flew to Minneapolis for a
full day of interviews. He was in the
first meeting when Austin barged
into the room and commenced con-
versing with the new prospect. They
didn’t stop talking for hours.
“Mr. Austin said, ‘I looked up
your work—perceptual comput-
ing, that’s pretty interesting,’ ”
Bhowmik recalls. “ ‘Do you realize
there might be an opportunity to
use the same advance technologies
to help humans?’ ”
Bhowmik hadn’t been thinking
about AI in quite this way. At Intel
he’d been examining human sys-
tems to see how they could be replicated in, say, a car, in the
hope that someday that car could drive itself as well as a human
could drive it. “Intel’s spending billions on that, and Mr. Austin’s
take was completely different,” he says. “He said, ‘Rather than
PHOTOGRAPH BY ACKERMAN + GRUBER FOR BLOOMBERG BUSINESSWEEK
using sensors and AI to make smart machines, why don’t you
use them to help people understand the world better?’ ”
On a subsequent visit, over pizza in the basement of
Sawalich’s home, Bhowmik and Austin mind-melded again.
Austin, he recalls, asked him to “look at the work from two
angles.” The first was, “Don’t look at this as just a hearing aid.
It’s a platform—a device that could be used to help humans
improve their communications.” That’s the deeper meaning
of the translation function: It empowers people to talk to one
another despite language barriers.
“The second part was helping people live better,” Bhowmik
says. “His challenge was, could you tap into the most
advanced sensor technologies and artificial intelligence to
April 22, 2019
have this device help people live better in ways more than
just helping them hear? Of course you could. The ear is the
best place for having sensors.”
For the past couple of months, Bhowmik has been wearing a
set of Livio AIs even though he has perfectly good hearing. The
result, he says, is that he feels a little superhuman. “I can turn
up the volume on the world,” he explains. “How cool is that?”
Today, the audiologists visit, and Bhowmik excuses him-
self to get ready for his presentation to them. Twenty min-
utes later he’s standing backstage while Sawalich warms up a
large crowd of mostly white men. He calls out a few by name.
“This is like a family reunion,” he says, shouting out a Scott
and then a Bob. “Everyone in this room practically raised me!”
This, he tells them, is a “new and improved, stronger
Starkey.” He’s back on script now. “You’ve been with Starkey
through thick and thin, through ups and downs. We’re about
ready to go on a rocket ride. You don’t ask what seat. You
just get on.”
The applause is rousing. There’s even a
holler or two. Then Sawalich cedes the stage
to Bhowmik, who leads with the meat and
potatoes. He describes the artificial intel-
ligence, the state-of-the-art sensors, the
45 hours of battery life. It’s so light and small
that the wearer will forget about it entirely.
And that’s just the first point. 61
“No. 2: It’s a groundbreaking wearable,”
tracking body and brain fitness.
“No. 3: It’s an incredible ear-worn lan-
guage translator.” Here he pauses to acknowl-
edge the murmuring. “Can you believe it? It’s
supposed to be science fiction!
“No. 4: It’s a revolutionary in-ear fall
detector and alert system.”
Each of these features is enough to move
product. Fitness trackers are huge. Who
wouldn’t like to hear the words for “I need
more wine” in French whispered in her ear?
And every 11 seconds, an older adult is treated in the ER for
a fall, according to the National Council on Aging. Fifty per-
cent of them die within a year. “Do you think you can sell
that value to your patients?”
Around the room, audiologists stir.
The next day, they’ll go back to their practices to begin
selling the Livio AI to patients. Which isn’t hard. Within just
four months, the device will account for 50 percent of all
product sales worldwide at Starkey. For 2019, the projection
is 80 percent. It will greatly increase the sales of a company
that was already very profitable, while proving that not all of
Bill Austin’s visions are wacky. 
Starkey’s founder was watching from a control room as
Bhowmik described the thing Austin swears he sketched out
at a 1998 engineering summit in Germany. “This is our future,”
he told his people then, and 20 years later—with just a few speed
bumps and one failed palace coup—the future finally arrived. <BW>
 EHIND
REAT
62

The next big thing in social media, , is fun, irreverent, and Made in China.
It’s also got some unusual ideas about censorship and free speech
Bloomberg Businessweek April 22, 2019

MOST nights, from around 7 till

midnight, Sydney Jade is on TikTok,
the smartphone app of the moment.
The platinum blond teenager films her-
self singing show tunes, doing jumping
jacks, and joking around with store
clerks at a Walmart not far from her
home in Oklahoma. Her short music
videos and livestreams are popular—
Jade has 284,000 followers, some of
whom periodically send her virtual

T
gifts, like 99¢ Rainbow Puke stickers.
Jade’s parents resisted TikTok at
first. They hadn’t heard of the app and,
Jade says, “didn’t like the idea of strang-
ers watching me sing alone in front
of the pink curtains in my bedroom.”
But she convinced them that TikTok
was “friendlier for kids than other
apps like Facebook.” They let her join
last year, just as, it seems, every other
teenager signed on as well. In January,
TikTok was the most downloaded app in
the Android and iPhone stores, accord-
ing to research firm Sensor Tower Inc. 
The story sounds a lot like the rise 63
of other social media powers such
as Instagram and Snapchat, both of
which pitched themselves as alterna-
tives to Facebook’s big blue app. But
TikTok wasn’t created by Stanford stu-
dents Mark Zuckerberg could buy off
or spend into the ground. It’s a subsidi-
ary of a Beijing startup, Bytedance Ltd.,
that’s built a collection of valuable apps
in China powered by vast troves of data
and sophisticated artificial intelligence.
Last year, Bytedance’s investors valued
the company at $75 billion, the most of
any startup in the world.
Inevitably, especially in the age of
Donald Trump, TikTok’s fast growth
and Chinese ownership have made it
the subject of scrutiny. Last month,
the Committee on Foreign Investment
A TIKTOK PARTY IN
in the U.S. (CFIUS), ordered Beijing
TOKYO IN FEBRUARY Kunlun Tech Co., a little-known Chinese
gaming company that bought the very
well-known gay-dating app Grindr, to
sell the business over apparent con-
SHIHO FUKADA/BLOOMBERG

cerns that Chinese intelligence agencies

could potentially use data from the app
to blackmail users. In an April 1 filing,
By and the company said it’s in talks with CFIUS.
U.S. authorities haven’t said they’re
 Bloomberg Businessweek
investigating Bytedance in connection
with its ownership, but the company’s
large user base could conceivably make
it a target. “Social media platforms are
increasingly considered sensitive by
CFIUS,” says Farhad Jalinous, chair of
the national security and CFIUS practice
at law firm White & Case LLP. Bytedance
says it now stores all TikTok data outside
of China and that the Chinese govern-
ment has no access. (The company’s
privacy policy had previously warned
users it could share their information
with its Chinese businesses, as well as
law enforcement agencies and public
authorities, if legally required to do so.)
Separately, TikTok has faced con-
cerns over privacy and child safety. In
February, Bytedance was fined $5.7 mil-
lion by the Federal Trade Commission to
settle allegations that Musical.ly, which
Bytedance bought and renamed TikTok,
illegally collected information from
minors. It was the largest FTC penalty in
a children’s privacy case.
64 The settlement didn’t scare off
Bytedance’s investors or the company
itself, which is spending hundreds of mil-
lions of dollars to advertise on Facebook
in the hope of luring away more users.
Over the past three months, for instance,
13 percent of all the ads seen by users of
Facebook’s Android app were for TikTok,
says app-analytics firm Apptopia.
The result is that Bytedance has had
more success outside of China than
any previous Chinese internet com-
pany, including Baidu and Tencent. The
TikTok app and its Chinese version have
been installed more than a billion times.
(It has no relation to TicToc, Bloomberg
LP’s breaking news network.) Late last
year, executives told investors that they
expect $18 billion in revenue this year
and $29 billion in 2020, according to peo-
ple familiar with its finances who aren’t
authorized to discuss the company pub-
licly. Bytedance will “become a global
player,” says Hans Tung, managing part-
ner of GGV Capital, one of the company’s
backers. “It’s just a matter of when.”
BYTEDANCE’S Beijing headquarters, a
former aerospace museum with 50-foot
glass skylights, is a celebration of the
company’s frantic pace. On a January
afternoon, a video in the cafeteria asked
workers to share New Year’s resolutions
and regrets. Most seemed to involve
workaholism. “To my ex, I’m sorry I was
too busy at work,” one employee said.
“I’m sorry to my kids that I’m never
home,” another message lamented.
The corporate culture is intense
even by the standards of Chinese
startups. Employee performance
goals are published internally via
a mobile app the company created
called Lark and are reviewed every other
month. In an interview, Bytedance’s
senior vice president for corporate
development, Liu Zhen, mentions
that founder and Chief Executive
Officer Zhang Yiming likes to travel
to the West when the Beijing office shuts
down during Chinese holidays. “So he
can keep working,” she explains. Zhang
declined interview requests.
Now 36, he started Bytedance in
2012, in an apartment near Beijing’s
Tsinghua University. One of its first
apps, Neihan Duanzi (“implied jokes”),
used AI to tailor a selection of memes to
individual users’ tastes. The effect was
irreverent—think of Reddit, but a little
bit grosser and more personal—and the
app attracted tens of millions of users.
Bytedance used the same approach
to develop a news app, Jinri Toutiao
(“today’s headlines”), which became
China’s largest news site, with more
than 700 million users. The success
prompted acquisition offers from Baidu,
Alibaba, and Tencent, all of which
Zhang declined.
Then in 2016 it launched a short-
video app in China called Douyin that
allowed users to add music and anima-
tions. The following year, it created
an international version, TikTok.
Users who open TikTok are con-
fronted with an endless feed of
short, full-screen videos, generally
set to music. Tapping on a magnifying
glass icon reveals TikTok’s “Discover”
page, which displays a carousel of vid-
eos under “trending hashtags.” These are
internet memes such as #potatoportrait,
where users apply makeup to potatoes,
or #simbachallenge, which asks them
April 22, 2019
to reenact an iconic Lion King scene.
Although these features make TikTok
feel similar to Facebook, Instagram,
and Snap, the app doesn’t rely on social
connections to figure out what to show
you when you open it. Instead, TikTok
decides what videos to show by tapping
into data, starting with your location.
Then, as you start watching, it analyzes
the faces, voices, music, or objects in
videos you watch the longest. Liking,
sharing, or commenting improves
TikTok’s algorithm further. Within a
day, the app can get to know you so well
it feels like it’s reading your mind. That’s
why Jade, the Oklahoma teen, mostly
sees videos of people dancing, while her
mom regularly gets clips of dog tricks.
Another way TikTok differs from
big American social media apps, which
largely grew through word of mouth,
is that its expansion didn’t happen
entirely through the magic of viral mar-
keting. Although the app initially took
off in India and Southeast Asia, it strug-
gled to attract users in the U.S. and
Europe. In November 2017, Bytedance
paid about $800 million for Musical.ly,
a music video app that had more than
100 million users. A few months later,
those users would find the old Musical.ly
app replaced with one bearing TikTok’s
neon logo instead. The app suddenly
had a substantial footprint in the U.S.
“Musical.ly believed in organic growth,
and that worked great with early adopt-
ers,” says GGV Capital’s Tung, who also
invested in Musical.ly. “TikTok is more
based on algorithm recommendations
and paid growth,” meaning ads on
Facebook and elsewhere.
Unlike on other platforms, where
trends bubble up from users’ posts,
many of TikTok’s trending hashtags are
created by the company’s marketers.
Ahead of its U.S. launch, Bytedance
hired about 40 social media celebrities
to make videos—including YouTube
comedian David Dobrik—paying each
tens of thousands of dollars. Some con-
tracts required the influencers to ask
their YouTube, Snapchat, and Instagram
fans to move over to TikTok.
Bytedance still makes most of its
money in China, where its short-video

app charges advertisers 15 percent of
what influencers get paid to promote
brands. TikTok also takes a cut from the
sale of digital coins that fans buy for cre-
ators during livestreamed videos.
In theory, relying more on profession-
ally created content should make TikTok
safer than Twitter or Facebook are. But
users say livestreams are peppered with
lewd acts and vulgar comments. That
can be terrifying for children. Jade, the
Oklahoma teen, says she recently cut
short a live appearance after comment-
ers said they knew where she lived and
threatened to kill her dog. “It wasn’t
real, but it could have been, and I got
scared,” she says. In February a 35-year-
old man was accused by the Los Angeles
County Sheriff’s Department of posing as
a 13-year-old boy to send sexual messages
to at least 21 girls on TikTok. Police said
he showed up at the home of one
of his alleged victims, a 9-year-old.
In response to the FTC settle-
ment, TikTok began requiring
users in some countries, including
the U.S., to input their birthdays, deny-
ing entry to the full-feature app to those
who say they’re under 13. It also started
using facial-recognition software to iden-
tify youthful faces, expelling underage
creators, and preventing younger view-
ers from seeing mature content.
It’s too soon to say whether these
changes will work, but TikTok has won
cautious praise from some child safety
advocates who say its challenges are
similar to those facing other platforms,
but that the stakes are higher because of
its younger audience. “Three years ago,
we were having a really hard time trying
to pin them down and get them to do the
right thing,” says Julie Inman Grant, com-
missioner of Australia’s eSafety Office, a
government agency. “They’re starting to
be more responsible.”
Bytedance is aiming for more than
PHOTOGRAPHS: TIKTOK (8)
mere social responsibility. The com-
pany’s long-term goal is to eliminate
objectionable content entirely, to be
“controversy free,” as Tung, the investor,
puts it. It’s a uniquely Chinese censor-
ship strategy—distinct from the hands-off
approach of Bytedance’s American coun-
terparts, who tend to express support
for almost unrestricted free speech.
(Zuckerberg once famously said that
Holocaust denial should be permitted
on Facebook.) Last year, Zhang issued
a public apology after media regula-
tors shut down the jokes app for hosting
vulgar content. The company hired
thousands of people to police content,
giving preference to Communist Party
members, and invested more money in
developing algorithms to screen posts.
Today, Bytedance’s AI screens vid-
eos as they’re posted, automatically
removing content without waiting for
user complaints. The ambition, says
Raj Mishra, TikTok’s head of operations
in India, is to be a “one-stop entertain-
ment platform where people come
to have fun rather than creating any
political strife.” He makes no attempt
to defer to the freedoms of speech
and expression that are written into
the constitution of the world’s larg-
est democracy. When asked if TikTok
would allow criticism of, for example,
Indian Prime Minister Narendra Modi,
to be prominently featured in the app,
Mishra answers, “No.” In mid-April,
Google and Apple app stores blocked
new downloads of TikTok in India after
a court asked the government to
ban the app over concerns about
pornography. Bytedance is fight-
ing the action.
WHETHER Bytedance ultimately suc-
ceeds will depend in large part on
its ability to attract older users with
more spending power. TikTok has
been encouraging cooking, travel,
and sports videos designed for
those crowds. At the same time, it’s
adding thousands of employees to its
40,000-person staff and pumping hun-
dreds of millions of dollars more into
ad campaigns. It’s also working on a
search engine, a way for livestreamers
C
to sell products, and a Slack-like chat
service for businesses.
According to people familiar with the
company, executives have met with bank-
ers to discuss going public. (The company
denies it has plans for a public offering.)
Bytedance was set to lose about $1 bil-
lion in 2018, according to another person
familiar with its financials.
Even so, the company’s global
ambitions have been enough to get the
attention of Facebook, which released
a TikTok-like app, Lasso, in late 2018.
While only 70,000 people have down-
loaded it so far, according to Sensor
Tower, Facebook has had success knock-
ing off competitors’ apps in the past.
The company released several Snapchat
clones before successfully copying its
most popular feature, Stories, within
Instagram. That caused Snap’s growth
to slow, and Instagram’s to take off. 65
Zuckerberg seemed to acknowledge
the threat posed by Bytedance and
other Chinese upstarts last year during
a U.S. Senate hearing in the wake of
the Cambridge Analytica scandal. Dan
Sullivan, an Alaska Republican, threw
him a softball, offering that Zuckerberg’s
rise from college dropout to technology
mogul might have a patriotic element.
“Only in America,” Sullivan said.
“Would you agree with that?”
“Senator, mostly in America,”
Zuckerberg offered, noting that “there
are some very strong Chinese internet
companies.”
“You’re supposed to answer ‘yes’ to
this question,” said Sullivan.
Back in Oklahoma, Jade isn’t sweating
geopolitics or regulation, and she’s
mostly off Facebook and Snapchat.
On TikTok, she applies a fresh coat
of candy apple lipstick and lip-syncs
to Kelis’s Milkshake while dancing
behind a J.C. Penney cash register.
“There are nasty people here and
there,” she says of her experience using the
app. “But for the most part, it’s just a fun,
friendly place.” <BW> �With Selina Wang,
Pavel Alpeyev, and Mark Bergen
The summit for CEOs by CEOs

June 17-18, 2019 | New York City

Bloomberg convenes more than 100 CEOs

and founders for a day of peer workshops
and news-making interviews.

Speakers include:

Lisa W. Wardell
President & CEO,
Adtalem Global Education

David M. Rubenstein
Co-Founder &
©2019 Bloomberg 442058 0419

Co-Executive Chariman,
The Carlyle Group

Apply Now:
bloomberglive.com/breakaway
 2019 GUIDE
THE
P
TO T H E N E W U

67

70
Angk kor what?
There’s more to see
in Sie
em Reap

72
Stay dry
y and stylish
thiss spring

74
The Go
ood Fight’s
worth
hy battles

75
Craank out
perfe
ect pasta

April 22, 2019

Five surprising ways to find a vintage buy that’s
Edited by
fun to drive—and a smart investment, too Chris Rovzar

By Hannah Elliott Businessweek.com

 CARS Bloomberg Pursuits April 22, 2019

It’s driving season. The sunny skies and temperate weather
make it just the right time to cruise around town with the
top down or take a winding road trip. And with the car auc-
tion calendar in full swing, it’s easy to start shopping for the
perfect classic that will be a joy to drive and possibly appre-
ciate over time. After scouring investment guides, auction
results, insurance reports, online sales, and back-alley buys,
we’ve come up with these five categories where you might
find a bargain. Cars in these loosely defined groups will cost
quite a bit less than a blue chip Ferrari, but they have great
potential for gains. And they’re sure to give you some mem-
orable moments in the meantime.

1994 TOYOTA SUPRA

This mint example,
with less than 12,000 miles,
sold for $173,600 in March.

68

T H E M I G H T Y J A PA N E S E

RM SOTHEBYS (14). GETTY IMAGES (2). RYAN HALLOCK/FLICKR

Cars from Japan are beating just about everything else
this year in terms of their gain in value. Across all Japanese
brands, a car in “fine” condition with minimal wear has
appreciated an average of 18 percent over the past three years
and 39 percent over the past five. The corresponding average 1991 ACURA NSX 1991 MITSUBISHI GTO
for the market in general was 13 percent and 24 percent, The premier Japanese sports Also known as the 3000GT,
respectively. The uptick is due in part to video games, which car was the first automobile this 2+2 (two seats in front and
often heavily feature these cars. Primary among the jewels mass-produced with an two in back) was made for only
is the 1997 Acura Integra Type R; one at a Barrett-Jackson aluminum body. Prime one generation to compete
auction sold for $63,800 in September, topping a 1970 Dodge examples can take $100,000 with Toyota’s Supra. They cost
Charger and a 1968 Ford Mustang Fastback. at auction or $50,000 online. less than $20,000 online.
BUT FUN

This is a catchall category for cars that were

mocked when they came out but have developed
WEIRD

a cult following on social media—a groundswell

likely to push real-time sales. Apparently, some
people just love their quirks: On Hagerty’s website,
the number of insurance quotes for the homely
Buick Roadmaster leads the overall market by
14 percentage points—that’s more inquiries than
about classic Jaguars.
1984 FORD BRONCO XLT 1993 FORD SALEEN MUSTANG
This original sold for $26,000 in With custom bodywork, awkward
2014, a steal compared with six- angles, and racing-inspired seats,
figure rebuilds on the market. this oddity sold in 2014 for $27,000.
 OV E R LO O K E D
GERMANS
Those who can afford a
German luxury car are
also often the type who
can afford to maintain one.
Most survivors then have
remained in good
goo condition.
That even goes ffor “lesser”
models such as the
t Porsche
Boxster or the BMW Z4
coupe, less expensive
options when compared
with the brands’ top-tier
sports cars. Classsic BMWs
saw the seecond-
highest increase in
requuests for
inssurance
quuotes at
Haagerty
over the
passt year, most
of them from
shopppers under
age 55, a sign that the
cars are set up for years of
popularity.
1973 BMW 3.0 CSL
Edgier than its popular two-door contemporary,
the BMW 2002, this CSL took $126,500 at auction in 2016.
1994 BUICK ROADMASTER
This prime example sold for
$15,400 in 2015. Similar ones
go for $5,000 online.
2003 PORSCHE BOXSTER
This entry-level Porsche still
has plenty of bite. Affordable
now (think $10,000), it can
only gain in value.
1991 MERCEDES-BENZ
560SEC
Cars like this were a status
symbol, though not as
vaunted as their AMG
siblings. One sold for
€39,100 ($44,200) at the
RM Sotheby’s sale in April
in Essen, Germany.
2009 PONTIAC GXP
The “four-door Corvette”
already commands $30,000 and
up on the aftermarket.
1999 BMW 750I L7
This long-wheelbase saloon sold for €23,000 at Essen.
YO U N GT I M E R S
“Youngtimer” is a term value of a 2000 BMW M3
first used by German car rose 22 percent from the
enthusiasts to denote any previous year.
decent car 20 to 30 years
old but not yet a classic
in the traditional sense. In
American pop culture, the
term has evolved to refer to
those top-end sports cars
millennials and Gen Xers 1997 BMW ALPINA B12
fantasized about in high A 7 Series on steroids,
school during the 1980s and part of the prestigious
and ’90s. What’s new is that and powerful Alpina line. 69
these buyers can now afford It just sold for €46,000 at
them. And that’s producing auction at Essen.
some surprising results. A
mid-’90 0s Mercedes SL-Class
rose 8 percent in value from
2017 to 2018, beating the
appreciation of such icons
ass the 2001 Porsche
911 Turbo and a Jeep 1996 MERCEDES-BENZ
CJ-7 over the same S 600
period. Look for This sleek V-12 coupe
tthe interest here sold for $14,375 at Essen.
to crreep into 2000- Similar examples can
era models. In 2018 the be had for even less.
T R U C KS
Auction prices for trucks
are up 15 percent from
last year, and Hagerty
insurance quotes have
risen 40 percent. Sixty-one
percent of those quotes
come from Gen Xers and 2014 FORD RAPTOR
millennials—a younger The most collectible
market bodes well for modern truck, it can go for
producing return buyers. as much as $55,000 online.
 A villa plunge pool at
Shinta Mani

GO HERE NOW
70

Siem Reap’s Green Scene

Angkor Wat may be Cambodia’s crown jewel, but there’s more
to take in now at this tourist town, as artists, chefs, and eco-conscious
hoteliers reshape its identity. By Marine Strauss

Angkor Wat rightly claims a spot near the top of many
travelers’ bucket lists, but for most of the area’s 2.5 million
annual visitors, the standard visit is about three days—just
enough time to wander through the archaeological park’s
central ruins and get sufficient selfies. That strategy is a mis-
take. The city of Siem Reap, a genuine beauty, is home to
about 140,000 Cambodians and riches worth lingering for.
“Things are looking up,” says architect and conservation-
ist Bill Bensley, who in 2000 redesigned the city’s Hôtel de la
Paix, now a Park Hyatt. As in much of the developing world,
sustainability in Cambodia can be an afterthought to sim-
ply making a living. But now, Bensley says, as the nation has
made strides in alleviating the problems of malnutrition and
has moved toward cleaner water and better medical care, it
eco-conscious hospitality. Shinta Mani Siem Reap, one of
three Bensley Collection properties in the city, is a fresh
effort to accomplish that goal: Each of its 10 private bilevel
villas (from $815 per night in low season) has a plunge pool,
glassed-in bathrooms with garden views, and an outdoor
sky bed, where you can sleep on a rooftop terrace surrounded
by bougainvillea flowers. Visitors enter the property off a
leafy street of the Old French Quarter, passing under a white
marble arch like that at the ancient Khmer temples.
But the soul of the property is its sweet-natured butlers,
who act as accommodating hosts, charged with granting
guests’ every wish. As part of the brand’s commitment to
bettering its local communities, the Shinta Mani Foundation
provides tuition-free training to young people from the area
KRISHNA ADITHYA PRAJOGO

can begin to confront First World problems of conservation. for 10 months before they begin working at its hotels in roles
Bensley has designed more than 100 properties around such as this. The organization also offers small interest-free
the globe for luxury brands Oberoi and Four Seasons, but loans to local entrepreneurs, builds homes and wells, and
his personal mission is to ease poverty through high-end, funds medical and dental checkups in rural areas.
 TRAVEL Bloomberg Pursuits
“My big thrill in all of this is not about owning some fluffy
beds or creating a new hotel brand with my name on it—we
just did that because we thought the hotel might gain a bit of
traction,” Bensley says. “But it is about using hospitality to
help folks that need it, in a sustainable fashion.”
The first hotel in the city to go entirely free of plastic
was Jaya House River Park, a 36-room property past the
Angkor National Museum and under a cluster of fragrant
rumduol trees. In early 2017 Managing Director Christian de
Boer started a project called “Refill not Landfill” to reduce
Cambodia’s mountains of plastic waste. Guests are welcome
to sponsor trees that are planted along the river in front of
the hotel and are encouraged to use only one refillable alu-
minum bottle during their trip. (If that stresses you out, you
also get one spa treatment per day included in your rate; a
junior pool suite starts at $299 a night.)
Closer to Angkor Wat and slightly hidden from the main
road is the Templation hotel from Maads, another player
in Siem Reap’s design-forward green scene ($310 for a one-
bedroom private-pool villa). The buildings in the main
location feature vegetal roofs, solar panels, and rainwater
collection. If you want to travel farther into the jungle, you
can visit one of its Jungloo luxury camps, which open on
July 1. The eight handmade, barrel-shaped structures look
like a cross between a safari tent and a wooden camper van
and are built on stilts for minimal impact. (You still have
Cuisine Wat Damnak and its scallops
with black sticky rice (below)
COURTESY CUISINE WAT DAMNAK
Insider tips
As creative director of the
access to traditional hotel Anicca Foundation, Marina
Pok promotes emerging
amenities, including air con-
Cambodian artists. Here are
ditioning and pools.) her recommendations for
When travelers leave the Siem Reap.
hotel for the day, they can visit
Yves Saint Laurent-trained fash- PRESERVATION IN
ion designer Eric Raisina, who ACTION
opens the doors of his haute Your hotel can help
arrange a private visit to
couture atelier to show off his
La Conservation d’Angkor, a
team of local weavers working compound with warehouses
silk, raffia, and organza. A small full of original pieces from
handwoven silk scarf goes for Angkor temples. Some of
$200. The Anicca Foundation’s the ruins are just stacks of
Thaddeus Gallery is a focal stones, so restoring them
point of Cambodia’s emerging happens here, away from
art scene, organizing nomadic looters. “Stop for a chat
with Chan Chamroeun, an
exhibitions around the coun-
amazing archaeologist who
try and fostering shows by works on the restoration of
portraitist Pen Robit and other Baphuon temple.”
local artists.
Slightly away from the DINNER WITH BUFFALOES
center of town, Cuisine Wat Pok likes to dine on
Damnak is the first Khmer Cambodian classics such as
restaurant to have made it to fish amok and beef lok lak at
the restaurant Devatas on
Asia’s 50 Best Restaurants list.
her way back from Banteay
An unlit street leads you to a Srei, a pink sandstone 71
traditional wooden villa on temple outside the main
stilts, where dinner consists park. “Picture eating ancient
of two set menus of five or six Khmer recipes overlooking
French-inflected courses from an Angkorian pond where
chef Joannès Rivière. Offerings buffaloes stroll at sunset.”
change every two weeks but
STUDIO VISIT
could include a sour soup fea- Seek out works by
turing lemongrass-marinated 30-year-old abstract
local fish, sweet bamboo painter Nov Cheanick, Pok
shoots, crispy lotus roots, bit- says. He’s “from the Phare
ter elephant apples, and lots Ponleu Selpak visual art
of herbs. school, home of renowned
Closer to the hustle and Battambang circus” and was
featured by the Rosewood
bustle of Pub Street, where
Phnom Penh when it opened
backpackers gather at night, in 2018.
chef Mengly Mork recasts
street food and traditional countryside cooking with a mod-
ern flourish at Pou Restaurant & Bar. Consider the grilled
fresh honeycomb with bee larvae and num kruk, a custardy
dumpling made with rice flour, coconut cream, and scallion
with a galangal-beetroot dipping sauce.
Down a narrow lane in the old quarter of Siem Reap, the
atmospheric Miss Wong cocktail bar beckons the local expat
community with its scarlet 1930s Shanghai-style interior with
Chinese silk lanterns. Try the Miss Wong rum punch or the
house’s spiced bloody mary infused with chile and Kampot
green peppercorn, an appellation-protected spice considered
the world’s finest. It will be among the many wonderful green
things you try on your trip. <BW>
 STYLE Bloomberg Pursuits April 22, 2019

The
Wet Look
Stay (mostly) dry this
spring and summer with the
latest drizzleproof duds
By Jason Sheeler
Photographs by Amanda Hakan

Sometimes, dealing with a downpour is all about appearances.

Last summer, at the World Cup, French President Emmanuel
Macron had a winning public-relations moment when he sat
happily through an entire game in his neatly traditional Jonas
& Cie. suit, smiling and cheering through the downpour. You
don’t need to go that far, but in your battle against the ele- Stutterheim Chelsea Rainwalker boots ($160) are a German twist on
72 ments, you’ll come out dry—and looking like a winner—with the original British slip-on. The natural rubber is comfortable enough
these nine items. to get you to the office and neat enough to wear all day.

A slightly
cleated, molded-
rubber outer
sole gives better
grip on pavement
or off

PROP STYLIST: ELAINE WINTER

Adidas Terrex Free hikers ($200) are great for a wet workout. So On a hike or long walk, a hat is often the best way to handle drizzle.
are the Bose SoundSport Free wireless sport headphones ($200). Pair the Filson tin cloth packer hat ($70) with the Arc’teryx
They repel water and—it should be noted—sweat, too. Veilance Nomin waterproof pack ($800), which has sealed seams.
STYLE Bloomberg Pursuits April 22, 2019

The
gust-tested
telescopic rod
folds down to
13 inches

Get in on the logo and camo trends in one take with the Valentino It’s hard to find an umbrella for adults that’s fun—one that isn’t black,
hooded shell coat ($2,150). Hitting midthigh, the anorak zips and can hold up, and fits in a work bag. The Barbour tartan mini-umbrella 73
snaps for dryness, and it billows loosely for style. (from $50) pairs a wooden handle with the brand’s signature plaid.

A liquid
sealant on the
seams protects
your socks
from puddle
disasters

The problem of what shoes to wear with a suit in the rain is as You can wear the Nobis Chase vest ($495) over a sweater and
old as suits and shoes. Enter Aquatalia Duke oxfords ($450); the under a blazer. With a detachable hood, the seam-sealed, waterproof
leather is treated to fend off water. nylon gilet is lightly down-filled for a little warmth.
 CRITIC Bloomberg Pursuits
A Case for Candor
With a deeply integrated cast, The Good Fight offers a rare vision
of true workplace diversity. By Janet Paskin and Jordyn Holman
For ambitious women, it’s an historically
good time to get pregnant. Maternity
benefits are only getting more generous,
and companies tout increasingly “family-
friendly” policies. But it’s still pretty
crummy. Nothing hurts a woman’s earn-
ing power more than having a baby, and
pregnancy discrimination isn’t going away.
Earlier this month, new moms filed suits
relating to the latter against Netflix Inc.
and mega law firm Jones Day.
Not long ago a smart young lawyer
might opt out rather than deal with the
inflexible demands of the partner track.
74 That decision, in fact, was the basis for the
plot of CBS’s long-running legal drama
The Good Wife. Its streaming-only spinoff,
The Good Fight, offers an alternative.
Back in the Big Law world of Chicago,
when fourth-year associate Lucca Quinn
(Nigerian-British actor Cush Jumbo) gets
pregnant unexpectedly, she rejects a future as a political wife.
Instead, as her belly grows, we see her juggling cases, negotiat-
ing the logistics of her maternity leave, and managing her own
professional paranoia. Later, when a more senior colleague
walks into Lucca’s office to find her pumping breast milk, she
doesn’t get embarrassed or ask him to leave—his discomfort is
his problem, not hers. It’s hard to overstate how radical that
minute-long scene is. Nursing mothers almost never turn up
on shows. When they do, it’s for laughs. Same goes for the
even more infrequent references to breast pumps, the mod-
ern appliance that lets a breastfeeding mom go back to work.
As it turns out, the challenges of working a high-pressure
job and having a baby give rise to all of the same social and
moral questions that drive the program more broadly. The
Good Fight is the rare show with a deeply integrated cast—
of the eight main characters, five are black, three are white;
five are women; three are well past 50. Rounding out the mix,
there’s at least one lesbian, an undocumented immigrant, a
die-hard Republican, and (eventually) a single mom. A mix of
overlapping identities means no character ever gets pigeon-
holed as one thing.
The African American-owned firm at the show’s cen-
ter was built on the legacy of a fictional civil rights icon.
April 22, 2019
But more white lawyers are joining the
firm—“diversity hires,” managing partner
Adrian Boseman jokes at the beginning
of Season 1—and by Season 3, it’s com-
plicated. In a recent episode, the firm’s
black employees call out the partners for
paying new white employees more than
black associates. They’re outraged, disap-
pointed, and disillusioned. Management
hears them out, but in the privacy of his
office, Boseman (Delroy Lindo) justifies
the practice to his partner and ex-wife,
Liz Reddick (Audra McDonald).
“The ugly truth is, women are valued
less than men because we think men can
leave us for better-paying jobs, and black
people are valued less than white people
because we think white people can leave
us for better-paying jobs,” he says. “I hate
it, but that’s the reality, and that’s what I
have to deal with.”
It’s an uncomfortable admission. Boseman fashions himself
as a force for good, building the firm by successfully repre-
senting black victims of police brutality. But he’s also long
past idealism and willing to use race—his and others’—to his
advantage. In a more monolithic show, this kind of workplace
intrigue often serves as drama for its own sake. Here it sum-
mons something bigger: The conflict and tension is amplified
by the real-world constraints of racism, sexism, and other
structural inequalities.*
On The Good Fight, whenever the plot hinges on,
say, the constraints of a nondisclosure agreement
or the congressional articles of impeachment, the
creators pause the action with a red graphic asterisk
and cut to a Schoolhouse Rock!-style musical cartoon explainer.
“Structural inequalities” would definitely merit one.
The animated shorts are part of what makes the show
ILLUSTRATION BY JACI KESSLER LUBLINER
breathe, an injection of humor in what could otherwise be
a depressing 45 minutes. (Take the episode in which Lucca
is mistaken for her infant son’s nanny, an encounter that
explodes into a police incident and ends with a video of the
confrontation trending on social media.) The Good Fight bal-
ances its capital-M message by highlighting how ridiculous the
political and economic environment can feel these days. <BW>
THE ONE Bloomberg Pursuits THE COMPETITION
• Another Italian
brand, Imperia,
makes an $80
For all of Italy’s $100 device is model with seven

Smooth
noodle knowledge, lightweight but thickness settings,
the country hasn’t sturdy, with a steel but it can’t go as
had the same body and anodized thin as the Marcato.

Operator
success creating aluminum rollers. An • For a crank-
pasta machines. adjustable dial offers free experience,
But Marcato’s three settings—for KitchenAid’s three-
Atlas 150, produced lasagna, fettuccine, piece set ($200)
in Campodarsego, and tagliolini—and uses the motor of
about 20 miles 10 thickness options, a KitchenAid mixer
Marcato’s Atlas pasta maker west of Venice, has ranging from paper- (from $380).
is a countertop workhorse for been around for
more than 50 years.
thin, for ravioli, to
¼-inch, which works
• The $350 Philips
pasta maker
devotees of dough At 5 pounds, the well for udon. automates weighing,
Photograph by Will Anderson kneading, and mixing
before extruding
the dough through
one of eight plastic
discs—all in about
15 minutes.

THE CASE
Unlike an electric
appliance, the
75
lightweight Atlas 150
is easy to clamp onto
your countertop—
the Philips option
comes in at more
than 16 pounds—
and needs no
power outlet. It
lacks the speed of
other machines,
aiming instead to
satisfy slow-food
enthusiasts. It also
comes in five colors,
including pink and
stainless steel. $100;
surlatable.com
 ◼ LAST THING With Bloomberg Opinion

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Unicorns Can’t IPO Fast
Enough to Repay Backers
By Shira Ovide

Among U.S. technology companies, particularly unicorns— ● IT’S PAYBACK

TIME
76 those valued at $1 billion or more—2019 is shaping up to be Today’s young
the biggest year since the dot-com bubble in terms of the tech companies
hardly qualify as
total value of stock sold in initial public offerings. Lyft had “startups.”
its IPO at the end of March. Pinterest is slated to go public The typical tech
company going
this month, and Uber Technologies will follow within weeks. public in the U.S.
Silicon Valley’s dirty secret is that these IPOs are just is older and
has far more
a sprinkling of rain in a desert for thirsty investors. So revenue than
far in this decade, $644 billion has been put into young its counterparts
in 2010. And
U.S. technology companies—by maverick venture capi- almost none are
talists, stodgy mutual funds, and just about anyone else profitable.
with money to spare, according to financial data provider
PitchBook and the National Venture Capital Association.
The global figure is approaching $1 trillion. Those investors
ILLUSTRATION BY GEORGE WYLESOL; *IN 2014 DOLLARS; DATA: JAY RITTER, UNIVERSITY OF FLORIDA

eventually must be paid back and generally want at the ● GOING PUBLIC WITH LOSSES
very least twice what they put into a fledgling company. Share of U.S. tech IPOs that were profitable at the time of the offering, by year
In the same period, about $824 billion in cash has been Median age of company 4 to 6 years 7 to 9 10 or older
returned to U.S. startup investors from IPOs, acquisitions, Median revenue* = $25m = $50m
and other deals. The relatively small premium on all that 100%

money rushing in should worry investors expecting to

double their value—let alone those who imagine receiv-
ing much bigger windfalls.
Acquisitions have historically been the most com-
mon way for early investors in tech startups to get pay- 50
back. But as the elites grow older and more richly valued,
IPOs are overtaking such deals. Last year and in 2017, IPOs
accounted for more than half of the money returned to
startup investors. Still, we’re going to need a lot more
IPOs for the unicorn era to turn out to be as magical as
the name suggests. <BW> �Ovide is a tech columnist for 0

Bloomberg Opinion 1990 2000 2010 2018

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